On this special edition of “Deal Talk,” we’ll talk about why some successful entrepreneurs sell their business and happily move on to the next chapter of their lives, while others sell their companies and seemingly live to regret it. Bo Burlingham — author of “Finish Big: How Great Entrepreneurs Exit Their Companies on Top” and, previously, The New York Times best-seller “Small Giants” — joins us from his Northern California home to talk about the key factors that separate owners who are happy after leaving their companies from those who are unhappy. Why do some go wrong while others are so successful? This is an interesting discussion that may get you thinking about your own future!
But it's going to happen someday, one way or another, everybody exits. You may exit feet first but you are going to exit sooner or later. And if you're not prepared for it, it's almost certain that your exit's not going to be a happy one.
- Bo Burlingham
From our studio in Southern California, with guest experts from across the country and around the world this is Deal Talk, brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.
Jeff: Welcome to the web's number one content source for small business owners committed to building a business for eventual sale. On Deal Talk it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value. Joining us to discuss how you can work toward finishing big is Mr. Bo Burlingham who writes for Forbes and is the author of five books including the critically acclaimed Small Giants, and his most recent book Finish Big: How Great Entrepreneurs Exit Their Companies on Top. Bo Burlingham, we know a little bit about you, some of us know a lot about you, and it's good to have you on Deal Talk sir, thanks so much.
Bo: It's good to be here Jeff, thank you.
Jeff: We appreciate you and you had such a huge book in Small Giants that I know that, and for some people who may not have read it or heard of it, that was a book that came out back at around 2005-2006 and you got a big write-up on that. And I know that it was one of the bestselling business books of that time. But with Finish Big I got to tell you, it's really kind of an exciting documentation, Bo, of your speaking with so many business owners over a period of time. Tell us a little bit about how you got started and the idea for coming up with that book.
Bo: It actually started, I worked at Inc. Magazine for about 33 years and one of the things that I did there was that I wrote a column with Norm Brodsky. Norm Brodsky is a serial entrepreneur and we had been writing the column for 20 years or something. But sometime back in the mid-2000's he surprised me by telling me one day that he was constantly receiving offers for his business but one had come in that he was actually thinking about accepting. And so we decided to write about it in the magazine sort of in real-time. For the next, whether if it was 10 months or so, every month we would write an article about what was going on with the sale. I don't think anything like it has ever been done before or will probably ever be done again. But it was very interesting, we didn't really know what was going to happen when we started out but what did happen was that we developed a huge following of people who were just really anxious and curious to know what was going to happen. In the end he wound up not doing the sale to the company that we were actually writing about, but along the way we had this just huge response.
At one point we asked readers to give Norm advice about what he should do and we were just flooded with thousands of emails from people, most of them telling him to go ahead with the sale. But one of the things I realized from that was that there was this hunger out there for what it was actually like to go through this process of selling your company. I did some research and realized that while there's quite a bit out there about how to go about selling a business, there's very little, in fact practically nothing about what the experience is like for the people who are going through it. And so that was really the impetus behind doing the book. One of the interesting things that I found, as you said I interviewed a tremendous amount of people who either had gone through the process. What I found was that about half of them were happy and about half of them were miserable and full of regrets. I basically asked, "What's the difference between the ones who were happy and the ones who were not happy?" And that's really what the book is about.
Jeff: Did that surprise you at all, Bo, that you found that 50/50 split?
Bo: It did. When I went into this I knew practically nothing about the subject other than what Norm and I had written about. You tend to think that if people get a good deal that they're going to be happy afterwards. It turns out that's not necessarily the case. And that's actually a big mistake that a lot of people make. They focus so much on the deal that they neglect the other parts which are basically emotional more than anything else. People who have gone through it, not everybody, but a lot of people will tell you that even though it's natural to focus on, "How much money am I going to get for this?" that's only really about 20 percent of it. The other 80 percent is all emotional.
But one of the things I realized from that was that there was this hunger out there for what it was actually like to go through this process of selling your company
Jeff: I think this is really important. You talk about the money as kind of a small part of it. There's more to finishing big, the idea of finishing big than just coming away with a big pay day. What is the key then? Let's focus on the 50 percent of the people who were satisfied and were happy. Just to summarize, what did you find out was the key amongst all of those individuals who were satisfied once they left their companies?
