281: Michelle Seiler Tucker — Sell Your Business and Exit Rich

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Hello everyone. We're talking today about how not to leave any money on the table. You spent all this time building up your business. Now you're thinking about selling it. Maybe not right now, but maybe at some point in the future. Better if it's in the future. It's tougher when it's right now. How do you do the best job with selling the business? That's our conversation today. Hi everyone. My name is Bill Gallagher, Scaling Coach, host of the Scaling Up Business podcast. Our show comes to you every week. We talk with thought leaders, gurus, authors, entrepreneurs and more about everything to do with growing your business. You'll find all of our shows wherever you get your podcast content, your audio, video, like, whatever, I hope we're there. I think we're probably there. But if you want to go to our own website, scalingcoach.com, you'll find a little bit more there, a little more notes, a little more links. Access the tools, a copy of the Scaling up book, all that and more@scalingcoach.com all right. I'm joined now by Michelle Seiler Tucker, who's going to talk to us about selling the business. So she's a rock star in this world. She's sold over a thousand businesses in every category. She's built a big following after 20 years in the M&A world. She's the CEO of the company that bears her own name, Silo Tucker Inc. And she's here to talk to us today about all of that and more. Welcome to shows, Michelle.

Thanks for having me, Bill. It's a pleasure to be here.

So where are you today, physically?

I am physically in New Orleans.

Nice.

In front of your step and repeat banner there in the background. Looking good on brand exit Rich.

Thank you. It's better than exiting poor.

So many people just want out, right? We know that. That. That doesn't necessarily get you the best deal in your business. If you're feeling urgent to bail, right?

That's the worst time to sell your company is during a catastrophe. And unfortunately, you know what Steve Forbes says is true. 80% of businesses will never sell. And the main reason that business owners never sell is because of what you just said. So many business owners just want out because they never plan their exit strategy. They're exhausted, they're burned out. You know, they sell for catastrophic reasons like health issues or this. An external event that we're in right now is this pandemic. So a lot of business owners are trying to sell during this pandemic, and it's not the best time to sell. Best time to sell is when your business is up and it's prime and doing well.

Great time to buy a business, though. You could think about the flip side of this as well.

Well, there's two different categories, right? So there's those businesses that are doing really well and thriving, and they have an ebitda, which is earnings before interest, taxes, depreciation, amortization, over a million dollars. And there are. There are so many buyers right now. There's huge activity in mergers and acquisitions right now.

But.

But the huge activity are for those businesses at 3, 5, 10, 15, $20 million in EBITDA, there's actually more businesses for good businesses than there are good businesses to buy. But the smaller businesses under a million dollars in ebitda, that's where it's a little bit difficult. There's not as many buyers for those type of businesses. There's not as much money readily available for those type of businesses.

Michelle, talk to us about before we get into the heart of all the mistakes and the right things to do. And that kind of stu stories tell us just a teensy bit more. How do you get into this business of M and A and that kind of thing?

Yep. So that's an interesting. You know, that's interesting because I didn't wake up one day and say, oh, my gosh, I'm gonna sell businesses. But as a little girl, I always knew I wanted to be an entrepreneur. I knew I wanted to own my own companies. I knew I didn't want to work for someone. And, you know, I wasn't your typical little girl. I didn't walk around with toys and play with dolls. I walked around with a notebook. Bill and I would walk up to strangers in the grocery store, the bank, and like, who are you? What do you do? How'd you get started? And so I've always been so curious and I've always, you know, been so curious. I love people. I love entrepreneurship. I love to, you know, find out how someone started a multi million dollar billion dollar business from a pickup truck or we're selling a multi million dollar company right now. The gentleman started from a pickup truck and has an 8th grade education. So I just love entrepreneurship. I love finding out how, you know, people have grown their business from the coffee tables, from the pickup trucks, et cetera. I did, I did get a job, which I told my mama I was not going to get a job. I told I would always be an entrepreneur. But Xerox recruited me. My nickname was the closer because every time they couldn't close a deal, they would say, bring Michelle and she'll close it. And then they promoted me within six months to regional vice president. So I was over 100, over 100 salespeople. And I learned very quickly, I don't want a job. I don't want to keep doing this, especially in corporate America because you can't get anything done. You know, I'm a solution oriented person. I like to solve problems. In corporate America. You have a meeting to schedule, follow up meetings. There's just so much red tape. So I ended up transitioning out of Xerox, started my own franchise sales, franchise consulting, franchise development company. I was partners with different franchisors, equity partners. And I had so many buyers that kept asking me for existing businesses and I kept saying, no, that's not what we do. And then all of a sudden I'm like, why am I saying no? I need to start an M and a firm. And that was a little over 20 years ago, over a thousand transactions ago. We don't just sell companies though. That's what. We're very different than everyone else. I've owned many different businesses in different verticals. I partner with business owners, investing my capital, micro competencies, my resources. We buy businesses and flip them. We fix businesses. We have a road to sell model because most businesses are not sellable. They don't have a sellable asset. And then we put businesses on that road to sell model. We sell businesses and we merge businesses. So we really specialize in buying, selling, fixing and growing.

