Built To Sell
Do you remember reading ‘The Goal’ by Eliyahu Goldratt? Although a very good book, it took a while for it to get to the main points. A similar, yet better version of the book is ‘Built to Sell’ by John Warrillow. This book, compared to The Goal is a much faster and understandable read. Built to Sell is a marvelous 176-page book, which seems like two books for the price of one.
The first 113 pages of the book, John Warrillow takes the readers through the life of the protagonist named Alex Stapleton of, you guessed it – Stapleton Agency. Alex works tirelessly to build his agency to the point where it has become a chore. Moreover, towards the end of the chapter, one of Alex’s key employees hands in her notice of moving. This proves to be the last straw for Alex as he decides to sell his business.
A challenge Alex faces after this decision is that the agency is a service business. Immediately after this, the author reveals that service businesses owned by one person rarely have any value. This is not what Alex wants to hear.
In a moment of confusion, Stapleton seeks the advice of Ted Gordon, who is an old friend of his and a very successful entrepreneur. Alex wishes to talk to Ted because Ted has initiated, built and sold numerous businesses. After a short conversation, Ted agrees to mentor Alex.
Ted’s style of mentoring is to ask difficult questions before gradually sharing his ‘tips’ throughout the course of the book. The 17 tips revealed by Ted are true gems for treating a service business as a product business instead and selling it a the best price.
The first secret was – product-based businesses are more valuable than their owners, in the market. This makes them easier to sell.
If you think of a service business as a product firm, the first step involves changing one’s vocabulary. Clients become customers and eventually, the firm turns into the business. Ted states that this subtle-yet big shift had two benefits:
1. Product-based businesses stand at a higher value in the market rather than service-based ones.
2. While service businesses create cash flow challenges by billing in arrears (payment only when the service is provided, product-based businesses are easier. They collect payment beforehand. This then improves the firm’s – sorry, the businesses’ flow of cash.
In addition to those benefits, Gordon suggests that Stapleton should be framing an options strategy rather than an exit one. He advises Stapleton to construct an options strategy, which gives way to countless options from which the owner may be able to choose.
One model that Ted strongly encourages Stapleton to use is the creation of long-term incentive (LTI) program specifically for key employees. In contrast to a stock option plan, an LTI plan pays out over the course of a few days. The secret of strategic planning lies in the act of lining compensations with achieving long-term goals. Although the author states that this planning will keep important employees on improving their efforts, he fails to give attention to the possibility of them being concerned with new owners. This concern would make their performance falter.
What is interesting is that the above statement is the contrast of the advice, which Ted advises is right for Alex. An LTI plan involved paying bonuses over years. However, Ted mentors Alex to follow the ‘get-it-all-upfront’ plan so that an earn out does not put him in a short-change.
The other half of the book includes the Implementation Guide or Creating a Business That Can Thrive without You. This guide consists of eight steps that the author claims he has followed. These steps, according to the author have helped him create a line of success. An example of the eight steps is:
Isolate a product or service with the potential to be scalable. This must include the three key essences of scalability. These are:
· It must be Teachable
· It must be Valuable
· It must be Repeatable
Each of the three points is proceeded by a case study, which in words are ‘Lessons from Experience.’ These short yet insightful stories make the lessons relatable to any reader. The author has also been kind enough to add a ‘summary of the 17 tips.’ This makes it easier to understand the key points of the mentioned lessons/tips in the book.
An avoidable, yet existing problem I noticed in the book is that the protagonist aka Alex Stapleton is easily ‘discouraged.’ The author uses this term on numerous accounts throughout the book. This becomes a bit of a distraction from the main point of the book.
The book, I would like to point out is beneficial and focused mainly on service business owners. A product-based business owner would only learn from the last few steps mentioned in the book. These last few steps involve the author focusing on ways to deal with professional advisors who are in charge of selling a business.
In conclusion, this book is readable, understandable and easy to put to use by service business owners. Those owners who wish to sell their businesses and are willing to follow the formula should definitely get this book.