Most people start an online business for the freedom, autonomy, and the money that comes with entrepreneurship. What they often find instead is the feeling that they’re running on a hamster wheel and can’t jump off. If you’re looking to exit your business, would you know how? Do you know what your business is truly worth?
Joe Valley’s new book, The EXITpreneurs Playbook, will shift your mindset from entrepreneur to exitpreneur. After all, the majority of the money you’ll ever make from your business comes on the day you sell, so it’s important to get that exit right.
Inside this playbook, Joe shares how his experience in all facets of exiting an online business through direct experiences and real-life examples with clear math and logic. It’s the definitive guide to achieving your own incredible exit at the right time and value, and with the best deal structure that allows you to move onto your next adventure with not just money in the bank but satisfaction and peace of mind.
Drew Appelbaum: Hey, listeners. My name is Drew Appelbaum, and I’m excited to be here today with Joe Valley, author of The EXITPreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success. Joe, thank you for joining. Welcome to The Author Hour Podcast.
Joe Valley: Good to be here, thanks for having me.
Shiny Object Syndrome
Drew Appelbaum: Let’s kick this off, can you give us a rundown of your professional background?
Joe Valley: Yeah, I’m self-employed, and have been self-employed since 1997, a bit of an old guy, got some gray hair on the chin. I’ve built, bought, or sold a half dozen of my own companies. The last company that I sold was an eCommerce business and I sold it in 2010, it’s a company that originally launched products on the radio back in my radio direct response days.
Eventually, I took it 100% online in 2005, and then took it through the best of and the worst of the economy and came out the other end, Drew, just tired. I had a good business, had a good life, it was pretty simple, I wasn’t even working 30 hours a week, but I was burned out and I felt like I had to move on. That’s part of the entrepreneurial bug, right?
We get shiny object syndrome, we have this affliction that says, “I can do that,” and once we do it, we need to move on to something else. That was me back in the spring of 2010 and I woke up and decided to sell my business instead of planning to sell it and I reached out to a number of eCommerce brokerage firms at the time. Again, at that time, my business was 100% online.
I had a conversation with a few, one really stood out and gave me some advice that was actually in my best interest, which really just was the perfect thing to say. It was essentially based upon the trailing 12 months of your business getting stronger. If you wait another six months, you’re going to make X amount of zeroes more. My advice is to wait.
Everybody else wanted to get me to selling something and get their hooks in me for commission. I went with that firm, listed my last eCommerce business for sale in November of 2010, and had it under LOI, and sold within 45 days or so. I took a year off and then joined the company that sold that business for me, it’s a company called Quiet Light Brokerage, and Mark, the original founder, that gentleman I spoke to that very first time, he and I are partners now.
Since then, I have personally sold about a hundred million in online transactions and through the team, touched another half-billion or so, and it’s just a great space to be in at this time in history, given the growth of the online world.
Drew Appelbaum: You’ve sold or you’ve helped sell a lot of companies. Why was now the time to share the stories in the book? Was there something inspiring out there, do you have an “aha moment?”
Joe Valley: Yeah, I’ve had several of them. I’ve done the math on this, I’ve actually had over 8,000 one-on-one conversations with online entrepreneurs over the last nine years. These are people that thought, “You know, hey, maybe I want to sell my business, I should talk to Joe at Quiet Light.” We have a conversation, and we review their profit and loss statements if they have them in all the details, and you can’t give them enough information in one conversation or two or three or four.
It’s like drinking through a firehose, they can’t absorb it all. Honestly, I couldn’t keep up that pace, right? I’m repeating the same thing over and over again to people one-on-one and I thought, there’s got to be a better way than this.
My biggest “aha moment” was probably four or five years ago when I was a guest on a podcast with somebody that was an influencer in the online space, very smart, very knowledgeable, and we dove deep into the subject of selling an online business. In the end, he tried to recap what I had just said, and he totally botched it, he completely messed it up. It made me realize, what I do is actually pretty complex, and I need to simplify it and get the message out there. Honestly, since that time, I’ve been working on the book, but I really didn’t put pen to paper if you will in a productive way until about a year and a half ago.
