The government spends billions of dollars each year on goods and services, and by tapping into this vast marketplace, small businesses can secure lucrative deals, gain steady income and heightened visibility. In this episode of The Agent of Wealth Podcast, host Marc Bautis and guest Richard C. Howard dive deep into the world of government contracts.
As a career military acquisitions officer, Howard oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. He’s the CEO of DoD Contract – which guides, trains, and mentors small business owners and sales executives through the government sales process – and the host of DoD Contract Academy Podcast.
In this episode, you will learn:
- The benefits of selling to the US government as a small business.
- How small businesses can find opportunities to sell their products or services to the government.
- How small businesses can stand out in the government procurement process.
- How small businesses and startups can utilize the Small Business Innovation Research Program.
- And more!
www.dodcontract.com | DoD Contract Academy (Podcast) | Usaspending.gov | Sam.gov | Small Business Innovative Research Program | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth. This is your host, Marc Bautis. I’m joined by a guest for today’s episode, Richard C. Howard. Richard is a leading authority on US federal government contracts. As a career military acquisitions officer, he oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. Richard is the CEO of DoD Contract, which guides, trains, and mentors small business owners and sales executives through the government sales process.
Richard is the host of the DoD Contract Academy Podcast, and speaks extensively on the nuance of federal contracting strategy. Richard, welcome to the show.
Thanks for having me on, Marc.
I don’t think people even realize that government contracts are out there. Can you start off by explaining this market size, and some of the benefits of selling to the government as a small business?
The Benefits of Selling to The US Government as a Small Business
The US government is the single biggest purchaser of goods and services in the world. When people think about government spending, most immediately think of big defense contractors. But in reality, the government buys just about anything you could think of – from defense and weapon-related spending, to tai chi instruction, to commodities, to food. Think about it like this: Every military base is basically a small town, or city in some cases. All of the infrastructure that goes into that town or city is paid for by the government. And they have a mandate to buy from small businesses.
So whether you’re in – cybersecurity, accounting, legal, you’re selling food, you have a franchise, you have a training business – the government is most likely buying in your area. It is very rare that I find an area where the government isn’t spending money, so the spending is vast.
The government has to buy from small businesses, yet less than half of 1% of US small businesses are actually participating in the government contracting process, despite the high spending levels.
Alright, so there’s a lot of opportunity here. How does a small business find the contracts?
How Small Businesses Can Find Opportunities to Sell to The Government
Because we’re talking about the government, there is a lot of regulation that exists to ensure there’s fairness and that the public can see what the government’s doing. So everything the government spends money on – with the exception of a couple classified contracting avenues – is public knowledge.
So, as a small business owner, you should ask, “Does the government buy what I sell?” To find your answer, go to a website like usaspending.gov and begin searching public records to find out what the government spends on.
Whatever you sell, it probably falls under something called a North American Industry Classification Code, or NAICS code. When you go into usaspending.gov, type in what you sell under NAICS – for example, accounting. The website will suggest different codes that you would fall under. You can click on that, and sort it by small business spending.
You can quickly see how much the government spends on small business contracts in your industry and area of focus.
Are these contracts location specific? Does it help if a business is located near a military base, for example, or does it not matter?
It depends on what you’re selling. By the way, government contracts certainly extend past the Department of Defense and military bases. There’s lots of different federal agencies that spend money.
Okay so once a business owner discovers how much the government is spending in their niche, what’s the next step?
Once you know that the government buys what you sell – if it’s local, they buy it in your state, or if not, you can work anywhere – the next step is to register your company. You can do that at sam.gov. That’s where all registering and most of the solicitations take place.
So when you go to sam.gov, you’ll find instructions on the screen for registering. Of course, you need to have a legal business in the United States, and come ready to register with your EIN number.
All in all, the process takes a couple weeks sometimes, but at the end of it you’ll get what they call a CAGE code and UEI number – these are federal identification numbers for your business. Once you have those, you can start bidding on contracts.
By bidding, do you mean writing proposals?
How Small Businesses Can Stand Out in the Government Procurement Process
What can a small business do to separate themselves from the others trying to do the same thing?
