565 Michelle Seiler Tucker:
When you’re building your business, it can be hard to imagine a day when you let it go. It’s your baby, it’s an extension of you, it’s personal. And like all things, there will come a time when its time to move on, and when that time comes, it’s vital you exit… rich.
I’m Melinda Wittstock and today on Wings of Inspired Business we meet an inspiring entrepreneur who has made it her business to help founders get maximum value out of the companies they’ve built when the time comes to sell those businesses.
Michelle Seiler Tucker says it’s never too early to plan your exit – and that means knowing what you want, the wealth you want to create, and having a strategy in place to grow the valuation of your business.
Michelle is a 20-year veteran in mergers & acquisitions, and she’s sold hundreds of businesses. Her passion is to save businesses that might otherwise close – and get founders 20-40% above the asking price for their businesses.
Michelle will be here in a minute! First…
Michelle Seiler Tucker is a leading authority on buying, selling, fixing, and growing businesses, and sees opportunity where many founders are discouraged or have given up.
Founder and CEO of Seiler Tucker Incorporated, Michelle says she closes nearly 98% of all written offers and, on average, obtains 20-40% above the asking price for her clients.
She owns and operates several successful companies. She’s also the Best-Selling Author of the book “Sell
Your Business for more than it’s Worth”, and her latest book “Exit Rich” is available now for pre-purchase.
Did you know that 85% of podcasters don’t money from podcasting? Yep. Even though podcasting is the fastest growing media. I think that has to change, and that’s why I founded Podopolo – the world’s first socially interactive podcasting network. And the first to share revenue with podcasters! We’re adding more podcasts to our inspiring lineup. Find out more at Podopolo.com – and get the demo.
If you’re a business owner, have you thought about how you will exit your company? It may not be top of mind, and today we talk about why it’s vital you put a plan in place. Mergers & Acquisitions specialist Michelle Seiler Tucker has been featured in INC, Forbes, and USA Magazine, Michelle makes regular radio and TV appearances on Fox Business News and CNBC.
By identifying and correcting the top mistakes business owners make, Michelle will fine-tune a business into a well-oiled machine. Sometimes investing her own money to help owners build their business, Michelle’s primary objective is to sell for huge profits. Today Michelle shares the process that empowers her clients to afford the lifestyles they have always dreamed of and, most importantly, deserve!
So let’s put on our wings with the inspiring Michelle Seiler Tucker.
Melinda Wittstock: Michelle, welcome to Wings.
Michelle Seiler Tucker: Thank you for having me, Melinda. It’s a pleasure to be here.
Melinda Wittstock: I am excited to speak to you, because of course we all want to Exit Rich, the name of your new book, which I can hardly wait to read. It’s on pre-order right now. What are the mistakes that lead most people to not exit rich?
Michelle Seiler Tucker: That’s a great question, and we could talk all day, we could talk for hours about that. But the number one mistake is that business owners really never plan their exit. They never think about selling until they have to due to a catastrophic event occurring, whether that’s internal or external, health issues, partner disputes, divorce, death. And then, of course, external would be COVID, hurricanes. But they never think about selling until these issues occur. And when that happens, the business is typically turning downward and not the best time to sell. The best time to sell the company is when your business is doing well. So it’s really imperative to plan your exit from day one of buying or starting a company.
But again, nobody ever thinks about it until they’re burned out or something catastrophic has happened.
Melinda Wittstock: It’s interesting, in the technology space, with fast-growth companies that are often angel and venture backed, it’s often one of the first questions you get asked by an investor, what’s your exit strategy? And so it’s top of mind for people in that space, but not anywhere else. But even there, people are like, “I don’t know. Somebody will buy us.” Which is interesting, but it’s not really a strategy.
Michelle Seiler Tucker: Right. Yeah. In the SaaS businesses, there’s a lot of acquisitions and they happen really quickly, and there’s a lot of acquires in that space. But regardless of your industry, everyone should really plan their exit with the endgame in mind. I call it the STGPS exit model that we talk about in Exit Rich. And number one is, really determine what is your endgame? It’s like, when you want to drive somewhere, what do you do? You pull out your GPS, right? And you put in your destination. Same thing with selling your business, put in your destination. If you want to sell your business for $20 million, plug in $20 million. And then what does your GPS need to know next? It needs to know what your current location is, your current valuation, where you’re starting from.
