What To Do When It's Time To Sell Your Business With John Warrillow

For business owners, marketing execs, and anyone trying to grow your business, pump your profits and make more while doing less. Welcome to Bacon Wrapped Business with Brad Costanzo.

Sizzling hot business advice guaranteed to make you fat profits. Now here's your host, Brad Costanzo.

All right, welcome back. We've got a hot show today because it is very rare here on the podcast that I invite a guest back for a twofer back again. And today is an exception to the rule. So I have brought on John Warlow on the show. Now some of you may have heard John's episode or as I call him, an epicizzle in the past and if not, I will put a link to that in the show notes here. But I brought John back because I really don't think that we had a chance to really discuss. I mean, we just scratched the surface on the last conversation and some of you know exactly who John is. But for those of you who don't, you may have read the book Built to Sell. And this was just a runaway best selling book that created, it was like a great business parable or teaching through story about what it takes to really build a business that you have the ability to sell. And it has to do with changing your mindset and creating systems and simplifying it down so that somebody would actually want to buy this. He also wrote a book called the Automatic Customer which showed you how to create a subscription business in any industry. And John is a major thought leader in the area of helping business owners exit their businesses profitably without getting taken to the cleaners. He's got over 20 years of research into the small and medium sized business market and he also founded the Value Builder system to really level the playing field for business owners as they approach their exit. And I've personally bought and sold several businesses in the past. Now I've never had a exit for kind of the fu money that I just retired at Fiji, but I have gone through the process and I can tell you I had zero experience when I first sold my business. And I got out of there pretty lucky. I had to spend a bunch of money hiring the right advisors and making sure that I didn't get taken to the cleaners myself. And honestly, I probably could have gotten a lot more than I did, but I was in not a desperate position, but I was just ready to go. So I guarantee the buyer got a much better price than he could have if I really knew what I was doing and had my stuff covered from the beginning. Now I brought John back on the show because One of the things that I steered the interview towards on the last one is more on the acquisition side and some of the types of business opportunities there are out there to buy businesses. But John's real specialty is helping existing business owners prepare for an exit, negotiate the best price, and really understand their readiness before they sell. And something he calls a prescore, which we'll talk a little bit about. I mean, introduction's over now. John, welcome back to the show. Good to have you.

I'm either a slow learner or I don't know. It's good to be back.

Nah, it's good to have you. As I said, you know, a lot of times, once I've been there, we've kind of covered a lot of the stuff. I kind of feel there's probably not a lot of reasons to have somebody back on, but I've been a big fan of your books and big fan of the topic as well. And as I said, I think we just scratched the surface. So kind of dive into this. I mean, we covered a lot of the backstory in the previous episode, which I'll link to. People can. Listen, let's dive into some of the meat of this today. So I just mentioned in the intro a prescore. What's a prescore? What's that have to do with.

Yeah.

Yeah. So a prescore, pre, first of all, stands for personal readiness to exit. So prescore.com, it's essentially an assessment of how ready personally you are to sell your company. And it's based on, you know, I've done this podcast. I've done like 200 episodes. One of the things that I found after I hit stop on the record button is I start to hear that the regret in business owners sort of voices. A lot of them have had financially successful exits, yet they wish they had a do over on some important element of selling their company. Either their employees were not taken care of as part of the sale, or they may have screwed up part of the negotiation, didn't get the price they were hoping for. Regret generally kind of comes out once they. Again, I hit stop on the record button because by that time the kind of glossy version of the story is over and they're actually kind of telling me the real thing.

So I know how that feels.

Yeah. So anyways, we set about and did some research and figured out that there were these sort of five kind of questions you need to ask yourself in order to have a lucrative exit. Regardless of sort of how you want to leave your Company, these five essential questions. So that's kind of what we did.

What are some of these questions?

Yeah, I mean, the first one is sort of what are you excited to go do after you sell your company? For a lot of us, it's all about the getting the check, right? It's getting the payout for all that that we've created. And for a lot of us, we're all push instead of pull. So when I say push and pull factors, what I'm referring to is sort of what is driving you to want to sell your company. And for many entrepreneurs, it's the push stuff, right? So it's I want to retire or I'm tired of the red tape or my employees are driving me crazy. Whatever is kind of pushing you out of your company. The pull stuff is the stuff you're excited to go do. And it reminds me of this guy named Shaun Oshman. So Sean had him on the podcast a couple, yeah, maybe a year ago, and he had a relatively small company, a couple million dollars in annual revenue, who was an IT services guy. And he goes to a business broker and says, look, I want to sell my company. And the broker says, why? He says, well, look it, I just turned 39 and I've decided I want to live on a sailboat by the time I'm 40. So what do you think my company's worth? And the broker goes, well, tell me a little bit about business. How much revenue? Couple million. How much profit? Couple hundred thousand. Broker says, okay, well maybe we can get you two or three times profit. Sean goes, okay, on one condition, that you get me that by the time I'm 40. Broker says, okay, goes away, comes up, gets an offer of 2.6 times pre tax profit. And Oshman turns around and accepts the offer. And I had a chance to catch up with him, and I said, how are things going? And he sure enough bought a sailboat and was sailing around the world with his fiance, happy as a clam. And what I reflected on after the fact was that 2.6 times is a good multiple. I mean, it's fine, it's an average sale multiple for a relatively small company, but it wasn't like a knock the ball of the park multiple. It was sort of an average multiple. And yet he's happy as a clam. And it made me realize there's more to a successful exit than just the maximum price of your business. And that's really figuring out what are you excited to go do. And in Sean's case, it was like, I want to go sail around the world. And so really codifying that was the secret to making sure he was happy in the end.

