How To Build A Business That Will Sell For Big — In Just 12 Months - video Dailymotion

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Ever wondered how some entrepreneurs create businesses that get snapped up for millions—fast?  Discover the step-by-step 12-month plan that could transform your idea into a high-value asset. Whether you’re starting from scratch or scaling up, this strategy reveals secrets most don’t know about building a business that sells for BIG. Ready to unlock the blueprint for rapid growth and a profitable exit? Watch now and start your journey to success!  #BuildToSell  #EntrepreneurLife  #BusinessGrowth  #StartUpSuccess  #SellYourBusiness  #BusinessStrategy  #MillionDollarBusiness  #ExitStrategy  #FastGrowth  #ScaleYourBusiness  #BusinessTips  #EntrepreneurMindset  #PassiveIncome  #HighValueBusiness  Watch Now To Discover The 12-Month Blueprint! Ready To Build A Business That Sells For Big? Click Play! Don’t Miss The Secret To Creating A Million-Dollar Business! Start Your Journey To Business Success Today—Watch The Full Video! Want To Sell Your Business For Big? Learn How In Just 12 Months!

Transcript

00:00There is a step-by-step process to build and sell a business for millions of dollars.

00:04In this video, I'm going to share the 14-ingredient recipe to build a business that you can sell for millions.

00:09Imagine this is your business.

00:12You've got products, you've got cash flow, you've got sales.

00:15If you want to be able to sell it for millions, your business needs to look more like this.

00:20So today we're baking the cash cake.

00:22You insert the right ingredients, follow the correct recipe, and you will have a million-dollar business to sell.

00:27When I went to sell my first business, we went through this process.

00:30We are going to show you exactly how we did it and how I started Contrarian Thinking with this exact same idea.

00:36Built to sell.

00:37Do yourself a favor, and before you even start a business, make sure you do it right, not wrong.

00:41Ingredient one, set your goals and valuations.

00:44Your goals and objectives will tell you what you want out of a sale.

00:47You have to start with the end in mind.

00:48Normally, people start businesses and they think they're going to run them forever, and then they get bored at some point, and they want out.

00:53Because running a business after a long time is miserable, let me tell you.

00:56And so if you start early, then you can build, do a sale, and you can actually sell before you're miserable.

01:02Well, Cody, the goal is obvious.

01:04I want to make as much money as possible.

01:05And that's sort of true.

01:07It's usually actually two things.

01:09You want money and time.

01:11So you want to make a lot of money, but you want to make it without, for instance, having to stay at the company forever.

01:16So here's my CT goals matrix.

01:18Money.

01:19I wouldn't sell Contrarian Thinking for less than $100 million, at least today.

01:22We'll see how I feel in 10 years.

01:23Transaction timeline.

01:24I don't want to sell for at least five years.

01:26I want to build this business up quite a bit.

01:28Team.

01:28I want every person who works for me to become a millionaire.

01:31Transition.

01:32I wouldn't want to stay on for more than a year if I was going to sell the business.

01:35I don't want somebody else to be my boss.

01:36Legacy.

01:37I'd only sell to a company I respect.

01:39I wouldn't sell to TMZ, for instance, but maybe I would sell to Netflix or Paramount, for instance, as a media company.

01:45There's my objective set.

01:47Ingredient one.

01:48Now, at this stage, you've got to also figure out what's the value of your business.

01:52So most small businesses are sold for a multiple of revenue or profit.

01:57If you're dealing with the typical types of small businesses that I invest in, modern mats, car washes, etc., they sell for 2 to 3x profit or 2 to 3x revenue.

02:07And it really depends a lot.

02:09Let me show you why.

02:10You have to figure out how much you want for your business, how much your business is actually worth today, and then what's a plan to bridge the gap between the two.

02:17The gap is the rest of this video.

02:20Let's give an example for a contrarian thinking.

02:22First, I'd go to something like Statista, and I'd say, what is this industry worth?

02:27You can see here, if I consider this an entertainment business, entertainment businesses sell for somewhere between, let's call it 16 and 23x profit.

02:36Profit is basically a simplified version of EBITDA.

02:38Now, does that mean that I can sell contrarian thinking for, if I have a million dollars in profit, $16.7 million or $23 million?

02:48Not likely.

02:49But let's go to second step, and I'll show you why.

02:51Now, I typically phone a friend and ask somebody who's in the industry, ideally if they've sold a business, but could be anybody in the industry,

02:58what is a company worth in this industry, in my case, media?

03:01So let's call Alex Lieberman.

03:03Alex sold his business to Business Insider for tens of millions of dollars.

03:07Here's what he has to say.

03:07What do you think you could sell a media company for as a multiple of profit?

03:13My conservative guess would be 10 to 12 times.

03:1610 to 12 times EBITDA?

03:19Yes.

03:19Or do you think...

03:20Okay.

03:20If it's high growth, you should get somewhere around 3x revenue.

03:23If it's slower growth, closer to 2.

