The Art of Selling your Business with John Warrillow

Foreign. There we go. We're live once again, live and direct. Welcome again to the Scaling Up Business podcast. We're talking today about how to sell your company and how to do a great job with that with a fantastic author. So if you've ever thought about wanting to sell your company, be ready for it, or you're trying to do it right now, or even if you're trying to raise money for your company or all of this will benefit that. Our guest today is John Warrilow, who's done so much about this, Built to sell, right, the automatic customer and now the art of selling your business. So we're going to talk with John Warlow in a minute who joins us from Toronto today. So, so much to say about this. Before we get into it, I want to remind everyone about the importance I think really relates to the book, even the importance of setting up your business to run without you. And that's never been more challenging than ever before. If you've got people coming to you to ask you questions over and over again and you wish there was some place, some way to answer all their questions in one place, Suite Process is that place. Suite Process is a software platform that enables companies to centralize all of the procedures, process policies so you can start to transfer over the running of the company. It makes the management of the business easier, helps enable managers to not answer every question. Get your ground level employees collaborating together. Not only can you teach them and transfer it to them, but they can learn how to and they can improve these things together. So leaning them Process improvement over time is enabled with Suite Process it becomes that one source of truth, a place where everybody can go regardless of their role in the team, the department, the company. Find out how to do things, what's the right way to do things and if it's wrong to help to fix it once so we don't keep making the same mistakes that ever over and over again. Suite Process makes it easy to train new and existing employees because it gives them everything they need to do based on that. So you can transfer, you can bring people on board and of course now with everybody so many working remotely, it's never been more important to do that. Suite Process is a regular offer. We've bumped it up for our listeners here using our dedicated startup link. You'll get twice the normal thing. You'll get a 28 day free trial offer. No need to enter a credit card or anything like that to get started. Suiteprocess.com Scaling up. Sign up now. No credit card required It's a dedicated link giving that special double trial time so you can really get a chance to play with it@suite process.com Scaling up link will be in the crawl and in the notes and that kind of thing. Hi, everyone. I'm Bill Gallagher, host of the show, one of the senior coaches in the world of scaling up. And this show is all about how to scale and grow your business, no matter what the economy is doing, what part of the world, what industry you're in. And we have now 250 episodes on every subject with folks like John Warlow, with folks like Tom Peters, with On and On. We've had so many great guests on here talking about all the things that are relevant not only to scaling your business, but also the kind of leadership required to get that. So find all those that back catalog and more@scalingcoach.com listening now as we talk to John Warlow about his latest book and the art of selling your business. Welcome to the show, John.

Hey, thanks, Bill. Good to be with you.

All right. It's a whole long thing. We have to get some business out of the way before we. So you're in Toronto now deal dealing with the next stage of the pandemic in your corner of the world, as.

We all are, for sure. Yeah, yeah, it's, it's a, it's a brand new year that I'm optimistic about. Give me the jab. As soon as they get it, I'm. I'm in. I'm lining up first in line as soon as I'm told.

Right. I got goosebumps when I started seeing people do that. But, but I really got moved watching my sister giving people the jab and getting vaccinated herself. And now my mom, my sister, her, her in laws. Who else has been vaccinated? Oh, one of my foreign mates has been like, it's just great to see people like, oh, I can feel it. Give me.

Talking about scaling up. We got to scale up the vaccination. This is perfect. You guys should hire you to, you know, the government should hire you to do the, the roll up.

Now you have two kids still at home now, right?

We do, yeah.

My kids are out in the world. They, they come back every now and then and we make them stay outside and we have a guest house behind the house and they'll stay back there and in the yard. Like we're like, we're like animals, Bill.

Like animals, yes.

Out there with you. Visit with them from a distance. So folks should know John grew and sold four businesses of his own before he wrote the first book Built to Sell. And the focus of that book was really about getting out of the business. We talk a lot about with our leaders about that. In particular our execution habits, getting the team right so that you're not so central to the ongoing running of the business anymore. I did that back in 2010 with our last business and it really like dramatically changed me forever being able to get out of the day to day operation of the business. The next book is so great for building the value of the thing over time. The Value Builder system is a. Is really mostly about recurring revenue. Right.

Yeah. That book's actually called the Automatic Customer. You know, that's okay. It's all about recurring revenue and yeah, the sort of juice that. That makes your business really accelerates the value of your business. Sometimes. You know, we talk about multiples of EBITDA when it comes to selling a company. Oftentimes businesses based exclusively on recurring revenue are trading at multiples of revenue. So it's just, it's a total game changer. If you're able create recurring revenue, no matter what industry you're in, it'll have a positive impact on your value.

