Our Business Valuation Services for St. Louis

At some point, every business owner will need a comprehensive valuation from a reliable third-party assessor. Whether it's for partnership agreements, employee stock options, or putting your company on the market, a business valuation can help you understand the fair value of your company from an objective third party. You can enlist the trusted help of professional business valuation services from Murphy Business Sales – St. Louis Central. As a brokerage firm with a full staff of trained experts, we can provide you with an impartial assessment of your business.  

Business Valuation Services in St. Louis With A Global Reputation

With offices across North America, Murphy Business is a full-service business brokerage firm backed by a global reputation. We're able to keep updated on the latest trends, issues, and court cases related to business valuations. Our valuations are informed by national standards and the most recent developments in business affairs. That means our St. Louis staff can offer you fair, defendable business valuation services for any number of situations:   

  • Acquisitions, mergers, sales, or liquidation of a company 
  • Financing or loans, going from a "c" corporation to an "s" corporation, managing estate/gift taxes, or calculating stock options for employees
  • Navigating divorce process or premarital agreements 
  • Structuring exit strategy, retirement, or managing life insurance
  • Partnership or buy/sell agreements
  • Shareholder conflicts or legal proceedings

Business Valuation Services For St. Louis Area Businesses

Murphy Business has a full team of experienced, qualified appraisers who are fully fluent in every aspect of business valuation services and transfers. For business owners in Maryland Heights, Clayton, Chesterfield, St. Charles, or St. Louis, we can offer the following industry-backed services: 

  • Business Appraisal Report. This formalized document gives a detailed account of how our appraisers reached their assessment. It can be used for IRS reviews, legal proceedings, and more.  
  • Business Valuation Report. This standard, formal summary document is for non-legal situations and can help you reach a fair selling price for a business, structure a partnership agreement, and more. 
  • Calculation of Value Report. This report presents a value that's been calculated in accordance with national valuation standards such as the Institute of Business Appraisers and other organizations. 
  • Broker's Opinion of Value. This document is specifically designed for small businesses. The report can help determine a clear listing or selling price for independent businesses on the market. 

Get a detailed assessment of your business's value, from experts with a global reputation. To set up a free consultation on our business valuation services, call Murphy Business Sales – St. Louis Central at (314) 845-7000.

Business Valuation Services in Jacksonville

What is a business valuation? Also referred to as a business appraisal, it's when a third party assesses and develops a supportable opinion of value for a company, a business ownership interest, a security, or assets. Business valuations are a necessary and inevitable part of running a Jacksonville area business. Having a defendable assessment of your company from an impartial group can help you in any number of ways, whether you're buying or selling a business, structuring a prenuptial, or supporting a legal dispute.  As business consultants with a global reputation, Murphy Business Jacksonville can provide comprehensive business valuation services to your company.  

Business Valuation Services in Jacksonville With Industry-Backed Standards

With Murphy Business, you get business valuation services that are detailed, reliable, and in compliance with national standards. Our expert appraisers are fully experienced in business transfers, valuations, and other aspects of business affairs. They're also up-to-date on the latest issues in valuations and related court cases. That means they can help you navigate valuations, and can prepare neutral, industry-standardized reports for the following situations: 

  • Buying, selling, merging, acquisitions, or liquidation of a company 
  • Obtaining financing, loans, life insurance, or navigating gift/estate taxes
  • Structuring partnership agreements, planning retirement, or exit strategies
  • Developing prenuptial contracts or dealing with divorce proceedings
  • Litigation, shareholder conflicts, or appraising intellectual property
  • Building buy/sell agreements or stock option plans for employees
  • Going from a "c" to an "s" corporation   

Our Business Valuation Services for Jacksonville 

With a proven track record, a global reputation, and comprehensive industry expertise, our consultants can help you navigate the world of valuations and arrive at a fair, defendable price for your business. For Northeast Florida companies in and around Jacksonville, Orange Park, Yulee, Fernandina Beach, and Jacksonville Beach, our firm can provide the following industry-backed business valuation services: 

