BUILDING AND SELLING A $20 MILLION BUSINESS

Author: Allan Johnson

The experience of watching his parents lose everything in bankruptcy while he was still a teenager has become a powerful inspiration for Kobi Simmat, the author of How to Build a Business Others Want to Buy.

Kobi explained the impact this experience has had on his business life, “ I have lived in fear of losing a home again every day since then. That fear has driven me to succeed.”

During that time, Kobi built a business from nothing to a $20 million valuation then subsequent successful exit, but it wasn’t all plain sailing. He freely admits that, for the first ten years, he did what many business owners do - he did not have a clear idea of what he wanted from the business or even why he was in business.

Consequently, he fell into many common business traps (for Kobi, this meant “learning opportunities”). “I was in that terrible situation: marriage under threat, poor health, customers complaining, financial problems, tax office demands, and so on.”

So, what qualifies Kobi to write a book on business building?

The Turnaround

Kobi’s fear of failure drove him to find answers that work. He engaged two advisers and started to improve the business.

“We increased prices to a fair level. Existing customers separated into those who valued our service and those who didn’t. This allowed us to focus on fewer customers, and profitability improved. We also identified our target market, which improved our customer acquisition process.”

From there, the business grew steadily until exponential growth was achieved in the last five years before the sale. During that time, he learned what gives a business value and what makes it healthy.

Kobi identified three main drivers of value from a buyer’s perspective

• The maturity of the management team,

• The level of recurring revenue, and

• The brand recognition in the business.

“If you sort these out, you can get your business super healthy, and you may not want to sell it.”

Potential buyers started to approach Kobi, and he rejected the offers for various reasons. Finally he received a credible proposal that met his criteria,

Kobi Simmat Author of How to Build a Business Others Want to Buy. www.kobisimmat.com

and they negotiated a sale. “The negotiation process was intense,” commented Kobi. “I was sitting opposite a panel of 12 lawyers who were skilled negotiators. I had to bring my A-game.”

Negotiation Skills

Kobi maintains that every business owner benefits from acquiring negotiation skills. And, in a business sale situation, they are critical.

His three hints areGet educated. He highly recommends the Harvard Law School Program on Negotiation, which includes a wide range of free reports covering the entire negotiation process.

Negotiate from strength. Never try to negotiate when you are needy. “If you are needy, a professional negotiator will identify and exploit that weakness. I was in a position where I could say, ‘This is what I want. Take it or leave it.’ I conceded on some issues, but these were minor because I was in a strong position.”

Identify the impasse point

Kobi advises that you must have a “walk away” point and assess the other party’s impasse point too. “If you can run as close to an impasse as possible, then both parties are giving a little and achieving the best outcome possible.”

Having the necessary negotiation skills enabled Kobi to negotiate the successful sale of his business that was independently valued at $20 million.

WHAT METRICS SHOULD A SELLER FOCUS ON?

Kobi commented, “I discuss 21 key metrics in my book. Every business owner planning to exit must address these if they want the best outcome. We can’t cover them all, but here are a few.”

Profitability

“First, your business has to be profitable. If not, it’s love, trust, and pixie dust for the buyer. And, if the buyer is still keen, you need to identify ‘why’ to assist your negotiations.” Kobi explained that reliable future profit is always the objective for buyers: either from your business or the complementary effect on their existing business.

Recurring revenue

Kobi envisaged a revenue model similar to mobile phone plans when starting his business. Since then, subscription models have become much more common.

“Everyone knows selling to existing customers is easier than finding new ones. It’s even better if that arrangement is contracted. The buyer has confidence he can spend money buying customers contracted to buy from your business for a set period.”

Management Quality

The business owner must not be the centre of the business management team. The risks for the buyer increase significantly when the owner is the CEO. Kobi urges business owners to become the master who trains the apprentices.

“Make finding great people and training them well the #1 objective for your business. We spent a whole year focussing on our recruitment and training processes. If you want to scale a business, you need great people,” Kobi advised. He is adamant there is excellent talent available, “I do not accept that you can’t find great people.”

AND NOW?

These days, Kobi is still busy building new businesses. He also offers consulting services for business owners but warned, “I’ll only coach people who are prepared to implement. There’s no free lunches!”

And when asked for a final tip to improve any business, Kobi responded, “Add subscriptions to your business even if it’s not normal in your industry. Businesses that do not have recurring revenue may be a profitable buying opportunity for someone who can work out how to achieve that.”