In the past, people built businesses for lifestyle - to realize independence and higher incomes. They built businesses to keep and perhaps pass to their children.

The new model of entrepreneurship is building a business to sell. More and more companies are being created specifically to be sold. In fact, I believe that, today, all business owners must focus on the eventual sale of their companies.

IPO Frenzy Muddies the Waters
Unfortunately, the recent dot-com/IPO frenzy muddied the waters. Many thought that building to sell was instantaneous.  It isn't. The excellent article, "Built to Flip" by Jim Collins (Fast Company, March 2000) bemoans the world in which people think anyone can sell businesses for instant wealth.

Some, in fact, did just that, selling names, uncharted ideas or subscriber lists for incredible sums of money.  Others found out that an IPO is not really an exit strategy. Stock restrictions tied up their money and put it at risk. Going and being public had other ongoing risks and pains associated with it.

Now comes the inevitable correction in market caps and valuations. Why? Because the businesses were built on the wrong foundations. IPO investors pursued a land grab and wound up holding chunks of Nevada desert.  The intangibles that created the sizzle were hollow.

In order to build a company to sell, you build a sustainable, successful business with strategic value to another (probably larger) company.  You also understand that the only intangibles of value are those that lead to measurable future profit.

Profitability Makes A Comeback
It's refreshing to see a Wired News feature titled, "New IPO Buzzword: Profit" (June 11, 2000). It's refreshing to see a recent Dallas Morning News say, "Many of these new-economy mavericks … now say they are firm believers in building a successful business over the long haul ("Dot-Coms on Shaky Ground," June 12, 2000).

The stock market wake-up call is still ringing, but the lesson is clear. True value lies in P-E ratios, revenue and profit growth, and market size.  That is what sets the value for the ultimate product - the company itself.

Enhancing the Ultimate Product
The overriding basis for value is growth and future earnings.  In a world where companies are built to sell, that is a cardinal. That is what you must keep your eye on.

So to build that value for tomorrow, think about being bought and work on the intangibles that matter.

Look at your company through the eyes of a buyer.  What does it look like? What is its potential if someone else with greater resources owned it? Who could take it to the next level? Asking these questions will keep you focused on the goal.

Always know who might buy your company and why.  Who wants what it has and can do more with it?  This is difficult to do on your own for two reasons.

We have found that the buyer seldom buys what the seller originally thought he was selling. Knowing why a buyer might want you is often something that only an outside advisor can fathom.

Second, many of you will think first in terms of your competitors. Competitors are the worst prospects for a host of obvious reasons. It often takes an outside advisor to identify prospective buyers outside your industry.

Working on the Right Intangibles
Focus on intangibles that add value by promising future earnings.  Most owners have a tough time determining what would be valuable. The right intangibles are anything that can be:

• Transferred to a larger company;
   
• Replicated to multiple locations or operations;  or
   
• Leveraged through other core competencies a buyer has.
   
• Work on enhancing core competencies through alliances and partnerships that leverage what you have.  Deal yourself into a global strategy, a fast way to make your company and its future bigger.
   
• Understand product and business lifecycles.  You should sell your company when things are going well, and the up-curve for opportunity is steep and getting steeper.
   
• Keep the operations running smoothly.  Nothing will depreciate your potential more than letting your current operations slide.
   
• Finally, always keep the exit in mind. In computer terminology, keep the end-game resident and you will remain staunchly focused on the company as product.

Phillip L. Currie is Managing Partner of Shoreline Partners LLC, a San Diego-based, middle market investment banking firm that handles sales of privately held companies with  $10 to $200 million in revenue and acquisitions for public companies.  Shoreline is extremely active in the Silicon Valley area. Currie can be reached at 858/587-9800 or via Email