How to Ensure a Healthy Creative Business
In episode 480 of the Marketing Mentor podcast, I sit down with Ilise Benun to talk about how to run a healthier business. Since Ilise’s audience is predominantly composed of creative professionals (writers, designers, etc) we talk alot about creative businesses, but the lessons here are applicable to many other types of professional service businesses, too. Listen to the interview here (scroll down to Episode 480) or wherever you get your podcasts.
Transcription:
Ilise Benun:
Hi there. This is Ilise Benun, your marketing mentor, and this is the podcast for you if and only if you are ready to leave the feast or famine syndrome behind. And I mean, for good. Have you ever thought about selling your business at some point in the future? If your business is just you, you may wonder what there is to sell anyway. But you might be surprised in part two of my episode with Sarah Durham, a serial entrepreneur and executive coach, she opened my eyes to how much healthier my business could be simply by considering a sale. She gives us a few steps to pave the way for the possibility of exiting your company, which is a good thought experiment, and maybe even a good process to go through, whether you ever sell or not. So listen and learn.
Sarah Durham, welcome back for part two of our podcast.
Sarah Durham:
Happy to be here. I love these conversations with you, Elise, and it's fun to continue them
Ilise Benun:
<laugh>. Indeed, it is. So, for people who don't know who you are, tell us who you are.
Sarah Durham:
Sure. I'm Sarah Durham. I am, uh, I'm a native New Yorker. I'm a serial entrepreneur. I founded a business in the nineties called Big Duck that I grew and ran for, uh, nearly two decades. Sold it to my employees in 2021. Along the way, I bought a second agency, a digital agency, which was struggling. I turned it around and sold it to a larger agency. And for the past few years, I have been working as an executive coach. I coach a lot of small business owners, agency owners, nonprofit leaders, and really what I do with them is help them, um, articulate their voice as leaders.
Ilise Benun:
So we're gonna talk about growth and growth toward exit and selling a business, which you've done more than once.
Sarah Durham:
But
Ilise Benun:
Listening to your, what I would call your elevator pitch or how you introduce yourself, what was occurring to me was, wow, Sarah, you're quite the business woman, but also obviously a creative. And I'm curious if you have always seen yourself as a business woman.
Sarah Durham:
Not at all. Um, my first love was drawing. I was fortunate to go to a high school with an incredible art department. And then for college, I went to art school. I went to risd. I didn't study business at all. <laugh>. Mm-Hmm. <affirmative>, I was an illustration major. Did they
Ilise Benun:
Even teach business at risd?
Sarah Durham:
No, they didn't. In fact, now I'm on the advisory board for the entrepreneurship Student club. Awesome. And, um, and I do a lot of work at RISD with students on entrepreneurship, but nothing existed like that at the, the time. And it really wasn't until I was a few years into running my business that I thought, oh, I'm running a business here. Uh, maybe I should learn something about
Ilise Benun:
That. <laugh>. Mm-Hmm. <affirmative>. And then, because a lot of this is just all about mindset, are are there specific things you remember, moments, milestones, when you did start to shift your own self perception toward being a businesswoman?
Sarah Durham:
Definitely. It came probably about five years into my business when I realized the business was running me. I was not running the business. And, and I made that connection of, uh, well, uh, you know, just because I love to design or write or draw or whatever it is I'm doing here that doesn't make <laugh> make me good at running a business. And if I'm really gonna be a business owner, maybe I need to take responsibility for that and, um, and learn. And so I made a very deliberate decision to start to hire and work with consultants to start to read books on business, to take classes to really, to educate myself. I thought about going back to school and getting an MBA, I decided I didn't wanna do that. I, I actually believe that having a creative background in art school background in some ways made me a little bit more fearless and, and able to take risks. 'cause I didn't <laugh>, I didn't know the mistakes I was making. And so I just set out to give myself an education. And what I found on the way was that running a business can be, um, enormously creative and really, uh, very rewarding outlet for a lot of those same creative impulses.
