Create scalable processes: Businesses stall because they focus on optimizing old, outdated processes. Once these processes are operating brilliantly, people are reluctant to change — especially the senior managers. But you can’t scale by settling, or by doing the same things the same way you did yesterday; you’ll only ever hit the heights you’ve already reached. If you want to scale, you have to scrap the old ways and discover new approaches.
As part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit,” I had the pleasure of interviewing Felix Velarde.
Felix Velarde is the co-founder and CEO of 2Y3X, a two-year global growth accelerator for companies that have plateaued and are determined to scale up. Felix is passionate about catalyzing positive growth, profitability and impact for the businesses he works with and recently shared his expert insights for much wider audiences through his book, Scale at Speed: How to Triple the Size of your Business and Build a Superstar Team. This actionable business manual unlocks his team’s proven methods for scaling organizations at any level and was written with forward-thinking business leaders in mind. Felix also founded several pioneering digital companies — Hyperinteractive, Head New Media (which became the digital arm of what is now MullenLowe Profero) and the eCRM firm Underwired — and was CEO of The Conversation Group.
Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit more. Can you tell us a bit about your “backstory”? What led you to this particular career path?
Certainly. My path here consisted of two markedly different careers. First, I was an agency founder and started one of the world’s first web design companies. I went on to found an online PR company, an interactive TV agency, and the world’s first electronic customer relationship marketing (eCRM) agency; I sold the eCRM agency before buying it back and then selling it again!
By the time I turned 47 I felt it was time to put my agency career behind me and find something new. I took time out to travel the world and explore. Returning from this quasi-gap year, I realized my experiences and knowledge could positively impact founders and business owners who wanted to grow their businesses but were stuck at a standstill. So that was the start of my current career, which is to share everything I’ve learned, including the mistakes and the successes, with others so they can turn those insights into substantial business growth.
What was the funniest mistake you made when you started your first agency? Can you tell us what lesson(s) you learned from that slip up?
I’ve made every mistake out there. Some funny, some terrible — and all useful. At my first agency, an early web design company, we had a meeting at a client’s office. As we left the meeting I saw a ticket on the windshield of my car. I half-jokingly, half-stupidly, turned to my creative director and said, “Oh, that’s okay, the client will pick that up.” The client was right behind me. He heard my profoundly poorly timed statement. Luckily, he responded with mercy. “Felix, you’re young. You’re still learning. But don’t ever say that kind of thing again.”
I guess I learned that most people are just genuinely good human beings who truly want to help you on your path. In that moment, that client proved that he was one of the good ones. He forgave me but also taught me a lesson. I learned that day to never do anything to undermine the client or take advantage of their goodwill. The people you partner with will eventually figure you out, whether or not they’re standing right behind you. That’s why I firmly believe that it’s always best to lead with honesty and humility.
Can you please share your favorite “life lesson quote” as an entrepreneur, and explain how that has impacted you on your entrepreneurial journey?
I love this particular quote from Steve Jobs: “You can’t connect the dots looking forward; you can only connect them looking backwards.” That philosophy’s truly been fundamental in my current career as a growth accelerator (helping companies double or triple their revenue in two years). It’s there in the foundation of the 2Y3X program and my book, Scale at Speed.
One of the great things about having a 30-year, lesson-packed career as a serial founder is that I have many experiences to draw upon. I’ve seen how companies fail and how they succeed.
That’s why the process in Scale at Speed and 2Y3X is based on starting at the end and working your way backwards. It’s easier to plan ahead if you truly understand where you’re going and what you’re aiming for. 2Y3X is all about giving entrepreneurs the tools to create an actionable plan that’s future-focused with the retrospective vantage point needed when planning for stellar growth.
Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?
I sold my first company to my business partner after we discovered that our vision and values were no longer aligned. I also saw success with my second business, which became the world’s most awarded digital agency within a year of its launch. We were courted by all the major advertising networks, including WPP and Omnicom, and I ultimately sold the business to Interpublic’s Lowe Group (now MullenLowe).
That was the first time I’d run a business from a P&L, and the sale taught me exactly what acquirers are looking for and how to cater to those needs. Since I’d built each company without taking on loans or private investments, I learned that if you can secure customers or clients who’ll pay you based solely on your proposition and your ability to execute against that vision, your business is already a success. If you borrow money, it might take spending the entire investment before your vision is realized and your business sees success — by which point it may well be too late, at least for those who’ve invested in you.
Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit?” Please give a story or example for each.
- Get the right people on the bus. Jim Collins, author of Good to Great (a mandatory read for any entrepreneur), coined this phrase to illustrate the importance of finding people who are aligned with your vision and want to be on the journey with you — because anyone who doesn’t will hold you back. In my experience, you must also find people whose personal values align with yours. These values go far beyond the school you graduated from, your ethnic background or the culture you grew up in. If your core driver is integrity, then you should partner with those who also hold that as their core driver. Agreement isn’t sufficient, you must share those values and vision deeply. In life, we’ll all associate with and even befriend people who have different core values, but in business, this alignment is critical and makes the experience much more enjoyable. This is something we guide our clients through right out of the gate, because knowing when to part ways with an unaligned team member or prospective employee isn’t easy and takes practice. But, ultimately, it is best for all parties involved, including those whom you release to find organizations that better match their values and vision.