Good question. This is really where most companies fail in selling to the government…
Once your business is registered through sam.gov, you will begin to see what’s called a request for proposal, or RFP. At that point, a business can begin writing a proposal. But, the government is very regulated in how they buy products and services.
For instance, if I saw an RFP come out that the government is looking to buy a $3 million landscaping contract for base X, I can’t just pick up the phone and talk to someone to get my questions about the contract answered. Now, if it’s a big contract, the government will answer most questions publicly through sam.gov. In those cases, you might get some answers that can inform your proposal.
But otherwise, you won’t be able to set up a meeting with a government worker. You won’t be able to develop a relationship…
So, before the RFP comes out, there’s something called the market research phase. Let’s say you’re a software developer, and the government is putting a command and control platform together, and you have a great user interface for that. Well, it’s during the market research phase that you can engage with the government if you really want to have a shot at landing the contract later on. Meaning, before the RFP comes out, we want to know who is doing the purchase, and we want to know the details of the opportunity ahead of time.
If you want to differentiate yourself from the rest of the herd, you want to look for things like a request for information or sources sought. When those come out, they’re squarely in the market research phase. At that point, you can set up a meeting with the government.
I recommend small businesses to respond to requests for information. They’ll answer questions like:
- How long have you been in business?
- Do you have past performance?
- What do you think of the approach the government wants to take?
And, you’ll be able to suggest things. For instance, when you register your business, there are different certifications. Examples include:
- Small business certification
- Woman-owned small business certification
- Disabled Veteran-owned small business certification
If you happen to have one of those certifications, you do have a leg up, because the government needs to set aside a specific percentage of contracts to those certified businesses.
But, back to the market research phase, you can actually recommend that the government lists the contract for a specific certified group. So, you’re helping the government write the solicitation, and you can give yourself a leg-up if you suggest a certification you have.
Okay, so you’re trying to influence the decision a little bit. Have you ever seen a case where a small business had a product or service that the government isn’t spending on, but they propose it to them?
Yeah, there are a couple of ways to do that. I would say if you take away one tip on selling to the government, it’s to get meetings and build relationships with the people that actually buy what you sell. There’s a lot of ways to do that, but mainly through research.
If your business sells a product or service that the government is not actively looking for, but you want to sell to the government, the government needs two things: A requirement, and funding.
The Small Business Innovation Research Program
If it’s an innovative solution of some kind, for example a patent, you can go after something called the Small Business Innovative Research Program, or SBIR. Any government agency that spends a certain amount of money in research and development has got to contribute to this program. So, the SBIR program spends about $4 billion a year on innovative research and development contracts with small businesses.
This is a way to basically propose your product or service to the government, because they have funding in the SBIR program. If the review panel thinks that what you have is innovative, and that it would achieve a government need, you can win one of those contracts.
Phase one of SBIR is kind of low dollar. Let’s say, for example, you’re creating a VR training system. In that case, phase one might just be a feasibility study. You might propose that the government uses a VR or augmented reality training system to help maintain or fix aircrafts, for instance. Well, that might resonate with the board. That first phase one event is probably going to be somewhere around $100,000-$150,000, which is small for government contracts.
But, what you’re really doing is:
- You’re establishing past performance with the government, because now you have a contract.
- They’re now going to help you find people in the government that would potentially sponsor you.
Now you can’t totally rely on the government SBIR office, you also need to put yourself out there to find a sponsor. If you find somebody willing to sponsor, but they don’t necessarily have to have money, they just sign a memorandum of understanding for you to go to phase two.
Phase two is to develop a prototype, or set up a demonstration. There could be a lot of different things that you’re recommending, but that’s the phase two piece.
The Small Business Innovative Research Program is really great for getting your feet wet. Even if you have a developed product but you’re modifying it for government use, that would also qualify for the program.
Going back to finding these opportunities, my father actually had a government contract through a larger corporation. He created a pellet that went into 50 caliber ammunition. He wouldn’t get the government contract himself, but General Dynamics or Olin would go through him to create this component of their contracts with the government. Are there opportunities like that out there?
