How to Make Your Service-Based Company More Valuable

Announcer: Welcome to the Process Breakdown Podcast where we talk about streamlining and scaling operations of your company, getting rid of bottlenecks and giving your employees all the information they need to be successful at their jobs. Now, let’s get started with the show.

Dr. Jeremy Weisz: Dr. Jeremy Weisz here, host of the Process Breakdown Podcast where we talk about streamlining and scaling operations of your company, getting rid of bottlenecks and giving your staff everything they need to be successful at their job. Past guests, you can look at David Allen of Getting Things Done Michael Gerber of the E-Myth of many more. Before I introduce today’s guest who needs no introduction, you should be getting his book if you don’t, I’m not going to say John. They should be ashamed of themselves, but you should have gotten Built to Sell. By the way, we’ll talk a little bit more about that, whether you want to sell your company or not, just having it in your business is critical, so you can actually not stress out all the time.

Dr. Jeremy Weisz: Before we get to that this episode is brought to you by SweetProcess. If you have team members ask you the same questions over and over again and it’s maybe the 10th time you spent explaining it, there’s probably a better way, a better solution. SweetProcess is a software that makes it drop dead easy to train and onboard new staff and save time with existing staff. John, was talking to Owen, the founder. He was telling me universities use it, banks use it, hospitals use it, but I didn’t realize that there are some first responder government agencies that use it in life or death situations to run their operation. SweetProcess is to document all the repetitive tasks that eat up your precious time. You can sign up for a 14-day trial. There’s no credit card required. sweetprocess.com, S-W-E-E-T process.

Dr. Jeremy Weisz: Today’s guest, I’m super excited about, John Warrillow is the founder of The Value Builder System. What it is it’s a cloud-based assessment tool that business owners use to assess the sellability of their company. John has helped more than 55,000 business owners improve their company value, and get this, by up to 71%. I was reading, John, if you go to, anyone can go to their site, valuebuildersystem.com/score, and the people who score a certain amount have a much better sellability and increase sellability. He’s the author of Built to Sell: Creating a Business That Can Thrive Without You, which is recognizable with Fortune Inc. as one of the best business books. He also wrote The Automatic Customer.

Dr. Jeremy Weisz: He hosts Built to Sell Radio where they interview founders about their exit journey. Before founding Value Builder System, John started and exited four companies. John, thanks for joining me.

John Warrillow: Jeremy, it’s a pleasure.

Dr. Jeremy Weisz: I want to start, there’s so many good stories and I meant that. I don’t care if someone says, “I’m not going to sell my company ever.” I don’t know anyone who really says that actually because sometimes they start with, “I just want to sell my company,” and they haven’t started the company yet, but anyone-

John Warrillow: Jeremy, I just did a webinar. I was looking at the comments. In the beginning, I surveyed people. I said, “Hey, are you a business owner looking to build value or do you want to sell?” because I’d like to tailor my comments to the two. Then in the comments. I was, I guess, talking too much about selling your company because the guy said, “I’m leaving. You’re talking too much about selling. I’m leaving the webinar.” I thought, “Man, that guy is sensitive,” but it’s funny, people get very sensitive about the topic of selling their company. It’s like this taboo topic.

John Warrillow: I remember I was doing one interview with a guy who started off … I was doing a podcast with him. He started start off and he said, “Oh, you’re the douchebag who wrote Built to Sell?” I was like, “What?” and that was the opening line. It was this whole idea that-

Dr. Jeremy Weisz: Does he need like a lesson on bond or rapport or something?

John Warrillow: Yeah, exactly.

Dr. Jeremy Weisz: You don’t open to that-

John Warrillow: He’s got to get the Jeremy lesson on building rapport. His whole thing was like, “You’re propagating this idea that people should build a flip and real companies are built to last.” I just couldn’t disagree more. My whole thing is build a company so that you could sell if you ever want to and you don’t have to sell, but man, you should build it like an asset as opposed to a job.

