By Scott Bushkie
“Until your business is built to sell, it’s just a job you can’t quit.” That’s the idea behind a business book, Built to Sell, by John Warrillow. His premise: If the business is overly dependent on the owner, it can’t grow any bigger than the owner’s capacity. Worse yet, it can’t be sold.
I had dinner with Warrillow, at an M&A conference in New Orleans. We talked about the business owners we’ve known; the ones who worked hard for years and they were shocked to discover their business had little value in the market.
It takes more than strong revenues to have a salable company. It’s a classic problem for service businesses—ad agencies, consultants, chiropractor offices, even firms like mine. What is the company worth beyond a few depreciated assets and a risky earn-out tied to customer retention?
I’ve used this column before to talk about the importance of building a strong management team and transitioning yourself out of the business. You need to demonstrate that the business can run—and run well—without your constant attention.
What would happen if you took the summer off? What would you come back to? If the answer is locked doors, then you’ve got some work to do. If your team might call you and have a meeting once a week, you’re moving in the right direction.
But a strong employee team alone won’t add much value to a service-based business. It has to be scalable. You need an identified way to increase revenues in greater proportion to resources invested.
In Built to Sell, Warrillow sets out three criteria he says are essential to building a scalable business. The business must be teachable, valuable, and repeatable.
Valuable might seem like a no-brainer. What Warrillow is referring to is a business that has a true differentiator in the marketplace, not a commodity product.
We’ve already covered the teachable factor when we talked about developing your staff and creating a business that operates without you there. But the ability to do that is often closely related to the third factor: Repeatable.
Repeatable goes to systemization. For service businesses, that means making your service look more like a product. Take what we do here at Cornerstone for example. M&A is a service business, and it’s a service we customize—to a point—for each customer. But we do have a system, a repeatable, documented way of doing things that I can teach to new people who come on board.
I have a great succession planning story to tell you about a client who successfully transitioned his company from a service business to one with a scalable product. More on that later. For now, check out Warrillow’s book and ask yourself if your company is Built to Sell.
Scott Bushkie is the Managing Partner/Founder of Cornerstone Business Services, a Lower Middle Market Boutique Investment Banking Firm serving the Midwest. Reach him at 920-436-9890 or sbushkie@cornerstone-business.com
