Three founders learnt that it was much more valuable to own their service rather than sell their service…
An initial ‘no’ can sometimes set you up for further successes down the line.
We saw this in an earlier case with Stephanie Breedlove who was able to build company value and exit very successfully. Next we can look to another successful trio who decided to choose wealth over fame.
Entrepreneurs Jeffery Feldberg, Waleuska Lazo and Stephen Wells co-founded the company, Embanet in 1995, in order to help premiere American universities shift their curriculum online.
Embanet began as a classic services business, and the co-founders were paid hefty consultant fees for their time. A few years into their business, the three were approached by an acquirer who brought an offer of 3x their annual profit to the table.
While the acquirer believed the trio in charge were missing out on strategic opportunities, Feldman, Lazo, and Wells were striving for a finish line much different than the one the acquirer offered.
By saying no to the offer, the trio said yes to building a valuable company, and making it big.
How the Embanet trio switched from selling their time to building a valuable company
Embanet moved away from the commoditized web and course design services they were offering, which were constrained by the number of hours they could work in a day. Instead they made the shift to owning a share of the sales of online courses they were helping to set up.
With this strategic shift, the founders’ profits were no longer inhibited by how many hours they could work. Now they weren’t just providing a service to develop their clients' products, they actually owned that product, and had immediate access to a much wider audience (instead of just the universities and institutions they previously served).
Embanet quickly became the market leader in e-learning.
This time, when investors came knocking, it wasn’t for 3x EBITDA, but 13x EBITDA, just two years after making their business shift.
We can learn from Feldman, Lazo and Wells that businesses that own their products are much more valuable in the eyes of an acquirer. The trio understood that any savvy investor would be unlikely to make an offer on a business reselling a product, instead they would prefer to go straight to the source. That’s what makes these entrepreneurs Value Builders.
Your Action Plan to Creating Company Value:
Value Builders don’t wait to take ownership. They own their products or services from the outset. And they do that by following one of two strategies.
1) Like the men behind Embanet, you can choose to develop your products, and legally protect your IP. This will ensure you have more influence in that space, and can control more of the market share.
2) Creating a strong brand around your company and products/services to make it much harder to imitate them. Start taking steps to make those brands sing louder than your personal brand so they are what the customer remembers.
Finally, the last lesson we can glean from Embanet - and arguably the most important - is know who your potential strategic acquirers are early.
List out who, in an ideal world, you would want to buy your business. Knowing this, you can begin to consider any major strategic decision through the lens of what you believe would be most attractive to these would-be-acquirers. This will ensure you stay on track to meet your business goals and creating company value.
Be sure to catch up on our previous articles in this series
Entrepreneurs: Do You Want To Build a Business That Makes You Famous or Rich?
How to Build Your Business Backwards
How to Prioritise Value Over Revenue
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