Built to Sell Summary by Rusty Bishop 2023

Owning a process makes it easier to pitch and puts you in control.

John WarRilLow, Built to Sell

Buy it – Hard Cover | Paperback| E-Book

This is a forcing function that narrows your Serviceable Obtainable Market (SOM), your messaging, makes your sales easier and gives you the authority to say no to prospects who aren’t a fit.

AND, I believe this concept applies to most SaaS companies as well. Having been a founder of one and the CMO of another, I really wish I had read this book previously.

Many SaaS companies provide Services e.g., customer success, implementation, and integrations etc.

Turning these Services into repeatable Processes could result in additional Products (think MicroSaaS, partner plug-ins) as well as increasing the value of the business for an acquirer.

Why?

Because potential acquirers want to know they can take over the business and run it effectively.

Imagine going into due diligence with all your services (squishy, hard to quantify) laid out perfectly into repeatable processes (understandable, easy to quantify).

This will make your company whether it’s a Service or SaaS more attractive and by definition give you better negotiation leverage.

As the author says, “Think like Starbucks, how can you show your acquirer that you can be a growth engine for them?”

I feel like this could be an entire business for someone, that is just helping companies “productize” their services. It’s yours if you want it.

Built to Sell Summary

If you’re a service business owner (or SaaS) looking to increase the value of your business, “Built to Sell” by John Warrillow is a must-read book.

The author maintains an excellent website with tons of resources as well as podcast with interviews with CEOs from successful exits.

Building on my theme of Podcast > Book. Check out episode #385 Inside the Mind of An Acquirer with Kevin McCurdle.

In this article, I’ll summarize the key takeaways from the book and explain where I think you can get value from reading it as both a Founder and current business owner.

The Set Up

The book is written in a story fashion similar to E-Myth Revisited. In this case, it’s the story of a failing Marketing Agency owner, Alex, and his mentor Ted.

Ted is an experienced entrepreneur who has sold many companies.

The story and principles in the book are derived from Ted’s advice to Alex and can be found highlighted throughout in the form of “Ted’s Tips”.

The end of the book has a nice summary of all of Ted’s Tips if you want to skip the read and just get the template. I don’t recommend this though. First, because you’ll miss some subtle advice buried in the story and second you can read this in less than 2 hrs

Key Takeaways from the Book

The key takeaways from the book are:

1. Develop a process, not a service.
   
   Service businesses can’t be sold for high multiples and often require earn-outs, which rarely deliver as promised.
   
   I got super lucky and hit my earn-out when sold FatStax. Wish I had known this!
   
   By developing a process that can be sold like a product, service business owners can increase the value of their business and make it more attractive to potential buyers.
   
   
2. Treat the process like a product and market it accordingly.
   
   Think of the process as a product, not a service. This will become your sales pitch, vision, and marketing message to potential customers (not clients!).
   
   To me, this is the real meat of the book, and the author blew me away with how well thought out this part of the book is. It’s transformative.
   
   I can definitely say that I will always remember this process of turning a Service > Repeatable Process.
   
   
3. Charge customers upfront for the process.
   
   Invoice customers upfront as if they are paying for a product, not a deliverable. This will create a positive cash flow cycle and help you avoid the endless cycle of customizing services for different clients.
   
   This actually gave me heart palpitations remembering chasing the financing departments of global mega-corps with 90-day payments. NEVER AGAIN.
   
   Repeat, never again.
   
   
4. Hire product salespeople instead of consultative sellers.
   
   Expand sales of the process product by hiring product salespeople, who can sell the benefits of your product, rather than consultative sellers who focus on the features.
   
   This plays directly into the hands of AI-based sales agents, will they take your job?
   
   This is super interesting and counterintuitive but makes total sense.
   
   You have turned your service offering into a process e.g., a product.
   
   Custom tailoring leads to an unsellable business and code debt and all sorts of nasty personalized things customers expect from you.
   
   This is exactly what we did at FatStax and why it was so hard for our reps to sell it. Total miss by me!
   
   
5. Delegating responsibilities and creating systems to ensure the business can run without the owner.
   
   Owning a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.
   
   Write the manual to do your process so high school kids (or AI) can do it.
   
   
6. Don’t issue stock options.
   
   Instead of using stock options (effectively useless and total pain to redeem with tax implications) to retain key employees after an acquisition use a simple stay bonus that offers the members of your management team a cash reward if you sell your company.
   
   Pay the reward in two or more installments only to those who stay so that you ensure your key staff stays on through the transition.
   
   My previous employees probably really wish I had done this. So simple and guarantees an easy payout.
   
   
7. Prepare the business for sale.
   
   Create a separate entity for your process/product business, identify potential buyers, and demonstrate consistent revenue growth and profitability.
   
   Buyers need to be confident your business can run without you to get a higher price.
   
   I’ll just stop here because the author wrote an entire book on How to Sell a Business called “The Art of Selling Your Business” which is worth a read.

