How much is my software company worth? That depends. Of course it depends on profits, sales, EBITDA, and other traditional valuation metrics. A surprisingly important factor, however, is how you choose to sell it. If I could share with you how you could realize at least 20% more for your business would you read the rest of this article?

The way to achieve the most value from selling your software company is to get several strategic buyers all competing in a soft auction process. That is the holy grail of company valuation. There are several exit or value options. Let’s examine each one starting with the lowest, which is liquidation value.

Liquidation Value- This is basically the sale of the hard assets of the business as it ceases to be a going concern. No value is given for good will, brand name, customer lists, or company earnings capability. This is a sad way to exit a business that you spent twenty years building.

Book Value - is simply an accounting treatment of the physical assets. Book value is generally not even close to the true value of a software company. It only accounts for the depreciated value of physical assets and does not take into account such things as earnings power, proprietary technology, competitive advantage, growth rate, and many other important factors. In case you are working on a shareholder agreement and looking for a methodology for calculating a buy-out, Book value is a terrible metric to use. A better approach would be a multiple of sales or EBITDA.

Unsolicited Offer to buy from a Competitor- This is the next step up in value. The best way I can describe the buyer mindset is that they are hoping to get lucky and buy this software company for a bargain price. If the unsuspecting seller bites or makes a weak counter offer, the competitor gets a great deal. If the seller is diligent and understands the real value of his company, he sends this bottom-feeder packing.

Another tactic from this bargain seeker it to propose a reasonable offer in a qualified letter of intent and then embark on an exhaustive due diligence process. He uncovers every little flaw in the target company and begins the process of chipping away at value and lowering his original purchase offer. He is counting on the seller simply wearing down since he has invested so much in the process and accepting the significantly lower offer.

Buyer Introduced by Seller’s Professional Advisors- Unfortunately this is a commonly executed yet flawed approach to maximizing the seller’s transaction value. The seller confides in his banker, financial advisor, accountant, or attorney that he is considering selling. The well-meaning advisor will often “know a client in the same business” and will provide an introduction. This introduction often results in a bidding process of only one buyer. That buyer has no motivation to offer anything but a discounted price.

Valuation From a Professional Valuation Firm- At about the midpoint in the value chain is this view of business value. The valuations are often in response to a need such as gift or estate taxes, setting up an ESOP, a divorce, insurance, or estate planning. These valuations are conservative and are generally done strictly by the numbers. Valuation firms use several techniques, including comps, rules of thumb, and discounted cash flow. These methods are not great in accounting for strategic value factors such as key customers, intellectual capital, or a competitive bidding process from several buyers.

Private Equity or Financial Buyer- In this environment of too much money chasing too few deals, the Private Equity Groups are stepping up with some surprisingly generous purchase deals. They still have their roots as financial buyers and go strictly by the numbers, but they have increased the multiples they are willing to pay. Where two years ago they would buy a bricks and mortar company for 5 1/2 X EBITDA, they are now paying 7 X EBITDA.

Strategic Buyers in a Bidding Process- The Holy Grail of transaction value for business sellers is to have several buyers that are actively seeking to acquire the target company. One of the luckiest things that has happened in our client’s favor as they were engaged in selling their company was an announcement that a big company just acquired one of the seller’s competitors. All of a sudden our client became a strategic prized target for the competitors of the buying company. If for no other reason than to protect market share, these buyers come out of the woodwork with some very aggressive offers.

This principal holds as an M&A firm attempts to stimulate the same kind of market dynamic. By positioning the seller as a potential strategic target of a competitor, the other industry players often step up with attractive valuations in a defensive posture.

Another value driver that a good investment banker will employ is to establish a strategic fit between seller and buyer. The advisor will attempt to paint a picture of 1 + 1 = 3 1/2. Factors such as eliminating duplication of function, cross selling each other’s products into the other’s install base, using the sellers product to enhance the competitive position of the buying company’s key products, and extending the life of the buyer’s technology are examples of this artful positioning.

Of course, the merger and acquisition teams of the buyers are conditioned to deflect these approaches. However, they realize that their competitors are getting the same presentation. They have to ask themselves, “Which of these strategic platforms will resonate with their competitors’ decision makers?”

