Dan Martell - November 11, 2019


How To Exit Your Business

Hosted by
Dan Martell
Mentioned
Simple Numbers Greg Crabtree
Meet My Wife - Renée Warren Stay Motivated When You're Surrounded By Negativity

Episode Stats


Length

11 minutes

Words per minute

201.81

Word count

2,336

Sentence count

128


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, Dan Martell shares a framework that he has used to exit his two companies and help the dozens of his coaching clients exit theirs for the maximum valuation. It s a framework, a process, and a process that has helped him exit his companies for over $90 million in value.

Transcript

Transcript generated with Whisper (turbo).
Hosts, guests, and mentioned names generated with spaCy (en_core_web_sm), reconciled against Wikidata.
00:00:00.000 Hey there.
00:00:00.500 Dan Martell here, serial entrepreneur, investor,
00:00:02.080 and creator of SAS Academy.
00:00:03.680 In this video, I'm going to share with you
00:00:05.320 how to design your perfect exit.
00:00:07.760 It's a framework, a process that I've
00:00:09.600 used to exit my two companies and help
00:00:11.560 the dozens of companies exit theirs
00:00:13.640 for the maximum valuation.
00:00:15.800 So you're going to want to watch this video
00:00:17.640 very specifically to understand how to do that.
00:00:19.400 And be sure to stay at the end where
00:00:20.600 we're going to tell you how to get access
00:00:21.680 to my private training, Fundraising Like a Pro.
00:00:24.320 If you plan on raising capital in the future,
00:00:26.440 you're going to want to know the three phases of fundraising
00:00:28.760 and the right way to approach investors.
00:00:43.920 So if you're planning on someday selling your company,
00:00:46.060 you've probably got a ton of questions around the process
00:00:48.640 and what's important to potential acquirers
00:00:50.960 and what should I be doing today.
00:00:52.060 I know I did.
00:00:52.960 When I was starting my company's Flowtown and Clarity,
00:00:55.680 I knew that I was building a technology company
00:00:57.820 create a lot of value, but I wasn't
00:00:59.060 sure what the process would ever look like maybe, hopefully,
00:01:02.560 someday to exit.
00:01:04.000 And what I want to share with you today
00:01:05.620 is the process that I not only extracted from my experience,
00:01:09.520 but having helped dozens of my own coaching clients
00:01:12.340 in the last three years go through that process
00:01:15.260 to really maximize the value.
00:01:17.260 Just recently, I had one of my clients
00:01:18.820 exit for over $90 million on about $900,000
00:01:22.780 in monthly reoccurring revenue, which is a huge multiple.
00:01:26.000 But the reason why is because they understood,
00:01:29.120 working with me, the value drivers for a potential
00:01:32.060 acquirer to make sure that they optimize those for that exit.
00:01:36.800 And that's why I call it the perfect exit.
00:01:38.420 Now, this is different, different, different people.
00:01:40.520 For you, it might be a public offering.
00:01:42.240 It might be getting acquired by a strategic.
00:01:44.260 Or it might be bringing a CEO to run your business.
00:01:47.180 So a perfect exit is different for every individual.
00:01:49.640 But what I want to share with you in this video
00:01:51.420 are the strategies that I not only
00:01:52.800 learned through my own experience,
00:01:54.300 But I've had the privilege and pleasure
00:01:55.820 of working with my coaching clients
00:01:57.520 to increase the valuation for them
00:02:00.800 using these five strategies.
00:02:03.360 Number one, know your numbers.
00:02:05.340 At the end of the day, if you have a software as a service
00:02:08.580 business, a SaaS business, not a subscription business,
00:02:11.360 although those are really cool, they're different.
00:02:13.300 If you have a software product that people pay you for,
00:02:16.140 ideally or typically on a monthly basis,
00:02:18.080 there's only three things you need to know is,
00:02:20.580 how many new customers do I add to my product every month?
00:02:23.340 What percentage of those people stick around?
00:02:25.340 And third, how do I increase the average revenue per user
00:02:28.840 or grow that value equation?
00:02:31.640 Essentially, it's ARPU.
00:02:33.160 Those are the three factors that you've got to work with.