  • Business Appraisal Report. This formal, detailed report includes a step-by-step summation of how our trained appraisers assessed your business. Suitable for the litigation process, IRS, and others.  
  • Broker's Opinion of Value. Designed for small businesses, this report helps sellers, buyers, and business brokers to determine reasonable selling/listing values and exit planning. 
  • Business Valuation Report. For non-litigation scenarios, a business valuation report is a formal summary of your business's value. Can be used to structure agreements, the sale of a business, and more. 
  • Calculation of Value Report. You'll receive a calculated value adhering to national standards such as the Institute of Business Appraisers and National Association of Certified Valuators and Analysts.

Get a detailed valuation from experts you trust. Contact Murphy Business Jacksonville at (904) 683-6655 for a free consultation, and to learn more about our business valuation services today.

8 Tips on How to Sell Your Business in Jacksonville Florida

Historically, starting and growing a business has been the sign of a successful entrepreneur. Today, however, the most successful entrepreneurs don’t make their mark by starting their own business. Instead, they thrive by learning how to buy and sell businesses.

While some business owners retain lifelong ownership, the vast majority do not. Given this, you need to think about your business as an investment. Whether you already own a business or you’re purchasing one for the first time, you should already be thinking about how you’ll increase the value of your investment for the moment of sale.

At Murphy Business®, we have a unique understanding of what it takes to buy and sell businesses. Below, we’ve collected eight expert tips so that you can learn how to buy and sell businesses like a business broker.

Sell Businesses In Jacksonville

1. Hone Your Negotiation Skills. Negotiations used to be an everyday occurrence for most people. Now that everything has a fixed price tag, that’s no longer the case. If you’re planning to buy and sell businesses, you’ll need to develop your negotiation skills. You’ll also need to keep in mind that different kids of negotiations require different tactics.

2. Find Out What Depresses Market Value. Many business sellers are shocked to learn that their business is much less valuable than they initially thought. A business may be profitable, but if its owner plays an indispensable role or it lacks a diversity of revenue streams, these factors will depress its market value. Identifying these kinds of factors can help buyers avoid over-valued, high-risk investments. Sellers, meanwhile, can address these weaknesses before selling.

3. Learn How to Quickly Increase Market Value. Whether you’re buying or selling a business, you should learn different strategies for increasing a business’s market value. If you’re a seller and you’re underwhelmed by the value of your business, it’s possible to increase your valuation with the right steps. If you’re buying a business, these same tactics could allow you to scoop up a low-cost business and flip it within a few years at a much higher figure.

4. Know Where to Look. If you want to buy and sell businesses, you need to know where to look for buyers and listings. At Murphy Business, we have access to a number of exclusive business brokerage associations, which allow our clients to reach a wider, higher-quality pool of targets. Sellers get access to national and global buyers, while buyers can gain access to thousands of confidential and non-public business listings.

5. Target Serious Buyers and/or Sellers. When you buy and sell businesses for a living, you quickly learn to gauge the sincerity of different sellers and buyers. This is an indispensable skill if you’re on either side of a business transaction. If you’re unable to qualify buyers or listings, you could waste weeks or months (not to mention substantial funds) on a transaction that never comes to pass.

6. Understand the Emotions Behind Business Sales. From the outside, business sales might seem like a cut-and-dry process. Once you start to buy and sell businesses, you quickly learn that this isn’t the case. At Murphy Business, many of our business transfers involve small business owners who are selling for the first time. Selling a business is an emotional event for many of these sellers, so it’s important that both sides understand the emotional as well as financial stakes of the transaction.

7. Get a Grip on Financing Options. As a business buyer, you’ll want to research financing to ensure sufficient funds for purchase. Even as a seller, it’s a good idea to learn about financing options. At Murphy Business, we will often assist buyers with financing, even when we’re representing the seller. Buyer financing ensures fewer headaches for sellers, and because we’re familiar with the local area, we can point buyers in the right direction for local financing.

