Have you ever thought about selling your business at some point in the future?
If your business is just you, you may wonder what there is to sell anyway?
But you might be surprised.
In part 2 of this conversation with Sarah Durham, a serial entrepreneur and executive coach, she opened my eyes into how much healthier my business could be simply by considering a sale.
She gives us a few steps to pave the way for the possibility of exiting your company. In fact, Sarah’s baby step is to get your business out of your head.
She suggests using a wiki or other collaborative platform that allows you (and anyone who helps you) to capture your processes, policies and practices and then keep updating it every quarter.
It’s a good thought experiment – and maybe even a good process – to go through, whether you ever sell or not. So listen here (or below) and learn.
SPECIAL OFFER: Sarah is launching a group soon called "Exploring Exits and Acquisitions" for people who want to understand the process of buying, selling, or transitioning out of a business. The group will meet once in-person in New York City, probably this September, and then about monthly for 9 months or so afterward. For more details, including pricing and timing, email email@example.com
And if you like what you hear, listen to Part 1 of our conversation here.
Read the complete transcript of Episode #480 with Sarah Durham
Hi there. This is ilise benun, your Marketing Mentor, and this is the podcast for you if, and only if, you are ready to leave the feast or famine syndrome behind. And I mean for good.
Have you ever thought about selling your business at some point in the future? If your business is just you, you may wonder what there is to sell, anyway. But you might be surprised. In Part Two of my episode with Sarah Durham, a serial entrepreneur and executive coach, she opened my eyes to how much healthier my business could be simply by considering a sale.
She gives us a few steps to pave the way for the possibility of exiting your company, which is a good thought experiment, and maybe even a good process to go through, whether you ever sell or not. So listen and learn.
All right. Sarah Durham, welcome back for Part Two of our podcast.
Woo-hoo. Happy to be here. I love these conversations with you, ilise, and it's fun to continue them.
Indeed it is. So, for people who don't know who you are, tell us who you are.
Sure. I'm Sarah Durham. I'm a native New Yorker. I'm a serial entrepreneur. I founded a business in the '90s called Big Duck that I grew and ran for nearly two decades, sold it to my employees in 2021. Along the way, I bought a second agency, a digital agency, which was struggling. I turned it around and sold it to a larger agency. And for the past few years, I have been working as an executive coach. I coach a lot of small business owners, agency owners, nonprofit leaders. And really, what I do with them is help them articulate their voice as leaders.
So we're going to talk about growth, and growth toward exit and selling a business—which you've done more than once. But listening to your, what I would call “your elevator pitch” or how you introduced yourself, what was occurring to me was: "Wow, Sarah, you're quite the business woman, but also obviously a creative." And I'm curious if you have always seen yourself as a business woman?
Not at all. My first love was drawing. I was fortunate to go to a high school with an incredible art department. And then for college, I went to art school. I went to RISD. I didn't study business at all. I was an illustration major.
Did they even teach business at RISD?
No, they didn't. In fact, now I'm on the advisory board for the Entrepreneurship Student Club.
And I do a lot of work at RISD with the students on entrepreneurship, but nothing existed like that at the time. And it really wasn't until I was a few years into running my business that I thought, "Oh, I'm running a business here. Maybe I should learn something about that."
Mm-hmm. And then, because a lot of this is just all about mindset, are there specific things you remember—moments, milestones—when you did start to shift your own self-perception toward being a businesswoman?
Definitely. It came probably about five years into my business when I realized the business was running me; I was not running the business. And I made that connection of, well, just because I love to design or write or draw or whatever it is I'm doing here, that doesn't make me good at running a business. And if I'm really going to be a business owner, maybe I need to take responsibility for that and learn.
And so I made a very deliberate decision to start to hire and work with consultants, to start to read books on business, to take classes, really, to educate myself. I thought about going back to school and getting an MBA. I decided I didn't want to do that.
I actually believe that having a creative background, an art-school background, in some ways made me a little bit more fearless and able to take risks, because I didn't know the mistakes I was making.
And so I just set out to give myself an education. And what I found on the way was that running a business can be enormously creative and a really very rewarding outlet for a lot of those same creative impulses.
Did you ever want to just throw up your hands and throw in the towel and say, "I just can't do this?"
I certainly had a lot of moments of challenge and frustration, but I don't think I ever wanted to throw up my hands and say, "I just can't do this." I do think that early on, I started asking the question: "What's all this hard work in service of?"
