Plan Your Exit

by John Ratliff | Scaling Up Melbourne July 2022

Plan Your Exit with John Ratliff
Recorded at Scaling Up Melbourne Masterclass, Wednesday 27 July 2022

John is currently the CEO of Scaling Up Coaches and founder of align5, a strategic consultancy and co-working space in Pennsylvania.

In his role at Scaling Up Coaches, John leverages years of business experience and relationships with thought leaders to grow a dynamic community of coaches. The community of coaches collectively advise over 2500 companies worldwide.

With over 25 years of experience as an entrepreneur, CEO and investment banker, John co-founded align5 in 2013 to advise growth company entrepreneurs and family enterprises on a variety of strategic issues including sell-side and buy-side M&A.

John was also the founder and CEO of Appletree Answers, a telephone answering service company he started in 1995. He grew the company organically by implementing strategies from Rockefeller Habits 2.0 (the Scaling Up methodology) and through a series of acquisitions to 24 U.S. locations and 650 employees. John sold Appletree Answers to a strategic buyer in June 2012. John is passionate about strategy, company culture and employee engagement. It was that focus on culture that drove Appletree to record growth and profitability and ultimately drove a strategic valuation style exit. One key driver of that value was 18% turnover in an industry that averaged 150%.


John Ratliff:

Thank you very much and Peter, I’m here to be a resource for everyone, so I’m happy to be interactive and any Q&A as we go along. If things come up I’m happy to take questions along the way.

Yeah, as way of a brief background, I guess that’s probably a good place to start. Started a call centre company from scratch in 1995, fresh out of college.

Probably two years out I had a little cellular phone store and grew that and then sold that and then started the call centre company.

So I was 23 years old and then it took about seven or eight years to really get that business to start to see some success and get some momentum. And a friend of mine, a good friend of mine, he was my CPA – and I ended up being the best man in his wedding – came by and said, hey, have you thought about doing acquisitions? And I didn’t think we had any capability to buy other companies. We were still getting going ourselves and when I say we – I really mean me – cause it was just me and he said, “Hey, I’ve got a great bank relationship. I think we could probably do some acquisitions.”

So I gave him a little bit of equity. He introduced the bank. We started to buy companies in 2003. We bought 24 companies between 2003 and 2011 and then exited that business to a strategic buyer in 2012. And just to give you a little sense of, strategic versus financial buyer, we were paying between three and sometimes four times EBITDA or profit when we bought companies and we sold for close to 15, about 14.7 times.

So five times the industry average in our industry for an exit. And I really – through the process – had the unique opportunity to sit at all seats at the table. So I was a buyer. As the entrepreneur, I was the seller. As the entrepreneur I worked with an investment bank called STS Capital.

We sold the company and then about two years after the sale, the founder of STS asked me to come on as a Managing Director. So I’ve also worked the investment bank inside, the brokerage or M&A advisor side.

So I’ve sat at every seat at the table and over the years, I’ve had the opportunity to watch people have amazingly good exits. I think our exit was, by all measures a real success, and I’ve watched friends and friends of friends have really bad exits that potentially we weren’t involved in. And the analogy that that we give – so you guys are in the room today and you’re talking about Scaling Up – and there’s thousands of books written every year on leadership and management and how to do marketing and sales process and how to run your company in a better way, but there’s only a handful if any books written every year on how to properly exit your business.

And the leadership and management books are really written for incremental gains, so if you’ve got 17% income, you might be trying to get to 19 or 20% net income, which is great, and it’s very important, and I think it’s something that we should study, but those are the income creating events. So if your income in your business goes up, it drives the income for you as a CEO, entrepreneur.

But the wealth creation event, the real multiplier event is when you can sell your business for multiples of the income. So, 5, 7, 10 we’ve worked on deals just in the last 18 months. One was 27 and one was 35 times EBITDA. So those are the wealth creators and in our opinion, they get totally underserved in the business education market. And our purpose in the world is to help entrepreneurs really navigate this tricky sort of landmine-infused world of the exit. And whether you’re thinking about selling your company tomorrow or 10 years or some point down the road, every entrepreneur is going to have their exit

And you get the opportunity to choose that exit and design it in a in a way that best suits you or your family or your employees. Or you get to have that exit chosen for you. And I’ve talked to countless entrepreneurs that all say, well, I’m never going to sell my company, so I don’t think this really matters to me. And really, every entrepreneur, unless you’ve cracked the code on immortality, you’ll have your exit event at some point and it’s in your best interest, and more importantly, probably in your family and your heir’s best interest to be really clear and thoughtful about what that means.

And if you plan on having a multi-generational company, it’s still your responsibility to craft the exit strategy.

But the exit strategy we’re going to talk about today is more about taking the company to market and finding a buyer that will value the company over and above its traditional financial valuation. So any company that produces cash flow can be valued on the basis of that cash flow.