8. Surround Yourself with Experts & Specialists. Buying and selling businesses can be lucrative, but it’s rarely easy, and it’s always complicated. Even the most experienced buyers and sellers depend on professional advisors, including accountants, tax specialists, lawyers, and business brokers. While it costs money to surround yourself with a team of qualified experts, doing so will save you countless hours, steer you clear of costly mistakes, and help you optimize your return on investment.

Discover why so many entrepreneurs buy and sell businesses with help from Murphy Business in Jacksonville Florida! Call (888) 561-3243 today for more information about our business brokerage services.

Peggy Kragh on the Value of Selling with a Business Broker

Before becoming a business broker, Peggy Kragh’s career included stops in e-commerce, online publishing, construction, property management, and telecommunications. Peggy’s marketing savvy and a finance background led to success at every step of her journey. But it wasn’t until she joined the Murphy Business network that Peggy found her true calling as a professional business broker.

“It’s not an easy business,” she explains. “But it’s very rewarding to see a seller get full value for their business and to see that business flourish after a sale.”

Since launching her brokerage business in 2008, Peggy has become one of Murphy’s most successful business brokers. She is a three-time member of Murphy’s “Million Dollar Club” and was named the #1 Murphy Business office in 2015. These days, Peggy handles business sales in three of Montana’s most attractive metro areas, boasting a sell-through rate of more than 80%.

In a recent conversation, we asked Peggy for her advice to business owners getting ready to sell their business. Here’s what she had to say.

Why Hire a Business Broker When Selling?

Every year, thousands of business owners sell their companies. Yet the vast majority of these sellers don’t actually bother to hire a business broker. According to Peggy, many of these sellers struggle to sell their business for proper value.

“We hear over and over how business owners have tried to sell on their own and have run into problems,” she says. “Most business owners have never done this before, and a business broker brings a lot of value to the process.”

In Peggy’s experience, business owners make a number of common errors when they try to sell a business on their own. Some end up selling their business for a fraction of its actual value, while others struggle to attract qualified buyers.

“One of the biggest mistakes that business owners make is selling to the first buyer. Someone approaches them to sell their business and they make that sale without putting their business on the market. I always say that one buyer does not make the best price.”

“Other business owners will put too high a price on their business, and then it doesn’t sell. If it sits on the market, people start to think there’s something going on with it, and then you need to drop the price dramatically.”

Peggy says that business sellers can easily avoid these issues by hiring a qualified and experienced business broker. This way, you can start with an accurate sense of your business’s value. What’s more, you’ll have an expert to help you maximize that value.

The Value of a Professional Business Valuation

When a business owner comes to Peggy with the intention of selling their business, Peggy starts by conducting a professional business valuation. This, she says, is an integral step for business sellers, one which underscores the value of hiring a business broker.

“Most property owners know the value of their property. But business owners rarely know the value of their business. We show them on paper what that value is and where that value comes from. Once somebody has gone through that process, they understand our value, because they understand that we know the market.”

During the valuation process, Peggy works closely with business owners to help them understand how their business value has been calculated. Sellers learn how different aspects of their business influence this figure, as well as what steps they can take to boost the value of their business.

“What I’m doing is helping someone understand the value of their business, and what’s a big contributor to that value, and what’s a big deterrent to that value,” Peggy says, stressing the importance of the valuating your business with a business broker. “You have to have a baseline, and you have to understand what creates value in a business.”

Boost Value with Help from a Business Broker

Once her clients have gone through the valuation process, Peggy employs a number of strategies to help them capture full and fair value for their business. If a seller is happy with the valuation figure of their business, Peggy helps them market their business. As a member of the Murphy Business network, Peggy has access to national and international brokerage associations, allowing her to reach a wider pool of qualified buyers.

Before listing a business, Peggy prepares bespoke marketing materials for the business. This helps her attract a larger pool of qualified buyers, and it helps her clients capture full value for their business. “It takes packaging,” Peggy says of the marketing process. “You already know the value of your business. But we package the business so that the buyer sees the value.”

