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Has Built to Sell by John Warrillow been sitting on your reading list? Pick up the key ideas in the book with this quick summary. So what can you do to structure your business to prepare it for a successful acquisition that gets you the best possible price?
This book summary answer these questions through the story of Alex Stapleton, who wants to sell his marketing agency. Alex built up a small company with only a few employees, but wants to have more time with his family and is quite stressed by his work.
Ted Gordon, an old friend and entrepreneur who has sold businesses successfully in the past, guides him through the process. How can you make it successful? As a result, people will come to you with specific problems that you can solve better than anyone else. Furthermore, when the results are good, clients will recommend you. Word of mouth will earn you new business. He excelled at the work and his clients loved the product. As a result, Alex became a top logo designer. Firms that provide multiple services have to hire experts for different fields.
Instead, they hire generalists to execute different tasks. Specializing helps your company produce excellent work, which puts you in a better position to negotiate with clients. And, perhaps more importantly, your company will run smoothly without too much oversight from you, because everyone will be responsible for discrete tasks.
So you meet with every client and oversee all financial negotiations. As a result, your clients get used to talking about everything with you in person. For them, you represent the whole company. But this approach will lead to problems.
For example, Alex, our logo designer, struggled with a tight schedule because he met with every client in person. Plus, since Alex had to attend each meeting, it was difficult for him to go on vacation or take time off from work.
It all comes down to the bottom line, as the saying goes. Thus, a solid sales team is crucial to your business. Because having employees dedicated to sales not only generates money, it also frees the founder to actually lead the business. First, healthy internal competition motivates employees to do their best work. Even smaller companies should have at least two good salespeople who understand how to sell their specific service.
Finding such people can be tricky: For example, if you offer a standardized service, you need people who are good at selling products, not services. Take the case of Alex, who wants to specialize in logo design. This is a service, but he wants to sell it as a product with a standard process — meaning, his company follows the same production steps with each logo.
As a result, he needs employees who are good at selling products. Typically, experienced service salespeople rely on consultative selling. That means they ask a lot of questions to find out what the clients needs. Consequently, clients expect them to provide individual solutions for their problems. How do you go about that?
Who do you sell it to? And how do you get the best deal? Most entrepreneurs dream of one day selling their companies. One way to grow quickly is by finding big clients, but be careful about relying on them excessively. But one month, they were late on their payment, which made it difficult for Alex to pay monthly salaries and rent. Why is this a disadvantage? Eventually, the designer quits because of the unbearable working hours. Or another scenario: When Alex made the decision to specialize in logos, he took a big risk.
As you can see, when your business is dependant on a bigger company, it limits your strategic decisions. This is especially unattractive to buyers, who want to develop a company and use its potential. In business, the customer is always right — but there are limits. Although every client might want a customized service, your small business will be better off if you offer standardized services. From the first meeting to product delivery, the whole process can take months. He had to edit some brochures for MNY Bank repeatedly because the client kept being dissatisfied with the results.
It took ages for Alex to deliver the right product. Thus, he struggled to find reserves to pay his monthly expenses. Cash flow is the amount of money a firm has available in a certain period. And that leads to positive cash flow, because you have money now and not in the future. Additionally, a positive cash flow is attractive from the perspective of buying firms, because it acts as a buffer if the company encounters larger unexpected expenses.
That way, you can better calculate how to allocate your time and resources. A calculated daily business is very attractive to buyers, because they can see that the company runs smoothly on its own. Up for a challenge? Why is this so important? The purchasers will want to know that the firm will continue to succeed after its acquisition. And the management team plays a crucial role in that. That meant his management team had to run the company alone. Alex had three managers in charge of different departments.
One was responsible for sales, one for designers and one for coordinating with the clients. If Alex left, those three managers would be the most important people in his company, because they oversaw all the daily tasks. If they stayed on, the business would continue to run as usual, so as the owner, Alex had to create incentives to retain them. One option is to give management equity, in the form of stock options.
Stock options are a huge motivational tool because they make employees feel more invested in the company. Long-term incentive plans that reward performance and loyalty are a better choice. For example, Ted told his friend Alex that he sets targets for his managers. When they reach their end-of-year targets, he pays them a bonus. He then matches the bonus with a sum he puts aside into a special fund.
Thus, Ted ensures that management stays at the company. The broker is the bridge between you and buyers. What should you expect from your broker? The right broker will arrange discussions with different potential buyers. Consequently, the competition will result in a better price. Some companies buy for strategic reasons. But other companies buy only for financial reasons. They want to see a return on investment, so they only care about quick financial success.
So, a broker can play a major role in the successful sale of your company. But how do you choose one? On the other hand, if the firm is too small, the broker might not be respected by potential buyers. Also, the right broker may have experience in your industry.
Bigger companies will use this to decide whether to acquire you, so it should present your firm in the best light. Why does this work? Well, the buying company will be larger than you are. It will have more employees, more resources and more money to run the business. These small changes will make a big difference for buying firms. That means only a small amount of money is paid upfront. The rest comes later, if the company meets its goals.
If not, the owner receives less money. The acquisition process for product businesses is different. The owners get the full amount of money upfront, without any earn out. This process involves less risk for the owner. Improve your chances with a well-written and savvy business plan. Building a specialized service business attracts potential buyers. When you sell a standardized product to someone, the process is straightforward: They pay and you deliver.
Walking you through every stage of how to build a business, The E-Myth Revisited highlights the important difference between working in your business and working on your business. Built to Sell Key Idea 1: Business success lies in specialization in a single service.
How “Built to Sell” Could Help You Become a Millionaire
She had gotten her hands on a super-early preview copy still spiral bound and had stayed up all night reading it. She was so excited about this book, that I begged her to give it to me so I could take a peek too. Well, I finally got my very own hard-back copy in the mail last week. Now I can finally tell you all about this short, easy and entertaining book that will get you thinking more profitably about your business. Personally, I like these kinds of books. I have an interactive learning style and reading a book that gets me involved in the characters really helps me to integrate the lessons in the book. But those frameworks are just there to teach me the much bigger and more profitable lesson that a systematized, turnkey business is not only more valuable in the marketplace, but more fun, easier to manage and less stressful than the alternative.
Built to Sell Summary and Review