3 Ways to Untangle Yourself from Your Business

 

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Debbie King was running on a treadmill so familiar to service company owners. Her company, Association Analytics, helped associations make sense of their member data, and she was wasting time on proposals that often did not get accepted. Then, when King did win a project, she was creating a custom solution for every job that required her to hire senior-level staff and personally get involved in client work. The model put a cap on her business, and when she reached 20 employees, she decided it was time to get out.

She met with an M&A professional who told her that based on her business model, Association Analytics was close to worthless.

King felt trapped. She couldn’t sell, nor could she stomach staying. That pain led her to search for a new business model. She decided to productize her custom consulting service into a product. King describes the transition, “If you think of it like the movie business, I was creating an original screenplay for each client. Now, I write one screenplay and sell tickets to the movie”.

There are a ton of lessons embedded within King’s story, including:

Niche Down: Before productizing her service, King tightened her definition of an ideal customer and got specific about who she was willing to serve. This process allowed her to build a product that would appeal to her perfect client.

Productize Your Service: Next, King transformed her custom analytics service. She took the process she used to do for clients on a one-off basis and created a dashboard that helped clients visualize their data. She hosted the application on Amazon Web Services (AWS) and charged clients a monthly fee.

Sell the Benefits of a Product Instead of a Service: Finally, King set out to sell her clients on her new product by describing the downside of a custom solution. King explained that a custom solution requires a senior consultant to be involved every time a client wants to touch it and is relatively unstable. In contrast, a product is a reliable solution offered 24/7, backed by testing and staff who know how to get the most out of it.

King expected an offer of 7 times EBITDA, so she was pleasantly surprised when she got multiple attractive offers, including one from her CFO, which she ultimately accepted. Listen, and you’ll also learn:

  • How to fall back in love with your business.
  • The downside of having your name on the door of the company.
  • How to convince employees of the benefits of productization.
  • A step-by-step process for productizing your service.

King did not want the word to get out that she was thinking of selling, so gave her M&A professional a list of just ten companies to approach. Each name on the list had a strategic reason to buy Association Analytics, which is why she could get multiple offers. We’ll help you develop your list of prospective acquirers by answering the questions in The Short List Builder tool, which you’ll complete in Module 11 of The Value Builder System™. Get started for free by getting your Value Builder Score.

Our guest

Debbie King successfully transformed her business, Association Analytics, from a service-based technical consulting model to a leader in the field of productized solutions. After selling her company, Debbie created Loving Your Business, her coaching company which works with successful entrepreneurs who feel trapped in their business. Using her 6 Step process clients learn to love their business, create an asset and take back their life. She has a Master’s degree in Business and Leadership from Georgetown University, and more than twenty years of experience as an entrepreneur and a coach. Debbie is an expert on using mindset tools and cognitive psychology to revolutionize your business. Loving Your Business is her debut book. She believes the fastest way to grow your business is to love it. To connect with Debbie visit LovingYourBusiness.com.

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Transcript

John Warrillow:

Fortunes are made or lost, not by what happens to us, but by how we react. Bad things happen to good businesses. Now, it’s up to you how you want to respond. A lot of owners right now are cutting expenses to the bone just trying to survive. Some are being paralyzed with fear. A rare few are taking the opportunity to reevaluate their business. Now that the shock has settled in, and we’re now in the process of restarting, it’s really a unique opportunity to rethink what it is you want to create, how valuable company you have, how much it runs without you and what you might do now maybe give it a little bit of extra time to structure it so that it can be something that lives without you and ultimately is a sellable asset. It’s exactly what we do with Value Builder.

John Warrillow:

You can check out some resources at valuebuilder.com. There you’ll get a questionnaire which will allow you to look at your business through the lens of an acquire. We can also connect you directly with a certified value builder, a trained expert in the value of companies and someone who can be your sounding board as you think about rebuilding. It’s all available at valuebuilder.com.

John Warrillow:

Man, there is a delicious little quote in this episode from Debbie King. She says, “What I was doing as a service company operator was creating an original screenplay, like writing the movie Star Wars for every single one of my clients. Yet what I do now is simply sell tickets to my screenplay. I write one movie script and sell tickets along the way.” What she was describing was the transformation of going from a custom consulting shop to a productized service offering. She talks about the difficulty of overcoming client objections, how to get employees to come along with you for the ride and making that transition, how it can affect cashflow and how to overcome those challenges. She talked about the way she ultimately sold the company, got multiple offers all along the way, building a company that could thrive without her, which she’ll tell you about in great detail. Here to tell you the entire story is Debbie King. Debbie King, Welcome to Built to Sell Radio.

Debbie King:

Hey, John.

John Warrillow:

Great to have you here. Yeah, no, it’s great chatting with you live. Tell me a little bit about the company you sold, Association Analytics. How did this come about? What’s the genesis of the idea?

Debbie King:

Well, I was working for someone in a technical role, and like many entrepreneurs, I decided I could do it better myself. So I started my first business. I also made another common mistake, which I named it after myself. So DSK Solutions was what the initial name of the company was. Over the course of the first 10 years, I just really built it with hard work and willpower and grit, hired people, was a technical consulting company, helping people use data analytics. Then when I realized that I wanted to truly scale it, I rebranded with the name Association Analytics, which is exactly what we did. The business created association analytics for large trade and nonprofit associations.

