The book is a fictional story about Alex Stapleton, an advertising agency owner, and his struggle to convert his business into a sellable one. With the help of his friend Ted, he converts the business from a struggling one that relies too heavily upon him and a single, overly demanding client, to a highly-focused one that thrives without his constant low-level involvement.
If you’ve read many business books on the subject of entrepreneurship and management, these concepts will seem very familiar, but set in a slightly different context. Throughout the book, I felt that the content borrowed heavily from the E-Myth – who the author credits in the appendix. The important variation from E-Myth is that the owner is preparing to sell the business. Everything he does in terms of automating and streamlining the operations is done within the framework of the question: "How will this help me sell this company?"

After the story concludes, the author summarizes the key points, which seems a little redundant but helpful, along with some personal experiences. The greatest flaw of this book is that it never addresses the problems you might have at different points along this process. Again, I highly recommend this book and I hope I get the time to read again next year.

One point of clarification about company worth. This is not what someone will pay you to buy the company; hopefully it will be considerably more. This is what you will be left with if you decide to close the doors. For more on the topic of selling your business pick up the book Built to Sell by John Warrillow.

The Balance Sheet tells you two important things:

1. The value of all the assets
2. The value of all the liabilities

Subtract liabilities from the assets and that is what the company is worth.

The Assets

Assets consist of a number of things:

• Cash you get can get your hands on immediately (e.g. money in the bank)
• Money you expect to receive in the near future from clients (Receivables)
• Money you “might” get when you sell all the furniture and fixtures. Using furniture as an example. Your Balance Sheet shows the original amount paid for all the furniture, the depreciation (i.e. wear and tear) deducted from that leaving a balance that is an assumed value for the furniture.

The Liabilities

This is everything the company owes and needs to be paid.

• Money you owe your suppliers (Payables)
• Money you owe the government (e.g. HST)
• Any outstanding debt the company might have

Even if you have no intention of closing the doors in your business (99% of us don’t) you should still be tracking the worth of the business. As mentioned in the first of this series we want our business to pay us a decent income AND to increase in value so one day we can sell it. So track the number on a quarterly or annual basis and if it is not increasing take action. If you are uncertain what action to take seek out an expert.

In the next blog of this series we will study one of the great mysteries of business. Where has all the money gone?

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However, that changed as I sat on the next chair lift and pulled the snow out of my jacket from my latest face plant  and I struck up conversation with our snowboarding friend.  John Warrillow is a Canadian entrepreneur who had decided to take some time out and spend a few years in France, during which time he has written a book titled Built to Sell.  He has built several businesses up and sold them and his book talks through many of the issues that owners often don’t realise they need to face up to.

The book focuses on several key areas such as: building a management team, moving the owner out of the day to day relationships to focus on ‘selling the business’ rather than the product, developing a product offering that is both repeatable and scaleable, and allowing the business owner freedom to think about how much they would be willing to sell your business for.

The journey John describes in his book is more than just about target value for selling a business or running a corporate finance process, it is about how to transfer the core operations to be less reliant on the owner and more focussed on product and process.

Corporate financiers like to talk about ‘grooming for sale’, but more often this is simply about getting an engagement letter signed early and ensuring no-one else can sign up the sale mandate.  By actually focussing beyond the numbers and a sale process the owner can develop a growing sustainable business that will invariably be both more valuable in the event of a potential sale or if there is no final sale.  The business will be more resilient and less reliant on the entrepreneur.

John’s book describes many of the changes that Loungers have been through in their business since their aborted private equity process (see earlier blog).  The execution of the disciplines that many of the private equity firms at the small end of the market apply truly can add value.  The best firms provide more than cash allowing business to radically re-position and improve their processes, which in turn ultimately adds returns to their funds and the ownera pockets.

