Sarah Asalu is a 37-year-old mother of four who lives in Nigeria, where she owns a small farm. Thanks to an amazing organization called Kiva, I lent Sarah some money to help her grow her farm.

As a business owner, I love Kiva’s model. Instead of costly branches, Kiva uses the web to display business owners seeking a loan. As a lender (loans start from $25), you can scroll through hundreds of businesses seeking a loan and select one that resonates with you.  Thanks to a lean administration team and lender donations, Kiva passes on  100% of whatever you lend and you get the satisfaction of knowing who your money is helping.

I’ve set up a “lending team” on Kiva.org for readers of my new book, Built to Sell: Turn Your Business into One You Can Sell. Over the next 20 years, our goal is to loan $100 million to our fellow business owners around the world.

To kick-start the growth of our new Kiva lending team,  I’ve put together a few offers good from March 25, 2010 – March 31, 2010:

Buy one copy of Built to Sell here, and I’ll send you details on joining our Kiva lending team and an invitation to attend a one-hour live teleconference on how to build a company you can sell. On the call, I’ll take your questions and share my experiences in starting and exiting four companies. E-mail your Amazon.com receipt to Rachel@BuiltToSell.com with the subject header “1 copy.”

Buy four copies here, and I’ll send you details on joining our Kiva lending team, an invite to the one-hour conference call on how to build a sellable business, and I’ll loan $25 in your honor to an entrepreneur in the developing world through www.kiva.org. E-mail the Amazon.com receipt to Rachel@BuiltToSell.com with the subject header “4 copies,” and we’ll send you a profile of the entrepreneur you lent money to along with details for the call. In a world of $5 cups of coffee, you’ll be staggered at how far an enterprising entrepreneur can get with your $25.

If you’re a consultant, adviser, banker, broker, lawyer or M&A professional and you think Built to Sell is important for your clients to read, buy 100 copies here, and I’ll send you details on joining our Kiva lending team, make a $300 Kiva loan in your honor and host a 60-minute webinar exclusively for your customers on how to create a sellable business. Your customers will be invited to ask their own questions in a small group environment. 

E-mail the Amazon.com receipt to Rachel@BuiltToSell.com with the subject header “100 copies.”

Buy 200 copies here, and I’ll send you details on our Kiva lending team and teleconference, make a $500 Kiva loan in your honor and fly anywhere in North America (at my expense) to do a 90-minute keynote speech and Q&A with your customers. E-mail the Amazon.com receipt to Rachel@BuiltToSell.com with the subject header “200 copies,” and we’ll get in touch with you directly about booking your event. (Limit 2)

Make a $2,500 loan via the Kiva Built To Sell Readers lending team and I’ll fly you from anywhere in North America to Toronto where we can spend the day together talking about your business and how to make it more sellable. (Limit 1)

These offers are effective from March 25th, 2010 to March 31st, 2010.  Please Tweet, Stumble, Digg, Post, email this letter on to your network.

But what if you’ve already bought Built to Sell?

First of all, thank you! E-mail your receipt to Rachel@BuiltToSell.com or, better yet, send Rachel a link to your review of the book on Amazon.com, and we’ll make sure you get information on the Built To Sell readers Kiva lending team and the one-hour teleconference on building a sellable company.

About the book Built To Sell

Built to Sell: Turn Your Business into One You Can Sell provides a process for turning your business into one you can sell. You’ll learn:

• The eight steps to creating a sellable company;
• The three biggest mistakes business owners make when selling their company;
• How to attract multiple strategic bidders for a business;
• How to maximize a valuation and get the highest possible price for a business;
• The secret to getting cash upfront and avoiding a lengthy earn-out.

What are people saying about Built To Sell?

“If you combined the teachings of The E-Myth Revisited (Michael Gerber) with Built to Sell you would have a text book in running small businesses that deliver more value to customers, employees and entrepreneurs.

As with E-myth, the advice in Built to Sell is offered through a fictitious business owner seeking guidance from a trusted and experienced advisor.

This is an easy and enjoyable book to read (c. 150 pages) packed with sound and actionable advice. I highly recommend you read it.”

