0 (2s):
Boom, shake the room.

1 (4s):
Fire Nation, JLD here with an audio masterclass on how to punch above your weight in negotiation to sell your business, to drop these value bombs. I have brought to John Warrillow on the mic. He is the founder of the value builder system, a simple software for building the value of a company used by thousands of businesses worldwide in foundation, we'll be talking today all about selling your business and how business owners know when it's the right time to sell the biggest mistake they made, how to gain, leverage and not look desperate and Oh, so much more. When we get back from thinking our sponsors grow your business with online courses, by jumping into Thinkific five day course challenge today over five days, you'll hear from inspiring speakers, including myself who will walk you through the whole process.

1 (48s):
So you'll know exactly where you're headed. Sign up for this free challenge today at thinkific.com/fire that's T H I N K I F I C.com/fire. Don't you wish there was a proven roadmap to financial freedom and fulfillment that you could share with your customers, clients, or masterminds. My brand new book, the common path to uncommon success is coming out in March, 2021, and we've just finalized our bulk buy packages. These packages include insane perks like a one-on-one weekend in Puerto Rico with myself and Kate visit uncommonsuccessbook.com for all the details. The best packages have very limited quantities. So head over there today, uncommonsuccessbook.com.

1 (1m 31s):
John say what's up to Fire Nation. And what is something that you believe about becoming successful that most people disagree with?

0 (1m 40s):
What's up JLD, you know, I get a lot of pushback on the name built to sell the book I wrote. And I think a lot of people think about building to last, which the Jim Collins book, which is a fantastic book. I just think as entrepreneurs, we get way past our sell by date. And for a lot of people, they feel like there is this requirement that they build to last, that they build some sort of legacy for themselves, that they build a multi-generational business, that they pass it onto their kids. And for me, that's just an a Thema. I, that's not what I think makes a lot of sense. I think we get in, we add some value and then we should move on and let someone else take a turn running a company,

1 (2m 22s):
As we talked about in the pre-interview, and as I was kind of teasing with you Fire Nation during the introduction, we're going to be talking about a lot of really cool thought today that John's an expert on like knowing the right time to sell and, you know, knowing the biggest mistake that people make and owners make when it's time to sell, you know, what reeking of desperation will do if you're trying to sell and so much more. But I want to start off by saying this. I mean, let's just call a spade, a spade, you know, it's 2021 and a lot of businesses were hit hard during COVID. So what specific selling trends do you predict going forward in our new world? Two things.

0 (2m 56s):
Number one more people are selling. They are moving up their sell by date as a result of the pandemic. We've had, you know, we, we, we do this thing called valuable there where we have people come in and do an assessment. We've looked at the data now prior to the announcement of COVID, there were about 4,000 people that completed the questionnaire prior to the eight months prior. And then the eight months during COVID two things really pop first again, is that people who have moved up their sell by date by 20%. The other one that I think is kind of cool is that the appetite to pass their business down to their kids has dropped through the floor. And now we are seeing a much bigger influx of people who want to sell to a third party.

0 (3m 39s):
And what's really interesting, I think right now is that private equity is being absolutely boosted by low interest rates. One of the things this pandemic has done is lower interest rates, right? We're an emergency level interest rates, private equity groups, who are the buyers of lot of entrepreneurial businesses. They use debt in order to make their transactions, make their financing happen. And so that's just like an accelerant onto this entire M and a marketplace. I just think it's going to be a very, very interesting 2021.