Any decent CPA with a background in valuation can say here’s the cash flow of the business. We’ll apply some discount rate to that cash flow. And here’s what that is worth.

And we’re here to say that that is probably one of the worst ways to think about the value of a company, because if you’re going to sell it for the discount of the cash flow, you might as well hold on to it and enjoy the benefits of that discount discounted cash flow.

But there are buyers and lots of buyers that will value companies over and above that, discounted cash flow, and that’s really what we want to talk about today. Now we’ve all heard of private equity and venture capital, and there’s obviously lots of M&A activity going on in the world.

And unfortunately for the entrepreneur and Peter, I think I can see most of the attendees. Just a quick show of hands. How many of you in the room have sold a company before?

So we have one hand, how many in the room have sold five or more companies before?

So a good private equity firm, and whether it’s in Oceania, whether it’s in the US, whether it’s in Europe, but a decent size upper, middle market private equity firm might do 20 or 30 or 50 transactions in a single year.

And most entrepreneurs sell a handful of companies in their lifetime. So what’s happened is the playing field has gotten incredibly unlevelled. So there’s really sophisticated buyers and there’s, I won’t say unsophisticated, but maybe inexperienced sellers and it’s created this massive mismatch in the world. And it’s our mission to help entrepreneurs bridge the gap between that mismatch.

And I can now say this again because he’s back on the world stage and golf. The equivalent is you got your grandfather’s golf clubs out of the attic. You’ve never been on a golf course before and you step up to the first tee and you’re going to play against Tiger Woods. There’s a really good chance that Tiger Woods is going to win on that day and the same thing’s happening now in the M&A space. And it’s unfortunate that we’re going that way, but I could probably do another show of hands poll, how many of you in the room have a friend or know of an entrepreneur that’s sold to a buyer and maybe didn’t get a great outcome?

Yeah, more often I see most of the hands in the room go up when we ask that question. So it’s really become an unlevel field. The good news is there are some great things you can do and there’s a Chinese proverb that says, and I always get it wrong, but the best day to plant an oak tree was 100 years ago, but the next best day to plant an oak tree was today.

And it’s the same thing with getting ready to sell your company. We believe deeply that the process of getting ready to sell a company, that the mindset and the activities and all the things that you should think about doing. The best time to start thinking about your exit is probably the day that you started the company.

Because ultimately all companies get exited whether the entrepreneur closes the business gives it to the next generation of family, sells it to a buyer, sells it to employees.

Ultimately, a company, even if you close it down, that’s an exit event, so every business gets exited. The best day to start thinking about that really is today.

And that’s our mental challenge to everyone is: Are we thinking about exit strategy properly? Now, what we love about the Scaling Up methodology is a lot of the things that you’re going to work on in Scaling Up, and a lot of things you heard from Verne, are the same things that drive exit value of a company.

So first on our list, and what I’ll what I’ll say is the most important on our list, the entrepreneur is redundant in the business. So I want you to think about yourselves. You have you have some spare capital. You have some spare money and you’re going to go out and buy a company.

And you’re going to look at two companies, Company A and Company B.

And their financial performance is identical. Their growth is identical. They’re in the same industry they’re serving similar customers.

And Company A, the entrepreneurs working 70 or 80 hours a week and they’re super critical to the business and they’re filling three of the seats on the accountability chart.

And then Company B. The entrepreneur’s put an amazing leadership team in place. They’ve got systems and process and documentation on how things work, and they’re working 15 hours a week and really the strategist of the business.

And in a short period of time, you’re going to evaluate both companies, and you’re going to choose A or B to put your capital to work. Most people want to invest in Company B where the entrepreneur’s redundant in the business where the proverbial if she gets hit by a bus we’re totally in trouble versus they really don’t do much day-to-day the bus would be sad, but it wouldn’t be the end of the company.

If you’re in the key leadership roles you want to be thinking about that? Again, to drive your exit value.

In the same mindset, so the number one value driver that you can take away from Scaling Up is to use the methodology to make yourself redundant in the business. Now the great news there is that it’s also a great way to get quality of life. That’s a great way to be able to spend your time more strategically, like there’s so many other side benefits that come from Scaling up and making yourselves redundant in the business that it’s really just a good strategy anyway, to be redundant, but it also deeply drives the exit value of a company.

Same thing with strategic planning. I’m going give you a company A and Company B again. They’ve had the exact same performance. Company A runs by the seat of their pants. Company B has a very disciplined and focused quarterly, annual, three to five year strategic planning process. Maybe they work with a coach. Maybe they do it internally, but they’re very disciplined about how they do their plan.

You have to put your capital work. Which business do you want to invest in? And I can go down through the list there’s some other things that we think about that really drive company valuation and they’re obvious, but I think they’re worth repeating here.