As you can see, the value of your software company can be subjectively interpreted depending on the lenses through which it is viewed. The decision you make on how your business is sold will determine how value is interpreted and can result in 20%, 30%, or even 40% differences in your sale proceeds.

Dave Kauppi
is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, representing owners in the sale of technology based businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

[tags]information technology investment banker,merger acquisition,venture capital,sell software company[/tags]

Even Joe the Pipefitter must look askance at some of the moves made in corporate America when faced with a string of bad news. (Sorry… I just can’t use “Joe the Plumber”, a guy who didn’t pay his taxes, isn’t certified as a plumber, and has tried to cash in on his 15 seconds of fame which - amazingly publishers have turned this into a book while making great authors wait for a contract.)

Mistake #1: Become reactive and reactionary.
There is truth in the old saying “Respond in haste. Regret in sorrow.” This is also known as the “ready, fire, aim” approach of leadership. When leaders fail to gather the information and critically assess the long-term impact of decisions, severe errors are made. Consider the Big Three auto executives who knee-jerked their way on private planes to ask for a handout without ever having a plan. Now that’s a bonehead mistake.

First, stop any action and breathe. Think long-term strategy. Be cautious. Be proactive. Test out the decisions by saying, “If this… then this…” so you can try it on for size.

Mistake #2: Huddle with only the corporate folks.
First, answers are often found at the floor level, not at the ceiling. Involve everyone in the search for efficiencies and innovations. Engage everyone in a common vision and mission. Besides, if managers tell employees what to do, you’ve taken away all sense of responsibility and ownership. How refreshing to have the Obama team now posting discussions on the internet and seeking input from a variety of people with differing viewpoints. Building transparency goes a long way for building trust and making us all feel we are part of the solution.

Mistake #3: Cut. Cut. Cut.
No one EVER downsized their way to greatness. Wholesale
termination of employees without thinking about the cost of underserved customers and too much work done by too few people or canceling the meeting without realizing that this is the time TO GATHER and candidly talk are just two examples of cuts that could have been done with a scalpel instead of a hacksaw. Substitute Jello for Jamoca Fudge and Two Buck Chuck for Dom Perignon but bring people together.

As for layoffs, if your organization or department can handle this-bring everyone together and spread out the facts. One very smart leader found that employees were willing to reduce work schedules, work half-time, and job share rather than have members of their team terminated. For more ideas, read Responsible Restructuring: Creative and Profitable Alternatives
to Layoffs by Wayne Cascio, professor of management at the University of Colorado-Denver Business School.

Mistake #4: Go after new clients and customers.
Unless your current customers have vanished because of poor quality or service, these can be your best source of new revenue. Ask how you can turn them into champions of what you provide. Make them feel special and valuable. I’ve noticed that my bank is now making every effort to thank me for my business, to call me by name, to answer any request with a “no problem” attitude. Sure, they should have been doing that all along but-better late than never. Besides, they’ve already got all my money in the safe. I think they’d like to keep it.

Mistake #5: Do more with less.
We’ve been hearing this for years. In my consulting practice, I have often found that much of the “more” is work that provides no value at the end of the day. Scrutinize every process; get rid of the sacred cows and the egos. Translate every action into a dollar value. In one organization, we found that senior executives were tripping over each other to put their two cents into every PowerPoint presentation that was made. It was a waste of executive talent, made each project longer than necessary, disempowered the employee creating the presentation, and actually used up some $15,000 worth of senior management time!

BONUS Mistake: Buy into pessimism.
It’s a huge mistake we ALL make when we let the news of the day finds us hiding under the covers, chopping up the furniture for kindling and searching for recipes made with bread and water. What we have here is an opportunity to really consider what is most important, to spend time at work that is meaningful, and to nurture relationships that matter. We have an opportunity to reclaim our reputation, our integrity, and our future. Not to do this would be our biggest mistake.

To condense the wisdom of a Hopi Elder, “This is the Eleventh Hour…and we are the ones we’ve been waiting for.”

