What Do I Need To Fix Before I Sell?

Here's a short list of things that need to be addressed if you want top dollar from your Private Equity partners.


Customer Acquisition: Your partners do not want to learn that 70% of your new names come from the co-ops. They know what you already know ... that the days of using co-ops to find new customers is over. Sure, you may get new names from the co-ops for 10 more years, but your future demands that you find new customers via low-cost / no-cost methods. Your partners want to know that you have the marketing chops to find new customers without being dependent upon co-ops, Google, Facebook, or Amazon. If you plan on selling in 2019, then you have a very short period of time (18 months) to fix this problem. Get busy, NOW! This was a presentation from eighteen months ago - use it as a starting point (click here).

New Merchandise: Your partners want to feel confident in your merchandising team. You are going to have to demonstrate that your new customers love your new merchandise. If the productivity of new merchandise is sinking, then your partners will have no interest in your brand - who wants to buy a business where customers like the merchandise less and less?? If you want to sell in 2019, then you have a very short period of time (18 months) to fix this problem. This issue and the customer acquisition issue are the two biggest issues that harm cataloger valuation.

No More Discounting:  Your partners want to be reassured that you can sell stuff at full price. If you have to sell at 40% off, you will sell your brand for pennies on the dollar. You fix the discounting issue by fixing the customer acquisition / new merchandise issue.

Five Year Forecast:  Your partners want to see what the growth trajectory of your brand looks like over the next five years. They want to know that your customers are capable of delivering growth if things "remain the same as they remain today". You fix the five year forecast by fixing customer acquisition and new merchandise.

Gross Margins: Your partners want to see that gross margins are improving. Would you buy something that looks less and less healthy over time? You might, but you'd pay pennies on the dollar. Spend 2017-2018 fixing gross margin performance, so that you can extract maximum valuation in 2019, ok?

70%+ Of Business Exists Without A Catalog:  Nobody wants to buy a business that is dependent upon catalogs ... this isn't 1993. You have to prove that at least 70% of your business exists when catalogs disappear, or you won't get anywhere near top dollar. Your buyer will want to cut costs, and you know that. Sell a business that is dependent upon merchandise excellence and not catalogs.

No Chaos: I run across this all the time. Your partners are scared by a business that has chaotic metrics, and as a result, they pay pennies on the dollar to mitigate risk. Spend 2017-2018 executing a consistent strategy. Your partners don't want to see a business with pricing increases and then decreases, customer acquisition increases and then decreases, wild new merchandise swings, wild gross margin changes, you name it, they don't like it. Staffing fluctuations don't help, either. The buyer doesn't want to know you've had three Creative Directors in five years and you can't prove that the decisions had any impact on sales.

Younger Customers:  Your partners want to see that you can acquire a 36 year old customer as easily as you can acquire a 63 year old customer. And your partners don't like it when you lie. Earlier this year, I ran across an instance where a vendor told a cataloger they were generating customers age 35-55 when actual age data told us that the average acquired customer was 60 years old. Enough lying!! If you cannot demonstrate that you can acquire a 36 year old customer, then spend 2017-2018 crafting a plan that you can acquire customers younger than your core customer, ok? The customer doesn't have to be 36 years old, but it wouldn't hurt if you can demonstrate you can acquire customers 5-10 years younger than average at "scale", as the pundits say.

Use this as your starting point. Map your plan for 2017-2018, so that you can generate maximum value in 2019 when you decide to sell.

Question? Email me at kevinh@minethatdata.com.