5 Stages Growing a Business to Exit: Insights & Strategies

Explore the journey of nurturing a business towards a strategic sale. Rohan Sheth of Scale to Sale Mastermind shares a blueprint for entrepreneurs whose ultimate business goal is a lucrative exit.

Podcast: Download (Duration: 28:45 — 26.6MB)

Selling businesses is not a new topic on the podcast. James has had John Warrillow talk about his book, The Art of Selling Your Business. Regular guest Charley Valher unpacks the considerations of building a business to sell versus building for cashflow. And Flippa CEO Blake Hutchison goes into the topic of website trading in Episode 1049.

Today, the show takes another look at building businesses with the specific intention of exiting them. And for this, James brings on guest Rohan Sheth of GrowRev.com.

The process of selling businesses is a journey James has embarked on several times, and he has a particular interest in a program Rohan has been developing, Scale to Sale Mastermind, to assist business owners in reaching a sale point.

Rohan promises to share a five-step framework designed to guide business owners from growth to sale.

Along that format, he and James will discuss things to consider when selling a business.

They’ll look at the essentials of building a business to sell.

And they’ll explore the ways one can grow a business and increase profitability to make it more likely to find a buyer.

Are you ready for some new growth? Let’s chat

Table of contents

1. How Scale to Sale came about
2. A five step format from growth to exit
3. 1 – Being clear on the end game
4. Are you actually interested in selling?
5. 2 – How strong are your foundations?
6. With the foundation in place…
7. 3 – Time to scale the company
8. 4 – Boosting the profit
9. 5 – Exiting the business
10. The rollercoaster that is selling
11. The best candidate for exiting a business

How Scale to Sale came about

Rohan’s digital marketing agency, GrowRev, has become a leading player in the traffic generation sector for the coaching and information space.

Simultaneous with its building was the development of another company in the SaaS industry, which led him to meet Nick Bradley, a seasoned professional from the private equity world. This encounter opened up the prospect of not just building businesses for cash flow but also preparing them for eventual sale.

Their collaboration began in earnest around 2020, focusing on both the growth and the strategic exit of companies. With their help, several of their clients achieved substantial exits, some reaching eight and nine figures. This success led them to contemplate a formal approach to sharing their combined expertise.

Motivated by their achievements and the potential to help others, Rohan and Nick conceptualized the Scale to Sale program over casual drinks. They aimed to combine their individual strengths—Rohan’s in scaling businesses and Nick’s in navigating the exit process—to offer a structured framework to the market.

Download A 5-Step Format for Growing and Selling A Business (and the PDF transcription)

A five-step format from growth to exit

Rohan and Nick’s framework consists of five steps, which James has prevailed on Rohan to share.

1 – Being clear on the end game

Understanding the end game, says Rohan, is crucial for business owners, distinguishing between those pursuing their venture as a hobby and those aiming for a lucrative exit.

The emphasis is on defining a clear financial goal or “number” that signifies a successful exit. This requires a strategic approach, transforming daily operations from mere activities into steps towards achieving that high-value exit.

By highlighting the need for business activities to align with the ultimate goal of achieving a substantial financial return upon sale, entrepreneurs are urged to evaluate if their current efforts can realistically produce the desired financial outcome.

Are you actually interested in selling?

James highlights the importance of understanding whether business owners are genuinely interested in selling their ventures. This determination influences the strategic planning and operations of the business, emphasizing the necessity for the business to operate independently of its owner and to have intrinsic value to potential buyers.

Like Rohan and Nick, James encourages entrepreneurs to define their exit goals early in the business lifecycle, asking them to consider their desired sale price and the significance of this objective.

The discussion also touches upon the moment of clarity for entrepreneurs, where they decide whether their business is merely a passion project or if there is a genuine intent to sell for a profit. This clarity comes from evaluating the business’s potential to sell, understanding the market’s needs, and the entrepreneur’s willingness to build with an exit in mind.

This decision point often follows significant growth phases and requires an honest assessment of the business’s trajectory and the owner’s personal goals.

2 – How strong are your foundations?

Rohan stresses the critical nature of having a solid foundation for business growth, likening it to a three-legged stool where each leg represents a fundamental aspect of the business. He points out that many entrepreneurs might already have their desired exit number within reach but lack the realization due to insufficiently strong foundations. For those aiming for an exit, understanding and solidifying these foundations early on is crucial.

James supports Rohan’s view, underlining the need for the business to function independently of the owner. He highlights, too, that business owners must be ready to take risks and make sacrifices, acknowledging that achieving substantial financial goals often comes at a personal cost.

Rohan also touches on the common oversight many business owners have regarding their understanding of their business metrics, such as lifetime value (LTV) and cost per acquisition (CPA). A misunderstanding or misrepresentation of these figures, he says, can significantly impact the perceived strength of a business’s foundations. Accurate and comprehensive data analysis is essential for accurately assessing and strengthening a business’s foundation.

With the foundation in place…

Once the foundational aspects of a business are solidified, attention shifts towards refining the team, processes, and customer quality. Rohan emphasizes the significance of understanding the difference between Return on Ad Spend (ROAS) on leads versus cost per acquisition, highlighting the importance of a holistic approach to business metrics.