Yeah, really, really great. So that's the automatic customer and is about enhancing the value and getting to where you're not like making a new sale every time. Like there's some, there's some repetition there and you can sleep a little bit easier. That's the difference really. And it's not exclusive to service based businesses. It can be applied to. There's ways of doing it. And if you've got an inventory product based business and then we come to the other one.

Yeah, no, I was just going to interrupt because I think that's such an important point that you hit on this idea of that it can apply to virtually any industry. I wrote about a company called H. Bloom. Do you know those guys at all? Yeah, yeah. So they do flowers on subscription. You have flowers. Basically they work with hotels and restaurants that want to have like a very fancy image and they sell them flowers on subscription. Typical flower store in America throws out more than half of its inventory every single year because they guess wrong. They just, they just guess wrong how many flowers they're going to need to fulfill the orders they have. Whereas H. Bloom, they throw at less than 2% of their inventory because they only buy the number of flowers they need to fulfill the subscriptions they have. And that's way beyond just the value of your company. That is a game changer for a lot of companies being able to predict months, years into the future, how much inventory, how many trucks you're going to need on the road, how many guys you're going to need in those trucks. The more predictable your business, it's just a game changer for a lot of what you talk about and scaling up.

Maximizing your turns, keeping all that inventory productive rather than having your business tight. You know, I spent most of my career with in service industries, technology and tech related services and then a little bit in media broadcasting. And, and I, when I first went into a profit business, and I remember so well, we're like, okay, we just posted a big profit and we had a huge. I'm like, where's my cash? To me, oh, your cash is right over there in the warehouse. All you have to do if you want to have some cash is sell that stuff that you bought.

Yeah, right, right, yeah, yeah.

So that brings us to this last one. The, the, the art of the. The art of selling the business. Right. And that's what we're talking about today. How do you get to doing a great job with it? I know we have some concrete steps and then there's the whole art side of it. So before we get into that, tell us a little bit about the story of how you became an entrepreneur. What turned you into author, guru? Like talk to us a little bit about the background before we go then into this book.

Yeah, I've been involved in a few businesses you referenced starting and selling. And I learned a lot from the process. I tried to codify that in this book, Built to Sell, which created an opportunity for me to talk to lots of entrepreneurs. I did a podcast where we try to get into the nuts and bolts of selling a company. And so I interviewed a different entrepreneur every day. Lots of scaling up clients about their exit. And I try to get a sense of what they did right and what they did wrong. And what I learned was that there's this small cohort of folks who go through an exit that seem to punch well above their weight. They're getting multiples that are way outside the expectation in their industry. And so I sat down to try to figure out like, what are they doing differently than the rank and file business owner who goes and sells their business for an average multiple. And what I realized was there was some things they do. There's a dance that they play which involves romancing the acquirer and essentially ginning up the value of their company to a point where it can be much, much more valuable than a business that looks Very similar in a similar industry. So that's what kind of got me onto this idea of writing the art of selling.

Yeah, it's really great. I think there's that whole. So you, the first, you're getting yourself out of the business. I mean, you can't sell it pretty very easily if you're really central to the way the whole DNA and the way the business operates day in and day out. You've got to transfer the DNA and then there's enhancing the value, getting some of it more predictable, recurring, which you talk about. The second book, this last one is getting to that. And there are some key steps to this process, things to plan about how to move through it and then like how to manage it over time. So. And why don't you share some stories that have gone into the book, especially what to do at the beginning when we're just thinking about selling the business.

Yeah, I mean, let me start with a softer one. We can talk all day long about some of the really hard negotiation tactics, tricks, strategies. Let me give you a softer one. It comes from a guy named Shawn Oshman. Sean built a little IT services business based in Denver, Colorado. Great little business, few million dollars in revenue. Decides that by the age of 40, he wants to live on a sailboat. That's sort of his dream. He wants to cash in his chips and live on a sailboat. He gets to the age of 39, he takes the business to a broker and says, look, you know, get me the best you can get. I gotta get on my sailboat. Broker goes away, says, sure, no problem. Comes back with an offer between 2 and 3 times SDE. SDE is broker lingo for sellers, discretionary earnings. It's an expression of your profit. And Oshman goes, okay, great. Where do I sign? Signs the deal, Sells his company for two to three times, SDE buys the sailboat. And the last time I caught up with Sean, I interviewed him for the book and the podcast, he was happy as a clam. Now you and I can listen to that and say two to three times sde. That's not a lot of money. I mean that, I mean that's not exactly punching above your weight, you know, like that's sort of ho hum money. What it misses is the central point. What's that?