John Warrillow:

So if I was like a Plumbers’ Association of America, and I wanted to better understand my members, like who was likely to churn and what they were likely to extra to buy, who’s going to come to the annual conference, I would hire you guys to do that analytics.

Debbie King:

Yes, that’s right. We had a lot of the large medical associations, for example. It was all about understanding your customer’s journey, which is familiar to all of us as entrepreneurs. But associations also want to do that so that they can provide the best services [crosstalk 00:04:34].

John Warrillow:

Aren’t they cheap? Aren’t associations super cheap?

Debbie King:

They’re careful.

John Warrillow:

How do you get money out of associations? I’ve never been able to do it.

Debbie King:

Well, I had worked in an association, so I had an edge, right? So I had volunteered on a lot of users groups. I built up my reputation as someone who gave value and delivered when they said they would as a volunteer. When I built my business, it was super easy for people to trust me. So I did a lot of public speaking as well at the industry conferences for a lot of big associations. So I wouldn’t say that they’re cheap, but I think that they’re careful, and they’re not all the same. There’s professional societies, like the CPAs, which I worked with, and then there’s large, like the American Institute of Architects or the four A’s, the American Association of Advertising Agencies, these kinds of organizations. But the main thing is that data was the solution to understanding the story so that they could make better decisions.

John Warrillow:

Excellent. Okay. That’s helpful for me. So this business was in the early days, a classic sort of sell do, try to win the project, and then send the invoice. I mean, describe that.

Debbie King:

Yeah, it was exhausting, right? The bigger we got, the harder it was because it was super complicated work because we were doing data analytics from multiple data sources, right? This was back in the day when we were using SQL server and hand coding stuff, and there was a lot of data cleansing that had to be done, and the business rules were all different, even within the organization, that people had different understandings of what their own business rules were. So it was fraught with peril.

Debbie King:

So basically, what was happening is that my business was being sucked into the client’s system. They weren’t coming into my system. I was going into theirs, and it just started to be really unsatisfying because of all the reasons you can imagine. You’re you’re spending time writing proposals, some of which get accepted, some of which don’t. Then if you win it, there’s still all this complexity associated with, do they understand even what it was that they bought in the proposal?

Debbie King:

Then the implementation phase turned into one of these ones where it was difficult to predict how long it would take because a lot of it was dependent on the client’s understanding. How do you estimate how fast the client is going to understand? So I could see all of the problems. I just did not know what the solution was. So I just kept hiring more people and throwing them into the mix and trying to scale with people, which is difficult.

John Warrillow:

How many people did you have at this point in-

Debbie King:

We only got to 20 because I didn’t want more than that. Even that was difficult.

John Warrillow:

Yeah. So what changed?

Debbie King:

Well, if I tell you the truth, I’ve read your book, Built to Sell. I started to decide that I couldn’t keep going the way I was going. My life was falling apart. The marriage was suffering and in fact didn’t even succeed. So I was working all the time. I had joined EO by this point. So I started-

John Warrillow:

Entrepreneurs’ Organization.

Debbie King:

Yeah, the Entrepreneurs’ Organization. So I started to realize through the forum and the groups that we would meet in that there was another way to run businesses, but I couldn’t figure it out. I thought to myself, “Well, I think I just need to hire somebody to run it for me because I’m so unhappy.” Right? So I tried over the course of three years to hire someone to run a business for me. I think I went through five COOs. I know, I’m embarrassed to admit it. I mean, the common denominator there is me. So part of the problem was I didn’t really want to let go. I wanted someone to run it for me, but I wanted to tell them how to run it, and the person who’s really good at taking something over doesn’t want to be told what to do.

Debbie King:

So I tried that, and then at the end of that debacle, because of course, that’s a big deal, right? You have to introduce these people to your clients, and then when they leave, you feel bad. So after that I thought, “Well, I just need to sell it. I just need to sell this business because I can’t take it another minute. It’s so stressful. I’m working like 80, 90 hours a week.” Yes, we were making money. We were profitable every single year. So for the whole 18 years that I and my business, we were profitable, but at what cost? So I thought I need to sell it. That was when one of the worst days of my life happened. I met with a broker, I think at some fancy club, and I realized I couldn’t sell my business.

John Warrillow:

Why? What did they point out wasn’t sellable?

Debbie King:

It was not sellable because it depended on me. I had to be there to oversee the projects and to make the decisions. It was not scalable because it was a series of large projects, but they were one-offs, each of them, and the target market, that was a one thing I think I did well. We only worked with associations, and anybody else that came to me, I turned out away. So the niche piece I got right. But I didn’t have the strategy right. I would do different kinds of things for the client. They would ask me. They trust me. So they would want to do more stuff, and I’d be like, “Oh yes, great. Revenue is good.”

Debbie King:

So I would take on more work. Then before I knew it, we couldn’t specialize in any one thing because we were doing so many. We were doing predictive analytics. We were doing data warehousing. We were doing data visualization. We were doing GDPR. We were doing data cleansing. We were doing training. It was just a lot. So you knew what it really was. It was the equivalent of doing, creating… Imagine creating a feature length film like Star Wars for every single client? It didn’t make sense, and I thought to myself, “The answer, of course, now I know is to sell tickets to my Star Wars creation.”

