What To Do When It's Time To Sell Your Business With John Warrillow

BWB Warr John | Selling Your Business

What To Do When It’s Time To Sell Your Business With John Warrillow

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    In order to capture the attention of a potential buyer, you must sell the problem that you have solved in your company and not the product. In this episode, host Brad Costanzo talks with John Warrillow about the questions you need to ask yourself in order to have a profitable exit when selling your business. John is an entrepreneur and author with over twenty years of research experience in the small and medium business (SMB) market. He founded The Value Builder System to level the playing field for business owners as they approach their exit. On today’s show, John reveals the best and creative ways to effectively sell your business and make a profit out of it.

    Some Topics We Discussed Include:
    • How to know your PRE Score: “Personal Readiness to Exit” and why it matters
    • Important questions to ask yourself before you ever decide to sell your business
    • The biggest reasons owners decide to sell their business
    • John's upcoming book about how sellers can better negotiate with sophisticated buyers to ensure they get the best price and terms possible
    • Valuing a company on revenue vs earnings

    Go Here To learn more about John and The Value Builder System

    About The Guest: John Warrillow

    BWB Warr John | Selling Your BusinessJohn Warrillow is an entrepreneur and author with over 20 years of research experience into the small and medium business (SMB) market. He founded The Value Builder System to level the playing field for business owners as they approach their exit. Over 35,000 business owners have taken the Value Builder QuestionnaireAnd with the support of certified value Builders TM , such as brokers, M&A professionals, and coaches, they’re using the statistically – proven methodology to improve company value by up to 71%.

    John's bestselling book, “Built To Sell: Creating Business That Can Run Without You” was recognized as one of the best business books of 2011. In 2015 he wrote another bestselling book called “The Automatic Customer: Creating a Subscription Business In Any Industry”.

    What To Do When It's Time To Sell Your Business With John Warrillow

    We’ve got a hot show because it is very rare here on the podcast that I invite a guest back for a twofer, back again. This is an exception to the rule, so I have brought on John Warrillow on the show.

    Some of you may have read John’s episizzle in the past, but I brought John back because we just scratched the surface on the last conversation.

    Some of you know exactly who John is, but for those of you who don’t, you may have read the book, Built to Sell, this was a runaway bestselling book.

    It’s a great business parable or teaching through a story about what it takes to build a business that you have the ability to sell. It has to do with changing your mindset, creating systems and simplifying it down so that somebody would want to buy this.

    He also wrote a book called the Automatic Customer, which showed you how to create a subscription business in any industry. John is a major thought leader in the area of helping business owners exit their businesses profitably without getting taken to the cleaners.

    He has got many years of research into the small and medium-size business market. He also founded The Value Builder System to level the plain fields for business owners as they approach their exit.

    I have personally bought and sold several businesses in the past. I’ve never had an exit for the FU money I just retire to Fiji, but I have gone through the process. I can tell you, I had zero experience when I first sold my business and I got out of there pretty lucky.

    I had to spend a bunch of money, hiring the right advisors and making sure that I didn’t get taken to the cleaners myself.

    I probably could have gotten a lot more than I did, but I was ready to go. I guarantee the buyer got a much better price than he could have if I knew what I was doing and had my stuff covered from the beginning.

    I brought John back on the show because one of the things that I steered the interview towards on the last one, selfish reasons, is more on the acquisition side. Some of the types of business opportunities are out there to buy businesses.

    John’s specialty is helping existing business owners prepare for an exit. Negotiate the best price and understand their readiness before they sell into something he calls a PREScore. John, welcome back to the show. It’s good to have you.

    It’s good to be back.

    Once I’ve been there, we covered a lot of the stuff. I feel there is probably not a lot of reasons to have somebody back on. I’ve been a big fan of your books and a big fan of the topic as well

    Let’s dive into some of the meat of this. What’s a PREScore? What’s that have to do with the business industry?

    A PREScore first of all stands for Personal Readiness to Exit, so PREScore.com. It’s essentially an assessment of how ready personally you are to sell your company.

    I’ve done this podcast. I’ve done 200 episodes. One of the things that I’ve found after I hit stop on the record button is I start to hear the regret in business owner’s voices.

    A lot of them had financially successful exits yet they wish they had a do-over on some important element of selling their company. Either their employees were not taken care of as part of the sale or they managed to screw up part of the negotiation. They didn’t get the price they were hoping for.

    Regret generally comes out once I hit stop on the record button because by that time the glossy version of the story over and they’re telling me the real thing.

    We did some research and figured out that there were these five questions you need to ask yourself in order to have a lucrative exit regardless of how you want to leave your company. That’s what we did.

