The Value Pyramid

The Value Pyramid: A Framework for getting into the buyer’s shoes

If you’re thinking about selling your business, it’s important to understand what buyers are looking for. That’s where the Value Pyramid comes in. The Value Pyramid is a framework we created at Ecom Brokers to help business owners put themselves in a potential buyer’s shoes. The Value Pyramid represents the five components of most importance to potential buyers when they look at your business:

• Brand
• Growth and Profitability
• Risk
• Transferability; and
• Documentation

By taking the time to evaluate your business from a buyer’s perspective, you can identify any areas that need improvement before putting your business on the market. This could be the difference between a smooth, great deal; a prolonged stressful process or even no sale at all. So if you’re thinking about selling, take a step back and look at your business through the lens of the Value Pyramid. It just might be the best thing you do for your business – and your sanity!

(If you prefer to watch a video on this topic instead, I’ve published an episode of The Value Pyramid on YouTube here)

Brand

As anyone who has ever tried to sell an e-commerce business will tell you, it’s not easy. There are a lot of businesses out there vying for attention, and unless you have a strong brand, it can be tough to stand out from the crowd. A strong brand is more than just a logo or a catchy name – it’s the sum of all the interactions that potential customers have with your business. It’s the way you answer the phone, the way you respond to customer inquiries, the way your website looks and feels. In short, it’s everything that contributes to the way potential customers perceive your business. And when it comes to selling an e-commerce business, perception is everything. Buyers want to know that they’re buying a business with a strong brand that will continue to be successful long after they’ve taken over. So if you’re looking to sell your e-commerce business, take some time to build a strong brand first – it could make all the difference.

But what is a brand?

I like this definition: A suite of related products, that solve problems for a particular group of people. They could be scuba divers, software engineers or pastry chefs.

So do you just source generic products for those people and slap a logo on them?

Well, you could but that would be stupid.

Instead, develop quality products that genuinely serve a purpose and then create a brand identity that makes people feel loyal to, excited about and proud of your brand.

How do you do that and why does this matter?

Because with no discernible brand identity there is no hook for anyone to get excited about. Therefore there is no following, no repeat custom, and no word-of-mouth, so social media assets, no pride from customers in using and being seen with your product.

Marketing.

Learn about your customers. Build a customer avatar and reflect that in your brand. You make all your marketing material fit the essence of your brand avatar such that your brand is so compelling, and clearly shows the customer how your products make their life better – that they will know, like and trust you and then buy from you.

Buyers and investors want to buy a business that is sustainable, has growth potential, intellectual property protection, repeat customers. A brand gives them that. A generic assortment of stuff does not.

Need help in building your customer avatar? Check out our Customer & Brand Avatar Series on YouTube here.

Growth and Profitability

When it comes to selling your e-commerce business, growth is key. A strong track record of consistent growth shows potential buyers that your business is stable and has a bright future. Plus, it makes your business more valuable and can help you command a higher price. So if you’re looking to sell your e-commerce business, make sure you’ve got strong growth to show potential buyers. Otherwise, you might find it tough to get the price you want.

Ideally, we want to see YoY growth of at least 20%, but also need to be able to say to buyers “here is some more growth for you, all you have to do is pull this lever”. We call these – growth levers. Levers you’ve set up, ready for a  buyer to pull and get a reward.

Example growth levers

• You’ve developed new products for the new owners to launch
• You occupy a small % of the market. The new owner has deeper resources to exploit more
• Your brand is ready to move onto other channels that the new owner can open up
• Your brand is ready for a new owner to take it international.

And lastly, there’s ready-made growth – where you pull that lever shortly before exit, so that it is ticking over nicely and the buyer doesn’t have to do very much but let it grow.

All of these – growth history, growth levers and “ready-made” growth will push the value of the business up!

Risk

When it comes to selling your e-commerce business, the lower the risk, the higher the price you can expect to receive. Buyers are looking for a sound investment, and if your business is perceived as high-risk, they will either be unwilling to purchase it at all, or will offer a significantly lower price than they would for a similar business with a lower risk profile. Fortunately, there are steps you can take to mitigate risk and make your business more attractive to potential buyers. By taking measures to ensure the stability and future growth of your business, you can increase its value and ultimately receive a better price when the time comes to sell.

You can de-risk your business by ensuring that it is defensible (cannot easily be copied); doesn’t wholly rely on you; is well positioned in the competitive landscape now and in the future; is not at risk of becoming obsolete; is at least two years old and is generating at least 15% profit.

Transferability

When you’re ready to sell, one of the most important factors buyers will be looking at is transferability. In other words, they want to be able to pick up your business and drop it into their existing set-up with as little hassle as possible. There are a number of factors that can make a business more transferable – systems and processes, efficiency and automation. By taking the time to streamline your systems and put processes in place, you’ll make it easier for buyers to take over the day-to-day running of the business. And by automating as much as possible, you’ll free up time for the new owners to focus on growing the business. Ultimately, making your e-commerce business more transferable will make it more attractive and valuable to potential buyers.

Documentation

Good documentation is essential when it comes time to sell your e-commerce business. Buyers need to be able to rely on the data in order to make informed investment decisions, and accurate records are also essential for establishing a fair value for the business. Furthermore, running the business itself will be much easier if all of the relevant documents are well-organized and up-to-date. Therefore, it is important to keep meticulous records of financial statements, standard operating procedures, supplier information, certificates, audits, and any other relevant documents. By taking the time to maintain good documentation, you will make the process of selling your business much smoother and more straightforward.

Conclusion

The Value Pyramid is a helpful framework for understanding what buyers are looking for in an e-commerce business.

By keeping the buyer’s needs in mind, business owners can create a business that is more attractive to them. The five components of most importance to buyers are brand, growth, risk, transferability, and documentation. By understanding these components and how they relate to your e-commerce business, you can create a strategy for increasing its value.

Ready to sell your business for the best possible price? Start by clicking the link below! No obligation, no hard sell. Just solid, professional advice.