By Blake Johnson
Picture this. It is a gorgeous Saturday afternoon and you and your spouse are wandering through the local farmer’s market. You come across a woodworker displaying beautiful cutting boards, so you decide to purchase one.
No prices are listed, so you go back and forth with the artisan for a few seconds, determining the value of the piece.
For the artisan, the cutting board in question represents years of dedicated study, hours of focused effort, and an emotional attachment to his artwork. For you, the cutting board in question represents future opportunities for shared meals with your family and friends.
You both value the piece, but in different ways.
After some brief discussion, a price is settled on, money is exchanged, and you and your spouse make your way to the car and back to your home.
Now picture this. That woodworker, so concerned about his creation and how it will be cared for after the sale, follows you out of the farmer’s market, climbs into the car with you, and settles himself into your house. Every time you go to use the cutting board, the woodworker has thoughts and opinions. He tries to dictate how you use his creation. It sounds insane, right?
I think so, but amazingly that is precisely what most business owners do with their companies.
I recently founded and sold a company, turning a 2-million-dollar investment into a billion-dollar sale. Upon the sale, I took my check and walked away, much like a reasonable farmer’s market vendor.
Too many founders I know act more like an unreasonable vendor. They varnish their hands to the board and are never able to walk away.
If you want to avoid climbing into the car and heading to someone else’s home, then listen to my advice. This is how to start a business and then sell it. Cleanly.
How to build a company and then sell it
Step #1: Prove your business model
The key to starting a business for sale is to prioritize profitability. Do everything you can to make money on day one.
Too many entrepreneurs think it is acceptable to live in the red, hoping that down-the-line volume will make their business profitable. While that is certainly possible, it is not the easiest or most efficient way to go.
Instead, strive to create a product or service that turns a profit right away. That way, you will have absolutely no issues with scale. If you make money on one unit sold, you will make money on a million units sold.
It is vital to understand that the business model you envision is rarely the business model you wind up with. You may be in love with your idea, but if the marketplace isn’t interested, or is priced out of your product or service, you will never turn a profit.
Flexibility is key. Do not hang your hat on your first idea. Instead, keep your eye on profitability and adjust your business model until you reach that goal. I have always said that the business you set out to start is almost never the business you wind up with—and that’s ok. Flexibility in service of profitability is really the only way to go.
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Step #2: Hire people you trust and teach them everything you know
At the beginning of any business venture, you need to stay very hands-on. You should know absolutely everything that is happening at any given moment, and you should be the first to dig into an issue when it arises.
Complete ownership at the beginning is vital, but that stage ends much sooner than most people think. Once your business model is proven and is beginning to scale, you should step aside and hand the management over to someone else.
Most founders find it uncomfortable to take a step back. They assume that their involvement is the “secret sauce” that makes the business run, but that is a farce. If you cannot replicate your business model under someone else’s management, then your business model never worked to begin with.
Instead of staying ingrained in the day-to-day operations of your business, hire people you trust, intelligent people with good judgement, and let them take the lead. Teach them everything you know, coach them in running the business in a way that works, and then walk away. It is difficult, but it is the only way to ensure that you can sell the business effectively.
Step #3: Sell the business, but don’t sell yourself
This step is a natural extension of the second one. When it comes to selling your business, you should not be selling your own expertise or involvement. You should be selling a business that you built that is now running effectively without you. When you approach private equity firms and larger companies, you should be able to speak to the business as a separate entity.
If you stay in the business and convince your buyers that the company could not operate without you, then they are likely to make your continued service a part of the deal. If you sell yourself along with a functioning business, the buyers will conflate your involvement with success. I have seen many brilliant entrepreneurs get stuck in roles within companies they built simply because they convinced their buyers that they were crucial to the business’s profitability.
In contrast, I have been able to sell businesses and completely walk away. I focus on building businesses that thrive without me, and in that way I free myself up to pursue new ventures.
When in doubt, remember the farmer’s market example. No one wants the craftsman to come home with them, so why would a sold business want to keep its creator around? Your goal should always be to construct something functional and desirable.
Are you ready to build a company you can sell?
Once you’ve sold your business, your work is done. While it is unconventional advice within the startup sphere, it has been a very reliable path to success for me. Start something profitable, prove it at scale, and walk away.
That’s how to build a company—and then sell it.