18 Steps to Exiting Your Business (Part 2)

How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who share their biggest secrets on how they think and achieve success? Grab your seat at the table because this is business lunch with Roland Frazier and Ryan Deiss.

I'm going to run you through now the steps that we go through when we're looking at having a company get ready to exit. So when we're preparing a company to exit, we go through these 18, really categories and there's about 45 steps within them. Step five, replicate and automate. So what are we. What can we do to replicate systems that we've got? I think a great example of this is Nike versus Reebok. Nike created a replicable system of business expansion. It was pick a category. Running, go get influencers and have them wear the shoes. Then take over that market. Then find another market, soccer. Find the stars in soccer and the athletes get them sponsored and wearing the shoes. And they just did this over and over and over and over. And that's how they grew to be where they are. Reebok, on the other hand, did not ever have a replicable system. They just kind of looked opportunistically from deal to deal. Hey, we're in aerobics right now, and we're big and step aerobics is big. And now. And so let's do that, and now let's do women's clothing and now let's do this other thing over here. And ultimately got sold multiple times. And I think Adidas just sold it for a loss of a couple billion dollars to another company. It's crazy, the difference in valuation. Great study, by the way. Reed Shoe Dog by Phil Knight. And then I interviewed the guy that founded Reebok. It's funny because it was a very generic title. So when you look for it, it's. It's harder to find shoemaker. It's. Cause if you look for shoemaker in the. On Google. The last time I did it, when I was interviewing him, I was looking it up to get his book and it was like shoemaker. That's a pretty popular term, but really interesting to see the stories of how Nike did it. Right. And how Reebok did not. Okay. But most of that was just the fact that Nike had replicable systems and great branding. Because of the replicable system. You also want to automate any of the processes that are in your business. The goal there is that you're going to reduce your labor dependence and also that's going to reduce your expenses. Remember that code works 24, 7 and never asks for a raise, right? It's free. Once you get it done, it's free. Except for maintenance. You want to amplify any human performance that is in your company using artificial intelligence or machine learning and then increase any efficiencies in anything that you do using robotics and machine automation. So it's really, there's a lot of software automation. I think there's a company called UiPath. There are even writing your copy. There's copy AI, right? That will write copy for you. That will enhance your copywriter's ability to write copies significantly faster. What can you do to make your business significantly more efficient through automation? And then for any services that you want, you want to productize them. And we talked about how we did this with Ryan Dice. Just be sure that you get services turned into a product and the product can be still a service. It's just that it's productized, meaning that it can be delivered in a standard form. It's not custom every time that you do that. So step six is going to be to shift or pre capture your cost of goods sold. Right now Deanna and I are in Laguna beach at our E Commerce mastermind and we've got all these people who have 30, 40, 50, $100 million plus businesses. They're selling on Amazon, they're selling stuff. And I talked to them about this yesterday because one of the biggest challenges when you've got a product based company is you get into a hamster wheel of you buy product to sell, then you sell it and you've got some profit, which is cool. But then you have to buy more product because you're growing. So you buy the product that you bought before to replace what you sold. Plus you need to buy a bigger order now and then you need to buy more media to help you sell that and then you need to hire more people to help you fulfill selling it. And it becomes a really difficult cycle where you never have enough money. And so one of the big ways that smart companies get out from under that is to pre capture their cost of goods sold. Some examples of that, we do this with Traffic and Conversion Summit. Great example. We just had this event a week ago, right? We sell registrations and tickets before the event. Costs have to be paid and we use the proceeds from the sales to pay all the costs of the event. So we start selling a year in advance and very quickly we have all of the money that's necessary to pay our celebrities, all of the money that's necessary to pay the and the space and then have extra money to generate the advertising. So 100% of that money is paid for in advance. We have no carrying cost. It's pretty cool. Another example would be Dell. Dell's done a fantastic job. They sell computers before they have to pay for the parts and labor. So that's pretty smart too. Right. They use the proceeds from the sale to buy the parts and pay the labor and save themselves these giant inventory costs and carrying that they normally would have to do. And then there's Kickstarter where you may never get the product that you sign up to buy. Right. I've bought products on Kickstarter that took three, four years for me to receive. You talk about getting your cogs in advance. That's a fantastic way to do that. And then step seven, Design, curate and measure customer experience. We did talk about customer experience, so just reminding you about it, but here's the deal. The customer experience can make your business worth up to 5.7 times more than it's worth right now. So don't forget to do the customer touchpoint inventory. We covered when we were talking about that and Fab50. Those are in prior sessions. Also we talked about Net Promoter score and the customer experience elevator. I talked with you guys about how Brian Chesky at Airbnb does this and says, what is our current five star experience? What if we created a ten star? That's probably too expensive. What if we rolled that back to a seven star? And then how do we fix things looking at our one star reviews? This, this is just all stuff we've covered. But it affects value. So I want to just mention it. The next thing we also covered, step eight was creating recurring revenue. So creating recurring revenue, we talked about a whole