CLG Collective Podcast – The Value Builder System with John Warrilow
Carl Gould / Podcast / clgcollective, podcast /
Episode 008 - John Warrilow
John Warrillow is the founder of The Value Builder System™, a simple software for building the value of a company used by thousands of businesses worldwide. John is the author of the bestselling book, Built to Sell: Creating a Business That Can Thrive Without You, which was recognized by both Fortune and Inc magazines as one of the best business books of 2011. Before founding The Value Builder System™, John started and exited four companies.
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(2) CGL Collective Podcast – The Value Builder System with John Warrillow – YouTube
https://www.youtube.com/watch?v=WwvMytqvR3wTranscript:
(00:00) welcome to the Carl Gould Collective the podcast that offers you the top subject matter experts every episode we bring you guests who will help you reach your next level as a business leader I’m your host Carl Gould and today we have John Morrow and so John Warlow and I have known each other for now I think seven years and I and I I know that because when John and I were talking he said uh I I typed in John Morrow and I said oh what date are you on and it brought up a conversation on Google Calendar that we
(00:29) had seven years ago about the sellability score and when you were just about pivoting your business from the sellability score to Value Builder and and uh and so uh so I’ve had the pleasure of knowing John for a number of years he um he is he wrote the book which which many of you have heard of and and you now talk about as kind of like one of those must reads as an entrepreneur you know he he wrote the book built to sell and uh he now hosts built to sell radio uh Forbes ranks it one of the Forbes Magazine ranks as one
(01:00) of the world’s top 10 best podcasts for business owners he’s had another book in 2015 called the automatic customer creating a subscription-based business and his latest book The Art of selling your business I had a chance to go to read it I got the advanced copy thank you John it was awesome I really enjoyed it so um in the past guys you’ve known we’ve had speakers on where we’ve asked them to basically give us a class tell us teach us how to do what you do but because John has such a you know has a
(01:31) broad topic we thought an interview style would work better here so we’ve got a number of things we want to cover if you have any questions for John please if you came with questions start typing them in and I’ll keep track of the questions and we’ll make sure that we address them but first off John uh welcome welcome to the show thanks for coming so thanks so much for coming on yeah my pleasure thanks good to be with you Carl yeah great um so I remember so the the thing that struck me from our last conversation was you know it
(02:00) reminded me that you started out the name of your company was the sellability score and you switched it to Value Builder and we don’t have to get into why you changed it and all that and you have great reasons for it but I remember thinking when I first saw the name I’m like oh not that many people will ever get a chance to sell their businesses and not many businesses are sellable that’s what made me think about it so I was glad when you change it to Value Builder um for a number of reasons but uh talk a
(02:26) little bit about you know somebody who’s growing a business versus them putting it in a position to be sold or at least maximize their sale ability yeah I mean there is a obviously a big a big difference the the value of a company obviously is going to be in the eyes of the beholder the eyes of the acquirer and there are some things that you can do to create a more valuable company over time and so we talk about these eight factors that that business owners can focus on which I think gives the owner the kind of ultimate poker
(02:59) hand in the game of life right if you’ve got a a business that is valuable to your point about balance sheets earlier it it gives you options right you could sell it if you wanted very few people actually want to sell the most want to know they could sell that they’re building a valuable asset that is increasing year over year that they could bring in a private Equity investor and take some chips off the table they could for example bring in a manager to run the day-to-day so they they love to know that they could do those things and
(03:27) the kind of under uh pinning or the common denominator of course of all of those options is that your business can run without you and that’s the that’s the kind of idea behind the book built to sell right right on and and you you uh you talk about in one in your first book about some of the mistakes that people make when they are considering selling so what would you say are you know from the top let’s start there what would you share some of the biggest mistakes that business owners will make when they are
(03:57) looking to sell their business I mean one of the biggest mistakes is riding it over the top and so here’s what I mean oftentimes what I hear from owners when I say have you ever thought about selling your company many will say yeah you know in the next three to five years it feels like a good time to sell and and I say oh yeah why three to five years and and they’ll say well you know we’re trying to we’re trying to improve this part of our business we’re going to launch this new product and we’re going
