Republished with permission from Built to Sell Inc.

Some owners focus on growing their profits, while others are obsessed with sales
goals. Have you ever considered making it your primary goal to set up your business so that it can thrive and grow without you?

A business not dependent on its owner is the ultimate asset to own. It allows you complete control over your time so that you can choose the projects you get involved in and the vacations you take.

When it comes to getting out, a business independent of its owner is worth a lot more than an owner-dependent company.  Here are five ways to set up your business so that it can succeed without you. 

1. Give Them a Stake in The Outcome

Jack Stack, the author of The Great Game of Business and A Stake in The Outcome
wrote the book on creating an ownership culture inside your company: you are

transparent about your financial results, and you allow employees to participate in your financial success. This results in employees who act like owners when you’re not around.

2. Get Them to Walk in Your Shoes

If you’re not quite comfortable opening the books to your employees, consider a simple management technique where you respond to every question your staff brings you with the same answer, “If you owned the company, what would you do?”

By forcing your employees to walk in your shoes, you get them thinking about their question as you would, and it builds the habit of starting to think like an owner. Pretty soon, employees are able to solve their own problems.

3. Vet Your Offerings

Identify the products and services which require your personal involvement in either making, delivering, or selling them. Make a list of everything you sell and score each on a scale of 0 to 10 on how easy they are to teach an employee to handle. Assign a 10 to offerings that are easy to teach employees and give a lower score to anything that requires your personal attention. Commit to stopping to sell the lowest scoring product or service on your list. Repeat this exercise every quarter.

4. Create Automatic Customers

Are you the company’s best salesperson? If so, you’ll need to fire yourself as your company’s rainmaker in order to get it to run without you.

One way to do this is to create a recurring revenue business model where customers buy from you automatically. Consider creating a service contract with your customers that offers to fulfill one of their ongoing needs on a regular basis.

5. Write an Instruction Manual for Your Business

Finally, make sure your company comes with instructions included. Write an employee manual or what MBA-types called Standard Operating Procedures (SOPs). These are a set of rules employees can follow for repetitive tasks in your company. This will ensure employees have a rulebook they can follow when you’re not around, and, when an employee leaves, you can quickly swap them out with a replacement to take on duties of the job.

You-proofing your business has enormous benefits. It will allow you to create a valuable company and have a life. Your business will be free to scale up because it is no longer dependent on you, its bottleneck. Best of all, it will be worth a lot more to a buyer whenever you are ready to sell.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

Doctors in the developing world measure their progress not by the aggregate number of children who die in childbirth, but by the infant mortality rate – a ratio of the number of births to deaths.

Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base – as a percentage of the number of times they get the chance to try.

Acquirers also like tracking ratios, and the more ratios you can provide a potential buyer, the more comfortable they will become with the idea of buying your business.

Better than the blunt measuring stick of an aggregate number, a ratio expresses the relationship between two numbers, which gives them their power.

If you’re planning to sell your company one day, here’s a list of six ratios to start tracking in your business now to start building value:

1. Employees per square foot

By calculating the number of square feet of office space you rent and dividing it by the number of employees you have, you can judge how efficiently you have designed your space. Commercial real estate agents use a general rule of 175–250 square feet of usable office space per employee.

2. Ratio of promoters and detractors

Fred Reichheld and his colleagues at Bain & Company and Satmetrix developed the Net Promoter Score® methodology. It is based on asking customers a single question that is predictive of both repurchase and referral.

Here’s how it works: survey your customers and ask them the question, “On a scale of 0 to 10, how likely are you to recommend <insert your company name> to a friend or colleague?” Figure out what percentage of the people surveyed give you a 9 or 10, and label that your ratio of “promoters.” Calculate your ratio of detractors by figuring out the percentage of people surveyed who gave you a score of 0 to 6. Then calculate your Net Promoter Score (NPS) by subtracting your percentage of detractors from your percentage of promoters.

The average company in the United States has a NPS of between 10 and 15 percent.  Reichheld found companies with an above-average NPS grow faster than average-scoring businesses.

3. Sales per square foot

By measuring your annual sales per square foot, you can get a sense of how efficiently you are translating your real estate into sales. Most industry associations have a benchmark. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expenses, the more sales you can generate per square foot of real estate, the more profitable you are likely to be.

4. Revenue per employee

Payroll is the number one expense for most businesses, which explains why maximizing your revenue per employee can translate quickly to the bottom line. Google, for example, enjoyed a revenue per employee of more than $1.5 million dollars in 2021, whereas a more traditional people-dependent company may struggle to surpass $100,000 per employee.

5. Customers per account manager

How many customers do you ask your account managers to manage? Finding a balance can be tricky. Some bankers are forced to juggle more than 400 accounts, and therefore do not know each of their customers, whereas some high-end wealth managers may have just 50 clients to stay in contact with.