So let’s say you’re worth $5 million today, you want to sell for $20 million. Then, it needs to know timeframe. In what timeframe? So let’s say five years. So now you know your destination, your endgame, $20 million. It sounds simple. You just have to reverse engineer it. So now you know it’s $20 million, you want to sell it for $5 million, you want to sell in five years. Who’s your buyers? There’s five types of buyers, I’ll tell you who’s not your buyer. First time buyers are not going to buy a $20 million company because they can’t afford it. And turnaround specialists are not going to buy a $20 million company because they buy distressed assets.
So, that leaves three other types of buyers that could buy your company. Then you need to know, what is our financial criteria? Where does the gross revenues have to be? What is the cost of goods, profit margins? Most importantly, EBTIDA, earnings before interest, taxes, depreciation and amortization. Where does that need to be? It needs to be at least $3 million in most cases to get you that $20 million price tag. And then, you want to know, what are those buyers’ characteristics? What are they looking for? What synergies are they willing to pay more money for? Because there are synergies the synergistic buyers will pay top dollar for.
And then you need to know your why. We all know that in order to stay in business, because this is tough, it’s not easy, you have to have a powerful why to keep you motivated and keep you in the game, because you’re going to have a lot of financial obstacles come your way, and you have to have a powerful why to keep you in it.
Melinda Wittstock: Absolutely. The longer you go without selling, the more risk there is. Say you own 95% or your company and you sell early without a lot of dilution from having to bring in capital to continue to grow the business. And say you sell for $20 million while you’re getting 95% of that. Or, you can keep going, do your A round, your B round, your C round, your D round and now you’re diluted down. And maybe you have 2% of the company. It sells for many multiples of that $20 million, but you just get the same sized check. Meantime, you’ve introduced all this risk along the way, right?
Michelle Seiler Tucker: Now, you bring up a really good point. And I’m glad you brought that up, Melinda. Because when I wrote my first book in 2013, and this applies to every industry, but in 2013, I wrote Sell Your Business for More Than It’s Worth. And I did the research, and 85% to 95% of the startups would go out of business. We all know that, that’s common knowledge. But when I wrote Exit Rich in 2019 and I did the same research, I realized very quickly that the business landscape has flip flopped, now it’s only 30% of startups from one to five years will go out of business. But listen to this, out of 27.6 million companies, 27.6 million, those businesses that have been in business for 10 years or longer, 70% of those businesses will go out of business. 70%.
So what you just said is so on point, because the longer you’ve been in business, you are at more risk to go out of business. And it’s scary. I mean, we hear about the public companies all the time, like Toys R Us, goes out of business. Stein Mart, Kmart, Pier 1. The list goes on and on. But what you’re not hearing about are the private companies that are going out of business on every street corner in every state across our great nation. And these business owners are having to sell for pennies on the dollar, close their business, or even worse, file bankruptcy. And when business owners file bankruptcy, they don’t just lose their business assets, in many cases, they lose their personal assets too, because a lot of business owners pierce the corporate bowel.
Melinda Wittstock: Absolutely. I mean, the pace of innovation, I think, is driving this trend as well, because things are moving so, so fast that what’s hitting now, unless you’re the kind of CEO that’s super nimble, always changing, you keep your startup mentality… But the other issue too that when you first found your business, you’re doing all the things, and then you have to be different people at different stages, and that isn’t always for everybody. And again, we’re talking about the high-growth businesses rather than the lifestyle businesses. And so, knowing within yourself, that self awareness of, do you want to be the CEO of some large company? Or do you want an IPO? What do you actually enjoy in that process of your business? Because I think that goes into the exit strategy too, doesn’t it?
Michelle Seiler Tucker: It really does. Owners get so stuck in the day-to-day operation, wouldn’t you agree?
Melinda Wittstock: Oh yeah.
Michelle Seiler Tucker: They’re stuck in the day to day that they stop being that great visionary that they once were. And now, they’re doing the day-to-day stuff and they’re transactional, they’re not transformational. And you really can’t grow your business if you’re stuck in the day-to-day transactional. So you need to focus on your strengths, hire your weaknesses, and then focus on what I call the 6 Ps. And we talk about this is Exit Rich. I mean, before I buy a business, because I don’t just sell business, I buy businesses, I flip them, I partner with business owners, investing my money, my core competencies, to get them to build their business to what’s actually sellable.
So when I look at any business, from I’m going to sell it, buy it, partner, I always look at what I call the 6 Ps. And the more that a business owner can get the business to operate on all 6 cylinders, the more sellable it’s going to be. But I agree, Melinda, you have decide, what kind of CEO do you want to be? Do you want to go IPO? Are you not a visionary and you need a visionary in there? Or are you the visionary and you need a good integrator? You just really have to determine what you want your company to look like and where do you fit in.
