Welcome to episode 321 of The Food Blogger Pro Podcast! This week on the podcast, Bjork interviews Joe Valley about making a great exit and maximizing your profits when selling a business.
Last week on the podcast, Bjork chatted with Chelsey White from Chelsweets about how she’s grown her various social media platforms and how her content strategy has evolved over time. To go back and listen to that episode, click here.
The EXITpreneur’s Playbook
When it comes down to it, we’re not able to run our businesses forever. And most business owners wait to sell until they’re exhausted and emotionally rundown, and by that time, it’s too late to have a great exit.
Enter: Joe Valley! After facilitating nearly half a billion dollars in exits, Joe has written the bestselling book, “The EXITpreneur’s Playbook” to help online business owners get the maximum value and best deal structure possible when selling their businesses.
Even if you’re not quite ready to sell your own business, this interview will show you what areas to focus on to create a successful pathway to your own eventual exit.
In this episode, you’ll learn:
- What an exitpreneur is
- Why it’s important to be on top of your financials
- What the difference is between a CPA and a bookkeeper
- Why it’s important to consider risk, transferability, documentation, and growth when deciding to sell
- Why you need to have specific goals in mind when it comes to selling your business
- What SKUs are
- What the transition period looks like after selling a business
- What most people do after selling a business
- The EXITpreneur’s Playbook
- Read the first three chapters of The EXITpreneur’s Playbook for free!
- Quiet Light
- The Quiet Light Podcast
- 32: Buying & Selling Websites with Mark Daoust from Quiet Light
- Puerto Rico’s Tax Incentive Code
- 176: Affiliate Marketing for Bloggers with Chris Guthrie
- Follow Joe on Twitter and LinkedIn
- Check out the Food Blogger Pro YouTube channel (and subscribe while you’re there!)
If you have any comments, questions, or suggestions for interviews, be sure to email them to [email protected].
Transcript (click to expand):
Bjork Ostrom: Hello. Hello hello. This is Bjork Ostrom, and this is The Food Blogger Pro Podcast. Today, I’m chatting with Joe Valley and Joe Valley is the author behind The EXITpreneur’s Playbook. The tagline here is How To Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success. The thing that I love about this book and I talk about this actually in the podcast is I think the best businesses to run are the businesses that are the best businesses to buy and in The EXITpreneur’s Playbook, Joe talks about not only here’s how you can prepare your business to be sold for the maximum amount of money and how to get there, but he also talks about all of the different variables that go into that. So we talk about that on this podcast but the book dives deep into it and we’re going to cover a lot of great stuff.
Bjork Ostrom: Back in 2016, which is crazy, I actually interviewed Mark Daoust who is a partner at Quiet Light and we talk about that interview a little bit in this podcast and this is a great update, kind of a 2021 version of really talking about what does it look like to run your business in a way that it could be acquired and how do we think about our business as an investment. I actually talk about working with our personal finance advisor and how we’re starting to think about our businesses as investments in the same way that we would for investing into the stock market and Joe’s going to be talking about how you can actually go into the details about kind of the valuation process with that. So great interview. It’s an important framework for thinking about how you’re running your business and even if you think, “Wait a minute, I’m not an EXITpreneur,” as Joe makes a point early in the podcast, everybody eventually is going to have to think about transitioning their business. There is no forever in business and so regardless of where you’re at with it, it’s going to be an important conversation with Joe from Quiet Light. So let’s go ahead and welcome Joe to the podcast.
Joe Valley: Good to be here. Thank you for having me.
Bjork Ostrom: Yeah. So you are a voice that I have … Sometimes people will say this. I will do a podcast of them and they’re like, “Hey, it’s like having a conversation because I’ve listened to you.” I’m going to say that’s you because I’ve listened to The Quiet Light Podcast. So talk a little bit about what Quiet Light is, the background there, and then we can talk about this book, for anybody watching the video I’m holding it, EXITpreneur’s Playbook, but what is Quiet Light and what do you do day to day?
Joe Valley: Well first of all I appreciate that you feel like you know me even though we’ve never actually talked like this before –
Bjork Ostrom: Yeah. Totally. Yeah.
Joe Valley: Because I feel the same. Because you have been on our podcast with Mark hosting –
Bjork Ostrom: Yep. Yeah.
Joe Valley: And he and I talked about you and Food Blogger Pro for years.
Bjork Ostrom: Yeah.
Joe Valley: So it’s kind of weird this world that we live in.
Bjork Ostrom: Totally.
Joe Valley: Sometimes we feel like we know each other even though I had no idea what you look like.
Bjork Ostrom: Right, right.
Joe Valley: I had no idea what the sound of your voice was –
Bjork Ostrom: Right, right. Right.
Joe Valley: And that kind of stuff, so it’s pretty cool. Pretty cool. Quiet Light is an online business brokerage firm specializing in online sell-side only, and I would dare say Bjork that we are the leading or one of the leading brands selling online business brokerages in the world.
Bjork Ostrom: Mm-hmm (affirmative). It’s interesting, I remember sitting at my computer like six or seven years ago and browsing Twitter and I was like … I came across some Quiet Light stuff, and I was like, “Oh, here’s the CEO, Mark.” I looked up and I was like, “Wait, St. Paul, Minnesota? We could be neighbors.” I remember this moment of like, “Oh, this is awesome.” I shot him an email or something like that, connected with them, and now you are a partner at Quiet Light. That happened you said 2018 that you came on –
Joe Valley: I think 2018, yeah. I joined the company after I sold my own business and –
Bjork Ostrom: Through Quiet Light?
Joe Valley: Yeah, I sold it through Quiet Light, yeah.
Bjork Ostrom: Yep. Nice, and it’s … We were talking about the transition of Quiet Light going from selling significant businesses, hundreds of thousands of dollars, and I just checked the other day and it’s now like multiple millions of dollars, these businesses that you’re selling. Are these businesses that … Like for people who listen to this podcast, Food Blogger Pro Podcast, are these businesses like we’re working on that we could build and sell these businesses someday? What kind of businesses does Quiet Light sell and how realistic is it for a food blog or food creator to build a business that they eventually sell?
Joe Valley: Yeah, absolutely. The audience members are potential clients of Quiet Light or the material that we share which we give everything away for free. Because we educate, we consider ourselves in many ways just an education firm, and we educate and help, help, help and then that eventually grows our business as well because people choose us to do business with and help them exit their business. But absolutely. A client of mine Victor, his first business that he sold was a content site. It wasn’t specific to food, but he sold it for like $7,000.00, Bjork. Then 18 months later, he had another one that he sold for $20,000.00.
