Built to Sell

Built to Sell

Author – John Warrillow

Brand: it ain’t the logo
Top grading for sales
Top grading
Small Giants
Mastering the Rockefeller Habits
4-Hour Workweek
The most successful small business in the world
The Goal
The great game of business
A stake in the outcome
Street smarts

You should always run a company as if it will last forever; and, yet, you should also strive constantly to maximize its value, building in the qualities that allow it to be sold at any moment for the highest price buyers are paying for businesses like yours.
→ Having an “options strategy” as opposed to an “exit strategy”. — John Willow

Logo creation system

  1. Visioning
    Always start off by asking the client to describe their vision for their product and how they differentiate themselves from their competitors.
  2. Personification
    After we establish the client’s goals, we go through an exercise where we ask the client to personify their product. For example, we’ll ask questions like ‘If your product was a famous actor/rock star, who would it be?’ and ‘What kind of cookie would it be?’ These questions force the client to think about the personality they want to come through in their logo.
  3. Sketch Concepts
    Then we use a pencil and paper to freehand sketch a bunch of ideas. We’ll use the business the client is in along with their vision and the personification exercise to come up with a few icons that represent their product.
    We’ve found that if you use a computer to show a client rough drafts, they tend to focus on small details they don’t like instead of judging the concepts. So by showing them concepts in rough, we force them to focus on high-level ideas instead of details like colors or fonts.
  4. Black and White Proofs
    The client will usually like one of the sketches, which then acts as our basis for creating a version on the computer. Again, we limit the variables a client can see by only designing in black and white. That way, the client judges the logo on its design merits before we get into colors.
  5. Final Design
    Once clients like what they see in black and white, we show them color options and they select one. After they select colors, we provide the client with digital files and a brand standard guidebook, and then our work is done.

“Take each step in the process and write a detailed instruction manual for completing that step. Give the instruction to one of your team members and see if they can follow the directions. Edit it until someone can follow the instructions without you hovering over them.”

  1. Wrote the exact questions he wanted to ask clients.
  2. Outlined the personification examples in painstaking detail.
  3. Specified how many sketches to render and what elements of a client’s business to use as inspiration for the imagery in a logo.
  4. Strict instructions on how to present each black and white version, including the paper stock to use for printing.
  5. Outlined the detailed color combinations to use and what to include in the style guide to each client.
Don't generalize; specialize. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve, and you will stand out among your competitors.
Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15 percent of your revenue.

“In each business I’ve sold, we created a standard service offering, a consistent process for delivering our product or service. We made sure the product or service was something clients would need on a regular basis, so we could count on recurring revenue.”

“We’ve developed a five-step process for designing logos and have achieved some great results for clients.”

If you want to sell your business, you need to start thinking of it as a product company, not a service company.

Owning a process makes it easier to pitch and puts you in control. Be clear about what you're selling, and potential customers will be more likely to buy your product.

When people are the main assets of a business, the business will not be worth very much.

Don't become synonymous with your company. If buyers aren't confident that your business can run without you in charge, they won't make their best offer.

Products are paid for before you use them. Now that your service has been productized, you need to start charging up front for it.

When someone buys your company, they look at the amount of capital they need to tie up to buy the business. If your business is a cash suck-then they will be willing to pay less for the business. If your business generates cash, they will be willing to pay more to buy your business.

Avoid the cash suck. Once you've standardized your service, charge up front or use progress billing to create a positive flow cycle.

If you’re going to commit to creating a business that can be sold, you need to commit to offering one process. That means you need to stop accepting other projects.

Don't be afraid to say no to projects. Prove that you're serious about specialization by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you'll get to people who need your product or service.

“Not only is an acquirer going to want to know how big your business could become, they will also want to know that you have a predictable sales formula that allows you to estimate how many sales you can make.”