Bo: There's actually more than one key, Jeff, but certainly one of them is starting early. Early enough to go through the entire process and to prepare both yourself and your company for the kind of exit that you want. There's a tremendous amount of, I guess I could call it procrastination, or maybe it's just avoidance of wanting to think about the exit. But it's going to happen someday, one way or another, everybody exits. You may exit feet first but you are going to exit sooner or later. And if you're not prepared for it, it's almost certain that your exit's not going to be a happy one.
Jeff: That first story that you told in the book ...
Bo: The one in the opening chapters is the one you're referring to.
Jeff: Ray Pagano?
Bo: Yeah, it's Ray Pagano. And he got an offer. He was at an age where people naturally can't avoid the fact that sooner or later this journey is going to end. And he got an offer and he took it to an advisor who very wisely and correctly told him that he could do much better if he did some things to really prepare his company for what he was going to do. He made some very smart changes in how he ran the business and wound up getting a deal that was four times the offer that he had received four years before. There were a lot of things about what happened with him that when you examine it closely are really crucial things that everybody has to do.
Early enough to go through the entire process and to prepare both yourself and your company for the kind of exit that you want.
Jeff: And you can read more about Ray's particular story in Finish Big by Bo Burlingham. Bo is our guest today, author of course before that of Small Giants. A total of five books altogether that Bo has penned over the years and Finish Big, the most recent among them, and that is the focus of our conversation today. How do you as a business owner finish big? Bo, you put it very, very simply that you need to start early, that's one of the keys to success that all of those satisfied business owners that you talked to, really they had that one particular key in common amongst many others. But I was wondering if you could tell us just about there are four stages you talk about in Finish Big of the exit process. Let's just maybe go through all four of them briefly. And if you can tell us that any one of those are more important the others that would be great.
Bo: I'd been thinking about this question and I think they're all really critical. One of the reasons that people don't start early I think is because they don't know where to begin. It's easy to tell people that you should begin with the end in mind but that can be a very tricky thing to do. What I realized in thinking about this is there are really these four stages. The first one is very simply an education. You educate yourself about what is involved, what are the things you should be thinking about, and what are the issues that you should be taking into account. At some point that is the place to start when you start early. That was really something that I was trying to address in writing this book. But there are many ways to explore that. The second phase follows on from that, and that's what I call the strategic phase. And that's when you actually build into your company the kinds of qualities that are going to allow you to have the kind of exit that you want. The third phase is the one that most people think of, and that's the deal. That's the phase that starts with actually going out and looking for potential buyers. And then it concludes with the deal. The problem most people have is that that's the phase they start at, and they haven't done phase one and phase two. And as a result there's a lot that they miss and it's sort of a matter of luck whether or not it comes out okay.
And then the fourth phase is the one that most people I think forget about or neglect, and that's the actual transition from owning a company to whatever it is you're going to do next. Part of the thing is the people who are going to help you do the deal - namely investment bankers, lawyers, accountants, and so forth - for them the whole experience ends when the deal is done. For you the deal being done is just the beginning of a period that for many people is extremely difficult when they go one day from being the owner of this company that everybody's looking up to ... Not the next day but within a fairly short period of time people aren't returning your phone calls anymore. And that can be very, very hard. So you've got these four stages and each one of them is really critical to having a great exit.
Jeff: And the fact of the matter is you can't really complete the exit process until you've actually gone through, completed the sale, and you're then doing something completely different than what you were doing before that escrow closed and before you actually have that money in your account someplace. So you actually have to go on and start your new life, whatever that might be. Bo Burlingham is our guest. He is the author of Finish Big: How Great Entrepreneurs Exit Their Companies on Top. And we're talking about this because we want to give you some food for thought. Because there's going to come a time when you're going to need to make some decisions. And the wiser you are once you get to that point the better off you'll be. My name is Jeff Allen with Bo Burlingham and we're going to continue our discussion when Deal Talk comes back after this.
