Should You Build Your Company to Sell it?

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When I first heard the title of well-known entrepreneur and business-writer, John Warrillow’s newest book—Built To Sell—I have to  admit to recoiling a bit.

I have major concerns about founding and building a company with the sole purpose of selling it. As I got deeper into the book, though, it became clear that, in fact, Warrillow’s message is not that every company should be built with the intention of selling, but rather that the very things that would allow a business to be sold are also the things that allow you to love your business more and create more freedom in your life.

Built To Sell is a treasure-trove of ideas, strategies and practical applications. Still, I had lingering questions, especially about how his ideas applied to the vast landscape of one-person businesses that predominate today’s ecosystem.

So I sat down with Warrillow and asked him to go deeper in a few areas. What unfolded opened my eyes to insights and ideas that I’ll be exploring as I move into future ventures, I hope it will do the same for you.

Here, then, is our conversation…

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John: I started four companies and one of the common themes that I ran into was that at one point or another, no matter what company was, it reached a ceiling beyond which it could not and would not grow.

One of the companies – most recently was a research company and we had a really nice start. We were doubling every year in revenue and at one point I happen to remember, it was $3.3 million in revenue, we got stuck and we just could not get any further in terms of revenue than that.

I spent many months kind of trying to figure out how to get out of this rut of being a $3.3 million dollars in gross revenue. And I realized that the problem was largely because I became this bottle neck. I turned from the screwdriver of my business to being this kind of bottle neck.

So I went about and made some changes in the business to make it one that could succeed without me personally doing all the work and driving all the sales, et cetera. And that worked and that enabled us to grow quite quickly beyond that.

And so that is really what inspired me to write the book. The idea that so many businesses get to this point and they don’t know how to get out of it and I know I was in that spot and I thought maybe it could help. I studied business owners for many years so I kind of get the sense that this was an issue that a lot of them are dealing with.

Jonathan: So you and I have been both in and around the entrepreneurship world for a pretty decent amount of time now. I’ve talked to a lot of really intelligent successful entrepreneurs, studied them and read a zillion books on the topic. One of the bibles that I think almost entrepreneur read at some point fairly early in their career once they hit a point where they are trying to figure out how to get to the next place is – the classic e-book the E-Myth. What is different about this? What does this book add that the E-Myth doesn’t?

John: Yeah. It really is a focus on value. I think the E-Myth to this day is probably the single best book I have ever read on entrepreneurship. I am a huge fan of the E-Myth and what it brings to the table. To this day when somebody comes to me thinking of starting a business, the first book I tell them to buy is the E-Myth. It is like the bible of books. A lot of people had told me and actually compared Built To Sell with E-Myth one of the things that they tell me is that Built To Sell kind of takes off from where E-Myth stops.

It really talks about how do you create a valuable business over time that could be sold. A lot of people I think want to know that their business is valuable, it can sustain itself beyond their tenure, that they are going to leave a legacy that maybe that actually could be something that could be sold. I try to distinguish between the idea of why you sell your company which a small percentage of people actually want to do, with the idea which I think is broader and I think which is the concept of the book which is to own a business that you could sell when you are ready. And when you are ready is obviously a big question mark and that varies dramatically by person but I think everybody wants to sleep at night knowing that they are sitting on asset that’s sellable.

Jonathan: Okay. So this is an interesting exploration for me especially. This is actually – it’s a challenge that I have had with E-Myth forever. And it is a challenge I have with the title of your book although less with the content of your book, which is the notion of building something with the intention of selling it from day one.

I think what you are saying is that’s really not what it is about. It is building it with the intention of making something cool and worthy that generates and income but simultaneously understanding how to structure it in a way that provides you more life outside the business. Is that accurate or – expand on that.

John: Yeah. It absolutely is accurate. I think it is about building a company that can thrive without you. I don’t think that there is anything dirty about wanting to sell your company. I take issue with people who say that there is something somehow wrong with that. I think the individual, the entrepreneurs in particular have a tenure; they have a shelf-life, they thrive on creativity and energy and the new thing and business reaches point where it is no longer the new, new thing.

Many businesses start, it’s exciting, it’s dynamic, it’s fun. You build it up, you get a team in place, and then it becomes boring, right? I think some people would say there is something wrong with one selling their business. I think there is something imminently self-aware of saying:

“Hey, I’m good for ten years. But then I want to pass this business on to somebody else who could give it the next stretch of energy, the next ten years. And that’s not me as an entrepreneur. That maybe someone else with a different skill set.”

