How to Turn Your Business into a High-Value Asset | Jay Abraham

Marketing strategist and growth expert Jay Abraham explains how business owners can increase company valuation and prepare for a successful exit by focusing on future potential rather than past performance. In this episode of Strategic Edge, he outlines why many entrepreneurs undervalue their businesses and how strategic adjustments can significantly increase acquisition multiples.

Abraham breaks down the key drivers buyers look for, including growth quality, profitability, diversification, and defensibility. He also emphasizes the importance of reducing risk, increasing customer lifetime value, and building systems that make a business less dependent on the owner. By treating a business as a long-term wealth asset, owners can unlock greater financial outcomes when it’s time to sell.

Key discussion points:

• Why buyers prioritize future potential over historical performance
• The four drivers of above-industry acquisition multiples
• How to reduce concentration risk and increase business stability
• The role of customer lifetime value in creating defensible advantages
• Why preeminence and trust drive higher valuations and referrals
• How to engineer your business for a more profitable exit

Transcript

Why Some Companies Sell Higher

Bridget Ftizpatrick 0:32

Hello everyone, and welcome into another episode of Strategic Edge. I'm Bridget Fitzpatrick. Thank you so much for joining us. When you hear about companies being acquired for multiples far above their industry average, it raises a big question. What are they doing differently? Today we're breaking down the strategies behind unstoppable business growth with Jay Abraham, legendary business leader, marketing legend, executive coach, and founder and CEO of the Abraham Group. Jay, thank you so much for joining me.

Jay Abraham 0:57

My pleasure. What a privilege to be here. I enjoy your audience.

Bridget Ftizpatrick 1:00

We well, our audience enjoys you, and we love having you in the studio. So this is great. We're gonna have a really great conversation to help a lot of people that are watching today. So let's start with okay, you see companies that are acquired at multiples far beh beyond the industry average. Talk to us about what those companies or specifically the buyers, what are those buyers really paying for?

The Four Drivers Of Premium Value

Jay Abraham 1:24

Well, uh it it it let me let me if you'll let me, let me start with a prelude to that. Would love that. So a surprisingly large number of SMB type entrepreneurs and mid ones, they don't really think about exit. Whereas that's really where you create all your wealth. And if you think about your liquid assets, almost all of them started with your illiquid asset called a business. And whatever you're earning from that business is a fraction of what that business can pay you when you exit, if you understand uh a few distinctions. So let me give you the first distinction, and that is that you don't have control of factors that can uh determine the value of a business. You do, many factors. Second is that you are stuck with current performance metrics, whatever your profit levels are, or your growth level, or your uh any kind of level. Fourth, that there's four key denominators that if you understand these, you can command much higher value for your business if you achieve them. The first is an above-average uh qualitative growth percentage. So if your average industry is growing at 10% or flat and you're growing at 25%, and the quality of your growth is there, not just the quantity, but you're growing really quality buyers, clients, members, users, visitors, whatever the criteria that would be the denominator that an acquirer would look at, that's profound. So a higher than industry growth rate, a higher than industry profit level. And uh there are many ways to do it. People think they can't control their profit, they really have a lot more control over how to multiply profit. The next is a less-than-industry concentration risk. Concentration risk can mean many things. For a smaller business, it can be dependency on one person: a salesperson, uh, a supplier, uh, the leader. For uh uh a lot of businesses it's concentration on a few buyers. I'm not talking about uh, you know, I'm talking if if 80% of your business comes from 10 or 20 percent of your business, while that could be argued that that's cool, it's very dangerous. You lose anyone. The other is concentration in one source. Let's say you're getting all your business from one of the platforms, uh uh Meta or TikTok, and anything happens to change the algorithm or change what you can say, anything, you're screwed. Let's say you lose your top salesperson and he goes or she goes into business against you. So if you can if you can reduce dramatically your concentration risk by having your business be spread over many more buyer categories, if your business is coming from many more sources, if your business isn't dependent on just one key player, then that that checks that box. And the last, which everybody wants, is a defendable advantage. And most people think, well, if I don't have a uh if I don't have an exclusive right to a territory, or I don't have a uh a uh a proprietary uh pet methodology, or if I don't have a patent, then I can't have any advantage, and that's not true. One of the easiest ways to gain really profound and stealth-like advantage is to have a much higher than industry uh lifetime value. If you know that your buyer is going to produce for your business three or four times the profit over a period of time than your competitors, you have a lot more allowable cost that you can invest in the beginning to bring them in. So you can out-advertise, you can out-compensate, you can out-bonus, you can out-package, you can do things nobody else can do because they don't understand the subtlety of that advantage. So if you have a higher-than-industry growth rate, if you have a higher-than-indust level, if you have a lower-than-industry concentration risk, and you have a proprietary advantage, and the easiest one for most, because they don't have a patent exclusive, they don't have a franchise exclusive, they don't have any of those things, but they can have two or three times the lifetime value or the profit contribution that each buyer makes, or even each, you can go as high as, or you can go as as sophisticated as saying, every lead is worth more to me than they are to them. And when you have that, you do have an advantage. If you have all four of those together, you you don't have to let an acquirer decide that. You can advocate that. You can say my business is not worth the normal eight, it's worth 15. And there are many, I and my brain is not going to recall them, but we had when I did a a whole presentation on this a couple of uh uh years ago, we cited about 30 famous businesses that sold for outrageously higher multiples than their industry. One was 50 times more, one was twenty two times more, one was sixteen times more than the industry multiple. So if the industry multiples six or ten, they would have sold for twenty five or fifty because they were that desirable on they they checked all four of those boxes.