    What are some of these questions?

    Does the first one start with what are you excited to go do after you sell your company? For a lot of us, it’s all about getting the check. It’s getting the payout for all that we’ve created.

    BWB Warr John | Selling Your Business

    Selling Your Business: An unsolicited offer is often a trigger that causes people to want to sell.

     

    For a lot of us, we’re all pushed instead of pulled. When I say push and pull factors, what I’m referring to is what is driving you to want to sell your company?

    For many entrepreneurs, it’s the push stop. It’s, “I want to retire, I’m tired of the tape, or my employees are driving me crazy,” whatever is pushing you out of your company.

    The pull stuff is the stuff you’re excited to do. It reminds me of this guy named Shaun Oshman. He had a relatively small company, a couple of million dollars in annual revenue, which is an IT services guy.

    He went to a business broker and said, “I want to sell my company.” The broker says, “Why?” He said, “I turned 39 and I’ve decided I want a sailboat by the time I’m 40. What do you think my company is worth?”

    The broker goes, “Tell me a little bit about business, how much revenue?” “A couple of million.” “How much profit?” “A couple of $100,000.” The broker says, “Maybe we can get you two or three times profit.” Shaun goes, “On one condition, that you get me that by the time I’m 40.”

    The broker says, “Okay,” goes away, comes up, gets an offer of 2.6 times pre-tax profit and Oshman turns around and accepts the offer. I had the chance to catch up with him and I said, “How are things going?” He bought a sailboat and was sailing around the world with his fiancée happy as a clown.

    What I reflected on after the fact was that 2.6 times is an average sale multiple for a relatively small company, but it wasn’t a knock the ball out of the park multiple. It was an average multiple and yet he is happy as a clown.

    It made me realize there is more to a successful exit than the maximum price of your business. That’s figuring out what are you excited to go do. In Shaun’s case it was like, “I want to go sail around the world,” Codifying that was the secret of making sure he was happy in the end.

    I know that there are a lot of reasons that people decide to sell their business. The push, the pull, a lot of them have to do with frustration.

    Sometimes age or things are falling apart, they feel like they can’t handle it. Sometimes they’re like, “I’m ready to take a check and cash out.” The difference between the motivated sellers and the unmotivated sellers if you would.

    In your experience, what’s the breakdown of a lot of the people that you see on average the reasons they want to sell their business? What I’ve seen, and I’ve got a lot less research and optics on this than you do that most of the people say, “It’s time to cash out, take my money.”

    Usually there is a degree of frustration, age or they’re over it, but is that what you’re saying? What are some of the biggest reasons that people end up getting to that point where it’s time to sell?

    The desire to cash out is up there. We did statistical research to quantify this. Number two is maybe retirement, their health is another major factor.

    An unsolicited offer is often a trigger that causes people to want to sell. They’re going along the daily business and not thinking about selling. All of a sudden, they’ve got an impromptu offer.

    That’s dangerous for a lot entrepreneur because when you are on your back foot in selling and agreed to enter into what acquirers call a proprietary deal. It means that you are not negotiating from a position of strength.

    The buyer knows they got a hook in your mouth and you’re on the line. What they’ll do is they’ll get to a point to potentially make you an offer, but they know that they’re not negotiating against anybody else.

    They often drag out due diligence for a long period of time. Oftentimes, the lower the price they are willing to pay after due diligence in a tactic called re-trading.

    This is unfortunate, but that happens a lot when they know that they’re negotiating with nobody else other than you.

    That’s one of the secrets to maximizing the value of your company is making sure you create some competitive tension. Either you have multiple offers or you give the illusion to the buyer that there is another offer on the table.

    What are some of the other personal readiness to exit questions that you should be considering?

    One of the other ones is trying to figure out what your role will be after the sale. A lot of people think, “I’m going to sell. I’m going to hand the keys to the business over to the buyer, and then I’m going to hit the beach or the golf course.”

    There is more to a successful exit than the maximum price of your business. Click To Tweet

    The reality is most owners will have to endure some form of burnout or transition period, you’ve heard of the golden handcuffs, where part of the compensation is tied to the future. That’s the reality.

    What I’ve found is for a lot of entrepreneurs they say, “I’m not doing any of that stuff. It’s got to be 100% cash in closing.” The problem with that stance is that you shut down the vast majority of potential acquirers.

    Many acquirers will simply walk away and say, “I’m not interested.” Therefore, you window down in a very small group the number of buyers that are potentially willing to make an offer.

    When you got a very small number, you don’t get multiple offers. You get sucked into what I described. You’re negotiating against yourself with only one acquirer.

