BUILT TO SELL: A SUMMARY

Whether you plan to sell your business or not, building it in a way that makes it manageable and scalable should be everyone’s goal.

Story Summary

Introduction

“Built to Sell” tells the captivating story of Alex Stapleton, an entrepreneur who embarks on a journey to create a valuable and sellable business. Faced with the challenges of his advertising agency’s reliance on him, Alex seeks guidance from his mentor, Ted, who helps transform the company into a successful enterprise worth $5 million. This engaging narrative serves as a guide for entrepreneurs, teaching them the essential steps to build a business that can thrive independently, making it an appealing acquisition target.

Turn a Worthless Company Around

Alex owns the Stapleton Agency, an advertising agency with seven employees. The agency’s senior designer, Sarah, works on projects for MNY Bank, their key client. During a meeting with John Stevens, the head of marketing at the bank, Alex presents eight different mockups for the bank’s brand. However, after a discussion with Sarah, he learns she plans to quit, leaving him concerned. Additionally, the agency is facing financial difficulties, and the other employees lack expertise in their tasks.

Seeking advice, Alex meets with Ted, a successful entrepreneur who has sold multiple companies. Ted highlights the agency’s financial struggles and the intense competition it faces, suggesting that significant changes are needed before selling the company.

Follow a Five-Step Design Process

To improve the agency’s performance, Ted advises Alex to specialize in a specific area and hire experts rather than generalists. He shares a five-step design process they used to create the agency’s best work, including gathering client goals, sketching ideas, creating a refined design based on feedback, developing a sell sheet, and seeking feedback from previous clients. Ted emphasizes the importance of avoiding over-reliance on a single client for revenue, as MNY Bank accounts for 40% of the agency’s income.

Sell the Process

Ted advises Alex to develop a process that allows him to control every aspect of the company. This includes establishing positive cash flow cycles, such as requesting upfront payments from clients, and finding employees who can deliver the same quality of work. To achieve this, Alex creates an instruction manual explaining the logo design process and presents it to his team. Although one designer, Elijah, disagrees with the strategy and decides to leave the company, Alex sees it as an opportunity for improvement.

Build a Sales Team

Ted emphasizes the importance of a stable team when attracting potential buyers. To strengthen his sales engine, Alex decides to let go of his account director and copywriter, enabling him to hire two salespeople. He brings in Blake, an experienced advertising professional, and Angie, a successful product salesperson for small businesses. Recognizing the need for a product specialist, Alex hires Angie and reunites with Seamus, a former colleague.

Ted reassures Alex that although they might face financial challenges in the next two years, they will implement a new system to improve their profitability. Ted’s ultimate goal is to increase the company’s value to $5 million, considering its current worth is less than $500,000.

Implementation Guide

Accountant

Hiring a good accountant with expertise in tax strategies is a crucial step in preparing to sell your business. It is advisable to engage their services well in advance of the actual sale to ensure a smooth and efficient process.

Scalability

When considering the products or services within your business, focus on identifying those with the potential to scale. Scalability is determined by three key factors.

1. Firstly, the product or service should be teachable to employees or deliverable through technology.
2. Secondly, it must deliver significant value to customers. However, it is important to note that the most teachable offerings may not always be the most valuable, so finding a balance is crucial.
3. Lastly, prioritize offerings that generate recurring revenue, as this is the cornerstone of scalability.

Repeatability

Within the realm of scalability, repeatability is the most crucial aspect. There are six types of repeatable businesses to consider.

1. Consumables, such as toothpaste, require customers to repurchase frequently.
2. Sunk money consumables, like razor blades or ink cartridges, involve an initial investment followed by recurring purchases.
3. Renewable subscriptions, such as eMagazines, require ongoing subscriptions for revenue generation.
4. Sunk money renewable subscriptions, like Bloomberg terminals, involve upfront costs as well as subscription fees.
5. Auto-renewal subscriptions, such as document storage services, automatically renew, ensuring recurring revenue.
6. Lastly, contracts, such as multi-year mobile phone plans, provide a stable source of revenue.

To establish a scalable and repeatable business, it is essential to create a detailed instruction manual for your business process. Naming and documenting this process will ensure consistency and efficiency in its execution.

No RFPs

Avoid relying on responding to Requests for Proposals (RFPs) as a primary method for winning business.

Cash Flow

Instead, aim to create a positive cash flow cycle by requesting upfront payments from customers. This approach contributes to the financial stability of your business.

Customer Advisory Boards

The author of the outline suggests progressing from running focus groups to establishing customer advisory boards. Additionally, they recommend transitioning towards releasing industry research reports, emphasizing the importance of a one-size-fits-all approach rather than customization.

Operating Capital

When approached with offers to buy your business, pay close attention to the amount of operating capital that will be left in the account. It is important to remove yourself from the sales process by hiring two sales representatives, allowing you to focus on selling the company while they handle product sales.

Remove Yourself from Sales

The sales process should be designed to be simple rather than built around a comprehensive understanding of multiple scenarios that may take years to develop. By simplifying the sales process, it becomes more efficient and effective.

No Customization

Stick to your primary offering and refrain from selling a wide range of products or services. Avoid customization and instead focus on delivering a consistent and standardized offering.

Align Compensation Plans

It is crucial to align the compensation plans of your employees, particularly the general manager, with long-term customer loyalty. This ensures that they prioritize acquiring long-term contracts over short-term profit margins.

Create a Moat

Selling people’s time can make your business overly dependent on employees. To mitigate this risk, create a wide and deep “moat” around your business. This moat refers to measures that provide pricing protection and make it challenging for employees to leave and compete against you. Examples include owning ranking studies, awards programs, industry events, and benchmark measurements.

Convert an LOI to a Deal

During the selling process, aim to convert offers into contractual deals rather than relying solely on a Letter of Intent. Earnout money should not be counted on, so it is essential to secure upfront payments to ensure you receive the desired funds.

Beware Dirty Tricks

Be aware of potential dirty tricks employed by buyers, such as changing meeting times to assess your flexibility and the business’s dependence on you. They may also interview management and you separately to compare answers and talk to clients to gauge their loyalty to you as the owner. The due diligence period typically lasts 60-90 days, and the final offer may be lower than stated in the Letter.