Third on our list is customer concentration. I’ll give you the same A&B analysis. Company A has 6 customers and the top two represent 80% of their revenue.

Company B, with the exact same performance, has 200 customers and the biggest customer is 3% of the revenue. Which one do you want to buy?

So customer concentration is another thing that can increase or decrease the relative valuation of companies.

Companies are not just valued on their cash flow. Recurring versus periodic revenue. Same thing. Company A, their revenue is all project based and they have to chase it around and they’ve got unbelievable salespeople but they don’t know two quarters from now are they going to be 0 or 10 million in revenue,. Company B, longstanding recurring contract based customer revenue, and they’re going to do the same exact numbers. Company B is going to look a lot more attractive than company A.

Another Scaling Up ‘dyed in the wool’ premise is systems and process. Systems and process space. This is how we do it here. Companies tend to trade at much higher multiples than we show up on Monday, and we make it up every day and try and figure out what we’re doing. And another reason to go really deep on the Scaling Up methodology: visibility, KPIs. So again, you’ve built the systems and process. You have the visibility systems so that the leadership team really can assess what’s going on. They can make short term valid decisions that are based on data and facts versus speculation, anecdotal ideas. All those things drive valuation.

But I think the most important thing we talked about, and really where we’ve made this whole premise for how to drive exit value in companies – and again this doesn’t mean you’re going to sell tomorrow, next week or next year – but this is how to think about building long term value in a business so that one day when the day comes that you’ve maximised the opportunity to extract value from the company.

Is an idea we call Rembrandts in the Attic. And we stole it from someone else. We think the originator is a friend of mine, Andrew Sherman. He’s an attorney out of DC. It’s not our idea, but it’s one that I love to talk about. Probably talk about the most.

So I want you to imagine you’re buying a new home and you’re on the market. And obviously, home prices, and it’s been super competitive these days, so you’re on the search for a new home and you look around and you find one that you like.

And it’s listed for $1,000,000 and you’re like ‘I think this is it. This is our home’. And there’s two other bidders that are going to bid on that home. And it’s a tight market and you’ve got to act fast.

So the three of you line up and maybe I’m one of the bidders and Peter is one of the bidders and you’re one of the bidders. And maybe you love the kitchen and the homes listed for a million. It’s going to be competitive.

Maybe you’ll pay $1.05 million maybe? I don’t like the front yard like it’s not exactly what we wanted and we can get the house for $950,000 will buy it, but I don’t know, I don’t love the front yard so I’ll bid $950k and maybe Peter’s right down the middle at a million. But we all know that the home is worth about $1,000,000. That’s the financial value of the home.

And the seller knows that the home is worth about $1,000,000, which is why they listed it for: $1,000,000.

But then in the process of looking at that house I wander around and I go up into the attic. And in the attic behind a corner that nobody can see, there’s an original Rembrandt that’s worth millions of dollars. Now I know it’s in the attic. The seller doesn’t know, and the other two bidders don’t know.

Do you think I will get outbid on that home? Absolutely not because I know if we buy the house, I get the Rembrandt that comes with it and then we can sell that and make back millions of dollars even more than we paid for the house.

Every company has Rembrandts in their Attic. Oftentimes that they don’t know that they have what buyers would value over and above the financial value of a business.

And there’s a tremendously wide range of what these Rembrandts can be. I’ll run through some examples. And more importantly, what’s a Rembrandt to Buyer A might be irrelevant to Buyer B, but they may value something else.

So what are Rembrandts in the Attic of business?

One thing could be your customer list. So think about your customers: who you do business with, the relationships that you have.

I’m a potential buyer of your company and I know that with my products and services, if I could just get access to a customer list like yours, I could sell so much more of my products and services. So I will value your company well over and above the financial value because I know I can unlock the value of selling more stuff to your customers. Maybe it’s a piece of IP or software that you’ve developed, and I know if I buy your business I can use that software in my company and maybe that can unlock value.

So I’ll tell you a story about a company that we took to market.

There are a company based in Detroit, MI in the US. They were a very boring middle of the road plain Jane professional services company. They helped big organisations manage their real estate portfolios. So there was some software products, one built by IBM and some other ones. And for instance, Bank of America was one of their customers. So Bank of America manages hundreds of millions of square feet of real estate every year they were doing it on spreadsheets. And by accident these guys came along and said, hey, IBM’s got this software suite that can manage real estate. We’ll help you get it implemented and they helped Bank of America implement it and the VA hospital and countless Fortune 10, 50, 100 sized companies.

So they were about a $25 million business USD. About $3 million in EBITDA in professional services. They were worth somewhere between $18 and on the high end, $24 million. That’s 6 to 8 times EBITDA.

