Intentional Growth

My guest today is Cammie Greif. Cammie is a co-founder of TaxAct. In the mid-1990s, Cammie and three of her former co-workers decided to build a highly profitable tax filing software. With a focus on growth and profit, TaxAct was born. In 2004, Cammie and her partners sold the business to TA Associates a private equity firm. During today’s episode, Cammie shares what it was like to run a multi-million dollar company and how the sales process worked out for them. She stayed with the company for fourteen years so she has seen a good chunk of the business cycle. In the mid-2000s, TaxAct was sold again to InfoSpace (now known as Blucora.)  Cammie tells me about walking away and finding a new purpose. We follow Cammie’s story through their humble beginning in the first floor of a former mortuary to being the third biggest tax service software on the market. Tune in for this incredible story! You will learn about: Cammie’s time with Parsons Technologies. How Cammie found her 3 partners and their initial shareholder agreement. The tremendous effort put toward clear communication with the TaxAct leadership. The early milestones for the company and what they did when it didn’t happen. Are you building a profitable or a growth-oriented business? Cammie’s focus on building a profitable business. Why Microsoft failed in the tax software space. The move to an online service. The 2002 sales pitch and due diligence. The sell to TA Associates in 2004. The expectations of Cammie and her partners. The truth about private equity firms. Why TA? The changes made by TA. The unexpected blow to the business during the first year with TA. How Cammie and her partners corrected the problem. How TA was able to help during that time. Returning to sale plans. Reading in a succession team for a sale pitch. The agreement with HR Block that fell through. The sale to InfoSpace. What it is like selling to a public company. The final deal structure. Cammie’s move into startup mentoring. The importance of recognizing trends and patterns in business. Cammie’s advice for the listeners. Profitable businesses. We’d all like one, but how many of us started out thinking, “My business is going to make a profit in year one”? Not many. For our guest today, Cammie Greif, however, that’s exactly what she did. She and her three co-founders decided that profit was their first and foremost step and that they would do whatever they had to do to run a profitable business. Bootstrapping a Startup You work hard. We all do. But when it comes to getting your enterprise off the ground, are you willing to go without pay for two years? Very few of us could commit to that just to see the revenue of our business grow so we can reinvest it in our company, rather than pay ourselves. However, Cammie’s own business plan was just that—go in with the bare minimum, work hard and cash in later. The lessons new entrepreneurs should take (or even repeat entrepreneurs who want to focus on a profit rather than growing the business) from this is: you can make do with a lot less. You don’t need the newest and greatest, unless you’re in the highest of tech businesses. You really don’t need that fancy art, fashionable sitting area or expensive scotch — okay, the scotch maybe… but honestly, there are so many areas you can cut costs when you’re starting a business. Where you don’t want to cut costs, however, is when it impacts your bottom line. You’ll need to assess what matters for the heart of your business and whether or not adding in a proper seating area or employing someone who has the skills that you or your partners lack is a smart move, financially. A lot of business can be done from a laptop in a coffee shop these days. Get creative to keep costs down and profits high. Starting With the End in Mind This is a much easier strategy to follow when the plan from day one is to sell your business. Cammie’s story is the perfect example of starting with the end in mind. When she and her partners decided to build a profitable business, it was to make it more appealing as an acquisition. If you’re going for the long-haul, or want to keep your business for your children, then perhaps you’d be better focusing on a growth strategy early on. However, as Cammie’s experience shows you, it is possible to focus on profit and still have a business with good longevity. By structuring things so that your employees are invested in the sale and so that each partner is well aware of what’s at stake from the start, you’ll have a far smoother transition when it comes time to sell. We’ve covered the idea of giving back to your staff in other podcasts, so it’s not a new idea, but the point to remember here is openness and planning for the transition. Aside from the percentage of the sale that her employees got, Cammie also included her main management team in the sale process so that the company that would ultimately buy TaxAct would have a good feel for who they would be onboarding and so her staff would have a better understanding of the company taking over. The fewer surprises you have in the sales process, the better, so de-risk your business transitions by starting with the end in mind. Even if you stray from that path over time as other options become more appealing for you, you’ve at least established a framework and a bit of distance between yourself and your business so you don’t feel completely lost when it’s time to exit. Having Exit Options is Ideal Cammie also made herself aware of the exit options available to her company. This was incredibly important since when she eventually chose to sell to a private equity firm, she knew that they were the best fit for her. Not only that, but she had exhausted the other options—even to the point of going to court!—to make sure PE was the best fit. A private equity firm allowed Cammie’s company to grow (with less risk) in the direction they wanted. The interesting part about this story is that Cammie originally wanted to be purchased by her competitors in the first two years. This obviously didn’t pan out, but the growth TaxAct experienced under a profit model was enough to attract other buyers. The time and energy Cammie and her co-founders put into finding, selecting and vetting buyers was well spent because, in the end, they were able to get the exact deal they wanted—and turn away other, less appealing offers until then. Each industry has its own challenges as far as timing your transaction. When to sell is a driving force behind a sale. The accounting and tax industry is no different—in fact, it’s even more crucial here because there are only about three-four months per year that it is viable (if you are an owner-operator) to look for a buyer. How to cram everything into that timeframe? Do it beforehand. By having a plan in place for what you want from a sales process, including who you want to sell to and what you need your terms to be, allows you a little breathing room at the negotiation table. Plus, as you’ll see in the show, by operating a profit-based business model, TaxAct was able to continue as a going concern between their sales rounds without damaging their business. If you haven’t had the exit talk with the key people on your team, you should. The due diligence process alone will teach you volumes about how ready you are to sell, and therefore who you should be aligning yourself with. Takeaways: Cammie’s story is a great example of how to use a private equity firm the right way. Selling to a private equity firm opens so many doors that a business doesn’t have before the sale. Take notes on how TaxAct conducted business and utilized the resources presented to them. Always build your business with goals in mind and set a timeline that will lead to those goals. Links and Resources Cammie Grief on LinkedIn TaxAct Blucora TA Associates About Cammie: Cammie Greif is one of the four co-founders of 2nd Story Software, Inc., makers of TaxAct. 2nd Story Software (now known as TaxAct), is a tax preparation software company serving the consumer tax and professional tax preparation markets. As Chief Marketing Officer, Cammie drove the rapid growth of the company from its inception in 1998 to the stock sale in 2012 to Blucora. Cammie was instrumental in carving out a market in the highly competitive consumer tax industry by offering free tax software, and disrupting the industry by adding free e-file to the product offering, with the largest competitors TurboTax and H&R Block following suit. Cammie and her co-founders bootstrapped the business and attained profitability in the first year of business, starting in February 1998 and releasing their first product in November of the same year. In 2004, 2nd Story Software received a majority investment from private equity firm, TA Associates. Cammie was involved in all facets of the process, including the selection of investment bankers, development of due diligence, management presentations and negotiations. After 2004, as a private equity investment, Cammie was also involved heavily in the due diligence development for processes that led to the eventual sale to Blucora in 2012. Since leaving 2nd Story Software, upon the sale to Blucora, Cammie dedicated her time to mentoring entrepreneurs in all stages of their business, with a strong focus on startups. In addition, she manages investments, including equities, commercial and land real estate, angel investments, and venture capital. She is a Board of Director of Timberline Manufacturing in Marion and St. Martin Land Company in Cedar Rapids. Cammie has a Bachelor’s of Business Administration (BBA) degree in Accounting and Business Administration. She is an inactive status Certified Public Accountant (CPA).