It’s hard to say what the right ratio is because it is so highly dependent on your industry. Slowly increase your ratio of customers per account manager until you see the first signs of deterioration (slowing sales, drop in customer satisfaction). That’s when you know you have probably pushed it a little too far.

6. Prospects per visitor

What proportion of your website’s visitors “opt-in” by giving you permission to e-mail them in the future? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advise companies like Google and Apple on how to convert more of their website traffic into customers. Dr. Blanks and Mr. Jesson state that there is no such thing as a typical opt-in rate because so much depends on the source of traffic. They recommend that rather than benchmarking yourself against a competitor, you benchmark against yourself by carrying out tests to beat your site’s current opt-in rate.

Acquirers have a healthy appetite for data. The more data you can give them – in the ratio format they’re used to examining – the more attractive your business will be in their eyes.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

Survey a group of founders about the personality traits that made them successful, and they will be quick to use words like determination, sacrifice, and hard work. Others will show more humility and chalk their success up to personality traits like curiosity. Still, others will credit dumb luck.

However, there is another personality trait that many of the most successful founders have in common: discipline.

They have the discipline to stick to their original vision despite the temptation to veer off course.

The discipline to stick to their original product or service offering despite clients asking for different things…

The discipline to ignore whatever shiny ball is demanding their attention and instead focus on what they set out to do…

Steve Jobs, the legendary co-founder of Apple, said it best:

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to one thousand things.”

How Saying No Led to a 7-Figure Exit

Andy Cabasso studied law at university but never really practiced. Instead, he co-founded JurisPage in 2013, an agency specializing in helping law firms with their marketing.

Cabasso understood the marketing services lawyers need, and his partner, Sam Brodie, knew how to build websites that ranked on Google. Their service was popular among lawyers but also attracted the attention of other service businesses that needed a website that ranked organically as well.

Cabasso and Brodie were tempted to wander outside of their niche but ultimately turned down the opportunity to work with other types of companies, knowing they had something unique to offer lawyers.

They also knew the importance of recurring revenue so insisted that their clients use JurisPage for website hosting, which gave the partners a base of recurring revenue. Prospects offered JurisPage thousands of dollars to build them a website for someone else to host, but Cabasso turned them down, knowing that the recurring website hosting revenue was a fundamental component to building a valuable business.

In the end, Cabasso and Brodie’s discipline paid off because they attracted the attention of Uptime Legal, an Inc. 5000 business specializing in technology and practice management software for law firms.

The two companies fit together like peanut butter and jelly, which is why Uptime Legal acquired JurisPage in a seven-figure deal that closed in 2016.

The moral? While curiosity and grit are important personality traits for any would-be founder, the ability to remain disciplined in the face of opportunity may be the most important attribute of all.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

How many people can one person manage?

Harvard Business Review estimates the ideal range for an experienced manager is between five and nine direct reports. Inc. pegs the sweet spot at seven.

The ratio of managers to direct reports matters because it explains why some companies grow and others plateau. Every business is different, but

When David Perry started his video game company, he filled a dartboard in his office with the names of companies he thought would want to buy his company, Gaikai, one day.

Why would a startup business with no revenue or employees be thinking about potential acquirers so early? For Perry, it comes down to something he refers to as “down-the-track thinking.”

Perry was recently interviewed about Sony’s $380 million acquisition of Gaikai, and he described his philosophy by using a moving train as an analogy. He described a train full of people representing an industry. Most people are comfortably inside the train watching the countryside go by. There are some people scrambling behind the train, hoping to jump on. Then there are a select few people who are obsessing over where the train is going and are constantly thinking about the upcoming stops along their journey.

Perry described himself as one of the people thinking about where the train is going next, so it only made sense to him to have a list of businesses he could sell to.

Sony was in the bullseye of Perry’s dartboard of companies to sell to so when his partner suggested they name their company Gaikai, a Japanese word that roughly translates to “open sea”, Perry agreed. The word gaikai is hard for the average English speaker to pronounce, but Perry knew the name would be irresistible to Sony.

Perry and his partners went further and named other parts of their product line with Japanese words and designed the company for the global gaming market, not just American customers, as was the habit of videogame makers at the time.

Years later, when Perry was ready to sell Gaikai, he approached all the big video game makers about buying his company, and Sony was the most enthusiastic. They were thrilled to see the extent to which Perry and his partners had gone to make Gaikai fit Sony’s culture.

Visualizing a shortlist of potential acquirers when you make key decisions is a good way to vet your next move. Imagining how your potential acquirers would react to hear how you are thinking of evolving your company can inspire a more strategic lens through which to make big bets. Whether you are looking to sell soon or are years away from selling, the process of developing a shortlist of potential acquirers tomorrow will help you make better decisions today.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

How many people can one person manage?