I take issue with the idea that there is something wrong with that. I think that’s a very healthy approach on entrepreneurship, frankly.

Jonathan: So here is an interesting thing. Here is where we actually probably disagree on at a fairly strong level. The vast majority, some 80% of entrepreneurial ventures in this country are actually one person ventures. And the idea behind them is that they want very much for them to be lifestyle ventures. They don’t want to sell them. They basically built their venture because they do it and they want to do it the rest of their lives.

You and I are more of a classic entrepreneur, we love the process of creating things, bringing them to life and I don’t know about you but I tend to get kind of bored when things get stable and I want to move on. I want to sell it. We’ve both built and sold a few businesses.

I think it is more what people perceive probably as a classic entrepreneur. But in my mind, the much more pervasive entrepreneur, the one that actually dots the American landscape on a ratio of 4 or 5 to 1 is the local accountant, is the local doctor, is the local person who actually really doesn’t have any desire to build and sell a company. And my concern is that we label those people not entrepreneurs or valid businesses because they really don’t want to sell. They just want to do what they want to do. They want to enjoy themselves and contribute to life and earn a nice living for their family and put food on the table.

Somehow those people are being labeled and you see this in popular literature these days. Those people aren’t being labeled as legitimate entrepreneurs because the real entrepreneur builds and sells and builds and sells. I think the other side of that argument is that a lot of people also are bashing people who want to be lifestyle entrepreneurs and have zero desire or intention to ever sell. They just want to create a really nice lifestyle for themselves and figure out how to do something that makes them come alive and adds to the world around them.

John: Yeah. I don’t disagree. So I will give you a bit of a background as well. It’s a research that I did for my first book actually which was published in 2001. I did a fairly significant and quantitative research piece that we looked at the motivation. It is a psychological kind of motivations of entrepreneurs.

They argue, to your point, some 30 million entrepreneurs in the United States really fall into these three psychographic profiles. I call them:

  • Mountain climbers,
  • Freedom fighters, and
  • Craftspeople.

These three profiles are defined by the goals and the motivations of the entrepreneur.

Mountain climbers want to grow. They want to flip. They want to build. They are the most egotistical. They are the most driven et cetera.

Freedom fighters are motivated by independence. They want to create businesses that allow to be independent. Never work for the man. Never work for some big company ever. Never sell out to a fee. They want to control their destiny.

Craftspeople want to actually master their craft. They are writers, they are plumbers, they are artists, they love what they do and they want to be known for what they do.

I think the group that you are referring to is either lifestyle entrepreneur, the sole proprietor is in fact you are right, it’s the craftsperson of the world. I think you can be anyone of those three entrepreneurs and enjoy and enormous wonderful lifestyle that 99.9% of the world would envy.

The problem I think comes when you think you are one but you are actually the other. When you think that you are a mountain climber but are actually a freedom fighter. Or you think you want to be a craftsperson but you actually build a business.

So that is the problem. I see lot of craftspeople who have a pride in their work, who are wonderful people who bring tremendous creativity into their lives but they are reading magazines and they get jealous of people who flip companies.

Jonathan: Yeah. I completely agree with that.

John: Or you get at high growth entrepreneur who sells half his company to a private equity company. He is on the cover of the magazines and then wonders why he doesn’t have a lot of time to work on the business to do the crafting. He gets frustrated that he can no longer deal with individual customers.

Or the freedom fighter who sells half his business and then questions the person, the private equity board member who is questioning how they are doing their job; that is the essence of what a freedom fighter hates is being questioned. I think it is okay to be any of those three types of entrepreneurs. It’s just how to do self-awareness to know which you are.

Jonathan: And that is a great point and I love those three things and three categories. I am curious in your research, did you find that there is a strong predominance or a higher level of representation on a reasonable level in any one of those three different categories?

John: Yeah sure. In 30 million small businesses:

  • About 75% are craftspeople.
  • About 23% are freedom fighters and
  • About 2% are genuine mountain climbers.

Have you looked at the definition of high growth entrepreneurs? 2% of all entrepreneurs meet that threshold. It is a 20% growth rate, three years consecutive starting from a standing start of $100,000 dollar of revenue. Just 2% of all businesses meet that clip rate. That is a proxy for the kind of mountain climber attitude.

I get your point. A vast majority of entrepreneurs in the 30 million subset in the universe are those crafts people.

Jonathan: Which doesn’t surprise me at all and I’m guessing it probably didn’t surprise you a whole lot either when you did the work. What is fascinating is that it sounds like the 2% of the people that are the mountain climbers get 98% of the coverage.