My guest today is Corey Northcutt, the founder of the Northcutt agency. The company is highly successful and Corey has built an impressive SEO and Cloud service. However, it wasn’t always that way. Before Northcutt, Corey was a co-founder of Ubiquiti, a web hosting company. That company grew wildly, but it became a nightmare once the four business partners involved began seeing dollar signs. Corey tells me about his time in a highly political and stressful business. His story is a cautionary tale about how to structure your company in the beginning to maintain a fair balance of power. Corey left his company in a massive blow-up that left him aimless and shell-shocked. He tells me how he found his direction and how he’s done things differently this time around with Northcutt. You will learn about: The beginnings of Ubiquiti. How Corey pivoted into other services. Why Corey chose his first business partner. When Ubiquiti merged with one of its clients and two more partners joined the team. The benefits of catering to a niche market. The initial partnership structure Corey and his partners used. The issues Corey and his partners had. Lessons Corey learned from dealing with potential buyers. The cracks that appeared within the partners’ relationship. The toxic environment that developed during the sales process. How Corey left the company. Life after the buy-out. The lessons Corey took from his time at Ubiquiti. Why does Corey choose not to work from an office? Corey’s advice to the audience. Office politics is a little more serious than we give it credit for. On today’s show, we talk through a ‘hostile work environment’ that’s hard to make a joke out of. Corey Northcutt experienced first-hand what it’s like to have your baby ripped away from you—and there was nothing he could do about it. Founder, Smounder As Corey found out, it didn’t matter one little bit that he was the originator for Ubiquity, his web hosting company. Yes, he owned the domain name and he had done a lot of the back-end work to get their servers up and running, but in the end, that wasn’t enough to get him anything better than a buyout. Unless you have the right operating agreements or other paperwork in place that cements roles, expectations, salaries, etc., you lose a lot of your authority (and in this case importance) to a company when you bring on partners. And most of us need partners! Someone has to fund the expansion or figure out how to distribute on a wider scale. One of Four And here’s the other fun factor. Once you bring on your partners, you become a voice among many. While there are a lot of ways this can work for you, there are also a lot of ways it works against you. The biggest detractor to multiple partners (especially without a tie-breaker) is decision making. Your voice, which used to be 100% of the decision making process is now only 25%, for example. So unless at least two of your other partners agree with you, you’ll never have final say on something. This bleeds into the exit process as well. If everyone is after something a little different, it’s hard to align operational goals, let alone exit ones. Someone wants the most about of cash possible, someone wants to stay on as a developer, someone wants to sit on the board with stock options and earnouts. That’s great! But how do you structure a deal where all those various needs are met? And it’s these different needs, wants, desires that lead to horrendous office politics, such as the ones Corey describes. That Watercooler Is Poisoned Once everyone in the office is pitted one against the other, things start to get ugly. Not only are you contending with your partners on the day-to-day operations of your company, now you are also fighting them over terms and conditions for selling your company—or even just what will be in your exit package. Corey learned the hard way just how backstabbing partners can be when there’s money on the line. After refusing to join in on schemes to destroy or ‘take down’ his other business partners, Corey found himself the target of such a plan. He’d noticed he was being left out of meetings and discussions, but hadn’t thought too much of it until he received a letter from a lawyer in the state they had just moved the company to—a state where he did not live. The terms listed in the letter were quite clear, and quite offensive. Stripped of his hard-earned salary and with no access to company files, Corey was forced to consult a lawyer and pursue legal action to ensure he would receive what he was due from his company. On top of that, his partners had somehow gotten into Corey’s GoDaddy account and taken the domain name—which he still owned—further detailing that old adage, ‘where there’s a will, there’s a way’! Despite all this, Corey had still hoped to fix things and get to business as usual. His lawyer, however, saw things for what they were and said they’d immediately settle. How could Corey work in that environment again? The water was poisoned. Once that happens, nothing constructive will get done. The dynamics on both sides of the equation are too complicated for that and there’s no trust. From the Ashes… However, while some of these circumstances could be avoided by having the right documentation in place (legally binding agreements can help you not only get the value you deserve for your position but also make it punishable if one of your partners acts against you in a way that breaches contracts), Corey says don’t stress too much; it all has a way of working out. After his initial stress and panic period, and the natural (and on-going) grieving process of exiting your business, Corey became an entrepreneur again. Accidentally, again. Several of his old competitors contacted him for his SEO expertise and business became so good that he started a marketing agency. His new company is more successful and profitable than his old one, and courtesy of some of the operational mistakes he made the first go round, is in far better day-to-day operating shape. Corey stresses the importance of good bookkeeping, honest and up-to-date records and not working in an office. The key things that caused him the most stress in his first enterprise were integral parts to how he structured his next one. Learning from your mistakes is what makes an entrepreneur so effective and enduring. Not all of us are built to be phoenixes, however, and it is generally better to try to avoid situations where you could have your business ripped from you with no warning. As such, take a look at your agreements and bookkeeping today—are you doing enough? Are you prepared? Takeaways: A key takeaway from this episode is, take the time to structure your operating agreement with your partners. Decide how business decisions will be handled and establish a hierarchy early on so egos don’t get out of control. Discuss these things when people are on good terms, and prevent dramatic toxicity. Links and Resources Northcutt Agency Corey Northcutt on Twitter About Corey: Corey Northcutt is CEO of Northcutt, a Cloud and SEO agency. Corey began his time in entrepreneurship with Ubiquiti, doing web hosting. After growing the business to a massive corporate giant, he sold his shares. He took his lessons from Ubiquiti and began SEO consulting. Northcutt believes that SEO & content marketing should be driven by science, math, and ROI and specializes in cloud services (SaaS, PaaS, IaaS) and e-commerce.