You know, it's awesome. And we're going to get into that. We'll have you share some of the stories about some of the companies. And people love to hear stories, right? Yeah, but you said a, a nugget right there. So many businesses aren't actually saleable. And they are really just kind of a whole wraparound for a job for someone, right? Built themselves a structure to have a job.

That's so true, Bill. And that's what I always say is that most business owners have built themselves a glorified job and when they go to work it every day versus a business that works for them. And that's why so many businesses are not sellable. Like Steve Forbes says, 80% of businesses will not sell. I mean, that should be a huge wake up call for business owners because you have less than a 20% chance of success. And the number one reason for that is because business owners don't plan or exit. They don't think about selling until they wake up one, one day and say, oh, I need to sell my business because, you know, I'm going through a divorce. Well, by now it's kind of too late, you know, so you really need to build that sellable asset and you need to plan. Like Stephen Covey said, start with the end in mind, plan your exit from the beginning.

So let's talk about some of the example stories because you got with a thousand companies, I'm sure you have a thousand stories because I'm sure each one of them, it's got some characters and juice and people issues in it. But why don't we start with the graphic business?

Yeah. So this was a gentleman that called me a few several years ago and he was, I could tell he was distraught about his business, but he was still extremely passionate. And he said, look, it's my wife and I and we have one employee. We're working out of our home garage. We're working about 12 to 14 hours a day. We're probably about to kill each other. And you know, we mortgage our family home. And so he says, I can't continue, I need to sell because I can't continue, I can't grow the business. I don't have the business acumen. I've grown it as far as I possibly can. And then he says something to me to the effect of what we're really known for, our quality. We do zero advertising and we're so busy, we're turning down 6,000 clients a year. And I said, 6,000 clients? Ding, ding, ding. You know, you're turning down 6,000 clients. I mean, that's the opposite problem, right? So most client, most business owners have a problem getting enough clients through the door. So I started asking more questions. I said, listen, we're not going to put you on the market because Your business is not sellable. You don't have a business, you have a job. And you know today's your lucky day because if you would have got anybody else, they would have put you on the market and the business wouldn't have sold and you probably would end up working for somebody else. So I said, we're going to partner with you. So I ended up partnering with them. And I always talk about the infrastructure of a business, which is the six Ps, I said, you know, the six cylinders in your company, which is people, products, processes, proprietary patrons and profits. Out of those six Ps they were running on three. So they had no people because it was husband, wife and one employee. They had a great product in high demand. They had really very little to no processes. They didn't have hardly anything proprietary. They had patrons. I mean, in fact they had so many they were turning them down and they had great profits. So what I did was invest money. We took them out of the garage into a 5,500 6,000 square foot space, leased on new equipment, leased ass furniture, fixtures, equipment, the machinery that they needed and hired employees. So created a business versus a job. And I would tell you, the husband and wife, they said if they don't have the business acumen to grow this to the next level, that can't be far further from the truth. They come up with so many great ideas, you know, huge ideas. They're really inventors as well. And it's not that they didn't have the business acumen, it's that when you're in the middle of the fog, it's foggy. When you're in the middle of putting out fires and working on, on the transactional from day to day, it's hard to be transformational because when you're working in your business, it prevents you from working on your business. You can't really grow your company that way. Makes sense.

