[00:00:00] The Venture Podcast with Lambros Photios.
[00:00:06] So about two months ago, I started reading a book and the book that I’m talking about is this one that I’ve got here, it’s called Built to Sell, and it’s by a gentleman called John Warrillow.
[00:00:14] Now, the reason that I really want to talk about this book so much to the point that we actually made sure that we got the author on the podcast is because the lessons from this book I implemented into my business Station five just over a month ago. And in that month, honestly, I can’t say I can’t say that over the five years I’ve been running my business Station five, I’ve seen such a huge transition. I’ll get into exactly what happened. But first, I want to introduce the author. The author is John Warrillow. He’s the author of this book called Guilt to Sell. Turn Your Business Into One You Can Sell, and another book called The Automatic Customer Service Career as an Entrepreneur. John has started and exited four companies. He recently transformed Warilla and car from a boutique consultancy into a recurring revenue model subscription business, which he sold to the corporate executive board and Nasdaq listed company in 2008. It was recently recognized by B2B magazines who’s who lists as one of America’s most influential business to business marketers. And to be honest from this book alone. I’ve never read a book whereby I’ve implemented this these steps so quickly and had such great success. John, thanks so much for joining me on the podcast.
[00:01:28] Hey, Limbers, good to be here. Congratulations on the success. Thank you. I’m having a bit of a. I’m having a bit of like a celebrity moment here or I’m right. Meeting that meeting the author of this book, which is feeling like sitting on top of my bookshelf for the last couple of months. I finally put it down and read it. It’s been amazing. So the book’s fate is being written in a really interesting way.
[00:01:48] You follow the journey of a fictitious character called Alec Stapleton, who I think represents a lot of business owners for those who haven’t read the book. Can you talk us through who he represents? Given that that that particular character ultimately represents a lot of business owners you’ve worked with over the years?
[00:02:07] Yeah, I mean, he’s sort of on the cells do hamster wheel, right. So he’s he’s scurrying around trying to find clients and customers. And then when he gets customers, he does the work and then he sends the invoice and then realizes he’s got nothing at the top of the pipeline.
[00:02:22] And so he scurries around and tries to find more work and eventually he’s gonna gets tired of that that sort of hamster wheel and realizes that there’s got to be a better way. And so that’s that’s where he finds himself with. And there’s one there’s one kind of poignant character in the book, which is it’s it’s a parable, by the way. It is. You know, Lambros, it’s a it’s a fiction. But there’s a there’s a client who is is is annoyingly overbearing and has and it’s the individual. The protagonist in the book is runs an advertising agency. And the client is this kind of God. It works at a bank who knows nothing about creative and and and talks to this character about you, shades of pink that he wants his logo in. And it just, you know, these trivial things that creative people drive them completely nuts. So it goes on and describes the process he went through to change his business.
[00:03:18] And it’s so true. I think it’s I mean, why bank is the fictitious bank you created. But it was interesting because it resembles so many. But I think small business stories, you know, it wasn’t just about NY Bank and then being the huge flagship client that was really keeping keeping the stable tone agency alive. It was also the fact that you kind of draw this parallel to the staff member who works within the organization, whose mother works within the bank as well. And the fact that, you know, that staff member was underperforming but also couldn’t be replaced. And despite the fact that, you know, that doesn’t that’s on every kind of small business story, I think it resembles a bit of a metaphor for a lot of these situations that small business owners kind of put themselves into. And realistically, what it results in is a business that is not scalable and isn’t salable. But the one thing I also want to get across to our listeners is that one thing, right? When I saw the title of the book Built to sell, I thought, you know, I don’t want to sell my business. That’s not my ambition. But it was through writing the book that I realized these aren’t these aren’t strategies to create a business that you necessarily want to sell. It’s about creating a business which is salable. But ultimately, that doesn’t mean that your ambition needs to be to sell. It could be that your ambition is to scale. And when you when you kind of get to the end of the book, John, it becomes very clear that that’s that’s another, I guess, outcome of of of these lessons. Why is it that why is it that entrepreneurs shouldn’t necessarily have this mentality of I don’t want to sell, but should much more so be thinking in the mind of what a buyer of a business would ultimately wants to say in a business?
