You have optimized your firm. Excellent!
But now what?
Clearly, you have a few options:
- Keep going as you are, keep working out the kinks and evolve.
- Do nothing, and see what the future brings.
- Acquire or merge a smaller team that rounds out your core competencies and continue your growth curve.
- Merge with a similar or bigger organization your team compliments.
- Sell to a synergistic organization where your offer rounds out their needs.
- Sell to an organization that wants to get into your business but offers no immediate business advantage to your organization.
- Sell to a holding company where you are a unique offer that rounds out their business needs and catapults you to a new level.
All of these options are great. The right one depends on you and your executive team, in terms of ambition, the ability to be uncomfortable, the ability to be flexible, the ability to adapt to new and unexpected forces often out of your immediate control.
Any and all of the above options could be fantastic or could be the biggest mistake a creative firm can make, as with most things, it depends on your attitude and perspective.
Being aware of what each option could mean is critical to finding the right attitude and perspective, but this knowledge is not readily available, as most transactions are cloaked in mystery and NDAs. Seeking advice and perspective from those that have been operators through options 3-6 is helpful in shedding light on what happens post deal.
Should you sell your creative firm?
Only you and your partners know the answer to this question. But let’s frame the question a bit to help guide the concept of selling.
Lifestyle and Growth Businesses
A lifestyle business is most commonly found in the creative industry. In general, decisions are made based on the needs and wants of the owners’ objectives, enabling a good lifestyle doing good work, minimizing risk if possible to continue doing good work and taking care of your staff. The risk/reward analysis revolves around taking care of immediate needs, without risking the entity. Safety is highly valued. Successful lifestyle businesses offer the owners a good quality of life and a great deal of fulfillment as well as a sense of calm. Growth of sub 10% is typical for the creative industry but may fluctuate from year to year, averaging 3-5%, and margins are in the 10-15% range. The business depends on the owners who are very hands-on, making most of the significant business decisions.
Growth businesses are targeting a marketplace that offers quick growth during the first five years of operations. These businesses are built with the thought of being acquired by owning a segment or becoming a leader in a certain sector not yet captured by any large organization. The operating philosophy is growth over risk aversion. Due to the business needs, the stakeholder team is bigger, more decisions need to be made quickly. A diverse team is ideal to handle the various areas needing to be mastered. Bigger bets are made in uncharted regions, such as the move to AR or VR in our current environment. That is, an unproven sector, but a good bet that it will be meaningful for the team that cracks it. Typically a successful growth business has a +15% year-on-year top line increase for at least 3 years. Margins are all over the place in our industry, depending on the sector of focus. But more options are available in the +15% margin area.
Both kinds of firms are in great demand if there is a sector focus that is of interest, repeat business with significant clients, and the growth patterns are solid for the last three years. In general, if you are growing 18% topline Y-O-Y and have consistently +20% pretax margins, you are a great candidate for a meaningful transaction, certainly worth the effort, and time it would take to get through the process a sale involves.
Peralta Consultants 