What are your ultimate business goals?
- Achieving your company vision?
- Creating a successful revenue model?
- Finding a strategic buyer who values what you’ve built and wants to continue growing it the way you intended?
- Exiting with a sum that exceeds your expectations?
Entrepreneur Jill Nelson managed to check all of these boxes when she built Ruby Receptionists, a virtual answering service for small businesses.
She built her company from the ground up, and when she reached $11 million in revenue, she sold her company to a private equity firm for $38.8 million achieving an astronomical multiple - unheard of in her industry.
She then stayed on as CEO and had a second chance to build the company, creating a business that was wildly more valuable than any industry peers. Here, we’ll explore how she did it and what factors significantly drove up the value of her business.
Solving a problem for SME's
Jill started by wanting to solve a problem for small businesses.
These business owners were stretched.
They were often on the road trying to manage client meetings, taking care of sales and marketing, paying invoices, and managing a plethora of different tasks.
If they weren’t answering their phones in time, they were literally sending people straight into the hands of competitors.
They needed someone to take phone calls and sort out the administrative work so they could take care of business and service customers.
Jill knew there wasn’t enough work for each business to have a full-time receptionist. Instead, she devised an innovative way for these businesses to access this support.
With the help of a telephone company and a software vendor, Jill figured out a way to answer calls and redirect crucial information to business owners, no matter where they were. Although it required some initial investment in equipment and staff, it was the start of Ruby Receptionists and her success story.
An Early But Critical Shift
As her business progressed, Jill realised that the administrative aspect was hard to scale, but the receptionist piece was easily teachable and repeatable. This was the first pivot Jill made for the business. Ruby Receptionists carved out their niche by moving from a wide service offering to just inbound calls and sales service.
The stats say that 29% of phone calls lead to a sale, Jill knew that this laser focus would help their clients to grow.
It was a godsend to small businesses!
Imagine... plumbers, electricians and other trades with people and vans across the city, unable to consistently answer their phone.
Ruby Receptionists was able to integrate directly with their mobile phones and calendars, giving them access to clients from anywhere, without the hassle.
These businesses went from no help, to having a team of receptionists available around the clock.
From those humble beginnings, her friendly group of real receptionists has since grew over time to service to over 10,000 businesses!
Clarifying a vision and goals
At 5 years in, Ruby was a company turning over $1 million in revenue, and that’s when Jill and her management team started thinking bigger.
It felt good at $1-million revenue, so what would it feel like to be at $10-million revenue?
They embarked on a vision exercise and strategic plan.
They thought about how many employees they would have at $10-million in revenue. What their office would look like? And what other critical aspects of the company were essential.
Then they started working backwards, forecasting customers, metrics and financials that would get them there.
They ultimately put a flag in the sand that day and stated that by year 10 of business, they would be doing $10-million in revenue.
In the 5 years ahead, although the economy took a turn, in year 10 (2013) they reported $11-million in revenue.
They had exceeded their goal!
Their vision, planning and clarity enabled them to achieve this. It also set the precedent to strive for even bigger goals.
Jill took Ruby Receptionists from $1 million in revenue to $11 million in 5 years, then sold a majority share for $38.8 million! That’s no small feat.
Let's look at what Jill did right...
How to scale while driving up company value
1. Recurring Revenue & Diversity of Customer Base
The golden ticket for any company is a sustainable, recurring revenue model.
It provides a stable and predictable income stream, giving investors comfort that there is a future stream of profits.
Ruby Receptionists worked on a 100% subscription-based model, making it very attractive to investors. However, what complimented this perfectly was the level of customer diversification. At the time of acquisition, Ruby had over 6,000 customer contracts paying just a couple hundred dollars each month.
With such an extensive customer base paying on a recurring basis, Jill was able to diversify risk. She could afford to lose a few clients monthly and it wouldn’t impact the books whatsoever.
These two factors worked hand in hand to help the company scale and simultaneously drive up company value. A financial safety net, woven from a stable revenue stream, is a rockhard assurance that the business model has staying power long past the sale process.
2. Positive Cash Flow
While recurring revenue has many benefits...