John Warrillow:

Oh, that’s brilliant. I’ve never heard that before. I love that. That’s cool.

Debbie King:

Create it [inaudible 00:11:28].

John Warrillow:

Don’t create Star Wars for every client, sell tickets to Star Wars. I love that.

Debbie King:

Crazy. So-

John Warrillow:

So what do you mean by… Before, I want to get into the sell tickets to Star Wars. I think that’s brilliant. Before we do that, though, I would like you to try to, as best you can, articulate the emotions you felt when the broker M&A professional said your business was worthless. There’s nothing I can do here. What was that emotionally for you?

Debbie King:

It was catastrophic. I don’t even remember how long it took me to recover. I mean, at least like a week of solid devastation, in terms of I truly felt trapped. I couldn’t stay because I couldn’t figure out a way out of all the pain associated with putting out fires every single day, and everybody wanted a piece of me, and cash flow was a problem. We made a lot of money, but the way we were getting paid was a problem. So it was like every day, a series of problems that I remember one day driving to the office and just having to pull over to the side of the road because waves of dread were just coursing through my body. I thought I can’t stay, and I can’t go because I mean, he said, you can sell your business, but it would have been not worth it. Right?

Debbie King:

I wouldn’t have been able to live on that. It wouldn’t have even been enough really for me to create another business. So it wasn’t an option, in other words. So I couldn’t stay, and I couldn’t go and. To an entrepreneur, as far as I’m concerned, that’s the worst possible situation. You’re completely hostage to your own trap that you’ve created. That actually is when I read your book. So I sort of put that out of order. I didn’t find your book until I reached that crisis of meaning, that bottom of the barrel, what am I going to do to survive?

John Warrillow:

So how’d you apply the book? What’d you do?

Debbie King:

In fairness, at the same time, because I think I was googling how to sell my business, because after I got over the initial shock that I couldn’t sell it, I’m like, “Well, there has to be a way because the person I met with just was like, “Well, you’re not going to get what you want.” But I’m like, “Well, what do I need to do to get what I want?” That’s when I was googling how to sell your business, and I found your book. At the same time, I was in a coaching program at Georgetown to become a coach because I’d always been interested in that. My coach at Georgetown said to me, “You will never be able to sell your business the way you feel about it now. You have to fall in love with your business on purpose first.”

Debbie King:

She was so right because the energy of loving my business, which just means connection and appreciation, had to come in order for me to apply the steps in your book. So those two fortuitous things happened at the same time. I found your book and the coach said, “You have to love your business.” Because she’s like, “If you don’t love it, no one else will either, not your clients, not your staff and not the market.” Because-

John Warrillow:

How’d you fall back in love with your business? Because it was, in your own words, making you dreaded. So how did you fall back in love with it?

Debbie King:

It’s a mind game. You have to decide to. It’s a mindset thing because, what is a business? A business is a set of connections. I have this matrix, where I have like 12 connections that I see very clearly. There’s you, there’s your customers, there’s your team, and there’s your solution. So that’s four. But if you draw the lines between all of those, so that it’s a two-way, it comes to like 12. So there’s 12 places that you look for feeling connected and appreciation, right? So I had to appreciate my team instead of just looking at all the stuff that I saw that I thought was wrong. I had to appreciate my customers, really intentionally feel connected to them.

Debbie King:

I would put to you, if you don’t feel connected to your customers, you need to find new customers because that’s really important. If you cannot find a way to feel connected to your customers, it’s going to permeate how you feel about your business. So I had to be connected and appreciate and want to be with my customers, and I had to feel the same way about my solutions. I had to feel connected and appreciate my solutions. I had to love what I was actually selling, and I didn’t. Who wants to love doing one-offs. So when I realized that there was work to do on each of these connections, I had to look at myself and appreciate myself more instead of criticizing myself, and I had to appreciate each of these other four connections for a total of 12.

Debbie King:

So I intentionally said about doing the mindset work to look for the things. Because the primitive brain looks for things that it expects to see, what you tell it to look for. If you don’t give the primitive part of our brain a job to do, it’s going to look for danger and risk, and it’s going to be filtering on the negativity bias that kept us alive to-

John Warrillow:

So I’m looking for what I appreciate about my business. What was the second thing?

Debbie King:

How am I connected to it?

John Warrillow:

The connection.

Debbie King:

That’s how I define love, right? Because people-

John Warrillow:

You’re getting all flaky on me.

Debbie King:

I love your business. But people say that. They’re like, “What does love have to do with that?” Right. I have a technical consulting company. So love is not the thing that I first thought of about my business. But it’s really, you have to want it. You have to want it. You have to appreciate it, and you have to feel connected to it. I was disconnected.

John Warrillow:

Okay. So once you got connected and appreciated it, what were some of the tactical things you did to the solution? I love this example of don’t create a new screenplay for every client. Sell tickets. So what did you do practically to change your business model?

Debbie King:

Well, and again, I have to give credit to your book. So the things that I took from your book because there was a lot there, but Built to Sell, really, it was so easy to read, but there was so much good value in it was this idea of even narrowing my niche further. So I had this niche of just the association market, but I narrowed it down even further so that I looked at, which of the types of clients that I had, which of the types of associations were the best fit for us. So I spent a lot of time on getting clarity on that and turning away work.

