Built to Sell: Creating a Business That Can Thrive Without You by John Warrillow (28-Feb-2013) Paperback
Do you remember plodding through Eliyahu Goldratt’s The Goal? It was a very good book, but seemed to take forever to get to its key points. Alternatively, John Warrillow’s latest offering, Built to Sell, is a far faster and easier parable to read. In fact this 176-page book is really two little books for the price of one.
In the first 113 pages the author takes the reader through the life and times of our protagonist, Alex Stapleton, of, yes, The Stapleton Agency. Alex is working so hard at building his agency that is has stopped being fun. In fact, one of his key employees gives her notice, before the first chapter ends, that she will be moving on. For Alex, this is the last straw. He decides it is times to sell the business. One major challenge though is the agency is a service business. As is reconfirmed almost immediately, one-owner service businesses rarely have any value beyond the founder/owner themselves. Not what Stapleton wants to hear.
He seeks the advice of an old friend, Ted Gordon. Ted is a very successful serial entrepreneur (and the author’s alter ego). He has started, built up, and sold off multiple businesses, which is why Alex wants to talk with him. After the initial conversation Ted agrees to become Alex’s mentor.
Ted’s style is to ask challenging questions and gradually share his “Tips” throughout the book. These 17 gems are really a roadmap for taking a service business and treating it like a product business, then selling it off for the best price achievable. Secret #1 revealed: Product-based businesses carry more value than the owner in the marketplace and are easier to sell.
In order to think of a service firm a product firm one must start by changing vocabulary: Clients become customers and the firm becomes the business. Gordon states that this subtle shift has two benefits: #1—The marketplace places a higher value on product-based (or perceived to be) businesses than service-based ones. #2—Unlike the typical service business—billing in arrears (after the service is provided) which can create cash flow challenges—product businesses can invoice and collect payment in advance. This eventually improves the firm’s, I mean, the business’s cash flow.
Additionally, Gordon opines that Stapleton should be crafting an options strategy rather than an exit strategy—one that creates multiple options from which he, the owner/seller can choose.
One potentially provocative model Ted strongly encourages Alex to employ is the creation of a long-term incentive (LTI) program for key employees. The long-term incentive bonus program, in lieu of a stock option plan, pays out over time. The concept of aligning compensation with achieving long-term goals is very important strategically; however, the author states that this will keep the key people focused on optimizing their efforts. He doesn’t give any credence at all to the possibility that some of them may be so concerned with their future with the new owners that they do otherwise.
Interestingly, this is the exact the opposite of what Ted says is right for Alex. The proposed LTI plan is to have bonuses paid out over years when he coaches Alex to do the get it all up front so he does not get short-changed by an earn out.
The second portion of the book is the Implementation Guide or Creating a Business That Can Thrive Without You. This guide includes eight steps the author says he has followed to create his series of significant success. An example is:
1) Isolate a product or service with the potential to be scalable. This must include the three ingredients of scalability:
a. It must be Teachable,
b. It must be Valuable,
c. It must be Repeatable.
Each of these points is followed by case studies he calls “Lessons From Experience.” These short anecdotes put the lessons into a perspective that any reader should be able to relate to. The author also includes a “Summary of the 17 Tips.”
A tiny criticism one might have of this little gem is our protagonist gets discouraged way too often. In fact the author chooses to use this exact term in almost every chapter until the culmination of the book. A bit of a distraction.
Finally, this book is intended for, and definitely focused on, service business owners. A product-based business owner can really only benefit from the final steps in the process delineated here where the author focuses in on dealing with professional advisors whom you employ to actually sell your business.
Overall, this book is easy to read, easy to understand, and easy to apply for those service business owners who want to sell their business, can commoditize their service, and are willing to follow the formula.