How Building a Business to Sell (Even If You’re Not Selling It) Can Help You Achieve Entrepreneurial Freedom

Speaker 1 Productization is the process of making your service look like a thing, making it look tangible.

Speaker 1 So the way you do that, and the way I love to tell people to do it, it's like walk into Walmart and grab a thing, a tide, off the counter, off the shelf, and look at the way Tide markets its product, right?

Speaker 1 There's a brand, there's a name. If you flip over on the, you know, there's instructions to use, there's the use case, there's a caution, right?

Speaker 1 And if you think of your service in the same way, so brand your service, brand the steps of your service, name it, provide instructions for use.

Speaker 1 In other words, this is how you get the most out of our six-month healthy office program, right? Here's who it's meant for.

Speaker 1 Here's the cautions, like don't trickle into month seven because that's when you get into problems, whatever. It's about productizing your service and making it look like a tangible thing.

Speaker 1 That gives you marketing differentiation. It allows you to set yourself apart from every other HVAC company, plumbing company, electrician that is selling effectively the same service.

Speaker 2 Welcome to the Home Service Expert, where each week Tommy chats with world-class entrepreneurs and experts in various fields like marketing, sales, hiring, and leadership to find out what's really behind their success in business.

Speaker 2 Now, your host, the Home Service Millionaire, Tommy Mello.

Speaker 3 All right, I'm really excited about today, guys.

Speaker 4 I've got a very special guest visiting us from Canada. All of us people come from Canada, I think.

Speaker 4 I'll tell you, this guy's book, I read this. I took more notes in the automatic customer.
Then I read your book, Built to Sell, which I'm a huge fan of. You've authored a couple other books, I think.

Speaker 4 What is it? The art of

Speaker 1 selling your business. Yeah.

Speaker 4 Selling your business. You're an expert in entrepreneurship, small business, strategic planning, based out of Toronto.

Speaker 4 The Value Builder, I'm on the website right now looking at that. That's something you've been doing.
They're president from 2015 to present.

Speaker 4 Orlo subscriber, network owner and president since 1997 to 2009.

Speaker 4 John Werlow is an entrepreneur and speaker and the founder of the Value Builder System, simple software for building the value of a company used by thousands of businesses worldwide.

Speaker 4 He's the host of Built to Sell Radio, ranked as Forbes one of top 10 podcasts for business owners.

Speaker 4 His best-selling book, Built to Sell, Sell, Creating a Business That Can Thrive Without You, was recognized by both Fortune and Inc.

Speaker 4 as one of the best business books of 2011 and has been translated into 12 languages. John, I'm a big fan.
I'm really glad to get you here today.

Speaker 1 Hey, man. Thanks.
It's good to be with you.

Speaker 4 So why don't we just start out? You're an expert at understanding what it takes to. build a business that becomes a magnet for buyers.
I think you've done it now at least four times is what I read.

Speaker 4 You want to tell us a little bit about your career, how you got started, and what you're up to these days and here in the near future.

Speaker 1 Yeah, I mean, I got started being kind of punched in the mouth, figuratively speaking. I was running a service-based business like a lot of your listeners.

Speaker 1 We did market research, and I had a great client list. And I was in the impression that our company would be valuable based on our clients.

Speaker 1 We worked with Microsoft and IBM and JP Morgan Chase, these big, big clients. And we built it up to about five or six million in revenue.
This goes back 25 years now. So it's a while ago.

Speaker 1 And I took it to see a guy named Perry Mielli in Toronto. I said, what do you think it's worth? Perry is in the business of selling companies like an MA guy, right?

Speaker 1 I'm kind of rubbing my hands together saying, all right, what do you think it's worth? And I'm waiting for the number. And he's like, well, hold on a second.

Speaker 1 It depends on the answer to a couple of questions. And I'm like, shoot.
And he's like, well, you're in research. So who does the research? And I'm like, well, I'm involved in some of the research.

Speaker 1 Right. And he said, all right, well, who does the selling? And I'm like, well, it's these big customers.
Of course, I've got to do some of the selling. Right.

Speaker 1 And he's like, all right, so let me get get this straight. You got a research company.
You do the selling. You do the research.

Speaker 1 And I can feel the air on the back of my neck going up. And I'm like, yeah.
And he's like, well, there's nothing to sell. It's, it's worthless.
And I'm like,

Speaker 1 you know, I left that meeting feeling about an inch tall, right? Feeling like I'd been chasing all the wrong stuff.

Speaker 1 I thought it was going to be profitability and clientless that would drive the value of our company. And what Perry just told me was that that's really irrelevant.

Speaker 1 If your business is dependent on you, nobody's going to want to buy it. So we made huge changes in that business, turned it into a subscription model, got me out of doing the selling.

Speaker 1 And long story short, it was acquired by a New York Stock Exchange listed company in 2009.

Speaker 1 But that meeting in Perry's office where he sort of gave me a bit of a cold shower was what started it all, frankly.

Speaker 4 Yeah, yeah. You know, we have these questions a lot in the home service space.
I learned a lot from Atech Plumbing Electrical.

Speaker 4 There was a guy named Frank Blau in the 90s who really did a lot with NextJar Network and created this best practices.

Speaker 4 It's kind of a subscription model, not quite the same as the automatic customer talks about. And I've dissected both your books on top of the questions we had.

Speaker 4 So I've got, I take it, there's eight main things from the built to sell.

Speaker 4 I always get confused with Jim Collins' book, Built to Last.

Speaker 1 They're both amazing, by the way.

Speaker 1 But very different thematically, right? Jim Collins is very much an advocate of building for the next century and thinking about your business for the ultra long term.

Speaker 1 And I actually think that's a disservice to a lot of businesses. I think most entrepreneurs would be better off building, capturing some value and going to do something else.

Speaker 1 There's very few people that can start a business. and grow it to a massive company.
That's a very, very rarefied group of people.

Speaker 1 Yeah, you know, I think many people would be better off kind of getting 10 years into the business and then kind of moving on to do something else. Not all, but some.

Speaker 4 Well, you know, Adam Coffey wrote this book called the Private Equity Playbook, and he works for a company in California. They brought him in.
Private equity brought him in.

Speaker 4 They're doing about 800 million right now, the largest commercial HVAC company. And he goes, look, you take your 33, I think he's got a number like 34, 33%.

Speaker 4 You take it off the top, you keep equity in the company, and you take a turn. And then you do it again.
Start taking turns when it gets big enough. And my mentality recently was like,

Speaker 4 why if I don't need the money? And he goes, well, I was working with a movie theater and COVID happened. And the movie theater was going to sell for over $100 million worth of zero.

Speaker 4 They went bankrupt.

Speaker 4 And he said, you never know. And he said, when you get your money off the top, you know, every private equity guy says the same thing to me.
Take some chips off the table. That's the famous lines.

Speaker 4 But, you know, I think right now I'm building something pretty attractive with a good team. And we're building a best practices group.

Speaker 4 And we're calling it a Garage Door Freedom, which is kind of corny. But the whole point is my good buddy is a CEO now of the Next Star Network, Julian.

Speaker 4 And he said, you're in a good spot if you start a best practices group and you could.

Speaker 4 unite them into one company because you could date before you get married, understand their key performance indicators.

Speaker 4 And I want to talk to you about that later but i want to go through eight steps here of the book because you you talked about first of all i think this is huge specialize in a single service too many times we see money thrown at us in every angle and we say oh and then we become glorified handymen you know in the home service space tell me a little bit about what you meant by uh specialize in a single service well yeah i think a lot of entrepreneurs do great work and they have happy satisfied customers and happy satisfied customers love asking for more stuff, right?