Ilise Benun:
Did you ever want to just throw up your hands and throw in the towel and say, I just can't do this?
Sarah Durham:
I certainly had a lot of moments of challenge and frustration, but I don't, I don't think I ever wanted to throw up my hands and say, I just can't do this. Mm-Hmm. <affirmative>. I do. I do think that early on I started asking the question, what's all this hard work in service of, you know, and, and I see this with a lot of people that I now coach, that it can be easy to sort of get stuck in the day-to-day of, of doing the work. You've, you know, you've made commitments, you've gotta get the work done, you gotta go do it. I see a lot of, a lot of entrepreneurs, particularly solopreneurs or small business owners who really aren't paying themselves a normalized salary and really aren't setting up their businesses to exit in any way. So if supporting yourself financially or maybe at the end of the day, selling your business and making money that way, um, are important to you, I think it's really important to embrace taking your business seriously and understanding what that is gonna look like for you.
Ilise Benun:
So let's talk about this idea of exiting or selling the business because it's, it's not something a lot of the people I work with talk about, think about ever consider. And
Sarah Durham:
Yet,
Ilise Benun:
You know, as you and I both know, when you do your marketing, which is what we talked about in part one, it works. Marketing works when you do it, I like to say, so that it makes you grow, whether sometimes whether you want to or not. And then you have to decide what direction you wanna grow in. But what about this idea of, and then I'm going to sell it.
Sarah Durham:
How, how
Ilise Benun:
Did you start thinking about, Hmm, maybe I could sell this business? Well,
Sarah Durham:
For me, the idea of selling my business actually emerged from some work I did with a consultant probably about 12 or 13 years before I actually sold it. Mm-Hmm. I, I had brought in a management consultant to conduct a 360 review of me and to look at the business and basically to just sort of give me some suggestions of what I could do to strengthen it. And one of the things they said to me was, you know, you should run this business. Like one day you're gonna sell it. You may or may not sell it, but running your business, um, with the idea that you could sell it is a really healthy practice. It requires you to do a whole bunch of things that are gonna be good for the business. And that made a lot of sense to me. I had never thought about selling the business.
Sarah Durham:
That hadn't been a goal, but I thought, you know, why not try to do that? Why not set that up as sort of the gold standard for what effective management would look like? And then as time went on, I spent some time thinking about my future, and I actually blogged about this on the Big Duck blog, uh, when I left. But, you know, about 10 years, 11 years before I sold the business, um, we were moving the office to a big space and I was signing a 10 year lease, and I was going through a very reflective time. My mother had just died, and I was thinking a lot about life and mortality. Um, I was in my early forties at the time, and I realized that, um, I might wanna do other things in my life and my career that as much as I loved my business, I didn't necessarily wanna do it until I retired or until I died.
Sarah Durham:
And so I set a goal to exit my company at the end of the lease. At the end of those 10 years, I thought, I'm gonna try to run this so that I can sell it in 10 years, and then in 10 years I'll see where I am, maybe things will change, but that's kind of like the, the island I'm going sail towards. And that was very focusing. It gave me a lot of clarity and a lot of purpose. And I ended up selling the business 11 years from that point. So it turned out that that impulse was right, and it was certainly very, a very useful one. And
Ilise Benun:
This idea of people don't even consider it. You hadn't even considered it until someone mentioned it to you. Perhaps our listeners haven't ever considered it until they've heard you talk about your experience.
Sarah Durham:
But,
Ilise Benun:
And I think I imagine this, a lot of women fall into this category also, but why don't people think of it?
