Built to Sell Summary
“Built to Sell” by John Warrillow has been highly recommended by my friend, after reading this book, I would do the same to introduce and recommend to all my friends. No matter you’re actively trying to sell your business, or having a dream to start your own business.
Certainly as a business owner, you don’t want your business all depends on you, you want your company can run with their founder, can be scaled and grown.
This book is using a fictional story to illustrate the author’s tips and points. I have learned a great deal of knowledge from the book. In order for myself to remember I have write this summary and notes about this book. Hope it can be useful to you as well, whenever you need to find a reference or forget some of the points on the book, you can find the information from here.
How to create a business that can thrive without you?
Before you start this process, engage a good accountant experienced in helping business owners with succession planning. Don’t wait until have an offer to see an accountant.
Isolate a product or service with the potential to scale.
Scalable things meet three criteria:
- They are “teachable” to employees or can be delivered through technology
- They are “valuable” to your customers, which allows you to avoid commoditization
- They are “repeatable”, meaning customers need to return again and again to buy
Once you’ve isolated what is teachable, what your customers value, and what they need most often, document your process for delivering this type of product and service.
Next, name your scalable product or service. Name your offering, along with each of the steps you take to deliver it, to differentiate your offer so that you can set its price and payment terms.
Revamp all of your customer communications to describe your process in a uniform way.
Create a positive cash flow cycle.
To create a positive cash flow cycle, charge your customer in full or in part for your product or service before you pay the costs of whatever it is you provide.
the second most important number on the page may be the working capital calculation. If your offer does not include details on the working capital calculation, be sure to lock that number down before you agree on anything.
Hire a Sales team.
Your job as an entrepreneur is to hire salespeople to sell your products and services so you can spend your time selling your company. As you build your sales team, look for people enjoy selling, and like the product. Avoid hiring salespeople who come from professional services companies.
Stop selling everything else
Launch a long-term incentive plan for managers
Visit www.builttosell.com to find a template for a long-term incentive plan.
Find a broker
If your company has less than $2 million in sales, a business broker will best serve you. If it has more than $2 million in sales, a boutique mergers and acquisitions firm is probably you best bet.
Your broker needs to recognize that you have created something special and deserve to be compensated at a higher rate.
Tell your management team
Think about it from their perspective and make sure there is something in it for them if the deal goes through.
Wondering what your moat could be to protect you against employee defection? Here are a few ideas to get you thinking:
- Own the annual ranking study for your category
- Own the annual awards program for your category: Ernst & Young created the entrepreneur of the year awards program.
- Own the event for your industry.
- Own the benchmark
Convert offers to a binding deal
An earned-out is used by an acquirer to minimize his or her risk in buying your company.
During due diligence period, a professional buyer will dispatch a team of MBA-types to your office who will quickly identify the week spots in your model.
Subjectively accessing how dependent the business is on you, the buyer is using a number of tricks of the trade:
Trick #1: Juggling calendars.
Trick #2: Checking to see if your business is vision impaired.
Trick #3: Asking your customers why they do business with you.
Trick #4: Mystery shopping.
The following are all the tips listed in the book, I have written down all the tips for my own notes:
Don’t generalize; specialize. If you focus on doing one thing well and hire specialists in that area,the quality of your work will improve and you will stand out among your competitors.
Relaying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15 percent of your revenue.
Owning a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.
Don’t become synonymous with your company. If buyers aren’t confident that your business can run without you in charge, they won’t make their best offer
Avoid the cash suck. Once you’ve standardized your service, charge up front or use progress billing to create a positive cash flow cycle.
Don’t be afraid to say no to projects. Prove that you’re serious about specialization by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.
Take some time to figure out how many pipeline Prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.
Two sales reps are always better than one. Often competitive types, sales rep will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.
Hire people who are good at selling products, not services. These people 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.
Ignore your profit-and-loss statement in the year you make the switch to a standardized offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash flow remains consistent and strong. You’ll be back in the black in no time.
You need at least two years of financial statements reflecting your use of the standardized offering model before you sell your company.
Build a management team and offer them a long term incentive plan that rewards their personal performance and loyalty.
Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.
Avoid an adviser who offers to broker a discussion with a single client. You want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favor with his or her best client.
Think big. Write a three-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.
If you want to be a sellable, product-oriented business, you need to use the language of one. Change words like “client” to “customers” and “firm” to “business”. Rid your web site and customer-facing communications of any references that reveal you used to be a generic service business.
Don’t issue stock options to retain key employees after an acquisition. Instead, use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in two or more installments only to those who stay so that you ensure you key staff stays on through the transition.
Below the links are from the books as well, I jogged down the links for the future reference.
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