Melinda Wittstock: So, Michelle, just moments ago you were talking about this idea of a backward-planning sequence, where it starts with knowing actually what you want. Are you as surprised as I am to meet so many women, actually, in particular, in business, who just don’t know.
Melinda Wittstock: The number they want to exit at. They don’t know necessarily what it takes to get to that number. They don’t know their numbers generally.
Michelle Seiler Tucker: Yes. I don’t think it’s just women though, it’s men too. I will tell you, it’s pretty even across the board in my world. And maybe your world’s a little bit different. But men don’t know their numbers, men have no idea what their exit strategy is, they don’t know what their endgame or what their desired sales price is. It’s men just as much as it is women, so I don’t really find it gender specific. It’s just, to me, these owners don’t really think about it. It’s like they get stuck in their business and they don’t think about a plan. They don’t think about where they want to exit at until, like I said, something catastrophic has occurred.
Melinda Wittstock: Yeah. Just even on a personal financial basis, when you throw around numbers like, “I need $20 million or $30 mil,” I mean, that just seems so fantastical to a lot of people, that they don’t even know what that actually means, right?
Michelle Seiler Tucker: That’s right. I agree. They don’t know what that means, and they don’t know what it takes to get there. Sometimes I think, “Oh my God, $20 million is a big number.” It really isn’t.
Melinda Wittstock: It actually isn’t because once you pay for the taxes and once you’re factoring in your retirement, once you’re factoring in the fact that with every new luxury becomes a necessity.
Michelle Seiler Tucker: Truly Melinda, it’s not that hard to get there, believe it or not. It’s not that hard to get there. There are more buyers for businesses with a million and up in EBITDA than there are for businesses under a million in EBITDA. So once you get to that sweet spot where you can grow your company to over a million in EBITDA, you’re going to have hundreds and hundreds of buyers. That’s what creates a bidding war. That’s what creates buyers paying more for synergies and getting a lot more for your business. I’ve gotten clients as high as 65% or 70% of the business before because we’re able to create that bidding war because it ain’t over a million in EBITDA and they got the synergies.
Melinda Wittstock: Well, it presupposes too that on an operational basis, the way you’re running your company, if you know your exit strategy, then you can operationalize valuation growth, right? Because if you understand what the leavers are that are growing the valuation of your business, you might make different operational decisions. And it’s not only revenue and EBITDA, it can be so many other things that would make you attractive to a buyer, whether it’s your IP, maybe it’s your culture, maybe it’s your customer service, maybe it’s just the type of customers you have. It could be any of those things.
Michelle Seiler Tucker: Absolutely. So let’s talk about that real quick, because that’s outlined in Exit Rich as well, which is called the 6 Ps. It is about revenue and EBITDA, but at the end of the day, there are companies that are hemorrhaging money that are selling for millions and billions because they have those synergies.
Michelle Seiler Tucker: So, first and foremost, the biggest P… Well, they’re all big, but one of the most important Ps… They’re like my children, I can’t determine which P I like most.
Melinda Wittstock: Well, maybe they change day to day, it’s all right.
Michelle Seiler Tucker: I love all of my kids. But people is number one. You don’t build a business, you build people and people build the business. And you have to have the right people in the right seat. Many business owners have the right people, but in the wrong seat. And then you have to ask the who question: Who opens your doors? Who deals with manufacturing? Who deals with distribution, logistics, client service issues, accounting, legal, environmental problems, IP issues? Who? Who? Who? The clue here, Melinda, is you never put your name next to the who, because you want to build a sustainable, scalable business that can operate without you.
The more the business can operate without you, the more money that we’re going to be able to get you for your business. Plus, if you’re trying to sell a $20 million business, you need to have layers of management. You need to have a chief operating officer, you need to have these different layers of management so it doesn’t just depend upon you. Remember, focus on your strengths, hire your weaknesses. The second P is product. Product is very, very big as well, because, ask yourself, is your product, your industry on the way up or the way out? Do you have an Amazon or do you have a Blockbuster? And if you have a blockbuster, then you need to do some further questioning and you need to learn how to pivot.
You need to ask yourself, what business am I in? What I do really, really, really well? And what business should I be in? So just to illustrate this point very quickly, let’s look at Amazon. Amazon started in what?
Melinda Wittstock: Books.
Michelle Seiler Tucker: In books. Amazon asked themselves: “What business are we in?” Well, the book business. What did we do really, really, really well? And what did they say? Do you know?
Melinda Wittstock: Well, e-commerce.
Michelle Seiler Tucker: Fulfillment.
Melinda Wittstock: Yeah. Fulfillment. Right, of course.
Michelle Seiler Tucker: Fulfillment.