My guest today is Anthony Bahr, the vice president of Strategex, a customer research firm. Customer research dives into your customers’ experiences and compiles your strengths and pain points into a presentable report. Our conversation focuses on two aspects of customer due diligence. We look at it from both the buyer’s and seller’s perspective. Strategex serves both parties in a sale to give an honest bigger picture of the company’s worth. Anthony highlights the benefits of using Strategex to give both the seller and the prospective buyer peace of mind during the negotiation process. He walks through the process his company undergoes when doing customer due diligence and reflects on some of the recurring themes he is seeing in recent research. You will learn about: How customer due diligence is different from traditional market research. How both sellers and buyers can benefit from hiring Strategex. The key aspects customer due diligence shows the client. Customer research can improve organic growth and control the message you want to convey to a potential buyer. The triangular approach to making sense of the data collected. How customer due diligence can direct a business decision. The importance of having good fundamentals in your customer experience. How customer due diligence can affect a customer contract negotiation. How Strategex filters through all customer feedback. The top 5 points highlighted in a Strategex report. The common trends Anthony is seeing in recent research projects. A recap of Anthony’s takeaways. Why you need to take the emotion out of business deals. Today’s guest provides lots of real-world experience regarding customer due diligence—and he should, as he works for a company that provides in-depth, unbiased reports on this very topic to clients before they buy (or sell) a business. Let’s start with the big question… What Is Customer Due Diligence? Honestly, this is something I wish we had done before we sold our business. It’s not that we would have wanted to restructure all our contracts or even add a few new customers; rather, we would have been able to address any risks associated with the clients we had at the time and therefore address any possible concerns our buyer had, leading us to possibly better terms or price. However, we did not, and this is why I started the show. So what is customer due diligence? It’s something that comes up eventually, usually after an LOI or some other legitimate expression of interest, when a buyer inevitably contacts the clients he or she will be gaining once this deal closes. Essentially, customer due diligence is contacting your current customers and finding out how satisfied they are with your services and if they have any plans on increasing, decreasing or maintaining their present contract with your business. Sounds simple, so why doesn’t every business do this anyway? Most of us are afraid of the answer to these questions. The rest of us perhaps don’t want to put in the effort.  However, you don’t have to do it yourself! Companies like Anthony’s exist for that sole purpose—and, as he notes, it can be a lot easier for a third party to get honest answers from your customers than it can be for you, the owner they have worked with for 20 years. What Do You Look For in Customer Due Diligence? If you are selling and want to get a leg-up on the competition or your potential buyers, or if you’re buying a business and really want to know how strong the customer base is before you sign the deal, there are some key things you should always be looking out for. The first thing to look out for is the number of clients. We’ve had people come on the show before and talk about customer diversity or the downside of customer concentration. You may just have to accept facts: having three businesses that equal 100% of your revenues is not going to be a strong selling point to a potential buyer. If you’re able to show strength of contracts (so lock them in for 10 years if you can), great. But most buyers will want to see a number of contracts, so you’ll want to be able to show where growth is possible here. Plus, what if you find out during your customer due diligence that one or two of these customers is leaving? Better deal with it now, because no buyer will see value in clients who are planning on leaving the business sooner than later. The other thing to look at is cost of product or services. Anthony’s firm has a unique, triangulated approach to this to get the real answer from clients. They admit that they will always receive a biased response when asked if they are paying fairly for the services or product they receive. All customers and clients will say they are overcharged; everyone wants a deal! But this is why Strategex has two other questions to ask which better qualify the answers they receive. Further questions to ask include, Do I pay more or less than my competitors? and, Do I receive quality and timely fulfillment of my contract? If your clients think they’re paying less than their competitors, but also having their needs fulfilled, chances are (even if they said they’re paying too much already!) they would be open to a higher fee. At the very least, they’re likely to stick with you. Unless… They have grown past what you offer. If that’s the case, it’s still better to know that now! No buyer will walk into a deal and pay full price if your clients are already expressing needs beyond which you are prepared to meet. That being said, if you’re able to expand that department or at least show your potential buyer that this expansion is both possible and practical, then you should have handily taken care of a potentially deal-threatening risk. So you can use your customer due diligence as yet another way to keep your finger on the pulse of the market as emerging technologies constantly radically change the playing field. If you’re thinking of buying, what a nice gesture to receive this comprehensive report earlier on in the process, saving time and money on both sides. And, as the seller, it’s nice to be able to show some evidence for why you’re looking for the terms and price you’ve asked for. In Anthony’s experience, 85% of the time the customer due diligence serves to cement the deal; only 15% of the time does it unearth a deal-breaking bit of information. As you look to establish the right exit plan for you, don’t overlook doing customer due diligence to strengthen your position in the market and identify risks as early as possible to provide you added ammunition at the negotiation table. Takeaways: Straegex provides a valuable service to both company sellers and potential company buyers. Customer due diligence teaches you a lot about your business and what works and what doesn’t. Asking a third party to interview your customers provides a direct line to honest, unfiltered feedback. A service like Strategex is a proactive way to get ahead of any problems that could arise during an inquirer’s due diligence. If you face the issues head-on, it creates a cleaner sales process and a deeper sense of trust. Links and Resources Strategex Anthony’s email About Anthony: Anthony devotes much of his time to expanding the firm’s Quality of Customers® (QofC®) offering – a proprietary process that incorporates voice of the customer research into customer due diligence pre- or post-close on behalf of private equity and strategic acquirer clients. He works in partnership with clients to design and implement research initiatives to address common questions that arise during the due diligence process (the stability of key accounts, the target company’s ability to service key accounts, confidence in senior management, etc.). Through the QofC® process, he then provides deep insights into a customer’s level of satisfaction and loyalty as well as competitive positioning, innovation pathways, pricing optimization, etc. Ultimately, this work enables Strategex to transform research findings into actionable growth strategies. Before joining Strategex, Anthony held senior-level positions at two leading market research firms where he specialized in insight, strategy, and innovation projects for global financial services, consumer packaged goods, and pharmaceutical clients. He is well versed in multiple methodologies including brand positioning, segmentation, advertising effectiveness, and pricing optimization. A veteran of the United States Air Force, Anthony holds a B.B.A. in economics and international business from Loyola University Chicago as well as an M.S. in public policy from the University of Oklahoma.

Today’s episode is part 2 of my interview with Bobby Kingsbury, a principal at the private equity firm MCM Capital. During this half of the interview, we are joined by Marc Calcaterra, a shareholder of the Torsion Group. We explore the private equity process from the perspective of the seller. Marc tells me why he chose Bobby and how Bobby helped make the best decision possible for his company. Also, he explains why private equity was the best solution for his situation. Marc and Bobby walk us through the process they went through to make Action Industries a healthier and more successful business. If you missed part 1 of this interview and topic, go back and listen to episode 91 to get caught up with today’s guests. Trust me, you’ll find some really valuable information in these conversations. You will learn about: Welcome back, Bobby Kingsbury. Introducing Marc Calcaterra of the Torsion Group. How Bobby and Marc met. The importance of establishing a relationship with your client and learning their situation. Marc’s situation with Action Industries. How Bobby and Marc began building their relationship. The options Marc considered before calling Bobby. Why private equity was the best solution. The role of the Quality of Earnings report. Why you should hire an outside financial professional to appraise the company. The headache of dealing with 8 partners in one business. How Bobby kept Marc motivated through the process. The due diligence process and why it was the longest MCM Capital has ever done. Lessons Marc learned from his time working with MCM Capital. How to align all your key players’ interests. The deal Bobby structured for Marc. Pulling together the best executive team and strategically planning the future. The value a board gives a company. Why outside opinions matter in business decisions. How to establish a trust and comfort level with your client. Bobby’s and Marc’s parting thoughts. You will remember from last week’s episode with Bobby Kingsbury that we discussed the private equity process and why they might be the best fit for you when it comes time to sell or get funding. Bobby went on to explain his role and that of his company, MCM, in the process and how a seller can best attract this kind of buyer. Well today, we’re going to see if that’s all bunk from one of Bobby’s own clients. Marc fills us in on what it was like deciding to use private equity, why it was the right choice for him and his businesses and the aftermath of the sale. Why Private Equity? In Marc’s very specific case, he had a pre-existing relationship with Bobby and so had already built up a significant amount of trust in him personally as well as professionally. However, even before Marc approached Bobby about the sale, he consulted his business partners about the right avenue to take in terms of the business’ future. The first key thing here is figuring out what’s in the best interest for the business. Marc didn’t have the capital to buy out all the other owners, and no one else wanted sole proprietorship to take the business to the next level. So, in order to grow the business, they knew they’d need to get an investor or a buyer.  