Author of Exit Rich and Mergers & Acquisitions Entrepreneur. Michelle has been helping business owners reverse engineer their exits for over two decades.
Michelle Seiler Tucker knows starting your company with the intent to sell big eventually is a lot easier said than done. The GPS coordinates and your roadmap are a good place to start but learning the 6 P Method as described in Exit Rich help give exact directions along the way that help reveal those double white lines to keep you on course to huge profit.
Businesses like MVMT Watches, Native, and 23andMe have all sold for 9 figures and the breakdown lies in the people, product, processes, proprietary, patrons and profit. Michelle takes a deep dive on what she knows best during today’s episode!
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Reverse Engineering The 7, 8, And 9 Figure Exits With Mergers & Acquisitions Expert And Author Of “Exit Rich” Michelle Seiler Tucker
We’ve got a special guest on the show. I know we say that in every episode, but I mean it. She’s a double-decade Mergers and Acquisitions Expert as a leading authority on buying, selling, fixing, and growing businesses. She and her firm have sold hundreds of businesses in almost every vertical and have a remarkable track record of success.
Her latest book, Exit Rich is a great read and also a Wall Street Journal and USA Today bestseller. I say great read because it is. I’ve taken a page out for good keeping myself. Michelle Seiler Tucker, welcome. Are you ready to help make everyone reading proud, accomplished future entrepreneurs that have all successfully made their 6, 7, or 8-figure exits?
Yes, I am ready to help all of your readers exit rich.
First things first. I know I touched on it briefly. M&A, that’s your background. How did you get into it? What’s the story behind that and you starting your own firm or business?
I’ve always been an entrepreneur, even as a little girl. I always tell my mom, “I’m not going to get a job. I’m not going to work for anybody else. I don’t like people telling me what to do.” I’ve owned many different businesses. I did get that job even though I promised my mom I wouldn’t. Xerox recruited me to be the high-volume manager. Within six months, they promoted me. I had to throw my name in the hat and interview for it. They promoted me to Regional Vice President of the entire stuff. That was quite an accomplishment because they don’t promote unless you’ve been with Xerox for two years. I’ve been there for six months.
It’s a huge company, too.
If you look at some of the amazing founders, the founder of Starbucks worked at Xerox. It’s a huge company. I’ve got great entrepreneurs come out of Xerox. Anyway, when I went into corporate management, I hated it. I love selling. I like the thrill of the deal, solving problems, making relationships that last a lifetime, and getting things done. I have that entrepreneur mentality. Corporate America’s like, “Let’s get it done next year. Let’s get it done after we all vote on it.” Xerox messed out on so many huge opportunities because of the red tape.
I ended up leaving Xerox and started my own development franchise consulting and franchise sales business. It was very successful. I was an equity partner with a couple of different franchisees. I had so many sellers asking if I could sell their business. I’m like, “No, that’s not what I do.” I had so many buyers asking me for existing businesses because they didn’t want the franchise system. It’s not for everybody.
A franchise system is for those people who need someone to tell them what to do and pay the role for them. It’s not good for entrepreneurs. At any rate, after probably a year at this, I said, “You know what? There’s got to be something to this. If the universe keeps telling me, I should just do it.” That’s when I transitioned into my M&A firm in 2000.
When you got a job at Xerox and made it to corporate, your younger self was probably like, “What are you doing?” Sure enough, you built up this reputation as someone that’s successful in her own right. She’s great at sales. She climbed the corporate ladder. She moved out. I’m sure people thought you were crazy, just like so many other people do when people with good, high-paying jobs leave that job, security blanket, or safe space, start their own businesses, and then end up selling it.
It’s the trajectory into this profoundness of entrepreneurship that you found yourself in once you decided to go solo and move into M&A. You’ve been doing it ever since. Twenty-two years is a long time. I’m sure that you’ve got a lot of answers to a lot of questions. I want to start off with this one. Is it ever too early for an entrepreneur, even one that maybe hasn’t even started their first business, to develop a relationship with someone in M&A that can help them plan their exit strategy from day one?
It never is too early. The reason for that is because Steve Forbes, who endorsed Exit Rich says 80% of businesses on the market will never sell%. M&A Source says 90% will never sell. That means you have a 10% to 20% chance of success when you go to sell your company. Those are pretty scary statistics.
Does that include businesses that fail? Is this only the businesses that succeed that are baked into that statistic?
Those are all businesses on the market. There are 32 million businesses in the United States, employing over the US workforce. At any given time, 30% to 35% of those companies will be on the market. Some are doing great, and some are failing. There’s a reason why 80% to 90% will never sell. That’s because most owners never think and plan for their exit.
They go into the business with the mindset that, “This is my baby. I’m never going to sell it.” They don’t think about selling it because they don’t think about the future until a catastrophic event occurs. That can be external and internal, internal as health issues, partner disputes, or divorce. We have a 51% divorce rate in this country. I’ve sold so many businesses because of divorce. You got health issues and death.
The external is this pandemic that the entire world has experienced in the last few years. It’s never too early. What impresses me is I’ve got some young entrepreneurs. Some of them are Millennials. Some of them are Generation X. They’re coming to me. I’ve got one gentleman that’s got a patent. He’s got this unique technology that’s going to change the role as it relates to theft. I can’t say much more than that, but he’s financed himself with $1 billion. He’s already asked me to be his advisor to sit on this board.
I get stuck with that. I’m going to help him to build the business the right way so we can sell it in 2 to 3 years. I have another gentleman that came to me that’s got a unique system, algorithms, and stuff of that nature in a specific industry. I’m not going to say what industry. It’s a SaaS company, and they want to sell for $100 million in a year. He’s probably 22 years old. The kids are loving it. I love it. Businesses were transferred from family to family through the generations. Now, you don’t see that because kids are going out and creating their own masterpieces. They’re like, “Mom, dad, I see how hard you work. I don’t want that.”
Retire your parents. That’s the biggest flex of all.