Dr. Jeremy Weisz: Totally because anyone who’s putting the systems in place to sell their company means someone could take over and it starts to remove you. Even if you’re going to work on higher, I’m preaching the choir, level things, well then you can go and do that. You talked about in Built to Sell, “If anyone listens, everyone should listen to it.” Here’s the thing, John, you could tell someone who wrote it and you were in the trenches because I viscerally feel pain throughout the book when you’re going through different scenarios. One of them is the scenario of the team and going to the team on saying because there’s a guilt there. When you go to the team and you tell them, “They’ve helped me build this and I’m going to sell them. I’m going to cash out,” talk about the approaching the conversation with the team and some of the thoughts on that.

John Warrillow: Man, it is arguably one of the most vexing challenges that a lot of entrepreneurs have is how do they tell their employees who many of whom are family members or they treat them as if they were family members that, “Oh, by the way, I’ve just sold my company. This thing that we’ve all created together is no longer independently owned.” Look, here’s the thing, I think you have to make a case as to how they benefit, right? Believe it or not, when you walk in your office doors, they see the top of the rung in the career ladder, right? That may be hard for you to hear and you may be a great boss, but at the same time, you’re probably running a relatively small company. For a lot of people, ambitious people on your team, they’re going to want to get to the next rung on the ladder. Frankly, you’re in their way.

John Warrillow: In some cases, the pitch is, “Look, I brought this company as far as I can, but man, you guys deserve more. You need a bigger company, a bigger field to play on and this has enabled us to do this. It’s going to enable us to achieve our vision.” I think you can’t lie. You have to be authentic in what you’ve delivered. I think the other thing to talk about is to tell people, “Look, I’m looking to find an investor,” underscore the word investor as opposed to acquirer, “I’m looking to find an investor who can get us to the next level.” If that conversation then morphs into an acquisition conversation, well, you weren’t necessarily being disingenuous. You were looking for an investor that happened to expand. I think there’s some ways that you can get around the conversation, but look, it’s a challenging one. A lot of people feel betrayed, when they find out.

Dr. Jeremy Weisz: I love the way you lay it out, paint that picture of how it’s going to benefit them. I think you know that that piece alone is worth the whole getting the book, but there’s another piece, it’s the subtleties of the language that you talk about in the boo, and one is client versus customer. That alone I think it sounds simple, but it’s almost groundbreaking in the first … Talk about that.

John Warrillow: Yeah, that’s a bit of a different idea in the sense their service companies in particular, Built to Sell is really about how do you take a service company and make it into a sellable asset. Service companies are usually, David Ogilvy said, “The assets go up and down, the elevator of night,” there’s no assets, there’s no underlying trucks or infrastructure that you could sell. A lot of service company people think, they don’t really have much to sell, they may have something to sell, but it’s contingent on making these big bold changes to make the company able to succeed without you. One of the ways to do that is to productize.

John Warrillow: Productizing is to make what you have today, even though it’s a service sound like it’s a product, right? In the book, there’s a marketing services company that does everything under the sun. He morphs the company into the five-step logo design process, right? It’s a process and it’s got five steps and it’s all done always. It feels very tangible. Part of that is the lexicon. It sounds superficial to some people, but changing your vocabulary around the way you talk about your company can suddenly communicate to an acquirer that you’re more than just a collection of people doing service work.

John Warrillow: For example, avoid the word client. No one’s going to care if you call them customers, but company’s products have customers, service businesses have clients. Engagement is a service company word or as a project. There’s some very important words and lingo that you can make that change.

Dr. Jeremy Weisz: I thought that was an important piece of it and it’s like product versus service company and studying what the product companies do because, as you mentioned, there is a higher valuation for a service company versus a product company.

John Warrillow: You bet. I just did a podcast last week with a woman named Debbie King who ran a company called Association Analytics. She was like in the hamster wheel that most service companies find themselves in. She does analytics for membership organizations and she focuses on big projects. She would personally have to get involved in each. She built it to 20 employees, yet she was personally involved in every project because every project was different. It’s a mess. She goes to an M&A guy and says, “Look, I want out. I’m done. I’m tired. I want out.” The M&A guy looks across the table and says, “Debbie, there’s nothing that I can sell here. It’s worthless.”

