EP 25 - Steve Simonson - Built to Sell Book Review  

What if you can make your business operate without you day to day?

On today’s podcast, Steve Simonson introduces us to another book of the week episode, Built to Sell by John Warrillow. John made a story instead of a long checklist that addresses this particular question. Here are more gold nuggets on today’s episode:

• The main philosophy behind Built to Sell.

• How to engineer your desired outcomes.

• Why you should align your people with your objectives.

• And the number one mistake most entrepreneurs make according to John Warrillow.

  
  

  So let’s get to know more about our Book of the Week and find out how you too can put your business on autopilot.

Welcome to the Awesomers.com podcast. If you love to learn and if you're motivated to expand your mind and heck if you desire to break through those traditional paradigms and find your own version of success, you are in the right place. Awesomers around the world are on a journey to improve their lives and the lives of those around them. We believe in paying it forward and we fundamentally try to live up to the great Zig Ziglar quote where he said, "You can have everything in your life you want if you help enough other people get what they want." It doesn't matter where you came from. It only matters where you're going. My name is Steve Simonson and I hope that you will join me on this Awesomer journey.

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1:11 (Steve introduces today’s book, Built to Sell by John Warrillow.)

Steve: Welcome back Awesomers, this is Steve Simonson and today we are recording episode number 25 for the Awesomers.com  podcast series. You can always go to Awesomers.com/25  to find the relevant show notes, details and perhaps a link or two that we might mention along the way. So this is another book of the week episode and today my book is Built to Sell and I'm not sure I pronounce his last name but John Warrillow, is how I'm going to give it a go. And John's written a nice book and that is in a parable format right. He's made a story instead of like a long checklist that talks about some of the lessons that need to be learned from his perspective in this particular book. So first let's let's fly up to the 30,000 foot level. The idea of Built to Sell would be that you’re engineering some outcome like running a business and that you're building it to sell. Now this is a very important concept, even if you're not preparing to because you want to build it in such a way that it has value. And regularly I talk about this idea of equity, you're building equity. So sometimes we're building intellectual equity, we do that by reading books and learning in general but other times you're building financial equity. And when you're starting a company, you’re building a company, may be part of your objective is to sell that company and get a financial reward. So if you're building the company to sell that's okay, that's something that people do and in fact it's a very good outcome if you plan for it. So one of the key concepts here and I think that this is consistent between this particular author that when you prepare to sell a bill not a building. When you prepare to sell a company that a company is worth more if it doesn't have to rely on you, the entrepreneur for every single decision day-to-day. So this goes to the same premise of the E-myth and many other books that basically says, “What if you can make your business operate without you day to day?”. And so this concept of being able to operate an engineer business to operate without you day to day is a big deal. And in fact the author goes so far as to say the number one mistake entrepreneurs make is they build a business that relies too heavily upon them. And that can have a series of ramifications. The first is your valuation is lower, right? Because outsiders can see well, this is a more or less a one or two person operation at the heart of it. Even if they have four or five or ten assistants or VA s however you want to think about the different job types, they know that the center of that company is one person. That makes them very nervous and it generally will lower your valuations. So if a company can't stand on its own without the founder even if it's a profitable company that spells trouble for buyers. So buyers will either want to lower the valuation or pay you on overtime or both, right? Because the more risk it is.  They want to get creative with the payment mechanisms. And the payment techniques we'll talk in another episode about the different types of deals that people make. So the point is if you build your business so that you're prepared to exit then you're probably building it so that you don't have to rely and so the business in fact doesn't rely on you for day-to-day operations.

4:54 (Steve tells a story to make a point.)

Steve: So I want to tell you a quick story that when you are this only person with is making the decisions day to day, sometimes that can become taxing and it paints you into a corner and I'll give you an example. So let's say that you're doing it, doing it, doing it. You find yourself just kind of going through the motions, it becomes less and less fulfilling each and every day. And pretty soon it feels like a pretty crappy existence even if you're making money, even if you're making sales. And it increases your anxiety because you're afraid it's all going to disappear. It doesn't feel like a real business and it is a resistor for your equity growth no matter how hard you're working. It's always going to keep your equity growth down. And I find it to be a very bitter irony that entrepreneurs often they're so focused on putting an extra dollar in their pocket or so focused on having the eBay reach a certain level on their financial statements and for those who don't know what eBay da means, it means earnings before interest, tax depreciation and amortization. I might have even got the order there wrong but that's kind of the profit figure that a lot of companies are valued on. If you're so focused on that day to day and and it's because you're stuck in the business grind day to day, you're really not thinking about leverage, you're not thinking about what makes a company really valuable and that is having good systems and good people running that business that increases the value. Even if your short-term profit goes down and it's a real shame to see people who aren't willing to invest in their business for the long term, as those things happen. They conspire against you and then you say, “What I just sell this thing and get the heck out of here”. So not only have you not maximized your valuation, you put yourself in a very precarious position because too often deals that are done under those conditions especially if the company is requiring you to be at the center of it. Even after the deal closes even after the money's in your account. Whatever percentage you got up front, it could be a hundred percent, could be 50 percent. Whatever the deal was six months go by, five months go by, a year goes by, two years go by and the buyer comes back and says, “Hey this thing doesn't work without you. I want my money back”. And they sue you and you just ran this whole race to build a sell this company over two, three, four, five years and you thought your race was over and now you're stuck in a legal marathon that could go for untold lengths and it's just it's extraordinary negative turn of events. And I really do hold the lawyers and the deal makers that are involved in those deals. When they go upside down I hold them accountable in the deal Sowers because it's not a good thing and in many ways it's predictable. So that's the downside of these things not happening in the right.