It makes a lot of sense. Right. That's why working with someone on getting your business ready for sale, working with a scaling coach, working with an M and a person who's going to give you some advice, going to help you, give you some outside perspective, Right. It's not that they are smarter than you or know your business, you know your business better than they do, but they are looking at it from a different perspective and seeing what's salable, what's not. That kind of thing. Yeah, right. That one sounds like that one did pretty well. You talked about a pretty good exit there for a husband and wife. That's A nice, that's a nice setup for a decent retirement for a lot of folks. Right, right. So talk about, you shared some manufacturing businesses with us. You said one in Lucy's notes for, for getting ready. You said BP contract. Is that British Petroleum or.

Yeah, that's Fresh Petroleum. Yep. So that's, that's an example, you know, when we through. Well, I'll give you another example before that because I kind of want to explain to your listeners, to your followers, kind of a step by step process. So the first step really in exit strategy is coming up with one, planning your exit.

So you really need imagining it. Yep.

You really need to do what I call. You really need to create your GPS exit model. And is it okay to go through that really quickly? Because I think that will help your listeners. So it's kind of like, Bill, when you want to drive somewhere, what do you do? You pull out your phone, you go to Google Maps, and what's the first thing you plug in.

Where you want to go?

Your destination. Right, your destination. What happens if you don't plug in a destination?

It just sits there. Right.

You don't go anywhere. Are you going around in circles? And that's what happens to business owners. Business owners don't plan to fail. They fail to plan. And business owners are driving around in circles, driving up and down the financial hills. So all business owners need to figure out their destination, your desired sales price, what you want to sell your business for. Yeah, that is number one. Then number two, what's the GPS exit model need to know? And it needs to know, where are you starting from? From what is your current location? In other words, what is your current evaluation? What is your business worth today? And that's one of the biggest mistakes that business owners make, Bill, is that they never get a business evaluation until they wake up one day and say, oh, you know, I was diagnosed with cancer, I need evaluation on my business. And the problem is, is there's always a disconnect and there's always a pricing gap because they feel like they need $20 million for the business and it's worth maybe a million, but the $20 million is based on what they feel they need to exit on, what they need to retire on. Right. It's not based upon value in their business. So that's why it's so important to plan a sexist strategy because you're not going to get what you think you need to retire on. You're going to get what the business is worth. And it's a huge difference in Most cases. So you need to know what your business is worth every year. Now most business owners know never get a business evaluation. That's financial suicide. I mean we go to the doctor once a year to get a physical checkup to make sure our heart's still ticking, we're still kicking, but we don't take our most valuable asset, which is our business, and get an annual business evaluation. So you need to get an annual valuation checkup because our events that increase valuation bill under events that decrease valuation. So every year you need to know what your business is worth. So let's say Your destination is $10 million. You want to sell it for $10 million. Let's say it's worth $2 million. Next step is timeframe. How soon do you want to do this? Let's say you want to do this in 10 years. Next step is, well, who are my buyers going to be? Now I say buyers because the likelihood of one buyer, I, I got clients that call me all the time and say, Michelle, already have the buyer. I just need you to represent me on that one buyer. And always say, no, not going to do it because I still have to come in, I still have to evaluate the business, I still have to look at your infrastructure, make sure you're operating all six cylinders. I still have to do an evaluation. And most businesses, their financials are disaster. So we have to go through the financials, we have to pick apart all the documents, we have to start the data room, we have to get due diligence items ready. And I can promise you that one buyer will fall apart. So you need buyers. Plus how can we ever maximize value and create a bidding war when we have a party of one? We need competition. So there's five types of buyer's bill. 90% of buyers are first time buyers. They buy small businesses like coffee shops, restaurants, dry cleaners. Turnaround specialists buy distressed assets. This is a gold mine for turnaround specialists right now because there's so many failing businesses due to this pandemic. And then the third type of buyer is private equity groups. They buy based on platforms and add ons. Let's say they want to get into to food manufacturing. They won't even consider a food manufacturer unless it has over $3 million in EBITDA. But let's say they're already in food manufacturing, they're looking at add ons under a million dollars in ebitda. Fourth type of buyer bill is strategics and competitors and they pay the highest multiple for synergies. And then you have the Fifth type.

Of buyer we focus on the most with our clients are the strategic. And we're thinking about brainstorming what kind of person if the sale is that kind of an exit that we're thinking about, that's probably the thing we think about the most. But it is one of several categories of possible buyers.