Right on that. I know there's a lot of reasons that people decide to sell their business and push the pull. A lot of them have to do with frustration. Like, you know, sometimes age, sometimes things are just falling apart. They feel like they can't handle it. And then sometimes they're just like, yeah, I'm just ready to take the check and cash out. I guess kind of the difference between the motivated sellers and the unmotivated sellers, if you would, in your experience, what's the breakdown of a lot of the people that you see, on average, the reasons they want to sell their business? You know, what I've seen is that. And I've got a lot less research and optics on this than you do that. It's usually not every. Most of the people just saying, yeah, it's time to cash out, take my money, that usually there is a degree of frustration or age or just they're kind of over it. But is that what you're seeing? What are some of the biggest reasons that people really end up getting to that point where it's time to sell?

Yeah, I mean, believe it or not, the desire to cash out is up there. We've actually done statistical research to look at the. Quantified this believe number two, maybe retirement. There's health is another major factor. An unsolicited offer is often a trigger that causes people to want to sell. So they're kind of going along their daily business and really not thinking about selling. And all of a sudden they get an impromptu offer. That's dangerous for a lot of entrepreneurs because when you are on your back foot in selling and agree to enter into what acquirers call a proprietary deal, it means that you are not negotiating from a position of strength. The buyer knows they've sort of got a hook in your mouth and you're kind of on there on the line. And what they'll do is they'll get to a point, potentially make you an offer, but they know that they're not negotiating against anybody else. So they can often drag out due diligence for a long period of time. Oftentimes, the lower the price they're willing to pay after due diligence in a tactic called retrading.

Yeah. Which is totally unfortunate, but happens a lot. In particular when they know that really they're just.

They're.

They're negotiating with nobody else other than you. So that one of the things that one of the secrets to to maximizing the value of your company is making sure you create some competitive tension that either you actually have multiple offers or you give the illusion to the buyer that there is another offer on the table.

Always. Yeah, that's great. So what are some of the other personal readiness to exit questions that you should really be considering?

Yeah, so one of the other ones is try to figure out what your role will be after you sell. A lot of people think, okay, I'm going to sell, I'm going to hand the keys to the business over to the buyer and then I'm going to hit the beach or the golf course or whatever. The reality is most owners will have to endure some form of earn out or transition period where part of their compensation. You've heard of the golden handcuffs where part of the compensation is tied to the future. And that's just the reality. And what I found is for a lot of entrepreneurs, they say, I'm not doing any of that stuff, right, it's got to be 100% cash and closing. And the problem with that stance is, is that you shut down the vast majority of potential acquirers right there. Many acquirers will simply walk away and say, well, I'm not interested. And therefore you winnow down in a very small group the number of buyers that are potentially willing to make an offer. And when you've got a very small number, obviously you generally don't get multiple offers. And then you get sucked into what I just described where you've got really just you're negotiating almost against yourself with only one other provider, so one other acquirer. So the key is to really think about, okay, what roles am I willing to play? So one of those roles could be as a lender to your acquirer and what's called a vendor take back where you're offering to finance some of the deal. Another is an earn out where you put some of your compensation in the future. A third is what private equity call recapitalization, where you're basically holding onto some of your capital to let the private equity company will buy a portion of it and you can go sell the rest of it downstream. These are all different rules. There are many others, but these are all different roles you can play. My advice, if you can keep your mind open to as many of them as possible, in a funny way, you'll actually get the deal you want because you've got multiple offers. And with multiple offers, that's when you can start ratcheting up what you want. So if you want an all cash offer. The best way to get it is being really open to lots of different options. And what you'll find is in many cases, the competition that you create will allow you to harden the deal terms in your favor.

That's great. And these are all what I like about this. These are all some of the things that you really have to think about that aren't. It's more to do with you, not just your business. Totally.

Yeah. In that example, it's like, what do you want to do with your life after the sale? Are you willing to stick it out for two or three years and help the owner transition? If so, you're going to have a much better exit.

Absolutely. So there's a few more questions.

Yeah, I mean, there are lots. We look at how personally tied your ego is to the company. This is a topic that we don't always like to talk about, but of course, as founders, in particular founders where if you started a company from scratch and you've owned it for multiple decades, it becomes kind of who you are. Right. Like you're recognized because you're the sponsor of the T Ball tournament in town.

