I recently read the book, Built to Sell, by John Warrillow, on how to position and turn your business into one that you can sell. It is a valuable book, simple and practical, and definitely worth reading for anyone interested in selling their business someday.
I enjoyed how John didn’t just explain strategy and theory – there are plenty of books that take that approach. He created a fictional character, Alex Stapleton, with a fictional company and then provided very tangible and specific steps that Alex took in order to re-position his business in order to increase the value in a sale.
There are tips and suggestions for any business, but it is particularly relevant to small service businesses. John obviously knows first hand that service firms are not as scalable as product companies, and that it shows in the valuations they receive. John even goes as far as explaining it is preferable to use the term “company” to describe your organization and not “firm”, and use “customer”, not “client”. This is designed to position the organization as a company that can grow beyond the territories and labor constraints (including the work of the founder/owner) that typically bind a small service firm.
The book goes further by then describing the sales process that Alex Stapleton goes through, all the way to close.
John wrote me and asked, “Did you see any of your clients in Alex”? I most certainly did. For example, in the book, Alex’s deal gets “repriced” and lowered to $5.2 million at the end of due-diligence and he becomes defensive and angry, almost to the point of killing the deal. Then his mentor reminds him that at the beginning he said his dream, his fantasy, was to get $5 million.
I once had a couple that said they would be happy to sell for $1 million. Later we got an offer for $1.3 million, but they had to carry a note for $200K. They were angry and said absolutely no way would they take a note, even after I pointed out to them they were going to get $1.1 million in cash, $100K more than what would have made them happy a few months prior.
By the way, John uses that repricing as an example, but if you read the book you may get the feeling that buyers are quick to bring their offer down after having tied you up during due diligence. The repricing I’ve experienced have been a result of the company not making its forecast during the sales process or errors in the financials. Very real and tangible reasons and usually pretty darn hard to argue with. It does happens where a buyer experiences some buyer’s remorse and just plain wants a better deal, but I don’t think it’s the norm.
As someone that makes a living selling businesses, I can say that Built To Sell, in surprisingly few pages, captures the essence of preparing and selling a business.
There are a couple of sections of the book that differ somewhat from what the fictional Alex would have experienced as our client, and I’ll cover these in the next post.