Speaker 1 So, you do garage doors and you rock up with a great uniform on and you look good, you sound good, you know, you do what you say you're going to do. And they're like, hey, you do garage doors.

Speaker 1 This is great. Have you ever thought of like doing gutters? Because man, gutters would be great.
Like if you could do gutters for me, I would hire you all day long.

Speaker 1 And then you do the gutters and you're like, you know, we've got a chimney.

Speaker 1 And if you could get, I'm pretty sure you're like a mile wide and an inch deep and you're a glorified handyman to use your description.

Speaker 1 And that's a problem because the biggest issue with that is that you're not going to get other people doing the work.

Speaker 1 It's very difficult to get someone to train someone to be able to install a garage door and the gutters and the chimney and the next, right?

Speaker 1 That only comes, the ability to get beyond your personal involvement only comes when you specialize in one thing.

Speaker 1 And that's when you can train, you can create standard operating procedures for what you do, and you can start building as opposed to building up more customers. There's a funny turn of a phrase.

Speaker 1 The most valuable companies sell a few things to lots of people the least valuable companies do exactly the opposite they sell lots of stuff to a few people and that sounds like i've just said the same thing in a different way i've actually said the exact opposite right so what you're looking to do is sell a few things to lots of people yeah yeah i always say there's three ways to make money really either you get new customers you keep your customers coming back more you charge your current customers more money what i've decided to do with a1 garage service is go into all these different states, but be an expert at residential garage repair.

Speaker 4 Whereas a good buddy of mine will do almost $200 million down the street. He does HVAC plumbing, electrical water, but he owns his clients.

Speaker 4 Now, I don't know the multipliers that we're seeing, and I don't know how much you know about it in home service, John, but some of these guys are getting

Speaker 4 EBITDA.

Speaker 1 Yeah, that's not going to last in my view. I think that's crazy.
I think that's great. If you can get it and go for it, if you can, can, I think it's going to come to an end, right?

Speaker 1 Like this private equity groups are fueling this absolute bubble in virtually every industry. It's not just home services, it's across virtually every industry.

Speaker 1 And the way their model works is it's based on or fueled by debt, as you probably know, and many of your listeners know. It all works swimmingly well if interest rates are at emergency levels.

Speaker 1 But if they normalize even a couple of points, the business model changes. So as long as they can get free money from the bank, maybe get you to finance a little bit of it, it works.

Speaker 1 But the music stops when the interest rates start to go up.

Speaker 4 You know, I know you're not an economic expert per se.

Speaker 4 You know, I don't think anybody really, I didn't have you on for an economist, but how long do you anticipate?

Speaker 4 I always tell people about when I'm talking about Bitcoin or crypto, like, don't listen to me. I'm just, I got my own viewpoints.

Speaker 4 But from your point of view, how long could the Fed hold down interest rates?

Speaker 1 Yeah, I haven't a clue, man. You're absolutely right.
I'm not an economist. That's way above my pay grade.
I just have no clue. I know it will end some point.
We're not going to be in this forever.

Speaker 1 Interest rates go up and down. And I think we will see a very different landscape in the next few years.
Again, in private equity, just because,

Speaker 1 again, private equity, that's the way their business model works. And they're not a strategic where they're bringing assets to bear.
They don't have trucks on the road. They don't have management.

Speaker 1 They're just the financial engineers, effectively. And the engineering is greased, lubricated by low interest rates.
It all grinds to a halt as interest rates go up. That's effectively what I see.

Speaker 4 I've read somewhere that interest rates are the lowest they've been in 5,000 years.

Speaker 4 Obviously, there was a lot more bartering going on back then, but it's pretty interesting to live through this time because

Speaker 4 I'm watching some things happening that just mathematically, when I get into my whiteboard and I add them up, I'm like, how could this be possible? But what comes up must come down, I think they say.

Speaker 4 So we'll see.

Speaker 1 And I think, look, private equity can be a great outcome. And for maybe we should define it.
Would it help if I just describe what a typical deal looks like? Because I think you sort of

Speaker 1 love that.

Speaker 4 Yeah.

Speaker 1 Yeah. So look, I think there's lots of different ways to structure a private equity deal.
There's some common themes. One is that they buy your business, but they don't buy it all.

Speaker 1 Generally, they do what's called a majority recapitalization when they're they're buying a majority, but not all of your shares because they want you to stick around.

Speaker 1 And so the way they do that is they ask you to carry some equity, could be 20, could be 40% of the equity into a new entity.

Speaker 1 And the pitch is, hey, that next tranche, that 20 or 40% that you leave in could be worth more than the 60 you sell us today because we're super smart marketers, we're super smart operators, and we're going to make it all worth more.

Speaker 1 That happens occasionally. The challenge, however, is that you become the minority shareholder in a business that you don't own.
You all of a sudden have 40%

Speaker 1 in a company that you're no longer controlling. You also have the issue that the private equity group has borrowed a truckload of money.

Speaker 1 And if the company starts to struggle to pay that money back for any reason,

Speaker 1 you could lose that all-out shareholding in your, in the amount you left in. I did an interview with a guy named Ryan Moran, who this happened to.

Speaker 1 He built an $18 million company, great business, sold 60% of it, held 40. They brought in a new CEO, didn't know what they were doing, in Ryan's view, and the company went to zero.

Speaker 1 They couldn't pay back the interest rates, and his 40% that he left in went to zero. And he talks about that story.

Speaker 1 He shared it with me on Built to Cell Radio. So I don't mind sharing with you.
So I think that's the risk associated with private equity. It can work really well.

Speaker 1 You can take some money and put it in your jeans. And if you leave a lot of equity in, you're now a minority shareholder.

Speaker 4 You know, the real appeal that I see, John, is

Speaker 4 they usually come in and they help build the model for you to start throwing out the acquisitions. And the one thing I think they miss is the culture and the care of the employee.

Speaker 4 But I will say this: if you are a platform company, which mostly that's who they want to get involved in, and you've got standard operating procedures, manuals, a good structure, I think if you could go up and roll up $10 million companies, let's just say they're doing 15%,

Speaker 4 that's another $15 million.

Speaker 4 Then the multiplier, the arbitrage in that becomes more.

Speaker 4 And they're just giving it to the next big company. But at some point, they've got to realize that they need to somehow,

Speaker 4 and this is what I think is going to happen: someone's going to have to partner with me and say,

Speaker 4 This is the best HVAC guy. This is the best Grouster guy.
They're the same mothership. And you know, in the 90s, a guy named Jim Abrams did it with One Hour Air.

Speaker 4 Then he did it with the Punctual Plumber. Then he did it with Mr.
Sparky.

Speaker 4 The franchise model is a lot different i had um michael uh gerber on here from the e-back yeah yeah i love the franchise model it makes sense to me but i don't want to give up control but you're right there's a lot of risk involved and hopefully you're able to go out and interview the companies interview the companies that you're going to partner with but i'll get back because i've got everything from the automatic customer too so i'm going to go through some of these and you can tell me which ones are they're all applicable i mean build a business that can run without you you.

Speaker 4 You mentioned that. Hire at least two salespeople because healthy competition is good and it minimizes risk.
Not one big, huge client, like a big government client. That could be bad news.

Speaker 4 Standardize your service, saves time, better cash flow, incentives for managers to stay through that merger. And you can do that with profit incentive programs.
There's a 10 ways I've seen to do that.

Speaker 4 And then hire the right broker and think big and come up with a plan to present that shows a pretty picture to the investors.

Speaker 4 There's a lot more than that in the book, but which ones of those do you think that people really miss?

Speaker 1 You know, one we haven't talked a lot about is recurring revenue.

Speaker 1 And that was obviously the nature of the automatic customer, but it is a big part of building to sell is to structure some sort of annuity stream.