He bought a small boat.

Yeah, he bought a small boat. But what it misses is essential point. And that is that for you to have a successful, happy exit that you look back on without regret. It's all about the pull factors. Push factors are the Things that frustrate you, right? Pandemic, government red tape, employees, you know, cash, all this stuff that we talked about, those are, those are push factors. They're pushing you out, making you want to sell. The happiest sellers, though, are all pull factors. They're all what they want to do next. Watch a podcast, in your case, write a book, you know, start a philanthropy or philanthropic initiative. Start another business when you've got a pull that's going to make sure you don't live to regret your sale. So again, I know that's sort of a squishy Kumbaya sort of idea, but I think it's critical as a first step to making sure that whatever happens in negotiation, you don't live to regret it.

It. So I hear in that two things. The first thing I hear is you're going to something rather than away from something, right? The distressed sellers, like I just can't deal anymore. Get me out is not in nearly the same position as somebody who's has a destination, a next thing in mind, the next business, the next stage of life, whatever it is. I'm going to go live on a boat. So I hear that. I also heard implied in that is what is your definition of a win? If you're just getting to nothing like being unburdened, that's a lighter sort of a win than this other one. And also it implies what number you're going to be happy with, forgetting what the business could earn or what you might get for it or not. Or like that. If I have a picture in mind of a boat or a next venture or whatever it is, that that creates a very specific kind of number that I'm going to be happy with or not.

It does. We call it the Freedom Point, by the way, there's a number by which selling your company will generate enough cash to live comfortably for the rest of your life. And if you're wondering how to figure out the Freedom Point, you effectively take whatever amount of income you need that would allow you to live the life of your dreams. Living on a sailboat, whatever it is that you want to do, multiply it by 33, which is a implied, a 3% withdrawal rate and you have the nest egg you need to create. And it reminds me of the story named Rob of a guy interviewed named Rob Walling. If you had Rob on the show, he had a company. It was an email marketing company. Yeah, you should. Well, he's a great, He's a great entrepreneur, youngish guy, builds this company up to $2 million of revenue probably wouldn't even shown up on a scaling up list because the company is so small. But he was building it with a beautiful, beautiful business model. IT was a SaaS based business, software as a service business he had, all of which was recurring software revenue. And he had virtually no churn. So he reaches the point of $2 million of ARR Dozen employees where he realizes because of the multiples being paid for SaaS companies, he can probably get between 9 and 14 times revenue for this company. Not earnings, but revenue.

And so revenue is like a whole game changer.

It's a total total. Like it's a life altering moment. And so what Rob says is he goes 2 times 9 and he realizes he's past the freedom point. Like well past the freedom point, right? Where and even though he's a young guy and could go on to build a very, very large business, he chooses to sell drip to lead because he passed the freedom Point. And for a lot of people listening, it's worth, I think just pulling up at some point, pour a glass of scotch and say am I taking a risk I am happy to take. And the risk of course is that once you pass the freedom point, once the sale of your business would accumulate enough money to live the life of your dreams effectively, you are like a blackjack player playing poker at the table or playing cards at the table in Vegas with all your chip on the table, right? Because a large business where the owner it's the majority of their net worth, they're risking that carefree, happy freedom retirement, so to speak, every day they continue to hold a consolidated position in their company. I'm not suggesting that you should sell your business at that moment, but I am saying that it's worth considering if that's a trade off you're willing to make, if the next zero on your top line revenue is worth it to you in order to is it worth risking that in the way of freedom? And again, I don't have the right answer for that, but I do think it's worth asking the question, yeah, 100%.

That the understanding your number and what you'll be comfort with I think is really useful taking it out of the abstract. So if you try to think of whatever X million some people really can play that game, I think the vast majority of us, you want to translate it to some particular lifestyle or picture like I want to live at this level forever or this is not enough. Because the truth is as soon as you get that money, then you, you may be tempted to start Another business. Invest in things because you think you're a genius. Buy a bigger boat, buy an airplane, buy extra houses, all kinds of things that can sink you and move through that money really fast. We have other shows on that, by the way.

Go back to the library.

