Keys to Creating an Exitable Business You Can Sell (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.

Okay, well, with that I'm excited because this is one of my favorite, but this in particular is something that I think really gets overlooked and that that's having exit ready structures. And I also want to clarify what we mean by exit because to me there are really lots of different kinds of exits in different stages. And so we'll talk about that as well. We're always exiting our business and there's no matter what you do, you will ultimately exit your business one way or the other. But I wanted to take a minute to talk about the different kinds of businesses. I think there's really four different primary kinds. And if we have a graph where the base is profits going from low to high, and then on the vertical graph we've got the amount of effort that's required to achieve those profits. I just think it's good to think about what kind of amount of effort and what kind of amount of profit is it that you're looking for from your business. Because on the low side there's not a whole lot of effort and there can be decent but not crazy profits. In passive businesses there's typically not like really great and there are investments that can be wildly successful. But I'm talking about businesses like growth. Crypto is not a business unless you're in a crypto, unless you're minting coins or NFTs or you're, you know, you're doing an exchange or something like that. And then it's a business, but it's definitely not passive. So an actual passive business, generally your profits are going to be lower, but it doesn't require a ton of effort. If you're willing to put some more effort in, then you end up with a lifestyle business. The challenge with a lot of lifestyle businesses, they're great by the way, is that you can end up being a dancing bear. And we talked a little bit about that in the webinar for this, that, that if, if it's a lifestyle business, you're going to be exerting higher efforts and you're not really thinking that much about scaling. There are exceptions. I've been reading a tremendous amount about Martha Stewart because I'm going to interview her here in a couple of weeks for Traffic and Conversion Summit. And she has taken lifestyle to a whole new level. But her effort is through the roof and she's really kind of transcended that. Then in the lower effort but very high profits, you can flip. You can find and flip businesses, and that's a really cling on to those for a significant period of time if you're doing it in the short run. But if you're trying to scale them up and then flip them, it can be tremendously profitable. And then, last but not least, we have our scalable businesses, which is really where we are now. We're talking about something that's going to take a lot of work, but the profit that's coming from it is really, really high. And I think it's important to think about this because you can have multiple businesses that fall into each of these categories, or you can have one that you're really focused on. But it's good to know what is the goal. Like, if the goal is high profit, then you're probably ultimately going to want to move out of passive and lifestyle into something that's going to require some more effort. And so I think it's just good to kind of have that as a thing to think about. Now, the other thing I wanted to talk about is the five exits of an entrepreneur. So the very first thing that we like to do is we like to say we're going to exit the line. So in business, there's typically line and staff functions. Line is the people who are actually doing. So you're moving, you can see at the bottom from do to delegate, from being a worker to being an actual manager. That's your first level of exit is getting out of the doing and into managing. The second thing is exiting the staff of the business. This is where you're going from someone who's delegating to somebody that's leading and you're transitioning from being a manager in the business to being the CEO, the person who is actually leading the business. Then you get to where I like to play, which is on the whole right of the exit the staff side, which is exit the org chart. You've heard me, probably anybody that listens to any of my stuff say, I don't ever like to be on the org chart. So for you to exit the org chart is when you're moving from leading to governing. And that's moving from being the CEO of the business to being on the board of directors. And the next exit is you're going to exit the board. You're going to go from governing to starting to work above the business. And I love working above the business. This is where the focus becomes that the business itself is the product or service that we're selling more than the widgets of the business. We have the leaders of the business at the CEO level. We have the staff at the management level and the line at the employee level who are doing all of the things to be concerned with the widgets and services that the business is selling. But when we're exiting the board and moving out into the level of investor, we're going from governing to above, from board to investor. We're actually then really focused on the business as a product or service that we're going to sell itself. And then the final exit is when you exit ownership of the business. This is when you go from working above the business to out you are an investor. And then you divest yourself of this and you reap whatever benefits that you want to reap from having owned it. So I think that's really cool to think about where you are right now. Are you in the line? Are you doing the day to day? If so, then your goal, you know, I think that you would want to consider having your goal to be exiting that line and moving into management. So you got to first get some people that you can delegate to that will do the stuff right. Then think about how do you exit management into leadership. True leadership comes at the CEO level and the CEO level is really interesting. A lot of people think of CEO kind of like in the solopreneur function, that the CEO is the operator of the business. And that's actually not really the function of the CEO. The CEO ideally is the window. It's the portal between the operational side of the business and the above side of the business. So the CEO is ideally interfacing with people outside the business, is reporting to the board of directors and talking with them and helping to get their their governance issues and their visionary issues and then imbue them with the CEO's insights and then get the people who report to the CEO to put those things into operation in the corporation. The CEO shouldn't be designing the marketing campaign and hiring the staff and those things. Ideally that is something else, right? So when we then move into the board, the board is actually setting the strategic vision and the governance, the things that kind of keeping the company accountable to being a good corporate citizen. And that to me, like exiting the org chart, going to the board, exiting the board, going to being an investor or exiting ownership by selling. To