Interview with John Warrillow

Transcript

Unknown Speaker  0:01   The purpose of wealth talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth builders recommends you should always take independent financial tax or legal advice before making any decisions around your finances.

Unknown Speaker  0:19  
Very Welcome to Episode 37 of wealth talk. My name is Christian Rodwell, the membership director of wealth builders I'm joined by my site today live in London by Mr. Kevin Wayland founder

Unknown Speaker  0:29  
Hello Chris Mina not look you can't get away from the fact that London is a very noisy place so unusually you know we're gonna have some background noise but as we're working together we wanted to make sure that we get great value because we're hot off having listened to those wonderful women yes describing their you know, their expertise in in the wealth space as far as business is concerned. And I teased you a bit did not last time mysterious john, this mysterious john, do you want to know who he is? Yeah.

Unknown Speaker  1:01  
It's Mr. JOHN warrillow.

Unknown Speaker  1:02  
Yeah, john warrillow is just a business guru. He's the man who if you want to understand how to create the maximum value from your business, he's the man who can help you with his own IP. Now, look, let's face it, when you think about the way assets are built, you know, we've gone through all the various assets, Chris avonlea. So if you want to look at your home, you can get an instant valuation. If you want to look at your pension, you might not be happy with the result. But you can get a valuation pretty quickly by looking online. If you want to look at the bank. You see what your cash is, the hardest asset to value is a business. And what john is created is a brilliant book called Built to Sell. And not that every business should be built to sell and he acknowledges that in the book, but that all good businesses are capable of being solved.

Unknown Speaker  1:55  
And that's all about beginning with the end in mind.

Unknown Speaker  1:58  
Exactly right. And what he Really articulating the book is, you've got options. So whether you sell it or not, you've got an option. And it's the same as being wealthy, you know, you can power through your level of wealth into abundance, and it doesn't mean you stop at financial independence, you just keep powering on because things just happen. So you got choice. And what he articulates in the book is there are eight key drivers that help anybody to focus on those things. So I would encourage anybody to read it, who's thinking that having a business is part of their wealth building plan, and let's face it in the end, Chris, everybody parts company with their business. Yeah, because they're going to die. So if you know you're going to part company with it, and they always talk about my businesses, my child but yes, sometimes you gotta let your kids go. You know, you you bring them up, but you might want to park company and get a bit of cash for some of your business or you might want to sell your business or you might want to pass it on to you Kids, we might want to pass it on to others. But understanding that your business is maintaining great value is the important thing. Yeah. So I would encourage everybody to read the book because we only get 15 minutes or so of his wisdom. And not everything is going to come across in that short period of time. Yeah.

Unknown Speaker  3:16  
And we should mention as well, the value builder system, which john has created, so any business owners who want to maybe go and actually see, you know, where are they in that cycle of, you know, saleability. JOHN has a good system. And I believe, you know, it's the statistic only 1% of businesses actually sell

Unknown Speaker  3:32  
well, yeah, because most businesses don't sell Chris because the buyers are not ready. You know, they haven't thought about it. They get tired, they get distressed, they get worn out, and therefore the business is worthless in the end because they don't position it. Well. They don't create high levels of recurring income and they don't create the business capability so we can work without them. And that's another reason. So looking at the drivers and they're the two that that I think are the most important How to create creating our levels of recurring income and making sure the business can work entirely without you. Because if you can do that, then you're giving the acquirer predictability. And the reason why most businesses don't sell is the the owner of the business values, what they're doing, when actually the acquirer doesn't value what they're doing. They're going to value what's going to be done when they're gone. And the two different things.

Unknown Speaker  4:27  
Yeah, and we talked a lot last week with the female entrepreneurs about recurring income, and how are they introducing that into their business? And that is the theme of C of john second book, The automatic customer, which is all about creating a subscription business in any industry.

Unknown Speaker  4:41  
Yes. And, and there are many ways to do that. And of course, that's my speciality and strength. So we'll cover that I think in another podcast, but the book does go into he talks about nine different models. In fact, you know, it's really, if you've got a service, how do you create more value from that if you've got a product? How do you create more Customers from that if you've got, if you're selling information, how do you do it on subscription. And if you've got a business that gives you a gateway to other opportunities, you can do that. So I think there's probably four real themes going on there. But he gives nine, you know, unique takes on how to do that. But building recurring income is got to be the most important thing to get right.