Bridget Ftizpatrick 6:56

And the buyer, do you think the buyer is looking at the all of those boxes? I mean, obviously they're looking even at the same time.

Jay Abraham 7:01

I think the buyer is what people are buying is not historic, it's future. It doesn't matter what you've done yesterday. They're one, they're buying the probability that your earnings, your growth, your advantage, your diversity will continue no matter what happens in the future. And if you can't demonstrate, so I always get my clients to build as many as nine different uh pillars of revenue. So they're very diversified. So if one of them is compromised, it doesn't hurt the growth

Lifetime Value As A Hidden Moat

Jay Abraham 7:38

of the business, the source of the business. I always get my clients to maximize the lifetime value. And if they don't have a lot more to sell than one or two products or services, we put more, we partner with lots of other people to double, redouble, redouble again the profitability that a buyer is worth to us. I get my buyers or my clients to figure out ways to monetize leads that don't even buy their product, and I get my buyers to use or my clients to use their distribution networks better, and all of a sudden their numbers are off the chart different. But when you have that kind of a superior case, it doesn't matter if the buyer is used to paying 9x. You can justify 12x or 15x. And one of our belief systems, if you double your profit every year, you're multiplying your your wealth by orders of magnitude. And most people don't realize that the biggest payday you're ever going to get, if if you do it right, if you orchestrate it right, if you engineer it right, is gonna be when you exit. I mean, you might be making $250,000, $100,000, million dollars, but when you exit, you're gonna get a lifetime worth of income if you orchestrate it right. And you can do it every two or three years if you really understand it. You can take a business that's, let's call it, medium size, you can create these four, these four quadrants of superiority, you can basically sell it for a very high multiple, take that money, acquire another business that's underperforming, do it again, but each time higher, or you can you can basically, when you get those kind of additives, it gives you more advantage. You can borrow more. If you take in investors, they're not gonna dilute it as much because it's worth so much more. The bank will loan to you easily, you'll get better credit from creditors. I mean, everything about it is advantageous. And in in business, I believe that the key to business, everyone nobody wants an equal playing field, Bridget. They don't want to they don't want to have to work as hard as everybody and they have to compete the same way. They want every ethical advantage they can gain. And this is probably the easiest way to get the four uh mission critical advantages that any acquirer will pay a premium for as long as they understand those factors to be true and predictable.

Bridget Ftizpatrick 10:03

And I know a lot of small businesses that I've talked to talked about not selling because it might not change their, it might not be life-changing for them. But what you're saying, even if it's not, you could make it life-changing.

Jay Abraham 10:15

Well, here's here's the truth. Whether you want to sell or not, sooner or later, it you you you will have to sell. You either be you want to retire, you may have some kind of a uh a crisis, physical, health, you know, personal, to get a divorce, and I don't wish that on anybody, but the statistics are half of you are gonna do that. You can uh uh

Build Diversified Revenue Pillars

Jay Abraham 10:42

you you can be tired and and burnt out. And if you know that the certainty is every business changes hands, and sometimes the changing of hand is just being closed, sometimes it's going into chapter 11 or worse seven. But if you know it's inevitable, it's just it's funny. I was when I was very young, I sold life insurance, and people would say, if I die, and you start laughing, you gotta die. You're gonna die. It's not if you die, it's when you die. What are you gonna do to protect you know the people you care about? Well, when your business has to be transferred some way, you wanna prepare for it so you get the maximum you can. And you're right, most SMBs they can't sell because it's not it's not sellable. There's too much concentration risk in the owner, there's no systems they've developed, you know, their their sourcing might be just uh where they exist in a shopping center or word of mouth, and there's no systematic strategic discipline to it. But if you say this business is the greatest wealth creator I can have, and even if it's only today worth 500,000, if I can make it worth a million and a half, I can use that if I've been, I can use 500,000 to live on and a million to put down on a three or four million dollar business that I can do it again for, and then I can do that again and again, but it's a way of thinking different. If you say, I'm not gonna sell it because it's not gonna change my my financial circumstance, that's the reason you should position it for sale because sooner or later, when something happens, you're either going to have to sell it and it'll be worth very little and it won't help you when you need it, right? Or you're gonna close it because no one will buy it, or worse, if you don't take precautionary measures today, you'll go into bankruptcy because you won't be able to compete viably. But if you think differently about it today and say, I want this business to be my greatest wealth creator, I want to double my net worth every two or three years, I want to either use it as a springboard to a much bigger play, or I want to use it as an acquisition vehicle and take on weaker complementary businesses that I can put through my distribution, you can turn a very limited asset into something that can be a vehicle for really pretty exceptional wealth creation.

