Built to Sell: Creating a Business That Can Thrive Without You by John WarrillowDate read: 2015-06-02.
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A crash course in building a sellable business from the ground up. The business equivalent of the principle of starting with an end in mind. Think in systems, have a process, specialize and say no to projects outside your area of expertise.
- 1. Don’t Generalize, Specialize!
- 2. Don’t rely on 1 client.
- 3. Owning a process makes it easier to pitch and puts you in control.
- 4. Don’t become synonymous with your company.
- 5. Avoid the cash side.
- 6. Don’t be afraid to say no to projects.
- 7. Take some time to figure out how many pipeline prospects would likely lead to sales.
- 8. Two sales reps are always better than one.
- 9. Hire people who are good at selling products not services.
- 10. Ignore your profit and loss statement the year you make the switch to a standardized offering.
- 11. You need at least two years of financial statements reflecting your use of the standardized offering model before selling your company.
- 12. Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.
- 13. Find an advisor for whom you will be neither the largest nor the smallest client.
- 14. Avoid an advisor who offers to broker a discussion between a single client.
- 15. Think Big.
- 16. To be a sellable, product-oriented business you need to use the language of one.
- 17. Don’t issue stock options for key employees after an acquisition instead use a simple cash bonus that offers them rewards after you sell your company.
- Steps to build a business that can scale without you:
The Paradox that successful entrepreneurs manage:
“You should always run a company as if it will last forever, and yet you should also strive constantly to maximize its value, building in the qualities that allow it to be sold at any moment for the highest price buyers are paying for a business like yours.”
How would you describe your business to someone at a cocktail party?
What are the crucial steps in your most valued activity? Describe them and name them.
You must transform your business from a service company to a product business with a standard, scalable and repeatable process. Refer to the people that buy from as customers (like a product company) not clients (service company).
1. Don’t Generalize, Specialize!
Focus on doing 1 thing well and hire specialists in that area = better quality and standing out
2. Don’t rely on 1 client.
Have a diverse group of clients (max 10% revenue each).
Earn-out (getting money upfront, hitting performance goals and staying 3 years more) is not a good way to sell your business.
3. Owning a process makes it easier to pitch and puts you in control.
Be clear about what you are selling and potential customer will be more likely to buy your product.
4. Don’t become synonymous with your company.
If buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.
5. Avoid the cash side.
Once you’ve standardized your service charge upfront or use progress filing to use a positive cash flow cycle.
Create an instructional manual for each step of your process and give it to your team. Make it simple and detailed, so that even your grandmother could understand it.
6. Don’t be afraid to say no to projects.
Prove that you are committed to specialization by during down work that falls outside of your area of expertize. The more people you say no to, the more referrals you will get to people that need your services.
The buyer wants to know: How big can your business become? Do you have a replicable sales formula?
7. Take some time to figure out how many pipeline prospects would likely lead to sales.
8. Two sales reps are always better than one.
Provides competition and proves to the buyer that you have a sales model, not just a really good salesman.
9. Hire people who are good at selling products not services.
These people will be better at figuring out how your product will meet clients needs rather than customize your offering to fit what your clients want.
How much you want to sell your business for? What is the amount of money you need?
10. Ignore your profit and loss statement the year you make the switch to a standardized offering.
As long as your cash flow remains strong, you will be back the in the black in no time.
11. You need at least two years of financial statements reflecting your use of the standardized offering model before selling your company.
12. Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.
13. Find an advisor for whom you will be neither the largest nor the smallest client.
Make sure they know your industry.
14. Avoid an advisor who offers to broker a discussion between a single client.
You are to ensure there is competition for your business and avoid being used as a pawn for your advisor to satisfy their biggest client.
15. Think Big.
Write a 3-year business plan, what’s possible for your business. Remember the company that acquires you will have more resources to accelerate your growth.
Imagine what is possible. Think like Starbucks. Take off your conservative business owner plan.
16. To be a sellable, product-oriented business you need to use the language of one.
Appearances matter a lot when selling a business.
|Use these words||Avoid these|
17. Don’t issue stock options for key employees after an acquisition instead use a simple cash bonus that offers them rewards after you sell your company.
Pay it in two instalments only for those who stay so that your staff stays on through the transmission.
Steps to build a business that can scale without you:
Step 1: Isolate a product or business with a potential to scale.
Try combining 1 or 2 products to create an ideal offering. 3 criteria for choosing a product: I. Teachable to employees or can be delivered through technology II. Valuable to your customers III. Repeatable (the most important criteria)
Document your process for delivering your product.
Use examples, be specific, detailed. Test your instructions.
Name your product.
It gives you ownership of it and helps you be unique.
Write a description of the features and core benefits of each stage of the process.
Step 2: Create a positive cash flow cycle.
It gives you a financial cushion to make difficult changes required in step 3 and 4. To create a positive cash flow charge your customer in full or in part for your product or service before you pay the cost of whatever it is you provide. It also increases the value of your company.
Step 3: Hire a sales team.
You need to remove yourself from some of the sales process. Your job as an entrepreneur is to hire salespeople to sell your product/services, so you can spend your time selling your company. You earn a couple of hundred $ when you sell your product, but if you focus on selling your company you will earn exponentially more. Sell the right product.
Look for people who like your product and enjoy selling. Avoid hiring people who come from professional services companies, they will want to reinvent your product/service for every customer. Hire at least 2 people.
Step 4: Stop selling everything else.
Once you have a sales team stop selling everything outside crucial things in step 1. It’s tempting to continue selling them, but your team will lose focus.
Don’t get personally involved in selling, instead, diagnose the problem and fix the system so the problem doesn’t occur.
Step 5: Launch a long term incentive plan for managers.
You need to prove that you have a management team that can run the company after you leave.
Avoid options because they complicate the selling process.
Create a long term incentive plan for your managers.
- Each year take an amount equivalent to their annual bonus and put it aside in the long-term incentive account for each manager you want to keep.
- Allow the manager to withdraw the 1/3 of the amount each year during a 3 year period, that way the manager will have to walk away from a decent amount of money if they want to leave.
- Also have a 1-time special bonus when the business is sold.
Step 6: Find a broker.
Less than $2.000.000? Use a business broker
More than $2.000.000? Use a boutique or an acquisition firm
Look for a firm with experience in your industry. Ask for recommendations. A broker should recognize that you created something special and be compensated at a higher rate.
Step 7: Tell your management team.
Make sure that there is something for them if the deal goes through.