The largest growing business opportunities today is the sales that transpires from one business to another business. We call this the "Business-to-Business" sales field as the business who is selling products only sales to other businesses not to private citizens. This is the way that "Business-to-Business sales first started and this type of sales was referred to as wholesale. Wholesale business became popular when larger business owners needed a place to pick up products for resale for their local customers. The wholesale business would buy up products cheap from the market and resale to local business owners at a discounted rate so that they could resale making money. Everyone seems to profit from this type of business and the consumer foot the bill.
A man by the name of Sam Walton decided to make a difference for the smaller business owner and the general public by opening up wholesale products to everyone by starting what is called a "club." The club as he referred to it gave the small business owner the right to get his products cheaper and the average citizen the chance to buy in bulk if they wanted. The name of this wholesale resale was dubbed Sam's Club. This idea caught on and soon others decided to do the same thing soon there was the opening of Price Costco another wholesale club. You have to be a business owner in order to buy products and of course you must prove it by showing your licenses. The wholesale clubs cannot charge you taxes on your products because you must pass that on to the consumers. This was a great idea from the onset but places like Sam's Club soon drove others from the market place. Many cities started to complain as Sam's Clubs moved into their areas putting the smaller business out of business.
People realized that they could buy products at a wholesale price by becoming a member and since the membership fee was so small for the year found that the savings far outweighed the cost. Then of course since many people prefer not to buy in bulk the idea of opening up a retail chain store next to the club only seemed a natural course of events. The birth of Wal-mart stores across the nation happened overnight making it impossible for the small business person to remain in business. This did not seem to affect the buying power of the average citizen who preferred the larger chain stores and clubs to the small town business. There still remains a multitude of small business owners today in every town and city in America and most of them buy their products from places like the club at a wholesale price The two have eventually learned how to live successfully together side by side in doing "Business-to-Business sales.
Thursday, November 18, 2010
Business Manipulation
Business manipulation is an art. Art mastered almost to perfection. Nowadays, buying equals existing and in that sense the power of business is paramount. And so, companies become manipulators.
How do companies use advertising - to manipulate or inform people? Yes, it gives information about what exists on the market, where and on what price, but it still remains the most powerful manipulative machine. Everywhere we go, we are bombarded by advertising slogans, posters, flyers, billboards. Each one of them offers us something off the price, make gifts and for what purpose? To convince the buyer to buy the product, to go on a holiday, to use a company. One customer will lead to another and so the ultimate goal of advertising will be achieved - increasing profits.
The world is controlled by money and business manipulation keeps the winning cards. Today, one country belongs to those who control the big companies in it.
The scam produced by companies in order to sell their products can be more outrageous than you can possibly imagine. In fact, the bigger the company, the higher the probability that it will try to acquire a monopolistic share in its market by using well-disguised manipulation.
Drug companies can be notoriously shameless when speaking about business manipulation. One of the most striking examples was the scandal with the big pharmaceutical company Merck which had paid a well-known publisher to create a medical journal. The articles in this journal were, understandably, very positive about Merck drugs, but nobody had mentioned that the articles were written by Merck itself. This story is almost too hard to swallow, namely because, the company had been manipulating not only ordinary people to buy its products, but also doctors and other professionals who had been reading the journal - people who are trusted and can have influence on their patients.
When thinking about this example, it's hard not to ask ourselves how many other such cases are out there that we don't know about. How many of the hundreds of products we use every day are a result of shameless business manipulation? The answer would probably depress us. How can we be sure that what we read in the press or what we see on television is not simply a paid advertisement? We cannot. Somehow, over time, being a consumer has started to mean being lied to, manipulated or indirectly robbed.
How do companies use advertising - to manipulate or inform people? Yes, it gives information about what exists on the market, where and on what price, but it still remains the most powerful manipulative machine. Everywhere we go, we are bombarded by advertising slogans, posters, flyers, billboards. Each one of them offers us something off the price, make gifts and for what purpose? To convince the buyer to buy the product, to go on a holiday, to use a company. One customer will lead to another and so the ultimate goal of advertising will be achieved - increasing profits.
The world is controlled by money and business manipulation keeps the winning cards. Today, one country belongs to those who control the big companies in it.
The scam produced by companies in order to sell their products can be more outrageous than you can possibly imagine. In fact, the bigger the company, the higher the probability that it will try to acquire a monopolistic share in its market by using well-disguised manipulation.
Drug companies can be notoriously shameless when speaking about business manipulation. One of the most striking examples was the scandal with the big pharmaceutical company Merck which had paid a well-known publisher to create a medical journal. The articles in this journal were, understandably, very positive about Merck drugs, but nobody had mentioned that the articles were written by Merck itself. This story is almost too hard to swallow, namely because, the company had been manipulating not only ordinary people to buy its products, but also doctors and other professionals who had been reading the journal - people who are trusted and can have influence on their patients.
When thinking about this example, it's hard not to ask ourselves how many other such cases are out there that we don't know about. How many of the hundreds of products we use every day are a result of shameless business manipulation? The answer would probably depress us. How can we be sure that what we read in the press or what we see on television is not simply a paid advertisement? We cannot. Somehow, over time, being a consumer has started to mean being lied to, manipulated or indirectly robbed.
