Whenever the founder a thriving software company tells me that a book lifted his business, I make sure to add that title to my reading list. This happened to me again recently when a Vantiv, now Worldpay, software developer partner said Built To Sell: Creating a Business That Can Thrive Without You was key to his success. He’s not sure if he’s going to sell his ISV business in the near future, but he’s going to be ready if opportunity knocks.
The lessons from Built To Sell can be applied to most SMBs, but the advice is especially germane for software companies. Here are some of my favorite passages and concepts from the book:
- Smart businesspeople believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon. This approach is having an “options strategy” as opposed to an “exit strategy.”
- There are approximately 23,000,000 businesses in the United States, and yet only a few hundred thousand are able to be sold each year.
- Don’t generalize; specialize. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.
- “In each business I’ve sold, we created a standard service offering, a consistent process for delivering our product or service. We made sure the product or service was something clients would need on a regular basis so we could count on recurring revenue.”
- Owning a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product. You need to train people to handle all the steps of your process so you don’t have to be the guy piecing every project together from scratch.
- Don’t become synonymous with your company. If buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.
- Once you’ve standardized your service, charge up front or use progress billing to create a positive cash flow cycle.
- To sell your business, you need to demonstrate to a buyer that you have the sales engine that will produce predictable, recurring revenue.
- Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.
- Two sales reps are always better than one. Often competitive types, sales reps will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.
- Ignore your profit-and-loss statement in the year you make the switch to a standardized offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash flow remains consistent and strong, you’ll be back in the black in no time.
- You need at least two years of financial statements reflecting your use of the standardized offering model before you sell your company.
- Build a management team and offer them a long-term incentive plan that rewards their personal performance and loyalty.
- Think big. Write a three-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.
- If you want to be a sellable, product-oriented business, you need to use the language of one. Change words like “clients” to “customers” and “firm” to “business.” Rid your website and customer-facing communications of any references that reveal you used to be a generic service business.
- A business reliant on its owner is unsellable, so the owner becomes trapped in the business.
- Before you start this process, engage a good accountant experienced in helping business owners with succession planning.
- Six forms of recurring revenue, presented from least to most valuable: The only thing more valuable than an automatic renewal subscription is a hard contract for a defined term.
- As you ascend the recurring revenue hierarchy, expect the value of your business to go up in lockstep.
- Hire a sales team. Once you have created and packaged your offering and started to charge up front, you need to remove yourself from selling it.
- Stop selling everything else. Stopping yourself from accepting projects outside of your scalable product or service is the toughest part of creating a business that can thrive without you.
- Launch a long-term incentive plan for managers. You need to prove to a buyer you have a management team who can run the business after you’re gone. You need to show that the management team is locked into staying with your company after acquisition.
There’s plenty more great advice in the book and on author John Warrillow’s Built To Sell website. The resources page includes links to white papers, videos, cheat sheets, and webinars that can help you create a business that’s built to sell.
Jim Roddy is a Reseller & ISV Business Advisor for Vantiv’s PaymentsEdge Advisory Services. He has been active in the POS channel since 1998, including 11 years as the President of Business Solutions Magazine, six years as a Retail Solutions Providers Association (RSPA) board member, and one term as RSPA Chairman of the Board. Jim is regularly requested to speak at industry conferences and he is author of the book Hire Like You Just Beat Cancer.