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Creating an investment teaser for your business every year may seem premature if sales aren't even on the radar yet. But this important foresight exercise does much more than prepare your business for one investment or eventual sale. It helps business owners visualize the pitch they would need to be able to deliver to achieve the business valuation of their dreams. The gap between what you want to say and what you can credibly say is exactly where to focus your next frantic period of energy and investment.
My partner and I learned this the hard way. We sold two consulting firms ten years apart. The first was for a strategic buyer at the lower end of the cash flow multiple range, while the second was for a private equity buyer at the higher end of the income multiple range. Yes, market conditions were slightly better the second time around. But the real difference was that we started focusing on how to maximize our multiple output on day one. We kept a sales sheet in our heads all the time and were constantly rethinking investments that didn't pass the sales sheet's “sniff test.”
To get started with your first business venture, put yourself in the right mindset. Remember, you're writing an elevator pitch for your company that's intended to quickly get an investment or strategic buyer saturated. Visualize walking into the tenth VC conference room of the day, capturing the perfect narrative for a captivated audience. This should include a full stack of data and trend analysis with recent financial results that make it clear that your business thesis is spot on.
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Total addressable market
Every good pitch starts with total addressable market (TAM) discussion. You want to be able to showcase your team's cherry-picked, fastest-growing segment of the addressable market in a highly disciplined manner. You should have gained a lot of knowledge during the launch phase to better fit this market and argue which products and services deserved the highest level of investment. If you don't have that knowledge at your fingertips, this is the place to start.
In our first business, investors got upset while discussing TAM. We only had two entry points to a public company to purchase our expensive consulting services. To make matters worse, the number of public companies was in slow decline. Not exactly a growth industry, even though we had grown revenues over 30% per year for several years. In Business #2, we modified our service offering to support the expansion of our TAM from two business titles to eight, expanding our TAM nearly threefold to $1 billion.
Growth strategy
The next section should cover growth strategy. List and prioritize the most important business growth levers. Think of two or three home run ideas that will really make buyers nod, not 12 weak singles. If your list is long and still feels a bit like throwing darts at the wall, start narrowing. This is critical because you will be swinging for the fences with these by directing almost all of your valuable business investments there.
In our first business, we focused on a land and expansion strategy. We have made significant investments in outside vendors, custom marketing tools, and company-sponsored networking events. It worked. We attracted some great clients that provided the foundation of a referral network that is still fueling us today. The downside? This made scaling expensive and sales pitch meetings became our total existence.
Business #2 had much lower customer acquisition costs, which investors loved. We cracked the code while using it thought leadership to open doors with potential customers and continue fine-tuning what they were most likely to read (real world how to read instead of deep strategic thinking) to continually improve our odds. Most of our marketing money went into web based marketing to get more eyes on our thought leadership. Margins were higher and we built more leads than just cold sales leads.
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Financial model
The last and perhaps most important part of the sales sheet is that financial model. The model should display the key metrics that translate great ideas into profits. Before you run with any top metrics in your operations deck, gather some industry intelligence on the industry metrics that matter most right now. Don't try to do this in a vacuum. Contact the industry's top vendors to ask for their single most important financial decision. Understand what multiple businesses are selling for and what metrics have increased their company's current selling price. If these metrics don't tell your business story in a good light, you may need to make real changes to your investment spending, operating expenses, or pricing model.
Business #2 had very low overhead as we spent less on office space and geographic expansion, and more on automation tools. It helped that this was during the pandemic and our public company clients better understood the lack of a great corporate headquarters. Expenses were lower and excessive cash flow is spent on a very surgical marketing campaign. We maximized our cash flow and margins, and as a result, doubled our pocket money from a sale in two years.
Years may pass before you sell your business, but the discipline of writing your investment bullseye every year can be an important factor in effective investment decision-making. Imagine standing in front of seasoned investors, articulating how your business strategy and focused investments are offering unparalleled growth opportunities. By prioritizing clear, compelling growth strategies and tying investments directly to them, you position your business not just as a competitor, but as an irresistible opportunity.