The author is the owner of an established plumbing business. He writes articles on consumer information / protection , business in general and home improvement.
For more FREE INFORMATION visit hereandhere thank you!

[tags]advertising,business,small business,entrepreneurship,pay per click, PPC[/tags]

I’ve found that there are three big blocks that most often come up when anyone is looking at using a professional’s service or getting ready to buy a product.

- Money
- Time
- Timing

This is with the understanding that everything else is a match. They have a need and you can serve that need. They feel connected to you. You have established trust, you both feel excited, and the energy of possibilities is clearly in the air between you.

Then one of the major blocks pops up. What now? How can you help?

Let’s start with first understanding the energy behind the blocks. By doing this, we are able to come from a place of empathy, rather than sympathy. It is a disaster move, as a service provider, for you to join them in their blocks. That might sound something like, “I know exactly what you mean Ms. Prospect, and there are a lot of things that I really want, but can’t have either. I hate it, too.” This is a HUGE disservice to them and you.

So what you are really looking at here is fear (of the unknown, success, change, doing something positive for themselves…the fear takes different forms for different folks, but fear is fear).

We make excuses because we can’t see the difference between an outer reality and our inner belief regarding that reality. For most of us, we have a hard time separating the two; we make them the same.

It might sound something like this:

- I don’t have the money now. = I don’t believe I can raise the money.
- I don’t have the time now. = I can’t see how to make the time.
- I’m not ready now. = I’ll never really be ready.

Back in the summer of 1999, I was studying in Ashland, Oregon and one weekend we found this beautiful lake to swim in and saw that across the lake people were jumping cliffs. Now, this is something I use to do a lot when I was in high school. So I swam across, climbed to the top, got to the edge and froze. I could not jump off that cliff. Every time I looked over the edge I thought, “This is a fifteen foot cliff; what if I miss and slam into the rocks, I could break my leg, I could die…”

Then, as I stood there, this boy, maybe he was eleven, came up next to me, and asked, “Are you going to jump?”

I started to come up with all these excuses, but sighed and just told him I was really scared. And this is what he said to me, “It’s just air and then water. Just jump.”

As I watched him sail over the edge and then bob up to the surface just seconds later, amazingly to me, I jumped. It was exhilarating! (And, obviously, I survived.)

This, my friend, is exactly how a prospect feels when considering working with you. They see a financial investment, an obligation of time and a challenge. They’re preparing to jump.

So the automatic-human-fear-reaction is to make an excuse (Anything but jump!)

And, again, the worse move you can make is to join them. “Yes, this cliff is really high. You’re right; it’s impossible to jump. I understand how hard it is, so let me call you back in a few months and see if you’re ready to jump then.”

I can tell you, they will never be ready. (I know if that’s what I’d heard, I would still be standing on that cliff, or worse, I would have turned around and gone back the way I came.)

Again, assuming your offer is right for them and they will truly benefit from working with you, then you are NOT serving their best interests if you “just let it slide.” Telling yourself that you are serving them by letting them slide is your own excuse.

The energy of commitment is very strong. Let your prospect know that when you make a commitment the Universe begins to line up for you. Things may start slower than planned, but when you truly commit, it happens. Let them know that, together, you will take care of their concerns (money, time, doubts).

My sense is you’ll hear, “Let’s do it!” Can I tell you it will ALWAYS go this way? No, but what I can tell you is that if YOU make the commitment to take a stand for the truth about the difference your service will make for your clients (and don’t back down when they give you excuses), you will have a client who puts themselves completely in your process and together you will produce magnificent results. Go ahead. Take a stand.

Your call to action. When clients are afraid to move forward, they will make excuses. They will give excuses that keep them from facing the challenge. As a professional, you need to call forth the magnificence of your client, not join them in their fear.

Take a stand for them.
Take a stand for you.

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[tags]business systems, system, entrepreneur, marketing, business, entrpreneur coach, heather dominick[/tags]

In our healthcare mergers and acquisitions practice, a very important event prior to receiving letters of intent is the buyer visit. Don’t be fooled into thinking that this is a simple headquarters tour. Experienced buyers know just the right questions to ask to uncover risks and to discover opportunities. We try to coach our sellers on how to present and how to answer these carefully scripted questions.