If the valuation figure is lower than the seller expected, Peggy will work with them to boost the market value of their business. To do so, she identifies issues that reduce the business’s value on the open market, as well as strategies for how to increase the business value.

According to Peggy, there are three common reasons for a lower-than-expected business valuation:

  • Dependency on the Owner. “A business owner who’s required for everything — that’s not attractive for buyers. What happens to the business when the previous owner isn’t there?”
  • Concentration of Customers. “We see a lot of businesses where 70% or more of their business comes from just one or two customers. That’s a big risk for a new owner.”
  • Living Out of Your Business. “You need to keep your personal life separate from your business life. I always tell clients: Clean records sell.”

Peggy says that a number of her clients who were initially disappointed with their original valuation later managed to sell their businesses at a much higher figure. She cites one case in particular where a seller received a much lower-than-expected valuation. With Peggy’s advice, the owner successfully doubled the value of his business.

At the end of the day, Peggy believes that hiring a business broker is an important step for any business seller. “Selling a business is an emotional process, and most business owners have never done this before. They need someone to guide them through the sales process and get them across the finish line.”

Getting ready to sell a business? Call Murphy Business at (727) 725-7090 to connect with a local business broker and learn more about our services.

7 Reasons to Hire a Professional Business Broker

If you’re planning to buy or sell a business, you’ve likely thought about whether to hire a professional business broker. This could be one of the biggest transactions you ever make, so it’s important that you leave nothing to chance. A business broker will be there at every step of the transfer process, protecting you from costly mistakes and ensuring you get maximum value from your investment.

Despite the advantages of hiring a business broker, many business sales still occur without one or more parties retaining brokerage services. That can lead to serious problems. So, if you’re on the fence about whether or not to hire a broker, it’s a good idea to take a closer look at the advantages offered by a professional business broker.

7 Advantages to Using a Professional Business Broker

1. Save Time. Buying or selling a business is a complicated process. If you don’t have extensive experience in the world of business sales, each step of this process can take an extraordinary amount of time. A professional business broker gives you the experience you need to shrink the timeline of your sale/purchase. He or she will also do much of the heavy lifting on your behalf. This could save you literally hundreds of hours compared to a DIY approach.

2. More Opportunities. With the right broker, you can reach a much wider pool of buyers or sellers. Take your local Murphy Business Broker. Each of our brokers is tapped into his or her own local market, providing you with an inside track on business sale opportunities within your metro area. At the same time, our brokers have access to national and global business sales networks. This gives you access to a near-unlimited pool of buyers and sellers.

3. Qualifying Expertise. Many of the biggest mistakes made in business transfers happen at the qualification phase. Mistakes at this phase can result in pursuing bad prospects, leading to untold amounts of wasted time and money. In the worst cases, a deal can fall apart in the finalizing stages, after you’ve already taken steps to assume or relinquish ownership of the business. By hiring a professional business broker, you can ensure this process is properly handled, protecting your interests.

4. Business Valuations. Another common problem in business transfers is the improper valuation of a business. If you’re buying a business that is priced over its value, you could end up with an abysmal return on your investment. The same applies if you’re selling a business that is undervalued. Many professional business brokers — including your local Murphy Business Broker — can connect you with an accredited valuation expert, ensuring you get fair market value for your investment.

5. Assistance with Financing. If you’re planning to purchase a business, there’s a good chance that you will need financing. This is yet another area where a professional business broker can provide guidance and assistance. At Murphy Business, we connect purchasers with banking contacts and provide detailed advice about how to pursue financing.

6. Confidentiality. Every year, an untold number of sales implode due to lack of discretion. If word gets out that a business is for sale, that business could run into serious problems. Workforce morale could plummet, employees could jump ship, and customers could start to shop elsewhere. When you’re selling a business, a professional business broker can protect your identity and that of your business. This way, you can avoid unwanted disruptions until the sale is finalized.

7. Paperwork & Legalities. When you are purchasing or selling a business, minor oversights can have major consequences. It is therefore critical that any documentation is handled correctly, and that you are guided by experts who understand the legalities of the sales process. A professional business broker will ensure that you are covered in both of these areas.