Right.

Or your name is on the door of the store. It's like John Sons Butchers. You become intertwined with your business. And if that's the case, then leaving your company will end up feeling like you're basically walking away from part of who you are. So the trick is to really try to the best you can, create a life outside of your company. I'm reminded of a guy named Steve Mertz. So Steve started really the first generation of the transformation of the travel industry. You know, Airbnb has kind of turned the travel business kind of on its ear. Well, Steve was the first one to really, really make the first big change in that industry. He was with Microsoft, the owners of Expedia, and he came up with the idea of vacation home rentals. So when you go into Expedia, instead of just having hotels, you would have chalets and people's homes. This goes back years. And he started this company called Vacation Spot, which he ended up selling for, I want to say it was $78 million, like a huge, huge, fantastic exit. And he went on to have three additional exits after that. So you could make the case that he would have as much justification anyone on the planet to walk around with his chest puffed out and sort of present himself as successful entrepreneur. But the inverse was true. When I first met Steve, we were at a dinner party of a mutual friend and he was going on about the Second World War. And I turned to my wife and I said, who is this guy going on about the historical lessons of the Second World War? This guy's crazy. And it turned out he is a big history buff. And not only is a history buff, but he's an avid cyclist, he's a chef, he's the main cook for his family. He's an avid father, he's got three kids, he's a happily married husband. And so what I came to learn about Steve is he's got all these hats that he wears, these ways he sort of fulfills his ego beyond just being an entrepreneur. And I continue to think he's a really great example of someone who's done the hard work of building an ego or a sense of self worth, if you will, outside of being an entrepreneur. And if he can do it, given all of the success he's had, I think any of us can do it as well.

That's great. Now, you have a new book coming out pretty soon. Do you have the name of it yet? It's coming out in January.

I can't share it yet because it's all about the negotiation sort of tips and tricks. Here's what I've learned about selling and that is that as much as selling is the science of valuing your company, there's also a bit of an art form to it. And so what I'm trying to do in this book is kind of communicate some of the artistic nuances of selling a company.

I love that. And as we mentioned offline.

The stuff that I personally studied more so is really the negotiation where I'm probably trying to acquire something as opposed to sell it. And I think that a lot of the negotiation material, books, et cetera, they can cover both. But I really like the aspect that you're going in to this specific situation and type of person to say, you know, somebody else is going to be trying to come get what you've got and you better really understand how to negotiate yourself to kind of protect what you've built and not just get taken by somebody whose job might be. I mean, they may be like, especially if they're in private equity, the bigger they are, the more skilled they are at negotiating. And if you've spent your entire life just building your business, you probably haven't spent your life honing your negotiation skills. So it might not come naturally. So I think this is a brilliant way to solve a need in the marketplace. And I can't wait to read it.

Oh, cool.

Yeah, let's Dive into some of the, some of the things that people need to kind of either be aware of or just. What are some of the big takeaways from the book ahead of time that people should really start paying attention to or that they should. That they can maybe even start applying right now if the need be?

Yeah, I mean, when you want to sell your company, you need a baton negotiation speak for best alternative to a negotiated agreement. Essentially a Plan B. Right. So the more you can cultivate in your own mind what the Plan B is, the better. Now, of course, multiple offers is going to give you the maximum amount of leverage. You know, there's a story in the book about a guy named James Murphy who developed a product called Viviscal. Have you ever heard of Viviscal? You probably wouldn't have because you got to pull it on the video. So Viviscal is like hair regrowth, but instead of for men, it's actually for women. So women, as you may know, go through some of them have hair loss. And it's usually not hereditary, it's usually stress related and stuff. And so he developed this formula that actually reverses that condition. And so it was a really highly sought after company. And I remember he built it up to 50 million euros in revenue. And he went to sell it and he got all the CPG consumer packaged goods companies like the Unilever and the Procter and Gamble, he got them all kind of hot and bothered about this idea of this company. And he went out and got offers. And the original offers were they were around $100 million for the company. So roughly the euro at the time was trading similar almost compared to the US dollar. It was roughly about 1 times revenue. Excuse me, roughly around 2 times revenue. And so he thought, this is interesting. How about I play one off the other side? And eventually got down to a point of taking 10 buyers down to a point of two. He got them up again. I'm going by memory, but it was about $136 million while there was still two at the dance. Ultimately, if memory serves, he actually sold for 165 million to C and D, the guys who own Arm and Hammer, among other products. The long and the short of it is if you can create multiple bidders, you're going to have a much better outcome. One of the other things to remember is that you always have a second bid. And it's funny to think about it, but as an entrepreneur, you're making a trade right now to buy those shares of your company every day. You continue to own it. You're saying to the marketplace, I would rather own my company than sell it. And so you're bidding on your company even if you don't feel like you are. And so in the book, I talk about the idea of always going to an acquirer and saying, well, I've got a second offer that I'm considering. What are you proposing? And so that second offer is yours, is the fact that you're willing to continue to run your company. And presumably if you are willing to continue to run independently, you have that second offer on the table.

