I've been a fan of yours for many years, I started listening to Built to Sell radio, which is the podcast that you host many, many, many years ago. And you've been producing content at a very impressive clip since then. So I'm certainly very familiar with your story. I also read your book of the same name Built to Sell many years ago and loved it. And you've since written a few other books, so I'm certainly familiar with your story. But for anybody listening who may not be, maybe we can start by you telling us a bit more about yourself, your own professional journey, and basically what has led you to what you find yourself doing today.
Yeah, it goes back to a conversation I had with a guy named Perry Mielli about 15 years ago now. He was an M&A guy, and I had a company a market intelligence business, and I decided I want to sell it and the company was a good, it's a reasonably sized company. I think it was five or 6 million in revenue at 25 30% profit margins was a good business. We did work with Bank of America and Microsoft and others. And I went to see Perry and I said, what do you think it's worth? And he said, Well, it kind of depends on the answer to your questions. And I was like, Sure, I felt bulletproof at the time, I was ready to answer any questions that he had. And he said, Well, who does the research?
And I was like, Well, I'm involved in some of it still, like, it's these big, giant companies, I gotta stay involved. And he said, alright, well, who does the selling? And I said, you know, we're selling to Microsoft, and Wells Fargo, like I got, you know, I got to I got to show up for those meetings, he say, okay, great, I can't sell your company, there's nothing to sell the company is just you. And, Steve, I'll tell you, it was just a, like a gut punch, because I felt like I was building a company that would be valuable because of profitability, EBITDA, client list, etcetera. And what Perry was telling me was that it was basically worthless, no matter how profitable it was without being able to transition some of the key roles to other people. And that that kind of kicked off a journey.
For me, I spent many long nights with Perry and others helping to transform the business to one that was a more sellable company, we moved to a subscription business model, we hired salespeople, and ultimately, it was acquired by a public traded company in New York Stock Exchange listed company, you know, as Gartner Group. So it has a happy ending, but I decided to try to codify some of those lessons that Perry taught me and others into Built to Sell the book that you referenced. And it picked up sort of a kind of journey, helping other entrepreneurs, who have businesses that are successful, but maybe a little too dependent on them transition into companies that would be attractive to an acquirer. And that's led to a bunch of books. It's a new company that I run and lots of stuff.
Can you tell us a bit more about the value Builder System?
Yeah, it's so think of it as sales and marketing software for advisors. So we license value builder to Business Brokers, M&A professionals, accounting firms. And they use it as a way to start a conversation with business owners about ultimately the value of their company.
And by virtue of your podcast, Built to Sell radio, how many entrepreneurs do you think you've spoken to that have either sold businesses or are contemplating selling businesses just to set the context for all the questions to follow?
Yeah, yeah, I mean, we have more than 75,000 users on Value Builder, which means that 75,000 business owners have completed the Value Builder questionnaire. So from a quantitative perspective, we analyze a lot of the that data to sort of inform our thinking. But then from a qualitative perspective, I've interviewed something like 400 different entrepreneurs on Built to Sell radio, you know, ranging from businesses with a couple million dollars enterprise value up to we interviewed one woman who ran a company that sold for more than a billion dollars. So this sort of wide range of. It's about 400, sort of in depth interviews with business owners who built Built to Sell radio.
Right, that's great. So I asked that question, just to set the context for all the questions to follow, because the questions to follow are all about selling small and medium sized businesses. And where I wanted to start is actually with a post of yours that I read. And at the risk of summarizing that post, essentially, you suggested that younger business owners when they're attempting to sell their companies, on average tend to paint a rosier picture of the future to potential acquirers and as a result, they get a higher valuation, but often less cash up front.
The buyers basically telling them to put their money where their mouth is, so to speak. And on the other hand, you suggested that older owners by comparison tend to take a bit more of a sober approach to the future, which results in the opposite which is a lower headline offer, but perhaps a higher proportion of cash paid up front. So I guess can you just tell us a bit more about this observation? But most importantly, how can a seller go about striking a balance between optimism on one hand, but also maximizing upfront comp, on the other hand?
Yeah, that's a really, really delicate needle to kind of thread. Because you know, as a seller, you want to put on your sellers hat and talk about the future and all the great things that your company could do, and all the growth you expect, and all the products you could cross sell, etcetera, etcetera. And what will likely happen is the article suggests is that the acquirer will say, okay, great, that all sounds wonderful, or we're gonna pay you 30% of the constant consideration upfront and the other 70%, in five year earnout, where you can sort of try to hit those goals in the future. And if you're too conservative, then you run the risk of putting a cap on the value of your company, because people will see it as sort of a mature business that doesn't have a lot of upside.