Matthew Hopkins

“Just finished your book last night and wanted to pass along my congratulations.  A terrific boon to all the folks I deal with on a day to day basis that are lurching from customer to customer trying to get out of the quagmire.  Some terrific lessons which go far beyond my “How to catch a Leprechaun” chapter in my book which chronicles basically the same observation about the lack of preparedness of most business owners for the sale of their business.  One of the strengths of the book is the continuity.  It was great following Alex through his trials and tribulations.  Very real life.  I fully intend on sharing with my customers and TEC.  I’m sure it will be a tremendous success!”
Bruce Hunter – Chair, TEC (Vistage) Canada

“John Warrillow’s story gets business leaders to focus on a critical question: If others wouldn’t pay a fortune for your business, do you have a business worth growing? This is essential reading for owners looking to build a valuable business.”
Verne Harnish -  Founder, Gazelles
Bestselling author of The Rockefeller Habits

“Your business just might be worthless if you don’t read this book.”
John Jantsch – Bestselling author of Duct Tape Marketing

“FANTASTIC! Small businesses need this book. So many business owners have the dream of building a business that’s bigger than themselves, and getting away from the tyranny of constantly putting out fires. John’s book is an entertaining, to-the-point way of showing them how to do it. They might just find they like their business much better and not even want to sell later. But if they do sell, they’ll get much more value from following the book’s advice.”
Anita Campbell – Editor-In-Chief, Small Business Trends

“As we’ve always advised at StartupNation, the end depends upon the beginning. Built To Sell, like other great business books, brings into clarity the game-changing importance of clearly envisioning the destiny of your business. But even more, it tells you how to bring that destiny to life.”
Rich Sloan – Co-founder and chief startupologist of StartupNation

“Built to Sell reminds me of Eliyahu M. Goldratt’s The Goal, in the way that the valuable lessons about successfully exiting a service business are intertwined with Alex Stapleton’s compelling story. Alex’s story drew me in immediately. Any current or aspiring service business owner should read Built to Sell and take heed of John Warrillow’s valuable lessons and Alex Stapleton’s enriching and engaging experience.”
Mike Handelsman – General Manager, Bizbuysell.com

“John does a masterful job in Built To Sell of illuminating the qualities that business buyers look for in a company, and he does it in a thoroughly enjoyable and engaging manner: by telling a story.”
Bo Burlingham – Editor-at-Large, Inc. magazine,
author of Small Giants: Companies That Choose To Be Great Instead of Big

Even if Built to Sell doesn’t sound like it is for you, please visit www.kiva.org and/or share your stories of helping an entrepreneur in your own neck of the woods.

Have you ever heard of a guy named Joe Polish? I had lunch with him this week at a workshop I attend each quarter called “The Strategic Coach”. I felt lazy and inadequate within sixty seconds of learning about Joe’s many businesses.

Joe got his start advising carpet cleaning companies on how to grow their businesses. He branched out into teaching marketing to all kinds of companies and started publishing his advice. Joe’s audio marketing program called “Piranha Marketing” has been Nightingale-Conant’s best selling marketing program for the past 3 years. He recently created “The Genius Network” where he has taped interviews with everyone from David Bach to Sir Richard Branson.

Joe’s key message is to put your marketing on “autopilot.” This resonated with me because I had to create a marketing engine to replace my personal sales activity before I could sell my last business.

Joe shared four marketing ideas that I thought I’d pass along to you:

1. “That-a-Boy ” vs. “Results-Based” testimonials: “That-a-Boy” testimonials are customers saying nice things about you. Results-Based testimonials are customers providing hard numbers for how your product or service made them (or saved them) money. Results-Based testimonials are infinitely more powerful.

2. Capture your “social proof” on a Flip Video camera: Joe calls testimonials “social proof” and getting your customers to talk on a Flip Video recorder is easy and powerful. If your kid doesn’t have a Flip Video already, order one from Amazon for less than $200. A Flip Video camera allows you to capture video and upload it quickly and easily to YouTube (I figured out how to use a Flip Video and the clock in my car is still showing the time it was before the time change a few weeks ago).  Joe takes his Flip Video everywhere he goes and by chance, power networking and plain dumb luck he has captured video of himself with Richard Branson, Paula Abdul & Tim Ferriss.

3. Ugly works: In a world of reality TV and grainy YouTube footage, Joe believes the more authentic your video, the better. So don’t worry about the pregnant pauses and dead air, Joe says leave it all in if you want a credible piece of social proof.  I took Joe’s advice and prepared an ugly video on why I wrote Built To Sell:

4. The free-recorded message: Joe is a huge believer in using a free-recorded message in your marketing. For example, before you plunk down your $299 for his “Piranha Marketing” tape series, he encourages people to call a free, 24-hour pre-recorded message that describes the benefit of the product. Joe argues the transparency of a recorded message makes people more likely to call knowing marketers will be less inclined to fib or exaggerate in such a public forum. The recorded message also allows people to call without feeling they will be harassed by a sales person.

