Growing Revenue Destroys Your Business Value (Do This To 2X Your Value Instead)
Updated on June 27, 2025
Transcript
Most business owners focus on growing revenue to increase their company's value. But the actual fastest way to double your business value doesn't mean doubling your revenue at all. It's doubling your valuation multiple, which is a bit different than just saying, oh, I was making two grand a month, now I'm making four grand a month. There's a little bit more nuance that goes into it.
So today, I'm going to show you the four strategic factors that help determine whether your business sells for, say, a 2x annual profit or a 4x annual profit. Even if the profit is the same, this 24-month roadmap will help you maximize your exit value.
Now, most sellers I talk to, they're like, yes, I do want to sell, but talk to me again in two years. So if that's you, this is for you. You should try to do what I am going to talk about in this video.
Business valuations, in general, are based on multiples of annual profit. A lifestyle business typically sells between 2-3x of its annual earnings, whereas a strategic, more scalable business might command 4-6x multiples, and sometimes even higher. The difference isn't just revenue size—it's the actual structural positioning, the systems inside of the company that really, really matter.
Let's get into the four frameworks here.
Number one is predictable revenue streams. Recurring revenue is valued significantly higher than one-time sales. Subscription models, service contracts, repeat customer systems that create predictable cash flow day in and day out, week in, week out—all of that is considered way, way, way more valuable than one-off sales where you have to go get another customer every time you make a sale. Businesses with 40% or more in recurring revenue typically are going to receive a premium valuation because buyers can forecast future performance.
Now, when I say subscription or recurring revenue, I'm not just talking about software. There's SaaS—software as a service—which tends to be where people's heads typically go. But this can happen with, say, a service business like a marketing agency with a recurring retainer. It could even happen with e-commerce businesses. The biggest e-commerce store that we sold actually had a subscription box model that customers were paying for every single month. So, it doesn't have to be software, even though that is kind of the golden child when it comes to MRR. Just keep this in mind: how could I create more predictable revenue streams inside my business over the next 24 months?
The next one is system-dependent operations. Owner-dependent businesses are risky investments. Buyers want operations that function without the founder's daily involvement. This means documented processes, trained management, automated systems. If you're in a position right now where, say, you're working 60-plus hours per week making every decision, that is going to limit your valuation drastically. You want to systemize everything. You don't want to be doing anything. I often joke: ask yourself how useless you are to the business. If you're still finding yourself quite useful, you’ve got your work cut out for you.
Next is a diversified customer base. Customer concentration can kill your valuation. If your top five customers represent more than 50% of your revenue, then you have a concentration risk. If one customer represents over 20% of your revenue—that's also a risk. If one customer departure could devastate the business, that is not good. You need to make sure that is not true for your business if you want to get a good exit.
Now, when you're building a business, having a few well-paying clients like that can be amazing. But when it comes to actually selling your business, not so amazing. If you have a whale client that's doing, like, 40% of your company's revenue, and a buyer buys that business and that whale client goes away, well, they just lost 40% of their money. This is a very risky thing to ask a buyer to do. Buyers want revenue spread across many, many clients to minimize that key client risk.
Next is clear growth potential. Buyers purchase future earnings, not past performance. Your business needs visible expansion opportunities—new markets, products, or distribution channels. Maxed out businesses in saturated markets receive lower multiples because growth is limited.
Now, I actually have sold a good buddy of mine—I've sold about six of his businesses. This guy's really, really good at one specific marketing channel, and you would think buyers would absolutely love to acquire his businesses, but every time it was a pretty big struggle. The reason why it was a struggle is because he was so good that buyers looked at the businesses and thought, "I don't know what to do." Because no one knew how to grow what he had built—he had optimized everything to the max—it was always very difficult to sell his business, and he never got the premium multiple. Because while buyers are paying for your past performance, what they want is the future performance—that's why they're paying you money. So, they get to cash in on the upside of the future performance of the business.
So, these four factors help determine whether you're going to get a 2x multiple or a 5x multiple—even if we don't take into account the profit level.
Now, let's talk a little bit about the 24-month transformation timeline. How would you go about applying these four factors to your business?
Month one through six—I call this the foundation phase. You want to document every business process, create SOPs for all your critical functions—sales, marketing, operations, you name it. If you have it, make a playbook for it. You want to implement financial tracking systems with key performance indicators. You want to have a good accounting system. You also want to start delegating as much of the responsibilities that you currently have on your shoulders to your employees. The goal here is reducing your personal involvement in daily operations as much as possible.