John: But why do we all love Lady Gaga or whatever.

Jonathan: But it is interesting right because like you just alluded to, that really sets up a lot of that 75% of the people who are craftspeople to have expectations that aren’t really in line with what really are there to do.

John: I agree 100%. It also can be a bit of life cycle. A lot of entrepreneurs I think will do start – oftentimes they turn to entrepreneurship for more flexibility and control over their time. Oftentimes they are the primary caregiver or a new child and they say, “I cannot go commute 2 hours and work 9-5, so I want to start my own business, become self-employed and have more flexibility and control of my time,” which is all good and fine.

Twenty years may go by and I think motivations can change and the idea of never being able to take a vacation or always sort of being at the beck and call of one or two clients, that sense that you are not building anything beyond just you. For some people we will reach a point where they are like, “Enough of me the self-employed person. I want to actually build something that I could leave – I could leave to somebody or I could sell to somebody or have some longevity to it.”

The opposite by the way is also true. We often hear about stories and I have interviewed them myself, super high growth entrepreneurs, when we have a life event often times it’s the death of a parent or the illness of a parent or some kind of health scare themselves and they change their psychographic profile. They say “I’m no longer going to be the next Donald Trump. I want to grow a freedom fighter business, a business that allows me be independent but does not necessarily take up as much as my mental energy.” So I think life stage can also have a big impact on your psychographic profile.

Jonathan: That is a great point. I completely agree with it. I know it changes for me as I am married, I am a dad. You have different responsibilities and you get further into life. I absolutely agree that what you are looking for from your business definitely evolves. And I had my own major life experiences which have shifted that substantially too, so I have experienced that myself.

John: Isn’t that interesting. I was having breakfast with a company with three partners – three guys. And all of them were new dads and I talked to them yesterday and I said, “How has being a dad impacted your thoughts about the business?” These are kind of hipster guys who are pretty cool and pretty whatever.

It is amazing that the light bulb that you can see turn in their eyes when I asked the question because they immediately went to the idea of being a provider. It was a very primal sort of reaction. It was like, “I need to be a provider now. It’s nice that I had this great little run at this business we had like we’re working 80 hours a week everybody is having a good time but now that I’m a dad, now I want to take it seriously. Now it is important how much money we make, where we want to take business, what the future is, I don’t want to be working 80 hours a week. Like this is primal. I am a provider.” It is a very macho male sort of distinction. That was a break I found really fascinating.

Jonathan: I am fascinated by that question too and I am also fascinated by how dads in particular define being a provider. In my mind one of the biggest most important things for me in my life right now is to be utterly present and involved and engaged in the life of my daughter as I can be knowing that there is going to come a time where she is going to say, “Dad, drop me off four blocks from the school…”

John: Yeah.

Jonathan: It’s probably not that many years off in the distance. So I want to gobble up everything that I can gobble up now and share whatever I can share because there is always that window that we went through when we were kids where you are going to be pushed away and you have to be pushed away and it has to happen.

It’s funny that I’ve had the same conversation with so many dads and I truly agree that there is a real shift in my experience of business – there is also a real difference in how dads define the word provider. For me it’s a really healthy balance of not just prosperity but presence. I wonder if sometimes that is one of the big missing pieces when especially I think when the male ego takes over and says, “I’ve got to generate a boatload of money.” I think that is a piece of that but just having been so present in my daughter’s life for so long, I can’t imagine having missed what I have been there for.

I mean, to me, that would have been a tragedy bar none compared to any amount of money. I’ve left millions of dollar on the table over the years in the name of being present. I am just so thrilled for having made that choice. But I agree the bigger point is that I do completely agree with you on the notion that life cycle affects your decisions about business and what you feel about at one point in life may change radically as you go through it.

Talk to me about the idea is that you actually want to think or rethink some of the fundamentals of your business, a certain amount of structure or systematization so that it gives you more time to probably enjoy the business, enjoy your life and then potentially creates value outside of just your time to visit. Talk to me more about how that unfolds.

John: Yeah. The essence of the idea is to sneak through your business through the foil or through the lens of what will this business look like if I was not there tomorrow. Will the business continue? How will it continue? Will we be able to continue to serve customers in the same high level without me? Can we sell without me et cetera?

One of the ways to do this by the way and to see where the cracks are very quickly is to take a vacation. So literally go on vacation. Start a couple of days, try to extend to a week, two weeks, three weeks and try to see where the holes are in your business and to quickly see whether the issues are around operations, around sales, around marketing, whatever.

