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Building a Company to Sell with John Warrillow

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Build your business smart, and you can make a lot of money when you sell it.

 

In today’s episode of Business Lunch, host Roland Frasier sits down with John Warrillow, founder of ValueBuilder, author of three great books, and all-around good guy, to talk about building and selling businesses.

 

Each of his books is geared toward a different phase of your business. Built to Sell is for anyone feeling trapped in their business and shows you how to create a business that can thrive without you. The Automated Customer is for anyone looking for a recurring revenue stream. And The Art of Selling Your Business is for anyone on the last chapter of their entrepreneurial journey.

 

He also has an exclusive offer for Business Lunch listeners who want to apply the lessons from his latest book to their own businesses.

 

Listen in as Roland and John dig deep into how to build and sell your business well.

 

Building a Company You’ll Eventually Sell

John has a radio show called Built to Sell where he interviews a different entrepreneur each week about their exit strategy. He says there are a few dozen people out there playing at a higher level, out-maneuvering and outthinking the other side. They were the inspiration behind his most recent book. What tactics can we learn from these people? What mistakes can they help us avoid?

 

The biggest issue entrepreneurs face when they go to sell their business is: what do you want for it? John says if you put a super-high number out there, you’ll lose people before you even start the process. On the other hand, if your number is too low, you’re cheating yourself. There’s virtually no good answer to this question, but this is a decent one: “Hey, I’m a reasonable person. I’m happy to review any offer you think is reasonable.”

 

He tells them that he’s willing to look at an IOI (indication of interest) if they want to put that together. An IOI is not the same as an LOI (letter of intent). An LOI gives a specific price and includes a no-shop clause where you agree not to market your business to anyone else. That’s a dangerous document to sign. You’ve lost leverage. You want a process to try to get multiple bids from multiple people at a time.

 

The Importance of Building Your Own Media

A lot of Business Lunch listeners own ecommerce companies, and right now FBA (Fulfillment By Amazon) roll-ups are all the rage. They’ve raised over $1 billion in funds and hold workshops on how to get the most for your business. They create a deal flow mechanism—How to Sell Your Amazon Business—then go in and buy at low multiples. They’re like the fox in the henhouse. How would John advise someone who gets an offer from one of these groups to proceed?

 

He asks the question: who owns the customer? If Amazon is seen as the ultimate owner of the customer, and you’re a fulfillment house with a 3rd party product you sourced, you don’t have a direct relationship with the customer. This puts you in a weak negotiating position.

 

If you own the brand, the customer list, and you have multiple marketing channels, one of which is Amazon, you can do a lot better. You don’t want to be dependent on the traffic from one platform, and you want access to your clients. 

 

John tells a story about Ben Leonard who built a cool workout platform, Beast Gear, selling weight lifting straps and gloves. He started selling on Amazon and, in the package he included a note that says, “Make sure you tag us on IG when you get a PR. I’d love to know about it.” Then he DMs anyone who posts, says something like, “I can’t believe you dead lifted that many pounds!” and builds rapport. On top of that, he gives them a $20 gift card for the Beast Gear website. 

 

This lessens his dependency on Amazon, which is always a good thing.

 

Selling Your Business to a Private Equity Firm or an Individual Investor

Entrepreneurs thrive on freedom. If they wanted to go work for someone, they’d do that. Most of them are successful and smart. Selling to a private equity firm is usually the worst of both worlds. You’re giving up control (60% to the PE firm) and you’re a minority shareholder in a company they want you to run. People in charge may not know the details of your company, and there’s significant risk. 

 

It comes down to the quality of the buyer and their history in executing this kind of plan. You have to know your stuff to do this. It can work, but it’s tough. The key is to think about building your concerns into the deal. Do your research and know what to ask for.

 

Private equities in general are a bit like sheep. They all have identical investment criteria. The good news is that, if you attract the attention of one private equity group, others will be attracted too, and you can negotiate and get a better deal.

