PCI

How to reap the fruits of a life of self-imposed labor?

Some of the issues smaller businesses face, are:

Scale Paradox:
►You need to be big, to get big. You may have the best expertise, but still the dominant market player picks up the contract and subcontracts to the specialist to actually get the job done. No one ever got sacked for picking the largest Market Player.
►Many procurement agents are not allowed to issue a contract that represents more than 30% of a supplier’s annual sales. They won’t tell you, but that’s why less competent but larger competitors get the order.
►Scale also affects valuation. As investors consider bigger businesses less risky, they are prepared to pay them more, $ for $, than for smaller businesses.

Succession:
►Entrepreneurs are often essential to operating the business. Thus, when they want to exit, legal knots tie them up to stay, and they have to wait years to get the exit money. When they eventually leave, most of the drive and passion leaves with them, because people hate change. So how do you safely and quickly transition out with plenty cash?

Demographics:
►Whereas in the past there was always a new generation to come and acquire or take over the business, now the next generation is smaller and less interested.
►As the barriers to start up a new business have dropped to nearly nothing, why buy a business if you can start one and compete instantly?
►Currently, many baby-boomer entrepreneurs want to sell their company and retire. Recent US statistics show that 12 out of 13 smaller businesses find themselves without succession and without buyers, and are too small for the larger players to buy, but too valuable to simply close down.

Liquidity:
►The ability to buy and sell your shares is a huge driver of shareholder value. Therefore, publicly listed shares carry a premium for this liquidity.
►For most entrepreneurs the exit is a choice of either selling or closing down.
►If they are lucky to find an interested investor, owners have to show a strong business case for the other’s investment, they can’t just go and buy a Porsche.

Wealth and value creation:
►How do you create the best value and wealth from your business? Do you sell, or leave it under new management?
►You don't want to sell too early. What if next year you get all those orders that you have been talking about for the last 5 years, you will actually get next year?
►Less than 20% of businesses create any wealth for their owners. The rest goes puff.
►Of those 20%, most get no more than the book value, called sweat equity. So, the very free market that allowed you to start up so easily also makes it very hard to break out from the momentum of mediocrity.
►Value Creators that Investors focus on: is management team capable; is market share sufficient; are barriers to entry high enough; is customer and supplier base diversified; how many contracts are long term; what % is recurring revenue; is overhead minimized; are payment terms favorable; how many tangible assets; how much is protected by intellectual property?
Global expansion:
►Exporting your products/services to reduce risk and improve the value of your business is a great idea. However, opening up in a foreign country yourself is a minefield, due to local cultural, compliance, political, language, legal, labor-law, taxation, and other challenges. It is therefore often seen as costly, time consuming, hugely risky, and very distracting.

Portfolio Approach:
►Entrepreneurs feel forced to keep all of our eggs in one basket. They have their shares in their business and that is it, for better or for worse.
►Their business has taken the best years of their life. You either ‘hit it out of the park’ or you fail! There is often no happy medium.

Access to capital:
►Banks will typically not lend to smaller enterprises, or want you to mortgage your house and any other valuable property you own.
►There are trillions of $$ of capital waiting to be deployed into businesses, but small businesses just are not big enough or de-risked enough to attract it.
►90% of all global businesses are small or medium sized. So, trillions of $$ of investment potential is effectively taken off market due to lack of scale and transaction costs.
►When you do find investment money, the conditions are not just strings, but ropes and padlocks. You have to sell your soul, your dream, and your control to the investor.

Lack of Private Resources:
►Most SME's lack the Financial & Managerial Resources, Time, and Talent to implement the Industry 4.0 Technologies necessary to remain competitive, and grow instead of perish.

The one size fits all solution to most of the aforementioned is Mergers or Acquisitions.

So, let us look at some of the issues with this solution, and the issues with a more public listing.

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