Exit Planning

I recently went one on one with Michelle Seiler Tucker. Michelle is the author of EXIT RICH: The 6 P Method to Sell Your Business for Huge Profit and the Founder and CEO of Seiler Tucker Incorporated. Michelle has sold hundreds of businesses to date and currently owns and operates several successful businesses.

Adam: Thanks again for taking the time to share your advice. First things first, though, I am sure readers would love to learn more about you. How did you get here? What experiences, failures, setbacks or challenges have been most instrumental to your growth?

Michelle: I have always been an entrepreneur at heart; I have always had the entrepreneurial spirit and I have always owned small businesses. However, I did get sucked into corporate America early in my career and found myself working for Xerox. I excelled with this company and, within six months, was promoted to regional manager where I managed over 85 unruly salespeople. But despite this success, I missed entrepreneurship. I started looking for a business I could buy that could be operated on the side and would run passively while I still held my corporate Fortune 500 position.

I ended up stumbling across a very appealing franchise organization. However, once this organization found out I was going to buy a franchise, they quickly said, "Michelle, we don't want you to buy a franchise, we want you to partner with us; we want you to put us on the map." This is because my nickname at Xerox was 'the closer'-- I closed everything! Anytime a salesperson could not close a deal, I was the first person they would call. I would come in and close the deal right then and there. This is the main reason I got promoted so quickly to regional manager. Anyways, this particular franchisor wanted me to partner with them. After considering their offer, I said, "Look, I'm not going to leave Xerox for something that might not work out. After all, you have not been able to sell any franchises. But I'll do it for six months on the side and we'll see how it goes."

I began traveling to trade shows and creating different sales events on nights and weekends. To my surprise, I made more money in those six months than I made in an entire year at Xerox. I then decided that it was time for me to take the leap, leave Xerox, and start my franchise development career. I began in franchise development, consulting, and sales, serving hundreds upon hundreds of franchise organizations.

I remained a partner with this franchisor for a while, but eventually we no longer saw eye to eye. They were continually overpromising and under-delivering. The franchisee would pay for services up front and would not receive what was initially promised to them. Due to my ethics and values, I could not continue to support this franchise as a partner and ended up separating from them through a buy-out.

Soon after this I decided to start a mergers and acquisitions firm and began selling businesses. Through my years of experience selling franchises, I had a network of buyers that would come to me asking, “Do you have an existing business for sale that's not a franchise?" I gradually transitioned into selling small companies and eventually moved into selling large businesses appraised for $10,000,000 and up! Since then I have been able to acquire a tremendous number of certifications and accolades related to mergers and acquisitions. 

After this transition, I realized very quickly that I needed to start fixing businesses in order to sell them. 8 out of 10 businesses will not sell, so if I did not start fixing businesses, I would not be able to eat! I broadened my horizon and started fixing businesses, buying businesses, flipping them, partnering with business owners, and overall, just building sustainable, scalable, and sellable businesses. That's pretty much how I got my start.

I have had a tremendous amount of experience as an entrepreneur and have been fortunate enough to work with other entrepreneurs all over the map! When you have been a business owner for as long as I have, you are bound to make mistakes and experience setbacks. But it’s the people that don’t give up and keep pushing forward that become successful in their field. I also love hearing my client’s stories about the setbacks and failures they experienced along the way and how they never gave up on their dream. I'm like a kid in a candy store when it comes to entrepreneurship, I’m very passionate about what I do. 

As far as failures and setbacks for me personally, though, Hurricane Katrina was definitely one. My business is located in New Orleans and many of my clients are in or around this area. This storm pretty much wiped out this region, and about 90% of my client's businesses were underwater. This was a huge setback for me to overcome, but most importantly, for my clients to overcome! 

Other failures I have experienced include hiring the wrong people and not doing enough due diligence beforehand. For instance, spending money on vendors who say they can create my website or that they’re the best at marketing campaigns who end up underdelivering. It's a lesson learned type of challenge.

Overall, mergers and acquisitions is an extremely challenging industry. It may even be the most difficult industry anyone can be in. The industry has the biggest failure rate in comparison to any other which alone is a huge challenge to overcome, especially with COVID-19 shutting businesses down across the nation. Many businesses that were doing great are now going under and filing for bankruptcy. On the flip side, however, many businesses that were not performing well are now having their best year ever! 