I’d love to hear your ideas for putting your marketing on “autopilot” so please use the comments section below to share your best tip.

On a separate note, I published a number of articles last week. My favorite of which is “How To Get Acquired By Google” (see below) because it stimulated some good discussion on The Globe & Mail’s site. The articles are posted below in their original format:

Dreaming? Misguided? Out to lunch?

I spent a recent afternoon eavesdropping at the Starbucks on University Ave., in Palo Alto, Calif.

While I didn’t go there with the intention of being nosy, I couldn’t help but overhear the conversation among the founders of technology company start-ups. This particular Starbucks is perfectly positioned for picking up Silicon Valley gossip. Facebook headquarters is across the street. The venture capitalists leave their Sand Hill Road offices and stop in on their way to San Jose for meetings. Stanford’s MBA students work on their business plans over Americanos.

Trying not to look obvious, I listened in.

“I think we can get four times.”
“Are you kidding? We’re at least five, maybe six.”

I knew they were talking valuation, and I assumed they were using the standard formula most people use to value a business: a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). These days in Canada, a clean offer of four times EBITDA is a pretty good deal. Five times would be very good, and six times is almost unheard of for a business with a total value of less than $10-million.

What became clear as the conversation unfolded was that these Silicon Valley entrepreneurs were talking about a multiple of revenue, not earnings.

Were they dreaming, misguided or just totally out to lunch? Not necessarily any of these. Being in Silicon Valley, they probably ran a technology business. The one ingredient technology companies usually have that makes them so valuable is the ability to scale. With scalability comes the potential for hyper-growth in the future. Buyers pay for what your business can do in the future. Having a scalable model can increase your valuation exponentially.

So how do you know if you have a scalable business? Here are the three criteria:

1. Teachable

For a product or service to scale, it needs to be something you can teach relatively inexperienced people or machines to create. If delivering your product or service is reliant on the dynamic decision-making of you or a senior, very experienced and educated employee, your business is going to be tough to scale. Focus on creating an operations manual so a relatively inexperienced employee (or machine) can deliver the same product or service. Design it once and stamp it out. Said another way, build once, sell many times.

2. Valuable

Having a scalable product or service doesn’t guarantee you have a scalable business. For that, you need to have customers who want to buy what you’re selling. The business graveyard is overflowing with scalable products that nobody wanted to buy. Compare, for example, the Apple Newton with the Apple iPhone. Newton (originally called Message Pad) is the failed personal handheld organizer Apple launched in 1993 to great fanfare. It was a scalable product the company could assemble inexpensively, but customers didn’t find it valuable. Its handwriting-recognition software was unreliable. Scalable, yes. Valuable, no. Graveyard.

3. Repeatable

For a business to scale quickly, it needs to rely on both winning new customers and earning the repeat business of existing customers. It’s too costly and time-consuming to build a business on new customers alone. You need the compounding effect of new customers joining a loyal group of existing customers—that’s when you get the snowball effect. Here’s where Apple starts to earn its market capitalization. Not only is the iPhone a scalable product that customers want, it has a consumable long tail of content in the form of music, TV and applications that customers buy regularly.

Teachable, valuable and repeatable—that’s your valuation trifecta.

The spouse’s role in selling a business

I’m writing to you from Chicago, where I have come to meet with Diane Niederman from Alliance of Merger & Acquisition Advisors (AM&AA).  AM&AA is the industry association of mid market mergers and acquisitions professionals. These are the guys who sell companies with revenue between $5 million and $500 million.

Since I’ve been flogging my new book, I’ve met a number of the “intermediaries” that lubricate the sale of a private business. What a fascinating cast of players. From what I have gathered, business brokers specialize in selling small companies with less than $5 million in revenue – most less than $2 million. Their trade group is called the International Business Brokers Association (IBBA).  Right now business brokers are getting 2-3 times Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for a good little business.

