9 Great Ways To Build Wealth As A Business Owner – Series (6 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 Damien James’s story about Dimple and covers the 6th way – Build a business that can run without you.

 

Damien James grew up in Melbourne with two dreams: either playing Australian rules football at the highest level or building a successful business like his dad. As his chances of making the AFL diminished, he turned his attention to entrepreneurship.

James had read about the aging population in Australia and reasoned health care was likely to be a lucrative field. He analyzed various options and discovered podiatry was a sector ripe for disruption.

Older people get sore feet. Still, nobody dies from a bunion, s o the practice of podiatry is less regulated in Australia than in some fields, where medicine is a matter of life and death. At the time, most podiatrists in Melbourne worked from a retail location, where the doctor owned and operated a private practice. The podiatrist would rent space, hire some staff, and charge patients per visit. At night, some enterprising doctors would also visit nursing homes to offer care. Reasoning that many older people nodded off shortly after dinner, James saw an opportunity for a podiatrist to visit nursing homes during the day, when it was more convenient for patients.

James, who had earned a bachelor’s degree in podiatry in 1996, started Aged Foot Care. He approached nursing homes, suggesting he visit during the day. With a compelling offer and none of the traditional overhead of an office, he had discovered his million-dollar idea.

Aged Foot Care went through a variety of growing pains over the years, including an expensive rebranding to the name Dimple. By 2015 Dimple was generating roughly $200,000 of profit on $2.5M in revenue.

Despite his success, James was frustrated. The company’s growth had stalled, and his management team seemed perpetually incapable of hitting its targets. Quarter after quarter, he would set goals with his team, only to see them fall short. James decided it was time to bring in outside help, so he hired a recruiting firm to look for a Chief Operating Officer. After interviewing a variety of candidates, James settled on Nick Beckett, who had just come off a successful run growing a tea company, called T2, that been acquired by Unilever in 2013.

To recruit Beckett, James knew he would need to give up some equity, so he commissioned a valuation for Dimple, which came in at $2.5 million. He offered Beckett a salary plus 5% of the company. James estimated he could get to $5 million in revenue without Beckett’s help, so he offered him another 3% for every $1 million Beckett grew Dimple’ s valuation past $5 million, capped at a maximum of $10 million for 20% shareholding.

The partnership got off to a fast start. Beckett started to employ the strategies he used to grow T2 twenty-five-fold in ten years. To his credit, James realized what he had in Beckett and quickly promoted him to Chief Executive Officer. James stepped back from day-to-day operations, and the company continued to thrive under Beckett’s leadership.

Down to just one day a week, James’s responsibilities as Founder centered around providing a strategic vision and reinforcing the company’s core values, while Beckett ran the day-to-day business. Beckett continued to pursue James’s core strategy of contracting with aged care facilities, and the company hit $11 million in revenue by 2017.

Around that time, Zenitas appeared on the scene. Zenitas had a similar strategy of bringing health care to patients in homes or care centers rather than having them languish in hospital beds. The company was keen to add podiatry to its stable of services, and acquiring Dimple would allow it to become a market leader almost overnight.

In 2017 — a little more than two years after Beckett was hired — Zenitas acquired Dimple for $13.4 million. The company had grown in value by over 500% in less than three years.

 

Build A Business That Can Run Without You

In a typical small business, the founder is a hub within a wheel where employees, suppliers, and customers are spokes. Decisions get made at the center, which makes the owner feel powerful and in control.

Not only does this Hub & Spoke model limit the growth of an organization but it also makes it unattractive to an acquirer since the company depends entirely on the owner.

If your end game is to sell your business, you need to figure out how to get your company to hum when you’re not there.

 

Taking Action

Document your processes, as Michael Gerber wrote about so forcefully in his classic, The E-Myth. Once your processes are documented, automate as many of them as possible to eliminate human error in their delivery.

Like Damien James, consider hiring a second-in-command (2iC) to run your business day to day. Finally, take regular and increasing periods off to give your company a dress rehearsal for operating without you. Upon returning, look for areas of weakness, and repair them with new processes, training, or technology.

 

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

 

FREE Assessment:

If you want to see how your business scores in “8 Key Drivers of Company Value” right now, take 15-minutes to complete this survey and you’ll get a comprehensive 25+ page report benchmarking your business against its peers, plus 49 tips on how to improve those 8 key areas.