A Single Resource
Drew Appelbaum: Now, when you said “Okay, I’ve had all of these conversations, I have all of this knowledge in my head, I’m going to put it into a book.” A lot of times you’ll have the idea of the book in your head but during the writing process, sometimes you dig deeper into a certain subject, you come to some major breakthroughs and learnings. Did you have any of these major breakthroughs or learnings on your writing journey?
Joe Valley: Yeah, the goal was to be done in eight months and each time I uncovered a chapter, there was another one that needed to be written to cover that new subject that’s happening in this new world of online MNA transactions. The book wound up being quite a bit longer than I intended it to be, but I’d look at it as for anyone that is in the online world, either buying online businesses or they hope to someday exit their own online business, this would be the ultimate reference guide for them to understand the entire process of selling their online business.
To date, it’s all been snippets from those one-on-one conversations that I’ve had or that others like me have had or blog posts here and there or podcasts that they could listen to, but there hasn’t been a single resource. All of it has been put in the book at this time but there are absolutely some chapters that had to be added because of that “aha moment” where, “Okay, this is actually changed in the world or this is much more complex and I need to make it two chapters instead of one.”
Start with the End in Mind
Drew Appelbaum: When you sat down to write the book, in your mind, who are you writing this book for? Is it for current business owners only or is this for folks who are starting a business now or thinking about starting a business now with the intent to sell with an exit strategy in mind?
Joe Valley: Well, it’s really for both, but when I sat down to write it, I wrote the book for anyone that currently owns an online business that may eventually sell. Everyone’s going to exit their business, I want to make that crystal clear, you’re not going to run it forever, you’re going to retire, you’re going to get divorced, you’re going to die, you’re going to pass it on to your children, everyone is exiting at some point, but the book is written specifically for those that own a business that wants to sell eventually and get maximum value for the business.
Now, in utopia, in the ideal world, it’s also written for someone that hasn’t started that online business yet that is planning on doing it. Because, as the saying goes, the perfect time to start thinking about your exit is when you launch your business. The reality is when we’re launching businesses, we’re so focused on getting the business off the ground that the exit is some blurry figure years and years away. The challenge though is if you go with that approach, which most people do, including myself on all the ones that I’ve started and sold, I never had the exit in mind. It didn’t occur to me until the very last one that I sold. You think you know what to do and you just never get to it because you’re going to get to it someday, and then all of a sudden you wake up, you’re tired, you need to move on. You don’t get maximum value for the business.
It’s really geared toward both of those people–primarily to those that currently own, and then the sort of offshoot benefit is to buyers. Because people are out there buying online businesses, there are more buyers than sellers and there’s more competition these days to buy an online business, we’ve had more buyers than ever before. This particular book, if you read it from a buyer’s perspective, will help you gain instant equity when you buy that business.
Particularly, if you’re buying a business directly from someone who is selling the business on their own. If they’ve got a really rock star advisor that’s helping them with the transaction, they should not miss anything in the add-back schedule, which is very deep into the subject of the book but it’s making sure they don’t leave any money on the table.
When someone sells their business on their own, inevitably, they’re going to leave money on the table and they’re going to give their buyer instant equity because they didn’t know enough to properly calculate what is called seller’s discretionary earnings. That is just frustrating.
People think, “Well, I don’t want to pay the broker fee, I’m going to do this on my own,” and they don’t have the tools and resources to do it on their own. But let’s just be clear that the book is a tool and resource to help you understand the value of your online business, to help you set goals, to help you reverse engineer a path to them, but it doesn’t give you a black belt in selling your online business. You get an orange belt and someone that’s smaller and chubbier than you can still kick your ass because they really understand what they’re doing.
Math and Logic
Drew Appelbaum: What are the factors in forming the right evaluation for a business that people are oftentimes missing?
Joe Valley: Well, it starts with math and logic. You absolutely have to have a proper profit and loss statement with a monthly view and that’s easily done in Xero or QuickBooks, and then you export it to Excel. That’s the beginning, it’s on the bottom line, you’ve got that income but that’s absolutely not the number that is used to apply value to your business.