Harvard Business Review estimates the ideal range for an experienced manager is between five and nine direct reports. Inc. pegs the sweet spot at seven.

The ratio of managers to direct reports matters because it explains why some companies grow and others plateau. Every business is different, but you can loosely think of a company’s evolution as a series of stages with an invisible gate holding most owners from progressing to the next stage:

Stage 1: Doers (up to 9 employees)

In stage 1, you direct a handful of doers. You need people who can follow your standard operating procedures and execute. Your best employees will often be generalists who can do a lot of things reasonably well. They thrive on variety and like the feeling of getting things done.

Many owners get stuck in stage 1 because they fear delegation. Owners don’t trust employees enough to do the work without their direct oversight. However, those owners courageous enough to hire some managers will graduate to stage 2.

Stage 2: Managers (10–40 employees)

In a Stage 2 company, the owner hires a small number of managers (usually less than five), who are paid to ensure their direct reports execute. The emphasis is on managing against the plan the owner gives them. Good managers understand the process they are being asked to manage. They are detail-oriented and stick to the plan.

While managers may contribute to the plan, they are not usually responsible for creating it. Managers typically need their leader(s) to supply their plan, which is why many companies stall out at stage 2.

Stage 3: Leaders (40 + employees)

For our purposes here, let’s define a leader as a person who can lead a team through more than one layer of management.

Let’s imagine you have a sales leader who oversees two sales managers, each of whom has five salespeople reporting to them. The leader’s job is to set direction and to provide a vision and plan for their managers to execute. They are leading a team of twelve (two managers plus ten salespeople) while simultaneously managing two direct reports.

While most leaders can manage, the opposite is not necessarily true. Leadership requires managers to learn a new set of skills. Leaders need to be able to communicate clearly, delegate effectively, and create strategy.

If you’re stuck at stage 2, you have two options: either you need to hire leaders to parachute into your organization, which risks alienating your managers, or train managers to become leaders. Both strategies are hard and time-consuming, which is why many companies get stuck at stage 2.

Half Your People, Half Your Processes

For an example of a company that successfully managed the transition to stage 3, take a look at Acceleration Partners. Started by Robert Glazer in 2007, Acceleration Partners is an agency specializing in partner marketing. Acceleration Partners is a people-centric business that helps brands reach and manage their influencer relationships.

In the beginning, Glazer began hiring people to help him manage clients and their projects. As he described on a recent episode of Built to Sell Radio, Acceleration Partners’ needs evolved as the company expanded: “Every time your company doubles in size, you outgrow half your people and half your processes.”

Glazer grew Acceleration Partners for 14 years, and by the time he sold it in 2021, Glazer had an entire team of leaders overseeing a group of managers who were managing the people doing the work.

If you’re stuck, it’s worth asking if you have the right people in place to take your business to the next stage. In the beginning, you will need managers you can trust. And to graduate to stage 3, you’ll need people who can manage and lead. Some managers may need training, while other areas of your business may need an entirely new leader to make the transition successful.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

How well does your company run when you don’t show up for work?

The answer to this question has a significant impact on the value of your business. Suppose your company could survive your absence for a while. In that case, you will score well on something referred to as “Hub & Spoke,” a driver in increasing your company’s value.

To understand the Hub & Spoke value driver, visualize a big airport like Chicago’s O’Hare or London’s Heathrow. They act as a centralized routing location for the airlines that rely on them. The system works efficiently enough until a snowstorm shuts down a hub and the entire transportation system grinds to a halt. 

Now imagine you’re the hub, and you run your business with important issues coming through you. It’s efficient right up until the point you are no longer there to run things, which is why anyone valuing your business will levy a steep discount. 

The trick to removing yourself is to document your standard operating procedures so your employees have instructions for how you want things done when you’re not around. 

How a Maternity Leave Created a Business That Was Built to Sell

Just like many young couples, Ben and Ariel Zvaifler got a puppy and found themselves trying to figure out how to train their new dog. They also wanted to understand what toys and food they needed. The couple figured they weren’t alone and decided to launch PupBox, a subscription box for new puppy owners. 

Ariel Zvaifler was responsible for operations, among other things. She took great care in selecting products and merchandising them inside each PupBox. She even considered details around how each package would be shipped and how it felt when the customer received their PupBox. 

When Ariel found out she was pregnant with the couple’s second child, she set to work documenting her standard operating procedures. She put together instructions for her staff describing how to order products, merchandise each item, and ship boxes. It took Ariel six months to document everything, but by the time she was ready to give birth, PupBox was prepared to run without her. 

These standard operating procedures were a big part of how PupBox grew and why the giant pet retailer, Petco, acquired PupBox in 2017.

How to Get Your Company to Run Without You

Start by breaking down your job into tasks, and then prepare instructions for your team so that they can follow your standard operating procedures when you’re not there.

