18 Steps to Exiting Your Business (Part 1)

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 18 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. So I'm just going to kind of high level it for you today. But the very first thing, get off the org chart. Right? Get off the org chart is really important because you will be moving from working in the business and working on the business to be working above the business. And a lot of people have a really big breakthrough when they think about this. It's like they never really thought about the fact that that the buyers of the business look at the business as a product. And so you should look at your business as the product that you have to sell as well. Don't worry about the widgets or the services that your product sells to its customers. That's something that is important. That's something that operators of the company not you should be focused on ideally. So if you can get off the org chart and get above the business, you'll start thinking about the business as a product on its own. That that's the thing you have to sell. And so you want to write out all of the job descriptions and the job titles that are currently in your company and see if you fall into any of those. I call it a UU chart because very often you'll find that you are everything. You're doing all of these things right and that's not the ideal situation. Again, owner operated multiples 2.5. Professional is 3.8. That means it's 152% instant valuation bump. When you get off of the org chart and you are no longer an owner operated company and move to professionally managed. So your company is instantly worth 152% more than it was before just by virtue of making that that is really important. So that's a very easy bump for your valuation. Step two is look at your business structure. So we talked about this a bit but one of the things that people miss very often is thin slicing their business for two reasons. One to have the ability to do multiple exits and two is the ability to be able to maintain your momentum. So the neighborhood I live in a Lot of people have sold their businesses. It's primarily an entrepreneurial area and they've exited and they had great exits and now they're traveling and they're playing golf and doing that kind of stuff. But most of them, when I talk to them and they're honest, are just totally bored. And there's this like I'm totally bored, but I no longer have all of the connections or relationships or all of the stuff I did before because I'm either under a non compete and I can't be in that business or I sold it and I don't know how I would build it again. I guess I could go buy it. Right? But if instead you thin slice your business using the goose and eggs strategy that, that I shared with you before, then you have the ability to continue to hang on to your media. You have the ability to hang on to several of the shared services that you're providing to different companies that you've got. And that allows you to continue to have your momentum because you can then point that media that ability to get customers. Okay, so the, the thing is that when you're thinking about your company, you want to consider the possibility of structuring by where the value is. And so the three primary places the value sits is in each profit center of the business, each thing that is making you money. So maybe you've got four products that you sell. So each of those four products would be a profit center. Or maybe there's four markets that you sell in and you look at profit centers that way. But wherever the profits in the business are coming from, it's a good idea to have them separate, even just as a general legal principle to protect yourself from liability. But also it's really good for maintaining your momentum. The other things that you might have in separate companies would be tangible assets and intangible assets. And we talked a little bit about that before. Structuring by objective is something to think about as well. And we talked about a lot of different things. There's eight primary ways that you would structure by objective and what entities you choose. And these charts are all here for you. And we talked about it in some of the other sessions. So again, I'm not spending a ton of time on it, but, but using the right entities, depending on where you're located, and structuring using the goose and eggs strategy that we talked about can really allow you to have your media in a separate place so that you don't sell it. So let me give you a real world example. When we sold Traffic and Conversion Summit, our big event that Digital Marketer used to own to Clarion, which is a Blackstone company. We did that and we only sold the URL, the trademark, the catalog of previous content that was delivered, the show recordings and, and the customer list. That was it. But Digital Marketer basically built Traffic and Conversion Summit. Digital Marketer was the media that was generating all the new customers that were going to that so that business can stand on its own. But boy, was it supported strongly by Digital Marketer. We didn't sell Digital Marketer. We didn't sell our events company that runs that show. Right? That those things. We continue to own all of the assets, our shared services company, with our accounting department, our sales department, you know, all of those we kept. And we can do other events like we have one coming up in November that hopefully you guys are all coming to called Scalable Impact Live that is powered by the media that we have with Digital Marketer and Scalable and by the teams that we have, the company that, that Deanna has, the company that, that all of the other businesses within our organization have. We didn't sell any of that stuff. So you might want to think about if you want to stay in business, if you want to stay in business, keep your momentum by thin slicing your company into these profit centers so that you can sell a profit center. But it's like a starfish. You lose one leg and another one grows back. Right? Really, really valuable thing to think about. And a lot of people don't. The other thing you want to do for valuation is to simplify your cap table. The simpler your cap table, the better, meaning the fewer people that are owners or have options to own, the easier it is for you to find a buyer. They want clean cap tables so they don't have to deal with a whole bunch of people. They've seen how often deals that are more complicated or have more people in them fall apart and so they just prefer not to do those kinds of deals. Doesn't mean it's impossible, but it does restrict the number of buyers that might be interested in your company, which does adversely impact your value. So, so using the goose and egg structure, which we covered before, can help you with that because you can have multiple cap tables for multiple profit centers and, and you have a chart again to do that if you like. The other thing to think about, especially right now, it's very, very important and very, very popular to have esg. So ESG is the buzzword of the day. Adding an ESG program is environmental, social, and governance, that's super hot right now. There are entire funds that are focused exclusively on esg. So what you're looking for is to be sure that whatever you're doing in your company is ideally environmentally neutral or, and ideally is sustainable and eco friendly. That's the E part. The S part is being socially aware and contributing something back socially. If there's something going on in the Black Lives Matters movement, then say something about it. If there's something going on in an injustice somewhere, you know, take a position. The customers these days want you to be socially aware as a company. It's very, very important. And also what are you contributing to that? There's a lot of people that pledge money to different causes that have come up over the last year or so. And it is a big trend right now for companies to give back. So because there are