Bridget Ftizpatrick 13:20

Absolutely. Absolutely. Love that. So you talk about preeminence as a growth strategy. What does that mean in practical terms when it comes to small businesses?

Jay Abraham 13:31

So if you think about a small business, most of them are generic businesses that have very little decisive and perceivable advantage. The advantage you might have if you're retail, maybe you're in a strip shopping center that's close to somebody, that's your only advantage. Uh if you're somebody and not really big and you're selling products or services, you probably don't have cost advantages. You probably don't have world-class sales advantages, you probably don't have great

Treat Exit As Inevitable Planning

Jay Abraham 14:03

uh competitive marketing because you don't advantage because you don't have a lot of capital. But the advantage that can uh it can neutralize a lot of that and and um and elevate you is preeminence. Preeminence is the ability to be seen by a market or a niche as the most trusted advisor. Uh the only choice you can make in that category for life. And there are drivers of that, but when you elevate that, I mean if you think in terms of, you know, I stated at uh the St. Regis, I stated the Ritz, there's you know the four seasons, and if you compare them, even though a lot of them are upscale brands compared to, and they're owned or managed by Marriott, a regular Marriott is not as desirable. Well, what what do you want that is so desirable that people are loyal, they'll pay a premium, they won't go anywhere else, and that's a function of many integrated filaments that you weave together into the fabric of being seen that way. First of it is you have to be seen as a trusted advisor as opposed to just a disseminator of information. Information has no value. Advice on what you should do and why and what you shouldn't do and why that is believable and trusted is very powerful. You've got to basically have the ability to guide people to reasons why they should purchase different different products, services, different combinations, different qualities. And you've got to be able to tell people not just what they should do, but what they shouldn't. If somebody really shouldn't spend the premium because they don't need all those bells and whistles, you have to have the integrity to tell them so people will trust you. And that trust turns into loyalty, which translates to repurchase, that loyalty translates to referrals, that loyalty translates to long-term residual purchases, and that's what you're trying to do in business. I don't think people understand. The purpose of a business should be to build such a loyalty and such a brand awareness that people don't think of going anywhere else, and that people tell everyone else, and they buy everything they could from you and no one else. And if you're a premium, and a lot of SMBs have to be because they don't have the buying advantage of a big, you've got to have advantages. Now, one of the biggest sort of intangible elements of being preeminence is most people fall in love with either their company, their industry, or their role. But if you fall in love with the clients you serve and you think in terms of your product or service in their lives, making their lives either happier, safer, richer, uh stronger, whatever you're probably if you're selling supplements, you think in terms of the fact that you're increasing their fitness, their health, their sleep, uh, their happiness, their performance, and you start thinking in terms of that, it makes a big difference. If everybody in your company is on a mission or a crusade and they see their role not being selling products, but transforming lives, that aura of conviction and and purpose is evoked by everybody and it's contagious. But there are a lot of things like that.

Bridget Ftizpatrick 17:35

I love that. And I've heard your good friend Tony Robin say the same thing about as soon as you realize at the core that you really want to serve people or serve an a community, then that's really when you can knock the cover off the ball.

Jay Abraham 17:47

He calls it raving fans. I mean, if you think about it, almost everybody who is discriminating at all has a favorite restaurant. Yeah. And it's not always the most expensive restaurant. It's the restaurant that makes them feel the best. Yes. And it's not always the best food. It's the restaurant that they feel the most appreciated. They feel the most comfortable.

Bridget Ftizpatrick 18:07

That's right.