So it's a very delicate, kind of middle threat. And I don't know that I have a great answer. I mean, I think putting together a future budget, that you feel confident that you can hit and that the company can hit without you, I should say. Not that you personally could move heaven and earth to hit, but that you feel fairly confident that the company could hit without you, that's probably a good place to start. So give thought to what that budget might look like, how the company could be structured in the future, and it should be bigger three years from now than it is today. You can't put a budget together that shows flatline growth and expect people to pay a premium multiple for your company. But the key I think, in all of this is to make sure that the company, you can make a really strong case that the company can thrive without you.
I just did an interview with Mark Wright. Mark ran a great digital marketing agency, one of the biggest in the UK 120 employees. And he was insistent that he not sign up for an urn out and he had 40 different conversations with acquires every single one of those 40 acquirers, wanted him to sign up for an earn out, or to roll a significant portion of his equity. And he said, No, I'm not doing it. I'm an all in kind of guy. I am 100% committed to this business. But if you write a check and take the majority position, take it over essentially, then I'm out, I'm not going to sign up for an earn out. It wasn't until the 41st person did he get a potential acquirer willing to engage him in on that conversation. And he said to them, Look, I want you to go pressure test my commitment to this business, I want you to go into the business, in due diligence.
And I want you to interview each of my managing directors, the people that I have in place to manage this business for me, push them as hard as you want. And if at the end, you still feel like you need me, then I haven't done my job. But I believe when you go and actually interview the people running the business, you will be confident that the company will run without me. And he was able to get and convince an acquirer to go ahead and proceed by a marketing services business, which is almost unheard of by with earn out, and got 100% of his cash up front. So I think it can be done. But it does require you to have I think, a good budget and really good people in in the key seats in your company that that can run the company without you.
Prior to actually selling our company in 2020, I tried to sell in 2018 unsuccessfully ran a whole process hired investment bank, you know, got dozen or so offers for the business went exclusive with with a private equity firm, and the deal fell apart kind of in its late stages. And I learned so much from that experience. And one of the things that I learned is exactly what you said, which is the importance of thoughtful forecasting. as a CEO, and as an entrepreneur, you almost can't find yourself in that seat in that position without being a naturally optimistic person.
And the forecasts that I was used to projecting generally reflected that optimism. But what ended up happening, speaking of unintended consequences, my forecasts for the remainder of that year, were to rose colored, and what ended up happening is we missed those forecasts in the one or two quarters. That that went by throughout the course of the process. And in fact, us missing those targets was one of the primary reasons why the deal fell apart because I didn't give the level of thought that I ought to have to the forecast that was presenting and that was just something that just never really occurred to me at the time.
Interesting. And it's one of the other reasons that having a very tight diligence period is important if you've got a little bit of negotiating leverage. One of the kinds of things that a lot of sellers kind of miss or sort of mess up in my view, is they pay very little attention to the due diligence period, specifically the time frame. And there's an old expression in M&A that says that time kills all deals. And if you've got a three or six month due diligence period, your chances of missing a fundamental forecast or the other side being able to claim that you missed a fundamental forecast is almost 100%. Right? Like nobody has a crystal ball. And of course, if you miss any number in your forecast that is an excuse for them to retrain. I interviewed recently got him Tyler Smith, who sold Sky Slope, which is a SaaS company out of Pacific Northwest in the United States.
And Tyler had some really significant demand for his company, I think he had 8 people sent him an LOI, and he went under LOI with one or sorry, like, he went to exclusive with one company using a 25 day due diligence period. So he said, I will give you 25 days to do your due diligence, I will give you exclusivity during that, but on the 26th day, that exclusivity is terminated, and he got the deal done and 25 days, you don't have much of an opportunity to miss much your forecast. If it's only 25 days go by between LOI and close. That's unique circumstance, he had eight LOIs. So he a lot of leverage to do that. But the more you can tighten down the diligence period and really hold the acquirer to those dates, I think the the less chance you're going to miss the forecast.