Speaker 1 Again, in home services, it's oftentimes a service contract.

Speaker 1 The HVAC guy goes and installs the new furnace, but there's a every 90 days, you come in, you check the air quality, you change out the furnace filters, et cetera.

Speaker 1 And you say, well, why would I bother doing that when the new furnace job is five grand and the service contract is 50 bucks a month or whatever? The reason you do it is a fewfold.

Speaker 1 The most important is that it increases the value of your company. You know, alarm companies these days have two forms of revenue.

Speaker 1 They've got installation revenue, which is the transactional, and they've got the recurring.

Speaker 1 They will sell right now for about 75 cents for every dollar of installation revenue and about three dollars for every dollar of monitoring revenue which is the service contract element of what they do and so dollar for dollar the recurring revenue is worth four times that of the installation revenue and that's the same in virtually every home services sector right the recurring revenue is so much more valuable to buyers because it's got a tail to it and it's not dependent on you generally to deliver.

Speaker 1 Whereas most buyers know that someone in the service business, like home services, they're probably the rainmaker for their company.

Speaker 1 Either they have hired some salespeople, but they're still probably very influential in the top line of that business.

Speaker 1 And so recurring revenue just for a buyer, it allows them to feel confident that the revenue is going to continue when you are gone.

Speaker 4 It's interesting because I'm just thinking here. Well, a couple of things.
You call it a service contract. I call it a service agreement.
Tom Hopkins 1-1. Don't sign the contract.

Speaker 1 But same idea.

Speaker 4 Yeah. And then the other one is, I'm telling you, I'm a crazy guy for subscriptions.
I get it my hair.

Speaker 4 Well, I was the first one to sign it for AMC, but when COVID happened, I turned that one off because I go to see a lot of movies.

Speaker 4 And then my haircut, I mean, if I do more than one haircut a year, the service agreement makes sense. So I get this haircut probably every 17, 15, 20 days.
depending on if I'm traveling or not.

Speaker 4 But it's so crazy that even the haircut place, maybe it was inspired by this book because I'm inspired to go out there and just build all these little groups, subscription-based, more valuable.

Speaker 4 Let's see here, consumables or a surprise box is what you talked about, the private club model versus the network. Offer peace of mind, sell content in the membership and all you can eat.

Speaker 4 I got so much stuff out of this book because I'm like, you talked about a i think it was a property manager or something that he worked on houses and just charging

Speaker 4 It's crazy to me. So I looked up New Master Academy.
It's $21 for the first six months, then $49 after that.

Speaker 4 And that's for art, right? It's crazy to me because you find something to specialize in.

Speaker 4 And what I love about that model is, can you explain to me how they monetize, how they paid to get new talent in from the monthly fees? Because I think that's fascinating.

Speaker 1 Yeah, I mean, New Masters Academy in particular, any sort of content model, they're either buying or licensing. I I mean, Netflix might be one that people understand, right?

Speaker 1 In that case, they're either buying or licensing the rights to display the content, right? So you always got to keep it fresh in order to make the subscriber feel a degree of loyalty to it.

Speaker 1 Here's the thing. In home services, I think that the secret to trying to create a recurring revenue model in home services is not to think about all of your customers.

Speaker 1 I think the biggest mistake we make is we say, well, let's look at all my customers and what could I do on a recurring basis for all of them?

Speaker 1 And that's really a recipe for a diluted recurring revenue model, right? Because not all your customers are the same and they probably require a different service contract.

Speaker 1 And so I think that the secret is to start segmenting your customers by buying behavior. I'll give you an example outside of home services, but I think it illustrates the point.

Speaker 1 The business of selling flowers. is a crappy business model, right? Like you have a flower store, you wait for people to come in, you sell them flowers.

Speaker 1 Mother's Day and Valentine's Day is when everybody buys flowers, right? So you left the other 363 days of the year trying to hawk flowers.

Speaker 1 You have some expensive real estate because you got to interrupt the guy. He's walking home from work.
He forgets his wife's birthday. He buys flowers, right? I mean, that's the business model.

Speaker 1 And the worst part about flowers is the inventory, right?

Speaker 1 Home services people have inventory in the way of they have trucks on the road, they have people that need to get paid, whether there's work or not. So they have a form of perishable inventory.

Speaker 1 But in a flower store, it's actually a thing that perishes. It's the flower itself.
A farmer cuts the stem. It dies 60 days later.

Speaker 1 Typical flower store in America will throw out more than half of its inventory every single month. Right.

Speaker 1 So you've got lumpy revenue, huge seasonality, 60% of your inventory goes out the door every month. Along comes this company called H Bloom.

Speaker 1 run by a guy named Sanyu Panda and Brian Burkhart, two partners. And they looked at it and they said, okay, we're going to sell flowers, but we're going to do it on subscription.

Speaker 1 And we're going to build our subscription not for everybody who buys flowers not the mother's day the valentine's day their graduation gift etc we're going to just do it for people who need flowers on a recurring basis and they looked out at the landscape of those people and they identified hotels

Speaker 1 hotels need flowers regularly because if you show up at the tampa four seasons they've got a bouquet of beautiful fresh cut flowers there because they want to make you think that it's a very five-star experience right so they use fresh cut flowers and so these guys went and knocked off all of these four and five-star hotels by selling them subscriptions.

Speaker 1 Typical lifetime value of an H-Bloom subscriber, how much the company gets in terms of revenue over the lifetime is more than $4,500.

Speaker 1 Compare that to the transaction when you walk into a hotel, like a flower store. I mean, Tommy, you're a baller.

Speaker 1 You probably spend $300, but most guys spend about $50 when they go into a flower store. And the typical H-Bloom guy gets, or a customer spends $4,500.

Speaker 1 And that totally changes the economics of selling flowers, right? Like now you can hire salespeople, right? And so when you're thinking about the service contract model, I think there's two things.

Speaker 1 Number one, don't try to create a service contract for everybody who buys from you, right? That's a recipe for a diluted offering.

Speaker 1 Figure out who your equivalent of the hotel chain is that needs what you sell regularly. And number two, Remember that it's the lifetime value of the subscriber that matters most.

Speaker 1 So yeah, it may only be 50 bucks a month, but if they stay with you for five years,

Speaker 1 right, that's what?

Speaker 4 Uh,

Speaker 1 $3,000 of lifetime value. So it's worth investing in that relationship to capture $3,000 worth of lifetime value.

Speaker 1 So that's what I would say as it relates to home service companies looking at this recurring model.

Speaker 4 There's a different mentality that I've heard from Ken Gooders with Gettle and my buddy Ken Haynes. There's all these guys in this space that are doing 500 million now.

Speaker 4 And what I found out from the service agreement of an HVAC unit is simply not the monthly reoccurring fee. It's not the yearly maintenance.

Speaker 4 It's they're building a fence around that customer because they know with eight to 10 years, they're going to spend $15,000. Their average ticket is 12% more.
Those aren't discount customers.

Speaker 4 And they know they could almost predict within a two-year span. And that's the big ticket they're waiting for.
So when they sell a new unit, they're almost like, ah, service agreement.

Speaker 4 I got to go to 10 years of a loss. But now they built predictability in the future for their business.
And I think those are some of the key things.

Speaker 4 When I sell a garage door, we're selling it for $9.95. I think it's $8.95 is what we lowered it to, $8.95

Speaker 4 a month. It will come out to your house once a year.
We'll lubricate it, just tighten everything on the door. Perfect.
That's not a lot of money.

Speaker 4 But the deal is your daughter's going to back up when she's 16 and dent that garage. Something's going to happen.

Speaker 4 Why isn't it the daughter, Tommy?

Speaker 1 Why isn't it the son?