00:02:35.600 If you haven't googled what I call the churn flatline
00:02:38.840 or a growth ceiling, I call it a churn flatline,
00:02:41.360 but essentially it's a growth ceiling,
00:02:43.020 then go run your numbers.
00:02:45.340 Because you may be on a path in the near future,
00:02:48.900 if you don't increase your acquisition, to hit that wall,
00:02:51.940 that period where you're not able to add any new customers
00:02:55.600 fast enough to overcome the fact that you're losing customers.
00:02:58.320 And that's what a growth ceiling is.
00:03:00.260 There's a wall, and then there's the point
00:03:01.720 where essentially you're going to max out,
00:03:03.100 and you're just going to go sideways forever.
00:03:05.380 So number one is just know your numbers.
00:03:07.360 How many customers do we acquire?
00:03:09.180 How many do we keep?
00:03:10.060 And how do we grow the, or how much do we actually
00:03:12.680 monetize that current account today?
00:03:15.760 Two, visualize maturity.
00:03:17.580 Now, this is such a, to me, a pretty obvious question.
00:03:21.180 But I love to ask my clients, it's
00:03:22.960 what do you look like when you grow up?
00:03:25.140 As a software product, and maybe you
00:03:28.080 have this really cool feature, this tool that you do today.
00:03:30.780 And I have a client that does, they just
00:03:32.660 told me they just cracked 600K in MRR.
00:03:35.400 And they do this one very specific thing
00:03:37.360 in the real estate space.
00:03:38.680 My question to him was, is what does this look like in 10 years?
00:03:43.300 What is the product suite?
00:03:45.120 What problems do you want to solve for your core customers?
00:03:48.280 Because if you don't visualize what
00:03:50.500 the business looks like at maturity,
00:03:52.360 then it's really tough to make decisions today
00:03:55.160 that are going to align with that.
00:03:56.620 And it's really easy to just get focused
00:04:00.260 on doing this one trick, this one, you know,
00:04:03.780 you solve this one problem.
00:04:05.080 You do it really well, and everybody knows you about it.
00:04:07.300 But then all of a sudden, there's competitors,
00:04:09.100 and they show up in the market.
00:04:10.100 And I've seen this in every, especially in MarTech,
00:04:12.300 marketing technology, everything from landing page competitors
00:04:15.400 to email automation competitors to chatbot competitors,
00:04:18.400 you name it.
00:04:19.420 If you have a hook in the market today,
00:04:22.300 you will not have it in two to three years.
00:04:25.000 Other people will see the opportunity
00:04:26.460 to come in, do a little thing better,
00:04:28.040 have more funding, better product in UX,
00:04:31.480 and they're going to take you out if you don't understand
00:04:33.660 and visualize the maturity of what your business looks like
00:04:35.820 and where you're going to get you there.
00:04:37.980 Number three, become the person.
00:04:40.520 So one of my favorite things, I was
00:04:43.120 working with a founder the other day,
00:04:45.340 and they were struggling with some marketing stuff.
00:04:48.080 And I said, look, we'll solve that.
00:04:49.940 Those to me, those are skills.
00:04:51.800 Those are things that are repeatable.
00:04:54.900 There's a process that I've built out in our playbook
00:04:57.300 that you can just use to get results in your marketing.
00:04:59.600 What I'm more interested in is who
00:05:02.040 do you need to become to be successful executing
00:05:05.600 that marketing strategy?
00:05:06.620 Or if you're a non-technical founder,
00:05:08.300 who do you need to become to lead a development team?
00:05:11.640 And those questions are more interesting.
00:05:14.420 Wherever you're at in your business,
00:05:16.760 What I know is that for you to get to the next level,
00:05:18.980 you're going to have to grow.
00:05:20.200 You're going to have to add some new mindsets,
00:05:22.340 some new belief systems to allow you
00:05:24.240 to show up as the kind of leader that can not only
00:05:26.380 attract the team that's going to execute your vision for you,
00:05:29.060 because at the end of the day, you're not going to do it,
00:05:31.060 or you shouldn't.
00:05:32.640 So not only do you need to attract those people,
00:05:34.460 you also need to be the kind of person
00:05:36.180 that can lead those people and collaborate