We had lots of buyers that were happy to pay that. We had investment banks that told us that’s what they were worth, so we took them to market with this idea that we wanted to find a strategic buyer. Someone that would value one of the Rembrandts in their Attic versus a financial buyer.

So we ran a process and ultimately – there was way more to it than this – but ultimately we got two buyers in a bidding war. Because, and this is one of the things you want to think about when you sell or position your company to exit:

A buyer that would like to own your business is an OK buyer.

A buyer that would love to own your business is better.

But a buyer that has to own your business must own your business is the best buyer.

And if you can get two buyers that have to own your business to bid against each other, then that’s the story that I’m about to tell.

So in this case, one of the buyers was a big institutional real estate brokerage firm that lacked the capability to do the implementation of big software and they had customers that have been asking for it for years.

They tried and failed three times to set that capability up and they just couldn’t get it done. They were about to lose one of their biggest customers, a bank that you’ve all heard of. Not Bank of America, but another one. They were about to lose that customer in the next six months if they couldn’t add this capability that they’ve tried and failed so many times to do. Just that one customer would have meant $15 million in margin a year in loss. Now remember my clients doing $25 million in revenue, $3 million in EBITDA, but they’re going to solve a $15 million a year margin problem for one of the buyers.

The other buyer was what we call in the US an ‘Alaska Native corporation’. They’ve got certain rights from our government. They can do no-bid Federal government work up to a certain amount and we were able to figure that our client’s business was worth about $100 million a year in revenue to them. And probably $30 million a year in margin.

So here’s this sleepy little $25 million company. 3 million in EBITDA. We turned over hundreds of rocks to find buyers, and we get two that say we have to own this business. One is ‘I need to solve my major client problem’ and the other is ‘we can unlock all this value with no bid federal government work’.

We got those two buyers into a bidding war and it’s a longer discussion than today and it’s a really cool story. But the long story short, the winning bid was $75 million US on a $25 million company, doing $3 million in EBITDA.  That probably should have traded at about $20-21 million, 7 times 3 and they ended up trading at $75.

And this wasn’t because they had some crazy technology. They weren’t venture capital backed. There was none of that. It was understanding buyers, two different buyers, and what their value drivers were. And what value we could unlock for each of those buyers. And I can give you dozens of more stories like that.

But what I want to leave you with from that perspective, is every business, everyone in the room right now has Rembrandts in their Attic. And you want to be obsessed about what those Rembrandts are, and more importantly, what value might they unlock for a different group of buyers? And again, one group of buyers might love your customer list. One group of buyers might love some technology you built.

Right now in in the new world order that we have, it’s really hard to hire. Yeah, so if you have a rock star team and you’ve got talent locked up in your industry, you may get bought just for your talent, just for your leadership team, just for maybe some mid-level management talent.

It could be things like the industries that you serve, or your R&D capabilities, or there’s a myriad more.

We worked with this really cool company in upstate New York in the US. And they had a frozen drink machine that they sold to convenience stores. I know super sexy business that was their thing and they didn’t sell the major like national chains, they sold to the one to 25 unit ‘mom and pop’ style convenience stores and they sold this frozen drink machine and they were doing great.

And then the pandemic came and so we helped them reimagine their business and working through a process of helping them discover their Rembrandts. And we have some tools that we can share on how to discover your Rembrandts.

Often one of the clues, one of the things that helps you think through what are the Rembrandts, it’s often the things you totally take for granted. So it took almost an hour for them to say ‘Oh yeah, we have this whole merchandising system and our clients aren’t very sophisticated on point of sale and marketing. And we’ve built this whole like set of displays and we bring all this collateral in and it drives like frozen drink sales up by like 80% in most of our clients’.

They were so good at that, they so took that for granted, it took me an hour of asking questions and drawing them out before they even mentioned that.

Well then they realise that that capability could actually spread across the whole range of convenience store items and that was the Rembrandt in their Attic. Their ability to help convenience stores point of sale merchandising. And they ended up getting bought by a company that did a lot more than frozen drinks that was looking for that merchandising capability. So a lot of times it’s things you totally take for granted. Things that you’re so good at, that are so fundamental in your business, that you just assume everybody does that. Everybody must have these customers. Everybody must have these capabilities. And those are the things that can really drive that Rembrandt discussion.

And it’s a fun discussion to have as a leadership team. A lot of times leadership teams don’t really like to talk about the exit event because people get skittish around ‘well, I love it here and I don’t want to leave’. But we should always be thinking about how to build the value of the business, whether you’re going to exit it or not.  But the Rembrandt discussion is really about how to build that value in the business.

So Peter, I’ve said a whole lot. I’d like to pause here and just see are there questions? Do we need any clarification?

Rembrandts in the Attic is my favourite topic and I tend to ramble on about it a lot so yeah, I’d just like to pause and see.


Host 1:

Thanks John. We’ve got a couple of roving microphones in the room and Jo’s going to ask.