(04:25) to expand in this area and then once we kind of do all that we’ll really have sort of maximized our trajectory and maximized our revenue and that’s when we’re going to sell so that sounds good in theory however what it does often do is is means you’re going to write it over the top meaning you’re going to sell at a point where your best days are behind you and when an acquirer comes in they’re they’re effectively starting their Marathon right so they’ve got to know that there’s lots of room left to grow your
(04:55) company and and if you wait until the maximum time you often leave your business exposed to a an earn out where you’re not going to necessarily achieve those goals I’m reminded of a story I wrote about in the book a guy named Rand fishkin talked talk talk to me about the sale of his company he built a company called SEO Moz you’ll remember the story from reading the book Carl he it’s a five million dollar company so not a big company but growing very quickly they expected to be at 10 million the next
(05:25) year and in rand’s case he thought his business was worth four times Revenue it was a software business and so they enjoyed a really good multiple and at four times Revenue he’s thinking well next year we’re going to be 10 million so my company’s worth maybe 40 million bucks he gets a call from Brian Halligan who’s the founder of HubSpot right and says look Brad we we’d like to buy your company and we’re willing to pay 25 million dollars in cash and HubSpot stock and so fishkin says wow
(06:00) that’s five times Revenue that’s not a bad deal but there’s a little part of them thinks his company’s still worth 40. and so he goes back with the 40 number to which Brian Halligan says no not interested and so fishkin puts his tail between his legs and chooses not to sell the HubSpot instead he takes Venture Capital goes and invests in a bunch of different product lines none of which really achieve what he was hoping for because he’s got to go and Beyond his sweet spot ultimately he starts to
(06:30) Hemorrhage cash the the company’s not doing well he personally goes into a period of depression where he’s actually removed as the CEO from his own company The Venture capitalists remove him and I interviewed him about this process and I said gosh ran like what was that like and he said it was terrible you know seeing my company you know being operated by someone else I said what do you think your Shares are worth I mean you’re still the founder right you still got some shares and he said yeah yeah
(06:55) I’ve got some shares but they’re probably not worth anything I said what do you mean and he said well because of the way the Venture capitalists invested in the company using preferred shares they’re guaranteed a preferred return on an exit meaning my you know Founders Equity is probably worthless and I said but ran what would that offer of 25 million dollars be worth today just given how much HubSpot stock has gone up and he said John it would be worth close to 200 million dollars I tell you that story because one of the
(07:29) biggest mistakes I think we make is riding it over the top meaning we think oh I’ll sell later I’ll focus on selling in three to five years when my business is at the top and in many cases the best time to sell is when somebody’s buying when you get approached it could be a very good time to sell because what by them even expressing interest there the market is telling you you might be maximizing your sale ability or you might be as attractive as you’re going to be or you’re certainly attractive
(07:59) right now yeah I mean I think you’re absolutely right I think when you get an unsolicited offer the chances are that acquirer or not is not alone right now the the most natural acquirer for companies in your client base I think Carl in the sort of correct me if I’m wrong but in the kind of you know 50 million dollars of value and Below sort of two to fifty million dollars in value that space the most natural acquirer in that space is going to be a private equity group and private Equity groups are like sheep they’re followers right
(08:31) so they they come up with their investment criteria and it always sounds identical it’ll say we’re looking for a company in a pro in a niche that’s owner operated uh that’s got good margins uh that the owner is willing to stay on and that has a differentiated value proposition yeah yeah I could line up a hundred private Equity groups and go on their website and look at the investment criteria and they’re virtually all identical which is great news for you as an owner because if you attract an offer from one
(09:05) or an interest from one the chances are there’s another 99 out there that will want to you know be in on that deal is very high you would fit their criteria for sure and therefore you can create competitive tension a little bit of a bidding war and that’s when you jack up about your company so so yeah I can appreciate what you’re saying now here’s the conversation that I’ll hear the conversation that I’ll have with an owner it will be um uh and disclosure none of you on this call but you know you may have heard of
(09:37) somebody else so like my friend right like I’m a hypothetically I’ve heard of this conversation if there was a rash that I hypothetically had exactly John so a friend of mine yeah so um so what happens is what I hear a lot is I’m tired I want to get out or I’ve done this for three decades and I want to get out or not not so much that the business might be past its peak but certainly the CEO or the owner is past their interest and uh or they’ve got CEO fatigue or they’ve just run out of ideas you know