    The key is to think about, “What roles am I willing to play?” One of those roles could be as a lender to your acquirer, what’s called a vendor takeback where you’re offering to finance some of the deal.

    Another is an earn-out where you put some of your compensation in the future. Third is what private equity call recapitalization where you’re holding on to some of your capital. A private equity company will buy a portion of it and you go sell the rest of it downstream.

    There are many others, but these are all different roles you can play. My advice is if you can keep your mind open to as many of them as possible, you’ll get the deal you want because you’ve got multiple offers.

    With multiple offers, that’s when you should start retching up what you want. If you want it all cash on, the best way to get it is being open to lots of different options. What you’ll find in many cases, the competition that you create will allow you to harden the deal terms in your favor.

    These are some of the things that you have to think about. It’s more to do with you, not just your business.

    That example is like what you want to do with your life after the sale? Are you willing to stick it out for a few years and help the owner transition? If so, you’re going to have a better exit.

    There are a few more questions, what are those?

    There are a lot. We look at how personally tied your ego is to the company. This is a topic that we don’t always like to talk about. If you started the company from scratch and you’ve owned it for multiple decades, it becomes who you are.

    You’re recognized because you’re the sponsor of the tee ball tournament in town. Your name is on the door of your store. It’s like John Sons Butchers. You become intertwined with your business.

    If that’s the case, then leaving your company will end up feeling you’re walking away from part of who you are.

    The trick is to try the best you can to create a life outside of your company. I’m reminded of a guy named Steve Murch. Steve started the first generation of the transpiration of the travel industry. Airbnb has turned the travel business on its ear.

    Steve was the first one to make the first big change in that industry. He was with Microsoft, the owner of Expedia and he came up with the idea of vacation home rentals. When you go to Expedia, instead of having hotels, you would have chalets and people’s homes. This goes back years.

    He started this company called VacationSpot, which he ended up selling for $78 million, a huge, fantastic exit. He went on to have three additional exits after that.

    You could make the case that he would have as much justification anyone on the planet to walk around with his chest puffed out and present himself as a successful entrepreneur, but the inverse was true.

    When I first met Steve, we are at a dinner party of a mutual friend and he was going on about World War II. I turned to my wife and I said, “Who is this guy going on about the historical lessons of World War II? This guy is crazy.”

    It turned out he is a big history buff. An avid cyclist, a chief, the main cook for his family, an avid father, he has three kids. He is a happily married husband.

    What I came to learn about Steve is he’s got all these hats that he wears. These ways he fulfills his ego beyond being an entrepreneur.

    BWB Warr John | Selling Your Business

    Selling Your Business: If you can create multiple bidders, you’re going to have a much better outcome.

     

    I continue to think he is a great example of someone who has done the hard work of building an ego or sense of self-worth if, outside of being an entrepreneur. If he can do it given all of the success he has had, any of us can do it as well.

    You have a new book. Do you have the name of it yet?

    I do but I can’t share it yet. It’s all about the negotiation, tips and tricks. Here’s what I’ve learned about selling. As much as selling is like the science of valuing your company, there’s also a bit of an art form to it. What I’m trying to do in this book is to communicate some of the artistic nuances of selling a company.

    The stuff that I personally studied more so is the negotiation where I’m probably trying to acquire something as opposed to selling it. A lot of the negotiation, material books, they can cover both.

    I like the aspect that you’re going into this specific situation and type of person to say, “Somebody else is going to be trying to come to get what you’ve got.” You better understand how to negotiate yourself to protect what you’ve built.

    Not get taken by somebody who’s in private equity. The bigger they are, the more skilled they are at negotiating.

    If you’ve spent your entire life building your business. You probably haven’t spent your life honing your negotiation skills. It might not come naturally. This is a brilliant way to solve a need in the marketplace, and I can’t wait to read it.

    Let’s dive into some of the things that people need to beware of or what are some of the big takeaways from the book ahead of time that people should start paying attention to. They can maybe even start applying now if need be.

    When you want to sell your company, you need a BATNA. It’s negotiation speak for Best Alternative To Negotiated Agreement, essentially a plan B. The more you can cultivate in your own mind what the plan B is, the better. Of course, multiple offers are going to give you the maximum amount of leverage.

    There is a story in a book about a guy named James Murphy who developed a product called Viviscal. Viviscal is hair regrowth, but instead of for men, it’s for women.

    Some of them have hair loss and it’s usually not hereditary. It’s mostly stress-related and stuff. He developed this formula that reverses that condition. It was a highly sought-after company.

    I remember he built it up to €50 million in revenue and he went to sell it and he got all the consumer package goods companies like Unilever and Proctor & Gamble. He got them all hot bothered about this company and he went out and got offers.