Yes. That’s a really good point. There is a variety of ways the government can buy things from a small or large business owner. For example:
- Sole source contracts.
As a business owner, you need to understand how the government is buying what you’re selling. That’s something that you can do pretty easily with the research tools the government offers.
Let’s say you own a company that is licensed to do HVAC. Over time, you’ve built a relationship with the government office that purchases contracts in construction. From that relationship, you learn that next year, Hanscom Air Force Base is going to be building an office building, and you have interest in installing the HVAC system. But, you aren’t able to take the full construction contract.
What I recommend you do is look through a website like usaspending.gov to see which construction companies have done that type of work with the government – illustrating past performance – and reach out to them about this upcoming opportunity. The fact that you’re bringing them this opportunity sweetened the pot for them to work with you, involving you in the project.
If you reach out to three companies like that, you’ll get at least one or two bites to form an agreement and go after a large contract together. That’s very helpful for a small business, because the big company can handle the proposal writing, and so on.
Artificial intelligence is all the rage right now. Do you see AI being used to uncover some of these opportunities, or to help small businesses in this process?
It’s interesting that you bring that up. Two of my recent episodes on the DoD Contract Academy Podcast were about AI in the government space.
One of them is called Govly, which uses artificial intelligence and machine learning to enable government contractors, OEMs, and distributors to accurately plan for government purchases years in advance
The other is called Rogue, which is an AI tool specifically designed to help businesses write proposals for government contracts. It kind of works like ChatGPT.
Business Financing and Government Contracts
What happens if a business needs financing to fulfill an order from the government?
First, it depends on the contract. If it’s a SBIR contract, where the business is developing something for the first time, then you can win the contract before you have to start development. But those are research and development contracts.
So let’s say you win a small services contract that involves employing 20 people. The small business will have to pay those individual employees before the government pays the small business. That’s because there’s about a 90 day turnaround time on invoicing to the government.
Now, there are certain financing houses set up specifically for government contractors. One thing to know is once you win that government contract, it’s one of the most secure contracts you’re going to have. So a lot of banks know they can count on the government paying the business.
That’s also one of the reasons companies go after government contracts – because it increases the value of your company.
Are Government Contracts Recession-Proof?
In addition to AI, the other thing that we’re constantly hearing about is this looming recession. At a high level, how is government spending compared to other industries?
Government spending is more stable. I always recommend that business owners – small or large – have one stream of income from commercial sales and another stream of income from government sector sales. The government is spending year over year, whether there’s a recession or not.
But I would say that the government experiences difficulties in different ways, and typically at different times.
Usually, if you have a three-year government contract, for example, you’ll receive that funding month over month. Now, there are times when the government shuts down, or when there is sequestration. The government can terminate a contract for convenience. But if they do, there are regulations to protect the companies that held the government contract.
That’s good. Well, we’re just about out of time. Richard, thank you for joining me today. You did a great job explaining how businesses can leverage government contracts as well as how to navigate the government procurement process. What’s the best way for our listeners to contact you or learn more about your advisory coaching services?
Your listeners can go to dodcontract.com to schedule a consultation. On the website, we also have courses available. And of course your listeners can check out my podcast, DoD Contract Academy, on whatever platform they like to listen on.
Great, we’ll link to those resources in the show notes. Thanks again, Richard. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.
The #1 mistake entrepreneurs make is building a business that relies too heavily on them. So, when the time comes to sell, prospective buyers aren’t confident in the company’s future — whether it’s profitable or not. In this episode of The Agent of Wealth Podcast, Marc Bautis is joined by John Warrillow, the founder of The Value Builder System™, a practice management software for business advisors. His best-selling book Built to Sell: Creating a Business That Can Thrive Without You was recognized by both Fortune and Inc. as one of the best business books of 2011. Prior to founding The Value Builder System™, he started and exited four companies, including one acquired by a public company.
In this episode, you will learn:
- The basics of The Value Builder System™
- How to identify your TVR (teachable, valuable, repeatable) to better scale your business.
- Common mistakes entrepreneurs make and how to avoid them.