actual ESG funds right now that are looking for companies that are environmentally aware, socially aware and contributive, and also have governance, which is the G in esg. That means that you have more potential acquirers and they're willing to pay a premium for companies like this. So again, it increases your valuation. The governance part is generally dealt with in your board of directors. So the board of directors of a company elects the CEO and the officers, the senior leadership team of the company. The board of directors is responsible for giving the executives that run the company the vision for how the company is going to be run. And so one of the things that is a good idea is to have a board of directors that has a few independent directors on it. You might have a board of directors that has three people, and you as the owner of the company are one. And then maybe there's a financial director that's from your bank or something like that. And maybe there's someone else that is a strategically advantageous person to have on the board. Maybe it's somebody from a private equity fund, or maybe it's somebody from a bigger company that might ultimately be a buyer of yours or from a market that you, that you want to go into, or someone who has previously run a giant company that does what your smaller company does. Any of those would be good choices for your independent directors. And if you don't like what they do, ultimately as the shareholder that owns everything, you can remove them. But it is good to have them because they kind of act as checks and balances on your vision and the actions you're taking. And they can say, hey, wait a minute, you're thinking about doing that. Have you thought about how that's going to impact this and it's very, very valuable. So that's the governance part. The proper structure can save you 10 to 100% on taxes as well. 100%? Yes, that's correct. There are provisions in the code in the United States and the Internal Revenue Code, particularly in section 1202 that say you could sell a business for $10 million if it is owned in the right way and pay zero gains on the $10 million. That's kind of amazing, right? Cause a lot of businesses sell for under $10 million. You can do that, by the way, as many times as you want. So you sell 10 companies for $10 million a piece. Or you thin slice, like we're talking here and your structure and you could own 10 different companies, sell each of them for $10 million, receive $100 million and never pay any taxes on it, and you're totally legit. That's pretty interesting. So something to think about as well. The other thing that you want to think about adding is a DEI program. So DEI stands for diversity, equity and inclusion. Here is some interesting stats on this. This is why you want to have a DEI program. This is why you want to have gender diversification and ethnic diversification within your company. First, on average, these companies that are diverse have 2.3 times times 2.3 times higher cash flow per employee, higher revenue, 1.4 times higher with ethnic diversity, and 41% higher with gender diversity when you have an equal number of men and women in the company. And that's not to exclude non gender identification people. Right. These are stats though from several different sources. When you have a board of directors that's diverse in both ethnicity and gender, you have 43% higher profits on average. Your executive teams create 27% more value in your company. When they are diverse, you get a third 35% higher employee performance. You're also 70% better positioned to capture new markets. You're 87% better at making decisions and 1.7 times more innovative, 120% more likely to hit financial goals, and 83% higher employee engagement. That's fantastic. Okay, step three. You want to be sure that you are not the brand or product. You are not the brand or product. So we talked about that. What I don't think I gave you was the brand transfer worksheet. So if you're thinking about your brand and how can I grow my brand fast, then you can put your current brand here. You might think about rebranding to a name that is not personal. If you have one that's personal. You want to check the trademark that the trademark in the class that you want is available, and then you want to identify any additional spokespeople that you might like to have for the brand. You want to develop very clear brand guidelines around five things. Logo, colors, typography, image and voice. And then there's a lot of ways that you can look at expanding. You can do licensing. You can have a partner program like Digital Marketer does. You can have certifications like Digital Marketer does. You can have affiliates like Digital Marketer does. You can franchise. You can have a referral program, a fan club and ambassadors. There's a lot of ways to do that. So as you're thinking about how do I expand beyond myself as an individual to increase the value of the company, these are some strategies that you can use. Separating you from the brand really can be the difference between being able to exit or not. I know when I worked with Tony Robbins or Harv Ecker or some people like that, like, there was a real challenge for them to sell their company because it was so branded to them and Tony ultimately sold it to his employees and in esop. So that's a way to exit. But that definitely is much more restrictive, I believe, in what you'll get for it compared to being able to go out on the open market. Harv Eker ultimately sold to another company out of Asia that runs events like he ran, had a huge earnout, and I think ended up somewhat disappointed in what the ultimate result was. Step four is differentiate and have defensible intellectual property. That is step four. So if we look at our study of the things that have the biggest impact on growth, the then differentiation improvements that are in the top 30% is important in the top 30%. So that means the more that you can differentiate your company, basically the better off you're going to be and therefore the more valuable it's going to be. So you want to think about how can you develop your intellectual property? How can you lock your intellectual property down? How can you document all of it? How can you be sure that the developer in the Ukraine that was programming for you has signed all the stuff that says that you own the intellectual property that he or she created for you? We talked about the five different major types of intellectual property and, and what they apply to you. Just want to be sure that you do an inventory of all your IP and you're sure that you've got clear chain of ownership, clear documentation, clear chain of ownership, and anything that doesn't already have protection that is offered like a registered trademark or a registered copyright, it'd be a good idea for you to register this. You also want to earn media that's proclaiming your wins. A lot of buyers are looking at the Inc. 500 list or the Ernst and Young Entrepreneur of the Year awards or some of these other big awards that exist. Get your company media. Enter your company in these contests and in these things that you apply to win awards for or these lists and get yourself some recognition. Because I can tell you when we have a company that shows up on the Inc. 500, we get a ridiculous amount of people that are contacting us saying that they're interested. So you definitely want to make this something that someone in your company is charged with doing or hire a PR firm to help you with it. But the more media you get, believe it or not, people want the thing they hear about. One of my friends who just had a $2 billion valuation, one of the things that he said really got them noticed and ultimately invested in by Tiger was the fact that they won a few of these awards. That's where they found them. So that's something to think about. Okay, awesome. Very good. Well, thank you everybody. We will see you next week.

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