The first step in the process in my experience is to narrow down – I know that sounds counter intuitive – but to narrow down the breadth of things that we sell – either products or services so that they meet three criteria. Everything in your business meets three criteria. You’ve got to be, number one, teachable, so that you could teach an employee to do the work as opposed to you personally having to do it. Number two, it is going to be valuable, it cannot be commoditized and number three it’s got to be repeatable.

And what most people will think about will realize that many times they offer many, many different – a wide breadth of services and products and oftentimes it is a reaction to clients and customers asking for. The more customers asks, the broader breadth of product line becomes and it is an illusion that makes us think that we are succeeding because we are getting lots of business. Your customers are coming back asking for more and more things.

But the broader product a line you offer, the less capable would it be for someone other than you to do the work because you are the subject matter expert and while it may be easy for you to do 15 different things, trying to train people on 15 different things is very, very difficult. So it is about narrowing down to one thing that meets the three criteria. Teachable, valuable, repeatable. And so that is the kind of the first step in the process of pulling yourself out of the business.

Jonathan: Right. What is interesting to me too is we mentioned that 75% of the company’s out there, the entrepreneurs fall under what we call craftspeople. My guess is also that a lot of those people – and I have seen the stats on this the single largest category of entrepreneurship in the USA are single person businesses.

So if that is you how do you do this? There has got to be an inherent challenge. If you don’t have people how do you create this? Do you have to bring people in? Do you have to proactively build the team?

John: Yeah. I mean I will give you two examples. There is a little photographic studio in Toronto that we did our wedding shots – Tangerine Photography. I am loyal to the photographer herself. She is a one-person shop. I am loyal to her. When we had our second child we went to get the baby shots, she wasn’t available, she just hired an assistant and said, “Would you mind if my assistant took the shots?” I said, “No, way. I am loyal to you. I am not loyal to your assistant. I don’t know if she is going to go and capture this amazing moment. Because I don’t know her so I just don’t trust her.” She is a sole proprietor, she has hired one assistant and she’s failed to scale the business beyond her. That is an example of what not to do.

Let me give you another example. The school photography company in the same category  has figured out how to get kids in and out of the classroom at 8 minutes. They trained the formula using stuffed animals and a whole series of events to get kids from the classroom into the auditorium, set up, take the school photograph get them back to the classroom in 8 minutes. They can hire a junior photographer to take the picture, follow the procedure. The customers like it because their customer is the headmaster and they get the kids in and out very quickly. And as their parents we want the pictures every year. So it is repeatable. So it meets the three criteria.

That business is scalable because they can go around and apply the same formula and hire many more photographers to take the school photograph company. It is a business that on the surface could never scale – photography it is the ultimate creative industry but because they found a formula it can work. And it can scale.

I will give you one other example in the same thing. The typical blue collar person whether it is a plumber or an electrician, brick layer, whatever, people who work in the contracting space. It is very hard to scale those businesses because again, they have a deep subject matter expertise of what they do. So if they are a plumber it has taken them years to get to be a good plumber.

There is a guy name Jim Vaggis who looked at this model and said, “This cannot make sense because this guys go from like 16-hour days to periods of relative unemployment because when they are  working they are working hard, when they don’t have any jobs there is not longevity to it.” He goes out and he realizes that although the deep break fix problems when they – when the furnace breaks that is like a major issue that they got to get a major professional to come in. It is the preventative things that he can teach someone to do.

For example, it doesn’t take a rocket scientist to teach someone to clean the your evestroughs on your house so that the water doesn’t overflow so that you don’t get a flood in your basement. Fixing the flood requires pouring concrete and a major $10,000 job but doing the evestroughs is something that you can teach a high school student to do.

So he starts this business called Hassle-Free Homes, where on contract he goes out and preemptively manages the home. He cleans the evestroughs for the fall, he gets the pool ready in the spring, he does all of the preventative things which he can teach other people to do.

What I encouraged entrepreneurs in particular once were sole proprietors who are selling their expertise to instead of thinking about the deep expertise that is very difficult to train other people on, think about if there is something that you could train other people to do that is preventative in nature.

Another example would be the dentist who is great at doing root canals, that is hard to train someone. It takes years to become a good dentist and obviously years of experience doing root canals but you can probably dental hygienists to do cleaning every six months. Clinics are out there but all they do is do cleaning so it comes back to do you want a job or do you want to run a business? If you want to run a business you’ve got to find something that can succeed and work without you personally doing.