Yeah, I mean, you hit the nail on the head when you said time kills all deals. In fact, I was I was just about to say the same thing. Both for the reasons that we've just discussed in terms of the odds missing a forecast just increased exponentially as more time elapses. The other reason why I found time kills all deals is deal fatigue on both sides, which I think is a real thing. And I think fatigue at a more general level for the selling entrepreneur. I think most people don't appreciate we've never gone through this before. How emotionally exhausting it is to sell a business. Can you just talk a bit more about that?
Yeah, I mean, it is emotionally exhausting. It's physically exhausting, because you're running your company. And then you're spending evenings and weekends addressing data requests from the acquirer. More than that, though, I think it's the emotional feeling of being vulnerable and picked apart during due diligence. You know, for a lot of entrepreneurs, I interviewed Dr. Sherry Walling, recently, and she's a clinical psychologist. And she did she referenced a study where the same parts of the brain light up, when an entrepreneur talks about their company as light up when the entrepreneur talks about their kids.
We all talk about the idea that a business is their third child or is it proxy for their child in many cases, but in fact, it's more than just a sort of a euphemism, it actually is clinically correct and proven that an entrepreneur feels the same way about their businesses they do to their children. And so you can imagine basically scrutinizing a child and a parent watching somebody basically pick apart their child, the parents natural incling is to defend their child, to their death. And so the entrepreneurs natural instinct is to defend their business, the choices they've made, the customers, they've sought out, the people they've hired invehemently. And so it is exhausting, both just in time, but also because the process of due diligence is set up to effectively pressure test everything the entrepreneur has said and done during the pre pre stage. And that's just physically and emotionally draining.
Yeah, yeah, I found it so hard to not get defensive. I often use the analogy of the food critic in the chef, I often thought of investors as food critics and entrepreneurs, as chefs. And as these food critics were questioning my every decision that I'd made over five years, there were times where I felt like saying to them, Hey, buddy, if you'd like to stand behind this 12 burner stove where your your sous chef just burned herself, your assistant just cut his finger off and you're late by 20 orders. I'd love to see you try. And it was is a really hard temptation to avoid.
Yeah, yeah. And it's why you know, I think every entrepreneur needs an M&A professional in their corner because I, you know, I see entrepreneurs saying, oh, you know, they're gonna cost me five points on the deal. Why do I need an M&A guy I just think it's So short sighted, I think an M&A Professional is there to run a professional process is there to absorb some of the emotional energy that both sides sort of put out during the process. So I'm a huge believer in having a great M&A guy or a gal on in your corner as you go through the process.
Yep, yep. So we talked about the importance of thoughtful forecasting as a deceptively simple, but profoundly important element of a deal. The other thing that is deceptively simple and profoundly important is the answer to the question that every entrepreneur gets, which is, why are you selling? And from the perspective of the acquirer, there are good answers and bad answers to that question. So what is your experience taught you about what might constitute a good answer versus a bad answer to that question?
Depends a lot on your age. I think if you are a 75 year old entrepreneur, it's quite simple. You know, I want to retire, I want to spend more time with my wife, I committed that we travel, and with my husband, I want to know whenever it's easy conversation, people get it, you're 75 years old. If you're by contrast is to the other end of the spectrum, 25. It's going to raise a lot of red flags, right? If your business is so good, and it's so it's got such a bright future, as you are portraying, why on earth would you want to leave it? And I think that's a much more delicate conversation, I think in the middle, there is a sort of narrative, you can you can sort of string along, which I think is both truthful as well as likely what you'll have to do.
Which is agree to some sort of, for most entrepreneurs, you're going to have to agree to some sort of transition period, earnout, or roll some equity, meaning basically take some of your proceeds and roll them into the acquiring entity. And in that case, I think the dialogue can be something like, look, I've reached a point in my life where I'd like to create a little bit of liquidity for the value I've created. Yet, I want to participate in the future growth. And I think that sort of strikes the right balance by saying, hey, you know, I just, it's just good prudent decision making to make sure that I'm not super super overextended in one asset, but at the same time, I'm not leaving a burning building, I want to participate in the future of this company.
And so I'm definitely keen to find ways to participate and leave it at that, let the acquirer come back to you with what structure they would propose. And to get, the more acquires you get to the table, the more loi is, the more leverage you have, and therefore the more you're in a position to dictate your deal terms. If you want 100% cash at closing, and you've got one buyer, that's gonna be a tough deal to get done. But if you've got 12 buyers, and they're all giving you otherwise, you're gonna be able to get a higher proportion of your deal in cash, if that's important to you.