    They were around $100 million for the company. Roughly the euro at that time was trading similar almost compared to the US dollar as roughly around two times revenue.

    He thought, “This is interesting. How about I play one of the other?” He eventually got down to the point of taking ten buyers down to the point of two. He got them up about $136 million while there were still two at the dance.

    Ultimately, if memory serves, he sold for $165 million to C&D the guys who own ARM & HAMMER among other products. The short of it is if you can create multiple bidders, you’re going to have a much better outcome.

    One of the other things to remember is that you always have a second bid, but as an entrepreneur you’re making a trade to buy those shares of your company.

    Every day you continue to own it. You’re saying to the marketplace, “I would rather own my company than sell it,” and so you’re bidding on your company even if you don’t feel like you are.

    In the book, I talked about the idea of always going to an acquirer and saying, “I’ve got a second offer that I’m considering, what are you proposing?” That second offer is yours.

    The fact that you’re willing to continue to run your company. Presumably if you are willing to continue to run it, you have that second offer on the table.

    That’s a great mindset shift. It’s not obvious, but when you do that it does make you realize, it’s not necessarily I take your offer or leave it. It takes your offer or I take my own offer which is I’m offering to continue to run this.

    We don’t always think about that. One of the big reasons that a lot of entrepreneurs get to a point where they want to exit is because they start off, their businesses are worth nothing and the other largest asset is their house.

    One of the secrets to maximize the value of your company is to make sure you create some competitive tension. Click To Tweet

    Many years later, their house may pale in comparison to the value of their business, yet it’s all in one stock. The percentage of their wealth to startup their business goes from zero to I’ve seen examples where it’s like 80% to 90%.

    It’s one of the reasons that a lot of entrepreneurs think, “I’ve got to sell. I can’t walk around with such a huge percentage of my wealth tied up in this company. It could go to zero for all I know.”

    A lot of times when business owners are ready to sell, let’s say they approach a broker and they’re dealing with a broker. The broker helps them come up with a general price on what they may want to sell the business for.

    Sometimes that doesn’t happen especially in cases where they get an unsolicited offer. I approach you, “John, I’d love to take a look at acquiring your business, can we start talking about this.”

    There’s that old adage in negotiation which is not a law, but it’s a general rule of thumb that the person who says the price first, loses.

    In those cases, where you haven’t thought too much about it and you’re in that situation where you get an unsolicited offer.

    Would you typically tell the seller to hold back the price they want and see what the buyer may come up with? Whether they have a formula that’s based on EBITDA or some other metric.

    They may have an idea of what they want to sell, but we’re talking about negotiation, are there any insights on this?

    Your inclination is absolutely right, the guy or gal who names their price first generally ends up losing. That’s accurate in particular for larger businesses. If you have a very small company, I’m referring to companies with less than $1 million in annual sales.

    This also depends on the industry you’re in a little bit, but it’s often necessary to list to the business, almost like you will list a home.

    When you list a business in a public form, like your home, you’ve got to describe it. You’ve got a sale, “I want X amount of money for it,” but that would be for much smaller companies.

    If your business is a little bit larger, you want to hold back. I’m reminded of a story. The guy wanted to sell his business. He developed this analytic software and IBM came knocking.

    In his mind, what he had created was this product that was defendable to a company that is growing quickly. He wanted to get eight times EBITDA for the business. EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, pretax profit for a shortcut.

    He wanted to get eight times and he thought that was reasonable etc. He goes into this negotiation with IBM and of course he doesn’t say that price out loud. He lets them come to him and they offer him three.

    A lot of entrepreneurs at that point would have reacted righteous indignation and said, “What are you talking about three? We got these proprietors.” Give or take he had 150-plus employees, it’s a good size company.

    Instead of reacting that way, he simply talked to IBM through some of the strategic value in owning the company. He started to do some modeling and some actual math associated with what it would mean for IBM to own the company, which is one of the tactics you can use.

    He said, “I’d like you to go back and rethink this valuation,” and even then he didn’t say, “I want eight times.” He still basically had them negotiate with themselves. He asked them if they’d politely consider going back. They go back and they run their models and realize that it’s a valuable company.

    They come back and offer him 8.5 times earnings which exceed his dream number. He still at that point doesn’t bite and says, “Where do I sign?” He says, “I’ve been thinking about it.”

    At this point, he lays out his number, “I don’t think you should be valuing this as multiple earnings. It should be multiple revenues. That multiple should be 1.5 times revenue.”

    IBM throws up their hand and says, “No.” They go away, do some more thinking, do some more math, agree to 1.2 times revenue which was the equivalent of eleven times EBITDA.