Yeah, that's a great mindset shift. I like that. And it's not obvious, but when you do that, it really does make you realize that, yeah, it's not necessarily I take your offer or leave it. It's take your offer or I take my own offer, which is, I'm offering to continue to run this.

That's right. But it's one of the big reasons that a lot of entrepreneurs get to a point where they want to exit is because they're, you know, they start off and their business is worth nothing. And, you know, their largest asset is their house. Twenty years later, their house may pale in comparison to the value of their business, yet it's all in one stock. And so the percentage of their wealth that's tied up their business goes from sort of zero to I've seen examples where it's like 80, 90%. So it's one of the reasons that a lot of entrepreneurs think, oh, my gosh, I got to sell. I can't walk around with such a huge percentage of my wealth tied up in this company. That could go to zero.

A lot of times when business owner is ready to sell, but let's say they approach broker and they're dealing with a broker, and the broker helps them come up with a general price on what they may want to sell the business for. But sometimes that doesn't happen. Especially in cases where you said, they get an unsolicited offer and I approach you. I said, hey, John, take a look at acquiring your business. Can we start talking about this? And there's that old adage in negotiation, which is not a law, but it's just a general rule of thumb that the person who says the price first loses. But in those cases where you haven't really thought too much about it and you're in that situation where you get an unsolicited offer, would you typically tell the seller to hold back the price they want and see what the buyer may come up with whether they have a formula that's based on EBITDA or some other metric or would you? I mean, they may have an idea of what they want to sell, but I mean, we're talking about negotiation. Are there any insights on this?

Yeah, I mean your inclination is absolutely right. The guy who names the guy or gal who names their price first generally ends up losing. I think that's accurate in particular for larger businesses. If you have a very small company, and when I say very small, I'm really referring to companies of say less than a million dollars in annual sales. It's often again, this also depends on the industry you're in a little bit. But it's often necessary to list the business almost like you would list a home. And so when you list a business in a public forum just like your home, you've got to kind of describe it, right? So you've got to say, look, I want X amount of money for it. But that would be for much smaller companies if your business is a little bit larger. I think you're absolutely right. You really want to hold back. I'm reminded of the story again, the book and the podcast. The guy wanted to sell his business. He developed this analytics software and IBM came knocking. And in his mind what he created was this product that was defendable. The company was growing quickly. So in his mind he wanted to get 8 times EBITDA for the business. And EBITDA earnings before interest, tax, depreciation, amortization, you can think of it as pre tax profit. For a shortcut, he wanted to get eight times. And so he thought that was reasonable, et cetera. So he goes into this negotiation with IBM and of course he doesn't say that price out loud. He lets them come to him and they offer him three. And so a lot of entrepreneurs at that point would have reacted in righteous indignation and said, what are you talking about? 3? We've got this proprietary. So I mean to give you a sense, he had 150 plus employees, it was a good sized company. And so instead of reacting that way, he simply talked IBM through some of the strategic value in owning the company. And he started to do some modeling and some actual math associated with what it would mean for IBM to own the company, which is one of the kind of tactics you can use. And he said, look guys, I'd really like you to go back and rethink this valuation. And even then he didn't say, and I won eight times. He still basically had them negotiate with themselves. He just asked them politely if they consider going back. So they go back and they run their models and realize that yeah, it's a very valuable company. They come back and offer him eight and a half times earnings, which exceeds his dream number. He still at that point doesn't sort of bite and say, okay, what do I sign? He says, I've been thinking about it. And at this point he lays out his number, which is that I don't really think you should be valuing this as a multiple earnings. I think it should be a multiple of revenue. And I think that Multiple should be 1.5 times revenue. IBM throws up their hands and says no, they go away. Do some more thinking, do some more Math, agree to 1.2 times revenue, which was the equivalent of 11 times EBITDA. Wow, that's my long winded answer to your question about should I be the first to name my price again, especially if you have a larger business? The answer is no. I would hold off and let them come to you even twice before you start to throw out your number.

I love that you made me think of something that I'd like a little bit more clarity on. So I'm very familiar with the concept of. Well, first of all, I know that businesses, they're valued in multiple ways. One of them, two of the most standard ones is based on ebitda, the bottom line versus based on revenue, which is top line. And this is what you just discussed. What are some of the instances where, whether they're industries, types of businesses, et cetera, where they're basing it on revenue versus the bottom line, earnings. What are some of the reasons that a company or that an acquirer might pay based on revenue, which, I mean, I could spend 1.2 million to make 1.2 million and I'm at zero versus I could be doing half a million dollars in profit.

Right.

So at what point does valuing by revenue become.

