In the last post, we discussed the reluctance of many prospective business buyers to deal with the regulatory burden of being an employer or service provider. You may be among the lucky few whose profession doesn’t require licensing. Even better, you may have qualified employees who are able to run the business without you.
There are other issues that concern younger buyers, however. One of these is the threat of disintermediation. That’s a trendy word for what we used to call “bypassing the middle man,” but it applies to many businesses that are being made obsolete by technology.
Disintermediated Businesses
How many business people still rent cars to attend a couple of meetings in a city? With Lyft and Uber, it is frequently easier to call a ride than leave a car in the (expensive) hotel parking for 90% of a visit. I’d be very skeptical of buying a car rental business today.
What happens when (not if) autonomous vehicles become part of daily life? Long-haul trucking will move to non-peak traffic hours, reducing the need for drivers, training schools, highway expansion, truck stops, and perhaps the number of trucks themselves.
Service businesses where the middleman lends expertise (easily duplicated by Internet research) or access to vendors are feeling the crunch already. The warning bell is sounding for mortgage companies, real estate agents, insurance and benefit brokers, employment agencies, printers, publishers, and travel agents.
These businesses won’t go away, but there will be fewer of them, and their margins are eroding.
The rise of robotics and artificial intelligence threatens even the most skilled professions. Legal databases, automated interpretation of medical imaging and free online tax filing are a few examples.
This quote is from a February 21 essay by Rob Kaplan, President of the Federal Reserve Bank of Dallas.
As I have been discussing for the past two years, technology-enabled disruption means workers increasingly being replaced by technology. It also means that existing business models are being supplanted by new models, often technology-enabled, for more efficiently selling or distributing goods and services. In addition, consumers are increasingly being able to use technology to shop for goods and services at lower prices with greater convenience—having the impact of reducing the pricing power of businesses which has, in turn, caused them to further intensify their focus on creating greater operational efficiencies. These trends appear to be accelerating.
The Impact on Sellers
The overview of the business seller’s marketplace is straightforward. As I’ve been proselytizing for over a decade in my “Boomer Bust” presentations and books, selling a business will be more challenging, but that doesn’t mean any particular business is unsellable.
As with any other competition, the response is to create differentiation from the rest of the pack. There are a few key factors that top the list of appealing differentiators for business buyers.
- Build a business that can run without you. The more you work in your business, the less it is worth.
- Train effective management. Employees who understand how to run a profitable business are highly appealing to any prospective buyer. In addition, they can provide you with an alternative to a third-party sale.
- Upgrade the value-added component of your offering. If the only benefit you offer to a customer is time and place utility, you are probably toast.
There is another factor that may sound counterintuitive. Design your business so that it requires more expensive employees. If low wage workers are the backbone of what you do, you risk losing the technology arms race with larger competitors. I’ll expand on this in my next post.
The population of business buyers is younger, more technologically savvy, and less inclined to long hours than the generation that is selling. Winning in a competitive marketplace demands that you offer what business buyers want.
Great post John. As we say at Successful Transition Planning Institute, you have to know your goals and address your fears to have a great business transition. Fears about disintermediation are not often raised by the owners, but a wise advisor must raise them. Otherwise the owner’s goals may simply be fantasy. For those owners whose business is likely being dis-intermediated, and cannot offer differentiation (or it is too late to do so without significant, risky investment), the owner can still set goals for winding down the business and protecting personal assets, as well as creating a meaningful life.
Scott: I ran into the same problem with ebay buyers trying to hold our feedback rating hostage by getting an undeserved partial refund. Our “full, unconditional refund rather than a “partial refund policy was set in stone during a rare 78 collection ebay sale. Although the collection was mint, untouched store stock and sold items were packed in expensive Uline 78 mailers several buyers claimed the 78″s arrived warped and wanted a partial refund. Statistically the number of “warped in shipping seemed way too high but we offered a full refund instead of a partial one to all buyers. Not one of them replied or sent their purchases back which made us assume they were all lying in order to get a refund. As Seinfeld said, “People, they”re the worst!.