03:25Very strong EBITDA multiples, especially in this market, would be anything higher than 14, and I would say you're on the smaller side, it's like 10 to 12.

03:37So what he tells us is that if we at CT can make up to 2 to 5 million in profit, then we can actually sell for 10 to 12x profit.

03:46Maybe not 16, but 10 to 12x.

03:48So that means we'd be selling for 20 to, you know, maybe up to 30, 40, 50, 60 million dollars, which is pretty good.

03:56Now, I know what the business is worth.

04:00I know what the industry sells at.

04:02And I know that if I can get my business up to over 2 to 5 million dollars in profit, then I can sell for a really high multiple.

04:07If I get it up to 10 million in profit, we're talking a 9-figure deal.

04:13But that's not always the case.

04:15I learned this the hard way.

04:16One of my very first businesses I bought cost me around 200k all in, and I couldn't even sell it for 100k.

04:21This is called Threads Refined.

04:23Threads Refined was a fashion stylist marketplace.

04:27But the problem with this business is everything that's wrong with most businesses and what we're going to fix today.

04:32I couldn't sell it because I didn't have a business.

04:34I had a job.

04:36It was a barely profitable job.

04:37And nobody else wanted it.

04:39Most businesses end up closing.

04:41Only 20 to 30% of businesses that are even on the market end up selling.

04:46Most businesses never even go to the market.

04:48So even though 80 to 90% of business owners have their financial wealth, all their cash, locked up in companies,

04:54they'll never actually sell it, which is the entire point of this video.

04:57Ingredients 2 through 8 are how to build a business that sells.

05:01Relevant to anybody, even if you don't have a business today.

05:03Ingredients 9 through 15 are a deep dive into the selling process, what you do when you actually get ready to sell the business.

05:11And the very last step of all is the most important one that almost everybody skips.

05:15You cannot ignore because this is where all the cash is.

05:18So make sure you hang out for the rest of this video.

05:20In my years of buying and selling businesses, I've noticed there's one thing that businesses always undervalue, their brand.

05:26This is one of the perks of buying a business instead of building from scratch.

05:29You're buying the assets, trust, marketability that comes with an already existing business.

05:34Stronger the brand, the more you can charge for it.

05:35In HubSpot's free brand building guide, they found that brand consistent activities will increase revenue by 33%.

05:42You should check it out here.

05:4333% more revenue will drastically increase how much you can make from your business when you sell it.

05:47I've spent tens of thousands of dollars on various businesses, testing and figuring out how to nail the brand.

05:54So I think you should steal mine in HubSpot's homework for $3.99.

05:57The guide includes a checklist for content audit and metrics to track for brand performance.

06:02Also teaches you how to create a brand strategy and the content to execute on it.

06:06We create an insane amount of content.

06:07It was crazy to read HubSpot's report that said 78% of a brand's assets go to waste.

06:12Don't waste any of that time or money.

06:14Download HubSpot's free guide on how to build brand consistency today.

06:18Link right here.

06:18Ingredient two, tracking and documentation.

06:21Every single thing we have is documented.

06:24If you see here, this is what's called our wiki.

06:27And a wiki inside of Notion basically has anything that we do at the company, can we write it down?

06:32So if Tanner, my main man who's filming this, gets run over by a truck, hopefully not,

06:36then he's got every single thing in this SOP that he did.

06:40So we can pass that off to somebody else.

06:42I start with something called the rule of three.

06:44So if it has more than three steps and you do it more than three times,

06:47I made a standard operating procedure for it.

06:49I didn't come up with this.

06:50This was one of my mentors in private equity

06:52that required every single one of our businesses before we sold to have it.

06:55One of the pro tips that another friend of mine told me to do,

06:58his name's Nathan Berry, was film yourself doing the steps

07:01and then hand it off to somebody else to turn it into a checklist.

07:04Here's how it works.

07:05Three steps.

07:06You inside of your business post newsletters like I do.

07:09And in order to post the newsletter, there are definitely more than three steps.

07:12So I write all those steps down.

07:14Then I record myself actually doing the steps on a screen just like this.

07:19Step one, step two, click, click, click, click.

07:22Then I hand the written process off to a team member with my video

07:26and see if they can follow directions and get it done.

07:28If they can't, I take it back.

07:30I walk through it again and I give it back to them

07:31until they have perfected the process.

07:33Then I have them hand it off to somebody else

07:35and see if that person can follow their practice.

07:38The two of them work together until it's been fully outlined.

07:40This is awful in the beginning of your business, but it is so important.

07:44I use the 80-20 rule here.

07:46What 20% of the processes you have are the most important?

07:49Think like sales and sending newsletters, if you're a newsletter company,

07:52that drive 80% of your profit.

07:55Set up those first.

07:56The key here is set this up way before you want to sell.

07:59If you're not sure whether you want to sell your business or not, do it anyway.

08:02Because worst comes to worst, you keep your business forever,

08:04but you hand off the operations to somebody else and you don't have to do it yourself.

