Ideas in the Wild: Patrick Donohue Shows Business Owners How to Make Their Companies More Valuable


With trillions of dollars at stake, those who own and control investment capital profit handsomely by severely undervaluing privately held businesses.

Lenders lure them with teaser rates. Investment partnerships dazzle them with fancy marketing materials. These are the tools of their trade, helping them earn excess returns on business owners’ hard work.

Patrick Donohue’s Breakout Valuation provides entrepreneurs with the insider knowledge they need to build what matters — a valuable business. I recently caught up with Patrick to learn more about why he wrote the book and the ideas he shares with readers.

What problem do you see people struggling with?

The mistakes we have witnessed entrepreneurs making when building their businesses largely come from misinformation, not incompetence. The business owners we meet have wasted time and been scammed out of money, deceived by overpromising employees, and gouged by lenders and investors, but they learned along the way and, in the end, won.

I was inspired to create this book to share the decades of experience my co-author and I have enjoyed advising and financing small businesses. This book is all about illuminating blind spots and providing powerful insights and frameworks to achieve what really matters — owning a valuable business. The purpose of this book is to give you the resources necessary to obtain financial independence through a Breakout Valuation.

What’s an idea you share that really excites you?

It’s common to wonder, “Why do some entrepreneurs get breathtaking valuations for their businesses, while the majority of entrepreneurs struggle to get any value beyond what they might have had if they simply had a ‘real’ job.”

It’s called the Breakout Valuation. A Breakout Valuation is a way to get the value for your business based on its future potential and not just what it has done in the past.

The nine components of a Breakout Valuation are confidence, vision, curiosity, people, communications, cash management, financial forecast, capital strategy, and business design. Business owners who improve in each performance in each of these positions themselves to capture a Breakout Valuation.

Academics and finance professionals attempt to make valuation objective, but the reality is that valuation is subjective. Valuation is highly influenced by the personal views of the participants in a transaction. Knowing why and how experts and professionals use objective valuation tactics will arm you with an advantage to get what you want — a Breakout Valuation.

Knowing what your ownership of the business is worth becomes increasingly important as the business matures. Understanding value may allow owners to pledge their ownership as collateral for loans, and it helps them make important financial planning decisions that impact their families and future generations.

This is all about understanding the potential value of the business, articulating it to potential buyers, and having them buy into the vision and give you credit for it at the time of sale. This will show up as a higher multiple of today’s numbers, which is what we refer to as Breakout since it is vastly better than standard valuation multiples like “3x EBITDA.”

Breakout Valuation is important to you whether or not you sell your business or stock! A Breakout Valuation makes capital formation easier, makes capital less expensive (so you can keep more earnings), and provides better terms with vendors because outside partners will extend better credit and terms to businesses they view as growing and having a bright future. A Breakout Valuation compounds returns by attracting talented employees and quality customers.

You don’t need to know how to discount forecasted cash flows to understand valuation. You just need to know enough about your own business and be confident in your vision to be effective in a negotiation. In fact, you have everything you need today to be a valuation expert on your own business.

Breakout Valuation is not aspirational — it is about what you are doing now. It is your current mindset, workflow, and communications. It compounds daily, requiring attention today and every day going forward. So, when the day comes to part with some or all of your business in exchange for cash, you are well set to maximize the payout or be comfortable walking away from the deal and continuing to build the business if the potential buyer is not a right fit.

How will following your advice improve your readers’ lives?

Owning a valuable business gets you to the ultimate goal of every entrepreneur — freedom. The freedom to work the hours you choose, expand when you choose, and sell the business when you choose. A valuable business provides independence: your business does not need to rely on external capital, and if you choose to bring in outside money to fund growth, you get to pick your partners.

Additionally, valuable businesses have an easier time attracting and retaining employees, customers, and strategic relationships. People want to work with companies that are seen as valuable and having bright futures. A valuable business becomes a magnet attracting top talent, quality customers, and superior vendor relationships, and it provides its owners freedom of choice.

Very few business owners actually achieve such freedom. The goal of this book is to provide knowledge and tactics to obtain a Breakout Valuation and join that rarefied club by sharing our experiences as well as what other entrepreneurs have done to secure financial independence. Entrepreneurs deserve financial independence as a reward for all their hard work and the risks they and their families have taken. They deserve to enjoy the fruits of their legacy.