It’s the predictability and financial visibility that helps businesses be better positioned to ramp up or lower expenses relative to revenue, and stay cash flow positive.
3. Creating a Competitive Advantage
Jill made a decision to invest significantly in technology right from the outset.
This was a critical factor in differentiating her service from competitors. Ruby Receptionists not only provided a friendly answering service, but they also built their own technology platform which enabled them to answer 100% of calls throughout the day and 99% within four rings.
And when you revisit the statistic that 29% of phone calls lead to a sale, that 100% answer rate becomes invaluable to small businesses.
Ruby Receptionists boasted a fully functional and self-contained platform as well as a mobile app which served up to ten thousand small businesses across 400 receptionists.
Compared to her competitors, who were low-tech ‘mom and pop’ style businesses which often missed calls during peak times, Ruby’s system could easily handle client surges because of the unique routing technology which placed a call with an available receptionist, regardless of the time zone.
Investing in their own proprietary technology gave them a competitive edge and really transformed the company from a services company to a tech-enabled company. They stood alone as the market leader because they had built a very deep and wide competitive moat.
When you consider the mindset of an acquirer, they will always make a ‘buy versus build’ decision. If the barrier to entry is too low, they could easily just replicate what you do, but if it’s too hard to do this, the better option will be to buy your company. Ruby’s proprietary technology had great potential in the eyes of their acquirer.
4. Growth Potential
When you think about the ability to scale, a great yardstick is to ask yourself is, how easy would it be to accomodate 5x demand?
Jill’s early decision to strip out the administrative tasks and only perform the inbound calls and sales service, was a great move.
This decision to focus on their core niche reduced the complexity around their service offering.
Instead, it allowed them to focus on tasks that were easily teachable and repeatable. In turn, this made it much easier to scale.
The implementation of the proprietary software combined with Ruby’s hiring and onboarding process further contributed to their growth potential, as we’ll outline next.
5. Reducing Dependence on Key People
Jill’s passion for people and culture was embedded in the business from the beginning. She loved people, and her focus was to make her employees feel safe and empowered. However, as the company expanded and they began to hire for growth, she was aware that staff turnover could be a crippling factor. Her investment in technology helped to safeguard this. Jill wanted to minimise the risk of being overly dependent on employees, knowing that company information being stuck in people’s heads could be easily lost as soon as they walked out the door.
The proprietary technology that they implemented became their key service difference. It enabled them to onboard a receptionist in a couple of days and onboard a customer without any training, having them up and running in a matter of 15 minutes.
Due to the technology, customers would get the same friendly experience with the know-how and the knowledge that made them feel like the receptionists were right there with them in the office. The receptionists had access to tools that drove efficiency and service, such as online chat, and integrations that went straight to client’s CRM’s and calendars. This technology piece, in alignment with culture, became a game-changer for the business.
6. Delighting Customers
The focus for the team was executing and delivering a service that had real, measurable ROI for customers.
Jill gave her employees complete autonomy, empowering them to do what they had to for the customer experience.
Her staunch belief that ‘people want to do business with people’ paid off by generating a high level of referral customers.
Programs ranging from an open access Amazon account, where staff could buy thoughtful gifts for customers (and go above and beyond customer expectations), through to knitting and art clubs, happiness journals and a $100 credit per employee to fund culture Kickstarter campaigns, all worked towards helping employees build a workplace they wanted to belong to.
7. Creating Owner Independence - People, Systems, Processes
Having a clear vision of the business and hiring the right people to fulfil the future of the company
An early set of people-centric values became the basis for how Ruby Receptionists grew their team. All positions filled, from entry-level to executive, were former receptionists, focusing on peer-to-peer recognition and employee empowerment.
The hiring process, as mentioned earlier, was critical. Their focus was to hire ‘the friendly’ and then train on the skills and language to ensure customer satisfaction at every touchpoint.
Every receptionist went through a stringent recruitment process, requiring 8 interviews, 3 of which were face-to-face.
Getting the hiring process right meant that there was little turnover. This was integral in helping her achieve owner independence. As her team grew, she decoupled from the more technical side of the business, and she was able to focus on the areas she loved, continuing to add value as the Chief Cultural Officer.