08:07The next thing we did is we got a P&L running immediately.

08:09This is called a profit and loss statement.

08:12Every single business needs to have one of these.

08:13If you don't have one of these, you don't have a business, you have a hobby.

08:17One of my favorite mentors told me this.

08:19You need it cleaned up and to look at it weekly.

08:21It doesn't have to be that complex.

08:23You can click here, you can download our exact copy,

08:25but what gets measured gets managed.

08:27And if you pay attention to your cash, it turns out she hangs out with you.

08:30We even have a process for how we track it.

08:32So I call this Financial Fridays.

08:34Every single Friday, we have a leadership team meeting

08:36on which we go through our financials.

08:38Did we hit our goals one way or the other?

08:40Next thing we do is we have a current dashboard

08:41with everything drilled down by business unit.

08:45We didn't come up with this.

08:46I actually stole it from Apple.

08:47Apple obsesses on five key performance indicators.

08:51These are them.

08:52Every single business has one of these.

08:54If you know what your North Star is,

08:56ours at Contrarian Thinking is two things,

08:58a revenue number and a total follower count.

09:01We want to have everything we do track to those two numbers,

09:04and Apple's no different.

09:06Then you can look at these across almost every industry.

09:08Most of them are the same.

09:10Here's our high-level scorecard at Contrarian Thinking.

09:12This is what we go through from a leadership perspective every single week.

09:15On the left-hand side, you see that we kind of bundle them.

09:19So you could double-click on these and there would be more underneath them,

09:22but we keep it clean because my rules for scorecards

09:25is if I'm going to sell to a seller,

09:28that seller is going to get 60 seconds to kind of like review the overall thing,

09:31and they need to be able to understand it without talking to me.

09:34I also like to have on the right-hand side status.

09:37So how are we doing on a weekly basis?

09:39Are we going to hit our monthly goals or are we behind?

09:42And you can see here, we have a bunch of goals that are green or light green,

09:46meaning we're going to hit them or we're going to crush them.

09:48And then we have a couple that are yellow.

09:49We're at risk.

09:50And anything that's yellow, that means I double tap on

09:53and I go to my leaders and say like, what's going on in this business?

09:56Anything that's green, I say, cool, I'm not going to worry about it

09:59because you got it covered.

10:00Ingredient three, diversifying or baking powder.

10:03This step is all about de-risking,

10:05which is really what the word diversifying means.

10:07I have two rules I like.

10:08The first is diversified client base.

10:11I use the 15% rule,

10:12which means make sure that no one client makes up more than 15% of your revenue.

10:16I also have a rule called the diversified product rule or the 60% rule.

10:21Make sure that no one product makes up more than 60% of your revenue.

10:24This isn't always possible,

10:26but I like this because God forbid, for some reason,

10:28you have one product and that product tanks.

10:31I don't like that kind of risk.

10:32Let me show you how we did this at Contrarian Thinking.

10:35So today we service more than 5,000 clients a year.

10:38That means our business has very little concentration risk.

10:41This is ideal, but it didn't start out that way.

10:44In fact, we started out with only advertising revenue.

10:47That was 20 clients a year.

10:49People like HubSpot, et cetera, were our main advertisers.

10:52And if advertisers polled or didn't put their advertisements in the newsletter that year,

10:58or didn't put them in YouTube videos, our revenue tanked.

11:01Here's the problem.

11:02Look at the volatility in advertising revenue.

11:05You can see this graph right here.

11:07Down 31% year over year or month over month.

11:11Those are scary numbers that I don't like to have.

11:13And with only four to eight slots in my newsletters back in the day for advertisements,

11:18we didn't have a lot of wiggle room.

11:20That's why we moved to having info products as well and businesses that we own.

11:24We need to even out those revenue streams.

11:27The second type of risk isn't necessarily just your clients.

11:30It's diversifying risks of two different areas.

11:32One is your payment processor.

11:34We have this company called BizScout, and the company was on Stripe.

11:38And Stripe actually, in the very beginning, early days of this business, when we had very

11:43few sales, gave us a few chargebacks.

11:46And before we know it, had cut off all of our revenue at BizScout and told us we couldn't

11:50take any of the cash out for 90 days.

11:53Now, thankfully, the business was small, and I just ended up funding that business and the

11:56operator regardless.

11:57Kind of a hysterical story because then Stripe put this fake notice up there and basically

12:01blamed the business for them holding our capital.

12:04And you can kind of see the comments.

12:05There are thousands and thousands of people that have had the same thing happen to their

12:10business.

12:10Now, it's not necessarily Stripe's fault.

12:12They just said, hey, you fall outside of our range, and so you've got to go.

12:16But what they don't realize is the average small business only carries 30 days of cash.

12:20And so if this was a normal average small business, it would have been out of business

12:23because they kept our cash for 90 days.

12:26And just like that, a huge behemoth kills your business.