Right, but strategics usually will pay that. Yes, you're right. We'll pay the highest multiple. Because what are they doing? They're buying synergies like contracts, databases. They're buying talent pool. They're buying products that perhaps they don't have customer base, that they don't have patents, trademarks. They're buying these synergies to help catapult their current business to the next level. Plus, they're taking advantages of economy of scale so they can decrease overhead and increase ebitda. And many of them will look at the infrastructure that they can. That they can cut in the business that they're buying, which again, will decrease overhead and increase ebitda. So they really are the best type of buyers. Private equity groups and strategics, especially if the private equity group has the right management team and the right philosophy. The last type of buyer are storm chasers. These are serial entrepreneurs, and they're industry agnostic. They chase ebitda.

Yeah. So I was talking with a CEO last week, and he's like, well, I have two nearby competitors that I could sell to. I'm like, great, that's two. He said, and then I could probably add a third one from somebody else in my industry. I'm like, okay, that's three. But what if we added a whole bunch of those? And what if we also thought about some others who maybe wanted to get into your sector, who wanted to start something and figure out how to get six buyers going to town? That's a whole different conversation and different sense of urgency, different close due diligence process. Then if you're trying to talk to two.

Yeah. And while we can get 20, 25, 30, 50.

Really a different conversation.

Completely different conversation. That's when we create a bidding war.

Yeah. Yeah. Heats it up. So share some of the stories. I think that helps bring it to life. You've worked with a big range of companies and industries. In prep, you shared some manufacturing companies. Let's start with those.

So we. So we sold a manufacturing company. So they came to us and operated on all. They operated on five of the six P's. So they had. They had the right people in place. They had a management team. They had. Their product was kind of on the fence because it's in the energy sector and you know, that's a volatile industry. But they have processes in place, they have proprietary, they had several patents in place. What they didn't have was Patreon. They had customer diverse, the customer concentration instead of customer diversification. So they had 65, 70% of the revenue was tied up in BP. And so we appraised this business for $9.8 million for a hundred percent of the company. And we have 550 buyers.

Holy crap. That's a lot of buyers. That's a.

When we have 550 buyers though, Bill, we're not bringing all 550 buyers to the client. We're not doing that. We do the heavy lifting, we do all the screening, you know, we do all the qualifying. So, so we have 550 buyers that qualified, that looked at it. We narrowed it down to 12 letter of intent, which is still a lot, right? 12 letters of intent. But each letter of intent had clawback language, earnouts, seller financing, you know, seller finance is common, but you want to stay away from earnouts and things of that nature, if you can. And so all this type of language that was contingent.

There's often a component, but.

Yeah, right, but the buyer, but this was a significant component because the buyers wanted to mitigate their risk. Because if you lose VP, you lose 70% of the RE the revenues and even it drops down to basically nothing. So all buyers were looking to mitigate their risk. So I had two sellers and I, I was talking to them about this and they're both like, no, we're not doing that. We'll just keep the business. I'm like, okay, you're not going to get the business. I'm going to find you the right buyer. And it's like searching for a needle in a haystack when you're trying to find the right strategic buyer that doesn't care about customer concentration. So we did find the right buyer. We found a strategic that had very similar products and services, but different. And this company, this company had been trying to get into BP for years, for decades, and could never get their foot in the door. So they didn't care about customer concentration because what they looked at was, oh, this is a way for us to get our foot in the door. This is a way for us to get our products and services into BP and really catapult our business to the next level. So therefore they were willing to help at everybody else. They paid $15 million for 70% of the company, which is 129% more than what the business appraised for. They kept one owner on with 30% equity, salary, benefits, the whole package. So that's how we create bidding wars. And it's all about finding the right buyer. Because at the end of the day, Bill, you have a price in your head. I have a price at the end of the day, who determines value?

Yes. I think that's a critical piece, is what number are you willing to. What's your range? Right. There's the wish for number and there's the number that you'd smile for. And then there's a ridiculous number that is just a fantasy. And then there's like a. Yeah, now for that number. I'm just going to keep at this game for a while. Right. But really getting clear about that. And then if you have partners, spouses, that kind of thing, you want to be on the same page. Because we've seen quite a few times where spouses have two different ideas about what the exit number is.