Yeah. Listen to our show with Mike Michalowicz about how he thought he was a genius and then threw all his money in the next venture and lost it promptly. But.

Yeah. Well, I think there is a central driving theme among entrepreneurs is. And that would be the desire for freedom, the desire to call your own shots, decide what you want to do, work with whom you want, decide what time you want to wake up. And I think that is the ultimate in for a lot of entrepreneurs. And so the promise of entrepreneurship is freedom. But unfortunately, the reality is something far from it. In many cases, it becomes an albatross. A company becomes just as hard as it would be for working for somebody else. Yeah. So look, I think it's worth asking yourself, if I can get freedom, the freedom that will make me feel like I don't have to work. I'm still going to want to work, but I don't have to work. That's something that's. That should be taken seriously. And once you reach that, that first rung on Maslow's hierarchy of needs where you're not worried about the money to put food on the table or pay rent, it's a. It's a delicious, very liberating feeling.

Yeah. So we have now the thinking that goes into why we want to sell and what our comfort level, what the range of our number is, what's going to leave us happy. Right. Anything else to consider at this point before we start the process?

No, I mean, I think at this point you want to get on your front foot and start a very systematic way of selling. And, you know, the biggest mistake I think we often make is get lured into a proprietary deal. And this is happening a ton in your space where you've got big growing companies that are really dominant players in their industry. They are getting offers all the time. Offers from private equity groups, offers from individual investors. And the problem with sort of engaging in those discussions is you often get lured into what's called a proprietary deal. And a proprietary deal is where the acquirer comes to learn that they're the only acquisition person at the table. And it happens very naturally. Right. They'll put you their arm around you figuratively, and they'll say, wow, you built this amazing business. Look at how much you've grown. It's just incredible what you've achieved. Would you ever. Would you ever feel like we should maybe form a partnership? Oh, the P word. It's a very innocuous word. It's like, yeah, sure, partnership sounds good. But over time, the partnership accelerates to like, would you ever, would you ever consider an acquisition? And then you're like, well, I thought, you know, that. Sure, that would be great. What do you have? And the conversation goes. And it all sounds wonderful. Very natural, very smooth. The problem is the acquirer is luring you in, one step at a time into a prop deal. Why are prop deals a problem? Number one, they are most susceptible to retrading. Retrading is when you agree to a letter of intent. And then throughout the diligence process, the acquirer lowers the value that they're willing to pay for you for no other reason. In many cases, because they know they can, because they know they've got a prop deal. The second problem with a prop deal is that over time, as you reach that final conclusion of the process, it gets extended, extended, extended, extended. Because again, they know there's no one else at the table. And I write about a story in the book where the guy finally threw up his arms and said, I can't take this any longer. You can't protract my due diligence for another day longer. And the deal blew apart. It was a multi tens of millions of dollars deal because he wasn't running a structured process. He was on his back foot reacting to a prop deal.

I think the thing that I hear in that, that I hear and see in. We can relate this not just to selling a business, but selling anything. You got only one buyer. You've got only like, it's just an unbalanced relationship, right? You've got somebody dangling something in front of you, luring you, getting you done. And then they can push you down over time, find lots of reasons to dilute the original offer, pull things back, throw something down the road rather than up front. Like that whole thing, the power dynamics changed totally. You're not. You have to sell your company at that point. And there are, there's only one buyer that you're. So you're talking here about getting good at like building marketing for this, thinking about a whole bunch of potential buyers and getting a lot of people to look at your company at one time.

You're absolutely right. And most entrepreneurs are enamored with, fall in love with the idea of selling to a strategic acquirer. It's the sexiest. I mean, like getting acquired by Google or Nike or Tesla. I mean like that's sexy stuff right now the only challenge with getting so far enamored with or locked in on the idea of selling to a strategic is that you never know what's happening in the life of the strategic. Right. If you're narrowing your window of potential acquirers down so small that the potential that they're just not prepared to make an acquisition at that day or time goes up and therefore you can be left at the dance. What I would encourage you to do in particular scaling up clients who are again generally fast growth successful businesses, is consider private equity. Now private equity is like on a drunken frat night right now. It is crazy how much money is flooding into the private equity coffers because private equities are. Private equity groups are fueled by cheap debt and right now debt is virtually free. And as a result, there is an entire army of newly funded private equity groups looking to buy businesses in the mid market. And private equity groups are a little bit like frat boys. They are very much. What's that?

I said a little like.

