Built to Sell: Design a Business to Run Without You (Greatest Hits)

25:45And then we give that to you that you can just embed on your website. So that was kind of the value prop in kind of that specific business and process, where once people could kind of see that there, you know, it was a no brainer for the cost, because for them to try to do that all themselves. And that's the benefit of a service. Hopefully, you have the efficiencies of scale as well, right? Like, over time, where even if someone wanted to do it on their own, it would probably still be the same or even more to do it themselves, you know? Right. I like that. That's always a common question for sure.

26:16But, you know, hopefully you're marketing and looking for people that aren't the DIY crowd and they're happy to pay you to kind of do it for them, you know? Yeah, that makes sense. All right. So my understanding of Tyler's process so far is number one, come up with a problem that is at once valuable to businesses, but difficult or expensive for them to solve on their own. Number two, go sell a solution to that problem. And number three, go find a qualified contractor or employee to help create and deliver that solution. Tyler, with Applause Lab, was there any recurring element to these customers that you found or was it just kind of a one and done?

26:56We'll go and conquest you three, five, 10 testimonials, however many that you need. Yeah, that's a great question. I think this is one of the things, obviously, when you're designing the exit, recurring revenue is a huge thing. And I think I was like, immediately, let's get recurring revenue in from day zero. And I had to learn the hard way that not all business models for your audience fit into a recurring model where you have to get creative with how you position it with some of your offerings. Because for me, like a lot of people didn't need a video testimonial, just that model need a video testimonial every month on a recurring basis.

27:32So it definitely moved into the packaged offering where we would sell packages of 2, 4, 8, 12, or 24. And that seemed to work really well where you could buy a package and then you could use it whenever you wanted. So my packaged offerings were priced a little higher. And then I did, after someone tried us, offer them a subscription, which was kind of on the back end. but it was a yearly subscription where you could buy any amount of video testimonials you wanted. You got a discount. It was a 12 month subscription. And then you could use those whenever you wanted through the year. So that actually was a huge hit and that fit well.

28:12So I was able to kind of tackle the subscription element, but then as well gave my customers the flexibility where, you know, they're not getting charged every month for something. There's a lot of out of their control as well, when they can get a customer to say yes when someone's in the right stage in the buyer's journey or customer journey. So that was actually what we ended up moving towards. Small package up front, try us out, and then we would upsell them into a 12-month subscription on the back end. Okay. So if they happen upon a customer who is singing their praises, now they have a system to capture that.

28:47And that system was applause lab. Like, hey, here's somebody you ought to go in contact. Okay. That's what kind of made it nice and flexible for them as well. because as those opportunities arose, they could easily just funnel them in. And that was what we were trying to create was a system to capture these video testimonials. So you could just have this social proof kind of engine going kind of effortlessly. So that's really kind of what we helped set up. From conception to exit in 13 months, seems pretty quick considering I spent nine and a half years on the site that I recently sold. What was that process like in terms of either getting your books in order or listing on brokerages?

29:28Like what was that process like? Yeah, great question. I think again, so like designing from day zero. So it's like, I think one thing I had was like super clean processes, very organized. I had a great manager in the business. We had detailed books. I highly recommend following like profit first. So that was a huge help. And it's kind of an accounting system for people who don't know there's a great book on it. But, you know, these were all things from day one that just made it really kind of effortless to potentially sell. And again, like that happened a lot faster than I thought. And kind of how it happened was I began creating relationships in the industry, one of which was with Testimonial Hero.

30:09And they actually brought it up when we had connected, you know, around that 12 month mark and kind of surprised me and caught me off guard a little bit. So I actually never listed with a broker properly. So it was kind of an out of the blue kind of thing, because I think for a company like that, a lot of people like acquiring customers and acquiring video editors and an asset like that is much faster. And that's the reason people do it than starting from zero or just doing it on their own. And I think that was the case, the value add for Testimonial Hero as well, for them to just kind of buy the business, kind of add that as another product offering that was different from what they already had.