(10:09) that the world has changed they don’t have the ideas that or or the energy to try to find those ideas and so now they are going to Market not at their Peak so how can a how can seller you know ex show that they’re interested in selling without looking desperate um yeah great because I think you’re absolutely right if you approach an acquirer and say oh please buy me I’m just tired and and you know like I want to go do something else you know you’re gonna get an absolute discount for the value of your company you wanna you
(10:42) wanna present and position yourself in in the most favorable light and and I think the best way to do that is approach a strategic acquire with a partnership opportunity with the discussion around a strategic partnership because it gives you plausible deniability you could genuinely be interested in a strategic partnership not an acquisition but most Savvy Business Leaders and certainly most acquisitive companies will hear the word strategic partnership and they know that’s code for acquisition just discussion so I’ll give you a real life
(11:15) example of this because I think it helps bring it home so a woman I interviewed in the book called Stephanie Breedlove who built a beautiful little business nine million dollar payroll company she had a weird Niche she helped parents who had a nanny to pay and at the time that she started the business nobody wanted to deal with the one the parent who had a nanny to pay you know paychecks and ADP want to do thousands of seats right so they they don’t want to deal with the the mom who has a nanny to pay and so Breedlove
(11:43) built this little company just helping parents who have a nanny well long story short she builds it up to over 25 years 9 million dollars of Revenue 10 000 customers and so this is not a juggernaut this is not the next Google but it’s a good business and she looks out in the universe and she sees that care.
(12:02) com would be the natural strategic acquirer for her business care.com uh is like the Angie’s List of care providers you plug in your zip code and it’ll give you the five-star rated babysitters in your local market she looks up and they have seven million subscribers seven million parents who have a nanny to pay and so she does the math and says well all these guys need my payroll service so it’s one of two things you could do you could reach out to the CEO and say hey buy my company and that’s going to
(12:32) put you on the defensive and it’s going to be a problem she does the opposite she goes to the middle of the organization and she finds a marketing manager and she strikes up a conversation with marketing manager and says look we’ve got all this content about how do you set up payroll for nannies why don’t we provide that content to you on a marketing sharing agreement marketing manager says sounds great and they Strike Up This partnership well she then Daisy chains her way from the marketing manager to the marketing
(12:59) director to the vice president and ultimately to the CEO of care where she says we’ve had this partnership now for the few months right I think there’s more that we could be doing together why don’t we sit down long story short Sheila the CEO of care.com acquired Stephanie breedlove’s business for 54 million dollars oh which is six times Revenue an outlandish multiple like it like it doesn’t make sense on any valuation calculator but it was because she painted the Strategic value of care
(13:29) owning her company she said to them look 70 000 subscribers seven million customers if one percent buy that’s 70 000 customers I’ve got 10 000 customers and nine million in Revenue so if one percent of your customers buy and that’s a strategic acquisition and so I like the word partnership gotcha so so now because you talk a lot you’ve talked a lot in the past and and it’s in your book about um how do you create a bidding war right so how can a so if I’m if I’m looking to sell my firm and uh so I so a I don’t
(14:02) look desperate I go for that strategic partnership or certainly a strategic acquirer um but how can I get more than one either bidding or how can I at least make sure enough people are are pushing the value of my business upward so how do you get that bidding war going yeah I mean that’s the the process we lay out the book is is it starts with figuring out who your long list of potential acquirers are and went away down to the most strategic of them and I think it also comes down to being intuitive about how important
(14:31) confidentiality is in your space compared to the importance of maximizing the value of your company if if all you want to do is maximize the value of your business you’re going to want to have a really broad auction go to as many potential acquirers as possible yet for every new acquirer you go to despite the fact that you’ll invite them to sign a non-disclosure agreement the chances that the market finds out goes up equally if you want to narrow it down to a very small group of potential acquirers the chances of you being able
(15:04) to get multiple choirs goes down and so you want to find the balance between enough to get multiple offers but not so many that the marketplace finds out I’m reminded of a guy that that I interviewed called Peter Kelly he built a business called open Lane I don’t know if you’ve seen this Carl they do um are there like an auction site for used car dealers and we’ve got Auto Trader for consumers right but used car dealers use open Lane to buy inventory and it’s just for used car dealerships and so
(15:32) everybody puts up their their inventory now in the early days in the old days when Peter first started this company it was a really Antiquated business that it was all old school bricks and mortar the car would like be put on these conveyor belts and all these buyers for the used car dealerships would like literally sit there with a clipboard and and decide as the as the car went across at three miles an hour on these conveyor belts well it’s a terrible business but Peter revolutionized it made a website where