Looking to hire a professional business broker for help buying or selling a business? Call (727) 725-7090 today to connect with your local Murphy Business Broker and get started!

How Do Business Broker Services Work?

We wish that buying or selling a business was as simple as holding a sign on a street corner, but it’s significantly more complex. This is why smart business owners use professional business broker services such as those provided by Murphy Business.

Business broker services from an experienced, reputable firm are worth their weight in gold! For instance, Murphy Business understands all of the marketing, financial, and legal tasks necessary to accommodate business buyers and sellers. This knowledge allows us to successfully complete transactions to satisfy the needs of each of our clients.

Business Broker Services are All About Relationships

Buying or selling a business involves many complex transactions. To do it right, your business broker should help you get the best value for every dollar spent on buying a business, or the highest profit when you sell your business. This depends a great degree on having well-established relationships with a wide range of professionals. Ideally, business broker services include connecting clients with prospective buyers and sellers in a wide range of industries and business types.

If you are selling a business, you’ll benefit from the knowledge and experience of our business brokers. We specialize in the sale of businesses, so we have a depth of knowledge not often found with other real estate or sales firms. We’ll provide seasoned advice and guidance while connecting you with buyers who are ready to move forward with the transaction.

If you are buying a business, Murphy Business has access to listings of thousands of businesses for sale. Many of which are not publicly advertised. When you use our business broker services, you will have plenty of choices to sort through to satisfy your purchasing interests and desires.

A good business broker will also have excellent relationships with accountants, financial advisors, bankers, real estate agents, attorneys, and others. The reason? A typical business sale requires the input and assessment of a variety of professionals who will provide specialized expertise and help move each transaction forward.

Of course, the key relationship provided by business broker services is the relationship between the individual client – whether buyer or seller – and the brokerage team. Most brokers have experience buying and selling businesses of their own and having “been there, done that” they know the right people and have the right connections to make a business purchase proceed smoothly. You can trust their judgment and advice.

The Business Broker Service Process

The business broker service process generally follows a systematic procedure. First and foremost is gaining an understanding of the personal needs, interests, and desires of each client. Then, our business brokers can proceed with recommendations, tweaking of the recommendations based on your input, and acceptance by and execution of the process that will result in a closed deal.

Here are the steps that you might expect to SELL A BUSINESS:

  • Initiate a non-disclosure agreement with owner
  • Examine business financial data and determine fair market value
  • Prepare an informational package describing the business
  • Create a custom marketing plan
  • Confidentially market to prospective buyers through global networks
  • Qualify prospective buyers based on financial capability and seriousness
  • Evaluate offers and negotiate terms
  • Consummate the transaction in conjunction with the seller’s tax and legal advisors

We may tap into multiple sources of financing to assist a business purchaser so that the seller doesn’t have to provide any financing.

Get Closer to a Sale with Business Broker Services

With our extensive network of business contacts, our practical system for selling and buying businesses, and our proven successes since 1994, our business broker services are well worth checking out.

We are here to give you personal attention and close professional guidance to ensure your business sale or purchase transaction runs smoothly.

Learn more about our business broker services, by calling (727) 725-7090 or contact us here.

How to Manage Change in Your Organization

Revisiting the basics that small business owners often overlook will bring about the need to change your organization.

Change can be daunting. But, it doesn’t have to be daunting if done as part of a disciplined process. In this post we look at how to manage change in four steps. It is a process that will sharpen your focus and give you a repeatable methodology for continuing to fine tune your business efforts.

 

 

 

 

The four steps are:

Empowering Others to Act on the Vision

  • Getting rid of obstacles to change
  • Changing systems or structures that seriously undermine the vision.
  • Encouraging risk taking and non-traditional ideas, activities and actions.

 

Planning for and Creating Short Term Wins

  • Planning for visible performance improvements
  • Creating those improvements
  • Recognizing and rewarding employees involved in the improvements.

