In this insightful dialogue, the speaker, owner of acquisition.com, shares valuable lessons on transforming a small, owner-dependent venture into a sellable asset. He emphasizes that most businesses fail to sell because they operate as jobs, not assets. He explains the transition from self-employed to business owner involves productizing services, establishing consistent acquisition processes, and replacing oneself in key roles. The speaker outlines the necessity of developing a long-term vision, mastering recruitment, and leadership to attract skilled individuals who can drive the business independently. He concludes by stressing the importance of viewing a business as a sellable asset, which requires time, effort, and a shift from hands-on management to strategic oversight.
"And the thing is, you're going to hire somebody who you think is going to be good at marketing and they're not going to be, and then you got to hire another person, right?"
This quote emphasizes the trial-and-error process often encountered in hiring marketers, highlighting the difficulty of finding the right fit for a business.
"You must have a long term vision that you are committed to because you will burn out if you're only doing it for the money."
This quote underlines the importance of having a long-term vision beyond financial gain to avoid burnout and maintain resilience in business.
"99% of businesses end up closing down over a long enough time horizon. Only 1% of businesses ever get sold or transitioned."
This quote presents a stark statistic on business failure rates and sets the stage for discussing the rarity of successful business sales or transitions.
"The real reason is because most businesses are worthless."
This quote succinctly states the speaker's view on why most businesses fail, attributing it to a lack of intrinsic value rather than external factors such as poor sales or marketing.
"Most of these businesses don't actually have value. And the reason for that is because they are not businesses, they are jobs."
This quote explains the speaker's view that many small businesses lack value because they operate more like self-employment than autonomous enterprises.
"So most of us know most people have jobs first, right? And then they make a certain amount of money, they're relatively skilled, and they think, I could do something like this on my own, right."
This quote describes the common thought process that leads employees to become self-employed, which is often mistaken for true business ownership.
"Because for a business to be sellable, it must be an asset that they can run without you."
This quote defines a key criterion for a business to be sellable: the ability to operate independently of the owner.
"What you have to do is prove to what a future buyer would be that this business can operate on its own without you, right?"
This quote reinforces the necessity for business owners to demonstrate that their business can sustain itself without their personal involvement to attract potential buyers.
"No matter what it is, you have to have a consistent process where, you know, if you put x effort or x dollars in this side that you will get y outcome on the other side, right?"
This quote emphasizes the importance of having a reliable system in place that translates effort or investment into predictable results, which is crucial for a business to be marketable.
"First, you productize your service. It's a consistent thing that you deliver it over and over again."
The quote highlights the first step in making a business sellable, which is to standardize the service offered so that it can be delivered consistently.
"You're going to have a massive earn out, which basically means you're going to work for the next five years to earn the exact same pay, except you no longer own the business and the person who gives you the earnout has all the upside and you take all the risk."
This quote describes the disadvantages of earnouts, where the seller remains working in the business post-sale, often without the benefits of ownership and with continued financial risk.
"And so the process of entrepreneurship, of transitioning from self employed, where you literally have 100 hats, to transitioning to business owner, where you take all the hats off your head and you were just a shareholder, which is how I prefer to see it."
The quote captures the essence of transitioning from a self-employed individual, who handles every aspect of the business, to a business owner who delegates tasks and functions more as a shareholder.
"The game is about people, right? Once you have the model and you have some of the tactics in the beginning so you can get some initial traction, the rest of it is people, right?"
This quote stresses the importance of people in the growth and operation of a business, suggesting that after initial business models and tactics are in place, the focus should shift to team building and leadership.
"And this is the piece that I think most people miss, is that they don't even know the hats that they are wearing. You making decisions is a hat. It's an important hat, right?"
This quote points out a common oversight among entrepreneurs, which is not recognizing all the roles they fulfill within their business, particularly the role of decision-making, which is crucial to the operation and sale of the business.
"Hey, mozanation, quick break. Just to let you know that we've been starting to post on LinkedIn and want to connect with you."
