John Warrillow, author of Built to Sell: Turn Your Business into One You Can Sell, has started and exited four companies. In the 1990s, he owned a graphic design studio and was approached by someone who wanted to buy his business. Excited, he met with the suitor only to find out he expected to buy the studio for nothing down with a promise of future payments if Warrillow hit targets in the future as a division of his company. Incredulous, Warrillow asked the buyer to justify his valuation methodology. He explained that service businesses are difficult to sell because the assets are the people and if the people leave, there is no more company.
The meeting inspired Warrillow to transform his service business into one that looked more like a product business. He reasoned that, to be valuable, his business needed to seem tangible to outsiders and not so reliant on people. Procter & Gamble is the granddaddy of product marketing so he picked up a bottle of Tide and followed their formula. Here are the five steps he recommends you follow if you want to make your service-related business almost as easy to sell as a bottle of detergent.
- Name It: The Tide name is always consistently presented in the same font on the outside of the bottle. Does your service have a name?
- Write Directions For Use: If you read the side of a bottle of Tide you'll see their suggestions for using their product. Do you provide a step-by-step guide for how to get the best results from using your service?
- Price It: Many service businesses rely on an hourly rate or a custom proposal, making them squishy businesses that are hard for an acquirer to value. In contrast, Tide merchandises its price point on the bottle or barcode. Do you publish a consistent price for your service?
- Provide a Caution Statement: Tide provides users with a caution to "avoid contact with eyes." Do you have a consistent caution statement that warns users what to avoid when using your service?
- Package it: Tide doesn't customize its label for each person who picks up a bottle. Do you have a consistent brochure, sell sheet and proposal for your service?
The more your service looks like a product, the more valuable your business will become, says Warrillow, and the better chance you'll stand to sell it for cash rather than a long and risky earn out.
Curious about whether you could sell your business (and for how much)? Warrillow offers a 10-question Sellability Index Quiz that will help you answer that question.