Unknown Speaker  5:22  
And we touched on that in the in the interview. So let's head over to the interview now with john warrillow.

Unknown Speaker  5:29  
Hey, so welcome to wealth talk, john.

Unknown Speaker  5:32  
Thanks for having me, Christian. Great to have you on john. And I know that you bumped into our founder, Kevin a few weeks ago, or maybe a month or so when you were last in London.

Unknown Speaker  5:41  
Yeah, actually was just outside Birmingham. We were up in, up in in the middle of zero, but yes, I saw Kevin Yeah, it was fun.

Unknown Speaker  5:48  
Excellent. Now, john, what is it about business as an asset class that you like so much?

Unknown Speaker  5:54  
Well, I mean, if you set it up, right, it doesn't necessarily have to take up all of your Your time and I think also it provides the exponential growth that something like property, or, you know, an income stream from a job just doesn't allow for. So if you look at other asset classes over time, you know, they kind of, you know, bump along at a reasonable clip, you know, real estate, you know, depending on the time 578 percent a year, whereas businesses, if you get them, right, you know, they can double, triple quadruple in value over the same period of time, they can also go to zero, right? So there's just a higher stakes environment. But that's one of the reasons I like it as an asset class.

Unknown Speaker  6:36  
Now, there's a difference between many businesses that are out there and we know the statistics are that many businesses fail. And both of your books are very much centred around the recurring revenue model. Why is it so important to focus on recurring income in a business?

Unknown Speaker  6:54  
Well, first foremost, it gives the business predictability, right and so for a lot of business owners, we struggle With trying to predict the future of the business, not only what customers are going to come in, but also what supply we need. You know, in preparing for the book on the topic got about a customer. I did some research with a company called h bloom. h bloom is in the business of selling flowers. High Street retailers throw up most of their flowers, but h bloom chose to sell flowers on subscription. So they went to deals with hotels and restaurants to auto ship these flowers to these hotels and restaurants. What was really interesting was that their spoilage rate the typical spoilage rate in a high street flower shop is about 60% meaning most flower stores throw out 60% of their inventory and H bloom they throw it less than 2% Why will because they know how many flowers to buy from the farmers because they know how many subscribers they have. Now people listening that might say, well that that's nice for flowers, but I don't have flowers if you employ people You have a form of perishable inventory, right? Because if they come in on a Monday, they want a paycheck on a Friday, if you can't deliver the work for them, then they're sitting on the bench you're paying for them. If you have too much work, then they're overworked and miserable. And so every business owner, I believe, struggles with this kind of trying to predict a man. And that's why one of the benefits of having Predictable Revenue is it really helps you predict demand.

Unknown Speaker  8:25  
Yeah. And I guess another big advantage is obviously, if you're building a business, you should always start with the end in mind, and many business owners struggle to sell the business. And why does recurring income help in this aspect?

Unknown Speaker  8:39  
Well, when an acquirer looks at your company, they're going to ask, okay, what is this business look like when you the owner, leave? Right? Because you're going to write that owner a big check. He's going to go to the golf course or the beach or whatever. And the question then becomes how does this business perform when he or she leaves and recurring Revenue gives an acquire tremendous confidence that the company will continue to thrive without the owner. If customers are, you know, making those small monthly payments, that gives acquires tremendous amount of confidence that there is a annuity stream beyond just the owners kind of tenure and owners effort as a Rainmaker make sense.

Unknown Speaker  9:21  
And tell us a little bit about the value builder system john as well.

Unknown Speaker  9:25  
Yeah, so you know, we have a 12 part System or 12 module system that helps business owners improve the value of their company leading up to an exit. There are 12 unique modules when people start with us, their average score is 59. And on average, they're getting offers of 3.5 times pre tax profit. Those that go through the system and prove their score up to 90 out of a possible 100 on the valuable the questionnaire are getting on average offers of 7.1 times pre tax profit or more than double. The other thing value builder does is it almost true The likelihood that you will get an offer for your business. And I don't know about you, but when I talk to business owners very few of them actually want to sell. But virtually every one of them want to know they could sell. And there's nothing better than being in the catbird seat having people come to you looking to acquire your business because that way, you're in the negotiation position of strength, as opposed to going to them or grovelling for a sale. So going through value builder and achieving a score of 90 or greater triples the likelihood that you're going to receive a written offer for your business.