Yeah, yeah, that's so important to talk about. I remember probably a year ago, I wrote a blog post called Busting the Biggest Myth About Selling Your Business. And the biggest myth about selling your business is this idea that selling it is the singular event that will forever take all of the risk that you've assumed over the years off of the table, in one fell swoop. And my experience and the experience of countless others is that that's just simply not the case. Sometimes you issue a seller note and effectively become a lender to the buyer. Sometimes you roll equity, as you pointed out, sometimes there's an earn out, like a form of contingent consideration. Other times, though, from a legal perspective, reps and warranties, hey, I promise that A is true, I promise that B is not true. And if you're wrong, they can still come after you.
So I think it's important for folks who have never done this before, to recognize that selling your business is not the thing that is likely to forever remove the risk that has kept you up at night for 1020 30 years. Now, it might lessen the risk, but it doesn't eliminate it entirely. So speaking of folks who have sold I'm super curious to get your answer to this question. In your experience, speaking to entrepreneurs who have sold their businesses many years ago, so we're not talking about those entrepreneurs who sold recently, I'm talking about entrepreneurs who sold their business, let's say five years ago or more. On average, how do they tend to look back on their decision to sell is the typical answer, like is it more likely to be characterized as satisfaction? Or is it more likely to be characterized as regret? And I guess Part B is, are there any recurring observations you've collected when speaking with these entrepreneurs who now have the benefit of some distance and some hindsight?
It's an interesting timeframe you've chosen because if the time in my brain was different, if you said one year I think their likelihood of regret is much higher. I think the year after selling your company is an emotional roller coaster, there's of course the high when the check clears. But then there's the tremendous low that comes when you realize that so much of your identity was wrapped up in running your company. So much of your excitement was the adrenaline rush of just dealing with a problem. And, and and you get this major major come down after that. And so I think it's very common that people want a year after I feel a sense of regret, and I leave money on the table that I treat my employees, right that I do that, did I miss something in the process?
Five years out, I think most entrepreneurs are happy with their decision, they've got a little bit of distance from the deal. And realize that, and maybe some of the emotion has been sort of drained out of the memory a little bit. Like I think they are in a much better position to reflect and say, that was a point of my life. I'm proud of what I accomplished. I'm proud of the business that I built. But I'm on to new things now. And I think most of the entrepreneurs I've interviewed are, to your point, they're optimistic, they're future focused, they're looking in the, you know, the windshield, not the rearview mirror. And so I think, by five years, they're on to the next business. And they kind of, I don't want to say, look down on their first business, but there's certainly a sense of like, yeah, I learned a ton from that.
And I made a bunch of mistakes. And now I'm, you know, I'm doing bigger and better things. And there's a lot of that sentiment, because, again, I think entrepreneurs are generally forward thinking and optimistic by nature, they wouldn't do what they do if they weren't. So I think they have five years out, they've they've overcome whatever sort of period of depression or sadness, they might have felt, you know, six to 12 months after doing a deal.
I remember when I was running my company, I went to a panel put on by the Entrepreneurs Organization, or EO for short. And it was, I don't know, four to six CEOs who had sold their businesses. And I was shocked at the time, this was many years ago, to observe that most of these entrepreneurs, you know, were not experiencing the euphoria of biblical proportions that I was expecting when I sold my company. In fact, I think, probably half of them said that they suffered from clinical depression after they sold their company. So this knocked me right over the head, I was totally surprised that that was actually the more likely outcome.
But as you correctly point out, it's actually pretty well documented that a lot of CEOs and entrepreneurs struggle in that first year post post sale. So I guess, as you look at, you know, folks who have sold, do you notice any recurring themes, among those post exit entrepreneurs who tend to really thrive versus those who tend to really struggle? Like, are there things that the former category tends to do that maybe the latter category doesn't tend to do? Or vice versa?
Yeah, for sure. I think I think the the group that are happy after exit have got pull factors and not just push factors. So what I mean by that is push factors are the things that are frustrating you about your company, tax, employees, bureaucracy, whatever, those are all reasons to want to sell a company which are all valid. But if you're all pushing, no pull, that's a recipe for regret. What I mean by pull factors is the things that you're excited to go do what write a book, started another company, start a charity, travel, whatever, getting really clear about those upfront before you sell, I think is really important. Number two is be mindful of how you handle your team. You know, I think if there's one regret I hear on a recurring basis, it's I didn't really think how I was going to deliver the news to my team.
