The Two Questions Most Entrepreneurs Forget to Ask
One critical event for every entrepreneur is such that once we launch our companies, most of us fall into a very dangerous trap.
What happens is that we get very myopic; so close and emotional to the business and we fail to see the bigger picture.
So, we run our businesses on a day-to-day basis, constantly fighting fires and striving to squeak out a little more profit each year than we did the year before.
Conversely, the most successful entrepreneurs ask two key questions that others don’t.
The first question they ask is:
1. “What is the end game?” Then they ask sub-questions such as:
- Is my goal to run this company until I die?
- Do I want to eventually sell my company? Or
- do I want pass it down to family members?
From my research and on-going surveillance, it turns out that the most successful entrepreneurs are the ones who build their companies with the eventual goal of selling them. Why? Because this is where the big bucks are. In fact, my research shows that 80% of pentamillionaires (those with a net worth of $5 million(Nigerian currency- N1.7 Billion or more) are entrepreneurs who started and sold their companies.
Think about it this way: the work required to start and grow a company from $0 to perhaps $10 million is MUCH more valuable than the work required to grow a company from $10 million to $100 million. Do you agree?
Ok let me put in another kind of way, maybe you’d agree…
With regards to the latter, there’s no shortage of corporate executives who have the skill sets to grow existing brands and companies. But there are few people out there (the ultra successful entrepreneurs) who have the ability to build a company from scratch to the point that a larger corporation wants to buy it. Do you agree?
The second key question that the most successful entrepreneurs ask is
2. “How do I build VALUE that multiple acquirers would want?”
Building value is different than simply running a business. When you simply run a business, typically your goals are to keep the lights on and earn a profit. When seeking to build value, you set different goals.
For example, the tussle for Facebook and Google to acquire Whatsapp for $ MILLIONs of Dollars. In making this acquisition, what did Facebook value? Well, it valued the $0.99 annual revenues from subscripton, customer base, marketing skills, intellectual property and operational processes among other things.
Importantly, Facebook did NOT value Whatsapp’s profitability. In fact, Whatsapp’s EBITDA (earnings before interest, taxes, depreciation and amortization) was a miniscule 2-3% of its revenues. To cap it all, after the acquisition of Whatsapp, the annual money subscription is cancelled, meaning you did not need to pay annual monies to use Whatsapp.
So, in addition to thinking about your end game, create a list of the factors that multiple potential acquirers would want to see in your company. Maybe it’s significant revenues. Maybe it’s a high profit margin. Maybe it’s unique products or intellectual property. Etc.
And importantly, once you have this list, make sure you integrate it into your daily, weekly, monthly, quarterly and annual action plans. And rather than looking back each quarter and simply thinking about how much revenues and/or profits you generated, consider how much VALUE you built and how much you progressed toward reaching your end goal.
That is why at JVmorris, the ‘JV’ has a representation; have you ever wondered or asked? it means …just value, because its everything we do and give.
Post Credit: Emamezi Murphy + Dave. L
JVmorris is a technology and business consultancy Service Company with over 7 years experience on bespoke technology- mobile and web applications, and with various service offerings with the mission of helping businesses grow.