Bjork Ostrom: Yeah.
Joe Valley: Climbing up the food chain, and then he didn’t sell those first two through us but then he sold one through Amanda here on the team for about $220,000.00. Then he came back again another 24 months later, and this is one that he had been working on for a while.
Bjork Ostrom: Sure.
Joe Valley: We listed it for $5 million and we actually sold it for just under $9 million because of the growth of the company and things of that nature.
Bjork Ostrom: Wow.
Joe Valley: But yeah, no doubt. We prefer working with people when they’re not at the end of their business lifecycle but more in the middle –
Bjork Ostrom: Yeah.
Joe Valley: So that we can help make sure they’re doing the things that are going to help get them maximum value when they eventually exit.
Bjork Ostrom: Yeah, which is one of the things that I love. It’s one of the reasons why I love listening to The Quiet Light Podcast is because we don’t … I think some people come in and they operate as people who say, “You know, I’m going to take this, and I know in three, four, five years, I want to sell this.” I think at first glance you’d think EXITpreneur’s playbook, those are people who are coming in, they say, “I want to buy something, build it, or I want to start something, build it, and then sell it.” But what about people who are like, “Wait, this is something that I am building and I want to build it forever.” People would say like, “I’m not an EXITpreneur. I’m a business owner and I’m building my thing and I just want to continue to run that forever.” Do you have to opt in to be an EXITpreneur? What about people who are a little bit cautious about it and really what is an EXITpreneur?
Joe Valley: Well define forever. Right? Let’s do that first.
Bjork Ostrom: Yeah, yeah, yeah, sure, yeah. Right.
Joe Valley: It’s not something that exists in our lives, right? We’re not going to live forever.
Bjork Ostrom: Infinite, yeah.
Joe Valley: So eventually, you are going to move on from your business or your business is going to move on from you, right? You’re going to die. It’s just part of life. You might get divorced, 50% of people might. You might have a falling out with your business partner, it happens unfortunately. Or the business may get to the point where it’s a grind because it’s gotten so big and now you have to hire all sorts of people and that’s just not your thing. It’s outgrown what fills your cup and makes you happy.
Bjork Ostrom: Yeah.
Joe Valley: And then you think like I did back in 2010, I woke up one day and decided, “Oh man. I want to sell this business. I’m out.” Right?
Bjork Ostrom: Yeah. Yeah.
Joe Valley: So an EXITpreneur is somebody that has done it already. They’re an entrepreneur and they’ve sold their business and now they understand that most of the value you get from the business does come the day that you sell it. So they’re running the business with a mindset of the reality is that at some point I am going to exit this business. It may be to my children, but I’m still going to run this business the best I can, to build a great business for a great buyer to take over at a great price. Even if that is my children or like the email I got today where somebody is hoping to sell his shares to his business partner. It will help you first and foremost. The book, the EXITpreneur mindset I guess if you will, will help you understand the true value of what you have and more often than not Bjork, it’s your greatest asset in terms of your portfolio of assets.
Bjork Ostrom: Yeah. It’s interesting, we work with a personal finance guy and we were putting together … He’s like, “We should probably be tracking your net worth.” I was like, “Okay. That sounds good.” For a long time, we used Mint and it syncs up with your bank accounts and you can do an investment account. He’s like, “We should probably include your businesses in this.” We were like, “Oh yeah. That makes sense. Like there’s value in these things that we’ve created,” and then create a little pie chart and it’s like, “Oh.” I guess our businesses are the most significant investment that we have and we should probably treat them as such. You think about it as something that … Similar to an investment in a different company, like a mutual fund or a stock or like crypto or like a savings account. All of those are investments but for people who are building a business, that is an investment as well.
Bjork Ostrom: That’s one of my favorite things about books like this, why I love listening to The Quiet Light Podcast, why I love reading a book like Entrepreneur’s Playbook is because even if right now, we’re not in the mindset, we’re not people who are like, “Hey, we’re going to acquire, build and exit.” What it does is it helps you create a business that somebody would want to buy and usually a business that somebody would want to buy is a business that’s generally better to run.
Joe Valley: Absolutely.
Bjork Ostrom: Would you agree with that?
Joe Valley: Absolutely.
Bjork Ostrom: And if so, what do you recommend?
Joe Valley: I’ve seen this happen so many times and by the way, EXITpreneur is a new word and it’s hard to get it right when you say the name of the book because you just said The Entrepreneur’s Playbook. It’s The EXITpreneur’s Playbook.
Bjork Ostrom: Oh, did I really?
Joe Valley: I just want to let people know –
Bjork Ostrom: Here’s the thing, I was looking at the title as I was saying it. But I said Entrepreneur’s Playbook.
Joe Valley: I get it, I get it, and I wrote the book but I still bought exitpreneur.com and I was so proud of myself, right? That doesn’t make sense Joe, you bought exitpreneur.com. I spelled it wrong, Bjork. I was so proud of myself.
Bjork Ostrom: When you were buying the domain?
Joe Valley: Yeah.
Bjork Ostrom: Yeah yeah yeah.
Joe Valley: So the domain is now exitpreneur.io because somebody else actually owns the .com.
Bjork Ostrom: Got it.
Joe Valley: He only wants a quarter of a million dollars for it. Oh well. Yes, so your book … I mean your business is your greatest asset. Yet you have no idea what it’s really worth and you’re just running it to growth top-line revenue and take some cash flow out and maybe more and more and more each year. But the real value as you said is tracking your net worth and it’s … Net worth is nice, on paper it’s nice. But you can’t do anything with net worth. You can only do something with cash flow. So the business is producing cash flow but my mindset was I need to write this to help people understand how to manage the value of what they have so that when they’re ready to exit, they’ll be prepared to make sure they do get maximum value. Because Bjork, I’ve talked to thousands and thousands of entrepreneurs over the last decade, and the sad part of it is that most of them are not prepared and they don’t call until they’re exhausted, emotionally worn down, and just need to move on. By that time, it’s too late to have a great exit.
Bjork Ostrom: That’s what I was going to ask. At that point is it too late and if it wasn’t too late, when those people call, what would the things that they would … What would be the things that you would tell them to do?
