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How to Sell a Service Business Without an Earn-Out

June 25, 2021 |  

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In 2011, Jodie Cook started an eponymously named social media agency, JC Social Media. Over the next nine years, Cook built the business up to 16 employees. Then, she decided to sell at the end of 2020 and thought her company could be worth in the 5-7 times EBITDA range.

Cook’s first offer was five times EBITDA, with approximately 20% of proceeds tied to a three-year earn-out. Cook realized she had failed to make it clear that she would not be accepting an earn-out. Cook pushed on, explaining why she was redundant and made the case to potential acquirers why her business would do better without her. Cook received two additional offers and accepted one at the top end of the range she was hoping for. She left two weeks later.

In this episode, you’ll discover how to:

  • Make your company’s brand bigger than your own.
  • Document processes people will use.
  • Transfer something Cook calls “tacit knowledge” onto your team.
  • Make everyone in your company a leader.
  • Get clear on what you want from a team.
  • Distinguish between a lifestyle vs. performance team.
  • Think about “chemistry” meetings with potential acquirers.
  • Merchandise your “second-tier” management to your potential acquirers.

Show Notes & Links

(05:49) Jodie Cook: “I think I maybe read Tim Ferriss’s The 4-Hour Workweek quite early on and I thought, this is great. I can do this. I can own and run this awesome agency, but I can also travel the world. I can write books, I can write articles and that’s what I’ll do.”

(07:54) John Warrillow: “We’ve done research at Value Builder where we have an intake questionnaire people take when they use the system. And we asked them a whole bunch of questions about the business that we’ve analyzed a bunch of questions prior to COVID and then during COVID, and there’s a really fascinating dynamic and you referenced it really well. And that is that business owners have moved up their sell by date by 20% and now many more want to sell because the pandemic has been a shock to the system.”

(25:30) Jodie Cook: “With How to Raise Entrepreneurial Kids, I co-authored it with Daniel Preistley who was a dad of three, but I am the kid. I am the kid in that story.”

(26:30) John Warrillow: “So you’ve got this offer which is incredible and has no earn-out, and you wrote an article which I saw and I wanted to kind of dig into today, which was, how to get your business ready to be saleable effectively? And you shared five things in that article which caught my attention that I wanted to kind of dig into today.”

(32:12) Jodie Cook: “I actually think that this came into my head because of the book, The E-Myth by Michael Gerber. And so, he’s talking about franchise models in the book, but I was fascinated with this idea of a manual where every single thing that happened in the business had a way of doing it and that in doing that, it means that anyone can learn the process.”

(49:29) Jodie Cook: Clever Tykes are a series of children’s books, they’re aimed at kids six to nine, and they are all about introducing entrepreneurial role models. Because many entrepreneurs have a parent in business. And that is what means that they feel like they can go and start their own business one day. And if they don’t have a parent in business, someone will have inspired them along the way.”

(50:13) Jodie Cook: How to Raise Entrepreneurial Kids, it came about from, I sent out a request to look for sources for a story that I was writing and I was actually going to write a blog post on the topic of how to raise entrepreneurial kids.”

(51:50) Jodie Cook: Daniel Priestley, who he runs entrepreneurial accelerators. He’s a really, really fascinating guy. Just has a lot of amazing things to say. And I approached him with the idea for this book called How to Raise Entrepreneurial Kids. And I said, “Would you like to be my co-author?” And he just said yes, straight away. And he was like, “Yep, great. I’m in. What do you need from me?” And so together we turned those 500 responses into the four pillars of raising entrepreneurial kids.”

(54:28) Jodie Cook: a well-known business leader who flies first class and his kid flies in coach at the back. And his kid goes, “Dad why can’t I fly first class with you?” And he says, “You don’t have any money son.” So I think there’s a number of different ways to solve this. And I just don’t know. There’s as many different ways to be a parent as there are kids. So I think it has to be what feels right.”

(54:44) John Warrillow: “Yeah. It reminds me, I think it was Jerry Seinfeld, someone can correct me on social media if I get it wrong but I think it was Jerry Seinfeld who said, I think to his kids, his kids said, “Dad, we’re rich or whatever.” And Jerry responded saying, “No, no son, I am rich. You are not rich.” That was brilliant. But it reminds me as a parallel to the guy who makes his kids fly coach while he sits up in first class.”

(57:28) Jodie Cook: “I can be found at jodiecook.com, which is J-O-D-I-E-C-O-O-K. I’ve got a blog that I update every couple of days and you’d be very welcome to subscribe. But I’d love to hear from anyone listening that has a similar story or just wants to get in touch. I’m always happy to hear from people.”

About Our Guest

Jodie Cook built and sold her social media agency and now writes books and articles about entrepreneurship.

Stop Acting Like You’re Going To Live Forever, volumes one and two with accompanying guided journals, cover how to run a business without it running you. How To Raise Entrepreneurial Kids combines childhood stories from 150+ entrepreneurs and was co-written with Daniel Priestley. Children’s storybook series, Clever Tykes, gives entrepreneurial role models to 6-9-year-olds and is read in every UK primary school.

Jodie contributes articles for Forbes on the topics of entrepreneurship, happiness, and lifestyle design and gave a TEDx talk with the title Creating Useful People. Jodie’s work empowers others to find the happiness and success they seek.

Find all books and articles at: jodiecook.com/writer. Feel free to say hi and introduce yourself!

 

Connect with Jodie:

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Transcript

John Warrillow:

Hey guys, it’s John Warrillow. So after five years of hosting Built to Sell Radio, I’ve distilled the secrets from the most successful founders into the ultimate field guide. The Art of Selling Your Business: Winning Strategies and Secret Hacks for Exiting on Top, is now available. The Art of Selling Your Business is a playbook for punching above your weight in a negotiation to sell your company.

Now, you may still be years away from selling, but there are actions you can take now that will make your business irresistible to an acquirer in the future. And in this book, you’ll get answers to your most vexing questions like, when’s the right time to sell? How should I value my business? What are the biggest mistakes owners make when they sell? How do I get multiple offers? How do I attract an offer from an acquirer without looking like I’m desperate to sell? How many companies should I approach? How do I separate real acquirers from tire kickers? When in the process do I reveal my numbers? When and how do I tell my employees? How do I avoid re-trading when the buyer drops their price during diligence? And the age-old, how do I avoid an earn-out?