Sarah Durham:
Yeah. It turns out that that only about 20% of businesses are women owned. And I think in a sector, if you see yourself as underrepresented, if you're looking around and you don't have a, a lot of colleagues that look like you, and I think this is even particularly more true for people of color, uh, it can be a little isolating. You don't always feel like the conversations that are happening around the table at peer groups or things like that, um, are the same conversations you wanna be having. And so, you know, I think that, I think that that's a challenge. But I think another real challenge with exiting your business, and again, I think this is probably more true, uh, for people who are underrepresented in the business world, is that you don't actually know how to do it. You don't know what's involved. I mean, there's a whole piece about how do you build and run your business when you're still in it.
Sarah Durham:
And then there's a whole piece about how does a sale actually work? Why would somebody buy your business? What are the steps involved in the sale? Um, I'm in, I'm in the process right now of putting together a, a group for people who wanna exit their business at some point in the future. And a lot of what it is, is just to kind of step by step, this is, this is the order of operations. These are the mechanics. This is what a potential buyer is gonna expect. And, and I think it's really important to learn that stuff well before you wanna sell, because, um, by the time you're desperate to get out, it's a little too late to to start to make changes that might take years to actually take effect.
Ilise Benun:
But one thing I'm sure, again, listeners might be wondering is how do you sell a business that's all about you? If you're getting out of it, what are you selling? Exactly.
Sarah Durham:
Yeah. Well, that's an important question. And sometimes you can't sell that business. You know, there's, there is a, a really interesting, uh, bunch of, bunch of articles and content that the Harvard Business Review did where they talk about three types of businesses, hobby businesses, lifestyle businesses, and desirable businesses, desirable businesses being ones that somebody else might wanna buy. Um, if you've set up a business that's just you and you wanna exit that business, the only thing you can really sell are assets that you've created that might be able to go on without you. So for instance, one entrepreneur I know who works independently created a community platform, and the platform is built, I forget which tools she's using, but it's not, it's not in Facebook, it's on another kind of group platform. And she built this really vibrant platform for the market that she serves.
Sarah Durham:
And people sign up on a, I think it's an annual basis for membership, and they engage with all kinds of content there. And over time, she got other people to start contributing content. She's, she's had other people who can help moderate. She set it up so that it's not just her, it's her idea, but it's, there are other people who can run it and manage it at this point. That's an asset you can sell. You know, that's an asset that somebody else can take over and run. But if you walk away from the business and everything you've created crumbles, there's really not much of a of a there, there.
Ilise Benun:
And what about a client list? If you've got a bunch of good clients who love you, is that something sellable?
Sarah Durham:
I would argue it probably isn't, unless those clients are gonna love the person who buys the list. <laugh>. Mm-Hmm. <affirmative>. Um, so, you know, so if I have developed, you know, if I've got five awesome clients who, you know, I have retainer contracts with, and, and over the course of the year, each of those retainers is worth $300,000. You know, that's a nice business. I'm making a lot of money on those retainers. But if the reason those clients keep coming back is for me, and I say, Hey, Ilise, you wanna buy my client list? You know, unless you meet those clients and those clients love you, and they are really excited to transfer that $300,000 retainer over to working with you, they're not, they're not gonna go. They're gonna cancel their relationship. Um, so, so this is, you know, I think what we're talking about here is, um, speaks to a part in the sales process that, that, uh, a lot of people overlook, which is due diligence, you know, in, in a sale of your business, the prospective buyer has typically months to basically kick the tires to talk to your clients, talk to your staff, to look at your financials, to really look under the hood of your business and make sure that whatever they are buying actually can work, uh, in, in the next stage.
Sarah Durham:
And, and with many businesses and many sales, it's very common for the owner of the selling business to be under contract for years in order to affect a smooth transition. So if I'm trying to sell you my client list and those clients all love me, you might only be willing to buy that client list if I stay involved for a year or two or three to make sure that those relationships are effectively, uh, transitioned over to, to your business.
Ilise Benun:
I don't know, this might be naive of me, but I'm also imagining a scenario where you know who you wanna sell your business to. You have a good relationship with that person. You integrate them by collaborating, maybe by hiring them, contracting them, subcontracting them, whatever, to do some of the work and then connect with the clients and actually begin to bring them into the business such that it's a very smooth transition. Have you ever seen something like that? Or am I dreaming?