Joe Valley: Yeah. Often it’s too late to have the exit that they want.
Bjork Ostrom: Why is that?
Joe Valley: Well there’s a story in the book, because they’ve got a certain dollar amount in mind. They’re just like, “Okay. I’m going to sell this,” and there’s a story in the book and I think on all the epic failures in the book, I change names completely. Let’s just say the guy’s name is Steve, right? So he came to me and he wanted to exit his business for I think it was $10 million. He gave me the details over the phone and I made the mistake of saying yes. Because he was about to sign an engagement letter to someone else and he’s like, “Look. I just didn’t like it here. I’ve heard great things about you from a guy named Bjork,” it wasn’t you at that time, but I said, “Okay. Let’s go ahead,” and I signed an engagement letter.
Joe Valley: Then and only then did I look at his financials which is absolutely wrong. I shouldn’t have done that. I should have firmed up the value of his business first. Because once I got the financials, I was on a call like this, and we’re looking and I’m like scrolling through it and we’re talking about the numbers, he goes, “Whoa whoa whoa. Hold on, hold on. What’s that figure in July?” I’m like, “Well it says $1.3 million.” He goes, “There’s no way I did $1.3 million in revenue.” I’m like, “Steve, this is your P&L. You gave this to me and it’s wrong.” So that’s the first thing that most people do wrong and that is the financials are not right, they’re not clear. I can’t dissect them or they don’t even use Quickbooks or Xero but in Steve’s case, his $10 million exit, his goal, was unachievable because he thought his discretionary earnings were much, much higher based upon his conversation with the other firm and their light view of the financials and when I dug into them, his business unfortunately was only … And I say only, but in his case, it was only worth about $4 million. Which was $6 million shy of his exit goal. So he couldn’t exit for the goal that he wanted to and he couldn’t exit at $4 million because he had debt on the business and it wasn’t enough to give him that freedom that he needed.”
Bjork Ostrom: So at what point do you start to pay attention to that? Like get Quickbooks set up, use a bookkeeper, use a CPA. Is that kind of the 101 of what that looks like to do, to have your financials in order?
Joe Valley: Yes. But let me clarify the difference between … When somebody tells me, I say, “Who’s doing your books? Are you doing it in-house?” They say, “No, no no no. My CPA is doing it.” I immediately know that’s a problem, because the CPA does their books primarily for the tax returns. Whereas the bookkeeper does it so that you can analyze your business and it’s easy to hand the correct financials to your CPA to then file your taxes. So there’s a clear distinction in my view. A CPA is for tax filing and tax mitigation purposes. A bookkeeper is simply to get your books in great shape, so that you can understand the value of what you have so that advisors can help you understand the value of what you have, and yes, so that you can give them to your CPA to file taxes. But anytime I see a CPA doing the books for somebody, generally they’re done on a quarterly basis, they’re not on an accrual basis. They’re not right in terms of trying to exit the business.
Bjork Ostrom: And it’s amazing how much of a difference that makes if you have a monthly rhythm of looking at the numbers in your business. We use a company called Pilot which it’s relatively expensive but it’s an outsourced bookkeeping company, they kind of have a focus on startups. Then we work with somebody as like a fractional CFO and that combination has been super helpful for us to see like, “Okay, on a spreadsheet, I can look at it and see here are the trends, here are where things look month to month. This should be happening, this shouldn’t be happening, wait, why are we spending $3,000.00 on whatever it might be? Odd expense that you otherwise wouldn’t have noticed.” So is that the benefit of like the monthly bookkeeping is kind of like financial hygiene?
Joe Valley: Well yes. So we do the same thing at Quiet Light, right? Because I’m an EXITpreneur and I advise people how to grow their business to make sure they’re getting maximum value. So I can’t talk the talk without walking the walk. So I’m always thinking about the eventual exit. I’m 55 years old, I’m not going to work forever. I’m not going to live forever. So some time at some point, my business is going to exit me or I’m going to exit the business. So we have the same thing, outsourced bookkeeper, outsourced or fractional CFO and we look at the go of the books every month. In your case, in that situation, and you said $3,000.00 of odd expenses. So the way to start thinking like an EXITpreneur is, “Okay, my business, let’s just say it’s worth four times. Four times what? Four times seller’s discretionary earnings, which is net income plus add-backs which is owner benefits and one-time expenses.” That’s a lot of information right there.
Bjork Ostrom: Mm-hmm (affirmative). Mm-hmm (affirmative).
Joe Valley: But you get to that point of you found a $3,000.00 expense that just didn’t make sense and you’re just blowing money. Well that $3,000.00, if you do that in the 12 months prior to selling your business, you’re not just losing … Let’s say you do that every month. That’s $3,600.00 … I’m sorry, what’s wrong with my math? $3,900.00 a year, right.
Bjork Ostrom: Sure. Yep. 12, three.
Joe Valley: 12 times three is 36.
Bjork Ostrom: Yeah.
Joe Valley: I do this for a living.
Bjork Ostrom: Yeah.
Joe Valley: All right. So $3,600.00 a year is not just what you’re losing if you’re just blowing through money in your business. It’s actually $3,600.00 times four, so you’re really closer to $160,000.00. In the loss of the list price or value of your business because you’re not paying attention to the bottom line.
Bjork Ostrom: Yeah. Yeah.
Joe Valley: One of the things that most people miss Bjork, I don’t know. In your business, do you use credit cards for cashback moneys much or reward points?
Bjork Ostrom: Yep. Yep, we didn’t for a long time and we just transitioned to doing that like a year and a half ago. Two years ago.
Joe Valley: Why did you transition to doing that? Just because of the perks and benefits or do you get the cash?
Bjork Ostrom: Yeah, cash. So did a calculation, it’s like, “Well we could make like …” I don’t remember what it was, multiple thousands of dollars just by switching to credit cards.
Joe Valley: Okay. Let’s call it $10,000.00 a year.
Bjork Ostrom: Sure.
