I’m writing to you from a little town in southern France called Aix-en-Provence. In “Aix”, as the initiated refer to it, they speak French. Not out of some personal protest like the Parisians; in Aix they speak French because they have no use for English. They have no intention of moving away from this paradise and they feel that career mobility gets in the way of tennis, tanning and tapas.  So they speak French.

I, on the other hand, speak English. Last night I ate dinner at a wonderful little restaurant in town called “Chez Jo’s” and after the first bite of their pizza I declared “Je t’aime” to my server. I thought I was saying “I like it” and really what I had declared to the waiter and everyone within a three-table radius was “I love you”.

I feel equally lost when talking about the mechanics of selling a business with mergers and acquisitions professionals, bankers, accountants, lawyers and the rest of the cast of characters who sell and buy companies. I’m generalizing, but most advisors seem to speak their own language in an attempt to show they belong to “the club”. They use technical jargon in a game of one-upmanship to prove who works on the biggest deals and therefore, who is the smartest person in the room.

This of course leaves their client in the dark and can lead to some lost in translation moments for business owners. Je t’aime. Here are a few of the terms you might run across:

“Tipping Basket” is a term typically used in a share purchase agreement to describe the point at which small details the company seller may have misrepresented in negotiating the sale of their company ad up to a point where they become meaningful to the buyer. For example, let’s say company A is for sale and company B wants to buy it. Company A may estimate their receivables will be $450,000 on the day the deal closes. If the receivables are actually only $350,000 on closing day, the buyer is out $100,000. If there is a $200,000 tipping basket in the share purchase agreement, the $100,000 is below the threshold of the basket and therefore the discrepancy is ignored by the buyer. If however, the tipping basket were $50,000 in the same example, the discrepancy in receivables is large enough that the basket tips over and the buyer has the right to ask the seller to lower the price by the entire amount of the discrepancy (the basket has tipped over and everything falls out) not just the amount that exceeding the limit.  So in the example above, the price would be lowered by $100,000.

“Downstroke” refers to the amount of money a buyer puts into a deal that is “sunk money”. From your point of view, this is the money you get when you sell your business and is not tied to future performance (i.e. earn out).

“PE” I always used to think PE stood for Price to Earnings ratio or “multiple” (it still does in some circles) which was why I was so confused when my advisors told me they had a “PE offer” and that “the PE wants to have a management meeting with us”.  PE of course stands for Private Equity and has become a noun of sorts.

What other jargon do advisors use with you to show just how smart they are?

Here are a few new articles about building a company you could sell.

Glut of ‘for sale’ signs on horizon

~ published April 20, 2010, the Globe and Mail

As I walked through the grocery store recently, I came across a display of half-priced chocolate Easter bunnies. It seemed the store had been a little overzealous in its ordering this year, and now, with the holiday over, there was a surplus available for pennies on the dollar.

They were in perfectly good condition, and had I not already consumed more than my share of Easter treats, I would have been tempted. But I strolled right by those left-behind bunnies. » more

Formula for creating a referable company

~ published April 21, 2010, the Globe and Mail

Before acquiring your company, a prospective buyer is probably going to want to talk to your customers.

In fact, getting your customers to say nice things about your business may be the final hurdle you have to overcome before selling it.

In his new book, The Referral Engine , John Jantsch outlines a formula for creating a referable company. I asked him to provide his best advice. Here’s our exchange: » more

Selling business is a lot like dating

~ published April 22, 2010, the Globe and Mail

I was in 12th grade when I first laid eyes on her.

I was at a party where a number of kids from the rival high school had been invited. Jennifer Beresford came in with a gaggle of friends, and I decided she was the prettiest girl I had ever seen.

Wearing a red-checkered shirt I had just bought, I felt so confident, I thrust out my hand to introduce myself. The girl of my dreams replied, “Nice shirt. What —did you steal someone’s tablecloth?” » more

5 Minutes with…John Warrillow

~ published March 23, 2010 NY Report

John Warrillow is a serial entrepreneur who founded four companies, the last of which was Warrillow & Co, a consultancy firm specializing in helping Fortune 500 companies sell to the small business market. In 2008, Warrillow sold that consultancy to The Corporate Executive Board. In addition to public speaking, he is author of Drilling for Gold: How Corporations Can Successfully Market to Small Business, and founding producer of the nationally syndicated radio show Today’s Entrepreneur. Taking what he learned in his own experiences, as well as what he learned from other entrepreneurs, he authored the recently published Built to Sell: Turn Your Business into One You Can Sell. NY Report executive editor Daria Meoli spoke with Warrillow about creating a scalable business and maximizing your company’s valuation.

Daria Meoli: What inspired you to write Built to Sell?