One step up the food chain from the business broker is the mid market Merger & Acquisition (M&A) professional. These are the individuals who sell businesses worth somewhere between $5 million and $100 million. Still considered “down market” from their investment banking brethren on Wall Street, the mid market M&A professional usually demands a retainer up front and a percentage of the sale price. If business brokers are the Chevy of the intermediary world, M&A professionals are the BMW (investment bankers are the Porsche). Right now, with bank leverage all but gone, average mid market M&A deals are going for 4-5 times pre-tax profit less any debt. The AM&AA or The Association of Corporate Growth (ACG) are both good places to find an M&A professional.

Like a lot of industries, professional pride and jealousy see to demarcate hard black lines between business brokers and M&A professionals when actually the line is a lot more blurry and grey.  From the people I’ve spoken with, and from my own personal experience, the trick to finding an intermediary to sell your company is to pick a representative for whom you will be neither their largest nor their smallest deal.  If you own a Subway franchise in Kansas City that generates $400,000 in revenue annually, a business broker will best serve you.  If you own a Microbrewery in San Francisco with $18 million in revenue, you’ll be best served by an M&A professional.

Do you have your own opinion about what separates an M&A professional from a business broker? What advice do you have for a business owner looking to find a representative to sell their company? Please share your thoughts and advice in the comments box at the bottom of this post.

Last week I wrote three articles that I thought you might find interesting:

Statistics key to business as well as hockey

Originally published by The Globe and Mail March 9, 2010

Decision makers love statistics. If you’re the general manager of an NHL team and your job is to find the next Sidney Crosby, you want to show up at the draft with all the statistics possible for each player you are considering: number of goals, assists, penalty minutes, plus/minus ratio, playoff performances.

Prospective buyers of your business will also need to see your statistics. And sales is among the most important. Buyers will want to understand your secret for getting customers and at what rate you turn prospects into customers. That will help them see how much your business is worth in their hands. The key is to have a long-term track record of statistics you can point to, so start tracking the following now:

Qualified leads rate
A qualified lead is someone who has the capacity and interest to buy what you’re selling, and the qualified lead rate is the number of people you have engaged in a dialogue as a percentage of the total target market. Let’s say you own a consulting firm that targets large enterprises in your city. You estimate there are 100 potential customers in the local area that could handle the $250,000 you charge customers for your unique offering. If you win face-to-face appointments with 20 leads, then your qualified lead rate is 20 per cent.

Close rate
Your close rate is the percentage of qualified leads that you end up closing in a given period. If the consulting firm closed three of the 20 people it met with, its close rate on qualified leads is 15 per cent.

Most business owners know these stats in their head, but it’s important to start documenting them regularly so you can point a potential acquirer to historical patterns. A prospective buyer will take your stats and project your performance onto his or her footprint.

To continue the hypothetical consulting firm example, imagine that a large global consulting firm with 27 offices that collectively target 3,000 large-enterprise customers is considering purchasing your business. It is going to graft your qualified lead rate and close rate on its 3,000 businesses. If it too is able to win face-to-face meetings with 20 per cent of 3,000, it is likely to get 600 qualified leads. If it too is able to close 15 per cent of the people it meets with, then it can expect to enjoy 90 new customers spending $250,000 each for a total of $22.5 million. Most companies have a pretty good idea what they are willing to pay to acquire $22.5 million in new business.

Track your sales stats like a hockey player’s are monitored, and you’ll have a much better shot at getting paid like Sidney Crosby.

The earn-out horror show

Originally published by The Globe and Mail March 10, 2010

When you sell your business, you’ll likely have to accept part of your compensation in the form of an earn-out.

An earn-out is an arrangement where the buyer agrees to pay an additional sum of money (or some other currency like stock), contingent on the business meeting a set of goals in the future that are typically tied to profit, revenue or customer retention. Sometimes referred to as “golden handcuffs,” earn-outs are designed to keep you motivated for a few years after you sell.

Earn-outs have worked out well for some sellers, but they are often a point of frustration for an entrepreneur selling his or her business. The problem is that the earn-out is “at risk”—that is, it is in no way guaranteed. What’s more, the buyer has a number of disincentives to frustrate your ability to meet the earn-out goals:

• The buyer wants to minimize the price paid for your business, and you want to maximize it.
• The minute you sign the share-purchase agreement, the incentive for the acquiring company to help you hit your earn-out is gone. Would you actively help Starbucks find ways to charge you more for your coffee? Some buyers unconsciously hamper your ability to succeed, others can be downright hostile.
• The buyer wants to integrate while you want freedom to operate.

When an acquiring company buys your business, it usually wants to integrate (at least the back office) with its own operations. That looks reasonable in print, but almost all efforts to integrate your business will frustrate your ability to hit your earn-out.

