Tuesday, February 3, 2015

Business Sold Statistics Rising

This article was written by Peter Siegel - BizBen.com, BizBen Index, reprinted by permission

California Posts Best Business For Sale Deal Total In Nine Years Says BizBen Index

Dublin, CA (January 14, 2015) With 15,513 deals on business for sale offerings last year, California saw its best rate of sales involving small and mid-sized businesses in nine years, according to the BizBen Index. The company said the figure was up 5% compared to the 14,764 sales completed throughout the state in 2013. An improved economy and easier access to business purchase loans were among the factors accounting for the growth.

"A sizable number of California's business owners who've been ready to sell for awhile, decided the time was right last year, because their companies were showing better performance than two and three years ago," said Peter Siegel, MBA, Founder and President of BizBen.com - a lot easier to make your case for a strong valuation when a business is showing improved revenues and an increase in profitability.
"Growth in the number of businesses for sale brought out unprecedented numbers of buyers who've been sitting on the sidelines the past few years, waiting for the economy to improve."
Siegel also said, "more and more lenders are getting back into the business for sale market after a long period following the mortgage crisis when they were hesitant to offer business purchase loans. That goes for financial institutions in the SBA lending network as well as banks and other companies with loan products not guaranteed by the Small Business Administration."
A third factor accounting for the increase in business-for-sale market activity, according to Siegel, is "smarter strategies being used by both buyers and sellers to solve the kind of problems that might have ruined their deals in the past. For example, we're seeing more earn-out provisions in sales agreements than ever before. That is a way to bridge the gap when the seller feels a business is worth more than buyers are willing to pay. The strategy is for parties to agree on a figure that will be temporary and might go up in response to improvements in a company's financial performance in the months and years following close of escrow. If the seller is carrying back part of the price, he can look forward to having the buyer's payments go up to correspond to the growth in the business."

A Slower December
Much of the gains in sales totals were achieved early in the fourth quarter last year, with a slight decline in the count of transactions last month. A total of 1,326, deals were completed during December 2014 compared to 1,403 business sales posted during the previous December. Among the winners in a December-to-December comparison were Orange County, with 165 sales last month vs. 140 for the previous December, Contra Costa County recording 57 deals in the just-completed month and just 30 sales the previous December, and Santa Clara, up to 65 deals from 60.
Large counties with a decline last month compared to December 2013 were Los Angeles County, 294 sales vs. 406; San Diego County with 102 deals vs. 128; and San Francisco posting 43 sales compared to 66 during December of the previous year.

The county totals recorded last month, available at: http://www.bizben.com/stats/stats-monthly-dec.php are as follows:

Alameda: 58, Amador: 2, Butte: 4, Calaveras: 1, Contra Costa: 57, El Dorado: 8, Fresno: 44, Humboldt: 2, Imperial: 5, Kern: 28, Lassen: 1, Los Angeles: 294, Madera: 1, Mariposa: 1, Merced: 8, Monterey: 19, Napa: 4, Nevada: 4, Orange: 165, Placer: 23, Plumas: 1, Riverside: 68, Sacramento: 38, San Bernardino: 59, San Diego: 102, San Francisco: 43, San Joaquin: 36, San Luis Obispo: 6, San Mateo: 21, Santa Barbara: 10, Santa Clara: 65, Santa Cruz: 6, Shasta: 12, Solano: 14, Sonoma: 31, Stanislaus: 23, Sutter: 6, Tulare: 18, Tuolumne: 3, Ventura: 19, Yolo: 9, Yuba: 2.
Sales totals posted by California county over the last nine years are available at: http://www.bizben.com/stats/stats-total.php
The BizBen Index has been collecting and reporting information about small California small business sales for 18 years, to help business owners/sellers, buyers and the professionals participating in this market make informed choices and achieve success when selling or buying a California small business.

Studies Show That A High Percentage Of Start-Ups Fail. Here’s Why.

image This article was written by John Rau, SCORE Orange County Business Mentor

An interesting article appeared in the on-line version of the Wall Street Journal several years ago entitled “The Venture Capital Secret: 3 Out of 4 Start-Ups Fail” written by Deborah Gage (see: www.WSJ.com, dated September 20, 2012) in which she cited some interesting statistics from a research study conducted by Shikhar Ghosh, a senior lecturer at Harvard Business School. Mr. Ghosh examined data from more than 2,000 companies that received venture funding, generally at least $1 million, over the time period 2004 through 2010. He pointed out in his research that one needs to be careful how they define “failure” as there are different possible definitions of failure. If failure means liquidating all assets, with investors losing all their money, an estimated 30% to 40% of high potential U.S. start-ups fail, he says. If failure is defined as failing to see the projected return on investment such as a specific revenue growth rate or date to break even on cash flow, then more than 95% of start-ups fail.

Also, in her article Ms. Gage makes mention of several other studies of interest in this context of “start-up failure”. For example, of all companies, about 60% of start-ups survive to age three and roughly 35% survive to age 10, according to separate studies by the U. S. Bureau of Labor Statistics and the Ewing Marion Kaufman Foundation, a non-profit that promotes U.S. entrepreneurship. It was also pointed out that companies that didn’t survive might have closed their doors for reasons other than failure such as being acquired or the founders chose to move on to other ventures.

So, what’s going on here? To get some insight into the possible answers to this question, there have been several “post-mortem” type surveys and studies that might shed some light as to what happened and why.

First, a survey was conducted of founders involved in 32 start-up failures to summarize the common reasons start-ups fail and these results were published on January 11, 2011 at a blog site—specifically http://www.chubbybrain.com/blog. The results are shown below relative to the top 20 reasons these start-ups surveyed failed.