7:51 (Steve share some steps to run your business right.)

Steve: So what happens if you do it right? Well here's some of the steps that you can take to do it right. The first is make your business run without you. Then you have a valuable equity on your hands. If the business requires you to run it's lower value regardless of the the P&L statement, if you focus on your specialties and I mean within your own talents or within your own strengths as a company, you'll find that is much more leverageable. So if you're not good at finances, you're not good at Facebook marketing get some experts in there to help you alright. Those are just a couple examples but they exist across the board. And then specialize in what's your best at where you can make the most difference to the customer where you can add the most value as person, as a company. And when you do that when the equity in that thing goes higher and higher. One other little tip is try not to have one customer represent too much of your business and it talks about it in the book Built to Sell that if you have one customer that makes up more than 15 percent of your revenue, you're destined for trouble. You may have some some issues especially when you go to sell. But even before you go to sell that customer ends up dictating too many things for your company. Let's just give an example, let's say you sell to Walmart you were super excited that was kind of the dream client tool and you just can't wait to have this client come on board. And then when they do they turn out that they're 50% of your business now and at first it sounds great you're like, man my business is blowing up it's huge. And then they may start making demands ago, you know what we decided we want a 3% cash discount and we'll pay you in 30 days but you're going to give us 3%. Now you look at it and you're going well they're 50% of my sales maybe I can deal with that margin hit. And so you say yes, all right I'll suck that up. You might fight back a little bit really. You're too scared to lose the account. Next thing they'll come up and they'll say and again I'm not picking on Walmart, all big boxes do this, all big customers do this. So don't be surprised they'll come up and they'll say hey we need some sort of other allocation and marketing allocation so we need another 5% and and you're like well I don't have 5% to give me and they're like well we need the 5%. And maybe now you decided to put your foot down and then they go okay good we’ll just buy somewhere else and then half your business disappears right. So having one customer whether there's a service business, a product business doesn't matter. Having one customer that's too much of your revenue is a risk to you and it diminishes your equity and it makes your business more risky to sell in the end. If the business that are the best and the business that are most saleable are the businesses that show that you've run it like it's going to last forever. So it almost looks like you have no intention of ever selling or stepping out of the chairman of the board role even if the company is able to run without you day to day. You're still the chairman, you're still the the primary shareholder presumably. And if you run it like that that's where you're going to find the most value and this book built to sell drives that point home very well. I'm going to dive a little bit more about that point home right after this break.

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Steve: Okay, we're talking about the book Built to Sell. That's our book of the week and I want to be clear that this concept of running your company as if it will last forever is a concept that's shared through many different books and thought leaders. This is a real critical part of the equation in my view. If you think about running a business and you're like all I have to do is get it to the sale, I signed the documents, they wire me the money and I'm out, that kind of mentality will lead you to make decisions differently. Then I'm going to have this company forever, it's going to be great, I'm going to make it sustainable, I'm going to make it something that doesn't drive me insane every day right. How you structure a company, to make sure that it operates in such a way that it is not annoying to you day to day is a big deal. A lot of entrepreneurs are in the firefighting business and we like to fight fires every day and we're good at it by the way. So it actually feeds our ego a little bit and makes us feel valuable but if you're just fighting fires every single day that means you have terrible systems or no systems and you need to get systems put in place. So just take that note down for yourself if you are fighting fires day-to-day in your business. You don't have adequate systems okay and the businesses that are the most sellable have great systems and they have even better people running those systems. Now if you believe that you're going to sell the company that's fine but you never want to be pressured into it due to external circumstances right? You're worth the most money when you don't need to be sold, when you're making money and that's when buyers are the most attractive especially the takeaway clothes. One time I was basically thinking of I wasn't actively selling the company but we made moves out there in the investment banker world and other moves just to say well we're not opposed to. It's not happening this very day but we're not opposed to the idea and we would have people come in and learn about the company, either private equity, venture capital. And we were profitable, we didn't need the money but we knew that if we raise money, we get accelerated growth. And the idea at the time was if we did that, how fast could we get to our objectives versus the organic way. And the point of this particular part of the story is that by us being able to say no it really drove up the valuation. It also drove the buyers or potential buyers and investors insane. They definitely wanted a piece of it even more when we would say no or not that interested or we don't need it so why bother. So you want to be in a position where you get to call the shots, where you have the the right decision-making capability instead of being forced into a sale because you're either burnt out or you're financially under duress. And by the way growth can really cause a lot of stress when it comes to running a business. Growth requires more capital and capital means you have cash flow problems, so even as you're growing and even as you're on the books profitable if your cash flow statements are negative that can cause a lot of pressure. And solving those things systematically over the long term can really improve the quality of your life believe me. So once you've engineered the things that you've needed to the business can run without you. Then you start thinking about I want to do to position this thing, to sell even if I'm not ready to sell, even if you really have no intention of selling but you want to position it. So that if somebody showed up that you would be able to conduct the transaction without it being a giant problem. We're going to take one more quick break and when we come back we're going to talk about some of those steps that I think are important to prepare your business. To sell just as a summary level and that we'll do that right after this.