Unfortunately, a man or a woman that has called his or her own shots for the last 25 years is not always receptive to coaching. If we get a feeling that our advice is falling on deaf ears, we schedule the first visit with a buyer that is not the top candidate. Once our seller has made a few tactical errors in this dry run, they are then open to some coaching.

This is what we tell them. Acquiring another company is very risky. Mistakes can damage the buying company. Therefore, a buyer is looking to identify and mitigate risks. Their questioning will focus on what they can expect once they are the owner of your business. Are you bailing on a business that is on a downward spiral? When you leave, will major customers leave with you? Will your key employees stay? Will our company have your strong support in transitioning your knowledge and intellectual capital to our staff?

The number one question is: why are you selling your healthcare company? The unacceptable answer is: so I can get away as quickly as possible and sip umbrella drinks on an island. The correct positioning of your exit is: we have built this business and are nearing retirement. In order to realize the future potential we will have to invest back into it at a time when we should be diversifying our assets. A strategic larger company could leverage our assets to achieve much greater market penetration than we could.

Another important theme is that you are in control. You understand your costs and your margins. You can identify the opportunities for growth that a better capitalized company could capture. You can articulate your strengths. You know your weaknesses and they are simply that you do not have enough resources, capital, or distribution to capitalize on all this potential you have created. You understand your market and your competition.

Buyers like to believe they are buying a business at a discount. You should try to present your weaknesses in such a way that the buyer will think, we can easily correct that. For example, an eight week order backlog could be considered a negative. A smart buyer will think that is a high class problem. I wonder how many orders they lose because of the order delay. We could hire three more people, open two more work bays and cut that backlog down to ten days, immediately capturing 10% greater sales.

Another example is that the selling healthcare company is technology focused and really lacks sales and marketing expertise. The savvy buyer with a fully developed sales and marketing engine pictures a 20% increase in sales immediately. If the selling company already had these weaknesses corrected, the buyer would certainly have to reflect that in the purchase price. Because the weaknesses exist and the buyer has already identified how his company will correct them, he views it as buying potential at a discount.

A corporate visit should be a good two-way exchange of information. The seller should ask such things as: How long have you been in business? How many locations do you have? How many employees work for your company? (This question is a good way to back into company revenues by applying industry metrics of revenue per employee. Sometimes private companies are hesitant to reveal sales figures. The seller wants to determine whether the buyer is big enough to make the acquisition.)

What are your biggest challenges? Who are your biggest competitors? How do you see the market? Where are your best opportunities? Have you made any prior acquisitions? How do you feel about them? What are you really good at? What areas would you like to improve? How would you see integrating our company with yours?

There is some very important information that you are seeking from this line of questioning. First, their answers give you some hooks on which to hang the assets of your company in order to drive up your perceived value to the buyer. Find their opportunities and show how your company combined with theirs can help capture them. Show how your assets will give them an advantage over their competitors. Show how your combined assets can eliminate some of their problems or weaknesses.

You want to determine if there is a cultural and a philosophical fit. Is there trust? Do you feel comfortable? Do they “get it” in terms of recognizing your healthcare company’s strategic value or are they just trying to buy your company at some rule of thumb financial multiple?

Often a company acquisition is comprised of cash at close and some form of deferred transaction value like an earnout. If your deal was structured like this, do you have confidence that you would reach your maximum in future payments? Have they been able to articulate their growth plan after they acquire you?

As you can see, the buyer visit should not be looked at as simply a show and tell corporate visit. It should be viewed as an opportunity for the seller to gather valuable information that will help him answer three questions: 1. Is it a fit? 2. How can my healthcare company help them grow and better compete? 3. Are they willing and able to pay me for that?

Dave Kauppi
is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, representing owners in the sale healthcare and technoloby based businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

[tags]business broker healthcare information technology, merger acquisition,sell, investment banker[/tags]

Who would ever think that a rookie entrepreneur could have a home business with only his intellect, skills and willpower to become successful? You can be that entrepreneur and grow rich. During these times of economy back down, you have to work double shifts in two or three jobs just to be able to support yourself and your family. From the famous books one minute millionaire and cracking the millionaire code, what you really need to achieve fast money is the right mind set.