Joe Valley: Okay, so you’re not just making $10,000.00 a year in cash back. You are, that’s real money in your pocket, and really what it is, it’s a discount off of spending, advertising, whatever it might be, and the IRS doesn’t know how to tax it. So even if you are … And that money is going over to your personal bank account, what you want to do is put it in an add-back schedule on your P&L because you’re not just getting $10,000.00, because if your business sells for four times discretionary earnings, that $10,000.00 adds $40,000.00 to the list price of the business. Because that is an owner benefit, it’s a perk of running the business and the new owner of the business is going to get that same perk when they use the credit card. So little details like that, that EXITpreneur mindset, understanding the value of what you have and making sure that you’re getting maximum value when you do eventually exit will help people reach that goal that they’re setting a little sooner, or be so comfortable and happy running … As you said, if you build a great business for a great buyer some day, you’re going to enjoy running the business and you may hit that exit goal but then say, “I’m having fun,” and then just move the goalposts.
Bjork Ostrom: Right. Right. Point being with both of those is the expense isn’t just the expense. Like you shouldn’t think of it as just the expense, but even if you’re not thinking of selling right away, eventually you will, and if you’re thinking of your business as like what is the value of this, the more that you are spending, the less value it’s going to become because there’s a multiple, use four as an example. Is that kind of like a number that you use for where the market is right now based on content sites?
Joe Valley: Sure. Yeah, yeah, content sites. Anywhere from let’s say … It depends upon the size. There’s so many variables. I can’t give you a multiple and have it apply to everybody’s businesses, that’s kind of dangerous, they’re going to call me…
Bjork Ostrom: That was one of the things when we were saying like, “How do we figure out how much is this worth? I was like, ”I don’t know. Like three to four? Like I didn’t want to be too aggressive where you have this idea of like, “Hey it’s going to be worth a lot.” Then if you do get to the point –
Joe Valley: So you’re doing that with your financial advisor?
Bjork Ostrom: Yeah. Yeah, exactly, yeah.
Joe Valley: So this is what kills me, right? This is part of the reason why I had to write the book, Bjork. Because you know Mark and I really, really well. But you didn’t even feel comfortable saying, “Hey Mark, hey Joe, what’s the value of what I have here? I’m not selling anytime soon, but I really want to know what the value is.” We could say it a million times over and people still don’t feel comfortable taking advantage of the service that we provide which is you want to know what the value of your business is? We’re here to help with that. We don’t talk you into anything, we want to help you.
Joe Valley: That comes back around to us. Eventually, if you choose to sell and choose to work with Quiet Light or you would be like, “I had a valuation done. Mark is brilliant. I love that guy. Wow, I am so much closer to my goals. Everybody in the audience, you’ve got to just at least get a valuation from these guys at Quiet Light.” It’s what we do. But even you didn’t pick up the phone and call.
Bjork Ostrom: Yeah. Like I … To somebody I’ve had lunch with many times…
Joe Valley: Many times.
Bjork Ostrom: Which is –
Joe Valley: For a lot of people they’re not comfortable with that so everything that anybody on my team would do or Mark would do is … In terms of the valuation, is in the book. I go through the whole process. So you should get a really good understanding of the value of your business in terms of a range. I even put ranges in there and I say they’re subject to change, but you’ll be able to firm up that most important thing which is seller’s discretionary earnings with the details in the book. Then you’ve kind of got a blue belt. You don’t have a black belt yet, Mark’s got the black belt for the real expert opinion or somebody on the team.
Bjork Ostrom: Yep. Yep. But the idea is … I think you start to think of how you run your business differently, and reading through something like this, listening to The Quiet Light Podcast, all of those are different frameworks for how you think about running your business. There’s other pieces that I feel like are really valuable. Like kind of the pillars of what makes a successful business that also make a business just solid in general, like a good business surrounding. You talk about those as risk, growth, transferability and documentation. Can you do a quick breakdown of each one of those and why those are important factors not only in an exit but also just general best practice for business?
Joe Valley: I love that you’re asking that question. Mainly because people always want to ask the question, so what multiple are things selling for these days?
Bjork Ostrom: Yeah. Yeah. Yeah.
Joe Valley: They don’t know how to calculate sellers’ discretionary earnings which is the most important thing to figure out. Yet when it comes to the valuation, calculating seller’s discretionary earnings is like 10% of the whole process. But 90% is the art. There’s math which is calculating discretionary earnings, the 90% is art and that’s the four pillars, risk transferability documentation and growth. I call them what buyers want, or fear, right? They’ve come out of a decade’s worth of experience and talking to buyers and they always seem to focus first on risk. They’re making an investment and if they buy your business at a three time multiple, they expect to make their money back in three years. So they’re going to look at the risk of the business and a lot of factors underneath there to determine how high or how low the risk is and how quickly they’re going to get a return on their investment. Some things might be in your business, how tied to the brand are you? Are you the name and face of your business and what kind of risk if that’s the case does that pose for the buyer, right?
Bjork Ostrom: Yeah. Yeah.
Joe Valley: I sold a prepper side a few years ago. You know what a prepper side is?
Bjork Ostrom: Yeah, totally. Like, “Hey, doomsday scenario, do you have the food in your bunker that you’ll need to live?”
Joe Valley: Exactly, exactly, and they’re just loving the last couple of years.
Bjork Ostrom: Totally.
Joe Valley: Because they’re kind of right. But it was owned by a 70-year-old woman who was the name and face of the business and she’s wanting to sell it and that proposed a bit of a challenge because she wanted to sell it and be done and walk away.
Bjork Ostrom: But she’s the voice of everything.
Joe Valley: She’s the voice, every email that goes out, her picture’s on the website. People knew and trusted her. So we had to mitigate that risk by having a longer training and transition period. So she had to stick around for 12 months afterwards. Normally when you sell a business, you’re done in 90 days, and even when you’re done, I mean the day after closing you’re really kind of done because then you’re only going to spend 20 to 40 hours with the buyer of that business over the next three months. But in her case, she had to remain the name and face of the brand for 12 months because the buyer was concerned of the risk of replacing her with somebody else. To top that off, she’s a prepper, so she’s really paranoid and she’s like, “Well what if I don’t like the content that they’re writing? What if they say something that it’s got my name on it and I don’t like it?”
Bjork Ostrom: Yeah.
Joe Valley: So she had to pre-approve every little bit of content that was tied to her name and her face every time, and then you have to back that up and go, “Okay, now what if she has vacations? Can she go away for three weeks? What if you publish on a weekly basis?” So it was very complex and it just was riskier for the buyer, so the higher the risk, the lower the multiple, the lower the risk, the higher the multiple. There’s a number of different points in there that could be considered risk. Traffic could be a risk. If you have one single source of traffic, let’s say you’ve got 300 articles on your website but only one is on Page One. That’s a risk.