John Warrillow: Debbie’s hearing this for the first time and her jaw drops, right? She got 20 employees. She thinks she’s sitting on a goldmine. The guy goes, “No, you got nothing and I can’t sell it.” Once you pick yourself up for the mat, she goes and productizes her service. Instead of doing projects, she does an analytical dashboard. She creates a dashboard because she finds that a lot of these membership organizations have the same questions. She puts it up in the cloud and she says, “Look, you subscribe to this dashboard. You upload your membership data and you can do all these queries, “Who’s likely to trade? Who’s likely to buy more? Who’s likely to sponsor?” etcetera.

John Warrillow: You can do all those queries on your own and it becomes a product. She morphs the entire business and ultimately sells for more than seven times EBITDA, a very healthy product type multiple. Yeah, it’s all about moving from a service company into more of a productize business.

Dr. Jeremy Weisz: John, I want to talk about early on because you have a similar story when you first went to sell your business. What did they tell you? What happened at that point?

John Warrillow: Yeah, very similar story. We were doing custom market research. Debbie and I could be interchangeable. We were doing custom market research, big clients, big projects, but very unscalable, right? I was personally involved in a lot of the work. I built it up, I think we were at $5 million or $6 million in annual revenue. We had clients like Microsoft and Bank of America and American Express, all these like blue chip clients. I go to this M&A guy. I’m like, “I want to move to California. I’m done with this business. What do you think it’s worth?” The guy looks at me and says, “Not much.” Looking at me-

Dr. Jeremy Weisz: Wow, that’s shocking.

John Warrillow: Devastating. Oh, yeah. It’s like telling the mom, “The kid’s ugly.” It’s brutal, but we made some big changes after that, I looked at where the company is getting better valuations and it turned out that the subscription-based research companies, the likes of Gartner and Reuters and Thomson Reuters and Bloomberg, we’re getting much better multiples because they’ve morphed into a subscription service. That’s what inspired the change. Ultimately, that company was acquired by one of the big subscription services that ultimately now is called Gartner Group which is based in Northeast.

Dr. Jeremy Weisz: What were some, maybe one or two changes that you made initially that were really impactful that, “Okay, I need to shift”?

John Warrillow: Yeah, the big one and I think the most important one, Debbie by the way did this as well at Association Analytics, is to niche down. Here’s the problem. When you’re a service company, you have the luxury of morphing yourself for whoever you’re in front of that day. You want it in red, no problem. You want it in green, you want an extra-large, you can do all the changes you want because you’re listening to customers objections and you can morph yourself because you’re providing a service which is unique at every time. If you’re going to create a productized service, it’s incumbent on you to niche way further down than you’re naturally inclined to do. Because when you niche down, you can get to a point where a set of customers have a homogeneous need. When you have a homogeneous need, you can then create a product to address that.

John Warrillow: If you’re too squishy and too wide in terms of your product, your product is essentially going to be nothing to nobody because it’s just going to be too insignificant to anybody. At Association Analytics, what Debbie did was she looked at her customers and said she had small associations, big, medium-sized. She realized the ones who would use this dashboard would have the consistent need for running these analytics. We’re large enough that they would not on their own be able to manage the customers in their head, right? If you’ve got 200 customers in membership organization, you could pretty much manage them in your head or with a spreadsheet.

John Warrillow: She knew that once you reached 5,000 customers, it was way beyond anyone’s ability to remember people, so you needed analytics. Her product was focused on membership organizations with at least 5,000 members. Guess what? That’s a tiny subsegment of associations, but it would enable to rebuild a really compelling product. In our case, what we decided was we did research for Fortune 500 companies that wanted to reach the SMB market. By definition, our target was Fortune 500 companies of which there are 500 and then a subset of those which had a business-to-business offering which is about 200 companies. Our entire addressable market in that company was 200 companies. Now-

Dr. Jeremy Weisz: Did that scare you at all when you saw that?

John Warrillow: Yeah, in the sense that we charged a lot for our subscriptions. We charged from $40,000 to $200,000. It wasn’t like we knew that for each subscriber, we could capture lots of revenue, but yeah, it meant that with a finite universe, you thought about prospects is not if they’re going to buy but when they’re going to buy, right? You knew the 200 companies you’re going after. It’s like, “Okay, over the next 10 years, we want to go after those 200 customers.” It was not like, “Oh, well, American Express said no. That’s too bad. I guess they’re not a prospect.” It’s like, “Well, no, American Express said no today. What are we going to do tomorrow to reengage them because their addressable market was so small?”