You can be the face of every game there is and you can do so much while you work at home. You may choose from a variety of careers that will bring you the cash streams that will earn you not just income on the side but a life long source of financial capability. From real estate to network marketing gall you need is the recipe to get there (right ingredients, mixed and poured at the right moment and at the required duration of time).

In the internet marketing business for example, many people fear to engage in such a risky type of career path. Many would think that it requires a lot of brain to begin even. However high the risks are, still, nothing must ever stop you from believing that you can make a difference in your life. It is time to break free from the million doubts and you must start stepping forward and overcome your fears of failure. Always say, I can! Because anyone could indeed do so.

Maybe today, you have many bills to pay or you do not even have enough money to fill your own stomach for the next couple of weeks. Start changing your situation now. You will never have to work linear jobs anymore with double shifts that demand much of your time and keep you busy, even from your own family. You can use whatever you have left to make it work for you so that you do not need to work as much sweat as before.

Everyone starts at nothing. You cannot achieve anything without the risks. There is no definite step or formula to success, just you and the right mind set to become what you need to be. If opportunity does knock on your door, then grab it, by all means, grab it. If it does not come, you have to go out and find it for yourself. If does not come, then you have to take it as cue create it that is the right mindset.

Do not wait for anything to tell you to move for your future now. Stop closing yourself from the possibilities that you can finally make a difference. It takes one step at a time and you could go nowhere once you let your fears and doubts rule your decisions. The liberation from financial loss is at reach.

Envision your dream. Find the right path to take. Be the winner of every game.

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[tags]Entrepreneur, work at home, mind set, one minute millionaire, cracking the millionaire code[/tags]

The economy in this new age is not as flexible as it was and it may break apart any day soon if the people do not make an action. The technology is supposed to help lives become better, easier and more comfortable. However, the price is just too high to be able to acquire such services. The fact to think about is: you can turn the tables around and make technology work the way you want it to.

The manipulation power or the control of the things that can make you rich is right here. More importantly, no matter who you are and what you do, you can become the entrepreneur of your dreams and achieve cash in a flash. Just like what the bestseller books of one minute millionaire and cracking the millionaire code reveal, all you need is the right mind set to get fast money.

The catch here is that to be rich does not require you to get odd linear jobs with double shifts just to achieve the goals. You can even choose from a wide array of careers that provides a home business so that you may work at home and do much more at the same time.

If in the past, you have the very least time for your family and for yourself, now you can change that time schedule and make it work for you. Internet marketing could give you the best avenues that demands only as much as you can and will even become your pillars for improvement.

From real estate to network marketing, you can find both the best and the worst when it comes to business. The fear to take the risks is normal, as everyone undergoes such a feeling when engaging in something new. The fact is everything can be done with the right mind set.

Think real to make it all happen. However, you have to think of today and start now. Do not let your mind wander thinking what may happen in the future, because it remains as a question forever. Become aware that to be able to achieve your dreams, you have to live today, you have to live now.

Imagine now the feel of a chunk of cash in your hands with lots more pouring out of your bankbook. If this is what you intend to happen, and then it is time to think naturally like a professional. Do not think of what you do not have, use whatever is with you right now. Utilize every available resource and make them your keys to fulfilling competency in whatever career you choose.

It may sound simple, but indeed, it is not. However, do remember that it is always first for self motivation. A spontaneous persuasive force that is from the inside is always better from persuasion coming from an external force. Believe in yourself because you can do anything yourself. Get cash now and make yourself the million dollar baby of entrepreneurship.

Who else wants to learn the insider secrets of network marketing, internet marketing, cash in a flash, fast money, home business. Log on to http://www.cashinaflashsecrets.com and get useful tips.