Businesses in this category are sold as a multiple, one, two, three, four, of seller’s discretionary earnings. Seller’s discretionary earnings are that net income on the bottom of your PNL plus add backs. Add backs are where most people fail, miss the mark miserably, and give away a whole bunch of equity in their business.
An example of an add back would be your own payroll. If you’re an owner-operator, putting yourselves on the payroll for $100,000, that’s an add-back, that’s a level one add-back. It should be fairly simple and obvious. What people actually miss there is that they don’t add back the payroll taxes, they skip that. I give an example in the book where there’s a payroll of about $43,000 a quarter and the payroll taxes associated with those equate to about $13,000 over the course of a year.
If you didn’t put that in the add-back schedule, the owner of that business, if they were selling their business at a three-time multiple of discretionary areas, that 13,000, that’s missing off the add-back schedule, times three is roughly $39,000. That’s 39,000 not added to the list price because of that ignorance discount, you just didn’t know enough.
The book will help with that, and it will be a lot to digest for one person in any sitting. My advice would be to put it on your coffee table, put it on your desk, put it on your nighttime stand, and keep using it as that reference guide, a tool to keep going back to learn as you go.
Drew Appelbaum: What would you say to the business owner who says, “Hey, I have a thousand things to worry about right now, I can’t and I don’t want to plan any of this out.” What can they expect from feeling like that?
Joe Valley: The business that you’re running is probably your most valuable asset and if you don’t pay attention to it and you want to wake up and decide to sell it, that’s okay, you’re just not going to get maximum value for it. You really need to prepare for the exit. I hate exit planning, right? It’s a word that just makes us all want to turn and run away.
The book is called The Exitpreneur’s Playbook and there’s a lot of sports analogies to it. Everything is geared around that. I want people to shift their mind towards, that this is actually training. They’ve got a business that is likely their most valuable asset, they will make more money the day that they sell the business than they do actually operating it, especially if it’s a physical product business that’s less than three years old. No question, the vast majority of the money they’ll ever make on the business comes on the day they sell, that’s been proven out. This is more training for that day.
If you want to go ahead and do a 5K, run a marathon, do anything like that you’re not to going just get up and run it. If you do, you may finish but you’re then going to finish in pretty bad shape and the recovery afterward is really going to be painful. It’s the same with the business, if you want to sell it for maximum value, you need to train for it. You get in shape, you get your knowledge so you’re not giving a huge ignorance discount to your buyer, and so that you’re not in terrible shape after you sell.
What would that terrible shape be after you sell? Well, you didn’t get majority cash, you get a lot of components to it like an earn out, and things that will make you sleep very poorly for the next couple of years, or you are really poorly organized and you’ve got a lot of work to do with the owner after the sale, as opposed to a really clean transition and training period and then you’re done and you can move on to your next adventure.
Hopefully, that would be a break first and then your next adventure, and you’re going to train for it. It’s like anything else in life. More people will train for those physical things, but they don’t train for the most important thing, which is the most valuable asset that they have. I’m just trying to shift their mindset a little bit because, I have talked to 8,000 of these people, but I haven’t sold 8,000 businesses and the reason is that the vast majority of them were unsellable because people didn’t do what they needed to do in order to get maximum value for them.
Reverse Engineer Your Exit
Drew Appelbaum: Now, it’s in the title and it’s part of the playbook–you talk about reverse engineering a path to exit. Can you explain further what that means?
Joe Valley: Yeah, early on when I was talking to folks that wanted an exit, I really just asked enough questions and told them what I thought the business was worth. Obviously, I got some experience and grew up a little bit and I started saying, “Well, let’s talk about your goals. What are you hoping to sell the business for in dollars?” A lot of them would answer what they wanted, multiple wise but they didn’t really know what the dollars were.
The first thing that the book talks about is what you want to sell the business for and then this is all in the first section of the book and then we go into, “Okay, well if it’s a million dollars or $10 million, let’s subtract the adviser fee. Let’s look at capital gains, taxes, and ballpark what you’re going to be left with, so you really know what kind of money is going to be deposited into your bank.”
