It’s a big week at Built to Sell Radio as we celebrate our 250th episode. That’s 250 entrepreneurs, founders, CEOs, and owners who have shared their stories and their time over the last 5 years.
To mark the event, Built to Sell Radio’s producer, Shawn McDonald, takes over the mic to highlight insights from some of the most talked-about, most popular, and most memorable episodes from the course of the show. Listen in for important lessons learned like:
These guests are just some of the 250 who have contributed to the show. If you’re thinking of exiting your company, we hope you’ve learned something from their stories. To see how your business could stack up to their exits, get your Value Builder Score, and understand the key drivers that are growing (or limiting) your company’s value today.
John Warrillow:
Okay, so what are the numbers on your company’s dashboard? My guess is you look at your company’s revenue and profitability, which are two great metrics to track , but there are another eight key drivers of the value of your company that go well beyond just revenue and profitability, that are the things that acquirers want to know about. Going and getting your Value Builder Score will help you look at your business through the lens of an acquirer. Takes about 15 minutes to do. Go to valuebuilder.com to get your score.
John Warrillow:
Well, I think you’re in for a special treat today, because it is our 250th episode of Built to Sell Radio. We have been doing this for five years, 250 episodes, almost a million downloads of the show. So first of all, thank you for listening. You’ve made this possible. You give us the energy to continue, and we’re so excited to bring you the next 250 episodes.
John Warrillow:
But before we do that, we wanted to mark this 250th episode. And I wanted to introduce you to someone who works behind the scenes on Built to Sell Radio. Her name is Shawn, and she is our producer. So what’s a producer? A producer is the person largely responsible for winning new guests, convincing guests to come on this show. And it’s a tough job. Nobody wants to talk about their exit. Everybody signs a confidentiality agreement. And so Shawn has a very tough job, but through grace and tenacity and grit she gets it done every week.
John Warrillow:
And now, 250 episodes later, Shawn came to me and said, “What if I did a bit of a retrospective? As the producer of the show, I’ve got a bit of a unique perspective on the best episodes, which ones resonate most with our audience, which ones get the most social media coverage, et cetera.” And she said, “I’d like to put together a little bit of a retrospective and go back through all 250 episodes and pick the ones that resonated the most, got the most downloads, and got the most chatter on social.”
John Warrillow:
And so I want to introduce you now to Shawn, who’s going to take you through her insights from 250 episodes of Built to Sell Radio. Take it away, Shawn.
Shawn McDonald:
Hi, there. My name is Shawn McDonald, and I’ve been the producer for Built to Sell Radio for the last two years. What exactly what does a podcast producer do? I guess you could say I’m the wrangler. I work with John to find potential guests, help them get connected for interviews, coordinate with our sound editors so the interviews are as polished as possible, and make sure all the pieces are ready to be posted for you every week. In my work as the show’s producer, I’ve spoken with hundreds of entrepreneurs across the world. Sometimes when a pitch from a recognizable name brand like Barefoot Wines or an icon like Chris Crash shows up in my inbox, I can’t believe I get to talk with these incredibly experienced and insightful people.
Shawn McDonald:
I thought it might be fun to do something special to mark our 250th episode. So I pitched John on the idea of doing a retrospective of sorts. I wanted to look at the entire arc of content we’ve created and draw out some recurring themes. I looked at the download reports from our most popular episodes, analyzed which episodes created the most buzz on social media, and also peppered in some of my own opinion on which stories are the most insightful.
Shawn McDonald:
It might have been a while since you’ve heard some of these stories, and while we’re only sharing excerpts here, if you want the full interview, there will be links to each one in the show notes at builttosell.com. So let’s get started.
Shawn McDonald:
One of the first things that struck me about the successful entrepreneurs we’ve interviewed is how good they become at saying no. In episode 173, Mitch Durfee learned the hard way that he needed to start saying no. His company, Grunts Move Junk, had become a one-stop shop for moving, painting, landscaping, snow removal, construction and renovation. His team had never been busier, but their cash flow was suffering. And then disaster struck. Here’s Mitch to tell you the story.