Sarah Durham:
I think that's possible. I think that is a more likely scenario. If you are selling to an individual or to a very, very small business, um, you know, what you're describing is almost more like a, you know, me, mergers are often really acquisitions and I think what you're describing sort of looks like a merger from the outside. You know, it, it looks like, uh, I'm bringing you into my business. We're collaborating. Clients get to know us, both work with us both, and then I back towards the door as you, as you take over. Mm-Hmm. <affirmative>. Um, and so that's definitely a, a, a scenario that can work. But, um, but for a larger business that is acquiring your business, um, they often have their own way of working their own systems and processes, their own methodology, and they may not be willing to kind of come into your business and do it your way. They wanna acquire your resources so that they can expand the way they do it.
Ilise Benun:
Yeah. Actually, you're making me think of a client of mine recently who was approached by a larger agency. He has a small agency, and they basically came right out and said, we wanna buy you <laugh>. Mm-Hmm. <affirmative>. And they didn't even know each other. Mm-Hmm. <affirmative>. But they were definitely, you know, on the hunt looking for resources so that they could expand. Do you see much of that?
Sarah Durham:
I do. I mean, when I, when I, uh, owned Big Duck, I was approached probably once a year by somebody who was interested in buying the company. Mm-Hmm.
Ilise Benun:
<affirmative>.
Sarah Durham:
I had all those conversations. I, you know, explored all of them. They were almost never the right fit. Uh, and I ended up selling the, the company to my employees, and it became a worker-owned cooperative. You know, the, the sales that I have been involved in either ones, I've, you know, when I, when I bought an agency, when I sold, uh, my digital agency, or when I've worked with clients going through a sales process, so much of what makes a sale possible is the right fit. You know, that, that what you as the seller and the person or agency who is buying are looking for aligns so that, you know, your train track and their train track are kind of running close enough in parallel that at some point they can merge into one track. That's how you, you know, foresee a future in which a sale is possible. But if, but if you're heading one way, and I'm heading another way, the likelihood that we are going to be able to effectively kind of make a smooth transition for, for clients, for staff just, you know, becomes a lot less likely.
Ilise Benun:
And what about, okay, now you've got my imagination running here, Sarah, but what about someone who has a business with a couple different revenue streams, income streams, and wants to sell part of it, but not all of it. Does that happen?
Sarah Durham:
It definitely happens. So, so when you sell a business, you there, there are two primary ways that a sale can happen. It can happen through what's called an equity deal or a stock deal, or it can happen through an asset deal. And in an asset deal, which is much more common, essentially what the buyer is buying are specific assets that are owned by the company. So let's say you've, you've built a business with lots of different products and services, and I wanna buy one piece of your business and you wanna sell me one piece of your business. I might have my own incorporation, my own corporate status. And what I am buying is not your whole business I am, but just buying that one asset, that one service or product that I want. And it essentially gets unbundled from, from your business. And it comes over to me in an equity deal, which is also sometimes called the stock deal.
Sarah Durham:
If I buy your business, I am buying the entire thing. I'm buying all of it, all of the assets, I'm also actually buying the liability. So if the seller has, let's say, um, done something illegal or wrong or something like that, and I buy that business, I might actually even legally be on the hook for the thing they did wrong because the, the whole corporation becomes mine. So it's pretty unusual to do an equity or a stock deal. It is much more likely to do an asset deal and that the, the actual sales process is gonna detail specifically which assets are being acquired.
Ilise Benun:
All right. So let's talk a little bit about how to set it up to be sold, if that's something you think you might wanna do in the future, or even if not as you said, it's a healthy way to run a business. What is this healthy way to run a business? And maybe part of that can be the baby step we suggest people take if they wanna move in that direction.