Speaker 4 You know, I don't know.

Speaker 4 I don't know why.

Speaker 4 I don't have a daughter or a son, but I know that I wouldn't have done it when I was a son. So I want to have a kid one day.

Speaker 1 You're absolutely right. And it makes them more likely to call you.
And it's what we call the Trojan horse effect, right? It's the hidden reason to have a subscription model. One is the revenue.

Speaker 1 And clearly, it's kind of ticking along in an annuity stream. It does two things.
It makes them much more likely to buy from you again, that big unit.

Speaker 1 So the HVAC company is going to need another air conditioner every 10, 12, 15 years. It also makes them buy other services from you.

Speaker 1 So if you have that HVAC customer and you're billing them 25 bucks a month

Speaker 1 for the furnace, guess who they're going to call when they need a new air conditioner, right? It's a different product, but it's you use your point. You build a fence around them.
Right.

Speaker 1 And that's the real secret behind these service contracts.

Speaker 4 I love the idea of selling

Speaker 4 information. Now,

Speaker 4 you think about Ryan Dice, Perry Belcher, some of these guys, Roland Frazier, these guys, Frank Kern. They've done really good at selling info products.

Speaker 4 See, with the subscription model, with content, you got to come up with new great content all the time, or you get a fall-off period.

Speaker 4 And you explained about the different key performance indicators when it comes to the automatic customer and continuous subscription model businesses.

Speaker 4 But, you know, what does it take to run a really, really good content-based automation-type system subscription model?

Speaker 1 B2B content.

Speaker 1 B2C content, business to consumer content, how to get fit, how to get six pack abs. You know, you love to go travel to Italy, come join our membership website of like people who love Italy.

Speaker 1 Like those models churn at a really high rate because people aren't making an economic, like they're not getting some sort of economic benefit. It's not need to know information.

Speaker 1 It's like to know information, right? So if you build out your membership website or your content so that people make money from it, right?

Speaker 1 So there's a story in the book kathy blakely she built a dance academy member website right so if you own a dance studio they have a membership website that will teach you how to run a more efficient more profitable dance academy

Speaker 1 That's information that you can use to make money with.

Speaker 1 And therefore, the stick rate, the retention rate would be much higher typically on a business to business model than a business to consumer model. So I think first pick your model.

Speaker 1 And I think what you want, you want to look for someone or something where the information you're providing allows people to make money. In other words, it's a business to business model.

Speaker 1 And then you're right as well that generally these businesses trade at lower multiples than say software that kind of work when you sleep because they do need to be, in the case of content businesses, they need to be fed and watered all the time, right?

Speaker 1 Even Netflix that has a massive library of content, they still need to license new content all the time to make it appear new. So there's, it's thirsty for resources, for new content.

Speaker 1 But B2B, I think, is, is the killer app in that space.

Speaker 4 I think so, too. I've got these guys that they come after you with their portfolios.
And you look at things like

Speaker 4 payroll or credit card processing. Those are really, really good models because I'm not going away from that.
I look at Service Titan, who's, we were the first grosser company on Service Titan.

Speaker 4 They're our CRM. And they just got valued over 12 billion.
But within six months, they went from eight to 12 and the multiplier and the things they're doing.

Speaker 4 But all they got to do, see, they're a waterfall company. They take the big guys and then they waterfall down to the small guys, which is smart because that builds up their revenue stream.

Speaker 4 And they've been really, really good at getting people to sign contracts. I see what they did with me is I'm building this best practices group.
So they said, how confident are you?

Speaker 4 You're going to get signups. And I go.
Pretty damn confident.

Speaker 4 I said, because there's a lot more going into this than just service tight. And they said, well, how confident? And I said, do you need a number?

Speaker 4 They said, yes, because we'll give you a better rate the more you think you're going to sign up. And they put it into a contract, which I always call an agreement.
And

Speaker 4 I put my money where my mouth is. But for me, the reason I did that is because I told all my managers and the key executives here, I said, now we have to.
Now we don't have a choice.

Speaker 4 I put myself in an I have to do situation. And I don't know if that's a great thing or not.
But if I fall a little bit short, we'll be fine. But I don't think we will.

Speaker 1 You're burning the boats, as they say, right?

Speaker 4 Yeah. You know, we got a good question here, too, that I wanted to get to.
How important is a discount in regards to selling a subscription model? We do gutter cleaning and roof inspections.

Speaker 4 We sell service agreements, but discount service kills the margin.

Speaker 1 Yeah. So great question.
Love it. Thank you for that.
I think no one's going to buy a subscription to save 10%.

Speaker 1 I think that's where you really want to think about is like, what's 10x better,

Speaker 1 not 10% better. So I don't think you want to just start discounting your price.
Like, I'll give you an example. So in car washes, car washes used to be transactional, right?

Speaker 1 Used to go up, you buy a can tank of gas and you get a car wash, costs 10 bucks and you leave. Now, of course, they're moving all to subscription models fueled largely by private equity.

Speaker 1 But now they're like, hey, for 30 bucks a month, You can come in any time of the week, at any time, day or night.

Speaker 1 And I did a talk at the the Car Wash Association, and one guy put up his hand and says, Yeah, but like, you don't understand our margins.

Speaker 1 I mean, like, for everyone who comes in, that's a dollar of hot water and a dollar of soap. So, there's no way we could do this, giveaway free car washes.
People come in twice a day.

Speaker 1 I mean, it would be underwater. It would be terrible.
First of all, my point was at the time: look, people have better things to do, frankly, than get their car washed 30 times a month.

Speaker 1 Like, we all kind of would probably get over the novelty of having free car washes. You get your haircut.
You don't get your haircut every day. You get your hair cut every day.

Speaker 4 No, I was part of a car wash club not that long ago.

Speaker 1 Right. Before we all stopped driving.
But anyways, you don't have to lower your price.

Speaker 1 I think, first of all, when you're thinking about margin, you want to be thinking about the lifetime value of that customer as opposed to that one monthly transaction.

Speaker 1 You want to think about basically amortizing your cost of sales, your cost to win that account over their lifetime value.

Speaker 1 In the subscription model, there's this statistic called your LTV to CAC ratio. And LTV stands for lifetime values.

Speaker 1 So how much revenue you're going to derive from that customer during the life of their tenure with you. CAC is customer acquisition costs.

Speaker 1 And most people underinvest in their subscription business because they go, wow, I'm getting killed on my margin each month.

Speaker 1 Whereas what you actually want to be tracking here is your LTV to CAC ratio. How much does it cost you to win a new customer, new subscriber, new service contract, right?

Speaker 1 And make sure that you can get at least three times more than that in terms of lifetime value from your customer.

Speaker 1 And if you can meet that hurdle rate of at least 3x LTV to CAC, you're going to start to build a very valuable company.

Speaker 1 Don't try to make each month profitable in and of itself because the cost to acquire that customer, trying to get that back in the first month is going to be virtually impossible.

Speaker 4 I'm going to go on a different direction real quick because you made me think of something earlier. You said that your business on Marlowe Subscriber Network or Marlowe, I'm sorry.

Speaker 4 You said you used to do research and reminded me there's Chet Holmes wrote a book called Ultimate Sales Machine, and in there, he mentioned that there was a carpet company that he got.

Speaker 4 The owner said, Listen, I need more customers, I need to make more money.

Speaker 4 And he said, Well, let's just go back and let's do some research. You do carpet cleaning for a lot of businesses.
Let's do this.

Speaker 4 Let's find out some research of how much the germs affect the healthiness of the workers coming in.

Speaker 4 So, they found out that actually

Speaker 4 businesses with carpeting and rugs are much more healthy. But after six months, the germs spread more.
It is actually worse for you.