Dr. Jeremy Weisz: You talked about this, niching down, and there’s an exercise you have for a way to look at your business. I thought that was super valuable if you could share that because someone may have like a bunch of different customers. They’re not sure who to zero in on. You’re saying right now, “The most valuable thing you do, figure out who that ideal person is,” and you have an exercise around how do you score things and how do you look at it.

John Warrillow: Yeah, we take all of our customers that go through valuable to this exercise called The Scalability Trifecta which is really designed to figure out which of your services today have the potential to become productized. What you do is you write down a whole list of your products and services on a piece of paper and you score them on three criteria. Number one is how teachable they are to employees, talking about building process. This is right in the sweet spot of process building. Number one, how teachable they are no employees. Number two, how valuable they are to customers. The opposite of valuable is commoditized.

John Warrillow: Number three, how repeatable they are, so what kind of repeatable. I don’t mean repeatable delivery process. I mean what kind of repurchase cadence they have. In other words, the opposite of repeatable is like a wedding ring business, right? You buy them once or a funeral casket, whatever. What you want is something that is teachable to employees unique coming from you, you’re a differentiator, it’s valuable. Number three, it has a repeatable buying cadence, meaning customers need it on a regular basis and you literally score all your services on these three criteria.

John Warrillow: Now, what you’re going to find, if you’re anything like most of our customers that go through this exercise, is that what’s teachable competes with or as opposite to what is valuable, right? Those two things are opposite. Your most teachable things are also going to be the least valuable in the eyes of your customers. The most valuable is like your time which is the least teachable, right? Those two things compete naturally. When that happens and I think it will, in almost every case, when it happens, what you’re going to do is identify something that’s teachable as your starting base, that becomes your foundation and find a way to add something to it to make it unique. You’re going to start with what’s teachable and then find something that takes it from a commoditized service into a differentiated one.

John Warrillow: I’ll give an example. The HVAC space is very interesting business, lots of small businesses doing heating and air conditioning, right? Well, in that space, you’ve got the concierge service where every three months you show up and you change the customer’s furnace filter, right? You charge $20 a month and this gives you proprietary-

Dr. Jeremy Weisz: Do you subscribe for that? We subscribe to that.

John Warrillow: There you go. We got in Chicago. We got in Toronto, very-

Dr. Jeremy Weisz: They come every couple months. Exactly.

John Warrillow: Here’s the problem. While it’s teachable to teach like some kid out of school how to do the furnace filter, it’s also not very valuable in a market like Chicago where you are, Jeremy, you got dozens of HVAC companies offering the same thing, so how do you make it unique? Well, what you could do is you could think about, “What is the subset of customers that I want to serve and what are they specifically need? What can I do?” For example, I happen to have a son who suffers from asthma. For us, if an HVAC company came in, in addition to changing the furnace filters, came in with an air quality measure that’s been endorsed by the American Lung Association that says, “Hey, we’ve done the levels of dust and pollutants in the air. Just to give you peace of mind, this quarter, you’re scoring in the green in all five of these categories.”

John Warrillow: Boom, that’s a differentiated HVAC service. Still a concierge service, still the basic, but how many multiples of a traditional would I pay for that as a father of someone who has asthma, right? Many multiples. That’s a silly example, but you could differentiate a service by adding something to it. Do the exercise. It’s called Scalability Finder, but when you find what’s teachable and valuable competing with each other, start with teachable, then add something new, something fresh, something different.

Dr. Jeremy Weisz: I love that. Do you get … I’m wondering how you shift and business owners mindset like Debbie who’s like, “The most valuable thing is me going in and doing it shifting it,” to, “Well, how do I make this a”? Was that a hard process for her to go through in her mind to go, “Okay, I need to create a software out of what’s in my head”? It seems like you get pushback on that a little bit. It’s also maybe an ego thing like, “No one else could do what I do. How do I productize it or quantify it?” How do you get them over that mindset shift that, “No, we can actually boil”? You have a software yourself you created over decades and your knowledge is going into software. I don’t know, talk about how do you get people over that mindset shift like, “Okay, you’re special, but maybe not that special. We can make it into something that’s repeatable”?

