Prioritising Revenue Quality Over Top-Line Growth: A Strategic Approach for Ambitious Business Owners

In the entrepreneurial world, the aspiration to boost sales is common among founders. However, a single-minded focus on top-line growth can attract low-quality revenue, potentially undermining your company’s long-term value. For ambitious owner-managers aiming to develop a business that offers both freedom and control, understanding revenue quality is crucial. In today’s blog post, we'll explore the importance of Business Strategy and revenue quality through the lens of a compelling case study featuring Mike Winnet of Learning Heroes. 

To potential acquirers, the quality of your revenue holds significant weight. They prioritise future revenue predictability and often value recurring income from contracts and subscriptions more than one-off sales. As a result, firms with recurring revenue typically command a revenue-based valuation, while businesses relying on transactional revenue are usually valued based on a multiple of EBITDA. 

Mike Winnet provides an excellent case study on the importance of prioritising the right kind of revenue. 

 

 

Winnet started U.K.-based Learning Heroes after recognising that most e-learning programs were long and tedious. He identified an opportunity to revolutionise the industry by selling large companies a subscription to his short, engaging, animated training courses. 

 

 

Despite his company's growth, Winnet was still in need of cash, drawing a meager salary of £500 a month. Google presented a lucrative offer of £90,000 to create a custom course for them. Although the project would take his team just three months to develop, Winnet declined the offer. 

 

 

Google’s offer was a one-time transaction, which didn’t align with Winnet's vision of building a company based on recurring revenue. He famously said, “I know loads of people who would have taken that £90,000 contract, but we didn’t because it didn’t fit the model. We used to have a sign on the wall that said, ’Does It Make the Boat Go Faster?’ and if the decision didn’t make the boat go faster, we wouldn’t do it.” 

 

 

Winnet started Learning Heroes with the intent of selling it within three years for £10 million. He understood the importance of positioning the company as a product-based subscription business to command a premium offer. 

 

He recognised that a simple service company doing one-off projects, like the one Google was offering, would be lucky to garner an offer of one times revenue. In contrast, a subscription-based product company could command a much higher valuation from an acquirer. 

 

 

Winnet's discipline paid off when he accepted an acquisition offer from Litmos of £8 million, representing roughly four times his revenue at the time. 

 

Had he been viewed by an acquirer as a traditional service company, he would have likely been offered a quarter of what he received. 

Rather than focusing exclusively on revenue growth as a goal, owners aiming for the highest multiples tend to concentrate on growing Value Proposition and Profitable Growth, even if that occasionally comes at the expense of short-term sales. 

 

Are you looking to build the kind of business that you may be able to exit someday, whilst enjoying the Business Strategy of a ScaleUp Journey? Picture this – you've built a solid foundation, conquered hurdles, and your business is steadily gaining momentum. But have you truly harnessed its full potential? Business Planning is not just about expanding operations; it's about orchestrating a symphony of strategy, fostering a dynamic team, executing flawlessly, and ensuring a healthy financial trajectory that builds Value Proposition for a future exit. Our InFlight checks have been meticulously designed to evaluate your business's performance against these pivotal pillars and ‘habits’, helping you uncover hidden opportunities and charting a course towards Profit Maximization and sustainable growth. Just click the link below: 

 

INFLIGHT CHECKS HERE 

For ambitious business owners and entrepreneurs, understanding and prioritizing revenue quality is crucial for Leadership Development, Business Vision, and Profitable Growth. As illustrated by Mike Winnet's experience, focusing on the right kind of revenue and having a clear strategic vision can significantly impact your company's valuation and attractiveness to potential acquirers. 

 

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