The Anatomy of a Successful Exit

Stephanie Breedlove started Breedlove & Associates in 1992 as a way to pay her nanny.  The big payroll processors weren’t interested in dealing with one person’s wages and  doing it themselves was complicated and time-consuming, too much for the then  overwhelmed Breedloves.  

Breedlove saw a business opportunity and started a payroll company for parents who  needed to pay their nannies. By 2012, Breedlove & Associates had grown to $9MM in  revenue and then she received a $54MM acquisition offer. 

To give you some context of how incredible it is to sell a $9MM business for $54MM  let’s look at the numbers. At The Value Builder System™, more than 25,000 business  owners have completed the Value Builder Score questionnaire, part of which asks about  any acquisition offers they may have received. The average multiple offered is 3.76 times  pre-tax profit. Even the best-performing businesses, those with a Value Builder Score of  80+, only get offers of 6.27 times pre-tax profit on average. Breedlove got close to six  times revenue.  

What did Breedlove do right? We’re going to look at the five things Breedlove did—and  that you can do—to drive up the value of a business.  

1. Sell Less Stuff to More People 

When Breedlove hit $30K per month in revenue, she quit her job at Accenture (formerly  Anderson Consulting) and devoted herself to Breedlove & Associates full-time. To grow,  she had a choice: sell more to her existing customers (e.g. busy couples often need lawn 

care, house-cleaning, or grocery-delivery services) or stick with her niche of paying  nannies. Most consultants and experts would say it’s easier to sell more to existing  customers (and they’re right), but it doesn’t make your business more valuable.  Breedlove decided to stick to her niche and find more parents who needed to pay their  nannies, and that decision laid the foundation for a more valuable business. 

Investors from Warren Buffet look for companies with a deep and wide competitive moat  that gives the owner pricing authority. When you have a differentiated product or service,  we call it having The Monopoly Control and companies with a monopoly get  significantly higher acquisition offers.  

Rather than selling existing customers generic services in commoditized markets,  Breedlove focused on selling one thing to as many customers as she could find.  

2. Strive for 50%+ Net Promoter Score

One feature that interested acquirers look for is your customer satisfaction levels.  Increasingly, they are turning to the Net Promoter Score (NPS) as a measure of this. NPS  was developed by Fred Reichheld and his team at Satmetrix, who discovered that your  customers’ willingness to refer you to their friends or colleagues is highly predictive of  your company’s future growth rate.  

The NPS approach is to ask your customers how willing they would be to refer your  company to a friend or colleague, on a scale of 0 to 10. They are then categorized into  Promoters (9s and 10s), Passives (7s and 8s) or Detractors (0–6s). The NPS is calculated  by subtracting the percentage of Promoters from the percentage of Detractors. Most  businesses achieve an NPS of 10% to 15%, while the very best companies (think Apple  and Amazon) get scores of 50% or more.  

Breedlove obsessed over her company’s NPS and realized the key to driving it up was  perfecting the first few interactions with a new customer. When you call a big payroll  company looking for a service to pay your nanny, the response can be underwhelming.  With only one person to pay, you are often relegated to the most junior staff member and  even they would rather be dealing with a larger client. 

When you call Breedlove, by contrast, you get a team of professionals totally focused on  setting you up. You’re not an afterthought. You’re not passed on. Instead, you get the best  onboarding talent the company has to offer. 

This set-up team was a big part of how Breedlove achieved an astonishing 78% NPS. 

3. Create Recurring Revenue Streams 

The third thing that made Breedlove’s company attractive was recurring revenue.  

Regardless of what industry you’re in, recurring revenue models give acquirers more  confidence that the business will keep going strong after you leave.  

By 2012, Breedlove & Associates had grown to $9MM and, given the nature of the payroll business, 100% of their revenue was recurring.  

4. Reduce Reliance on Customers, Employees and Suppliers  

Breedlove’s company was also attractive to buyers because she had a highly diversified  customer base with no single customer representing even close to 1% of her revenue. If  more than 10% to 15% of your revenue comes from one buyer, you can expect  prospective acquirers to ask a lot more questions. 

Customer concentration is one of three factors that make up The Switzerland Structure Module. The Switzerland Structure measures your business’ dependence on a single  customer, employee or supplier.  

5. Find an Acquirer You Can Help Grow 

By 2012, Breedlove & Associates was growing 17% per year, which is good but not  blow-your-mind good. So how did she attract such an incredible acquisition offer? The  trick was showing her acquirer how they could grow. 

In Breedlove’s case, she sold her company to Care.com. Think of Care.com as the  Angie’s List of care providers (e.g. child care, senior care, etc.). If you need someone to  care for your kids or an elderly relative, you enter your address into their website and  Care.com will give you a list of vetted caregivers in your area.  

At the time of the acquisition, Breedlove had 10,000 customers and Care.com had seven  million members. Breedlove argued that if just 1% of Care.com’s members used Breedlove’s payroll service, it would equate to 7X growth in Breedlove & Associates  almost overnight. 

In 2012, Care.com acquired Breedlove & Associates for $54MM—an outstanding exit made possible by Breedlove’s focus on what drove her company’s value, not just their top-line revenue.

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