Jay Abraham 18:08

And and uh it's interesting. There's a a famous a famous um uh uh sales uh sales expert that has a funny quote. He says, All things being equal, people do business with people they like. And then he says, uh all things being unequal, people do business with people they like. And and like l like uh whatever the word is, likeness or like I don't know what the right word is for being liked, it but uh it's a function of caring. You can't be inauthentic and being like long term. That's right. And and people don't realize you're not playing a a short-term veneer superficial game. You want a relationship where people trust you so much that even if you have a limited offering today, if you have new products or new services or a new location, they trust you so much that they are predisposed to deal with you and buy those things. And that what you're investing, I mean, everybody is really a hedge fund investor and they don't know it. And they're investing actions, effort, uh, opportunity cost in activities, and most of them are playing a static short-term. This gets a little too esoteric

Preeminence And Becoming The Trusted Advisor

Jay Abraham 19:24

for this conversation, but they're playing a static short-term game when in fact, if you just change the playbook you're using, you can play this long-term game, which gives you not totally preemptive, but gives you a predisposed, favorable role in the lives of the people that uh buy from you forever and ever. And that has that has intangible value back to this question we talked about in the multiple it sells for.

Bridget Ftizpatrick 19:52

Right. And this might not be a recurring situation, but I'm sure the same holds true when it comes to that buy-sell arrangement when you're selling.

Jay Abraham 19:59

And and so we look at all kinds of uh quantifiable data that most people don't look for. So, in other words, if the average industry has 3% referral and you have 23%, that's actually profound because a referral-generated buyer buys quicker, negotiates less, buys more, buys more combinations, more quality, buys more often, is more enjoyable to deal with, is more loyal, and refers more people and costs you nothing. Whereas a typical buyer, you have an incredible acquisition cost to bring them in the door because you've got to go through 20 prospects that cost you $50, $100 apiece to get one sale. Well, a a referred buyer, you don't have any of that. And you don't have the long sales cycle and the frustration, but also referred buyers refer buyers. It's a really and so we look at all kinds of factors no one looks at, but that's a pretty profound factor. And again, most people who sell a product or service, you didn't ask this question, but I'll explain it. They see themselves at a static role. I am a dry cleaner, or I am a sales consultant. They don't understand that once you achieve true trust because of performance, you can introduce your buyer, your client, your customer, your patient to all kinds of other related complementary products or services that you don't have to own. You can partner with people and they will buy those from you, but those additional extensions can double or redouble or redouble again the profit that that buyer is worth to you, and thus the value that business is worth to an acquirer and that's worth to you. So, anyhow, it's a long winded explanation.

Bridget Ftizpatrick 21:54

Very well said though. Now, one last question before we go, and I've asked this before, but I think it's important. Um why do two businesses with the same strategy often get wildly different results?

Jay Abraham 22:06

Well, they probably don't really have the same strategy. You know, the strategy so you got you got strategy, you got business model, you got distribution channels. So let's look at different business models. So if your business model is I'm gonna call on a uh on a prospect and I'm gonna try to sell them a very expensive uh system. And mine is I'm gonna call on a prospect and I'm gonna try to educate them and get them to uh progressively experience our company without really risking anything or or much, and I'm gonna get a lot of people to do it, and from those people we're gonna migrate slowly a lot of them into our product because they'll trust us. And if your system, if your system is I'm gonna sell you one thing and never sell you anything else, and my my approach is I'm gonna sell you this water, but since I know that you probably drink sparkling water too, I'm gonna introduce that to you. And because I know that probably someone in your in your family or in your office also drinks sodas, I'm gonna introduce that to you. And so I'm gonna, you're selling me one thing and I'm selling you all these extensions. Does that make sense? So I can go on and on, but most people don't know two businesses understand strategic business models. Also, most people don't understand uh the lifetime value, most people don't understand uh the value of what we call the back end. I mean, there's all kinds of dynamics in business, and a lot of them are pretty well known. Most people know what an upsell is, most people know what a down sell is, most people know what a resell is, but when it comes to really uh utilizing and harnessing the full

Why Similar Strategies Produce Different Results

Jay Abraham 24:00

power of all the dimensions of those, it's it's okay. So you look very attractive and you're wearing a nice clothes. I have very expensive clothes. You can be well dressed but not look attractive. You I mean there's all kinds of gradients in everything. There are gradients in strategy, there are gradients in business model, there are gradients in how you sell, there are gradients in in lead generating, prospect generating, conversion, there are gradients in resell, upsell, downsell, and the people that outperform the other, think about it, nobody has more than 24-7. It is rare that somebody has that much greater of an IQ. And in the beginning, not that many companies have that much more capital, but they use their assets, they use their access, they use their interaction, they use your opportunity cost, they use their your um your communication, they use their uh their capability of trust building many times better than the other. That's sort of the answer.

Bridget Ftizpatrick 25:07

That is the answer, and I love it. I love it. Thank you so much, Jay Abraham, once again. Oh, you're welcome. Laying it down for us. We love it. Thank you so much.

Jay Abraham 25:15

You're welcome. That makes sense. It does.

Speaker 2 25:24

Exclusively on A S B N.