Yeah, it's usually two primary reasons. The first is the industry that you're in. So in particular, if you're an industry with a lot of recurring revenue, a lot of buyers will make a valuation estimate based on revenue. So SaaS, company software as service companies are typically valued based on revenue, even recurring revenue. Businesses in low tech industries like security, where you're monitoring homes and offices, even those businesses are generally trading at a multiple of revenue as opposed to multiple profit. The second reason, and it's related to that, but the second reason is growth rate. So if you're growing very, very quickly, it's unlikely that you're Generating a lot of profit on paper. But the future of your business is very encouraging and an acquirer will look at that and say, okay, you know, we know how to make money. We've either got strategic assets that we can bring to bear to reduce some of their costs, we've got lots of people and you know, we, under our supervision, they won't need to be investing so much money into growth because we've got marketing channels for them to use or salespeople for us to leverage, et cetera. And therefore they can project out that a very fast growing company will not only give them a lot of top line, they will ultimately be able to make it a profitable asset for them to own. So as a result of that, you see very fast growing companies. I just did an interview this morning actually with a guy who was growing 40% a quarter. Oh wow.

What industry they were in?

The website hosting industry. To be clear. This goes back to 1999 where this was the dot com run up and everyone on their brother had an E commerce website. So I mean that was the industry we're talking about. So very, very.

Oh, so he was growing at 40% a quarter back in 99.

Yeah, exactly.

I was going to say growing a hosting company right now that quickly would be totally tremendous because it's such, it's a little bit more commoditized right now.

Right, very commoditized. Now he was in the unique end of that business where he was working with high end e tailors and E commerce sites that needed sort of website to always be on. Like he gave the example of HR block and if on tax day they couldn't go down no matter how many people access the site. So he was in a very kind of a niche of a niche of a niche. But still it was. Yeah, you're right, it was a different time.

Yeah, very cool. But no, that's helpful because also, are there any resources that you could point us to that help? Like I don't know if it's a, whether it's a website or whether it's some kind of a resource that shows industry by industry, like, kind of like how some of these things are in general valued.

Yeah, I mean like a quick plug for our valuebuilder.com basically will give you that. So if you, if you go get your score, there's a little questionnaire and you'll get a report and we'll give you, you'll get some industry benchmarks that way. That's probably the best way to do it.

By the way. That's exactly what I was looking for. That term industry benchmarks. You said it. I knew you'd have a resource. Valuebuilder.com so when it comes to other negotiation mechanics and making sure that you're defending yourself against some potentially really astute negotiators, are there any other pieces of advice that you'd like to give to the listeners?

We talked and touched on retrading as a tactic. So that's probably one that is difficult to avoid at all costs, but there are some techniques you can use. So again, retrading is when buyer says, I'm going to spend whatever, $100 to buy your business, and then you go through due diligence and actually they offer you $90 and you say, well, how do they do that? Well, essentially what happens is that you go through and sign what's called a no shop clause when you agree to a letter of intent. A letter of intent basically says, we're going to buy your business for $100. Use a stupid example, but you've got to give us 60 days to sort of do our due diligence. And this in almost all cases is a non binding letter of intent, meaning they don't have to sort of honor anything. It's not really worth papers printed on yet For a lot of us as entrepreneurs, we see the letter, we see it in its formality and we think, okay, we sold our company. You know, in our mind, we're buying the boat and the chalet and the house and like all the things that we were going to go do. And the acquirer knows this, right? They know that if they put a letter of intent in front of you and get you to sign a no shop clause, that you will become emotionally committed to the sale. So a couple things you can do. Number one, as hard as it is, know that a big portion. I'm not sure if it's half, but a big portion of letters of intent never are consummated. They never come together. So treat it with a pinch of salt. When you get your letter of intent, you still got a lot of Runway left before you actually close. The second thing you can do is make sure that the buyer knows that there are multiple bidders at the table at the point of letter of intent signing. So subtly through your conversations, if you can, make sure they know that. Because although the no shop clause is 60 days, on the 61st day you are eligible to go back to those other bidders and say, this one fell through. Do you want to come back to the Table at least that will give them a little bit more hesitation when it comes to using retrading, knowing that there are some people waiting in the wings. The third thing you can do is just really call it out. At the letter of intent stage. We had one entrepreneur who went through a period of selling. I interviewed him now probably 18 months ago. He went through the period of selling and got retraded down. Valuation was cut 15 or 20% through the retrading process and swore that he would never have that happen to him again. He went through to sell another tranche of his equity and he basically agreed the letter of intent, but had the CEO in the room and sort of stood up when the negotiation was over, reached out for the hand of the CEO and said, looked him in the eyes squarely and said, I will do this deal on one condition, absolutely no retrading. And what he was doing was showing to the CEO that he knows the game. He's not a naive seller. He's going through it for the first time all wide eyed, actually knows that this goes on, that he's not going to put up with it. I think that went a long way to ensuring his deal stuck without any retrading. So it's kind of like a chess player or player in a game who kind of will call what they think the other guy's play is going to be and it sort of dilutes the efficacy of that play or the impact of that play. So that's another. You may not avoid it totally, but a couple strategies there to help.