Guest 1:

Yeah hi, thank you very much. When you talk about ‘in your business’ have you worked with companies and said what is the Rembrandt in a product that you have that your customers cannot avoid or are so obsessed with actually buying? Actually drill it down and break it down even more into products in your company.



Yeah, so the product can actually be the Rembrandt. So let’s say you have the killer product that like you said – your customers can’t get enough of – and it’s the one thing that’s really driving your performance in your results.

I would be thinking about, who would absolutely kill, to own this product to sell to their customer base? And if XYZ company bought us and they can take this product to their marketplace it would be game over. They would do anything it took to be able to – and it could be a service as well – but they would do anything they could to get this product or this capability or this service.

And what I didn’t say, and it’s actually a great segue – you can reverse engineer the value of the Rembrandt.

So for me when I had Bob’s company, the real estate software implementers, I knew because they told me exactly the value to the two buyers of his Rembrandts. I knew what the ‘no bid’ contracts were worth, and I knew what preventing the loss of the big customers on the other bank were, to the point where interestingly I had a very nervous client. He thought his business was worth 20, so when we passed 50 he was terrified and when we got into the 70s he thought the world was going to come to an end.

I actually wanted to push for $100 million valuation and he actually put the brakes on and said no, we need to stop at 75. And after he got done and he sold the company and it was about a month later, he was having lunch with the lead guy on the buyer side and he said, ‘Hey Mike, what was your number? How far could we have gone?’ and Mike said ‘Are you sure you want to know?’

And he said, and I bet him a dollar it was 100, he said ‘yeah, I’ve got a bet riding on it’ and Mike said ‘I had authority to go to 95 and I think I could have pushed to get to 110’. And that’s because we knew the value of that Rembrandt.

Solving that problem for this company was worth way more than 75 million and they could have gone further. And listen it was a great outcome of $3 million EBIDTA company for 75. I’m pretty sure most of us in the room would raise our hand and say, yeah, sign me up for that. But he did leave money on the table because we know how to reverse engineer and think about all that extra value.

So when you think about that killer product as a Rembrandt, maybe if I bought your company that might be worth $10 million a year to me. But maybe if Peter bought your company it might be worth $30 million a year to him because he’s got a different customer mix and a different go-to-market strategy. So be thoughtful about the reverse value engineering of the Rembrandt.

Does that answer your question?


Guest 1:

Yeah, and some.


Host 2:

Any questions for John?


Guest 2:

Thank you, thanks again. That was really insightful, those half a dozen points. I wanted to talk and understand a little bit more about point 4 that you talked about. The recurring versus periodic.

You talked about at one extreme – project based. Everything is a project and you don’t know where you are in one quarter. And then you talked about longstanding recurring. So I guess subscriptions at the other end.

But there’s I guess there’s a range of things in between short-term contracts, master service agreements, preferred supplier, sole supplier, or just customers that you continually get revenue from for a long period of time.

So can you tell us a bit more about that and the effect of valuation between one extreme to the other and what we should be thinking about when we’re thinking on this?



Yeah, what a what a fantastically good question and I think a great takeaway for everyone.

So the gold standard of recurring revenue are long term contracts.

Now I will argue tooth and nail that well-run companies that believe in customer experience, and word of mouth, and how the marketplace perceives them, would never hold customers that are completely disgruntled to long term contracts.

And I think long term contracts, in many cases, are completely overvalued. At my call centre company that we sold, we had about 10,000 customers when we sold in 2012.

And I want to say it was under 50, it was between 30 and 50, that were actually on any sort of term contract. Most of the customers were what we called ‘at-will’, or on a 30-day agreement, that we wouldn’t even hold them to 30 days if they were upset. If they were unhappy, we’d let him go that day so they didn’t bad mouth us for the next 30 days.

If you’re in a situation with a buyer and this topic comes up, I suggest you fight tooth and nail about customers that have been with you for a long time that pay on a periodic recurring basis in some sort of normalised range, are recurring revenue customers. Should be treated that way and should be valued that way.

One of the problems with software as a service or SaaS companies, is a lot of them have entered the marketplace with this one year, three-year, five-year agreement nonsense. None of them hold their customers to it for the reasons I just said, but it’s muddied the waters on recurring revenue.

So for me, and again, buyers are sophisticated and sellers get run over sometimes. As a seller fight like hell to say even though they’re non-contractual, their short-term, they’re all the things you just said, if they’ve been doing business with you for a period of time, they are recurring revenue customers. And that’s one of those areas where, there’s certain areas you dig your heels in in negotiation, and there’s certain battles you’re willing to lose to win a bigger war.

The recurring revenue battle on short term contract, no contract versus long term agreement is an area to absolutely dig your heels in. I fully believe customers that do business month-over-month-over-month for a long period of time are absolutely recurring revenue customers.

