How to evaluate a Biz-Op like a Shark, for fun and P R O F I T !!!
Opportunity. Once on my submarine, we surfaced in the eye of a giant hurricane (cyclone). It was spectacular, and calm, colorful and we could see rain blowing sideways in the distance, lightening shows to put a D.C. July 4th fireworks to shame...
did I say spectacular. And extremely dangerous. We didn't stay up long, just long enough to let the crew who wanted to take a peek. Then, it was DIVE, DIVE AND DIVE...oooogaaa....oooooogaaa.
We could feel it rocking the boat at hundred feet. I don't recall if it hit land or not, but if it did, there was some serious damage done.
What has that to do with Biz-Op evaluation? I keep it clearly in my mind because sometimes things LOOK SO GOOD, we get hypnotized by the look of the thing, we may forget the dangers that come with it.
I was fortunate to have two serial Entrepreneurs as Mentors in guiding me to evaluating a business, Burt Morgan and Ed Barr. Both very successful men and diversified as all get out. They were the two men which helped me look under the hood, and underneath the body of the car....so to speak.
Everyone likes to drive a nice looking car, but if the engine is broken, or some other critical part, we don't get to enjoy the ride for long do we?
On the Shark Tank, we see the calculators figuring out VALUATION. If someone wants 100k for 10% share, then they say they value it at 1M dollars.
The sharks begin hitting buttons. And what are they doing exactly, well a lot of math but they are LOOKING TO THE FUTURE. Here is a good article which explains that:
The article has some good quotes from the sharks.
At SCI, I used the NPGS formula, as described in Ben Suarez' book; 7 STEPS TO FREEDOM II.
This type of evaluation was specific to REMOTE DIRECT MARKETING of products. Although, there were other ways, less talked about, of using a different system for investing in non remote, even retail type businesses.
Here is a true account of someone who didn't do the math. For over a year in downtown Cuyahoga Falls, OH, we saw a sign, COMING SOON, YUM YUM CANDY.
It finally opened and less than 4 months it was SOLD and renamed. It is now Papa Joe's Candy. And I think he is going to have problems staying there, IF he doesn't have a better plan than the first guy.
See, this is the old, build it and they will come concept. NO they won't.
There was a time when downtown foot traffic would allow for the small nut cart, or hot dog stand, or candy shop to keep busy. But there was a time when a store in a Mall was a sure thing too.
When I evaluate a business, and in the past I've been hired at a pretty decent per diem to do so, especially a couple of REMOTE DIRECT MARKETING COMPANIES who would sell, I had to look at the future, and not their past.
Both times, products were dated. Promotions were at or near the end of their cycles, there was a lack of new products to plug into their marketing. Their customers had aged, the lists were getting old.
All of this led to me giving them an evaluation, in both instance, at about 25% of what they thought they were worth.
Like on the Shark Tank, the guy who thinks his company is worth a million bux, may find out the Sharks think it is only a 250k company, and the guy gets offended.
Well, I may have offended the people I was evaluating, but the guy I did the evaluations for, was more than grateful and my little bit of money he found was very well spent.
YOU have to look to your future. I asked a guy yesterday on the phone, who has not yet opened his business...
I asked, "What is your sell off strategy?" Who will buy your business IF it does what you think it will and how much will they pay>
I think he was taken back, but thought it was a good question and gave him some food for thought. Recently I talked to a guy who made a few million dollars when a bigger fish bought his small fish, albeit successful, company out.
Happens everyday. ACQUISITION is lucrative for all parties, some of the times. Acquisition of a distressed or undervalued asset can be VERY lucrative if you know how to crunch the numbers.
If anyone is interested, I'll continue the thread on the different ways YOU can go about to evaluate a business...because we are in the eye of an OPPORTUNITY TYPHOON.
It could give you a beautiful business moment, if you ACT on it, or if you make the wrong move, you might just get blown away and get further from your goals than ever. Or worse, shipwreck on an island with a whole bunch of Gilligans. YIKES!!
Gordon, would love to know more!
I absolutely agree with you... Knowing how to value a business is a critical and important skill!
And as you say, there's money in being able to do it.
For example, let's say you value a business at $250,000... Yet the owner is willing to sell it for $50,000.
There's a potential $200,000 profit in it for you right there...
Why? The simplest way is you could buy it, and sell it for a higher price.
Or another way is, you could buy it, and then get investors (who invest at a higher valuation than you did)...
Of course, if you're planning to invest your own time and money into a business you're going to start yourself, it's important too...
Gordon, I'd love to learn more!
Yea, but...we can do it privately.
I love our sharing dynamic Dien, and you have been most generous with sharing your knowledge, experiences over the years. It is always great to talk to you and we communicate well via email.
I'd be glad to discuss this privately, especially if you have an opportunity you are considering...
BUT, and this has more to do with my other focus (which you are aware of) and the use of my time...I just don't find talking into the well and hearing my own echoes to be a very good use of it.
And today, that is what SowPub feels like to me.
You and I can talk whenever you have time, and I always have time for YOU.
Just too busy to spend time talking to the wall.
I'm listening carefully
Don't post much, but I'm listening. There's at least one person at the bottom of well.
In fact, just got done reading through all the posts from the beginning of SOW until now. Took over two weeks ... but there's some real GOLD in those threads. Printing some out for safe keeping.
Thanks, it makes a difference.
I'm happy YOU found some gold in the archives, albeit, most of it is now dated and may not be relevant to NOW. Although the posts about ideas, human nature and such may stand the test of time.
IF your reading has raised any questions, about anything, feel free to post them.
I think this might be a good time for some updates, especially if we keep having hosting or forum glitches and problems.
Both Dien and I have grown and progressed and have done a lot of things these last 20 years, and we are both smarter and working more efficiently than ever, FOCUS is the key.
Which reminds me, it has been several years since I last updated BEFORE YOU BUY ANYTHING, that might be a good project.
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