Is Your Agency Sellable? Here’s How to Know for Sure
In a letter to shareholders, Amazon CEO Jeff Bezos said, “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.”
And we’re not talking about tiny, insignificant decisions here. Not at all. Sometimes even the make-or-break decisions need to be made quickly and firmly.
Below you’ll find what you should know about making important decisions fast. Then we’ll go in-depth about making the decision to sell your agency, including steps to take if you want to get the highest possible price for yours.
There’s no right answer
Here’s the thing: having a right and a wrong answer could have been a thing in school. But in business? More often than not, there’s no such thing as “the right answer.”
To sell or scale? To hold or sell? To hire this person or the other?
Both have upsides and downsides.
Sure, one decision could end up being a bad choice, but at the moment of making the decision, there’s never a 100% correct answer.
In fact, most of the time the best approach is to just make a decision and course correct if necessary.
As Bezos also added:
“Quickly recognize and correct bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
Good decision-making lies on a pros-and-cons scale
As I’ve just mentioned, most decisions have an upside and a downside. That means options can often be evaluated through a simple pros-and-cons framework.
After all, as decision makers, we’re always trying to maximize potential rewards while limiting the downside of what could go wrong.
For example, if you’re risking a bit of profit hiring a management team so that you’re able to step back and cash out, that’s an intelligent risk. A smart decision.
A high upside and limited downside is always better than a limited upside and a big downside. And selling your business typically falls into the former category.
“Build a company to be sold, even if you have no intention of cashing out.”
In his book Built to Sell, John Warillow admits that “the best businesses are sellable, and smart business people believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon.”
Which means you should always be prepared if the opportunity comes.
John goes deeper and talks about the requirements you must meet to have a sellable business at the highest possible price. Here are the ones that apply more directly to an agency like yours:
“Don’t become synonymous with your company. If buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.”
“Create a scalable product or service that is teachable, valuable and repeatable.” That means easy to teach, not a commodity and little to no customization.
“Don’t generalize; specialize. Focus on doing one thing well and hire specialists in that area, the quality of your work will improve, and you will stand out.“
“Make sure that no one client makes up more than 15 percent of your revenue. Relying too heavily on one client is risky and will turn off potential buyers. “
“Avoid the cash suck. Once you’ve standardized your service, charge up front or use progress billing to create a positive cash flow cycle.”
As you can see, any business can benefit from these practices.
Even if you’re far away from selling your business, you should set these systems in motion so that you’re ready to step out. Now, if cashing out is something you’re evaluating closely, keep reading.
This is how you know it’s time to sell
You always have the option to keep pushing hard and the option of letting someone else acquire you, pour in more resources and accelerate growth. So, when you find yourself in a situation where you need to choose between the two, how do you know which one to choose?
1 – Looking at yourself
As cheesy as it sounds, being self-aware and knowing when things aren’t at the core of your inner drive is crucial for an entrepreneur.
Not to say that you won’t evaluate the decision with numbers and logic, but look, as life changes sometimes you need to stop doing things that are draining your energy and sanity.
There’s a famous Steve Jobs quote that goes like this:
“I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been ‘No’ for too many days in a row, I know I need to change something.”
This change might not be to sell your business (for Jobs it certainly wasn’t), but the way you feel about your business and its future should never be neglected.
It needs to be weighed into your decision.
If you start to dread running your business there’s something that needs to be fixed. And letting someone else run the show might be your best bet.
Grow your industry knowledge
2 – Your growth is limited
Entrepreneurs have great ambitions. Some break the 6-figure mark, then 7, and there’s always room for more.
It could be that your agency—and the way you set it up—is not enough to give you the financial rewards you desire.
It could be that your differentiation has vanished over the years, and you’d need some drastic changes to keep things growing or otherwise you’ll have to compete for price. Both things that you might not be into.
It could also be that your team has grown so much that you simply don’t know how to manage them, as Kenny Schumacher mentioned in his interview with us. When he still led Delesign, he hit a point when it was stagnating, and he handed it over to someone a bit more experienced with medium-sized companies.
That being said, an agency is a great vehicle for entrepreneurs. However, you might want to try your luck with another business model—say, an e-commerce brand, a tech business, or an audience-building/media company—that’s fine, too.
If you feel your growth is capped and other ventures would have a higher probability of getting you where you want to go, then selling is not out of the question.
3 – Don’t let ego interfere
When you spend so many years working in your business, it’s easy to get emotionally attached to it. Even if you think you’re not emotionally attached at all, believe me, chances are you are.
As you start to evaluate options you need to make a conscious effort to see things as they are.
Get out of your head and start thinking objectively whether this will be the best for you and your wellbeing into the future. A lot of people keep doing it just for the money—or the ego of all the years they’ve put into it. You don’t want that.
It’s important that you make a decision—a decision that doesn’t necessarily need to be written in stone but has a certain degree of flexibility. Then start looking for gaps in your systems to maximize your business valuation and make sure you meet all necessary requirements.
You don’t need to sell tomorrow. Just make the decision that you’re going to. Because the best entrepreneurs know when it’s time to step out and are decisive about it.
Those who cling to it for too long and have that nagging doubt buzzing on their heads all the time are the ones who suffer the most.
So it’s exit time. What now?
Aside from the guidelines above, here are some of the action items you need to start reshaping or building in your business to stand a chance of getting a good offer.
Get away from managing the client: Your time should be spent producing new business and strategizing. If you’re involved in client management, it’ll be hard for you to step out. Moreover, if clients hire your agency because of you, that’s a big turn-off for buyers.
Use a bonus structure to reward your staff: Trying to issue stock options to retain your staff is going to make things more complicated. Avoid it at all costs. A good practice is to offer a cash reward for your team if you end up selling.
Assure buyer competition: If possible, avoid a broker or an offer where there’s only one potential buyer. You need competition for your business to get the highest offer possible. Sites like EmpireFlippers or specialized brokers in your area can help you bring multiple offers to the table.
Make sure you have your systems in check: A buyer will want to see you have your processes, clients contracts, and finances in place. Have this handy at all times.
When it comes to all the billing, workflows and keeping track of client information—plus all those data points you will surely need as part of the selling process—a tool like SPP could be tremendously helpful.
It can keep you accountable when you need it most. It can serve as proof of your positive cash flow cycle, client distribution, and the other details that will make the chances of getting a great offer for your agency much more likely.
Don’t look back
Revive the feeling of your first sale. It probably felt great. Selling a business could be that same experience amplified 1,000 times.
Remember that there are different paths to your end goals, so if you already examined the pros and cons it’s time to make a choice.
Take your time to think about the possibility and don’t prolong it forever.
Be decisive. Be self-aware. Put a deadline on it if necessary. Because as Jeff Bezos said, “If you wait for 90% of the information, you’re probably being too slow.”