You got to plan early. One thing that I wanted to mention is we don’t just sell companies. We buy companies and flip them. I partner with business owners investing my money, micro-competency, cashflow, and resources. I put them on a Build to Sell plan for anywhere from $15 to $20 million, sometimes more within 3 to 5 years.
We also have a program that we initiated not that long ago called The Road to Exit Rich. This is where we’re taking these business owners and getting their businesses ready. Many business owners want to sell but won’t sell for their desired price tag because they’re not operating on all 6 Ps. They haven’t built a solid infrastructure in which to sell. Buyers want great businesses. They don’t want a job. Most owners have created a glorified job that they go to look at every day.
I know the feeling.
Me too, sometimes.
It makes it all worth it. We want to get someone off on the right foot. We want to develop this relationship with someone with experience that could help us reverse engineer the exit from day one so we know how to build the ladder to that day of exit. What are some of the things that business owners should know in advance in terms of timelines and potential buyers? How do they identify or quantify the number they think they’re going to sell at?
That’s a good point. We have an exit ritual. We call it the GPS Exit Model. A GPS Exit Model is everything. Every entrepreneur should start with the GPS Exit Model. Most entrepreneurs have no idea what they want to sell the company for. They certainly don’t know what their business is worth now. First and foremost, you got to look at your business and ask yourself, “What is my destination? What do I want to sell my company for?” If you drive around Los Angeles, you don’t just get to where you want to go without pulling out your Google Maps, Waze, or some program like that. What do you plug in? Destinations. If you don’t plug in your destination, where do you end up?
In the middle of nowhere.
That’s what happens to business owners. Business owners don’t plan to fail. They fail to plan. If business owners don’t have a destination, they’ll wake up one day and go, “I want to sell my business.” You said, “How do I know what to sell it for?” They’ll call you because they’re frustrated at maybe a divorce or a partner dispute. A lot of people are frustrated about employees now in the employee market. They’ll call and say, “I can’t deal with this anymore. I want out.” Always take their temperature to see what they feel their business is worth. The hardest part of my job is to tell a baby owner because owners think of their business as their baby, that your baby is not as pretty as they think it is.
That’s a damn rough truth.
They’ll say, “I want $20 million for my company,” and maybe their EBITDA is $1 million. We’re not going to get twenty times. I always ask them, “How did you come up with that number?” They’re like, “That’s what I need to retire on. That’s what I need to start a new business. That’s what I need to put five girls through college and pay for five weddings.”
It’s always based upon what they need, not what the worth is of their business. Buyers don’t give a crap about what you need. They only care what the value your business brings to them. You have to start with the GPS X amount. “What’s my destination?” Pick your number. I’m so impressed with these entrepreneurs because the one that wants me on this way got $1 billion in 2 to 3 years. I have another one that says, “I want $3 billion in 3 to 5 years.”Buyers don't give a crap about what you need. They only care about the value your business brings to them. Click To Tweet
Another one says, “We want to sell it for $100 million.” Now I got something to work with here. These are startups, but a lot of them are SaaS businesses. Not all of them. Now, I got something to work with here. The second thing a GPS Exit Model needs to know is, “Where are you starting from? What is your current location?” Have you ever been to Downtown New York or Downtown Los Angeles? You plug it in and think the GPS is going to pick up your location, but it doesn’t.
This has happened to me so many times that now I get in the habit of making sure it’s in there. It’s because you’re in this busy area. Your location is your valuation. A lot of business owners have no clue what their business is worth. I talked to one owner who’s been in business 60 years. They’ve never had that business evaluated.
That’s financial suicide because your business is your most valuable asset. It should be more valuable than your financial portfolio. It should be more valuable than your real estate, your home, yet we don’t take our most valuable possession and get an appraisal. It’s financial suicide because of events that increase valuations and decrease valuations. If you look at this pandemic, it increased valuations for a lot of industries and decreased for a lot of other industries, especially hospitals. It’s not just the pandemic, Dylan. We got fires and a tornado. I’m in the South, and we got hurricanes.
They’re natural loss.
You need to know what your business is worth every year. Let’s pick that number. Let’s say you want to sell for $10 million, and your business is currently worth $1 million. Now the next thing is the timeframe. Let’s say you want to do that in three years.
We’re basing it off EBITDA.
All businesses have multiple EBITDA unless your SaaS gets the multiple of the top line. I encourage everyone to try to have a SaaS component in their business. Two big things you need in your business, SaaS and a recurring subscription model.
Can I ask one question on that before we move forward?
You can ask 1,000 questions.
That’s the name of the game. That’s what we’re doing right here. For the readers, I know a lot of them are eager entrepreneurs. They’re thinking about the world of eCommerce now. There’s no barrier to entry. In SaaS, they’ve got Shopify. They’re not going to own that. They’re probably not even going to be able to own the frontend and backends of their own website when they go to sell, which is going to be more than likely where they’re making the majority of their sales and losing the most money. What are some things that they can introduce eCommerce? Have you seen people introduce, maybe there’s some subscription service that’s assessed that maybe people have built or apps for their stores and things like that? Is there anything that you can slide in there real quick and mention?
You have to be very careful when you’re on Spotify or Amazon. Spotify is a website and everything else. In Amazon, owners get in big trouble because they’re like, “I got great Amazon business, and 98% of my business comes from Amazon.” They might as well shut you down like that, and you got nothing. There are lots of things that you can do. That’s the one thing about Millennial businesses. They’re solving problems and selling things. That’s great, but they’re not building the infrastructure. They’re not going to be worth a lot of money when they go to sell a business.
They move real fast.
I always say, “You don’t want to have a team? Subtract.” When you sell an app company now, they just subtract $500,000 because the app company doesn’t have any team in place.
It’s just the owner running it, more or less.
Always have your own website outside of Shopify. Always have your own eCommerce business where if you’re selling bedsheets, then get on Wayfair, Etsy, and Amazon. Sell direct.
If you’re not going to wholesale, sell direct. You have to have at least 5 to 7 channels where you’re marketing products. I’ll tell you about a cosmetic company. Ninety-eight percent of their revenue was in Costco. The pandemic hit, and nobody’s thinking about their face. Nobody’s thinking about skincare or makeup. Nobody gets a car out. They’re not going anywhere. They’re going to their kitchen to start the appetizers. They’re going to the living room to have pre-appetizers.