The biggest issue is when you have a company, because we had a company that had 12 siblings and it all owned a piece of the company. It was such a nightmare. We couldn't get it. We ended up not selling it. We ended up walking away because we couldn't get anybody to agree. We're constantly spinning our wheels and we're always bickering with each other. And that's kind of the worst case scenario when you have so many partners involved that nobody can agree.

Yeah. I'm reminded of a company from some years ago, Family founded business, family run business. A lot of siblings and a couple generations in the business. They'd gone through acquisitions. They built up something kind of interesting. But they all went to war with each other then over what, who did what and what it was worth and that kind of thing. And they couldn't sell it. They. They essentially burned it down. Right. Not literally.

This is what happened to the other company. They ended up running it into the ground and ended up going out of business. Business. And so that's the thing. And you know, we really talk to business owners and especially if there's partners to, to really. Because look, it's all a mindset, right. And we really, you know, help them get comfortable with why they're exiting, what they're going to do next. We call this their beginning strategy. If we don't plan a beginning strategy, the seller's remorse will set in. They'll sabotage the deal. They'll end up not closing. And I've had many companies like that. That we've had to sit down and say, look, we're going to take this business off the market until you determine what you want to do next. You know, and so there's a whole mindset process that goes along with selling your company and getting business owners comfortable with this, with the transition.

You mentioned one. I think that comes to mind immediately right now as you're talking about what do you really want? And I think you were working with a couple who were, when they really asked the question, wanted a bed and breakfast. Is that right?

Yeah. They own a manufacturing company with husband and wife. Here we go again. With husband and wife. They just couldn't agree on anything. And we had. We did the evaluation. We had a range. We had an engagement agreement. I bought them three, Lois, three. And each one of them met their price and terms requirements as outlined in our engagement agreement. But they would nitpick each one and find something they didn't like about the buyer. You know, not so much about the offer, but about the buyer. And I said, listen, after the third one, I said, I'm done, you guys, I'm done. Until you figure out your beginning strategy. Because I'm gonna. I'm going to keep bringing you offers, and you're gonna keep turning them down because you don't know what you're going to do next. It's kind of like empty nester syndrome. When you're. When your kids leave the home, there was it. What's the husband and wife do? They look at each other and go down, what? And it's kind of like when you.

Start your business, why are you still here?

You look at each other going that way. And so you really have to get comfortable with planning that beginning strategy. So I said, I'm taking off the market till you figure it out. So they came back to me and I said, okay, okay, okay. It was a month and a half later, and I said, we figured it out. We've always. They were high school sweethearts, and they used to travel. Their two families used to travel with each other and stay at all these different bed and breakfasts. So they were very passionate about bed and breakfasts as, you know, young love. And they always said that they were gonna. They were going to own a bed and breakfast one day. But guess what happens? Life happens, right? You have kids, you get married, you have kids, you start a business. You get crazy busy with life. You forget things that you were once passionate about. And so they came back to me and said, that's what we're passionate about we're going to take the proceeds of the cell, we're going to go store or buy a bed and breakfast. And I said, great, let's put it back in the market. Bought them another letter of intent. They signed off on it and they.

Closed clear about your future. That sounds horrifying to me to own a business where I have to see my customers every day and they come to my house. That sounds terrible.

Yeah, I know, but that's what they like, do, you know?

Yeah, yeah, yeah.

And that's what we have. I've noticed that, you know, even on the larger companies, we have a company, you know, that they're doing about $240 million in gross revenues and about 20 million EBITDA. And they're like, well, we don't know what we would do next. And I'm like, why don't you just enjoy the rest of your life? And they're like, no, we don't want to do that. So we really have to work with our clients.

People's whole identity, their thing gets wrapped up in your family for sure. And then also in your business, you're like, well, what am I going to do with my time? People have asked me, you know, why haven't you retired? I'm like, yeah, because I like the work, right? I have. I like, work harder, differently than I ever did before because it's mostly about me and, and, well, our clients. But it's my work with our clients, right? Is. Is what it's about. And it's a different kind of. It's like a retirement job, but it is a for real job.

But you'd have a hard time selling it because it's. You.

No, you couldn't sell it, right? Like, I'm a consulting. It's like a private practice or whatever.