Despite these challenges and other setbacks, I just keep pushing forward. You always have to remember your "why." It’s these challenges that have been most instrumental in my growth. I always think to and remind myself that I can do it again. It isn't easy; it's a difficult, difficult process. I've had deals almost fall apart, but it gave me the confidence and ability to continue on and close more large deals.

Adam: Why do you believe small business owners and entrepreneurs should be thinking about an exit strategy from day one?

Michelle: I have always believed that small business owners and entrepreneurs should be thinking about an exit strategy from day one. However, my reasoning for that has changed slightly over the years. In 2013 when I wrote my first book "Sell Your Business for More Than It's Worth,”  I researched small businesses extensively and found that 85-95% of all startups will go out of business in the first one to five years. Startups were at great risk, and everybody knows that-- this is common knowledge.

However, when I wrote "Exit Rich" in 2019 and did the same research, I found that the business landscape has changed dramatically. Now, only 30% of startups will fail within one to five years, and a whopping 70% of businesses that have been in business for ten years or longer will fail. Think about that! Those are startling statistics, and it is terrifying. You hear about the public companies all the time, such as the big box stores like Toys R Us, Kmart, Steinmart, or GNC, which closed down 900 locations. But what you don't hear about is the small businesses on every street corner, in every town, and in every state across our great nation that are dropping like flies. Because they are private companies, they don’t make the news, so people don't hear about them.

There are 30.2 million businesses in the United States. Small business is the backbone of our economy, employing over half of the United States workforce. If 70% of these businesses go out of business that means lots of jobs will be lost. So, we have to do whatever we can to save small businesses. It is my mission, my passion, and my number one desire to keep as many small business owners as I possibly can from going out of business. My goal is to help them become sustainable, scalable, and sellable businesses so, when they're ready, they can Exit Rich®.

The biggest mistake that business owners make is not thinking about selling their company. They never think about selling until they have to, or until an internal or external catastrophic event occurs.  When an internal or external catastrophic event occurs, guess what happens? Their business typically goes down, and it won’t be worth nearly as much in the eyes of buyers. The best time to sell the business is when the business is doing well. Unfortunately, however, business owners never think about selling their business until they have to.

We plan for our legacy, but we don't plan for our exit! That is financial suicide. My company has sold over a thousand businesses over the past 20 years and I have never seen a business owner plan their exit from day one. This lack of planning is a huge reason most businesses don't sell. 

There are many reasons why a business may not sell, but this is the biggest issue. Not planning your exit from day one causes owners to plan the sale based upon their current needs and not the worth of their company. They think about selling and say, "Oh my gosh, I need $5,000,000 for my company" or "I need 20,000,000." Why? I always ask my clients why and how they came up with this value. Usually their response is, "that's what I need to retire on", "that's what I need to pay off my debt", or  "that's what I need to put my kids through college.”

Those are all excellent reasons, but they're not acceptable reasons for a buyer to overpay! A buyer is not going to base their value upon what the seller thinks their business is worth. A buyer is going to pay based upon what the business is truly worth to them. This is why I work with our clients to plan their exit immediately; we call this the ST GPS Exit Model®. 

We take all of our clients through this GPS system. First and foremost, they have to have a plan and know their current location. A real GPS already knows your current location, or where you're starting from, and takes you to your destination. Same thing with the ST GPS Exit Model! Your current location is what your business is worth today. You then need to know what your destination is, or what you want to sell your business for, your end game.

If your current valuation is 5 million and you want to sell for 20 million, the next thing you need to know is what your time frame is. If your time is five years, you need to get your company from 5,000,000 to 20,000,000 in that time. The next thing you need to know is whom your buyer is going to be. You have to know who or what type of buyer is willing to purchase your company. 

For example, if you have a manufacturing business and want to sell for $20,000,000, you need to know who buys manufacturing businesses. Is that a private equity group, competitive/strategic buyers, a sophisticated buyer, etc. And you must know what the buying criteria for a $20,000,000 company is. What are its gross revenues, cost of goods, expenses, gross profit margin, EBITDA etc. The more time a business owner takes to think about their exit strategy, the easier it will be to sell their company for their desired price tag!