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Steve: Okay we're back again everybody, Steve Simonson. And today on the Awesomers.com podcast number 25. We're doing a book of the week on the book Built to Sell and so before we cut to the break I teased this idea of what are some of the key things you need to do to prepare yourself to sell the company. Even though we're going to run it like we're going to have it forever right. As if it will be our own you still need to prepare yourself that if you're going to sell it. So one of the the key things is to get the people aligned with your objectives, making sure that any incentives that they may have in terms of their pay are aligned with the company goals. And objectives too often misalignment between employees or departments can create problems within your company. Literal strife where they're fighting with each other sabotaging each other or at a best-case within those cases of misalignment bitterness right. That's the best case. So one department hit its goals, the company didn't make money but they hit their goals, they got paid bonuses and the other departments didn't get paid bonuses because their goals were more aligned profit or sales or whatever the case may be. Now everybody else is bitter. Whoever got the incentives or bonuses that were available to them and my point is making sure that your people know what their jobs are. That they are aligned with the objectives and they're incentivized to whatever extent that you choose to use incentives. We all talk about this in a future episode that incentives are a dangerous business. You don't always get what you expect to get out of them. And so if you do have those things set up they have to be aligned with the same company objectives than everybody has even if they're individual metrics and their individual goals may be different if the big picture is not their profitability growth etc, customer satisfaction, whatever the case may be, then you're going to have misalignment and you're going to have problems. So that's one of the the key factors to preparing to sell the other is to consider this idea that getting your financial books in order, what a concept right. So having a good process and getting that financial system in check is really important. I know a lot of entrepreneurs out there don't like finance, they only do it once a year when it's time to pay taxes. That's not good enough. You need to look at these things monthly. It should be considered a scorecard if you're into sports. It's just like keeping score in sports. We used to have a saying no score no game. If you're in the video games, it's like a digital scorecard. How many guys did you get or how many territories did you take over. Whatever the game may be it's all about trying to make it more fun. And it can be more fun once you understand those numbers and once you understand the inputs that you put into the company that drive those numbers that's when the power starts to come out. So again once you get your people aligned and everybody knows what they're doing you get your financials to keep track of the score and then you make sure that your systems are being elevated so that you can scale. So an example of system elevation, when you start out you're probably just submitting purchase orders by email possibly even if you, maybe you didn't even submit purchase order. You just send an email said, send me a thousand of those. I'm using a product company as an example here that is a quote system I suppose out of the gates but I'm not going to say it's a good system. And what I will say is that system needs to be elevated over time so that your financial books are driving those purchase orders, so you can track those things. And I'm not just talking about tracking the costs although the landed costs for a product that you're importing from another country has substantial variations most people don't realize that there's all kinds of variations that happen very various times a year. Various movements of that inventory sometimes the duties have changed so that landed cost variability is enough reason to get it right. Getting your purchase orders put into your financial system but the other things that go along with it like what's the average time that manufacturer is getting the purchase order and shipping the purchase order you'll hear them say, “oh I ship 30 days 40 days 60 days after I get the PIO” and you'll hear that but when you can start measuring it. Oh man the power is extraordinary and all of these little details all these little points are what make a company worth more and I know I talk about it often but I'm going to just repeat it again for you. We want to build equity of all kinds. We build intellectual equity and we do that by learning and reading books like Built to Sell. We want to build financial equity after all our companies are just a financial instruments and to build that equity we have to pull on all these little levers right our our team,our scorecard, our systems and so on and so forth. So that's the type of stuff that you're going to be able to do and be able to prepare for when you are preparing to sell a company. If you don't put enough work into there up front, you're going to find the due diligence process is a nightmare. It's never great I'll be honest with you but it's a nightmare if you're unprepared. if you don't have documentation for example, if you don't have descriptions about what your people do, if you don't have a good financial system all your books and so forth in order. All of that is basic stuff to get a company sold. So one of the other themes within this book that I want to just share is it's again the story in the book is written as an example and it may be it's a true story. I don't remember but this guy basically has an agency. It's an ad agency and he struggled with it and he meets with a mentor and the mentor kind of evaluates his business and evaluates his agencies as well, “listen you're selling a service more or less as a service instead of it as a product”. They're selling time for money which is a non scalable way to exist and the mentor said you need to come up with a way to productize your services. And to be able to productize the services all you have to do is think about it in terms of what value can I deliver to a customer and I will set that value. I'll outline a scope of work. Now that's a product, I'm going to give you the I don't remember what they call their products in the book but let's just say it's an ad agency and we're going to give you the Facebook monthly plan and this means we're going to manage your Facebook ad spend. We're going to do this many variations of every ad, we promise we're going to deliver this many new ads a month, we're going to give you this reporting every week. They just kind of go down through all of those deliverables and they just do it for a flat fee every month. So instead of you worrying about are they putting in the four or five six hours, 10 hours whatever they're supposed to put in? You just see if they're delivering on the deliverables. Now that's good for the agency because they can do more clients without having to worry about the individual time and the more they systematize and introduce technology to help them with the deliverables the more scalable they become and that's a core part of this book is getting. The idea of productizing or whatever you're doing. If you're selling a physical product that's easy enough. You already have a product but you can get creative with those. You can sell bundles of products, you can sell multi packs of products. One of the products we had it was it would do okay not that great as a single individual item but when we put them in multi pack, the product took off and we positioned it differently and sold it to commercial buyers instead of residential buyers. So businesses instead of consumers and the product took off just because we packaged it differently. So we literally productize the product and so no matter what you do you want to make sure that you think about it in that context and that you leverage whatever technology you can that makes your model of sales scalable. When your buyer sees you have a scalable model they will often see you're constrained by capital because we all are. And they'll say well I mentally they say to themselves well I see their core business model. That's good they could grow even faster if they have more capital and could hire more people and whatever the case may be and so they go. This is a good business for me to buy and I'm even willing to pay a little higher than the maybe the normal valuation because they can see the potential in their hands and that's ultimately where a buyer does their best. When they can see in my hands I can do this and this exert my influence, deploy my capital. Whatever the details of their acquisition strategy are I don't know but they will absolutely be able to scale and leverage anything and then you have a happy buyer. Not one that comes after you later after the sale when everybody's mad and unenchanted and soured on the deal.