John Warrillow: Yeah. Is it Tony Robbins who was the first one to talk about, you either go away from pain or towards pleasure is the only-

Dr. Jeremy Weisz: I know he talks about it a lot like pain versus pleasure. Yeah.

John Warrillow: I think that’s true. I think the customer has to feel some pain and the pain Debbie felt and I think that pain I felt as well and the pain I think most owners reach at some point in their career journey is it’s too painful to stay and it’s too painful to go, meaning she got the word from an M&A professional that, “There’s nothing here for me to sell.” Here she is building a 20-employee company, her life’s work and she’d have to leave it and get nothing, right? That’s painful. Equally, it was as painful for her to stay because she felt trapped in her business. She couldn’t grow up beyond 20 employees because there’s only so much of her time to go around, so she’s trapped.

John Warrillow: If there’s anything I know about entrepreneurs is we hate feeling confined, right? It’s like the one thing that makes us entrepreneurs, right? We don’t go to work for Procter & Gamble or we didn’t go to work for Ford. We don’t want to be a little widget on the ladder that gets to … That’s not the way we’re wired, right? We don’t like feeling confined and trapped. That feeling of being trapped in your business I think is a struggle. What I also talk a little bit about is to really think about your goals as an entrepreneur. Because for most of us, when you say, “What are your goals next year?” what we hear is entrepreneurs chasing a top line revenue or sales number or a bottom line profit number. Those are the two most common yardsticks that owners are chasing.

John Warrillow: What I encourage owners to think about, what I would encourage anyone listening to this to think about is instead of using those as your goals, I want you to think about your role as a parent, right? We talked about this before we hit record, Jeremy, the idea of being a parent is like our most important job. For many of us, when we start as parents, we do everything for our kids, right? We feed them. We change their diapers. They don’t have a single decision to make because we do it all for them, but over time, as they become teenagers and young adults, the goal that we have for them is that they can succeed on their own, that we over time give them enough exposure to actually get up on their own feet and succeed.

John Warrillow: What I ask entrepreneurs to think about is instead of chasing some profitability number or revenue number, I want you to think about your business as a child. Your goal as the founder is to get that child to adulthood safely, right?

Dr. Jeremy Weisz: And not come live at home after college.

John Warrillow: Exactly. “Own your own. Freedom to fly,” whatever. Get it to succeed without you. Process is a big part of that, right? Documenting your process is a huge part of that, but there’s more to it, but that’s a huge part of creating something that can succeed without you.

Dr. Jeremy Weisz: You’re saying, the metric isn’t necessarily top line or bottom line, but it’s a freedom. It’s like a freedom piece to be able to step away from the day to day.

John Warrillow: You bet. Again, if you want to be hardnosed about it, a company that can thrive without the owner is the most valuable company. You could build a very large company, and if it’s deeply dependent on you, it’s not really worth very much. No matter how blue chip the clients are, how much profit you make. Again, thinking about your business as a child you need to raise I think gets you there in the end, gets you to be valuable. It increases your overall financial picture if that’s what you’re chasing, but it does it in a more nuanced, I think, faster way.

Dr. Jeremy Weisz: I want to talk about some big mistakes people make. I know in the book one of the big mistakes that the person makes is telling the person who’s buying him that he’s just ready to get out of here and move on. Talk about that but any other big mistakes that you see people making too. After obviously building up this company and four other companies, what are some big mistakes that you should tell people, “Listen, step over this big pothole”?

John Warrillow: Yeah, don’t step in this one. I’ve done through in 250 episodes of Built to Sell Radio now. I’ve heard lots more than my own personal experience.

Dr. Jeremy Weisz: Share any of those too.

John Warrillow: There’s two that come to mind. The first is a question that you’re going to get at some point in your entrepreneurial journey and particularly from acquirers and potential investors. They’re going to say, “Hey, Jeremy, I love the business you build. Why do you want to sell?” It seems like a really innocuous question, but the answer to it is really important because when an acquirer looks at your company, the last thing they want to know is that you’re stepping off a burning bridge, right? They want to know that, but you’re really excited about the future and that you need a strategic partner with deep strategic resources, financial reasons and other to help you achieve your goal.