Bjork Ostrom: Yeah. Yeah yeah. And it’s getting 90% of the traffic.
Joe Valley: Exactly, exactly.
Bjork Ostrom: Yes.
Joe Valley: That’s a huge risk. I bought a business in … Let’s see how good your history is here. I bought it March, I closed on it on I think March 30, 2012. I had let’s call it 42 amazing days. It was a small site but six pages, six pages were on Page One of Google. Then on the April 12, 2012, it all fell to Page Two, Three, Four, Five, Six and I lost a quarter million bucks in about six months.
Bjork Ostrom: Because of a Google Update.
Joe Valley: Mm-hmm (affirmative). Which one?
Bjork Ostrom: Yeah. I don’t know the update that well. You do I’m sure, I’m sure it’s like –
Joe Valley: Oh this one I do. This one I do.
Bjork Ostrom: Yeah exactly, this one is…
Joe Valley: It was the Penguin update.
Bjork Ostrom: Sure.
Joe Valley: And I didn’t know. I sold a business in 2010 that was a great business. It had good quality content that I produced over a five-year period and Google rewarded me. I didn’t cheat, I didn’t know what Black Kat SEO was or even Gray. So I sold a wonderful site and then I bought a crappy one, and I got punished for it.
Bjork Ostrom: And the site that you sold probably wasn’t hit as bad and the one –
Joe Valley: Oh. Yeah no, it wasn’t hit at all. It actually went up because other people in that space …. It was in the nutritional digestive wellness space, and other people that competed against that site or had sites competing against that cheated. So they got punished, and my rank on the ranking on the site that I sold went up and therefore the revenue and everything went up as well.
Bjork Ostrom: Interesting.
Joe Valley: Yeah.
Bjork Ostrom: So the point being, and I think bloggers can relate to this, that there is an inherent level of risk in any business, but probably more so in certain businesses. With like a Google Update, you can’t really predict those, so how do you assess risk, and how do you even know within your own business how much risk there is?
Joe Valley: In your own business, you got to look at the six components of risk. Not all of them are going to apply, but if you’re the name and face, you’ve got to assess that. You’ve got to look at how much traffic is single channel traffic. Do you have a single channel traffic risk. Is there one product of all the products that you may be marketing on your site or books that you’re selling or whatever it might be, is it producing the majority of your revenue, and is it to Amazon and are they … You can’t predict if they’re going to cut the affiliate fees again. But you just have to assess the revenue balance, the transferability of the business in terms of you being the name and face and all of those different factors. But you’ve also got to look at that next pillar. So risk is the first one. Growth is really the next one that buyers look at. Again, we call them the four pillars of value, but they’re really what buyers want. They want a business that’s low risk and they want a business that’s growing. So a business that is growing year over year is more valuable, not in dollars but if you think multiple, you’re going to get a higher multiple for a business that is consistently growing year over year.
Bjork Ostrom: Yeah.
Joe Valley: Even if you had a bad year and you came back from a bad year, I kind of … I show that as a business that’s resilient and it tells a story. So that’s actually an okay thing. Not a good thing, because you had a bad year, but it doesn’t hurt your value, and it’s your backup in the last 12 months. But there’s have you done built-in paths to growth as I like to call them. Have you done work that’s going to allow me as the buyer to benefit in the year after I buy the business. If you just launched … If you typically launch two articles a month, but in the six months prior to listing the business, you launched four articles a month, maybe it didn’t cost you much, but those are starting to rank and starting to drive traffic and eventually convert revenue as well, that’s a built-in path to growth, because you’ve done some work for me. Buyers definitely love that, but if the business is declining slightly, and I’m not talking about from May to June, I’m talking about from May of this year to May of last year on a year over year basis.
Joe Valley: You don’t want to wait until that happens. You don’t want to wake up and be really tired and exhausted and not pay as much attention to the business and have it start to decline because not only are you losing revenue in the business now, but the value, that same multiplier effect, the value is going to go down pretty dramatically. So instead of a four time multiple, maybe you’re only getting a three and a half. Let’s talk about that. Let’s extrapolate that out. Let’s say you just have simple math of 100,000 in discretionary earnings and the business would be worth $400,000.00. Now it’s only worth $350,000.00. Because you’re getting three and a half. You just lost $50,000.00, in addition to the revenue that you’re losing in operating the business because you’re tired of it.
Bjork Ostrom: Yeah. Yeah. Yeah.
Joe Valley: So having that EXITpreneur mindset is really important to get over those bad days and make sure you don’t burn out in the business.
Bjork Ostrom: Yeah, and I think you’re continuing to move along here.
Joe Valley: Yeah, two more, two more, and then we’ll be done with this part.
Bjork Ostrom: No, it’s good.
Joe Valley: So it’s risk, growth, transferability and documentation. It should go without saying that if the assets that drive revenue of the business are not transferable, you do not have a sellable business. So in the case of my prepper site, if she absolutely refused to allow her name and face to be associated with a business the day after closing, she probably wasn’t going to have a sellable English. Nobody would buy it. It’s too much of a risk. Or buyers would have said, “Okay, I’m willing to take the risk. I’ll give you this much just because there’s organic traffic but the rest, I’m going to have to give you an earn-out.” She would have said no in that case, again, because she was a prepper. So she was very paranoid.
Joe Valley: So the assets of the business have to transfer in order for it to be a sellable business, bottom line, and then the last part is documentation and that goes back to not just profit and loss statements, but SOPs and contracts and things of that nature. I want to buy a business that you’ve built that is well-organized, that you can look at financial statements at a monthly basis, on an accrual basis, that I can export to Excel, digest, and look at where you’re wasting money, where I’ve got a business and I’ve got a guy that can do that at half the price and where I can get instant equity. All of that instills confidence in the buyer, it builds trust, and your processes, your contracts, all make it easier to transfer the business and you don’t have to stick around for as long afterwards as well. So risk, growth, transferability, and documentation are what we call the four pillars, and I always say there’s a fifth one but Mark says there is no fifth pillar. So we argue about this lightheartedly all the time. So I’ll say that the pillars in today’s world, in historic times they would just take giant stones and plop them on top of each other, they’d be wealth guard, and they wouldn’t have any mortar holding them together.