To that end, they explored the various types of buyers out there and found that private equity best aligned with their goals based on the types of deals they offered and the structure of those deals. How Did Private Equity Work for Marc? Bobby and Marc struck an amazing deal. At the time of sale, PE was underwriting at 17-20 percent and Bobby’s company was offering both preferred and common stock options. This appealed to Marc, who didn’t want to leave the business, since he could stay on in some capacity. Marc rolled over 30 percent back into the business (in real dollars) to retain that much ownership in preferred stocks. On top of that, he had his common shares which he could use as he wished as part of his compensation. Then he stayed on as an owner and CEO, performing the day-to-day operations and growing the business in the fashion he liked best. But, Are You Really in Charge? While there were some compromises to be made, for sure, Marc saw a great deal of upside to this deal. His role as not-quite-owner/not-quite-employee works for both sides of the table since he is intimately familiar with business operations and is invested in the business, so operates it in a way that ensures its integrity and profitability. Some of the changes made, such as having monthly write-ups sent on to MCM and having quarterly board meetings, were adjustments, but they never compromised Marc’s ability to lead his team and his businesses to success. In fact, both parties feel this only added to the business’ strength since it provided a good level of accountability and problem solving. When something seemed to be pulling the business the wrong way, a discussion would happen before any final deals were struck, thereby lowering the risk to both the business and its investors. Now Marc has an executive team at his disposal to help him put together the road map for their company’s journey. That’s a pretty fantastic thing to have in place because you’re drawing from so much more than your own expertise. MCM had key personnel they wanted to put in place to make sure things ran smoothly (and Bobby had to acknowledge his bias with Marc because he knew him so well), so that new team required some adjustment. So What You’re Saying Is… The right fit needs to be there. Bobby and Marc, due to their pre-existing relationship, were in a good position to help each other since they had trust and knew how each operated his business. This meant that they knew they’d work well together. But again, their goals and vision aligned. As with other guests on this show, Marc and Bobby stressed the importance of the fit. That not every business would benefit from a private equity buyer and not every seller would benefit from staying on in the business. The key thing to takeaway here is that, after the initial discussions with your key personnel, you need to do your own due diligence to see if the companies you’re considering are the right ones. Get to know your potential partner. The more you know, the more likely each of you will be to trust each other and help each other through this process in the most honest and open way possible. If your partner has great integrity, you can be sure he or she will look after you and your business the same way you would. Marc would give Bobby two thumbs up and say that he is not full of shit. I think Bobby held up his end of the deal pretty well and is genuinely making strides to change the face of private equity in the market through the way MCM structures their deals.  So is private equity the right path for you? Do you like the kind of deal MCM struck with Marc? Takeaways: Take the time to get to know the people you plan to do business with. Bobby and Marc knew each other for two years before they even considered doing business together. Those two years gave them an invaluable trust and comfort level with each other that made separating the logic from the emotion in the private equity process a whole lot easier. Explore all your options and make sure private equity is the right fit for you and your company. Marc was lucky to have an established connection with Bobby, but someone who doesn’t have that contact needs to know who to call and when to call. Resources and Links Action Industries MCM Capital 216-514-1843 – Bobby’s direct line 216-514-1843 – Marc;s direct line Life After Business Episode 91 Bobby’s email Marc’s email About Bobby: Robert (Bobby) Kingsbury joined MCM in February 2008.  His responsibilities include the execution of investment transactions and management of portfolio companies.  Mr. Kingsbury is also responsible for the sourcing of investment opportunities, leading the partnership’s e-marketing strategy, website design and managing and developing Limited Partner relationships. Prior to joining MCM, Mr. Kingsbury was drafted by the Pittsburgh Pirates in the 8th round of the 2002 Major League Baseball Draft. He spent six years playing professional baseball as an outfielder in the Pirates organization, participated in the 2004 Summer Olympic Games in Athens, Greece, and was a 2008 inductee into the Fordham University Athletic Hall of Fame. Mr. Kingsbury graduated from Fordham University with a Bachelor of Science degree in Finance. About Marc: Marc Calcaterra began his career in manufacturing. He was soon involved with the Torsion Group and found himself on the distribution side of the business. Action Industries is a leading manufacturer and distributor of a wide range of products for the garage door industry. With the help of MCM Capital Marc has been able to take the Torsion Group to a new level in the garage door manufacturing industry!

Today’s episode is part 2 of my interview with Bobby Kingsbury, a principal at the private equity firm MCM Capital. During this half of the interview, we are joined by Marc Calcaterra, a shareholder of the Torsion Group. We explore the private equity process from the perspective of the seller. Marc tells me why he chose Bobby and how Bobby helped make the best decision possible for his company. Also, he explains why private equity was the best solution for his situation. Marc and Bobby walk us through the process they went through to make Action Industries a healthier and more successful business. If you missed part 1 of this interview and topic, go back and listen to episode 91 to get caught up with today’s guests. Trust me, you’ll find some really valuable information in these conversations. You will learn about: Welcome back, Bobby Kingsbury. Introducing Marc Calcaterra of the Torsion Group. How Bobby and Marc met. The importance of establishing a relationship with your client and learning their situation. Marc’s situation with Action Industries. How Bobby and Marc began building their relationship. The options Marc considered before calling Bobby. Why private equity was the best solution. The role of the Quality of Earnings report. Why you should hire an outside financial professional to appraise the company. The headache of dealing with 8 partners in one business. How Bobby kept Marc motivated through the process. The due diligence process and why it was the longest MCM Capital has ever done. Lessons Marc learned from his time working with MCM Capital. How to align all your key players’ interests. The deal Bobby structured for Marc. Pulling together the best executive team and strategically planning the future. The value a board gives a company. Why outside opinions matter in business decisions. How to establish a trust and comfort level with your client. Bobby’s and Marc’s parting thoughts. You will remember from last week’s episode with Bobby Kingsbury that we discussed the private equity process and why they might be the best fit for you when it comes time to sell or get funding. Bobby went on to explain his role and that of his company, MCM, in the process and how a seller can best attract this kind of buyer. Well today, we’re going to see if that’s all bunk from one of Bobby’s own clients. Marc fills us in on what it was like deciding to use private equity, why it was the right choice for him and his businesses and the aftermath of the sale. Why Private Equity? In Marc’s very specific case, he had a pre-existing relationship with Bobby and so had already built up a significant amount of trust in him personally as well as professionally. However, even before Marc approached Bobby about the sale, he consulted his business partners about the right avenue to take in terms of the business’ future. The first key thing here is figuring out what’s in the best interest for the business. Marc didn’t have the capital to buy out all the other owners, and no one else wanted sole proprietorship to take the business to the next level. So, in order to grow the business, they knew they’d need to get an investor or a buyer.  