**Episode 9 of the Business Growth and Exit Strategies Podcast**
You can grow faster and still become less valuable. Some growth decisions increase risk faster than profit.
Play a game for a minute. You are an investor about to buy a company. You are digging into the books, zeroing in on the risk. Is the growth of this company real, or is it fabricated?
Valuation does not come from growth alone. It comes from the quality of growth: durable revenue, clean margins, low volatility, and transferability. The word we are looking for is consistency.
## Buyers Price Downside First
Buyers ask questions in this order:
– What can go wrong?
– How is it going to go wrong?
– How much is it going to cost to fix it?
Then they look at the quality of the cash flow. How do we know that cash is going to be there? How do we know the profits will continue?
You could start with a really high multiple and then get ding after ding after ding, ending up with a mid-level or low-level multiple for your business.
Founders optimize for speed. They want to hit a revenue number.
Buyers optimize for certainty. They want quality, repeatability, control, and clean economics.
What they really want is turnkey. If on January 1 you walked in, turned in your keys and said you are done, can this business be replicated on January 2 and for the rest of the year?
## Decision 1: Chasing Bad Revenue
Sometimes companies know they are selling, so they chase all revenue—including bad revenue—to hit targets. This looks like:
– Underpriced deals (you know the deal should be $20K minimum, but you sell it for $15K)
– Heavy customization beyond your normal scope
– “We’ll fix it later” mentality just to get deals over the finish line
Bad clients create margin drag and delivery chaos. This is the “profits cover sin” model—believing that if you can prove the numbers are there, you can just keep going.
When it comes to selling your business, the harm shows up as dings and dents on your valuation.
## Decision 2: Over-Reliance on One Client or Channel
One partner can make everything look efficient until it becomes a single point of failure.
Most buyers do not want more than 20-30% of your revenue coming from one segment, one client, or one marketing channel. The risk is too high.
I have looked at deals where 100% of the business was one client. That is just too much risk. If you were switching roles and buying the organization, you would want to see diversity.
## Decision 3: Adding Headcount Without Process
There is a phrase: no description, no position.
Adding employees without processes, without rules, without clear job definitions leads to:
– Inconsistent delivery
– Higher overhead
– Leadership bandwidth collapse
It is going to fall apart. Just because it is held together by duct tape and bailing wire does not mean it is good.
## Decision 4: Custom Work That Breaks Repeatability
When I first started as a consultant, a mentor told me: the more you do custom work, the tougher your role becomes. From any given day, you have a million different things you are trying to achieve for the people you serve.
Pick a channel and stick to it. Pick an idea and go with it.
Custom equals:
– Harder training
– Specific people requirements
– Difficult forecasting
– Margins you need space math to calculate
When buyers see this, it looks like chaos.
Restaurants hire consultants who narrow the menu and cross-reference ingredients. Business should do the same. Look for the most profitable part of the business. Find what you can take off your menu.
## Decision 5: Discounting as a Growth Strategy
Discounts that are not tied to written policy, plans, or guardrails to protect profits are weak. Discounting to hit a revenue number does not produce quality clients.
I managed a large sales team once. The worst people to deal with were the ones who shopped on price. They never saw the value and were a pain to manage.
We did a study. About 50% of management complaints came from clients who did not pay full price. When we put a floor on discounting, management time freed up dramatically.
We assigned a value to management time: 15 minutes on the phone, 30 minutes, 45 minutes, a site visit. The cost became too great to justify chasing discounted deals.
## Decision 6: Tech Sprawl and Tool Stacking
Too many systems equals chaos. It creates:
– Data conflicts
– Forecasting problems
– Reporting gaps
– Due diligence nightmares
You do not want chaos and confusion, because you will get a chaos and confusion valuation.
## The Action Framework
Before any growth decision, ask:
1. Does this reduce risk or add risk?
2. Is it repeatable?
3. Is it transferable?
4. Is it measurable?
If it fails any of those tests, it is a red flag.