No, they're very much in many cases like followers. They all have the same investment strategy, right? They're looking for mid sized companies with at least a million dollars of EBITDA management team that's willing to stay on protected niche, big moat around it, blah blah, blah. And if you look at the investment criteria of one private equity group, I can show you, you can basically swap out the name of the private equity group. There'll be 10 more just like you. And so the good news is if you're attractive and receive an offer from a private equity group, guess what? There's probably another 10 private equity groups that will be just as attractive into your business. And so while you may not want to sell to a private equity group, you certainly can use them as a pawn, as a disposable pawn to get you the offer that you want from a strategic. Again, leverage in this deal comes from having multiple bidders. And if you're attractive to one private equity group, you can get 10 more just like that them. And so what you're really trying to do is get multiple offers and that's when you've got a little bit of leverage to play with.

Now no harm in having a strategic in a group of private equity or even a couple of strategics, right?

Absolutely. I mean I would never. Yet strategics oftentimes will pay the most for your company. I'll give you an example. Have you ever had Stephanie Breedlove on the show. Do you know Stephanie?

Yeah.

So Stephanie starts a company called Breedlove and Associates. They do payroll for parents who have nannies to pay. She builds the company up $9 million in revenue. Yeah, about 10,000 customers. So she goes out and says, okay, I'm ready to sell. I got $9 million in revenue. Where do I find a buyer? She goes to care.comcare.com is like the Angie's list of care providers. You plug in your zip code and they'll tell you about babysitters in your local market. All five star rated from parents who've hired them. Well, care.com has got 7 million subscribers. All people who have to pay their nannies. Breedlove says, let me think about this for a second. You've got 7 million subscribers. If 1% of your 7 million subscribers buy my payroll service, that's 70,000 customers. I built a $9 million $9 million business on the back of 10,000 customers. So overnight 1% of your customers buy. That's a business seven times the size of my business. If 2%, what about 5%, 10%? Long story short, Stephanie Breedlove sold her $9 million payroll company to care.com for $54 million. It's a mind boggling number that would make no sense whatsoever on a valuation sheet. Like no one's going to place a $54 million valuation on a $9 million company. But Breedlove looked at a strategic identified care.com and made the strategic case of what was in it for them.

Yeah, well, that's the key to that. And with some of the companies we work with, there are multiple potential strategic buyers for some of our tech companies in particular, some others as well, where there's more than one that could be included and you could get in some sort of like roll up or category specific type private equity companies that are doing some interesting combo things, not just like the cookie cutter.

Yeah, for sure. So yeah, private equity companies are rolling up lots of different industries. If you're a, you know, value added reseller right now, there's lots of folks that are, that are making those acquisitions. It's a fairly common model. The challenge again with a private equity offer is usually that they won't buy. I'm sure you've seen this in your own work, Bill. They don't buy 100% of your company. Most cases they'll 60%, 70% and they'll make you roll the rest of the equity into a new entity and then you become the minority shareholder in a business. You don't control. Now, how do private equity companies make this magic happen? They use a lot of debt, right? They borrow a lot of money to buy your business and fund its growth. The challenge, however, is that when you roll a little bit of your equity, as much as 30 or 40% into a new entity, that new entity has to pay back that debt.

Debt.

And the more debt that private equity company takes on, the harder that is to pay off. I just did a podcast recently with a guy who rolled 40% of his equity into a new entity. It was a $20 million acquisition. So he rolled roughly 8 million bucks worth of his value into the new entity. It was about six months later that the management team of the new entity started to make huge strategic errors. About a year later, the new entity went bankrupt and he lost everything. The 40% of his equity that he rolled went away. Now, that happens when you do, you become basically a minority shareholder in a company you don't control. So one of the questions I would be asking if I were thinking of selling to a private equity group is how much leverage that you've got on your fund or that you're putting into this deal. And if you're looking at big leverage, I would be asking myself, does this make sense? Because again, especially if you've got a big chunk of your proceeds at risk in that, in that future entity.

Yeah, because lots of things can go wrong down the road and you are no longer the. The main decision maker about, about doing the whole thing. And they don't probably care as much, depending on how many companies they have.

