For many founders, growth is the ultimate scoreboard.
Revenue is climbing. New customers are coming in. The team is expanding.
That should mean the business is becoming more valuable.
Not necessarily.
In the latest episode of This Is M&A, Steven Monterroso sits down with Mike de Windt, Managing Director of Strategic Advisory at Carleton McKenna & Company, to discuss one of the biggest misconceptions in the lower middle market: revenue growth alone does not increase valuation. Buyers look much deeper than the top line, and understanding what they actually value can make the difference between commanding a premium and accepting a discount.
Growing Revenue Is Not the Same as Creating Value
Many founder-led businesses spend years chasing growth without asking whether that growth is actually improving the quality of the business.
Mike explains that buyers don’t simply reward bigger companies.
They reward better companies.
A business that doubles its revenue while sacrificing margins, increasing complexity, or becoming more dependent on the founder may actually become less attractive to an acquirer.
True value creation happens when growth strengthens the fundamentals of the business:
- Higher profit margins
- Stronger cash flow
- More recurring revenue
- Better operating systems
- Less dependence on one individual
These are the qualities buyers are underwriting when they determine valuation.
The Three Things Buyers Actually Pay a Premium For
Mike simplifies value creation into what he calls a three-legged stool.
Every valuable business is built on three pillars:
Clear Strategy
Successful companies know exactly where they compete, who they serve, and how they differentiate themselves.
Growth without strategic direction creates confusion.
Growth with focus creates confidence.
A Scalable Business Model
Buyers want businesses that can continue growing without requiring the founder to personally drive every decision.
Processes, systems, and repeatability matter.
The easier a company can scale, the lower the perceived risk.
Repeatable and Predictable Economics
Perhaps most importantly, buyers look for financial consistency.
Predictable revenue.
Reliable margins.
Healthy cash flow.
Durable earnings.
Without predictable economics, future performance becomes difficult to forecast, and valuation multiples often suffer.
The Hidden Levers Most Founders Never Build
Many of the factors that increase valuation aren’t immediately visible.
Mike highlights several operational improvements sophisticated buyers evaluate during diligence:
- Quality of earnings
- Pricing discipline
- Cash flow conversion
- Management incentive alignment
- Capital allocation
- Reduced key person dependence
These aren’t glamorous initiatives, but they have a meaningful impact on how buyers assess risk.
Every improvement makes the business easier to understand, easier to operate, and ultimately easier to acquire.
That’s what premium valuations are built on.
Why the Annual Operating Plan Is a Deal Asset
For many privately held businesses, the annual operating plan exists primarily because the bank asks for one.
Mike believes that’s a missed opportunity.
A well-developed annual operating plan isn’t simply a budgeting exercise.
It becomes a management system.
It helps leadership track performance, identify issues early, allocate resources effectively, and measure progress against long-term objectives.
When buyers enter due diligence, documents like annual operating plans demonstrate organizational maturity.
They show the business is managed proactively rather than reactively.
That kind of discipline inspires confidence.
The Plateau Every Founder Eventually Faces
Nearly every founder-led company reaches a point where growth begins to slow.
Often, the bottleneck isn’t the market.
It’s the founder.
When too many decisions rely on one person, scalability becomes difficult. Buyers recognize this immediately.
Mike argues that one of the fastest ways to increase value is reducing key person dependence by building stronger leadership throughout the organization.
Professional management doesn’t replace entrepreneurial culture.
It strengthens it.
Founder-led companies that combine entrepreneurial vision with disciplined management become exceptionally attractive acquisition targets because buyers see an organization capable of succeeding long after the founder steps away.
Run Your Business Like Someone Is Watching
Perhaps the most valuable advice Mike offers is surprisingly simple.
Run your business today the way you would if buyers were already evaluating it.
Because eventually, they will be.
Companies that consistently invest in systems, planning, leadership, and operational discipline don’t just create better exit opportunities.
They create healthier businesses.
That gives owners something even more valuable than a higher multiple.
It gives them options.
Whether they decide to sell, recapitalize, or continue growing, they have built a company capable of succeeding on their terms.
Listen to the Full Episode
Mike de Windt has spent more than three decades as a private equity investor, operator, and strategic advisor. His experience on both sides of the transaction gives founders a practical framework for understanding how sophisticated buyers evaluate privately held businesses.
If you’re building a company with an eventual exit in mind, this episode offers actionable lessons you can begin applying long before the sale process begins.
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