Test your team’s knowledge by taking a couple of vacation days to see where your processes have holes. Plug the gaps with more details, and then take a more extended vacation. Keep lengthening your time away from work and tweaking things upon your return so that by the time you’re done, your company can handle your extended absence, similar to a maternity or paternity leave.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

The Swiss are known to value their independence. They don’t use the Euro currency despite being sandwiched between France and Germany, and they never officially picked sides in the World Wars for fear of tying their wagon too closely to one geopolitical regime over the other.

That’s why we give the name the Switzerland Structure to a business model that is set up to be free of a reliance on a key customer, employee, or supplier.

You probably already know that a customer or employee dependency can undermine the value of your business, but have you ever stopped to think how one of your suppliers could also lead to a valuation drop?

Acquirers want to invest in businesses that inoculate themselves against danger and being dependent on a supplier can be a risk.

The $4 Million Haircut

In 1994 Robert Hartline started selling phones in the back of his car. By 2019 he had built Absolute Wireless into a chain of 56 wireless stores and 350 employees. He had two main carriers that supplied him with the bulk of his data plans.

Hartline was able to systematize his business while he grew by creating employee onboarding videos and delegating key processes for his new employees to follow.

The business was a success, and Hartline was riding high up until early 2020. The pandemic hit, and two of his wireless carriers merged, leaving Hartline’s business spinning out of control.

One carrier assumed the dominant position in the marketplace and promptly delisted its legacy dealers from their Google search listings. Panicked by the abrupt change of posture from his wireless carrier, Hartline decided to sell to another dealer, who was on better terms with the now dominant carrier.

Hartline agreed to an acquisition offer, but as diligence progressed, the carrier insisted Hartline drop 10 of his stores. Hartline’s acquirer promptly dropped the acquisition offer by $4 million. Frustrated but still happy to get out, Hartline agreed to the lower number only to be told the acquirer was not prepared to pay cash and that he would be asked to finance almost half of their acquisition over time.

Hartline has gone on to create successful businesses since his experience with Absolute Wireless and now prefers software businesses, which are not beholden to a major supplier.

If you find yourself too dependent on a supplier, make sure you invest in your customer relationships so that your customer thinks of themselves when buying from you, not your supplier. Next, consider cultivating a relationship with alternative suppliers even if it costs you a point or two of margin in the short term. Over time, the diversity of suppliers will allow you to avoid the valuation discount you incur when you become too dependent on a single supplier.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

What’s your greatest strength as a CEO?

Sales?

Marketing?

Operations?

Whatever you do well, know that it might become your Achilles’ heel. As owners, we tend to invest in areas where we know we’re weak. We know we have limited resources, so we spend what we have on backstopping the places where we’re most vulnerable.

This tendency leads many founders to under-invest in areas where they have natural strength. Two of the most common functions are sales and marketing. Most owners are decent salespeople, so they figure they can compensate for a weakness in generating revenue through force of personality and sheer will.

But determination only goes so far, and you may reach a plateau where your greatest strength becomes what’s holding you back.

How Gold Medal Service Got Stuck at $700,000

Mike Agugliaro is an electrician by training and a natural salesman in practice. He’s a gifted speaker, and his warm personality makes him a magnet for customers. When he started Gold Medal Service with his partner Rob Zadotti, they didn’t invest much in sales and marketing. When Agugliaro was interviewed on the Built to Sell Ratio podcast, he admitted the extent of their marketing in their first decade of operations was pinning a business card on the corkboard of the local coffee shop.

Over 12 years, the business grew slowly to around $700,000 in revenue, which was when Zadotti announced he was leaving. The news made Agugliaro re-evaluate what they had been doing. He realized they had been massively under-investing in sales and marketing.

Agugliaro convinced his partner to stay, and together they started investing heavily in sales and marketing. At the time, the yellow pages were still the primary way homeowners found service providers, so they invested in a double-page spread. They tried radio, fliers, and just about any marketing technique they could measure.

Then the partners started to think of their trucks as giant rolling billboards. Agugliaro’s wife did some research and discovered that humans are hardwired to notice the color yellow. Agugliaro and his wife reasoned that humans must have evolved to avoid bees, so they added black lettering. Gold Medal’s 65 trucks were bright yellow and black and became a mainstay on the streets of New Jersey.

The investments in marketing paid off, and Gold Medal went from $700,000 in revenue in 2004 to a whopping $32 million in sales by 2017. Months later, Sun Capital acquired Gold Medal for a significant premium over the 5 x EBITDA multiple typical of the home services industry.

The takeaway? Your greatest strength can help you start a business. Still, at some point, you may be tempted to underinvest in your strengths, which is when they switch from your most significant assets to a hidden liability. As your business grows, you may need to invest in areas you never considered necessary in the past.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight-part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.