Why is a clear statement of your competitive advantage so important? Because the value of your company is closely tied to your company's competitive advantage. Your company's competitive advantage determines its ability to compete, generate revenues, and thrive over the long term.

Competitive advantage can take a lot of different forms: awesome design, superior product performance, customer entrenchment, high switching costs, long-term contracts, strong brand recognition, innovative technology, customer service, efficiency, and on and on.

When you are thinking about selling your company, you need to focus on your competitive advantage to determine what it is that sets you apart from your competition and why customers or clients decide to work with you.

All sophisticated buyers and investors will want to understand your firm's competitive advantage.

Here's why:

If a financial buyer or investor is evaluating your company, they are going to rely on the sustainability of the competitive advantage to generate a return on their investment. The price they are comfortable paying for your business is directly impacted by how secure your company's revenues and profits appear to be. The more secure they are, the lower the risk profile of your business, and the more the financial buyer is willing to pay to acquire it. If you want to achieve a high price multiple for your company, you must demonstrate to buyers that your company has sustainable growth potential based on competitive advantage.

If a strategic buyer is evaluating your company, they may have the resources to try to reproduce your company's products and services. Strategic buyers face the "build vs. buy" decision when they evaluate an acquisition. The more powerful your competitive advantage, the more difficult it will be for a strategic buyer to reproduce the key elements of your business.  This will encouage buyers to buy your company rather than building a similar company and attempting to compete with you. 

Google's decision to attempt to acquire Groupon is a example of the "build vs buy" decision. Groupon, of course, is the hyper-growth local e-commerce company. Google had everything they needed to simply replicate the Groupon business model.  Google had over $30 billion in cash, a horde of exceptional developers, an international sales force, and global marketing reach. Yet Google decided it was safer to offer almost $6 billion for this three year old company, rather than try to create a copy of Groupon. Why?  No one other than Google knows for sure, but it reveals that what Groupon has built is not easily copied.

Keep in mind that most of the buyers that may approach you look at hundreds of opportunities each year. As a result, you have a limited amount of time to grab their attention and convey the true value of your business.  If you are thinking of selling, work with an experienced M&A advisor to get help on how to clearly state your competitive advantage and attract the right kind of buyers.

Experienced M&A advisors can help you create professionally prepared offering materials that are designed to generate curiosity and interest with relevant and qualified buyers.  Circulating these offering materials to the right types of buyers will lead to in-person meetings and discussions and offers for your business.  If you are thinking of selling your business, please contact the MidCap Advisors office nearest you to learn more about how we can help you.