Two sales reps are always better than one. Often competitive types, sales reps will try to outdo each other. And having two on staff will prove a buyer that you have a scalable sales model, not just one good sales rep.
Hire people who are good at selling products, not services. These people will be better able to figure out how your product can meet a client's needs, rather than agreeing to customize your offering to fit what the client wants.
You require at least two years of financial statements reflecting your use of the standardized model before you sell your company.

“I gave managers targets and a corresponding bonus for achieving their personal targets. I paid them their bonus at the end of each year and put aside the exact same amount into a special pool of funds earmarked for them. Three years after launching the plan, and each year thereafter, they were allowed to withdraw one-third of the pool. That way, their pool grew in value each year corresponding with their personal achievements, but they could not access the extra money until three years after earning it. If they ever decided to leave, they would be walking away from three years’ worth of bonuses sitting in the pool.”

Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.

→ As an employee, I’d much rather have an understandable cash bonus plan than a few shares in a closely held small business.

Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.
Avoid an adviser who offers to broker a discussion with a single client. You want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favor with his best client.

When a company looks for an acquisition, it’s usually because they want to grow. You need to show how you can be an engine of growth for an acquirer.
→ Think about how aggressively Starbucks has grown. Imagine you have a blank check to grow your business as large and as fast you possibly could, if given unlimited resources.

Think big. Write a three-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.
If you want to be a sellable, product-oriented business, you need to use the language of one. Change words like “clients” to “customers” and “firm” to “business”. Rid your website and customer-facing communications of any references that reveal you used to be a generic service business.

→ not “firm”, but “business”. | not “engagement”, but “contract”

Don't issue stock options to retain key employees after an acquisition. Instead, use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in two or more installments only to those who stay so that you ensure your key staff stays on through the transition.

A buyer needs to feel motivated, and to feel motivated they need to hear you’re genuinely keen on tapping into their resources to help you get to the next level. Tell them, ‘I am proud of the growth I have achieved. I am at a point in my life where I would like to create some liquidity for the value I have created so far and have an opportunity to participate in some future upside of the business.’ = ‘We’ve proven the model can work in one city. I’m at a stage in my life personally that I’d like to create some liquidity for the value I’ve created so far; and I’d like to find a partner that can help us replicate the model in other cities and allow me to share in some future growth.’
They need to feel like you see a future for the business and that you’re excited about exploiting the assets they have. They need to feel like you’re willing to stay on for a period of time to help them tap into some synergies of the two businesses.

You don't have to pinpoint a time frame, but you do need to give the buyer the sense that you're willing to stay on for a transition period.

How to Create a Business that can thrive without you

Step 1: Isolate a product or service with the potential to scale

Scalable things:

  1. They are “teachable” to employees or can be delivered through technology.
  2. They are “valuable” to your customers, which allows you to avoid commoditization.
  3. They are “repeatable” meaning customers need to return again and again to buy.

Often you’ll find that the most teachable products/services are the ones that customers value the least. Alternatively, you’ll find that the products/services your customers value most are the least teachable.
→ Try combining one or more products/services to create the ideal offering.

Of the three criteria for a scalable product/service-the single most important factor in driving up the value of my companies was ensuring my revenue was repeatable.

6 forms of recurring revenue from least to most valuable:
6. Consumables(toothpaste): disposable items customers purchase regularly but that they have no solid motivation to be brand-loyal toward.
Start tracking your repurchase rate from existing customers.
5. Sunk money consumables(razor blades): the customer has made an investment in a platform.
4. Renewable subscriptions(magazines)
3. Sunk money renewable subscriptions(the Bloomberg Terminal)
2. Auto-renewal subscriptions(document storage)

  1. Contracts(wireless phones)

Once you’ve isolated what is teachable, what your customers value, and what they need most often, document your process for delivering this type of product or service.