1 (4m 10s):
Now what about SPACs, I'm hearing a lot about S P A Cs, you know, otherwise known as SPACs just kind of coming up. It's just like this big ball of money. That's everybody, you know, not everybody, but you know, billionaires, there's dumping money into they're going around and just scooping up businesses for this and businesses for that. Like how is that having an impact again,

0 (4m 28s):
Ton of money that is chasing a lot of small deals right now, interest rates are one. You're also got a lot of people that are a little worried about the stock market, right? So we've seen massive valuations for a lot of companies. Tesla's gone crazy. You know, there's a huge amount of wealth in the public markets that is getting nervous, right? And that's got to go somewhere. And so private businesses are a place that a lot of people go to pick up value. And again, you've got a lot of business owners who are distressed right now. And I mean, I don't, I'm not in any way suggesting that you and this is a good time to be a vulture. I, our whole businesses is predicated on the idea that we help companies improve their value, not get taken advantage of, but I think we are, unless we can make sure we kind of know the secrets of buyers and how they try to kind of pull the wool over our eyes.

0 (5m 24s):
I think we are susceptible to that unless we can sort of have some, a bit of a, a guide book on how to go about, you know, punching back at when these acquirers try to prey on what is right now for a lot of people, I sort of a weakened a business in particular service-based company.

1 (5m 41s):
Let's talk specifically about selling your business and not yours, John, but I'm talking about you Fire Nation who are listening, like selling your business. How do business owners know when it's the right time to sell

0 (5m 54s):
Short answer? And I don't mean to be glib about this, but the short answer is when someone's buying, right? So when you get an offer, you've got a unique position. You're now in the catbird seat, right? You've been offered at amount of money for your business. And at that point you're not groveling going hand, you know, hat in hand to a potential acquire you've been approached. And so that's an opportunity to take very seriously, I think. And there's a, there's a way that you could approach that, that doesn't overplay your hand. I had, I had a chance on my podcast to interview a guy named Rand Fishkin. Have you had Rand on the show multiple times? I follow that guy's journey.

0 (6m 35s):
He's actually one of my first guests back in the day. And man, that book that he released not too long ago was a fascinating Lost and Founder. That was such a cool title too. Such a good book. Yeah. It's I I'd recommend anyone pick it up. Rand is a great guy. He told me the story of selling SEO MAs or more accurately not selling SEO. So we built it up to $5 billion of ARR annual recurring revenue growing like stink doubling every year gets an offer from Brian Halligan, the guy who started HubSpot and Randon, his mind was like, you know, we're growing like crazy where, you know, we we're thinking maybe we can get to 10 next year. I've heard that, you know, companies like a SAS business, like mine should sell it like four times top line revenue.

0 (7m 18s):
So I think it's worth 40. And, and Halligan says, I'll give you 25 of cash and HubSpot stock for a $5 million business. So that's a pretty good outcome. And, and Rand says, yeah, Hudson has a little bit and says, no takes venture capital money instead goes and invest in a lot of different products. Unfortunately, doesn't work out. The business starts to spiral, sucks up cash. The VCs come in and remove Rand. He got a spirals into, you know, a sense of depression and, and ultimately the VCs use pressure's preferred shares to buy into MAs, which they are guaranteed a return on before Rand will get anything.

0 (8m 2s):
And as a result I asked Rand, I said like, what's what do you think? You know, you're sharing Mazda's worth these days. Price is probably worth nothing. And I said, well, what's your net worth? He said, I've got 800 grand. Most of which I'm going S I'm going to share or spend on my grandparents for elder care. And I said, what would that offer of how plugins be worth now, given the appreciation in HubSpot stock? And he said it would be worth close to $200 million. I mean, be still my hearts. Ugh. So anyway, long story short, when a guy like Brian Halligan comes up to you and says, look, I want to buy your business, take him seriously. You're in a, you're in a unique position to negotiate yet.

0 (8m 44s):
You don't want to overplay your hand or, or, or kind of write it over the top, as they say in an MA. Yeah. And I remember when I actually interviewed Rand about Lawson founder, which wasn't too long ago. So Fire Nation go back and you just search

1 (8m 56s):
In the EOFire.com search bar, Rand Fishkin, even just R A N D Rand works. And one thing that he said that really just kind of like broke my heart too, was like everybody thoughts, like his friends, his family, everybody thought that he was a super rich guy. So they kept going to him like, Oh my God, like, can you hit me up with this? Hit me up with that. He's just like, I, I literally am like the poorest person that I know by like a long shot. And it was like, you know, it's so brutal. Cause he, you know, working so hard, built this from the ground up and doing all these things. And man, so you, you talked about a huge mistake that Rand made. I mean, passing on that 25 million that now would be, you know, worth over 200 million, you know, of course, a lot of, you know, what you held onto the stock that long, like maybe you would have had to actually, cause there might've been like a, you know, like a holding period or whatever.