Yeah, I'm shitting all over private equity groups. I don't mean to my. You know, private equity groups are not bad people. They have a job to do, right. And their job is to get a return for their investors. The way they do that is they generally buy low and sell high. That's the essence of their game, right? So they're trying to get your company for as little as possible, lowest possible valuation, use as much debt as possible, so they can put as little equity into the deal as possible and turn around three, five, seven years later and sell it for the highest money multiple. There's nothing wrong with that business model. It's just that you don't want to be the pansy or patsy in that, in that, in that, in that game, right? You want to make sure that if you're going to sell to one of these guys, you've got your eyes wide open. And one of the toughest things I know, you talk a Lot about one of the four disciplines, culture people. One of the toughest things for owners to deal with is the changes to a culture that happen when you sell to a private equity group. I did an interview with a woman named Sherry Deutschman. She's from Nashville. She built a company that does billing for hospitals. Big company, but a lot of frontline folks, a lot of like hourly workers. And she built a strategy, and very early she felt very indebted to her frontline employees. Even people are making kind of $1012 an hour. She wanted to share a little bit of profit with each of them every single month. And so the first couple of profit sharing checks are like $3 and like $9. But over time, her company grows about 40 million, 40 employees by the time she sells it. So the checks are getting bigger and she sells to a private equity group. Well, about three weeks in the private equity groups now. Says, look, I know you usually do this monthly profit sharing thing, but we've run our spreadsheet here, and it looks like this isn't terribly good for our bottom line. So I think we're going to get rid of the profit sharing plan. And Sherry's like, no, no, no, you can't get rid of that. That's like, that's a huge part of who we are as a culture. That's what, you know, it's, it's, it's a huge part of our company. And then they say, no, no, I mean, but it's, it's, look at how much it's affecting the EBITDA here. And so they get rid of it. And it was crushing for everybody. Her culture, something like 80% of her staff, eventually, over the next two or three years, left the company, Sherry left. And so look, private equity deals can sound good on paper. We're going to professionalize your company and bring in professional management to help you scale and grow to the next level. The challenge with that is the. That they are going to rip up the policies you've written as the founder of that company to make them more professional. And that can feel for an owner like open heart surgery without the anesthetic.

Right. It can gut the culture of the company. It can cut the legs off of things that people have counted on and taken for granted forever. And if it doesn't fit like, it can, it can throw off the spray de corps. Right. The whole.

Yeah, culture's this kind of like delicate alchemy.

Right.

For a lot of entrepreneurs, you know, like, we don't, we don't have the Money, resources to compete against Tesla and Google and Apple. So what do we do? We come up with these kind of weird little favors that we give employees. Like we'll lend a little bit of money to a key employee at a time of need. Well, you know, we'll let one employee bring her dog into work because that, you know, like, or you know, all this kind of crazy stuff that no big company would ever let go by. But we do it because we're trying to create a value proposition for an employee that makes sets. And so that can be great. And it can also look crazy as an outsider. So there's stuff that's really important. I remember I did one interview with a woman who had an IT services business based in Denver and she's like, the one thing I don't want the acquirer to do is move our head office. I've got all these employees who have basically brought me to the dance. They've, they've done everything, they sacrificed enormously to come work for me. And the only thing that they ask is that we don't move our headquarters. And so she wrote it into the deal with all the acquirers. She said you can't change the head office of the company for like three years. And she felt that was enough time for them to get on their feet and find another job if they chose to. So look, if you, if there are a couple of things that are really critical to you that think that you think define your culture, that you would feel regret if they were gone on, it's worth just making sure you get proactive about including those in any sort of acquisition deal. Yeah.

Thinking about what are the non negotiables that you can't deal with on the back end of it. That's really great. So we're going to talk in just a minute about how do you punch above your weight? Right. How do we get to that? I want to shift into some of that meaty stuff because I think everybody like to not feel overwhelmed, not feel outclassed by everything in the process. A quick reminder to our listeners that one of the great ways to get your company running well so you're in that position is getting your processes down and repeatable, pulling yourself out of that. And that's why we're so glad to have as a sponsor of the show, Sweet process dot com. So this is the place where you can get all those questions answered in one place. They can get everything they need. You can train the new employees, you can unburden the managers and supervisors and get Everybody then collaborating on leveling up, improving these processes and procedures over time. So it's not just a static thing that you transfer, but it's a continually living document that gets built and improved over time becoming that one place where everybody can go to, to figure out how to do things, what they're supposed to do, how their job is done and like that. And that enhances the sale and the transfer of the DNA of the company. It becomes that sweet process.com now we have a special offer for our listeners. If you want to get using this and you want to see if it's a fit and would solve some of your problems, just go to sweetprocess.com scalingup they'll double their regular 14 day trial to 28 day free trial. If you go to sweetprocess.com scaling up sign up now. There no credit card required. We've got a dedicated link for our listeners to get that very special offer and you can start to transfer the way that you run the company. So thanks. Sweetprocess.com scalingup John, let's talk about this, the art of this and getting into this punching above your weight business. How do we do that? How do we get not outclassed by everyone else who does this all the time? And we've maybe never sold our company before.