To that end, they explored the various types of buyers out there and found that private equity best aligned with their goals based on the types of deals they offered and the structure of those deals. How Did Private Equity Work for Marc? Bobby and Marc struck an amazing deal. At the time of sale, PE was underwriting at 17-20 percent and Bobby’s company was offering both preferred and common stock options. This appealed to Marc, who didn’t want to leave the business, since he could stay on in some capacity. Marc rolled over 30 percent back into the business (in real dollars) to retain that much ownership in preferred stocks. On top of that, he had his common shares which he could use as he wished as part of his compensation. Then he stayed on as an owner and CEO, performing the day-to-day operations and growing the business in the fashion he liked best. But, Are You Really in Charge? While there were some compromises to be made, for sure, Marc saw a great deal of upside to this deal. His role as not-quite-owner/not-quite-employee works for both sides of the table since he is intimately familiar with business operations and is invested in the business, so operates it in a way that ensures its integrity and profitability. Some of the changes made, such as having monthly write-ups sent on to MCM and having quarterly board meetings, were adjustments, but they never compromised Marc’s ability to lead his team and his businesses to success. In fact, both parties feel this only added to the business’ strength since it provided a good level of accountability and problem solving. When something seemed to be pulling the business the wrong way, a discussion would happen before any final deals were struck, thereby lowering the risk to both the business and its investors. Now Marc has an executive team at his disposal to help him put together the road map for their company’s journey. That’s a pretty fantastic thing to have in place because you’re drawing from so much more than your own expertise. MCM had key personnel they wanted to put in place to make sure things ran smoothly (and Bobby had to acknowledge his bias with Marc because he knew him so well), so that new team required some adjustment. So What You’re Saying Is… The right fit needs to be there. Bobby and Marc, due to their pre-existing relationship, were in a good position to help each other since they had trust and knew how each operated his business. This meant that they knew they’d work well together. But again, their goals and vision aligned. As with other guests on this show, Marc and Bobby stressed the importance of the fit. That not every business would benefit from a private equity buyer and not every seller would benefit from staying on in the business. The key thing to takeaway here is that, after the initial discussions with your key personnel, you need to do your own due diligence to see if the companies you’re considering are the right ones. Get to know your potential partner. The more you know, the more likely each of you will be to trust each other and help each other through this process in the most honest and open way possible. If your partner has great integrity, you can be sure he or she will look after you and your business the same way you would. Marc would give Bobby two thumbs up and say that he is not full of shit. I think Bobby held up his end of the deal pretty well and is genuinely making strides to change the face of private equity in the market through the way MCM structures their deals.  So is private equity the right path for you? Do you like the kind of deal MCM struck with Marc? Takeaways: Take the time to get to know the people you plan to do business with. Bobby and Marc knew each other for two years before they even considered doing business together. Those two years gave them an invaluable trust and comfort level with each other that made separating the logic from the emotion in the private equity process a whole lot easier. Explore all your options and make sure private equity is the right fit for you and your company. Marc was lucky to have an established connection with Bobby, but someone who doesn’t have that contact needs to know who to call and when to call. Resources and Links Action Industries MCM Capital 216-514-1843 – Bobby’s direct line 216-514-1843 – Marc;s direct line Life After Business Episode 91 Bobby’s email Marc’s email About Bobby: Robert (Bobby) Kingsbury joined MCM in February 2008.  His responsibilities include the execution of investment transactions and management of portfolio companies.  Mr. Kingsbury is also responsible for the sourcing of investment opportunities, leading the partnership’s e-marketing strategy, website design and managing and developing Limited Partner relationships. Prior to joining MCM, Mr. Kingsbury was drafted by the Pittsburgh Pirates in the 8th round of the 2002 Major League Baseball Draft. He spent six years playing professional baseball as an outfielder in the Pirates organization, participated in the 2004 Summer Olympic Games in Athens, Greece, and was a 2008 inductee into the Fordham University Athletic Hall of Fame. Mr. Kingsbury graduated from Fordham University with a Bachelor of Science degree in Finance. About Marc: Marc Calcaterra began his career in manufacturing. He was soon involved with the Torsion Group and found himself on the distribution side of the business. Action Industries is a leading manufacturer and distributor of a wide range of products for the garage door industry. With the help of MCM Capital Marc has been able to take the Torsion Group to a new level in the garage door manufacturing industry!

[et_pb_section bb_built=”1″ _builder_version=”3.15″ custom_margin=”0px|0px||0px” custom_padding=”0px|0px||0px” custom_margin_tablet=”|0px||0px” custom_margin_last_edited=”on|tablet” custom_padding_tablet=”|0px||0px” custom_padding_last_edited=”on|phone”][et_pb_row _builder_version=”3.15″ module_alignment=”center” make_fullwidth=”on” custom_margin=”|0px||0px” custom_margin_last_edited=”on|tablet” custom_padding=”|0px||0px” custom_padding_last_edited=”on|tablet”][et_pb_column type=”4_4″][et_pb_text _builder_version=”3.15″ text_font=”|300|||||||” text_font_size=”20px” header_3_font_size=”26px”] My guest today is Bobby Kingsbury, a principal at a private equity firm called MCM Capital. MCM has been in business for 26 years and invests in small to medium-sized niche businesses. On today’s episode, Bobby tells me how MCM screens its potential investments. We discuss how the private equity business works and how MCM Capital stands out among their competitors. He offers the questions the equity firm asks a potential client and also the questions the business seller should ask the equity firm. Bobby also stresses the importance of having clean financial records to present to the equity firm. He suggests ways to better present your business to get a clearer and firmer price point for your business. There are a lot of nightmare stories out there regarding private equity firms. However, MCM Capital is one of the more honest firms that want to give their sellers the best deal possible. Bobby explains MCM’s motives in their screening process and assures listeners that MCM Capital wants to be a partner with companies, not a dictator. If you are considering working with a private equity firm, this episode is a good resource for you. My next episode will be the second part of this topic. Mark Calcaterra, one of Bobby’s sellers will join us to describe what his experience with Bobby and MCM Capital. So, you will be seeing both sides of the process. You will learn about: Welcome to part one of this two-part topic. MCM Capital’s business history. What Bobby and MCM look for when evaluating a client. How MCM does business with their clients (where do they get the money?) Why private equity firms are necessary. What MCM does for a small business. What to ask a private equity firm before you begin due diligence. How to build a relationship with potential clients. How to provide value to a firm instead of just money. How Bobby partners with the business owners. What to expect when doing due diligence. The benefit of getting a Quality of Earnings (QOE.) How to create a win-win situation along with an equity firm. Why an owner needs to be involved in the company. Rep Warranty Insurance reduces risk. What do things like customer and supplier concentration tell an equity firm about your business? How Bobby helps a business owner move in a strategic direction. What Bobby and MCM look for in a business team. The importance of a CFO for your business. Hiring is a form of investment in a company. How to keep a business owner involved in the company. When can a business owner walk away from the business? Bobby’s parting thoughts. Today we’re taking a look at private equity from an insider’s perspective. Bobby Kingsbury (who you may remember from a previous show of mine) talks about how private equity works, in general, and how his company is doing business differently, in particular. You’ll want to pay close attention to this show if you are even contemplating selling to a private equity firm. As business owners looking into private equity, we typically look for the biggest number we can get from the sale. We’ve spent a lot of time on this show, though, talking about how important the ‘fit’ is when we go to sell the business we built from the ground up. Let’s look at Bobby’s points and see if private equity is the right fit for you. How to Be Valuable and Sell to Private Equity Bobby talked in-depth about the minimum requirements MCM has for picking up business, as well as the more important (and often overlooked) factors which can really impact your financials in the eyes of a private equity buyer. MCM itself only looks at companies that generate $15-75M in revenues and $2-8M in EBITDA in their market niche (manufacturers and value-added distributors). So what would it take for Bobby to come look at your business as a serious and viable acquisition? There are many ways to work on revenue, of course, but some of Bobby’s points are a little more practical than simply “go out and get more clients/customers”. Bobby encourages you to take a real and honest look at your company and its financials. The industry is trending toward doing financials well before you enter into the sales process because it not only gives you a competitive edge, but it also makes your business appear less risky due to its transparency. If you’re running more of a lifestyle business and using the company