Unknown Speaker  10:34  
Now, a lot of our listeners now john, will be currently employed and actually in the process of starting a new business. However, we do have some who may be in business for 20 years, for those that are in business and have already been entrenched in the way that they've been doing business for so long. may think now Oh, how do I suddenly change up the model? You know, how do I kind of rewind and start it Introducing subscription model. So do you have any tips, as you know, and case studies of different kind of business types and how they've switched from the old model to the new model? Yeah, I

Unknown Speaker  11:11  
mean, simply think about service contracts. Right? So service contracts are one of the nine subscription models that we that we talked about. And really, virtually all businesses can provide some level of service contract. So a service contract is basically says, These are the things that we're going to do for you, typical customer does these on a regular cadence, let's lock that into some sort of subscription offering. So heating and air conditioning companies, right, they need to come in and really, you know, change out the furnace filters in the spring and in the fall, swimming pool companies, they need to read, you know, do the chlorine every every month or so, all these companies can offer the service on an ad hoc basis, meaning at when the customer calls they go out and you know, a service run or they could choose to offer them on subscription. subscription, again makes the business more predictable, it also makes the business a lot more valuable to an acquire. So in virtually every business, you can pick up, you know, a little bit of service contract revenue, and that's the place to start. And once you start to kind of get a sense of recurring revenue, and it's in its its power, I think you'll be curious about the other eight forms of recurring revenue as well. So would you say for those that are just getting started, john, if they're still not quite sure exactly what kind of business would be to look at what skills they've got what they could offer almost in terms of a consultancy subscription model. Yeah, you could do that although it can get you very sucked into being the Dewar and the seller. So if you focus on your own skill set what you have to offer, you will end up selling time for money and and really trading one job for another. I would recommend instead focusing in on scratching your own itch Walking through life with a little pad of paper or an iPhone app or you know, Notes app on your iPhone, and just trying to think about what would make this situation just a little bit better. Is there a product a service that would make what I'm doing right now just a little bit better. And I think you'll find that by scratching your own itch, meaning finding a business that you would find valuable, you're going to have intimate knowledge of what customers want in that case, as well as some passion behind it, because you you've personally experienced that, you know, in my case, I, you know, this goes back 15 years or so, I was really dumbfounded why some businesses were trading at much higher multiples than others. And, and sort of started this kind of lifelong journey to try to understand that so it was really my own kind of personal curiosity about the topic that led us to value builder. And so I would just go through life with a little pad of paper. saying you know what could make this situation better you know the guys at peloton just went public. the peloton guy said, you know, working out in your basement, while you know works, it gets the job done. It's incredibly boring, right? What would make it better would be a live streaming, you know, tutorials class run by some, you know, effervescent high energy person in New York, and they built it and that was scratching their own itch.

Unknown Speaker  14:31  
Now a question that some people might have john is, how do you keep those customers subscribing month after month? And of course, if you continue to deliver value, then I'm sure the customers will decide to stay but is it? Is it difficult sometimes with churn rate or unsubscribe rate? And do you have any tips for how you create a long lasting relationship with a customer?

Unknown Speaker  14:54  
The biggest

Unknown Speaker  14:55  
impact the biggest predictor of churn is the customers first 30 days as a subscriber. And so what we know from statistics is if they derive tremendous value from your subscription in the first 30 days, their likelihood to stay long term is much higher like like by order of magnitude higher than if they get limited value in the first 30 days, but tremendous value thereafter. It's that honeymoon period in the first 30 days where you really want to pack a tremendous value. So I'll give an example there's a company in the United States called Mr. Car Wash they offer you guessed it car washes on subscription for $30 a month last time I checked, it was about $30 a month. You can go to a car wash an unlimited number of times. Now Car Wash traditional Car Wash operators when they saw Mr. carwash do this. They thought oh my god, they're they're completely insane. You're going to have Uber drivers and taxi cabs going through the car wash, you know every five minutes and it's going to cost them a tremendous amount in hot water and And soap and so forth. What they didn't realise was that that's exactly the behaviour you want in your first month. As a customer, you want those those drivers to go through your car wash many, many times, and have the kind of experience while thinking, wow, this is a tremendous experience, I'm getting so much value from the subscription, we all have better things to do than sit in the car wash, right? And so it over time settles out to a regular cadence of going to get your car washed, but you actually want to promote them over using the product or service in the first 30 days. You know, when someone subscribes to a streaming service like Amazon Prime or Netflix, you want to serve them up and experience so valuable in that first 30 days that they they they they bet in as the industry says, which is when you get that kind of long term loyalty.