John Warrillow: Once I sold my company and started taking some time for myself, the idea of making some sort of contribution by sharing some of the lessons that I’ve learned felt like the right thing to do. And coming from a research background with my last business, the statistics really compelled me to write the book—50% of business owners around the country now want to exit their businesses, yet only 1% successfully do so each year.  » more

My trusty old Dell laptop blew a motherboard fan in the middle of a presentation last week, so this weekend I finally broke down and bought a Mac. I rationalized my decision by reminding myself that because Apple makes both the software and hardware, it would be a more reliable machine. In truth, I was seduced by all of that slick marketing.

Similarly, a lot of romancing needs to be done if you want to sell your business, so I thought it might be fun to deconstruct my Apple experience for you in the context of building a sellable company.

Once I had selected my computer, the salesperson (er, “concierge”) told me about “Apple Care,” a glorified warranty that gives customers access to a special support phone number (among other things) for $100. Now, I’m the guy who never buys the insurance—not from Best Buy, not from Hertz—so it was a surprise to me that I was seduced into buying Apple Care.

It got me thinking about how to make the intangible seem real. First of all, Apple branded its warranty in a unique and memorable way. The concierge avoided using the generic word “warranty,” opting for the word “care” instead. As she explained the benefits of Apple Care, she handed me a shrink-wrapped white box with a plump red apple on the cover. On the back of the box was a bulleted list of the benefits being described by the concierge.

I’m not sure there was anything in that little box. Clearly, Steve Jobs was not poking his head out between the seams ready to answer my every technical query, but somehow the box in my hand made Apple Care feel more substantial. In short, it felt like a product, not a service.

Making the squishy seem real is a big part of selling a business too. You need to make your:

• sales pipeline look real even though you may have no idea what will close
• budget projections look solid even though they may not be much more than an educated guess
• employees look like highly qualified experts even though some may be best characterized as generalists
• product or service seem tangible and scalable even though in truth it may be a malleable offering that you customize for customers at every turn

Running a business can be messy. What have you done to make your business look more concrete?

P.S. I thought you might enjoy a couple of my recent articles below….

Do you need a brain transplant?

~ published April 13, 2010, The Globe and Mail

Last weekend my wife and I were browsing the shelves of our local Rogers Video and couldn’t find anything to watch. We have seen The Blind Side , and I have no interest in watching the Michael Jackson movie. As we scanned the rest of the titles, nothing jumped out at us.

Fortunately, Toronto’s Beach neighbourhood is home to an independent video store run by a husband and wife team who offer an alternative experience to that of the traditional video store chain. After walking into their cluttered store, instead of scanning the new-release wall, the initiated head straight to the owners and ask for a recommendation. »more

Six reasons to stop charging by the hour

~ published April 14, 2010, The Globe and Mail

I received a bill from my lawyer and he itemized his time spent on my file last month. He spent four-tenths of an hour on an e-mail to a colleague and one-tenth of an hour leaving me a voice mail.

I have found billing by the hour to be a liability when trying to build a sellable business. Years ago I owned a small design studio that charged by the hour. We had $750,000 in revenue, of which more than 20 per cent was flowing to the bottom line, yet the business was worthless because we were simply four people hawking hours. »more

Lessons learned from a lame attempt

~published April 15, 2010, The Globe and Mail

We were having lunch at Bravi, an upscale Italian restaurant in downtown Toronto. Across the table was the head of corporate development for a large advertising agency holding company. Fifteen years my senior, he was perfectly turned out with a crisp shirt underneath a tailored suit. He had flown in from Montreal to discuss “a possible partnership.”

Once the lunch plates were cleared, he got down to the real purpose of his trip. “Have you ever considered selling your business?” »more

Make Your Service Business As Easy to Sell as a Bottle of Tide

~ published About.com

In the 1990s, he owned a graphic design studio and was approached by someone who wanted to buy his business. Excited, he met with the suitor only to find out he expected to buy the studio for nothing down with a promise of future payments if Warrillow hit targets in the future as a division of his company. Incredulous, Warrillow asked the buyer to justify his valuation methodology. He explained that service businesses are difficult to sell because the assets are the people and if the people leave, there is no more company.

The meeting inspired Warrillow to transform his service business into one that looked more like a product business. He reasoned that, to be valuable, his business needed to seem tangible to outsiders and not so reliant on people. Procter & Gamble is the granddaddy of product marketing so he picked up a bottle of Tide and followed their formula. Here are the five steps he recommends you follow if you want to make your service-related business almost as easy to sell as a bottle of detergent.  » more

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I was giving a speech yesterday in Mississauga and a business owner asked me when he should tell his employees that he is considering selling his business. His question triggered memories I would rather have forgotten.

My advisors told me I would need to notify my managers early so that I could present a management team to prospective buyers. In my case, I told two key managers and they agreed to help me sell the business. The conversations were tricky. On one hand, my managers were relatively young and ambitious and looked forward to the  chance to work for a more professional company  On the other hand, they were smart enough to know the integration of one company into the next would get messy.

I waited until the deal closed before telling everyone else on my team.