bunch of different ways to do that. But just remember that that MRR or ARR is worth four to five times what static non recurring revenue is. So that's a pretty big multiple bump. And we talked about the different levels of recurring revenue from consumables down to sunk money, Contracted term auto renews, leverage sales. We did a whole session on that as well. The idea behind leverage sales, generating more sales with less effort. Here's where it fits on our strategic growth importance. If you can be in the top 20% of revenue, then the investors will value you higher than because they know that those are the companies that are likely to grow the fastest. So if you can be in the top 20% of revenue in your industry, if the average company in your industry earns a million dollars and you are in the top 20%, because you're earning maybe 3 million, then that's going to mean that you're very, very popular and very, very appealing to an acquisition candidate. Remember that in the sales area, in the leverage sales area, what that does is it gives us viability because we're able with sales and profits to just continue to run as long as we like. And it also helps us to build momentum. And then we covered a whole bunch of different leverage sales opportunities when we were going through that section as well. So I'd recommend you go back, at least do price tests, at least do price tests, because that's instant profit for you. Then we also, in looking at the things that grow the fastest, exposure to growth geographies. So if you're looking in the top 40% of growth geographies, the ones that are growing the fastest, then your company is likely to grow very fast too. So you may want to take a look and see what areas of the world that you're thinking about going into are growing the fastest. And does it make sense for you to think about expanding into those areas. Step 10 is increasing the bankable profits, which we covered last time. This is increasing your profit margins and owner distributions. And why that's important to a buyer and for value is that if you're prioritizing productivity, program your ability to be productive and earn profit is in the top 30% of your industry, then you're considered to be more valuable because you're more likely to grow faster. Step 11 is to simplify your offerings. So how can you eliminate the wasted product features only providing the elements of differentiation that the customer is actually willing to pay for. And we talked about how Apple added the touchscreen and a bigger screen and a camera, but took away the headphone jack, the charging brick and keypads and ports. One thing we did not talk about that becomes important when we go to evaluation, though, is what is your product range architecture? So Alfred Sloan did this initially, that's the first one I'm aware of with GM when he had all of the different models of Chevy and Ford and Oldsmobile and Cadillac. And Cadillac was at the high end, Ford was at the low end and basically said, how can I, how can I create products that will not overlap in terms of price range? So that I have, I have different buyers for each of those categories, and each next category is aspirational. Steve Jobs did this when he cut 70% of Apple products when he came back in 1997. And they had all these products and all these computers and he said, you know what, we only have two customers. We got customer, we've got consumers and we got pros. And they're going to do one of two things. They're either going to have a desktop or a laptop. And so he created a 4 computer product architecture range for Apple and that worked out pretty well. And then we talked about all the things that you can, all the reasons that you might eliminate underperforming products. So take a look at that as well. Scaling and cross training your teams is also very important. This is going to help reduce a buyer's risk by knowing that if anybody goes away, there is someone who can fill in the spot. So there's an employee cross training tool that you can use to do this and you can just copy this and basically say for each job title, who is the employee and their title, what are the tasks that they're going to be trained on, who will actually be trained by the employee during the training and then what are the start and complete dates so that you can check those off and then just be sure that everybody knows two jobs in your business. The other thing you can do is add experienced managers. So they're looking for people who have been where your company says it's going to go. So if the people who are your senior executive team have not been to the next level and usually they do this in ones and threes. So if your company's doing 1 million now, that team is likely to be able to get you to three, but unlikely to be able to get you to 10 or 30 or 100 or 300. You're going to probably have to get different people that have the experience in those bigger companies in at that time. Doesn't mean you forget about the people that got you here. It just means that they're probably not going to be capable because they just don't have the experience or connections or know how to get you two levels up. So that ones and threes is something that Clayton and infusionsoft told me and it seems to be pretty effective. The other thing you wanna have in for investors and this goes to valuation is a long term retention plan. So how are you going to motivate your people to stay? And so you can look at this list but really around compensation, how can you give them above market salaries? Typically you want to pay an average of 20 to 30% above market plus benefits. How can you interview? There's a fantastic book called Motivation based Interviewing. Highly recommend you get. How can the onboarding process be one that really sets them up for success. That just doesn't put them into the company and hope they're going to succeed. How are you keeping track of how satisfied your employees are? Are you doing employee net promoter scores? Would they recommend your your company to work for to somebody else? And so on and so forth. So you have all of these things that you can do to put in place to be able to retain. And note that only one of them is equity. Right? That's down at the bottom with incentive equity options. So you don't have to give away ownership in your business to be able to do really good things for your employees and have them be very happy. And that's what we have today. Well guys, thank you so much. We will be back. We'll see you next week.

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