—
📊 **Free Framework Assessments:**
– [SELL Framework (Revenue Quality)](https://scottsylvanbell.com/sell-framework)
– [SCALE Framework (Operational Readiness)](https://scottsylvanbell.com/scale-framework)
– [DRIVER Test (Execution Capability)](https://scottsylvanbell.com/driver-test)
Apple Podcasts: https://podcasts.apple.com/us/podcast/episode-9-growth-decisions-that-lower-valuation-ep-9/id1876771297?i=1000749397492
Spotify: https://open.spotify.com/episode/1qGwpMm3c3wtnXxYeka4iH?si=Sb85fRKrQw-PaBL-pUKeLw
YouTube: https://youtu.be/1H_aK2gJsb0
**Pocdcast transcript:**
This is episode number nine: Growth Decisions That Lower Valuation.
You can grow faster and still become less valuable because some growth decisions increase risk faster than profit.
Let’s play a game. You’re the investor. You’re buying a company. You’re digging into the books and asking, “Is this growth real, or is it fabricated?” Valuation doesn’t come from growth alone. It comes from the quality of the growth—durable revenue, clean margins, low volatility, transferability, and, most importantly, consistency.
Buyers price downside first. They ask, “What can go wrong? How will it go wrong? And how much will it cost to fix?” Then they evaluate the quality of cash flow. You may start with a high multiple, but every issue uncovered during due diligence creates a ding. Enough dings, and your multiple drops to mid-level or low-level.
Founders often optimize for speed. “Let’s hit top-line revenue.” Buyers optimize for certainty—quality, repeatability, clean economics, control. They want a turnkey operation. If you hand over the keys on January 1st, can the company run smoothly on January 2nd and beyond? In a well-run organization, the answer is yes.
Here are growth decisions that can lower valuation.
First, chasing bad revenue to hit targets. That might mean underpricing deals, heavy customization, or “we’ll fix it later” thinking. Bad clients create margin drag and delivery chaos. Profits may temporarily hide problems, but during a sale, those problems get exposed—and discounted.
Second, overreliance on one client, segment, or channel partner. One source of revenue can look efficient until it becomes a single point of failure. Many buyers don’t want more than 20–30% of revenue coming from one source. I’ve seen deals where 100% of revenue came from one client. That’s extreme risk.
Third, adding headcount without process. No description, no position. Hiring without SOPs, accountability, and clarity leads to inconsistent delivery, higher overhead, and leadership bandwidth collapse. What’s held together by duct tape won’t withstand due diligence.
Fourth, excessive custom work. Custom equals harder forecasting, more complex training, inconsistent margins, and operational chaos. Buyers prefer repeatability. Just like restaurant consultants narrow menus and standardize ingredients for efficiency, businesses must identify and focus on their most profitable, repeatable offerings.
Fifth, discounting as a growth strategy. Discounting without guardrails weakens margins and attracts price-sensitive clients who often require the most management time. In my experience managing a large sales team, discounted clients generated a disproportionate number of complaints. When we implemented firm discount thresholds, management escalations dropped dramatically.
Sixth, tech sprawl and tool stacking. Too many systems create data conflicts, reporting gaps, and messy due diligence. Complexity equals risk in the eyes of buyers.
Seventh, growth that increases owner dependency. If the founder must personally close deals, approve everything, and maintain key relationships, that’s a ding. A business that can’t operate without the owner has limited transferability.
Eighth, ignoring retention to chase new logos. Acquiring new clients typically costs more than retaining and expanding existing ones. High churn signals instability and weakens valuation.
Buyers are trained to find these issues. They look for margin inconsistency, complaints, messy reporting, weak SOPs, unreliable pipelines. Every flaw becomes an adjustment, a holdback, or a reduced multiple. They already have a playbook to fix what you didn’t. If they can buy it at a discount and clean it up in a few months, they will.
Before saying yes to growth, ask five questions:
Is it repeatable?
Is it predictable?
Does it improve margin quality?
Does it increase client diversity?
Does it strengthen leadership?
This week, audit one recent growth decision. Did it increase enterprise value, or did it buy revenue at the cost of greater risk? Take 15 to 30 minutes to detach and examine your assumptions. Often, small fixes uncovered in a short review can prevent major valuation dents later.
You built the company. That value belongs to you. Protect it.