And I see this with a lot of people that I now coach—that it can be easy to get stuck in the day-to-day of doing the work. You've made commitments, you've got to get the work done, you got to go do it.
I see a lot of entrepreneurs, particularly solopreneurs or small business owners, who really aren't paying themselves a normalized salary and really aren't setting up their businesses to exit in any way.
So if supporting yourself financially or maybe, at the end of the day, selling your business and making money that way are important to you, I think it's really important to embrace taking your business seriously and understanding what that is going to look like for you.
So let's talk about this idea of exiting or selling the business, because it's not something a lot of the people I work with talk about, think about, ever consider. And yet, as you and I both know, when you do your marketing—which is what we talked about in Part One—it works.
“Marketing works when you do it,” I like to say, so that it makes you grow, sometimes whether you want to or not, and then you have to decide what direction you want to grow in. But what about this idea of: and then I'm going to sell it. How did you start thinking about, "Mm, maybe I could sell this business?"
Well, for me, the idea of selling my business actually emerged from some work I did with a consultant, probably about 12 or 13 years before I actually sold it. I had brought in a management consultant to conduct a 360 review of me and to look at the business and basically to just give me some suggestions of what I could do to strengthen it.
And one of the things they said to me was, "You know, you should run this business like one day you're going to sell it. You may or may not sell it, but running your business with the idea that you could sell it is a really healthy practice. It requires you to do a whole bunch of things that are going to be good for the business."
And that made a lot of sense to me. I had never thought about selling the business. That hadn't been a goal. But I thought, "Why not try to do that? Why not set that up as the gold standard for what effective management would look like?"
And then as time went on, I spent some time thinking about my future, and I actually blogged about this on the Big Duck blog when I left. But about 10 years, 11 years, before I sold the business, we were moving the office to a big space and I was signing a 10-year lease, and I was going through a very reflective time. My mother had just died and I was thinking a lot about life and mortality.
I was in my early 40s at the time, and I realized that I might want to do other things in my life and my career. That as much as I loved my business, I didn't necessarily want to do it until I retired or until I died.
And so I set a goal to exit my company at the end of the lease, at the end of those 10 years. I thought, "I'm going to try to run this so that I can sell it in 10 years. And then in 10 years, I'll see where I am; maybe things will change, but that's the island I'm going sail towards."
And that was very focusing. It gave me a lot of clarity and a lot of purpose, and I ended up selling the business 11 years from that point. So it turned out that that impulse was right, and it was certainly a very useful one.
And this idea of: people don't even consider it, you hadn't even considered it until someone mentioned it to you. Perhaps our listeners haven't ever considered it until they've heard you talk about your experience. And I imagine, a lot of women fall into this category also. But why don't people think of it?
Yeah. It turns out that only about 20% of businesses are women-owned. And I think in a sector, if you see yourself as underrepresented, if you're looking around and you don't have a lot of colleagues that look like you, and I think this is even particularly more true for people of color, it can be a little isolating.
You don't always feel like the conversations that are happening around the table at peer groups or things like that are the same conversations you want to be having. And so, I think that that's a challenge.
But I think another real challenge with exiting your business, and again, I think this is probably more true for people who are underrepresented in the business world, is that you don't actually know how to do it. You don't know what's involved. I mean, there's a whole piece about, how do you build and run your business when you're still in it? And then there's a whole piece about, how does a sale actually work? Why would somebody buy your business? What are the steps involved in the sale?
I'm in the process right now of putting together a group for people who want to exit their business at some point in the future. And a lot of what it is is just a step-by-step. This is the order of operations. These are the mechanics. This is what a potential buyer is going to expect.
And I think it's really important to learn that stuff well before you want to sell, because by the time you're desperate to get out, it's a little too late to start to make changes that might take years to actually take effect.
But one thing I'm sure, again, listeners might be wondering is, how do you sell a business that's all about you? If you're getting out of it, what are you selling exactly?
Yeah. Well, that's an important question. And sometimes you can't sell that business. There is a really interesting bunch of articles and content that the Harvard Business Review did where they talk about three types of businesses: hobby businesses, lifestyle businesses, and desirable businesses. Desirable businesses being ones that somebody else might want to buy.
If you've set up a business that's just you and you want to exit that business, the only thing you can really sell are assets that you've created that might be able to go on without you.
