Why Most Small Businesses Don’t Sell (and What to Do About It)

In the past, I wonder why most small businesses don’t sell. After poring over the question, I understand.

And that’s what I am sharing with you in this article.

By looking at why most businesses are started, we get an immediate explanation of why only 20% of small businesses ever get sold.

Here are the top four reasons why you may start a business: 

#1 – Ready to be your own boss

#2 – Dissatisfied with corporate USA

#3 – Want to pursue your passion

#4 – Opportunity presents itself

When I started my first business, had I taken this survey, I would have checked all four boxes.

The problem is that nowhere on the list does it say, “I want to create a money-printing machine that is self-managing and could be sold for millions of dollars.”

However, we’re definitely thinking it. But to do so requires some calculated steps. You rarely (i.e. never) sell a business for millions of dollars by chance.  

Learn to fly BEFORE jumping off the cliff!

Rarely do I meet a passionate bootstrapped business owner with a rock-solid business plan and a clearly-defined end goal.

In fact, 80% of entrepreneurs that I speak with have no formal company goals written down. If they do, typically no one in the company other than the founders knows what they are or where they live.

Of course, it’s completely understandable. Because, unless you went to business school, there is no “off the shelf” blueprint to building a successful business.

There are lots of books and pieces of educational content out there, but they focus on specific areas of your business. In addition, after consuming hundreds of podcasts, books, and blog posts myself, I realized that without implementation, the knowledge is rendered useless.

And this is why most businesses become nothing more than statistics.

For example, 20% of small businesses fail within the first year. 50% survive 5 years. Only 33% last for 10 years or more.

On top of that, only 20-30% of those surviving actually get acquired.

The odds are clearly stacked against us. How do we stand a chance?

From Google to Netflix: What’s the common thread?

Let’s first take a look at some of the greatest companies in the world and see what they do differently to small business owners.

What do Google, Netflix, Microsoft, General Electric, and hundreds of other top companies have in common. Ok… other than multi-billion dollar revenues?

It’s simple. All these companies have a goal-setting framework that acts as the heart of the business. 💚

If you have one of these already, then you’re on the right track. Yet, I would still consider taking a look at how well it’s implemented in your company.

  • Were you trained on how to use it? 
  • Did you have someone who is an implementer help you ensure it’s used to maximize your company’s potential?
  • Do your employees walk through the door, open up their “to-do” list, and know exactly how the work they do is pushing the company forward?
  • Is your team deeply connected, even when the going gets tough?

If the answer is yes to all these questions, then congratulations. 🎉 

If the answer is no, then keep reading

How NOT to scale a company

I scaled my first company to 25 employees and it was one of the most painful things I’ve ever done. It felt like everyone was working in a different direction.  

In fact, most of the time, it felt like my team was working AGAINST me and each other.

I kept firing and hiring people because they didn’t seem to care about the work they were doing. Because of this I was constantly having managerial nightmares.  

As the owner, I spent more time managing people than I did actually working on growing.

It took me many months before I realized it wasn’t the employees that were the issue – it was ME. 

I hadn’t created a system to involve the team in understanding exactly what was expected of them. They had no idea how the work they were doing was impacting our clients unless they were in the customer success or sales department.

So we put together a cumulative document where each department had their top priorities listed out.  

We had a clear definition of what success looked like for each department. Then each team member took ownership of initiatives that THEY helped create.

No longer were they governed by KPI’s that only served my wallet. Instead, they were governed by a set of goals that everyone was motivated to complete, because they had a hand in creating them.  

The outcome of this new system was incredible.

  • We started to grow at a rate we never thought possible
  • Our team was connected and took ownership of responsibilities
  • They were now problem solvers, not problem creators
  • Everyone walked in the door with enthusiasm and purpose
  • I had a business that was actually desirable to investors!
  • I could finally take days off

What was this magical system we implemented?

Welcome to the wonderful world of OKRs

Objectives and Key Results – better known as OKRs – were first implemented in Google in 1999, and the co-founders attribute much of their astronomical success to the system. 

In fact, they still utilize the simple goal setting and tracking system today.

Let’s put their success into perspective. From 2000 to 2004 the Google founders grew revenue from $200,000 to $961,000,000 a year. 

The only way to sustain such insane levels of growth is to stay deeply connected among many layers of leadership using a central goal-setting system.