It is well worth taking the time to look into Built to Sell and would encourage you to look at John’s website http://www.builttosell.com

I would encourage all my corporate finance contemporaries to think beyond the short term signing of a mandate and to consider working along side SME’s for a longer period of time helping them to really think about their market position and install the disciplines of private equity.  The rewards could be great, as you could help to create deliverable sale mandates rather than hopeful ones. The opportunity is immense, as most SME’s really do need help  to understand some of these messages that we take for granted.

I recently read John Warrillow’s excellent “Built to Sell,” a short, business parable (in the vein of “The Go-Giver“) about how to create a company that other people will actually want to buy. The main problem small business owners have, Warrillow posits (like Michael Gerber before him), is that they’re too involved in the day-to-day operations of the company. That means acquirers will only be interested in ponying up if the owner agrees to stay on for several years post-purchase — and there’s a lot that can go wrong between now and payday.

What to do instead? Warrillow suggests removing yourself from the equation as much as possible by having your company specialize in doing one thing well (the book’s hero decides that his ad agency will focus exclusively on logo design), developing a clear and repeatable process (“our five-step logo design process”) and building a sales team ASAP (no one wants to buy a business where you’re the sole rainmaker). That’s great advice for entrepreneurs building toward a “liquidity event” — but, as Warrillow points out in a great interview with Tim Ferriss, it’s exactly the wrong move for professionals whose business and personal brands are more tightly entwined. That’s why the most important branding decision you’ll ever make is what type of personal brand to cultivate.

Leaving aside your investment portfolio (or stock options), there are two fundamental ways to make money in business. The first, which I’ll call the “Business-Builder Model,” is to construct a company that thrives on scale and makes a profit on others’ work. Your law firm has 500 employees, you make a profit of X percent on your associates’ hourly rate, and you’ve got a successful business model. Same with ad agencies (as in Warrillow’s example), large consulting firms or the like. If you’re the owner, your personal brand must be different from — and usually less prominent than — your corporate brand, or you’ll never be able to sell it. (To its detriment, even a company as large as Apple — so identified with CEO Steve Jobs — suffers major stock dips on rumors about his health.)

In the second model — the “Expert Model,” more appropriate for solo practitioners and some executives — your personal and business brands are essentially synonymous. That’s because your business model depends on you getting famous and people paying a premium to work with you specifically. Instead of selling a process or a commodity, you’re selling access to your unique insights, applied to the client’s situation.

Warrillow is right to counsel the business-builders to hire staff who are “good at selling products, not services” because they 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 really, really don’t want every widget buyer demanding a different color. But when you’re the brand, it’s fine to personalize your advice. In fact, that’s how you make money. (I can read “Getting Things Done” like everyone else, but I really want David Allen to come to my office and set up the system for me. And I can hire plenty of executives to be my SVP, but I really want the one who got famous for leading a business unit turnaround at her previous company.)

The two models — Business-Builder and Expert — are exact opposites, and if you try to blend them, you’re not going to get far. You can succeed with either one, but you have to decide early on which you’re going to pursue.

Which path have you chosen? Why?

Dorie Clark is CEO of Clark Strategic Communications and the author of the forthcoming “What’s Next?: The Art of Reinventing Your Personal Brand” (Harvard Business Review Press, 2012). She is a strategy consultant who has worked with clients including Google, the National Park Service and Yale University. Listen to her podcasts, or follow her on Twitter.

The title says it all and it provides a road map for creating a valuable sellable business.  I first found about about this book by following John on Twitter and it’s a great companion book to Michael Gerber’s ‘E-Myth’ series.

John says:

“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.”

It’s one of my favourite books of the year so far.

1) Teachable
2) Valuable
3) Repeatable (Subscription/Membership Model)

Renewable allows you to increase the value per customer & allows for greater stability (which allows for greater flexibility).

Educate your audience rather than doing the work. How N. Duarte scaled her presentation design shoppe (educating the Fortune 500 on presentation design & presentation).

He speaks to the downsides or rather challenges of the subscription services here.

