This Built to Sell book essay is part of a series of essays highlighting key aspects that impacted my career as an online SaaS/software business acquirer and operator.
None of these book reviews are summaries. I am just highlighting items that spoke to me based on my experiences as an online business acquirer. There is a lot more to learn in these books than I cover here, but these are the main takeaways that helped me in my career.
The title of “Built to Sell” perfectly falls in line with my belief that buying businesses is the most reliable way to build and attain wealth. I wish I had thought of the phrase first!
Jon Warrillow is a household name…in the types of households that talk about acquiring companies. The book Built to Sell is a cornerstone of that conversation and has a ton of useful information, not only for online business buyers and sellers, but for any business acquirer or investor.
Although Jon’s book was written with the premise of selling an offline marketing and advertising agency, the overall philosophy closely follows what all online business owners need to keep in mind if they ever plan on selling their companies.
Because online businesses aren’t quite as complex, there are some pieces of advice in Built to Sell that aren’t quite as relevant or applicable to the online business community. Yet another reason online companies are so much more enjoyable to run than a stand-alone retail outlet.
The book is broken down into two parts – a story with some seller checklists – and told as a real life situation rather than a set of lecture chapters.
The story centers around a business owner (Alex) who wants to sell his ‘unsellable’ business and the wise business mentor (Ted) who helps advise him to recreate his business so that it is sellable in the future.
Personally, I find it a fresh and unique approach over the typical “7 things you MUST do to sell your business” style of books.
But let’s make this fun, shall we? In that same vein, here are the seven most interesting takeaways that I learned from this book.
Each is an aspect of keeping your business ready to sell at any time and should be in the back of your mind when you are making the typical day to day decisions with your company.
Seven Lessons from Built To Sell
“You should always run a company as if it will last
forever….and allow it to be sold at any moment.”
This is easily the most important lesson from the book, hands down.
You never know what might happen in your life where you either need to raise capital or divest your business assets in a hurry. Liquidity of your online business should be resident in your mind at all times with every decision you make.
Prior to 2020, I think many owners ignored this advice, but now that we’ve experienced the recent global pandemic, owners know that unexpected events could possibly require each of us to sell and sell quickly.
We also never know when those of us that operate as single-owners could be incapacitated or even pass away.
You want to run your business in such a manner that you could call David up at Quiet Light, turn over your SOP’s, financials, etc., and he could sell the business in 30 days. That’s a lot better than having to completely rearrange your business to make it palatable to buyers.
In Built to Sell, John refers to this as the “options strategy” instead of an “exit strategy”. Always run the business as if nothing will ever change. But keep in mind you may need to sell really, really fast. Try and keep that option open.
Might I add…with brick and mortar companies, selling really fast can mean selling in a year. With an online business, selling really fast can mean money in your pocket in 30 days. Yet another benefit to running an online business as a more liquid, wealth building asset.
The idea of running a business with the “option” to sell became even more relevant and important to me once I got married and people depended on me for their livelihood. Imagine something terrible happening to you and your significant other suddenly having to not only run the business, but try to sell it at the same time. You want to give them the best chance to succeed in either venture.
Consequently, operating your business as if you may sell also helps you run the business in a more organized and logical fashion too. It’s a win win.
Some of the Best Businesses Are Also Worthless
“You need to demonstrate that your business can run without you” *
- I would add that you need to make sure you demonstrate the business can run without you and the people you contract or employ, as many times they leave upon a sale and a buyer can’t rely on them not to when negotiating.
When Alex first tells Ted he wants to sell the business, Ted quickly gets right to the point. “Alex, your business is virtually worthless today”.
This statement is very true for a lot of online businesses that are sold in the under $1M market. Many of these businesses are successful due predominantly to the skills, talent, connections, or hustle of the original owner. A new buyer likely won’t be able to replicate those exact skills that made the business successful in the first place. In many cases, without the original owner involved, the business is actually worth a lot less than quoted in the sale price.
Someone once told me that “Oprah’s talk show business was virtually worthless because Oprah is the business”. Sure, there are reruns you could sell as an asset, but who watches reruns of daytime TV from years ago? That’s the main reason she had to pivot to creating Harpo – as a way to remove herself as the main driver of the business value. Many online business owners need to do this too.
I’ve purchased a business where I didn’t realize that the owner was so integral to the success of the business. It didn’t work out so well.
Successful developers that create really strong software companies need to bring in a person or team to replace them before they try and sell the business. If not, it’s going to turn off a lot of buyers from exploring the idea of a purchase of the company.
Patio11 did this before selling Appointment Reminder and I found it to be very reassuring. In the end, I brought in my own dev team to run the business. But knowing there was a fail safe in case of emergency helped him get above his selling price.
If you’re selling, you need to “extract yourself from the epicenter of the operations” as John says in Built to Sell. This is the number #1 reason I shy away from many with SaaS/Ecom/Software businesses for sale. The owner is still integral to the success of the business and expects the buyer to pay top dollar, yet also find a way to replace the seller.
Process Over Charisma
In the same vein of not selling a business where the owner “is” the business, Ted tries to get Alex to come up with a predictable, recurring, repeatable, boring, routine, and understandable system for creating his work product (logos, in this case). Of course, those types of processes are soul crushing for the artists and creatives that make the graphics designs, but necessary to make the business sellable.
