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Accounting concept. Balance sheet and business report on the desk.

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by Dustin Siggins

It is an unwritten rule that business success is achieved by laser focusing in the most profitable niche market you can find.

A DC region company has figured out what at first glance seems unlikely to increase its revenues: worker and mom and pop businesses that make between $ 2 million and $ 10 million annually.

Exit strategy consultancy, Obsidian Planning Solutions, relies on having found the best place to build a scalable process that lays the foundation for new growth.

“When you own a company in the DC area with revenues in excess of $ 100 million, you are inundated with advisors ready to help you transition out of the company,” said Todd Feldman, vice president of Obsidian.

He said Obsidian is looking at smaller companies “that are not on the industry’s radar”.

“By helping these underserved business owners, we have perfected a process that is scalable for any company in any industry.”

Obsidian is now in expansion mode, serving customers with annual sales of up to $ 50 million across industries. In addition to building the niche brand in an underserved market, the sales model is tailored to the specific needs of the niche.

Todd Feldman, Obsidian’s vice president, said they are helping smaller businesses “that aren’t in the market … [+] the radar of the industry. “

Obsidian

While mergers and acquisitions hit the headlines, for example when SunTrust and BB&T merged in 2019 to form Truist, around 80 percent of all companies close at the end of their lifecycle, according to a 2013 survey that has no continuity of ownership and none Exit income for the current owner offers. Those who sell tend to be great employees.

Compare this to Obsidian’s target market. According to the North American industrial classification system, only 3 percent of US companies have annual sales between $ 2.5 million and $ 10 million. A 2020 survey found that only 25 percent of the 2,200 sales transactions brokered by investment banks – a joint partner in transitions – were made with companies in this revenue segment.

“Fifty-three percent of the companies sold had annual sales greater than $ 10 million,” said Bill McCalpin, CEO of DealWare, whose company conducted the survey for the Alliance of M&A Advisors. “The higher profitability makes it very attractive for banks and other large external transaction partners.

“Smaller businesses are difficult for the economy to work for, given the structure of the success fees, the time and manpower required to complete a transaction and most consultants avoid them,” said Richard Phillips, senior partner at Crossroads Capital who focuses on these small and medium transitions. Nevertheless, the need for professional advice from M&A advisors is “even greater in small and medium-sized companies”.

Another reason big companies make big money is the frequency of mergers and acquisitions and other changes in ownership. The National Center for Small and Medium-Sized Businesses examines companies that make between $ 10 billion and $ 1 billion annually. One of his surveys shows that around 35 percent of those surveyed have been involved in an acquisition, merger or change of ownership since 2014.

Many players in the industry, such as Phillips, prepare customers for a sale and do the sale themselves.

Obsidian founder Patrick Carroll takes a different approach.

Obsidian was founded by Patrick Carroll.

Obsidian

“We don’t help companies sell. We’re just helping them prepare to sell, ”he said. “And, unlike most companies looking to sell, our customers usually have priority over continuity of ownership over getting the highest selling price. They want their baby – the business they’ve built for 20 or 30 years – to thrive for a generation after them.

“We begin by assessing a business owner’s goals and looking at the finances and general circumstances of the business and family,” said Carroll. “Next, we examine how well the company is prepared for a change of ownership, be it for an existing employee, family member or an outside buyer.”

Carroll said this was critical to ensuring a sale to executives with the right entrepreneurial mindset.

Ultimately, Obsidian relies on technical experts to help companies “address weaknesses in advance of a sale to ensure a smooth transition,” said Carroll. “We have legal, marketing, financial, and operational resources that companies can use to address vulnerabilities before selling.”

Another difference between Obsidian and Brokers is that they don’t charge commissions based on the company’s selling price.

“We have fiduciary duties to our customers,” said Carroll. “Since most of them prioritize continuity over selling price, we’ve developed a pricing model based on the complexity our customers bring to the table.

“Under our model, a company with $ 50 million in revenue may have a lower fee structure than a company with $ 5 million in annual revenue,” said Carroll. “Our ideal customer brings us three to five years before the planned sale of the company so that we can prepare him for effective continuity.”

Small business owners looking to retire now have one more option besides closing their business.

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Obsidian developed its process and pricing in a less competitive market. Today, this process is helping the company enter more competitive spaces on a solid footing.

Growth potential

The Washington, DC metropolitan area is home to six of the ten richest counties and boroughs in the country, according to the Census Bureau. It is also home to thousands of successful small businesses that are considered the backbone of their communities.

“On a typical business news day, restaurants, plumbing and HVAC companies don’t make the headlines on sales, but they’re just as important to the region as the Fortune 500 companies and government contractors that are headquartered here,” said Todd Rowley, market manager for Old Dominion National Bank and former chairman of the Northern Virginia Chamber of Commerce.

The same growth potential exists nationwide for larger companies. The National Center for Small Business Survey found that three-quarters of companies with annual sales between $ 10 billion and $ 1 billion enlisted outside experts to support the transaction, including 27 percent who enlisted advisors such as Obsidian.

“We have worked hard to perfect our process by serving those the industry has ignored,” Feldman said. “In this way, we can now serve them and at the same time scale to customers who are five, ten or even twenty times larger than our original customers, and from installers to federal IT companies.”