Speaker 4 So they said, what's your average time before that person calls you back for a second cleaning or a third cleaning? And they said, I think it was somewhere about a year and 10 months.

Speaker 4 So they came out with a huge case study and this research. And they went to all their biggest clients and they said it's better off every six months.
So they actually almost got.

Speaker 4 four times more revenue from the same customers by doing that research. I don't know if that's the type of research you guys did.

Speaker 1 No, we we did different research. I'm aware of that case study from Chad and I think it's great.
I think it's brilliant. It's so good.

Speaker 1 And it also, if he branded it right, would help differentiate the service, right? Because it's one thing to say I'm a carpet cleaner, but by doing that, you're effectively commoditizing yourself.

Speaker 1 You're saying that I'm just like everybody else and you should buy me based on our price and you should send out an RFP and get 10 carpet cleaners and choose the cheapest one.

Speaker 1 What I think he did brilliantly is to start talking about

Speaker 1 the healthy office, right? And keeping your employees healthy and that they had a process and a system and a productized service to keep your employees safe and healthy.

Speaker 1 That's a very different value proposition than we can clean your carpets, right? It's benefit riven number one, but it's also productized.

Speaker 1 Productization is the process of making your service look like a thing, making it look tangible.

Speaker 1 So the way you do that, and the way I love to tell people to do it, it's like walk into Walmart and grab a thing, a tide, off the counter, off the shelf.

Speaker 1 And look at the way Tide markets its product, right? There's a brand, there's a name. If you flip over on the, you know, there's instructions to use, there's the use case, there's a caution, right?

Speaker 1 And if you think of your service in the same way, so brand your service, brand the steps of your service, name it. provide instructions for use.

Speaker 1 In other words, this is how you get the most out of our six-month healthy office program, right? Here's who it's meant for. Here's the cautions.

Speaker 1 Like, don't trickle into month seven because that's when you get into problems, whatever. It's about productizing your service and making it look like a tangible thing.

Speaker 1 That gives you marketing differentiation and allows you to set yourself apart from every other HVAC company, plumbing company, electrician that is selling effectively the same service.

Speaker 4 I love that. I got to tell you, John, a long time ago.

Speaker 4 Not that long ago, probably six, seven years ago, I used to be the lead gen guru.

Speaker 4 I was like, dude, i can make the phone ring off the hook i could post a thousand ads a day on craigslist i figured out ways to dominate google i mean i figured out social media this is like my thing i can make the phone ring we never had a problem getting leads and i always used to think people were stupid you know way back i'd be like rap truck doesn't matter and billboards why what does a billboard do tv radio then all of a sudden i did it i did wrapped all my trucks same marketing matched the website very clean very clear what we do and i did tv radio billboards then i learned there's branded search terms and non-branded search terms the branded search terms higher conversion rate happier customers five out of five they don't care about money and i was like oh my gosh this whole time i've given i've been giving people the wrong advice because i thought it was a mistake and then i realized a billboard and radio meant two plus two equals six because now they heard it and then they saw it.

Speaker 4 And then I realized, man, if you throw that on Google and put it on your own keywords, two plus two plus plus two is 10.

Speaker 4 And then you start adding it up, and then your flyers and your yard signs look in the same. And you still could do that direct.

Speaker 4 You don't want to not be there when they search garage to repair Phoenix or Garage to Repair Milwaukee. That still matters, but it's amazing what you're able to do with a brand.

Speaker 4 And when you do go, what's crazy is Tide and Costco have, you've got their Costco brand, Kirkland,

Speaker 4 and you've got their Tide brand. And I'm pretty damn sure that Kirkland's made by Tide.

Speaker 4 But people, I'm sure,

Speaker 4 because that's how curriculum works. But it's really interesting.

Speaker 4 We got another question from Gary here, which is right on point, I think, with what you said here: is how would you do a contract agreement with a long interval reoccurring business like residential duct cleaning?

Speaker 4 And duct cleaning right now

Speaker 4 is really, really important to schools and health and everything going on with germ prevention. So, what's your answer to that, John?

Speaker 1 Yeah, I would love to see do something like maybe a partnership with the Lung Association where you do a monitoring of the air quality as part of the duct cleaning.

Speaker 1 So you're going in and not necessarily cleaning the ducts every year, but you're doing an air quality reading and providing some reporting to parents.

Speaker 1 If you've got kids with asthma or you've got older people that struggle with breathing issues, that's going to be, I would think, a very differentiating offering.

Speaker 1 Again, if you just say, I'm a duct cleaning Cleveland, there'll be 50 that you can choose from. What you need to, I think, do is say, in what way are we different?

Speaker 1 What is their productized service that is different? And maybe it is that you provide an air quality audit once a month, once a year, and that that's part of your service offering.

Speaker 1 I'm just brainstorming, Tommy. I don't know that that's the right approach, but it's something that's unique that gets you out of the commoditization game.

Speaker 4 Well, it's your USP. And there's a gal that came on here not too long ago named Janie Smith.
who wrote a book, Relevant Selling and the Competitive Advantage.

Speaker 4 And competitive advantages are truly competitive advantages, not that we're open nights, weekends, not that we have wrap trucks, not that we do drug tests and background checks.

Speaker 4 But she researched his previous data based on what the consumer wants. So, how long does the average consumer take to get a garage drawer from us?

Speaker 4 And when you could use this true KPIs that don't benefit the company, but they benefit the consumer, and you could use those. That's a real USP.

Speaker 4 You have such a great answer. I was going to get self-ish and ask you about garage drills next.

Speaker 1 I mean, look, the question I think a lot of people might ask at that point is like, but how do I discover what would be a meaningful USP?

Speaker 1 Like, how do I figure out what my customers would find differentiating about what I do? You got to ask them.

Speaker 1 You got to ask him. And there's a way to ask him.
And I think the way to ask him is net promoter scores. So net promoter score, developed by a guy named Fred Reichel, the scale of zero to 10.

Speaker 1 How likely are you to recommend this to a friend or colleague? You've answered the question a thousand times. I'm sure many people listening to this will definitely be users of net NetPromoter Score.

Speaker 1 You know, they say it's the one number that you need because the people who give you a nine or a 10, the promoters, are likely to repurchase from you and refer you, which is the kind of currency, the jet fuel for any business, right?

Speaker 1 So you want, A, you want to survey your customers to measure, and then you can benchmark yourself against other people in your industry as well as other industries.

Speaker 1 But here's the thing, and this is the part that a lot of people miss, I think, about NPS, is there's a second question.

Speaker 1 It's a follow-up question, which is an open-ended question, meaning you don't pre-code the answers. You just leave an open text box or just a place for them to write.

Speaker 1 And you ask, why did you give us the rating that you did?

Speaker 1 And it doesn't matter whether they gave you a zero or 10. You still want to know why you gave the answer that you did.
And what you might hear are things that you don't expect.

Speaker 1 And that's why, you know, there's a famous example of Scott Cook, the founder of QuickBooks, became a unicorn billion-dollar company. Everybody uses QuickBooks.

Speaker 1 When he was designing QuickBooks, he used to put the Net Promoter Score responses on his kitchen table.

Speaker 1 And he and Wife used to look at them to try to find the themes, to try to figure out what does make us unique? What features do we need to add?

Speaker 1 Michael Dell, same thing when he was trying to reinvent Dell, the computer company, same thing, net promoter score, looking at the open-ended responses, the verbatim responses to try to figure out the tea leaves, where are the opportunities.

Speaker 1 You know, a lot of people are tempted, oh, but like, I'll tell my customers the six possible responses.