[00:04:57] Yeah. Because I guess buyers are pretty smart. Right. And among the smartest people in business. And they buy. Businesses that are likely to thrive in the future. And so using what a buyer looks at when they evaluate a company can be a great measure for how you’re doing as an entrepreneur. Like a lot of a lot of owners, I think, use topline revenue or number of employees as their their kind of a yardstick. Right. They’ll say, oh, we hit, you know, 10 employees. Fantastic. We had a million dollars in turnover. And these are these are sort of it just gets pumped out a little bit when they reach these kind of milestones. And while they’re worth celebrating, they can come actually at the expense of the quality of your company. Like most founders could reach a million dollars in annual sales by firing all their salespeople and simply doing the selling themselves. Right. Because they’re the ones who are the best at selling to the rainmaker. Their name is on the door in many cases. They’re usually the most compelling salesperson. But if you do that, you hit your bogy, your top line revenue goal, but you’ll do it at the expense of your value. And so I think thinking about your company as a transferable asset. Like what? What would make it like something that someone would want to buy? And if you distill that down to its most basic element, it is could your company thrive without you personally in the company for a business to have transferable value? By definition, it needs to be able to be transferred. So it has to work without you. And that’s, you know, a lot of people say all you all think about that when I want to sell. And in many cases, that’s way too late. You know, they build this sort of empire underneath them. It takes way too long, is too cumbersome to unwind. But if you can go and start with the end in mind and you think about who the natural acquirers are for your company from the beginning, you start to make much more nuanced decisions along the way. I think of your revenue is sort of vanity, right? I mean, it’s an easy number. But the much more nuanced concept of value and what others would value, I think leads to better decision making down the road.
[00:07:15] Yeah, John, I’ve implemented what’s in your book, so I’m someone who had this question. I know a lot would when when kind of going through it. People have been running the businesses for five years, 10 years, 15 years. You’re not turning around and saying how you should magically transform what you’re doing. The first thing that goes through the mind is, is pushback. It’s wait a second. I’ve been a tougher reputation. I’ve got clients in this space. I can do everything. We do everything for our clients. And we provide great customer service. And, you know, we’re top of mind. Them when it comes to X, Y, Z projects. Why in the world would I want to consolidate what I do? Down to a single recurring or subscription based model. Why in the world would I want to do that? It’s going to it’s going to completely mess up everything I’ve built over the last decade.
[00:08:06] Yeah, in a word, referrals. Because if you do one thing better than anybody else. Let me back up.
[00:08:13] One of the eight drivers of company value we talk about is this notion that you have monopoly control, meaning you do one thing better than anybody else. And Alex Stapleton, the character in the book, its its logos. But the process of going through and figuring out the one thing which you are better than anybody of the walls at any anyone else in the world, and delivering allows you to create pricing authority when you have pricing authority at better margins, better margins allows you to expand the business. But the big thing is refer ability. And if you think back to the last time you referred someone, maybe it was your dentist or car mechanic or, you know, a Web site designer or someone who you can think of that you referenced or made a referral to.
[00:08:59] Chances are they’re a specialist and probably not a generalist. And again, generalist companies are not attractive to acquirers because they acquire looks at a business. I’m not sure how it works in Australia, but in North America, we have these cable packages with television. You guys have the same thing where you’ve got the channels. Yeah, you get 100 channels and you want like three, right? And the same thing is true of a business when an acquire looks at the business and they see a company that does a dozen things. One of them really well. Eleven of them poorly.
[00:09:32] They know that as the founder, you’re going to want to be paid for all of your revenue, all your profitability. But as an acquirer, they’re looking at it saying, I only want the one twelfth of that business and I’m willing to pay a premium, but only for that very small slice of revenue. And so it can be a bit of a mug’s game, sort of supporting, spinning all the plates in the air, trying to support a wide variety of products when it doesn’t make you referable. And ultimately, it could even drive down the value of your company. It’s not neutral. It’s usually net negative. Having too many things that you do yet.
[00:10:09] And so stuff. Let’s talk a bit about Stoffe. So you bring people into the business who are also generalists.
[00:10:14] I think a lot of start ups say, hey, this is this is you know, this is James. And James is really great because he wears many hats. He’s out, Jack, of all trades. What are the folks in that particular endeavor like? Do you see faults in hiring people who are the jack of all trades, who can’t focus on just one particular offer?
[00:10:33] Yeah. Particular. I’m not a big fan of hiring people that come from the professional services world.
