Business Exit Lessons Learned After Interviewing Hundreds of Entrepreneurs

Built to Sell Radio 
Hosted by John Warrillow

Listen now to hear the lessons Bo Burlingham has learned after interviewing hundreds of entrepreneurs regarding their business exit.

   

In this episode of Built to Sell Radio, you’ll hear the lessons Bo Burlingham has learned from interviewing hundreds of entrepreneurs about their experience exiting their business. Some good, some bad. You probably know Bo because he is the editor-at-large of Inc. Magazine. If you are an entrepreneur, you’ve no doubt seen his most famous book, Small Giants: Companies That Choose To Be Great Instead of Big, which to me, is one of the best books ever written on entrepreneurship. His latest book Finish Big is about how to exit your business on top. Bo is a friend and an amazing writer and interviewer.

About Bo Burlingham

Bo Burlingham is the author of Small Giants: Companies That Choose To Be Great Instead of Big(Portfolio, 2006) and an editor-at-large of Inc. magazine.

Bo joined Inc. in January 1983 as a senior editor and became executive editor six months later, a position he held for the next seven years or so. In 1990, he resigned and became editor-at-large for a number of reasons, including his desire to go back to writing. He subsequently wrote two books with Jack Stack, the co-founder and CEO of Springfield Remanufacturing Corp. and the pioneer of open-book management. One of the books, The Great Game of Business(Doubleday/Currency, 1992), has sold more than 300,000 copies. The other, A Stake in the Outcome(Doubleday/Currency, 2002).

Before joining Inc., Bo freelanced for various publications, including Esquire, Harper’s, Boston Magazine, and Mother Jones.

Bo has been married for 35 years to his wonderful wife, Lisa. They have two children and one fabulous grandson, with a granddaughter on the way.

Key Lessons Learned

• Bo realized there was a hunger for information about the experience of selling a business.
• For most people, knowing how your employees will be treated after the sale of the business is a key factor.

Factors In Selling a Business

• Knowing who you are, what you want, and why.
• Having a sellable company when you want to sell it, to whom you want to sell it, and at a time of your choosing.
• Giving yourself enough time to sell the business.
• Being at peace with whatever happens to the people that bid on the business.
• Handling the transition from being a business owner to being an ex-business-owner.

Knowing When It’s Time To Go

• Some people get bored and don’t want to be in the business anymore. Others want to stay with the business their entire life.
• Don’t wait until you are ready to leave before you decide to start preparing.
• If you wait, there is a chance you will be caught unawares and end up in a forced sale.

“You must not wait until you’re ready to leave to start preparing to sell your business.”

Forced Sales & Washout Rounds

• A forced sale is when you have little choice regarding selling and you have only one buyer. You’re about to go out of business because you don’t have the cash to keep going and you have to accept the terms the buyer offers.
• A washout round is a round of financing that dilutes the stock of the early shareholders to the point where their stock isn’t worth anything.

Sellable Companies

• Here is a way to educate yourself about what creates value in a company.
• Look at the degree of concentration of your customers. Do you have certain customers that own such a large percentage of the business that if you were to lose them you would be in serious trouble?
• Look at your dependence on critical management individuals.
• Is there over-dependence on the owner? Can the company run without you?
• When people buy a company, they are purchasing future cash flow. You need to be able to show the buyer that the company has growth potential and minimal risk.
• You need to demonstrate that the risk of not getting that future cash flow is very low.
• Buyers only want to invest their money if they know they are going to get a good return.
• You need to eliminate any weaknesses that might come back to haunt them later on.
• The more weaknesses you eliminate, the higher the value of your business.

“If they have done the prep, they are getting offers for their business & are turning away potential buyers.”

Lessons From Previous Sellers

• If you are desperate to sell, you are not prepared.
• Most people misunderstand what exiting is all about. They think exiting is an event that happens but it is actually a phase of the business.
• Private equity firms have a trillion dollars in ‘dry powder,’ which is money sitting in their fund that they need to invest but don’t know where to invest it.
• You need to do your own due diligence on the buyer and understand what the buyer wants to acquire.

“Private equity firms, this year, have a trillion dollars in ‘dry powder’ that they desperately need to invest.”

The Four Stages of Exiting a Business

1.) Educational – Find out as much as you can about the exit process.

2.) Strategic – Build in the qualities that give the business value.

3.) Execution of the deal – Hire a broker and look for buyers.

4.) Transition – Your exit doesn’t end with the deal; it ends when you move on to something else.

• The mistake most business owners make is that they start at stage 3.
• If business owners have done the preparation, they will be getting frequent offers for their business.

Finding a Guide

• The best guides are former entrepreneurs who have actually gone through the process of selling their own business and made lots of mistakes. As a result, they have had an outstanding education in selling a business.
• Network with and interview 6 or 7 business owners.
• Choose someone who is aligned with you and your business, not just a  random business broker.
• Those business owners who do their homework are going to have a better experience.
• The goal of this process is to be happy at the end of it.

Post-sale Experiences

• A lot of people who sell companies miss their sense of purpose, their sense of identity, their coworkers, the structure, and the ongoing accomplishments.
• When you have been accustomed to these things  for years and then you don’t have them, you feel lost.
• The people who do well after selling a business have figured out how to get that sense of self at a higher level.
• The question people fear is: “What do you do?” Really what they are asking is: “Who are you?” If you are a former business owner, then you aren’t saying what you are now, which can be difficult for many people.
• People who had great exits are now helping other entrepreneurs.

“The question people fear is ‘what do you do?’…really what they are asking is ‘who are you?”

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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.