    That’s my long answer to your question about, should I be the first to name my price? Especially if you have a larger business, the answer is no. I would hold off and let them come to you even twice before you start to throw out your number.

    BWB Warr John | Selling Your Business

    Selling Your Business: A fast-growing company will not only give a lot of top line, but it will also be a profitable asset to own.

    You made me think of something that I’d like a little bit more clarity on. I know that business they’re valued in multiple ways, two of the most standards are based on EBITDA. The bottom-line versus based on revenue, which is topline and this is what you discussed.

    What are some of the instances whether their industries, types of businesses, where they’re basing it on revenue versus the bottom-line earnings?

    What are some of the reasons that a company or that acquirer might pay based on revenue? I could spend $1.2 million to make $1.2 million and I’m at zero. Versus I could be doing $500,000 in profit. At what point does valuing by revenue become a thing?

    It’s usually two primary reasons, the first in the industry that you are in. If you’re in an industry with a lot of recurring revenue, a lot of buyers will make an evaluation estimate base on revenue. SaaS companies, Software as a Service companies, are typically valued based on revenue.

    Even recurring revenue business is in the low-tech industries like security where you’re monitoring homes and offices. Even those businesses are generally trading at a multiple of revenue as opposed to multiple profits. The second reason and it’s related to that is the growth rate.

    If you’re growing quickly, it’s unlikely that you’re generating a lot of profit on paper, but the future of your business is very encouraging. An acquirer will look at that and say, “We know how to make money. We either got strategic assets that we can bring to bear to reduce some other cost.”

    “We’ve got lots of people under our supervision.” They won’t need to be investing so much money into growth because we’ve got marketing channels for them to use or salespeople for us to leverage.

    Therefore, they can project out that a fast-growing company will not only give them a lot of top line, but they will also ultimately be able to make it a profitable asset for them to own.

    As a result of that, you see very fast running companies. I did an interview with a guy who is growing 40% a quarter.

    What industry?

    They were in the website hosting industry. This goes back to 1999 where this was the dot-com run-up and everyone and their brother had an eCommerce website. That was the industry we’re talking about.

    He was growing at 40% a quarterback in 1999. I was going to say growing a hosting company now that quickly would be tremendous, it’s a little bit more commoditized now.

    He was in the unique end of that business where he was working the high-end eTailors and eCommerce sites that needed a website always to be on. Like the example of H&R Block.

    On Tax Day, they couldn’t go down no matter how many people accessed his sites. He was a niche of a niche but it was a different time.

    Are there any resources that you could point us to that help like I don’t know whether it’s a website or whether it’s some resource that shows industry by industry? How some of these things are in general valued in that way?

    ValueBuilder.com basically will give you that. If you go, you get your score on this little questionnaire and you’ll get a report and you get some industry benchmarks that way, that’s probably the best way to do it.

    That’s exactly what I was looking for. That term industry benchmarks, you said it. I knew you had a resource, ValueBuilder.com.

    When it comes to other negotiation mechanics and making sure that you’re defending yourself against some potentially astute negotiators, are there any other pieces of advice that you’d like to give to the readers?

    We talked and touched on re-trading as a tactic. That’s probably one that is difficult to avoid at all costs, but there are some techniques you can use.

    Re-trading is when buyers say, “I’m going to spend $100 to buy your business,” and then you go through due diligence and they offer you $90, and you say, “How did they do that?”

    Essentially what happens is that you go through and sign what’s called a no-shop clause when you agreed to a letter of intent.

    In an industry with a lot of recurring revenue, a lot of buyers will make an evaluation estimate base on revenue. Click To Tweet

    A letter of intent basically says, “We’re going to buy your business for a $100, but you’ve got to give us 60 days to subdue our due diligence.” This in almost all cases is a non-binding letter of intent, meaning they don’t have to honor anything. It’s not worth the paper that it’s printed on.

    For a lot of entrepreneurs, we see the letter, we see its formality and we think, “We sold our company.” In our mind we’re buying the boat, the chalet, and the house. All the things that we are going to do and the acquirer knows this.

    They know that if they put a letter of intent in front of you and get you to sign a No-Shop clause that you will be emotionally committed to the sale. A couple of things you can do. Number one, as hard as it is, know the big portion.

    I’m not sure if half of the big portion of letters of intent never are consummated. They never come together. Treat it with a pinch of salt when you get your letter of intent. You still got a lot of runways left before you close.

    The second that you can do is make sure that the buyer knows that there are multiple bidders at the table at the point of letter of intent signing. Suddenly, it’s for your conversations, if you can make sure they know that.