Unknown Speaker  16:50  
Now, I would imagine with the rapid advancement of technology over the last five years or so they're starting a business that can have this automation can easily have the technology to manage the customer flow has just become a lot easier. So the opportunities are greater Is that Is that a fair thing to say, john?

Unknown Speaker  17:09  
Absolutely. I mean, you know, 15 years ago, recurring revenue platforms were really only available to massive wireless companies, right. And massive insurance providers, you needed, you know, hundreds of thousands, millions of dollars a year to create the billing platform that would allow you to kind of automatically build customers on a regular cadence. Well, today, they're a dime a dozen, right? You know, every software, every CRM software has an ad on WordPress as an ad. I mean, there's just tremendous numbers of add ons that you can buy to build your customers on a regular cadence. So So yeah, it's it's a great time. I think one thing I would say, though, Christian is, while it's a great time, from a technology perspective, there's something called subscription fatigue, which is setting in and I don't know if you've had this experience, but you know, in your days in the old You know, when I first got a credit card, I'd open it up and there'd be like one page statement, right, maybe four or five entries. Now, if I open up my credit card, it's like seven pages long of all these, like $3 and $7 $9 and 95 cents of charges. That's because I buy so much on subscription, as many of us do. And our bar for opting into a subscription is rising as a result of that. And so what we really need to do is really fine tune the value proposition for subscriptions so that the customer is getting just tremendous value that they really couldn't get from a transactional relationship. You know, think in terms of 10 x versus 10%. No one's going to subscribe to your product for a 10% reduction in the overall cost. No one's going to subscribe to swimming pool maintenance services, if they could remain free and just buy them on a transaction basis. But if you can make a case that subscribing is like five or 10 x more value than buying on a one off basis. That's when you get tremendous traction. If you look at Netflix as an example, you know, compared to a cable bill, I don't know what it's like in the UK, in the United States and Canada. You know, your cable bill could be 100 hundred and $50 a month, compared with Netflix or whatever it is 789 dollars a month. It just represents such a tremendous value proposition that you you kind of feel kind of stupid not not not opting in. So

Unknown Speaker  19:31  
yeah, and I was going to ask john, is there such a thing as a subscription sweet spot? Because you've got amazon prime, you've got Netflix, which are kind of around about the $10 a month mark. And do you find there is any kind of price point that works really well with subscription models? Or is it very different according to the business and industry?

Unknown Speaker  19:51  
Yeah, no, I don't think you could say that. There's any at least I haven't seen in my work. Any any, any sort of sweet spot. things to keep in mind of course, is that you've got business to consumer offerings, which traditionally have a an opt out option meaning like a Netflix you don't have to you don't have a contract term and a business to consumer model, you can simply opt out when you wish. Whereas a business to business subscription usually has a contract. So for example, if you subscribe to something like in a business context, like an infusion, soft CRM platform, you would you would agree to a term and it's a, it's a, it's a two sided sort of agreement, meaning they agreed to provide you the software for that period of time and you agree to pay for that period of time. So it's a it's a different context. But in it, you know, for a business, you know, we you could, you could see examples where people are subscribing to access to an aeroplane, right for, you know, 10s of thousands of pounds a month. So it could be massive amounts of money versus, you know, a very trivial thing like Like a toner cartridge replacement from HP for, you know, five or $10 a month. So I don't know that you could put $1 value on the ideal sweet spot. But I would think about, is this an offering that's a business to consumer offering versus a business to business offering.

Unknown Speaker  21:16  
And, john, I know you're returning to the UK in 2020 will be speaking. Yeah, this is an excellent forum. And

Unknown Speaker  21:22  
alongside Kevin, I might add, yep,

Unknown Speaker  21:24  
that's it, you'll be showing stage together. So what will you be bringing to the UK? JOHN?

