Don't miss the opportunity to sell during this Upcycle

[Editor's Note: This article is an update of one we have published twice before over the last 20 years. The message remains relevant to the CEOs and owners of lower middle market businesses. I hope you find it useful. - dpm]

We missed the selling boom during the last positive cycle and were determined that we would not miss another opportunity.

In one of our Breakfast briefing series a few years ago, Dan McCallin former owner and CEO of Timberline Steel made an interesting statement: "We missed the selling boom during the last positive cycle and were determined that we would not miss another opportunity to sell during the next upcycle. We decided to take the steps so that we were prepared." While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, the message could certainly apply today.

The exit sales process may take the better part of a decade. With interest rates near record lows, the economy still in expansion mode, and sales multiples at high levels, there may be a tendency on the part of business owners to think that the good times will continue for the foreseeable future. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, the exit sales cycle may take several years to execute. Professionals will tell you that in order to sell at highest value, the process includes 1-3 years to get ready, 1 year or so for the transaction, and then you may have to spend up to 3 years with the company after the sale.

Companies can focus on making fundamental improvements to their business that will help them make their company healthier and more attractive than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes
4. Develop a strategic growth and execution plan
5. Position the company to succeed in any part of the business cycle

Focus on customer net profitability. The tendency is to cling to any customers and revenue no matter the profitability level. A common comment is that "at least they absorb overhead." The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business' ability to grow as the economy improves.

Upgrade management. There is still a pretty good supply of good talent now available in the marketplace. In many cases this may be talent that may not be available as the labor market continues to tighten. Take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance - the results make it very clear which ones have been a drag on the company.

Cleanup business processes. During boom times, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That "excuse" can ultimately cost you when you try to sell.

Develop a strategic growth and execution plan. You need a plan that will allow you to be agile enough to take advantage of opportunities in the marketplace. There may be market segments that have been slow to come back; some may never come back the same way. Other market segments, however, may present huge new opportunities. Your organization needs to develop a plan and be prepared to execute.

Never waste the opportunity to improve. Take the opportunity to examine everything, reduce unnecessary expenses, trim those underperformers, examine unprofitable business, streamline business processes, etc.

   

Take a lesson from the Boy Scouts: Be prepared. These steps can add value to your business. Your business can accelerate faster and be well- positioned to succeed in any market. The market for selling a business will likely continue to be ripe through most of 2018. Those businesses that are prepared and ready are finding a hungry group of buyers and investors with lots of "dry powder" that they need to invest.

The Mead Consulting Group has been helping middle market companies for over 25 years to add value and prepare for a successful transition. Our clients have consistently enjoyed better results. Investment bankers have told us that our clients are among th

Colorado success stories: GolfTEC

Changes in strategic focus help GolfTEC thrive and grow

By David P. Mead

Editor's note: This is the second in a series of Colorado company success stories as told by CEOs and business owners that we are writing for ColoradoBiz Magazine. We are interviewing clients and friends whose companies have thrived during the economic recession through disruptive innovation, new business models or superior execution. (This article was originally published in ColoradoBiz on Feb 7th)

Recently I sat down with Joe Assell, co-founder and CEO of GolfTEC to review the strategies and approaches that the company has taken to reach its current level of success.

Mead: How did you decide to get into the business?

Assell: I was a golf pro and in 1994-95, co-founders Mike Clinton, Clayton Cole and I could see new technologies emerging (PC’s, the internet, etc.). Golf lessons essentially had been conducted the same way by golf professionals for years. We decided to find a better way to give a golf lesson, utilizing technology. In 1995 we opened our first location - as an experiment. It booked quickly and we added a second location.

Mead: What is your differentiation?

Assell: We have capitalized on a “first to market” advantage. We offer proprietary software platforms: g- SWING where we match your swing to our database which includes the motions of 150 top tour players. So the lesson is based on facts and data about your swing, rather than opinion; CaddyMaster (our ERP system) provides business intelligence about customers, location performance, on-line scheduling. It allows us to run golf instruction as a sophisticated business.

Mead: Has the growth path always been smooth?

Assell: In 1997-98 technology was “hot” and we were talking to venture capitalists. To please them, we “foolishly” started trying to become a tech company and developed technology to deliver lessons over the internet and added expensive, experienced management. When the tech bubble burst, we could not get investors, and had to reverse direction and retool back to our original profitable model – but not until we had burned through $3 Million in capital. We were very close to the edge – within 1-2 months of folding. We were able to secure a bridge loan which saved us.

Mead: Weren’t there some good things that came from this expensive lesson?

Assell: Yes, we had the technology which has become a key to our success. Also, three things happened, starting in 2001.Gart Capital Partners invested in GolfTEC. They had a fabulous history of success in sports retail and helped us stabilize the business. We also started partnering with GolfSmith (we are now co-located in 56 of their stores). Third, we started franchising. Over the next five years, we had steady consistent growth - from 18 locations to 140 locations.

Mead: Joe, how did the current recession impact your business?

Assell: We are in the retail and recreation business and we could see that retail was taking a big hit, especially specialty and luxury retail. Some retailers were reporting 35% to 50% reductions in sales. We put a strategic plan in place to respond to these dynamics. Our team did a terrific job. We were fortunate that even in our worst period (Sept ’08 through August ’09), our sales were down only 7.7%.

Mead: What are some of the actions and new programs you took to sustain growth?

Assell: First, we adjusted our strategy to focus on equipment sales. Our IT team developed proprietary club-fitting software and we partnered with Golf Magazine and Golf.com. Second, we started offering monthly payment plans that spread the annual cost of lessons and helped our customers manage their cash flow. It was amazing that 18% of our customers adopted these plans. Third, we rewarded our loyal customers by offering discounts for renewals. We offered two different months during the year when renewing customers could sign on for another year at discounted rates. Not only did this build great goodwill, but these two months have become GolfTEC's two largest cash sales months. Our results have continued to steadily improve. In 2010, our business was up 15% over 2009.

Mead: What are the keys to continued growth over the next 5-10 years?

Assell: There is significant opportunity for growth, both in same location sales as well as new locations. The “TEC” in GolfTEC stands for Technique, Equipment, Conditioning. In technique (golf lessons), we are number one on the world. In equipment, we started focusing more attention. Our equipment sales were up 70% in 2010 and there is plenty of room for growth. Conditioning is a great opportunity and one that we really haven’t touched yet. As far as the market is concerned, we see the global market as having capacity for 750 GolfTEC locations and we are currently at 145 so we are only at about 20% penetration. We still have a long way to grow!