When I say project, it’s the we’re going to build your website. And it’s $50,000 to build a website, and then we’re going to host it for $99 a month. It’s pretty easy to say the $50,000 is periodic and the $99 a month is recurring, but in the cases where it’s month-over-month-over-month, even without agreements, in long term contracts fight like hell, that’s recurring revenue.


Guest 3:

Hi John. I’ve got a question. I’m going to go with the art analogy.

So do you have any thoughts or advice around situations where the entrepreneur can’t really make the distinction between a piece of Rembrandt and the artwork of a 6-year-old?

Obviously that’s an extreme situation, so probably more realistically, someone who knows they’ve got something good but don’t realise how good it is cause they just don’t know what they don’t know and what’s of value to potential buyers.



Yeah and first I’ll say beauty is in the eye of the beholder. So what Buyer A loves, Buyer B might care less about. In the no-bid federal government versus the Manhattan brokerage firm, the Manhattan guys could care less about the Federal government work. They didn’t even want it.

And vice versa the no bid Federal guys didn’t really care about the Big Manhattan clients. So it’s very individual buyer versus buyer. But it’s really an exercise and use the analogy about buying a home and just to start to change the mindset. But a lot of it comes down to thinking about like it’s a thought exercise.

Imagine if – and I love it – strategy should always start with ‘imagine if’. Imagine if XYZ owned our company, what could they do with it? And I’m assuming you’re working with an entrepreneur that maybe doesn’t see it, or are you saying that maybe about yourself?


Guest 3:

No, hypothetically yeah. I meet a lot of entrepreneurs who do fall into that category as well.



And here’s the beauty of it. It’s the stuff we take for granted.

So a lot of entrepreneurs don’t see it. They’re so fundamentally good at it that they don’t, that they don’t see it. And I really feel like it’s the work of the coach, it’s the work of the strategy group, it’s should be the work of the entrepreneur to break that mindset and think about things a different way.

With the convenience store guys, it took him an hour, they didn’t see it, they saw a 6 year old drawing in their attic and then it was me saying, who are some of your competitors and what do they do and what do they sell?  And it was this question as well?

What if they were able to merchandise those 23 products like you’re able to merchandise the frozen drinks? “Oh they can probably 10X their sales”. Well, that was the moment, but they didn’t. They didn’t see it. And they didn’t get it straight away and if you’re advising entrepreneurs, and the cool part is it’s a lot of fun like the work.

Doing the Rembrandt work is a blast because it’s a total blue ocean discussion and you watch the light. I’ve seen it just in this room today that every time I’ve ever given this talk and it’s hard on zoom, but, I watched the light bulbs go off.

In fact I was on a panel discussion about 8 months ago and unfortunately it was a group of people that had just sold their companies and somehow they put me on there. I explained the Rembrandts thing and the guy that was two seats down from me said, “I sold my company 3 months ago and I think I left 50% of the value on the table based on what you just said”. It’s not always obvious to the entrepreneur, but it’s tremendously fun to work through the , and it’s a creative exercise and that’s why I love it so much.


Host 1:

John, where does the secret sauce come out? Is the secret sauce the Rembrandt or is that separate?



In terms of in in terms of driving exit value?


Host 1:

Yep. Knowing the secret sauce. Is that another name for the Rembrandt, or is it could be the same but could be different?



It could be, yes. And I do think if you have a secret sauce, by definition that is a Rembrandt.

But it’s only valuable if it’s valuable to a buyer. So your secret sauce in the hands of Buyer A might be ultra valuable, but in the hands of Buyer B, yeah it’s great, we run the business effectively, and that’s how we drive strategy, but that’s not necessarily the value driver. So it is really a very individualised process.


Host 1:

John, I know you’ve got some other appointments to go to. What about another 5 minutes? We have one or two questions. Would that be OK?



Yeah, more than happy to, I love this topic. I’ll tell you Peter why I love it because we talk about leadership, management and all the business basic stuff all the time. But we don’t talk about this stuff. We don’t think about this enough.

And this is where you create wealth as an entrepreneur. This is how you change multiple generations of your family. And it’s really, really important stuff to talk about, so I’m happy to spend more time.


Host 1:

Thank you.


Guest 4:

Thanks, my question is I’m the founder and CEO of a creative digital agency, which means I work with a lot of millennials that will probably jump ship at being sold out.

Do you have any advice on when to start telling people within your company that you are thinking about exiting and how to manage the culture, or that transition, without it completely destroying the integrity of your team and what buyer is buying into?



For sure and, just a couple, I’ll give you some best practise things to think about here.

You want as few people involved in the process as possible. It’s really on a need-to-know basis. On the right scenario if you if you structure it the right way, you don’t necessarily have to worry about millennials jumping ship, as long as they feel like they’re still some part of something bigger than themselves.