[tags]Entrepreneur, work at home, mind set, one minute millionaire, cracking the millionaire code[/tags]

The world today is banging us hard on the backbone of our economy. The only way to fight is to play the game with an iron fist. The problem of crisis affects everyone from the major league companies and down to the people who makes the economy run. When crisis hits, it hits hard. However, you can make a difference, no matter who you are. You can become professional and start making fast money.

To start of, you can be an entrepreneur and work at home with a home business opportunity available in the network marketing avenue. With the perfect formula to get fast money, you can learn from the expert books of one minute millionaire and cracking the millionaire code and start to earn cash ten folds now. Whether it means real estate or internet marketing, all it takes is but the will to succeed.

To beat the odds of crisis, you have to find a way to play the game and make yourself the master controller. Take for example the decline in employment rates. Since companies cut down on people now because technology can already do as much, you may take it as a cue to build your own company and become the boss instead.

This way, you do not just make money for yourself, but build better lives by creating employment for other people. How would you feel if you have a business of your own, work at home and create jobs for many in need?

You have to consider that not all the people who are on top today, made it there because they had the resources to do so. Many of the fortune 500s started from where you are now. The success stories are all different, yet they sound like one single bell: what made them get there. That is not a difficult question to answer and indeed, it is not hard to find.

Self motivation is dependent on nothing but yourself. You have to go out and create the avenues that will pursue persuasive forces so that inspiration can help you. Show up when you need to and do not bum and just dream of your future because you can never get it without action. However, you have to firmly believe and consider that it all starts in your mind.

The right mind set is what you need to overcome your fears of failure by the bigger challenges ahead of you. Nothing beats success when it is achievement from making good decisions and sacrifices o the way. Risks are hurdles so that you may improve your skills in whatever career path that you may take. This is because even in the worst crisis, you can make it big with cash in a flash. Do not ever make your economy status a hindrance. Not all in the major league game started big, but they were the ones who showed up for the challenge.

Are you up for the challenge of growth amidst crisis?

Who else wants to learn the insider secrets of network marketing, internet marketing, cash in a flash, fast money, home business. Log on to http://www.cashinaflashsecrets.com and get useful tips.

[tags]Entrepreneur, work at home, mind set, one minute millionaire, cracking the millionaire code[/tags]

Time freedom and financial freedom, who does not desire to have that? I mean, everyone wants to choose where and when to work and everyone wants to live a worry free life and be assured that every bill will be paid immediately.

However, there are a lot of circumstances in which we cannot get what we want. But with the introduction of the internet and its vast advancement, it is now possible to work at home and enjoy the ambience of working at the leisure of your home.

The life in the internet is very fast and in a minute, you can really get millions. That is possible through establishing a home business. In a home business, do what you want when you want. The internet never sleeps, even if you want to manage your business in 3 am you can.

Here are a few ways that will help you in cracking the millionaire code:

Real estate: This is a business that involves selling and maintaining properties. One can have his unused property for sale or for rent and post it online. In a short span of time, you will see mails that are from people who are willing to purchase or rent your property. If you are not confident enough putting it up online alone, there are companies that will provide you the best strategies to get your best clients.

Network marketing: This involves you being a distributor for a company. Then you aim to sell products in order to get commissions. Also, you are encouraged to recruit more people. If you recruit people, you get commissions for getting another person in. Also, you earn commissions through their product sales.

Franchising: This involves a franchisor and a franchisee. A franchisor owns a certain line of products, its goods, patents and trademarks. The franchisee tries to get rights to use the franchise in exchange for a sales percentage on the owner and also a royalty fee. It is a very good way of internet marketing as this business grants you the credibility of the product. It is more attractive to people as the product is already known to people and customers will surely come.

Truly the internet has prospered greatly in a short span of time. Even the process of businesses and marketing is already accessible through the World Wide Web. Online marketing is a very good way of marketing as it can give you cash in a flash.

Life in the internet is very rapid. A fast life would mean fast money. Therefore, using the internet as your gold mine can really be your money maker. Apart from that, you no longer have to be confined in the office with all the stressful work. You can also pursue other careers while you are in the field of online businesses as it does not eat much of your time. Be free, earn big and invest in online marketing.