12:28That's why now we have multiple payment processors for every business that we have.

12:32No more only relying on Stripe.

12:35The second type of risk I like to diversify away from is platform risk.

12:39So in your business, you're usually going to have a few main platforms.

12:42For contrarian thinking in the early days, that was a platform called Substack.

12:45This was where all of our newsletters got sent out from.

12:48One day, though, Substack sent me a lovely little email.

12:51And in that email, it said, we have now taken all of your email subscribers.

12:55You can no longer see them.

12:57We've shut you off from the platform.

12:59And you can no longer send newsletters.

13:01So they killed my business overnight.

13:03Again, I took to Twitter and went to war with them.

13:06And they basically said, inside of their documentation, we were not allowed to sell a community outside of Substack.

13:13They wanted their 10% cut or whatever it was that Substack takes from all of your business.

13:18Now, I saw a community being different than a paid newsletter.

13:21So I said, wait, wait, wait.

13:22It's not the same thing.

13:23We don't have a paid newsletter.

13:24We have a community that has all of these different services.

13:26So why would I pay you 10% on that?

13:28And they said, too bad.

13:29You broke our rules and regulations.

13:30We're kicking you off the platform and keeping all your emails.

13:32I had to fight with these people publicly and in my DMs to get it back.

13:36Again, they're just trying to run a business, but they could kill yours.

13:39So ask yourself, do you have a payment processor risk?

13:42And do you have a platform risk?

13:43And then diversify those.

13:45Reoccurring revenue.

13:46Ingredient number four.

13:47Now, this part's really interesting because we essentially want to come up with a process

13:51to continue to get paid after we've sold a client's wants.

13:54The general rule is basically this.

13:56There's six types of reoccurring revenue, and your business should have at least three of

14:00them, in my opinion.

14:01The first type is long-term contracts.

14:03And then there are three subcategories.

14:05There's retail.

14:06Think your three-year phone contract with AT&T.

14:10You, a normal consumer with a big company.

14:13There's B2B.

14:13That's a contract like Contrarian Thinking.

14:15My company has with HubSpot.

14:17And then we've got the government.

14:19A contract for a street-cleaning company to clean up the streets in Washington, D.C.

14:24That is the most valuable.

14:26A business contract is the second, and a retail contract is the third.

14:29Then the second type of reoccurring revenue is called an auto-renewal subscription, or an

14:33evergreen revenue.

14:34The same as above a long-term contract, but this could be monthly or annual, and it renews

14:41without you having to go and re-renew it.

14:44Think like the Wall Street Journal.

14:45I get it every single month.

14:46They keep billing me for it.

14:48And we have the third type, which is sunk money subscriptions, or it's called replenishment.

14:52Let's say you buy a new air filtration system for your house.

14:55You also get air filters for that every three months, right?

14:59So that's auto-subscriptions.

15:00Then there's Keurig, which was worth about $18 billion when they merged with Dr. Pepper.

15:04It's not for the machines.

15:06It's because once you have the machine, you're going to, on average, have more than 100 Keurig

15:10cups over a year.

15:12That is a great replenishment system.

15:14Then you have a pay-as-you-go subscription.

15:16Subscriptions sort of for a set period of time.

15:19I've seen subscriptions for, like, teeth whitening, veterinarian visits, Botox, or even, let's

15:24call it, like, those dog or beauty subscription boxes that you get.

15:27You kind of do it as you need it.

15:28Then you've got loyalty programs.

15:30Loyalty programs such as the airlines.

15:32That loyalty program is worth more than almost anything else in the airline business because

15:37you use those points and you continue to come back to the airline.

15:41And then finally, you have simple consumables.

15:43These are one-off products but bought repeatedly through customer loyalty.

15:47Think coffee shop regulars and Starbucks who has billions and billions of dollars in people

15:52coming back to their store.

15:54Here's the benefit to this.

15:55So when you have a reoccurring revenue model, you have scalable income.

15:59You have freedom of time because you don't have to keep chasing customers.

16:02You have increased value when you go to sale.

16:04You have increased lifetime value, which also increases your ability to sell your business

16:08for more.

16:09You have more stable cash flow because you have subscriptions continuing to come on board as

16:14opposed to net new customers, which often go like this.

16:16And you have predictability.

16:18Usually when people buy a business, the more predictable, repeatable, and expected you can

16:24make your business, the more money they're going to pay for it.

16:26At Contrarian Thinking, we have annual, not monthly subscriptions because annual is more

16:31valuable than monthly since it has more of an expected and predictable revenue stream.

16:35And then we wrapped a process around following up with them prior to renew, what's called a

16:39re-engagement sequence, to make sure that they keep using the product and they stay with us.

16:44At our laundromats, we have monthly memberships and weekly memberships for wash and fold and

16:49delivery.

16:50They auto-renew, they get charged even if they don't use them for our automatic, and

16:54their pay as you go, they can get in bulk or, you know, three or six month memberships.

