One Thing: Day 55: World Series and Concentration Risk
World Series and Concentration Risk
Yesterday I was explaining “value” in a business and how that is what you sell. Valuations are similar within industries but vary wildly from industry to industry.
Most think a high-end business-like ‘dental practice” would be worth a lot when in actuality it’s not worth much in comparison to a low skill business like a restaurant or a car wash.
Reality is I’m busy watching the World Series so I’m doing this with one eye on my TV and another on the computer.
Business, when done properly, is like sport in SO MANY ways it blows my mind.
You just need to COMPETE on a minute by minute, hour by hour, day by day, week by week etc… basis if you want to win. It’s seldom pretty and often incredibly frustrating.
But so worth it.
I like the Astros but the Washington Nationals are the Montreal Expos as far as I’m concerned (Canadian!) so I’m glad they pulled this off.
The Astros pulled their starting pitcher and the poor bugger that came in, Will Harris, will have nightmares for years to come.
One Thing Today
I’ll stay on valuations and your ONE THING today is a common mistake businesses make called ‘concentration risk”… something a good business coach needs to steer the coaching client away from.
But few get this one.
Let’s say we have two businesses and they both had earnings (profits) of $500k last year.
After a simple assessment, you can see your client gets 50% of its revenue from one client.
The other business gets no more than 10% of its revenue from any one client.
Which one is worth more?
Hopefully, the answer is pretty obvious….. When it comes time to sell a buyer with any brains will see the “concentration risk”.
If they lose the one client… the business halves immediately.
In fact, many businesses with “concentration risk” make plans and create products/services to sell more to the primary client.
And their inexperienced business coach agrees.
Big mistake. BIG (Said like Julia Roberts in Pretty Woman) if they want to build value.
The other business with no more than 10% of its business from anyone client is solid and will derive significantly more value from a buyer.
You heard it here first.
Obsessed with your business coaching success,
Karl Bryan aka King Karl
PS. The Nationals pulled it off and it’s crazy how fast a game can turn. The starting pitcher for Washington (The Expos) was under pressure the entire time but he COMPETED.
He has multiple pitches he can go to at critical times and therefore no “concentration risk” when it’s 3 and 0.
And his team won in the end.
Are you COMPETING today?
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Karl Bryan gets clients for Business Coaches...period. He is the Founder and Editor-in-Chief of The Six-Figure Coach Magazine and Chairman of Leader Publishing Worldwide, home of the largest private community of Business Coaches (24 countries and counting) in the world.
His goal is straight forward… to help serious coaches/consultants get more clients.