30:51Yeah. So their testimonial hero was the company that was targeting enterprise clients at five, 10 grand a video. Exactly. Yep. Okay. So now here's a way for them to capture completely, like enter a completely different segment. Yeah. And I'll add as well that through relationship building with them, they were actually sending me leads already and we've set up kind of a referral system because they had a lot of people that would reach out to them and say, and once I found out how much they charged, it wasn't a great fit. So testimonial here would downsell or kind of down referral them over to me.

31:26And if they closed, then I would give them a cut. So that was actually kind of how the relationship started. So that was interesting as well. That is interesting. A little referral, strategic partnership, a serviced affiliate marketing kind of deal. Are you comfortable sharing what the business was doing around the time of acquisition in terms of monthly? I mean, annual revenue is like, well, it's been one year. Here we go. Yes, let's see. Well, I can't reveal any of the numbers because I didn't have to send an NDA with the buyer. But we had about five or six video editors that were going, a full-time customer success manager.

32:06And then over that year, we had serviced about almost 80 customers. and then about 20 plus of them were actually on recurring annual plans. Okay. So there was quite a bit in place there, including the team. And so that's one of the benefits here is like, okay, the team stays with the business there. You know, you're not going to have to go through the headache and expense of recruiting the service providers in this case. So that's part of what makes it an attractive acquisition. Yeah, no, a hundred percent. With the Content Pros exit, was it similar? Like, was it a strategic partner who bought that?

32:43Or I'm curious what that exit process was like. Yeah, we actually, that one, we did list with a broker. So that was a little bit more of a traditional, if you could say that. We listed and then we talked to quite a few competitors and what would have been considered like strategic partners. But we ended up getting bought by a private equity fund that actually wasn't a strategic partner. And I think they just wanted it for their portfolio. It was interesting because I definitely, I thought that one of the few people in the space or our space would have bought us, but they passed and we ended up going a different direction, but it ended up working well.

33:19They still have the business. It's growing. So it's cool to kind of see it. I still refer people over to them here and there as well. That is interesting. And that's, you know, how many, because you had a ton of writers, you know, because did you have like a hundred writers or something on the team? Like there was a serious operation. Yeah, we had a lot of writers. I mean, they were all contractors, but still like we built the team up and that's a big asset as well as I think that was one of the reasons we found out when we sold just because hiring training. I think we ended up hiring like 1 % of applicants.

33:50We had a full time person that was, you know, constantly hiring. And I think for us, like, since we didn't like specifically write for a very niche topic, we had a lot of writers that were bashed into kind of teams of topic matter experts, which allowed us to write for a variety of industries and stuff like that. So that was why we opted for, yeah, just building a larger team of contracted writers, which I think worked really well. More with Tyler in just a moment, including his laptop test for business owners. and four other ways you can start to design your business today for a potential acquisition down the road right after this.

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35:03Plus, with Indeed sponsored jobs, there are no monthly subscriptions, no long-term contracts, and you'll only pay for results. There's no need to wait any longer. Speed up your hiring right now with Indeed. Side Hustle Show listeners get a$75 sponsored job credit to get your jobs more visibility at indeed.com slash side hustle show. Just go to indeed.com slash side hustle show right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash side hustle show. Terms and conditions apply. Hiring. Indeed is all you need. A lot of side hustlers suffer from what if-itis.

35:41What if it doesn't work? What if I don't have the skills? What if I pick the wrong path? But one thing 100 % of our amazing guests have in common is they took their shot. They phased down those what ifs and they got their answers through taking action. Our partner Shopify helps turn what ifs into why nots. Shopify is the commerce platform behind millions of businesses around the world, from household names to the very guests on this show. What if I can't design a website? Shopify's got you with ready-made templates to match your brand style. What if people haven't heard about my brand? Shopify helps you find customers with easy-to-run email and social media campaigns.

