Value, like beauty is in the eye of the beholder

It's a truism that the same thing will be worth more to some than to others.

For individuals the value of something will also change depending on their circumstances. A glass of water is worth much more if you are lost in the desert than if you are sitting at home watching tv.

Despite this most products and services we buy are a standard price. There might be regional variations but broadly the price is uniform. That makes sense for 'commodity' products and services where there are multiple units and each one is identical or very similar.

Where products and services are unique there is an opportunity for businesses to be more flexible with their pricing. 'Value pricing' is nothing new and there has been and still is much research and debate on how businesses can do this effectively.

The Wikipedia definition of value pricing is, 'Value-based price is a pricing strategy which sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices'.

I like this definition and the key phrase is pricing based on, 'the perceived value...to the customer'. How many of us do this in business? Surprisingly few I think.

Surprisingly, because the thing about value pricing is that both the seller and the buyer end up happy. The seller because they have maximised their selling price and the buyer because they have purchased something at a fair value to them.

One area where value pricing comes into play and has been exercising me recently is selling a business. Value here can vary tremendously between each prospective buyer. Some may see synergies with their existing business or opportunities for improvement that may not be apparent to other prospective buyers.

So the 'game' for the seller and their representatives here is to find out where the prospective buyer's value threshold is. There is an old saying in business, 'How much money did you leave on the table?'. For many sellers it can be quite a lot.

A seller may be pleasantly surprised at an initial offer and be tempted to accept. In most cases though, this is a time to step back and reflect. Put yourself in the buyer's shoes and think hard about what the real value is to them. This could mean that you leave less money on the table and both you and the seller achieve a good outcome. That is worth some time and mental effort I think.

www.base52.co.uk/consultancy

How to finish big

I've just finished reading 'Finish Big' by Bo Burlingham. 

If you've read Bo's other best seller, 'Small Giants' you'll know that he's a journalist who's passionate about small business and entrepreneurs and loves digging into what makes them both tick.

Bo argues that 'Finishing big' or exiting well from a business is one of the biggest decisions that entrepreneurs make, having profound and far reaching implications on the rest of their lives, but many give little thought to it.

The book is full of absorbing case studies of people who have exited well and those who haven't. The emphasis is on the 'Medium' within the  Small and Medium Enterprise' cohort. So for most business owners these will be quite large enterprises with tens or hundreds of employees and multi million dollar turnovers. For British readers there are some americanisms like ESOPs (Employee share schemes) and venture capital played a bigger part in some exits than it does over the pond.

Although the businesses may differ the issues for the exiting entrepreneurs are very similar wherever they are based and Bo tries to distil the common themes which make for a good exit.

Four stood out for me:

1. Start early

Entrepreneurs need time to plan for their exit and to shape the business in a way which achieves the best outcome. Some of the time is needed to allow for making mistakes - finding the right successor was problematic for example in several of the case studies

2. Think about the exit you want

It's not just about the money. What do you wants to happen to your employees? Are you worried if the culture and values in your business change after exit? What kind of legacy do you want to leave? It's important to think about these things before exit.

3. The best advisors have been through it

This was an interesting one. Many advisors have facilitated multiple sales and the more they do, the better they get. The very best advisors though have sold their own business or ideally several businesses. They have the unique advantage of seeing things from the seller's perspective and Bo rates this very highly.

4. What will you do after?

Somewhat surprisingly, this was one of the biggest issues for the exiting entrepreneurs. Those who thought about it in advance and had something to do after exit, tended to finish big and well. Those that didn't ended up a bit lost, without purpose, full of regrets and unhappy, often for many years.

So I'd recommend 'Finish Big' to all business owners. If it gets you thinking about your exit now rather than when it's too late to finish big, it's a few quid very well spent.

https://www.base52.co.uk/services/consultancy

Deal or no deal?

I had lunch with a lovely chap yesterday who helps people sell their businesses for a living. One of his many insights was that the people who get the best deals are ready to sell but also ready to continue running their business if the offer on the table isn't good enough. The other side of the coin is where the seller has had enough and is desperate to sell. Inevitably they end up getting a poor deal.

So the lesson is that if you are thinking of exiting from your business in the future, it's never too early to start thinking about it and plan your strategy. 

The topic of the moment is Brexit and there has been much debate about 'hard Brexit' and 'Crashing out out of the EU without a deal'. The reality is, from a negotiating perspective, the UK needs that alternative or they have an even weaker hand in negotiations with the EU.

In their acclaimed book about principled negotiation,'Getting to Yes', Fisher and Ury describe the concept of a Best Alternative to a Negotiated Agreement (BATNA). They argue that it is foolish to enter into an negotiation without a BATNA and you should work hard to make your BATNA as attractive as possible. This gives significant leverage in a negotiation and allows the holder to walk away until a better offer is put forward.

So if you are in a negotiation, be it a multi-million pound deal or a relatively minor customer complaint, think about your BATNA and be prepared to use it. It may help you achieve a better outcome.

www.base52.co.uk

What is an exit strategy and do you need one?

An exit strategy is a strategy for exiting from your business at a future date, in a manner that achieves a good outcome for you as the business owner.

Many business gurus recommend that business owners should have an exit strategy from the first day they start a business. The reason for this is that they can then shape the business and develop their strategy to achieve the maximum value at exit.

So if it makes good business sense why do many business owners ignore this advice and not really think very much about exit, often until circumstances beyond their control (bad health, industry change, loss of key personnel etc) force them to consider it? Probably the main reason for this is that they are focussing on the 'day to day' - getting the next order, managing a difficult customer or staff issue etc, exiting from the business seems a long way in the future. Considering their exit in advance however, ideally a few years before they intend to step away from the business can significantly increase their exit value.

Some serial entrepreneurs will have many 'exits' during their business life. A more typical scenario is an 'owner managed' business which an owner has built up over several years. So what are the exit options available in this case?

Exit options could be:

1. Sell the business outright to an external buyer
2. Merger with a similar business
3. Sell the business or shares in the business to key employees
4. Develop a management team, retain ownership but step down to a part-time, less 'hands on' role, continuing to draw income from the business

These are probably the main options but there are 'hybrid' versions, for example making a partial sale but retaining some ownership and involvement in the business.

All of the above options need careful planning and professional help to execute. So if you are starting to think that you might move on from your business in a few years, start thinking about how you will do it now and develop your exit plan. It could be one of the most useful and rewarding things you do in your business life.

www.base52.co.uk