Along with actionable answers to the questions, you’ll also get a playbook for defending yourself against the dirty tricks used by the most unscrupulous acquirers, including how to defend yourself against re-trading. Acquirers who intentionally set unattainable earn-out goals, financing and acquirers business, becoming a prop deal, strategic pacing, competitors posing as acquirers, accepting illiquid or overvalued shares for your business in lieu of cash and giving away your retained earnings as part of your deal.

You’ll also get easy-to-understand definitions of some of the most bewildering terms acquirers use in negotiating to buy your business. Stuff like tipping basket, covenant, downstroke, escrow, indemnification, earn-out, QEV, reps and warranties, churn. I’m just about to throw up just using all this industry lingo, but you’ll get a definition for each of them in an easy-to-understand package. If you order The Art of Selling Your Business today, you’ll receive a collection of thank you gifts to enjoy alongside the book. Just go to BuiltToSell.com/Selling.

If you want a service business this next episode is for you. It’s with a woman named Jodie Cook who built a social media company and sold it. What’s interesting about this story is, she sold it without an earn-out. Most marketing services businesses are sold with a long and arduous earn-out, can be as much as seven years, average is three. Jodie left two weeks after she took 100% of her proceeds in cash at closing. Here to tell you how she did it, is Jodie Cook.

Jodie Cook. Welcome to Built to Sell Radio.

Jodie Cook:

Hey, thank you so much for having me.

John Warrillow:

Yeah, pleasure. So tell us about JC Media. Tell me about – social media – I should say. What kind of company was this?

Jodie Cook:

We were a social media agency. We worked with SMEs and we worked with a few big brands and had a team of 16 social media managers based in the Midlands. And then once March 2020 hit, we were a fully remote team.

John Warrillow:

Got it. And so social media would be your Facebook, LinkedIn, Instagram?

Jodie Cook:

Yeah.

John Warrillow:

Posting on behalf of these brands and these individuals content I’m assuming?

Jodie Cook:

Yeah. Exactly. So we would post on behalf of those different brands of our clients. And we would set up and run ads on their behalf. And then we also had a training side of the business, where we would go out to clients and teach them how to do things themselves. Teach whole teams how they could run their own apps and create their own social media presence.

John Warrillow:

Oh, neat. How much of the business was training versus execution in terms of revenue? Percentage.

Jodie Cook:

Percentage training was about 20%.

John Warrillow:

Got it. That’s helpful. And what was the billing model? Did you bill by the hour, by the day, did you have recurring contracts, what did that look like?

Jodie Cook:

We had recurring contracts that 80% of the business was recurring contracts, so everything that wasn’t training was. And we tended to work with clients and we billed them the same amount every month, and then they would be in a kind of initial six month contract and then they would have a 30 day rolling contract with us.

John Warrillow:

Got it. You mentioned you got to 16 employees. What made you want to sell? I mean, you’re obviously still a young person. You’re not ready to retire I’m assuming. So what was the trigger?

Jodie Cook:

Well, I absolutely loved owning an agency, but I very much ran it like a lifestyle business. And I think I maybe read Tim Ferriss’s The 4-Hour Workweek quite early on and I thought, this is great. I can do this. I can own and run this awesome agency, but I can also travel the world. I can write books, I can write articles and that’s what I’ll do. That’s what my life will be. And it was like that for a very long time. And then March 2020 hit and we had a shock. I imagine quite a lot of the people listening, maybe went through the same thing.

John Warrillow:

Yeah, I’m sure.

Jodie Cook:

But the agency shrunk by about 25% in a week. And so, that was a little bit scary. And I remember you just go into full resourceful mode. And I think I tried to outwork the pandemic and I was just constantly thinking, okay, what can I do? How can I turn this around? And I also tried to take the fear away from my team because I was really aware that people don’t do their best work when they’re scared. And so it went from being quite a lifestyle business to me being very hands-on and trying really hard to get involved and to sort everything out.

So what happened over that summer of 2020, was not only did we manage to grow the business back to the pre-COVID revenue, but we managed to grow the business by a further 20% simply because the team just did amazingly, everyone went over and above their, I guess, job description. And we just managed to somehow work out as a team. And I think at the end of 2020, I took a long hard look at myself and I thought, what do I want to do? What do I want my way forward to be? And that’s when I thought, I believe that the team within my lifestyle business is actually not a lifestyle business team. They’re a performance team, but I think that in order to take them and to take this agency to the next level, it requires a full-time really hands-on leader to say, “Okay, this is the future and this is where we’re going to take it.” And that was the moment that I knew that it was time to sell.

John Warrillow:

Interesting. I have so many things to unpack there. We’ve done research at Value Builder where we have an intake questionnaire people take when they use the system. And we asked them a whole bunch of questions about the business that we’ve analyzed a bunch of questions prior to COVID and then during COVID, and there’s a really fascinating dynamic and you referenced it really well. And that is that business owners have moved up their sell by date by 20% and now many more want to sell because the pandemic has been a shock to the system. It was a soul searching moment. It’s a navel gazing.

It’s just a time where a lot of people are reassessing like, “What’s life about.” Was there something that you were excited to go do if it wasn’t being that hard charging leader of your agency, this high performance team, was there something more appealing on the horizon that you wanted to go spend time on?

Jodie Cook:

It wasn’t specifically something. There wasn’t a new business I wanted to start or a new project I wanted to begin. But what I did realize is that I think I handled the pandemic pretty well. And I think it made me realize that not only was my team capable of more, but also I was capable of more. I think I heard the other day that Elon Musk probably doesn’t work any harder than someone who runs an Italian restaurant, they’re just solving different problems. And so I think I realized that I wanted to solve bigger problems and I wanted to solve different problems. And I was ready for that as well. I think maybe I’d outgrown my agency and my agency had outgrown me all at the same time.

John Warrillow:

And so what did you do when you came to this realization that your team deserved a high-performance leader? Did you shop the business? How did you sell it?