 

Individual investors are the most likely buyers for small businesses. That person is either looking for a job or a business that fits together nicely with their own business. They often need to borrow money to buy your company. The more bankable your business it is, the easier it will be to get a loan. You’ll likely have to carry a note, finance at least a little of the sale. 

 

Figure Out Your Freedom Point

Your freedom point is when the sale of your company after taxes will create enough liquid wealth for you to live comfortably for the rest of your life. When you crest that point, ask yourself, is now the right time to get out? 

 

If you stay, and your business is a big part of your net worth, you’re effectively gambling your freedom. Once you crest the freedom point, get out. Take the amount of annual income you need to feel totally free, multiply it by 33, and that’s what you need.

 

Most entrepreneurs are happiest when they’re creating, building new things. Once you’ve crossed a certain point in your business where the excitement is wearing off, it’s a good time to sell. 

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AppHarvest is doing the same thing in Appalachia (Kentucky). It’s a very central location so that people can eat fresh tomatoes instead of shipping them from far away. It’s sustainable agriculture using a fraction of the water.    You were one of the first people to realize the value of owning your own media.    In 1997 she put together a deal to acquire all her media from Time Warner. “They shouldn’t have let a property like Martha Stewart Living go,” Martha says with a smile. They wrote on a piece of paper “45 million” and that’s what Martha paid. Nothing went well for them after she acquired her media from them. She tried to raise money, but venture money wasn’t as accessible to women back then. She went to one businessman who loved the deal and offered her 60/40 (60 for him, 40 for her). She said no thank you, walked out the door, and did it herself.   You were really early in the crowdsourcing idea. How are you using it now?   They started a wonderful program called American Made, looking for young entrepreneurs around the U.S. to celebrate. Lots of good things happen, Martha says, when you help other people build their businesses. Just a few photos in a magazine can change the life of a person and their business. She’s also starting a podcast featuring people they’ve worked with in the past who are doing great things.   What opportunities do you see now in the field of homemaking and entertaining?   So many. They’re working on an affordable wine and also have a curated collection of wine—Martha Stewart Wine Co. They’re opening a restaurant in Las Vegas in the spring. She just published her 99th book, Martha Stewart’s Fruit Desserts.   One of the things you’re known for is that you insist on not dumbing things down.   “I’m a teacher,” Martha says. “If my teachers dumbed things down, I’d be really upset. I want to teach the whole thing. You can always simplify things, find a better way to do things, but that’s not dumbing it down. Our content is evergreen, and we will continue to use that method or recipe or technique until we find a better one to replace it. That’s been my philosophy forever and will continue to be.”   What’s a typical day like for you these days?   She gets up early to take care of her animals. She has a lot that live both inside and outside her house. Lots of birds, cats, dogs, peacocks, and chickens. 147 hens, 37 roosters, 20 peacocks, 22 geese, all different nationalities. They all coexist very nicely. Guinea fowl, homing pigeons from all over the world. They moved a lot of the operations of her company to her farm during Covid. She keeps busy with lots of Zoom conferences, TV things. They never stopped working.    RESOURCES:   martha.com Martha Stewart Wine Co. Martha Stewart’s Fruit Desserts   Martha’s CBD gummies AppHarvest American Made ethicallyprofit.com getepicchallenge.com Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE
  • Business Lunch podcast