(15:57) you could bid on on on on on inventory as you might imagine these big Legacy providers for years were worried about Peter you know disintermediating basically blowing up his business their business model and so they tried to acquire him a couple of times all three of the big strategics in that space the big auction houses tried to acquire Peter’s business and so we built it up built it up built it up and at about 50 million dollars in Revenue Peter looked up and said I’ve got a problem brewing and the
(16:31) problem was the original equipment manufacturers meaning the Fords and the BMWs because he lived in fear that one day they would wake up and create their own online auction space right because if you’re a BMW dealer where are you going to go to some aggregator of auctions or are you going to go to the BMW auction you’re gonna go to the BMW auction well none of them had figured it out yet none of them had even had the idea yet and so he said I’ve got to sell this company before they blow up my business model and they wake up and see
(17:03) what’s actually out there right and what the money he’s making and he’s so what he does is on one hand what he could do is go to 100 different companies but didn’t want to do that because if he went to a whole vast array of potential acquirers the chances are that BMW and Ford would find out about his business model and really understand you know the nuts and bolts of it would go up so what he did was a quiet auction he went to all three of those bricks and mortar companies and said look you’ve all freed expressed interest
(17:32) on July 1st I’m going to sell my company I’m going to invite you all three to bid on it and he got three competing offers because he knew they were already motivated to buy so the trick is you want multiple offers and you want to go to as few companies as possible to ensure you get multiple offers does that make sense oh perfect perfect now can I on the acquisition side can we do the same thing can we contact because we a number of uh our clients a number of people on this call are actively looking for Acquisitions can we use the reverse
(18:04) strategy can we con let’s just um I’ll use Kevin uh well because we’re talking to accounting firms do we call 20 accounting firms in the area that we are looking to roll up and say we’re looking to make an acquisition uh we’re going to make we’re going to make a couple we’ve contacted 20 firms the time to do it in the accounting world is May June and July because those are the three months that accountants have do we call those 20 and say on May 15th we are going to make decisions on which offers
(18:37) we’re going to put into which ones we’re going to buy can we do a reverse that way yeah I mean you can’t I’m not going to coach you how to take advantage of business owners because we’ve made it our living to do exactly the opposite right like we’re we’re all about uh uh making sure the owner doesn’t get ripped off doesn’t get taken advantage it doesn’t get out said anything about ripped off I just said could generate interest John yeah yeah look I I if I was coaching you how to
(19:08) acquire a company like look let me let me answer a different way every acquirer who approaches you you’re listening to the Carl Gould Collective podcast when was the last time you took a deep dive into your business get a free business analysis and find out how you can accelerate and sustain your business growth never miss another episode subscribe at coralwood.
(19:30) com is going to try to preempt a process preempt a competitive process they’re going to try to woo you into and romance you into a bait and switch where you agree to negotiate exclusively with them they’re going to force you to sign what’s called a letter of intent which has a no shop Clause meaning you can’t continue to compete to to shop your business to other people and at that point your leverage in the negotiation swings heavily from your favor as the seller into their favor as the buyer and
(20:06) oftentimes that’s what triggers retrading and and some of the negative things you’ve heard about and so what you want to do is make sure you’re not suckered into that when I say bait and switch what the common uh you know thing that happens is reach trading meaning you agree to sell your business let’s just make it silly and say you agree to sell your business for a dollar well 60 days after due diligence you end up being retraded on and they lower the value that they’re willing to pay for
(20:31) your business to 85 cents because you uh they’ve essentially suckered you into a deal without competition and so you want to make sure you defend yourself against retrading got it so if you have to if you so are you saying don’t sign the no shop Clause under any circumstances or limit the time frame or is there any situation where you would be willing to sign the no shop no shop uh cost well you’re almost always going to have to in a small game it’s really unheard of to not um what you want to do is create
(21:03) competitive tension before that so they are aware there are multiple bidders which holds them accountable through the process and then what you want to use is something called the no retrading handshake I learned about this from a guy named Barry Hinckley and I wrote about him in the book he he he built a a great little company when he went to sell it he agreed to an offer with an acquirer only to have it re-traded on and and a lot of the value basically take it away and he said I will never fall victim to this scam again and so he