Melinda Wittstock: That whole peace of mind and fulfillment. Yeah. The supply chain, all of that. Yeah.
Michelle Seiler Tucker: Yeah. What business are we in? Books. What do we do really, really, really well? Fulfillment. What business should we be in?
Melinda Wittstock: Yeah. The fulfillment business of everything.
Michelle Seiler Tucker: They’re in the fulfillment business.
Melinda Wittstock: Well, actually, there’s a really interesting story in the case of acquiring Zappos for a billion dollars. Now, Zappos wasn’t doing anything that Amazon wasn’t, other than the fact they had a superior customer success and culture, and it was the culture of the company. And it was a very counter-intuitive way that, Tony Hsieh, who tragically died, actually.
Michelle Seiler Tucker: I know. I mean, that was stunning.
Melinda Wittstock: I was really stunned.
Michelle Seiler Tucker: Me too.
Melinda Wittstock: Actually, I knew him, I used to do a lot of consulting for a lot of his startups in the Downtown Project, in Las Vegas, and just an unbelievable entrepreneur and such a tragedy. I was such a big fan of his because of the way he counter-intuitively built this amazing customer service, and that’s what drove the valuation growth of Zappos to a billion dollars.
Michelle Seiler Tucker: Yeah. Yeah. I love him too. We can talk about him as I go through the 6P’s because he did some things that are really amazing that if business owners would follow suit and implement into their own company, they could grow their own company to the next level as well. So Amazon moved into the fulfillment business. So those three transformational questions is, what took them from a small book retailer to a multi-billion dollar conglomerate that they are today? So ask yourself those three questions and you’ll be surprised. But a lot of times, Melinda, you really need an outside expert, an advisor, a mentor to help you, because when you’re in your fog it’s foggy, right?
Melinda Wittstock: Well, this is so true. But just generally in business, whatever stage we’re at, whatever stage, we need coaches, we need mentors. We need people to give us perspective to help us see the unknown unknowns, because you’re right, if you get into that operational fog… I like to say, and I give this talk to everybody in my company, and I have to remind people all the time, as a CEO, and I’m a visionary CEO, I’m at my best at 30,000 feet. I can do the detail, but when I have to swoop down to the ground to do the detail, I lose my vision so I’m not at my best.
Michelle Seiler Tucker: You loose your vision. It’s not efficient and it’s not productive, and you don’t want to be there.
Melinda Wittstock: No. And it’s not where I’m best. And so, knowing not only what you’re best at and what makes your heart sing and all those things. And like you said, hire your weaknesses and double down really on your strengths. So that’s very important too. Also, understanding the competitive space that you’re in as well. As you’re too in the fog and you’re not really seeing, okay, so what are the trends, the micro trends, macro trends, who’s coming up? It’s that entrepreneurial paranoia, right? You need a healthy dose of that, not to the point where it immobilizes you, but you got to be in it.
Michelle Seiler Tucker: Right. All right. Yeah, exactly. And it’s also important for business owners to realize what their strengths are, because you’d be surprised, Melinda, many of them have no clue what their strengths even are. So you really need to figure that out. Anyway, that was the second P. The third P is processes. Now, processes are typically overlooked by most business owners. They don’t think about processes until something in a business happen to because an unpleasant experience with a customer, or they had a catastrophic event occur in their business, like a manufacturing business had a catastrophic event occur. And then they’re like, “Oh my God, we need processes.”
Well, your processes really should be designed from the beginning. And that’s what Zappos did really, really, really well. They figured out, what do we want our customer experience to be? And how do we want our employees to feel? We want everybody to be happy. You come to work, you’re happy, and you deliver happiness to the consumers. Well, how do we do that? What’s the processes that need to be designed? How do they need to be designed with the customer experience in mind? The company that did this best was McDonald’s. Did you ever watch the movie, The Founder?
Melinda Wittstock: I did, actually. I did.
Michelle Seiler Tucker: Back in the ’40s, you have these drive-up restaurants where the waiters, waitresses would come out on roller blades… On roller skates, they didn’t have roller blades back then, but roller skates. And the order would be wrong, the food would be cold, and it would take forever. Remember that? And McDonald’s said, “We’re going to create a fast food restaurant where we’re going. Here’s our mission, here’s our objective. We’re going to deliver great tasting food, and we’re going to do it in two minutes or less. That is going to be our customer experience. Great tasting food, two minutes or less.” So what do they do?