Jonathan: Well what if you are that plumber that was in business and you’ve been in business for 20 years and you built your entire business around your name personally. How do you transition that? What you are saying is, one of the first steps is to take a step back and take a look at what are the parts of your business that don’t rely on extraordinary levels of experience and expertise and start to build a bigger business with a more scalable business or the less dependent part of the business around those things.

John: Exactly right. And the other piece is to start to separate your personal name from the business name. A lot of sole proprietors have – I mean for me, my last company was called Warrillow. That’s my surname so I have lived this. I know that when American Express calls and they say, “We’d like to speak with you, Warrillow,” they expect John Warrillow to show up. A lot of plumbers and a lot of HVAC guys and a lot of photographers and whatever have their surname in the company name and the question then is how do you build long term value and the company that can succeed without the owner having to show up at all the meetings and one of the things that I suggest in that case is to start to brand your products.

It takes years to rebrand a company so that you get stickiness but if you’re Fields Plumbing maybe Fields Plumbing offers a product or a service, a system the annual whatever checkup or the three-part preemptive measurement or whatever but brand the product over the service that you offer so that over time you can go from start leading with your company name to leading with your product name and that overtime can start to – the brand equity of the product starts to overshadow the company name which will then allow you to start to think about exiting the name.

If you take some of the big consumer package goods companies, some of the big major pharmaceutical companies, I mean Johnson & Johnson is the company name but we think about baby powder or Kleenex or Tampax Those are brands that we kind of place at a sort of higher level on the hierarchy over the top of – you are not expecting the brothers Johnson to show up at Rite Aid where you could buy those things.

Jonathan: Yeah, and I think that’s a great point and it’s really the core reason why the last two companies I had – I didn’t call it Jonathan Fields Yoga. Actually there are so many plays on my name in the fitness world that so many people encourages me to be like Fields of Dream Fitness and Yoga and stuff like that.

John: Awesome.

Jonathan: But I didn’t do that for the exact reason that you’re mentioning which is that I always had at the back of my head that this is something being more along the lines of probably closer to that 2% than the 75%. I always knew that this was something I want to scale beyond my personal brand recognition so I always really from the beginning try to set things up as independent brands.

But I love the extra advice you are giving to people though if you’ve already built that brand and that reputation around your personal name and you want to be able to leverage that because there is a lot of brand equity in it but at the same times slowly build something bigger than that around it, start to create products and independently brand them and over time hopefully build those brands to actually trump to your personal brand. That’s so great. I love that idea.

John: I want to come back to the idea that if you are a sole proprietor, you are the 75% who are running business, this idea that somehow those people are – what’s the word I’m looking for? I can’t put it into words. I guess my point is that many of those individuals while they started out in business because they are craftspeople, because they have an enormous pride in what they do, they are motivated by mastery as I mentioned, they want control over their time, they want control of their destiny, they love what they do; the sad reality is that for many of those people they are not there for their daughters during their birthday.

Because they are at the beck and call of the client and so again I come back to this old issue a little bit that somehow being a provider of emotional equity for your family doesn’t square with the idea of building to sell. I think in fact those two are completely aligned. The idea that you want to be there for your daughter’s volleyball tourney when she’s ten years old, the only way you can do that is to have a business that can thrive without you. You can’t do that if you’re at the beck and call of a client.

And so for me they’re not issues or exclusive ideas. It’s not like oh, you can become a millionaire or you can really do what you love. For me those aren’t usually what makes those – that’s just not the decision-making framework. For me it is building a business hit that can thrive without you, gives you all of the options. It allows you to be there for your daughter. It’ll allow you to scale up if that’s what you choose.

But the sadness I think that so many people find is they buy into the aspiration of entrepreneurship and the dream, freedom but in reality that’s the furthest thing from what they get. They become dependent on one or two clients where they go groveling for work every day to pay the bills. And when the client finally does call, guess what? Everything gets drop just to appease the client including family life. So they’re just to me – I just have so much passion on this idea. I don’t mean to belabor the point but…

Jonathan: No, and I think it’s a really important conversation because people dance around it but they don’t really go dive into it and go head-to-head. And I agree and my response is on two levels. One is he’s a dad and a provider. One is he’s an entrepreneur. He has passion about building different things and also as a craftsperson. He really just loves to develop, intense knowledge and abilities around particular areas.