Mitch Durfee:
Well, we were building a brewery, a new events space for a brewery. And the project, they kept adding on new sections, but we weren’t really staying on top of … Like we didn’t do a change order because in the beginning, it was an hourly contract and we would just do the work for what they needed. And when they added a new project on, I guess their estimate in their minds were, “Well, okay, you can just keep adding on this project and it’s not going to cost us more.” And then something fell through on finances on their side, to the best of my knowledge, and at that point in time we realized that, okay, well, we’re never going to get paid unless we fund this and finish it. Otherwise it’s going to be an empty building that’s all built out but the tile’s not done, the walls aren’t painted, the lights aren’t hung.
Mitch Durfee:
So we took it on ourself to be like, “Okay, well, at this point in time we’re either both going to lose and we’re going to look like the bad person who doesn’t finish the project.” So it’s this balance where it’s like, okay, we can fund it until it’s done. If it’s done, then we can figure out a payment plan. So we kept going forwarded and we reduced what we were asking for for the payments.
Mitch Durfee:
And to a point where we got almost $100,000 in debt, and it got to a point, and I remember it was in the middle of December when it’s like, “Okay, we just can’t do this anymore.” The walls are up, the lights are on, the floor’s done. We worked straight through the night to try to finish this project so they could have this big events at the end of the year. The New Year’s Eve event, the Christmas holiday parties and all these things so that we could hopefully start getting some payments from the income that would come in.
Mitch Durfee:
And then they had decided that they were not going to pay us. They had had absolutely no intention of paying us.
Shawn McDonald:
The first time I spoke to Mitch, he told me an amazing story about driving all night in a snow storm trying to get all of his snow plow contracts fulfilled and listening to the audiobook of Built to Sell over and over. His key takeaway was learning to say no.
Mitch Durfee:
So that January, I think we made $20,000. We cut back hard. Wow, that was painful. But by April, we were back over $100,000. We did $100,000 that year, or that month, and then $140,000 and then $160,000. Because we just focused on the things. We were doing even bigger months now that we got rid of these other distractions, because when people came in they knew what they were doing and we weren’t having to cross-train people. People became experts in their field and we can provide more value to our customers because we weren’t running around to try to take on other jobs. Everyday, here’s the system. And it just simplified everything. So we ended up crossing the million dollars again that year.
Shawn McDonald:
Mitch would go on to overhaul his business and only focus on what they do best, moving. Shortly thereafter, he was able to sell his business, a company that had previously been un-sellable, for about two times EBITDA.
Shawn McDonald:
On the other hand, we’ve had a number of entrepreneurs who went in with a game plan to specialize from the start. Rob Dailey and Paul Duvall built their devops company, Selligent, around the Amazon Web Services, or AWS, platform. Even though there were a number of options out there, and they had customers who asked for services outside of AWS, Rob and Paul stuck with their plan. Have a listen as they talk about what specializing meant for their business and how they dealt with customers who thought they wanted something other than AWS.
John Warrillow:
Talk about the fact after a little bit of time, the idea that you were specialized actually started to accelerate your growth. Because a lot of people are listening to that and going, “I could never do that. I offer a bunch of different services. There’s no way that I could drop all of them to specialize in a certain one.”
Paul Duvall:
So the misconception is that they want to be customer-centric. So the customer is asking us to do this thing. But the way I’ve looked at this and the way we’ve ultimately looked at this as a company is that if you get really good in something, if you’re one of the best if not the best in that thing, and in our case we invested highly in that, both in the area of devops, continuous delivery, and AWS. Our entire company is 100% certified in AWS, for example.
Paul Duvall:
And by investing in that, when we say no, we’re doing it in the customer’s best interest. Because if they say that they want to use some other cloud provider or another way of doing things, in my mind, we’re actually serving their best interests. We are being customer-centric, because we’re being sure that we’re the best at what we’re providing. It’s like maybe a general practitioner saying they can do heart surgery, and saying, “Well, the patient said they wanted heart surgery, so I had to do it.” So we made it a point to say, “No, we’re not going to do something unless we’re the best at providing that capability to you.”