Then we’ve got to go and reverse engineer a path to that goal. and that’s an analysis and understanding of where you are today in your business. What is your business worth today? Is it worth $200,000, 500,000, a million dollars? If you want to sell it for three million dollars, how far away are you from that goal? Then, we look at what your current growth rate is, some of the details that you’ve got in your business, and how quickly you’re going to just naturally meet whatever bottom line discretion earnings you need to be at in order to have your exit.
Math-wise, simple math. If your goal, Drew, is to sell the business for a million dollars but your discretionary earnings were only $150,000 that’s not going to work. You are not going to achieve your goal because that multiple is very high. It’s over a five and a half, six-time multiple, and right now for a small business like yours–if you’re doing a 150,000 in discretionary earnings, it’s considered small.
The multiples are going to be much smaller in that two and a half to three and a half times, so you’re not quite there, but you have a goal and now you know where you are. The book will talk about the things that you can do in terms of the valuation scoreboard and what you need to work on in the business to prepare it for that exit as you’re marching towards your goal. It doesn’t tell you how to run your online business.
That’s not what we’re about. It’s telling you what buyers are going to look for, what they love, what they fear, what you need to do in your business to prepare it for that eventual exit. But you can’t reach that goal if you don’t know where you are today, so you would definitely be reverse engineering a path to it. You’ve got to know where you are today in order to get to your goal.
Then it goes into a bunch of other things in terms of buyer’s fears and wants and valuation details and add back schedules and financial team metrics and all sorts of other stuff that we can get into.
I’ll admit, some of it just might make your eyes bleed a little bit but I’ve put enough humor in there that hopefully, folks reading it will feel like we’re sitting across the table at a pub having a beer, but there’s still a lot of math and details in there because it’s unfortunately necessary.
Drew Appelbaum: Now, what’s the best example? Because you have a lot of real-world examples in the book but what’s the best example you could talk about of a business owner who came in a little bit of a mess and then followed the playbook in real life that you provide and really exited successfully?
Joe Valley: Yeah, I would think about Lee, a young woman. She emigrated from Vietnam when she was 15 years old with two sisters and her mother. They had $200 to their name, and she didn’t speak any English. It’s an incredible story. She came to me, and she had two brands and they were just kind of a mess. There was one part of the four pillars in terms of what buyers want and fear that was really, really shaky and that was the transferability of the business.
Part of it was dependent on local suppliers where she lived, which was in the San Francisco area. Well, I live in North Carolina. I can’t rely on local suppliers in San Francisco if I have to go see them as Lee did in the situation.
We addressed it upfront, we got ugly fast in the package and put it out there and there was interest but not enough. You know, the initial suggestion was, “Lee, let’s not list this business yet. Let’s focus on the transferability aspect of it. Let’s get some systems in place so that it’s going to be easier for the business owner to take it over,” but it’s her business and timing is everything.
Her husband had a job opportunity in Japan and they were planning to move to Japan. About three weeks in, she called and said his transfer was canceled and selling the business was a little overwhelming at the moment and she did want to step back and fix things. We originally had the business listed at about $450,000. We were going to get it sold for that, it was just we shrunk the buyer pool because of the transferability issue.
She came back about 15 months later after doing all of the things that we talked about, focusing in on risk and growth and transferability, documentation, things of that nature, and her business was in an amazing shape. Really easy to transfer, she solved all those problems for buyers, and it had grown, so we listed the business for about $759,000. She had multiple offers. We had it under LOI in about two and a half weeks and it closed in another 30 days.
A mere period of 15 months, but by now she understood what her goal was, and she knew what she needed to fix in the business to make it more attractive. Time made it larger and more valuable, but that time that she put in the business also made it more valuable to buyers in the terms of ease of transfer, clear documentation, great growth opportunities that she put in place, built-in paths to growth that a new buyer just had to buy the business and let time pass because there are new skews that were added that are growing.