John Warrillow: They’re going to want to tie you into some sort of earnout or some sort of process, so that you stay on for a couple of years and help them to monetize what they’ve acquired. The last thing you want to do is say stuff like, “I’m just tired. I’m done,” or, “I’ve got another idea I’m really excited about,” both of which by the way might be true, but that’s not what the acquirer wants to hear. They want to know … The coaching I would give you is … Again, it depends a little bit on the age of the entrepreneur. I think if you’re 65, then for sure, you can say, “Look, I’m getting the age where I need to think about my retirement and my own personal balance sheet. While I’ve got lots of excitement about the future, I also want to clean up my own personal balance sheet and make sure I’m not too exposed. I’d be interested in selling part of or whatever.”

John Warrillow: That’s how if I was 65. If I was 35, I want to say more like, “We’ve got a huge vision. We want to be the next Google, the next Tesla, the next Apple, whatever, but really, to achieve that we need a partner. We need someone who’s got deep strategic resources. That’s what we’re looking for.” That’s going to communicate that you’re willing to stick around and that you’ve got a big vision.

Dr. Jeremy Weisz: That’s excitement there. There’s excitement for the future in both respects, not like, “I’m just tired of 50 years of this.”

John Warrillow: Right, “Shitty customers asking me for stuff all the time.” No. Maybe true, but it’s not the right answer.

Dr. Jeremy Weisz: Thanks for sharing that because I think it’s a big mistake that … People also listen to the book or read the book Built to Sell, to hear how you walk through it in the book. The other part is sometimes people have to hear sales gone wrong, John, or horror stories to really have it hit home. I’m wondering, after the fact, during the due diligence process or after, what were some stories that you remember from either, people you’ve interviewed or other because I know you also have a lot of advisors as well which I’d like to have you talk about the advisor portion, but some horror stories when people enter into this process?

John Warrillow: Man, there’s so many. It is unfortunately a landmine or a field full of landmines that you’ve got to really think about. A couple come to mind. Ana Chaud is someone I had on Built to Sell Radio about a month ago. A wonderful entrepreneur, delightful woman. She’s based in San Francisco. She got divorced, and she moved to Portland. In San Francisco, the fancy salad bar was a big deal. In Portland, there was no fancy salad bars at the time. She started one called Garden Bar. It was a success largely on her own sort of gumption and tenacity. She built it up to a successful business and successful one location business. She gets approached by an acquirer, who says, “Look, I’ve seen what you’ve created here. I want to help you build this into a huge brand. I want to invest in your company.”

John Warrillow: She is enamored by this idea and thinks it’s great. He puts together an investment term sheet that says that he’s going to get a 2x liquidity preference on exit and she doesn’t think much of it, but whatever. She goes ahead and signs it. Well, in the space of about 18 months, she in fact does build up Garden Bar into 10 locations across Portland only to attract an acquisition offer from the largest restaurant chain of its kind in Seattle, just up the road. She goes through the negotiation process. About two days before closing, she turns to her lawyer and says, “You do know that by doing this deal, you’re going to be left penniless.” She says, “Why?” She says, “Yeah, you have a 2x liquidity preference on this investment, meaning the entire amount you’re going to make from the sale as company is going to go to the investor, not to you.

John Warrillow: Again, she picked yourself up off the floor, but she’d been growing so fast that they were starting to bleed cash, didn’t have a lot of options left and so she agreed to go ahead and sell the company in return for an earn out, an earn out where you sign up for a set of goals in the future and that you make proceeds from your sale if you hit a set of goals. Well, that was in November 2019. Everybody knows what happened to restaurants in February 2020, three months later. They all got shut down because COVID hit and she was left with nothing. Nothing from building one of the fastest growing chains in Portland.

John Warrillow: It’s just a cautionary tale that a liquidity preference, a 2x liquidity raised with a liquidity preference that investors would ask for are dangerous and they can end up washing you out of any sort of equity. That’s one example. It’s a very technical example.

Dr. Jeremy Weisz: I want people not feel to fall asleep at night, John, with these stories. That’s what I want. No, I’m just kidding. What’s another one like that that people should be wary of and maybe lose sleep over?

John Warrillow: Sure. Another one comes to mind again, Built to Sell Radio guests maybe a year ago, Episode 150, something like that. You just google Built to Sell and the name Rand Fishkin. I think you’ve had Rand on the show, Jeremy.