Jodie Cook:

The first thing I started to do was, I spoke to a few other trusted agency owners who I knew had agencies that were about the size of one that could buy us. And I just was very honest with them and I said, “This is what I’m looking to do. Can I just ask you some questions?” I said, “Can I ask you some questions as if you were going to buy me?” And because they were friends, they knew I wasn’t trying to sell my business to them, but they were so useful. There was a lady called Tamara who’s a friend who was just amazing and saying, “Okay, this is what I’d be looking for if I was buying you. This is what I’d want you to tell me. This is what I’d need you to prepare.”

John Warrillow:

What did Tamara say?

Jodie Cook:

So she was talking about, basically preparing a deck of the business and what it was about, explaining the structure, explaining who the team were, explaining the kind of clients we had, how we got our clients on board, how we looked after our clients, how we measured success, the average longevity of a client, the average longevity of a team member, just every single thing. She would kind of put them in a hierarchy order for me. And that became the information kind of pack that I put together.

John Warrillow:

Got it. You mentioned you went to people who you thought were big enough to buy, you guys were 16 employees. I’m not sure. Can we talk about revenue or turnover? But it doesn’t matter, 16 employees is fine if that’s what you’re comfortable with. What was the size of the companies you thought were big enough to buy you? How many employees did they have as a proxy?

Jodie Cook:

Tamara’s agency was 10 times bigger.

John Warrillow:

Okay. So you’re looking at agencies that were sort of 10 times your size?

Jodie Cook:

Yeah. And I think at the time I didn’t really know who would buy us, I just figured that that was a good place to start. I think I’d actually researched. I think I just googled agency acquisition and I’ve had a look around at the kind of agencies that were acquiring agencies like mine. And that seemed about the level. So then that’s who I tried to find. So Tamara put me on to someone who she’d spoke to about that, about acquiring, because she was on the lookout for agencies to acquire. So she had someone who she worked with. I spoke to him, he said, “Well, hang on, you’re ready to sell. I know exactly the person who you need to speak to.” And then he put me in touch with an M&A advisor who specifically sold agencies.

John Warrillow:

Got it. And what was that M&A advisor’s reaction to what you built?

Jodie Cook:

He was brilliant in that he completely demystified the whole process for me, because he’d been through it so many times with different agencies. He just made it sound so normal. He said, “Right. Okay. This is the process. First, we’re going to put out a one pager of the business. An anonymous one pager, we’re going to send that out to our database. Then you’re going to have chemistry meetings, that’ll be organized in the first two months. Then we’re going to invite offers. Then we’re going to negotiate. Then we’re going to complete.” He said it would take about six months, it took six months and two days. And the fact that he was just so, “This is the routine. This is the process.” That was just incredible.

John Warrillow:

That’s amazing.

Jodie Cook:

And that’s exactly what I needed to hear. And he wasn’t patronizing at all in any way. It was just like, “Okay, this is what we do. And this is how you fit in. And this is what’s required from you.” And then it really was as simple as he said it would be.

John Warrillow:

Got it. I love the term chemistry meetings. I refer to them as management meetings or in the M&A process, I think it’s the same thing. But in actual fact, I think chemistry meetings is a better definition for it, because that’s really what you’re gauging, right?

Jodie Cook:

Yes, exactly. So we had about 12 chemistry meetings with various different agencies. Some of whom I was so excited about. I loved meeting all of them, but some of them, you knew the culture wasn’t the right fit. You knew that your client base didn’t match their client base. It was very-

John Warrillow:

What would give you that impression that there was not a fit? Can you share a specific example? We can leave the name aside, but something that happened, a indication for you and you’re like, “That doesn’t feel about right.”

Jodie Cook:

Oh yeah, there’s a few of those. So one of them, for example, they worked with fashion brands and that’s pretty much all they worked with. And our fashion brand repertoire of our client base maybe was 5% or something that was too small. And it was too much of a stretch for them to move into all those different industries. There was one that I spoke to where I got the sense that they didn’t really like their team.

And I thought, “I really like my team and I really want to sell to someone who is going to also like my team.” So it didn’t really work out. It was just a different way of operating, but it was all very nice and polite and respectful. It was just a mutual understanding that it probably wouldn’t go any further.

John Warrillow:

Got it. So you had these 12 chemistry meetings, how many letters of intent did you get?

Jodie Cook:

Do you mean heads of terms?

John Warrillow:

Yes. Sorry. Heads of terms. That’s a north American expression, letter of intent. Heads of terms would be the UK term. Yes. How many of those did you get?

Jodie Cook:

So, the stage between chemistry meetings and heads of terms or letters of intent was second meetings, and we have six of those. And then we had three heads of terms.

John Warrillow:

Got it. And what was your reaction to the heads of terms?

Jodie Cook:

One of them the offer was not as competitive as we would have liked it to be.

John Warrillow:

What did you think it was worth? What kind of multiple of earnings, did you have a sense of what you thought was fair?

Jodie Cook:

Think the M&A advisor had talked about multiples of anywhere, really bottom end four or five, and then up to seven or eight, to be honest, higher. Depending on how strong the brand was and how much of a tech component there was. And the strength of the client base. He gave quite a broad range. But one of the offers that we got, the main sticking point for me was the earn-out that they wanted to include.

John Warrillow:

What proportion of the deal had they put to the earn-out.

Jodie Cook:

It was possibly not super high in terms of the percentage of the deal and maybe 25%, but it was the time. Because up to that point, corona virus time aside, I hadn’t been full time in the agency and because they wanted me full-time or part-time, or a lot of time, more time than I was doing, for three years, that for me was a really big deal breaker and showed that they hadn’t really understood. And what I realized from asking them more about the deal that they put on the table was that they had completed an acquisition a year before that had gone really well.

And so they had almost wanted to carbon copy that deal into us. And that was great that they’d had that success. And it was made that they saw the potential with us as they had with their previous acquisition, but it was very different. The agency they bought before, it was run by someone who was very broad, who wanted a new challenge but wanted to stay, who wanted to grow an agency within a bigger agency and that wasn’t me. And it became a sticking point that they couldn’t see past kind of copying that last deal that they’d had.

John Warrillow:

Interesting. So three heads of terms, the first deal or the one that was least attractive had 20% earn-out. Do you remember roughly what multiple it was that first deal?

Jodie Cook:

I think it was four or five. It was on the low end.

John Warrillow:

Got it. And did that four or five include the portion that was at risk in the earn-out?

Jodie Cook:

No.