Referring to the chart above, the top 10 reasons can be summarized as follows:

1. Ignoring customers—Being inflexible and not actively seeking or using customer feedback.

2. No market need—Building a solution looking for a problem, i.e., not targeting a market need.

3. Not the right team—Not the right mix of skill sets and inadequate checks and balances amongst the founding team members.

4. Poor marketing—Not knowing the target audience and not knowing how to get their attention and convert them to leads and ultimately customers.

5. Ran out of cash—Money and time are finite and need to be allocated judiciously, i.e., not adequately addressing the question of how one should spend their money.

6. Needed a business model—Lack of a well-defined business model that could be implemented. (Note: Here is one of the major strengths of the SCORE team.)

7. Product mis-timed—Need to understand the “window(s) of opportunity” and release the product and/or service accordingly.

8. Lacked passion—Lack of passion and genuine interest in the entrepreneurial pursuit.

9. Failure to pivot—Pivoting away from a bad product or service, a bad idea, a bad decision, a bad hire, etc. quickly enough. Didn’t take corrective action(s) steps soon enough.

10. Poor product—Tried to provide a “user unfriendly” product or service that didn’t adequately meet customers’ needs.

Second, another survey worth noting (and comparing with the above-cited results) was reported in an article entitled “Why startups fail, according to their founders” by Erin Smith on September 25, 2014 (see: http://fortune.com/2014/09/25) in which reference was made to an analysis conducted by CB Insights (a New York-based venture capital database company) of 101 post-mortem essays by start-up founders to pinpoint the reasons they believe that their company failed. These results are shown in the chart below.


Referring to the chart above, the top 10 reasons can be summarized as follows:

  1. No market need (42%)
  2. Ran out of cash (29%)
  3. Not the right team (23%)
  4. Got outcompeted (19%)
  5. Pricing/cost issues (18%)
  6. Poor product (17%)
  7. Need/lacked business model (17%)
  8. Poor marketing (14%)
  9. Ignoring customers (14%)
  10. Product mis-timed (13%)

What is really interesting is to compare the results of these two surveys, conducted approximately three years apart and with different samples, from the perspective of the top 10 reasons for start-up failures. In each survey, 8 out of 10 reasons were common, namely: ignoring customers, no market need, not the right team, poor marketing, ran out of cash, needed a business model, product or service mis-timed, and poor product or service. These are the “RED FLAGS” that need to be considered in planning your new business start-up.

Finally, some interesting observations are provided by Scott Shane in his September 26, 2011 article entitled “Why Do Most Start Ups Fail” (see In Startup Magazine) in which he states that “Not enough entrepreneurs have experience in the industries in which they are starting their businesses—specifically, a sizeable fraction of entrepreneurs start businesses in industries in which they have no work experience.” Consistent with the common results from the two surveys cited above, he states that “Many entrepreneurs fail to take the actions that research shows help businesses survive. Academic evidence shows that putting in place careful financial controls, emphasizing marketing plans and writing a business plan increase the odds that a new business will survive, yet many founders fail to write plans, have inadequate financial controls and don’t focus on their marketing plans.”

SCORE counselors and mentors have the responsibility to provide guidance and counseling to start-up entrepreneurs to increase the likelihood of their success, but, as pointed out by Scott Shane in his article, it is “true some start-ups fail because of factors beyond their founder’s control, but responsibility for much of the high failure rate of new businesses lies with the entrepreneurs themselves.”

How Start-Up Founders Can Stay Accountable

image This article was written by Brian Christie, CEO and Chief Innovation Officer of Fanaticall

If you head a startup company as a founder or CEO, having the total freedom to execute as you see fit may be part of what motivated you to take the position in the first place.  

But freedom shouldn’t be mistaken for a lack of accountability. Building a framework of accountability will ensure that you stay on track for completing projects, accomplishing goals and realizing the vision you set forth for your company.

Here are six suggestions to make yourself accountable as head of your startup:

1. Separate the CEO role from the chairman's.

This is a growing trend at public companies and increasingly recognized as a way to foster good governance: If a company has several co-founders, one can take the CEO position while another the chairmanship.

Or you can find an independent director, who can provide an outside perspective, to perform the role of chairman.  

2. Recruit an advisory board.

A good startup advisory board will provide complementary skills to a CEO and help make the leader become aware of blind spots.

By working regularly with an advisory board, you are committing to moving forward on areas of the business that may be outside your comfort zone. So recruit members for an advisory board.

3. Join a peer advisory group.

It can be tremendously helpful to get feedback from other entrepreneurs facing similar challenges by participating in a peer advisory group. I’m a skeptic-turned-fan of an advisory group in Washington, D.C., Netcito, which convenes monthly. Entrepreneurs hear about and respond to the big thorny issues of their peers -- and keep one another accountable for taking steps to resolve them.  

4. Find an individual coach.

Individual coaches can help keep you on track when tackling specific business or personal issues that affect the management of your startup. For example, there's the International Coach Federation with thousands of members.

For specific issues (such as health and wellness coaching), one of my company's clients, Capital Health Coach ECN, makes coaches available telephonically. For as little as $40 you can have a one-on-one session with a wellness coach.  

5. Privately commit your goals to writing.

There are plenty of competitive reasons to not publicly share your goals. But sitting down on a yearly basis to privately write down your startup’s goals for the next 12 months is a good practice. Or write a letter to your current self from your future self (five years from that day): This can help make you more accountable to your long-term vision.  

6. Find a venture capitalist or angel investor.

Not everyone has a business that's ready for an investor but if yours is, this should be done with caution as it can come with strings attached and risks.

A bad investment partner can cripple your business while a good one can help your business soar. 

Startups lack the structure and formalities of their larger company counterparts. Creating mechanisms to keep yourself accountable to your vision, goals and tactics can be one critical ingredient to help you realize your startup’s true potential.