    Why It’s a Bad Idea to Make Assumptions with Roland Frasier

    8:48

    You know what they say about the word “assume,” right? Well, it’s true.   Welcome to another snackable episode with Roland Frasier, where he shares bite-sized actionable strategies to help you take your business and life to the next level.    Two separate events happened to him recently that had one important thing in common: someone made an assumption, and things did not go well. Listen in as Roland tells both stories and what he learned from them.   Assumption Tale #1:   Roland just finished their newest event, Scalable Impact Live, in Austin. He had invited a family member to the event who was there when Roland got off the plane. Apparently he was eight feet away from Roland, but Roland didn’t see him because he was texting/calling his team, trying to get a VIP guest checked in.    He texted the family member the next morning, “I’m at breakfast. Want to join me?” He ended up sending 5-6 texts with no response. Finally Roland texted, “Are you okay? I’m worried about you.”   They responded. “I’m upset with you. I waved at you when you got in, then we were standing a couple people behind you in line, and you turned around and looked, but you didn’t say hi. So we went home the next day.”   He thought Roland was blowing him off, but he wasn’t. He just wasn’t focused on looking for him. He didn’t walk in thinking he would be there. He said Steve Wozniak made him aware of the fact that he has this inability to recognize faces out of context. Between that and actually looking for someone else, he accidentally blew off a member of his family.    They patched it up, but whew. What a mess.   Assumption Tale #2:   The second episode happened earlier, but Roland just found out about it last weekend. At Traffic & Conversion Summit, there’s a private room set up for Roland, Ryan Deiss, and Richard Lindner where they meet with celebrities before they go on stage. It’s called the Founders’ Room. They also have a Mastermind called the Founders’ Board. You’ll see where the confusion comes in.   Roland walked into the Founders’ Room with Chip Wilson, the founder of lululemon, and there were some people in there who weren’t supposed to be in there. He asked if he could help them, and they said, “No, we’re just having a meeting.” He said, “Well, you can’t. This is a private room, so I’m going to have to ask you to leave.” They were very upset with him.    Roland got a text from one of those people this past weekend and he said he was upset. The guy had asked the event team, “Hey, do you have a place where I can do a meeting?” They asked if he was a founder, and he said yes (because he’s part of the Founders’ Board), and they pointed him to that room.   This room is super private, because celebrities have it in their contract that they get a room where no one can bother them while they get ready to go on. But this guy didn’t know that. He was told by the team working the show that he could go in the room. Then Roland came in and kicked him out. He didn’t understand why there would be a lounge for people in the Mastermind, and then he’d get thrown out of it. It didn’t make any sense.    Thankfully that one got straightened as well.   Don’t Make Assumptions   It comes back to one thing. And it’s one of the Four Agreements in the excellent book by Don Miguel Ruiz. Don’t make assumptions.    Roland’s family member shouldn’t have made the assumption that Roland saw him but blew him off. He could have asked himself, what other version of this story could be at play here? Roland shouldn’t have made the assumption that the guy was in the room without permission. And the guy shouldn’t have made the assumption that Roland was a jerk.    Whatever situations we find ourselves in, if something doesn’t seem right, or someone is treating us unfairly, what else might be going on? What important information are we missing? What can we do to make sure there isn’t a misunderstanding?   Roland was lucky that his cousin felt bad about it and texted him. He was lucky that the Founders Board member reached out to him as well. Both situations could have ended badly.   Two takeaways: Take the time to think how the situation could be interpreted in another way. Communicate with the person to give them the opportunity to clarify any misperceptions.   RESOURCES: ethicallyprofit.com getepicchallenge.com Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE  
  • Business Lunch podcast

    The 7 Levels of Scale: A Scalable Framework to Grow Your Business (Part 1)