Rob Dailey:
I’ll add to this one. I think something that I’ve learned even since our first company was, that it really helps to have what I call, and it’s a misnomer, I call it a leechable partner. When you’re a little dinky services firm with great people, but you don’t have any exposure, no one knows who you are, they don’t see you, finding good engagement is crucial. By actually becoming very good with something that your own people believe in, in this case was AWS, and committing to them, you can just see the difference. They’re a multi-billion dollar company with all kinds of reach, huge sales channel. And if you can do good for their customers and them, then the business just flows and it comes very, very naturally. And I think that that also goes very well with you need to specialize.
Shawn McDonald:
Rob and Paul worked their specialization all the way to a $25 million sale.
Shawn McDonald:
When I’m talking to new guests, they always want to know what kind of questions John will be asking. I usually say that we’re pretty flexible and John will take the interview in the direction that’s most interesting. But in every episode, one question is going to come out one way or the other. What finally made you decide to sell? In every case, the answer is different.
Shawn McDonald:
Some of guests talk about personal factors prompting or pushing them to sell their business, like a health scare or a life change or just the desire to try something else. And external factors that were pulling them into a sale, like an unsolicited offer or a change in the market. In an episode from earlier this year, Arvid Kahl and Danielle Simpson described what pushed them to want to sell their software as a service company for international teachers called FeedbackPanda. The platform was earning them a tidy little sum in monthly recurring revenue and Arvid, as the lead programmer, had done some amazing work to automate the company and reduce the load on customer service reps. But ultimately when there was a problem, it was Arvid’s phone that rang. I can certainly see why it might have been tempting to keep going with FeedbackPanda and enjoy the revenue it was earning. However, Arvid and Danielle decided to sell to a private equity group and are now enjoying their freedom.
Shawn McDonald:
Another guest who experienced significant push factors was Jim Remsik. Jim was one of my earliest guests, and his software company Adorable had just sold. I thought his story had a unique twist to it. Jim was still working with the acquired company, which isn’t uncommon among the people I’ve talked to. What did catch my attention, though, was how much happier he said he was since selling his company. Here’s Jim talking about the moment he realized it was time to sell.
John Warrillow:
I think this is helpful context for me to understand what triggered you to want to sell, because you did stabilize the business back up to 1.8 million in revenue and 11 employees. What triggered you to want to sell it?
Jim Remsik:
I did have a health scare. I had a bad headache when I was at a conference in Denver, and I had been at altitude before and it didn’t agree with me. So I wound up going to try to get some altitude relief at a hydration bar. And they took my blood pressure and they said, “239 over 139 is too high.”
John Warrillow:
Just a bit too high. Wow.
Jim Remsik:
And so went, spent the rest of the day at the hospital. They ran a bunch of tests. Didn’t really find anything. Went back home and got put on some blood pressure medication and everything is fine now. But that was a wake up call for me. And it took another month and a half before … I was down in Austin and decided that something needed to change. And so I had a couple of phone calls. I called out to three people who run similar shops and said, “Let’s talk honestly about what it would look like to merge forces.”
John Warrillow:
So something needed to change. Let me try to dig into that a little bit more. So you obviously have this health scare. Did you ever find out, was it related to the altitude or did you ever find out what the cause was?
Jim Remsik:
I did not find out what the cause was. And in fact, when I got back here to Madison, Wisconsin, my first trip was to see my primary care physician. And blood pressure was just as high here. So I don’t think it was altitude related. But that’s what let me let it go on as long as it did.
John Warrillow:
Did you link the blood pressure to the stress you were carrying from your company? Is that what caused you to want to sell it?
Jim Remsik:
It certainly wasn’t helping. I don’t know that it was the specific cause, but it’s a heavy weight to carry people’s livelihoods on your shoulder. As the only salesperson and the person bringing in business, it felt like it was all on my shoulders.
Shawn McDonald:
Jim was able to find a buyer, and the sale helped him get his health under control.
Shawn McDonald:
Of course, not all our guests had personal factors pushing them toward a sale. Sometimes entrepreneurs sell because they receive an offer they can’t refuse. Another early guest of mine was Peter Fader. He’s a professor at the Wharton School of Business, which sounded pretty impressive to me. And then his story got even more tantalizing when he told me that Nike had spontaneously offered to buy his company.