She came to this country at 15 years old, didn’t speak English, by the time she was in her mid-30s, she had sold the business for nearly three-quarters of a million dollars, and she just put her head down and focused on it. She got an education, and she did the right thing, which is, by the way, not thinking of herself first. It’s a strange thing in this world when so many people are self-centered and they focus on themselves when they’re trying to get ahead, but life experience tells us that when you think of others first in life and in business, it does come back around to you.
The book focuses on telling those online entrepreneurs not to think selfishly about their exit but to build a great business for a great buyer to take over at a great price, and when you’ve got all three of those things, you’ll get maximum value because buyers will see the upside, they’re not going to worry so much about the risk, and they are going to pay you maximum value and with a much better deal structure too.
A Dollar and Happiness Goal
Drew Appelbaum: What steps do you hope readers will take after finishing the book?
Joe Valley: That is a great question. Well, I would think that they’re going to follow section one of the book and actually set a goal down in writing, both a dollar goal and a happiness goal. What do they want their life to be like when they do sell, how do they want to feel? Then drill down into the current value of the business and ultimately, they’re going to have confidence in knowing the value of what they have and building on that value.
I had a situation a couple of years ago where I had met a couple of guys in a mastermind group. I’d seen them at the mastermind for a couple of years prior to that. Eventually, they connected with me and said, “Look, you know we’ve been running this business for three and a half years. We’re tired, we’re frustrated, we just don’t think it’s worth much. Can you help us?” and I said, “Well, what do you think it’s worth?”
They said, “Maybe $400,000?” I know for some listening, they’re going, “Okay, $400,000 that’s a lot of money.” It is, but in this situation for these guys, they were frustrated because they really worked hard. So, we went through their profit and loss statements, dug into their add back schedule, which is chapter 11 of the book, really firmed up their seller’s discretion and earnings, which is littered throughout the book, and taught them where they were at that time.
Instead of being tired and frustrated because they thought their business was only worth $400,000, the reality is their business was worth about a million dollars, and all of a sudden, their eyes light up and they’re excited and motivated and passionate about their business. Then we talked about the scoreboard and what they needed to do in terms of getting this business in great shape for buyers and focusing on risk and growth and transferability and things of that nature.
They got even more excited and they set a new financial goal. Their financial goal as an exit is eight figures. Two years ago, they think, “Yeah, maybe 400,000,” and tired and frustrated. In reality, it was a million bucks. With the growth they’ve had since then, they’re looking at an exit in 2022 for about eight figures, which is $10 million. It’s really helped them get laser focused on what matters in the business, what projects to take on.
Personally, we all have tough days, but as an entrepreneur, we have tough days that are racking up weeks at a time. When you’re focused on a goal and know that the end is in sight, even if it’s 12 or 24 months away, those tough goals, those valleys in the road, those hurdles that you need to get over just get a lot easier because you do have a mission. You do have a path, and it’s not just launching another skew or writing another article. It’s actually building a business that will be valuable for you and valuable for someone else to eventually buy.
Drew Appelbaum: Joe, we just touched on the surface of the book here but I want to say that writing a playbook for business owners to get the most return from their business is no small feat, so congratulations on being published.
Joe Valley: Thanks, man. It was hard but I’m glad I did it.
Drew Appelbaum: This has been an absolute pleasure and I’m excited for people to check out the book. Everyone, the book is called The EXITpreneurs Playbook. You can find it on Amazon. Joe, besides checking out the book, where can people connect with you?
Joe Valley: They can find me at exitpreneur.io. We’ll have a lot of resources, we talk about the resources that are needed for some of these growth opportunities, and I’ve got a resource/partner page that is going to allow people to connect with experts in the field of online business and tax advisers and eCommerce bookkeepers and attorneys and SBA lenders and people that would loan money for inventory, things of that nature. So, exitpreneur.io and they could always find me on LinkedIn as well at Joe Valley.
Drew Appelbaum: Well, Joe, thank you so much for coming on the show today, and best of luck with your new book.
Joe Valley: Thanks, Drew. I appreciate it.