00:05:38.780 to create those outcomes.
00:05:40.100 And too often, what I see is just ineffective leaders,
00:05:43.900 ineffective founders that have not asked themselves
00:05:46.840 the question, if I'm here and I want to go up there,
00:05:50.440 who do I need to become to be the kind of person that's
00:05:53.160 running that kind of business?
00:05:54.420 If that's $10 million in ARR or $50,
00:05:56.800 or like some of my clients, over $100 million
00:05:59.040 in annual reoccurring revenue.
00:06:00.220 Think about that, $8 to $10 million a month in revenue
00:06:03.880 through their software every month.
00:06:05.960 What kind of founder do you think that individual is
00:06:09.640 to be able to run that level of organization
00:06:11.960 versus the person that's starting with five to six staff
00:06:15.800 people on their team.
00:06:17.480 Those are two different people.
00:06:19.260 They approach their day differently, different mindset,
00:06:21.640 different communication style, et cetera.
00:06:23.240 And the question you need to ask yourself
00:06:24.560 is, who do I need to become if you truly
00:06:26.520 want to create that perfect exit?
00:06:28.100 Number four, invest ahead.
00:06:30.200 So one of the biggest mistakes founders
00:06:32.740 make when they're going after and they're creating value
00:06:36.000 is they're not investing ahead.
00:06:37.400 What they're doing is they're trying to be prudent.
00:06:39.140 They're trying to build a successful business.
00:06:41.300 You read all these accounting books or these financial books,
00:06:44.040 and they say, we've got to be making 15% net profit
00:06:46.640 or 20% net profit.
00:06:47.680 And I totally agree.
00:06:49.460 The guy who wrote the book, Simple Numbers, Greg Crabtree,
00:06:52.580 does all my financial modeling.
00:06:54.180 I understand that stuff, but I also understand this.
00:06:57.740 Is there's a thing called return on equity.
00:06:59.720 Essentially, a dollar left in your business,
00:07:01.660 how much return do you get on that equity
00:07:04.820 over a 12-month period?
00:07:06.040 And for some businesses, it's very low, like 30%, OK?
00:07:09.740 which is high if you consider the S&P 500
00:07:12.620 or whatever kind of returns you're
00:07:14.060 getting in the stock market.
00:07:15.560 But the best businesses can get 200, 300% return on equity.
00:07:21.560 And the reason why is because they're investing ahead.
00:07:23.620 They're looking at their unit economics of their business
00:07:25.980 model.
00:07:26.480 They're saying, yes, this works.
00:07:27.680 This is profitable.
00:07:28.760 We can do this.
00:07:29.740 And then they're taking all that money
00:07:30.960 and they're plowing it forward into the business.
00:07:33.740 How are they doing that?
00:07:34.740 They're doing it through their team they're hiring.
00:07:36.780 They're doing that through investing in acquisition.
00:07:38.820 They're doing that through investing in retention.
00:07:40.900 They're doing that through investing in expansion
00:07:43.080 revenue, all the things I mentioned at the beginning,
00:07:45.000 when you need to know your numbers,
00:07:46.680 if you understand them, then you can understand
00:07:48.620 how to properly deploy a dollar to get a return.
00:07:51.960 So you have to invest ahead of your growth
00:07:54.240 if you want to get the best possible exit for your business.
00:07:57.520 One of my clients actually told me,
00:07:59.340 I left $100 million on the table by not building
00:08:03.060 this function in my organization.
00:08:04.660 Because when he went out to the market to essentially exit,
00:08:08.780 One of the things that they said is, we're going to add this.
00:08:12.160 As soon as we acquire you, this is one of the big things
00:08:14.360 we're going to add that you don't currently have.
00:08:16.340 And he looked at what the impact would
00:08:18.620 have been on his business based on their comps.
00:08:20.760 And it was $100 million potential upside valuation,
00:08:24.220 because they would have added that revenue to their business
00:08:26.760 that they would have got valued on on exit.
00:08:28.760 That's huge.
00:08:30.200 Instead, he just tried to make it extremely profitable
00:08:32.800 and take money off the table.
00:08:34.260 I'm not saying that's a bad thing,