Shawn McDonald:
Peter had built Zodiac, a consumer intelligence company that tracked all kinds of data to help retailers predict buying behavior. His models and software went way deeper than telling e-commerce giants that people with a certain ZIP code were more likely to buy a blender than the people in the next neighborhood over. And data like this has international brands salivating.
Shawn McDonald:
That’s when Nike, who was already a customer of Peter’s, came knocking with an offer.
Peter Fader:
We had a very good plan in place. We had a really nice pipeline of prospects that we just needed a little bit more boots on the ground to go after them. And then one of our clients, this company called Nike-
John Warrillow:
Heard of them.
Peter Fader:
We had done a couple of projects with them, and they saw the value of the models, and they said, “We want it all.” And we said, “Oh, that’s great. We’ll give you all the bandwidth you want, Nike.” And they said, “No, no, no. We want it all.”
Shawn McDonald:
Not being an entrepreneur myself, I always thought the key to business was coming up with a million dollar idea. But as I’ve gotten to know our guests, I’ve come to learn even the simplest ideas can work.
Shawn McDonald:
For example, take a listen to our recent episode with Griffin Thall. He and a buddy were surfing in Costa Rica when they came across a vendor selling waxed and beaded bracelets on the beach. They decided to buy a few as gifts for friends, and a few more they thought they could sell when they got back to the US. I’ll let Griffin tell you the rest.
Griffin Thall:
As much as we’ve scaled the business, we’ve never really negotiated our rates with Jorge. We’ve never tried to penny-pinch him. We’ve never tried to maximize or risk the relationship. It’s been very trustworthy. It’s been very consistent, and I think both of us feel that we need each other to succeed.
John Warrillow:
Are you still getting the bracelets from the same guy?
Griffin Thall:
Oh, yeah. Jorge Joaquin.
John Warrillow:
Wow.
Griffin Thall:
They run the operation. They’ve almost a thousand employees now, hand-making every Pura Vida bracelet.
John Warrillow:
Okay, hold on a second. This is just the craziest story. So you’ve taken a guy that’s selling bracelets on the beach. 10 years later he’s running a thousand-person organization.
Griffin Thall:
Exactly.
John Warrillow:
That’s insane.
Griffin Thall:
It’s insane.
John Warrillow:
How do you teach somebody to literally run a thousand-person company? That’s incredible. How? Did you train him? You must have.
Griffin Thall:
I think it was just that was part of the luck that crossed our path, is that we both realized there was an opportunity we had and we both ran with it. And this was my and Paul’s first job out of college. We’ve never used our resume. We’ve never raised funding. We’ve never done anything like this. So it was a big learning curve, and I think they had the same learning in a third-world country to be able to scale a business. So to say that we taught them how to grow their business is completely not true. They did that on their own. So we run two separate businesses, and it’s been extremely successful.
Shawn McDonald:
Unbelievable. You can bet I told that story to a lot of my friends, even before the episode was live. By the time Griffin and Paul sold Pura Vida bracelets to Vera Bradley, they were doing $68 million in revenue and sold for $75 million. The numbers make me shake my head every time I think about it, especially when you consider where the business started.
Shawn McDonald:
Over the years, most of guests have a combination of both book and street smarts, and nobody illustrates that combo better than David Bach. David has exited not one, not two, but three $100 million companies. You’re probably not surprised to hear he’s a Harvard-educated scientist and physician. But what was even more surprising to me is the process he uses to find his $100 million ideas.
David Bach:
So what I did is I went on what’s now been dubbed a listening tour. And I started calling people I knew in the healthcare world, and here’s the question I asked. And these were leaders in healthcare. I said, “Tell me a business problem which is going to be really important to you a year from now that you haven’t started to worry about.” Right? Something which is going to be a huge problem for you in a year that you haven’t started to worry about. And I got on the phone with CEOs with some companies and they referred me to their other friends. And I’ll tell you something. People love this question. I got to talk to some CEOs of Fortune 100 companies, and John, they loved it because these CEOs are thinking quarter by quarter, and it was the first time anybody made them think down the future.