I completely get it and one of the challenges I have with it is the idea is that there are definitely people who are considered as crafts people and then are people who start out as crafts people and they start to explore the world of entrepreneurship and they start to realize they actually really like building businesses too and enjoy the part of this that lets them scale and systematize and hire people and hand out certain responsibilities and that’s actually pretty cool. I just finished reading Bob Taylor’s book on how he built a giant guitar manufacturing company. He spends a chunk of his time building the business and a chunk of his time building guitars and he likes both of those. He’s developed this really intense passion for both.

Then there are other people that don’t. There are other people that want absolutely nothing to do with that business and the systematizing, hiring, managing with the complexity that comes with it becomes a largely soul sucking experience for them. But they do it in the name of providing for and being able to be there for their families more and providing more substantial money for their families. But at that point I wonder if they should just be working for somebody else because a chunk of what they’re doing is work that’s allowing them to be present, allowing them to provide, but in a way which is no longer any more meaningful to them than it would have been had they been doing something else for someone else.

John: Totally. Yeah, yeah.

Jonathan: So I don’t know if there’s a real answer but I think it’s really important for people especially people younger to the world of entrepreneurship to be having the same conversations that we’re having but certainly with themselves and with the people in their lives.

John: Totally. I couldn’t agree more. I couldn’t agree more because if you want to build a business and do it right and even – there’s an old cliché. The worst way to ruin a hobby or something you love is to go in a business. So if you love triathlon, the worst business you can get in is opening a triathlon store. It will ruin it for you, right? You’ve got employees, you’ve got inventory management systems to worry about, you’ve got security, you’ve got to lock the store at night, you’ve got to train these people that don’t really care but I mean immediately your hobby goes from a passion to being a pain of your existence.

So I think entrepreneurs need to think through—do they love the process of building a company and for many of us, I put myself in this camp, I love that. I love the systematizing, the thinking it all through, the architecture, and that’s why I think a lot of the most profitable, most valuable companies are the least sexy. They’re not the soda pop brand or the new craft brewery. Those aren’t the most profitable businesses in the world because there’s lots of people get into them because that’s the sexy thing to get into as opposed to falling in love with the process of building a company.

Jonathan: So let’s circle this back around. Is there any parting really big piece of advice or thing you would like people to focus on moving forward?

John: Reoccurring revenue. If there is one piece of advice I’d like people to take from this book it’s that the business for it to be valuable and for it to sustain itself whether you want to take a vacation, take a three months sabbatical or sell it one day you need to have reoccurring revenue and that’s the single most important secret sauce I guess if you will to building a valuable company is how will this company continue after you’re gone. So in the Yoga studio you’ve got annual membership. A percentage of folks re-up hopefully. And that makes it a valuable entity. Magazine subscriptions, the people re-up every year. Shredding companies, people leave their stuff there over many, many years and that makes the reoccurring sort of a tail to the revenue and so of all of the things that folks could think about I think the reoccurring revenue is the most important thing to focus on.

Jonathan: Completely agree. So where can people find you? Where can they find out more about the book?

John: It’s builttosell.com. Just like it sounds, builttosell.com is a website, the books available everywhere. And there’s also a sexy, little pregnancy test on the website and you can fill out short 10 question quiz and like a pregnancy test in four minutes, it will tell you whether you’ve got a business that could be sellable down the road so folks can certainly take that as well.

Jonathan: Awesome. And anywhere else online? Are you on Twitter? Are you blogging anywhere?

John: @johnwarrillow on twitter.

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24 responses

24 responses to “Should You Build Your Company to Sell it?”

  1. Wow. Exactly the struggle I am going through right now. Although, I’m not entirely satisfied with John’s photography studio example. My struggle/question would be, is there a way to still have a “sexy” product/business (like custom photography studio) AND build it to sell? I have a successful, mostly one person wedding & portrait biz. My work is edgy and sought after and hard to reproduce. I am on the edge of re-branding the entire operation under my portrait biz name called Lumina instead of Geneve Hoffman Photography because I do want to sell it someday. But, I don’t want to build a mcdonald’s inspired school portrait biz (I could do that in my sleep…not interested). So what are my options?? I am envisioning a core of wedding & portrait photographers that can be “trained” to basically do what I do…is this a crazy idea?? I’ve never really seen it done well…. Great post as always Jonathan!

    • Geneve:

      I think you’re smart to rebrand under the Lumina name which is a big step away from your personal brand. I think the next step is to figure out a way to teach your juniors how to take shots in your way. I think the essence of a style can be taught through personification (e.g. if your style of portraits was a famous person, would they be more Oprah or more lady Gaga; if they were a car, would they be a vintage triumph or a Corvette etc.)