They’re making the rounds.
Yes, throughout their house. Nobody cares. They lost 98% of his revenue and were practically out of business. You always need to have 5 to 7 marketing channels. You want to also make sure that you have something unique to you and that you own those clients. The problem with Shopify, Amazon, or any of these websites is the same thing with Etsy and Wayfair. You don’t own them.
If you are thinking of having your own website, you’re collecting this client information. I’m not sure how Spotify works because I’ve never used Spotify for myself. I sell books and stuff. I don’t use Spotify for that. I use Infusionsoft. You got to have Infusionsoft. You got to have a way to capture those leads. I sell books on Amazon, too.
I’m not sure about all the policies and procedures on these different sites, but you want to have a way to give it away or something where you can capture these leads. When it comes to a client, you want to have something that you could now get them into your ecosystem. You got to funnel them in. That’s the problem with social media. People are like, “I have a million followers on Facebook. I have 50 million on Instagram.” You don’t have anything. Instagram and Facebook have that.
You need 5 to 7 marketing channels in order to get your products out. You don’t want to put your eggs all on Amazon, Spotify, or Etsy. You got to make sure you’re diversified. It’s the same thing with a customer base. You don’t want 70% of your revenue to be tied up with 1 to 2 clients. If you lose 1 or 2 clients, you’re out of business. It’s the same thing.
You lose one of those channels, and you’re out. We touched on the team aspect or being a solopreneur and how that can hurt you. I know that we could jump straight into the 6 Ps. That’s probably going to be covered in people.
Let me finish the GPS quickly. You want to sell for $10 million, and you’re worth $1 million. You’re going to do this in 3 to 5 years. Next, you need to know who your buyers are going to be. There are five types of buyers. Ninety-eight percent of buyers are first-time buyers. They don’t buy $10 million companies. You can pass on that. Turnaround specialists buy distressed assets with no money down. You can pass on that. You got private equity groups who buy based on platforms and add-ons. A private equity group could be a good fit for you.
Like Procter & Gamble?
No. That’s a public company. I’ll talk about private equity. Let’s spend some time here real quick so your readers understand. For private equity, they typically raise funds. They usually have disposable income on different funds. They’ll raise a $1 billion fund here. They’ll raise a $100 million fund here. They buy companies. They buy based on platforms and add-ons.
If they’re trying to get into food manufacturing, they won’t even look at your business unless you have $3 million to $7 million in EBITDA. EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. If they’re already in food manufacturing, they don’t look for what we call add-ons, which are smaller businesses. They’ll look at those that have under $1 million in EBITDA. You have competitor strategics. They typically are your best buyers because they pay for synergies. They’ll mine on synergy they don’t currently have and wish to put their business to the next level.
The last one, I call them storm chasers. They’re sophisticated entrepreneurs. They’re storm chasers because they’re chasing EBITDA. They don’t care about the industry. The EBITDA is specific to the industry. Now, you got to reverse-engineer to plan. We talked about this earlier about reverse-engineering the plan. He goes, “I want to sell for $10 million. Now, I’m more than $1 million. If I’m a multiple EBITDA, where are my revenues?”Sophisticated entrepreneurs or storm chasers are chasing EBITDA. They don't care about the industry. Click To Tweet
How do you triple, double, or quadruple?
If you want to sell it for $10 million, you need to have an EBITDA of about $2 million. The SaaS company that wants to sell for $100 million is based on revenue. We take the $100 million, we look at the comps, and we just back into it. This is a good SaaS company. That’s how you do it. Here’s a perfect segue to the 6 Ps. You ask yourself, “What are these buyers looking for? What are they wanting to accomplish? What synergies will they outfit everybody else for?” The way you maximize value is by bringing multiple buyers to the table. A lot of sellers will call me and say, “Have a buyer. You just need a local one buyer.” I’m like, “No.”
I did this with a client. He’s like, “My customer is 65% going to buy my business.” I said, “The likelihood of them buying your business is not enough.” “No, Michelle. I know it.” I said, “I’ll charge you for the evaluation and the retainer fee. If he buys, I’ll take it all off to commission.” I know he is not going to buy if someone charges. Sure enough, he came back and said, “No, it’s not the right time for us. We made too many acquisitions. We didn’t know we were your largest client. We figure out we’re paying too much.”
He wouldn’t listen to me. I asked him to sign it if he wanted us to put it on the market, but that was a big problem. That’s why I charge him. We usually don’t charge our tenure fees.
When you know, you know.
Into the 6 Ps, number one is People. It’s high-level here. One of the reasons businesses aren’t sellable is because entrepreneurs have created themselves a glorified job that they go to work every day and wear every hat. They have to have to put their finger into every pie because they’re control freaks. You will never sell and grow unless you let go of control.
Entrepreneurs are afraid because the control freaks are afraid to hire people smarter than them. You need to take inventory of your strengths and your weaknesses. You must hire people that are smarter than you in those areas that are your weaknesses. There is no getting around it. You have to do it. Otherwise, you will never scale, you’ll never be sustainable, and you never will be sellable.
You got to identify your seats in the company. What are the seats? A seat can be answering phones, quality control, or accounting. You got to make sure you have the right person in those seats. One person can operate five different seats. You got to ask a who question. Who opens the store? Who handles accounting? Who handles legal, quality control, manufacturing, distribution, and marketing? The list goes on and on. The clue here, Dylan, is you should never be next to the who.
I couldn’t agree more. About any and every business that’s really scaled, companies that are over $1 million in EBITDA, you can get there on your own pretty much doing anything. Learn how to run ads. You need a great team or at least a great co-founder. You need at least one other person because when you sell that business, the last thing you want to do is stay working. The person that buys it isn’t going to be able to operate it without you there, more than likely. That’s where the team steps in. How easy is it? Is it impossible to be a one-man show and sell yourself if it’s outside of SaaS, or is that something that’s unheard of?