00:08:35.600 but you've got to understand when you take that dollar off,
00:08:37.460 be giving up $10 in the near future
00:08:40.680 because you didn't reinvest it in growing
00:08:42.380 your monthly reoccurring revenue.
00:08:43.780 Number five, drive value.
00:08:46.320 For any acquirer, there's two things.
00:08:49.360 There's value drivers and value detractors.
00:08:52.460 There's things that an acquirer thinks is really valuable,
00:08:55.480 and then there's things that they go, oh, this is not so good.
00:08:58.460 So for example, not so good, a contract
00:09:01.360 that you sign that fixed the price for 10 years
00:09:04.220 with a very large Fortune 50 company, et cetera, that just
00:09:07.140 doesn't make money.
00:09:07.860 That would be a value detractor.
00:09:09.480 Or the fact that you don't have a CTO
00:09:11.700 because you didn't properly invest in your team
00:09:13.500 and you outsource all your development to another company.
00:09:15.360 That would be a value detractor on exit.
00:09:17.880 What are value drivers are definitely
00:09:19.960 the numbers that I mentioned.
00:09:21.000 But those are just like the baseline foundational
00:09:23.000 conversation to start.
00:09:24.800 I mean, what people want to look at is how you innovate.
00:09:29.100 What's your product roadmap look like, et cetera.
00:09:31.380 So just understanding by talking to a potential acquirer
00:09:34.740 and saying, hey, I know we're really small today.
00:09:37.380 But in the future, we're definitely
00:09:38.920 going to build this business.
00:09:39.780 And we're going to probably eventually look at partners
00:09:41.660 to connect with, to do more.
00:09:44.160 When you've bought other companies in the past,
00:09:46.100 what are things you looked at that really
00:09:47.880 felt attractive to you?
00:09:49.020 What did you value?
00:09:50.040 And if you don't feel comfortable going
00:09:51.500 to a potential acquirer to have that conversation,
00:09:53.680 then just reach out to any M&A bankers, OK?
00:09:56.520 So search M&A Banker SaaS in your city,
00:09:59.340 and you'll find probably one or two.
00:10:01.500 There's some great ones out there.
00:10:02.920 But they will, and a lot of them have content on their website
00:10:05.500 because it's content marketing, to explain to software founders
00:10:08.700 like yourself how to understand the value drivers
00:10:13.020 versus the value detractors to optimize your potential exit.
00:10:16.420 So that's a huge thing is drive value in your decisions today
00:10:20.400 to increase the potential outcome in the future.
00:10:23.480 So five steps to design your perfect exit.
00:10:26.420 Number one, know your numbers.
00:10:28.020 Number two, visualize maturity.
00:10:30.220 Number three, become the person.
00:10:32.760 Number four, invest ahead.
00:10:34.440 And number five, drive value.
00:10:36.700 As I mentioned at the beginning, I
00:10:37.860 want to share with you an exclusive resource called
00:10:39.900 Fundraising Like a Pro.
00:10:42.000 It's essentially my three-phase process for raising capital.
00:10:45.960 One of my tenets, my rules, my principles in life
00:10:48.280 is investors don't want to meet you.
00:10:49.700 They want to be introduced to you.
00:10:51.080 So I'm going to share with you how to reach out
00:10:52.560 and get those introductions the right way.
00:10:55.420 I'm also going to share with you the phases for how
00:10:59.320 to build a high level of demand in the right time to raise.
00:11:03.240 There's only two.
00:11:04.120 You either do it here or there.
00:11:05.620 And also the right way to pitch your company
00:11:08.300 when you sit down with an investor.
00:11:09.880 Those are all available.
00:11:10.780 So click the link below to download
00:11:12.740 that training, fundraising, like a pro.
00:11:14.880 If you like this video, be sure to softly tap the like button
00:11:17.960 and subscribe to my channel.
00:11:18.960 If there's anybody that you think this video could serve,
00:11:21.140 feel free to share with them directly.
00:11:23.140 And as per usual, I want to challenge you
00:11:24.700 to live a bigger life and a bigger business.
00:11:26.660 And I'll see you next Monday.
00:11:28.900 You probably have a lot of questions
00:11:29.980 that are kind of big, empty question marks.
00:11:32.520 Yeah, probably have a lot of questions.