The quote is a direct address to the audience, encouraging listeners to engage with the speaker on a professional networking platform, illustrating an effort to build a community around the podcast.
And so there's typically far more leadership that has to occur in order for the business to be sellable.
This quote emphasizes the importance of leadership in preparing a business for sale, indicating that strong leadership is needed to make a business attractive to potential buyers.
What happens is a business will become more sellable as you replace all of the pieces that you're doing, and oftentimes the margin will drop.
This quote suggests that as an owner replaces their roles within the company, the profit margins may decrease, but the business becomes more sellable because it is not dependent on the owner.
You must have a long term vision that you are committed to, because you will burn out if you're only doing it for the money, you will.
The quote underscores the importance of having a long-term vision beyond financial gains to sustain motivation and prevent burnout in the challenging process of making a business sellable.
What happens is the small businesses become big businesses because you need to slowly grow them so that you can accommodate more people who can actually do all of the things that you do.
This quote explains that small businesses must grow methodically to become large businesses, which involves hiring more people to take over the owner's tasks, allowing the business to operate independently of the owner.
And so for businesses to be scalable, oftentimes they have to have significant enough gross margins and volume to be able to pay for high quality talent, to be able to actually do these things, to take decisions off your plate.
This quote highlights that scalability is contingent upon a business having enough profit and sales volume to afford high-quality talent that can independently manage operations.
Once you start crossing multiplied figures, the people that you are hiring are better than you are at everything.
The quote indicates a tipping point in business growth where employees hired are more skilled than the owner, which is essential for scaling the business further.
The reason that most businesses are worthless is because they sell entirely customized things. They sell it to everyone, which makes it completely unscalable.
This quote explains that a lack of focus on a specific market or scalable product makes most businesses unattractive for sale, as they rely too heavily on customization and the owner's involvement in all aspects of the business.
They're the ones who are still heavily involved in the acquisition and the rainmaking.
This quote points out that the owner's deep involvement in client acquisition and generating business (rainmaking) can hinder the business's value by making it too owner-dependent.
Unless the person agreed to a three or five year earnout, which then means that you transfer the ownership to someone else, they get all the upside.
The quote cautions that earnouts, where the seller remains involved to ensure business performance, can be risky and potentially unfavorable for the seller if the business doesn't meet certain milestones post-sale.
"You as the CEO or the owner, your job is to sell the business. The job of the salespeople is to sell the products."
This quote emphasizes the distinct roles within a company, highlighting the CEO's responsibility to position the business itself as a valuable asset for potential sale, as opposed to just focusing on the sales of services or products.
"But you should be making your business sellable."
This quote suggests that business owners should always prepare their business to be attractive to buyers, which in turn provides strategic advantages in various business negotiations.
"The way to have the best negotiation is to have the most leverage."
This quote explains that the power in negotiation comes from the ability to not need the deal, which inherently provides a stronger bargaining position.
"If you want to sell your business someday for a lot of money, then the business must be sellable."
This quote underscores the importance of creating a business model that is attractive to buyers because it operates successfully without the owner's constant involvement, thereby increasing its value.
"And so you have to think. And this is the critical self-awareness of thinking."
This quote calls for business owners to honestly evaluate their contributions to the business and to strategize how to systematize and delegate those tasks to make the business more autonomous.
"And to increase the value of that equity, we have to make it so that it's actually a business."
This quote discusses the evolution of a business owner's role and the importance of developing the business into a standalone entity that contributes to the owner's net worth.
"Until we can articulate what the problems are, we cannot solve them."
This quote highlights the necessity of clearly identifying business challenges in order to address them effectively, which is a vital part of making the business appealing to potential buyers.
"And then when that happens, your net worth will skyrocket because now you have something that everyone wants, which is an asset that produces cash while you sleep."
This quote encapsulates the ultimate benefit of creating a sellable business: it becomes a desirable asset that enhances the owner's wealth by providing passive income.