While it might sound counterintuitive, a recent study of more than 40,000 businesses has found that the most valuable companies do NOT have their owners involved in the sales process. The boss is not a salesperson for more valuable companies.
When running your own company, you may find it hard to not be personally involved in doing the selling. Your initial belief might be that your company is more profitable when you are directly involved, since you are your business’s most passionate advocate, in addition to having the most experience and the most industry connections.
Indeed, over the years you may have arrived at the conclusion that, in order to maximize your company’s profits, your time is best spent out of the office selling, while leaving the administrative work at the office to your employees. This approach may very well work for you in the short term, and it’s easy to get stuck in that positive feedback loop – when you’re actively doing the selling, your company is making more money, so you continue to do the selling.
However, if your goal is to build a valuable company—one you can sell down the road—you can’t be your company’s number one salesperson. In fact, the less you know your customers personally, the more valuable your business. I know, that may seem to run counter to everything you’ve personally experienced, but the numbers speak for themselves. Read on.
The Study Proves You Should Not be a Salesperson
The Value Builder System recently analyzed 40,000 businesses across the country, having all of these companies take this assessment to determine the value of their businesses.
After taking this questionnaire, the business owners were asked if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. They then compared the offer made to the following question:
Which of the following best describes your personal relationship with your company’s customers?
- I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
- I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
- I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
- I don’t know my customers personally and rarely get involved in serving an individual customer.
2.93 vs. 4.49 Times
The results spoke for themselves. The study found that the average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit. However, when isolating just those businesses where the owner does not know his/her customers personally and rarely was involved in serving an individual customer, the offer multiple went up to 4.49.
Companies where the founder knew each of his/her customers by first name were much less valuable, earning offers of just 2.93 times pre-tax profit.
What this Means
Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit. If all you wanted was a fat bottom line, you likely wouldn’t invest in upgrading your website or spend much time thinking about the squishy business of company culture. Again, the owner should not be a salesperson.
How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your company in the long run. Buyers will be less likely to acquire a company where so much of the sales success is attributable to an outgoing CEO. If a stable, competent sales team is in place instead, an acquirer sees a business that is much more likely to survive a sale.
Always remember, the key to building a valuable business is having a business that doesn’t rely so heavily on you to succeed.
Maximize Your Freedom
Are you interested in building a business that doesn’t need you to succeed? If you can attain this you will be able to maximize your freedom and have more time to spend with your family, doing things that you love, and attaining the very thing that you most likely wanted when you started your own business… FREEDOM!
The team here at Denver Business Coach is holding a very special Freedom Workshop in Denver that is specifically designed to help you optimize your business processes with the specific goal to get your freedom back and get your life back!