16:59Then we wrapped a process around following up with them prior to renewal as well to make

17:03sure that they could even extend.

17:05Like, hey, you have a month to month.

17:07What about an annual process?

17:08That means we get the revenue all the way up front because they pay right away and we

17:12don't have to deliver the service until the rest of the year.

17:14It means my business is more valuable.

17:16All right.

17:17Repeatable sales process.

17:18Ingredient number five.

17:19This is key because if you are the only salesperson, you don't have a business, you have a job.

17:24And if you only have one salesperson, you don't have a sales team.

17:26You have a liability if they leave.

17:28And if you have two salespeople, you don't have a sales team, you have a group that needs

17:32to be managed.

17:33Ideally, you need a sales leader and a sales team.

17:36Your buyer wants to know that the sales will continue without you.

17:39And this is one of the most important aspects of a sale.

17:43Sales drive predictable revenue streams.

17:45If you want to sell, build a reoccurring sales model and you'll sell for more.

17:50Now, what gets measured gets managed in sales.

17:52You need to be able to tell a buyer really quickly what your success rate is, how many

17:56people you close, what your outreach is, how many people you reach out to, the total number

18:01of businesses, clients, et cetera, that could be potential clients.

18:04So that you can determine what your total market size is.

18:08The more data you can show them on what your average avatar is for your purchaser, how often

18:14you can get in touch with that avatar and how often you close that avatar, the more likely

18:19they can forward project their ability to sell more and thus pay you more money for your business.

18:24The other thing a lot of people forget about is sales enablement, which basically are the

18:27resources that your salespeople use to convince people that what you're selling is worth it.

18:32And most sales teams hire great salespeople.

18:36That's what they focus on.

18:37But here's the thing.

18:38It's a lot easier to find a bunch of donkeys than it is a unicorn.

18:43Meaning you can have good salespeople and not have to have great salespeople.

18:48If you have good enablement, that's like things to handle objections, resources, testimonials,

18:55reviews, all of those can turn donkeys into unicorns.

18:58And that's really important if you go to sell because it's really hard to hire unicorns and

19:03no buyer wants to have to find them.

19:05For example, when I first started Contrarian Thinking, we used ads and had sponsorships.

19:08And I would literally DM, reach out to the companies on Twitter and close them.

19:13And now we have a sales and sponsorship team.

19:15And we also had an agency that does that.

19:17This allows us to have a process that doesn't really include me at all.

19:21In fact, we have more inbound than we even take.

19:24The other thing that's really important is to name your channels and tactics.

19:27You need to have at least two or three diversified ways you sell.

19:31It could be content marketing, SEO, PPC ads, cold calling, door knocking, affiliate, influencer,

19:37the list goes on.

19:39But you need to have multiple channels and a process for each one that they follow.

19:42That way, your process is one that they purchase.

19:46So this is our content flywheel.

19:48At Contrarian Thinking, one of the ways that we sell is we create content that drives people

19:54to us and they then do an action that we want.

19:57So my content often gives me deal flow into businesses that I want to buy.

20:01I don't have to go out and cold call a million businesses because I get hundreds of them that

20:05email me.

20:06Then I pick which ones I want to buy.

20:08This is really important to have some sort of flywheel for your process.

20:13We also use ads.

20:14I like ads because they're repeatable, quantifiable, and measurable.

20:18So you don't have to have a bunch of top-tier unicorns selling things if the ads drive people

20:24for a set amount of cost every single time to buy something that costs more than the cost

20:28of the ads.

20:29It's a really scalable process.

20:31Step six, productized service.

20:33This is critical.

20:34I don't like to buy services businesses.

20:36I buy service businesses and I turn them into product and systems businesses.

20:41So if your business is not teachable, reputable, defensible, and valuable to customers, then

20:48you sell a service, not a product.

20:49So there's a couple different things we do almost immediately off the board.

20:52We come up with a proprietary name for our product and service.

20:55We have a unique process that is just for us and is named.

20:58And we outline exactly how we are different than everybody else through our methodologies.

21:04Let me give you an example.

21:05This is a bad agency.

21:06Sorry, whosoever this is.

21:08Look at all the things that they do.

21:09Email marketing, branding, web design, association management, editorial.

21:15All of these services mean they have no proprietary processes because they're something to everybody.

21:20They have to do a bunch of RFPs.

21:22They have to quote individual jobs.

21:24They customize too much.

21:26They have variable pricing.

21:27And they have no set product because they have all the services.

21:33Services agencies trade at a lower amount than the other businesses and they're harder to sell.

21:37A good example would be a company that I own part of called Viral Cuts.

21:41Viral Cuts offers three things and they're all video editing.

21:44They edit short form video and you can have three different price points.

21:48That means that we have built-in reoccurring revenue because it's charged every single month.

21:53Less friction for customers because it's automated.

21:56We have a set process, the Viral Cuts way, that we do for every video.

21:59We don't do RFPs.

22:00We don't do custom pricing.

