Why is it important to consider the market share of your business in the context of a transaction process?
Whilst your current offering, sales volume and list of competitors may be difficult to change, it is worth considering the definition of market share and understanding the impact it has on the attractiveness of a business.
The truth is that there is a ‘sweet spot’ in terms of market share that represents the balance between having sufficient volume not to be crushed by the competition whilst also having a large enough market to offer plenty of room for growth for the incoming investor.
To add further detail to this, a good rule of thumb is that if you control more than 30% of the market then it will be difficult for the incoming investor to double the size of the business without redefining its market.
If you control less than 1% of the market, as it is defined by you, then it is difficult for an outside party to understand how you are likely to be a leader in the sector and therefore create protecting barriers to prevent the competition from simply taking your business. One way of doing this might be to add a geographic boundary, or add segmentation your customer definition, to the existing definition you apply to the market. In this way you go from trying to be the best Italian restaurant in the country (<1% share) to being the best Italian restaurant in the region. At the other end of the scale, if you control 45% of the combine harvester market, redefine this as the large scale farm machinery market and the percentage then allows the opportunity for more to go for in the future.