36:16And what if I get stuck? You can tap in to Shopify's award-winning 24-7 customer support. Let's turn those dreams into and give them the best shot at success with Shopify. Sign up for your$1 per month trial and start selling today at shopify.com slash side hustle. Go to shopify.com slash side hustle, shopify.com slash side hustle. As the owner operator, how are you spending your time or how are you minimizing your time? Because as a potential business buyer, it's got to be more attractive that the owner is somewhat hands-off. I'm curious how you're managing that relationship. Like on the one hand, I'm still trying to grow this thing because the more it makes the better multiple, the better exit that I can have, the more money I'm making today.

37:06But on the other hand, I also want to show that it doesn't necessarily require me day to day. I kind of wrote down five different ways that other service businesses could actually think about kind of designing their business for an exit and some of the things I implemented and thought about as well. And the first one to your point of what you just kind of talked about was I had written down like passing the laptop test. And essentially what I mean by this is if you closed your laptop today, like how long would your business survive? And that's really important because if someone's going to buy your business, it's a huge tell like how dependent the business is on you.

37:45And the more team you can have implemented and built around yourself where you could close your laptop and step away for two weeks a month, which is like kind of the goal I try to set, then the better off your business is going to be. That's going to be really attractive for an investor. All right. Passing the laptop test. I like it. I went 36 hours without email, which is a pretty good streak for me this weekend. So I'm working on it a little bit. Yeah. And I think you can work towards them. And there may be stuff you'd love doing. I think I'm just like, if we look at the mechanism of your business and the operation, like there's always going to be things you're doing, but if you closed your laptop, could your business operate and survive without you?

38:23And I think it's fun to kind of, I mean, coders use this term as like a code freeze, right? They'll code something and then they'll step away and see what breaks. And I think that's a great kind of approach for a lot of service businesses as well is build your processes, build your team, and then take a step back, wait a few days or a day, and the problems are going to rise to the top. And you know, you kind of then have this checklist of what to fix, right? Yeah. Okay. I do like that. What else is on your list? Um, number two, I had, um, thinking like a software company. So thinking like a SAS.

38:59So, um, I think obviously there's all these different business models, but when you can think and operate like a SAS and when I'm specifically referring to is like, cool, like SAS companies, like why are they so valuable? They have recurring revenue and MRR, they have low churn rate, long lifetime value. So these are things that service businesses a hundred percent can implement. And when you start operating yourself and thinking like a SaaS company, that's going to put you in a really, really good position and category to someone who's maybe looking to buy you. Okay, that makes sense. What's next?

39:31Number three, we got positioning like a product. And I know you've talked about this before on other episodes, but productizing. And this is kind of, you know, obviously something I'm a huge advocate of and fan of, but it's like, how can you position yourself like someone is going to come to your site and buy something like they're buying something on Amazon. So productizing your service offering, you know, fixed scope, fixed price, the ability to buy right then, all that really helps and streamline kind of the thing that you're the service offering that you are, are actually offering. Obviously, there's a lot of we could dive into productizing, but that's a huge part of making a service business attractive and scalable.

40:10On the productizing thing, did you get people who still wanted to talk to you? Like, okay, here's the menu of different offerings. Here's what you get at different price points. Did you still get people hitting the little live chat button? Or like, can I request a call? I just want to talk to somebody about this. Yeah, no, I think for sure. I think it's not that you're not trying to talk to anyone. I think it's just, how could you have, I think we have this goal, or I do at least, how could you make it possible to have a no sales close? maybe it's not possible with your business but moving that much closer how could you make your marketing your positioning your social proof the positioning of your product and the pricing in such a way that someone could buy without talking to you i think oftentimes someone does especially depending on the price point of your service offering but even if that's the case you know then having how can i have like a one sales close and that's like a huge shift and a huge step and like, I mean, could drastically change like how most service business operate if you just kind of think in that way.

41:11No, I like it. All right, number four. Number four, depersonalization. So I think this one's huge and it kind of flows into the laptop test, but does the operations depend on you? And then depersonalization is, does the business depend on you? So I think that's a huge one because the more connected you are to the business, whether it's a personal brand, et cetera, or if everything depends on you, from like a marketing and network and connection space, that one is going to kind of hold you back, especially on the sale of a business. So working to depersonalize the business and disconnect it from yourself is a huge one as well.