John Warrillow:

Okay. So it was sort of, they refer to it as a downstroke, but the guaranteed portion was four or five?

Jodie Cook:

Yes.

John Warrillow:

Got it. What about the other two?

Jodie Cook:

So the other two, one of them was fairly similar to the one that we went with, but in the chemistry meetings, I’ve not really felt the chemistry. So I guess I was surprised that that came in where it did and that they kind of wanted to go ahead because I wasn’t super sure. So the other, the one that ended up winning I guess, had ticked all the boxes in terms of chemistry, in terms of the offer, in terms of really listening to me and who I was in the business and understanding that an earn-out wasn’t required.

John Warrillow:

That’s shocking. And it will be shocking for I think everybody listening to this. The only companies that we really interview where there is no earn-out is technology companies, maybe a manufacturing company of some sort, but a service business, in particular, a creative service business. I mean, it’s unheard of. I’ve never heard of a creative agency selling without an earn-out. And so I want to dig into that. But to be clear, the offer was without an earn-out, a, that’s incredible, are you able to share what multiple range that it was in and how that piece played out?

Jodie Cook:

Well, I mean, it was on the higher end of the range that I mentioned before.

John Warrillow:

Got it. So it was sort of on the higher end of the range. But no earn-out. That’s incredible. So I think I know why you didn’t want an earn-out. I think we’ve touched on that. What was your case to them that they didn’t need to include an earn-out?

Jodie Cook:

The case to them that we didn’t need to include an earn-out was that I had realized probably about three or four years prior to selling, that the more involved I got in the company, the more I blocked its progress. And that was because we had salespeople, we had account managers, we had everything sorted without me. And when I got involved too much in the sales process, potential clients would sort of not necessarily be able to let go of me. And it meant that when we were handing them over to their account manager, it meant that they were still like, “Where’s Jodie?”

And that would have stifled, you can’t clone yourself. So I realized that I was a blocker to that process. So I’d removed myself from that process. And I hired and trained people who were far better than me at any of the sales process and they were doing a better job. And so I didn’t need to get back involved. So I was very clear that I didn’t want to do that. And then with the account management side, I hadn’t been involved in looking after and servicing clients myself for absolutely years and years.

So I knew that I wouldn’t kind of take a step back and start doing that role again. So there really wasn’t a role for me within an earn-out. I think they knew that I’m a very conscientious person. I was very clear that I wanted to do this right and not quickly. So although there wasn’t an earn-out, I was like, “I will stay as long as you need me to. It does not matter if it’s a week, if it’s a month, if it’s a year, it doesn’t matter.”

John Warrillow:

How long did you end up staying?

Jodie Cook:

Two weeks.

John Warrillow:

Well, that’s incredible. But you were offering in good faith to stay as long as was required?

Jodie Cook:

Yeah, absolutely. It’s too important that it went right. It’s too important that any transition was really good. But actually because we got on well and because it was a very process driven organization, they could understand it and they knew what they had to do.

John Warrillow:

I mean, you obviously did an amazing job building this company so that it wasn’t dependent on you, I think some people might listen to the way you had made yourself redundant and think, “Oh, I kind of like being important. And I like having a purpose in my company and I sort of like the feeling of being able to help clients or my team.” Was there any part of you that kind of felt a little bit empty to the extent that you had built this company that was so successful without you that you kind of personally felt a little bit empty? Do you know what I’m getting at?

Jodie Cook:

I like hiring people and progressing them and I like seeing them flourish. And if they flourish to the point of not needing me to hold their hand every day, I see that as a success. I remember one time I was, I think I was on the way back from somewhere and I thought, “Oh, I’ll give my general manager a call. Just to see what they’re up to.” And then I thought, “Hang on, I don’t need to do that. She’s fine. Everything’s fine. And that’s good. This is what you wanted, to create something that didn’t need you to answer every question or be a bottleneck for every process.” I think it would be really easy to confuse not being needed with a bad thing, but maybe that’s just ego. Maybe actually it’s a really good thing that you have created something that doesn’t need you.

John Warrillow:

Did something change? I mean, you started a business called JC, Jodie Cook, JC Social Media, at some point maybe it would be fair to say that you felt like you were an important piece of the puzzle. What changed? Did something happen in your personal life or did you read a book or did you? What happened to make you feel like, “Hold on, I don’t want to make this all about the J and the C.”

Jodie Cook:

I think I see it as, I went through different stages and I had different interests. I mean, I was 22 when I started it and I didn’t set out to start a business. I set out to create myself a job and I was essentially a freelancer until I started hiring. And then I enjoyed hiring people and training them. And then I enjoyed creating a process for the sales team and hiring salespeople. And then I enjoyed marketing and working on the wider aspects of marketing.

And then I enjoyed creating even more processes and taking the people who I’d hired from being, really amazing account managers to really amazing leaders. So it felt like a very natural process. I think I would definitely see businesses where the owners had the same year again and again, and they didn’t evolve within their role. And because I was so keen on evolving within my role, I guess I evolved myself out of my role, but I still see that as a good thing.

John Warrillow:

How did becoming a mom affect you as a leader?

Jodie Cook:

I haven’t got kids.

John Warrillow:

What’s that?

Jodie Cook:

I haven’t got kids.

John Warrillow:

Forgive me. Well, I know you wrote a book about raising entrepreneurial kids, so my assumption was just that you had kids. So forgive me. I want to talk later about Clever Tykes, because I think it’s such a cool idea.

Jodie Cook:

With How to Raise Entrepreneurial Kids, I co-authored it with Daniel Preistley who was a dad of three, but I am the kid. I am the kid in that story.

John Warrillow:

Oh, I see. I didn’t realize that.

Jodie Cook:

I was always raised to be entrepreneurial, very much by accident. And it meant that when I was 22, I could go and say, “Yeah, I’m going to start a business.” Whereas all my friends were getting jobs.

John Warrillow:

I see. See for me, I remember having kids, I think it changed. I all of a sudden realized that that business wasn’t so much about me, that I had to find a way to train these little children to become sort of self functioning adults. And so, I think that for some parents, the penny drops a little bit like, “Oh, okay.” So that was the background behind my question. Forgive me. Let’s talk about How to Raise Entrepreneurial Kids at the end of this interview, because I want to point people to that book and learn a little bit more about it myself personally.