Debbie King:

Now, a lot of people aren’t willing to do that. There was a place I turned down a million dollar implementation for a client because they didn’t fit my model. I had to put my money where my mouth is. I had to really believe in myself.

John Warrillow:

What was your definition of your niching down? What kind of associations did you decide to work with? Who was in your strike zone?

Debbie King:

Well, it was really more about the revenue size of the associations-

John Warrillow:

I see.

Debbie King:

… and also what did they want us to do for them? Because by this time, I had started to do the second step, which is to turn my services into solutions that I marketed as products. So any time, and we had some very large associations that I won’t mention that would offer us tons of money to come in and just basically do what they told us to do. That turned out to not fit, right? Because I couldn’t scale that. I couldn’t turn that into our solution that we then marketed as a product and eventually turned into a platform. So I took a technical consulting company, granted a good business, a profitable business, but doing a series of one-off complicated work, and I systematized it or my niche and then put it on a platform on AWS and built a front end to it and then started charging for it monthly. Of course, that was another strategy that you had talked about, to generate recurring revenue in advance. So that’s what we did.

John Warrillow:

Okay. So let me get underneath this. So just the acronym may not be familiar to everybody, AWS, Amazon Web Services. So you hosted this. You created an analytics tool, it sounds like, that you put in a cloud, a platform.

Debbie King:

A platform, really. It was a data warehouse. It was a data warehouse that had data visualization on top of it, along with a predictive engine.

John Warrillow:

So you took the association’s datasets, and you sucked it into this platform. Then based on this dashboarding software that you’d had on top, they could see the trends and all sorts of different things. Was the layer of analytics, the dashboard, was that proprietor. Did you develop that, or did you use a third-party dashboard?

Debbie King:

It’s interesting. That was a place where we could have made a big misstep. At one point, I was really enamored with Tableau because when they were one of the early-

John Warrillow:

I don’t know what Tableau is. Is that an analytics package or-

Debbie King:

They were an early player in the data visualization space, and I would-

John Warrillow:

You call it data visualization.

Debbie King:

Yeah. Because in the end of the day, what I’ve figured out, my clients don’t care or they didn’t care so much about the data warehouse, which was the hardest part. They cared about what they could see, which was the visuals. Right.

John Warrillow:

The pretty pictures, the [inaudible 00:21:44] or the lines going up into the right. Okay. Got it. So data visualization.

Debbie King:

Yeah. But when I, at first, was trying to embed a third-party solution into mine, one like that, they had some risk associated with it, and I think you talk about that too. Don’t be dependent on any one supplier, and in my world that translated into anyone third-party tool. Right? They were. They were subsequently acquired not too long ago by Salesforce. So I’m glad that the business didn’t have that dependency. So then we moved to a broader base, a more ubiquitous type. But I didn’t try to reinvent a wheel either and recreate what… The R&D for that is literally hundreds of millions of dollars to create a visualization tool.

John Warrillow:

Okay. So you looked at Tableau but chose not to go with Tableau. Who did you go with to make that visualization?

Debbie King:

We used Tableau actually for two years, until I realized, once I started to build a product, that that was not going to end up being our solution, and then we went to Microsoft Power BI.

John Warrillow:

  1. Okay. I’m not familiar with that, but that’s neither here nor there. Okay. So you go from squishy projects, selling a screenplay, making the screenplay for every client to this hosted application. What was the toughest part about… Because as a service provider, you’re taught to listen to the client needs, understand the implications of those and prepare custom solution. You’re not necessarily taught, at least, I think in my experience sort of systems thinking that would allow you the way to build a software product, which it sounds like you actually created. What’s toughest part of it, making that transition from client project to systems thinking?

Debbie King:

I don’t know. It sort of felt natural to me. I mean, the pain of doing the individual projects was so much larger than the interest that I had in making a system. So for me, it was a easy decision to make.

John Warrillow:

Did you run into clients who were saying, “Debbie, if my competitor has your solution, I don’t want the same cookie cutter solution, so no, thank you”?

Debbie King:

Yeah. I did have some clients that would say, “We don’t want your solution.” I was fine with that because there were so many that did, and it was clearly such a better solution for them. The problem is this.

John Warrillow:

Why?

Debbie King:

It’s like, I always try to pretend I am the other person in any negotiation or any kind of a situation. So I was like, if I was the client, what would I want? Well, I wouldn’t want some custom solution that was difficult to maintain that there was only one in the world of that required these hero programmers to jerry rig. I wouldn’t want that. So it was my job than as the owner to come up with the marketing to explain to the customers that it was in their best interest to be part of an ecosystem, a solution that would scale and that would be maintained and that would be updated on a regular basis.

John Warrillow:

Got it. How did you charge? You said you charged monthly, on a subscription basis?

Debbie King:

Yeah. We had to move from… In the old days, we would take these large projects, and like many organizations, we would take a down payment, like a 30% down payment, and then we would get a progress payment maybe halfway through. Then the bulk of it, well, like 30% would be due upon acceptance. So there was also this delay between final delivery and acceptance. That didn’t work well because you’ve done your work. You’ve paid your people, and you’re waiting for them to accept it. They may or may not even understand what they’re accepting. So they delay and people take vacations, and this would contribute to the cashflow problem. So I was highly motivated to fix that. So I think a lot of what I did was motivated from the alternative, was Uber painful. So-

John Warrillow:

So how did you charge?