Speaker 1 It's like on time delivery and my guys wear booties when they come in and, and, you know, their trucks are yellow or whatever. And they pre

Speaker 1 populate the answers. Don't pre-populate the answers.
Just let them tell you why they gave you a nine or they gave you a four.

Speaker 1 And I think you'll find that that's the raw material you need to create a point of differentiation.

Speaker 4 Ah, I love that answer. Pure gold.
You know, when we talk about MPS score, which is the great value, I mean, that's really when people are buying huge companies. That's what they look at.

Speaker 4 But I think there's something that no one really talks about as much as they should, at least, is an internal MPS and understanding how your employees feel.

Speaker 4 And I got to tell you, the most of the time we don't do it as just a business owner, general, not A1, is because we don't really want to know the answers. We know there's things we need to fix, maybe.

Speaker 4 And you're like, we know we need another manager. We know we need an HR director.
We know we need this. We know.

Speaker 4 And I think one day you've got this, I don't know, this monopoly board, and you think you know where Parkway Place is, and you think you know where everything's at of what order to do.

Speaker 4 But maybe, just maybe you should do some other things first, some simple little things that could really change the whole culture and atmosphere.

Speaker 4 What is your thought on just really checking the pulse of the internal, your internal customers, which are your employees?

Speaker 1 Yeah, I think it's critical, especially if your goal is to build a valuable. company that you could potentially sell one day.
First of all, let's define what we're talking about.

Speaker 1 An ENPS is a riff on net promoter score. It's simply where you're asking your employees, scale of zero to 10, how likely would you be to recommend this place to work to a friend or colleague?

Speaker 1 And you're essentially measuring employee engagement. How engaged are your employees? Here's why that's important to owners listening to this.

Speaker 1 If you own a business, And we've already determined through this conversation that the ultimate value of your company is going to be determined as how well it operates without you personally, the owner.

Speaker 1 You require, therefore, engaged employees. You need employees to give an owner-like effort.
You need them to step up and act like owners and be fully engaged.

Speaker 1 And the only way you're going to get that is if they are satisfied and will promote your place of work to their friends and colleagues. So it's really very self-serving.

Speaker 1 It's not because you're all kumbaya as a leader and you want to be this great guy or gal to work for.

Speaker 1 I mean, you can want those things, but there's a very self-serving reason I think you want your EMPS is because it's directly linked to your employees' ability to act like owners and therefore the value of your company.

Speaker 4 Geez, that's that's exactly. And it's harder to do.
We talk a lot about recruiting because recruiting has become a big topic with labor shortages. And

Speaker 4 I think the secret sauce for us is we don't necessarily always go to the unemployment line. We try to get people to change careers.
And we try to get them to switch from a job to a career.

Speaker 4 And then you think about where does your avatar live. And I always say the average TikTok users on TikTok now 58 minutes a day.

Speaker 1 Kids take that average up way, way higher than that. Yeah.

Speaker 4 Well, it's interesting because you got to wonder, first of all, to find your avatar. Think about where they're at.

Speaker 4 And there's one thing that I've been adamant about, and it's on my whiteboard right now is that the LMS and the training and the things that we offer as continued training.

Speaker 4 And do we make this a competitive atmosphere? Do we have pay structures that are pay for performance? And people say, you know, damn, Tommy, your attrition rate's higher than most companies.

Speaker 4 And I say, look after 90 days, though. It's much better after 90 days because it's an atmosphere that's bred for winners.
And I think we need to make a better assessment.

Speaker 4 And I've got every book in the world about how to do interviews. And there's some really, really great ones.
But I'll tell you this: action speaks louder than words.

Speaker 4 And as the honeymoon phase gets older, I was talking to me and my managers the other day. And I said, what's the one thing that stands out more than anything?

Speaker 4 References, that first interview, the ride along. And Mike said, the first 30 days.
Mike said, I know within that 30 days, everything about them. And unfortunately, it's become a numbers game.

Speaker 4 But what I love about that for us is we've got the applicants to provide more numbers. You know, a lot of times we ask ourselves, what can we do to create a better environment?

Speaker 4 I think that's the key question is I used to be a recruiter for leads and customers. Now I'm a recruiter for employees.
I'm literally, every time I'm I'm getting a haircut, I'll say, you know what?

Speaker 4 You need to come see me. Instead of, here's my card, call me when you need a job.
I say, hey, come do a tour. I think you'd be awesome.

Speaker 4 Listen, bring your husband too, bring your wife, whatever that looks like. Come to me.
Let's schedule a time right now. What's a good time that works for you? Let me text you some information.

Speaker 4 Be a little bit more aggressive about it, especially in this environment, because the wolves are going to go get it. I'm going to get employees no matter what.

Speaker 4 I'm not going to let them land in my lap. What's your take on this whole crisis right now with recruiting and what's going on in the work environment?

Speaker 1 yeah look i think it's harder than ever for sure and i love what you said earlier which is creating a competitive environment where winners win and and the higher performers want to stay it reminds me i did an interview on built to sell radio with a guy named greg alexander and greg built a cool company called sbi sales benchmarking index And he built the culture you're describing.

Speaker 1 He's like, I want winners. I want people who played sports.
I want people who like comparing themselves and winning.

Speaker 1 And he built this company up and he got it to a point of about 30 million in revenue, but he personally wasn't doing any of the work anymore because he created such a culture of attracting winners that they kind of led the business.

Speaker 1 And he went to sell it and he thought it might be worth around one times revenue was sort of his hope. You know,

Speaker 1 he got $162 million for the company. And when I asked him how involved he was in the sale, he said, I didn't even meet the buyers.
I'm like, what are you talking about? You didn't meet the buyers.

Speaker 1 You sold $162 million business.

Speaker 1 You didn't even meet the buyers. And he's like, no, I've delegated it to my employees.
My chief of staff, my COO ran all of the M ⁇ A process.

Speaker 1 I mean, I've never heard of that for a $1 million company, let alone a business 100 times the size. But it was the extent to which he had built this company so that it wasn't dependent on him.

Speaker 1 And the way he did that was creating this environment, this culture of attracting these very, very high performing people, paying them very, very well, right?

Speaker 1 So compensation was his number one line item, obviously. But he was able to attract them.

Speaker 1 And, you know, if you met Greg and I got a chance to chat with him for a while, he's a real straight shooting kind of guy. Like there's no facade to him.
You're going to get exactly what.

Speaker 1 he thinks about when you talk with him. And I'm sure he was very direct in the kind of culture he created.

Speaker 1 So if you're looking for a maternal, coddling, you know, out-a-boy kind of culture, that's not us, right? We're not going to shower you with praise.

Speaker 1 But if you want a winning culture where you compete with the best to win, that's the kind of culture we create.

Speaker 4 I love that. You know, and another one Chet talks about is he challenges people.
I'll say, John, I'm not sure. that you're the right guy to work for this company.

Speaker 4 It doesn't sound like you got enough experience or, you know, I don't even think you care about yourself enough to work here. and if they bought

Speaker 4 you know

Speaker 4 i love it it's got to be direct another thing that i always tell the employees is look we played a lot of sports when we were kids i played a lot in high school and i'll tell you this i played i practiced every freaking day sometimes we had two days and then we got to play once so whatever that looks like for your business do you have them practicing all day every day and then playing in the game which is going and meeting the customer because if you're not giving them that type of attitude as the athletes and you're saying whether they played symphony or whether it was just the professional chess, I don't care what it was, but they were disciplined enough to practice way more than they played.

Speaker 4 And a lot of times we say, go do a ride along for two weeks and then you're on your own forever. And that's just a tough environment.
And an athlete wants competitiveness.

Speaker 4 They want to know where we stand. They want to know, can we do a ride along? Because I want to see what this guy's got.

Speaker 4 I mean, we used to call it checking the tape back.