[00:10:40] So the advertising agencies, graphic design studios, architectural firms, law firms, consulting firms, because they tend to want to reinvent every problem in a different way. They’re generally. There’s an old saying that the service companies have a real tough time product rising, but product companies don’t usually have as much time adding a service layer. And that’s usually because service professionals tend to want to reinvent. They also don’t love being the McDonald’s of of whatever industry that they’re in. So creative people in your industry, if you tell them, OK, all we’re going to do is MCO from now on, they’re going to look at you and say, that’s not what I signed up for. You know, I want to I you know, I love to express myself through my creativity or I love to strategize with big clients like banks. And that’s just not what I want to do. And again, I would say, do you want a hobby or do you want a business? Because if you want a hobby, that sounds great. You can you can exercise that that muscle of creativity and you can do all these projects at the end. You will shut your doors and never sell your company. If you want to have a company flex that muscle. That creativity muscle by by building your company. By designing the way customers come into your business. By designing the customer experience, by designing all the materials around your unique process.
[00:12:03] That’s where you should inject and marshal your employees to inject their creativity, but not solving customer problems because there’s nothing transferable about customer challenges that people have. It’s just not it’s not transferable.
[00:12:20] Yeah. Yeah. Got it. I mean, I found I found it was it was fascinating that, you know, when we started to go through this consolidation process, the stocks, the software we have who weren’t from that professional services background, we’re incredibly fond of the transition. They found that they were doing three full of things that they didn’t like. And now they got to focus on just one particular outcome for context. For the listeners who don’t know, Station five, Station five is a software development agency. Historically, you know, we would help with everything from not just software development, but the testing process, the cyber security, and not just our standard kind of software testing cybersecurity. We’d go to lengths beyond just kind of standard application. We ended up doing consulting and helping companies, trying to sound what their initial go to market strategy should pay. And it becomes very noisy. And where we kind of consolidated things down was about providing a subscription model that ultimately allows businesses to engage our developers, our production team, full time. What this means is that we’re selling to ultimately varies significantly when most are selling to the creative agencies, to the large consultancies who need to expand their development teams and have access to developers on a subscription basis of one month, two months, three months. So a minimum times a month. So we’ve effectively. In some respects, identified that it’s an industry that is largely becoming to integrate commoditization and whet your creatives and your consultants need developers, but they don’t want to cost the work and lose ownership by sending it to a development phone. And so what we did was we consolidated our offering into one, which is pretty much we have software developers. We have software developers. And you can effectively hire them full time through us. We will do the management of them and make sure that if for whatever reason, they’re no longer working with us, Station five, we replace them, that we manage that process of making sure that we find developers who are experts with the technology that you need. We track them down. We get them up. Spade with standard processes and procedures that work with your business, which at this point logically, logically, industry standard anyway, and that we do on a month by month basis, the benefit is. And this is straight out of John’s book, is that they pay they pay at the start of each month, which means that when we’re not chasing work or excitement or chasing payment for work already done three months off the projects. Archer. So they’re paying at the start of each month for the month that’s about to happen. And a proceeds like that on a recurring basis. And since we actually went ahead and incorporated this model, the first paid back I got back from the developers was, this is great. We’re gonna have to work on one technology now, because that’s all we’re being brought in full. Which means they can specialize much more and just one technology instead of sitting across three or four projects with different technologies. And on the flip side of our 10 person production team, we’ve now got eight who are engaged under this model in a period of one month. That is since we set this all up. So it’s been a it’s been a really, really exciting transition for us. One of the hottest things that we have to acknowledge within this within this process was that there are some clients who just aren’t going to want to adopt the new model and unfortunately, they’re going to have to be let go of. John, what do you say to businesses who come to you and say, you know, we don’t want to lose our biggest accounts, we don’t want to lose the NY bank? Who is who is funding, you know, 50, 60, 70 percent of our revenue?
[00:15:42] Again, I would say that your your business is unsellable in those circumstances. So if you have a client who’s generating 60, 70 percent of your business, you’re just you’re just on a hamster wheel, you’re treading water. You’re going nowhere because an acquirer looking at that business will look at it and say, well, if if that client leaves, your business is worthless. And so it feels good to have a big client. It may provide some cash flow, but unless, you know, if that’s if that’s all your goal is, is to is to drive, you know, a stipend, a salary, a bonus, a dividend out of your company, which is totally legitimate, but it’s not building anything. And the problem with that is that it sucks resources away from what your vision is. If your vision is to is to do something specific. You know, a big client tends to suck resources. They tend to seek attention. They suck all the air out of the room. And what never really happens is you don’t ever get to what you really want to get to. I had a chance to get to know Jason Freed a little bit. Jason runs a base camp, you formerly 37 signals. And he talked to me about the transition to base camp because in the in the early days, base camp was a or 37 signals was a digital design shop. They did a Web site and they built some software on the back end that helped them manage projects because they found Microsoft project difficult to work with. And some clients started asking me about this really simple to use project management software. And Jason said, you know, like, I guess I can sell to whatever. And over time he didn’t realize it, but he was building out a Sask product and a background. He went so far as to replace all of his revenue. He was getting from major client work with this SAS product that, you know, 10, 20, 30, 50 dollars a month per client, per customer. But he replaced all of it. And that’s when he turned off his customer work. And I asked him about that. And he said, you know, I hated the feeling. And Jason, if you know him, he’s a very independent guy, is a very independent thinker. He wrote a book called Rework. And, you know, he’s a very into Pentagon. And I said, what? What didn’t you like about about the old business? And he said, I hated that feeling of being beholden to a client, that sense of always having to, you know, do what they say. And he even though he knew that they were proposing ideas that were wrong headed, that he had to do it because they were writing a check for 60 or 70 thousand dollars. And he loved that sense of independence that comes from having, you know, tens of thousands of really little customers.
[00:18:20] And no one of them could tell him where he was or what he wanted to do. And then they get the core of a lot of owners. And this is a way to pressure check yourself if you’re thinking of starting a company, if you’re in a corporate job, for example, and you’re wondering, is entrepreneurship person for me, think at the core of of a lot of owners is the need for independence. And they would sacrifice just about anything for the ability to say f you. I don’t know. I don’t want to do it that way. I don’t want to serve that client. I don’t want to, you know, whatever. So that’s Jason. I really kind of his comments really resonated for me.
[00:19:00] Yeah. Definitely not as yet familiar the story of Biskind for I think it was a few customers would walk through the office and say the self were on the computer and ask, hey, what’s that? And I went from an from a creative agency to a global pace phone. Let’s talk a bit about SaaS companies, the. The example in the book is with an agency, the state which an agency and you see it’s very clear kind of what that transition looks like of kind of taking taking designers or creatives and ask them to follow a set procedure as taking the business or not and separating them from the production side of the day to day operations. When it comes to assess product, how is it that a manager who could have been someone who was a developer or a designer and was actively contributing to the product? How is it that they step out? And I look at examples like, say, Microsoft, even where, as we know, Bill Gates was, was quality, controlling every line of code in the operating system up until Windows 95. How is it that companies can start found as can step out of the day to day the production side of SAS based businesses? And should they be?
[00:20:11] Interesting. Yeah, I think look, I think SAS is pretty sexy and lots people want to be in SAS businesses software as a service businesses. I think, you know, I would draw the distinction between a software as a service business and a simple subscription based business.
[00:20:31] So there are similar. Most SAS companies are based on a subscription business model. But the subscription business model can be adopted by a much broader set of companies. So clearly, SAS companies can. But even, you know, carpet cleaning companies can bill on a subscription basis if they have recurring service contract.
[00:20:52] So, first of all, I would I would I would ask yourself, do you really have a SAS company in in that you have a piece of software that sits on a server in the cloud and that people access that through the Internet? I mean, that’s a very specific type of products vs. a subscription business, which can be lots of high street businesses that move to that model. Most of the SAS founders, not most a lot of the SAS founders that I’ve dealt with are multi founder companies. So it’s not just one owner, you know, even Bill Gates. You bring up Microsoft. Well, there were there were multiple founders, right. Of the founding team was nine.
[00:21:33] A lot of these SAS companies have a product lead who is a very deep product person, thinks deeply about the product. And then you have in many cases, sort of more of a sales marketing front end, you X guy or gal who is more about like, how do we sell this? How would we market it, etc.. So it’s rare to find both of those skills in one person. Most SAS companies run out of money really quickly because they build on a on on a monthly usually basis and therefore they they need to raise money.
[00:22:08] And so a lot of them are are working with other people’s money, DSD or private equity or whatever. So had the luxury of having multiple founders, lots of people on staff because they’ve got outside money, which is not something that typical small business has access to.
[00:22:25] Yeah, I do want to talk a bit about kind of going from small business to multi-national. But before we get into that, there’s one piece, one piece of the puzzle which is vital, which is bringing sideways PayPal. There’s some great lessons in the book about hiring, too. So people first. So there’s a sense of camaraderie, but also competition. When is the right time for a small business to bring in site? Was PayPal is conventionally the founder or the card founders have been the ones who have been driving sales.
[00:22:59] You know, as soon as you can, you can codify your sales process.