(21:34) went and bought built another wonderful business bullhorn Technologies and he got the point where he was running a process and selling the business got multiple offers finally agreed to one who was insisting on a letter of intent and so what Barry did is he walked in the negotiation room where the final sort of you know T’s and C’s were all sort of worked out when everyone was sort of agreed to the terms Barry got up from the table walked over to the most senior person in the room and said I will do this deal with you on
(22:05) one condition and the CEO of the other side said okay what’s the condition and he said no retrading and that’s the no retraining handshake you put your hand out you looked him in the eyes and you say no retraining and what that does is effectively communicate to the other side that you understand the scam and you’re not going to fall victim to the game and in many cases that will be enough to ensure that you’re not retraded on illegitimately legitimate retraining happens when you’re when you’re when
(22:35) your numbers your performance falls off during due diligence illegitimate retraining is when they use the fact that you’re not negotiating with anyone else against you that’s illegitimate in my view so we got a question just to explain retreating so um so can you can you uh explain just the definition of retrading one more time if you don’t mind yeah so with a letter of intent you agree to a price that the acquirer is going to pay your your for your business it’s a non-binding letter of intent
(23:06) that doesn’t require either person to honor the agreement it’s just a letter of intent effectively during which you will also sign a no shop Clause where you give up negotiating Leverage so when you sign that letter of intent and the Incorporated no shop Clause you lose negotiating leverage they know that they effectively have a proprietary deal that they’re that there’s no one else competing and they go through a period of due diligence during which they evaluate your company after which assuming they didn’t find anything in
(23:40) due diligence that they found disagreeable they will close the deal retrading is when after the 60 days of due diligence is finished before they agreed to close the deal they try to renegotiate the price they lower the price usually because they’ve manufactured something in due diligence and oftentimes what they’ve quote unquote air quotes found in due diligence is not anything material but they use it to manufacture an excuse to retreat to lower their value lower the price because they know you’ve psychologically
(24:18) bought the lake house you’ve told your spouse you may have told your employees and your ability to back out is virtually zero and that’s when you get retraded on right they’re going to pull an 11th Hour trick on you like well you know what we in our in our plan all of our locations have to be on the corner you’re in the middle of the block I know we didn’t mention that before but you know you should have probably known that already so we want to take 10 off the deal like as a as an exactly yeah yeah
(24:45) exactly so I had a I had a I had one yesterday where I was interviewing a guy you know a letter of intent for 54.5 million dollars uh which he signed they went through the entire process and they they were they parsed the definition of reoccurring and recurring Revenue you may say that sounds like exactly the same but reoccurring revenue is revenue that recurs on a sporadic Cadence whereas recurring revenue is revenue that recurs on a predictable Cadence and they use the fact that he had slightly overestimated how much recurring Revenue
(25:23) he had versus reoccurring Revenue as justification to drop the price by four million dollars right so he ended up accepting that uh that lower price because he was emotionally committed to the sale but that small detail ended up costing him four million dollars uh because of this uh uh this retraining epidemic that happens yeah right on so um so now we’ve we’ve we’re still in the middle of the pandemic it’s likely to keep going for a while what what friends are you seeing um as a result of the pandemic what are
(26:00) you um you know what are you noticing what should people be thinking about what should they be looking at whether they’re selling their business right now whether looking to buy but you know take on the selling side if I’m thinking of selling now or in the next year or my plan two years three years ago was to sell in 2021 and here we are what do you what what would your uh what what are some of the trends that you’re seeing right now that they should be being aware of yeah I mean clearly service businesses
(26:28) have been crushed by the pandemic right any any business that has a business to Consumer model where there’s there’s physical interaction and a service context has been absolutely crush and so on one level those businesses are not in great shape but the owners are really really ready to sell I mean it has been incredibly stressful period and continues to be an incredibly stressful period so one hand it’s a bad time to sell in that context what may in fact be the counterbalance to that is what the
(26:55) pandemic has done to interest rates so you know now we’re in an interest rate environment which is virtually free money and what that has done is basically poor jet fuel onto the returns that private Equity companies get when they buy businesses because they buy a company largely with debt and when debt is free or close to free it makes it almost impossible for them to lose and so what the pandemic has done is just triggered an entire Legion of new private Equity groups very acquisitive who are who are buying businesses right
