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Take Five #108: 4 ways to gain leverage in the EtA search market, and more

1. Navigating how (and why) to just say “no”

I’ve had to learn to say no out of self-preservation. Each day I get more than 100 emails, a dozen DMs on Twitter and LinkedIn, and at least twenty Slack messages and social media pings. All with asks, offers, and requests that are mostly easy individually but add up to an avalanche of work. Just replying with a polite “no thanks” to every one of them would take up my entire day. And if I messed up and accidentally said something that came across poorly in one of my replies, a world of pain could follow.

Saying no doesn’t come naturally to me (I really like helping people), but to consistently produce a high-caliber newsletter and 1-2 podcast episodes a week, I’ve had to build this skill. Below is everything I’ve learned about how to say no, including a bunch of templates that I use to (kindly) let people down.

Find the rest of Lenny’s Newsletter’s post here.

2. Can a business survive if it never gets another new customer? The Net Dollar Retention Rate (NDR) could be a good indicator.

Net Retention is a measure of how much your existing customers expand in a given period, net of any churn or down sell. It basically throws all of your existing customer dynamics into a pot, mixes them up, and spits back out how much your business will grow or decline by, absent any net new business activity.

Think of customers as a “cohort” or group representing those who existed at the start of the period you are measuring. You shouldn’t include expansion for new customers who started after the measurement start date, as this will overstate your NDR.

-Net Retention is a measure of how much your existing customers expand in a given period, net of any churn or shrink.
-Ways to impact Net Retention are to:

      -Churn less
       -Sell more of the same product to customers
       -Sell new products to customers
       -Increase existing customer usage
       -Generally, anything over 110% is good and anything over 130% is great
       -Enterprise customers usually have better net retention than smaller customers
       -Usage Based monetization models have an easier time increasing Net Retention compared to Subscription

Find the formula and how to calculate NDR in Mostly Metrics’ post here.

3. Owner-dependent businesses can be tough sells to SBA lenders, but not impossible

The Business on Sale

Established in 1982, the business was run by a husband-and-wife team. Over the years, the husband, the sole consultant, had driven the business to significant year-over-year profits. The wife handled administrative billing work until their systems improved, allowing her to step back and enjoy retirement. Now, at 72, the husband wanted to sell.

My first review of the last three years of IRS-filed business tax returns revealed that $600,000 was pulled for owner-officer salaries with $300,000 each for the husband and wife. This is a substantial add-back, considering the proposed buyer only needed a $100,000 salary to cover his personal expenses and regular lifestyle.

The net income/profits averaged $200,000 year over year. There were no additional addbacks to the historical cash flow, like depreciation, interest, or unusual one-time personal expenses. Overall, the subject business's historical free cash flow was $800,000, available for the proposed business buyer loan project.

This painted a picture of an owner-dependent specialty consulting business. The owner, having built all customer relationships, was the business.

Read the rest of Deb Curtis’ article here.

4. SBA Personal Guarantee (PG) risk vs. reward breakdown

5. 4 ways to gain leverage in the EtA search market

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