It’s not impossible, but you would never maximize value. I’ll give you a couple of instances. This is way back. It was a real estate appraisal company. It was just him. It was several years ago. I told him it was going to be difficult because at the state laws, you have to go to school and get your license, but then you got to work under a licensed appraiser for so many years.
We sold that business, but he had to do some of the financings to make sure he’s stuck in the game, so he puts money upfront, and there’s money later. One-show ponies are very difficult to sell. They’ll never maximize value because you don’t really have a business. You have a job. Buyers are notorious for subtracting, and I mentioned this earlier. “You don’t have a team, a CRM, and a Federal trademark,” minus so much money.
You got to build a business and stop building a piggy bank. Many business owners are building piggy banks. They cash and cash, and when they got to sell it, they had no infrastructure. I was trying to sell a company that specialized in selling coffee pots. There literally wasn’t anything unique about it. They had a patent, so what? About 95% to 98% of the business was on Amazon. I’m like, “If you lose Amazon, you’re in big trouble.” You got to have that infrastructure. One thing, too, is getting some retail outlets. If you’re distributing coffee, get Whole Foods, get Target, and get some gourmet chopped.
Build your resume.
You can do wholesale resell. Anyway, that’s people. You will never grow unless you let go of the control. You got to get the right team. Number two is Product. It’s product, industry, and service. You got to look at it and say, “Is your product growing or dying?” When your product is dying, Amazon is growing. When you go to sell your business, you want to sell in your prime, like Amazon. No pun intended.
You want to know when you’re at your highest and in your prime, not when you have Blockbuster and are about to go out of business. If you sell it to a turnaround specialist, you won’t get much money for it. You got to look at that product, industry, and service and ask yourself, “How long is it going to be around?” There’s a lot of brick and mortar going out of business. There are a lot of industries going out of business.
Especially due to the current events. I couldn’t imagine how many people shut down in the last few years. We’ve talked about patents and services. Let’s say someone has anything novelty or consumable. Is there a differentiation between those three types of products in reference to how they play into making it look good from the outside looking in? Is there something that’s preferred by buyers? Have you seen a trend in buyers looking for certain types of products?
Yes. Let’s talk about that in proprietary. One thing I want to talk about on products, which is why so many businesses dig a lot of business during the pandemic, especially restaurants, is because they have one way they get paid. They get paid when you come in and dine, or you take food to-go. Where is their eCommerce business? Where is their specialty gourmet food that’s in grocery stores? Where are their cookbooks? Where are their cooking classes? The chef could do an online cooking class and sell the chef kits for maybe $100 and do an online show. There are so many ways. He could do it with lots of people.
Commander’s do that in New Orleans. They did a wine tasting and cheese pairing, and they were selling it anywhere from $75 to $500 all around the world. They would have hundreds upon hundreds of people. Just like you need 5 to 7 marketing channels, you need 5 to 7 profit centers. You need congruent revenue streams. You can’t get paid one way.
You have to look at your business and say, “How many product centers or strategic congruent revenue streams do we have?” If you have one, you’re dead. If you have two, you might survive a bit longer. You need to get out to 3, 4, 5, or as many as possible, especially the strategic model, because that’s where buyers pay a lot of money.
Next is Processes. Processes are very important. It’s usually underlooked but not undervalued by buyers. Processes mean that a buyer can come in and run your company. You can hire an employee without missing a beat. We have to take a step back and design your processes with the customer experience in mind. McDonald’s restaurant did that back in the 1940s. I don’t know if you watched a movie, The Founder.
Yes, with Mr. Kroc.
I’ve watched it so many times. You can pull out different lessons from it. What I love about it is McDonald’s, back in the 1940s, said, “We want to create a fast-food restaurant because there isn’t any. We want to create fast-food processes around the customer’s experience. Stop at three, don’t go over three. What are three things we want our customers to experience?”
McDonald’s said they want great-tasting food that’s hot, served fast, in 30 seconds or less. Those processes are still the same now as it were back in 1940. It is the reason that you can eat at McDonald’s anywhere in the world. Doctor’s offices, let’s look at the opposite of that. Have they designed their processes around the customer experience?
I don’t think so. Not so much.
Their hours are Monday and Wednesday from 9:00 to 5:00 when we all worked. On Tuesday, from 9:00 to 2:00. Friday, they’re off or take half a day. My husband and I own multidisciplinary clinics. We ask ourselves, “What do we want our clients to experience?” Better ask your customers, patients, and clients. Our patients said, “We want flexible hours.” We’re open three days a week until 7:00 at night. They said, “We like Saturday hours.” Now, we’re open until 2:00 on Saturdays.
We close at 2:00 on Friday just to give the staff a break because we found more people will come on Saturday afternoon than Friday afternoon. They said, “We don’t want to wait long.” We’ve designed a process where they’re not waiting. They walk in, get their check, and go to their room. If they wait, they wait maybe five minutes max. “We want a friendly environment.” Everybody’s greeted with a red-carpet experience. If you don’t create wow experiences for your clients, your competitors will do it and take your mortgage share, and you’ll wonder why you went out of business.
That’s to every vertical.
Every vertical, both small companies and large companies. We were selling a $55 million company. It’s got 350 employees. Four of their divisions have good policy and procedure manuals, but one division doesn’t. You want those for every division. You want an SLP checklist and operating procedures. You then want to make sure you have those employee handbooks that are complete where there are employee agreements because you can lose a sale on your business if you don’t have upper management employment agreements in that case.
Are there any other contracts or legalese that people might need upfront that they’re not aware of, or maybe they’re just like, “I can do that later. I’m not that far off in the business yet?”
Let’s jump into Proprietary. It’s all those synergies the buyers will outfit other buyers. These are the synergies that are like, “If I have that customer contract, it will catapult my business to the next level.” I’ll give you a quick example. We were selling a business in the energy sector. The owners operate on all 6 Ps except for Patrons which is the fifth P.