Speaker 4 long time ago you can check the tape and find out what your competitors are doing how fast is that guy i mean but we don't do that anymore and one more topic why i got you so we talk a lot about selling a business and let's do the the opposite of that because some people listening want to grow through acquisitions some people want to be that platform company and there's only a couple reasons i'd want to buy your business either for your customers or for your employees or maybe there's a brand that's still there but the brand is really what the customers are attracted to so when you're buying a business and I know there's different sizes and different multiples, sometimes I'm only willing to buy a phone number versus a really high multiple.

Speaker 4 What is your take on growth through acquisitions now? Because you're such a pro at selling the business. What is your thoughts on the opposite side of that?

Speaker 1 Yeah, it's funny. I don't think a lot about it.
To be totally transparent, our goal is to level the playing field for business owners as they approach their exit.

Speaker 1 So, our whole kind of philosophy is about making sure that business owners don't get taken advantage of when they go to sell, that they get a fair shake.

Speaker 1 So I don't really kind of switch sides very often and say, okay, you steal a business for less than it's worth.

Speaker 1 I mean, at the end of the day, I think you either buy a very valuable company and you take advantage of some unique positioning, some great customer lists, some like recurring revenue stream, et cetera, and you pay a full pop for that, which is what we would hope.

Speaker 1 The other option is you buy a business that does all the opposite of what we're talking about, right? Like has one big customer, has no recurring revenue, you know, et cetera, et cetera, et cetera.

Speaker 1 And then you build value into that business. And I think there's a lot of people that do the latter.
And right now, there's a lot of owners that are just tired, right?

Speaker 1 Like, and home services in particular is one of those areas where I think you've got a lot of owners who've ridden the pandemic. Their business has been disruptive.
It's totally changed.

Speaker 1 Their safety protocols are totally different. And they're 65 years old.
And they're like, yeah, do I know I could do better? Yep. Could I create a more valuable business? Yep.
Am I willing to do that?

Speaker 1 No. So take it off my hands for two times SDE and I'll be happy.
You know, and I think there's a lot of folks regrettably out there right now that are just too exhausted to continue.

Speaker 4 And that's a lot, man. Yeah.
It's a lot of work, man. There's days that I get up and I'm like, geez, I'm so happy and so optimistic about this business.

Speaker 4 And normally I'm like, dude, we're going to go straight to a billion in revenue. But there are days like everybody has.

Speaker 4 You know, it's like, I can't imagine getting up in Minnesota and you're from that part of town. I'm from Michigan.
And it's 20 below one day and everything's just, the cars aren't starting, whatever.

Speaker 4 And you're like, do I really want this anymore? I've got enough money to go to Florida, whatever that looks like, or Arizona or California or wherever. There's always that point of just like.

Speaker 4 Man, or that last employee that you trusted that you'd give anything to just quit. And he was supposed to be, or she was by your side forever.
It's a tough situation.

Speaker 4 And I'm glad that I've got really, really loyal people here. And interestingly enough, John, when you were telling me one day, I met this guy in his garage and I'm wiring up his safety ice.

Speaker 4 I'm on my knees wiring it up. And I said, Man, I got to ask you a question.
This is the biggest damn house I've ever been in. This is freaking phenomenal.
I love your Ferrari. I love the Lambo.

Speaker 4 If you wouldn't mind telling me a couple tips, I've been doing this a few years. I'm still relatively small.
I've got less than 10 employees. What's the secret?

Speaker 4 And he goes, Tommy, I own a lot of car dealerships all across the West Coast. He goes, I pay my employees 10% more than the average.
He goes, now here's the secret sauce.

Speaker 4 He goes, I've got one guy under me, my COO. I talk to him 10 minutes every night for a complete executive summary of what happened at each place.
He comes with solutions, not problems. I pay more.

Speaker 4 My retention rate is so much higher than the average company. And he goes, it's not worth the headaches to be a penny pincher.
And it's something that you said.

Speaker 4 This guy said, hey, I paid way more than anybody. It's his biggest line item.

Speaker 1 But it's also the insanity line items not going crazy either right yeah yeah that's really interesting that's great feedback I want to go back to something Tommy you said earlier which was

Speaker 1 and with your permission we could go here is this you know when you're you're feeling like

Speaker 1 exhausted and you're wondering like you know like is this all worth it I could probably sell and go to Florida or California do you mind if we just spend linger there a minute Yeah, yeah.

Speaker 4 And then I just wanted to ask you how to get a hold of you. But yeah, let's go there.

Speaker 1 Okay. So let me tell you a quick story.
And I I don't mean to

Speaker 1 say this to scare anyone because that's not my intent. My intent is just to share a story and maybe a lesson.
This story comes from a guy named Rand Fishkin, who wrote a wonderful book.

Speaker 1 It's called Lost and Founder. It's worth picking up.
Have you ever read it, Tommy?

Speaker 4 I have not. I'm going to.

Speaker 1 It's definitely worth picking up. But I had him on Built to Cell Radio and I interviewed him about this process.
So he built a company called Moz, which was in the SEO software space.

Speaker 4 Yeah, I know Moz really well. Yeah.

Speaker 1 Okay. So it built it up to $5 million in revenue.
It was a SaaS company. So these companies trade at really good multiples.
So in his mind, he thought he could get four times top line revenue.

Speaker 1 Here's the thing. Like a lot of owners, he was really optimistic.
And he thought, you know, tomorrow is always going to be better than today. And we're going to the moon.

Speaker 1 And he thought he could get to 10 million in recurring revenue by the end of next year. And so he's at five.
but he's on his way to 10. And along comes a guy named Brian Halligan.

Speaker 1 Brian Halligan's the co-founder of of HubSpot, the all-in-one marketing automation platform.

Speaker 4 Yeah, we use HubSpot a little bit too.

Speaker 1 Yeah, yeah. So Halligan says, you built this great company, Rand.
You know, you're doing $5 million in revenue. We're going to give you $25 million of cash and HubSpot stock.

Speaker 1 And we want to buy your company. And Rand, well, flattered, thought, well, hold on a second.
I'm going to 10. And it won't be more than a year before we get there.
And then I'll be worth 40.

Speaker 1 And so Rand says no.

Speaker 1 And he says that, no, I'm not going to do that. I'm going to raise some venture capital money.

Speaker 1 So he goes to institutional investors and he raises some VC money and they invest in a bunch of different products that they're really not experts in. They're not differentiated offerings.

Speaker 1 They're kind of commoditized. And the business starts to falter.
Cash starts to bleed out. And they remove Rand as the CEO of this company.
And I interviewed him after the fact.

Speaker 1 And I said, yeah, but I mean, you've got, you still got a truckload of Moz stock. I mean, that's going to be worth a fortune someday.
And he's like,

Speaker 1 not. In fact, it's probably not worth anything.
I'm like, what do you mean, anything?

Speaker 1 And he said, well, the way the VCs invest, they invest and they get preferred shares and they get a preferred return.

Speaker 1 And based on the length of time they've held those shares, they're basically going to wash me out of any value. And I said, but Rand, what would that offer have been?

Speaker 1 Because the Hubstock stock has gone up a truckload. And he said it would be worth close to $200 million.

Speaker 1 Here's the thing: the moral of the story story is that entrepreneurs are hugely optimistic. Tommy's sweaty.
He's like, oh man, maybe I got to.

Speaker 4 I don't know. Hey, it made me sweat.
Yo, you're good.

Speaker 1 We're super optimistic people. It's what gets us going in the morning.
It's what makes us

Speaker 1 look in the mirror and actually be able to do what we do.

Speaker 1 And so it's actually a default of ours, right? Our optimism is both our greatest strength, but also our biggest liability. The fact that we always think tomorrow is going to be better than today.