25:54 (Steve talks about the warning that John Warrillow write on his book.)

Steve: So one other word of warning that John Warrillow goes into in this book Built to Sell he says that, if your Ducks aren't in a row today, if you don't already have a good system and in the case of the book that ad agency they already had a system more or less selling time for money they had a big customer that was dominating most of their time, they had to fire that big customer and they had to reset their whole agenda and productize things. It caused them turnover, it caused them all kinds of pain and the point is the warning is, “Don't let that stand in your way, it will be some pain to get your ducks in a row and get yourself aligned and don't even focus on the profit loss for that year. Just keep your cash flow strong and that the profits will follow in the long run” and I think that's good advice delivered within this book and something that people shouldn't forget that when you're making these changes, it's not going to be instant results and and maybe it requires some investment. That's okay, as long as you understand your plan, as long as you are focused on executing that plan with excellence as always.

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Steve: So here we are again. We're at the end of the episode. I hope that this has been instructive and useful to you. I do recommend the book. Some of the things that I've talked about here in the podcast are not in the book. But they go, they correspond with the book and so I hope you kind of marry those two ideas up of how you prepare for sale from the books perspective and you can add in some of my own little wisdom or lack thereof into your thought process as well. This is Awesomers.com episode number 25. So you can go to the Awesomers.com website Awesomers.com/25 to see any details, show notes etc. This is another book of the week episode of and we'll be coming back to you right after this.

Well, we've done it again everybody. We have another episode of the Awesomers podcast ready for the world. Thank you for joining us and we hope that you've enjoyed our program today. Now is a good time to take a moment to subscribe, like and share this podcast. Heck, you can even leave a review if you wanted. Awesomers around you will appreciate your help. It's only with your participation and sharing that we'll be able to achieve our goals. Our success is literally in your hands. Thank you again for joining us. We are at your service. Find out more about me, Steve Simonson, our guest, team and all the other Awesomers involved at Awesomers.com. Thank you again.