1 (9m 40s):
So he might've been forced to, to ride that puppy all the way to 200 million, which would have been amazing. But what's the biggest, the number one biggest mistake, John, that you see owners make when it comes time to actually sell

0 (9m 50s):
This is such a great question. I mean, so many, I think one that comes to mind is answering the question, what's your number, right? Like a lot of buyers are going to want to pull that out of you. You know, it said that he who says his number first or she loses. Right. And so a lot of buyers, acquirers will say, you know, they'll put their arm around you figuratively and say, JLD like, what do you, what do you, what do you want for your company? What do you think is fair? And it sounds so innocuous to answer. Right? And you feel like being a transparent person,

1 (10m 22s):
I have a number. You do. Yeah. What you said, we should all have a number. Right? So I have a number. I don't think it's a realistic number, but it's a number and I have it and it's my number and it's, it's what it would take. And this is maybe a wrong way to look at it, John. But this is what it would take for me to walk away from the autonomy that I have with entrepreneurs on fire, you know, from, you know, the multiple millions of dollars that this, this business produces, you know, in a very lifestyle, freedom type of way. So I do have a number. I don't think that's realistic. Well, I don't think, I just, I'm just like, I'm not saying it's realistic, but it's $50 million. Like that's my number. Nice. Take her, leave it buddy. What'd he say?

0 (11m 2s):
I think it's great. I think it's great. I wouldn't counsel you to share that with too many people. Especially if somebody comes up and say, okay, I want to buy your company. You would say a hundred million. No, I'm just, I'm saying that

1 (11m 14s):
My new number is a hundred million.

0 (11m 17s):
Good. I'll give an example. So, okay. There's a guy named, have you ever had Chris Jones?

1 (11m 22s):
Ah, now start a pepper jam. No, no

0 (11m 24s):
Interviewed for the book. He, he tells me the story of when he gets approached by Michael Rubin, Michael Rubin, of course being the founder of GSI, sold it to PayPal. Chris Jones, the founder of this little company, they do affiliate marketing called pepper jam. So Michael Rubin calls him like calls him up and says, Hey, watch, come down and meet with me. I'm kind of interested what you're doing at Pepper jam Chris, this is awesome. I'm going to meet with this, like, you know, luminary in the tech world. So Chris Jones walks in, right? Michael Rubin kind of rocks up. And instead of being on his own Rubin is flanked by his chief counsel and his CFO. And without even like exchanging pleasantries with Chris, Ruben says to Chris, all right, what do you want for pepper jab?

0 (12m 6s):
And Chris kinda was on his back foot. He's like, Whoa, like I was expecting kind of like a nice little conversation. And here you are asking my number and Rubin repeated. He's like, what do you want for Pepperjam? And Chris blurted out his number and Rubin without acknowledging Chris looked at his chief counsel and the CFO and said, all right, I think we can get a deal done. And what he was communicating to his lieutenants was don't pay a penny more than the number of Jones, just uttered. And in fact, make it your job to get it for less. And that's the problem with answering that question. It's such an innocuous question. It sounds reasonable to answer, but by asking it, answering it, excuse me, you're putting a ceiling onto which you will never sell your business beyond and you don't know what they're willing to pay.