Patrons are your customer base. Most businesses follow the 80/20 rule, where 80% of your revenue comes with 20% of your clients. That’s a big problem because if you lose a couple of clients, you’re practically out of business. They had a contract with BP, British Petroleum, for 60% to 65% of the revenue, and the contract is nontransferable.Most businesses follow the 80/20 rule, where 80% of your revenue comes from 20% of your clients. That's a big problem because losing a couple of clients means you're practically out of business. Click To Tweet
I had 350 buyers. I created a bidding war. I had twelve letters of intent. They all had language in there. They all had earnouts, financing, and fallbacks like if you lose BP, there’s about 65% of the money back. There are two partners. One was in his 80s and an 80-year-old. He’s like, “I’m not dealing with any of that, Michelle. I’m a buyer that doesn’t have all these fallbacks and contingencies.” I’m like, “Good luck,” but I did.
I found a strategic to have the same products and services but different and was trying to get BP for decades and could never get their foot in the drawer. They said, “We don’t care what it costs because we get all of our products in there.” They ended up investing 165% more for 70% of the company than what the business appraised for.
It almost doubled. That’s crazy.
This is a section I want everybody to read. Number one is branding. The more branded you are, the more I could sell your company as long as the brand is relevant to the consumers and has a good image in the consumer’s minds. Nobody’s paying anything for Blockbuster.
What’s a Blockbuster?
Nobody’s paying for Toys “R” Us. The most valuable brand in the world is, do you know?
Apple for $268 billion. There are no assets, nothing else. It’s just the brand. Build your brand. Here’s a big mistake that business owners make. They go to GoDaddy. They get their dot-com, and they’re so excited. They file in their state. They file in California or wherever state that might be, and five years down the road, they get an assistance letter. It says, “You can’t use that company name anymore.” Number one, they never checked the federal database. I got a billion-dollar company I’m working on the board for. The first thing I ask is, “Did you check the federal database for that name? It’s a common name. Did you get a trademark?” He’s like, “No. Should I do that?”
It’s a billion-dollar company, and they don’t have it trademarked?
They’re just starting out. It’s a self-company, too. Anyway, you got to get that trademark. It’s so important. Now, I want to go to your product questions. Do you want to repeat your question again so readers can read it?
What’s most attractive to buyers?
If a buyer’s buying a product company and not a service business, they’re going to do their due diligence on those products. Things that set products apart are patents. That’s the next pillar in proprietaries. We talked about branding and trademarks. Now we’re talking about patents. We got to get those patents. If you ever watch Shark Tank, they always ask if they have a utility patent.
The other thing is voucher trademarks on those products. We have a couple of clients that have products. Each product has its exclusivity in a certain retail store chain. One is in TJ Maxx. One is in Target. Each one of those products has a separate federal trademark. That sets it aside from other products because they’ve got that built-in customer where this product is only for TJ Maxx. The federal trademark sets it apart and adds more value to that specific product. If it’s a huge product being endorsed by a celebrity or by somebody like Kevin Harrington, who wrote the foreword to my book Exit Rich, who was the original shark on Shark Tank, that gives your product extra credibility, and that drives your value because you have that celebrity spokesperson.
Let me touch on the trademarks real quick. I love how you mentioned Kevin, the infomercial OG. He was a shark. Having him in alignment with your product or whatever it is your service is huge. There are a lot of other things that the trademark does. Can you speak to the advantages of having a trademark of a novelty product and how you can better help secure your market and maybe prevent competitors from entering the space if you have a term that’s more generally used and you’ve trademarked it as opposed to something unique and novelty that can keep them from advertising on certain things because they can’t use the name? Are there any other little hacks in regard to trademarks? IP does help with it.
IP is everything. That’s why we just spend the most time on IP. Here are a couple of things on the trademark. I will answer that question. Is your podcast trademarked?
It’s the first thing before I ever recorded an episode.
Exit Rich has a federal trademark, too. You want to always put the TM behind your company name, slogan, and logo. I talk about the 6 Ps and the GPS Exit Model. I have a TM behind that.
You’ve got it all trademarked. You got your own name trademarked.
That’s why I preach here. As far as products, products can be very difficult. You have to have a good trademark attorney. If you have a patent on that, that helps. That is not 1,000%, but it helps. It’s always best first to market and garnish as much market share as possible before the competitors come out of the woodwork. Look at the fidget spinner. Do you remember the story of the fidget spinner?
I know it was huge and was scaled quickly with Facebook ads.
I don’t know the complete story. The guy who invented it wound up with nothing. He got nothing. There were so many copycats, and he got nothing. You got to make sure when you’re the inventor or something. You got to make sure you’re the first to market, have that patent, trademarks, and all the ducks in a row before you come out with a product.
The best way to do that is to hire a really good proprietary attorney. My co-author, Sharon Lechter, her husband is an IP attorney. My next-door neighbor is there. He’s a very good IP attorney. They specialize in patents and trademarks. They’ve done some huge products. If you have a product, you’ve got to get an IP attorney. If you want them federal trademarked and get that patent, you want to be the first to market, if possible.
You asked me about what makes products unique. I want to make sure to answer your questions. 1) It’s that federal trademark, that patent, and that exclusivity into different retailers that you’re first in that TJ Maxx before any copycats get in there. If you’re first in there, the likelihood of you being moved or back shoved is going to be something else.
That is a great point. Believe me. I’ve racked my head around entrepreneurship for the last few years since I’ve been in it, just trying to get a better understanding of things. One thing I’ve never thought of when reverse-engineering the exit is the exclusivity in the potential stake it might hold or place on the bargaining table.
I know that you mentioned there was a clause with BP that didn’t allow that one owner to transfer. In most cases, exclusivity is a great thing. It’s not something that a lot of brands are able to hold on to for an infinite amount of time. Have you ever seen a go-to-market strategy where people with a full understanding of a finite timeline within the exclusivity agreements that they might have with retailers and align the selling of their business with the exclusivity agreements of major retailers to blow it up that much more?
Here’s the deal with the agreement. We’ll skip ahead a little bit. One thing I wanted to also mention before I get into agreements is that, if you have a product, you want that exclusivity if you wholesale. You want to be the first one in TJ Maxx. I met at a guy at Zoom. He started off big in Neiman Marcus. Now, he’s in all these other huge retailers.
