Ep 452 How to Turn a 3x EBITDA Offer into 5x. Creative earn out structures. Declining projects without losing a customer and selling a service business with Paper Leaf founder, Jeff Archibald.
Jul 26, 2024
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Jeff Archibald, founder of Paper Leaf, shares insights on turning a 3x EBITDA offer into 5x through creative earn-outs. He discusses declining projects without losing customers, focusing on simplicity in business, and navigating missed acquisition opportunities. Jeff also delves into the successful sale of his service business, highlighting the importance of negotiation strategies and post-acquisition commitments.
Specializing in niche services attracts clients needing specialized solutions.
Building expertise in specific technologies empowers employees to excel.
Collaborating with specialist agencies balances service offerings effectively.
Deep dives
Jeff's Unique Positioning Strategy
Jeff Archibald's company, Paperleaf, differentiated itself by offering a narrow scope of services - website development, software development, and mobile app development - instead of trying to be everything to everyone. This horizontal positioning, serving various industry verticals, allowed them to focus on expertise and problem-solving, attracting clients who needed specialized solutions.
Team Expertise and Client Collaboration
Paperleaf's approach to hiring and service delivery involved building expertise within a small set of technologies, empowering employees to excel in specific areas. The company fostered client collaboration by positioning themselves as technology execution experts, requiring clients to contribute as subject matter experts. This collaboration formed efficient, super teams where expertise and execution were balanced.
Mitigating Business Risks through Collaboration
To mitigate the risk of focusing on specific services, Paperleaf developed partnerships with specialist agencies for complementary services, ensuring clients' diverse needs were met without compromising their core expertise. By collaborating with smaller agencies for services like search engine optimization, they avoided revenue loss and maintained client trust, balancing service offerings effectively.
Effective Financial Forecasting and Billing Strategies
Paperleaf's financial forecasting relied on robust systems within their CRM to predict revenue outcomes accurately. They transitioned from billing as you go to fixed payment structures over the contract length, allowing precise forecasting and financial stability. The 'shop rate' model simplified billing, enhancing clarity for clients and streamlining the invoicing process.
Navigating the Acquisition Process with Trust and Alignment
In the acquisition by ZGM marketing firm, Jeff Archibald demonstrated trust and alignment by ensuring clear financial reporting and collaboration during the earn-out period. Both parties incentivized performance by sharing profits above a certain threshold, fostering mutual commitment and ensuring business continuity. This collaborative approach and transparent dialogue facilitated a successful acquisition, resulting in mutual benefit and a 5X revenue outcome.
Managing Employee Communication and Transition
Jeff faced challenges in announcing the acquisition to his staff effectively, learning from the experience to handle such transitions more adeptly in the future. Despite initial fears and concerns among employees, the post-acquisition period proved successful, ensuring job security and stability for the team. Open communication and clarity in addressing staff apprehensions were crucial in fostering a positive transition and maintaining employee morale throughout the process.
Jeff Archibald founded Paper Leaf, a company specializing in developing websites, mobile apps and custom software. By offering a narrow scope of services to a variety of verticals, Paper Leaf built a reputation for handling challenging projects that generalist agencies couldn't. Jeff's commitment to simplicity and effective forecasting played a significant role in Paper Leaf's success. He used fixed payment contracts to ensure steady cash flow and offered a limited number of technologies, allowing his team to become experts. These practices stabilized the business and made it attractive for acquisition.
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