 

Consolidating Improvements and Producing Still More Change

  • Changing systems, structures and policies that don’t fit the Vision
  • Hiring, promoting and developing employees who can implement the Vision.
  • Recharging the process with new projects and themes.

 

Institutionalizing New Approaches

  • Articulating the connections between the new behaviors and new successes
  • Creating the means to ensure leadership development and succession.

 

These four steps, if properly executed will allow you, as an owner, to change your organization not only in an orderly and non-disruptive way but in a way that willingly involves those most affected by change – the people who work for you. However there are some assumptions we need to visit before tackling these four steps:

  • Assumption 1:  You have established a sense of urgency regarding your small business vision and the need to change your organization.
  • Assumption 2: In forming your guiding group you have included participants from all levels of your organization . . . not just managers and executives but line staff too . . . to gain credibility throughout the organization.
  • Assumption 3: You have created that vision AND the strategies to be used to achieve it.
  • Assumption 4: You have widely communicated the Vision and the strategies to be used to ALL stakeholders both internal and external, such as business consultants, and have gained their buy-in.

 

Now, to add some clarity, let’s go back and look at some specific guidance on how to manage change, following the four-step process:

Empowering Others

  • Getting rid of obstacles- Unfortunately almost every organization has a “Bill” . . . someone who has been there forever, is resistant to change and often starts his objections with, “But we’ve always done it this way ….” If you have a “Bill” in your organization it may be time to retire him or re-assign him as difficult as it may be.
  • Encouraging risk taking and non-traditional ideas etc.- If the only “authority” any given employee has is the ability to say “No” (not yes) you be absolutely certain that employee will use it often and most likely with the folks you don’t want to alienate. . .you customers. Broaden your employees’ authority and encourage them to seek creative ways to solve problems. Then trust them to do it.

 

Planning for Short Term Wins

  • Planning for visible performance improvements- identify those areas that need qualitative and quantitative improvements then plan for empowering employees to create the solutions.
  • Recognize and reward employees involved in creating and implementing qualitative and quantitative improvements.

 

Consolidating Improvements and Producing Still More Changes

  • Use the increased credibility gained with the staff to change systems, structures and policies that don’t fit the Vision and the called for strategies and tactics.
  • Hire, promote and develop only those employees that can willingly help to implement the Vision
  • Keep the process ongoing by initiating new projects and themes, all of which are continually measured against the Vision.

 

Institutionalizing New Approaches

  • Point out the connection between the new behaviors and new successes then reward those responsible.
  • Appoint someone to be the plan “sponsor and guardian” whose responsibility it will be to keep the process circular and repeatable as well as monitoring the measurements of success.

 

This last point may be the key to how to manage change successfully. Creating a Vision, sharing it and implementing a single series of changes then putting the plan on the shelf never to be visited again, will guarantee that your company will fall back on previous habits and lose their enthusiasm for fine tuning processes and making your business more competitive and more successful.

Why You Need a Small Business Vision Plan

Vision on a business planHaving a vision plan is one of the basics of owning a small business, but it’s sometimes unintentionally neglected. A small business vision plan is important because it articulates the owner’s strategy and goals to all stakeholders.

Many successful small businesses are often led by a charismatic and driven entrepreneur who is not only seeking to be successful but also wants to build a business of lasting value that can be passed on to heirs and successors. Usually this type of leader has a very clear business vision plan and roadmap for getting there. The biggest problem is that the plan and the roadmap are, more often than not, in his or her head and are not clear to others in the organization.

More than one manager employed in a small business has complained, “I know my performance is somehow being measured by ownership against some standard or plan but, for the life of me, I don’t know exactly what that is. ” Asking your employees to perform against some vision they can’t see is like asking someone to put together a jigsaw puzzle but not allowing them to see the picture on the box. If they don’t have a clear vision of what the puzzle should look like, they have no idea of how to link the pieces.

It works the same way in your business. Market planning, sales planning, product planning, goal setting and financial forecasting could all be rendered useless if your staff doesn’t have the big picture –a strategic small business vision — of what your organization wants to look like five, 10 or even 20 years from now. In other words, without a business vision plan, how will you know if your strategy is valid — and even more importantly, how will you know when you’ve gotten “there?”

