March 29, 2011
News & Opinion: Built to Sell
Most people that start companies do so because they are passionate about what they're selling. While that's important, it can also become a trap, blinding the entrepreneur to business opportunities that exist within the idea. It may seem crazy at first, but author John Warrillow talks about the idea that entrepreneurs should build their businesses in a way that makes them sellable. His book, Built to Sell: Creating a Business That Can Thrive Without You makes the clear case that even if one doesn't end up selling their company, building it in this way will make it even more successful for the people who stay with it. The book is a well-written business parable, and within the story are some great principles that I've asked the author about. Below are his responses, and be sure to check out the book to internalize the whole story. First off, the philosophy: How can an entrepreneur sanely balance the idea that they'll run a company forever, alongside the idea that they'll sell to the highest bidder when the time comes? I think every business owner – like every home owner – sleeps well at night when they know they own a valuable asset. You don’t have to want to sell your business to want to own a business that you could sell, when you’re ready. Tasks within a company can be complicated, but how can entrepreneurs ensure they're able to be taught so the company can run without them? I think it becomes easier to systematize your business when you stop selling too many different things. As business owners, we’re taught to listen to our customers and respond. The problem is, when all you’re doing is reacting to customers, you end up offering way too many things – customizing too much -- because everyone wants a slight twist on your offering. Focus on minimizing your customer’s choices and selling less stuff to more people. Apple is really good at selling a few core products (iMac, MacBook, iPhone, iPad and iPad) that offer the same basic user interface. As a result, they can train their Apple store employees on one operating system and a few core products. Walk into a Best Buy with thousands of technology products running hundreds of different operating systems and you will have a very different experience. Focus on selling less stuff to more people and your staff will love you for it! What are some factors that make a company attractive to purchase? The biggest thing you need is recurring revenue because it demonstrates to a buyer where the revenue will come from when you ride off into the sunset. Bloomberg sells its information to subscribers on annual plans which makes it a valuable business. Wine clubs and gyms have annual memberships, document storage companies like Iron Mountain have auto renewal agreements that keep renewing until the customer says stop. These are all examples of companies with a recurring revenue model. How long should entrepreneurs plan on staying in the business before considering selling? I think they should start from day one to try and build a sellable business. It’s a lot easier to start a built to sell company than it is to wake up after twenty years and try to make some of the changes needed to turn a business into a sellable company. Again, just because you have a built to sell business, it doesn’t mean you want to sell -- it means you’re sitting on a valuable asset that you could sell, if and when you’re ready.