Yeah, I mean that's the whole kind of nature of the book. So there's, there's dozens of strategies but I mean like we can unpack a couple of them today for sure. I mean one of the, one of the ideas that's sort of principled through the whole sort of process, and we talked about it already, Bill, is this notion of getting multiple buyers. So part of that is making sure that you have lots of different folks from private equity to individual investors to strategics. It does though beg the question, how many folks should I go to? And so what I think you're going to want to do is create some sort of auction for your company. And the number of people that you bring into that auction will depend on how important confidentiality is in your process. If you've got a kind of company where the world knowing that it's for sale is going to undermine its value, that's a problem. I'm reminded of a guy named Peter Kelly who built a beautiful little business. It's not actually that little. They do used car auctions. But unlike the typical used car auctions which are like very old school, the car kind of rolls by on these conveyor belts. He built a website where a Dealership can create and buy their inventory. Kind of like auto trader, but for used cars. And he builds this business up and along the way he gets an offer from each of the three big old school traditional auction houses. And so he's got a pretty good sense that he's going to get three offers when and if he's ready to. He rebuffs all three of them along the way, but along the way he starts to get wind that the OEMs, the manufacturers, the BMWs, the Fords of the world are thinking of creating their own auction site. And if you're a used car dealer and you sell Ford, you're going to go to Ford's used car site before you go to some third party. And so Peter all of a sudden realized that he needed to get his business ready to sell. And instead of going to some huge auction which would have tipped off the Fords and the GMs of the world about his business model, he just went to the three folks who'd already made him an offer and said, okay, now's the time, what's your offer? So that's an example of a very, very narrow auction with three potential buyers. But he felt very confident doing that because he already had offers. Another entrepreneur comes to mind. That's in the book. A guy named James Murphy builds a Viviscal, which is kind of hair treatment for women who have thinning hair. He builds it up to $50 million in top line revenue, decides to sell, but he does a full scale auction, more than 150 companies on his hit list, private equity, strategics, et cetera. He gets his first offer for around 65 million euros. He's based in Ireland, but plays one off the other off the other and starts to gin them up. Gin them up, gin them up. And ultimately sells to C and D, which is the owner of Trojan condoms and a bunch of other consumer packaged goods for $150 million, almost three times as much as their original offer. That's because he had multiple offers. So the moral of the story is you want to go to a wide auction if you're confident that the confidentiality is not that big a deal. If confidentiality is critical and that being put in the marketplace would undermine your company. You want to make sure you've got a very small confined auction.

Auction, yeah, that's one that we hear a lot of times people are worried about. God, nobody can know I'm trying to sell it. I, I'm not sure that's always well considered. Like why, why are you so worried about people. I mean, there are definitely legitimate reasons sometimes, but it seems like a lot of people are like, I just don't want anybody to know that I'm doing that because the way they've run the businesses has set up some imbalances, that kind of thing. Or the employees are not clear that they're going to win in. So they're terrified of anybody getting wind of this. But having it show up all of a sudden, one day a company is sold can be a shock to the employee base as well, and the customer base, for that matter.

Yeah. And if you. If I think the strategy there is. If you want to kind of allay the concerns of your employees, make it less shocking, as you say, you can say that you're looking for investors. I think you could legitimately say, look, we're going to go through a process. We want to get to the next level, but we're going to need help to get there. We are going to look for a partner, someone who can help us get to the next level. It reminds me of a guy named Eric Levy who sold a company called Luxor1. I wrote about him. He builds those lockers, you know, like how if you go to Whole Foods, they'll be looking Amazon lockers, locker.

Aric.

Yeah. Have you had Ark? Do you know him?

It's a former client.