David Bach:
And so I would schedule half a hour with the people. I would get an hour and a half. And I did 150 of these interviews. It was just all asking that same question. And as they went through it and they started to speculate and themes came out. And there were 35 ideas. And they were all ideas like, here’s a problem which is getting worse which is going to be a huge issue for these people. They don’t have a solution. Can I solve it?
David Bach:
And I come up with a business plan that I have unique value for. And out of those 35 ideas, then I went through with my forum group and we systematically check them off against the criteria. And we came up with two ideas, or I did. And one was for my second and one was for my third company, Leprechaun and Empyrean. And they both did, by all measures, incredibly, incredibly well. And it was just a great thing. And I’ll tell you, in doing the market research, it also set me up because by the time I went into the space, I had already talked to some potential customers, so I had my pipeline built. I talked to people in the space, and so it was very easy to construct a management team and to come up quickly with a product.
David Bach:
And that’s what I did for the second and third one, and recently when I went back into the game, that’s exactly what I did for this business and sure enough, just like what happened for the second and third company, I’ve now come out with a product or we’ve come out with a product which is just generating massive, massive consumer demand. And it’s been a really good formula for me.
Shawn McDonald:
It sounds so easy when he describes it, and I love the simplicity in just asking customers what they need. And each of Dr. Bach’s $100 million exits illustrates it’s a formula that works.
Shawn McDonald:
Of course, not all our guests come to me with a pitch full of buzzwords and a degree from Harvard, but even in the grimy business of scrap metal, I was surprised how many great ideas there are to be had. Jean-Eric Plamondon came to us after he sold his scrap metal company, Prairie Metal Recycling. Serving farmers in rural Canada, the story of a scrap metal dealer may seem like an unlikely place to talk about value propositions and clever ways to differentiate yourself in a commodity market, but that’s exactly what Jean-Eric did. He knew the scrap metal business could be a rat race to the bottom, where competitors outbid each other to rock-bottom prices per count of metal. To actually make money, Jean-Eric completely changed the way his business model was branded. And the results speak for themselves.
John Warrillow:
You’ve alluded to the lead generation system you put in place. And before this interview, I had a chance to watch the explainer video you created, a little animated, two-minute video that described farm cleanup the category. And I’ll put that in the show notes for people listening, because I think it’s a tremendous example of taking ownership of this farm cleanup category and differentiating yourself from just any other scrap metal provider. What was the effect of that explainer video on your business?
Jean-Eric Plamondon:
It was tremendous. I can’t remember if it was a seminar. I attended a lot of seminars and had a lot of training and coaching over the years to keep up with these companies. And I think it was by Joseph Campbell, and he started talking about the power of stories and how … You would know this through Built to Sell. It reads like a fable. Stories are so great for getting past the conscious and really seeping into the subconscious. And I thought, “What a better way to do that than through an explainer video?”
Jean-Eric Plamondon:
And scrap metal companies are generally big, tough and gruff, as you were explaining at the end of the call. So I got this cute little animated video that we created. And in the process of creating it, I started to outline what are the top 10 pain points and objections that we come across. And if you watch the story, you’ll probably count 10 to 12 objections that I slowly break down throughout that two-minute video.
Jean-Eric Plamondon:
We started to track out calls, and just to your point of the impact. The farmers that would call who watched the video versus the farmers who didn’t watch the video, the ones who hadn’t, it was about a 15-minute phone conversation on the initial point of contact.
John Warrillow:
50? Five zero?
Jean-Eric Plamondon:
One five.
John Warrillow:
One five.
Jean-Eric Plamondon:
15 minutes. Because it was, “Who are you? Are you Canadian? How much are you paying? What do you mean, you don’t know how much you’re paying?” It was a very adversarial type of grilling conversation. And the ones who watched the video were five minutes in length, because that’s just about how much time it took to take down all their information. And their biggest question was, “When can you get here?”
Shawn McDonald:
Jean-Eric’s story generated a lot of buzz in our community. Listeners wanted to see his marketing video and understand how they could differentiate themselves, too. While we feature a lot of tech and software companies on this show, I love it when great ideas come from unexpected places.
