In the world of business, many entrepreneurs dream of building a company they can eventually sell for a substantial profit. However, the path to creating a sellable business is not always straightforward. Drawing from the experience of selling nine companies, including one for $46.2 million, this article explores the concept of the “Golden Goose Strategy” and how it can help you build a more valuable and sellable business.
Understanding the Golden Goose Strategy
The Golden Goose Strategy is based on the classic fable of the goose that laid golden eggs. In this context, it refers to the idea that you should focus on creating a business model that consistently produces valuable assets (golden eggs) rather than trying to sell the entire business (the goose) outright.
The key principle is to identify which aspects of your business are the “goose” (the value-creating mechanism) and which are the “eggs” (the sellable assets). By understanding this distinction, you can structure your business in a way that maximizes its long-term value and sellability.
Identifying the Goose and the Eggs in Your Business
To apply the Golden Goose Strategy to your own business, consider the following factors:
- Dependency on key individuals: If your business heavily relies on you or other key individuals, it may be less attractive to potential buyers.
- Recurring revenue: Look for components of your business that generate sticky or recurring revenue, as these are often more valuable to investors.
- Scalability: Consider how easily your business model can be replicated or scaled without significant additional investment.
- Market demand: Research the M&A activity in your industry to understand what types of businesses are in demand among buyers.
Case Studies: Applying the Golden Goose Strategy
1. The Event Space Business
In this example, an entrepreneur who had successfully sold multiple event spaces started a coaching business to teach others how to do the same. Instead of trying to sell the coaching business (the goose), the recommendation was to focus on creating a network of successful event space businesses (the eggs) that could be bundled and sold together.
By structuring the business this way, the entrepreneur could potentially roll up 20 to 50 successful event spaces every few years, creating a much more valuable and sellable asset while retaining the coaching business as the ongoing source of new opportunities.
2. The Amazon Store Education Business
Similarly, an entrepreneur who had sold Amazon stores and then started teaching others how to build them was advised to shift focus. Instead of trying to sell the education business, which had key-man risk and wasn’t very recurring, the suggestion was to bundle together successful Amazon stores created by students. This approach would create a more attractive, sellable asset while keeping the education business as the source of new opportunities.
3. The Media Company
For a media company with multiple talents or stars, two potential strategies were suggested:
- Develop a product line supported by all the talents, preferably something consumable and recurring.
- Focus on selling advertising space, making the consistent impressions generated by the talents the primary product.
In this case, the stable of stars and their ability to generate impressions is the goose, while the products or advertising revenue would be the eggs.
4. The Accounting Firm Consultant
An accounting firm consultant was advised that instead of trying to sell his consulting business, he should focus on creating a roll-up of multiple accounting firms. By bundling together 10-20 accounting firms, he could potentially exit every 1-2 years for a much larger sum, taking a percentage for facilitating the deal.
This strategy takes advantage of the “volume premium” in investing, where larger companies or roll-ups often command higher multiples than individual small businesses.
Key Takeaways for Building a Sellable Business
- Focus on collaboration over competition: Look for opportunities to work with others in your industry to create more value together.
- Remove key-man risk: Build systems and teams that can operate without your constant involvement.
- Create recurring or reoccurring revenue: Develop products or services that customers need to purchase regularly.
- Think like an investor: Consider what aspects of your business would be most attractive to potential buyers or investors.
- Build for scale: Create systems and processes that can be easily replicated or expanded.
By applying the Golden Goose Strategy and focusing on creating valuable, sellable assets within your business model, you can increase the overall value of your company and create more opportunities for successful exits in the future.
Frequently Asked Questions
Q: What is the Golden Goose Strategy in business?
The Golden Goose Strategy is an approach to building a sellable business by focusing on creating a business model (the goose) that consistently produces valuable assets (the golden eggs) rather than trying to sell the entire business outright. It involves identifying which aspects of your business are the value-creating mechanism and which are the sellable assets.
Q: How can I identify the “goose” and the “eggs” in my business?
To identify the goose and eggs in your business, consider factors such as dependency on key individuals, recurring revenue streams, scalability of your business model, and market demand for similar businesses. The “goose” is typically the core system or process that generates value, while the “eggs” are the sellable assets or revenue streams produced by that system.
Q: Why is collaboration important in building a sellable business?
Collaboration is crucial because it often leads to creating more value than competition. By working together with others in your industry, you can potentially create larger, more valuable assets that are more attractive to buyers. This approach can lead to higher multiples and better exit opportunities.
Q: How can I reduce key-man risk in my business?
To reduce key-man risk, focus on building systems and processes that can operate without your constant involvement. This may include developing a strong leadership team, documenting procedures, and implementing technology solutions that automate key aspects of your business. The goal is to create a business that can run smoothly even if you’re not present.
Q: What types of revenue are most attractive to potential buyers?
Recurring or reoccurring revenue streams are typically most attractive to potential buyers. This includes subscription-based services, long-term contracts, or products that customers need to purchase regularly. These types of revenue provide more predictability and stability, which is highly valued by investors and acquirers.