You can sell a consult. Consulting businesses, we have other consultants underneath you, and it's not named after you.

Or you have some particular ip, right? You have like. It's not so much you. It's this framework that they use that you bought their software, your app, that kind of thing. Talk about service businesses. We didn't share much of that, but I imagine you've got more than a couple stories on that side.

Service businesses can be very difficult. Difficult, some of them impossible, you know, and. And that's why we really try to work with service businesses to build a business, not a job. We had a dentist that came to us, and this has been in business 50 years. One dentist, three dental hygienists. The dental hygienist just happened to be his daughters. So he's like, can you sell my business? I said, yes, I can sell your business because I'm that good. The problem is.

Really being shy and lacking confidence.

The problem is trying to maximize value. I'm transparent. So I said, yes, I can sell your business, but I'm not going to be able to maximize value because you and your daughters are the business. And the purchase price is going to be contingent upon you and your daughter staying on. He goes, well, honey, we're not staying. I said, well, honey, you're not selling. And so that's the problem with service businesses. You know, chiropractors, doctors, plumbers, electricians, you know, real estate brokers, they don't want to have any agents, hairdressers, etc. It's very, very, very difficult. I mean, doctors and chiropractors really have a difficult time, you know, and we sell a lot of medical practices. But you got to have a business, you have to have other chiropractors, you have to have other doctors, you have to have other dentists. Same thing with lawyer, attorney practices. So and so does business. Says you have to build that job.

For the listeners and viewers. Think about that for a second. We've all had a favorite restaurant where the ownership change, new chef came in, and it wasn't the same faces. I used to have a lunch place that I went to all the time, and it changed owners. And I'm like, yeah, I don't care anymore. The look and feel was largely the same. The menu was mostly the same, but the presence of the owner was so dominant, it changed. Dentist I went to for years changed up. My hygienist changed. You know, that's the main person that you interact with as well as the overall practice ownership. They started doing some new things. They might have been nice things, but I'm like, I need a new one. This is not my people. Right?

Because people don't like change. And see, you're. You're a client, you're a patron that goes there all the time. And you're used to certain things a certain way. And a lot of patrons don't like change.

But think about some of the other things. So we've known folks who sold their business, so they got their service business right. Well, I've known medical dental practices that have sold just fine because they set up and established that like the hygienist or the other, the main office staff, except for the key doctor. And then the key doctor pulled out of more and more of the Day to day, they brought in other people, they set up all that stuff. So they were more of a business owner than the business. Right. The business built around them and then it wasn't so hard to sell. And I've seen quite a few who do that. Right, because you've got an office and you've got equipment and you've got support stuff and you have some customers. But that customer base is maybe not as solid as you think. If you go away.

Well, that's the problem with this dentist. Once they leave, once he leaves, once his daughters leave, the patients leave, why would they stay? You know, and so that's the thing that we talk about in the infrastructure of the six pieces. Making sure you build those people. You know, you don't build a business, you don't build and grow a business, you build people and grow the business. So you got to have the right people in the right seats. You gotta ask the who question, who opens the door? And there's customer service, marketing, legal, etc, especially in these service type businesses. Because if it's you, you don't have sellable business or you might have a sellable business, but it's going to be contingent upon you staying on for several years to come.

The biggest category that we work today, easily saleable again and again, are the SaaS service businesses that we work with. The tech sector service businesses where it's really well established. It's less about the people, individuals, the people are behind the scenes. If you experience anything, it's not about individuals, it's about an overall culture, about a way of working with the company. And that's really different than that high touch, you know, local service kind of business, restaurant, etc. Medical practice, that kind of thing. Yeah, well, so let's recap 6Ps before we run out of time with people. So they get that and just cover those a little bit. Walk us through those real quick. Give us the so people obvious right on the surface. But talk about it from the perspective of the sale.