(27:31) now it’s it’s arguably the the most liquid most fervent m a market I have seen since being in the space for more than 10 years so I think it’s you know if you do have a sellable company one that has got you know a relatively protected Niche and so forth it is a very good time to sell you mentioned in the beginning the value Builder system we we have um people complete the questionnaire uh we have an intake questionnaire effectively when people start with us they complete a questionnaire we’ve looked at folks who
(28:01) completed the questionnaire for the eight months preceding covid and the eight months the first eight months of covet and we compare and contrast those two data sets and we discovered two really interesting things the first is that during the folks who we surveyed during the pandemic have brought forward their sell by date by 20 meaning they’re planning to sell 20 sooner that’s interesting that’s insight for me uh number one the second Insight was the folks who we surveyed during covid have effectively
(28:34) written off the option of passing their business down to their kids or doing a management transition both of those options as their strategic intent has dropped to less than 10 percent now and so when we ask business owners what their plans are for their business what has gone up in lockstep is their intention to sell to a third party so plants to sell to kids or family members or management have dropped off now it’s less than 10 percent and plans to sell to a third party have have accelerated to now more than 65 percent of people
(29:10) who say I’m going to sell to a third party and so we could we could debate why that is my guess is it’s because it’s been such a terrible stressful time many have decided they don’t want to pass on an albatross to their kids or their management and they just want out they want to sell it with third party yeah so and I you’re that that is very interesting and at the same time a lot of people knowing what the interest rates are and a lot of VCS and other companies um they they know that the market is
(29:38) ripe for acquisition as well so for those of us on this call that are in that two to 100 million dollar range what so you know a larger company comes knocking a Fortune 500 or an industry giant or a larger competitor they come knocking and we’ll take all the advice you’ve given us thus far you know no shop clause or no retreating you know minimize minimize that exposure but how can we gain leverage or level even level the playing field against an industry giant if they do and when they do come knocking
(30:09) well the first is don’t shoot yourself in a foot so one of the questions they’re going to ask you is what do you want for your company and they’re going to do it maybe over a glass of wine if you have the opportunity to meet them in person after the pandemic or you know after you get very comfortable with them they’re going to say Carl man like this you built such an amazing company have you ever thought what you’d want for it or what’s your number these are all different ways of saying the same thing and the answer
(30:36) answering that question is almost always a mistake if you throw out some crazy high number they’re going to look at you and say this guy’s completely out of is unreasonable like if Stephanie Breedlove it started with Sheila and said I want 54 million dollars for a 9 million dollar company she probably would have undermined the entire negotiation right because she didn’t have a chance to romance and tell the story and stream The Narrative together she would have lost them before they even began equally
(31:05) if you put a low ball number in place or more realistic number in place you will effectively putting us be putting a ceiling onto which you will never sell your business Beyond I’m reminded of a guy interviewed in the book you may be remember this one the story uh Carl the guy from uh from pepperjam Chris Jones is his name so Chris Jones builds this little software company called pepper Jam great little business gets a call of the blue from a guy named Michael Rubin Michael Rubin built GSI I sold it to PayPal like a very you know massive exit
(31:35) you know unicorn kind of thing and and Michael says to Chris why don’t you come down and see me and we’ll have like a chat about technology and so Chris thinks man this is great I’m gonna get like this little Tech luminary I’m gonna have a chance to you know break bread with so he goes into his office and instead of being on his own Michael Rubin is flanked by his Chief Financial Officer and his head legal counsel and without even exchanging pleasantries Reuben says to Jones all right what do
(32:02) you want for pepperjam so he he says no Reuben says no like what do you like how much do you want for your company and Chris Jones blurts out a number and Reuben without even acknowledging Jones kind of looks at his Chief Financial Officer and says okay I think we can get a deal done what he was doing in in in so many words is basically saying it was Chief Financial Officer don’t pay a penny more than that number and I talked to Jones after the fact that I said man would like would you like to have a mulligan on that
(32:42) conversation he’s like yeah I would love to have a do-over on that because I put a ceiling on which I would never sell the company ultimately the business sold for virtually that exact amount we never know he will never know how much more Reuben would have been willing to pay but it’s one of the classic ways that strategic choirs sophisticated buyers will try to get you to say something that you will end up regretting and part of the process of selling yeah and um right it’s and it’s one of those things that um it’s emotional