Joe Valley: Today, there is brick and pillars might be made of brick and they’re held together with mortar. You, the owner of the business, are the mortar that holds those four pillars together. So you actually have to behave like a good person. Shockingly, right? It’s amazing in today’s climate, whatever you want to call it, let’s just call it climate, how unkind people can be behind the keyboard and social media.
Bjork Ostrom: Yes. Totally.
Joe Valley: They make their stance loud and clear, and you could be so offensive that you’re eliminating 50% of your buyers, because they disagree with your stance on whatever subject it is you’re spouting out at the mouth at. Everything is available on social media. Just like we tell our kids, don’t do that, don’t post that, don’t say that. Buyers are going to look at everything about you they can find on social media. So put a shirt on, put the keg down or whatever you’re doing and just be a mature professional adult that builds trust and that buyers want to buy your business and they will pay you more for it. That’s the bottom line. They will pay you more for it when they trust and respect you.
Bjork Ostrom: Yeah. This is somebody who I want to interact with, it’s going to be a serious interaction. Maybe one of the most significant in somebody’s life. I want to do that with somebody that I trust, that I know will be professional, and the image that you are creating and projecting online and realistically just who you are goes a long way in a successful business transaction. Is that what I hear you saying?
Joe Valley: Yeah, and that all goes back to the first pillar, risk.
Bjork Ostrom: Yeah, interesting.
Joe Valley: Do I want to give my money to a 22-year-old frat boy that’s doing all sorts of things online and spouting off at the mouth about it or do I want to give it to you, a professional that seems to care about the world and care about their business. I know that you’re running a better business, that I can trust you more. I’ll verify still, but you’re running it well, you put the details of the business together well, it all builds trust and because of that, I’m willing to pay you more for the exact same business than I am the frat boy.
Bjork Ostrom: Yeah.
Joe Valley: Happens every day.
Bjork Ostrom: Do you have examples of people have come to you and said, “I need to be done, or I want to be done, or I’m on to the next thing,” and you said, “You can do that. Here’s what it would look like if you do.” Or if you go away and change some of these things and then come back, it’s probably going to be a little bit better. What does that kind of before and after really look like?
Joe Valley: Yeah. I’m going to use a real person here, his name is actually Joe as well. Joe, I think he told me he became a father two days after his 17th birthday. Not a good start in life. He graduated high school, but only because his girlfriend at the time did all of his homework for him because he was working full-time to support her and his newborn baby. Tough way to start life, had a drug addiction at one point, came full circle, was clean and launched an Amazon business. It was in the gun holster space, I can’t even think of how to describe it right now. Concealed carry space. That’s what it is. So he’s a hunter obviously and whatever, likes to carry these. But he created this and he came to me, was referred to me, and wanted to exit his business for a million dollars. That was like the magic number and that was his goal. We went over his numbers together, and as he says it now, he’s like, “Joe, you stomped on my heart that day.”
Bjork Ostrom: You’re like, “Thanks. I appreciate it.”
Joe Valley: At first I couldn’t breathe, and then I was invigorated and excited. Because I had to tell him, “Look, you’re not there. Your business is not worth a million dollars. But in order to get there, here are the things that you need to do.” He was invigorated with that and some of it was just doubling down and getting over his emotional challenge that he was having in the business like we all do. Sometimes your business is just hard to run, and in his case, he didn’t have any goal other than I want to sell my business for a million dollars. That’s not a specific enough goal. It should be, “I want to sell my business for a million dollars in the third quarter of 2023,” and, “I want to feel amazing because I’m out of debt, my kid’s college is paid for, and I could spend more time with my family.” That’s a goal, that’s a goal. So we went through that, we did that with him, or I did that with him, and then we looked at some of the weaknesses in his business. He had some SKUs that weren’t actually profitable.
Bjork Ostrom: Yeah. Can you explain SKUs for people who aren’t in the ecommerce world?
Joe Valley: Yeah yeah yeah. So a SKU is a stock-keeping unit. Pretty impressive that I actually know what that is. When I’m doing a podcast and they give me acronyms all the time I’m always saying, “What does that stand for?” Nobody can seem to get it. But it just identifies a unit, a product that they would sell. So they may have three or four different variations of a product and each one would be a SKU. So a couple of them were not really profitable. But his business was growing, just not at the pace that he had hoped for or not enough to get the business worth a million bucks. So we went through some goal-setting exercises and then we reverse engineer a path to that. So he had a goal set, a million dollars. I showed him where he was today which was only at about $700,000.00, and then with the growth that he had in the business charted out how quickly he was going to get there and it wasn’t that long, it was only about a year, but he also could do some other things to accelerate that which was get rid of some skews, do some better spending on advertising and things of that nature because we could see his advertising spend as a percentage of revenue is higher than the average that we see.
Joe Valley: Well he did an amazing job with it and didn’t come back in a year because he was loving the business that he built because he built a better business for a better buyer to take over. It was a great business to run, and he was really enjoying it. So it took about 18 months before Joe decided to sell and we actually sold it for about two and a half million dollars. So he went from $700,000.00 in value to about two and a half in value in about 18 months, and this is a guy that is really conservative, he keeps his overhead low, his house that’s $60,000.00 on a channel down on the coast of Florida and no debt. He bought a boat, went fishing for four months after closing.
Bjork Ostrom: That’s awesome.
Joe Valley: It was just … Great life. Great life.
Bjork Ostrom: Yeah. Good for him. What about … You had talked about SOP, standard operating procedure. What does it actually look like when somebody brings you a business and you start to … My guess is you factor all of these things in when you’re trying to come up with a value. How much risk is there, what does growth look like, how transferable is it, is stuff documented? What does it look like to actually document the things well? When you have looked at a business and you’re like, “Oh my gosh. This documentation is awesome.” What does that look like?
Joe Valley: Most times people don’t have documentation, Bjork. The problem with that is it doesn’t … Sometimes it doesn’t instill confidence in buyers but more often than not, it just makes your job after closing harder.
Bjork Ostrom: Harder. Harder. Yeah.