But the most important piece to this puzzle. Anyone that’s going to have a role in the process should have a stake in the outcome. So if they’re going to know before the close date that something is going to happen, they should have a stake in the outcome, out of the proceeds of the sale.

And in most good transactions there’s actually even some incentive for them to stay on and help the buyer get the business to the next level. And if done well you can really create opportunities for that team that maybe didn’t exist under your ownership.

Maybe they’re being bought by a bigger company, or maybe that company knows that you’re going to step away as the entrepreneur and they really want to make sure your team stays engaged. There’s all sorts of different vehicles, stock options, and phantom stock and stay bonuses. And I mean there’s a myriad of them.

But anyone that’s got a role in the process should have a stake in the outcome. And the fewer the better is our advice.


Guest 4:

Thank you.


Guest 5:

I just had a quick question. You talked about the divergence between sellers and buyers and how the buyers have got the knowledge at the moment.

Your process for selling is quite unique, having dealt with lots of bankers before. They’re just looking for the EBITDA multiple even though they’re incentivized to get the highest thing, they don’t really understand your idea of the Rembrandt.

If you were a seller, what one question would you ask to a potential partner who’s going to help you sell, to make sure that you’ve got the right partner to help you sell your business?



Yeah, that’s a great, that’s a fantastic question as well and I don’t know if it’s I would ask one question, but I would want to assess how they feel about maximising value.

So and maybe the question is hey, “what’s your position on maximising value in a transaction?” What to you is the definition of success in a maximised value transaction?”

And you’re totally right, there’s so many investment bank success fee plans that really don’t value the last dollar any more than the first dollar.

One thing you really want with your investment bank and it sounds counterintuitive, but you want to see their fee structure aligned with you, where the last dollar is the best dollar for all of you, not just for you.

If their fee structure is flat, a flat percentage across the board, or even worse, a higher percentage of the first dollars in and the lower percentage of the last dollars in, you’re at odds, incentive-wise. You want them aligned with you, so whatever it is, maybe for argument’s sake on a company that should trade at $50 million and a stretch goal would be a hundred, maybe it’s 3% of the first $40 and then it’s 4% of anything between $40 and $60. And maybe it’s 5 or 6% from $60 to $75, and maybe it’s 8% or 10% anything over $75. You’re going in thinking you’re worth $50, you’d be thrilled to get $100 million transaction and pay a huge fee to the bank if they were really incentivised to find that last dollar.

And that’s how the fee structure, the way they structure fees, will tell you a whole lot about how your bank thinks about maximising value in a transaction.

If they’re a flat 3% across the board, they’re not going to work really hard to get you much above market. And some banks are willing to do the hard work and sell the strategic buyers for strategic multiples. And other banks want you for wealth management and all sorts of other things. They give you a commodity price. And they’re going to sell you for financial value, industry average multiple.

We’re totally industry agnostic and I don’t even want to know what the industry average multiple is. If I leave you with nothing else today, your business is worth what one buyer – one buyer – is willing to pay at one point in time and that’s it. Forget industry average. We can look at that to know if we won or lost, one buyer, one point in time.

One more fun thing on the Rembrandts. Kristen Kopp, who helps run the coaches organisation is on [the call], and she sent me a very, very important text and I want to share. I want to give her full credit. We talk about when you go to your industry trade association events and conferences, the Rembrandts in your attic oftentimes are the things that you’re doing that solve all the problems you see in the breakout sessions.

So if you go to industry events year after year after year, the breakout sessions are always about the headaches in your industry, the thorns in your side. And if you’ve got Rembrandts in your Attic that overcomes some of those breakout session headaches, a competitor that can that can buy you and unlock that, that’s a Rembrandt.

That’s one of the one of the cool Rembrandts in the attic. So be looking for those. What can nobody else in this industry figure out that we’ve got figured out? And the breakouts are a great way to see that. Thank you, Kristen.


Host 1:

John, just two last questions. I appreciate your time. That last one was gold. We have all these people sorting around lobby areas, finding out where the workshops are, and then taking the notes down. Great idea.

Then they’ve got one last question here. OK, it’s one where you’ve got the very last step. The bookend.


Guest 6:

Thanks Keith, John, great topic. Thank you really, practical and inspiring stuff.

I want to circle back to the employee share ownership plans and profit share type of side of things. Because Verne spoke about those earlier and I really see the power of those in terms of building culture, building alignment and scaling a business.

But then from the seller side, it seems like they may be complicating for the buyer, on that side of things, so I just wanted to understand your perspective on how they add value both in the Scaling Up process, but then how they’re overcome or sold if you will in the sale process.



Yeah, two things on that, I think, great question as well. Two things that are really important.

One is when you grab an employee and this is universal, it’s true in the US, but it’s true in Oceania as well, when you grant an employee equity certain legal rights come with that equity.

