How do you build a business worth selling? How do you find the right buyers—without falling victim to the “ego-stroke?” John Warrillow joins me in this episode of Negotiations Ninja to answer every entrepreneur’s nagging question: How do I exit my business successfully?
John Warrilow is the founder of “The Value Builder System™” and is a business expert sought out for his proven methodology in adding millions to the value of a business. He’s the host of a show called “Built to Sell Radio,” with 300+ episodes. He’s ranked by Forbes as one of the world’s top 10 podcasts for business owners.
Outline of This Episode
- [2:34] Learn more about John Warrillow
- [3:14] Don’t fall victim to the ego-stroke
- [8:17] What is a roll-up?
- [11:15] Build a business that’s worth selling
- [16:12] Find the best fit for your business
- [19:34] Are ridiculous valuations a sign of the times?
- [24:08] The importance of pull factors
- [28:53] Consider the freedom point
Don’t fall victim to the “ego-stroke”
Thriving businesses may suddenly get a call from someone who wants to buy your company. John notes that it can be intoxicating. They woo you into a relationship and shower you with accolades. They ask about the company, financials, and more—which puts you into a reactive position.
Acquirers use your fragile ego to get a proprietary deal (i.e. buying your business without competition). But competition breeds a higher deal price and better terms. They go out of their way to contact owners before they can proactively put their businesses on the market.
They often have you sign a letter of intent with a no-shop clause, which means you can’t negotiate with anyone else. They do this intentionally to get your business for less than it’s worth. Don’t fall victim to the ego-stroke. It’s one of the most common mistakes John sees.
Build a business that’s worth buying
Most businesses start because the entrepreneur has technical expertise that they’re able to sell. But those businesses deeply depend on the owner—which makes it worth far less to anyone else. What should you be doing instead?
Entrepreneurs need to structure their businesses so they can succeed without them. If you’ve got a business that can thrive without you, it won’t stress you out. That means you’ll be more willing to walk away from a bad offer, which is the “ace up your sleeve.”
If you bring in a manager to run your business every day, it allows you flexibility. You can sell to a private equity group and create some liquid wealth. You can cherry-pick projects you want to be involved in.
Many owners confuse entrepreneurship with growing top-line revenue. Most entrepreneurs would be better served to think of their role as a parent. A parent wants their kids to be happy functioning independent adults. That means you’ve done your job as a parent. Your job is to create your business to succeed without you.
Find the best fit for your business
You don’t have to wait for someone to approach you to buy your business. You can approach them. You just need to be aware of the options available. There are three types of buyers:
- Individual Investors: They buy small businesses with less than $1–2 million in revenue. They’re buying a job.
- Private Equity Firms: They’ll ask you to roll some equity in and won’t pay as much for a business.
- The Strategic Acquirer: They’ll pay the most for your business because they have a strategic asset that will make your business worth more in their hands.
Stephanie Breedlove built a business solely to help do payroll for parents with nannies. She built it up to $9 million in revenue with 10,000 customers over 25 years. When she was ready to exit, she looked for someone with a strategic reason to buy her business. She came across Care.com.
At the time of her acquisition, Care.com had 7 million subscribers. If 1% of their customers used her payroll service, that’s 70,000 customers. She was making $9 million in revenue on 10,000. Imagine what they could make. They gave her an offer of $40 million. She said it wasn’t enough. In the end, she sold her company for $54 million—an unbelievable outcome. She found a buyer who had far more to gain than she did and negotiated her case to make a truckload.
To learn more about valuations, building a sellable business, and the importance of pull factors, listen to the whole episode!
Resources & People Mentioned
Connect with John Warrillow
- Get a FREE workbook to help you prepare for your business exit!
- John’s website: Built to Sell
- John’s Podcast: Built to Sell Radio
- The Art of Selling Your Business
- Built to Sell
- Follow on Twitter
- Connect on LinkedIn
Connect With Mark
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