      Sellability all comes down to whether or not the business can thrive while you sleep — make that the lens you start making decisions through.

      good luck!

  2. Ivan Walsh says:

    What’s the difference between building products to sell AND building a company to sell?

    Seems like two sides of the same coin.

    • Ivan:

      There are a lot of similarities between building a product or a company to sell.

      When selling a company, the “product” the acquirer is buying is a future stream of profits either from your company or from integrating your product into their company.

      The main idea behind building a sellable business is that the business has to be able to run without the owner.

      What other similarities or differences do you see?

  3. Jonathan:

    I enjoyed our chat. Thanks for the opportunity to discuss the idea of building to sell with you.

  4. I think too few entrepreneurs think about their exit strategy at the start. It is much harder with a service business but I think whatever our business it’s a conversation to have with ourselves (or our adviser) at some point – even if we then dismiss it as an option 😉

    Cathy

  5. Marie Davis says:

    I’ve always heard that an entrenpeur’s skill set is not always the sill set it takes to run a business after it is firmly established. Personally, I plan to eventually hire someone to deal with day to day stuff, leaving me to continue to be it’s creative engine.

  6. marie-jeanne juilland says:

    Thanks a ton for this outstanding interview.

    John’s point about people getting clear on whether they are craftspeople, freedom fighters or genuine mountain climbers is key. As is the point that your preference can change depending on your point in life.

    And yes, as a former national business journalist, I spent many a year contributing to the glorification of “mountain builders.” (hey, that was “sexy.)

    My apologies to those making the equally valid choice of crafting and freedom fighting. Going forward, I will be spreading the word of their glory too!

    Marie-Jeanne

  7. Fabian says:

    This is a frame of mind that craftsman need to be in more often, I think(me included).
    We’re often consumed by our passion and our creative process that’s is hard to take a step back and see a bigger picture. A picture where we can touch a lot more people with our craft.
    The leap from craftsman-boarder line freedom fighter- to mountain climber shouldn’t be looked as a disconnect from our passion or vocation , but an extension of it.
    Granted it takes a lot more time , energy, guts and faith to take the leap of faith, but for me as an artist, there,s nothing better than being able to touch as many people as possible through my art.
    I think thats something worth noting, that a lot of craftsman feel a tremendous connection of identity to their craft, that letting it go is unfathomable. But we must and it’s not as scary as we think. We just need to take a step back and formulate a plan where we can be part of the creative process, but not part of the business. Perfect example would be Shepard Fairy owner of obey giant.
    We are creative people we can figure it out 🙂

  8. Great interview, Jonathan and John. Built to Sell is one of my all-time favorite business books. I’ve told the story of how I stayed up nearly all night reading it, the first time I got my hands on it (which was when John had just finished it).

    Interestingly, Jonathan, I am not turned off at all about the concept of building a business that you could sell some day. Like John mentions, you may never sell it, but the fact that it has enough value that you COULD sell it (and that somebody would actually pay you for what you’ve created) is what counts. I find that a very attractive goal to strive for — regardless of whether I’d ever sell.

    – Anita

    • Jonathan Fields says:

      Hey Anita! Agreed, great read. And I also agree that building a company in a way that makes it potentially sellable, even if you have no intention of ever selling it can also be incredibly beneficial in terms of the freedom it can potentially give you. But, I think the bigger challenge is how you do this when you’re running a 1 person shop that is not service, but art-driven. What if you’re a painter, where the entire process channels through you?

      It also requires you to have to own a certain level of management responsibility, so I think the important thing is to understand the relative tolls of managing when you have no interest in managing vs being locked into your work even at times when you want nothing to do with your work. I think everyone makes a difference call on what matters more to them and, as John noted, that changes over time as well. Most important thing in this dance is that you’re honest about what really matters and what you really want to building.

      • Jonathan, good point about artists and others whose business depends on what they create.

        However, as the book demonstrates, there may be ways to get leverage, just by thinking differently about your business. Even in art.

        Take someone like artist Dale Chihuly, who has a team of glassblowers who work with him. He creates the beautiful designs on paper, and is there with his people every step of the way as they blow the glass, giving them instructions to move the molten glass this way or that for the right effect. The art is considered his, even if he has many helpers who make it possible for him to have far greater output than he could alone.