  • Describe each of the steps so that you can repeat the model in the same way each time. This will form the basis of your instruction manual for delivering that product or service.
  • Use examples and fill-in-the-blank templates where possible to help ensure that your instructions are specific enough for someone to follow independently.
  • Test your instructions by asking a team or team member to deliver the service or product without your involvement. Getting the instruction manual right will require time and patience. Expect to develop many drafts.
  • Next, name your scalable product or service. Naming your offering gives you ownership of it and helps you differentiate it from those of potential competitors. Once you own something unique, you move from providing a commoditized service or product to providing one whose terms of use you decide. If your product or service isn’t generic, customers won’t be able to compare your price to others’. Instead, name your offering, along with each of the steps you take to deliver it, to differentiate your offer so that you can set its price and payment terms.
  • After you come up with a great name, write a short description of the features and corresponding benefits of each step in the production of your offering. Revamp all of your customer communications (website, brochure) to describe your process in a uniform way.
If you want your business to be profitable, enjoy fat margins, and thrive without you, you need to stop responding to RFPs and start carving out your own one-of-a-kind product or service. RFPs commoditize a category down to the point where the only way for a business to win a contract is to be the lowest-cost provider.
Step 2: Create a positive cash flow cycle
To create a positive cash flow cycle, charge your customer in full or in part for your product/service before you pay the costs of whatever it is you provide.

If you get an offer to buy your company, the second most important number on the page may be the working capital calculation. If your offer does not include details on the working capital calculation, be sure to lock that number down before you agree to anything.

Step 3: Hire a Sales Team

“Your job as an entrepreneur is to hire salespeople to sell your products/services so you can spend your time selling your company. You make a few hundred or thousand dollars when you sell your product, but if you turned those same skills selling your company, you can make exponentially more.”

If at all possible, hire at least two people to do sales.

Step 4: Stop Selling Everything Else

Once you have weaned yourself off other projects, you need to operate your newly focused business for at least two years in order to prove to a buyer that your new model works.

Many business owners realize a tremendous uptick in their quality of life in these two years. Business improves, cash flows, and customer headaches decrease. In fact, many owners like this stage so much, they shelve their plans to sell their company and decide to run it in perpetuity. If this happens to you, congratulations

Step 5: Launch a Long-Term Incentive Plan for Managers

If you’d like to have a business you could sell, you need to prove to a buyer that you have a management team who can run the business after you’re gone. What’s more, you need to show that the management team is locked into staying with your company after acquisition.

Avoid using equity to retain key management through an acquisition, as it will unnecessarily complicate the sale process and dilute your holdings. Instead, create a long-term incentive plan for your key managers. Each year, take an amount equivalent to their annual bonus and put it aside in a long-term incentive account earmarked for each manager you want to retain. Allow the manager to withdraw one-third of the account’s balance each year after a three-year period. That way, a good manager must always walk away from a significant amount of money should he or she decide to leave your company.

Step 6: Find a Broker

To find an M&A firm/business broker, ask for recommendations from other entrepreneurs you know who have sold their companies.

Your broker should appreciate what you have done to transform your business.
If he considers you to be the same as the commoditized service providers in your industry, move on. Your broker needs to recognize that you have created something unique and special and deserve to be compensated at a higher rate.

Step 7: Tell your Management Team

Telling your management team can be a daunting task. Make sure there is something in it for them if the deal goes through. An acquisition can be disruptive and unsettling for them, so offer key employees a simple success bonus deposited into their long-term incentive plan if the deal goes through.
As an added bonus, a potential acquirer will value your putting a deal-related incentive in place for your key employees to stay.

Step 8: Convert Offers to a Binding Deal

Once the due diligence period is over, there is a good chance that the offer in the LOI will be discounted. Don’t be surprised if this happens. Expect it, and you’ll be pleasantly surprised if it doesn’t happen.
You’ll need to go back to your math. If the discounted offer meets your target cash up front, then proceed forward. If the discounted offer falls below the threshold, walk away-no matter what the acquirer promises to help you hit your earn out.