    Although the No-Shop clause is 60 days. On the 61st day, you are eligible to go back to those other bidders and say, “This one fell through, do you want to come back to the table?”

    At least that will give them a little more hesitation when it comes to using re-trading knowing that there are some people waiting in the winds.

    The third thing you can do is call it out at the letter of intent stage. We have one entrepreneur who went through a period of selling. I interviewed him.

    He went through a period of selling and got re-traded down. The evaluation was cut 15% or 20% through the re-trading process and swore that he would never have that happened to him again.

    He went through to sell electronics of his equity and he agreed to the letter of intent, but had the CEO on the room and he stood up when the negotiation was over.

    Reach out for the hand of the CEO and look him in the eye squarely and said, “I will do this deal on one condition. Absolutely no re-trading.”

    What he was doing was showing to the CEO that he knows the game. He is not a naive seller who is going through it for the first time, all white-eyed. He knows that this goes on and that he is not going to be put up with it.

    That went a long way to ensuring his deal stock without re-trading. It’s like a chess player or player in a game who calls what they think of the other guy’s play is going to be and it dilutes the efficacy of that play. The impact of that play. You may not avoid it totally, but a couple of strategies there to help.

    You said that the no-shop clause is typically non-binding.

    The No-Shop clause is binding the letter of intent, meaning the commitment the acquirer has to consummate the transaction, to go through with the sale is non-binding.

    How often do you see a seller saying, “No, I don’t want to sign a No-Shop clause?” Is that often an issue if they say no?

    Virtually, none of us as entrepreneurs want to sign a no-shop clause, but by the same token, it’s very uncommon for a buyer to go through and invest the money in due diligence without that protection.

    From the buyer’s perspective, the argument they’re going to make is we’re going to spend $10,000, $100,000 to evaluate what you’ve told us at this process.

    We’re going to bring in a team of analysts. We are going to spend thousands of hours evaluating your company. We’re not prepared to do that, unless you’re prepared to give us exclusivity.

    Coke buying Pepsi, Forbes buying GM, those deals you might get away with what’s called a breakup fee where if the buyer doesn’t consummate the transaction.

    There is a fee they pay to the company that they locked up. That’s very uncommon for small to mid-size transactions, breakup fee is virtually unheard of.

    BWB Warr John | Selling Your Business

    Selling Your Business: You can leapfrog at the head of the pack as long as you can deliver the goods of what you want to do.

    I know those are a lot bigger at much larger deals. This is one of those topics that gets underserved at least from my standpoint as far as helping the person on the other end make sure that they are ahead of the game on the negotiation side. Because everything comes down to negotiation.

    You can have everything rock solid in your business, but a shrewd negotiator can end up finding a way to get their way with you if you weren’t astute and know what to watch out for.

    What are some of the things they’ll do, especially if it’s a private equity buyer, somebody who does this for their living? They are getting the best deals.

    One of my favorite books, have you ever read the book by Robert Ringer, Winning Through Intimidation?

    I have to pick it out. What is it like?

    It’s an amazing book. The title is misleading. It sounds like winning through intimidation like how to be intimidating and win, but it’s about almost winning despite intimidation and in essence not be intimidated by this.

    There are two concepts that I love. One of them is Leapfrog Theory, which is the concept that at any point, you decided to start playing into a much higher level, whether as a deal maker, salesperson, entrepreneur or whatever you can do that.

    You don’t have to wait for the conventional wisdom crowd to anoint you and pay your dues. You can start operating at a higher level if you have the skill to do.

    If you are a consultant who the industry averages $500 an hour and you decided to charge $5,000 an hour, you don’t have to wait. You can do that as long as you can deliver the goods of what you want to do. You can leapfrog at the head of the pack.

    That doesn’t have anything to do with this, the piece that did and it made me think about it, he talks about a negotiation. There are three types of people and only three that you’ll ever be dealing with. He labeled them but I can’t remember the exact names.

    One of them is the super shark style negotiator, I would think of Donald Trump like that. He is coming to get the best deal possible. He will screw you at every corner and he makes no bounce about it like, “I’m shrewd, I’m here to get the best.”

    Those are some of the easiest to deal with because they are a wolf in wolf’s clothing. There’s the one who will lie to you and be manipulative and they’ll seem like the nicest guy and your best friend, but they will secretly screw you over whenever they get the chance.

    There’s the third piece which is probably the majority of people who they have no desire to screw you over. They are not a wolf in sheep’s clothing.

    They are sheep in sheep’s clothing. However, circumstances may dictate that they will screw you over if something happens, if the opportunity comes up.

