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creating-value

Warren Buffett’s Advice On Creating A Valuable Business

Turning business down can be tough for an entrepreneur, but Mitch Durfee learned the hard way that saying ‘yes’ can lead to disaster.

Warren Buffett invests in companies with a “competitive moat” which he defines as a durable competitive advantage. Most founders start with a unique idea for their business which becomes diluted as the owner chases revenue at the expense of their original vision.

Take Mitch Durfee for example. Durfee started Grunts Moves Junk, a junk removal and moving company, to help his local community and provide his fellow veterans with a job upon returning from deployment.

But while the business was generating $1.4 million in annual revenue after just two years, Durfee was also losing sight of his initial vision. Durfee was trying to please his customers by offering services completely outside of his original business idea. A 7-figure revenue looked nice on paper, but Durfee was racking up $100,000 in debt, stretching his 20-employee team too thin and struggling to keep up with payroll.

To an acquirer, the business was worthless.

After hitting rock bottom, Durfee made one critical decision that completely rebuilt his company and enabled him to sell Grunts Move Junk successfully last year.

In this episode, you’ll learn:

  • One key decision with the power to transform your company
  • Why a fast-growing business can still be worthless
  • How you might need to scale back your business in order to boost its value

To create a company you can sell, you need to demonstrate to a buyer that the business is more than just you.

One way to give your business an identity distinct from your personality is to package and “productize” the way you deliver your service.

Peter Turpel went from consulting with companies about how they used their phone system to developing the “phone on hold marketing system,” which offers businesses various options for handling customer calls, such as music and call routing. Mr. Turpel moved from consulting with customers to productizing his knowledge so that the business became less dependent on him personally.

Proctor & Gamble is arguably the granddaddy of product marketing, so if you pick up a bottle of Crest toothpaste, for example, you can see how effectively they productize and package their service.

If you want to follow suite, the Crest formula:

Name it

Crest is the brand and it is always written in the same font. Having a consistent name avoids the generic, commoditized category label of “toothpaste.” Do you have a catchy name for your service?

Package it

Take “Crest Complete” toothpaste, for example. It is uniquely marketed with a different look and feel compared to other Crest products – yet remains consistent with the brand. Do you have a consistent and unique way your customers physically interact with your product?

Write instructions for use

Crest gives customers instructions for best teeth cleaning results. If you want your service to feel more like a product, include instructions for getting the most out of your service.

Provide a caution

The Crest bottle tells you that the product is “harmful if swallowed.” Provide a caution label or a set of “terms and conditions” to explain things to avoid when using your service.

Barcode it

The barcode includes pricing information. Publishing a price and being consistent will make your service seem more like a product.

Copyright it

P&G includes a very small symbol on its bottle to make it clear the company is protecting its ideas.

By productizing the way you deliver service, you are able to showcase how effective your company is before a potential customer even decides to purchase anything from you. You give them an opportunity to see why they’ll benefit from your “product” and why your business is more than just you.

Do you want to improve the value of your business?

Simply reply to this email and we’ll get in touch to discuss our proven methodology for maximizing the value of your business.