Joe Valley: So people are like, “SOPs? I don’t want to do SOPs.” I’m like, “Yes you do.” Because if you document everything that you do in your business, because I’m going to take over. On the day of closing, I’m taking over and I can either be on the call, a call with you all day every day, and you could walk me through everything, or you can hand me an SOP the first day we’ll be on a call, and you can hand me an SOP and go, this is what you do. When this happens, you do that. When you try to do that and it doesn’t go exactly right, you do that over there. It just gives you all of the path that somebody that bought your business can go down, to operate your business with the things that go right, the things that go wrong. It helps instill confidence in them, they’re buying your business and like … Bjork’s going on vacation for two weeks after closing. First of all, I’ll tell you you really can’t do that. You need to stick around for a little while. The typical training and transition period after closing in a typical asset purchase agreement which is the contract between the buyer and the seller. It literally says up to 40 hours over the first 90 days.
Bjork Ostrom: Sure.
Joe Valley: I don’t think I’ve ever seen anybody use all 40 hours, and the more organized you are with SOPs, the lower number of hours those are going to be. With content sites, it’s going to be incredibly low. We’re half that maybe.
Bjork Ostrom: Yep. Yep. The thing that is interesting about that to me is we’re going through this process with TinyBit, so the parent company over Food Blogger Pro, Pinch of Yum, WP Tasty, Nutrifox, Clariti, all these businesses we have, and we’re trying to … We’re using EOS as our operating system and then part of that is like processes and documentation, and we’re trying to figure out how do we do that, where do we do that, how do we do that well. One of the advantages that I’ve found is like then even I use processes for a system that I’ve usually just gone through myself where like hiring. Okay, here’s kind of generally what we do, and I just know that, but now that we have a document for it, I actually go back to and refer to that document on something that previously lived in my head and it’s allowed me to release some of that and it’s also been great when a team member is like, “Hey, can you explain kind of the hiring process?” It’s like, “Oh, we have a process for that.” You can just imagine that at scale for somebody who’s taking over a business and they say … Instead of calling you, how do you do this, it’s like … Well there’s a process for it, there’s a document for it.
Bjork Ostrom: So my point with it is valuable in an exit. Also probably valuable right away as you start to implement it. Especially if you’re building a team, but even not, to just document your own processes is really helpful.
Joe Valley: Yeah. You’re hitting the nail on the head there. I mean you’re making operating your own business easier for you. Things could be easier for the buyers as well but it takes less time for you to explain to somebody the hiring process because you’ve documented it. You can go, “Here Sarah, go ahead and run with it. Go ahead, here it is.” So you are focused on bigger CEO-type projects that will generate more revenue for the business and more profit. Yeah, cool stuff. EOS is cool stuff. You know who wrote the book, right?
Bjork Ostrom: You know, and his name’s right on the front here, of your book.
Joe Valley: There you go. Name on the cover of the book.
Bjork Ostrom: That’s awesome.
Joe Valley: Heck of a guy. Heck of a guy. Yeah, that’s a fantastic book.
Bjork Ostrom: Yeah yeah yeah.
Joe Valley: Or well it’s, I’m assuming … Was it Traction that you went through? I know we’re getting off on a tangent. Traction or what the heck is EOS?
Bjork Ostrom: Traction and then work with an integrator to do our actual implementation of –
Joe Valley: Yeah. Mark and I are doing the same thing.
Bjork Ostrom: Cool. Here’s a question for you that I’m curious to know about. I’ve just been always fascinated by … This is less of a like tactical question and more … It’s almost like work philosophy. How many people who exit a business start another business after exiting it? Like even if they didn’t have to ever work again, how many people are working? Because I think what I’ve thought about and what I would be interested in communicating with listeners is it’s different for everybody, but how much of having that end goal exit is like, “And then I go and live on the beach and drink my ties.” Versus you do that for three months and you’re like, “Wait. Actually running a business is enjoyable,” and then you go and do it again.
Joe Valley: Yeah. There’s really one person, I can only think of one person or maybe two because of the woman that ran that prepper site, that’s funny because she was 70 at the time.
Bjork Ostrom: Yeah. Retired. Yeah.
Joe Valley: Exactly, and I sold another content site for a gentleman that was 74 years old. When I sold it, the business was 17 years old, so you can imagine the code that that was built on. But for everybody else, no. They’re done. I sold the gentleman that I mentioned earlier, Victor, that $7,000.00, $20,000.00, $8.75 million. He took his last exit and built it and all those were content sites and he built an ecommerce business that he’s hoping to sell for $100 million. He’s 41, 42 years old. He’s not done. Most people in this world, in this ecommerce world that we’re in, are not going to exit and live on the beach or go play golf. They’re not wired like that, but what they may do … As I say, when you exit and then move on to your next adventure. Your next adventure may be another business but you’re wiser and smarter and better funded. So you get to do a little bit more of what you like to do and a whole lot less of what you hate to do or what you’re not good at.
Joe Valley: That’s the difference between when I bootstrapped my first business in 1997 and today. If I was to start a business today, I’d be much more well-financed and a heck of a lot more experienced than I was then. So somebody that does sell their business and start another, I would say they’re an EXITpreneur because I guarantee you, when they’re starting that next business, they’ve just sold one and they’re starting that next one or maybe they took some time off which I hope they did and they’re starting the next one, I guarantee you at that point the old motto is true is that they are thinking about the exit of the business on the day that they start. Because they know most of the money comes the day they sell, and that’s part of the process for them.
Bjork Ostrom: Yeah. That was one of the questions I was going to ask. So I think a lot of people see on Instagram and they’re like, “Oh. A billion dollars, 12 people, no profit.” Can you explain the difference of that world versus this world when people think about buying and selling a business?
Joe Valley: Yeah. This world is not that. That’s the huge, huge exception. You’re going to see that stuff and go, “Oh, I can do that.” That’s the problem with entrepreneurs, we all have that I can do that mentality. It helps and it hurts. We think we can do anything and then we realize we’re incompetent at a certain level. No, businesses are not valued based upon potential. They’re valued … Let’s call it the sub $25 million range because that’s mostly where we play. They are valued on a multiple of discretionary earnings and I’m going to real high-level surface, you run a profit and loss statement and on the bottom of that profit and loss statement says net income. But you have personal benefits, like your salary and your retirement funds and I don’t know, travel to events that you then spend an extra week at with your wife.
Bjork Ostrom: Yep, or you buy a nice computer…
Joe Valley: Exactly. A computer doesn’t transfer, so all of those things are add-backs. Your cash-back moneys that you get, add-backs. So you’ve got net income, you have exported this to Excel. And then down below that, you build what’s called an add-back schedule, this is all detailed in Chapter 11, and it’s the net income plus add-backs equals what’s called seller’s discretionary earnings. In the sub 25 million dollar range, businesses are generally sold at a multiple of seller’s discretionary earnings, not no revenue and no profit and a billion-dollar sale. So you’re going to be … Let’s say in the content world, I’m going to say a broad range of three to five times seller’s discretionary earnings and that varies greatly depending upon the size and age of the business and the risk and the growth and transferability and so on and so forth.