One of the hardest conversations I think every entrepreneur has is telling their team, they've sold their business. I remember interviewing Sherry Deutschmann, she built a great company, based in Nashville, Tennessee, and she described the moment where she told her employees that she'd sold her 40 employee company, and she broke down in tears. She just absolutely started sobbing uncontrollably, because she had, you know, the emotional experience of it. And so, I think being really thoughtful and proactive about how am I going to tell my employees, how am I going to make this a win for them? And I'm not suggesting by the way, Steve, that you tell them in advance. That's a recipe for undermining and negotiating leverage, I would not do that.
But I do think you need to really invest time to make sure that your employees are taken care of that you're not going to regret a year or two, three years down the road that you you know, you kind of screwed over the people that brought you to the dance. I think that's one thing that you don't get a do over on that it's it's something to think through carefully. And the other thing that I would say it goes back to something we talked about earlier, and that is that getting a competitive deal process done will alleviate the sense of regret you might feel, if you think you might have left money on the table. We hear a lot from entrepreneurs, if they get involved in selling their business to one person, they don't create a competitive marketplace for their company.
They basically fall into bed with the first company that makes an acquisition offer. Oftentimes a year, two years down the road, they kind of have a moment and an epiphany where they think, wow, did I leave money on the table? It this is my most important asset, the most important wealth building event in my life. And I didn't create competitive tension. And I probably left a lot of money on the table by doing that. That's another reason people regret it. So I think you want to create a marketplace. So you get a fair sense of what your company is worth to the market. Be thoughtful about how you talk to employees about the process and have some really concrete pull factors that you're excited to go do next.
Yeah, yeah, so kind of run towards something, don't just run away from something, I really want to get into the employee communication piece. But before we do that, I just want to ask a follow up question on this concept of happiness and satisfaction. So we just discussed happiness and satisfaction in the context of those who sold. But recently, you posted about happiness and satisfaction within those who are still running their companies. I think your post talked about some recurring traits that you've noticed, over the years among the happiest entrepreneurs. So I'd love if you could just maybe share those observations with us and tell us what characteristics tend to recur in the in the happiest entrepreneurs while they're still running their companies?
Yeah, I think you're referencing a post called Happy, Rich or Famous. The idea is that the happiest entrepreneurs are doing what they love the craft that they love to do, whether that's, if they're, you know, a chiropractor, it's actually seeing patients, if they're a graphic designer, it's coming up with graphic designs, they tend to be the most fulfilled professionally. Yet, they grow as you might imagine the least transferable, least valuable companies. The famous entrepreneurs, the ones we all know about, right? They're the ones that get funded. They're the ones that go through capital raises, round one, round two, round three VC money, Silicon Valley. They tend to get notoriety because they have raised significant amounts of money. Yet, it's not always the recipe for creating wealth. I talked to Rand Fishkin on the show ran built an amazing company, but he brought in venture capital, they had preferred access to his to getting their money back.
They preferred shares in a liquidity event. And long story short, and listen to the episode if you're interested. It's quite a tale. Rand was left with nothing from the business that he built because he structured the deal with the investors outside. So he's well known in the marketplace. People loved him because he built this great company that was VC backed. But the VCs, the way they structured, it, left him with nothing. And then rich tends to be people who run companies and quiet little corners of the economy. unsexy businesses unsexy industries, not a lot of competition means there's a lot of margin, they've got Pricing Authority, and they managed to control the all or most of the equity so that when they sell they have some massive wealth building event. And so it's like happy, rich or famous pick one, because you get the all three.
Yeah, I love that there are riches in the niches as they say.
Yeah, that's absolutely right.
So let's talk about employee communication, in a reason why I want to talk about that is, you know, I tried to sell my business once failed, and then ended up selling it again, a couple years later. In each instance, the thing that I struggled with the most was the extent to which I share the news, you know, both with my direct reports, as well as the employee base more broadly. On one hand, like one of our company core values was transparency and communication. So I really struggled with not sharing and I felt like it wasn't leaving the values that I had built into the company for almost a decade. But on the other hand, I was hesitant to share too much before the deal closed, because I knew that these deals often fall apart, even at the finish line, so to speak. So I really struggled with that. So have you noticed any best practices over the years in terms of employee communication, specific to a pending exit?
