We’ve often said that entrepreneurs are brand builders. Unlike sole proprietors, or even those creating a legacy, most entrepreneurs, sooner or later, want to have a capitalization event. That may take the form of a merger, IPO or cash infusion by a new partner, but it usually takes the form of an acquisition.
If that’s what you think is in your future at some point as a brand builder, then why not consider where you want to end up even before you launch? We hear many entrepreneurs who are developing viable brands say that they are not interested in being acquired, but they all ultimately realize that the only way they are truly going to get paid for all their brand building efforts is through an acquisition.
Why? Because they soon find out, not long after launch, that they must grow their brand or watch it take a back seat to those that do. And growth is very expensive in time, money, and effort. In fact, many wise brand builders continue reinvesting in their brand growth until they are acquired. They may say that they own their brand, but their brand owns them. It is constantly looking for more capital and labor to expand into the next territory or achieve the next increment of market share.
Understanding what the acquirer is looking for is the key. Of course the acquirer is looking for a good fit from a production standpoint and how it meshes with his existing business as well. Still, it is the brand equity that the acquirer buys in the long run. That equity can be based on several factors including, but not limited to geography, market share, growth rate, annual sales, key accounts, annual revenue and profitability. This used to be called the goodwill of the business or the chart of accounts.
We have spoken to many start-ups. What surprises us is that few of them have ever considered the metrics they will have to achieve to be an acquisition target. Few of the schools that teach entrepreneurship today (and we have spoken at 30 of them) teach their students what these metric are, and yet without them it would be like setting sail with no port in mind.
Ironically, we were no better when we got started. We had no idea what the metrics were for our type of brand, at our price point in our category. But we should have. It would have made our mission much more clear, helped us set a better course, and likely saved us years.
So from our perspective, with 20-20 hindsight and having built a successful national brand and monetized on its brand equity, how would we have done it differently? What do we now recommend to new start-up brand builders? It’s simple. Before you get started, take an investment banker to lunch! Not just any investment banker, but one specializing in your brand’s specific category, niche, and price point.
They will be able to tell you what your company must look like to be an acquisition target. They will know the comparisons with other recent acquisitions similar to the business you are considering and can tell you how large those brands had to be before they even showed up on the radar. More importantly they will know the metrics of the goals you will have to achieve to even be in the market for an acquirer. These metrics will give you the course you must chart to make it to the monetization of your brand equity. Then you will know where you are going and why! Bon appetite!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders