The sun is fast setting on the old way of business brokering. The privileged position of a business broker as a gatekeeper to information and connection is under threat in a world where clients can now find each other via searches on smartphones, and that means the most fundamental adage of business survival applies: adapt, or die.
Like every information-based profession, business brokering is susceptible to the seismic changes imposed by the Internet. Conventional business broker methodology grew out of the bricks-and-mortar mindset of the real estate industry, and it’s under threat for the same reasons as every other bricks-and-mortar storefront.
The Old Way – Geographic Specialist, “Best and Only”
Back in the day, the best guarantor of ongoing business in an intermediary profession was to be seen as best and only – normally this was a combination of limited channels to promote a listing (e.g. classified ads) and limited geography (e.g. “the best (or only) business broker in our region.”)
This combination was seen as the thing that gave brokers their value – you could be perceived as the only means to access the buyers required to get the deal done.
Unfortunately, the world has moved on. What used to be an advantage is now a distinct disadvantage for a brokerage operating in this 'lone-wolf' fashion.
First: Geographical specialisation limits your buyer pool. Clients often come from outside the geographical area – indeed these can be the most valuable and motivated clients because these are the buyers with agendas for growth into new areas, or the vendors seeking sea- or tree-changes.
Second: Geographical specialisation is nowhere near as valuable as expertise – such as industry specialisation. Buyers and vendors alike flock to brokers who extol their particular industry, and this specialisation will eclipse any perceived advantage for being “the broker down the road.”
Both of these factors – geographical reach beyond the local area plus specialisation in the client’s industry – are critical to delivering best-practice services and outcomes to the client.
Listings, Beyond the Classifieds
A “listing” used to refer to the traditional and literal addition of an advertisement to a list, such as the classified section of a newspaper. The more modern iteration takes the listing online via portal sites (often the new avatars of old print media) or portal-pushing services that make a listing visible on multiple sites simultaneously.
It’s an effective method that’s been in place for some years now… but it’s reaching the point of diminishing returns. Brokers are reporting increasing difficulty in sourcing buyers, and the volume of buyers is critical to both completing deals and providing best-service outcomes to vendors.
Classified-type advertising (including portal pushing) is old-school thinking. A new approach is needed.
The solution is to use the Internet to connect yourself with more than just buyers – you need to connect with the other professionals that are already tied to your prospective clients.
These clients have accountants, they have lawyers, they have professional consultants – all of whom have unique perspectives and roles in business succession and growth.
Which prompts the question – how best to make these critical connections?
Connectivity as a Resource, Not a Threat
Nowadays, connectivity is a commodity. This is a challenge for an intermediary profession such as brokering, where a significant part of the value proposition is as a provider of connections.
To preserve value a broker needs to advance in both quality and quantity of connections.
Fortunately, the Internet is a resource as well as a threat. It can empower your business process with better tools and techniques. It gives you access to deeper wells of information on your clients and their prospective buyers.
But as important as both these things are, there is a far more critical benefit at hand: the Internet enables collaboration in ways that weren’t possible in the past.
It’s about networking.
Collaboration vs. Competition
The key tenet of this new methodology is to allow for a group of professionals to collaborate and thereby make possible deals and opportunities that are beyond the reach of any single professional. It’s the literal definition of “synergy” – a group whereby the total is worth more than the sum of its parts.
Under the old bricks-and-mortar mindset it was only natural to consider other business brokers as nothing more than competitors. There were only so many deals to go around in a limited geography or industry niche, and sharing with you means less for me, right?
But the new paradigm requires a shift in this thinking. We can expand our reach geographically to draw in more opportunities and can use the Internet to help us find buyers to match to our vendors. Granted, this is still possible to some degree under the “lone wolf” scenario.
We’re suggesting something much bigger – a collaborative network of multiple different kinds of professional, in contact with each other to help source and complete transactions that no single practitioner would be able to discover and manage.
This network contains:
- business brokers (of course), who seek to complete transactions
- accountants and legal professionals, who know which of their clients are well positioned to be either buyers or vendors
- industry associations, under increasing pressure to provide succession solutions for baby boomer members
- large-scale investors, seeking a home for funds
- corporate networks, wanting a walled-garden M&A methodology that also has access to a public marketplace
This is the new approach that a business broker needs to replace the old-school exclusivity and competition approach. It’s membership to a collaborative club where each member benefits from the connections and expertise of the other members. This is the advantage that can’t be replicated by a cunning customer with a smartphone.
We call it the Business Exchange Network.
How Brokers Benefit
A real solution requires a genuine paradigm shift, something that can move industry professionals to a more collaborative model with a higher bar for performance.
The network will boost capability and market reach – member brokers will be the ones best positioned to survive and to dominate, and they’ll be the providers who deliver best outcomes to their clients.
The really good news for brokers is that the new paradigm comes along with a new revenue model, one that upgrades the traditional commission-only methods that too often left brokers at the end of a troublesome and expensive transaction with nothing to show for their considerable efforts.
The collaborative methodology allows for two key innovations with respect to revenue:
- A shift towards ongoing monthly fees, rebated against the commission, to help cover ongoing costs and offset risk of failed deals. It means that the remuneration to the broker is spread out alongside the work they are accomplishing for their client.
- A mechanism for income splits, whereby each party contributing to a transaction is due a share of the proceeds – because each party that genuinely contributes to the success of a transaction deserves to benefit thereby.
Under such an arrangement it’s possible for a broker, accountant or lawyer to introduce a qualified buyer to a transaction and be due a split of the commission even if they’re not actually performing the brokering – it’s a way to monetise a valuable buyer list, to the benefit of both the professional and their client.
Joining the Business Exchange Network
Business Exchange provides a purpose-built online platform designed to meet these challenges. Our platform has the capabilities to boost a talented broker’s operation to the next level.
Most importantly you get to retain the freedom of being self-employed under your own brand, whilst being part of a collaborative network that broadens your revenue model and improves the efficiency and reach of your professional services – you can source and handle more transactions, and satisfy (and invoice) more clients.
We’ve been refining our platform for a decade, using it ourselves in the form of Practice Exchange (providing succession services to accountants and financial planners), and also licensing the platform to large financial services companies (via our Private Broker Network service) for the purpose of doing their own in-house M&A.
We’re inviting business brokers, accountants, lawyers, family offices and more to join us.
If you’re interested in knowing more call Mark Witt CA (CEO Business Exchange), or visit Exchange Place to register your interest.