Debbie King:

So we took a hit in the first year in terms of… We still made a profit, but in terms of the reduction in the amount of money we received because we basically took what… It would cost over, say three years and divided that out monthly. I mean, it wasn’t a super sophisticated thing, I have to tell you, John. I mean, I didn’t have anybody consulting with me, telling me how to do this. I was in true entrepreneurial fashion trying to figure it out. So I just took the amount that I thought the system in three years would pay for itself and divided that out monthly, and that became the amount.

Debbie King:

It was a little tricky with the AWS because some of that was based on how much it was used, and we couldn’t predict that. So I had to take some risks, but it paid off. It was worth it. Then it was appealing to the clients because their initial costs were lower, and it became a lower monthly cost than trying to come up with a large chunk of change.

John Warrillow:

What would the typical… In the old world, with the project world, what would a typical engagement of cost to an association that hired you?

Debbie King:

It would depend because I was taking all different types of things. It could be anywhere from 50 to 500,000.

John Warrillow:

Then what were they paying monthly using the product?

Debbie King:

In the beginning, it varied because I was basing it on how much I thought they were going to use it. So I am trying to remember now what I was charging. I think it was maybe 4,000 a month, 4,000 or 5,000.

John Warrillow:

Got it. So you’re recovering in a year sort of the typical project value of 50 grants in a year. I mean, if they say three years, it’s more like you’re capturing 150 grand. Got it. Okay. What was the reaction among your employees when you rocked up with this new book and said, “Hey, we’re going to change everything”?

Debbie King:

Everybody thought I was crazy. I mean, I had a lot of that. They liked doing what they were doing. That’s why they were there. So the idea of… I mean, the R&D expert, my head guy, he loved the idea because he thought it would be fun to build a product. But all the rest of the people were like, how does that relate to us? Because the types of people you need does change. Instead of doing the feature length film for every client where you need all these superstars, instead, we only needed to build a product and then have salespeople and then have people who could handle training and customer relations.

Debbie King:

So everybody didn’t see the vision as much as I did. That happens, of course. But it was a win for the customer, I think, to be on a platform. It was certainly a win for us because we could scale. So it was just a decision that I made. That was the direction we were moving in.

John Warrillow:

How many of your employees made the switch? But you said you had 20 after you made the switch. How many were left?

Debbie King:

Oh, it would be hard for us to pin it on any one thing though, because I also, at the same time, got super clear on my vision. I did this whole painted picture thing. You may have done it with Cameron Herold and the vivid vision and all of this. So once I got super clear on the vision I had for the company and rolled it out, people self-selected out if they didn’t fit the vision, which was great. Because those people, it’s like… Imagine you’re in a rowboat, and you’ve got a couple of people rowing their oar in the opposite direction because they actually don’t want to go where you’re going. So until you make it super clear to everyone where you’re going in language they can understand, you don’t even know they’re rowing backwards.

Debbie King:

So that was kind of a big aha. So it wasn’t just that people didn’t want to… Maybe I didn’t have a need for what they did. It was also that they didn’t all want to be part of this kind of a company because people have their own ideas of what that means. There were some competitors in our space that were operating in a way that you want us to be like that, and they thought we might be, so-

John Warrillow:

What was the mood around the company just around those days where you launched the vision? You knew you had a couple of people that were perhaps not on board. What was the tech culture like and the mood in a the company in those first few weeks.

Debbie King:

It was tough. It was tough. All I can say is that there was doubt on their part. So again, I had to rely on my own determination and conviction that this was going to work to hold it together.

John Warrillow:

What gave you that conviction? Because I think a lot of people are listening to this going like, “I know in theory I need to productize,” et cetera. But once they get into it, once a client says, “No, I want you to do the custom solution.” Or an employee says, “I didn’t sign up to be the McDonald’s of fill in the blank industry.” They get cold feet, and they kind of get [inaudible 00:32:16]. They don’t have the confidence to follow through. What gave you the confidence to continue to follow through?

Debbie King:

Because I had figured out that this wasn’t sustainable. I mean, it didn’t scale. It was painful. I was paying the price, and I couldn’t sell it. I wasn’t building an asset. I had an ATM. So I had money. It was funding my lifestyle. The business was doing well. But it wasn’t something anybody else would ever want to buy without me staying, and that would be the last thing. If I got one thing out of your book, it was that I did not want an earn-out. Most entrepreneurs you don’t want someone else telling you in your own company what to do and to be told-

John Warrillow:

So-

Debbie King:

Go ahead.

John Warrillow:

No. I was going to ask you, let’s get into the actual sale. So you made these changes, and presumably, it impacted… I mean, can you describe the before and after, before the diet, after the diet. I’m trying to think of like before the home is renovated and after the home is beautiful and perfect. What was the after picture?

Debbie King:

Well, I have this thing, and I think I got it from Tucker Max. He said, “What’s this problem a solution to?” So I would look at, what is the current problem I have a solution to. So the overruns we were having on projects were because we were trying to keep customers happy, right? The large accounts receivable that we used to have was because we were trying to avoid asking for money upfront. We didn’t want to bill up front. The problem of not having any time to myself was trying to do everything by myself. Right? Not having sufficient cash reserves was because I didn’t want to track all the financials and KPIs.