Dr. Jeremy Weisz: Yeah.

John Warrillow: Just an amazing entrepreneur, wrote a book called Lost and Founder which is definitely worth picking up if you haven’t already. Rand builds this company, Moz, SEO software tools, builds up to about $5.5 million in revenue, growing quickly, gets a call from Mark Halligan, good Chicago-based entrepreneur who owns HubSpot, co owns HubSpot, cofounded HubSpot. Halligan says, “Look, Rand. I want to buy your company. I want to buy it for $25 million cash in HubSpot stock.” Rand is like, “Oh, my God, that’s a lot of money,” but he goes back to some of his advisors and says, “You know what? Ron, you’ve been growing this business really quickly. You’re expecting to double again next year. Fast growth SaaS company like yours would probably fetch four times revenue. That’s $40 million on next year’s revenue if you’re going to go from 5 to 10. I don’t think 25 is enough. You should turn it down.”

John Warrillow: Rand, listening to his advisor says, “Okay, yeah, I guess I’m going to turn it down.” He goes back to Halligan and says, “Look, I’m not taking your 25. I think it’s worth 40.” Halligan, in his case looks at this business is currently generating $5 million in revenue and says like, “There’s no way,” and walks away. Rand decides instead to raise money, raise a bunch of venture capital money, has a liquidity preference. Ultimately, they diversify way outside of Rand’s sweet spot in SEO tools to the tune that he gets a bit lost and the company starts to lose money. Each of the products he launches was less than successful than the last.

John Warrillow: He ultimately suffers a period of deep depression. He’s removed as the CEO and the venture capitalists put in their own CEO. When I interviewed him on the show, I said, “Rand, what’s your net worth now?” He said, “Believe it or not, my net worth is $800,000. I have some shares in Moz, but because of the venture capitalist liquidity preference, I’m not sure they’re worth anything. Oh, by the way, I’m about to spend most of that $800,000 on elder care for my grandparents who are in need of care.” I said to Rand, “Out of interest, what would that offer from HubSpot look like today?” He said, “Based on the appreciation of HubSpot stock, it would be worth more than $100 million.” Now if that doesn’t keep you up at night, I don’t know what would. It’s a great book if you haven’t read.

Dr. Jeremy Weisz: It is good.

John Warrillow: It’s great. It’s certainly worth the read.

Dr. Jeremy Weisz: That’s what I remember, not just the sale, but the stock just because of HubSpot was worth a lot of money. Thanks for sharing that. I want to talk about, on the site, maybe we’ll choose one, if anyone goes to a valuebuildersystem.com, you can improve your Valuable Builder Score with the Value Builder System. There’s 12 modules there. I wonder if we may grab out one of them that you think would be good to talk about. If you want to know about the Envelope Test, you’re just going to have to buy Built to Sell and listen to it. You’re not going to get that one. Because I love that part of the book, the Envelope Test. You’ll just have to get the book for that, for most of us. Which one you think would be most valuable to pull out? I know you’ve talked about the hub and spoke is really important there. I don’t know if that’s the one you want to just highlight for a second.

John Warrillow: We’ve already done a little bit of hub and spoke. It’s just this notion that you need to build a business that’s not dependent on you personally. Think of it as a child you want to raise. Another one that that maybe is a little less obvious that could be potentially more interesting about building value is the Switzerland Structure. The name, the Switzerland Structure, is inspired by the country Switzerland, which is the punch line on a lot of jokes because they’re so focused on independence, right? “I want to be Switzerland,” meaning I don’t want to pick sides, right? They didn’t join either the two World Wars. They don’t use the Euro.

John Warrillow: This blows my mind every time I think about it, they didn’t even join the United Nations until they had a country-wide referendum as to whether to join, like, “Who’s going to join the United Nations?” Every country practically is in the UN, but they had a country-wide referendum to decide whether to join because it meant that they were joining up with something. It inspires this idea of creating a business that’s not dependent on anything that would compromise its independence. That would be anyone, customer, employee or supplier. You’re looking to build a business that where a customer. No one customer exceeds any more than 15, 15% of your revenue. No employee is too irreplaceable and no supplier interestingly is also too irreplaceable. When you’ve got that, you’ve got a very, very solid foundation of a business.