Create a systemized service. (ie 5 step process). (“Are you a website developer or building a company that develops websites?”–the distinction is very important. “People doing the work other than you”).

Rank customers (or potential customers/prospects). Tendency is to start with the top, but start with 200 and hone your pitch and see what resonates. 10th pitch is about when you find out).

Focus on cash flow statement. Cash flow is fuel. Profit and loss is secondary.

Web Development has a neg. cashflow cycle generally. We are used to pay for products before we buy them. Think about how products work (cautions, how to, etc…). Productize your service you are able to pay upfront.

“All service businesses need to be productized. And I believe the opposite all product businesses need to be servicized.” For instance Zappos did this by adding service. “They don’t just hawk shoes.” Adding service to the product gives you the whole egg.

Tim Ferris adds three tips here:

- Addressable Market Size: How many people in your geographic market buy what you sell? For example, let’s say you have developed an English-language subscription for a yoga DVD series that is easy to ship within the United States. Your customers get four new instructional yoga DVDs per year, and you charge $99 annually. If three million Americans participate in yoga at least once per year, you could argue that your addressable market is three million people.

- Market Penetration Rate: What proportion of the target market have you sopped up, and how much is left for the potential acquirer to go after? Let’s say you have sold 3,000 subscriptions since you started your yoga DVD muse. Therefore, your market penetration rate is 0.1%, and an acquirer would realize there is still plenty of field left to plow.

- Cost per Customer Acquired: How much does it cost you to acquire a new customer? Cost per customer acquired further breaks down into cost per lead and your conversion rate. For example, let’s say it costs you $8 to get a lead from Google Adwords, and for every three leads you get, you close one subscription. In this example, your cost per lead is $8 and your conversion rate is 33%, so your cost per customer acquired is $24.

The John Warrillow interview from Mixergy is here. You may also want to check out Peter Druckers advice for structuring business (product innovation/development + sales & marketing–everything else is ancillary). Metaphors for business: Hub & spoke structure vs. apple orchard picking model (later is more helpful moving forward). Overall, this points to the need to replace yourself with a second in command or to build a full-fledged management team if you have the size, revenue, and management skills to justify it. Warrillow points out that this strategy is also a huge time saver which enhanced your overall focus, productivity, and effectiveness.

If you want to scale your business–hire people who have sold product vs. service. Service is more of a consultive sale (Warrillow says “Avoid them like the plague–because customizability is the enemy of scalability.” Product is a harder sale. [I think this is highly dependent on how much of your business you want to be customization vs. scaling].

My caveats, concerns, and reflections on Built to Sell–I wonder if creating either a) a platform b) a modular product can be more flexible and allow for a business to deploy this strategy more effectively.

A must read!

Built to Sell
by John Warrillow
flipjetmedia, 2010
160 pages, $25.95

     This is a book every entrepreneur must read, whether or not they are going to sell their business. Years ago I read a book stating that there are people good at starting an enterprise, those who can make it profitable, others who excel at sustaining it and finally, a unique few individuals who can figure out how to profitably get out from under it. A business needs all four. This book… dramatizes how one person can accomplish each of these steps. As someone who ran a small ad agency for ten years like the one used as an example, I didn’t see the slightest misstep in this examination of the ups and downs of owning a business. We all need a light at the end of the tunnel. 

     According to the author the secret to business success seems to be to move from a service provider to providing a unique product (or product-like service). Two problems: 1) There are businesses that don’t follow this model that are successful, 2) Things change and the context in which these products are offered is variable. 

John Warrillow

     Oh, how I wish I could have had this book back then! These are the elements a business owner needs to come to terms with (and some of the reasons why he or she has a hard time doing that). $25 is expensive for a little book, but it is the best business investment you will ever make. 

Buy It: X           Library:             Skip It:    

Order from amazon, $16.95. Click here: Built to Sell: Turn Your Business Into One You Can Sell

                                   John Lehman