as a way to cover your leisure activities and expenses, your multiple of EBITDA may be drastically different from that which a PE buyer would say it is. How many staff you have and how they’re compensated factors into this as well , so if you have managed to get by without official roles like a COO, certified accountant to do your books or CFO, now’s the time to get that in place. If you’re earning enough to be considered a valuable acquisition, it is time to make sure that all positions a buyer would expect to see in a company of your size are there—and that they’re compensated properly. The owner’s role in this valuation cannot be understated, either. This is due to two factors: the first being simply your salary, and the second being your value to the day-to-day operations of the business. Make sure that your EBITDA multiple accurately reflects the value of your role to your potential buyer since you will need to eventually be replaced. Further to that point is the fact that you may be one of your business’ assets upon acquisition, which means… You’re Part of the Acquisition – Do You Want to Stay on After the Sale? If you want a company like MCM to align with you, you need to be willing to be part of the acquisition. Bobby talks about how a business owner’s understanding and intimate knowledge of the business he or she built is invaluable to MCM when thinking about the future of the business. While private equity will ensure their purchase is well-staffed and with the right people, there is nothing like having the business owner’s input on the industry he or she knows so well. So you need to be prepared to work (likely on the board of directors) in your business without having quite the same level of control as before you sold. However, MCM recognizes that owners will be more invested in a business they have most of the say over, so they do a fairly hands-off approach when it comes to letting the owner run the business if that’s part of the sale. Bobby would rather give a clawback of $10,000 than encourage a business owner to reach an earnout or other revenue-based number and therefore push the business too hard so they get the full potential of the terms of their contract, potentially damaging the business and its relations in the long run. It’s better for the business, especially it’s continuity, to incent the owners in a different way. One of the things MCM will do is give the seller five or 10 percent ownership in the company to encourage compliance, performance and that the owner’s needs are fulfilled as well. After all, it’s all about that fit. By taking this more caring approach to client relations as a private equity firm, MCM is changing the way PE is seen by business owners—as Bobby says, private equity doesn’t actually have horns! So is Bobby and MCM’s private equity strategy working? Are their customers happier being able to stay on in the business? Are they satisfied with their terms and the cash they received from the deal? Or is traditional private equity and the bottom line still the better way to go? To see just how credible Bobby’s thoughts and insights are, tune in for next week’s episode where we go over sale process to private equity from the seller’s perspective with one of his own clients. Takeaways: Always consider your business as a product that a buyer would want. Create the best product you can and the risk to the buyer will diminish. Do your due diligence and put your best foot forward. Know the questions you want to ask an equity firm so you can find the right fit for you and your company. Not all private equity firms are going to work with you, suss that out before you make the deal. Don’t rush into a deal. Resources and Links MCM Capital (216) 514-1840 Bobby’s email About Bobby: Robert (Bobby) Kingsbury joined MCM in February 2008. His responsibilities include the execution of investment transactions and management of portfolio companies. Mr. Kingsbury is also responsible for the sourcing of investment opportunities, leading the partnership’s e-marketing strategy, website design and managing and developing Limited Partner relationships. Prior to joining MCM, Mr. Kingsbury was drafted by the Pittsburgh Pirates in the 8th round of the 2002 Major League Baseball Draft. He spent six years playing professional baseball as an outfielder in the Pirates organization, participated in the 2004 Summer Olympic Games in Athens, Greece, and was a 2008 inductee into the Fordham University Athletic Hall of Fame. Mr. Kingsbury graduated from Fordham University with a Bachelor of Science degree in Finance.   Valuing a Business: The Seller’s Perspective (Part 2) >> [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]

My guest today is Vicki Raport, one of the founding members of Quantum Retail Technology. Vicki was on the front lines of Quantum’s sale. The story she has to tell is impressive and is a clean-cut example of how a company sale should happen. We discuss the journey Vicki and her partners took to build a successful business and how they kept a delicate balance between five (yes, five) founders. They pivoted the business from a SaaS to an Enterprise model, Vicki explained how they reached that decision and what it meant for the business as a whole. If your goal for your business is to build a lucrative company and then sell it, Vicki’s story is inspirational and fascinated. You will learn about: Vicki’s background and the career change that was the beginning of Quantum Retail Technology. How Vicki used skill sets to find the right people for her team. How Quantum Retail Technology pivoted into “deployable software.” The pros and cons of Enterprise software and what is it? What triggered the sale plans. How Vicki and her team planned for the company sale. The failed attempt to maximize the business. The importance of being intentional in business. The team’s goals for the company sale. How to hire the right investment banking firm. Why the chosen buyer was a good fit. How Vicki and her team handled running the company during the sale negotiation. How Vicki’s employees responded to the sale. What Vicki would have done differently. The importance of hiring the right lawyer. How to cope with emotional and mental drain during a sale. Today’s show highlights some very interesting and useful points for any entrepreneur. Not only did Vicki Raport and her four partners build a well-respected and profitable business, but when they sold, they got the cleanest contract out of the deal. They got the terms they wanted and the company they sold to fulfilled each and every one. So what did Vicki do differently that helped her achieve such a desirable outcome? Intention Is Everything When Selling A Company Vicki attributes her success to great intention. She had intention in design, action, planning and execution. When she started her company, she knew she wanted to work in the market she was familiar with and so contacted a bunch of her old coworkers to see if anyone else was interested in developing a business. By drawing from five different founders, their business (Quantum Retail) was able to utilize multiple skill sets and strengths. It quickly became a successful industry giant whose clients, while not numerous, were mighty and well-known. As with most entrepreneurial endeavours, Quantum started out as a single-purpose business catering to one client’s needs and then developed more of a portfolio as they gained more clients who had other needs in the same market. Vicki’s story is a great example of capitalizing on what you know and building off of that until you are an indispensable service (or product) in your particular market niche. The only difference is in the intention; in the planning. Thoughtfulness, intention, planning, due diligence… whatever name you need to give this concept of acting with intention, do it. The better prepared you are and the more contingencies you plan for, the greater success you will achieve—both in operating your business and in selling it. Why Your Business Partners Matter When Selling Your Business While Vicki’s situation is unique—five partners! —most businesses eventually take on a partner of some kind or another. With five founders, Quantum Retail was established with only a nominal investment by each partner. If you need some founding capital to get started, or to grow, it’s important to thoroughly vet your potential partners. They will have a certain degree of control over what happens in your business, so you want to make sure the person on your team is just that—on your team. Aside from the obvious capital-related reasons to getting a partner, you also gain access to their wealth of knowledge. In Vicki’s case, that came from a few key players who held different skill sets and specializations than she did and who also wanted varying degrees of control over the business. And, of course, all of this was laid out well in advance. Once they’d established they wanted to work together, they carefully crafted the how of it as well as compensation structures. Never leave anything to chance that a good board meeting could solve! Preparing for contingencies in the early stages, including the inevitable exits, was vital to their success overall as well as their efficient sales process. Each of them had open dialogue about their needs and wants from the business and adjustments were made along the way as required to maintain a good status quo. Laying out expectations in terms of compensation, decision making, roles and even who takes vacation when can save you a ton of time down the road and a lot of money when costly mistakes are made which could have been avoided with a little extra planning. Intending to Sell a Business vs. Intentional Building an Exit Plan to Sell Your Business It’s one thing to say that you are looking to sell your business; it’s quite another to say you are prepared. The best part of our podcast today and the greatest lesson to take from it is simply this: intend to do what you’re doing. Vicki looks back on her path as an entrepreneur and admits she wishes she had been more intentional in seeking out and establishing relationships with strategic partner earlier. It’s important to build those relationship in the market as early as you can so that when you’re ready for more capital or to sell, you have people and companies you can turn