Okay. So you’ve got this offer which is incredible and has no earn-out, and you wrote an article which I saw and I wanted to kind of dig into today, which was, how do get your business ready to be saleable effectively? And you shared five things in that article which caught my attention that I wanted to kind of dig into today. And again, for folks listening to this, it is so incredible that Jodie built this business that doesn’t have an earn-out in an industry which is renowned for or notorious for earn-outs.

So I think it’s really good what you did. So let’s talk about the five things that you wrote about in that article. And I’ll put it in the show notes of BuiltToSell.com, a link to the article so folks can get it. The first thing you talked about was, make the brand bigger than you. Tell me what you mean by that.

Jodie Cook:

When I first started out, and you can probably tell because I named my company JC Social Media, although that was a two minute decision at a working event where I realized I didn’t have a company name and every other company seemed to fit that formula. So there was JS Technical Services, there was ML Accountancy Services, there was JP Entertainment, and I saw the line going along and I knew I would have to speak and I just kind of thought JC Social Media, that makes sense. And that’s exactly how the company was named.

But I think very early on, it really was the Jodie show. It was me going to networking events, it was me speaking to potential clients. It was me doing all the work. And as soon as I started hiring, that’s when I realized that I really would be the bottleneck for this, because I couldn’t be everywhere at once. And also I thought, if it continues to be the Jodie show, it just undermines everyone else in the company because they can’t develop their own brands. And I really wanted them to develop their own personalities and know who they were within the company and know that they were important to the company.

So creating a brand bigger than me involved not being the face of the company. And so David in my team, for example, he took the media requests on, he went on the radio, he went on the TV, he represented the brand. He ran webinars for the company. I hired a head of client services to meet clients. And it was very much about writing a list of what do I do and who else could do this? And then working through the list and getting the right person to do that and finding someone who really naturally wanted to do that role. So I kind of thought to myself that-

John Warrillow:

What’s the criteria you would use to evaluate whether someone was able to do that role? You mentioned someone to take on media requests as an example, how would you ascertain whether delegating that individual made sense?

Jodie Cook:

I think you can understand a lot from observing someone and working out where they are exceptional working out what lights them up, and then see what element of your role you can always test the waters with. So with David, I think we get some media requests together at first, and then he just absolutely loved doing that and it helped to build our client base.

So then he took them on his own, and then that was how that process worked. And I think that happened with nearly everything that was there. I guess some of the things are easier because it’s setting up tasks, for example, where you don’t need someone to be passionate about payroll in order to be able to do it. It just means that you identify as something that you know that someone else can do. I think I was becoming so much more aware of my time and I wasn’t the best person to log onto the system every month and put payroll through it. It had to be someone else that did it. So it was being very ruthless about that.

John Warrillow:

But how did you get comfortable with things like payroll because I think a lot of entrepreneurs listening to this saying, “Ah, you know what? I just don’t trust them to do it right. There’s a lot of money involved, if they screw up, people could find out what everybody makes. I want to really oversee the credit card statements because boy, that’s a big job.” How did you personally get over the desire to control in particular around money?

Jodie Cook:

The mantra I always had in my head was train and trust.

John Warrillow:

Say that again. I didn’t hear it, say it one more time.

Jodie Cook:

Train and trust.

John Warrillow:

Train and trust. Okay.

Jodie Cook:

Again and again and again. Train someone to do it, trust that they will. Make sure it’s a trustworthy person who you’re giving that role to. I think I definitely enjoy working with very conscientious people. I think people are consistent. If someone’s turning up late, making mistakes, not really bothering, that’s how they will treat your payroll. But if someone’s properly paying attention and really listens and really cares about things and won’t put sub-par work out there, then you have a pretty good idea that they’re going to do quite a good job with even small tasks that are given to them.

John Warrillow:

All Right. Number two, in your list of five things to make your business sale ready was creating processes, or as you might say, processes. Tell me a little bit more about the business of creating processes. What does that mean and how did you go about it?

Jodie Cook:

A lot of what I put in place comes from the books that I read along my journey. And I actually think that this came into my head because of the book, The E-Myth by Michael Gerber. And so, he’s talking about franchise models in the book, but I was fascinated with this idea of a manual where every single thing that happened in the business had a way of doing it and that in doing that, it means that anyone can learn the process. And more importantly, that as an owner, you don’t need to repeat yourself.

You tell someone once, and then after that, the question is in the manual and then you’re answering new questions. And I think I was always searching to solve new problems and not just keep repeating the same things over and over again. So that’s what I did. I created a manual. It was an Excel spreadsheet with about 50 different tabs. And every tab was a process that happened in the business. So we’ve mentioned payroll, the payroll process. This is where you log in, this is the link, this is what happens, this is what you double-check. That’s the process.

The manual was kind of exported into different PDFs. Each PDF was in a different folder and whoever needed access to that folder had access to it. So the whole manual wasn’t shared with anyone, everyone, because they wouldn’t have needed it, but whoever needed the different process had everything they needed. And also, I’d be open to my team changing them as well. If they saw a process and they thought, “Hang on, there’s a better way of doing this.” They would be able to go in and edit and make a better process, which lots of them did. And lots of them quite enjoyed doing.

John Warrillow:

So Jodie, did they have editing rights on the processes?

Jodie Cook:

Yeah. A couple of the team did.

John Warrillow:

A couple of people in the company did?

Jodie Cook:

Yes.

John Warrillow:

And so if I understand this, you had an Excel spreadsheet that would point to different folders in a Dropbox or some sort of SharePoint cloud-based file system?

Jodie Cook:

The Excel spreadsheet had different tabs and each tab was a process, but then you can export almost each tab within the spreadsheet as a different PDF document. So you could export the whole thing into 50 different PDF documents each for a different process.

John Warrillow:

Got it. And the way you manage people’s permissions was giving certain people permissions to certain folders?

Jodie Cook:

Yeah.

John Warrillow:

Got it. So the login credentials for the payroll system are not going to the head of marketing or the head of sales or whatever?

Jodie Cook:

Yeah.

John Warrillow:

Got it.

Jodie Cook:

But my head of client services had access to the whole thing.