My raw book notes if they help you

Table of Contents is not well designed and makes the book look boring. Looks like I’ll have to plow through a bunch of chapters to get to actionable steps. Don’t do this to your readers! It is a wildly successful book so the title and content must be very good to get past this.

The meat of the book is at the end. It’s a straightforward, not simple, process to transform a business with many offerings that can’t be sold into a business that can be sold for maximum value. The book is for company owners typically services businesses that want to sell but can’t because they are caught up in the endless cycle of customizing services for different clients

My key takeaways from this book:

1. Spend time developing a process, not a service. Service business cant be sold for high multiples and often require earn-outs which rarely deliver as promised
2. Think of the process like a product, not a service. This will become your sales pitch, vision, and marketing message to potential Customers (not clients).
3. Invoice customers up front as if they are paying for a product not a deliverable
4. Expand sales of the process product by hiring product sales people not consultative sellers
5. Once your service sells like a product, the business for 2 years-ish, then you are ready to sell.
6. 12-18 months before you are ready to sell read – The Art of Selling Your Business to get yourself ready for the next step.

In the preface you find out the book is written as a story like E-myth Revisited. In this book, I enjoyed the format and it helped me fill in the gaps with anecdotes that drove home the ideas.

Story of an imaginary business owner named Alex Stapleton and his mentor Ted Gordon.

23 million biz in the US yet only a few 1000 are sold every year. 1%

Chap 1 – Story of Alex’s failing agency, skim it

Chap 2 – Ted – good questions

How would you describe your business to a stranger at a cocktail party?

‘“So you run a service business highly dependent on a small group of important clients who in turn demand that you personally tend to their account, and you compete with a lot of other players who provide similar services.” – AND this is exactly what you want to avoid.

Think about what types of products you are really good at. The example from the book goes like this for the “logo” business:

Step 1: Visioning

Step 2: Personification

Step 3: Sketch Concepts

Step 4: Black-and-White Proofs

Step 5: Final Design

Never skip a step!

Ted – Don’t take jobs from random clients requires you to be a generalist, which is impossible to good at.

Make sure no one client makes up 15% of revenue.

Ted tip 3 – Owning a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.

Ted 4 – buyers need to be confident your business can run w/o you to get a higher price

When you have a product people pay for it in advance- so your process IS A PRODUCT!

Create a positive cash flow cycle by charging up front

Clients will test your resolve every day. Stay focused on selling your process/product

Say no to projects that aren’t your process

Write the manual to do your process so high school kid can do it.

Southwest only uses the Boeing 737 so the team’s only have one type of plane to work on

Ted’s Tip #7 – Figure out your close ratio e.g., prospects to close

Acquiring companies want to see your sales engine so they can see how it will perform under their roof. AND you need to make sure you product/process can’t only be sold by Founder Heroics

When you are ready to hire sales people hire 2 because they will compete with each other.

Ted Tip #9 – hire people that are good at selling products, not services. Sales people that are good at services will try and customize your offering to fit what the client wants. RB – note. This is super interesting and counterintuitive, but makes total sense. You have turned your service offering into a process e.g., a product. Custom-tailoring leads to an unsellable business. This is exactly what we did at FatStax and why it was so hard for our reps to sell it. Total miss by me!

Don’t half commit! Burn the boats.

TED’S TIP # 10 Ignore your profit-and-loss statement in the year you make the switch to a standardized offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash flow remains consistent and strong, you’ll be back in the black in no time.

TED’S TIP # 11 You need at least two years of financial statements reflecting your use of the standardized offering model before you sell your company.

Write down how much you want to sell your business for on a postcard and seal the envelope

TED’S TIP # 12 Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.

Example Bonus plan for Managers – annual bonus based on achievement of targets + the same amount in a pool. They can draw from the pool in 3 years and each yr after they can take ⅓ of the pool. AND this is much better than stock options which are basically worthless if the business can’t sell or isn’t worth anything. Damn good one!

TED’S TIP # 13 Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.

“Alex, you’ve done something most business owners never do, which is to extract yourself from the epicenter of your operations. You have a predictable sales engine with a good pipeline of recurring revenue. Your positive cash flow will be attractive to buyers, your capital structure is simple, and the management team seems to be engaged for the long term. THIS IS A GREAT VALUE STATEMENT for my process no mater what it ends up being. Everyone should think this way.

“We need to charge a retainer to ensure that you’re serious about selling your business. If we took on assignments without a retainer, we’d spin our wheels generating offers for owners who were not serious about selling their firms.”

Think like Starbucks, how can you show your acquirer that you can be a growth engine for them?

TED’S TIP # 15 Think big. Write a three-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.

Replace clients with customers, they are buying your process aka product, not services. Get rid of all mentions of clients in your marketing materials.

TED’S TIP # 17 Don’t issue stock options to retain key employees after an acquisition. Instead, use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in two or more installments only to those who stay so that you ensure your key staff stays on through the transition.

Rehearse your answer for why you want to sell your business!

Watch out for juggling calendar trick to see how involved you are in your business

Make sure everyone gets the vision