Remember…the people looking to buy your business likely aren’t driven by the same passion you had to start the business. In most cases, their passion is your cash flow. They don’t care very much about your original purpose. They just care that the business can continue to produce the cash flow they paid for.
So cast aside those romantic visions of your business and make it a cash flow machine for a potential buyer. That doesn’t mean you have to drop doing what you love in the business, it just means you need to be able to flip the switch and hand over a set of SOP’s and repeatable processes that someone without your talent, skills, and purpose can pick up and run with to the bank.
Not sexy or inspirational, but true.
Don’t Generalize – Specialize
I’ve seen quite a few businesses that show up at a broker’s doorstep that have a whole host of distractions and “other opportunities” tied into the business.
Many of them are half baked ideas the founder(s) had that they spec’ed out and then abandoned. They think that since they put time into it, someone should reward them when they sell, which is wrong.
Brokers usually cast aside these ideas and leave in a line or two in the prospectus indicating there are other things one could pick up and run with. But in most cases, if you’re selling your online business, it should do one thing really well over and over repetitively in a manner that can be reproduced by anyone.
Just focus on selling that one thing. Don’t try and tuck in all the abandoned domains you bought and did nothing with for the past four years.
How Do You Make Your Business Less of a Cash Suck?
“If you get an offer, the second most important number may be the working capital calculation”
New buyers are going to look at the operating capital required to run the business.
For many online companies, this really isn’t a large issue. When you’re sporting 50% profit margins, there’s more than enough cash flow to keep the business afloat, pay the new owners, and not cause wild fluctuations in cash on hand.
Amazon FBA and E-Commerce businesses, on the other hand, have inventory requirements and can eat up cash quickly. Especially in times of uncertain supply – as well as the usual uncertainty of demand – capital can be tied up for long periods of time.
New buyers are going to discount your business if it’s going to require a lot of capital just to keep it running.
The more you can make your business less of a cash suck, the less pushback you’ll get on your price when selling.
Resist One-Off’s, Custom Solutions, and Unique Payment Plans
“If you want your business to be profitable, enjoy fat margins, and thrive without you, you need to stop responding to RFPs and start carving out your own one-of-a-kind product or service”
This is a very important point in Built to Sell and I should have it higher in this essay.
Resist customized solutions like they are the devil who smites strong businesses all day long.
Take it from any business owner that’s ever said “Sure, you can run on this unique plan I’ll make for you”, it’s a nightmare to keep track of…even when you’re 100% on top of your game.
New buyers do not want to find out that 95% of your business runs like clockwork according to the SOP’s and procedures put in place, but that there’s 5% of customers that each have their own unique payment plan, custom code, or infrastructure setup that you now need to monitor separately and maintain.
Not only does that show a lack of discipline of the seller, it indicates that there are likely other misfit issues within the business, like more than one set of customers that always pay late or other users that expect a sit down meeting every time they have a question.
When I was running an e-commerce software solution, I made this mistake repeatedly. Accepting customer requests for 5% of the users ended up taking 50% of our time to keep those 5% happy.
It was a nightmare.
Did the money we made from those unique customer solutions make up for the lost time? Not even close.
I’d rather have 100 customers that all use my service in the exact same way than 500 customers where 50 have unique build outs and payment plans that I have to keep track of daily.
Trust me, buyers want those 100 solid, predictable, and reliable customers over the 500 where 10% of them are a hassle.
Honestly, what would likely happen is a buyer wouldn’t pay for those 10% of customers and then immediately tell those users to go back to using the service as designed or leave. At least, that’s what I’d do.
If your software business has a component that builds out customized solutions, that’s fine. But it’s got to be financially viable and worth it for a buyer to inherit that aspect of your business.
Think hard about this one before you set up a one-off payment plan for a customer. It might bite you down the road – not only when you’re running the business – but also when you try to sell the company.
Is the Seller Running To or Away from Something?
A question you see a lot on Reddit is “why would someone sell a successful business”. Especially something like a successful SaaS business.
It’s a really, really good question.
A lot of online business owners will tell you that they’ve got too many irons in the fire and need to concentrate on the ‘new, new’ thing they got going on.
That makes sense, I’ve had that same issue, I get the feeling.
But I also know that it’s easy to say that because it’s impossible to prove if it’s true.
The seller could also know something you don’t know. They may be looking to offload the business before a certain event either comes to light or transpires that hurts the business.
Nobody knows a market or customer base better than a successful business owner in that space. They are going to see issues coming towards the business long before a buyer. This is all part of that ‘risk’ that buyers take on when they look to inherit a business.
My recommendation is to ask the buyer to show you this new venture that is so important they need to sell their business to fund it and put time into it. Don’t just wave it off saying “oh, yea, I get why you’re selling.” Make sure the seller really is moving onward to a real opportunity and not to avoid a train wreck coming down the tracks.
Built to Sell Summary
Built to Sell is a great book that any buyer and seller should have dog-eared on their bookshelf.
Hopefully these little tidbits help bridge the gap between the Built to Sell story of an offline advertising logo design service business and an online business you might look to purchase or sell.
There are many similarities between the two types of businesses. Obviously online businesses are a bit different, so maybe I should write that book?
Library and Books Photo by Alfons Morales on Unsplash