    31:25

    Over the next few podcast episodes, we’ll walk through the 7 Levels of Scale—everything you need to know to grow and scale your business.   Co-hosts Roland Frasier and Ryan Deiss just wrapped up their newest event, Scalable Impact Live, where they had their first opportunity to roll out a new framework they call the 7 Levels of Scale. People are always asking them, “Where do I start?” The 7 Levels of Scale answers that question.   It took a long time to develop the framework. They had all the pieces, but they needed to tie it together in a simplified way that was transferable and repeatable. In this episode, they unpack the first two levels, but here are all seven:   Level #1: Sell and serve 10 customers. Level #2: Build a growth flywheel. Level #3: Build an upgraded scalable operating system. Level #4: Double your take-home pay. Level #5: Build your board. Level #6: Complete an acquisition for expansion. Level #7: Hit your number.   Two things to keep in mind as you work through these levels one by one. #1: Sequence matters. This is the absolute order of operations. And #2: You can’t skip a step. If you do, it won’t work.   Level #1: Sell and Serve 10 Customers If you have not sold and served 10 unaffiliated customers, that’s the only thing you should be thinking about. Before you get business cards and a logo designed—and that’s just busy work that won’t make you money—you have to prove that people actually want what you’re selling. They want it, and they’ll buy it. And these are 10 people who aren’t your friends and family.    Nothing else matters until something is sold. But there are two phases to it. Sell and serve. Let’s say you sell 10, but you can’t deliver. Or you sell 10 people, but none of them are happy; they’re not getting what they want. You don’t have any business scaling until you’ve sold and served 10. No automation until you’ve sold and served 10. Sell and serve 10, then make a list. Congrats, high five. You’ve ascended beyond Level 1 to Level 2. Now you can think about automation.   Level #2: Build a Growth FlyWheel Now you want to make things predictable and build a system around that. There’s a three step process for doing this: 1.) Map. 2.) Measure. 3.) Plan to improve the measurement.   Step 1: Map your growth engine. How are you going to initiate general awareness? Maybe there are multiple awareness channels. What are the biggest 2-3? Do some basic business process mapping to show the flow. At DigitalMarketer (Scalable’s sister company), they do customer value journey mapping. It’s simply mapping/documenting how customers happen from point of awareness to engagement to subscription to that initial point of conversion to ascension and delight.   Having a visual map of the journey is the first part. Step 2 is having a scorecard to show you how something is performing. Not random metrics in no particular order. No vanity metrics. Let’s say you’re buying ads on Facebook and Instagram. How do you know it’s working? Let’s track our average cost per click. Let’s track the click-through rate. And let’s track our ROAS. The scorecard shows poor, acceptable, good, awesome.    It’s color-coded, and a human goes in there each week and says, for this metric, here’s what it was and updates the status to red, yellow, or green. Doing it manually changes your perspective. When people are accountable to a metric and have to record it manually, they actually know their numbers.    Creating a growth flywheel isn't just about putting in a lot of automations. It’s about aligning your sales and growth process—and the people who are responsible for it—toward a common objective.   Everybody agrees that this is how a customer happens. Then everybody agrees what “good” is at each stage and creates the dashboard. Then there are people responsible for each of those.  On the front end, this is how it should be—that’s the map. This is what good is—that’s the scorecard. This is how we fix it when it ain’t good—that’s the growth planning. Map, measure, plan to improve the measurement, then analyze to see if it worked.   Putting that process in place is what level 2 is all about. You need all the pieces, and you need to be consistent with it. This is the thing that gets businesses stalled out at 7 figures. Don’t be disheartened that you’re stuck at Level 2. You have a plan now. You know what to do. Do it.    Stay tuned for Part 2!   RESOURCES: 7 Levels of Scale (the website) The Customer Value Journey The Customer Avatar Worksheet ethicallyprofit.com getepicchallenge.com Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE
  • Business Lunch podcast

    15 Tips for Building a Business You Can Sell

    5:59

    Roland Frasier is on a mission to help entrepreneurs become rich and happy. One of the best ways to do that is to build businesses you can sell at a profit.   Today’s episode is bite-sized and snackable, designed to give you five minutes’ worth of valuable tips that will take your life and business to the next level.   Here are some things to think about when you’re looking to sell your business, things to have together before you go to market, tips for creating a business that has high appeal to someone looking to acquire.   #1: Make sure you’re in an industry that’s trending up.    You don’t want to sell if your industry is out of favor right now. That’s a terrible time to sell.    #2: Make sure you have a depth of management team in place.    You need to have enough people to take over and run it if you, or any of your key people, leave.   #3: Have SOPs in place.    The more standard operating procedures you have, the easier it is for someone else to come in and run the business.   #4: Identify acquisition targets that your company could buy or be a part of.    A lot of private equity firms are looking for a platform company that can then be built by acquiring other companies.    #5: Make sure you’re in the top 5 in your niche.   Obviously, the more competitors you’re beating out, the better.    #6: Be mindful of the sector growth prospects for your industry.   #7: Elevate the stability and quality of your revenue.   #8: Ensure that your business model is a proven one.    #9: Grow your customer base.    #10: Make sure you’ve got an online footprint.   #11: Work on your brand recognition.    #12: Give back and do good in the world.   Pay attention to DEI (Diversity, Equity, and Inclusion) and ESG (how sensitive to the environment is your company?).   #13: Know the barriers to entry.   #14: Make sure your business isn’t highly dependent on equipment that will wear out or need to be upgraded.   #15: Make sure you have reliable supply chains.    Selling a business that meets all these requirements will take you down the path to being rich and happy.   RESOURCES: ethicallyprofit.com getepicchallenge.com Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE
  • Business Lunch podcast

