Stephanie Breedlove founded Breedlove & Associates in 1992 to facilitate payments for her nanny. Traditional payroll processors weren’t inclined to handle individual wages and managing it themselves proved daunting for the Breedloves at the time.
Recognizing a business opportunity, Breedlove launched a payroll company tailored for parents seeking to pay their nannies. By 2012, Breedlove & Associates had surged to a revenue of $9 million, prompting a substantial $54 million acquisition offer.
To appreciate the remarkable feat of selling a business for this multiple, let’s delve into the numbers. A survey over 25,000 business owners revealed the average multiple offered of 3.76 times pre-tax profit. Even top-performing businesses, typically secure offers of 6.27 times pre-tax profit on average. Breedlove received nearly six times revenue, not profits.
So, what contributed to Breedlove’s success? Let’s explore the five steps she took to enhance her business’s value.
- Target Market Focus – Selling Less Stuff to More People
Upon reaching a monthly revenue milestone of $30,000, Breedlove left her job at Accenture to fully dedicate herself to Breedlove & Associates. Faced with a growth dilemma, she had to choose between expanding services to providing payroll for additional professions or sticking to her niche of nanny payments. While it’s often easier to sell more to existing clients, Breedlove recognized that focusing on her niche laid the groundwork for a more valuable business.
Investors, like Warren Buffet, seek businesses with a robust competitive edge, granting owners pricing authority. This unique product or service offering, termed as having The Monopoly Control, leads to significantly higher acquisition offers.
Instead of offering generic services to existing customers in saturated markets, Breedlove prioritized selling one service to a broad customer base.
- Customer Satisfaction Focus – Net Promoter Score
Acquirers pay close attention to customer satisfaction levels, which can be quantified through measurements like the Net Promoter Score (NPS). Developed by Fred Reichheld, NPS reflects customers’ willingness to refer a company to others, predicting future growth rates.
The NPS method is to ask the customer how willing or likely they would be to refer your business on a scale of 1-10. The respondents are categorized by their response as Promotors (9-10), Passives (7-8), or Detractors (0-6). A company’s NPS score is calculated by subtracting the percentage of Promotors from the percentage of Detractors. On average, NPS scores sit between 10% to 15%, with the best of the best achieving scores of 50% or more (Apple, Amazon, etc.).
Breedlove meticulously monitored her company’s NPS, recognizing that perfecting initial customer interactions was crucial. Unlike large payroll companies that often offer lackluster service to their small clients, Breedlove ensured that every customer received top-notch attention from a dedicated team, leading to an impressive 78% NPS. Being treated as a priority boosted customer satisfaction and lead to an incredible amount of growth through word-of-mouth for the company.
- Establish Recurring Revenue Streams
Recurring revenue models enhance buyer confidence in a business’s sustainability post-acquisition. By 2012, Breedlove & Associates had achieved a $9 million revenue, with 100% of it being recurring due to the nature of the payroll business.
- Diversify Your Customer Base
Breedlove’s company appealed to buyers due to its highly diversified customer base, with no single customer accounting for a significant portion of revenue. Avoiding over-reliance on any one customer is crucial, as high customer concentration raises concerns among prospective acquirers.
Customer concentration is a key element of The Switzerland Structure Module, which evaluates a business’s dependence on individual customers, employees, or suppliers. The less concentrated these areas of your business are, the more your business will command a higher exit value.
- Identify Growth Opportunities for Acquirers
By 2012, Breedlove & Associates was growing at a respectable rate of 17% per year. However, to attract a remarkable acquisition offer, Breedlove demonstrated to potential acquirers how they could drive further growth.
In Breedlove’s case, she sold her company to Care.com, envisioning synergies with their vast membership base of individuals seeking a database of care providers. With Breedlove’s payroll service integrated, just a small fraction of Care.com’s members could lead to exponential growth for Breedlove & Associates.
In 2012, Care.com acquired Breedlove & Associates for $54 million—an exceptional exit facilitated by Breedlove’s strategic focus on driving her company’s value, beyond mere top-line revenue.
For a consultation on how you can command more saleable value for your business, contact the Redcap&Truss team here.