0 (12m 54s):
So look, I just think it's one of those questions that often is a trap that we, that we fall into and it's best to just let the other side come up with the value in their own mind. So you're

1 (13m 3s):
Advice and Sage advice to me would be, if somebody ever approached me and said, Hey, like, what's your number? Like we're acquiring for instance, you know, podcasting is on fire right now. I mean, Amazon just bought this PR this podcast production company, wondering who by the way, is not making any money and bought them for $300 million. You know, Gimlet was bought by Spotify a couple of years ago for 230, $3 million. Joe Rogan was, you know, one exclusive with Spotify and they gave him nine figures. This is one podcast. They gave him nine figures. Plus, I mean, then they're like, Oh, does that mean a hundred million? You know? And, and he's like, no, like it's more than that. So I mean, like we're talking, you know, real deep money into that and it's insane. So like, what is kind of like your like advice for something like that?

1 (13m 46s):
Like, is it just make them say the number first? Like they have to come to you with something before you even put a number out there?

0 (13m 52s):
Yeah. You're just going to respond by saying, Hey, I'm a reasonable guy. I built a great business that I'm super proud of and super excited to continue to running forever, but I'm a reasonable person and I'll look at any reasonable offer put in front of me and that's it. And there's two documents that you can ask for. One is an IOI and the other is an LOI and LOI is a much more formal document. You're not going to get that with an informal conversation. It's going to be after many months of negotiation, you're going to get a letter of intent, which is a two page three page document that spells out in great detail, what their proposal is for buying your business. It'll go into the, the number of the working capital due diligence, lots of detail.

0 (14m 33s):
There's another document though. IOI indication of interest. It's a less formal document. It's usually a couple of pages in it. Often we'll use a multiple range instead of a, an absolute number. They'll say, look, yeah, we're thinking somewhere in the four to six times EBITDA range. So it will be a range and, and you can ask them for an IOI. You can say, look, I, you know, I'm a reasonable guy, but a great business, you know, is like, awesome, but I'm reasonable. And so let me know what you have in mind. If you want to throw together, gather an IOI, I'd be happy to review it. And that's a way for them to sort of put a stake in the ground and say, we're thinking two times top-line or three times EBITDA or whatever they're thinking.

0 (15m 14s):
And you can then react to that

1 (15m 15s):
Lot of lessons here at Fire Nation. A lot of interesting things on how to just, you know, take that first interaction, which can be a critical interaction, which we're going to talk about later. One of the last things we'll talk about is like looking desperate. So you want to stay tuned for that. And so much more when we get back from thanking our sponsors Fire Nation, you know, I'm big on health and wellness, and I'm constantly looking for ways to improve the quality of nutrients and minerals I put in my body so I can operate at my optimal level. That's why I started drinking Athletic Greens years ago, after learning how much greatness is packed into just one scoop a day, 75 vitamins minerals and whole food source ingredients. And that includes a multivitamin multimineral probiotic, green superfood blend, and more, whether you're looking to fill the nutritional gaps in your diets, increase energy and focus a digestion or help support a healthy immune system.

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1 (16m 44s):
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1 (17m 27s):
One student who recently finished the challenge said, this is an excellent course. It keeps you moving and takes a lot of the intimidation and confusion out of the process. I would highly recommend this challenge sign up for this free challenge today at thinkific.com/fire that's T H I N K I F I C.com/fire. So John we're back and I want to talk right now about gaining leverage. I mean, leverage is something obviously you would want to have. So what is the absolute best way to gain leverage when you're negotiating with an industry giant? And like I said, I mean, I'm just, I would love to have been in that room and like wonder he was talking about getting acquired by Amazon and Gimlet by Spotify and Joe Rogan, having the back and forth. I mean, they must have gained leverage because I mean, they got big, big dollars and who knows, but what's the best way.

0 (18m 12s):
The best way is to have multiple bidders at the table before you sign an LOI. So we talked about LOI before the break. This is the letter of intent which gives and spells out the acquirers proposition to buy your business. The letter of intent includes something called a no shop clause, which means that you have to give up negotiating with all of the other people that are interested in buying your company and basically getting engaged to one acquire. And that's the point at which leverage that you have as a seller goes heavily away from you and goes heavily into the hands of the buyer and they then will have lots more leverage. So what you want to do is make sure you retain all your leverage leading up to that point, by getting multiple bidders to the table, you want as many people kind of competing over your business simultaneously, which gives you two things.

