One of the most common mistakes entrepreneurs make is to build a business that depends too much on them. They become stuck in their business and can’t sell it even if they want to. Through a parable, John Warrillow illustrates an 8-step model that you can use to turn your business into one that you can sell, and develop options to exit your business. In this Built to Sell summary, we’ll outline what’s involved in creating a business that can thrive without you. For more details, examples and tips, do get our complete book summary bundle in text, infographic and audio formats.
For many small businesses, especially service firms, the owners are the business. The owners are so good at what they do that they become the go-to person in the company. Unfortunately, such businesses aren’t scalable or sellable, so the owner has no choice but to keep slogging on. John Warrillow estimates that probably only 1 in 100 businesses are saleable. Even if you don’t have the intention of selling your business, a company that’s built to sell will be valuable, scalable and sellable, thus giving you more exit options. Warrillow’s 8-step action plan in the book is developed after studying and interviewing hundreds of entrepreneurs.
Backdrop to the Built to Sell Fable
The fable is about a fictional entrepreneur, Alex Stapleton, who wants to sell his marketing agency, The Stapleton Agency. He approaches Ted Gordon, a family friend and serial entrepreneur, for help. Alex is shocked when Ted tells him that his business is worthless—The Stapleton Agency has no differentiating factor, is overly-reliant on him and 40% of its revenues depend on 1 large client.
A generic, owner-dependent business like The Stapleton Agency can at best be sold under an earn out agreement, which means that Alex will get a small amount upfront for the company, with the remainder being paid only if he successfully achieves pre-agreed targets for 3-5 years. He’ll bear the bulk of the risks, while the acquirer enjoys the bulk of the reward from success. To sell his company without getting stuck in an earn out arrangement, Alex must first transform it with Ted’s help.
In our complete Built to Sell summary (get the full 13-page summary here), we’ll explain the 8-step model (with associated tips) for selling your business as we follow Alex on his journey. Let’s now take a quick overview of what’s involved.
The 8-Step Model to Sell Your Business
It takes deliberate effort to build your business such that it can thrive without you. From there, you can decide whether to continue to enjoy the business (which can thrive without you) or sell it.
1. Develop a Standard Service Offering (SSO)
The whole idea here is to focus on 1 specific area that you do really well. After all, a small firm that tries to do too many things can never compete with larger firms with the resources to hire a range of talents. By focusing on a specific area, you can hire specialists to become #1 in your niche.
A Standard service Offering is a consistent process for delivering a specialized service that you focus exclusively on. It must be a service that’s valuable to your client and can be taught to someone else. From the book and our full book summary, you can learn the specific steps to define your Standard Service Offering, document your process and brand the offering. This step is vital for you to achieve the results for the subsequent steps.
2. Build a Positive Cash Flow Cycle
Buyers will only be interested in a business with a positive cash flow cycle, i.e. it generates cash. You can get more details on how to do that in our complete summary.
3. Hire a Sales Team
To build a sellable business, you need to show that (i) you don’t need a superstar to bring in the sales and (ii) you have a diverse client base (such that no single client constitutes more than 10-15% of your revenue). In the book / full summary, you can get more insights on (i) what this step involves and (ii) why you must drive this new SSO model for at least 2 years.
4. Stop accepting projects outside of your SSO
Commit to your SSO and reject all other projects. This is the toughest step, since your clients and employees will keep pushing you to make exceptions, and you’ll be plagued by self-doubt. Resist the temptation to give in, stick to your SSO and you will see a distinct shift with time–read more in our full Built to Sell summary!
5. Launch a Long-Term Incentive Plan for the Management Team
An acquirer will want to see that you have a management team that (i) can run the business without you and (ii) will stay after the company is sold. In our complete 13-page summary, we elaborate on why you shouldn’t use equity as a retention tool and how to build a viable long-term incentive plan instead.
6. Find a Suitable Broker
As you drive the model over 2 years, your business may improve so much that you no longer wish to sell it. However, if you’re still committed to proceed, then you must find a broker to represent you. You can (i) get a better idea of what this entails and (ii) get some useful tips to get the best selling price from the book / our full book summary.
7. Inform your Management Team
The prospective buyer will eventually need to meet your team, and it’s definitely better for the team to hear about the sale from you than from rumors. Get details from our complete Built to Sell summary on how to present the sale to get buy-in from your team.
8. Convert the offer(s) into a binding deal
After the management presentations, you may get offers in the form of non-binding Letters of Intent. It’s vital to be prepared for the rigorous due diligence process that will follow, and to know the potential pitfalls to avoid.
Other Details in “Built to Sell”
This is an extremely easy-to-read book, with simple and practical tips that are reinforced both in the fable and in an executive summary at the end of the book. Do get a copy of the book for the full details, get our Built to Sell summary bundle for an overview of the various ideas and tips, or check out more details and resources at www.builttosell.com.
Learn how to build a valuable and scale-able business that can thrive without you and be sold!