So, for instance, one entrepreneur I know who works independently created a community platform, and the platform is built, I forget which tool she's using, but it's not in Facebook. It's on another group platform. And she built this really vibrant platform for the market that she serves and people sign up on a, I think it's an annual basis for membership, and they engage with all kinds of content there.
And over time, she got other people to start contributing content. She's had other people who can help moderate. She set it up so that it's not just her. It's her idea, but there are other people who can run it and manage it at this point. That's an asset you can sell. That's an asset that somebody else can take over and run. But if you walk away from the business and everything you've created crumbles, there's really not much of a ‘there there.’
And what about a client list? If you've got a bunch of good clients who love you, is that something sellable?
I would argue it probably isn't, unless those clients are going to love the person who buys the list. So if I've got five awesome clients who I have retainer contracts with, and over the course of the year each of those retainers is worth $300,000, that's a nice business. I'm making a lot of money on those retainers.
But if the reason those clients keep coming back is for me, and I say, "Hey, ilise, you want to buy my client list?" Unless you meet those clients and those clients love you, and they are really excited to transfer that $300,000 retainer over to working with you, they're not going to go. They're going to cancel their relationship.
So I think what we're talking about here speaks to a part in the sales process that a lot of people overlook, which is due diligence.
In a sale of your business, the prospective buyer has typically months to basically kick the tires, to talk to your clients, talk to your staff, to look at your financials, to really look under the hood of your business and make sure that whatever they are buying actually can work in the next stage.
And with many businesses and many sales, it's very common for the owner of the selling business to be under contract for years in order to affect a smooth transition. So if I'm trying to sell you my client list and those clients all love me, you might only be willing to buy that client list if I stay involved for a year or two or three to make sure that those relationships are effectively transitioned over to your business.
I don't know, this might be naive of me, but I'm also imagining a scenario where you know who you want to sell your business to, you have a good relationship with that person. You integrate them by collaborating, maybe by hiring them, contracting them, subcontracting them, whatever, to do some of the work and then connect with the clients and actually begin to bring them into the business such that it's a very smooth transition. Have you ever seen something like that, or am I dreaming?
I think that's possible. I think that is a more likely scenario if you are selling to an individual or to a very, very small business. What you're describing is almost more like a ... Mergers are often really acquisitions, and I think what you're describing sort of looks like a merger from the outside. It looks like, I'm bringing you into my business, we're collaborating, clients get to know us both, work with us both, and then I back towards the door as you take over.
And so that's definitely a scenario that can work. But for a larger business that is acquiring your business, they often have their own way of working, their own systems and processes, their own methodology, and they may not be willing to come into your business and do it your way. They want to acquire your resources so that they can expand the way they do it.
Yeah. Actually, you're making me think of a client of mine recently who was approached by a larger agency; he has a small agency. And they basically came right out and said, "We want to buy you." And they didn't even know each other, but they were definitely on the hunt looking for resources so that they could expand. Do you see much of that?
I do. I mean, when I owned Big Duck, I was approached probably once a year by somebody who was interested in buying the company. I had all those conversations; I explored all of them. They were almost never the right fit. And I ended up selling the company to my employees, and it became a worker-owned cooperative.
You know, the sales that I have been involved in, either when I bought an agency, when I sold my digital agency, or when I've worked with clients going through a sales process, so much of what makes a sale possible is the right fit. That what you as the seller and the person or agency who is buying are looking for aligns, so that your train track and their train track are running close enough in parallel that at some point they can merge into one track. That's how you foresee a future in which a sale is possible. But if you're heading one way and I'm heading another way, the likelihood that we are going to be able to effectively make a smooth transition for clients, for staff, just becomes a lot less likely.
And what about, okay, now you've got my imagination running here, Sarah. But what about someone who has a business with a couple of different revenue streams, income streams, and wants to sell part of it, but not all of it. Does that happen?
It definitely happens. So when you sell a business, there are two primary ways that a sale can happen. It can happen through what's called an equity deal or a stock deal, or it can happen through an asset deal.
And in an asset deal, which is much more common, essentially what the buyer is buying are specific assets that are owned by the company. So let's say you've built a business with lots of different products and services, and I want to buy one piece of your business, and you want to sell me one piece of your business, I might have my own incorporation, my own corporate status. And what I am buying is not your whole business. I am just buying that one asset, that one service or product that I want. And it essentially gets unbundled from your business and it comes over to me.