You also want to make sure that if you’re doing wholesale, you make the decision. Are you wholesale only? Are you retail only? Are you doing both? You got to make that decision in the beginning because that changes everything. Exclusivity is not just for TJ Maxx or Neiman Marcus. You also want to look at, “How do I get exclusivity and nobody else can butt me from these spots?” I’ll give you some examples. Radio advertising is huge. Celebrity endorsements are huge.
We want to sell skincare that had Glenn Beck and all of the radio personalities in all of the prime spots. Glenn Beck is only going to endorse only one this company or that company because they lose credibility. You could just be direct-to-consumer. You could decide to have someone direct to the consumer and someone on my website, and you’re not doing any stuff. With direct-to-consumer, you have to get those digital audiences. The biggest digital audience is radio because we all still listen to the radio. It’s also online digital. Let’s say you sell bedsheets and you’re number one on Wayfair. That’s all digital marketing that’s going to gain market share and keep the competitors out. You got to grab onto those quickly.
I was talking to somebody who had a great domain. I’m like, “Why are you not the one on the product show?” They go, “I didn’t think of that.” I go, “You should have because they’re selling somebody else in your space. Now, you’re not going to be able to get them until that company drops off.” It’s the same thing with celebrity endorsements. I have a client that has a product that’s been on Oprah’s favorite things. It’s been one of Oprah’s favorite things continuously. A strategic will pay more money for this company because they want to get their products on Oprah’s favorite things.
There are so many shows out there that will feature you for free or not even that much money. You just got to have the product available. That’s what happens. A lot of these stores go on these shows, and then they don’t have any product, or they can’t get the product because they’re out of capital. That’s how you get your product to market. Make sure you have enough inventory and keep your competitors out by having some of these exclusive relationships. You can do it on TV, too.
The possibilities are almost endless. If you’re not going to succeed in one vertical of that, you can capitalize on the other 99. There is no reason or excuse as to why you haven’t secured some celebrity endorsement. At least you’ve been on a show or on the front page of at least one marketing channel. Amazon doesn’t have to be it.
Amazon should never be it. The buyer’s not going to pay you a maximum value of 98% of Amazon’s revenue. They’re never going to do it. Remember what we talked about. You have to have 3 to 5 products, profit, and congruent revenue streams. You have to have marketing channels. You need to have at least 5 to 7 marketing channels where you’re getting your business, whether radio, internet, word of mouth, exclusivity, or some of these big retailers. You have to have that product next.
If you have one way that you’re getting paid, like a Costco story, you’re going to be out of business. There are vendor contracts, manufacturing contracts, and distribution contracts. Client contracts are the most valuable. Ninety-eight percent of sales in America are asset sales, not stock sales. I’ve never met a business owner that got this right. I want everybody to listen up. You should have contracts. Your contracts need to have transferability.
This contract is transferable to any new entity, preferably without prior approval. Most vendors will want that prior approval. VP would’ve never done that without prior approval. Customers will, a lot of times, do it because maybe they don’t understand and don’t really care. You need that done because if your contracts are not transferable, guess what you’re doing, Dylan?
Is it too risky?
You’re going to every one of your clients. Every media company has 2,000 clients. You’re asking all your clients to sign, “I consent to transfer.” Now you just let all your clients know that you’re selling your business, and this deal could fall apart. It’s very risky. On the SVP deal, the buyers took all the risk because they tried for six months and couldn’t get the right person to agree to the transfer for BP, so the buyers added some language that said they’ll buy the company, go out and meet with the owners, and do the transfer. If they can’t get a specific transfer, then this and this would happen, which the sellers took some list on as well.
It’s not just for clients, although you have to have it for clients. If you got a great manufacturing relationship, if you got a great vendor relationship, if you’re a distributor, then you need it from a distribution company. If you’re a franchise or you need it for your franchisee contracts, it’s very important. This is number one. You got to make sure you have those contracts, especially if you have a subscription model because buyers are looking for subscription models. It is the gold right now. It’s the biggest, most important thing to now have, that subscription model in a SaaS company.Buyers are looking for subscription models. It is the gold right now. Click To Tweet
We’ve got the owning of things. We’ve got the IP and contracts. Do databases fall into that somewhere?
A thousand percent. Databases are great. Facebook bought it, but that was at $19 billion, I believe.
It’s something ridiculous.
WhatsApp was hemorrhaging money. They were just not making a profit, but they had the synergy we’re talking about. They had a billion users. Facebook knew they could ROI that. They knew they could monetize that.
They just bought the information for a bleeding company.
Let’s recap. The more well-branded you are, the more you sell your company. For those federal trademarks, make sure you put TM behind everything. Those patents on your products are crucial. The contracts are huge. Make sure you add the transferability clause and try to get it with the prior approval if you can. Next, you’ve got to build the database. The database has to have the data that companies will pay a lot of money for, like Facebook did.
We have an app company that we’re selling. It was all only on a month for the market, if not in two weeks. I kept telling owner, “Collect the data.” He’s like, “No, I don’t want people collecting data on me, so I’m not going to do any of that.” I go, “First of all, they’re already doing it on you, so who cares?” You can turn around and get a much higher multiple. We only talked about celebrity endorsements and radio personality endorsements. We’ve talked about the internet, making sure that you’re housing those top spots on the internet. One thing we didn’t talk about is you keep your IP in a separate corporation.
How does that work?
You do not carry your IP under your corporation name or under your company.
What about your personal name?
A thousand percent no. If you get too personal, you’ll lose all your IP. If somebody comes in and sues you and wins, they could own your company. They could especially own your IP if you don’t have enough money to pay them off in a lawsuit where your IP is up for grabs. You always want to keep that IP in a locked box. I’d keep that in a safe, separate corporation. IP is everything.
It sounds like, “Whatever I’ve done, I’ve already got all my IP. It’s either under my name or under my business’s name.” Are those things transferrable? Is there any way to get some co-ownership via an external corporation?
