9 Great Ways To Build Wealth As A Business Owner – Series (3 of 9)

This series of articles follows on from an article we published recently, titled “9 Great Ways To Build Wealth As A Business Owner”, where we mentioned that business owners who focus on building company value over company size, generally get to sell their businesses for a premium when the time comes to exit, allowing them to cash out the maximum with no regrets.

This article looks at Jeffrey Feldberg, Stephen Wells and Waleuska Lazo’s story about Embanet and covers the 3rd way – Own your product.

Jeffrey Feldberg, Stephen Wells and Waleuska Lazo co-founded Embanet in 1995, a company that helped prestigious colleges like Vanderbilt and Boston University take their courses online.

In the beginning, Embanet was a classic service business. Like most consultants, Feldberg, Wells and Lazo were personally in demand and paid handsomely for their time. A few years after starting, they were approached by an acquirer who offered them around three times their profit for their business.

The would-be acquirer thought that the founders of Embanet weren’t looking at their company in the same strategic light as they were. But in saying no to the offer, the founders said “yes” to mastering the art and science of selling a company.

They went from offering commoditized web design services and being limited by the number of hours in the day to owning a share of the sales of the online courses they developed and helped market. Suddenly the founders were no longer restricted by selling their time and could offer their courses to as many people that signed up.

And sign up they did. Embanet became a leader in the burgeoning e-learning category, which enabled them to attract an offer of more than 13 times EBITDA just two years after their business model change.

As the Embanet example illustrates, companies that own their product command a premium over businesses that provide a service or resell someone else’s products. Value Builders understand that a sophisticated acquirer would be unlikely to make an acquisition offer to a reseller of someone else’s product when they could negotiate a reselling agreement of their own.

Own Your Product

Value Builders pursue one of two strategies to take ownership of their offering. Like the co-founders of Embanet, you can develop your products and legally protect them. Alternatively, you can take ownership of a product you are reselling in the mind of the consumer by investing in a brand that stands out and convincing buyers you are offering something unique.

Wrapping your product in a powerful brand makes your company more difficult to imitate and therefore more valuable to a buyer looking to enter your space. Emphasizing both your company and product brands also trumps the personal brand many service company founders develop in the absence of anything else for customers to remember.

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Taking Action

Even though you may be years away from selling, make a list of potential strategic acquirers for your company. Consider major strategic decisions through the lens of their impact on your list.

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If you found this article of value, then feel free to read through two other series we’ve published recently:

• 8 Key Drivers Of Company Value That Every Business Owner Should Know
• Unpacking The Subscription Economy

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