22:01This is a clear example of if you are a good client, this will work out for you.

22:06If you're a bad client, you'll know because you'll want a bunch of custom things and we won't do it for you.

22:10This allows this business to scale up to multiple hundreds of thousands of dollars a month inside of 90 days

22:16because it's a set system every single time.

22:20At Contrarian Thinking, it should be really obvious who's a good fit for our customers too.

22:24Do you want to buy a business?

22:25Are you capable of it?

22:26Do you fit our application criteria?

22:28If you're not a good fit, you'll know it and we'll tell you because we don't want to allow everybody to come in.

22:33So no customization, no one-offs, everything is set, which is actually a better experience.

22:38People think they want customization, but how can you be excellent at something if you change it every single time?

22:44All right, step seven, turning a cash suck business into a cash flow business.

22:48This is the sugar, one of my favorite parts.

22:50The main reasons why small businesses fail is they run out of cash.

22:54This is a huge problem that a lot of businesses could fix if they knew what I'm going to tell you about next.

22:58And most businesses do not.

23:00Here's the difference between a good business and a bad business.

23:03A cash suck business provides the service, then gets paid.

23:07They make money just a couple times a year, maybe, as opposed to every single day, week, month.

23:12They maybe have one big client and if they leave, the business is in trouble.

23:16A cash flow business gets paid up front, then provides the service,

23:19makes monthly reoccurring revenue continuously, has lots of clients.

23:24And if this is your business, you get to decide when you charge for your product.

23:28So charge up front or in milestones to create a positive cash flow cycle.

23:32Think about it this way.

23:32If somebody comes to buy your business and they have to float the business for a certain period of time,

23:39aka they have to infuse money into the business so the business can keep running,

23:43they're going to pay you less money for it.

23:45So buyers will pay more for cash flow.

23:47You can use this 13-week cash flow model to see if you are actually working on a cash flow negative or positive business.

23:53I had a couple cash suck businesses.

23:55We have one business called ApproachMint that we've since turned around.

23:58And they used to do custom work before we took over.

24:01Now they require payment up front.

24:03They set tiers so there's no customization and they have a very clear value proposition.

24:07This business isn't out of the woods yet, but we have changed it where we get paid before we provide the service.

24:13Because we're good and we help small businesses close anywhere from 2 to 10x more just from responding to leads like this.

24:20If you have a good business that allows people to make more money, you should charge for it.

24:24Number eight, keyman risk.

24:26This is the eggs.

24:27So a business that's relying on its owner is not really a sellable business.

24:31So right now, for instance, contrarian thinking has a lot of keyman risk.

24:34But there's a few ways that we're moving away from that.

24:37First of all, I didn't call the business Sanchez Inc.

24:39Don't name your business your name.

24:41You want brand loyalty, not personal loyalty.

24:44At the start of your business, you're going to be like me.

24:47At contrarian thinking, I did all the content, all the newsletters, all the community building.

24:51Then you hire your first executive.

24:52Then you build a team of teams.

24:54Then you outsource marketing.

24:56You slowly take yourself out of the content creation of the business until, like me, you go to San Diego for two months and the business runs without you.

25:02What you need to do next is you need to build a management layer.

25:05You have to have a team of people because team is bigger than me.

25:09You can see ours here at Main Street Holding Company, our holding company.

25:12We have people that if I was to fall off the face of the earth, could continue to run the portfolio companies and continue to invest.

25:19Now, the question becomes, how do you keep these people post-sale?

25:24And there's really three ways.

25:26You give them equity in the company.

25:28Equity vests over time a little bit each year.

25:30You give them profit sharing.

25:32That's what they had at Vanguard when I was there.

25:33They get a percentage of the profits after you go through with the sale for a continual amount of time.

25:38You put a pool aside for that.

25:40Or there's a bonus pool.

25:41At Goldman and most finance companies, this is how they do it.

25:43You get a bonus at the end of the year, let's say, but that bonus gets put into a pool that you can access one-third of it each year.

25:50I hated this when I worked at Goldman because when you leave, you always leave two-thirds of your money on the table.

25:56So now we're getting into the part where if you don't have a business yet, this next part will apply when you get one.

26:03Everything up until now applies to anybody if you want to build a business.

26:06Now we're really getting into the meat of how do you sell a business for millions and millions of dollars.

26:11Step nine, buyers.

26:13Remember the sales matrix that I told you guys about in the beginning?

26:16It looked like that.

26:17All right, put this thing back up on stage.

26:19Your goals for your business will determine the buyers that you need to pursue.

26:23And there's kind of usually two different types of buyers.

26:25There's financial and strategic buyers.

26:27I like to create a list of the strategic buyers because they pay more.

26:31Financial buyers just want to cash flow off your business just like you do.

26:34So they're going to pay a lower valuation.

26:36Strategic buyers look at your business and say, wow, we could actually pay more than it's worth today because our business combined with this business makes it more valuable.

26:46That's what I'm looking for.