Debbie King:

Clients changing their requirements midstream was because I wanted to get the deal, so I didn’t manage expectations. So once I got this lens of looking at the world, why is this problem existing? It’s a solution to something else, whether it’s something I want to avoid or not. That really opened my eyes. So what was your question again?

John Warrillow:

I was just wondering with the financial implications of making this change to a subscription model, did your revenue go up or down? Did your profitability go up or down? Did your cashflow go up or down? That sort of stuff.

Debbie King:

Cashflow went down the first year, and revenue went down, but we still made a profit. So-

John Warrillow:

How much did revenue go down on a percentage basis?

Debbie King:

I’m sorry, John. I don’t really have that number. I don’t know.

John Warrillow:

No, that’s fine. That’s fine. Then after a few years, did it recover, or did it remain down? What was the-

Debbie King:

Yes. Yes. Far exceeded. So it was totally worth it. I mean, it only took a year really for us to recover the amount that we had lost in terms of cashflow. Then by this time, clients were signing three-year contracts. So we had three-year contracts predicting much further out, and this increases the value of your firm a lot.

John Warrillow:

Speaking of value, what did you think it was going to be worse? Obviously, the broker who you had lunch with in the beginning said it was largely worthless. By the time you’d made these changes, did you have a sense of what it could be worth on either a multiple of revenue or multiple of profitability? Do you have a range that you were sort of hoping to get?

Debbie King:

Yeah. I was looking for like 7X EBITDA for me. But a true, fast solutions offer as a service solution could generate more like 10 to 15. [crosstalk 00:36:17]-

John Warrillow:

Where did you get the 7X EBITDA number? Why that number? Who told you that? How did you kind of get that number?

Debbie King:

I don’t know if it was in your book or where I got that number from, but I got fixated on that number and felt like a number where I wouldn’t have to work again, ever.

John Warrillow:

We like that. What was the trigger to actually sell? Because after you’d made these changes, it sounds like the business had improved, your lifestyle had improved. Why sell?

Debbie King:

Yeah. I didn’t have to sell at that point. However, you reach a certain age. For me, once it was time to start thinking about what else did I want to do with my life? I’d spent 18 years in this business, and I really enjoyed working with entrepreneur. So I think what happened to me is that the shift from the customer that I was serving, the association space that I had grown up in and that I had served for 18 years, I loved them. But I wanted to spend more of my time working with entrepreneurs and start another business, actually. So that was why it worked for me. But I didn’t have to sell it. I could have kept it, and this business is doing really well now, triple the size of what it was when I sold it.

John Warrillow:

Wow. So tells me about the sale. What was that process like? Did you hire an advisor? What was that process?

Debbie King:

Yeah. I can’t talk too much about the details of the sale. But I will say that I had a business broker, an M&A team, and I had my CPA, and I had my lawyer. So I had the three triumph front of advisors working with me. I would say that getting the accountant involved early is what I would do differently getting them involved even sooner because we have some deferred revenue and some challenges with how to classify revenue that just made it a little difficult, more harder than it had to be if I had dealt with that sooner.

Debbie King:

So I found the process somewhat stressful, I have to say. It’s your baby. Nobody wants to hear you have an ugly baby. But when you go through due diligence, of course, that’s what they’re doing. They’re looking for how ugly is it?

John Warrillow:

Yeah. So you got, I understand, multiple offers. Are you allowed to share how many offers you got?

Debbie King:

Yeah. I had more than two, I would just say that, and that was an intent, and that felt great. Right? I was super excited about that. But I will say that, and this was in your book too, so that’s why I’m so glad I read it. I keep going back to that because it really saved me a lot of drama. If I hadn’t read that book, I would have thought things were going to happen differently than they did. But because I read your book, I was prepared for the fact that the LOA or the LOI really doesn’t mean anything. I mean, it means something. But the actual end offer that get is not the same as what’s in the LOI. So that was good for me. I didn’t get attached to it. There was a lot-

John Warrillow:

How much was it less than the original LOI? How much did it drop on a percentage basis?

Debbie King:

Oh, I don’t think I’ve ever thought about that. Maybe 5%, but still 5%. Right?

John Warrillow:

Yeah.

Debbie King:

You get attached when you see the number, and then it’s different. But this is where the mindset thing comes in to it. If you can put yourself in the other person’s shoes, of course, they want to take into account all of the risk that they might be taking on, and they want to compensate for that by lowering their investment.

John Warrillow:

So when you got these offers, how did you evaluate each one? As you read them, what were the pros and cons of each essentially?

Debbie King:

Well, it was really important to me that my clients continue to be served well. I mean, I had this 18-year reputation as the leader in our space, and I didn’t want to walk away from that with people going, “Hi, this thing really tanked, and she left us in alerts and all that.” So that was super important. It’s like, “How were they going to run the business? Were they going to…” Of course, the amount that I was going to get was very high on the list of priorities too. But right up next to that was were they going to subsume it into some other business and then gradually transition my solution away. I didn’t want that. My staff, what was going to happen with them. How were they going to be treated? So there were multiple considerations.

John Warrillow:

How big a range was there? Again, I know we can’t talk about the number, but in terms of the… From the low to the high offer, roughly, what kind of range we talked, were they kind of in the same ballpark or [crosstalk 00:41:45] different-

Debbie King:

They were all actually kind of in the same ballpark and they didn’t have to be. My business broker wanted to go out and do a… I forget the name she had for it. But she or the M&A-

John Warrillow:

An auction? Some sort of auction. Yeah.