Shawn McDonald:
The last great idea I want to talk to you about comes from an experience I know I’ve definitely had, and you probably have, too. You’re looking for a product or service, only to discover somehow it doesn’t exist. You make calls, you send emails. You are literally prepared to give someone your money if they will fix your problem, and no one seems to want your cash. This is exactly what happened to Stephanie Breedlove. She just wanted to pay her nanny, but none of the payroll companies she called were interested in taking on a business for a single employee. So she started her own payroll company, and pretty soon Breedlove and Associates had customers across the country.
John Warrillow:
And let’s talk about the volume. So how big did you get the thing before you wanted to sell it? What was the volume that you got to?
Stephanie Breedlove:
So we were self-funded. So although we had a steady pace of growth for many years before acquisition, our growth was slower than probably would have occurred had we had outside investment. And we grew it an average of about 20% a year over about 18 years. Some years of course were 60%. Some years were 10%. And the volume in terms of clients, our average client lifetime was about four years per client. We used to say it was from a little bit after birth to preschool. And at the time of acquisition, we had grown to about 10,000 active clients.
John Warrillow:
And so what was the revenue of the company at 10,000 clients?
Stephanie Breedlove:
At 10,000 clients, we were right at around nine million in revenue.
Shawn McDonald:
Stephanie Breedlove’s is a story, like David Bach’s, of seeing a gap or a need in the marketplace and filling it, often to amazing results. If you listen to the rest of Stephanie’s episode, you’ll hear how she ultimately sold her company to Care.com for $54 million.
Shawn McDonald:
I love to highlight business owners who built successful companies and had equally successful exits. But not every story had a happy ending, or sometimes it takes a few tries to get there. And we know it’s important to share those stories with you, too.
Shawn McDonald:
One of the most moving episodes I can remember is an interview last year with Sherry Deutschmann. Sherry’s company, LetterLogic, was a medical billing company which she built using principles of empathetic leadership. She regularly took her employees out for lunch, ran a successful profit-sharing program, and in some cases even helped her employees buy their first houses. So when it came time to sell her business, Sherry was motivated to find a buyer who would treat her employees as well as she had.
Shawn McDonald:
And she thought she did. But within months, it became clear that the new owner wasn’t as interested in the same empathetic leadership principles as Sherry had been. When I listened to this episode of Built to Sell Radio, it’s impossible not to hear how hard it was for Sherry to walk away and accept that she didn’t have any control over the direction the company was taking.
John Warrillow:
Let’s get into what happened. So a private equity company bought the business. What were the changes that they made?
Sherry Deutschmann:
Well, as I said, the first thing they do is they get rid of the profit share.
John Warrillow:
So what did you do at that point, when they said they were going to get rid of the profit sharing?
Sherry Deutschmann:
Cry. It was really painful for them to change. And it was so frustrating because they didn’t understand how that profit share drove our profitability. And how it made everybody work together so closely to make us as profitable as we were. And they had paid lip service to us during the dog-and-pony show, that they understood and they loved that idea, but they did away with it.
Sherry Deutschmann:
So there were a lot of anguish and tears, and the net results were that a lot of the employees left them. I think today, of the 51 employees that we had at that time, 12 still work for that company.
Shawn McDonald:
Sherry’s story is a tough one, but I think it illustrates the importance of considering just how important it is to you that an acquirer preserve your company’s culture.
Shawn McDonald:
On a similar vein, while I’m always excited to connect with entrepreneurs who share their secrets of how they sold their company for millions and rode off into the sunset, sometimes I find the most interesting stories come from the guests who had to make peace with the fact that a rock-bottom price may be better than no price at all.
Shawn McDonald:
One example of this is Diana House. Diana ran a yoga jewelry business, and while it became pretty successful, the direction of the company didn’t align with her personal values anymore. She was ready to move on, but first she had to do something with her company. Except her exit didn’t go as planned. After 18 months of missed opportunities and legal errors that saw one deal collapse after another, Diana set herself a drop-dead date. If she hadn’t sold her company by the end of the month, she was walking away. But to find a buyer after burning through so many interested parties and negotiations, she had to get creative.