    Building a Billion Dollar Business with Chip Wilson, Founder of Lululemon

    48:01

    Lululemon founder Chip Wilson shares his hard-earned wisdom about all things business.   Host Roland Frasier sat down with Chip at Traffic & Conversion Summit 2021 to pick his brain about anything and everything that has made him successful in life—above and beyond lululemon. From his philosophy on goal-setting to reading 100 books a year to inventing barbecue shorts and dog walker pants, Chip always has plenty of opinions, both popular and unpopular.   Listen in to their brilliant rapid-fire conversation.   Why does Chip have a thing for the number 43? Chip says everyone gets glasses at 43. When people get glasses, they think, “Oh my god, I’m getting old.” Couples look at each other. Their kids are teenagers and don’t need their parents anymore. “Who are we together?” they ask. “Am I married to the right person? Do I live in the right city?” Chip thinks everyone should change their name at age 43. Unless they have a really cool name like Chip.   What is Chip’s philosophy on personal development and goals? Chip says people tell you “a smart goal is achievable.” But he wonders if maybe we should fail at about 50% of our goals, as part of a training program to learn how to fail in life. When he first started setting goals, it was all about him. Life now is nearly perfect for him in every way. So, in order to stimulate himself, it has to be about other people winning. He moved from everything being about him to giving with no expectation of return. The Law of Attraction kicked in, and he started attracting people who were in it for something bigger than themselves.    What are Chip’s favorite business books? When Chip was 19, he was working a construction job and had an opportunity to read the top 100 books. When he was 42, he listened to the top 100 business/health books as audio books and came to the conclusion that there are a handful of books that say it all. His top three are: Good to Great (Jim Collins); 7 Habits of Highly Effective People (Stephen Covey); and Psychology of Achievement (Brian Tracy).   What does Chip mean when he talks about linguistic adaptation?  Words are always changing meaning, and we have to adapt. As far as culture goes, the term “values” is out, Chip says. “Vision” is out, and “purpose” is in. Chip took 30 terms out of those books he read, and that’s what he runs his companies on. “Conditions and satisfaction.” When he’s discussing a project with somebody, there’s no end to the conversation unless they have conditions and satisfaction and a done-by date. “Integrity.” Integrity means I do what I say I will do when I say I will do it, and if I can’t get it done, I’ll go clean up my mess and reset new conditions and satisfaction. When everybody knows the terms and what they mean, then we’re all on the same page.    What did Chip do as a lead magnet that was a huge success?  A lead magnet used to be called a loss leader. Roland says, if you call it a lead magnet, you can charge a lot of money to sell information about it. Chip had a lead magnet with yoga mats to get people in his lululemon stores. Yoga mats were easy to make and while other people needed to make a profit, he didn’t. He owned his manufacturer. He just needed to get people in stores or online to get people to buy the clothing.    What was it like to sell lululemon? When Chip was getting ready to go public with lululemon, the board of directors said he had to divest from the manufacturing, but the manufacturing was a critical part of the vertical retail model. Boards of Directors operate out of fear of the U.S. litigation system, Chip says. They become mediocre and fail to become great. At the time, Chip had three very young boys and two older boys. He had missed a lot of his older kids’ lives and didn’t want to do that again. So he traded in this amazing company to be a family man.    What avatars did Chip create that became so successful? He created Ocean, a 32-year-old single professional woman, who owns a condo, is super stylish, travels, is athletic and super healthy. Ocean’s male counterpart is a 37-year-old man named Duke. You reach these people by perfecting the concept of vertical retail.    The ultimate vertical business is where you make something in a factory in Vietnam, someone in Norway orders a piece, and it gets shipped right from the factory to the person. If you own your factory, your shipping, your ecommerce, your marketing, you can take all those margins instead of contracting it out.    What’s the advantage of bootstrapping compared to having a lot of money? Chip started a company six years ago called Kit and Ace, cashmere you can put in the washer and dryer. He says they had too much money and threw too much at it. He bootstrapped lululemon for a long time. When you’re bootstrapping, that’s where the very best creative ideas come from. When you have a lot of money, there’s no necessity to drive the invention.    What are some of those creative ideas that came from bootstrapping? Back in the day, he couldn’t compete with Nike and Adidas with getting celebrity athletes, but he figured out that there’s a level of athlete right under that not getting anything. They’re the heroes in their community and have the most authenticity. Because he didn’t have the money Nike did, he spent one-millionth of the money and offered free clothes to yoga instructors. They were in front of 40-50 people every day and more authentic than a rich athlete. Other past creative ideas include BBQ shorts and dogwalker pants.    If you want to find out more about Chip, check out his website. He’s technically on social media, but someone else runs those accounts for him. “I don’t need an extra dollar,” he says. “I don’t need another friend. I’d rather be home spending time with my wife and kids.”   RESOURCES: chipwilson.com ethicallyprofit.com getepicchallenge.com Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE  
  • Business Lunch podcast

