John Warrillow on How To Build A Successful, Sellable Business
Jan 30, 2025
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John Warrillow, founder of the Value Builder System and bestselling author, shares insights on building a successful, sellable business. He delves into creating predictable revenue streams and enhancing business value to attract buyers. Warrillow emphasizes the importance of thorough preparation in the M&A market and mastering business valuation for smoother transactions. He also discusses the emotional challenges of selling a business and the significance of aligning personal fulfillment with entrepreneurial decisions. It's a treasure trove for aspiring business sellers!
Creating a business model that operates independently of the owner significantly enhances its attractiveness and value to potential buyers.
Profit, determined by EBITDA, is more crucial than revenue growth in assessing business value, with consistent earnings drawing higher valuations.
Engaging in pre-diligence and clarifying personal goals are essential steps for entrepreneurs to maximize their business sale outcomes and timings.
Deep dives
The Importance of Business Value Creation
Building a business that holds significant value for potential buyers is crucial. Entrepreneurs often mistakenly believe that their personal involvement or client relationships are enough for a sale, but this is rarely the case. The focus should be on creating a business model that can operate independently of the owner, ensuring it remains attractive to buyers. A business structured for growth and scalability typically commands a higher valuation and can lead to successful exits.
Understanding Revenue vs. Profit in Valuation
Many entrepreneurs equate revenue growth with increased business value when, in fact, profit is what really matters. Valuations are often determined by EBITDA, with higher multiples applied to businesses that demonstrate consistent, high-quality earnings. Entrepreneurs are cautioned against the misconception that high revenue alone equates to a successful business. Examples illustrate the disparity between businesses with large revenues but low profitability, and those with smaller, more stable revenue streams that attract higher offers.
The Value Builder System
The Value Builder System provides entrepreneurs with tools to assess and enhance their business's value through a structured approach. The system includes a questionnaire that reveals areas for improvement, allowing businesses to shift from an average valuation to significantly higher multiples post-assessment. This process helps entrepreneurs adopt an outside-in perspective, identifying weaknesses they might overlook while being immersed in daily operations. By focusing on building transferable value, entrepreneurs can prepare their businesses for successful future sales.
Navigating the Selling Process
The process leading up to a business sale can be fraught with complexities and potential pitfalls. Entrepreneurs are advised to engage in pre-diligence to prepare necessary documents and information, reducing the risk of deal momentum loss during negotiations. Lack of organization can lead to lower valuations and prolonged sale processes, which can exhaust entrepreneurs. Successful sellers often emphasize the importance of competitive tension, suggesting that multiple offers can significantly enhance the overall sale price.
Recognizing the Right Moment to Sell
Identifying the optimal time to sell a business is often overshadowed by emotional attachments and future growth expectations. Entrepreneurs should clarify their personal goals and readiness to pursue new ventures before proceeding with a sale. The anecdote of one entrepreneur missing a lucrative sale by holding out for an unattainable valuation demonstrates that timing and clarity of purpose are vital. Ultimately, understanding the freedom that comes with financial independence can be a compelling motivator for making the decision to sell.
John Warrillow is the founder of the Value Builder System, a software program that helps thousands of businesses build more value for customers and investors. He is also the bestselling author of three books, Built To Sell, The Automatic Customer, and his latest, The Art of Selling Your Business, which came out in January 2021. He is also the host of Built To Sell Radio.
John joined host Robert Glazer on the Elevate Podcast to talk about how to build a business that attracts lifetime customers and create your exit strategy.