me those are really great places for us to think about playing because there's so much opportunity for us in those other areas. So exiting the line, the line, that's where you're hiring the staff, delegating the day to day operational tasks of the business. That's when we move out of that. We're going to manager hiring managers to supervise the specialized divisions like marketing, finance, operations and all of that that are reporting to you. Then you're a manager. We want to exit that manager and become a leader. That's when we move to CEO. And then exiting the org chart, this is where you actually do something that's very, very scary to a lot of people. This is where you're hiring a CEO to replace you, where you're moving exclusively to the board of directors. You're just setting the things that keep the company accountable as a, as a corporate citizen in the world, doing some sort of good and also, you know, having some social impact, some environmental impact, being sure that there are controls on people doing things. And you're also talking about how to shape the strategic vision. You're ideally bringing in some outside directors as well so that they can give you additional insight and really all the connections and wonderful things they have. At this point, you might sell a minority or even a majority position in the company's equity to a third party investor. You might stay here as you are, as you are a member of the board, but typically you don't stay in operations at that point. Then as you get off the board, you're really stepping out of the company. And this is again usually triggered when there's a partial exit where you're selling a minority or controlling interest to a third party. This is where you really definitely want to bring in your outside directors in the company. And then stage five, you're going to exit. Like I said, typically it's one of five ways. You're either going to exit by sale of the company, you're going to retire from the company, you're going to die, the company is going to run out of money and you're going to go bankrupt or in some circumstances you will be removed by the third parties like Steve Jobs was and several other people that we've, you know, that we've seen in the media. So these like you're going to exit your business one way or the other at some point. So you want to be thinking about structures and, and what is going to be the best way to do that as you go, you know, as you move forward. So there's really 18 steps in that process. The very first step is the one we're Talking about today, that's getting structured. The next one is how can we get you to neither be the brand or the product? How can we get you to be the person who is the spokesperson for the company, but not the actual product itself? Not the actual brand itself. People like Tony Robbins have a hard time or Harv Eker had a really hard time when he was trying to sell the company. They start as a personal brand and then they try to move outside of that. It's a very difficult thing to do. It's definitely possible. We did it at Digital Marketer with Ryan Deiss. But ultimately, if you're going to be able to exit any of those stages outside the first two, you're going to have to figure out how can you not be the brand of the product. After that you want to definitely work on getting off the org chart as fast as possible. That's going to give you the maximum flexibility and to be able to participate in any of the five stages of exiting. You're going to want to think about how can you differentiate this business from other businesses and what defensible intellectual property do you have? Because the more moat, as Warren Buffett says, that you can build between your business and other businesses through differentiation, differentiation and defensible intellectual property, the more valuable it will be to a potential acquirer. Because the risk of competitors coming in and ending up competing just on price is going to be significantly lower. They won't be able to do it. They literally won't be able to do it because they don't have the legal right to. Then thinking about how can you create continuing monthly or annual recurring revenue after that? How can we shift or pre capture our cost of goods sold in ways that will allow us to be able to grow significantly faster without needing a tremendous amount of capital, then you're going to think about actually consciously designing, curating and measuring your customer experience. The customer is everything. We've seen wonderful businesses like Amazon be created just by an obsessive focus on customers. Then you're going to add services and products and you're also going to productize any services that you've got so that they can be replicated and performed by anyone. So if your business requires customized services, if you call your people clients instead of customers, then there's a good opportunity there to productize what you're doing so that it can actually scale. Then we're going to look at scaling deliverability. We're going to want to trim out our underperformers and non performing products and services. The offers that we're making there. We're going to want to think about how can we diversify and also scale all of our marketing channels and our sales channels. So we have a traffic channel grid that we go through in scalable growth and I think we've got 42 channels on there that we like to look at and we'll talk a little bit about that. And on sales, then we talk about how can we scale and cross train the teams that we've got. The more cross trained our teams are and the more experienced management we've got, the lower the risk to a potential acquirer because again, it doesn't require us. But also you don't want to depend on any single key person in the company so that if they go away, the business is going to take a back step while we're waiting to get the new people up to speed. So that's really going to be an important one. The next would be how do we keep our key people here because we can't typically do it with contracts. So how can you actually motivate them positively to stay? And then how can you create and document everything in the company so that you've got standard operating procedures for every single core thing that's going to happen in the company? Again, this goes to risk. If there's a loss of any employee, it's easy to replace them with somebody else. And everything that person does doesn't leave as tribal knowledge. If they leave the company, then we want to diversify the customer base so that we're not depending on any single customer or ideally even a customer segment. We want to have clean audited financial statements. And last but not least, we want to think about how can we expand through Programmatic M and A. If you remember last session, we talked about one of the key growth components to the most successful and the most fast growing companies is the ability to grow through acquisition. So that's going to be something we want to look at as well. So to get exitable, we're really going to be thinking about all of these things.

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