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According to Warrillow, the number one mistake entrepreneurs make is to build a business that relies too heavily on them.
This is a problem because when the time comes to sell, buyers aren’t confident that the company can stand on its own—even if it’s profitable.
However, by pursuing three criteria—teachable, valuable, repeatable—you can make a business sellable.
“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.”
The Five Big Ideas
You should always run a company as if it will last forever.
The best businesses are sellable—even if you have no intention of cashing out or stepping back anytime soon.
Once your business can run without you, you’ll have a valuable asset.
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 from your competitors.
Make sure that no one client makes up more than 15 percent of your revenue.
Built to Sell Summary
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.
The best businesses are sellable, and smart business people believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon.
Once your business can run without you, you’ll have a valuable—sellable—asset.
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 from 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.
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.
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.
We’re used to paying for products up front and services after they have been rendered.
Avoid the cash suck. Once you’ve standardized your service, charge up front or use progress billing to create a positive cash flow cycle.
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.
Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.
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 to 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.
Ignore your profit-and-loss statement in the year you make the switch to a standardized offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash flow remains consistent and strong, you’ll be back in the black in no time.
You need at least two years of financial statements reflecting your use of the standardized offering model before you sell your company.
Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.
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 or her best client.
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.
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.
If you like Built to Sell, you may also enjoy the following books:
The E-Myth Revisited by Michael E. Gerber
Work the System by Sam Carpenter
How to Write Copy That Sells by Ray Edwards
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