John Warrillow:

Got it. Okay. People listening to this are thinking and kind of rolling their eyes going, “Gosh, that’s sounds exhausting.” The process of, “Yeah, I’ve read the E-Myth. I get it. I got to have SOPs. Enough already. I get it. But I just don’t have time.” Or, “My mind doesn’t work that way.” Or, “The idea of writing processes. I can’t do it.” What do you say to people again?

Jodie Cook:

No earn-out.

John Warrillow:

No earn-out. Which would you rather? Earn-out or?

Jodie Cook:

Because I like books I’m very familiar with tasks that seem never ending, but actually have an end date. You have to believe it has an end date. You have to believe there is a way of turning everything that happens in your business, into a process and that you will get there. But yeah, it’s long. It takes a long time, but you do it once. And then from then on the reference point for future processes becomes the manual and not you. And therefore you remove yourself as the blocker to growth and to sale.

John Warrillow:

Got it. I think another objection people have around creating these SOPs is, “Jodie, I get it, but our company is dynamic and things change, right? Things are changing all the time. This isn’t worth it. We’re moving more quickly than would warrant an SOP document.”

Jodie Cook:

Yeah. I think that totally makes sense. I think what I found was that, even with the team of 16, I might change something and I might tell two people that it’s changed or maybe I’ll tell everyone in the team meeting, but how do you make sure everyone knows the new way, the new standard, everyone agrees with it, everyone knows exactly how to roll it out. I found that a more effective way of doing that than trying to speak to everyone either at the same time or separately was to update a process.

John Warrillow:

But how do you get people to pay attention to the process document. I mean, I remember a company I used to own years ago, we spent years, not years, months creating this massive binder of SOPs. And literally it became shelf work. Nobody looked at it. And to this day, I don’t know what I did wrong. But man, it was an arduous process. Because people get used to their jobs, right? People kind of know how to do their job. They don’t need to be told what to do. Sure, with onboarding I get why you need SOPs. Totally get it. But once they’re kind of rolling, they don’t need to refer back to the document. How did you keep them going back to the same document?

Jodie Cook:

I think if they didn’t need to refer back to the document, then they didn’t. It was more about if they were learning a new process or if they had a question that they didn’t know. I think my head of client services was very, very good at her first response to questions that she knew were in the manual being, have you checked the manual? And then it becomes easier because people will want what’s easiest, right?

So if it’s easier to just check the manual and find the answer than it is to speak to a colleague, and then to tell you to check the manual to find the answer, then you’ll do the easiest thing. So it has to be easy. And I think then you also have to, we very much practiced it. I think that we realize we can just say, “Check the manual,” if we weren’t doing it ourselves.

John Warrillow:

So you ate your own dog food so to speak. You personally checked the manual as it were?

Jodie Cook:

Yeah. I found it really useful. I would follow it if I was doing a process until it happened naturally. Yeah, for sure.

John Warrillow:

Got it. Third thing on your list of things to make your business more saleable is, tacit knowledge or transfer the tacit knowledge. I don’t know what that means. So explain that one if you wouldn’t mind.

Jodie Cook:

Tacit knowledge is all that stuff that’s in your head that you just know how to do. Say for just an everyday example, that door that you turn the key and it’s just got that little, you have to twist it that certain way and only you know how to do it. And if someone else is trying to do it you’ll be like, “Oh, come on, give me the key. It’ll take you ages. I can do it in two seconds.” There are business versions of that tacit knowledge of those knacks for doing things that exist everywhere.

And I think that a business owner’s job is almost to find them and identify them and turn them into processes or into things that other people know how to do. So I was so obsessed with those things. I never wanted it to be, “Oh, Jodie will know, and no one else will know.” I wanted it to be “No, everyone knows.” And so I was constantly like, “What do only I know and how can I share it with everyone else?” And one of the things, for example was, because I’d run the company since the start and owned the company since the start, if anyone mentioned a client that we’d ever worked with, I would know who they were and what they did just in seconds. I’d just remember it.

But I realized that that information would be very useful for the sales team, because if someone says, “Hey, have you ever worked with a healthcare company in this space?” They’d be like, “Hmm.” And I never wanted it to be, “Oh, I’ll ask Jodie.” So I wrote a list of all of them. I shared that with everyone in the team. And I wrote a bit next to each client about what we did, just so that the sales team could go back and have a look and they’d have that reference point and they wouldn’t have to ask me. So it’s little things like that. But they were all over. They were all over the whole business. And I tried as far as possible to put them all into places where other people could access them.

John Warrillow:

And you also kept a log. A log of when people came to you with a question. I got to figure out how to transfer this tacit knowledge because clearly if they’re coming to me with that question, they don’t know the answer.

Jodie Cook:

Yes. Yeah. I think that was a practice that I developed and it’s almost like training a muscle, you get better at it over time. At first it feels really alien and then you realize, “Oh, I’ve had this question. Where should I put it? I need to put it somewhere because if someone’s got it now, someone’s going to have it in the future. And therefore I need to make it accessible.” I think I was just so keen on not being needed all the time and not being the bottleneck to the business.

John Warrillow:

Yeah. Number four on your list was, make everyone a leader. I think we’ve sort of touched on this one, but is there anything else that you want to elaborate on as it relates to that?

Jodie Cook:

What I found in the buying process is that me not being the head of the company meant that buyers wanted to know who was. And there was a phrase that was used quite a lot, and it was second tier management team. Who is there? Apart from the owner who is running things, who is the person that we call when something goes wrong or something goes right? And they wanted to know about those people. So my goal was to identify those people and make sure that each of them were the leader of their department and they knew how they worked with each other and they were really owning their role and making each one of those a leader.

John Warrillow:

Got it. How did you structure the sale with those individuals? I’m curious to know whether they were given some sort of earn-out or golden handcuffs so to speak to stay once the acquirer bought the business. Did you have some sort of incentive program or retention program for them?

Jodie Cook:

The two main people had a small shareholding in the original agency which transferred into a small shareholding in the buyer, which was great. So they did very well. They’re very vested in the success and they were very vested in making it all a success really.

John Warrillow:

Did they ask you, “Hey, Jodie, I appreciate the shares and the new company, but I’d really rather cash.”

Jodie Cook:

There was options available and we made a plan together, but it was really good for them.

John Warrillow:

More preferential for them to take the shares in the future company than take the cash upfront?