(33:12) torture too because no matter how hard we try uh as people if we do something well it’ll it’ll nag us forever if we thought we left something on the table right like you know what I I ate that uh donut in nine minutes flat I think I I could have done eight I could have done eight you know no matter what it is we all think we could have done it better and without him not having the conversation to kind of know what arena he was talking in yeah that’s one of those things that’ll bug him forever so
(33:43) hopefully he got a good number and you got a number that at least satisfied him um so uh now one of the one of the questions I get a lot John is you know we’re talking to a client they’re thinking of selling and they and they say to me when do I ask when do I tell the employees do I tell them and they’ll be excited because they get to go for the ride and maybe I can include a minute do I not tell them you know until the very last minute but gosh I remember when someone did that to me what’s what what is your
(34:11) take on that when when do you tell your employees you’re thinking of selling yeah it’s one of those moments in life where the right answer is also not correct what I mean by that is the right the morally biblical answer is to tell your employees I mean they’ve come they are in many cases they’re the reason you’re in a position you are right many of them are family members you you you have come up together you know the the ones that brought you to the dance so to speak that you know you are deeply
(34:45) deeply uh reliant on them and committed and indebted to them and if you tell them it will almost always be the biggest mistake of your career here’s the problem entrepreneurs are wired differently than employees employees want safety they want security they aren’t entrepreneurs they have chosen to you know to to work for you and and therefore by definition they are not uh in the same headspace as you when you tell them they will get worried they will brush up their LinkedIn profile and they will shop their industry experience
(35:27) what they’ve learned from you with your competitors once your competitors find out that you’re thinking of selling you lose tremendous leverage in the deal equally if you tell your employees and you invite the the acquirer in to meet with your employees oftentimes the acquirer will simply say well I don’t actually need to buy your company I’m just going to basically recruit your employees it’s almost always a mistake so here’s what I would do I would separate your rank and file employees
(35:57) from your managers your Rec and file employees find out when the check clears your bank account your managers the two or three most senior people in your company need to find out in advance because you need them to present to them a much more comprehensive company and so they’re going to find it you can put an incentive in place for them to help you close a deal and a call financiality agreement for them to help them to keep it secret and unfortunately the rest of your employees I think find out when the
(36:26) check clears you know more than half of the deals more than half of the businesses that get to the letter of intent stage more than half of those never sell more than half of those deals get blown up during due diligence and so if you tell your employees they will a check their LinkedIn resume and start to shop B they will always question your commitment to the company oh Carl wants to sell Carl’s thinking of selling I mean if you know this deal blew up but man he’s got one foot out the door he told us we’re gonna have to drag him out
(37:01) of here now he’s entertaining yeah exactly so look I think look if you if you pay your people a good wage you give them Mobility options to to to to increase in their career you give them coaching when they’re falling down you give them benefits you’ve done you you’ve upheld your your your obligations as a good employer you are in no way um uh obligated to tell them about your uh the you know the asset that is your you know your ticket to retirement or or going on to do the next thing you want
(37:37) to do yeah no doubt John thank you so much I mean uh thanks for your insights you know it always it’s this is such a fascinating topic for me because the one of the biggest dreams of any entrepreneur is is launch grow then sell and it’s fascinating to me that how few times that actually happens and that before the short sale before the mortgage meltdown it was actually unheard of you would ever walk away from your house that kind of changed a little bit but prior to that how many people would just simply walk away from their
(38:12) businesses when 60 to 80 percent of their net worth is tied up in it it’s uh it’s always a it’s a fascinating uh you know a fascinating topic for me and and as always you know I we’ve been friends for a while I’ve read all your books I’ve listened to your podcast and yet I still come away with every time we talk with another Insight so thank you so much for coming on yeah thanks so much thanks for joining us it’s been another great episode of the Carl gold Collective where we bring
(38:39) you the best in subject matter experts CEOs celebrities and newsmakers sharing real life stories and expertise to help you succeed make sure you visit Coral gould.com where you can subscribe listen to past episodes and find out more about growing your business if you’re interested in personal business coaching send me a message join us next time for the coral Gould Collective podcast