Adam: How can entrepreneurs objectively evaluate their business’s worth?

Michelle: It's challenging for entrepreneurs to evaluate their business because most knowledgeable entrepreneurs don't know their financials. They have no idea what they're actually making. They also don’t know what they're running through the business. On top of not knowing their financials, they don't understand how businesses are evaluated.

Valuating a business is an art rather than a science. Most CPAs have also told these entrepreneurs that they can get a multiple of their gross revenue. This couldn’t be further from the truth! Buyers do not pay multiples of gross revenues. They pay multiples of adjusted EBITDA, and if you don’t know how much you’re making, how can you value your business?

Furthermore, they don't have the resources to pull industry standards or market comps on businesses currently on the market or that have been sold. Most importantly, though, they don't know how to value their business on what I call the ST 6 P's®.

We value businesses based upon a company running on all six cylinders. If a company has people in place with a tenured management team and some great talent on board, then that is a value driver. If their product is thriving and not dying, that's also a value driver. Suppose they have efficient and productive processes, operation manuals, SOP’s, and employee handbooks, that’s a value driver. Most importantly, proprietary assets are value drivers. They should have filed trademarks and/or renewed patents. For example, the Coca Cola brand alone is worth over $80 billion; the Apple brand alone is worth over $350 billion. If they have contracts in place with manufacturers, distributors, vendors, and, most important, clients, and those contracts are transferable, that's a massive value driver. We can also get our clients a lot more money for their business if they have a database that can be retargeted and repurposed; that's a huge value driver.

Another issue with entrepreneurs valuing their businesses is that they have no idea how to put a value on synergies. It's one thing to put a value and come up with a price on the business, but it's another thing to take that business to market and bring in several buyers, creating a bidding war. In this scenario, the client receives far more than what the business is valued for. Buyers will buy synergies, buyers will pay for contracts, buyers will pay for talent, and buyers will pay for patents. Entrepreneurs have no idea how to put a value on these 6 Ps! This is why entrepreneurs need to align themselves with a mergers and acquisitions expert. Telling entrepreneurs to evaluate their business is like telling somebody who's having chest pains to diagnose themselves. It just doesn't work! You have to seek the advice of an expert!

Adam: What do you believe are the biggest mistakes small companies make that lead to unnecessary business failures?

Michelle: There are lots of mistakes that business owners make. Number one is not planning their exit and being forced into selling their business because the business is not performing well, as we have discussed previously. 

Another big mistake that business owners make is that they don't operate their business on the six cylinders, or 6 P’s, we just talked about. Not focusing on their business processes is the first mistake. Business owners haven't designed these processes with the customer experience in mind. If you don't design your processes with the customer experience in mind, you won't be in business very long. This is because you're going to have a lot of unhappy customers and have unhappy customers telling other potential customers. The second mistake is not protecting their IP. Owners don’t get federal trademarks and don’t apply for patents. You could be spending hundreds of thousands of dollars on trademark infringement if you don't protect your brand.

The third mistake is not focusing on their patrons and not developing customer diversification. Owners must strive to develop a diversified clientele. If you have customer concentration, that could cost you your business; if you lose one customer you can end up going out of business. I once worked with an advertising and marketing business in the casino industry. During their evaluation process, they lost all but 3 of their clients and were left with a huge overhead. Customer concentration is huge. The fourth mistake is not having the right people in place and not having the right management team. A manufacturing company can have a bunch of 1099’s working for them but if one of them gets hurt or injured, it can put you out of business. I always say that profits are never the problem but always a symptom of not having the right people in place. The other biggest mistake I see people make in regard to the 6 P’s is not making sure that their contracts are transferable. 99.9% of all business owners never make sure their contracts are transferable. 

