In Episode 484 of the Built to Sell podcast, John Warrilow sits down with Kristie Shifflette, a highly successful entrepreneur who expanded her Orangetheory Fitness franchise from a single location to 13. Her journey from bootstrapping a capital-intensive business to successfully selling it to a larger entity offers a wealth of valuable lessons for any entrepreneur looking to scale, sell, or exit their business. In this episode, Kristie shares her insights on how she grew her business, navigated the complexities of negotiations, attracted the right employees, and eventually sold her franchise in a way that set her up for success.
Let's break down some of the key takeaways from this episode.
1. Bootstrapping a Capital-Intensive Business: Maintaining Control Without Investors
One of the first major challenges Kristie faced was the capital-intensive nature of her business. Orangetheory Fitness franchises require significant investment—primarily for real estate, equipment, and upfront costs like franchise fees. Kristie managed to grow her business without relying on external investors, which is a rare feat in such a capital-heavy industry.
Kristie discusses how she maintained control of her business by bootstrapping it. She strategically financed her growth by personally guaranteeing leases and making calculated financial decisions. This allowed her to maintain complete control over the vision and direction of her business, without being beholden to outside investors or venture capitalists. By keeping her financial decisions in-house, Kristie aligned the growth of the franchise with her personal values and goals.
2. Reducing Risk When Engaging Investors: Negotiation and Strategy
While Kristie initially bootstrapped her business, she eventually engaged investors to support her franchise's expansion. However, when it comes to raising capital, Kristie is cautious about protecting her personal assets and ensuring that the investors are aligned with her long-term vision. She advises other entrepreneurs to be meticulous about the terms they negotiate with investors.
Kristie highlights several important points when entering into investor agreements:
- Clear Roles and Expectations: Ensuring that all parties are on the same page when it comes to the roles of the investor and the founder is crucial. This clarity prevents misunderstandings and potential conflicts down the road.
- Exit Strategies: It’s essential to discuss and agree upon exit strategies up front. This ensures that both the investor and entrepreneur understand the end goal and can work towards a mutual outcome.
- Protecting Personal Assets: Kristie emphasizes negotiating terms that shield your personal assets from being at risk in case of business setbacks. This is crucial to avoid losing more than just the business itself.
By focusing on these elements, Kristie was able to keep risk to a minimum while still expanding her business.
3. Attracting and Retaining Entrepreneurial Employees
A successful business is only as good as the people behind it. Kristie believes that creating an entrepreneurial culture within her franchise was key to attracting high-quality employees. She intentionally built a work environment where employees felt like owners, not just workers. This sense of ownership gave them an intrinsic motivation to help grow the business.
Kristie used performance incentives and a culture of shared responsibility to foster loyalty and commitment from her employees. By emphasizing the value of teamwork and individual contributions, she managed to keep turnover low and morale high. She recognized that without a solid team, her business wouldn’t have been able to scale in the way it did.
4. The $10 Million Milestone: Why It Matters for Buyers
One of the key insights Kristie shares is the significance of reaching a $10 million revenue milestone. This threshold is important because it makes the business more attractive to private equity firms and potential acquirers.
Why $10 million? For one, it signals to acquirers that the business is operationally mature, scalable, and has reached a point where it can continue growing without constant oversight. Investors and acquirers see it as a sign that the business has achieved a certain level of financial stability and market penetration, making it a more viable acquisition target.
Kristie reflects on how reaching this milestone was instrumental in positioning her business for a successful sale. She stresses that businesses at this level of revenue are not only more valuable but are also easier to sell.
5. Making Strategic Decisions: Taking Chips Off the Table vs. Doubling Down
As her business grew, Kristie had to make tough decisions about whether to take profits off the table or continue reinvesting in the company. These decisions ultimately affect the trajectory of the business and whether it is in a position to be sold.
Kristie shared that making these decisions requires a careful balance between personal goals and business goals. If you’re looking to exit soon, it might make sense to secure some profits and play it safe. But if you’re planning for long-term growth, reinvesting in the business could yield significant returns. Kristie explains how she evaluated her personal and professional goals, market conditions, and financial performance before deciding to double down on growth, which later led to her successful sale.
6. Mastering Management Presentations: How to Attract Acquirers
When it comes to selling a business, Kristie emphasizes the importance of presenting a compelling case to potential acquirers. She shares strategies for creating management presentations that showcase your company’s strengths, financial stability, and growth potential.
Kristie advises that entrepreneurs should:
- Be transparent with financials. Buyers appreciate honesty and clarity, so showcasing accurate and well-organized financials is key.
- Highlight growth potential and market opportunities. Buyers are more likely to be interested in a business that shows promise for future growth.
- Emphasize customer loyalty and a strong customer base. These are critical selling points because they reduce the perceived risk for acquirers.
7. Negotiation Tactics: Playing Hard to Get
One of the most interesting negotiation tactics Kristie shares is the importance of “playing hard to get” when engaging with potential buyers. By creating a sense of scarcity or limited availability, she was able to drive up the value of her business and encourage more competitive offers from acquirers.
While it's natural to feel eager to sell, Kristie advises against appearing too eager. If acquirers feel that a business is desperate to sell, they may lower their offer. By remaining somewhat aloof and not rushing the process, Kristie was able to negotiate better terms and secure a more favorable deal.
8. Maximizing Earn-Out Payments
Earn-outs are a common component of business sales, where a portion of the sale price depends on future performance. Kristie shares her experience with earn-outs, explaining how she was able to structure these payments in a way that worked to her advantage.
To maximize the earn-out potential, Kristie advises setting realistic performance targets that can be easily met after the sale. By ensuring that the business could meet these targets, she was able to secure the full earn-out payment, which was an essential part of her overall financial success.
9. The Importance of Evaluating Re-Traded Offers
Finally, Kristie discusses the potential for acquirers to revisit and adjust their offers during the due diligence process. This is a common occurrence, and entrepreneurs should be prepared for it. Kristie advises being cautious if the acquirer seems overly eager to present an offer that appears too good to be true, as it could be reduced after further scrutiny.
Whether you're just starting to think about the future of your business or you're actively planning your exit, Breaking the Mould Consulting Limited provides the expertise and support you need to make smart, informed decisions.
Contact us today to schedule a consultation and start breaking the mould in your business! Together, we can help you achieve your business goals and maximize your potential.
