Be an Ethical Entrepreneur, Marketer, and Business Builder

Your business DOES need an exit strategy!

In the last few days I read an article on and the book Rework where people have said buying or starting a business with the idea of selling it is horrible. They gave various reasons why this disgraceful practice will hurt your business including it leads to a lot of bad things, you won’t focus on customers, and you will be too distracted by cashing out to do a good job.

Respectfully, I disagree with Jason Fried, David Heinenmeier Hansson, and Michael Mothners. Firstly, it seems obvious that all of them have only been involved in growing or starting their own businesses so I’d suggest their experiences in different types of businesses with different owners is a bit limited. For instance, Fried and Hansson suggest that business owners looking to sell are generally trying to get acquired. Huh? In the 100 plus business owners I’ve worked with I don’t recall ever hearing about someone wanting to get acquired. That’s just a bit of the authors projecting their experience as a software company and of the software industry overall to all businesses and it just isn’t that way for businesses outside the technology realm. Mothners also owns a technology company so I’m guessing his disdain for exit strategies is based on the idea of companies popping up just to get bought out by Microsoft or Google.

In the real world of brick-and-mortar businesses few owners have that vision. As a matter of fact, most owners have no idea when they should sell their business, how to sell it, or even what it’s worth. What’s worse is few appreciate that if they’re working IN the business everyday instead of ON it their business is worth significantly less once they stop working there. My point is that why make a statement such as, “building a business to sell it is a bad idea” when the negative situations that they are concerned with are probably less than 1/10th of 1% of the total transactions and businesses? There are nearly 250,000 businesses sold in the US each year and that only represents about 20% of the total businesses listed. In other words, only 1 in 5 businesses grossing under $10 million/year will sell. It doesn’t sound to me like building to sell is the problem or you think more people would be able to actually find a buyer.

So what are the real problems small business owners face?

  1. They don’t know how to build a business. In Built to Last: Successful Habits of Visionary Companies, Jim Collins discovered that businesses that remain profitable for decades (even centuries) remain that way because they are great BUSINESSES not because they have great products. Most business owners focus on delivering a certain product or service without figuring out how to build a great business.
  2. They don’t know how to distance themselves from the business. In other words, they make the business completely dependent on themselves. If they’re not there working, selling, servicing or whatever, the business isn’t running. That means when they go to sell the business it’ll be worth a whole lot less without them there. Not only that, the only people interested in buying it will be buyers who also want to work in the business not investors. Working buyers generally don’t have as much cash as an investor looking for a steady return on his money.
  3. They don’t know what their business is worth or how to increase its value. The result of that is they always want more money for it than anyone else is willing to pay.

So what’s the solution to fix all of these real problems that I would estimate nearly 80% of business owners have? An exit strategy, of course. Here’s why an exit strategy is so important:

  1. It forces the owner to look at how to make the business great. Few people (myself excluded) want to buy a business that isn’t run well. They generally want a business with a strong, steady history of cashflow with minimal headaches and issues. If your primary focus is simply to grow and work in your business it’s very hard to step back and look at the big picture of your business being a finished product that runs so smoothly someone else would love to own it.
  2. Owners will need to figure out how to remove themselves from the business. You can’t sell the business if you’re required to run it, so an exit strategy will help you focus on working ON the business more than IN it.
  3. They will have to come up with a reasonable value for their business. Most business owners have an idea of how much they’d like to get for their business when they sell it. Unfortunately, that number doesn’t usually correlate with what it’s actually worth. With an exit strategy you need to look at a reasonable value for your business today and then set a game plan for increasing it’s value to the point where you can sell it for what you want. No exit strategy and chances are you’ll never really look at it’s value. This is very sad because most business owners only sell when they’re ready to retire. In essence, their business is their retirement plan. So if they go to sell and find out their business is only worth half of what they thought, that makes for either a tough retirement or a lot more years of work.
  4. It forces a time table for the 3 items above. Without an exit strategy with a specific time frame, few owners will ever do the things above even if they know they should. “There’s always tomorrow, or next month or next year to get that done… I have customers to take care of today.”
  5. Buying, building and selling businesses is generally a much faster system for creating wealth than buying, building and keeping. I’ve explained this in previous blogs so I won’t address it again here. This philosophy is probably what is thought of as a “bad idea” however, in my experience, this generally greatly benefits the businesses being acquired and resold. Why? Because people who are doing this understand how to make a business better. Not just a shell game of cleaning up the books, but a business that takes care of its customers, employees, vendors and owners better. Truly an improved business comes out the other end when an experienced person takes over to increase the value of a business to sell. I’ve written a 5-part series of blogs outlining how someone can go about buying a business and quickly improving it.