Jodie Cook:

I was really open and honest about what I wanted about the future. And as part of those discussions, we were very honest with what we thought their futures might look like. And that meant that those discussions about shares or cash or whatever else, it meant that it was all based on their three-year plans or their five-year plans because I think that’s the only way of doing it really.

John Warrillow:

Was there any resentment that Jodie gets to ride off into the sunset with a whack of cash and I have to stick around and run this company now? I think a lot of founders I think are, what’s the word? I think they are maybe a little bit guilty. They feel a little bit guilty that the company can run so well without them that they worry that they’re going to be held hostage a little bit by their employees if they have all the knowledge or if they have all the sort of keys to the kingdom. And so they don’t let it go to the same extent that you did and really separating yourself. But I’d just be curious to know, was there sort of resentment at all?

Jodie Cook:

Absolutely not. And the main reason why is because the potential for progress is now higher. I was the ceiling before and now I’m not the ceiling and now the ceiling is way higher because it’s a way bigger agency, there’s lots more potential, there’s lots more things that they can do. There’s so many more opportunities now that they wouldn’t have had in an agency our size. So no, it’s better. And one of the key people I had dinner with last night and everything, we’re all good. We’re all still friends.

John Warrillow:

That’s awesome. That’s awesome. Number five on your list of five things to make your business more saleable was, know what you want going into the discussion. So explain that. I think I know what it means, but explain it for me. And then I’d be curious to know what was on your list of absolute, sort of hard line on the sand, I’m not going beyond this point or I’m not accepting this or whatever. So what do you mean by know what you want?

Jodie Cook:

When we got the first offer and it included a three-year earn-out, I realized that I had not been clear enough about what I wanted. I had assumed that they might know. And from that point onwards, I was very clear about what I wanted. And I had a lot of confidence in doing that because I knew that the agency was really strong, I knew that it was in a really good place, good clients, good team, everything else like that, I definitely wasn’t desperate to sale. It was like, “You’re going to have to prize out of my hands if you really want this,” which I think helped quite a lot. But I was very clear on, this business does not need me. This business needs X, Y, and Z. And that’s what I’m looking for.

So it almost flipped it. In my head, I felt like I was interviewing buyers from that point rather than they were interviewing me. And I think that coming at it from that point of view actually made the negotiation stronger, made the whole thing stronger. But in terms of what I wanted, it was for the clients and team to be looked after. It really was as simple as that, I wanted to open up opportunities with a new agency, with a kind of future that wasn’t the one that I had in mind for me, but I knew it would be really good for them.

John Warrillow:

Got it. So your criteria, it sounds like were, the teams taken care of, the clients are taken care of, and I don’t have an earn-out.

Jodie Cook:

Yes.

John Warrillow:

Those were the three deal breakers.

Jodie Cook:

But I guess I also knew what I wanted for it. What I wanted to receive for the agency as well. So I had that in mind, but that’s less. Well, I didn’t just ask for that specific amount. It was more the discussions were around it and it’s always a bit different, isn’t it? Well, I guess with British people as well were very funny about talking about money. But yeah, I had an idea about pretty much everything.

John Warrillow:

Got it. That’s helpful for sure. So when did you raise the no earn-out thing to your M&A professional? When did he or she find out about that hard line in the sand for the first time?

Jodie Cook:

I didn’t realize it was a hard line for me until I realized that it was just assumed that there would be one. And then when we had that offer and there was one I thought, “Hang on, this doesn’t make sense.” It was from thinking about it where I thought, “This really doesn’t make sense. I obviously haven’t explained myself well enough. Here’s what I’d like to go back with.” And that’s when we discussed it, I discussed it with my M&A professional and yeah, he understood as well.

John Warrillow:

Did he pressure you to be more reasonable around the earn-out? I mean, I think a lot of M&A professionals would be like, “Jodie, I appreciate you don’t want an earn-out, nobody wants an earn-out. You’re a service business. All right. You’re going to have to accept an earn-out.” Did you get a little bit of subtle pressure from them to kind of be more realistic on that front?

Jodie Cook:

No, I didn’t. He was brilliant and I wouldn’t have been receptive to pressure from anyone else anyway. But the thing that did work in my favor was that David, the M&A advisor, he had been in all the chemistry meetings, he’d understood what the buyers were looking for. And especially with the ones that we went with, he could see it working and he could see how it works. So he understood the fact that me not being around wouldn’t wouldn’t stifle any progress that they had in mind. So he understood it too.

John Warrillow:

Amazing. Go ahead.

Jodie Cook:

Well, I was going to say, if I had been working with someone who was just, get the deal done at all costs, then I can imagine that they probably would have tried to cajole me in to do something I didn’t want to do, but I’m really pleased that he didn’t.

John Warrillow:

Yeah, it sounds like you’re well served for sure. So I appreciate you sharing that. And again, the five things are more details in the article, which we’ll put in the show notes at built to sell. Can we talk just before we wrap for a few minutes on the books? Because I’m fascinated by this. Clever, what-

Jodie Cook:

Clever Tykes.

John Warrillow:

Clever Tykes and How to Raise, just talk a little bit about the books.

Jodie Cook:

Yeah, sure. So Clever Tykes are a series of children’s books, they’re aimed at kids six to nine, and they are all about introducing entrepreneurial role models. Because many entrepreneurs have a parent in business. And that is what means that they feel like they can go and start their own business one day. And if they don’t have a parent in business, someone will have inspired them along the way. But without that inspiration, you might not think, “Oh, hey, I want to startup on my own.” So Clever Tykes was all about creating those role models for kids so that when they’re 16, 17, 18, they see starting a business as a viable option for them. And then How to Raise Entrepreneurial Kids, it came about from, I sent out a request to look for sources for a story that I was writing and I was actually going to write a blog post on the topic of how to raise entrepreneurial kids.

John Warrillow:

Someone without kids, that’s pretty bold.

Jodie Cook:

I think I was just really fascinated by the childhoods of entrepreneurs and what has led people to believing that certain things are possible for them and not possible for other people, for them if they haven’t had certain influences. So the two questions that I sent out were, how were you raised to be entrepreneurial? That was the one that lead. And then also, how are you raising entrepreneurial kids? Because I figured that the people who answered the first question, maybe would have a good answer for the second one as well. This is because I wanted to write a blog post. So I wanted two or three responses that I thought would be really good. And rather than getting two or three responses, I got 500.