Remember what I said earlier: ask yourself, how useful are you to the company's growth? If you keep thinking you're the linchpin, if you keep thinking the business requires you in any way to keep growing, then your work is not yet done. Only when you can take about two months off and come back and say, "Hey, my business grew while I was gone," now we can say your work might truly be done. There might still be more stuff you have to do, but that's the goal you're going for—can you take two months off from your business and come back to a business that's still growing?
Month seven through twelve—this is the growth phase. This is where we want to launch things like recurring revenue initiatives. These could be subscription services, maintenance contracts, or even consumable product boxes, like I mentioned with that e-commerce store we sold. We want to diversify your customer base as well through targeting more segments of your market, ideally new segments that you haven't gone after yet, that might make good customers.
During this phase, while you're diversifying your customer base, getting new types of customers, and creating that recurring revenue, we also want to look at hiring key management positions inside your company. During this time period, you can train them to handle major decisions on your behalf. Not just train them, but trust them that they can do it—and do it well. You want to build scalable marketing systems that are generating leads without your personal involvement. If you are the face of the company right now—which I know a lot of people who deal with clients, for instance, often are—now is the time to stop doing that. Put the manager in the hot seat with the camera or whatever. Do anything you can so that you are not the face of the company during this period. You want to systemize everything, which leads to the next phase.
Month thirteen through eighteen is what I call the optimization phase. Here, you want to refine operations for maximum efficiency and profitability. You want to expand into and identify those new market segments I talked about. You want to create IP—intellectual property—around your proprietary processes, software (if you can create something in-house), or your methodologies that differentiate your business from the competitors.
You want to establish strategic partnerships that provide competitive advantages or entirely new distribution channels, say, to that new market segment you're going after. This can appear as a really powerful affiliate or referral program, or it could be a true business development partnership with another company. To make this work, if you go the true business development route with another company—at least where you're building a real partnership—often you only need one or two of these types of partnerships to revolutionize your ability to grow your business and do it without you being the person leading the charge. Hopefully at this point you have someone in your management team that can help lead these kinds of efforts, along with the other things I mentioned earlier. That’s really what we’re looking for. This is all about optimizing the systems that you have built.
That leads into months nineteen to twenty-four, which is the exit preparation time. It's good to always be prepared for an exit, but I like to think five or six months before you really do exit tends to be a good amount of time. That way, if you see a glaring error in your business, you still have enough time to fix it and make sure by the end of those six months—by month 24 or 25—your business is in a good place to sell.
When it comes to this, I recommend obtaining a professional business valuation to understand your current value. Most sellers have no idea what they're worth. They tend to way overvalue their own business, and that is going to hurt you. I often joke that I kill an entrepreneur's dreams every day so they can wake up and I can help them become rich. And that's what you want to do—you want to wake up from the fantasy you probably have of what your business is valued at by getting a real valuation. Then we can start working towards your actual goals for what you want to exit the business for.
To do this, you want to clean up your financial systems—your accounting system that you put in earlier in this timeline. You want to organize all your documentation that buyers are going to be reviewing during due diligence. I recommend just creating a small data room in Google Drive that has all the pertinent information. That way you can copy and paste and send it out to the buyer. Or, if you’re using someone like us when selling your business, we’ll do this for you. But the point is you want to become extremely organized with everything you’ve got going on with your systems.
I highly recommend—not to do this yourself, and probably not anyone in your own company either, unless you have an accountant working for you full time or something like that—that you seek help outside of your own company to do this. You do need to have an accountant with real skills to make sure you have an accounting system that is durable and up to industry standards. This is extremely important, especially if you're looking to sell a business for multiple seven figures, to have your accounting really, really on point. And most entrepreneurs are not that great when it comes to accounting. Ask me how I know: we've sold over 24 businesses, so we get access to their P&Ls. This is something I highly recommend you not do yourself—seek professional help to assist you.
Now, during this whole phase, one key insight you’ve got to really internalize is psychological. You must stop thinking just like a business owner and start thinking like a real, true business builder. Resist micromanaging—that should be gone. You shouldn't be micromanaging at all at this point. If you are, shame on you; you need to do better. You need to trust the systems you made. You need to focus on strategic positioning rather than daily operations.
If you're running into issues with your business by relying purely on the systems you have, that means you must spend time creating better systems. It's not that systemization is wrong—it's just that you installed the wrong systems. So your job now is making sure all these systems are working whether you're there or not. You cannot be the duct tape and the glue holding it together—the systems need to be meshed together, and your team is the glue that's helping the systems integrate properly.
That's how you're going to get a higher valuation. Businesses that get the highest valuations are those that have built the greatest system of leverage.