41:49This one is really a challenge for me. And I'm gonna pause here because the businesses that I've started that have had success have been me like front and center. My name is on it. Like I'm signing my name to it. I've given it my stamp of approval versus the ones that I've tried to kind of remain a little more anonymous and try and throw up just generic, hey, it could have been written by anybody type of content. Like those have not done as well. And I imagine for somebody starting out, especially in the so-called skills trap of like, well, I'm an expert in graphic design, so I'm going to start a graphic design company, something along those lines.

42:24Like you are really playing up that personal brand, your own personal expertise and credentials and everything. And so you're kind of saying like, if you can avoid doing that from the very beginning, go down that path. Can you speak to that for a minute? For certain people, it's going to be harder than others. I think depersonalizing your business lowers the risk profile for someone to buy it, right? It doesn't mean that the business isn't valuable. It just isn't, might not be as sellable. So that's like a big thing, valuable versus sellable. But I think, yeah, it's one of those things that if you start like that, because you're right, it may be like, you may have a huge network, which you're talking about.

43:01talked about before and people know you. And I think you can still be connected initially, but like if it's nickloper.com or nickloper video editing versus like a branded option, I think the goal is to work towards like it not being super dependent on you, even though you still might be the face. Because an investor is going to be like, cool, are you coming with the business? Or am I buying it from you? Do you want a job now? Or do you want to just sell it? And if If I bought it from you, is it going to run the same and smoothly without you in the business? So that's really kind of what it comes down to.

43:37I don't think either one is necessarily bad. It's just if you have the goal to sell or want to sell, working towards depersonalizing is going to be really helpful. Okay, that's helpful. Because, yeah, you see like Russ Perry is behind Design Pickle, but it's not like I'm doing the design for you. And Chris Schwab, same thing with ThinkMades. like, hey, I am not doing the cleaning, but hey, I'm running this company. And it's about the service and it's about the customer and who they're targeting and how they're targeting and how they're operating. And of course, hiring qualified people to do the work, not shirking their responsibility on that front in any way, but just saying it didn't have to be about them, their specific skills and mechanics in delivering that labor.

44:20So depersonalization, with number four. What's number five? Number five is predictability. So I think someone who's going to buy your business wants predictability. They want to see predictability and kind of growth predictability. And like, that's why MRR or kind of positioning kind of your service or trying to either have, whether it's monthly recurring revenue or Plaza Lab's sake, annual recurring revenue and that consistency. So the more predictability you can build in your business, And that could be applied to, like I said, revenue, team, growth rate, lead flow. There's a lot of areas there that's going to lower the risk profile to an investor and make your business more valuable.

45:00So that's something to kind of think about. And it could be applied in a few different areas as well. Okay. Yeah. What kind of consistent process are you applying either on front end marketing wise? Like how many leads are you generating a month? How many new clients are you generating a month? What's the churn look like? Like how many people are on recurring plans, all that stuff. Like if you start the month, as I kind of often do, which is still weird to me, even though revenue has been really consistent and growing for several years, I don't have a lot of, you know, spoken for revenue on the first of the month.

45:33And then, you know, 30 days later, it adds up pretty well. But it's, it is kind of a weird thing to say like, yes, it's predictable, but it's not necessarily spoken for in advance in terms of like recurring contracts. So it's kind of one-off orders that are coming in or revenue that's coming in, but it's not true MRR. Is that what you're kind of saying? Yeah, exactly. It's not true monthly recurring where I've got 100 people signed up on a membership basis, nothing like that. Yeah, well, I think investors, what I've noticed as well in talking with a lot of different investors and brokers is your business could still be valuable.

46:09I think the MRR component and credit card on file is like, that's a very clear, like, cool, that is predictable. That's why SAS multiples are so high because they have that. But you could also show in your case, listen, I don't have MRR, but here's my 12 months of revenue that's been very consistent and growing or 24 months of revenue. And even though it's not MRR, you can see that it's still consistently coming in. And so that could provide a similar kind of picture to someone who's looking to maybe buy your business. But MRR would be kind of the holy grail in many cases. Is there such thing as a typical multiple or sales price for a productized service?