Speaker 1 Here's the thing. We don't know what tomorrow is going to bring.
And so I think when

Speaker 1 you get that phone call from the equivalent of HubSpot or whatever industry you're in, I think it's worth taking seriously. And

Speaker 1 when you reach that freedom point where

Speaker 1 selling your business would create enough liquid wealth for you to live for the rest of your life happily, I think it does beg the question: is now the right time?

Speaker 1 There are all kinds of karmic reasons you might want to sell or might want to hold your business to a billion-dollar enterprise. I get why that is attractive.

Speaker 1 And the longer you hold your company

Speaker 1 where all of your assets or a large part of your wealth is in your company, you are effectively the gambler at the blackjack table putting all the chips in, right?

Speaker 1 And if you're comfortable with that, good on you.

Speaker 1 And some people reach the freedom point where that risk just gets to be too much. And they're like, I need to actually start to diversify.
And so again, that's the pitch you've heard from the PE guys.

Speaker 1 And I'm not suggesting you sell to a private equity group because that's a different conversation.

Speaker 1 But I think for anybody listening, when they reach that freedom point where selling their business would create enough liquid wealth to live comfortably for the rest of your life, I think it's at least you owe it to yourself to pull up and say,

Speaker 1 okay, am I willing to keep making that bet every single day? And if you are, great. If you're not, time to sell.

Speaker 4 I got a couple of quick comments and then I'll go through my closing questions if you don't mind. Yeah, sure.
I want to hear your perspective.

Speaker 4 So number one, I always used to tell people, you got Tom from MySpace, who sold at the perfect time for $490 million. And you got Facebook, Mark Zuckerberg, that decided to hold out.

Speaker 4 And now he's one of the richest men in the world. Totally.
Now, the trick is, can I pull out enough money somewhere, whether that's because of the votes in the bank,

Speaker 4 which is the revenue in the bank.

Speaker 4 that if I'm able to do a cash disbursement and have enough that I can make the investments to be comfortable living, I think that's a huge thing because a lot of times people are not living the life they want to live because it's all in their business.

Speaker 4 And then, you know, what I would say is if I were to call you up right now, John, and I say, hey, John, look, I love what you're doing over here at Value Builder.

Speaker 4 I'll tell you what, I've looked at some primitive numbers. Of course, we got to go through a quality of earnings, but I want to give you this.

Speaker 4 The real question that I have for the people listening is: are you getting audited financials?

Speaker 4 Are you really getting audited financials? Really, are you on an accrual base accounting? Because that matters. There's a lot of things that I need to make sure.

Speaker 4 Because if you were to make that my mindset and say, shoot, I'll take 5 million, then you get through the quality of earnings and really understand that it's not what you and your significant other anticipated, it's 1.8 million,

Speaker 4 is start running the business with doing all these things today and build it to sell. Make sure you're getting all the stuff banked.
Make sure your accounting's right.

Speaker 4 Make sure you understand your ad backs. Make sure you're making decisions with the point in mind to sell because i just think there's so many businesses out there that i go

Speaker 4 why would i buy you

Speaker 4 what is it that i'm buying you don't make a profit to replace you is going to cost a hundred thousand dollars where did you get this number what broker are you talking to this is ludicrous of course they want to tell you if someone wants to sell your house they're going to get it under contract as a realtor and they're going to say we tried this price to go down down down down down down down so i couldn't agree more I think the main thing is build a business you can sell because if you get an opportunity, you'd be surprised what happens during that quality of earnings and the diligence period because you get this.

Speaker 4 Sometimes you can get the wind knocked out of you really quickly.

Speaker 1 You're absolutely right. I couldn't agree more.
Build it to sell from the beginning. So you've got all the cards, right? You're not burnt out.
You're running it professionally.

Speaker 1 If somebody makes you an outlandish offer, you can sell it, but you're not kind of going hat in hand trying to figure out, you know, you're accounting after you sign a letter of intent. I agree 100%.

Speaker 4 So, John, you were really patient with me because I get so excited. This is literally fire.
I feel like I got more notes than I've ever had before.

Speaker 4 But if I want to get a hold of you, I want to learn more. I would love to do a 2.0 because I wanted to talk more about Value Builder and I wanted to talk about more about how to get more of you.

Speaker 4 But if I just want to dabble or get a hold of you, what's the best way to get involved with what you're working on?

Speaker 1 Yeah, I head to builttosell.com and we've got some free gifts there. If you opt in, give us your email address.

Speaker 1 We will send you a checklist of the nine subscription models so you can go through all nine that are in the automatic customer book. We'll get you a video series on the drivers of company value.

Speaker 1 And then there's also the art of selling your business workbook, which again is a sister compilation to the physical book, the art of selling your business. Again, it's free.

Speaker 1 Just go to builttosell.com and click the button free gifts and away you go.

Speaker 4 Okay, and if you know, we can speed date here on this one, but I always ask three books. All of your books are amazing.
I'm going to read the art of selling.

Speaker 4 Three books that just maybe change your life, stand out to you that you'd recommend.

Speaker 1 Oh, man. Small Giants is great from Bo Burlingham.
I love that book. I think it's an awesome book.
Have you read that one?

Speaker 4 Yep. Yeah, great.

Speaker 4 You got it in here.

Speaker 1 Yeah, for sure. I read a book years ago called Confessions of an SOB.
It was by the guy who started the USA Today newspaper.

Speaker 1 And it's probably, it's long since out of print, but it had a big impact on me as a young person. So it's probably not even available anymore, but it's a fun book.

Speaker 1 And then we've already talked about the e-myth. And I think it's an only bit of goodie.
It's a standby.

Speaker 1 It provides a lot of the sort of core lessons that we've talked about today, the old idea of working on, not in your business.

Speaker 4 So maybe those three would be a place to start.

Speaker 4 Okay. And this is the final question, John.

Speaker 1 You've said that now about four times.

Speaker 4 This is it. I'm going to give you the

Speaker 4 time. This is the final question.
I always let the people on the podcast. We talked about so many things and we might have not hit anything that you wanted to talk about.

Speaker 4 So I wanted you to close close this out give you a few minutes anything you want to talk about go to action take this step do this today but one final thought for the listeners

Speaker 1 cool i think it was fun i think the idea that i tried to sort of communicate throughout our conversation is that for your business to be valuable it has to work without you And for that reason, I would encourage everybody as a kind of final thought to think of their role less as the CEO of their company and more as the parent of their business.

Speaker 1 You know, a lot of us are parents, right? And if you think about your job as a parent, in the beginning, it's like wipe the bum and like burp the baby. It's like everything, right?

Speaker 1 But when they get into their teenage years, you're trying to kind of like kind of pat them on the bum and get like get them out of the house and operating on their own and starting to make some decisions on their own.

Speaker 1 And by the time they're in their 20s, you're hoping that they're thriving on their own terms, right? They're kind of living what.

Speaker 1 their best life is and they're kind of going about their world and they're happy and contributing to society. And if you've done that as a parent, you've checked the box.

Speaker 1 And I think if you think of your role, not as the CEO of your business chasing revenue, but as the parent of your business, and the ultimate goal here is not to hit some milestone revenue-wise, but to get this business so that it can live without you.

Speaker 1 Just like you try to get a child to be able to live in the world without you. And if you've done that, I think you've created a legacy for yourself and you've also created a very valuable asset.

Speaker 1 And so I just encourage everybody to think

Speaker 1 parent rather than CEO. And I think that'll set you off in a good way.

Speaker 4 That's great advice. I've got a lot of notes here, John.
Thank you so much for coming on. I really appreciate it.

Speaker 1 Hey, Tom, it was fun.

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