- Get your value proposition right: Don’t be afraid of polarizing customers away, so long as you’re drawing the right prospects toward you in equal measure. Be crystal clear about what it is you do, and for whom. Don’t feel bound by the basic formula, “We do X for people like Y in circumstance Z.” You can often do more through subtler messaging. This calls back to another Jim Collins idea, “Do the thing you can be the best at in the world and practice until you can defend it.” 2Y3X’s value proposition is taking businesses that have stalled and effectively doubling or tripling their revenue. This is a simple but substantial (and more importantly, proven) proposition, and it always leads to extraordinary results.
- To dream up amazing solutions, cultivate creative diversity within your team: While your team should share the same core values, it also benefits your business to assemble people from various backgrounds. You need to hear and balance out the perspectives of both the younger, energetic folks and the more senior, experienced personnel. Your company needs to internalize and reflect both male and female perspectives, while hiring people from other cultures, education systems, socioeconomic backgrounds and life experiences. Gathering a wide array of perspectives will spark better, more innovative thinking. Bring all of your company superstars into the room when designing the future of your business and allow everyone’s voice to be heard. Often, those who are brilliant at managing well-functioning departments may not want to see change. And some of the most innovative thinkers often struggle with developing and working within set structures. Find your sweet spot and understand that scaling requires teams to adapt to the times and adjust the way things have been done in the past.
- Ensure all stakeholders buy into and take ownership of your vision: In the early stages of a business, entrepreneurs can get stuck on the idea, “My company, my way.” That’s all well and good, until the moment you realize you are the reason your business isn’t growing anymore. By trying to manage too many people and solve every problem, you can become your company’s biggest bottleneck. The only way to distribute ownership of your vision is by enabling and empowering your team to co-invent the next stage of growth. It’s everybody’s task to grow the company. Once your team takes confident ownership and knows what needs to be done without waiting for direction from you, you will be freed to think strategically and advance your company.
- Create scalable processes: Businesses stall because they focus on optimizing old, outdated processes. Once these processes are operating brilliantly, people are reluctant to change — especially the senior managers. But you can’t scale by settling, or by doing the same things the same way you did yesterday; you’ll only ever hit the heights you’ve already reached. If you want to scale, you have to scrap the old ways and discover new approaches. Most businesses don’t understand how to do this, though. My book, Scale at Speed, exposes one way of creating scalable processes by obtaining buy-in from your superstars: encourage your A-Team to co-design your future scaling systems and processes, then provide them the latitude and resources to bring their ideas to life.
In your experience, is there a difference between building a service-based business versus a product-based business when you have the intent to eventually sell? Can you explain?
There are added considerations in a product-based business, including supply chain management, innovation management and new product development. By and large, though, the same process pertains to both product-based and service-based businesses. As long as you remain nimble enough to keep up with market demands, keep your pulse on innovation and keep in conversation with your customers, the broader rules don’t change.
How does one go about the process of finding a buyer?
You’ll find a buyer the same way one finds clients and customers — draw them to you by being the best in your market. That may require you to revisit your value proposition to ensure people know which market you’re in. When I sold my last company, we were the best CRM strategy company in the market. Now, that market is narrow, but we knew there’d be sufficient buyers because there were plenty of companies that didn’t quite have CRM in their portfolio yet. And, as the best strategists in that game, we knew how attractive we were. When we decided to sell, 16 companies had expressed interest. We entered into talks with nine of them and seriously considered only three offers.
As the principal, I didn’t just sell to the highest bidder. I sold to the one that promised to look after the people who stayed within the business, because I wanted to leave the fate and future of the company in the best possible hands. It was a good sale done for the right reasons. I was able to walk away, having concluded a great deal with people who wanted the best in the market and received the best in the market.
How can one decide if it’s better to (A) build a business in order to exit, (B) stick around for the long-term and let the company bring in residual income, or © go public?
Ultimately, that comes down to personal choice. If you can build a business that yields a great income and fulfills your needs, that’s terrific. 2Y3X works with companies that are looking to grow and sell. We’re great at doubling or tripling revenue, so they can sell at a much higher price. We just helped sell one company for 1.5x the market valuation, as a direct result of our program.
But I also admire people who build a business to bring in a steady income and still have the ability to switch off at five o’clock. That’s fantastic. Some people are less concerned about growing their business and are happy just doing what they do. Others are working to change the world, which can only be done by becoming a unicorn. Others purely want to make as much money as possible. Honestly, I respect all of these approaches. It’s a matter of doing what you feel is best for you, your team and your company.
Can you share a few metrics that are used to determine a good selling price for the business?
A good selling price for a business is the best price you can get from a willing and enthusiastic buyer that will meet your own needs. That’s always the definition: the best price you can get.
Every industry has valuation metrics and mechanisms that are unique unto itself. In the advertising agency world, for example, the selling price is based on multiples of net profit. Meaning, if your net profit is 300,000 dollars, you’ll get a multiple close to 2x that figure. If you’re making 1,000,000 dollars in net profit, your offers will likely fall between 6x to 8x that, and if you’re making 2,000,000 dollars or more, you can see offers way north of 10x that net profit (unless you find a cash buyer who desperately wants to buy your business, in which case, all bets are off and a competitive bidding situation can ensue). Sale pricing really boils down to proposition and positioning — and if you’re the best of the best in your market, you can potentially spark a bidding war. But every market does it differently.
The thing all the best deals have in common though is a well-prepared company which is still scaling on sale day. That’s why we focus on building future scalability into every business that comes through the 2Y3X program. Fantastic positioning, a well-trained succession team, and tons of runway make for stellar prices. That’s what drives us, and it’s what drives the kinds of business owner we work best with.
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Thank you for these great insights and for the time you spent with this interview. We wish you only continued success!