Main Street Vs Middle Market
When preparing to sell a privately held business, it is important to determine which category the business falls in - Main Street or Middle Market. The classification of a business will determine several important strategic decisions including: How it should be valued, how to market the enterprise for sale, the type of buyer likely to be interested, and the business intermediary firm appropriate to engage for assistance. The goal of this article is to highlight the distinguishing features of Main Street and Middle Market businesses and to review the major differences in the sales methodology.
Main Street & Middle Market transactions are most often delineated by the size of the business either in terms of revenue or earnings. There is not a universally accepted definition of size and, most often, a business intermediary firm will adopt a specialty formula. The majority of lower middle market companies fall in an area where they are too small for investment banks and too large for the average business broker. Engaging a business intermediary firm who has the capabilities to properly represent your company will be critical. Often the business size is not the only distinguishing characteristic defining Main Street from Middle Market businesses. The industry, the complexity of the transaction, the depth & breadth of management, the presence of intellectual propriety or private brands, as well as the type of buyer that is targeted will also have an impact on the methods used to package the business for sale. The chart below details some of the typical differences in how the two types of businesses are defined, valued, packaged for sale, and confidentially marketed. It is important to note that the chart is only a guideline as many businesses will reflect similar attributes. Please consult with your local business intermediary to determine how your business should be treated.
Main Street:
•Business Revenue: Less than $3,000,000
•Business Earnings: Less than $1,000,000
•Type of Sale: Asset Sale
•Buyers: Entrepreneurs or Displaced Corporate Executives
•Business Valuation: Based on Sellers Discretionary Earnings (SDE)
•Financial Statements: Owner, CPA Compiled
•Business Management: Acquirer is buying a job. Existing management is less critical.
•Complexity: Transaction can often be accomplished with less complicated "boiler plate" agreements.
•Confidential Marketing: Marketing to a very broad buyer base.
•Marketing Package: Confidential Business Review
•Pricing: Marketed with a specific asking price.
•Broker/M&A Fee Structure: 10-12%
•Retainers: Minimal Retainer
Lower Middle Market:
•Business Revenue: $3,000,000 - $75,000,000
•Business Earnings: Greater than $1,000,000
•Type of Sale: Asset Sale or Stock Sale
•Buyers: Corporate Buyer or Private Equity Group (PEG)
•Business Valuation: Based on EBITDA
•Financial Statements: Reviewed or Audited Financials
•Business Management: Current management is often a key driver to the acquisition
•Complexity: Deal structure can be very complex requiring customized legal documents.
•Confidential Marketing: Highly targeted direct marketing to strategic & financial buyers.
•Marketing Package: Comprehensive Offering Memorandum
•Pricing: Asking price is rarely listed in the Offering Memorandum
•Broker/M&A Fee Structure: Double Lehman/Negotiated
•Retainers: Monthly Fee
Main Street & Middle Market transactions are most often delineated by the size of the business either in terms of revenue or earnings. There is not a universally accepted definition of size and, most often, a business intermediary firm will adopt a specialty formula. The majority of lower middle market companies fall in an area where they are too small for investment banks and too large for the average business broker. Engaging a business intermediary firm who has the capabilities to properly represent your company will be critical. Often the business size is not the only distinguishing characteristic defining Main Street from Middle Market businesses. The industry, the complexity of the transaction, the depth & breadth of management, the presence of intellectual propriety or private brands, as well as the type of buyer that is targeted will also have an impact on the methods used to package the business for sale. The chart below details some of the typical differences in how the two types of businesses are defined, valued, packaged for sale, and confidentially marketed. It is important to note that the chart is only a guideline as many businesses will reflect similar attributes. Please consult with your local business intermediary to determine how your business should be treated.
Main Street:
•Business Revenue: Less than $3,000,000
•Business Earnings: Less than $1,000,000
•Type of Sale: Asset Sale
•Buyers: Entrepreneurs or Displaced Corporate Executives
•Business Valuation: Based on Sellers Discretionary Earnings (SDE)
•Financial Statements: Owner, CPA Compiled
•Business Management: Acquirer is buying a job. Existing management is less critical.
•Complexity: Transaction can often be accomplished with less complicated "boiler plate" agreements.
•Confidential Marketing: Marketing to a very broad buyer base.
•Marketing Package: Confidential Business Review
•Pricing: Marketed with a specific asking price.
•Broker/M&A Fee Structure: 10-12%
•Retainers: Minimal Retainer
Lower Middle Market:
•Business Revenue: $3,000,000 - $75,000,000
•Business Earnings: Greater than $1,000,000
•Type of Sale: Asset Sale or Stock Sale
•Buyers: Corporate Buyer or Private Equity Group (PEG)
•Business Valuation: Based on EBITDA
•Financial Statements: Reviewed or Audited Financials
•Business Management: Current management is often a key driver to the acquisition
•Complexity: Deal structure can be very complex requiring customized legal documents.
•Confidential Marketing: Highly targeted direct marketing to strategic & financial buyers.
•Marketing Package: Comprehensive Offering Memorandum
•Pricing: Asking price is rarely listed in the Offering Memorandum
•Broker/M&A Fee Structure: Double Lehman/Negotiated
•Retainers: Monthly Fee
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