Yeah, a couple of things. I think, first of all, it's very natural. You can feel like the kind of unfaithful spouse skulking around the house with this giant secret that that they, you know, they know and nobody else knows. So it's very natural to feel that sense of conflict internally. I think just practically speaking, if you Tell your employees, you will undermine your negotiating leverage meaning your employees will think their job is at risk, they will likely brush up their LinkedIn profile their resume, and then go shop it. Where do they shop it? They shop it to people in the industry. So the industry finds out you're thinking of selling, and then you're obviously undermining your ability to strike a great deal for yourself.
So it's generally not a great idea to tell all your employees you're thinking of selling in advance of doing it, there is sort of an approach to doing this. And that is basically segmenting your list of employees into two groups, one being your rank and file employees, your everyday employees, and then to a much smaller group of senior managers. Likely your direct reports, maybe your finance person, maybe one or two other people, your head of product, head of sales, for example, and let them in on the secret. And in doing so you're gonna want to incentivize those people with some sort of incentive could be stock options could just be a simple bonus, that that that gets paid upon a liquidity event.
So you want to put an incentive in place to help you get the deal across the line. So that they are incentivized, and yet also incentivized not to talk about it beyond just you and them. And then with the other group, the rank and file, the larger group, likely, I would not tell them until the deal was closed. Because to your point, there's a lot of baseball or a lot of, you know, poker that gets played between you deciding that you might want to sell your company and getting a definitive share purchase agreement signed. And there are a lot of ways for that to fall off the rails. And it's just not fair to them to put that degree of uncertainty in their minds when there is a high degree, high likelihood that a deal might not happen, as you found yourself, Stephen, in your examples.
It's just not fair to them to kind of put them on that merry go round of emotional kind of uncertainty if there isn't any certainty in the marketplace. The other thing I would I would say, and this is more of a nuanced messaging thing that I think it can be maybe instructed or helpful for folks, and that is that use the word investor not acquire. So I think the wrong thing to do as an entrepreneur is to walk up to your employees and say, yeah, I'm selling the company. I think a much easier message to digest, if you're the rank and file employees is yeah, we're looking at potentially bringing on an investor. And they might come in and provide some more liquidity and some more cash for us to grow and achieve what we're trying to do.
That can explain the blue suits walking around the office. And it doesn't necessarily mean you're lying outright to them. Because an investor can be 100% investor, it can be they do a majority recap and you roll 40% of your equity, you're not going anywhere if you do a majority recap and rule 40% of your equity. You're still going to be there as the CEO, the boss, there's nothing really changes from their perspective, it's a cap table move. And so I think you can use the word investor kind of strategically and still get away with not kind of lying boldface to your employees.
Yeah, yeah. Yet another example of a seemingly simple and subtle undertaking or consideration, that is also profoundly important. That seems to be a bit of a an emergent theme in our conversation. But I totally agree with that. You've talked about competitive auction processes a couple of times. So I actually want to go to my own history in in kind of managing a competitive auction alongside an investment bank, in our case. So the first time that I attempted to sell my business, this was the unsuccessful attempt. It was a competitive process. And I was shocked at the time to see that the difference between the highest and the lowest bids that I received for my company.
I received probably a dozen or so, was 471%, I will never forget that number. 471% was the difference between the highest and the lowest offer. So this was one of the things at the time helped me understand that businesses don't necessarily have like an absolute objective value, but instead they have relative value, and my business could be more valuable in the hands of acquire a versus acquire B. So can you just talk a bit about how common is a valuation disparity like this? And if entrepreneurs, let's say receive an offer that's 3X lower than their highest offer? Should they just, you know, cease communication immediately? Or is it worth kind of continuing those discussions to see where they ultimately shake out?
Yeah, two different questions. I'll address them in the order you raised them. The first is sort of is it likely or common to see such a delta between the high and the low bid, and in my experience is that it is very common, unless you're selling a business that has a very tight kind of valuation range. Like I'm thinking of veterinarian clinic would be relatively tight valuation range and HVac company is going to trade within a relatively small range. But there are many more examples where companies just have no easy way to be bucketed in a six digit [inaudible] code, and therefore they're just not quite as definitive in terms of the value of them. And so yeah, it's not uncommon to see a 471% delta between kind of high and low bid.
I'm reminded of a story this goes back four or five years ago, on a radio interview, a guy named Jay Steinfeld, who built a company called blinds.com. All they do is sell blinds, she might imagine, J built a really great process for selling something online, which needs to be installed. If you think about window coverings, there's a lot of complexity, right, you've got to measure them, you've got to pick the fabric, and then you gotta get some guy or gal to show up to your house and install them. There's a lot going on. And yet Jay built $100 million company doing nothing more than selling blinds on a website. And so when Home Depot saw this, they signed Jay's business two strategic benefits. The first was they could become number one in the blinds category overnight by buyingblinds.com.