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I'm Jeff Allen with my guest Bo Burlingham, author of Finish Big, and you're listening to Deal Talk and really glad that you tuned in today because we're enjoying a discussion with Bo Burlingham that we wanted to have for some time with him. We're talking about key components, his experience talking with all of these business owners, entrepreneurs for his book Finish Big to get some sense of the experience that they had going through the sale of their company. And everyone's got a different experience and no two people are exactly alike. What are one or two of the most important personal differences between those entrepreneurs who are ready to sell their companies and satisfied when they do, and those who maybe are not ready and even regretful when they do in fact sell their companies?
Bo: I think that's an excellent question, Jeff, and I think that there are really two that I would want to emphasize. One is something actually that most of us spend our entire lives working on and that is self-awareness. By that I mean knowing who you are, what you want, and why. The truth is that the more self-aware you are it's not only the happier the exit you'll have because you’ll have a much clearer idea of what you're looking for but you'll also have a much better company. In Small Giants I found this to be absolutely critical factor in the business owners and leaders who were able to make the best decisions for their company. The second one is a little trickier. I realized when people start companies you get very excited, you have a vision of the company you're going to build. You get into starting the company, and you get totally focused on doing what you need to do to achieve your vision. And usually there are all kinds of problems, you're constantly putting out fires, making plans, and everything is geared toward that. At some point you need to step back and take a longer view. You need to realize that building a business is a journey, and it's a journey that has a beginning, a middle, and an end. And the end is not when you build a great company, that's the middle. The end is when you leave that company.
And so really the way you need to look at what you're doing when you go out and build a company is to keep in mind that there's a whole journey here, and the goal of the journey is to have a happy journey, and to provide you with the kinds of things you are looking for because of who you are. That ability to step back from what you're doing and say, "Wait a minute, where ultimately do I want all this to end up? Do I want to have this company exist after me? Am I building a company that I want to have go on after me and be independent? Am I building a company, what are the qualities of the company that I ... what's going to be a company that I can feel really proud of after I've left?”, all of those kinds of important issues. I'd say sometimes a bit of an exaggeration but when you're planning a journey to Mount Everest or whatever, you don't just think about getting there, you think about the whole journey. Mountaineers like to say that the goal of climbing Mount Everest isn't to get to the top. The goal of climbing Mount Everest is to return alive and have the joy of having completed the experience. And so you need to think about all of that, and frankly there's no point that's too early to start thinking about that. Even before you've started your company these are questions that are good to be asking yourself, because in the end you'll have a much better journey if you've probed these questions really all along through it.
The first one is very simply an education. You educate yourself about what is involved, what are the things you should be thinking about, and what are the issues that you should be taking into account. At some point that is the place to start when you start early.
Jeff: I can see that as someone who is also certainly not as young as I used to be and we simply aren't Bo as you know ...
Bo: We're aware of that.
Jeff: But I think the thing is once you get to a certain point I think we become more set in our ways, we certainly become more stubborn internally as we do toward others perhaps. But you've got to be able to answer the why questions as much as you can answer the what. And the older you get, the further down the line you get it's tougher to see the forest for the trees maybe, or maybe have an understanding of the types of things you need to get your head around, and that is, "What am I going to do? This is not the end all be all here. I'm making something, but beyond that what am I doing and why am I doing it?" And once you can get those questions and Bo like you said, it's kind of like it can be a complete mindset change. And once you're able to do that and get through those barriers and have a greater understanding of your ultimate goal and what you really want to do and that's not building a successful company as you said, that comes in the middle, but it's what you're going to do at the end that really does matter.
Bo: I would just add one thing, Jeff, to that which is that if in fact you're having so much fun, you have such a great life in your company, if you want to basically die at your desk there's nothing wrong with that, but it's still something that you have to plan for and you have to plan for with your company. If you don't plan for it then what you're going to wind up doing is leaving a huge mess and creating huge problems for the people you care about most in the world namely your family, your employees, the other people who have built the company for you, your customers, it will be a huge mess and that's probably not the way you want to be remembered.
If you don't plan for it then what you're going to wind up doing is leaving a huge mess and creating huge problems for the people you care about most in the world namely your family, your employees, the other people who have built the company for you, your customers, it will be a huge mess and that's probably not the way you want to be remembered.
