When we're growing a business we often focus on revenue.
Instead, Stephanie Breedlove shows us why we should prioritise value over revenue...
Like many others, Stephanie Breedlove started her business to solve a frustrating problem.
Her task seemed simple.
She merely wanted to pay her nanny by the books.
As an upcoming associate on a fast track to becoming a partner at Anderson Consulting, she wanted to handle this employment situation properly.
But after the third time her call was transferred, she got fed up.
The big payroll firms were not in the least interested in opening such a small account. So instead of doing the rounds, and being passed along to salespeople - each more uninterested than the last - Breedlove decided to take matters into her own hands.
She already knew her target market - busy families with nannies - so she honed in on setting up these new, pay-roll micro-accounts to help them. If she could streamline her processes, and find enough parents who didn’t want to deal with the complexities of the tax departments, Breedlove figured she could turn a small profit.
The Challenge - Revenue versus Profit:
After two years, her business was generating over $300,000 in annual revenue, however after paying all her expenses, there wasn’t much of a return.
Breedlove was coming up against the threshold that all small businesses must pass - figuring out how to scale and become more profitable.
While she had invested a modest amount of her own money, she had avoided any external capital to boost her cashflow. And while she flirted with the idea of cross-selling services like dog-walking, cleaning or cooking in order to expedite her growth, in the end she decided to focus on her one service offering.
While it didn’t skyrocket her growth and make her famous, it did make her rich.
The Value of Staying Focused on Your Niche in the Market:
As Breedlove continued to grow and refine her systems, her business grew on an average of 20% per year.
After almost two decades of steady growth, Breedlove’s company was generating $9-million from 10,000 customers.
It was at this time that Care.com entered the picture. They were an amalgamator of local care providers that boasted over 7-million subscribers. Off the back of a successful round of venture capital raising, they were looking into expansion opportunities.
Care.com’s CEO, Sheila Marcelo instantly saw the unique value proposition in having a payroll system for care providers and turned around with an offer to buy Breedlove’s company for a cool $39-million - 4X her annual revenue.
While most business owners would’ve jumped at the chance, Breedlove paused. As a Value Builder, she knew that her business had real potential for Care.com.
Stephanie put forward an argument to illustrate this. She identified that if a mere 1% of Care.com’s 7-million subscribers chose to use Breedlove’s payroll service, then it would create a company 7x the size of Breedlove and Associates almost overnight.
This clearly struck a chord!
Marcelo came back with an offer of $55-million (6x annual revenue) in cash and stock in Care.com, which Breedlove then accepted.
Your Action Plan to Build Company Value:
Breedlove is the perfect example of a business owner who found their niche and truly owned their place in the market. If she diversified into other products, she may have diluted her business. Instead, her company was a stand-out and she was able to articulate the value that it could create in the hands of her acquirer.
To start solidifying your niche, make a list of your current products and services offerings:
- Which areas do you have a competitive advantage in?
- How stalwart is your point of difference compared to your competitors?
- Does this advantage grow or diminish as you begin to scale up?
Knowing the answer to these questions will allow you to commit to the products and services that make your company stand out. It is very important to prioritise value over revenue. Who knows, maybe the next case study will be on your business.
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
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