Sarah Durham:
Yeah. So if downstream you wanna have the option to sell your business, there are two things that I think are really important to start thinking about and working towards as early as possible. The first is financial feasibility, and the second is operational feasibility. So what do I mean by that? Financial feasibility means that you are running a business where the bookkeeping and accounting is clear, it's buttoned up that the business is consistently profitable, and that you, you as the owner are paying yourself a normalized salary. In other words, you're getting paid what somebody else who would be hired to do that job would get paid on the open market. So if you're running a business where you're drawing a salary, where the business is profitable, where your expenses are kind of normal, there's nothing very unique or unusual that makes you profitable, that that could kind of skew, you know, skew the the numbers in some way, um, then that's financially more likely to be appealing to a buyer.
Sarah Durham:
If I come along and buy that business, I see it's profitable, I see that I can replace you with somebody else, I see that I can, you know, continue to make money, um, running the business as usual. On the operational side, particularly if you wanna exit your business, it's really important to set up a business that is not wholly dependent on you. And that often means setting up systems and processes. It means writing things down and creating institutionalized memory. It means usually having people who will follow the business in a sale. So for instance, when I sold my digital agency, there were six or seven employees in that agency. And before the deal could go through, we had to make sure that my team actually wanted to go work for the other agency. Mm-Hmm. <affirmative>. Um, if they had all walked, then the deal would've fallen, fallen apart. So making sure that the business can function with people, with the systems, with the processes that it needs to be successful and profitable in, in whatever future state it's gonna exist in.
Ilise Benun:
So that does lead me to a more specific baby step, which I would imagine has to do with just getting everything out of your head and onto paper. Right. What would you suggest people do in order to do that?
Sarah Durham:
Yeah, I think that's, I think that's a great baby step and it's, you know, not so important when you're working totally alone, but when you're working, when you start to hire staff or work with regular contractors, it becomes more important. One easy way to do that is to use a wiki of some kind. Um, I know the big duck team currently uses Confluence. There are a lot of different wikis. Um, but start to build a wiki where you capture your processes, you capture what it is you do, and you have policies and practices written down in, in some sort of step-by-step way. And then just keep updating it, make, make, make a practice of doing that, you know, every quarter at least. Um, and Elise, can I suggest another baby step?
Ilise Benun:
Please
Sarah Durham:
Pay yourself a legit salary. This is a real be in my bonnet that I see with, with people who start businesses and work independently, is that it can be so easy to pay everybody else before you pay yourself or to pay yourself a reduced salary and say, well, at the end of the year, you know, I'll be profitable and I'll pull money out of the business. And hopefully that will always be the case. But in addition to that, I, I really believe that when you research what you should be paid and you make a point to transfer that money from the businesses bank account into your bank account on a, on a fixed schedule, and treat that money as if you are a salaried employee, just like any other salaried employee, it forces you to run your business a little bit differently and to take it seriously a little differently. So I think that's also a great baby step.
Ilise Benun:
Beautiful. Alright, well it sounds very interesting and I know that I want to run my business in the healthiest way possible, whether I sell it eventually or not. So thank you for all those ideas and tell the people where they can find more from you.
Sarah Durham:
Sure. My coaching practice is called Compton Durham and the website's compton durham.com, that's Compton like Compton, California and Durham like Durham, North Carolina.
Ilise Benun:
Excellent. Thank you so much, Sarah. I'm sure there will be more of these conversations to come.
Sarah Durham:
Thanks Elise.
Ilise Benun:
Sarah's baby step is to get your business out of your head. She suggests using a Wiki or some other collaborative platform that allows you and anyone who helps you to capture your processes, policies, and practices, and then keep updating it every quarter. And she wanted to add a second baby step actually, which is to pay yourself a legit salary on a fixed schedule. I agree with that. So as always, if you wanna build a thriving business on your own terms, the first step is to sign up for my quick tips@marketingmentortips.com. Once you're on the site, you'll find lots more resources, including my simplest marketing plan. So enjoy and I'll see you next time.