    They don’t want to but, “Money is money. This is business,” and they will end up doing it. They’ll feel bad about it but they’ll do it.

    The fourth type who would absolutely never do anything to screw you over, but remember the idea of screwing somebody over is subjective. I might think, “I’m trying to screw you over. This is the best I can do. I can’t help.”

    In it, he talks about being aware of those three types of people, spotting them, categorizing them early to go, “Anything can happen, be ready.” This guy may have the best intentions. That’s one of the concepts.

    The book is so good at talking about a lot of these different concepts whether it’s negotiation, general business practice and it made me think about that.

    It reminds me of the difference between the motivations of a strategic acquirer and a private equity group. A private equity buyer, generally they are in the buy low, sell high business.

    They got a group of shareholders, sometimes they raise money and they got investment criteria that they have to adhere to in order to honor that investor.

    They’re basically in a job of buying your business for as little money as they can and selling it in the future perhaps whether they bought other companies or found some fancy ways to grow it. Take on some additional debt and selling it for a higher multiple. That’s their game.

    Even in a large business, you should not be the first one to name your price in selling your business. Click To Tweet

    As you point out the shark versus the sheep, if you know that going in, you can play that to your advantage. Strategic are looking at buying your business because they’re generally looking to fix or improve something about their business.

    One of the biggest mistakes we make as entrepreneurs when we go to sell to a strategic investor or strategic buyer. I’m talking about Google buying Nest as an example. The big company buys a smaller company.

    We as entrepreneurs go into that negotiation thinking, “If this company buys me, if Google buys me, if Coca-Cola buys me, we can sell a ton more of our widgets that’s why Google would want to buy me.” The inverse is true.

    Google doesn’t give a rat’s ass about selling your product or service, generally they are trying to sell more of their product or service.

    Flipping that thinking on its ear and saying, “If I were to sell my company to fill in the blank big strategic company, how would that help their strategy? How would I help them sell more of their widgets?”

    That you will find gets you much higher multiple, much higher premium than going into it saying, “If you buy us, we’re able to sell more of our products that’s why it should be lucrative for you.”

    A close friend of mine and a former guest on the show that made me think of this is Ron Lynch. Ron has built 70 brands. He is one of the top infomercials in direct response guys in the business, having worked on GoPro and OxiClean.

    One of his strategies there is, “If I take a product like a consumer good and even get it into retail, how can I be a thorn in the side and so annoying to these big companies that they come and buy us?” It’s like the little guy who is gobbling up some of our retail space or creating all these demands.

    Sometimes these companies will buy them, obviously they might think it’s a great product, but also you are a thorn in their side. Oftentimes, they will buy you to take out the thorn.

    That gives the buyer a little bit more pricing authority rights if the thorn is always driving them a price or changing terms and making them look expensive relatively.

    Even though they might be a relatively small company and not making a huge financial dent in a big company, they can be annoying enough to want to take out.

    This has been great. You said this book comes out in February 2020. The Value Builder System is your site. Obviously, you are one, if not the main person to go to especially that I know of for people who are looking to sell their business and make sure they’ve got everything covered.

    You’ve got an army of certified Value Builder experts, but you’re the one who created the resources, the systems, the IP.

    If somebody is either considering selling their business whether it’s for a windfall or to get out or to retire, what are some of the best places they can go to? They can get resources from you, learn more, get their scores. Let’s give us some plugs here. What do you have?

    There are two plugs. One is head to PREScore.com and there’s a questionnaire there you can take to assess your personal readiness to exit.

    Number two, ValueBuilder.com. There’s an assessment there where you can go and get a score on the eight key drivers of company value.

    That will give you both sides of the coin. You’re getting whether your company is ready to exit as well as whether you personally are ready to exit. That’s probably what I’d do next and both are free, both are online, so that’s where I’d start.

    Are there any other nuts that you’re trying to crack in your business, your life, people you’re trying to meet, skills you’re trying to develop, things you’re trying to do?

    If there’s anything you’re looking for like to jog my brain or that of my readers and we go, “I may be able to help them out.”

    I’m a lifelong student. I’d love to learn more about podcasting. I’ve done a couple of 100 episodes. There’s a ton more that I can learn about that, so I’m all ears for anything on that front.

    If you were going to learn more about podcasting, the two things that everybody wants is the growth and expansion of audience and monetization. Is there one of those that is more top of mind for you?

    BWB Warr John | Selling Your Business

    Selling Your Business: One of the biggest mistakes entrepreneurs make when selling to a strategic buyer is thinking they can sell more of their product or service. The inverse is true.

    On my podcast, I look at an entrepreneur who has recently sold their company and we walk it through and unpack the experience for them and try to get them to talk about how that experience was.