to who already know what you’re about and what your vision is—and who are more likely to want to get involved. Vicki’s sale process was very efficient due to her planning. After discussing what they each needed from selling the business, Vicki’s team came to the decision that a strategic or private equity would be best for them. They wanted to keep their technology in the market and available for use and sale, and to that end they were quite successful considering Quantum Retail is still operating today. After deciding on who they wanted to sell to,  they hired someone to help them sell their company and ended up having 30-40 buyers interested in their business. The investment banker they hired—and Vicki is a big supporter of using professional and niche market council—was an expert in the field and the firm he worked for closed 70 deals per year in her market specifically. He was the best equipped to get the money and terms they deserved from the deal. Eventually they dwindled the list down to their top two contenders and sold to the one who had the best terms and cash available, rather than using a series of notes and earnouts. In the end, you have to be comfortable with the terms you’re agreeing to. If you aren’t, you’ll walk away from the deal with a ton of regret. And the final lesson about intentional selling is: have your house in order before you even start the process. Vicki had had the business’ financials audited years before and was up-to-date on all the paperwork side (HR, secure key contracts, etc.) so that you can prove you are what you say you are and the value is obvious to the buyer. Basically, take as much of the risk out of the situation as you can for the buyer so you can negotiate for the best terms possible. With all that in mind, how can you act with intention to improve your business today? Takeaways: Plan exactly how you want your business to run. Especially if you have a lot of people to work with. Make sure everyone is heard and on the same page. Vicki and her team did everything in their business with intention. There were no accidents in Vicki’s story. Know what you want from the business on day one. Be aware of your emotional and mental state and be honest with yourself. If you aren’t ready on either front, then the sale won’t work out for you. Vicki was very good at thinking ahead in the process and preparing herself for the next step in the sale process. Links and Resources Vicki Raport on LinkedIn About Vicki: Vicki Raport is an entrepreneur and multi-discipline business executive with over 25 years of progressive experience in managing and directing high-growth, mature and start-up companies in the retail and technology industries. She was the Co-founder, CEO and Visionary Executive at Quantum Retail Technology, Inc., a profitable, high-growth technology company serving the retail industry that was recently acquired by a strategic enterprise software company.

My guest today is Erin Weed. After a tragic death of a friend, Erin founded Girls Fight Back! A women’s self-defense and personal safety organization. Erin traveled the U.S. speaking on college campuses and keeping the memory of her murdered friend alive through awareness. Erin wouldn’t consider herself an entrepreneur, but an activist that built a business out of her passion project. During today’s episode, Erin tells me about the growth of Girls Fight Back and how she was able to take the business internationally. She also shares why she made the decision to sell the company and move on to the next stage of her life. Businesses can easily become the cornerstone of someone’s identity or purpose. Erin’s story is a great example of out-growing a business and knowing when to let it go. What you will learn about: Why Erin founded Girls Fight Back. How partnerships with martial art and self-defense programs helped get Erin her audience. The personal effect her friend’s death had on Erin. How Girls Fight Back became international. How Erin structured one of her seminars and presentations. What exactly did Erin sell to her buyer? The danger of letting your business become your identity. The process Erin went through to sell her business. The personal changes she went under during this process. Mistakes that Erin made early on in the business. Erin’s new business Evoso and her DIG process. Erin’s advice to our listeners. What are you passionate about in your life? What social issues ring near and dear to your heart? What if a past tragedy is the exact impetus you need to get your enterprise up and running? Today’s guest shows us exactly how you can be both a social justice warrior and still run a cash-positive business. Erin Weed talks about making a legacy out of her friend’s tragic murder by building a business devoted to helping women live a life without fear where they can defend themselves if necessary and have the tools they need to succeed. What has your business done for others today? Enterprise by Surprise So many entrepreneurs don’t choose this path. Most fall into entrepreneurship by accident. If there’s an exposed market niche or an under-serviced segment, you can bet an entrepreneur will find a way to fulfill that need. One trend we don’t see enough of is businesses that are created to help a social issue or injustice get resolved. Today’s guest did exactly that: created a business to resolve a social injustice (women who live life in fear that they will be attacked and therefore pass on major life opportunities that their male peers do not have to due to considerations of personal safety). In Erin’s own words, “Girls Fight Back gives women’s safety and self defense seminars at high schools and colleges across the world. We also have a product line that all supports that messaging.” So not only did she establish a business that would help thousands of women across the globe, but she also managed to make it a profitable business that could be sold to another like-minded ‘activist entrepreneur’. The lesson here is that you never know who has been affected by a tragedy like yours and who could benefit from your healing process. While Erin has extrapolated this experience and grew beyond her initial need to be an activist entrepreneur, she knows who she is and what she needs to be happy and her most authentic self. After some self-improvement and selling Girls Fight Back, she has moved onto other projects which also help women—this time predominantly in business—and people at large by teaching them to live their most authentic life. Living an Authentic Life as an Entrepreneur Her first business matched her needs, personality and addressed a huge issue in society. This fulfilled her for quite some time, but when she had her first child, she noticed that her business no longer was who she was; it wasn’t helping her live her most authentic life. This incentivized her exit from the company, despite how well it was doing. When she sold, she was able to re-focus on what currently made her happy. As she says, we need to at least let ourselves evolve. This means that, as we go through life and gain new experiences, we need to acknowledge how we change over time. Your needs at twenty rarely match your needs at forty. So when Erin’s life circumstances changed and she needed to exit her company, she spent a lot of time sorting out what it would take to make the company valuable to someone else. Thankfully, she had pretty steady revenue and understood that the right person would be interested in the business’ mission, and not just potential for parts or resale. When she sold to one of the woman who owned her speaker’s bureau, she knew that was the right choice because it was a good fit for her mission (they both believed in the business’ mandates and lived its culture) and because it was going to get her the financial payout she was looking for to move onto her next endeavour. Thankfully her principles persevered in spite of some of the obstacles thrown into her path at time of sale (disorganized documents, cold feet on the part of Gina’s lawyers and accountants, etc.) because she has had no regrets hand-selecting her successor—Gina has stayed true to Erin’s vision and continues to operate the business in a way that makes Erin happy and proud. When you evaluate your business and yourself, do you still think you’re living your most authentic self? Are your needs being fulfilled? If they’re not, can you do a realignment and make it work, or is it time to exit your business to find something else to be invested in? What do you want your legacy to be as an entrepreneur? Whether we’re passing our business onto our children or we’re selling it so we can move onto the next phase of our lives, we all have thought about the legacy of our business at one point or another. How much value are you placing on your business’ reputation? Oftentimes it’s things like loyalty and word-of-mouth that really get a business going. So what is being said about your company? Erin’s legacy is of female-empowerment. When you hear Girls Fight Back, you immediately get the concept of the company and many of us are already fairly familiar with her business—even if we haven’t used their services! While this is a next-level almost-philanthropic business, all businesses could do better at their social or community legacy. If your business isn’t as social-forward as it could be, think about the steps you can take to change it today. Takeaways: I only had one takeaway from today’s episode. Erin built a business out of something very personal. It represented a part of her life that she has long since evolved pasted. She was brave enough to realize she had changed and was in a new place in her life. Most entrepreneurs are afraid to take a look at themselves and make the decision to walk away from that business. DON’T be afraid. Don’t be afraid to let go and move on to the next stage of your life. Links and Resources Erin Weed’s website Evoso About Erin: Erin Weed is a firm believer in authenticity. For 12 years she ran the company, Girls Fight Back. She is now the founder of Evoso, a company devoted to helping other businesses get clarity on their purpose. Erin is also a speaking coach for TEDx presenters. She has developed a process called “The Dig” which helps people find their personal purpose and “truth” to make the most they can from their business and life.