The programs that she implemented, as we’ve already highlighted, allowed her employees to take culture into their own hands and set the workplace standards. Those that didn’t meet it were let go.
People are easy to hire, but retaining talent is the real challenge for a business. The most profitable companies are not constantly hiring and training new members of staff, instead they can allocate those resources to growth. This is exactly what Jill was able to do.
Systems, processes and metrics to stay on top of the game.
At the end of the day, despite the smiles and the friendliness of the staff, Ruby Receptionists was a metrics-driven business.
Jill was vigilant about this after her experience working in the business broking industry. She recalled seeing two businesses that were comparable on almost every level, from subscribers to service offering, however one business was wildly profitable and the other was just scraping by.
8. Strong Financial Performance & a Healthy Leadership Team
When acquirers started showing interest in Ruby, the company had just celebrated being on Oregon’s fastest growing companies list for 10 consecutive years. As a result, their revenue numbers were published. When they surpassed the $10 million revenue mark, they started attracting the attention of the growth equity firms. They were now big enough to be noticed.
However, their financial performance was not the only thing attracting acquirers.
These firms could see that Jill had built a healthy leadership team, the business was running on autopilot, she was taking more and more time out of the business and becoming an absentee owner.
These firms showed particular interest in investing in companies with a competitive advantage, potential for growth and winning teams - all of which Jill had created in Ruby Receptionists.
An Exit without Exiting...
When Jill and her advisory team took the business to market, a number of acquirers showed interest.
The ones which stood out to Jill and her team were those that bought into the vision for the future and understood how they could build on the pre-existing technology and tap into a market of 29-million small businesses across the US. That’s where the range of multiples started getting interesting.
As Jill said, "it’s a lot like dating". You need to find an acquirer who’s comfortable with your market, understands the associated risks and has a plan in place to mitigate them. They’re the ones who will value your company higher.
It was clear from the beginning that one particular firm was the frontrunner.
Updata was a private equity company that exclusively invested in tech businesses.
They acknowledged that Jill had built a special business, they were impressed with how far Jill had come with her proprietary technology, and they knew that they could continue to scale up the business with their expertise.
However, they wanted Jill to continue to lead the team and preserve the amazing culture that she had built.
Ruby Receptionists after the sale
Since Updata acquired the company, they’ve doubled staff and revenue and have incorporated customer-facing technology centred on privacy and convenience. Jill remained as the acting CEO, driving company strategy, surrounded by an executive team of highly skilled leaders.
During the sale process Jill fell in love with her company again and stayed on as CEO to help the business achieve its full potential. The business now employs more than 600 employees and collects more than $37-million in revenue annually.
Jill’s scenario is a textbook example of a business built right.
From day one, she focused on carving out and scaling up her specific niche, building a strong company culture and creating recurring revenue which gave her the financial freedom to let her company run on autopilot.
When it came time to sell, her business was in a prime position to be acquired.
People often look to their industry to benchmark what their company may be worth. They’ll assess the average multiples other companies are getting, and use a common ‘rule of thumb’ to predict the value of their company. Yet, time and time again we see companies that outstrip their industry multiple when they get sold, which indicates there are more factors at play than just the industry ‘rule of thumb’.
Ruby Receptionists proved this too. As a service company at $11 million revenue, we might assume that they were carving out a profit margin of around 10%. That would put their profit at around $1-$1.1 million. When we isolate the Administrative Support industry that Ruby Receptionists operates in, the average multiple is 1.8 times pre-tax profit. That would suggest that the Ruby Receptionists was worth perhaps $2 million.
However, at $38.8 million for a majority share, Jill sold the business for almost 40 x profit (rather than 1.8) and 4 x topline revenue. This is an astronomical multiple by any measure.
While Ruby Receptionists was in an industry which trades at low multiples, Jill Nelson was able to structure her business using other value drivers to achieve her phenomenal multiple and sale price.
At Exit Advisory Group we help entrepreneurs maximise company value and exit at the top of their game.
We do this by giving business owners the tools and strategies to design more profitable, efficient and enjoyable businesses to own - that are also less dependent on them. When they choose to exit, they are in the best position to unlock the wealth in their business and be rewarded for their hard work.
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