The third biggest mistake I see business owners making is they end up working in their business instead of on their business, which impedes innovation. You should hire out your weaknesses and focus on your strengths. If a business owner begins to work in instead of on their business, they could lose sight of the bigger picture, which could cause the company to become complacent and not know when they need to pivot. Blockbuster is a perfect example of this. Blockbuster didn't innovate, but Netflix saw the writing on the wall. What did Blockbuster do? They did nothing, and many business owners are doing nothing but working in their business. You need to be working on your business, not in your business, and you need to AIM: Always Innovate and Market.

Adam: What are your best tips for entrepreneurs on how to scale their business and prepare their business for profitable exit? 

Michelle: Again, my best advice is to go back to the 6 P’s and ST GPS Exit Model. For a scalable business, you have to focus on the ST 6 P's. If you have your business running on all six cylinders, you will have a scalable business. You have to have the right people in place. You don't build a business; you build people and people build the business. You have to have the right management team in place; you have to hire your weaknesses and focus on your strengths. You have to make sure you're in the right industry. You have to make sure the industry is thriving, and you have to continue to innovate and market no matter what. Apple never stopped innovating! You should always ask yourself, "What business are you in and what business should you be in." That's what Steve Jobs did when he came back to Apple. He asked, "what business are we in" and they said, "we're in the computer business.” Jobs said, "no, we're in the communication business, the connecting business." That one question alone developed the iPhone, the iPod, the iPad, and the iCloud. You always have to make sure to innovate no matter what. To have a scalable business, you need the right systems in place, so go back to the process. You have to protect your IP. The more well-branded you are, as long as you innovate, the more scalable you are. 

Adam: In your experience, what are the defining qualities of an effective leader?

Michelle: I think an effective leader is somebody that, number one, recognizes their own strengths and weaknesses. Effective leaders hire their weaknesses and empower people to make decisions. They hire people smarter than them. A leader is not worried about being the smartest person in the room. A leader is more concerned about hiring the right people.

Adam: How can leaders and aspiring leaders take their leadership skills to the next level?

Michelle: I believe the best way to take leadership skills, or any skill to the next level, is to find a great mentor. Hire somebody who's been where you want to go. If you want to be the best of the best in specific industry, you hire the best from that industry. Tony Robbins, Les Brown, and Gary Vaynerchuck come to mind if you want to communicate and learn how to speak on stage for really large crowds. If you want to become a better leader, find a leader you admire and look up to and get them to mentor you. Also, read books on leadership and take classes on leadership. 

Adam: What is your best advice on building, leading, and managing teams?

Michelle: My best advice on building management teams deals with training entrepreneurs. I don't think that entrepreneurs always make the best leaders or the best managers. Entrepreneurs are visionaries, we see the big picture, we have all these ideas, but outstanding entrepreneurs will hire a great leader or great manager to build the teams. Most entrepreneurs are visionaries, not integrators, and you need an integrator to build those teams and build the company culture. The visionary can certainly be the leader, but they don't always make a very good manager. It depends on the person.

Many times, entrepreneurs fall victim to believing their employees should like them. Many entrepreneurs are workaholics and a lot of them are perfectionists. We know how we want things done, we're very good at what we do, and we expect everybody else to be like us. Employees are not like us. If they were like us, they wouldn't be employees.

Adam: What is the single best piece of advice you have ever received?

Michelle: I think the best advice I ever received is that your past does not define you. You define who you want to be. You are the star in your movie, you write the script, you are the actor, and you determine the outcome. 

Another great piece of advice I’ve received is your net worth equals your network. Who you hang out with is who you become. If you want to be broke, hang out with broke people. If you want to be successful, hang out with successful people. Rich people hang out with rich people.

Adam: Is there anything else you would like to share?

Michelle: I want to add that I think all of us have greatness within, but only a small percentage will take massive action and live up to their potential. We can all do things like Elon Musk, Marcus Lemonis, or Michelle Seiler Tucker. It's imperative to determine what you want, who you want to be, what you want your legacy to be, and what you want on your tombstone. You only live once, and it's a very short journey so you need to enjoy the journey. People say they're going to enjoy it when they get there. Enjoy the happiness in the journey, be the best you can be, leave your handprint on the wall, leave a legacy for your family, make a difference in someone else's life, contribute to the world and add massive value to anyone and everyone you come in contact with. Make the world a better place one person at a time.