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Warrilow tells this story about Alex, who wants to sell his marketing agency. He approaches Ted, his friend and a serial entrepreneur, for help. Ted informs him that his agency is worthless. It is overly reliant on Alex, heavily dependent on one client and has no unique feature to speak of. Alex is shocked and decides to take Ted’s help in making his business sellable. Throughout the book Ted gives him these insights and practical advice.
An invested entrepreneur will run his business with all his efforts, believing that it is going to last forever. However, a shrewd entrepreneur will also keep adding value to the business so that it becomes magnetic to others, or acquires an immense market value.
The focus should be to build a business that can run without you.Create processes and systems which ensure smooth functioning, even in your absence. It is then that your business will become a valuable asset. Develop a Standard Service Offering (SSO). An alternative to this book is E-Myth Revisited.
Specialize – Focus on doing one thing well. Hire specialists in that area, improve, be different from competitors, and the best in your niche. Own a process.
Be smart about your products and how you position them. Packaging is important. Even if you are selling a service it needs to be packaged as a product, so that any potential buyer can continue to sell the same. For even more detail on structuring the business read the book Traction.
Do not rely heavily on one client. This will scare away potential buyers. No one client should be giving you more than 15% of your revenue. This is something that Jeremy Miller talks about is Sticky Branding as well.
Try to get cash upfront as against running up billing arrears. Charge upfront, use progressive billing and establish a positive cash flow cycle.
Turn down work that falls outside your area of specialization. This way you will attract people who need your expertise and develop a reputation of being a specialist in your niche. This concept if written about in great detail in the book The ONE Thing.
Figure out how many pipeline prospects actually convert to sales. This number will show the buyer what market opportunity exists.
Hire at least two sales reps. It is competitive and indicates to the buyer that you have a scalable sales model. The sales reps should be good at selling products, not services. They should help your customers realize how your product is the solution to their needs, and not try to customize the product to suit the needs of the customer. Other books on this would include either Ready Fire Aim or Predictable Revenue.
The book says that cash flow statements should be consistent and strong. Ignore your profit and loss statement if your cash flow is strong. You will hit that sweet spot eventually if cash flow is good.
Two years of financial statements, reflecting use of your SSO, is needed before you can sell your company.
Offer good incentives and build a strong management team.
The book recommends finding an adviser from your industry. Ensure that you are a mid-range client for him. The adviser should fix discussions with many buyers for you, so that you can avail of competitive bids. Avoid advisers who push you into discussions with one buyer only.
Think big and make out a three year business plan. The added resources of the company which acquires you, will propel you ahead.
Do not offer stock options to retain employees after an acquisition. Offer them a stay bonus instead.This stay bonus can be a cash reward given in installments to ensure that your key people stay on with you through your transition.
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