[00:23:03] It’s probably the time to bring in sales people. And when I say codify, I mean actually document the process of that, someone else could follow it. And a lot of times founders think that they have done that. But what they have underestimated greatly is that they are typically the technical expert in their company. Right. And as a technical expert, they have just mountains of credibility and they lean on that either subconsciously or consciously when they sell. So they can document the sales process for a sales person, a new salesperson, but they’ll often find that that person will fail because they don’t have the credibility and the gravitas that they had because they’ve been in the industry. And again, this gets back to the importance of doing one thing. You referenced the company. You said like 70 percent of my revenue comes from, you know, a broad swath of products and services. Why would I ever walk away with that? Well, part of the reason you want to walk away from that is, is it’s undermining the value of a company. Number two is you’ll never find salespeople that can sell a broad breadth of products because sales people tend to really thrive on repetition. Right. They want to talk tracked. They want a deck. They want referrals, references, ins, case studies. And they want to master those. And once they’ve mastered them, they become compelling in delivering a sales presentation. But the wider you are in products and services, the more products and new market fit you’ve got across different segments. The more difficult it is for for salespeople to actually master their pitch. So, look, if you can document your process so that someone else can follow it, I think the time is is ripe to do that. And the key lesson is don’t hire one. Hiring one usually means that you are held hostage by that individual. You give them all the territory, all the universe to go sell to. And you’re never sure if they are successful. You never sure if it’s because they’re a great salesperson or because you have a fantastic product or you’re you know, your process works hiring, too, even if it’s just to gives you. Titian. You play one off the other. Making sure that they are being genuine in their in their approach. And you’ll know whether you have a successful product or just one successful salesperson.
[00:25:23] You mentioned that, like, how do you quality how do you quality check the effectiveness of the sales people equally? Are you need to set an initial KPI initial benchmark with respect to kind of what your expectations are as to how they should be performing? How do you set that first KPI?
[00:25:39] Well, I mean, I think I think you have to start looking at some sort of sales pipeline or funnel. Right. So in early days, you know, most sales pipelines, again, this depends on the on the nature of what you’re selling, how long the sales cycle. But they traditionally go through classic sales cycle where you’ve got sort of awareness, where you put people in the top of the funnel and you educate them over time or middle the funnel, you build a value proposition and that they and then ultimately you close this, you take them through a funnel. And what I would be looking for is at each stage, you know, are they mastering each stage? So are they able to prospect prospect effectively? Right. I mean, if you’re creating demand for them, that’s different. But are they able to go find the prospects and get them on a call? Great. They’ve reached they’ve passed through the first gate. A second gate is can they move people from the first phone call or the first interaction into the second interaction? And once they’ve mastered that, then they’re you’re going through these gating process. So a lot of a lot of business owners say, yeah, I hired a sales guy, never worked out. And that’s that’s unfortunate. But one, you may not have given them the proper training, but you know, what you want to do, I think, is break down the training into into small gates that they have to sort of pass through in order to get to the ultimate goal, which is making a sale.
[00:27:01] Yeah, I know. I know. The model that we have discussed is very I guess it acts as a huge catalyst for referrals, because when you specialize in that one particular outcome, well, that one particular service, that’s where you become very referable does. Would you say that that means there’s less of a requirement for having a kind of dedicated marketing team that’s carrying out, I guess, outreach and brand awareness? Because we’re really become your your your primary generator new business.
[00:27:34] Well, I think you have to decide if you’re going to be inbound or outbound, right? So inbound company relies on inbound leads and then has some, you know, inside salespeople generally. Whoo hoo hoo hoo.
[00:27:44] Close those. Those leads. And there are plenty of examples of companies like that. And then there are obviously outbound orany companies or outbound companies will identify a target segment and go after them. Outbound companies generally are putting a lot more emphasis on their sales channel and they’re hiring, you know, sales, developing reps to make set up meetings and there and they’re doing a lot of investing in that sales channel. And so if you have a more complicated product, has a longer sales cycle, you’re probably better served by an outbound channel. Right. If you have a relatively easy to explain product, maybe a lower price for it and a shorter sales cycle, you’re probably going to be best served by an inbound channel. You know, there are obviously exceptions to that and examples of that fall outside of that. But that’s probably how I would be thinking about about it. And the more you especially for an inbound channel, you don’t have the luxury of being eyeball to eyeball with the customer and pivoting, you know, listening for what they’re looking for and kind of redesigning your solution on the fly and saying, well, it sounds like what you need is a you know, your problem is X, and therefore we’re gonna give you Y, you don’t have that luxury. And so in an inbound model, it helps to have one thing that you’re exceptionally good at. And and that’s and that’s relatively easy to explain.
[00:29:06] Yeah. Got it. Let’s talk a bit about kind of growing the business beyond that point. The point that the book kind of gets are the book obviously is focused very much on Alex type, which earned her once an acquisition and goes through the process step by step of of of how he gets to that outcome. First Habré I breathed a sigh of relief at the end of the book. I think it was it’s one of those moments where you think, jeez, I copy that A-Z end up. But but it also it also kind of makes you think, well, the business got, too, in terms of the size of the business and the scale that Alex was starting to achieve. You really start to think he could have. He could have really taken this business on his arm to amplify globally. What he wanted was an acquisition. He wanted to get out. What if what if your ambition is to is to go global? At what point do you start to introduce new service offerings? Is that is that a problem? Do you try and take that one side suffering globally or as far as you can take it? What do you do? John, what you told the entrepreneurs who one, take it that next level and don’t want to get out.
[00:30:09] When Alex got out, I tell them.
[00:30:17] There’s never a better time to sell them when things are going well, that you can put one foot on the economic ladder, rung of the ladder.
[00:30:31] Take some money off the table and never, ever fall below that rung on the socioeconomic level layer. Most a lot of first time entrepreneurs think I’m going to go global and they focus on raising money.
[00:30:44] And they winnow away a lot of their freedoms by bringing on outside investors, many of whom have preferred Surete share rates or preferred share rights, which oftentimes dilute the business down of nothing. I had the chance to talk to Rand Fish and you know, Randy does MCO Monds. Not the product, that’s who I am, was I? OK. Yeah, so. So Rand wrote a great book. It’s definitely worth reading called Lost and Founder. And he. Right. You know, he had. Interesting story. He gets a quote. It gets approach is MCO product, this search engine optimization prize. And he gets approached by Brian Halligan at the time. And still to this day, to my knowledge, still runs HubSpot, one of the marketing platforms. Yeah. And Halligan wants to buy Ran’s company. It’s generating about five million dollars in annual revenue and it’s a SAS company. And Brian offers twenty five million dollars of cash and stock. And Rand is growing quickly and thinks his company’s going to get to 10 million the next year. And he’s heard that very fast growth, ultra fast growth SaaS companies traded about four times top line revenue. And so Fishkin in his mind thinks, well, this is a 40 million dollar company. And Halligan says, no, it’s not. It’s a twenty five million dollar company. And Fishkin says, no, I’m not going to sell. And so instead he goes. Does what you’re you’re describing. He goes global and decides that he’s going to launch seven different products, all of which have less and less to do with MCO. And the results are not surprising. He raises a bunch of money from the venture capitalists. The venture capitalists takes what’s called preferred share rights, which basically means that they are guaranteed a a return before the founder is able to access any cash whatsoever. Yeah. Rand has too much money and loses focus to the point where the venture capital is. Takes Rand out of the company. And Rand is now a minority shareholder. When I spoke to Rand for my podcast, I said, tell me, what would that offer would have been like had you accepted the offer? Said, Well, first of all, I would had twenty five million dollars in my genes. Second of all, part of that was in HubSpot stock. And given the growth of HubSpot stock. That offer would now be more than two hundred million dollars. When I interviewed him, I said, what’s what’s your net worth today? And he said, my net worth is about eight hundred thousand dollars. And most of which he was about to spend on elder care for his parents. The shares he he he still owns and mozz are in his own mind. Probably not worth very much, again, because these voices have preferred shares rights. And it’s just a cautionary tale about going global. So I’m look, I’m very skeptical of this idea of scaling up and growing at at at at at all costs. I think it’s much better to build a product, build a company, sell it, take the proceeds, park half of it, reinvest some, build another product. I mean, most of us as entrepreneurs, we love that. We love the game. We love the star. We love the fun, the excitement of trying to find a product market fit and the newness. Very few of us love the monotony of growing a business from five to five hundred million dollars. I mean, personally, I’ve never done it and don’t aspire to. I think there is much more fun to be had by by building up, you know, two or three, five million dollar companies than than one twin. Our company as an example.
[00:34:27] Yeah, it’s I rush at the stock. Right. Like that. Russia. Yeah. As you said, fine. And the product market fit selling to the first few companies and and validating that and then, you know, really starting to grow it set up the processes. But I think once you get to a certain point in that class, I think that initial excitement kind of starts to disappear because ultimately the newness is gone.
[00:34:49] Yeah. I mean, you think about what it takes to to take a company from scratch, nothing from idea. You have to have a set of skills to conceptualize something, to have the risk tolerance, to basically see it through, despite nobody seeing it tangibly in front of them.
