How to Sell a Service Business Without an Earn-Out
June 25, 2021 |
About this episode
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In 2011, Jodie Cook started an eponymously named social media agency, JC Social Media. Over the next nine years, Cook built the business up to 16 employees. Then, she decided to sell at the end of 2020 and thought her company could be worth in the 5-7 times EBITDA range.
Cook’s first offer was five times EBITDA, with approximately 20% of proceeds tied to a three-year earn-out. Cook realized she had failed to make it clear that she would not be accepting an earn-out. Cook pushed on, explaining why she was redundant and made the case to potential acquirers why her business would do better without her. Cook received two additional offers and accepted one at the top end of the range she was hoping for. She left two weeks later.
In this episode, you’ll discover how to:
- Make your company’s brand bigger than your own.
- Document processes people will use.
- Transfer something Cook calls “tacit knowledge” onto your team.
- Make everyone in your company a leader.
- Get clear on what you want from a team.
- Distinguish between a lifestyle vs. performance team.
- Think about “chemistry” meetings with potential acquirers.
- Merchandise your “second-tier” management to your potential acquirers.
Check out our article on Saying Goodbye To A Golden Goose.
Show Notes & Links
(05:49) Jodie Cook: “I think I maybe read Tim Ferriss’s The 4-Hour Workweek quite early on and I thought, this is great. I can do this. I can own and run this awesome agency, but I can also travel the world. I can write books, I can write articles and that’s what I’ll do.”
(07:54) John Warrillow: “We’ve done research at Value Builder where we have an intake questionnaire people take when they use the system. And we asked them a whole bunch of questions about the business that we’ve analyzed a bunch of questions prior to COVID and then during COVID, and there’s a really fascinating dynamic and you referenced it really well. And that is that business owners have moved up their sell by date by 20% and now many more want to sell because the pandemic has been a shock to the system.”
(25:30) Jodie Cook: “With How to Raise Entrepreneurial Kids, I co-authored it with Daniel Preistley who was a dad of three, but I am the kid. I am the kid in that story.”
(26:30) John Warrillow: “So you’ve got this offer which is incredible and has no earn-out, and you wrote an article which I saw and I wanted to kind of dig into today, which was, how to get your business ready to be saleable effectively? And you shared five things in that article which caught my attention that I wanted to kind of dig into today.”
(32:12) Jodie Cook: “I actually think that this came into my head because of the book, The E-Myth by Michael Gerber. And so, he’s talking about franchise models in the book, but I was fascinated with this idea of a manual where every single thing that happened in the business had a way of doing it and that in doing that, it means that anyone can learn the process.”
(49:29) Jodie Cook: “Clever Tykes are a series of children’s books, they’re aimed at kids six to nine, and they are all about introducing entrepreneurial role models. Because many entrepreneurs have a parent in business. And that is what means that they feel like they can go and start their own business one day. And if they don’t have a parent in business, someone will have inspired them along the way.”
(50:13) Jodie Cook: “How to Raise Entrepreneurial Kids, it came about from, I sent out a request to look for sources for a story that I was writing and I was actually going to write a blog post on the topic of how to raise entrepreneurial kids.”
(51:50) Jodie Cook: “Daniel Priestley, who he runs entrepreneurial accelerators. He’s a really, really fascinating guy. Just has a lot of amazing things to say. And I approached him with the idea for this book called How to Raise Entrepreneurial Kids. And I said, “Would you like to be my co-author?” And he just said yes, straight away. And he was like, “Yep, great. I’m in. What do you need from me?” And so together we turned those 500 responses into the four pillars of raising entrepreneurial kids.”
(54:28) Jodie Cook: “a well-known business leader who flies first class and his kid flies in coach at the back. And his kid goes, “Dad why can’t I fly first class with you?” And he says, “You don’t have any money son.” So I think there’s a number of different ways to solve this. And I just don’t know. There’s as many different ways to be a parent as there are kids. So I think it has to be what feels right.”
(54:44) John Warrillow: “Yeah. It reminds me, I think it was Jerry Seinfeld, someone can correct me on social media if I get it wrong but I think it was Jerry Seinfeld who said, I think to his kids, his kids said, “Dad, we’re rich or whatever.” And Jerry responded saying, “No, no son, I am rich. You are not rich.” That was brilliant. But it reminds me as a parallel to the guy who makes his kids fly coach while he sits up in first class.”
(57:28) Jodie Cook: “I can be found at jodiecook.com, which is J-O-D-I-E-C-O-O-K. I’ve got a blog that I update every couple of days and you’d be very welcome to subscribe. But I’d love to hear from anyone listening that has a similar story or just wants to get in touch. I’m always happy to hear from people.”
About Our Guest
Jodie Cook built and sold her social media agency and now writes books and articles about entrepreneurship.
Stop Acting Like You’re Going To Live Forever, volumes one and two with accompanying guided journals, cover how to run a business without it running you. How To Raise Entrepreneurial Kids combines childhood stories from 150+ entrepreneurs and was co-written with Daniel Priestley. Children’s storybook series, Clever Tykes, gives entrepreneurial role models to 6-9-year-olds and is read in every UK primary school.
Jodie contributes articles for Forbes on the topics of entrepreneurship, happiness, and lifestyle design and gave a TEDx talk with the title Creating Useful People. Jodie’s work empowers others to find the happiness and success they seek.
Find all books and articles at: jodiecook.com/writer. Feel free to say hi and introduce yourself!
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