Now, I never set out to build a Google or Netflix. However, I did set out to build a profitable business that wasn’t a pain in my ass. 

A few years in, I realized that I had created something that someone else might want to buy someday.

Enter, the Exit

In the investment world, the concept of an exit is the holy grail of what every investor is looking for in a target company. They want their company to be acquired by a much larger company who is willing to pay top dollar for it.

After I sold my company, I started to work with a venture capital fund and look at pitch decks on a weekly basis.

Learning what investors want…

Investors want you as the founder to build a money-printing growth machine that is going to make them huge returns upon the exit of the company.  

In order to achieve that exit, they look for certain attributes in the business plan, executive team, financial model, and overall market you are in before making the decision on whether or not to invest.

The same thing happens when someone is looking to buy a small business for themselves.

Very simply put, the potential acquirer wants to buy a money-printing machine to which they can add value and take to the next level.

That level may be to optimize for profitability, scale, and/or earn themselves a nice return in a few years by flipping it. It may also be plugging you into their existing money-printing machine so that they have immediate growth.

The challenge is that there is typically a disconnect between where your business is and where they want it to be. For that, they want a discount and some kind of guarantee.

In the business owner’s ideal world, they would receive a huge lump sum of money. In return, they hand over the keys to their business and go on perpetual vacation.

On the other hand, the investors want to get the keys, make sure it works, then hand over the money.

This can reflect itself as a multi-year (1-5 year) “Earn-Out”. This means you only get PART of your money up-front and the rest doesn’t come until they prove your projections were correct.

In the meantime, you’re now working for THEM on a salary basis. You only get your earn-out if you help them grow the company to where you said it would.

The intimidation of negotiation

Negotiating a deal can be a painstaking endeavor. It can last anywhere from many months to years of poking, prodding, and negotiating to the point where you wish you never even started.

If this was the used car market, they would want to take your car to the most advanced mechanic they can find and have it tested until they are SURE it’s going to work in top condition for a long time.

In this case, the advanced mechanic is usually a team of M&A (merger and acquisition) experts who are elite university-educated accounting, financial, and business executives that are well versed in transactions like these.

They know the game very well and the potential acquirer is willing to pay THEM top dollar to ensure they make a smart buying decision at the best possible rate.

This sounds intimidating – and that’s because it is.

These people know what they are doing and most small business owners walk into the shark tank having never even written a business plan or done projections.

You can get many months in, only to find out they had no intention of buying in the first place. Turns out they just wanted to steal your business knowledge.

Preparation is key

Just like anything in life, the better prepared you are, the better the outcome.

By doing some important leg work ahead of time and arming yourself with knowledge and systems that will make the handoff smooth and easy, you can substantially increase your financial outcome and shorten or eliminate the timeline of an earn-out.

I designed my course to enable business owners like YOU to achieve the financial freedom of selling your business – the one that you’ve put blood, sweat, and tears into building.

Here’s what we do:

#1 – See through the eyes of the acquirer 

Acquirers are important. You have to understand their language and perspective, so that you can turn your business into the money-printing growth machine they want and can easily take over.

You must understand:

  • What do we need to fix?
  • How can we maximize profits?
  • How can we improve cash flow?
  • What do our projections look like and can we execute on them?

#2 – Unplug YOU from the operations 

You need to be able to work ON your business, not IN your business. 

But we still want you to be a key player. In order to do this, we implement OKRs in your business, so you can identify and delegate the responsibilities that, until now, you have been doing.

Creating your IDEAL job within the company sounds basic, but it’s crucial. What do you genuinely love doing in your business?

Everything else you don’t like, it’s time to delegate using Standard Operating Procedures (SOPs).

#3 – How to sell 

There are teams of professionals out there that will help you list your business once it’s ready.

We help you navigate this intimidating step by arming you with the knowledge of how it SHOULD go, and how to get there.

The Bottom Line

You should now have a clearer idea of why most small businesses don’t sell, with even less sold for those magical seven-figure sums that entrepreneurs dream of.

But you can also see that, with the right knowledge, direction and actions, you can optimize your business to sell. Ultimately, investors want to buy companies – you just have to make them want yours.

If you are interested in learning more about successfully selling your business, then don’t wait – take action and schedule a strategy session today

Questions? Comments? We’re here for you at success@wholefounder.com!

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