They’re all transferable. When buyers buy the company, they’re buying it for that IP, but you want to protect that IP before you sell the company. I’ve seen business owners get sued and lose everything, including the IP. Protect it. Always protect your corporation. Don’t pierce the corporate veil because you don’t want to get sued personally. It’s very important.
The other thing is content. Content is key. You said you googled me. I’m very googleable. There are blogs and press releases. It’s any type of content that you can develop for your company. A lot of business owners don’t have team members that can write this content, so they’ll go to Viber, oDesk, or Elance, or they’ll hire interns from college or have 1099s. Make sure you get a contract in place that states that you own the content. This is not just for writing content. This is for video creation, photography, and all of that. I’ve seen lawsuits now where the 1099 or intern comes back, sues the company says, “You’re making all this money on my content. I want to get paid.”
That’s big right now. I heard about this. Freelancers are poking their chests out. I’ve had a very long conversation with someone because we outsource content creation. They were like, “You better watch out. These freelancers nowadays have pretty much got the squatter-type protection out here in the world of entrepreneurship. They can come back to bite you.”
That’s why you have to get that contract signed as long as you know they’d get you in trouble which you don’t know. It’s very important. When you use a stock photo, make sure you’re using royalty-free ones. I have one on that because my staff here was not using royalty-free ones that cost him thousands of dollars. I knew it, but you got to make sure your staff knows it. That’s all proprietary. We could go on all day long about proprietary. Let’s move on to patrons. With patrons, we already touched on a little bit.
You want customer diversification, not customer concentration. If you’ve been in business for 20, 30, 40, or 50 years, the customers are aging out. You always need to AIM. AIM is Always Innovate and Market. You want to make sure you’re innovating to those Gen X and Millennial buyers. It does take innovation because they don’t buy the same way Baby Boomers buy. It’s really different. They care about so many different things than what Baby Boomers and even Gen X care about. You got to get to know your future audiences and create. Hire a marketing company that’s a Millennial because they understand that. The last P is Profits. Clients come to me all the time and say, “Michelle, I’m having a profit problem.” I’m like, “Profit is not your problem. Profit is a symptom of not having the right people in the right place and being in a dying industry, not a thriving industry.”
Automation falls in there.
Not creating wow experiences for your clients under processes and not having your processes all buttoned up and efficient because you lose a lot of money by not having your processes buttoned up.
Less than great businesses seem to have these profit problems.
Yes, then there’s embezzlement. Business owners go one way or the other. They get to control. They got to see everything.
“I will only focus on my strength,” then they take their eyeballs off of everything, and then they wonder why 3 out of 5 companies get embezzled every year.
I’ve seen it firsthand.
Me, too. Many times. I have one client that was embezzled six times. What a moron.
Sometimes it takes six times before you learn your lesson.
He ended up selling the company. Hopefully, he’s done. You got to inspect what you expect. You trust but verify. You got to have balances in place. Check balances to make sure that your money’s being protected.
Is the P&L a good place to start?
There’s cashflow statement and P&L. Have your KPIs, Key Performance Indicators. There are lots of accounting firms now that are virtual that are incorporating software. They’re incorporating the standard dashboard of your KPIs because your KPIs are probably different than what my KPIs are. You need to keep an eye on it. Make sure you have cashflow statements.
Ninety percent of businesses don’t even have cashflow statements. Businesses think, “I got a lot of money in the bank.” Before you know it, they’re broke or they need to borrow money. They’re out there taking their American Express and spending on personal stuff when I can’t even come up with payroll next week because they don’t have a cashflow statement keeping them in touch with their business.
Let’s say using that type of software isn’t your strong suit as an entrepreneur. Would you suggest that they outsource that thing? Would that be their first hire? What are some steps or approaches?
Outsourcing is good, but I’ve seen outsourced people still steal money. Outsourcing is good. If you don’t have an internal bookkeeper, get an external bookkeeper and make sure you have a CPA. I’d rather you deal with one accounting firm because they have bookkeepers. With that accounting firm, maybe someone with some unique approaches, maybe some software that they’ve developed, they can teach you and help you stay in touch with your KPIs.Outsourcing is good. You can get an external bookkeeper if you don't have an internal bookkeeper. Click To Tweet
An accounting person is usually the biggest complaint that we get. “I hate my accountant. I hate this guy.” They hold business owners hostage. Business owners usually say, “I’m done. I’m on.” I always interview accountants because you need the right one for you. I’ve had someone say, “Michelle, my accountant won’t give me the tax returns until October.” You don’t work for an accountant. The accountant works for you.
You need to start telling your accountant what you are. You need to tell your accountant what to do. The accountant doesn’t tell you what to do. We get held up all the time because sellers are waiting on our accountant. If your accountant won’t give it to you, change your accountant. Go ahead and get it for this deal, then change accountants. It’s the same thing with attorneys. They work for you. You don’t work for them.
That’s with any employee-boss relationship. The relationships between the seller’s expectations and their business’ actual worth/valuation go back to day one, maximizing the valuations. What are we doing wrong as business owners?
The inexperienced first-time business owner probably isn’t going to know. Everything we’ve spoken about indexes itself in the maximizing valuation ideologies. Are there some things that when you sit down, and there are brass tacks that 90% or more business owners don’t have, whether it’s the representation or something that we haven’t spoken about as of yet that is a major running theme of the issue?
The number one thing is, for starting entrepreneurs, go get Exit Rich. It’s $25. You can’t afford not to. If you don’t like reading because you’re too busy, get the audio version. It’s $4. Educate yourself. Grab an advisor or a mentor, somebody who’s been down the road where you want to travel because you want to learn from other mistakes, not your own.
Many mistakes are public domain nowadays. There’s no curtain.
No, there’s not. There is a lot of sheep in wolf’s clothing who says, “I’m successful. I’ve done this and that,” but haven’t done any. They’re a walking briefcase with nowhere to go and no money coming in.
It’s got a twister board inside of it.