Debbie King:

Yeah. The M&A advisor wanted to go out and really package it and white label it and position. I didn’t want any of that. So at the-

John Warrillow:

Why that?

Debbie King:

I was worried, and I’m not sure whether it was a reasonable worry or not, but I didn’t want people in my space to know that I might sell the business because we still had deals on the table. I didn’t want it. It was awkward. Right? You’re running the business while selling it. It’s like building the plane while flying it. Nobody would get on your plane if they knew that you were building all your-

John Warrillow:

Changing the engines in the air. Yeah. So you’re worried about that. So how did you get three offers then if you didn’t kind of market it widely? Or multiple offers… More than two?

Debbie King:

I think it’s just this space. I knew the space really well. I’ve been in it 18 years. So I knew which players our solution would be a strategic acquisition for. I knew that. So I went to my M&A people with that. I created the list of who I thought if I were them, we would make a good acquisition and-

John Warrillow:

How long was that list, Debbie? How many names?

Debbie King:

10.

John Warrillow:

10.

Debbie King:

I could have made more. But I have to tell you, the number one thing, for the listeners out there, don’t take your eye off the ball while you’re in the process of selling your business. Me and you, it’s like two jobs. You are already busy building your business, and now you’ve got this whole other job of trying to figure out how to package it, doing your pitch deck, figuring out what you want, doing your due diligence, who do you tell on your team? Not letting the market know till you’re ready. So you’ve got these two things going on, and it can be really easy to take your eye off the ball of running the business, and that is good advice you gave too.

Debbie King:

That’s a death knell, really? Because you can’t tell which of the offers you get is going to be the one you finally accept, if any. If in the meantime, your business has decreased in value, you could be left back in this situation you were when you started.

John Warrillow:

So which offer did you take and why?

Debbie King:

I ended up taking an offer from one of my staff who was the leader, my right-hand person, the CFO. She was super excited. She’s younger than me, had a clear vision of where the business could go, saw the opportunity, was just really a younger version of me. I saw-

John Warrillow:

Had she seen the other offers? The other offers had come in. Had she seen them? She saw them because she was your right-hand person.

Debbie King:

Right. So she’s helping me put together the pitch deck. She’s like, “I think probably in the process of putting together the pitch deck and the size of the market.” When we did all the stuff you do during packaging your business, the opportunity became so much more clear to both of us. She was like, “Yeah. I want to buy this business.” I’m thinking to myself, “Well, I don’t know if you can because it’s a hefty thing to do.” But she put it together. She came up with it.

Debbie King:

So I guess you’d call it a management buyout. Why I liked that idea was that it brought continuity. There was consistency for my clients, consistency for my team. It was a little bit less due diligence because she already knew everything, although there still was due diligence. It really worked out well, and it felt good because I could have probably picked any of the offers. But for me, this was the best fit for me.

John Warrillow:

Oftentimes you have to take less when it’s a management bio. You have to take substantial less. Did you feel like you took a discount, if you will, by taking it?

Debbie King:

No.

John Warrillow:

No. How’d you come up with the money?

Debbie King:

She was able to get a loan. She had her own money, and she had a loan from the SBA, I think. Anyway, I don’t want to go into the [crosstalk 00:46:19]-

John Warrillow:

Yeah, that’s fine. What’s that like to be… That must be difficult because on one hand, you’re running the company together. On the other hand, she’s a little bit motivated whether she did this or not. I don’t know, but to kind of depress the results during due diligence so she could get a bit of a better deal. Same time, she’s got a job to do. Isn’t she conflicted during that whole time? How did you stick handle all that?

Debbie King:

Yeah. I think it must’ve been difficult for her. For me, I was really trying to stay focused on the end goal of what I really wanted at the end. This is one of the things that my M&A advisor asked me is like, what’s most important to you? Do you really want this to happen? Or are you going to draw it out for a long time? For a lot of different reasons. I didn’t want to have to stay afterward for a long time. I wanted to start my next venture and do some traveling. So having her as the owner meant a lot less time that I was going to have to spend afterwards.

John Warrillow:

Yeah, for sure.

Debbie King:

So that was worth a lot to me. And-

John Warrillow:

Did you still have to pay the broker, even though she was kind of working for you?

Debbie King:

Oh, yeah. Totally. Totally had to pay the broker.

John Warrillow:

Well, I mean, he or she did the job, right? They brought offers to the table.

Debbie King:

[inaudible 00:47:35]. So-

John Warrillow:

What did you buy yourself as a trophy? I mean, did you buy a fancy car? I don’t know. What-

Debbie King:

Well, I already had [crosstalk 00:47:47]. So we definitely traveled. We spent about a year traveling around the world afterwards.

John Warrillow:

How exciting. Where’d you go? What was your favorite spot?

Debbie King:

Oh, I don’t know. So many. I mean, Australia’s great. We did the whole Machu Picchu thing. We spent-

John Warrillow:

Fun.

Debbie King:

Months and months in Europe, and I love Morocco. We went twice there. So it was just South Africa. Lots of things. I’m not sure what my favorite was. Each place has its own. I’m glad I got that travel in now before everything happened with coronavirus.