0 (19m 6s):
Number one, it makes sure you ratchet up the value of your company, but it also ensures that that acquire is going to close, basically commit on there and deliver on their commitments they make in their LOI because there's a dirty little secret in the world of entrepreneurship, which is something called re-trading where the acquire makes an LOI letter of intent. They say, they're going to pay X for your dog, for your business. And then later you find out that they're only willing to pay X minus 20% because they manufactured reasons that your business is less valuable than they thought it was. That only happens when you're the only bit where you've only got one bidder, but when you've got multiple bidders and you've demonstrated that to an acquire, they're much less likely to retrade.

0 (19m 53s):
So that's a really important subtlety is to make sure you've got multiple bidders. And that the other side

1 (19m 60s):
I've talked about desperation a few times so far in this interview, mostly as a tease, because if you look desperate, you've already lost to a certain degree. So how can owners let potential buyers know that they're interested in selling the like, Hey, like I'd be interested in talking about this, but without looking and seeming desperate. Yeah.

0 (20m 18s):
If you rock up to an acquire and say, Hey, would you like to buy me? It's like the, you know, the great eight kid who goes up to the prettiest girl to dance and says, Hey look, would you like to dance? It's just pathetic. And it's, it, it feels really defensive. And you're, you're unlikely to get the result that you're looking for. So look, it's one of the words I love is partnership because I think for the right buyer and the right acquire the word partnership means something different. You know, if you say, you know, I'd love to explore some sort of strategic partnership together, that's going to Telegraph to the other side, that there's probably more to this than just a simple partnership.

0 (20m 60s):
There's probably the opportunity to talk about acquisition, but it also at the same time gives you deniability, right? Plausible deniability, Hey, I just, I just was suggesting a partnership and you guys are coming to me with this acquisition conversation. It reminds me, I interviewed a woman named Stephanie Breedlove, a man she's so fantastic. She built a business, a payroll business, doing payroll for parents who have nannies. She built it up to $9 million in revenue, 10,000 customers. And she found care.com out there in the marketplace. And she thought these guys would be perfect. Acquires. Why? Because care.com is like the Angie's list of care providers, right? Like babysitter, plug it in and get five star rating. You feel confident.

0 (21m 40s):
They've got 7 million parents who are subscribers to care.com. Most of which need to pay a nanny. And so Breedlove's sitting there saying, Holy crap, man, if I can just get them to pay attention to me, they've got 7 million subscribers. If 1% of them buy my payroll service, that's like 70,000 customers. Let's look at business seven times my size. So what she does is forms a marketing partnership at a very low level at care, like a marketing manager level, but just that existing of the marketing partnerships were Breedlove was just supplying a little bit of content to care.com. It opened the door.

0 (22m 20s):
The marketing manager love what Stephanie was providing. She used that relationship, but equity to get an introduction to the CEO of care.com. One thing leads to another care.com acquires Breedlove's business for a cool $54 million. John, this is a $9 million company, $9 million revenue business for 54 million bucks. It starts with the word P partnership.

1 (22m 42s):
He is for partnership Fire Nation. Wow. I love that story. So let's talk about just an overall concept that you want fire nation to really walk away with. From what we talked about, I mean, we talked about a lot of Austin things say the biggest mistake, leverage desperation, the right time to sell. What's the big takeaway you want Fire Nation to get from all of this conversation.

0 (23m 5s):
It's okay to sell. You're not a douchebag for wanting to sell your company. I got on a podcast a few years ago and it's just promoting my book built to sell and the guy gets on his first-line no word of Ally's first-line is Oh, Warrillow. Yeah. You're the douche bag who wrote, built to sell. And I'm like, what are you talking about? That's what he's talking about. And he went on to say, yeah, like isn't, aren't we all supposed to build to last, like, you're talking about flipping businesses. And, and, and I was on my defensive. I was on my back foot and I thought, man, I did a crappy job rebutting that criticism. But since then, I've come to sort of realize that's the sentiment that a lot of people have is that selling is somehow selling out.