This phase involves ensuring that all elements of the business work in harmony, seeing that the infrastructure supports growth and prepares the business for eventual scaling or sale.

James underscores the need to know one’s business numbers and suggests that many businesses could benefit from the expertise of a Chief Financial Officer (CFO) to manage financial metrics effectively. He points out that businesses often lack crucial operational roles, like an operator to synchronize team efforts and systems, or a Chief Marketing Officer (CMO) to bridge product development with market demands. These roles are essential for smoothing out internal operations and external communications, which, in turn, strengthens the business foundation.

A common issue highlighted is the misalignment between individual goals within a business, such as a salesperson’s bonus structure conflicting with the company’s broader objectives, leading to internal conflicts and hindering growth.

Rohan shares an example where such a case led to a bad situation for the business, emphasizing the need for clear, aligned objectives that support the business’s end goal. This alignment is crucial for sustainable growth and avoids sabotaging the company’s long-term success.

James brings up the paradox many businesses face regarding spending and growth. He advises that to achieve significant revenue milestones, businesses must be willing to invest adequately in marketing and team expansion. This type of spending is crucial for scaling the business and moving beyond a survival mindset.

Rohan echoes this sentiment, stressing the importance of strategic spending to foster growth rather than hoarding cash for a “rainy day.” This approach is fundamental to transitioning from a small-scale operation to achieving substantial revenue and profit margins.

3 – Time to scale the company

Rohan moves on to his third point, scaling the business, a phase where his expertise shines. He emphasizes a unique approach to scaling, combining organic growth strategies with strategic actions like acquisitions and partnerships, learned from marketing legends like Jay Abraham and Dan Kennedy.

This holistic view extends beyond traditional social media efforts, incorporating substantial advertising spends and collaborative ventures as integral components of growth.

The primary goal of scaling, says James, is to enhance the business’s value, suggesting that every dollar of profit could significantly increase the sale price. Variability in valuation multiples across different industries and business models is a given, stressing the importance of not just growing revenue but also maintaining a healthy balance to attract potential buyers.

On the practicalities of scaling, Rohan points out the necessity of reinvestment and continuous innovation within the company. He suggests leveraging existing resources and creatively approaching the market to uncover new growth opportunities, stressing the importance of a fresh perspective on established offers.

Rohan evaluates and refines business strategies, he says, by comparing them against a comprehensive data set, aiming to identify and implement improvements. This process is crucial for businesses looking to scale effectively, highlighting the need for flexibility, creativity, and a willingness to invest in growth to prepare for a successful exit.

4 – Boosting the profit

The fourth step in scaling a business for sale, says Rohan, involves enhancing profit through focusing on both business attractiveness and profit readiness. This dual approach evaluates the business from an external perspective to ensure it appeals to potential buyers and scrutinizes internal operations, including financial health and customer loyalty, to ensure the business is fundamentally robust and profitable.

It’s important, says James, to not make significant changes close to the sale time, and to maintain accurate and thorough financial records. A consistent operational and financial performance leading up to the sale, as well as transparent financial documentation, are crucial for a successful exit, as these factors significantly influence a buyer’s decision-making process.

5 – Exiting the business

The final step in the business sale process, as described by Rohan, focuses on navigating the complexities of exiting the business. This is where due diligence is critical, and there is a potential for buyers to use distractions and renegotiations to their advantage. This stage requires maintaining the business’s operational and financial health, as James mentioned, to secure a favorable sale outcome.

From James’s experience, last-minute challenges during the sale process are common, including changes in contract terms and renegotiations that test the seller’s resolve and preparedness. He stresses the importance of being ready for any situation and maintaining strong negotiation leverage until the deal is finalized.

The journey to exiting a business is often fraught with obstacles, requiring sellers to stay focused and resilient. James advises sellers to expect setbacks and maintain their strategic position throughout the negotiation process, ensuring they remain on course for a successful sale. This approach helps mitigate surprises and secures the best possible outcome for the seller.

The rollercoaster that is selling

It’s critical, says Rohan, to manage emotions throughout the process of scaling and exiting a business. He suggests employing strategies such as using a spacer or an integrator to distance oneself from the direct pressure, a sort of internal exit before the actual business sale.

James reflects on the exhilarating and tumultuous nature of selling a business, likening it to a rollercoaster ride or the thrill of skydiving, with its mixture of fear, excitement, and ultimate satisfaction that comes with successfully navigating the sale process.

The best candidate for exiting a business

In Rohan’s experience, who are ideal candidates for business exits, James wants to know?

From what he’s seen, Rohan would point to those who have rapidly achieved sales of $2 to $3 million within a short timeframe, typically around 24 months, or those who have consistently reached eight-figure sales. These individuals have demonstrated solid performance but may not realize the potential for a lucrative exit.

There’s a specific opportunity for baby boomers nearing retirement, says Rohan, suggesting many are unaware of the possibility to exit their businesses for a significant payoff. This points to a gap in awareness and preparation among business owners about the potential for selling their enterprises.

James expresses interest in bringing Nick on for a future discussion, and Rohan is more than game.

If you are interested in building your business for the purpose of selling, Rohan will be delving deeper into the topic of business exits at the Scale to Sale Mastermind event, at https://go.scaletosalemastermind.com/s2s.

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