- Warrilow’s take on the common question; When is the right time to sell?
- What it means to reach the freedom point, and how you can determine if now is the time to tell your business.
- And more!
This is the final installment of a two-part series for business owners. Listen to the first episode, “Maximizing the Value of Your Business Before Selling” with Michelle Seiler Tucker.
Builttosell.com | The Art of Selling Your Business: Winning Strategies & Secret Hacks for Exiting on Top | Built to Sell: Creating a Business That Can Thrive Without You | The Value Builder System | Get Your Value Builder Score | Built to Sell Radio | Bautis Financial: (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast. On today’s episode, I brought on a special guest, John Warrillow. John is the founder of The Value Builder System, a software tool for building and increasing the value of a company. John’s also the author of multiple best-selling books, the latest of which is titled, The Art of Selling Your Business: Winning Strategies & Secret Hacks for Exiting on Top. He is also the host of Built to Sell Radio, where he’s interviewed hundreds of founders about their business exit. So if you’re a business owner or even thinking about starting a business, you’ll definitely want to listen to today’s episode. John, welcome to the show.
Thanks for having me, Marc.
I’m excited about today’s show. We work with a lot of business owners at Bautis Financial, and see first-hand the struggle some have at tapping into the value of their business. How did you get started in working with business owners?
Well, I’ve been an entrepreneur for a while. I’d say my initiation into the world of building value was a bit cold.
A Lesson in Business
I used to run a market research company, where we did quantitative market research. We had great clients — such as Bank of America and American Express. The challenge was that every project was unique. And yet, we were very profitable — about a 20-30% profit margin. So it was a good business, maybe five or six million of revenue.
I’ll never forget when I went to see a M and A guy in Toronto, Perry Maley. This goes back 20 years. I was rubbing my hands together, thinking, ‘this is going to be great.’ I owned this great business and believed it had to be worth a truckload.
So I asked Maley what he thought it was worth. He said, “Well, let me ask you two questions.”
Question 1: Who Does the Research?
I responded, “Well, it’s Bank of America. I mean, I got to show up for that. It’s a big client.
Question 2: Who Does the Selling?
I said, “Well, you can’t send anyone other than the founder and CEO to speak with American Express…”
He said, “Okay, John, let me get this straight. You do the research and you do the selling?” I could see where the conversation was going. “John, there’s nothing here to sell,” he said. “Your company is worthless.”
Man, it felt like a gut punch. I walked into that meeting thinking I was sitting on a gold mine. Despite having lots of profit and great clients, the business was — in his view — worthless.
That kicked this 20-year journey off for me, one where I’m constantly in search of understanding what it is that makes businesses more valuable. Long story short, that story had a bit of a happy ending. We ultimately changed to a subscription model and hired a bunch of salespeople. The business was then acquired by a public company years later. But that moment in Perry’s office was when I realized I needed to think differently about my company.
So what’d you do next?
Well, we spent two or three years making that business more sellable. Then, I wrote a book called Built to Sell. Some people write books because they have something to sell you, or they have a business they want to promote. That was not my intention with Built to Sell. I felt like I’d learned a bunch — and made a bunch of mistakes — and wanted to help people avoid some of the stuff that I screwed up, frankly.
We actually moved to Europe right after that book was published, which is the worst thing you could possibly do as an author — to leave town. But, it kicked off this journey that I’m on now with Value Builder, a software we developed based largely on some of the principles in the book Built to Sell, which entrepreneurs use to help them improve the value of their company leading up to an exit. So that’s what I do now, 90% of the time.
So how does Value Builder work? Can you give me a walkthrough of how a business owner utilizes the software?
Results From The Value Builder Software
So business owners don’t actually come to me directly, they go to one of our advisors. We have advisors around the world who are licensed to offer the Value Builder System to clients — coaches, consultants, etc.
The first step in the Value Builder System is to get their Value Builder score. The average score is 59 out of a possible 100.
By now, we’ve had 60,000 businesses go through the system, so we have a decent dataset. We know that the average business starts at a score of 59, and those companies trade or get offers of 3.5x their pre-tax profit. So relatively modest, no multiple of earnings. However, businesses that go through the value Builder System and improve their score up to 90 or greater get, on average, 7.1x their pre-tax profit.
It’s a process we take owners through to help them think differently about their company and build it so that it can be valuable to somebody else.
I’m sure that the answer varies, but how long does it take a company to go from a score of 59 to something in the eighties, nineties?
We actually did some research with an advisor of ours. They looked at an eight month window, and had everybody begin the Value Builder System at month one. By month eight, they went back and looked at how much of an improvement each business had. On average, they improved by 18%.
So again, you can extrapolate back as to whether you think you’ve got an average business, below average business or above average business, then how quickly you accelerate.
But, I think within a year you can make a material impact on the value of your company. Usually it’s six, seven figures worth of value that we were able to realize for the owners that go through it.
So, what happens in that year?
The advisor meets with the business owner usually once a month and there’s 12 modules, think of it as a stair step approach — each step leads to the next step. At the beginning of every month, the advisor will assign some homework for the owner, like a video tutorial to watch. Then, in month two, you meet with your advisor and discuss what came out of completing the questionnaire, watching the video, etc. That meeting would trigger a subsequent set of steps that the owner would take leading up to the next step.
So one step per month, and usually within 12 months, you’ve made material prudence. Then it begins again. It’s a circular process. So year two, you should go back to month one. And of course, everything has changed in your company and you go through the same set of steps, hopefully at that point with a more valuable company.
Going back to that original example you gave of your market research company, where you managed both research and sales. I come across that typical business a lot, one that is really dependent on one particular person. Are there simple things that that type of business can do to make themselves more sellable or more valuable?
How to Identify Your TVR: Method for Scaling Your Business
Yeah, I think it comes down to identifying your TVR: teachable, valuable, repeatable. The challenge with a lot of businesses is they come about because of an expertise — something that they have a unique knowledge of, or do really well — so, from the start, people want that service or product. But quickly, many reach a plateau.
Business owners run out of hours in the day. It might happen at $100,000 in revenue or $200,000 in revenue. They just can’t grow anymore because there are no more hours in the day. So, you’ve got to hire people.
It takes years to effectively teach employees what it’s taken you decades to learn. So usually, employees never meet a business owner’s expectations. Then, they throw their hands up in the air and say, “Oh, nobody does it as well as I do. I’ve just got to do it myself.”
Business owners get stuck in this perpetual ceiling beyond which they can’t grow their company. And it’s deeply dependent on the business owner. Frankly, it’s not sellable — as I found out the hard way.
So if you find yourself in that spot, sit down and grab a white board or a piece of paper and do your TVR.
- Teachable: List the services and products you sell. Give them a score from 1-10 on the degree which you could teach employees to deliver them.
- Valuable: Write down the extent to which they’re valuable coming from you. The opposite of valuable is a commodity.
- Repeatable: Write down what customers have a repeat need for.
Then, look at the list and you identify which one scores the lowest. In other words, are likely most dependent on you and least scalable. And you ask yourself, is it worth continuing those when you could focus more on your TVR?
I think that’s an important process to go, particularly for a service business.
When is the Right Time to Sell?
That makes sense. Is there a right time to sell your business? What I’ve seen business owners do is push off selling when their business is profitable because they’re afraid to leave too much on the table. They believe their business is growing and next year it will be worth more, so on and so forth. I’m sure there’s other things that come into play than just looking at a valuation or numbers, but how does someone know?
It’s a great question. Trying to decide when to sell your company is a really tricky thing. Most entrepreneurs want to sell at peak, right? They want to sell when the business is booming. They want to sell when interest rates are low. And if you’re that good at timing it, good on you. But most of us are not that good at predicting the future.
The other thing I would say is most businesses will have some sort of transition period earn-out, where part of their proceeds will be tied to the goals the company has in the future. If you peak at the time of transit transaction, your chances of hitting your earn-out and the corresponding payout associated with that drops. And so now, you’re trying to time it two or three years before your peak. And that’s really even more difficult.