26:47If you want to increase the value of your business, you use a controlled auction.

26:51Basically helps increase the sales price because you have a bunch of people all bidding on your business.

26:56We'll talk a little bit more about how to do that later.

26:58But I want to talk about the difference between financial and strategic buyers.

27:02So when Facebook bought WhatsApp, it was making like, I don't know, 15 million in revenue, and they lost a bunch of money, hundreds of millions of dollars a year.

27:10Facebook bought that business for $22 billion.

27:13Why?

27:14Because they were a strategic buyer.

27:16Another strategic buyer would be like Mr. Carwash, where typically carwashes trade at 3 to 5x profits.

27:22But because Mr. Carwash buys them, they might be able to pay 7 to 12 to 15x profits.

27:27A financial buyer is going to be somebody like me who buys a carwash.

27:30I want that individual carwash to operate all by itself and to make sense.

27:34And if it doesn't, then I'm probably not going to buy it because I don't want to think about the future earnings of a business in my current costs.

27:42We actually had a business that we had called Sublime back when I worked in a private equity fund in cannabis.

27:47And when we were looking to sell the company, here's what we did.

27:49We made a list of all the top MSOs.

27:51These are in cannabis, the buyers of this type of business.

27:55And we put together a list of them all in California where it was located.

27:57Then we put together a list of all the product companies that could potentially buy them.

28:01And we targeted this list that we thought was big enough to find a buyer who could pay us an outsized multiple.

28:06What we ended up doing is actually combining Sublime, Harborside, and this other company, Urban Leaf.

28:12And that company is now publicly listed and does hundreds of millions of dollars a year.

28:16But if we had just taken Sublime and given it to somebody based on cash flow, that business wasn't making money.

28:20It was losing money.

28:21So we certainly wouldn't have gotten as good of a deal.

28:24Step 10, broker or intermediary?

28:26A little milk.

28:27Finding the right broker is really important, but you really break it down by size.

28:31If you have a business that's doing $10 million or less, you can go with a business broker.

28:35If you have a business that's doing $100 million or less, you usually go with an M&A advisor.

28:41And if you have a business doing $100 million or more, you go with an investment banker.

28:45Just different terms.

28:46Kind of goes with sophistication level.

28:48Investment bankers are Goldman Sachs.

28:50Business brokers are individuals or people with groups like Transworld.

28:54And here's how they get paid.

28:56If you have a business that's like a million bucks or less, you might be paying a 10% commission.

29:01If your sales price is, let's call it $5 million or less, you might be paying something called a double Lehman,

29:08which is how they determine the commission once you get to that higher tier.

29:12And anything that's like above $30 million, you're probably paying somewhere between 1% and 4%.

29:18Now, this can all change, but these are good models to have.

29:22How do you find the right broker to sell your business?

29:25Well, you need to interview a bunch of them.

29:26Now you know the levels and the title for them, but you want really a couple things.

29:31One, an advisor that's done deals in your niche before.

29:34Even better if they specialize, like if they only sell media companies, if they only sell car wash companies.

29:38You want to interview all of them and probably do quite a bit of asking around in competitive shopping.

29:45These guys can make or break your deal.

29:47And then you want to make sure your incentives are aligned.

29:49Like, are they actually just representing somebody who's a buyer of a company like yours?

29:54And so they want to get them the best deal, not you, the seller.

29:57It's really important that your incentives align.

29:59They should only have one goal, to sell your business at the terms that you want and get the most money out of it for both of you.

30:05Step 11, business plan or the vanilla.

30:08This is where you create your one and three-year business plan.

30:11It doesn't have to be crazy.

30:13This is sort of an example of what a one-year vision might look like.

30:16Your goals are pretty simplistic.

30:18You want to write down who is your customer?

30:21What are their problems?

30:23What solutions do you offer that are uniquely you?

30:27Why now makes sense for this business to be even more successful?

30:31And why you and your team are going to be the only deal that they should do?

30:36What you are really doing is you're selling the dream for the buyer.

30:39And inside of this business plan, you want to outline everything we've talked about in the steps up to this day.

30:44The more processes and the more de-risking you can do, the more you can sell your business for.

30:49And then you want to look forward.

30:52And you want to have like three-year financial projections.

30:54This is where you say, man, if this business had these resources, this fresh blood, you're a brilliant mind buyer, look at what this business could do.

31:02Or under both of us, if I was to stay on, I'd get this business here anyway, but you get the opportunity to do it.

31:08It's kind of like having a crystal ball for your buyer.

31:11Step 12, the seller's story.

31:14So institutional investors and strategic buyers see lots of deals a year.

31:182,000 plus deals a year.

31:20How do you make your story stand out?

31:22You have to talk about why you've been successful, why it's going to continue to grow and be even more successful under them, or at least continue at the same rate.

31:32Where is future growth going to come from?

31:34Give them a plan that makes them confidence in your ability to predict the future, because that's their ability to make money.