[00:35:11] You have to have the salesmanship and the in the and again, the willingness to deal with ambiguity, the ability to pivot and be agile all the way through those startup months until you can actually throw enough against the wall that something sticks. Well, those are exactly the wrong attributes to run a large company. That’s like that’s like a job description of a disaster waiting to happen. Right. If you’re good at the idea generation and all that stuff. Yeah, those things are a place a high premium on in the first couple of million dollars in revenue and they’re actually liabilities. If you want to go from ten to a hundred million, they’re like you. You don’t want that guy in the room. Yeah. Because they’re a disaster. So I just think, look, most owners, I think, reach a point. And we’ve seen it in our own work at. Builder, you know, they reach a point at three million, five million, seven million, 10 million, and they pull up and they go, oh my gosh, if I sold this company, I would never have to work again. Like, I would have enough money that as long as I wasn’t stupid and didn’t need private jets and all the craziness, I would have enough money to live comfortably for the rest of my life. Most owners, when they reach that point of them, realize that they have reached that point. Also realize that every day they hold their company is another day. They’ve got all their chips at the poker table. Right. They are all in. And I know two entrepreneurs who I spoke with around January and we’re recording this and may still in the depths of this pandemic, who said, you know, I was thinking of selling, but, you know, I’ve had just a great year in 2019. You know, I think we’re gonna hold off for another few years and sell later. Well, as you might imagine now, they wish they had made that decision differently. Right. Because what they hadn’t realized is that they were all in. They were all in on the poker table. And nobody knows what the next Black Swan event is going to happen. And if you sell, park the cash and go start something else, you never have to worry about dropping off that rung on the economic ladder. So I think I got me on my high horse on this.
[00:37:18] All enough. Fair enough. Business one.
[00:37:22] There’s one other pathway which is very similar to kind of, you know, keeping all your all your poker chips at the table, as you say, and it’s keeping the business alive and keeping it, retaining ownership of that business. But getting another manager in to keep it at the level that you Garnett’s. So not necessarily continuing that that that crazy grass, but continuing at maybe a very steady 10 percent year on year or even just trying to stay where you are and keeping that going. Obviously getting some, you know, recurring revenue out of that and using that to fund your lifestyle to fund other business opportunities than anything else. What are your views on that, John?
[00:38:04] Yeah, look, I think if you can get if you can feel very confident you’re going to grow, you’re north of 10 percent. If you’re going to grow 20, 25, 30 percent with a two, I see a second in command general manager running your company for you and you can screw off to the beach or whatever.
[00:38:22] I think it’s worth considering very carefully and it’s a great option. The reality, though, is if you’re only if you feel confident that you’re going to be able to kind of keep the business going, grow at five percent, 10 percent a year, I would say, why would you bother? Because you can get that out of the stock market. You can basically take the money, invest it in a diversified set of stocks and then have the ultimate in freedom.
[00:38:49] Right. Whereas if you’re still holding 80 percent of your net worth in a company, you no longer run. And that company is only growing five or 10 percent a year. Why would you hold that kind of equity in your personal portfolio at such a massive, you know, without lack of diversity to only get five or 10 or 15 percent growth every year? So I think if you you know, there’s a there’s a company near you in in New South Wales called Dimples, you know. Are you familiar with the company Dimple Raise about. Yeah.
[00:39:24] Yeah. Great, great, great guy. Jamie and Damien James is a guy who founded it, built it up to a couple of million dollars in revenue.
[00:39:32] They do their foot doctors and they do podiatry clinics in old age homes. Yeah. And so they do these contracts on subscription basis. They go around and he built it up to I camera a few million dollars in in in annual revenue. But he was just kind of stuck there. And what he had was the opportunity to hire a chief operating officer who had a lot of experience in the industry. It’s kind of kind of growing a business. And he brought this guy in and within two years they went from like three million to. I want to say over 10, maybe 12 million. He ended up selling the company for thirteen point four million dollars. That’s a different proposition than bringing in a caretaker who’s gonna grow your company. You know, five or 10 percent a year. I really struggle with the caretaker idea because I think it’s going to be No. One really tempting for you. It’s gonna be too tempting for you to step in and run it. Yeah. Someone who’s just kind of average at doing it. Number two, you just lack diversity in your portfolio. Why bother if if the growth is only five or 10 points, you can get that by, you know, investing in Telstra and ANZ and all the big companies that are are well managed. Yeah. Whereas if you’ve got someone in a chief operating officer or president role, a general manager who you think has the has the capacity to kind of like really grow the business, then I think it’s worth considering.