They took all their employees, went out to an empty tennis court, they mapped out the process with the customer experience in mind. And that’s what most business owners are missing. Design your processes with the customer experience in mind. So they mapped it all out, and they kept erasing it and restarting. And they did this all day until they figured out who takes the order, who toast the buns, who cooks the burgers, who puts the pickles on the buns, who hands it to the client, two minutes or less. That process changed the way fast food was done back in the ’40s.
And regardless if you go to McDonald’s in Singapore or Russia or New Zealand or America, the experience is the same because the processes are the same.
Melinda Wittstock: Exactly. And it leads to trust. People know what they’re getting. And in that franchise model, that’s absolutely vital. But it’s true of anything-
Michelle Seiler Tucker: It’s true of any business.
Melinda Wittstock: Like right now, as we’re developing the next generation of the Podopolo podcasting network app, What is the user journey? What is the fastest way to be able to get delight at every stage of that process? It’s not just our own hypothesis, it’s co-creating with our customers, right from the get-go. So you have a hypothesis, you test it, you can’t get too attached to it. This is a continual process.
Michelle Seiler Tucker: And that’s why so many businesses are going out of business is because they stopped asking the consumer, the customer, the client, what do you need? What do you want? How can I make it easier for you to do business with us? How can I make it easier for you to do business with us? The company that makes it easiest for the consumers to purchase products and services is a company that’s going to win. Amazon is winning because they make it so easy, they purchase practically whatever you want and have it delivered to you in two days.
Melinda Wittstock: Yeah. It’s instantaneous. At this point now, the Amazon rules the world, because you think, “Oh yeah, I think I’d like to get this.” And you check there it is, and boom, one click and it’s with you the same day often.
Michelle Seiler Tucker: Yeah. And that’s why it was so funny because I was in a podcast a week ago, and I said, “You can even buy a horse on Amazon in two days.” And my husband texted me, he goes, “Don’t say that.” One of our daughter, I have a 10-year-old, “Because what if Arabella hears you say that and she’s going to go to Alexa and order a horse, and a horse show up”
Melinda Wittstock: Oh gosh. That’d be interesting. Oh my goodness.
Michelle Seiler Tucker: So yeah. Amazon changed the way that we all do business, they really did. COVID had changed it even more because it used to be that we’re like, “Okay, well, we can buy products on Amazon, we’re still going to the grocery store.” But now, nobody even goes to the grocery store anymore because Amazon bought Whole Foods, so that can be shipped to your door. Walmart and Target both have implemented clubs, you can buy groceries and products and shipped to your front door. So catastrophic events change our consumer habits, so do companies like Amazon.
Anyway, your processes need to be designed not to infuriate the client, but to create a wild experience so they keep doing business with you because if you don’t create that experience, that wild experience somebody else will.
Melinda Wittstock: Yeah. The processes also help your employees and team members as well.
Michelle Seiler Tucker: Absolutely. They need to be well-documented, and the team members should be trained, but Melinda, you’d be shocked when $52 million company right now, they didn’t have any processes that were documented and trained on.
Melinda Wittstock: Wow. Really?
Michelle Seiler Tucker: Yes.
Melinda Wittstock: That’s amazing. How did they get to $52 million? Was that just like luck? Because that’s amazing that they got that far without that.
Michelle Seiler Tucker: They’ve got really great products and they’ve got some great customer relationships, and they have processes, they’re just not in the format that a buyer is going to want the men to pay $52 million.
Melinda Wittstock: They’re not documented.
Michelle Seiler Tucker: They’re not documented the way that the buyer wants to see. So you shouldn’t have your policies and procedure manuals or your SOP, standard and procedure checklist, all employees should be signed off on it because this is really important. Look, I don’t remember selling an $18 million company in Texas, and during due diligence, I caught the CPA actually embezzling money. And we had fire a CPA, she took everything with her and nothing was saved on the drive. So I had to run around like a crazy person to get all the PPE and employee handbook signed off on by all the employees, and non-competes by the way, the day of closing.
So this is very, very, very important, you’ve got to make sure you have all of this documented and well trained, and process is something that’s continuous as well. You don’t just develop the process and say, “Oh, by the way, I’m done.” McDonald’s is implementing computers now and replacing people with computers. So that process is changing. So processes is ongoing. The fourth P, if you’re ready for me to move on.
Melinda Wittstock: Oh yeah.
Michelle Seiler Tucker: Is proprietary. Proprietary is probably the number one value driver. If you want that six, seven, eight, 10, 20 multiple, you need to build your IP. The more IP you have, the higher multiple you will get on the sale of your business. There are six pillars to proprietary, number one is branding. The more well branded you are as long as your brand is relevant in the minor consumers, like Toys “R” Us is not really relevant in the minor consumers anymore, but Amazon is. So build your brand and then you’ll build your multiple.