0 (23m 47s):
And I just couldn't disagree more as we talked about the intro. I just think that for a lot of us, we built, we, you know, we've had our turn, you know, I, I remind me, there's a guy named Joey Redner that I interviewed in the book. He built a cigar city brewing. Do you know a cigar city, the little crapper tab now. So Redner bill realizes Tampa doesn't have a craft beer, built it up for us money from his dad, but 800 grand from his dad to build up a craft brewery. So he's in hock to his dad. Successful brewery starts selling out, has to build capacity. What does he do? He goes, gets an SBA. Loan, gets bores a bunch of money from the SBA to build that more capacity keeps selling beer, amazing success.

0 (24m 30s):
Third time he needs to go build more capacity to meet demand for the beer. Now he's in already a debt to his dad. He's already a debt to the SBA and he kind of throws up his arms and goes enough already. I've I've, I've done what I wanted to do with this brewery. I built it up. It's been hugely successful. I'm not willing to put even more chips on the table because the people he was going to borrow money from wanted a personal guarantee and so forth. And so he decided to sell to Oscar blues, the craft brewery pre PE back really successful cigar city continues on without him. And the story is a success he's done what he planned to do.

0 (25m 11s):
And so I don't think there's anything wrong with that. I think Joey took risk, built a business, and there's nothing wrong with selling that. It's not, you're not a douche bag for wanting to do that. So John,

1 (25m 23s):
Let us know what is going on in your world right now. Any call to action you have for Fire Nation, or they can connect with you or your business or anything. And then we'll say goodbye.

0 (25m 34s):
So yeah, you can head over to Builttosell.com. We do an interview every week with an entrepreneur about their exit. And that's a good way to just hear about how other entrepreneurs like you are kind of thinking about exiting and some of the tips and tricks. They have

1 (25m 47s):
Awesome stuff, Fire Nation. And you know, this you're the average of the five people you spend the most time with. You've been hanging out with J dubs and JLD today. So keep up that heat and head over to EOFire.com type John and J O H N. And the search bar in his show notes page will come up. Plus his past episode Builttosell.com is your direct call to action. And John, I want to say thank you for sharing your truth, your knowledge, your value with Fire Nation today, for that we salute you and we'll catch you on the flip side. Thanks man. It was a pleasure. Hey, Fire Nation today's value bomb content was brought to you today by John ans Fire Nation. My first traditionally published book is hitting the shelves on March 23rd.

1 (26m 29s):
And I am so fired up about this to say the least the title is the common path to uncommon success, your roadmap to financial freedom and fulfillment. So pre-orders are everything. And if I've you value over the years, it would mean the world. If you headed over to my pre-order page, or if you're listening to this after March 23rd, that's cool too. Just head over to Amazon or wherever you want to buy the book and do a little pre-order and there's sweet bonuses for pre-orders and there's just bonuses as well for just buying the book after March 23rd, check out uncommonsuccessbook.com uncommonsuccessbook.com have an awesome day Fire Nation.

1 (27m 10s):
I'll catch you on the flip side, grow your business with online courses by jumping into Thinkific five day course challenge. Today over five days, you'll hear from inspiring speakers, including myself who will walk you through the whole process. So you'll know exactly where you're headed. Sign up for this free challenge today at thinkific.com/fire that's T H I N K I F I C.com/fire. Don't you wish there was a proven roadmap to financial freedom and fulfillment that you could share with your customers, clients, or masterminds. My brand new book, the common path to uncommon success is coming out in March, 2021, and we've just finalized our bulk buy packages.

1 (27m 49s):
These packages include insane perks like a one-on-one weekend in Puerto Rico with myself and Kate visit uncommonsuccessbook.com for all the details. The best packages have very limited quantities. So head over there today, uncommonsuccessbook.com