According to John Warrillow, the secret to creating a successful company is to make one that can run without the owner. By doing this, you may create a company that can function without the owner. This strategy not only raises the company’s worth but also makes it simpler to market the company to prospective purchasers. In his book Designed to Sell, Warrillow utilizes an imaginary narrative to explain how to operate and sell a small firm.
The necessity of focusing in a good or service, producing a healthy cash flow, selecting the best salespeople and management group, and handling the business sale are all emphasized in the book. Warrillow contrasts his recommendations to those of other business gurus throughout the book to provide readers a thorough overview of how to create and market a successful, scalable firm.
Reasons for constructing a business that can be sold
According to John Warrillow, constructing a business that can be sold is advantageous, even if you do not have any intentions of selling it.A sellable business is one that has high profit margins, low risk, and room for growth, which are qualities that benefit any business or owner.
Building a sellable business also provides options in case of unexpected changes in the business or personal life, such as needing to sell the business for money or no longer enjoying running it. However, Warrillow advises against starting a business solely with the intention of selling it, as this may lead to neglecting important aspects of the business that make it sellable and reduce the chances of a successful sale.
What Makes a Business Sellable
According to John Warrillow, the most important attribute that makes a business sellable is its ability to operate successfully without the owner. A business that does not rely on a single employee, including the owner, is more attractive to potential buyers.
Regrettably, a lot of small business owners become so intertwined with their enterprises that they are indispensable to it. Warrillow presents a step-by-step procedure for creating and selling a business that can operate without the owner, which includes selecting the ideal product or service, producing positive cash flow, and selecting and educating the ideal staff members and management. The ultimate objective is to build a company that can run well without the owner’s ongoing involvement, increasing the likelihood of a successful sale.
The Personal Toll of Running a Business
Warrillow stresses the need of creating a company that can run without the owner. This is because single ownership of the company’s success might result in fatigue and ultimate collapse. The E-Myth Revisited by Michael Gerber illustrates how many business owners try to handle everything themselves in the beginning, which causes overwork and disillusionment. It is advisable to adopt a strategic perspective on the company and engage assistance when needed to prevent this.
The goal is to grow the business, and the best way to achieve that is to delegate tasks to others instead of trying to do everything alone.
Step 1: Find Your Scalable Specialty
John Warrillow, in his book “Built to Sell,” suggests that to build a sellable and scalable company, you should focus on specializing in one product or service that is unique and valuable, and that can be learned by employees.
Warrillow also stresses the significance of providing a repurchasable product, which refers to discovering a good or service that clients may use frequently. Warrillow advises putting new hires through rigorous training programs to create a balance between distinctiveness and learnability. The product should also offer a clear advantage and be simple for buyers to grasp.
Step 2: Generate Positive Cash Flow
After deciding on your area of expertise, it’s crucial to concentrate on producing positive cash flow in order to achieve long-term success in your company. If your company has positive cash flow, it is earning more than it is spending. For the money to be released to carry out the remainder of the growth process, this is crucial.
Note that cash flow and profit are different, and a profitable business can have negative cash flow. To generate positive cash flow, Warrillow recommends charging upfront for your product or service or adopting a subscription model. To facilitate upfront payment, you can offer discounts for early payment or send out invoices as soon as they’re generated. Doing credit checks for customers can also help improve cash flow.
Step 3: Hire the Right Salespeople
According to Warrillow, it’s appropriate to recruit a sales staff after you have a good cash flow and a service that can be given without human participation. He contends that salespeople with product-selling experience are more suited than those who sell services since they are knowledgeable about how to market a particular good.
They can also sell your specialized service effectively. Warrillow suggests hiring at least two salespeople to create a competitive environment and demonstrate the company’s success as a whole. If you only have one salesperson, potential buyers might assume that the company’s success is due to the salesperson’s talent.
More Tips On Building a Sales Team
The book Sales Management by Mike Weinberg. Simplified advises employing a number of salespeople to fill several positions in the sales department, such as generating leads, keeping clients, and providing customer service.
This enables each position to make use of particular abilities. In accordance with Warrillow’s counsel, Weinberg highlights the value of an effective sales pitch that can sell a good or service without altering it for every new client. A sales pitch should be a succinct and uncomplicated story that conveys to the buyer the value of the item or service.
Step 4: Build a Team of Managers and Incentivize Them to Stay
Warrillow contends that in order to successfully sell your firm, you must have a strong management team in place. Warrillow suggests setting up a bonus account that managers may only take from after a specified amount of time in order to encourage this team to remain with the business after the sale.
As long-term rewards, he cautions against giving management stock in the firm or a cut of the earnings because these arrangements can lead to conflicts of interest and make a sale more challenging. He proposes, instead, encouraging managers to build connections with their workers and allowing them the time and space they require to assist and learn from one another. Giving managers shares as compensation is a common practice, but it has drawbacks as well.
Step 5: Find the Right Company to Help Sell Your Business
To sell your company, you should find a professional adviser who is the right size for your business and has knowledge of your industry. A business broker is suitable for companies with less than $2 million in annual sales, while a merger and acquisition (M&A) firm is suitable for larger companies.
In order to make sure that they understand the importance of your firm, it is crucial to pick an advisor that is knowledgeable about your sector. While M&A companies are more likely to broker complicated agreements on a national or international level, business brokers often work on a smaller scale. Industry-savvy advisors are more likely to push for your business’s best possible pricing.
Step 6: Inform Your Managers
According to Warrillow, notifying your management that you want to sell your business might be difficult, especially if you have a close connection with them. To prevent catching them off guard at a meeting with a possible customer, it is essential to let them know ahead of time.
Warrillow recommends informing them once you find a potential buyer. You can also offer them a one-time bonus and highlight the benefits they might experience as part of a larger company. However, it’s essential to be aware of potential drawbacks, such as job cuts and changes in corporate culture. The National Federation of Independent Business (NFIB) recommends involving key managers early in the process to support the transition and maintain trust.
Step 7: Accept an Offer
In the final step of selling a business, it is important to know what you want from the deal to make the decision easier, according to Warrillow. This means having a clear minimum amount of money you will accept up front, and any future performance fees or add-ons as a bonus.
You might need to stay on staff with the firm if the majority of your income is contingent on its future performance in order to ensure that you are paid. Understanding your bottom line can help you resist pressure from your broker to accept a less desirable bargain in order to move on.
More Advice on Selling Your Business
According to Ben Horowitz’s book “The Hard Thing About Hard Things,” it’s crucial to take both your intellectual and emotional sides into account when selling a business. Both of these elements are covered in Warrillow’s advise on knowing what you want out of a bargain.
Horowitz advises examining whether the industry your firm specializes in is larger than it seems and whether it has the potential to be one of the top businesses in that market in order to determine your company’s actual value. The buyer may lower their offer during due diligence or even withdraw from the purchase completely, so it’s important to be aware that the process can be drawn-out and time-consuming. As a result, it’s crucial to stay to your guns, don’t give up if this occurs, and understand the true value of your business.