And you said that the no shop clause is typically non binding.

No, be clear. The no shop clause is binding. The letter of intent, meaning the commitment the acquirer has to consummate the transaction actually to go through with the sale is non binding.

How often do you see a seller saying no, I don't want to sign a no shop clause. I mean, is that often an issue like if they say no?

So virtually none of us as entrepreneurs want to sign a no shop. But by the same token, it's very uncommon for a buyer to agree to go through and invest the money in due diligence without that protection. So from the buyer's perspective, and again, I'm not in the business of protecting buyers, I'm all about sellers. But from their perspective, they're going to say, the argument they're going to make is, look, we're going to spend tens of thousands, hundreds of thousands of dollars to evaluate what you've told us through this process. We're going to bring In a team of analysts, we're literally going to spend thousands of hours evaluating your company. We're not prepared to do that unless you're prepared to give us exclusivity. Public company A is buying public. Coke's buying Pepsi, Ford's buying gm. Those sorts of deals you might get away with what's called a breakup fee, where if the buyer doesn't consummate the transaction, there's a fee they pay to the company that they locked up. But that's very uncommon for small to mid sized transactions. A breakup fee is virtually unheard of.

Yeah, I know. Those are a lot bigger at much larger deals. This is great. And as I said, this is one of those topics that I think gets underserved, at least from my standpoint, as far as helping the person on the other end make sure that they're ahead of the game on the negotiation side. Because I mean really everything comes down to the negotiation. You could have everything rock solid in your business, but really shrewd negotiator can end up finding a way to get their way with you if you aren't astute and know what to watch out for. And some of the things they'll do, especially if it's like a private equity buyer, somebody who this is their living, getting the best deals. One of my favorite books. Have you ever read the book by Robert Ringer, Winning through Intimidation?

I love it. No, I haven't. I'll have to pick it up. What's it like?

It's an amazing book. And one of the things, actually the title is misleading in that it's not like it kind of sounds like winning through intimidation, like how to be intimidating and win, but really it's about winning through like almost winning despite intimidation. In essence, how to not be intimidated by this. And one of the things he talks about in there, or there's two concepts that I love. One of them is leapfrog theory, which is really the concept that at any point that you decide to start playing at a much higher level, whether it's as a deal maker, a salesperson, an entrepreneur or whatever, you can do that. You don't have to wait for the conventional wisdom crowd to anoint you and pay your dues, you can start operating at a higher level if you have the skills to do so. Right? Like if you're a consultant, the industry average is $500 an hour and you decide to decide to charge $5,000 an hour, you don't have to wait. You can do that as long as you can deliver the goods of what you want to do, you can leapfrog to the head of the pack. That doesn't have anything to do with this. The piece that did it and made me think about it. In it, he talks about, in a negotiation, there's three types of people and only three that you'll ever be dealing with. And so I think he labeled them, but I can't remember the exact names. One of them is the super shark style negotiator. I would think of Donald Trump as that. Like, you know, he's coming to get the best deal possible. He will screw you at every corner, and he makes no bones about it. Like, this is. I'm shrewd. I'm here to get the best. And those are some of the easiest to deal with because they're a wolf in wolf's clothing. Then there's the one who will lie to you and be manipulative, and they'll seem like the nicest guy and your best friend, but they will secretly screw you over whenever they get the chance. And then there's the third piece, which is probably the majority of people who. They have no desire to screw you over. They're not a wolf in sheep's clothing. They are a sheep in sheep's clothing. However, circumstances may dictate that they will screw you over if. If something happens, if the opportunity comes up. They don't really want to, but they. I mean, hey, money's money. This is business. And they will end up doing it. They'll feel bad about it, but they'll do it. Now, obviously, there's the person who is the fourth type who would absolutely never do anything to kind of screw you over. But remember, the idea of screwing somebody over, it's subjective. Like, I might just think, I'm not trying to screw you over. This is just the best I can do. I can't help. And in it, he talks about just being aware of those three types of people, spotting them, categorizing them early to go. Look, anything can happen. Just be ready. This guy may have the best intentions, but anyway, that's one of the concepts in it. But the book is. The book is so good in talking about a lot of these different concepts, whether it's negotiation, general business practices, et cetera. And it just kind of made me think about that not to go off.