Jeff: Very, very good Bo, way to leave that on that particular question. I appreciate that. Discussion of saleability factor is very important obviously. You need to know whether or not your business is something that you can sell, whether that be now or whether that be three to five years from now. Bo, how do we know? What are those factors that are so important that we have an understanding about concerning our companies that allow us to be able to move forward with that sale?
Bo: I want to preface my answer to your question, Jeff, by making what I think is a very key point, which is that you should always build a company so that someday it can be sold for as much money as possible even if you don't want to do that. The reason is very simple, it's that you will have a better company if it's a company that can be sold someday for as much money as possible. The question you might ask is why? Essentially what buyers look for in a company are two things. Number one is the potential for growth, and number two is the minimization of everything that might keep you from having that growth, or might keep the company from having that growth. They want to maximize the future potential of the company and minimize everything that would keep you from achieving those things.
When you think about it, that's what every owner should want. And if you build a company that really has those qualities you're going to have a better company. You're going to get more satisfaction out of it, you're going to do better, your prospects are going to be better, everything is going to be better. The real point or I should say one of the key points about building a company that's saleable is that it's the same thing as building a company that's going to be great from a business standpoint. Within that you might ask, "What are the factors that are going to determine whether or not your company is saleable?" I have to say I rely heavily on John Warrillow who somebody I write about in the book, he has a company in Toronto called The Value Builder. He has a whole system called the Value Builder system. It used to be called the sellability score, now it's called the value builder score because he's trying to make the point that building a company that's very saleable is the same as building a company that has a lot of value. He did a lot of research and he identified eight factors. One is financial performance. Basically there's a formula for really evaluating the financial performance of a company. And if you read the book I go into that a little bit and John at value builder score has a lot about that.
The second factor is what I mentioned before, namely growth potential. The third factor is over-dependence on either one customer or two customers, or over-dependence on certain employees. The reason being that if you're too dependent on them then that's one factor that could get in the way of your achieving the growth that you're looking for, because if anything happens, if those customers go away your company's in trouble. The fourth factor is cash flow, its internally generated cash flow basically from a buyer's point of view, the more cash flow that you are generating yourself the less cash that a potential buyer would have to put up. The fifth factor is recurring revenue. If you look around you'll see more and more companies developing a subscription model. The reason for that is that you have guaranteed cash flow. And if you have guaranteed cash flow going into the future your future is definitely more secure. The sixth factor is really a unique value proposition. John calls it monopoly control. It's basically about the barriers to entry. The harder it is for competitors to copy what you're doing the less pressure you'll feel to reduce prices. Warren Buffet talks about he likes to invest in companies that have built a moat around them. It's the same idea.
The seventh factor is customer satisfaction. The tip there is you can't just do this based on testimonials that you get from a few customers. It's best to be able to measure in some way how your customers feel about you. And more and more companies have developed what's called ... It's actually based on a book by a guy named Fred Reichheld called the Ultimate Question and it's a formula called the net promoter score. It's really a very key thing that every company should adopt. It's based on the idea that you ask your customers if they would recommend you to somebody else, preferably somebody they really care about, another member of their family or something like that. If they answer nine or ten, it's a 10-point scale, then they're a promoter. If they answer seven or eight then they're sort of in the middle. If they answer one through six then they're not a promoter. So you take the number who are promoters and you subtract from it the numbers who are not promoters and you come up with a net promoter score. And that's something that will help your business.
The fifth and final factor is critical, namely the strength of the management team. Ultimately you want to build a company that can operate without you. And that means that there are people, that you have a team, you’ve put together a team that can run a business even if you're not there. So those are really the eight key factors that go into saleability.
Jeff: Bo, as we're starting to wind down just a little bit here, something that I thought was very, very interesting to read in your book, and that it is really important for a business owner, the seller to know why a prospective buyer is interested in buying their business. Why is that?
Bo: It's easy when you're in the selling process to overlook the fact if you are the owner of a company that you're not the only one doing the selling. The potential buyer is also selling themselves to you.
When you think about it, that's what every owner should want. And if you build a company that really has those qualities you're going to have a better company. You're going to get more satisfaction out of it, you're going to do better, your prospects are going to be better, everything is going to be better.