[00:41:00] Yeah. Got it. I think. You just coming back to that kind of global mindset? I think it sounds like, you know, if you want to go do something, if there is a pathway that the entrepreneur is listening, want to go down where you go, do the same capital raise, get some initial cash in the door, and then build out your initial product, then do a series IBSA Day and all the way through to Z. I think what you need to accept very quickly is that A, you’re going to ultimately need to sacrifice the large majority of our ownership of that business, which means that you lose the control to do things the way you want to. I think it’s a reality that a lot of entrepreneurs don’t really think too much about. They see it as getting capital set. They can do the things that they want to, not realizing that true three years down the line, they actually lose that very control that they just traded away on. The fun. The flip side. You know what was so good about John? I see very much as the kind of bootstrap mentality. It’s about kind of having something that is either self-funded or or didn’t need funding at the start or perhaps had a very small amounts of funding whereby you still retain control. The idea is that you’re very excited about that initial rush, that initial cash constraint for the first 12 to 18 months. And it’s about building something from zero to 10, not from ten to one hundred and going global. Would you? Would you agree with that?
[00:42:20] Yeah, for sure. I mean, I think there’s a fundamental decision that most owners need to make is is do you want to be famous or rich? And and and venture backed companies create entrepreneurs who are famous, but very few of them become rich. There is a litany of companies that get funded to the tune of millions of dollars by these CEOs. And the founders get nothing or very little out of out of vacation. Sure, there are the Mark Zuckerberg and and so forth that that are venture backed companies that do well, but they are the vast, vast, vast minority. Whereas I think the path to wealth is finding a tiny little corner of the universe that very few people care about or the competitive restraints are limited, that you you can actually create a high margin business in a very small little little corner of the market and become irresistible to an acquirer who wants to add your product, your service to their stable. And so you make great margins along the way. And then you sell your business, which you own 100 percent of or a very high majority of it. You know, and I mean, I do this podcast. I’ve done 250 episodes now. And I can tell you that the people who create enormous wealth are generally the ones who don’t go down the route of venture capital. There are very few examples of in my show, you know, I just interviewed Gaby Sture, as I think is how you pronounce her surname. She built a a time keeping app for lawyers. And what her proposition was, was to do it so that lawyers could keep time like client time, billable time on all of their apps, and they would all sync up. And she built this business up. Not a big business. I think five or six million dollars in annual revenue. She tried. She got she thought it was worth between five and seven times top line revenue. She sold it to Roper, a Fortune 500 company public company. She got them to increase their offer by 40 percent. And it is absolutely bootstrapped company.
[00:44:34] No, outside capital. And it’s made her fabulously wealthy as a result. I could go on. There’s hundreds of examples of that on the podcast. But that’s a that’s a theme that I see a lot. Yeah. Do you want the do you want the fame or do you want the wealth? I guess that’s what it really comes down to here. Oh yeah. Yeah. I mean, look, business. Businesses. The media loves recognizing growth.
[00:45:00] If you look at the BRW one hundred, do they still do that in Australia? The Bureau. Yeah, it’s called the IFR. One hundred now. But yeah, it’s the same thing. Yeah. It used to at the time.
[00:45:10] I think it probably does. Still it celebrates top line growth. Right. Right. So what’s the five year end. Top line.
[00:45:14] You could be operating at a loss, but if you’re a tough line, you could have gotten all kinds of diluted yourself down to single digits and you make the front page of that list. And it makes feel good. It makes people recognize you on the street. They know, you know, who you are, where you’re. You show up at the at the pub. But it in my mind, it’s not the way to run a company. It’s very, very, very rarely is it the way to go unless you have something that where speed to market is is the ultimate currency and you have the next the next Instagram as an example where you must take that turf. People think they have that business. Very, very, very few people actually do. And where we’re speed to market is important. In most cases, it’s not. Most cases, most ideas had been around for, you know, hundreds of years. And it comes down to the person who does it with a slight tweak, a slight improvement. And that’s the company that wins.
[00:46:22] Yeah, yeah. And a great finishing art. Unfortunately, that’s all we’ve got time for today. So those are interests and Check-Out built to sell. It’s a phenomenal book, even if you’re not looking to sell. It’s about creating a business which is scalable and can operate without you there in the day to day. It’s definitely one of the most insightful books I’ve ever read and actually implements, as I said, within within a few days and sane results in a month. It’s been absolutely course easy. John, thanks so much for your time being on the podcast. Really appreciate it. Thanks, Slammers.
[00:47:08] The venture podcast with Lambros Photios.