How to Avoid the Permanent Five Stage
When I talk to entrepreneurs, I find that they’re in this sort of permanent five stage. The permanent five is when you talk to an entrepreneur and ask, “Have you ever thought about selling this company? It looks really profitable.” And they reply, “Yeah, you know what? We’re probably five years away from selling.” Then you bump into them five years later and ask if they sold the company. They reply, “Well, no, we got a new location. We got a new product. So we’re probably five years away from selling.” So, it’s permanently five years away.
I think that’s really common and natural. We’re optimists as entrepreneurs. But it also means that we run the risk of riding it over the top. What I mean by that is effectively reaching a point in your business where the best days are behind it. By chasing the next tranche of revenue, the next product launch, you effectively destroy a lot of value.
Earlier, you mentioned my podcast Built to Sell Radio. I have done this podcast a couple of times where I interviewed Rand Fishkin. Have you ever had Rand on The Agent of Wealth?
No, I haven’t.
He’s a great entrepreneur who built a company called Moz up to around $5 million in revenue. Now Moz is a software company and they have really high valuations. He got a call from Brian Halligan, the co-founder of HubSpot — the big, all-in-one marketing software. Halligan offered Rand $25 million for his $5 million company, HubSpot stock and cash. Rand had gotten wind from somebody that his business should be worth four times top-line revenue. He was growing fast. And so, although they were at $5 million then, he expected to be at $10 million the next year. So he went back to Halligan and asked $40 million for a $5 million company. Ridiculous evaluations. Halligan, of course, says ,”No way. You’re crazy. There’s no way we’d pay that kind of money.” So they parted ways.
For Rand, that was fine. He focused on the businesses, and decided to raise venture capital. Moz raised a bunch of money and invested in a whole bunch of other products. None of which they were truly differentiated in, most of which were sucking cash out of the company.
The business started to spiral out of control, and Rand was removed as the CEO by the VCs that were invested. When I interviewed Rand, I asked what that was like. He said it was terrible watching his business — that he built — from the sidelines. I said, “But at least you’ve got Moz stock. That must be worth a truckload these days.” He said, “No, I don’t think it’s worth anything.” I said, “What do you mean it’s not worth anything?” He said that the way the VCs invested was they agreed upon a preferred return and a coupon that they cash out at the time of the exit. The length of time they’ve held means that they’re likely as preferred shareholders to get all of their money out. “I will probably be left with nothing,” Rand said. Out of curiosity, I asked what the offer from Halligan would be worth today, based on the appreciation of HubSpot’s stock. He said it would be worth close to $200 million.
That’s a tough one.
And so I tell you that story Marc, because I think it goes back to the question you asked earlier; When is the best time to sell? Frankly, the best time is when someone’s buying. When you get a call from Brian Halligan, ready to write you a check for $25 million — that’s a good time.
Who Should You Be Selling To?
Another question that comes up a lot is who to sell to. Many times, companies try to fly under the radar. They don’t want to get their product or services knocked off. They don’t want to announce it because they might feel sharks start to circle. They don’t want to look desperate, and they don’t want to get low-ball offers.
Also, a lot of times, the best people to buy are competitors. So what are some ways that you can get the word out that you are looking to sell, without going through some of these circumstances?
You’ve raised a ton of really important points. How do I figure out how many people I should inquire about buying my business? How do I keep it confidential? How do I not undermine my negotiating leverage by telling the whole world that I’m for sale? These are really challenging issues, because to sell your company to get good profits, you need competition. You need multiple bidders. I think that’s an essential ingredient to really getting a fair deal. Yet, the more people you go to, the more the chances of this very delicate secret getting out into the world. And then you can undermine and disqualify yourself from the whole process if too many people find out.
So it’s this balance between getting enough people interested while not getting so many people that you effectively let the cat out of the bag. I think that’s a very delicate dance.
Part of the answer is how many people have you inquired about buying your business? If you’ve had half a dozen serious inquiries from buyers who look genuinely interested, you can be pretty sure that interest won’t go away. So if you’ve got half a dozen of those in your back pocket, you likely could go to market by just inquiring with those six people. I’m reminded of a neat story.