John Warrillow:

Yeah. Yeah, no doubt. But you had some time to think about a book. So tell me about this new book, Loving Your Business. I’m assuming it’s inspired by what you were taught by that Georgetown professor at falling back in love with your company.

Debbie King:

Yeah. Well, I really think that instead of building a business, most entrepreneurs build a trap, and then once they’re in the trap, they can’t figure out how to get out of it. So what I’m saying is when you’ve already run a marathon, somebody asking you to run a sprint is kind of tough. In order to do that, you have to work on your mindset. You have to decide what you’re going to make it mean. So for me, the idea of Loving Your Business is all about the relationship you have with your business. Is your business a ball and chain? Do you feel hostage to it, or do you appreciate it? Are there things about it you love? It’s really just a matter of what you decide to focus on, because again, the brain is going to present you with more evidence for whatever it is you believe. So if you believe that it’s a problem, you’re going to be stealing problems. But it’s-

John Warrillow:

So-

Debbie King:

Go ahead.

John Warrillow:

No, I was just going to say, so this gets back to the idea we were talking about earlier, about the process you went through to feel more connected to the people, the suppliers, the employees, the customers, and also appreciative of all those things. Can you give me one super tactical, actionable thing that I could do right now to feel more connected to those constituencies? Give me a practical tool I could use or something I could do right now?

Debbie King:

Well, what I do is this thing called the model. So you simply identify either how you’re thinking, what are your thoughts about all of these connections? What are your thoughts about-

John Warrillow:

So my employees are frustrating me. They’re driving me crazy. They keep asking for a raise. They never get any work done. They’re driving me nuts.

Debbie King:

Right. So if you’re having thoughts like that, John, how do you feel?

John Warrillow:

Actually, truth be told, I really love my employees, but I’ll go along with you. I feel taken advantage of. I feel like I’m getting ripped off. I feel angry and resentful.

Debbie King:

Right. Yeah. When you feel that way because of how you’re thinking, what actions are you likely to take?

John Warrillow:

I’m going to send them a nasty email. I’m going to tell them they’re going to book a meeting at five o’clock on a Friday afternoon.

Debbie King:

Or you’re going to avoid them. Some people are like, “I just don’t want to talk to my staff.” Right? Then they get frustrated when they don’t do it, right? But they didn’t want to talk to them. So what I think is the most actionable thing we can do as leaders is to understand that the thoughts we have affect how we feel, and that’s not some woo woo thing. How we feel is the fuel for the action we take. As business owners, we’re taking action all the time. We’re making decisions. We’re taking action. If the action we’re taking is coming from feelings of frustration, blame, resentment, irritation, anger, any negative feeling, then the result isn’t going to be what we want. The result always comes from the action. The action is fueled by the feeling, and the feeling is created by the thoughts.

John Warrillow:

But how do I change my thought process? Because right now I’m mad as hell at my employees. I’m frustrated. So I hear you that I got to be more appreciative and more connected, but how do I do that?

Debbie King:

You realize that those thoughts are simply not going to get you the result that you want. Focusing on, well, it’s true that my best employee quit, and this person made a mistake, and we didn’t get that contract, focusing on those thoughts and having negative feelings about those things are not going to get you the result you want. They’re going to make you tired. They’re going to make you exhausted. They’re going to make you not have the energy that you need to create the future, and that’s what entrepreneurs do. We create the future.

Debbie King:

So the energy that we use to create the future affects how the future looks to us. When I was frustrated, which is my number one emotion, frankly, that I work on because I’m always in a hurry, the results that I always got were I was tired and exhausted. I would get what I wanted, but I’d be tired and exhausted and resentful. It was because I was coming from an energy of frustration. So to change your thoughts, you decide, is this true? Is there another way to think about this? Would everybody on the planet agree that this person is X, this thought you have? The chances are no. The chances are your thought is optional. You could choose to have a different thought just because you decide to. It doesn’t have to be… Any way, does the thought serve me? That’s what I asked myself. Does it serve me to be this way?

John Warrillow:

It reminds me a little bit of the gratitude practice where it’s like you wake up grumpy in the morning, and you’re like, “I don’t want to feel grateful for anything.” You’re just, “Ran out of milk, no coffee, whatever.” But then if you force yourself to think one thing you’re grateful for, well, the sunshine, okay, great, and then you get on this role, and before too long, you got 10 things in your gratitude list, and you’re totally out of that. Love it. Debbie, where can people buy the book called Loving Your Business?

Debbie King:

Well, it’ll be on Amazon, opening in October. So for now, also, people can find out a lot more about it on lovingyourbusiness.com.

John Warrillow:

Love it. No pun intended. It was to chat with you. Please keep in touch. Good luck with the book, lovingyourbusiness.com or on Amazon. Thanks, Debbie.

Debbie King:

Okay. Thank you. Bye.

Speaker 6:

Thanks for listening to Built to Sell Radio with John Warrillow. For complete show notes, with links to additional resources, visit builttosell.com/blog. John is the founder of the Value Builder System. To find out how to improve the value of your business by 71%, visit valuebuildersystem.com. John is also the author of Built to Sell, creating a business that can thrive without you and The Automatic Customer, creating a subscription business in any industry. Connect with John at facebook.com/builttosell or on Twitter @JohnWarrillow, W-A-R-R-I-L-L-O-W. Thanks for listening.

 

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