Hey there! Ever thought about how important first impressions are for potential investors evaluating your accounting business?
We all know they play a significant role in how customers perceive your company and decide to spend their hard-earned cash. But guess what? Investors are equally influenced by those initial impressions when it comes to valuing your business.
Let’s take a real-life example from Jeremy Parker and his venture, Swag.com. Initially, investors saw Swag.com as a run-of-the-mill distributor of promotional products.
Despite Parker’s best efforts to position the company as more than just a middleman, the investors remained unconvinced. Consequently, they offered him a low single-digit multiple of EBITDA for a stake in his business, lumping Swag.com together with other promotional product companies.
But here’s where the magic happened. Parker knew he had to change the game. He re-strategized and presented Swag.com as an e-commerce platform with a catchy domain name and a top-notch direct-to-consumer buying experience.
This shift in perception transformed Swag.com from a simple distributor to a technology company in the eyes of investors. And guess what? It paid off! Parker received an acquisition offer that valued his $30 million company at a healthy multiple of revenue. Impressive, right?
When it comes to raising funds or selling your accounting business, optics matter a whole lot. The way investors categorize your business in their minds can make or break the deal. So, it’s essential to make that killer first impression!
The Alibaba Discount: How Diversification Can Impact Your Accounting Business’s Valuation
Speaking of getting categorized incorrectly, let’s talk about the recent news from Chinese Internet giant Alibaba. They announced their plans to split into six separate businesses, and guess what happened next? Alibaba’s market value soared by a whopping $19 billion in just two weeks. Now, that’s something to ponder, isn’t it?
Here’s the deal. Alibaba consists of various businesses, similar to those of Amazon.com, including e-commerce, logistics, and cloud storage. Before the split announcement, Alibaba was valued at only ten times their earnings forecast for next year. But here’s the twist—each individual business as a standalone is likely to fetch a much higher multiple in terms of valuation.
You see, investors often underestimate diversified businesses like Alibaba. They tend to focus on assets they’re specifically interested in and apply the lowest value multiple to the entire group of companies. This situation isn’t unique to Alibaba; Amazon faces similar challenges. Experts estimate that Amazon’s cloud storage division, AWS, could be worth a staggering $2–3 trillion as a standalone business. However, since Amazon offers a range of services, from e-commerce to audiobooks and cloud storage, its entire market capitalization is currently less than half that value. Crazy, right?