        He doesn’t outsource the ENTIRE process, but he outsources chunks of it in a way that enables him to bring to the market far more art than he could working alone. But he had to think of his art as components and steps in order to come up with the breakdown of what could be outsourced and what not.

        — Anita

  9. Great interview and topic guys. Thank you!

    I was fortunate earlier in my career to be a minority owner in a start-up; all sweat equity and no capital risk. It got me a seat at the table to learn these concepts. I think of it as my training wheels period of ownership. That business was sold for many, many millions and while I got a nice piece of it, the real value was in learning: If you build it as if you’re going to sell it, you will have a) a thriving busines and also a life, b) the ability to sell at any time, or not!

    Subsequently, I started a business and followed the strategy I’d been taught. After 8 years, I no longer loved it and felt someone else with passion could take it to the next level. Because the business was built to sell, we quickly had 8 buyers to the table and closed a deal in 90 days.

    One point you didn’t mention in the interview is capital. Many entrepreneurs don’t have the capital to invest in people, processes and systems necessary for scale. In addition to whether a person is a craftsman mentality, access to capital plays an enormous role in this equation.

    Best, Karen Jackson http://www.linkedin.com/in/jacksonsolutions

  10. […] is an overwhelming sense of freedom that comes with this. In this sense, I am what John Warrilow would call a freedom fighter entrepreneur. Sure, I have a few travel destinations in mind. For […]

  11. Great interview Jonathan! John gave us a lot to chew and digest, and it makes sense about creating a sellable business. As I read the interview for some reason I was reminded of Rich Dad’s Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom by Robert Kiyosaki. He too categorized people but I like John`s categories. Keep the interviews coming. Avil Beckford

  12. akin says:

    Great interview guys , really enjoyed it i am one half of a family firm the other is my father , and while we love what we do and would never dream of selling it (we see it as a trust for our kids and grandkids) i am in the process of developing a couple of service business based around it that are built to sell ! the article really helped clarify things. a favorite quote of mine is “money is like manure its not worth a thing unless its encouraging young things to grow ” i think entreprenuers are hardcoded to be manure LOL

  13. Lyn S. says:

    Hi Jonathan! We really learned a lot from that interview. It’s best to have a clear vision, and we should not be afraid to take risks, an entrepreneur knows how to sell whether it’s the company itself.

  14. […] Jonathan Fields | Should You Build Your Company To Sell It? […]

  15. Marc says:

    Thanks to Jonathan & John for the great interview. What really resonated with me was the point regarding the needs of an entrepreneur at different stages of their life. Risk, reward and work-life balance comes much more in the forefront of consideration at later stages in life. Compared to more care-free years of your early twenties and thirties. I think this type of thinking can also contribute to a much more mature and balanced type of company.

    Keep up the great articles & interviews.

  16. Rick Andrade says:

    I sell small businesses, I have my MBA, DRE Broker license, FINRA/NASD Registered Securities licenses and 25 years experience. Over the years I have read many business books, white papers, studies, and research etc… and the best advice I have seen that works is to not only understand which type of owner you are, but more significantly develop a Value Proposition a Buyer wants to buy!

    The above narrative seems much more like an over-generalized self-awareness extraction done 11 years ago in 2000. Things change. The key is to develop an Exit strategy ideally 2-3 years before the sale. Owners do become Sellers at some point, and thus able to look at their business from the outside. This is a multi-year process however not just an Aha! that’s me in a bucket moment). Once an owner determines what he/she wants from their hard-earned efforts, the planning and exit prep begins, and it starts by identifying who the likely buyers are and what risks they’re taking that the current owner cannot remove before the sale. Some are easier to remove than others. This is normal.

    The higher or lower Valuation of your business at the point of sale goes hand in hand with unmitigated risk transfer. Don’t let being a sole proprietor who’s name IS the product distract you from a successful exit. Many professional LLCs, photographers, doctors, dentists, accountants, plumbers do just fine when it comes time to sell. It’s more about identifying who the likely buyers are and why, not trying to appeal to a wider one-size-fits-all buyer base. The point is to get a higher sales price, and there are many ways to achieve that. By contrast, any sudden change in your business model could be worse than staying focused and letting a professional build a focused plan to sell your baby when you’re ready. Read the book, yes, but then call a professinoal to define and prep your exit. That’s my opinion from the trenches. Rick

  17. […] This is a long article, but I had a conversation on this topic last night. At the end, I was told by a fellow documentary loving woman, “stay idealistic.” Lets hope I do. I hope you make the right choice for your business, too! http://www.jonathanfields.com/blog/build-company-sell/ […]