Diana House:
The first thing that I did is I actually told my operations manager that I was going to sell the business. And she had all the skills to run the business, and I gave her the opportunity to potentially buy the company, which was a huge relief, because I had had this secret for two years. And that had been really eating my alive, not telling my staff that the company had been for sale. So just telling her felt like a massive relief. But based on different circumstances, she was not able to buy that company. And I also offered that opportunity to another employee that was also not in a place to buy the company. But that gave me a huge amount of relief.
Diana House:
The second thing I did was I realized that probably the person that would want to buy this company would be a customer and already in our community. And so what I did is I actually did an email to our entire list, saying that I was looking to move on and that I was looking for someone to buy the company.
John Warrillow:
Wow, that’s the first I’ve ever heard of that. So you literally email your entire customer list and said, “I’m looking to leave. Who wants to buy?”
Diana House:
Yep. Yep.
John Warrillow:
That’s awesome. Okay.
Diana House:
And so to be honest-
John Warrillow:
Just want to be clear. Not necessarily recommended. Just want to be clear on that. But I want to hear more. Go.
Diana House:
Yeah. So seriously after doing this, I was like, “Man, I should have done that earlier.” Because I think as entrepreneurs, we’re so terrified for people to know, and rightly so. I’m a very low-risk individual in the DISC profile. I’m extremely high cautious, high compliant. And so it was very against every cell in my body to do this. And it would definitely, I would not suggest this be the first thing that someone does. But I do think there’s a certain point. If you’re at the point you’re considering shutting down the company, you should definitely just put it out there to everyone. At that point, it just makes sense.
John Warrillow:
What’s the downside?
Diana House:
Yeah. I had no downside, right? And so yeah, put it out there. I think I had 60 people reach out to me.
Shawn McDonald:
From there, Diana was able to find one buyer who closed the deal in just 48 hours. The sale price was a rock-bottom multiple that wasn’t the payday Diana might have dreamed of, but it got her what she wanted, an exit.
Shawn McDonald:
Still, most of our guests have happy stories to tell and a few others have offered some truly great tips and tricks when it comes to negotiating the sale of your company. One of my favorite episodes chock full of negotiating hacks was with Gary Miller.
Shawn McDonald:
Miller sold his consultancy to IBM for 11 times EBITDA, but IBM’s first offer was only around three times EBITDA. And while most would have walked away after a low-ball offer or pounded the table and demanded more money, Gary took an altogether approach.
John Warrillow:
God, it makes sense. So where does it go from there? In your head, you’re thinking eight. They’re thinking three. Did you propose a counteroffer?
Gary Miller:
No. I just asked them to revisit the issues and relook at the quality of the company, the bench strength of the company, our pipelines, our business and who our clients were, and see if they may have erred on the side of a low offer there.
John Warrillow:
You are the diplomat of choice, man. I think you should be negotiating world peace.
Gary Miller:
Well, you’re mostly right. But I never, ever wanted to take advantage of someone else’s uninformative or ignorance. The deal team on the IBM side just wasn’t quite as sophisticated as you would think it was. But we were a small company compared to IBM. We were then and-
John Warrillow:
Do you think you had the B team?
Gary Miller:
Oh, absolutely. Yeah, we were a small company. They didn’t put their … The CFO wasn’t looking over this acquisition. The IBM CFO wasn’t. We were several layers below the C suite. We were division level.
John Warrillow:
Got it. Okay, that’s helpful for sure. So what next? They came back to you, presumably. Seeming like negotiating with themselves here. But they came back to you with another offer. What was the next offer in terms of multiple-
Gary Miller:
They did. They came back and said, “Okay, we’ll make a stock purchase, and we’ll give you eight and a half times EBITDA.” And-
John Warrillow:
So wait a minute, Gary. They go from three to eight and a half without-
Gary Miller:
Yes. Yes.
John Warrillow:
That’s incredible.
Gary Miller:
They did. And I said, “I really appreciate that. I need to visit with the other partners. And we’ll be back to you.” And so we came back to them I guess two or three days later, et cetera. And said, “You know, here’s what we have in mind. Why don’t you just give us 1.5 times our annual revenue. We won’t have to worry about anything on that. We’ll make it a stock sale, et cetera.” And we wound up agreeing on 1.2. And I went back with a higher price than I knew we would ever get, but they had to win on this last round of negotiations since they had come up so much from their low offer.