That's cool. You know, it reminds me of, like, the difference between the motivations of a strategic acquirer and a private equity group private equity buyer is generally they're in the buy low, sell high business Right. So they've got a group of shareholders, sometimes they raise money. And so they've got investment criteria that they have to adhere to in order to honor that investor. And they're basically in the job of buying your business for as little money as they can and then selling it in the future, perhaps, whether they bolt on other companies or just find some fancy ways to grow it, take on some additional debt, et cetera, and selling it for a higher multiple, that's their game. So if you know that going in, as you point out, the shark versus the sheep, if you know that going in, then that you can play to your advantage, if you can. Strategics are looking at buying your business because they're generally looking to fix or improve something about their business. One of the biggest mistakes we make as entrepreneurs when we go to sell to a strategic investor or strategic buyer, I'm talking about Google buying Nest as an example. Like big company buys a smaller company. We as entrepreneurs go into that negotiation thinking, okay, if this company buys me, if Google buys me, if Coca Cola buys me, whatever, then we can sell a ton more of our widgets. And that's why Google would want to buy me. The inverse is actually true. Google doesn't give a rat's ass about selling your product or service generally. They're trying to sell more of their product or service. And so kind of flipping that thinking on its ear and saying, okay, so if I were to sell my company to fill in the blank big strategic company, how would that help their strategy? How would I help them sell more of their widgets? And that, you will find, gets you a much higher multiple, much higher premium than going into it saying, okay, if you buy us, we're able to sell more of our products. That's why it should be lucrative for you.

Exactly. A close friend of mine and a former guest on the show that made me think of this, Ron Lynch. So ron's built like 70 brands. He's probably one of the top, or not probably. He's one of the top infomercial and direct response guys in the business. Having worked on GoPro and OxiClean and all these. One of his strategies there is how can I, if I take a product like a consumer good and even get it into retail, et cetera, how can I be a thorn in the side and so annoying to these big companies that they just come in bias because they're like, these guys are just like the little guy who's just gobbling up some of our retail space. They're creating all this demand Et cetera. And it's kind of like sometimes these companies will buy them. Obviously they think it might be a great product, but they're also. You're a thorn in their side. So he goes, yeah. Oftentimes they'll buy you just to take out the thorn.

Absolutely. And of course, that gives the buyer a little bit more pricing authority. Right. So the thorn is always driving down price or changing terms and making them look expensive relatively. Even though they might be a relatively small company and not making a huge financial dent in a big company's business. They can just be annoying enough, as you point out, to want to take out.

Exactly. This has been great. And you said that this book comes out In February of 2020.

February of next year, yeah.

To 2020. I love that.

I can't believe it's. That it feels like some episode of Star Trek or something. The year 2020.

I know. Can you believe that we will be as close to the year 2000 or as far from the year 2000 as the year 2000 was from 1980?

Wow. I hadn't thought about it that way.

That's super nuts.

Like, when you really think about it, I remember this was a few years ago, somebody else posed this thing. They go, do you realize? I think so. When Michael J. Fox in Back to the Future, which I think came out in 1985, went back in time to visit his parents, he went back. I think it was like 1955. He went back 30 years and I guess it was 2015 or 2016. That said, basically, at this point, you know, we are as far. Like, if you went back in time, that would have been like back to just 1985, which feels like yesterday to some of us. But I mean, I was a kid, but still that it's like that different. And then the other thing is they said, and also realize that the world has changed way more from 2015 to 1985 than it did from 55 to 85. And I was like, wow, that's also another crazy thing to think about. But, yeah, no, for sure. Some of my younger listeners may not get this reference, but yeah, they're like, michael who?

And back to what.

That's hilarious.

I knew what you were talking about, man.

Of course. So Value Builder system, your site, obviously, I mean, you are one of the, if not the main person to go to, especially that I know of, for people who are looking to sell their business and make sure they've got everything covered. You've got an army of certified value builder experts. But you're the one who created the resources, the systems, the ip, et cetera. If somebody's listening to this show right now and they are either considering selling their business, whether it's for a windfall, or just to get out or to retire, et cetera, what are some of the best places they can go that they can get resources from you, learn more, get their scores, et cetera? Like, let's give us some plugs here. What do you have?

Yeah, I'm all about the plugs, man. There are two plugs. One is head to prescore.com P R E Pres. Preschool? Yeah, not preschool. Prescore.com and there's a questionnaire there you can take to assess your personal readiness to exit. That's one. Number two valuebuilder.com there's an assessment there where you can go in and get a score on the eight key drivers of company value. And so that'll give you kind of both sides of the coin. So you're getting whether your company's ready to exit as well as whether you personally are ready to exit. That's probably what I do next. Both are free, both are online. That's where I'd start. I love it.

Are there any other nuts you're trying to crack right now in your business, your life, people you're trying to meet, skills you're trying to develop?

Yeah, always.

Where if there's anything you're looking for, it could jog my brain or that of my listeners and we go, hey, I may be able to help him out.

Yeah, yeah. I mean, I'm always. I'm a kind of a lifelong student. I'd love to learn more about podcasting. I've done a couple hundred episodes now, but I think there's a ton more that I can learn about that. I'm always ears for anything on that front. Yeah.

If you were going to learn more about podcasts, would it be more about. I mean, both of these? I mean, the two things that everybody wants is just growth and expansion of audience and monetization. Is there one of those that is more top of mind for you?