So people's number one, I mean buyers are not buying jobs. So if you don't have a business with people, a team and a business, the business cannot be. The business cannot be dependent upon the owner. If you have a business depend upon the owner, it can be sellable, but we're not going to maximize value. And you will stay on for two to three years. So you got to have the right people. But here's deal two, Bill. A lot of times we have the right people, but we don't have them in the Right seats. So we got to make sure that we align the right people with the right seats. And then products is huge. Product is your product, your service, your industry. I don't know if you know this, but when I wrote my very first book, sell your business for more than it's worth in 2013, I did the research and realized that 90% of all startups would fail within the first one to five years. When I did a research for Exit Rich, yeah, I was flabbergasted to learn that startups are not at great risk anymore. The landscape has actually flip flopped. Now it's existing businesses are at great risk. So out of 27.6 million companies, those businesses have been in business for 10 years or longer. 70% of them are going out of business. 70. You hear about the big media product companies all the time, public companies all the time in the media like Toys R us, Kmart, Steinmark, Pier 1. But all the small private business owners are exiting poor, selling for pennies on a dollar, closing their business, even worse, falling bankruptcy. And that's because of lack of aim. AIM is always innovate and market. Business owners stop innovating, they stop marketing. Look at Blockbuster. They had the opportunity to buy Netflix twice and they did nothing. So product that your product, you service, your industry is on the way up, is on the way out. If it's thriving and you have an Amazon, that's when you sell. So many business owners, hold on, hold on, hold on. And then the business goes down and it's too late. They're not sellable. So that's your product and then you have processes. Processes are huge. You're never going to build a sustainable business that's scalable and sellable without processes. But most business owners get this wrong. You have to create your processes with the customer experience in mind, not build your processes around your own agenda.

Right.

You know, so many business owners, especially.

Doctors, we've covered this in the past as well. Innovate or die.

Innovate or die. Grow or die.

Right. Like you've gotta, you've gotta be growing or you're dying. You can't, there's only coasting downhill. Right?

Right, Absolutely. And then proprietary is, is the fourth p. It is the highest value driver just to give you a quick crash course on valuations. Businesses other all industries other than SAS that you mentioned earlier, will typically try. So businesses under a million dollars in EBITDA other than SAS will, will typically trade for a multiple of one to three, three and a half depending upon the synergies of proprietary assets. Businesses over a million dollars in EBITDA typically start at 5 and go up again depending upon these proprietary assets. There are six pillars to proprietary. I'll go through them quickly. Number one is branding. The more well branded you are, the more I can sell your company for. As long as your brand is relevant in the mind of the consumer. Nobody's paying any money for Blockbuster. The most valuable brand in the world is.

Do you know, is it still Apple?

It is still Apple. $359 billion just for the brand. Trademarks are huge. But the biggest mistake business owners make is they don't. They. They go to GoDaddy and they're like, yes, I got this company name. And then they go to the state, they get a state trademark and never check the federal database. So you must trademark your company name, your slogan, your logo, your podcast, and get a federal trademark. Also, patents are big. Oh, one thing I want to mention too. Trademark your products. Get a federal trademark on your products. We're selling a company's got 12 different products, all have a federal trademark. All have exclusivity to different retail chains. One's in Walmart, one's in Target. Get a federal trademark on those products. Patents are huge. If you've ever watched Shark Tank, you know that we sold a business for $18 million. It wasn't making much money, but they had 18 patents. Contracts are huge. Manufacturing, distribution, franchisors, client contracts with subscription models recovering revenue are really big. But here's a caveat to contracts. All business owners make this mistake. I've never seen a business owner get this right. You need the two sentence clause that says this trans. This contract is transferable upon the new entity because 98% sales are asset sales. If the buyer doesn't agree to a stock sale or your clients don't agree to consent to transfer, you're in big trouble. We're selling marketing companies got 2,000 clients on a subscription model.

That's a gold nugget right there. Because you write a contract for your business, you think then about your recurring revenue and the contract value. But you're often not selling the company, but you're selling specific assets. And that contract may not transfer to a new business.

Absolutely. So you got to be proactive and get that transferability class because are you really going to go to 2000 clients and ask them to sign consistent transfer? No, no.

Don't want them to think about it.

