According to John Warrillow—the Founder of The Value Builder System™—the happiest entrepreneurs are ones that have more pull factors than push factors. What does that mean?
Push and pull factors
Pull factors are things that you’re excited to do—write a book, run a marathon, travel, etc. Push factors are things that stress you out within your business. It could be government regulations, employees, angry customers, and more. You need to ensure that your pull factors outweigh the push factors.
John interviewed someone who ran an IT business. He woke up on his 39th birthday and decided he wanted to live on a sailboat. So he made it his goal to live on a boat by his 40th birthday. He hired a broker to sell his company. He sold it for 2.5x times profit and bought his boat.
Could he have stuck around longer? Sure. Could he have made a better profit? Sure. But he was happy with his boat. He achieved his goal and was living his dream. As a business owner, you need something that you’re excited to go do after your exit.
You have to ask why you’re building your business in the first place. What is the point?
Beware of earn-outs
What is an earn-out? It’s when the seller of a business has to earn part of the purchase price. You don’t want to be forced to achieve future goals to receive money. Those kinds of deals are fraught with problems. You may never achieve those goals.
Jodie Cook ran a successful social media business in the UK. When she sold, she insisted she not have an earn-out (which is fairly common in marketing businesses). Her first offer was 80% upfront paired with a 20% earn-out.
Instead of accepting the offer, she created Standard Operating Procedures (SOPs) for all of her processes. Ultimately, she sold the business without an earn-out because she had those SOPs. It was a painstaking process but she would rather spend three months writing those out than three years earning her way out.
Don’t overestimate the value of your business
John interviewed Rand Fishkin—the Co-Founder of Moz and author of “Lost and Founder”—about his business. He was approached by Hubspot to buy his business. They offered $25 million for a $5 million business. But Rand had heard that it should be worth 4x topline revenue, which would be $40 million. So instead of selling, he raised venture capital.
VC’s often invest with preferred shares, guaranteeing them a preferred return. As Rand started to spend their money, he started to bleed cash. The VC’s got nervous and removed him as the CEO of the company. When John interviewed Rand, he pointed out that at least he still had Moz stock. But Rand pointed out that it wasn’t worth anything. Why? His common stock was worthless because of how long the VC’s had held the preferred stock. The offer from Hubspot that he passed on? It would be worth close to $200 million at this point.
Entrepreneurs are always thinking about how tomorrow will be better than today. They’re optimistic. But when you hear a story like Rand’s and realize one simple fact: The best time to sell your business is when someone is buying. When you get an unsolicited offer there are probably other interested acquirers—and now might be the right time. You never know when the right time to exit is. When you get approached, it’s time for serious consideration.
What is your freedom point?
Your freedom point is when the sale of your company will create enough liquid wealth to live off comfortably for the rest of your life. When you get to that point, ask yourself: “Am I willing to continue to grow this business when growing it risks my freedom?” Two years ago, many people had no clue what was about to happen. Many would rather sell their businesses than live through the last two years. When you hit the freedom point, consider if you’ve achieved what you want to.
To learn more about exiting successfully from your business, check out episode #262 with John Warrillow. He shares numerous tactics and strategies to help you avoid making big mistakes and get the right buyers.