In an analysis of more than 12,000 businesses, a new study finds the most valuable companies take a contrarian approach to the CEO doing the selling.
Who does the selling in your business? I’d guess that when you’re personally doing the selling, your business is more profitable than the times when you leave the selling to others.
That makes sense because you’re likely the most passionate and motivated representative for your company. You have the most industry knowledge and the biggest network of contacts.
If your goal is to maximize your businesses profit, you could easily come to the conclusion that you should spend most of your time out of the office selling, and leave the dirty work of operating your company to your team.
However, if your goal is to build a highly valuable company—one you can sell down the road—you can’t be your company’s number one salesperson. In fact, the less you know your customers personally, the more valuable your company!
The Proof: Research on 12,000+ Companies
We offer The Sellability Score questionnaire as the first of twelve steps in The Value Builder System, a statistically proven methodology for increasing the value of a business.
We asked 12,000+ business owners if they had received an offer to buy their business in the past year, and if so, what multiple of their pre-tax profit the offer represented. We then compared the offer made to the following question:
Which of the following best describes your personal relationship with your company’s customers?
- I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
- I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
- I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
- I don’t know my customers personally and rarely get involved in serving an individual customer.
2.92 vs. 4.48 Times
The average offer received among all of the companies analyzed was 3.7 times pre-tax profit. However, when isolating just those businesses where the owner does not know her customers personally and infrequently gets involved in serving an individual customer, the offer multiple went up to 4.48.
Companies where the business owner knows each of his customers by name get discounted, earning offers of just 2.92 times pre-tax profit.
When Profit is the Enemy of Maximizing Value
Who you get to do the selling in your company is just one examples where the actions you take to build a valuable company are different than what you do to maximize your profit. If all you wanted was a fat bottom line, you likely wouldn’t invest in upgrading your website or spend much time thinking about the soft business of company culture.
How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your company in the long run.