31:41Now, when you talk to buyers about buying your business, you got to be honest, kind of.

31:46You want to explain to them that the company is ready for more, that you're really proud of where you've come from, but, you know, you might need to take a little liquidity off the table.

31:55You want to see the company grow under a bigger team.

31:58You will continue to run the business regardless, but you think this might be a good time for exiting.

32:04One of the biggest mistakes that you could make when selling your business is saying like, oh my God, I hate this thing.

32:08I got to get out of here.

32:10Not the right answer.

32:11Oh my God, I can't wait to sell.

32:12Not the right answer.

32:14Now, you don't want to lie, but you probably, if you're considering selling, have a little itch.

32:18The buyer knows that.

32:20Your job is to not scare them off and to show that you've put in the work where you could continue to stay on in this business.

32:27Let me tell you what most people do when they look to sell, and that is they feel a little bad about it.

32:33So they're like, well, you know, I want to retire.

32:36I want to go do this.

32:37And they're almost selling themselves on the dream of leaving the company as opposed to selling the buyer on buying it.

32:43Sell the buyer.

32:44Do not feel bad.

32:46You have spent years in your business building it by now.

32:48Make sure that you show the other person what you've done.

32:51All right, step 13, setting up your team for the sale.

32:54You want to tell your team, but you don't want to tell them too soon.

32:56You don't want to keep them out of the deal too long, but they need to believe that they'll be better off without you

33:03when you tell them.

33:04You have to sell the dream externally to the buyers and internally to the team because I can pretty much guarantee you

33:10they're going to be scared and worried.

33:11That's very natural because we've got current state and unknown future state.

33:16Current state everybody feels more comfortable with.

33:18This has uncertainty.

33:20And anytime we have uncertainty, what do we do?

33:22We have more risk.

33:23So you want to make sure that your team has a plan.

33:26You need a plan for how you're going to tell your team to make sure that they're excited about it.

33:29You need an incentive structure so that they can benefit from it.

33:32So that might be similar to your leadership team.

33:35You might have a profit share.

33:37You might have equity.

33:38You might have a bonus pool.

33:39You might have a one-time bonus.

33:41If the deal closes, you might have a forward advancement that you give them.

33:45If the deal closes at these terms, I like to have my main leaders have some skin in the game

33:51and bonuses that are paid out over time.

33:54I'm really careful on stock because if you've seen anything happen in the last 10 years,

33:59you can't eat equity.

34:01And so people think they want stock, but what they really want is to be compensated well

34:05and to know if you sell, you're going to make as many of them millionaires as you possibly can,

34:09which is the most important part.

34:11All right.

34:12Step 14, due diligence.

34:13Due diligence typically takes 60 days at a minimum.

34:16I use this for all of my buyers to buy businesses.

34:19This is our due diligence checklist.

34:21So you may as well use this as your seller due diligence checklist.

34:23Because if you follow this template and you put this all together with the eye of what a buyer wants,

34:30you're going to be 10 steps ahead of most other sellers.

34:34I would have this done all before you go to market.

34:36Also, a couple little caveats.

34:38The number on the LOI somebody sends you for what they're willing to buy your business for,

34:41probably not the number they're going to buy your business for.

34:43That's almost like a negotiation start point.

34:46And if everything goes perfect, they might buy that amount.

34:48So keep that in the back of your head and don't get distracted and upset

34:52when that number changes in negotiations.

34:54Now, you don't want a ton of retrades.

34:56That means they keep changing things.

34:58But ask them to kind of do a comprehensive due diligence,

35:00come back to you with all of their questions and concerns at one fell swoop,

35:04and then you can move forward.

35:06What you want to be careful of is when you take the eye off of your business,

35:09it's kind of like a baby.

35:10They know it.

35:11They start running after electrical units and trying to stick their fingers in there

35:14and electrocute themselves.

35:16And the business is no different.

35:17And so if you're going to sell your business,

35:19make it have a process that's really efficient,

35:22probably largely run by your broker or intermediary,

35:25so that the buyer can interact with them and you don't take your foot off the gas.

35:29Here's a nice little timeline for typically how this works.

35:32Preparing to sell for one to two months.

35:35Marketing the business, two to three months.

35:38Closing the deal, three to six months.

35:41Transition period, one to three months.

35:42Sometimes longer.

35:43The bigger the business, the longer the transition period they're going to ask for.

35:48All right, so the last thing the cake needs, time.

35:50Most important ingredient.

35:52It takes 55 minutes to bake a cake at 350 degrees.

35:55You can bake it for 20 minutes at 600, but you think that'll work?

35:58Same with this process.

35:59You need 12 to 18 months.

36:01Give yourself that and you can double or triple your sale.

36:03Building a business that will sell for millions isn't going to be a cakewalk.

36:06You see that pond right there?

36:07But this recipe will put you on track.

36:09My hope is you get to learn from my mistakes so you can make money right off the bat.

How To Build A Business That Will Sell For Big — In Just 12 Months

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