Planning to Sell a Company in Austin? Better Know the Length of Your Revenue Runway.

  • Austin business valuation | Revenue Runway

Austin business owners needing to ramp their revenue growth considerably to achieve a higher valuation must be realistic about the amount of time required to achieve sustainable revenue growth. In this post I’ll give examples for how to estimate how long your revenue runway will need to be. 

First, know this – it is almost always going to take over 12 months to refine or turbocharge sales and marketing programs. Plus, you want enough time to show a consistent growth trend in your financials. So tack on another year or so to the length of time required. Your expectations for when the business will be sold for the highest amount need to be in line with the required runway for achieving the higher valuation.

I was reminded of this truism by the intersection of two completely unconnected events.

What Racing Jags Taught Me About Selling an Austin Company

The other day I was watching my new favorite Prime series, Grand Tour, where they staged an acceleration contest between three old Jaguar cars on the runway at Telluride, Colorado.

So what, you say. See photo, I reply.

Telluride Regional Airport is not only nestled high in the mountains at an elevation of 9,000, it has a most spectacular end to its single runway – a 1,000 foot sheer cliff. Granted, every airport runway has an end, but you must admit this one is quite dramatic, leaving no room for error for drag racing Jags, or airplanes.

What an Economic Cycle Chart Taught Me About When to Sell a Company

Fast forward to today when I was reading the latest U.S. Outlook Forecast from ITR Economics. I was very curious how long the current economic growth phase was going to continue according to their leading indicators. These respected economists are forecasting a slight slowing of economic growth beginning as early as mid-2018. Slower growth continues into 2019 and then accelerates upward again in 2020. Overall, an excellent picture. Planning to sell a company between now and 2020 makes good sense when the economic environment is considered.

Timing is Everything When Increasing Valuation of an Austin Business

This got me to thinking about the many business owners in Central Texas who are thinking about selling their companies in the next few years.

Some of these people have been told by advisers that they must improve their revenue growth and show prospective buyers that a consistent revenue generation engine is functioning well (ideally one that isn’t totally dependent on the business owner for finding and closing orders). A high-performance revenue engine has a positive impact on valuation.

The good news is that the U.S. economic forecast is strong for the next three years. If you’re trying to boost revenue the wind will be at your back.

The bad news is that you have a limited time in which to prepare your company to sell at a great price within this robust economy. The clock is ticking.

Calculating the Length of Your Runway

Let’s say that an owner of an Austin manufacturing company needs to increase the generation of new revenue by 15% over the next two-three years. Nice goal, but does the owner have a believable plan for how that growth will be generated? More importantly, does the owner understand how long it will take?

Measuring the Runway, Inside Out

By roughly estimating the amount of time it takes to build components of a revenue engine, the manufacturer can get an idea of when to expect initial results to appear. It’s important to realize that initial results may or may not be at the desired level of performance. Therefore, additional time is required to reach optimal performance and profitable revenue.

Granted, not every company will need all of these items, and several can be done in parallel, if there is adequate staff.

If you’re contemplating the sale of your business and know that revenue must be increased significantly, I invite you to check which activities in the next table need to be addressed. If you don’t know what is required, please seek advice from a sales or marketing adviser. Add up the time.

Internal ActivitiesNot in Place, Months Required to Implement
Strategic and tactical plan for generating the necessary revenue2
New products or services must be developed and offered6
Sales force new hires3 for every new hire
Sales force ramp up3
Add reps or resellers to your channel6
CRM system implementation and roll out6
Hire marketing manager5
Website refreshed or rebuilt from scratch4
Google Adwords results 3
SEO (organic search) results8
Marketing automation implementation6
Email marketing campaigns from scratch6
Email marketing campaigns with an existing clean list2
Exhibit at conferencesUp to 12

How’d you do? What’s the length of your runway? Three years? Less? More?

Measuring Your Runway, Outside In

While the constraints of internal resources and systems certainly contribute to the time required to boost revenue growth, there’s a bigger consideration. The Buyer’s Journey is what really drives the time it takes us to build revenue.

The Buyer’s Journey is defined as the stages a buyer goes through before, during and after considering a purchase of your product or service. For B2B companies this is frequently many months. It’s not unusual for the journey to extend over a year. Good marketing and sales tactics can shorten the time but not erase it.

In the table below is a generic Buyer’s Journey Funnel. I’ve also included some conversion and lag times for discussion purposes only.

Buyer Stage (External Activities)Avg. Weeks Spent In the Stage Before Progressing% That Progress to Next Stage
Untroubled and unaware1210
Pain acknowledged1215
Internal agreement to solve problem420
Solutions researched660
Proposals requested360
Finalist selected460
Terms negotiated390
Agreement signed295
Check written2100

The average Buyer’s Journey or Revenue Generation Cycle in this example is 48 weeks, nearly one year from “Hello” to “Thank you”. Here’s a good way to read the table.

It takes on average 12 weeks to bring a buyer’s name into the top of your funnel. It takes another 12 weeks for them to know that they have a problem you can solve. It takes 4 weeks for the buyer to agree internally that they need to solve the problem somehow once they agreed they have a problem. They will spend 6 weeks researching solutions. Another 3 weeks selecting the short list and requesting proposals. Four more weeks will be spent receiving and reviewing the proposals to select a finalist. Terms are negotiated for three weeks. Signatures require 2 weeks, and a check is written in 2 weeks, if an initial payment is required.

In my example, it only takes 14 weeks to recognize some revenue from a point when the company receives a request for proposal, but 34 weeks on average are required to move the buyer through the previous stages of the funnel to that RFP.

When measuring the runway to increase the valuation of our Austin business, don’t forget about the upper stages of the funnel. If you’re basing takeoff on 14 weeks rather than 34 weeks, you’re in for a nasty surprise. (Refer to photo).

Funnel Velocity Lessons

There’s one more runway lesson in the table that’s worth visiting–the conversion rates.

For this example, let’s say that the revenue growth planning process has revealed that 225 new deals are required. According to the conversion rates in the table, to generate those 225 deals the sales and marketing folks will need to be reaching 410,210 buyers and bringing 41,021 into the funnel so that with proper nurturing 738 requests for proposals will be received. *

If the company doesn’t already have on-going contact (direct and indirect) with all those buyers, it will take time to build the necessary market awareness and bring interested buyers into the top of the funnel. (No, you can’t simply rent a list and hope for magical results).  If a company doesn’t already have a good marketing program in place it will take a significant investment of money and time. Which brings me back to the runway.

If I woke up today and decided to sell my company, I’d set 2020 as a goal. The U.S. economy will still be hot and I’ll have just enough time to refine my sales and marketing engine to demand a high valuation. Furthermore, starting in early 2018 will afford me time to have two years of reviewed financials to show the buyer and their banker.

After the sale, perhaps I’ll fly to Telluride for a skiing vacation.

*With proper “recycling and nurturing” tactics the number of new names required for your funnel can be dramatically reduced. A good funnel modeling calculator can reveal how to leverage recycling of buyers.

Charles Besondy is a fractional Chief Marketing Officer for small businesses and is founder and Chair of Revenue Warriors, the first CEO peer group and marketing advisory for business owners positioning  their business to sell within five years.