Take a simple issue such as salesperson compensation. Your system has worked for years, and you’re keen to keep it for the duration of the earn-out. The acquiring company, however, wants you to move your employees to its sales-compensation model. Instantly, you have a mismatch of objectives: The buyer wants control, and you need autonomy.

Entrepreneurs I know have been successful by remaining flexible, bobbing and weaving as they make their way along. You thrive on creativity and innovation, and the acquiring company thrives on process. You need autonomy to operate, yet it requires rules to be followed.

Your broker will be quick to tell you about entrepreneurs who have done well by accepting an earn-out, but ask 10 business owners who have lived through it, and nine will recount an earn-out horror story. Ultimately, most earn-outs end before their time, with the entrepreneur leaving or being removed or the buyer agreeing to an early exit for the entrepreneur.

You’ll likely have to accept some form of your sale price as an earn-out. However, walk away from the offer if the cash you negotiate on closing does not meet the minimum you are willing to accept to give up your business.

Seven ways to avoid an earn-out

Originally published by The Globe and Mail March 11, 2010

The risk–reward continuum associated with buying and selling a business works the same way as a see-saw.

On the playground, if an older kid gets on one end, the younger, smaller one shoots to the sky. If two kids are roughly equal in weight, they can have great fun together.

When you sell your business, you want all of your cash up front, putting the risk in the hands of the buyer. When you buy a business, you want to put up as little cash as possible in favour of paying for results in an earn-out—the risk then sits in the hands of the seller. If a potential buyer sees your company as risky, he or she won’t want to play. A deal gets done when a compromise is made somewhere in the middle—when both parties strike a balance between risk and reward.

The trick to getting a higher portion of your proceeds up front is to minimize the risk that the business will fade when you leave. Here are seven things you can do to get more of your money up front:

1. Get your customers to sign long-term agreements.
2. Track your repurchase rate to demonstrate a recurring revenue stream.
3. Document your systems for making your product or service.
4. Give key employees a long-term incentive plan that ties them to the business after the sale.
5. Track your sales pipeline, qualified lead rate and close rate.
6. Delegate your personal accountabilities to key managers.
7. Write down your secrets for generating qualified leads.

Most acquirers will insist on some form of earn-out or “golden handcuffs.” Your job is to get as much cash up front by reducing their risk—making that see-saw as balanced as possible.

I think I managed to singlehandedly offend the entire Mergers & Acquisitions (M&A) community this week.

It all started after I wrote a series of articles about the similarities between selling a home and a business (thanks again for your comments on my post earlier this week which helped me sharpen my thesis). My argument was all of the staging, marketing and negotiating steps in selling a home are a lot like selling a business. My intent was to demystify the process of selling a business for someone who had never gone through it.

In the process, I inadvertently offended some of the people in the M&A industry. Here’s a quote posted on The Globe & Mail’s website from one of the offended brokers which is representative of the earful I got from his peers:

“I take issue with the statement that selling a home is similar to selling a business. The implication that I got from the article was that it is just as easy too. I am a business brokerage professional and can tell you that the two are very, very different. It is much more difficult and different a process to sell a business.

Here are some reasons why it is different: valuing a business (there is no ‘market comparable’ data like in real estate) and every business has different revenues, costs, etc. Confidentiality, most businesses need to be sold in secrecy so staff and customers don’t find out. Financing – it is very difficult to obtain acquisition financing, inventory financing, credit, etc. And more… employee issues, tax issues, asset sale vs. share sale, non-compete agreements, and so on. To suggest that the two are similar does a disservice to the readers, with all due respect. Most homes listed for sale do eventually sell. The reality is that the majority of businesses do not because people don’t understand these important differences. I hope this comment remains on the board and is not filtered out.” — Steve Skrlac, MBA, CFA

If I made it sound easy to sell a business, I regret that. Nothing could be further from my experience. It took four years to reshape my last business into something sellable and another eight months of active negotiations with potential buyers to get a deal done. It was a slog.

Yesterday, we marked the end of the six part series comparing selling a home to selling a business with an online debate hosted by The Globe & Mail between Ron Dersch, an M&A professional and myself. Ron is a good guy and knows his stuff. Thank you for joining the discussion (The Globe & Mail has posted our debate if you missed it).

Do you plan to use an M&A professional or business broker when it comes time to sell your business? If so, what questions do you have about using a broker? If not, why not?