The biggest brand in the world is, what do you think it is, Melinda?
Melinda Wittstock: I don’t know, it’s probably Apple.
Michelle Seiler Tucker: It’s Apple.
Melinda Wittstock: They’ve done a great job.
Michelle Seiler Tucker: $389 billion. That’s another company by the way, that also scraped transformational questions that pivoted from being in the computer business to being in the communications business with the iPhones, iPads, everything. Anyway, 389 billion. That’s without EBITDA, that’s without inventory, that’s without assets, that’s without anything but the brand. So build your brand. Trademarks are very valuable, but Melinda, a big mistake the business owners make, not so much SaaS business owners, but other business owners.
Don’t go get a state trademark, and they’ll never check to see if it’s available federally. And then there’ll be in business years and all of a sudden, they receive a cease and desist letter. So they have to stop using that company name, they’ll throw thousands upon thousands, I have a business owner right now, he spent over $100,000 fighting it. And I said, “Just stop fighting it because you’re going to lose. You don’t have the federal trademark, they do.” So he’s going to have to change his name, and then you have to start the rebranding process all over again.
Spend a $1,500 to $2,000 and get that federal trademark, not just on your company name, but your slogan as well. I’ve got a federal trademark for the Seiler Tucker 6 Ps, ST 6 Ps Exit Rich. Go out there and protect your IP. Also, patents are huge. We sold the company for $18 million, I had 18 patents, a million dollars of patent. Contracts, very valuable, manufacturing, distribution, any type of exclusive agreements that you can get. franchisor to have contracts with their franchisees. The most valuable contracts of all are your client contracts.
Melinda Wittstock: Nice recurring revenue ones are good.
Michelle Seiler Tucker: Absolutely. Those are the most valuable, buyers want to buy residual income, everybody wants residual. Here’s the caveat to this, 99.9% of all sales are assets sales and not stock sales. You better make sure you have that transferability clause, otherwise your deal will not close. And I will tell you, 99.9% of owners never have that two-sentence transferability clause.
Melinda Wittstock: You see, these are all of the things at the very beginning of your business that you’re just not thinking, but you are in this mad scramble just to get going, find product market fit, get your first revenue and get your customers. And so things like this, just going to the legal expense at that early stage, I think a lot of people put that off and then forget, or just wind up in some mess like around trademarks or contracts or whatever. There’s so many stories like that.
Michelle Seiler Tucker: There is so many stories, that’s where it’s always good that to have an expert that you’re working with to make sure you cross the T’s and dot the I’s because it’s hard to think about everything. And I always say, it’s not what you know that get you in trouble, it’s what you don’t know.
Melinda Wittstock: Yeah. But just things like compliance things as well, this is an interesting one too, say for companies, particularly that have been founded during COVID or just pivoting during COVID and they have virtual teams and virtual teams, people all in different states, and each state has different employment laws. So certain people in California have to have certain benefits, so you have some people in California, we have some people elsewhere, we have some people in Colorado, they have to have like days off if there’s a fire.
Michelle Seiler Tucker: There is a lot of laws, that’s right, and somebody needs to be on top of it. That’s why in most visionaries are not the detailed people that can be on top of these laws. So make sure if you don’t have somebody in your company, outsource it.
Melinda Wittstock: Well, there are PEO plans and things like that can help you do all that, you don’t necessarily have to do all that yourself.
Michelle Seiler Tucker: We have companies that can own the employees, so you don’t own the employees. And when I say, oh, what I mean is that the employees work for the third-party company, they don’t really work for you, so they have a fiduciary duty and responsibility to make sure that they’re complying with all the state laws.
Melinda Wittstock: Yeah. That’s interesting. That actually came up today. I was talking to one of those, a company called Insperity. And it’s quite interesting because in that case, if someone sues you or whatever, they’re on the hook, not you. And so I would imagine that would be a valuation growth driver.
Michelle Seiler Tucker: It is. I always tell my business owners, look at both sides of the coin, weigh the positives, weigh the negatives, see if it’s more beneficial to have the outside third-party company hire and terminate the employees, or is it more practical for you to do it. But yeah, they’re on the hook. So it just really depends upon what type of business you are. I have a graphics company in Houston and we have a third-party business. I mean, a third party company that employs all of our employees, and it’s worked out for us and we’ve looked at it both ways and this works best for us, but we’re also in different states.
So we want to make sure that they’re following all the laws in these different states and we’re compliant.
Melinda Wittstock: Exactly. That’s my issue because I have people in currently seven different states, and they’re all different. And so keeping on track of that, oh man, that’s a lie.