Who else wants to learn the insider secrets of network marketing, internet marketing, cash in a flash, fast money, home business. Log on to http://www.cashinaflashsecrets.com and get useful tips.

[tags]Entrepreneur, work at home, mind set, one minute millionaire, cracking the millionaire code[/tags]

If you are an entrepreneur with a small software company looking to take it to the next level, this article should be of particular interest to you. Your natural inclination may be to seek venture capital or private equity to fund your growth. According to Jim Casparie, founder and CEO of the Venture Alliance, the odds of getting Venture funding remain below 3%. Given those odds, the six to nine month process, the heavy, often punishing valuations, the expense of the process, this might not be the best path for you to take. We have created a hybrid M&A model designed to bring the appropriate capital resources to you entrepreneurs. It allows the entrepreneur to bring in smart money and to maintain control. We have taken the experiences of several technology entrepreneurs and combined that with our traditional investment banker Merger and Acquisition approach and crafted a model that both large industry players and the high tech business owners are embracing.

Our experiences in the technology space led us to the conclusion that new product introductions were most efficiently and cost effectively the purview of the smaller, nimble, low overhead companies and not the technology giants. Most of the recent blockbuster products have been the result of an entrepreneurial effort from an early stage company bootstrapping its growth in a very cost conscious lean environment. The big companies, with all their seeming advantages experienced a high failure rate in new product introductions and the losses resulting from this art of capturing the next hot software were substantial. Don’t get us wrong. There were hundreds of failures from the start-ups as well. However, the failure for the edgy little start-up resulted in losses in the $1-$5 million range. The same result from an industry giant was often in the $100 million to $250 million range.

For every Google, Ebay, or Salesforce.com, there are literally hundreds of companies that either flame out or never reach a critical mass beyond a loyal early adapter market. It seems like the mentality of these smaller business owners is, using the example of the popular TV show, Deal or No Deal, to hold out for the $1 million briefcase. What about that logical contestant that objectively weighs the facts and the odds and cashes out for $280,000?

As we discussed the dynamics of this market, we were drawn to a merger and acquisition model commonly used by technology bell weather, Cisco Systems, that we felt could also be applied to a broad cross section of companies in the high tech niche. Cisco Systems is a serial acquirer of companies. They do a tremendous amount of R&D and organic product development. They recognize, however, that they cannot possibly capture all the new developments in this rapidly changing field through internal development alone.

Cisco seeks out investments in promising, small, technology companies and this approach has been a key element in their market dominance. They bring what we refer to as smart money to the high tech entrepreneur. They purchase a minority stake in the early stage company with a call option on acquiring the remainder at a later date with an agreed-upon valuation multiple. This structure is a brilliantly elegant method to dramatically enhance the risk reward profile of new product introduction. Here is why:

For the Entrepreneur: (Just substitute in your software industry giant’s name that is in your category for Cisco below)

1. The involvement of Cisco-resources, market presence, brand, distribution capability is a self- fulfilling prophecy to your product’s success.

2. For the same level of dilution that an entrepreneur would get from a VC, angel investor or private equity group, the entrepreneur gets the performance leverage of “smart money.” See #1.

3. The entrepreneur gets to grow his business with Cisco’s support at a far more rapid pace than he could alone. He is more likely to establish the critical mass needed for market leadership within his industry’s brief window of opportunity.

4. He gets an exit strategy with an established valuation metric while the buyer helps him make his exit much more lucrative.

5. As an old Wharton professor used to ask, “What would you rather have, all of a grape or part of a watermelon?” That sums it up pretty well. The involvement of Cisco gives the product a much better probability of growing significantly. The entrepreneur will own a meaningful portion of a far bigger asset.

For the Large Company Investor:

1. Create access to a large funnel of developing technology and products.

2. Creates a very nimble, market sensitive, product development or R&D arm.

3. Minor resource allocation to the autonomous operator during his “skunk works” market proving development stage.

4. Diversify their product development portfolio- because this approach provides for a relatively small investment in a greater number of opportunities fueled by the entrepreneurial spirit, they greatly improve the probability of creating a winner.