    Sometimes when you sell a company you have to sign a non-disclosure agreement, which makes it difficult to talk candidly about the sale of your company, yet listeners all want the juice, they want the detail.

    I always try to get owners to talk as much as they’re comfortable about some of the details, but oftentimes, we have to go around some of the meaty stuff. Tips and tricks, advice on how to provide, get more of the details.

    I don’t want in any way to have a founder compromise their non-disclosure agreement for the purpose of our podcast. It’s not what I meant to do per se.

    I’m trying to get more of the details good. Anything folks have in the way of, “These are some of the questions you should ask next time.” This is the information that I find valuable, hit me up on Twitter, I’m simply @JohnWarrillow.

    One of the things I put on my website is a little tool called Speak Pipe. Have you ever heard of this?

    No, tell me about it.

    If you go to SpeakPipe.com, it’s a little code you put in and somebody can push a button whether they are on their cell phone or their computer and turns on their mic and allows them to leave a voice message for you. It sends you an MP3 and it might even transcribe it for you, if not you can listen.

    What is cool about that is a call-in feature so you get people to say, “Leave a message, let me know if you have a question.” Depending on the size of your podcast, you might get more responses than you know what to do with, but you can listen to them and they can be some great clips.

    Assuming you have a production team or an editor, you can pick the ones out like, “Brad Costanzo left me a message that says how do I know if I should sell for revenue versus EBITDA multiple?”

    What you can do is you can take that clip and you have your editor play that, it’s like, “We’ve got a question from Brad, let’s hear it.” That creates a cool little feature because people love hearing themselves on their favorite show because these aren’t live. It’s not a live call.

    I don’t imagine you do it like that, but this helps simulate that. Speak Pipe, I put it on every episode and it’s on my home page. I hope everybody reading wants to go leave me a message whether it’s a question, a love note or a hate mail, feel free. That’s one little thing that might help.

    I’ve been using this for a while and they came out with new tools. Their podcast studio, it’s called Descript.com, and it was created by Andrew Mason. He’s the same guy who created Groupon and it is awesome.

    I’m not getting paid, but I should tweet this to Descript and say, “I’m giving you some prelove here.” One of the things it does is you can upload an audio or video file or you can record straight into Descript and it gives you an automatic transcription of everything.

    You can get white-glove word-for-word perfect transcription too, but the transcription is good. There are a couple of things that it allows you to do that is super cool which is it transcribes the audio and it even finds the speakers.

    You tell who the speakers are, it would recognize my voice and yours and ideally get it 95% right where it breaks it out.

    You’ve got this transcript and you can read through the transcript and you can edit the audio. If there is a line in there, if you said something and if I delete it and then export the audio file, it will automatically delete that sentence out of the audio file as well.

    You can go through there and grab all the little clips of things you’ve said like the highlights. I can go through this, grab five smart things you said and it exports each one of those clips as another little audio file that can be used on social media like a little snackable preview, etc.

    This is more for providing more opportunities to repurpose little snippets of your show that can be shared and ideally help people discover it without having to share hour-long audio. That’s a couple of little quick tips that I could give you for sure.

    Thanks Brad, I appreciate that.

    Do you have a production team working on it? You’re not doing all this stuff yourself, are you?

    We’ve got a producer and an audio editor and they do some of the heavy liftings. I’ll point out these tools.

    Tell them to look at Descript, they’ll like it. John, thanks a lot for being on the show. I appreciate it. It was cool to have you back and I always love hearing this stuff.

    I’m more on the acquisition mode at the moment, but hopefully the results of this acquisitions will be some dispositions. I may have to come back to you and say, “Help, let’s do this right.” I hope that happens someday soon.

    Good luck with that, Brad.

    I appreciate it. Thanks a lot for being on this episizzle, John. I look forward to talking to you again, hopefully sometime soon.

    Thanks, Brad.

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    About The Guest: John Warrillow

    BWB Warr John | Selling Your BusinessJohn Warrillow is an entrepreneur and author with over 20 years of research experience into the small and medium business (SMB) market. He founded The Value Builder System to level the playing field for business owners as they approach their exit. Over 35,000 business owners have taken the Value Builder QuestionnaireAnd with the support of certified value Builders TM , such as brokers, M&A professionals, and coaches, they’re using the statistically – proven methodology to improve company value by up to 71%.

    John's bestselling book, “Built To Sell: Creating Business That Can Run Without You” was recognized as one of the best business books of 2011. In 2015 he wrote another bestselling book called “The Automatic Customer: Creating a Subscription Business In Any Industry”.

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