    6 Not-So-Obvious Productivity Tips: Being Rich and Happy with Roland Frasier

    7:42

    Roland has 6 tips to help you be more productive, and he shares them concisely in this bite-sized episode.   They’re each a little bit outside the normal time-blocking and schedule-setting templates and tips we’re used to, but they work for Roland and just might for you too.   #1: Develop an indifferent attitude about things you can’t change. Just decide not to care. You can’t change these things. They are what they are. Who cares? Stop letting them bother you so much.   #2: Deprioritize the tasks that are stressing you out. Especially if there’s really no benefit to focusing on them. How we prioritize tasks in time management is important. And you have to constantly re-evaluate tasks you’ve already prioritized to make sure they still make the cut.   #3: If you’re burnt out, take time to recharge. If you find yourself unable to focus, unhappy, or dreading something in particular, take some time off to relax and do something you enjoy. This will seem like it’s making you less productive, because it’s taking time away from things you need to get done, but you’ll come back more focused and able to get things done more quickly and easily.   #4: Forgive yourself and others. Forgiveness is important. First, forgive yourself for things not going the way you want. Instead of putting a label on yourself (“I’m not good at this.”), forgive yourself for mistakes and failures. Failure is really the only way we learn how to be successful. If we do something right and succeed, that could have just been luck.    Studies show that, in a culture where people are punished for failure, they’re typically 230% less productive than people in a culture that accepts failure. Forgive yourself and others around you when you/they don’t achieve the exact results you wanted.   #5: Use the scientific method to find your most productive working habits. Scientists have a control (the way things have always been done) and an experiment to see if it can be done better. Introduce new habits that might make you more productive. Test those out for 30 days and keep the ones that work best.   #6: Create hard boundaries around unproductive distractions. Set limits for social media and emails. How many times will you be on a Zoom call? Have a schedule so you spend time where you want to spend it instead of letting the world do it for you. Schedule time for yourself (read, relax, watch TV), time with your friends and family, and time for work. If you’ve got all three of these things in your schedule and block those hours out, then you’ll get more accomplished than any other way.   You also need to talk to yourself and review all of this every Sunday evening, and make sure it’s all scheduled how you want it. Then talk to your family or your significant other, and ask if there’s anything on your template you should tweak. Then, on Monday morning, ask your boss or your team if they have any changes to your work schedule.   And there you have it—six not-so-obvious tips to help you be more productive.   RESOURCES: ethicallyprofit.com getepicchallenge.com Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE

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