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Creating an investment teaser for your business every year may seem premature when a sale isn't even on the radar. But this important, proactive exercise doesn't just prepare your business for an eventual investment or sale. It helps business owners envision what sales pitch they need to make to achieve the business valuation of their dreams. Bridging the gap between what you want to say and what you can credibly say is exactly where you should focus your next frenetic period of energy and investment.
My partner and I learned this the hard way. We sold two consulting firms about ten years apart. The first we sold to a strategic buyer at the low end of the cash flow multiple range, the second to a private equity buyer at the high end of the revenue multiple range. Yes, market conditions were a little better the second time around. But the real difference was that from day one we focused on how to maximize our exit multiple. We had a rolling sell list in our heads the whole time, and we were constantly rethinking investments that didn't pass the sell list “smell test.”
To begin your first business teaser, get yourself in the right mindset. Remember, you're writing a forward-thinking sales pitch for your company, designed to get an investor or strategic buyer impatient. Imagine storming into the tenth VC conference room of the day and rattling off the perfect story to an awestruck audience. This should include a deck full of data and trend analysis with recent financial results that make it clear that your business thesis is spot on.
Related topics: Selling a company starts on day one: What founders need to know
Total addressable market
Every good pitch starts with a discussion of the total addressable market (TAM). You want to be able to show that the team has cherry-picked the fastest-growing part of the addressable market in a highly disciplined manner. You should have gained a lot of insight during the launch phase to narrow down that market more precisely and justify which products and services deserve the highest investment. If you don't have that insight to hand, this is the place to start.
In our first deal, investors yawned during the TAM discussion. We only had two entry points into a public company to buy our expensive advisory services. To make matters worse, the number of public companies was slowly declining. Not exactly a growth industry, although we had revenue growth of over 30% annually for several years. In deal #2, we adapted our service offering to support the expansion of our TAM from two to eight business titles and grew our TAM nearly three-fold to $1 billion.
Growth strategy
The next section should be about growth strategy. List the company's key growth levers and prioritize them. Think of two or three ideas that will really convince buyers, rather than 12 weak individual ideas. If your list is long and still feels a bit like throwing darts at a wall, start narrowing it down. This is crucial because you will get the most out of these levers by directing almost all of your valuable company investment there.
In our first company, we focused on a strategy to build and grow. We invested heavily in external sales reps, customized marketing tools, and company-sponsored networking events. It worked. We were able to land some big clients that formed the basis of a referral network that still supports us today. The downside? It made scaling expensive, and sales pitches became our life's work.
Company #2 had much lower customer acquisition costs, which made investors very happy. We were able to open doors with prospects using thought leadership and paid closer attention to what they were most likely to read (practical how-tos rather than deep strategic thinking) to continually improve our chances. The majority of our marketing budget went into web-based marketing to draw more attention to our thought leadership. Margins were higher and we were able to reach more prospects than just cold sales leads.
Related: How to: Create an Exit Strategy for Your Business (Even Before You Start)
Financial model
The last and arguably most important part of the sell sheet is the financial model. The model must show the key metrics that turn great ideas into profits. Before you start with the best metric in your operating deck, gather some industry intelligence on the industry metrics that matter most right now. Don't try to do this in a vacuum. Reach out to recent salespeople in the industry to ask them about their most important financial decision. Find out what several companies are selling for and what metrics determined their company's actual selling price. If these metrics don't paint your business history in a good light, you may need to make real changes in capital expenditures, operating expenses, or pricing model.
Company #2 had very low overhead costs because we spent less on office space and geographic expansion and more on automation tools. It helped that this happened during the pandemic and our publicly traded clients better understood the lack of a glamorous corporate headquarters. Expenses were lower and the excess cash flow was spent on a very targeted marketing campaign. We maximized our cash flow and margins and as a result were able to more than double the money that went into our pocket from a sale in two years.
It may take years to sell your business, but the discipline of writing your own investment proposal each year can be a key factor in making an effective investment decision. Imagine standing in front of sophisticated investors and explaining how your business strategy and focused investments offer unprecedented growth opportunities. By prioritizing clear, compelling growth strategies and targeting investments directly toward them, you position your company not just as a competitor, but as an irresistible opportunity.
Related: 6 Proven Ways to Sell Your Business for 10x or More
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