You don't want if your deal. Yeah, that's right. What happens if your deal falls apart? Bill now everybody knows you're selling your company, you know, so you got to get that. The other thing, too, I wanted to tell your listeners is make sure on your ip, your trademarks, your patents, make sure that you put it in a separate corporation. Do not commingle your assets. All right, and then databases. Yeah, yeah, you can. You can lose a lot of money, Bill. If you have a great database and that database, you know, has been nurtured and they continue to buy and you have a lot of data on them, you can sell it for a lot of money. Facebook paid $19 billion for WhatsApp. And WhatsApp was hemorrhaging, but they had a billion users. They had a synergy. The other big thing are celebrity endorsements. We have a client that's got products in front of Oprah. Strategics will pay a lot of money for that because everybody wants to get their products in front of the queen of everything, celebrity endorsements, radio personalities, they can only endorse one vertical at a time. So if you own that digital real estate with celebrity radio host and you have the prime spots, nobody can bump you from that. Also, any of my E commerce businesses. Positions on, you know, the top three positions on Wayfair, Amazon, Etsy. For your specific. If you do coffee pots, whatever you make, you know, this is huge. Content is also huge. But a big mistake is if you're hiring 1099s. You got interns, you go to E5 Fiverr, Odesk, Elance, have them sign a disclaimer saying that you own the content. I've seen lots of lawsuits where they come back and say, no, no, I own that content. You have to pay me for it. Okay, so make sure you get that disclaimer. And I could go on and on and on about proprietary assets, but this is the highest value driver. And then the fifth P is patrons. This is your customer base. You know, 80. Most clients follow 8020 rule where 80% of the revenue comes from 20% of their clients. You got customer concentration. Like my. The case of my oil manufacturing company. You need to have customer diversification. We sold immediate. We were trying to sell media company have five clients. They lost two of the five. They. They cater to casinos. So you need that customer diversification. And then the last P is profits. We're all in business to make money, but lack of profits is never the problem. Lack of profits is the symptom of not operating on one of the other five. P.S. i have clients that come to me all the time and say, michelle, I have a profit problem. I'm like, no, you have a process problem now. You have a people problem. Lack of profits is not the problem.

It's a symptom of the profitability is a lot easier to solve if you've got customers, if you've got action, if you've got stuff happening, if you've got some regular consistent money moving through the business. We can tweak the profits, we can find it, we can turn it up.

Well, there's so many reasons companies don't make money, right? They don't make money because you don't have people in place and the owners doing everything well. You're really never going to be extremely profitable when you're stuck in the business, not growing the business and wearing the hats of everyone. You're not going to be very profitable if you're in a dying industry. You haven't figured out how to pivot. You're not going to be very profitable if you don't have processes designed with the customer experience in mind because you're going to lose market share as they're not productive and efficient and well ran. You're not going to be very profitable if you have customer concentration, lose a customer or if you're finding losses because of trademark infringement.

Right.

And embezzlement.

That's, that's a whole bunch of stuff, right? And put all that kind of stuff and more into the show. Notes. The book is Exit rich book. Exit richbook.com is your link to go to something else.

Yeah, I was just going to say exit richbook.com because that's where all the golden nuggets are. We will $24.79 will ship the hardcover to your doorstat and we'll email you to digital download. And guess what? Bill will give you a lifetime membership in the Ex Rich Book Club. Or there's video content and we're doing deep dives in these different strategies and techniques. Also documents, Bill documents to operate your company, documents to sell your company. So we have sample org charts, policy and procedure manual, sample letter of intents, due diligence, checklist, purchase agreements, closing docs, all of those are there for your review and download. And you know, if you've ever hired an attorney that will cost you thousands upon thousands of dollars to recreate. And we'll also give you a 30 day free membership into club CEOs. So go to xitrichbook.com so much good.

Gold and you hear that for our regular listeners, viewers, all that is pretty consistent and compatible with all that we talk about in Scaling up with our Scaling up clients, both private clients and our larger community of scale ups. So real gold. Great examples. Meaty Obviously you're a person with expertise, background and some passion and some presence around the whole topic of getting your business selling and maximizing the value. If you want more about Scaling up, you'll go to scalingcoach.com if you want to send us a note. If you want to find coaches or that kind of thing in your area, infoscalingcoach.com is the email address. So either the website or the email either one works for us. Big thanks to Lucy Summers working getting our show produced each week in and week out to the folks at Podfly Productions, Alby Burge, ayn Koudina, Tim McGowan who get our show ready and out the door every week. And to Vern Harnish, author and creator of the original Scaling up framework. Thanks again everyone for listening. Keep Scaling Up. We'll talk to you again next time. Bye bye. Now.

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