The process of creating a well-organized, facilitated small business vision plan will help you assess and articulate some concepts you may intuitively know but may not have formalized, such as:

  • your organization’s core values;
  • your organization’s core purpose; and
  • a well-defined map to your goals.

 

A formal small business vision plan can help you achieve much-needed ancillary results, such as:

  • creating short term wins for your organization;
  • buy-in from employees; and
  • buy-in from other stakeholders, both internal and external.

 

But even more importantly, that small business vision, once formally articulated and widely shared, becomes the yardstick against which all other planning is assessed and measured. This applies to financial, market, sales and product plans.

Notice the comment about the business vision plan being widely shared. You will probably want to form a relatively small but empowered group to help put your vision into something that can be clearly seen by others.

Once done, the impulse is to share it only with management or those people to whom you have given certain authorities. But that would not be getting the greatest use from your planning efforts. Once complete, the business vision plan should be widely shared with all employees. Why? Well, the obvious answer is that you want their buy-in and you want them to embrace the plan. But an even bigger reason is that if they know what you know, 90% of the time they will make the same decisions you would make.

In addition to your employees, you will want to share the plan with suppliers and key clients, plus your banker, CPA, attorney and estate planner. Doing so will help every one of your external stakeholders –people who have no financial ownership in your business but have a stake in your success — deliver better and more targeted services to your organization, often at a savings in costs and logistics.

Another outcome from engaging in a small business vision planning process is that it will bring about change in your organization, and change can be a very scary word. In the next post, we’ll look at how to deal with change in your organization in such a way that it is not only manageable but welcomed.

Do You Have a Product-Driven or Market-Driven Business?

The first step in identifying your company's driving force is to determine whether you have a product-driven or market-driven business.

In the previous blog post we told you that in the next few weeks we’d be focusing on some of the basics of owning and managing your own small business. In that first post we defined a market and suggested you might want to revisit the definition of your particular market and use that definition to aid you in how you produce your product or service and for whom. This week’s post assumes you have done that whether formally or informally. And if so, then you are now ready to take a look at another of the basics: driving force.

All businesses — both small and large — on the basis of their successful experience operating in the marketplace, develop certain mindsets, usually based on the owners’ and managers’ perceptions of their competitive edge or the uniqueness of their product or service. These mindsets become the driving force behind the strategic and tactical decisions made by owners and managers. In their epic treatise, authors Tregoe, Zimmerman, Smith and Tobias identified eight such driving forces. They are:

  • Products offered (think General Motors or tobacco companies)
  • Markets served (think Proctor and Gamble)
  • Technology (think Apple)
  • Production capability (think agriculture)
  • Operations capability (think hospitals and airlines)
  • Methods of distribution and sales (think Amazon and Wal-Mart)
  • Natural resources (think oil companies)
  • Profit/return (think General Electric)

 

Realizing your particular driving force is another basic that will help you focus your sales and marketing efforts and get more bang for the dollars spent in promoting your product-driven or market-driven business. It will also help you in making strategic and tactical decisions about how to grow your business. For the purposes of this blog we’ll deal with only the three driving forces most small businesses need to consider. That’s why the first step you may want to take is to decide whether you have a product-driven or market-driven business. The difference is actually quite simple.

A product-driven business has a finite set of products, usually unique or without a lot of competition in the marketplace. Tobacco companies are the classic example. A fairly well-defined and finite set of products — cigarettes, cigars, chew and their variants — is their hallmark. Thus, in order to grow, they must continually look for new markets (groups of people) who will find their products attractive and who have the ability to buy them. Conversely, a market-driven business — perhaps like yours — has a well-defined market and pays attention to their wants and needs and continually adjusts their product lines to meet those needs. These companies constantly seek information from their market about what it is they want and what they are willing to buy. (Go back and look at the example of the small sportswear manufacturer in the previous blog post.)