In an equity deal, which is also sometimes called a stock deal, if I buy your business, I am buying the entire thing. I'm buying all of it, all of the assets. I'm also actually buying the liability. So if the seller has, let's say, done something illegal or wrong or something like that, and I buy that business, I might actually even legally be on the hook for the thing they did wrong, because the whole corporation becomes mine. So it's pretty unusual to do an equity or a stock deal. It is much more likely to do an asset deal and that the actual sales process is going to detail specifically which assets are being acquired.
All right. So let's talk a little bit about how to set it up to be sold, if that's something you think you might want to do in the future, or even if not, as you said, it's a healthy way to run a business. What is this healthy way to run a business? And maybe part of that can be the baby step we suggest people take if they want to move in that direction.
Yeah, so if downstream you want to have the option to sell your business, there are two things that I think are really important to start thinking about and working towards as early as possible.
The first is financial feasibility and the second is operational feasibility. So what do I mean by that? Financial feasibility means that you are running a business where the bookkeeping and accounting is clear, it's buttoned up, that the business is consistently profitable, and that you as the owner are paying yourself a normalized salary. In other words, you're getting paid what somebody else who would be hired to do that job would get paid on the open market.
So if you're running a business where you're drawing a salary, where the business is profitable, where your expenses are kind of normal, there's nothing very unique or unusual that makes you profitable that could skew the numbers in some way, then that's financially more likely to be appealing to a buyer. If I come along and buy that business, I see it's profitable. I see that I can replace you with somebody else. I see that I can continue to make money running the business as usual.
On the operational side, particularly if you want to exit your business, it's really important to set up a business that is not wholly dependent on you. And that often means setting up systems and processes. It means writing things down and creating institutionalized memory. It means usually having people who will follow the business in a sale.
So for instance, when I sold my digital agency, there were six or seven employees in that agency, and before the deal could go through, we had to make sure that my team actually wanted to go work for the other agency. If they had all walked, then the deal would have fallen apart. So making sure that the business can function with the people, with the systems, with the processes that it needs to be successful and profitable, in whatever future state it's going to exist in.
So that does lead me to a more specific baby step, which I would imagine has to do with just getting everything out of your head and onto paper. Right? What would you suggest people do in order to do that?
Yeah, I think that's a great baby step. And it's not so important when you're working totally alone, but when you start to hire staff or work with regular contractors, it becomes more important.
One easy way to do that is to use a wiki of some kind. I know the Big Duck team currently uses Confluence. There are a lot of different wikis, but start to build a wiki where you capture your processes, you capture what it is you do, and you have policies and practices written down in some sort of step-by-step way. And then just keep updating it. Make a practice of doing that every quarter, at least.
And ilise, can I suggest another baby step?
Pay yourself a legit salary. This is a real bee in my bonnet that I see with people who start businesses and work independently, is that it can be so easy to pay everybody else before you pay yourself, or to pay yourself a reduced salary and say, "Well, at the end of the year I'll be profitable and I'll pull money out of the business." And hopefully that will always be the case.
But in addition to that, I really believe that when you research what you should be paid, and you make a point to transfer that money from the business' bank account into your bank account on a fixed schedule, and treat that money as if you're a salaried employee just like any other salaried employee, it forces you to run your business a little bit differently and to take it seriously a little differently. So I think that's also a great baby step.
Beautiful. All right. Well, it sounds very interesting, and I know that I want to run my business in the healthiest way possible, whether I sell it eventually or not. So thank you for all those ideas, and tell the people where they can find more from you.
Sure. My coaching practice is called Compton Durham, and the website's comptondurham.com. That's Compton, like Compton, California and Durham, like Durham, North Carolina.
Excellent. Thank you so much, Sarah. I'm sure there will be more of these conversations to come.
Sarah's baby step is to get your business out of your head. She suggests using a wiki or some other collaborative platform that allows you and anyone who helps you to capture your processes, policies, and practices, and then keep updating it every quarter. And she wanted to add a second baby step actually, which is to pay yourself a legit salary on a fixed schedule. I agree with that.
So as always, if you want to build a thriving business on your own terms, the first step is to sign up for my Quick Tips at marketing-mentortips.com. Once you're on the site, you'll find lots more resources, including my Simplest Marketing Plan. So enjoy, and I'll see you next time.