Telling your employees that you intend to sell your business one day is an intensely personal decision. Some argue you should share equity with all of your employees from the start and make it clear you intend to build, flip and share the spoils widely. Others argue you should hold your cards close and not tell anyone you’re planning to sell until the last possible moment. This ensures customers and employees don’t get spooked, but requires a degree of duplicity many are uncomfortable with.

I opted for a Machiavellian hybrid: telling my managers and hiding it from everyone else.

When I finally revealed to my employees that the company had been sold, I felt like a fraud.  For years I had been minimizing salary increases, scrutinizing expense claims and preaching thrift to my employees insisting they put the company’s needs ahead of their own and I was doing the exact opposite.

In the end, my hybrid model worked. I was able to merchandise a management team to potential acquirers without the distraction of having an entire company worried about their jobs. It would have been more honest to be truthful with everyone but perhaps less successful.

I hate it when effectiveness is the enemy of honesty.

Have you shared your long-term exit plans with your employees? Do they know you’re considering your options? If so, how have you kept them engaged and loyal in the face of upcoming upheaval? If not, when and how will you tell them? Please share you comments below.

If you want to tell your management team and need a carrot to energize them about helping you sell your business, you can use a Long Term Incentive Plan.

Here are four new articles about creating a business you could sell. I hope there is a nugget or two in there you will find helpful.

Did last year drag your company’s value down?

~ published April 6, 2010 The Globe and Mail

I had coffee with a business owner who wanted to know what kind of multiple he could get for his business.

He owns an ad agency and he had heard that marketing services businesses are going for between “four and five times,” by which he meant four to five times earnings before interest, taxes, depreciation and amortization (EBITDA).

The key question is, four or fives times what? Most business owners focus on the multiplier and spend less time on what they are multiplying. Some buyers will calculate their valuation by taking your last complete year and applying their multiple to your reported pre-tax earnings. Others will take a blend of your earnings from the past three years.  » more

Supercuts versus Tony the superstylist

~ published April 7, 2010 The Globe and Mail

I discovered Tony when I stumbled into his hair salon in downtown Toronto one day, running late for a meeting, and asked for a quick trim. Tony obliged and he had me out the door 15 minutes later, cleaned up and $28 poorer.

I thought $28 for a haircut was a lot, but I liked Tony, and I assumed he had some considerable expenses given his location in downtown Toronto. His salon was right across the street from my office, so I went back to see Tony a month later.

Every time I returned, Tony welcomed me by name and ushered me to his chair with an easy smile. I became loyal to Tony and went back every five weeks or so for 10 years. Sometimes I would call for an appointment on Tony’s day off and be offered another hairstylist, but I usually waited, preferring Tony’s easy banter about life back in Italy and his low-key demeanour. » more

Appraise a company long before sale

~ published April 8, 2010 The Globe and Mail

Do you know what your business is worth?

I used to collect hockey cards: Guy Lafleur, Darryl Sittler, Tony Esposito, Wayne Gretzky in his rookie year — I had all of the biggies for a kid growing up in the late 1970s.

As time went on, I kept them in perfect condition nestled under the clothes in my dresser drawer. Since then, I’ve lived in eight different places, travelled, married and had kids, and those hockey cards are still with me. I’ve always wondered what they might be worth, yet I have never had them appraised. » more

I just heard about a dentist who is offering Botox therapy to his patients to supplement his income; which is down as a result of the recession. These days, I’m hearing more about business owners grasping for revenue with new product lines just to keep the lights on.

In fact, I’m starting to get nervous about my book tour this spring. A big part of my talk that supports Built To Sell is the importance of focusing on a single product/service that scales if you want to build a company you could sell.

I learned about the importance of absolute commitment to a single, scalable offer the hard way. When I first tried to turn my research business into something sellable, I developed a subscription-based offering but continued to accept custom projects. Clients and employees could sense I wasn’t truly committed to the subscription business and pushed back. Ultimately, I had to shut down the subscription offer, put my tail between my legs, and go back to selling time.

After a few years, I made a fresh attempt at the subscription business but the second time, I turned off the consulting business and told customers and employees all we were offering was the subscription. It worked because I stopped offering customers a choice and gave our sales people a chance to sell a consistent, packaged offer.  Customers who wanted our expertise, had to buy it as a subscription.  We stopped responding to Requests For Proposals (RFPs) which gave our sales people more time to sell. Ironically, eliminating choice and packaging what we had to sell better, helped us sell more.

I feel like the message is even more important in today’s economic context but I have to find a way to deliver it without sounding tone deaf. Enter Trevor Currie of Podium Consulting. Podium trains people to be better public speakers and Trevor is helping me find a way to make an audacious point seem reasonable. So far Trevor has come up with the idea of showing the audience a famous quote as the lead in:

“Until one is committed, there is hesitancy, the chance to draw back, always ineffective, concerning all acts of initiative (and creation).  There is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then providence moves too.”
-Johann Wolfgang Von Goethe

I’ll let you know how I make out; the first speech is Tuesday in Mississauga.

Below are three articles I wrote last week on creating a company you can sell: