by UFG | Mar 3, 2025 | News
Tech and restaurant pros share predictions for what’s to come in AI, dining experiences and automation technology in 2025.
The restaurant industry is undergoing a technological revolution. AI-powered voice assistants are transforming customer interactions, enabling hands-free ordering, reservations, and inquiries. Cloud kitchens are gaining traction, offering a flexible and cost-effective model for food businesses. Robotics are increasingly integrated into kitchens, automating tasks like food preparation and delivery, enhancing efficiency and potentially lowering labor costs. Contactless payments and mobile ordering are becoming the norm, providing convenience and safety for both customers and staff.
These technological advancements are not only streamlining operations but also enhancing the overall dining experience for customers.
As 2025 kicks off, QSRWeb reached out to restaurant tech industry professionals to learn what they’re expecting in 2025.
Automation and AI on the rise
The restaurant industry will experience a lot of transformation next year, and that includes more businesses tapping into automation tools across their front- and back-of-house. Restaurants will continue to face high labor costs that are causing strain across multiple areas of their business. To address this, restaurants will look to integrate more technology whether it’s self-service kiosks, automated SMS marketing, catering tools, delivery management, QR code or mobile ordering. All of these options will help operators streamline operations, improve efficiency, and grow profitability so they can focus on delivering high quality food and service. Among the plethora of restaurant tech offerings, though, the biggest challenge will be finding and understanding which tools are worth the investment.
—Ming-Tai Huh, head of food and beverage at Square
In 2025, I predict that pizzerias will leverage AI more in several areas, including phone ordering and online ordering. For online orders, AI can provide recommendations on pairings, such as adding on specific appetizers or desserts, based on customer trends and data acquired from the POS system. We anticipate seeing a shift to more off-premises dining, with an uptick in customers picking up their own food, versus leveraging third-party delivery services, because customers are trying to cut back on additional fees. With an increase in off-premises dining, restaurants are analyzing how they are packaging to-go food, so that it doesn’t get soggy or become inedible. Food costs will continue to be a challenge next year, but we are seeing shifts in the right direction. Cannoli Kitchen Pizza will remain focused on catering to the customer by providing high-quality, consistent food options at an affordable price. Overall, it seems that people are more positive going into this next year, they’re optimistic about the economy and their jobs, and we anticipate more discretionary spending.
—Austin Titus, president of Cannoli Kitchen Pizza
QSRs go immersive and interactive with dining experiences
The design — and redesign — of QSRs and fast casual restaurants has accelerated as brands respond to shifting consumer habits and dining preferences. Many big brands in the QSR and fast-food spaces are undergoing a technology-fueled transformation that is designed around improving customer experiences, boosting order accuracy and limiting wait times. In 2025, QSRs will build on this technology footprint and identify touchpoints in which they can win consumers using immersive and interactive engagements. For example, self-serve kiosks and smartphone order and payment options in which content is updated and experiences personalized based on who is using the kiosk. Or interactive menu boards that connect customers’ social media and dining experiences, allowing for photo sharing, song selections and even post suggestions. And, capturing data from these digital and touchscreen engagements to spur analytics and make for better business decisions and more efficient order processing. It’s about meeting the needs of all customers — whether a family needing a swift drive-thru order on the way home from a busy day or the group of college students who want to catch up, dine in and invest time in a sit-down meal.
— Misty Chalk, vice president of sales, Americas, at BrightSign
Tech investments center on elevated experiences
In 2025, technology investments made in the QSR space will focus on customer experience and choice to improve satisfaction. QSRs are on this journey, revamping drive-thrus, augmenting counter service, deploying technology tools to assist staff and more. Every customer is unique and is driven by their own set of motivators. As a result, restaurants will lean heavily on technology to improve experience and choice for the widest range of individuals possible. For example, self-service kiosks and IoT-enabled POS systems provide real-time menu and loyalty options for patrons, while giving them the freedom and flexibility to order what they want at their own pace.
Similarly, technology deployment in the drive-thru, such as HD communication solutions, line-busting tablets and digitized menu boards improve the speed, accuracy and fulfillment of orders. This is critical to overall satisfaction and repeat dining. And, in many cases, rethinking signage and content strategies to keep consumers engaged when in a physical restaurant location, enticing those who are looking for social and communal experiences where dining isn’t strictly based on price or the quality of food. At the end of the day, meeting consumer expectations at every different touchpoint with a consistent experience is challenging. This is where technology can have the most impact in the new year.
— James “Jay” Burdette, senior director of the Enterprise Process Innovation Center, Panasonic Connect North America
In 2025, the restaurant industry will continue to embrace cloud-based POS systems as the new standard, providing flexibility, real-time updates and scalability that empower businesses to manage operations and access data from anywhere. This shift complements advancements in self-service kiosks and digital menu automation, which are increasingly tailored to customer preferences and local offerings. These technologies not only boost efficiency and accuracy but also free up staff to focus on delivering exceptional guest experiences. While robotics adoption in QSRs will grow, the human touch will remain central to food preparation in most U.S. restaurants, blending technology with tradition.
This article was originally published by Networld Media Group, LLC.
by UFG | Mar 3, 2025 | News
These actions make a company more attractive to potential buyers and ultimately increase its value to new heights.
As the AI revolution accelerates, business owners preparing for an exit can harness this technology to increase efficiency, scale operations and improve profitability. These actions make a company more attractive to potential buyers and ultimately increase its value to new heights.
AI isn’t a single program you introduce to your company, then stand back and watch as it works magic on your processes. It’s a broad term for an array of tools that create efficiency through automation, with different tools designed for the various areas of a business. It takes some training to use it effectively, so before diving into AI, you must identify what areas of your business would benefit the most from it.
Identifying opportunities
Start with repetitive tasks, especially those that add more work as the business scales. AI excels in scenarios where tasks are tedious, don’t scale efficiently and aren’t highly sophisticated. This includes research, marketing and even sales support functions, which are vital to driving productivity and cost savings. These functions are ripe for AI integration because they allow the business to expand without constantly increasing overhead costs.
For instance, some companies have a time-consuming client onboarding process involving extensive research to gather basic background information. Using AI for basic research saves hours for a human employee, who can now manage an AI tool, review the work in a fraction of the time and spend more of their day on strategic, client-focused efforts.
It’s the kind of AI power that can significantly increase the value of a business preparing for sale. Potential buyers look for more than just strong financials. They want to see that the company is efficient and scalable, which is where AI becomes a strong selling point.
Measuring success
Implemented correctly, AI can improve several key business metrics:
- Revenue per employee: As your team becomes more efficient by doing less of the repetitive work they have been doing, you should see an increase in the revenue each employee brings in. This metric signals to buyers that the company can scale without significantly increasing labor costs.
- Gross and net margins: By outsourcing labor-intensive tasks to AI, you can reduce operational costs and improve profitability. Higher margins make a company more attractive to buyers because they indicate a well-run, cost-efficient operation.
- Capacity: AI can help businesses do more with less. It can assist small and medium-sized enterprises bridge the resource gap when competing against larger companies with bigger budgets. For example, an advertising agency might be at full capacity with its current team. Utilizing AI can save time and resources, allowing the team to take on more clients without expanding headcount. This capacity growth is a strong indicator of future scalability.
Potential buyers will want to see these metrics over time to judge whether they’ve improved and are likely to continue improving.
Resist the urge to make much of the mere fact that you use AI tools. If executed thoughtfully, AI will lead to improvements that speak for themselves. You won’t have to tell buyers you’re AI-enabled—they’ll see the results.
Practical AI tools for small businesses
Once you know your needs, what AI tools should you use? Here are three categories of tools that can increase efficiency and, ultimately, value:
- Research: AI can automate research tasks, saving employees significant time. For example, AI agents can gather background information on new clients, allowing team members to move directly into the strategic phases of their work.
- Marketing: AI can automate content creation, copywriting and even video production. By using AI tools for marketing, businesses can produce higher volumes of content without increasing staffing. Marketing can do a little bit more creative tasks, such as copywriting and creating images and social media posts.
- Sales support: AI can assist in lead generation and prospecting campaigns by compiling lists, writing outreach copy and automating follow-ups. By having the functions automated, the sales team can focus on closing deals rather than spending hours on administrative tasks.
Without AI, you might tell an employee to, for instance, build a prospecting campaign for B2B business owners under $10 million in revenue and conduct outreach to them. They’d have to compile the list, write the copy and then contact them. Now, you can use AI tools to compile the list, write the copy and do the sales outreach on platforms like LinkedIn, even execute the campaign for you. So, then the salesperson can do high-level tasks like managing the campaign and responding to leads.
With AI, we’ll mostly eliminate the upfront boring tasks so we can do the things that really ignite us and drive value in a company. You don’t have to eliminate jobs, but you can upgrade the quality of the projects you assign to your existing teams and keep them engaged and excited.
A long-term investment
It’s essential to recognize that AI implementation is not a quick fix but requires a long-term mindset. Whenever I’ve introduced any new technology in my own business, it’s taken at least a year to see the full impact on the company.
In preparing a business for sale, the earlier AI is incorporated, the better. Prospective buyers will want to see a clear pattern of improved metrics over time, not just a rushed process with uncertain results. It’s never advisable to sell a company when it’s still figuring out how to use AI, especially since your revenue may dip during the learning phase.
The key is to approach AI strategically, focusing on areas where it can make a difference. When done right, AI won’t just be a trend but a critical tool for maximizing your business’ value.
This article was originally published by Entrepreneur Media, LLC
by UFG | Mar 3, 2025 | News
When United Franchise Group started franchising The Great Greek in 2018, President Bob Andersen said co-founders Nick Della Penna and Trent Jones already had a strong foundation with two restaurants performing “exceptionally well.” UFG, a franchise development company with several affiliate brands, has since helped scale the concept offering traditional Greek dishes such as tzatziki, spanakopita and chicken souvlaki. Sustainable growth, said Andersen, is not about going fast or slow, “it’s are there people who fit our criteria to be restaurant operators.” Franchisees must have the financial resources and, if they don’t have restaurant experience, show they’re capable of running a business. Even with the right franchisees, said Andersen, the ability to grow “has to really revolve around your ability to acquire sites.” The real estate component is crucial, he continued, “and it’s a lot of grind work.” Between 2021 and 2023, The Great Greek grew system sales from $13 million to $48 million, an increase of 279.6 percent, and grew units by 155 percent, to 51 locations. The brand sits in a category with less competition for space than burgers or pizza, “where landlords won’t even entertain your brand,” he said. “We bring high volume. We bring affluent customers into these centers.” The Great Greek is finding success in non-traditional locations, including via CloudKitchens, and with retail to-go formats on college campuses. Navigating the inflationary environment remains a challenge, he said, though thanks to strong brand equity restaurants were able to take price increases to maintain franchisee profitability. Examining new tech tools, meanwhile, takes constant work, he said, as The Great Greek balances the needs of operators and customers amid an ever-changing landscape.
| F&S Rank 2024 | Prior Year Rank | 2021-2023 Sales Growth % | 2021-2023 Unit Growth % |
|---|
| 15 | U-40M | 279.60% | 155.00% |
This article was originally published by franchisetimes.com
by UFG | Mar 3, 2025 | News
Pizza restaurants are poised to continue their evolution this year and incremental changes, especially in the areas of artificial intelligence, operational efficiency and customer preferences, will create both challenges and opportunities for pizzeria owners. From smarter ordering systems to food that travels better, here’s what pizzeria owners can expect in the year ahead.
AI: Optimizing Operations and Enhancing Customer Experience
Artificial intelligence is increasingly finding its way into pizzeria operations, and 2025 will be a year of experimentation and testing for many brands. Pizzeria owners are beginning to implement AI tools on both the operational and customer-facing sides of their businesses.
On the development side, AI systems are helping pizzerias attract the right franchise partners. AI is being used to identify potential investors, streamline communication and determine which candidates are most aligned with the brand’s goals.
On the customer side, AI is beginning to play a more significant role in online ordering. One promising use is personalized upselling, where AI-powered tools analyze customer ordering behavior to recommend complementary items. For example, if a customer orders a pepperoni pizza, AI can suggest pairing it with a dessert such as tiramisu, based on historical purchasing data. Early adopters of this technology are already seeing higher ticket averages and improved customer satisfaction.
AI also holds the potential to reduce the strain of phone orders – a pain point for many pizzerias, especially during peak times. As AI phone systems become more sophisticated, customers will have the option to place their orders seamlessly without human interaction. This not only frees up labor but also reduces order errors.
The Off-Premises Dining Shift: Food That Travels Well
Delivery and pickup continue to dominate the pizza market as off-premises dining solidifies its role in customer behavior. While pizza remains a category leader in delivery, due to its durability and ease of transport, 2025 will see a greater emphasis on making other menu items travel better, too.
Customers are increasingly expecting restaurant-quality food, even when dining at home. The challenge lies in ensuring that products maintain their quality after being picked up or delivered. A Caesar salad with hot grilled chicken is a good example. It’s not an issue in the dining room, where it goes from kitchen to table in minutes. But by the time it reaches the across-town patron, the lettuce is wilted and unappetizing.
Some pizzerias are solving this problem by rethinking packaging. For instance, they may separate salad components into individual containers: lettuce in one bowl, chicken in another, dressing on the side. While some restaurateurs worry that “making the customer build the meal” may be off-putting, customers have shown they’re willing to do a bit of assembly at home if it guarantees a better dining experience.
For pizzerias, the takeaway is clear: Examine your menu to identify items that may lose quality in transit and invest in better packaging solutions to ensure consistency. A poorly executed product can turn a star item into a liability.
As for third-party delivery services like DoorDash, Uber Eats and GrubHub, they’ll remain a significant part of the off-premises dining ecosystem. However, customers are becoming increasingly wary of the steep fees associated with these services. Many are opting for pickup to avoid the premium costs, creating an opportunity for pizzerias to promote in-house online ordering platforms.
Driving customers to order directly from a pizzeria’s website or app benefits both the business and the customer. For the business, direct orders reduce commission fees paid to third-party platforms. For customers, direct ordering often means fewer fees and a more seamless experience.
Menu Innovation: Balancing Variety, Quality and Simplicity
While many restaurants are chasing trends like locally sourced ingredients and exotic toppings, pizza remains a stronghold of tradition. Customers appreciate menu consistency, but they’re also looking for value and ways to customize their experience.
One trend gaining traction is the introduction of premium add-ons to appeal to different customer segments. From garlic-butter crust options to artisanal oils, offering “good, better, best” options allows pizzerias to serve budget-conscious customers while catering to those willing to splurge for higher quality.
Similarly, AI-driven online ordering platforms are enhancing the upsell process by suggesting add-ons based on customer behavior. This automated approach ensures customers are presented with premium options at the right moment, without relying on staff to remember to offer them.
To maintain operational efficiency alongside menu variety, many pizzerias are centralizing production of core ingredients. For example, at Cannoli Kitchen Pizza, sauces, doughs and specialty items like cannoli cream are prepared at a commissary and shipped to franchise locations. This not only ensures consistency across locations but also simplifies in-store operations and training.
Operational Simplicity: A Key to Efficiency
In 2025, successful pizzerias will continue to focus on operational simplicity to drive efficiency. This is particularly important for franchise operations, where consistency across locations is critical. Pizzerias that streamline processes – from ingredient preparation to equipment use – are able to maintain a diverse menu without overwhelming staff.
For example, franchise models often provide pre-made proprietary ingredients (sauces, doughs, toppings) to their locations. By reducing the need for complex prep work on-site, employees can focus more on food assembly and customer service. This operational simplicity makes training new hires faster and allows teams to deliver a consistent product every time.
Labor Challenges: Finding and Keeping Good People
The labor market remains a major concern for pizzeria owners going into 2025. Hiring, training and retaining employees continues to be an uphill battle, particularly in an industry with historically high turnover.
The key to overcoming labor challenges lies in finding employees with a strong work ethic and a willingness to learn, rather than prioritizing prior experience. At Cannoli Kitchen Pizza, we hire work ethic over experience. We can teach you how to make a pizza, but we can’t teach you to love making guests happy.
To attract and retain top talent, pizzerias must offer competitive pay, benefits and opportunities for growth. Employee incentive programs and a positive work environment are also critical differentiators that can help pizzerias stand out in a crowded labor market.
Looking Ahead: Consistency, Quality, and Customer Focus
The pizza industry has long been a cornerstone of the food service world, and its resilience lies in its ability to evolve while staying true to its roots. As we move into 2025, pizzerias that focus on delivering consistent quality, optimizing operations and leveraging technology will be best positioned to thrive.
For owners, the path forward is clear: invest in systems that make your business more efficient, embrace tools that enhance the customer experience and keep a sharp eye on off-premises dining trends. Whether it’s AI-powered upselling, innovative packaging solutions, or improved online ordering platforms, small changes can add up to big results.
This article was originally published by Modern Restaurant Management
by UFG | Mar 3, 2025 | News
By Austin Titus
Looking into 2025, I’m excited by the opportunities in store for our industry. This won’t be a year of radical change but of strategic refinement: going deeper into the enhancements we’ve been making over the last few years. A few incremental improvements in technology, operations and customer engagement will shape the industry’s future.
From enhancing delivery efficiency to meeting evolving guest preferences, pizzeria owners who adopt smart, targeted tactics will set themselves apart in an increasingly competitive market.
Here are the four trends to look for in 2025 and how your business can thrive by embracing them.
Artificial Intelligence: Streamlining Decisions and Boosting Sales
AI is no longer a futuristic buzzword. It’s becoming a practical tool that’s reshaping how pizza restaurants operate. In 2025, AI will play a more prominent role, both behind the scenes and in front of customers.
- Operational Optimizations
Franchise-focused pizzerias are increasingly using AI to streamline expansion efforts. By analyzing data on potential franchisees, AI tools can identify candidates who align with a brand’s culture and financial requirements. These tools also reduce the time spent communicating with prospects, ensuring a faster and more efficient process. For growing chains, this precision is invaluable for protecting the brand while accelerating growth. - The End of the Phone-Order Pain Point?
AI-powered phone systems are evolving, offering a seamless alternative to traditional call-in orders. By reducing wait times, minimizing order errors, and freeing up staff to focus on food preparation, these systems address a long-standing challenge for busy pizzerias. Customers benefit from a smoother ordering process, and businesses enjoy more efficient operations. - Enhanced Menu Engineering
AI-driven insights can also help pizzerias optimize their menus. By analyzing sales data, these tools identify top-performing items and underperforming dishes that may be worth revising or removing. They can even suggest ideal pairings to boost sales. This data-driven approach helps pizzerias maintain menu variety while focusing on profitability. - Customer-Facing Tools
AI is revolutionizing how pizzerias interact with their customers. For instance, AI-driven upselling tools can analyze the customer’s ordering history and suggest complementary items—premium desserts, specialty drinks and more. They can even suggest what similar guests have ordered. These personalized recommendations drive higher check averages and improve the customer experience.
Off-Premises Excellence: Rethinking Delivery and Pickup
As dining habits continue to shift toward off-premises consumption, pizza restaurants are doubling down on delivery and pickup strategies. While pizza has always been a delivery-friendly option, the challenge in 2025 will be ensuring that all menu items travel well.
- Revolutionizing Packaging
Customers increasingly expect their food to arrive hot, fresh and visually appealing, even after a 20-minute journey. Pizzerias are rethinking packaging for side dishes, salads and desserts to ensure items retain their quality during transit. For instance, separating salad components—crispy lettuce in one container, warm grilled chicken in another—allows customers to enjoy a fresher dining experience at home. Investing in innovative, compartmentalized packaging can turn a potential weak link into a strength. - In-House Ordering Over Third-Party Platforms
While third-party apps like DoorDash and Uber Eats dominate the delivery ecosystem, their fees continue to frustrate both businesses and consumers. Customers are increasingly opting for direct pickup to avoid the hefty delivery fees, creating a golden opportunity for pizzerias to promote their in-house online ordering platforms. Offering incentives such as exclusive discounts or loyalty points can steer customers away from costly middlemen and boost profit margins. For customers, ordering directly often means a more seamless experience and lower costs—a win-win for everyone involved. - Loyalty Programs
As more customers opt for direct online orders, loyalty programs can become a powerful tool for retention. Offering rewards for repeat orders, exclusive deals or birthday perks can keep customers coming back to your platform rather than third-party apps.
Menu Strategy: Balancing Tradition with Modern Tastes
Pizza may be a timeless classic, but customer expectations are anything but static. To stay competitive in 2025, pizzerias must strike a balance between simplicity and variety on their menus.
- Premium Options for Customization
Customers today value choices that align with their tastes and budgets. Adding high-quality upgrades such as garlic-butter crusts, truffle oil drizzles or plant-based cheese options can cater to both the budget-conscious diner and those willing to pay extra for premium experiences. Offering tiered options like “good, better, best” ensures that you’re meeting the needs of diverse customer segments. - Centralized Ingredient Prep
To keep operations smooth, some pizzerias are adopting centralized commissary models. Core ingredients like sauces, doughs and specialty toppings are prepared at a central facility and distributed to franchise locations. This not only ensures consistency across locations but also reduces the burden of in-store preparation. Employees can focus on assembling orders and providing great customer service rather than spending hours prepping ingredients.
Efficiency and Simplicity: Keys to Operational Success
Efficiency will remain a top priority for pizzerias in 2025, particularly for franchise models where consistency across locations is critical. Streamlined operations can unlock both time and cost savings while improving the customer experience.
- Simplified Processes
Many franchise models are reducing complexity by providing pre-prepped ingredients and focusing staff training on food assembly and service. This allows franchisees to offer diverse menus without overwhelming employees or extending wait times. Simplified processes also make it easier to onboard new hires—a crucial advantage in today’s tight labor market. - Labor Retention
Labor challenges aren’t going anywhere in 2025. Hiring and retaining employees remains a struggle, especially in an industry with historically high turnover rates. To stand out, pizzerias must offer competitive wages, clear growth opportunities and positive work environments. Incentive programs, team-building activities and flexible scheduling can all help attract and retain top talent. And when it comes to hiring, the key is prioritizing attitude over experience. As one pizzeria owner put it: “We can teach you how to make pizza. We can’t teach you how to care about customers.”
2025 Success Formula: Embrace Change, Stay Grounded
The pizza industry has always been about more than just food. It’s about community, convenience and the experience of sharing a universally loved dish. In 2025, the pizzerias that succeed will be the ones that combine this tradition with forward-thinking strategies.
In a year defined by subtle yet meaningful changes, 2025 is your chance to position your pizzeria for long-term success. The future may not call for reinvention, but with smarter strategies and sharper execution, your business can thrive in an evolving landscape.
Austin Titus is president of Cannoli Kitchen Pizza, a growing restaurant franchise founded in 1996 that serves not only fresh pizza, but also pasta, subs, wings and, of course, cannoli. Offering dine-in, takeout, delivery and catering options, it has seven locations throughout Florida with plans for expansion. The brand operates within the family of award-winning franchise brands at United Franchise Group.
This article was originally published by PMQ Pizza
by UFG | Jan 30, 2025 | News
Selling to a private equity firm while remaining involved during the growth phase could be the strategy you need — if you’re willing to lose everything to try to hit that mark.
The company you founded is turning a healthy profit and has become a market leader, so you’ve decided to sell it and are expecting a respectable return. You could wait and keep growing it so it fetches a better price, but you need capital and a management team with the vision and resources to make it happen. Selling to a private equity firm while remaining involved during the growth phase could be the strategy you need — if you’re willing to lose everything to try to hit that mark.
Losing everything is always a possibility in business, but equity sales take the stakes even higher. These investors typically look for a return as much as seven times EBITDA (earnings before interest, taxes, depreciation and amortization) at the time of acquisition, in as little as three to seven years. If the bet pays off, everyone is happy. If it doesn’t, they can lose everything. What’s worse, you probably won’t have a say in how the new owners play their hand.
Private equity firms have become more discerning and particular about acquisitions, but there are always opportunities if your company is successful, has room to grow and shows it can realize its potential. They tend to look for companies in industries with a proven recurring revenue model. That’s what the equity firm Blackstone saw when it moved to acquire a majority share of Spanx from founder Sara Blakely in 2021.
After transforming the shapewear industry in the early 2000s, Spanx found its success stagnating during the pandemic and in the face of an expanding field of competitors. Blakely also wanted to develop more products and channel expansions but needed partners to help her. The deal she struck with Blackstone valued the company at $1.2 billion and put her personal worth back in the billions. Blakely remains a “significant” shareholder in the company.
Making the perfect equity match
Spanx may have lost some of its sheen before the deal, but its foundation must have been strong, or Blackstone wouldn’t have done more than glance at it. Most private equity groups look first for profitability, usually with at least $1 million in EBITDA earnings. But they also want a well-structured leadership team. After all, a private equity group is really just a group of investors with a lot of money and other financial resources. They don’t have staff who come in and help execute the business. So, they need people in the industry to continue to run it even if the owner steps out or steps aside. They can open some doors, but it’s up to the original team to walk through them and make the plan work.
You should also ensure that everyone has the same expectations for why they’re bringing on investors, the results they want to achieve and how they’ll achieve them. Lack of clarity can lead to unhappy endings.
One regional consulting company I worked with had grown significantly, and the owner wanted to go national but felt he had taken it as far as he could. He brought in a really well-known private equity firm that bought a major portion of the company. He and his partner planned for one to retire and the other to stay on and manage the firm. But they weren’t clear on what the metrics were for success at the next level of the exit, and worse, they didn’t align with the equity firm’s strategy. The company went out of business in only a few years. Both partners lost their equity and some money that was owed to them from the deal.
The lesson here: You’ve got to be clear across the board. Take these steps to get the clarity you need:
Understand what equity investment can and can’t do
Many business owners have the misconception that it’s the best thing in all situations — that it’s going to pay and grow them the most. It may not actually work in your specific case.
Be clear on your strategy for selling to the equity firm
Do you want to get out completely and sell 100% to the investors, or stay on to get “a second bite of the apple” in higher returns after the equity group grows your company?
Interview other entrepreneurs who have worked with this private equity firm
Most private equity groups have a full list of all the companies they’ve invested in and bought. You’re getting into a partnership with these people, so you want to vet them like you would when bringing on any other partner in your business.
- Talk to the founders of those companies and ask how well the investors executed their strategy. Did they have results? What was the process like?
- Ask about the company’s cultural transition. How did the founder feel moving from being at the top to being more of an employee or manager? Was it a good culture overall? Were the employees happy that they stayed?
- Find an outside advisor.
Private equity is a small specialty in the financial sector and doesn’t do a lot of deals, so news like the Spanx deal gets a lot of attention. Equity investment also gets a lot of informal (and often uninformed) word-of-mouth coverage; other business owners will sometimes make decisions based on this. An expert advisor can get you the right information to make the right decision for you. Going the private equity route could be a lucrative exit plan for your business, so it’s worth considering.
Begin with the exit in mind
Before you do any of this, have a full exit plan and succession strategy that spells out what the end looks like and how you can best get there. Don’t only consider the valuation you want but also look at how you want the transition to proceed – from details like how you want employees taken care of to big-picture goals like the legacy you leave. Sit down and give some real thought to your exit strategy.
Exhaust all your growth opportunities before you bring in outsiders, and they’re more likely to seek you out.
This article was originally published by Entrepreneur Media, LLC