46:51Yes, it's all going to depend on the market. I think it's going to probably be in that two to four or five X range. Obviously, the higher end of that range is going to be like very dialed, strong systems, all these different things we talked about, like to demand that, then it, so that's going to be like the multiple range on like zero to$2 million per se of what they call kind of net earnings or seller discretionary income, or you might've heard the term like EBITDA. They're all very similar, kind of getting to kind of the same thing. And the multiple is kind of based off that. Once you get over like the$2 million and EBITDA range, then the multiples kind of inflate a little bit more because you're at a certain size in the market that's worth a lot more.

47:39You're just bigger and people value that more. But for most people who are in that, you know, sub$2 million range, that two to five X is pretty common. Yeah, that's kind of where I've seen a lot of people selling. Would you still go to an Empire Flippers or a Quiet Light or an FE International? Or are there other brokers that specialize in service businesses? Yeah, 100%. I think each of these companies kind of have their own specialty, you know, as well, like the size of businesses. So Empire Flippers really specializes in like Amazon FBA businesses, right? Right. Quiet like sells a lot of SaaS, some Amazon, some service, but a much higher price point.

48:26So I think finding a broker that's kind of based on your business for specifically talking about service businesses, I would probably lean towards Quiet Light. And then there's also another agency called We Are Barney, and they specifically focus on selling productized services and agencies. So I can't gotten touched with their team and they've been, it's really interesting to kind of see what they're doing and kind of how they've niched out kind of the businesses they sell. So that's important as well, finding someone who like understands a service business model. And, but I think before even going to a broker, you know, if you have a strategic connection or the ability to sell direct, that's going to be like the most advantageous to save that 10 to 15 % commission.

49:07Yeah, exactly. if possible. But also, that's the value they bring. If they have that network and can sell your business fast, then sometimes it's worth it. All right. Well, Tyler, what's next for you? You can find... You've got the newsletter going on at productized.services. You've got the Productized Snacks podcast. What are you working on this year? Yeah. So really, the newsletter, I've got a weekly podcast where I interview a productized service founder really every week. And so I'm really staying consistent, trying to stay consistent, as you know, on that. And I also have an asynchronous mentoring program where I help service businesses kind of scale.

49:45And you have like one to one access with me on WhatsApp. So that's been a really interesting kind of way to work with some different productized founders and agencies and helping them grow. But really, yeah, the free newsletter, productized.services is the best place to get connected and then learn more about how to productize. Well, very good. Productized.services. Check him out over there. Tyler, thanks so much for joining me. Let's wrap this thing up with your number one tip for Side Hustle Nation. Yeah. So I was thinking about this and the first thing I thought of was a quote I'll start with first.

50:18And it's, you can't read the label while you're inside the jar. And that's by Keith Cunningham. And I think that's just really powerful, especially with any service businesses out there, side hustlers. And the point of that quote is really, if you don't have a mentor, mastermind, consultant available to kind of share your progress, get a second pair of eyes on what you're doing, that could be one of the biggest things that could help you grow. Because oftentimes, it's less about doing all the right things and more about avoiding the wrong ones. So a mentor or coach can really help avoid those potholes per se on the journey.

50:57I never heard that quote before. You can't read the label while you're inside the jar. A call to get some help along the way. Mentorship, coaching, masterminds, all this stuff has been tremendously valuable in my own journey. And I take it has been in yours as well. Big thanks to Tyler for sharing his insight. Once again, you'll find the full text summary with all of Tyler's top tips from the call, along with links to all the resources mentioned at sidehustlenation.com slash Tyler. While you're there, make sure to download my free list of 101 service businesses that might just be ripe for the type of productization we're talking about today.

51:31That is it for me. Thank you so much for tuning in. Until next time, let's go out there and make something happen. And I'll catch you in the next edition of the Side Hustle Show. So, hustle on.