Okay, great. So I interviewed Arik for the podcast and had him on the show, and he's in the book. And so Aric ran a process, right? Where he built up. It's talking about cash flow. He got an offer for these lockers from one of the largest retailers in America. And most of the offers that he got for these lockers were from apartment buildings who wanted to give their tenants a place to put their stuff that they bought online. Well, those office buildings would buy those lockers up front. They would pay their cash up front. Ark got the cash and then built the locker system. Right. The big retailer said, look, Ark, we want to put your lockers in every one of our stores. Only one hitch. We're not going to pay you until 60 days after you install the last locker. So Libby says, well, there's no way we could. Like, I'm like a small, independent guy. There's no way I can finance this offer. Like, it's just impossible. Right. It's a negative cash flow cycle. It's just. It put me out of business overnight. So he goes to hire an M and a professional to run a process. And the process he ran was to raise investment capital. What happened and this often happens is he found acquirers for the business and are decided to sell his company to a big publicly traded company called Assa Abloy, which is a big fortune poverty company traded on the New York Stock Exchange. Never would have happened had he not decided to go out and find investment capital. So again, back to how do you deal with this whole do I tell my employees thing? Look, I don't think you should tell your employees you're thinking of selling your company until the checks in the mail. But if you're not comfortable with that as an approach, you can say, look, I've reached the point in my company where I can't continue to fund it 100%. I need to find a strategic partner, someone can fund our next level of growth. And so we're going to run a process, find if, see if we can find an investor. And if you happen to sell 100% instead of 30% of the business, well that's, that's, that's a decision that came up. It's not like you're being untruthful to your employees.

No, it's much easier if everybody knows that you're talking to investors whether they're buying some or all of the business and then they're looking at that whole kind of thing. I think it's also useful for you to let them know what provision there is to take care of them. So in the event of a sale or whatever, there'll be an appropriate bonus for everyone. Have no fear. Like that kind of thing.

100%. Because if you don't, what does an employee do when they hear that you're thinking of selling your, your company? The first thing they do is they brush up their LinkedIn profile. The second thing they do is get their resume out and they send it to all your competitors. Because what they're trying to do is leverage their industry experience. Right. Like they've been working for you in the XYZ industry and they go and try to leverage that. And so your supply, your competitors find out you're for sale and that can undermine your value.

So you want everybody sticking around and doing their best job possible all the way through. Not just the due diligence and the, and the closing of the sale, but in the continuation. Because there's often some kind of earn out or downstream thing that you've got to make sure that you've done a good job with.

Exactly right. Yep.

We've covered so much good stuff. So I just to recap, it's good to think first about where to start, start in the business, why you'd want to sell and to be going to something rather than running away from a difficult circumstance. And then to build a whole game plan around it, getting as many possible buyers in, prepping, handling the sale, right. And then there's being smart through the whole process. And there are so many good stories that you can just hear here. You can find the book, you can find it. Well, you can find it on builttossell.com that's probably the best place to go. Nico Hawk, their friend, fellow coach, friend of the whole world of built to sell. So hello.

Hey Nico, good to have you.

So chiming in. I wanna, I'll tell you that again, but I want to remind our listeners that if the show helped you pass it along to somebody else, right? And if you want to help us, give us a rating and a review wherever you get the podcast, YouTube, iTunes, most of our listeners, I would say are still on itunes. And then if you subscribe to them at any of those places or on our website, you can get them every week, we'll send you out an email. You'll never miss one. InfoCalingCoach.com is our email. ScalingCoach.com is the website. Not only that, are there the whole 250 back catalog that you can go search, search people, search, top grading, search whatever you want. And you'll find all of those show notes and the recordings with all of our other guests there. But we'll also give you a copy of the Scaling up book for free if you just pay the shipping and handling. So super great resources there. This show and all the others like it in the past. If you want to drop us a note, send us a suggestion, some feedback, that kind of thing. Infocalingcoach.com I want to give special thanks to Vern Harnish, author and creator of the Scaling Up Framework, Scaling Up Summits and the whole world here in the original Rockefeller Habits. Our show is produced by Lucy Summers who's operating the background now, throwing up the feeds and comments and things like that, interacting with folks. She does all the scheduling, gets our guests ready and comfortable with the show. Our audio is edited by Albert Burge at Podfly Productions and the shownotes are written up by Ayn Kundina and proofread by Tim McGowan. If you want to get more information about John Warlow and get the art of selling, go to builttossell.com builttosell.com and find that book and the other two there as well. So, and you can get in touch with with John and. And everything else that he's got. John, thanks so much for being on the show with us today and. And helping us get up to speed with this next and latest thing. So cool to have yet another great book from you.

It was great to be with you, Bill. Thanks.

Thanks so much, everyone. Thanks again for listening. Keep scaling up. And that's it. We're out of here.