Unknown Speaker  21:29  
Yeah, I'll be talking about the drivers of company value. So we've identified and value builder there are these eight unique drivers and company value, talking about those, and also be talking about the art of selling your business. So part of the, the process of monetizing your business is selling it and I believe it's, it's more art than science. Some people would make you believe that it's all science and hard numbers, but I think there's a flair and a narrative and an art form to selling a business. So I'm going to be sharing a little bit of that as well with you. In the UK in a few months, so looking forward to it.

Unknown Speaker  22:03  
Yeah, looking forward to it. Oh, so hopefully we'll get a chance to say hello face to face. And it's been great speaking with you today, john, I really appreciate you sharing everything with us today.

Unknown Speaker  22:11  
pleasure. Thanks, Christian.

Unknown Speaker  22:13  
Wow, Kevin, you must be excited about sharing the stage with john next year.

Unknown Speaker  22:17  
Yeah, I'm so looking forward to it. You know, I did meet him in not in London.

Unknown Speaker  22:23  
But we had a good time. And I think it was his 20th wedding anniversary and he was spending time in Scotland and then taking time out to come and do a presentation which was which was great. But you know, I would definitely encourage anybody to come and listen to john at the Business Excellence forum. I'm there to you know, which is next April the Celtic Manor. And I guess you could put a date on, you know, Bob Geldof will be speaking and a number of other excellent speakers. So I think it's definitely worthwhile coming to see him.

Unknown Speaker  22:59  
So keep Key points there overall to summarise recurring income model and how really in any business if you're, you know, you have a contract in place with someone, how can you turn that from just a one off sale to something that you serve that customer provide even greater value on an ongoing basis?

Unknown Speaker  23:17  
Well, that's a good point. You know, if you create recurring income, you have to demonstrate recurring value. So it keeps you on your toes, you know, you have to provide a business that focuses continually on the value. And if you've got a flaky business that doesn't intend to do that, then you'll be found out. So it's really a brilliant business model because it really focuses on the end result, which is customer. So that's number one. And the predictability he stressed is number two, and that predictability is great for you, as the business owner, but it's also predictable for an acquire, so so it's a double benefit there.

Unknown Speaker  23:52  
I guess they're the key points that my dad

Unknown Speaker  23:55  
and for any business owners listening, you know, a real weight so reignite customers that perhaps you haven't been in touch with for a long time and look at your model and go back to them. And maybe now offer them something to reengage them.

Unknown Speaker  24:08  
Well look, if you've got a service, could you provide a product? If you sell products? Could you provide a service? You know what, in in in the same way as we talk about leverage of time, and we asked people to do something every month, and never let 30 days go by without building your wealth? What could you do 1% better. You know, if you've got zero recurring income in your business, can you aim for 1%? And then just do one thing and try that. And then can you get to 2%? And then can you get to 3%. And as you do that, and you continually find ways to create some form of contract, some form of recurring billing, some kind of auto shipment, something that happens automatically, that makes it easy for the customer to say yes, and in many cases, actually, so painless, that they just keep going and going and going with integrity, not not hiding anything, then I think any business can move from zero to 5%, from five to 10. And if you can get your business to a significant volume of recurring income, then that business will be sold, or potentially be sold for a multiple that can be five, six or seven times, or the business that just focused on profit will do, which is why it's really important to pay attention to what john saying.

Unknown Speaker  25:30  
So we'd love to hear if you're already using a subscription model in your business and one of the best places to share that is in the wealth builders Facebook group. So facebook.com forward slash wealth builders, and we'll be carrying on the theme of business in next week's episode when we can

Unknown Speaker  25:46  
looking forward to that Chris and definitely looking forward to hearing what other people are doing that are either you know, creating really successful, recurring income or just starting to think about it and they want some guidance and advice. We're more than happy to do that. Because that's my reason why I love business so much is because you know, if you look, listen to Charlotte last week, she talked about not impact, which is the name of a business, but impact the fact that you can, you can go from very small to very large very quickly and impact a lot of people. And a lot of that can do, you can do that very quickly if you can build automation of revenue into your business model. So, I hope everybody got value from today, looking forward to continue to add more value. And until next time, Chris. So yeah.

Unknown Speaker  26:37  
We hope you enjoyed today's episode. Don't forget that we are constantly updating our resources inside the wealth builders membership site to help you create, build and protect your wealth. Head over to wealth builders.co.uk slash membership right now for free access. That's wealth builders.co.uk slash membership

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