Selling is tough work. If you’re selling a house, that’s also tough. Selling a business — that may be the toughest sale there is. It’s a topic not often talked about, and therefore business owners don’t always know where to turn.
John Warrilow has been involved in a few startup businesses and claims that he’s made every mistake there is to make. (This is why we feel confident taking his advice!) John ultimately sold those businesses or exited out of them but documented some of the things that he learned. He put together a book called Built to Sell, which came out in 2011. He then wrote a book called The Automatic Customer, which is about accelerating the growth of your business once it’s able to thrive without you.
And then there he felt something was missing — how do you harvest the value of a business once you’ve created it and increased its value? So that’s exactly what his new book talks about. And that’s what he’s talking to us about today.
The Art of Selling Your Business: Winning Strategies & Secret Hacks for Exiting on Top teaches business owners to stop providing a sale price when selling their business. Instead, they should showcase and present the value of their business to the potential buyer. Then, let the buyer share what they see as the value of the business. This is how negotiation starts.
John says that he often sees business owners get “tricked” into selling at a lower price. They might have been able to get a higher price if they understood some of the “selling hacks” John shares in his book.
Selling a Business vs. Buying a House
Selling a business is not like buying a house. When looking to purchase a house, there’s often a public price for the house and the buyer can try to negotiate this price based on a few different reasons. Maybe the house is missing some appliances, maybe something is broken. But it doesn’t work this way when buying a business.
Maybe you have a $2.5 million dollar construction business. Your desire is to travel the world and not be responsible for the operations of the business anymore. You’d love to get $10 million for your business. John says that in order for us to get the sale price we want, we first have to know what that is.
Getting Offers for Your Business
Ensuring you have multiple offers is essential. If you only have one offer, you don’t really have a gauge on what the market says about your business or its worth. However, if you have one at $3 millon, another at $2.5 million, and yet another at $4 million, you now have an idea of the range of what your business is worth.
Push and Pull Factors When Selling a Business
John tells us about push and pull factors. A lot of business owners are feeling the push factors right now. Push factors or things that frustrate you about your company. They’re the things that are annoying such as the government, red tape, the economy, etc. (Hence why many business owners feel the push right now.)
But the secret though to a successful exit is to have a pull factor. And a pull factor is something you’re excited to do.
John’s book talks about a man named Sean Oshman. He built a little IT company, $2 or $3 million in annual revenue, and he turns 30. And 30 is one of those milestone birthdays. That’s also the time when you might realize, “My gosh, life is not forever. I’ve got to grow up.” And in the case of Sean, he says, “You know what? By the age of 40, I want to be living life on a sailboat.” And so Sean builds up his IT company. By the time he’s 39, he’s got a few million dollars in revenue and realizes he has a year to sell before he can fulfill his dream of living on a sailboat.
So he goes to a business broker and says, “What do you think it’s worth?” And the broker talks about how it’s probably worth two or three times earnings, two or three times profit. And Sean says, “Okay, great. As long as you can get me two or three times in a year, I’ll sign with you.” He goes on to sign the contract. Six months later, the broker comes back. Sure enough, they were able to sell it for two or three times earnings. Now, we hear two to three times, and we’re thinking that’s not exactly a huge success for this guy, Sean. But in actuality, Sean is as happy as a clam.
Why? Because he’s living on his boat. Two or three times earnings was enough for him to buy his boat and live happily the next chapter of his life on the high seas.
Getting Clear Before the Sale
So the moral of the story is that Sean had a pull factor. He wasn’t frustrated with his company and wanting out for any price. He was really excited to go do something else. In this case, living on a sailboat. If you’re two or three years away from selling, what John would recommend doing is getting really clear about what you want to do next. Get excited about what’s next on the horizon. We’re always going to want to go do another thing. That’s how we entrepreneurs are wired.