Jeff: Interesting point.
Bo: They're trying to show that they would be a good owner of your company. And a lot of times they'll go out and talk about how wonderful you are and how great they think your company is and how they love your people, and how they think your ways of doing things are really terrific. And in fact if the buyer is a company in your industry, how they want to adopt things that you do. You can't accept all that at face value. Depending on who the buyer is, there are some buyers who frankly will just tell you anything that can be done, anything that they can say to get you to say yes to the sale. The problem with that is that after the sale things are likely to happen that you didn't anticipate. I have some stories about that in the book. Basically, the way to protect yourself against the disappointment and in some cases real heartbreak you may feel afterwards is to know in advance what is this potential buyer's real motive for buying my company? And that applies to all kinds of buyers. It applies if you're selling to somebody else in the industry, if you're selling to a competitor, or if you're selling to a financial buyer or a private equity firm.
One of the big mistakes that people make in selling to private equity firms is that they think that in fact the private equity firm is going to treat them as a customer and that's a mistake. The customer of almost all private equity firms are the people who've invested in their funds. Those are the people they have to keep happy. And you are not who they have to keep happy. They are going to do with your company what they need to do to make their real customers happy. And that leads to all kinds of disappointment and problems later on because the entrepreneurs don't realize it and that's where all the horror stories that you often hear about private equity investors. It's because the entrepreneur who sold his company to private equity didn't have his or her eyes open when they did it.
Jeff: In all the work that you did with Finish Big, and you talked to so many people, what did we really learn at the end of the day here, Bo, that is something that all of us could kind of take away from this book. And we're going to tell people how they can get your book but what shall we take away from this altogether? Is it just the matter that we need to plan ahead or is it something that's much bigger than that?
Bo: I think there's something much bigger than that. The reason people have trouble after they sell their companies is that they haven't ... it's like the company is part of their identity and they suddenly find themselves in a situation where they don't know who they are anymore if they don't have their company. A lot of entrepreneurs told me that the worst question, the question they feared most after they'd sold their companies was people asking themselves "What do you do?" It's a question that we all get asked. People don't like to say, "I used to have a company." They don't know how to answer that question. And they feel lost and they go through a period of feeling lost. And it's a very, very difficult period to get to.
I began to wonder. I looked at the people who had really good exits and those who had had miserable exits. There's one guy I talked to, it took him 15 years to really get over this feeling of not really knowing who he was anymore. I realized that the people who had had good exits that they had something in common, which was that they were all doing things that were basically helping other entrepreneurs. They were talking the wisdom that they gathered over their years in business and they were sharing it with other entrepreneurs and helping other entrepreneurs. That got me thinking, what is it about business that makes this sort of an exit that people have so important? I realized that business is ultimately about serving other people. If you're in business and you have a successful business at the very least you're serving your customers. Chances are you're serving your family as well. You may be serving your employees and serving your community. And really that's where people get, I would say a lot of people, most entrepreneurs get their identities from, it's from who they are serving. So when people ask me what should I do to prepare for this afterwards I say to them the first thing I do would be to figure out who you're going to serve next. I think that's really the bigger point and the bigger take away from all this.
One of the big mistakes that people make in selling to private equity firms is that they think that in fact the private equity firm is going to treat them as a customer and that's a mistake.
Jeff: And on that note, we’ll wrap by basically telling people that they can get your book Finish Big: How Great Entrepreneurs Exit Their Companies on Top at Barnes and Noble, barnesandnoble.com, also amazon.com. Or simply just Google Finish Big by Bo Burlingham and it'll give you a host of websites where you can go, you can purchase the book. And I'm going to tell you right now, it is going to be one of the best purchases and one of the best books that you've read in a long, long time, and one that you will want to refer back to, because there's some information there that all business owners I think can learn from in all of these discussions that you've had. Bo Burlingham, I want to thank you so much for this in-depth discussion. It's been a real treat and we appreciate your time.
Bo: Thank you very much Jeff, it's been my pleasure.
Jeff: Bo Burlingham, author of Finish Big, has been my guest. We hope you enjoyed this discussion and I hope that you'll let me know about it.
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