And their stated goal is to be the number one or number two provider in every category that they compete in. And so that was one box tick. But the second box was a little less obvious. And that was that Home Depot had a challenge at the time that I think if memory serves me, 90 billion in revenue, they're much larger now. But at the time, I think there were about 90 billion, most of the revenue Home Depot did was through a Home Depot store. And as you can imagine, stores have costs, right? They've got you know, people and insurance and real estate and, and they were trying to get people to buy stuff on homedepot.com. Because none of the expenses of a brick and mortar store were were the same, but getting people to buy on homedepot.com was higher margin.
But they couldn't because people wanted to go into the store, touch it, feel it and you know, figure out how to install a talk to somebody, which was something that jay blinds.com had figured out. And so when they acquired blinds.com, Home Depot was trying to do two things, one being number one in the blinds category, but two, they were trying to graft Jays insight about selling complicated products that need to be installed. They were trying to graph that knowledge throughout their entire company, so that they could get better at moving $90 billion of revenue online. And that's really the definition of a strategic acquirer where there's some assets they have in this case was 90 billion of revenue being done in a store that they could be seen as become more valuable through the acquisition.
To your second question, is it likely that an acquirer who gives you a lowball offer on the lower end of your 471% delta should just be dismissed outright? The answer to that is no. I don't believe that to be true, I'm reminded I'll go back to Tyler Smith, Tyler was the guy behind the company Sky Slope. He got an offer, his business was doing at the time about 13 million of annual recurring revenue, it's a SaaS company. So they traded multiples of revenue. And as initial offers came in around $60 million, or roughly five times ARR. And Fidelity National, big publicly traded title insurance company came in at just 40 million in total consideration. And originally, Tyler was going to dismiss them outright saying that they're 30% less than the rest of the kind of bidding pool.
We're just gonna get rid of these guys. And, and his M&A guy said no, don't do that. Because Fidelity National has the ability because they're a giant, publicly traded company, they have the ability to go much higher than 40. And he knew enough to not dismiss them outright, to actually start working with them to try to convince them to really change their view of value. And he successfully did that ultimately, Fidelity National moved its offer from 40 million to 83 million, and Tyler accepted the Fidelity National offer. So it's just a good example of you know, not dismissing a lowball offer. If you know something about that acquirer that suggests that there may be more room for them to move up.
Well, and again, the power of a good advisor, as we've talked about, many times already, let's bring the conversation to the here and now. So we're recording this in June 2023. And it's an interesting time for entrepreneurs and small business owners because on one hand, some are considering exit for what I might refer to as like more qualitative or personal reasons. So for example, several years of managing through a pandemic, managing through the great resignation, and now they're managing through inflation, pending recession, rising interest rates etcetera, etcetera.
So you can understand why folks might be completely emotionally exhausted at this point. But on the other hand valuations are generally down relative to, let's say, 1218 months ago. And as a result, some are hesitant to sell into that type of market. So there seems to be a bit of a push and pull here in terms of entrepreneurs who might be considering selling right now. Like on average, how are you seeing business owners think through these seemingly conflicting considerations where most folks shaking out?
Yeah, I think you've done a great job of characterizing the issue. It's like a real estate market, people claim to the highest valuation, and it takes years before they get their mind off the fact that our home may not be worth what they thought it was back in whatever time. 2021 In particular, for tech companies, was it just an unusual, incredibly abnormal time where valuations got way ahead of the curve. And if you were an E commerce business, or tech, or SaaS, the multiples were just unbelievable, but like, it's going to be hard for those to be flushed out of the mind of entrepreneurs, it's gonna take a long time. That being said, we're in an environment now where I think we are at a bit of a ebb in terms of valuations.
I would encourage your listeners to think about something called the Freedom point. And that is that the definition of the Freedom point is the point at which the sale of your business would give you enough cash to do whatever you want for the rest of your life effectively, full and complete freedom. And if you really ask yourself the tough question, why did you choose to become an entrepreneur? I mean, you likely could have gotten a job at Procter and Gamble, or Ford, or named a giant company, but you chose not to, why? My guess is that at the fundamental level, if you get back to kind of Maslow's hierarchy of needs, your greatest motivation is freedom. And for many of us as entrepreneurs, that's what makes us do what we do.