I can hear some of you now: "But my driving force will always be profit/return!" Be careful there. Obviously every business, both large and small, seeks to be profitable; otherwise they won’t be in business for long. But businesses driven solely by the need to meet a predetermined amount of profit or a targeted rate of return often make huge mistakes in decisions to expand their product lines or offered services or where and how to produce those products and services. In particular, they make the wrong “buy, build or partner” decisions. Companies like GE have the luxury of periodically selling off product lines or divisions that do not meet the company’s profit/return standards. Most small businesses do not have that luxury.

Sticking with the product-driven or market-driven business approach is probably the best bet for most small companies. However, if you think your business may be driven by any of the other forces, contact Murphy Business for additional help.

Who is Your Business’ Audience?

Identifying your business’ audience is one of the first — and most important steps — you should take as an owner to set yourself up for success.

We know that running a small business takes a lot of an owner’s time, efforts and focus. There are customers to satisfy, new sales to be made and payroll to be met among a myriad of other issues, all of which taken collectively can sometimes cause owners to take their eye off the ball and lose sight of the blocking and tackling — the basics every business, regardless of size and purpose, must master in order to be successful. The first of these basics we will cover is your business’ audience.potential business audience at a concert

When asked the question, “Can you describe your market to me?” the answer most often heard by business intermediaries is something like, “All of Washington County, the eastern half of Hillsborough County and the northern third of Pasco County including everything on Highway 27.” Now, we all know that such an answer is a description of a territory, not a market. So the question is often re-asked as, “Who is your business’ audience?” The most common response is something like, “All men and women between the ages of 25 and 50.” But such a response is too broad and may not serve your purpose. So what is a market?

Philip Kotler, the longtime professor of marketing at Northwestern University in Chicago, set forth the classic definition when he wrote: “A market is a group of people with similar traits and characteristics; wants, needs, desires, demands and the ability to buy.” What separated Kotler from just about all of his contemporaries and made him the guru for almost every successful marketer since the publication of those words is his insistence that a market is always about people — not geography — and, radically enough, his inclusion of the phrase “ability to buy”.

I know of one small manufacturer of sportswear (excluding shoes) for runners, who offered a broad line of products because he defined his business’ audience too loosely: anyone interested in running and who likes quality goods. For a while, he did well, based on the quality of his goods. As time passed, he added more products he thought runners would like. After two more years, he realized that even though sales had increased, the added products had driven up his manufacturing costs without a corresponding increase to the bottom line. He compounded the problem by looking for ways to cut his manufacturing costs and moved part of it offshore. That worked briefly — until his loyal customers complained about the decline of quality in the merchandise they purchased from him.

One day over coffee he confided to an intermediary he knew (a Murphy Business broker) that he was at a loss as to how to correct the downward trend in his once-thriving business. The agent said, “Tell me about your business’ audience.” The owner gave him the loose definition you read above. It didn’t take long for the agent to figure out the problem. So the two of them set about to find out — using Kotler’s definition as a template — more about who runners are. What kind of people are they? And, into what categories can they be sorted?

What they discovered is that there are people who run for routine exercise, people who run because of some needed health benefit and people who run to compete. When they did more studies, they discovered that of all the types of runners, marathoners were the group who best fit Kotler’s guidelines. Marathoners are a group of people who are competitive, dedicated, extremely fit, and require high-quality, durable goods. They also discovered that of the 18 million Americans who participate in marathons each year, 80% of them are college educated. But more importantly, they found out that marathoners have a median household income of $112,000, whereas runners as a whole had a median household income well below that. In other words, marathoners were “people with similar traits and characteristics; wants, needs, desires, demands and the ability to buy.”

Well, as you can guess, the owner moved his manufacturing back on shore, limited his product line to the needs and demands of marathoners, raised his prices and started focusing his sales efforts to his newly defined business audience. He is still doing quite well because that market continues to grow and he continues to meet their needs.

The point here is that such an exercise and self-audit can be done for any business. Whether you are producing a product or providing a service you must know who your business’ audience is — not what or where. It’s always about people.