I did an interview with Peter Kelly who started a company called Openlane, which is basically an Autotrader for car dealerships. People buy used cars on Autotrader, whereas used car dealers ha ndo equivalent. Previously, they bought their inventory at antiquated brick-and-mortar auctions. There’s three big auction houses where they sell the majority of used cars. Peter thought, ‘this is crazy — this is the most antiquated system.’ He knew there had to be a better way of doing things, so he created Openlane.
Not surprisingly, he received acquisition offers from all three of the brick-and-mortar legacy auctioneers, who saw what he was doing and realized he was going to put them out of business.
Peter didn’t take the offers. He continued to grow the business, but he constantly lived in fear that the OEMs (original equipment manufacturers) — like BMW, Ford and Honda — would see what he was doing and build their own auction houses.
Even though his business was doing amazing, Peter didn’t want to get put out when car brands figured out how to do it on their own. So when he decided to sell his business, he intentionally did not go to the original equipment manufacturers — the car brands — even though he probably would’ve gotten more money for his company.
All he did was go to the three auction houses and give them a shot to make an offer. He was careful not to reveal to the brands that he was for sale, because he didn’t want to have them set up shop and compete. Long story short, he sold his company for $200 million. It was an incredible outcome and a very successful story, the moral of which is figuring out how many people to disclose your intended exit to.
Yeah, that makes sense. I think it was good for him, because he didn’t have to let the secret out. That’s the same thing I see with a lot of entrepreneurs/business owners, they’re worried about someone stealing their thunder, and doing it better or faster.
Acquirers have to sign a non-disclosure agreement when they get underneath the sheets of your business. Some do it genuinely — with genuine interest in buying your company — but unfortunately there are some bad actors in the acquisition space, who do it for no other reason than to find out your secrets.
I would never recommend you put your business on the market to “test the waters.” You may put your house on the market to see if you can get the asking price. You may put your car on the market to see if you can get the asking price. In both instances, you won’t really be hurt in the process. Your house and car will still be sellable after the fact. But putting your business on the market to “test the waters” is not a good strategy. There’s just so many things that can go wrong with that approach.
And I think even transitioning into the risk business owners take on by not selling. You have a concept in your book called a freedom point. Can you tell me a little bit more about that?
The Freedom Point
The freedom point is the point at which the sale of your company, combined with whatever liquid wealth you’ve created outside of your company, creates a nest egg that will throw off enough passive income for you to live the lifestyle you aspire to have for the rest of your life.
A lot of entrepreneurs reach this freedom point almost unconsciously, because they start a business when they’re young and every year it grows 10-20%. By the time they’re 50-years-old, the business is worth millions of dollars.
Then again, comes the concept of riding it over the top. I think once you reach the freedom point, you must ask yourself: Would you risk something you value for something you don’t?
Very few entrepreneurs want to be the next Steve Jobs or Elon Musk. Instead, most entrepreneurs aspire to have freedom. Why would you give up the chance to have freedom, for launching the next product or another million in revenue? It’s worth asking yourself if now is the time.
Definitely. I come across a mix of people. There are some that build a business for a purpose, and they stay laser-focused on it. Others may even start with that intention, but then — all of a sudden — they get addicted to the success. Then it just becomes a game of wanting more.
My job as a financial advisor is to show them the options or the paths that their decisions can take. A lot of business owners are so laser focused on building their business that they forget about everything outside it.
Yeah. I love your use of the word addiction, because I do think entrepreneurship can be addictive. Especially when it’s going well.
Alright, John. We’re just about out of time. How best can someone reach out to you and find out more about what you do?
Yes, thanks for asking. We put together a few resources. You can go to builttosell.com and select the button that says free gifts. There, we have:
- Eight videos on the eight value drivers.
- A worksheet about subscription models,if you’re interested in creating recurring revenue.
- A workbook that corresponds with the book, The Art of Selling Your Business.
Awesome, we’ll link to that in the show notes. Thank you again. You gave a lot of great information for business owners. I really appreciate you being on.
Thanks, Marc. It was fun.
And thank you everyone for tuning into today’s episode.