It's what why we didn't choose to become a police officer or a marketing manager at Procter and Gamble. It's our fundamental core value. And if freedom is your core value, and selling your company would allow you to create enough liquid wealth to enjoy full and complete freedom. That I think at least behooves you, I think you owe it to yourself to ask yourself Is now the right time, regardless of what's going on in the macro economic environment. If selling my company now would give me full, unadulterated freedom, why wouldn't do it. And you know, more Buffett's famous for saying the definition of insanity is risking something you value for something you don't. And another zero in your bank account may be practically possible if you hold on for another three or four years.
But if that the other zero doesn't have any utility for you, yet, the three or four years of your life does. And, again, the pandemic taught us anything, it's that we don't know what the future will hold, right? Like, we don't have a crystal ball. And while we're by default, optimistic, we don't know what's around the bend. And just because your business has been on a winning streak for the last 12 years, and every year, you've grown more profitable, that doesn't mean next year will be different. And so I would just encourage folks to say, look, if I'm past the freedom point, maybe now is the time regardless of you know, whatever macroeconomic environment they're in.
That's a great segue into my next question, as we look to conclude here, John, you mentioned you know, the concept of your number or to use your words your freedom point, which I love. I'm reminded of your first book Built to Sell when the protagonist in your story, he did something very tactical, which I just loved. He wrote down his number right his his desired valuation, or his desired take home pay whatever it was, he wrote it on a piece of paper and you stored it away in his desk, only to return to it under very specific circumstances later in the deal process. And just as a tactical little trick, for lack of a better way to put it. I absolutely love this idea. So can you talk about why that protagonist in your book did this? And why entrepreneurs listening to this might consider doing something similar?
Yeah, for sure. So his mentor in the book, encourage them to write down his number and in part, the initial writing down on the number is good because as we grow and mature as individuals, the yardsticks move, right? And that's just a really common human condition. Meaning we just, you know, we say, when my business is worth a million dollars, then I'll make it, I'll feel like I've made it and then of course, it's worth a million and then you say, well, 5 million. I mean, if I ever hit 5 million. That's when I really feel good about myself. And then wow 10 million, I mean that's an eight figure exit. I mean, that would be like, and then, like the number just keeps moving as we mature.
And so part of why writing down your number, it just becomes a permanent, indelible mark in the world to say, hey, this was my goal and, like resist the temptation to move the yardsticks. The other reason that it's important is that during due diligence, and that is the period between accepting a letter of intent, which usually comes with a no shop clause, where you give exclusivity to the buyer, and 69 days later, where the share purchase agreement is signed, and the money kind of hits your bank account. There is a very high likelihood of retraining and retraining is the dirty little secret of the world of M&A, it basically means the acquirer manufacturers or finds things that they use to justify lowering the value they put in your LOI.
Some of the things we talked today, you know about making sure there's competitive tension, shortening your due diligence period, they can help you minimize retraining, but I don't think you will ever eliminate all retraining. And so part of writing down your number in an envelope and kind of putting it away in a drawer is when retraining happens. It can be very emotional. Again, you're already at a heightened emotional state. And it is one of those things where it feels like the acquirer is being underhanded or not negotiating good faith. And you can go back to your number and say, even at the lower price, has it exceeded what I said was my number?
If so, maybe I need to kind of hold my nose put on my big boy or girl pants and realize that retraining is part of the deal. And, you know, again, I'm not suggesting you roll over and retraining, I think it's it's one of the most worst things about the M&A process. But it does happen. And if there is some rationale for retraining, I think you have to get your head around the idea that that is going to impact value. And if you've written down your dream number, and you're still ahead of it, even after retraining, it can give you a sense of solace and comfort that you know you've made a good deal.
Yep. I love that. It's so important, so important for all the reasons that you articulated. John, I could probably ask you questions for the next three hours but alas, we can't do that. It has been so fun talking to you. This has been a bit of a full circle moment for me. I remember listening to Built to Sell Radio in my car when I was commuting to to work when I was still running my company and I listened to it for a long time. So this is a true pleasure for me. For people who want to learn more about you, your podcast, your books, your the value builder system, where where's the best place for them to go?
Builttosell.com is where you'll find all of the things and more so yeah, the podcasts the blog has a bunch of assets there. Some some checklists, which you can download for free. Yeah, it's all builttosell.com
Awesome. John, thank you so much for your time today. It was a real pleasure having you.