In summary, be wary of advice from business experts who have only owned or run 1 business or in a single industry and then attempt to extrapolate their experiences and lessons to all businesses in all industries. The real world, where over 5 million businesses exist in the US, is quite a vast landscape. More importantly, if you’re ever looking to retire or sell your business, you need to work on an exit strategy immediately. Make it a priority to get done this week! Contact me if you have any questions on how to structure a reasonable plan.

To your successful exit strategy, Bryan

The best 6 books to teach you how to generate wealth…

When I started business “consulting” at the ripe old age of 20 with no actual business ownership and management experience, I ran into a few problems. My job was to implement a new software system that would significantly change the work flow of a business. In that process I would have to recommend ways to handle leads, in-bound and out-bound calls, inventory, receivables, and offer suggestions on what management reports to run. I learned that to get buy-in it was necessary to explain WHY they needed to do all of this. No matter how much I knew or how many businesses I helped, a 21 year old wasn’t ever going to get much respect right away. So I learned a quick way to build rapport is to use “experts” to make some suggestions instead of me just making them. In other words I learned to use books to backup my expertise and build instant credibility. I furthered that credibility by publishing articles in trade magazines when I was 22… But that’s a different story. 🙂

So after years of reading books on real estate, investing, business building, sales, marketing, and psychology here are the ones that offer the BEST advice for wealth building in the order of importance.

  1. Billionaire In Trainingby Brad Sugars: If you don’t know this guy then you need to. He retired with $10 million in the bank at age 26 for a few years. Then got bored and launched what is now the largest business coaching business in the world, Action Coach International. Now at age 34 he’s been involved in over 50 businesses and is using the formula in this book to become a very young billionaire. The best book of its kind.
  2. Ready, Fire, Aim: Zero to $100 Million in No Time Flatby Michael Masterson: Masterson’s approach is a bit different than Sugar’s which is why I liked it. Masterson talks in detail about starting and growing a business step-by-step, whereas Brad says don’t waste your time starting one, just buy one. Regardless, Masterson has turned himself into a hundred millionaire and retired for the first time at age 39. He provides some excellent tools particularly his insights into marketing and back-end sales.
  3. The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About Itby Michael Gerber: One of the best business books ever according to Inc. magazine. Gerber breaks down the reason most businesses fail to the owners misunderstandings about business. The greatest misunderstanding – that because I’m a good plumber, electrician, accountant, lawyer, etc. I’m gonna be great at running a business that will allow me to use my sweet skills.
  4. First, Break All the Rules: What the World’s Greatest Managers Do Differentlyby Marcus Buckingham: After interviewing 80,000 managers in 20,000 different organizations over 20 years Buckingham has broken down the best way to measure employee productivity and happiness to 12 simple questions. If 12 is too many he even gives you ways to shorten that list depending on your goals. If you EVER plan on doing a performance review or have employees, read this book.
  5. Built to Last: Successful Habits of Visionary Companiesby Jim Collins and Jerry Porras: The greatest lesson I took away from this book was that Gerber and Sugars are right. Even the greatest businesses over the last 100 years were founded to be great businesses from the start NOT to provide a great product. That’s a VERY important distinction. Sorry to dissapoint all those high-ranked business schools that say you need the product first. 🙂
  6. The Millionaire Mindby Thomas Stanley: This book is a compilation of data from survey’s answered by over 1300 millionaire’s. Some of his findings are quite interesting. The most important 2 were that the number 1 thing millionaire’s attribute to their success is “Being honest with all people.” The second is that most millionaires were at or below average according to our fine education system. They were mostly college dropouts , C students, and averaged less than 1000 on their SAT’s.

Though I’ve read Robert Allen’s Nothing Down for the 90sand Hagstrom’s The Warren Buffett Way and Peter Lynch’s Beating the Street along with dozens of other books and online services related to real estate and investing, I have very purposely left those out. I’m not saying they’re poor books, because they are all VERY good (Robert Allen inspired me to buy my first rental property at 21) – however, as Brad Sugars points out in “Billionaire in Training” you don’t climb the capital ladder (i.e. real estate and stocks/securities) until you’ve climbed the cash flow ladder. In other words, until you have cashflow to backup your real estate investments and securities in case of trouble, you’re wasting your time with those. I know in the instance of both my real estate investments and stocks/mutual funds I NEEDED cashflow (from my job) to cover them.

To your success, Bryan