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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!!
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Excrement! So said Herschell Gordon Lewis to us a few years back.