So your goal is really to have an employee participate in the upside and the growth of the company.

You want to build your incentive plans in a way that don’t diminish your rights legally but still incentivise the employee for the upside. So we talk about in the US we called Phantom Stock or Stock Appreciation rights, or there’s lots of names for it. But there are non-legally binding ways to give employees the opportunity to participate in the upside.

But the other piece of that puzzle is when you go through a process and you exit, oftentimes the buyer will want to put together, they’ll want to basically pay out and cash out your plan, but they’ll want to put together ongoing programmes for employees. So a big part of the negotiation is stock options, however they structure it, but you can actually use those in a transaction to build loyalty as opposed to like we talked about earlier “I’m worried that all the employees are going to leave”. So it can be a valuable vehicle on that side of the equation as well.

And when you sell a company, what happens, anyone that finds out about it when it happens, their first thought is ‘I’m going to lose my job’ , ‘I’m going to get caught’, ‘Going to get made redundant’ and anything you can do, and this is more advice to a buyer than the seller, but anything you can do for those employees to make them feel like they’ve got a future goes a long, long way. And stock incentives and participation rates are definitely part of it.


Host 1:

Thank you, John. And last question now.


Guest 7:

Thanks John.

My question is around the topic of tyre kickers and potentially giving away your secret sauce through this process and if there’s any advice or risks or things that we need to look out for when people are actually wanting to enquire on purchasing business.



Yeah, for sure and it’s a great question and it’s one of the thorniest problems that we face. When we run a process will vet the list of prospective buyers with the client. And they may say, “hey, that’s a competitor. I don’t want them to know”. So be really thoughtful about your outreach list.

And if it is a competitor or there are some threats, be really, really coy with your information.

So you want to move a buyer a long way down the road and make sure that they’re truly interested and invested. And it takes a lot of conversations and a lot of time to ferret that out.

If you’re running a full blown process with multiple buyers be a little bit harder on the ones that you think might be the tyre kicker. And it’s totally reasonable to ask for proof of funds and how is this going to get funded and are you financing it? Is it coming from equity? Who are the sponsors?

You’re in the driver seat when you sell your company, never forget that. This is another really important one. Never, ever forget you are in the driver seat. A couple last nuggets.

Run your business like you’re never going to sell it until the day the deal closes and the ink is dry and the wire is cleared.

Never ever, ever let a buyer think you’ve already mentally committed to a sale as soon. As they think, I watch it all the time with institutional buyers, they ask questions like, oh, you’re a boater. What kind of boat do you think you might buy? Or you could get an amazing vacation house. And they’re really trying to plant the seeds in the in the sellers mind that deals already done. You’ve got to fight that urge tooth and nail. The deal is not done until it’s totally done. You run your business like you’re never going to sell it.

You are always a competitor in the process. So if you have 6 buyers, you’re the 7th buyer.

Because if you choose not to do a deal, you’re essentially buying your business from yourself. And that’s super important if there’s only one buyer. There’s never one buyer, ever.

And we do not recommend one sole source buyer, but if you get in that situation you have to be the competitor to that buyer. That buyer needs to know that you are willing to say it’s not the right deal for me. I’m moving on.

So never ever, ever, ever is there one buyer.

You really want to be very coy with what you share, especially with prospective competitors, and you want them to do a lot of work to get down the road, to know that they’re serious and they’re not just fishing for information. It’s always a dance, it’s always a balancing act.

Really strong NDA’s are worth a little more than the paper they’re printed on, but not much. But certainly have NDA’s in place. You can hint out that you’ll be very protective and you will enforce this NDA if anything comes from it, but its always a challenge. It’s always a balancing act.


Host 1:

Excellent, excellent.

John, absolutely fantastic. All those gold nuggets that we can work with. John is very generous and very modest.

He chose to give up us 2 hours of his time. The option against that was actually flying his plane and going down to Sir Richard Branson’s island, Necker, to work on their charity.

So John, absolutely fantastic. Really appreciate that. Stay safe in the US.



Yeah, and thank you very much. Thank you and Pete, Peter and Keith you guys are doing amazing work.

Our coaches are – I’m going to give a shameless plug for you guys now – our coaches are moving the needle around the world. We went through Covid and our community rallied around through Covid and thousands of entrepreneurs made it through Covid and not only survived but thrived. You guys are doing some of the most important work in the world.

The middle market is what drives the global economy. It’s not massive businesses and it’s not Main Street ‘mom and pops’.

The middle market is totally underappreciated, and the most important economic driver we have on the planet. And I admire you guys for what you do every day. So thank you.



Photo by Susan Q Yin on Unsplash.


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Our services span growth advisory, fractional growth roles and strategic coaching using the globally renowned Scaling Up methodology as a certified practice.

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