Michelle Seiler Tucker: It’s important we’re talking about these 6 Ps because I just recently worked with a business, and I can’t say what it is because it’s very niche, but they have a product that they have patents on and they’re big in Amazon and other stuff. And the problem with their company though, is, it’s brilliant, but then it’s not, meaning that they’re making good money, they’re just now starting to realize a profit, but they’re probably going to do a million this year in EBITDA and probably $1.1 next year. They have no employees, zero employees.
It’s good and it’s bad. And they have 1099s, they have a couple of 1099s, they work from their home, they work from different states, but they have no management in place. They have processes, they are not really documented, but they’re doing really well making over a million dollars without any employees. Now, some of us would love to have that because employees is this biggest headache in any business, but it’s going to be very hard to sell, buyers are going to have a problem.
Melinda Wittstock: Well, actually that was a question that I wanted to ask you. I know so many women, particularly in the internet marketing or e-learning, info products area, and sometimes in e-commerce as well, who’ve built these massive brands around themselves and gotten into the seven figures, and in some cases, eight figures. And they have processes, they have their systems, they have all of this, but when it comes time for them to sell, there’s no asset really to sell because they personally are so wrapped up in their brands.
Michelle Seiler Tucker: If they’re personally wrapped up, you are 1,000% correct. That was when we go back to people. It’s like a dental practice. I have a dental practice right now and they’re actually related to a larger company we’re selling and they want us to sell out to help them out. And I said, “Well, here’s the problem, you have one dentist. I take that dentist out of the practice, there is no practice because going to a dentist is like going to a hairdresser.” You have that personal relationship, you don’t want anybody else touching your hair, you don’t want anybody else in your mouth.
So that’s a very tough business to sell. If you’re personally wrapped up in your brand and you haven’t branded your company and it can’t run without you, then you’re going to have a really hard time selling it. Tony Robins is a perfect example. Tony Robbins can’t sell his company, that’s why he did it an ESOP, to purchase employees. So Steve Jobs always thought did a great job because he always did a great job with branding and Steve Jobs did a great job branding Apple.
Melinda Wittstock: Exactly. You can do that as a CEO, but at the same time, you really got to invest in your brand. It also depends on the type of business you’re building because you may be building a business that you will never sell because it’s a lifestyle business, it’s like you’re going to live off the cash flow of the business, but there is going to be an exit at some point, because you’re going to get tired of it or something’s going to happen.
Michelle Seiler Tucker: I always say, never think you’re never going to sell the business because it’s a lifestyle business and you just can live off the cash flow. Because the marketplace is changing so much and because consumers don’t buy the same way they used to, you might not have that lifestyle business for long. So you should always really, really, really, really plan your exit, because here’s the bottom line, Melinda, even if you’re not going to sell your business, but if you build it on all 6 Ps, if you were, at least you got something that’s possible that’s sustainable that you can sell if you get in a pinch.
Melinda Wittstock: And you have options. It’s just even like succession planning.
Michelle Seiler Tucker: Yeah. Because there is a day that can come by where you say, “Oh my God, I hate this company.” Because you might love it at first and that’s the problem, is everybody gets so attached, so emotionally attached to their business, it’s like their child. And they feel like, “Oh my God, I can’t sell this business because it’s my child. It’s like losing an arm. It’s like losing a kid.” But the bottom line is, you can’t get so emotionally attached, you need to build it as if you’re going to sell it one day, because what if you get diagnosed with cancer and you have so many months to live.
Look, this happened to… I just got a call maybe a month ago about a woman in Dallas, from a woman in Dallas. Her husband had a contracting business and she was in her 80s, he was in his 80s. He passed away unexpectedly. She has no idea what to do. He did not build the business to sell. It was a contracting business so he had probably 100, 150 general contractors, they did very well, but he really never built a business that’s sellable. And he left her with a lot of debts, and she doesn’t know what to do. So here’s the bottom line, always build a business to sell because you never know what could happen, and you don’t want to leave your heirs, you don’t want to leave your loved ones in a terrible situation to where they have this debt and they have no idea how to run your company.
Michelle Seiler Tucker: The last thing I want to talk about is build your databases. Databases, Melinda are typically undervalued and overlooked by most M&A advisors. Get an M&A advisor that knows how to value databases. If your database can be targeted and repurposed, that is a goldmine that buyers will pay for. Facebook paid $19 billion for WhatsApp. Why? Not because they were making money, because they were hemorrhaging money. But because they had a billion users and Facebook, one of those billion users because they knew they could or why they can monetize. So databases are huge.