John Warrillow:

Seriously?

Jodie Cook:

Yeah. And they were incredible. So they people who were just pouring their heart and soul into telling me about how they were inspired at quite a young age to just think differently and to be resourceful and creative and positive. And whatever it was that happened in their childhood, it was almost like they were having realizations as they were writing to me. So they were going, “Oh wow, this happened. Oh, that could have meant that. Oh wow, this happened as well.” And there was so much good stuff in there. I had over 40,000 words and I thought, “Wow, this is a bit more than a blog post. This could be a book.”

And that’s when I called up a friend, Daniel Priestley, who he runs entrepreneurial accelerators. He’s a really, really fascinating guy. Just has a lot of amazing things to say. And I approached him with the idea for this book called How to Raise Entrepreneurial Kids. And I said, “Would you like to be my co-author?” And he just said yes, straight away. And he was like, “Yep, great. I’m in. What do you need from me?” And so together we turned those 500 responses into the four pillars of raising entrepreneurial kids. We put our own stories in there. We put different commentaries, different actionables and just turned it into a really fun-filled jam-packed book, which our goal with it is that we inspire the next generation of entrepreneurs who are going to change the world and create the next amazing businesses.

John Warrillow:

Awesome. What are the four pillars?

Jodie Cook:

They are, entrepreneurial mindset, entrepreneurial skills, entrepreneurial opportunities, and the parent mentor.

John Warrillow:

And sorry, the fourth one?

Jodie Cook:

A parent mentor.

John Warrillow:

Parent mentor.

Jodie Cook:

That’s all about coaching and practicing what you preach. And almost being the change and being the example.

John Warrillow:

Can you give me some advice? So a lot of people listening to this have been successful. Many of them have sold companies in the past and sometimes the numbers squeak out into the media or somehow their kids find out that mom or dad sold their business for a truckload of money. And they’re 15, 16, 17, 18 years old or whatever and maybe they get wind of this, and nature being the way it is, they probably think, “Oh, I’m entitled to a little bit of that coming my way,” and it diminishes their drive. What advice would you give to a parent listening to this, worried that their kids won’t have the same drive that made them successful?

Jodie Cook:

I think it’s really tough. I think it’s a minefield. There’s a CEO who contributed an answer for the book and he said, “My kids don’t work for anything at all,” because he earns a lot of money. And so his biggest fear is that his kids are going to be spoiled. But then at the same, he’s worked to provide for his family. So he wants to provide for his family at the same time. So I think it’s an absolute minefield.

There was something I read about, I can’t remember who it was but it’s a well-known business leader who flies first class and his kid flies in coach at the back. And his kid goes, “Dad why can’t I fly first class with you?” And he says, “You don’t have any money son.” So I think there’s a number of different ways to solve this. And I just don’t know. There’s as many different ways to be a parent as there are kids. So I think it has to be what feels right.

John Warrillow:

Yeah. It reminds me, I think it was Jerry Seinfeld, someone can correct me on social media if I get it wrong but I think it was Jerry Seinfeld who said, I think to his kids, his kids said, “Dad, we’re rich or whatever.” And Jerry responded saying, “No, no son, I am rich. You are not rich.” That was brilliant. But it reminds me as a parallel to the guy who makes his kids fly coach while he sits up in first class. What about you personally, Jodie? What was your upbringing like? Did you have entrepreneurial parents?

Jodie Cook:

Yes, definitely. My mom’s been self-employed since I was, I think about 10. So she used to work from home as well. So I remember having this concept of work, that it was something that was to be taken very seriously, that when mom was on the phone, everyone has to be quiet and we really found out about it if we weren’t. But she very much instilled with me and my youngest sister with a fierce sense of independence. And she used to get us to do little things on our own that maybe other kids our age weren’t doing on our own.

Things like making our own doctors and dentist appointments from when we could first talk really. It was always up to us to book our own appointments. And the one thing that I just attribute to every sense of independence or resourcefulness, even that I have now, is that from a very young age, probably six or seven, she got us to pack our own suitcase whenever we would go on a trip away. And it kind of makes sense because really what’s the worst that can happen. And the worst that can happen is that we’ll pack a few silly outfits and we’ll look a bit stupid and we won’t be dressed correctly for if it rains or if it snows or something else, but really it’s quite safe and it doesn’t really matter.

But just that sense of planning ahead, making a decision, going and getting your suitcase and getting everything ready and preparing and all those things that it taught me, I think that was such a big driving factor in being able to say, “Yeah, I can start my own business.” And “Yeah, I can sell my business.” And just going for things, I think it all started with being asked to pack my own suitcase.

John Warrillow:

There you go. The importance of making your kid pack their own suitcase. Well Jodie, I really appreciate you spending this time with us. Where can people find? So the book is called How to Raise Entrepreneurial Kids. And there’s a series called Clever Tykes. I’m assuming both of them are wherever good books are sold?

Jodie Cook:

Yes, exactly. Yeah. All over the world wherever you buy books. And then I can be found at jodiecook.com, which is J-O-D-I-E-C-O-O-K. I’ve got a blog that I update every couple of days and you’d be very welcome to subscribe. But I’d love to hear from anyone listening that has a similar story or just wants to get in touch. I’m always happy to hear from people.

John Warrillow:

jodiecook.com. Jodie, thank you so much for doing this.

Jodie Cook:

Thank you so much for having me.

John Warrillow:

Hey, if you like today’s episode, you’re going to love my new book, The Art of Selling Your Business. The book was inspired by the cohort of my guests over the years, who’ve been able to negotiate an exit far better than the benchmark in their industry. Sometimes two or three times more than I would have expected. I was curious to understand the tactics and strategy to these entrepreneurs and what they do differently from average performers. The result is a playbook for punching above your weight when it comes to selling your business. To learn more, go to BuiltToSell.com/Selling, where we put together a collection of gifts for listeners who order the book. Just go to BuiltToSell.com/Selling.

Built To Sell Radio is produced by Haley Parkhill. Our audio and video engineer is Dennis Labattaglia. If you like what you’ve just heard, subscribe to get a new episode delivered to your inbox each week. Just go to BuiltToSell.com.

Outro:

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.

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