On my podcast, I look at an entrepreneur who has recently sold their company and we just walk through and unpack the experience for them and try to get them to talk about how that experience was. And so sometimes when you sell a company, you have to sign a non disclosure agreement, which makes it difficult to talk candidly about the sale of your company. Yet listeners all want the juice. Right. They want the details. And so I always try to get owners to talk as much as they're comfortable about some of the details, but oftentimes we have to sort of skirt around some of the really meaty stuff. So tips and tricks, advice on how to provide get more of the details. And again, I get it. I don't want in any way have a founder compromise their non disclosure agreement for the purposes of our podcast. That's not what I'm suggesting for a second, but trying to get more of the details is good. So anything folks have in the way of hey, these are some of the questions I think you should ask next time or this is the kind of information that I really find valuable. Hit me up on Twitter. I'm simply on Warrilow. I'm sure you put it in the show notes, but it's like W A R R, I double L O W.

Double R's, double L's.

Yeah, it's all doubles, man. It's like W A double R, I.

Double L O W, W A A.

R, R. Yeah, yeah, yeah.

One of the things I recently put on my website and listeners pay attention because you can use this, and it's recent, is a little tool called Speak Pipe. Have you ever heard of this? It's free. I don't think I'm paying for it. I think if you go to speakpipe.com and for anybody who's on my podcast or who's listening right now, if you go to baconraftbusiness.com or if you just go to the show notes of this page, whatever that will be at the time. But there'll be a link here. It's a little code you put in and somebody can push a button whether they're on their cell phone or their computer. And it just turns on their mic and allows them to leave a voice message for you and it sends you an MP3 and it might even transcribe it for you. If not, you can just listen. What's kind of cool about that is you give your it's like a call in feature, so you get people to say, hey, leave a message, let me know if you have a question. And you know, depending on the size of your podcast, you might get more responses than you know what to do with. But you can listen to them and they can be some great clips. And then you're assuming you have a production team or an editor, you can pick the ones out. Like, oh, Brad Costanzo just, you know, left me a message that says, hey John, how do I know if I should sell for revenue versus Ebitda multiple And now what you can do is you can take that clip and you can have your editor play that. It's like, you know, hey, we got a question from Brad. Let's hear it. And that creates kind of a cool little feature because people love hearing themselves on their favorite show, right? And because these aren't lie, it's not like a live call in. I don't imagine you do it like that, but this has kind of helped simulate that. But, yeah, speak pipe. And I put it on every episode and it's on my homepage. So if anybody's listening wants to go, leave me a message. And whether it's a question, a love note, or some hate mail, feel free. That's one little thing that might help.

I'm going to check out Speedpipe. That's great.

One of the other things that I've been using this for a while, and they just recently came out with new tools, their podcast studio, but it's called descripT-E-S C R I P T.com and it was created by Andrew Mason, the same guy who created Groupon. And it is awesome. I'm not getting paid, but I should tweet this to Descript and say, hey, guys, I'm giving you some free love here. But one of the things it does is it allows you to. You can upload an audio or video file, or you can record straight into Descript, and it gives you automatic transcription of everything. You can get white glove, like word for word, perfect transcription, too. But the transcription is really good. But then there's a couple things that it allows you to do that's super, super cool, which is it transcribes the audio. It'll even find the speakers. Like, you tell whose speakers that are. It'll recognize my voice and yours, and ideally, get it like 95% right where it breaks it out. But then you've got this transcript, and you can read through the transcript and you can edit the audio simply by, like, if there's a line in there, if you said something, and if I delete it and then export the audio file, it will automatically delete that sentence out of the audio file as well. But more importantly, you can go through there and you can grab all the little clips of things you said, like the highlights. Like, I could go through this and grab like five really smart things you said, and. And then export each one of those clips as another little audio file that can be then used social media, like a little snackable preview, et cetera. This is more for just providing you know more opportunities to repurpose little snippets of your show that can then be shared and ideally help people discover it without having to share an hour long audio. So that's a couple little quick tips that I could give you for sure. Thanks Brad.

I appreciate that.

Well John, thanks a lot for being on the show man. I really appreciate it. It was cool to have you back and always love. It's great to be back hearing this stuff. I'm more in the acquisition mode at the moment, but hopefully the result of these acquisitions will be some dispositions and I may have nice come back to you and say help, let's do this right. So hopefully that happens someday soon.

Good luck with that Brad.

I appreciate it. Well, thanks a lot for being on this episizzle, John. Look forward to talking to you again, hopefully sometime soon.

Thanks Brad.

Okay, this episode is almost done, but our time together doesn't have to end. At least not yet. Subscribe to the show so you don't miss the next episode and head on over to baconrapbusiness.com where you can find more of bunch bonus material and you can leave me a voice message with your question. If it's good, I'll read it on the air. And if you have a business problem you'd like my brain on, send me an email to ask bradacon wrapped business.com tell me more and I might be able to give you a second opinion on what's keeping you stuck. See you on the next episode.