John Warrillow:
Fascinating.
Gary Miller:
And I wanted to give them an opportunity to say, “Look, they wanted 1.5. We’ve agreed to 1.2. We’ve got a good deal here. Let’s go.” And that’s the way it turned out.
John Warrillow:
And what did 1.2 equate to as a multiple of your EBITDA?
Gary Miller:
Let’s see here. Almost 11 times EBITDA.
John Warrillow:
Wow. Starting at three, getting all the way to 11. I find that fascinating. I find it fascinating that you didn’t have to spend months with spreadsheets and projections. Literally you went back and had them reevaluate the company.
Shawn McDonald:
I laugh when I picture Gary politely telling the IBM team that they could do better. If there was ever a negotiation I would have loved to be a fly on the wall for, it’s Gary’s. To go from three to 11 times EBITDA without months of haggling with a giant like IBM is just incredible.
Shawn McDonald:
Another guest who had an ingenious way to ensure the successful sale of his business is Adam Ochstein. We featured the sale of StratEx, Adam’s hospitality payroll management company, earlier this year, just as the world was coming to grips with the economic realities of the coronavirus pandemic.
Shawn McDonald:
When I’m talking to potential guests, I always ask them if there’s an element of their sale that they think would be most interesting for listeners. I’ve heard a lot of different answers ranging from the way they reorganized the company and its processes so it didn’t rely on the owner anymore, or what they did when the sale fell through. Lots of people admit that they went into their business with an intention to sell it one day, but Adam’s tactic for making sure that sale actually happened is unique. When Adam talked to Toast, a point of sale supplier, about an acquisition, they weren’t really interested. But they agreed to a partnership where they white-labeled his software.
Shawn McDonald:
But Adam’s genius move was including a purchase option clause with a time limit inside his partnership agreement with Toast. Essentially, if Toast decided to buy StratEx within a certain amount of time, they would do so at a pre-negotiated rate based on the performance of both companies. If they decided not to exercise the clause, then Adam was free to go about finding another buyer when the option expired.
Adam Ochstein:
So we actually pre-negotiated the purchase price range at the outset of the partnership. And the reason why I was comfortable doing it is because I really felt I loved the culture of their company, I loved what they were doing in the space. They were the fastest growing company in the space. And I felt that, if I could provide the perfect rocket fuel for my baby, this would be the perfect exit that I would know it would have lasting legacy and be part of the Toast ecosystem. Was a place that I wasn’t selling out to a competitor. I wasn’t just selling out to sell out. I was taking what we built and what they were building and making a really, really cool product.
Shawn McDonald:
I’ve talked to a lot of people who planned ahead for a sale by making sure their books were in order or who built systems so the business would be less dependent on them. But in all 250 episodes of Built to Sell Radio, I’m pretty sure this is the first time I’ve had an owner plan for an acquisition by making it part of a partnership agreement. Thanks for his ability to plan ahead, Adam was able to exit right before COVID hit, which was fortunate timing for a company so tied to the restaurant industry.
Shawn McDonald:
So there you have it. Those are some of the stories, themes and personalities that have stood out to me the most over the last 250 interviews. I’m incredibly appreciative of every single guest who has offered up their time and their valuable insight into what it takes to build a sellable business. Even those guests who didn’t ride off happily into the sunset had great lessons to share. I also want to thank John for letting me have the microphone today. It’s been fun preparing this episode and having a chance to spend some time with you. We’ve got more amazing episodes coming to you through the rest of this year, and some big announcements. I’m looking forward to bringing you the next 250 shows.
Shawn McDonald:
Speaking of the next 250, I’m always on the lookout for interesting stories about company exits. If you’ve got a good idea for a show, just drop me a line at podcast@valuebuildersystem.com.
Shawn McDonald:
Finally, a great big thank you to you for listening. John will be back next week with another episode of Built to Sell Radio.
Speaker:
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, double R, I, double L, O-W. Thanks for listening.