Dr. Jeremy Weisz: Thanks for sharing that. I forgot who originated the statement, but I’ve heard it many times, “The most dangerous number in business is one,” and this is just expanding on it like, “If it’s a large chunk of whatever employee, customer, you are in trouble at some point.”

John Warrillow: To lace a couple of these ideas together, it’s another reason to go through the Scalability Trifecta and it’s another reason to focus on niching down because here’s what I’ve experienced. Maybe Jeremy, you’ve had some of the same experiences. Customers, when you deliver for them, when you really nail a project, they start asking for repeat projects, right? They say, “Wow, Jeremy really gets it. He’s awesome. He really understands me. I’m going to ask him to do a second project and a third project.” The only problem is that each time you really nail it for a customer, they can often start to widen the things that they want from you …

Dr. Jeremy Weisz: Totally.

John Warrillow: … to the point that you’re doing all sorts of stuff you never imagined offering, you never imagined selling, but it’s like, “The customer wants it, so I should be supplying it, right? You build this business that’s maybe growing in revenue, but becoming deeper and deeper, really more dependent on both one customer and you personally did deliver for them. You reach a point where you’ve got a profitable growing company that’s worthless. The antidote to that, again, is to think about what are you uniquely positioned to do, what can you teach employees to offer, what makes you valuable in offering it and stick to your knitting. Even though customers will ask you for ancillary services, say, “You know what? Our ability to nail this one product is because we can focus on it. As soon as we take our eye off that, we’re going to start disappointing you.”

Dr. Jeremy Weisz: Totally, the focus and the discipline, it’s hard to say no, but the focus and discipline is key. I know we have a few more minutes and I wanted to touch on two things, John. One, the software and talk about the software. The second is the advisor piece, which I don’t know if everyone knows how that works as well because that is people helping deliver the message and the strategy and everything like that. Maybe talk about the software and the adviser piece.

John Warrillow: Yeah, you mentioned out of the gate that I’ve helped 55,000 business owners. That’s a little generous. I personally haven’t done that. The software has-

Dr. Jeremy Weisz: You’re a busy man.

John Warrillow: We have 55,000 users of the software, whom our business owner is going through the 12 modules I’ve described today to help them improve the value of their company. That’s the software. We’re mindful that what we do is highly, highly personal, right? The decision to sell, build value, one day potentially exit your company is just a deeply personal process. Our go to market strategy is to partner with advisors, whom business owners already trust, right? They already trust them with their most deepest darkest secrets that we empower those advisors to offer the Value Builder System. We licensed the system to advisors, of which we have about 1,000 around the world who use it as their platform for value building. Our business model is to license it to the advisors and the advisors in turn use it as their platform for value-building advice that they offer business owners.

Dr. Jeremy Weisz: People could check out the … If a business owner wants to check out and actually take the Sellability Score, can they go to valuebuildersystem.com/score or do they have to be with an advisor?

John Warrillow: No, you can go to Value Builder System, you can actually just go to Value Builder. It’s a shortcut, valuebuilder.com and you can get your score that will trigger prices where you’ll get your score of 100. Average score is 59. Those businesses on average are getting offers of 3.5 times pretax profit. If you are able to get your score all the way up to 90 out of a possible 100, those businesses on average are getting 7.1 times pretax profit, more than double. You just got a sense of the range there, but the first step is to get your score. If you want, you’ll then be prompted, “Do you want an advisor to help you interpret and grow your score?” You can select “Yes” in which case, we’ll put you in touch with one of our certified Value Builders in your local area.

Dr. Jeremy Weisz: If someone, John, is a coach and they’re interested in that advisor piece, where should they go to check out more on that?

John Warrillow: Same place, valuebuilder.com and there’s a tab for advisors and they can check it out.

Dr. Jeremy Weisz: John, always a pleasure. People should check out Built to Sell, Automatic Customer. I think you will have another book coming out in some point in the future too. Just search John Warrillow on Amazon and Audible and just buy all of them. Let’s just make it easy. All right.

John Warrillow: You’re very kind, Jeremy. It’s been it’s been a real pleasure.

Dr. Jeremy Weisz: Thank you. Everyone, check it out.

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