The last thing I want to talk about in proprietary is what I call business prime real estate. Now, this is not your building or your land. This is an intellectual property real estate. Let’s say that you have a skincare company and it’s listed on Oprah’s favorite things. Do you know how valuable that is? Do you know how hard it is to get on Oprah’s favorite things? that is a huge multiple driver. Let’s say you have a diet company or diet pill, whatever, and Rush Limbaugh is endorsed in it. Whether you like Rush Limbaugh or not, he has a lot of followers. So this going back, that is huge prime real estate. They can only endorse one skincare product or one diet product at a time.
So that is very hard to get that type of placement. Let’s say that you make sheets and pillow cases and robes and everything that goes along with a bath and bedding, and you’re number one a Wayfair, synergistic buyer will pay you huge money for that. The fifth P is patriots. This is your customer base. You have to ask yourself, do you have customer concentration or customer diversification? If you follow the golden rule of 80/20, 80% of the revenue comes from 20% of your clients, and you lose a client, guess what? You could be out of business if you lose a few clients.
Also, if you’ve been in business for 20, 30, 40, 50 years, your client base could be aging out. So you need diversify and go back to the Zappos approach, what is customer experience do we want to create here? And what do we want to be known for? Develop a company culture around that and make sure you always ask them the questions, what do you want? What do you need? How can I better service you? How can I make it easy for you to do business for my company? Zappos was easy, you order shoes, you didn’t like it, you return them, you don’t pay shipping form.
It’s simple, but brilliant because how many women want to try on shoes at home? Keep what you like, send back the rest, brilliant concept. The last P is profits. Everybody wants to make money, and everybody’s like, “Michelle, why do you make profits last?” Because here’s why, profits is never ever the problem. Never the problem. It’s always a symptom of not operating on one or the other five Ps. If you don’t have the right people in place, you’re going to have a profit problem. If you’re on the wrong product, wrong industry, or your product is dying, you have a blockbuster on your hands, you’re going to have a profit problem.
If your processes are not designed with the customer experience in mind, productive and efficient, you’re going to lose money. If you haven’t protected your IP, you’re going to lose money and maybe have to start your company all over again. And if you don’t have the right customer mix, customer diversification, you’re going to lose market share. So profits were never the problem, always a symptom. And there’s a lot of habit mistakes in those 6 Ps. And some of them I talked about like the federal trademarks and not having the right people in the right seats, not having the who questions.
Melinda Wittstock: Absolutely, I wish we had more time.
Melinda Wittstock: I want to make sure that people, Michelle, can obviously find your book and find you to work with you. And I want you to just take a moment and share with people how you work with them, the kind of clients that you’re looking for, and what the process is for your clients to get them with a good exit plan.
Michelle Seiler Tucker: Sure. First and foremost, I’ll tell your listeners how to get Exit Rich. Exit Rich, let me just tell you this really quickly. My coauthor is Sharon Lechter, who wrote Rich Dad Poor Dad with Robert Kiyosaki.
Melinda Wittstock: Yeah, I know Sharon.
Michelle Seiler Tucker: We’re in the middle of pre-sale, you can get Exit Rich at exitrichbook.com. It is available on Amazon or any other retailers.
However, at exitrichbook.com for pre-sales, we’re selling it for $24.79, which includes shipping, Amazon might say it’s $27.97 plus shipping. So 24.79, which includes shipping plus a lifetime membership to Exit Rich Book Club where you’ll receive video training of me doing deep dives and some of these different strategies and techniques and transformational questioning and that we’ve been talking about here today, but also most importantly, Melinda, they will get documentation.
So if you’ve never seen the employee handbook, or an employee contract, or non-compete, or an organizational chart, or sample letter of intent, or sample purchase agreement, sample closing docs, sample due diligence checklist. Every document you need to build a successful scalable company is there for your immediate download. Plus, we’re adding documents all the time. They will also receive a 30-day membership and two clubs CEO’s where I do masterminds Q&A’s, hot seats, and do some one-on-one Q&A to really help them pivot and not only survive, but really thrive when we come out of this pandemic. And then when the book comes out in January, we’ll ship it to their doorstep.
Melinda Wittstock: Oh, that’s wonderful. So generous. We’ll make sure we have all the details in the show notes. So thank you, Michelle, for putting on your wings and flying with us today.
Michelle Seiler Tucker: Thank you. Thank you. I’ll be your wing man any day. I’ll be woman. Let me say wing woman.
Melinda Wittstock: A wing woman. Absolutely. Thank you so much.
Michelle Seiler Tucker: Thanks, Melinda. Good to talk to you. Thank you.
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