Bjork Ostrom: Yep. The basic idea with that is somebody’s looking at it and saying, “I’m buying cash flow. I’m buying money coming into my bank account. How much am I willing to pay for that considering the risk, the growth, the transferability, and how well things are documented?” Then all of that factoring in to allow them to say, “Hey, I’d be willing to pay $400,000.00 to buy $100,000.00 of income each year and I feel comfortable with that so I’m going to buy that.” In four years they’ll have it paid back or less if they can be strategic about how they grow it.
Joe Valley: Yeah, if it’s growing 25% year over year, they’ll make their money back in like 2.7 years. Some people might be thinking, “Why in the world would I sell it for four times if I’m making 100 grand a year and all I’m going to get is $400,000.00?” Well, you’re not making $100,000.00 a year in cash flow. Seller’s discretionary earnings is always much higher than cash flow. Second, your income that you’re making in the business is taxed at a personal gains, a personal tax bracket level. Which is much higher in most cases than capital gains, which is what the sale of your business would be taxed at. So you’re probably looking at –
Bjork Ostrom: Yeah. That’s the key takeaway.
Joe Valley: Huge takeaway. Huge takeaway. If you live in California or in New York, I mean you’re looking at anywhere from 10 to 13% difference between personal and capital gains. Then if you live in Texas or South Carolina or New Hampshire or some other tax-free stats.
Bjork Ostrom: Puerto Rico?
Joe Valley: Puerto Rico, forget about it. If you live in Puerto Rico, you’re rolling in dough. You don’t have any internet service but you’re rolling in dough. So it’s capital gains versus personal income tax. Then you’ve got money in the bank as well. So it’s significant when the magic is done, and I go through that exercise in the book. If somebody owns a business for four years, how much cash flow they take out of it versus how much they’ll have after four years and selling it. I think that you get like 3.5 times more by selling the business than by actually operating the business.
Bjork Ostrom: Interesting. Yeah.
Joe Valley: In that one example.
Bjork Ostrom: The Puerto Rico thing, for those who aren’t familiar, they don’t have like … You don’t have a federal income tax, is that right? It’s like 4%.
Joe Valley: Yeah, it’s like 4%, and you’ve got to … There’s certain codes or something that you apply for and it’s not easy to do.
Bjork Ostrom: Yeah. There’s a couple people I know.
Joe Valley: I know people … Yeah, I’ve sold a business that was an affiliate platform business for somebody, and after the sale, he managed to up and move to Puerto Rico and the next time I sold the business for him it was like $3.75 million and he owed nothing more or less in taxes on the sale of the business. It was just pretty incredible.
Bjork Ostrom: Yeah. Really interesting, a little technical.
Joe Valley: Yeah, but as an American citizen to move to Puerto Rico, there’s a certain tax exemption status that you can file for. I can’t tell you what at the top of my head it is, what it is and if I try I will definitely get it wrong, so, I’d look even more foolish than I already do…
Bjork Ostrom: Yeah. We could maybe link to a Wikipedia page in the show notes for it. It’s called The EXITpreneur’s Playbook.
Joe Valley: Very good.
Bjork Ostrom: For those who are watching they can see it. It’s even bolded in red for me, when I was reading it, before I was saying entrepreneur. Maybe I looked at the Gino title of Entrepreneurial Leap which is another great book and one that I’m reading now.
Joe Valley: It is.
Bjork Ostrom: Where can find that, Joe? Is it on Amazon? Is it best if they buy it directly from you? Where is the best place to find it, Kindle audiobook –
Joe Valley: If they go to exitpreneur.io, I give away three free chapters of the book so they can get a taste for it and see what they think before buying it. If they can’t afford the book, send me an email and I’ll send it to you for free. I mean it’s like $17.00 on Amazon. But all the book sales except for bulk sales are being done through Amazon. So you can just do a search for EXITpreneur on Amazon or go to exitpreneur.io. I also give a way of bunch of other information on the site as well.
Bjork Ostrom: Cool, and then if people want to connect with Quiet Light, if they’re at that point where they either want to have a conversation to say, “Hey, I’m early stage, I’m not burnt out yet. But I want to think about this, I want to be strategic about it,” or if they’re at the point where they’re like, “Hey you know what? I am kind of ready to be done.” What’s the best way to connect with Quiet Light?
Joe Valley: Yeah. No matter what stage they’re at, they should have this conversation because again what I talked about earlier and what I talked about in the book and I’ve got it on my screen, on my computer. I’ve got my eventual exit up on here, my screen that you can’t see, and it talks about a dollar value and a date and how I’m going to feel. Once you have those things set, you got to figure out where you are, and that’s what the advisors at Quiet Light will help you with, to know for certainty how close or how far you are from your goal. So you can just go to quietlight.com and click on the evaluation page.
Bjork Ostrom: That’s awesome. Joe, thanks for coming on the podcast.
Joe Valley: My pleasure. Thanks for having me.
Bjork Ostrom: One more big thank you to Joe for coming on and talking about what it means to be an EXITpreneur. Again if you want to learn more about what that means, what goes into that, you can go to exitpreneur.io, and there’s information about The EXITpreneur’s playbook, what it means, some considerations, where you can buy it, those three chapters that you can pick up and if you’re interested or thinking about, “Hey, in the next few years,” maybe it’s a year from now, maybe it’s four years from now, maybe it’s seven years from now or maybe you don’t know when it is, but you’ve kind of thought about that idea of selling a business, selling your business. Quiet Light is a great brokerage to connect with and follow up with. We’ve known them for a long time and have a lot of connections there and a few folks who are brokers there have actually been on the podcast. Chris Guthrie was on The Food Blogger Pro podcast. Obviously Mark and now Joe. So check it out, quietlight.com or exitpreneur.io, and if you haven’t yet, feel free to follow along with The Food Blogger Pro podcast in whatever podcast app you use. You can just hit subscribe or follow, we would really appreciate it. That’s a wrap for this week’s episode. Until next week, hope you get a tiny bit better every day forever. Thanks. See you.