1086 – Build to Exit

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In episode 1086 of this podcast, James teams up with a show regular, Lloyd Thompson from VirtualDOO.com. The topic of discussion: building to exit – how getting company operations strong is key preparation for exiting a business.

Lloyd has lately been into John Warrillow‘s work, James has noticed. John, a previous guest on the podcast, wrote the book, “Built to Sell,” which James considers essential for service providers. He’s interested now in how Lloyd, an operations-focused expert, applies such concepts to his services.

Together, James And Lloyd look at the importance of a business exit strategy.

They talk about productizing services and building a scalable business with a view to sell.

And importantly, they discuss the roles that systems and well-oiled operations play in exit strategy for businesses.

Table of contents:

1. Key steps for building a business to sell

a. Productize services
b. Create systems and processes
c. Focus on recurring income
d. Build a strong team
e. Utilize fractional operators

2. As closing tips…

Key steps for building a business to sell

James has previously built and sold two businesses, and Lloyd has helped many businesses prepare for sale, recently working with exit facilitators.

From their experience, they’ve identified the following essential steps for building a business with the intent to sell:

1. Productize Services

Productizing services made James’s previous businesses scalable, and eventually sellable. He later urged Lloyd to do the same, and after some resistance Lloyd caught on to the benefits and grew his own business on James’s advice.

Productizing services would involve the following processes:

* List services and classify them as products. Lloyd would differentiate a service from a product in that a service is flexible and loose, whereas a product: 1, has a fixed scope, 2, costs a set amount of money, and 3, is a repeatable process.
* Score each product line based on profitability, unique mechanisms, market power, and competitive advantage.
* Focus on top-performing products for scalability and sellability. It’s important to first identify your specialization, your USP, and then double down on what you do well.

2. Create Systems and Processes

Processes are how things get done in a business, and systems make them repeatable and consistent, an important step towards taking a founder out of the day-to-day. Lloyd and James recommend a business owner:

* Develop clear systems for all aspects of the business.
* Document SOPs for all processes, ensuring clarity and consistency. If it’s something that will be done more than once, it deserves an SOP. Now, Lloyd recognizes that holding many business owners back is the perceived work of creating an SOP. It can be as easy as jumping on a Zoom call and hitting Record as you walk a team member through the process. They then write the SOP, and that achieves both documentation and ownership of the process.

* Encourage self-organized teams to work on multiple parts of a task simultaneously.

3. Focus on Recurring Income

The right business model makes a business profitable over the long term, and sustainable profit attracts buyers.

From long experience, James advises:

* Shift towards recurring subscription models for stable and predictable income.
* Aim for long-term customer retention to increase business value.
* Ensure the business can function without the founder’s direct involvement. (Systems and properly empowered teams make this possible.)

4. Build a Strong Team

A business is only as good as its people. As a specialist in operations, Lloyd can suggest:

* Recruit skilled operators and communicators for key roles – this is another step towards freeing up a founder from daily management of operations.

* Establish a brand identity to build client relationships with the business, not individuals. This way if someone leaves, they don’t take the clientele with them.
* Monitor quality and set clear expectations for team members. Hire people on the same wavelength, with the same values that fit with the culture you’ve built.

5. Utilize Fractional Operators

Fractional operators are valuable in that they take the task of direct management off the business owner’s hands. A business that runs independently of the founder is more attractive to would-be buyers than one heavily reliant on the owner’s involvement.

Furthermore, an external eye can see areas of potential improvement that an insider like the founder might miss.

So:

* Consider hiring fractional operators for their cost-effective expertise.
* Benefit from flexible arrangements without long-term payroll obligations.
* Conduct regular audits and make improvements to processes or manpower if needed.

As closing tips…

* Ensure all processes are well-documented and easily accessible.
* Maintain a focus on recurring income to increase business value.
* Prioritize building a strong team to support business operations.
* Regularly review and update SOPs to reflect any changes in processes.
* Encourage team members to self-organize and work on multiple tasks simultaneously.
* Seek expert advice, like VirtualDOO, for fractional operator services to optimize business operations and value.

Lloyd and his team can be found at VirtualDOO.com. Look out for future episodes from him and James.

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