High-Level Thoughts

Similar to “The Goal,” this book has some useful lessons wrapped up in an easy to breeze through story. Kinda basic stuff, but there are good general concepts for thinking about creating a business vs. a job.

Summary Notes

[Book Title] Summary & NotesThe point is that the best businesses are sellable, and smart businesspeople believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon.

Don’t generalize; specialize. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.

Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15 percent of your revenue.

“In each business I’ve sold, we created a standard service offering, a consistent process for delivering our product or service. We made sure the product or service was something clients would need on a regular basis so we could count on recurring revenue. I’m suggesting you become the world’s best logo design shop.

Owning a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.

Don’t become synonymous with your company. If buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.

“That’s another reason to think of your Five-Step Logo Design Process as a product. When you have a product, people expect to pay for it in advance.

Avoid the cash suck. Once you’ve standardized your service, charge up front or use progress billing to create a positive cash flow cycle.

Don’t be afraid to say no to projects. Prove that you’re serious about specialization by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.

“To sell your business, you need to demonstrate to a buyer that you have a sales engine that will produce predictable, recurring revenue.

Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.

Two sales reps are always better than one. Often competitive types, sales reps will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.

Hire people who are good at selling products, not services. These people will be better able to figure out how your product can meet a client’s needs rather than agreeing to customize your offering to fit what the client wants.

You need at least two years of financial statements reflecting your use of the standardized offering model before you sell your company.

Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.

Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.

Avoid an adviser who offers to broker a discussion with a single client. You want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favor with his or her best client.

Imagine that you have a blank check to grow the Stapleton Agency as large and as fast as you possibly could given unlimited resources. You need to paint the picture for an acquirer of what is possible for the business of creating logos.”

Think big. Write a three-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.

If you want to be a sellable, product-oriented business, you need to use the language of one. Change words like “clients” to “customers” and “firm” to “business.” Rid your Web site and customerfacing communications of any references that reveal you used to be a generic service business.

Don’t issue stock options to retain key employees after an acquisition. Instead, use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in two or more installments only to those who stay so that you ensure your key staff stays on through the transition.

Scalable things meet three criteria: 

  1. They are “teachable” to employees (like the Stapleton Agency’s Five-Step Logo Design Process) or can be delivered through technology;
  2. They are “valuable” to your customers, which allows you to avoid commoditization;
  3. They are “repeatable,” meaning customers need to return again and again to buy (e.g., think razor blades, not razors).

eliminate services or products that a customer needs to buy only once.

Of the three criteria for a scalable product or service—teachable, valuable, and repeatable—I found the single most important factor in driving up the value of my companies was ensuring my revenue was repeatable, meaning customers had to repurchase somewhat regularly.

here are six forms of recurring revenue presented from least to most valuable:     

NO. 6: CONSUMABLES—TOOTHPASTE

If you sell a consumable, start tracking your repurchase rate from existing customers. This will be a number that acquirers will use to calculate your projected sales into the future—and to calculate how much they’re willing to pay to buy your company today.

NO. 5: SUNK MONEY CONSUMABLES—RAZOR BLADES

More valuable than basic consumables such as toothpaste are “sunk money consumables.” In the case of these items, the customer has made an investment in a platform. When I started using Gillette Sensor razor blades, I first had to buy a handle. Now I buy a new five-pack of blades every month, and I can’t bring myself to try Schick because then I’d have to purchase its handle mechanism.

NO. 4: RENEWABLE SUBSCRIPTIONS—MAGAZINES

Even better than having loyal customers who repurchase is having revenue that is guaranteed into the future. For example, I am a loyal subscriber to Outside magazine. Each year I get a re-up letter, and I send a check to cover my next twelve issues. Outside recognizes one-twelfth of my subscription fee the month it receives the check and each of the next eleven months.

NO. 3: SUNK MONEY RENEWABLE SUBSCRIPTIONS—THE BLOOMBERG TERMINAL

When customers make an investment to do business with you, they become very sticky. If they buy on a subscription model, you will have one of the most valuable businesses in your industry.

NO. 2: AUTO-RENEWAL SUBSCRIPTIONS—DOCUMENT STORAGE

When you store documents with Iron Mountain, you are charged a fee each month until you ask for your documents to be shredded or you agree to pick them up.

NO. 1: CONTRACTS—WIRELESS PHONES

The only thing more valuable than an automatic renewal subscription is a hard contract for a defined term. As much as we may despise being tied to them, wireless companies have mastered the art of recurring revenue. Many give their customers free phones as long as the customer locks into a two- or three-year full-service contract.

If you want your business to be profitable, enjoy fat margins, and thrive without you, you need to stop responding to RFPs and start carving out your own oneof-a-kind product or service.

STEP 2 : CREATE A POSITIVE CASH FLOW CYCLE

If your company generates excess cash, an acquirer will usually pay more for your business because he or she doesn’t have to commit funds to working capital.

If you get an offer to buy your company, the second most important number on the page may be the working capital calculation. If your offer does not include details on the working capital calculation, be sure to lock that number down before you agree to anything.

STEP 3 : HIRE A SALES TEAM

As you build your sales team, look for people like Angie Thacker who, first, enjoy selling and, second, like the product. Avoid hiring salespeople who come from professional services companies; they will likely want to reinvent your product or service for every customer. If at all possible, hire at least two people to do sales, not just one.

STEP 4: STOP SELLING EVERYTHING ELSE

I spent the next weekend plotting how to shift my consulting firm to a similar model. I decided that my company would publish six major research reports each year with an annual subscription price of $50,000. It would cost a single company more than that to commission one report, but now the company would be getting a total of six reports—a good deal for the customer, I reasoned. And at $50,000 per subscription, all we needed was one hundred subscribers to have a $5 million business. A good deal for us too.

STEP 5 : LAUNCH A LONG-TERM INCENTIVE PLAN FOR MANAGERS

STEP 6 : FIND A BROKER

STEP 7 : TELL YOUR MANAGEMENT TEAM

Warren Buffett talks about the depth and breadth of the “moat” around the businesses he invests in. A big moat gives you pricing power against your competition, but it also makes it harder for employees to leave you and set up shop as a competitor.


STEP 8 :CONVERT OFFER(S) TO A BINDING DEAL

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