You have to have your due diligence. You can always reach out to us at Sti360.com because we help business owners. We help put you on the right track to get your business ready for sale. That’s what I love about young entrepreneurs. They’re more proactive and reactive by saying, “I’m building this to sell in 1 to 2 years.” They got that piece figured out. Whereas Baby Boomers were 50 years there and still haven’t figured that out.
It’s empowering to get Exit Rich because Exit Rich is not about selling your business. I’m not trying to run a commercial right here. It’s not about selling the business. It’s about building a sustainable, scalable business that, when you’re letting one day, you’re having sellable assets. It’s all about that GPS Exit Model, setting up your expectations, planning your plan from day one, and building the infrastructure on the 6 Ps.
If you have a business that’s making good money but doesn’t have the infrastructure, you’re not going to maximize value. I promise you. If you get Exit Rich and find your exit rich through GPS Exit Model and go to your business on 6 Ps, you can help to be sustainable, or the business can live without you. You can help with the scale and help to be extremely profitable. You have a sellable asset to create. It’s foolproof.
It’s the six cylinders.
You just got to do it. You got to operate all six cylinders.
Here’s a big major question. Are we selling now because of the depression? With this state of the economy, is now the time to sell? Do we weather the storm, hope we stay in business and light at the end of the tunnel, and hope it’s not a train game?
There are lots of ways to answer that. When you determine that you want to sell your business, you got to go back to, “Is my business in Amazon or Blockbuster?” Even though we’re heading into recession, and if that’s how dramatically we are increasing the interest rates, and the cost of money to buyers is much more expensive than it once was, you still have private equity firms that raise funds. You still have strategic competitors and sophisticated entrepreneurs that will have money.
Recession doesn’t always affect the highly successful as much as it affects the non-successful. If you have a great Amazon business, you’ll still sell. You sell when you’re in your prime because you don’t know what could happen or what’s around the corner. Many business owners wait until they’re like, “I’m worth $100 million. I’m just going to keep that money going up.” Next thing you know, the party’s over.
That’s the worst.
If there’s no problem, you’re in your prime. If you’re a bigger business and the business has been doing well, you should probably reach out to me, so we can get that business operated at all 6 Ps. You could still weather the recession as long as you have a great business on all 6 Ps and is profitable.
If I had the money and was one of these many strategics out there, I’d get excited about something like the recession for someone with some good market intellect and was here for the ’08 markets.
There’s been more millionaires and billionaires created out of the Great Depression, the 2008 recession, and out of this pandemic. This is a time that you double down on things that you know work. This is the time that you invest in the stock market because you get things very low. This is the time you double down on your business. What’s working and what’s not working, get rid of. I always say there are lots of buyers that can bring hundreds to the table for great businesses or more buyers for great businesses and have great businesses to buy.
You need to get your business into a great business. You can do that by the 6 Ps. You can call me and reach out to me, and I can get you into our 6 P program if that’s what makes your business sellable to everybody else if that’s what you want. There are not a lot of buyers for the smaller businesses that are not doing well.
We got the website. Are you active on LinkedIn, Twitter, or anywhere?
Everywhere. We’re on LinkedIn, Twitter, and Facebook. You can reach me at Sti360.com because that’s where all my social media is. That’s where our websites are. We have multiple websites where you can take the 6P Quiz. You can see what your strongest and weakest Ps are. We have a valuation calculator.
Take note, readers. You should have all these things banked into your company. If you don’t, you’re doing something wrong.
We have where to buy Exit Rich, the print version and the audio version. In the print version, you can get it everywhere at all the Hudson stores in airports. You can get it at Barnes & Noble and Amazon. With the audio version, you can get that Audible on Amazon and Apple. Wherever you buy your audiobooks, it’s available. I encourage everyone to listen to our podcast, Exit Rich.
There’s the plug. Michelle Seiler Tucker, M&A, Mergers & Acquisition Authority, double-decade veteran. Exit Rich, the second book. Is there going to be a third one coming out? Is this a trilogy?
Yes. I’ve got more books coming out under Exit Rich. I’m just trying to figure out which one I want to come out with next.
We’ve got something to look forward to. Before we end the episode, you’ve come a long way. You’re able to provide great value with the conversation. Is there anyone who you respect in that light, someone maybe like Kevin Harrington that you look to as an entrepreneur, someone that you stay in tune with or consume their content?
It depends on what mood I’m in. I do different things at different times. I love Bob Proctor from Canada, who unfortunately died. He’s a big law of attraction. I listen to him a lot. You got to look at yourself and go, “What do I need? Do I need mindset? Do I need this skill or that skill?” Kevin Harrington is a good friend of mine. I look up at him.
Tony Robbins is another good mindset guy. You can never go wrong with listening to Warren Buffet. There’s Bill Gates. I love Steve Jobs. I wish he was still here because when you talk about AIM, Always Innovative Market, he was number one. There is nobody better than Steve Jobs when it comes to AIM. There’s Jeff Bezos where he’s done with Amazon. Elon Musk is my hero as far as what they do and what they give back to the community. You can make a lot of money, but we’re all going to die broke.
Bill Gates is going to die broke at the rate they’re donating money.At the end of the day, we're in business to make a difference and impact in the world and give back to the community. Click To Tweet
We’re going to die zero. We want to leave enough money for our family to take care of them. At the end of the day, we’re really in business to make a difference, make an impact in the world, and get back to the community. There are so many people who don’t have anything. We also have this program where we got thousands of children and their families that don’t have drinking water. Drinking water, we take for granted. I drink water 100 ounces a day. It’s important to identify what moves you. It shouldn’t just all be about the dollar at the end of the day.
Michelle Seiler Tucker, thank you for coming on. Exit Rich, everyone. If you haven’t read it, you have no excuse. It’s literally in every bookstore. If you can’t make it to a bookstore and you have a phone, you’re winning. It was great having you on. I know that this is only the second installment to what could be the endless series of Exit Rich continuations to come in the future. I’m sure that we’ll have you on again. I don’t see why we wouldn’t. I love having you on. I appreciate it. Thank you for bringing so much value to the show.
Thank you so much, Dylan. You ask great questions. You’re quite the interviewer.
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