1 Common Mistake Business Owners Make When Selling

Key takeaways from “1 Common Mistake Business Owners Make When Selling”:

• Should you cross-sell new products or focus on existing core competencies when positioning yourself for sale?
• Example of why cross-selling is common mistake business owners make

If you’re even thinking about selling your business, then you’re probably researching ways to make your company appear as valuable as possible to potential buyers.

That’s a smart thing to do!

One of the common ways business sellers try to increase the value of their company is by adding revenue.  There are two ways to go about this:

1. Increase your core competencies and invest more in current systems and processes in order to increase revenue
2. 3 reasons why cross-sell new products and services to your existing customers

Which of the above strategies is actually a common mistake many business owners make?

The Common Mistake Business Owners Make

The goal of your sale should be to maximize your value to a potential buyer by making the offering so irresistible that they will stop at nothing to get their hands on it.

Then the question becomes this: in the eyes of your buyer, is it good to be great in ONE thing or have your fingers in a bunch of different pies?

Cross-selling new products and services to your existing customers may be a great marketing strategy, but if your goal is to increase the overall value of your business, the added revenue may do nothing for your company’s value – and in fact, may even lower it – in the eyes of potential buyers.

In order to be acquired for a premium, consider committing to a product, service, or a bundle that does one thing well.

This focus will help you build a team around your product or service and ultimately make your company a whole lot more attractive when it comes time to sell.

Example of How Cross-Selling Hurt The Value Of A Company

I know a business owner in Phoenix, Arizona, who had been running a direct mail company very well for 30 years.   It was a small business with a steady clientele.  His staff had been with him for many years and were experts in what they did.   They had the processes for running a mail campaign down to a science and executed it expertly.

This business owner was looking to retire soon and wanted to add value to the business.  Since he was an expert in what he did and had many long-term clients under contract, he had a solid value multiplier.  Therefore, if he added more revenue and profits to his multiplier, his overall value would increase (and make his retirement even more enjoyable).

While he wasn’t losing customers to the digital revolution, he felt that he was missing out on opportunities to extract more revenue from existing clients.  Also, he felt that he could attract digital customers easier (and then cross-sell them to direct mail as well).  Either way, adding a digital marketing package to his existing services was his plan to add more value to the potential sale of his company.

He went to his customers and offered them additional packages to run their Google PPC ads and Facebook ads.  About 30% agreed to use his services, which added a good boost of revenue to his business.

So why is this an example of this common mistake business owners make?  Seems like a smart and logical transition, right?

Loss of Core Competency

One of the reasons he excelled in what he did is that his staff were experts in what they did.  The copywriter knows how to write long copy that sells.  The graphics designer knows how to create artwork on postcards that catches customers eyes.

However, none of these skills transferred exactly over to digital marketing.  The copywriting skills didn’t transfer, the graphics were different, and now they had to learn about making videos?

Each of these new skills required hiring and training news teams and the headaches that come along with building new systems and processes from scratch – especially when you’re not an expert in that field.

Loss of Confidence From Clients

Attention goes where the new revenue flows, and as more time, effort, and focus was placed on hitting digital marketing goals, the direct mail processes that had been so firmly in place started showing cracks.

Not only was the business producing unhappy clients thru their digital efforts, but their core business was starting to falter.

Needless to say, while the addition of digital marketing services to their direct mail products brought in more revenue, it also brought in significantly more headaches.  And, unfortunately, many of the clients who had been with the business for years became disgruntled and a few even went elsewhere.

Loss of Value

Despite the additional revenue, the company actually was perceived as less valuable in the eyes of potential buyers.  They weren’t perceived by others as experts, some of their customers had left, and their overall systems and processes weren’t viewed as solid.  Plus, the business seemed much more reliant on the business owner who was leveraging his existing relationships with his clients to keep them at bay.

Ironically, potential business buyers, like other direct mail companies or digital marketing companies, didn’t want to touch his company now that he was offering both services.

Eventually, the business owner shut down the digital marketing side of the business and went back to focusing 100% on direct mail.

Summary

Conventional wisdom dictates that adding more revenue to your business adds more value.  However, this is true if you’re adding more revenue by focusing on your core competency.

While cross-selling new products to existing customers may seem like the simplest way to add revenue, the above story should serve as a reminder as to why you should focus your limited resources on becoming (and remaining) an expert in your niche that an acquirer reasons it would take too long – or cost too much – to compete.

If you have any questions or comments about 1 Common Mistake Business Owners Make When Selling, feel free to contact me.