5. By investing early and getting an equity position in a small company and favorable valuation metrics on the call option, they pay a fraction of the market price to what they would have to pay if they acquired the company once the product had proven successful.

Let’s use two hypothetical companies to demonstrate this model, Big Green Technologies, and Mobile CRM Systems. Big Green Technologies utilized this model successfully with their investment in Mobile CRM Systems. Big Green Technologies acquired a 25% equity stake in Mobile CRM Systems in 1999 for $4 million. While allowing this entrepreneurial firm to operate autonomously, they backed them with leverage and a modest level of capital resources. Sales exploded and Big Green Technologies exercised their call option on the remaining 75% equity in Mobile CRM Systems in 2004 for $224 million. Sales for Mobile CRM Systems were projected to hit $420 million in 2005.

Given today’s valuation metrics for a company with Mobile CRM Systems’ growth rate and profitability, their market cap is about $1.26 Billion, or 3 times trailing 12 months revenue. Big Green Technologies invested $5 million initially, gave them access to their leverage, and exercised their call option for $224 million. Their effective acquisition price totaling $229 million represents an 82% discount to Mobile CRM Systems’ 2005 market cap.

Big Green Technologies is reaping additional benefits. This acquisition was the catalyst for several additional investments in the mobile computing and content end of the tech industry. These acquisitions have transformed Big Green Technologies from a low growth legacy provider into a Wall Street standout with a growing stable of high margin, high growth brands.

Big Green Technologies’ profits have tripled in four years and the stock price has doubled since 2000, far outpacing the tech industry average. This success has triggered the aggressive introduction of new products and new markets. Not bad for a $5 million bet on a new product in 1999. Wait, let’s not forget about our entrepreneur. His total proceeds of $229 million are a fantastic 5- year result for a little company with 1999 sales of under $20 million.

Dave Kauppi
is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, representing owners in the sale of technology based businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

[tags]information technology investment banker,merger acquisition,venture capital,sell software company[/tags]

Indeed if you ever have the need to recruit, pitching adverts at where your customers can see them is a great way to get employees that fit your values and business niche.

So, advertising to those already sold on the McDonalds ethic is not a bad way to get free publicity for their recruitment needs.

Why were they advertising at all? How is it that somewhere needs to ensure that they have a steady flow of employees inbound, with all the cost- penalties that entails, rather than people who stay?

In the case of McDonalds, they probably have a higher turnover of employees because of the nature of their business. Many part-timers; lots of young people; students coming and going as they pursue their education (not to mention financial needs!).

In other organizations, where they find the need to recruit regularly, this in itself should be a sign that careful consideration needs to made about the symptom - regularly needing to recruit - as well as any other factors that might indicate an environment where employees leave, regularly.

Where there is a high absence level; high turnover; a higher than expected level of customer complaints, for example, these all add up to indicating that there is potentially a far greater malaise. And that is much more likely to need closer scrutiny than just fighting the high turnover fire.

Time to get real clear on just what bugs your people - what is irritating them sufficiently that they will leave you for something else. And remember, those who leave give you real evidence - what about those who stay - and deliver way below what you would want them to.

From these people you get no hint that they are just not working as effectively as they might. And that’s worse!

One challenge is, well, just what is high turnover? In many larger organizations, there have benchmarks or peer businesses that can be easily measured against. If not, a great way to check how you are doing is by a rolling average. add 12 months together and divide by 12, updating each month as you go.

Then the challenge is to beat the rolling average, by taking small steps to hang onto your people. In larger organizations, get a few of your team involved in heading off issues that are likely to irritate your people.

Better still, get individuals for all levels within the organization, team or department to form a working party, with explicit conditions that all are to be treated equally and listened to equally, creating collaborative solutions to the issues uncovered.

Bottom line is, the more you know about what is annoying your people - even little things - the better you can respond and retain your people longer.

And yes, what you get paid for as a manager is to fix these problems before they start to affect your buiness. It’s what you do.

The author is the owner of an established plumbing business. He writes articles on consumer information / protection , business in general and home improvement.
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[tags]business financing.small business,loans,financing,entrepreneurship,business plan[/tags]