My guest today is Sherry Deutschmann, the founder of LetterLogic and currently Sunset Ventures. Sherry began LetterLogic in direct response to her previous employer’s lack of interest in improving business practices. She built her own business doing the exact same service, but with one key difference, she implemented an employee-first business model. The model changed how her business grew, including creating a unique culture. Sherry’s intimate business model made her business desirable to clients and buyers alike. LetterLogic was included on the Inc 5000 list eleven years in a row! Today, Sherry shares what lead to her decision to sell LetterLogic and what she would have done differently in hindsight. Employee-first companies are a  rare business model, but the results can be shockingly impressive. Sherry makes a good argument for the business model and also warns against the downside of selling a business built on the employee-first mindset. You will learn about: Sherry’s business background and how LetterLogic began. How Sherry pivoted from outsourcing to moving her services to in-house. Sherry’s initial goals for the business. Why she decided on an employee-first business model. How profit sharing changed Sherry’s company culture. The customer reactions to Sherry’s way of doing business. How an expensive mistake drove Sherry to sell the business. The way Sherry’s mindset changed once the due diligence started. Why Sherry hired the business broker she did. The types of buyers that were interested in LetterLogic. The must-haves Sherry had to sell her business. The 15% profit share of the sale Sherry gave her employees. Why Sherry wasn’t satisfied with being on the company board. The ways the company changed after the sale. What Sherry would have done differently. Transitioning into an angel investment firm. Sherry’s upcoming book. Do you know the full value of company culture? It may surprise you to learn just how much value you, as an entrepreneur and business owner, can get out of establishing an employee-first culture. Sherry Deutschmann talks real numbers and how her company profited under this business model. Employee Centric Business Model One of the values near and dear to Sherry’s heart is paying it forward. As most entrepreneurs do, she established her business after discovering a severe lack in her industry for client care and company culture—she found herself endlessly apologizing to her clients on behalf of the cold culture at the company she worked for.  Enter her first entrepreneurial step: selling everything to better fulfill this very niche market service gap. She started her business in her basement and refused to compromise on her values. As she worked to grow her company, she made sure that her employees had as much buy-in to what she was doing as she did. How did she make that happen? She started doing some research into how to make her employees more invested in the business. What she came up with as unique approach to the market which included raising her minimum wage to more than double the state average and even employing profit sharing. And she found that neither of this things negatively impacted profit; they actually caused her company to boom! While there are many courses you can take and seminars you can attend on how to improve employee culture at your company, Sherry’s advice is practical and proven. She suggests taking a look at the two lowest-earning employees at your company and looking at what would happen if they got married and tried to establish a family where they live (hypothetically, of course!). In her particular case, she realized that at the wages she was currently paying these two employees—despite being higher than the state average—wasn’t enough to ensure a good quality of life. They wouldn’t be able to afford to buy a home, for example, and forget raising kids and sending them to a good school. So she raised their wages. However, after further number crunching, she realized even that raise wasn’t going to be enough—so she raised them again! What happened next was remarkable. She was hearing success story after success story of employees who were now far more productive because they were able to focus on doing their work rather than worrying about getting off in time to go to their second (or third) job or if they could afford to get a sitter on a day that their kids were sick. 100 little worries, and some major ones, were solved by increasing the minimum wage. But Sherry didn’t stop there. The other big monetary change she made compared to her industry was to start profit sharing. In the beginning, the checks may only have been $7, but the precedent was set and she had everyone’s buy-in. From a trucker to the CEO, each employee received a share of the overall profits of the company and therefore was more engaged in their work to increase those profit margins. This meant that there was less human error, so fewer costly mistakes were made, and client retention was at an all-time high. It also meant that the sales force wasn’t considered the bad guy, even though they got paid more on a daily basis. The sales team shared in the profits equally (not more than) their peers, so they received unequivocal support and made sales based on client need rather than for the purpose of hitting monthly bonuses. In the end, profit sharing checks reached $1,500! That’s pretty impressive when you think about the impact on employees who received this bonus regularly. But What Does This Cost Me, the Boss? Unless you’re looking to skin the cat to make your first million, you aren’t going to notice a huge cut in your take home. You’ll also see better client and employee retention, leading to a more sustainable business and a more attractive acquisition when the time comes. This all puts more money in your pocket in the long run. We all know the hassle of finding good help and keeping it, as well as the cost to us as the employer to train new people. When Sherry noticed her expenses rising and that she wasn’t earning a profit—and therefore had to go into her meetings and let her staff know that there would be no bonus—she took a close look at what was causing the disconnect. It had nothing to do with her employees whatsoever. Rather, it was because she was spending money on trying to take the business in a direction it wasn’t equipped for. Due to these two months without profit, she decided to sell her business. Selling Your Company Is Emotional Although her business had made the Inc 5000 list 11 years in a row and she had seen profits for 60-70 months prior, she knew the time had come for her to close her chapter with this company. It was an extremely hard choice for her because of the incredibly close relationship she had with her employees. While the decision was very emotional, she set on it with a very calculated approach. She took on an advisor to help show her where she had weaknesses and strengths and to help her make her company more appealing to the market. From there, she also focused on what mattered most in the sale—ensuring that her employee-first culture would remain intact. As many of us know who have sold companies before, rarely do you close a sale to another company and retain your culture in its entirety. Sherry made a good attempt, but hindsight is 20/20 and if she could do it again, she would choose to be the acquirer and absorb another business into hers which would provide the digital services she required to continue to grow her business without losing the moral fibre of her company. Upon selling her company, she had one-on-one conversations with each of her employees to give them yet another sort of profit sharing: she chose to share 15% of the profits from selling her company with her staff based on their tenure. While this may be beyond your purview, you can imagine the resounding impact this had on each of their lives. This final step was one more way for Sherry to live her core values of employee-first culture and paying it forward. When you look at your business, can you improve your culture? Can you improve your employee’s lives by restructuring how you compensate them? If so, do you see the value in doing it? Takeaways: Sherry showed great tenacity with her employee-first business model, that particular model is difficult to honor. Sherry honored it with integrity and consistency. The employee-first mindset lead to awesome results and made Sherry’s company culture unique and attractive. Sherry sincerely cared about her employees and really changed the lives of her employees with her business practices. Buyers took notice of Sherry’s genuine care. When you choose to implement the employee-first business model it is very difficult to leave the business. If you are considering this business model, be prepared for selling the business to be difficult. Over time the business becomes like a child. Be sure you want to sell and are ready for the pain. Resources and Links Sherrydeutschmann.com Sherry on LinkedIn The Status Quo Sucks Finish Big by Bo Burlingham About Sherry: Sherry Deutschmann left her career with a major medical billing company to start her own. That company became LetterLogic. Sherry built a highly profitable business on the mindset of employee-first. She saw rapid growth within 18 months and moved her business out of her basement. LetterLogic was present on the Inc 5000 list 11 years in a row! This impressive growth and unique culture made her business very attractive to buyers. After an emotional sale, Sherry started an angel investment firm for women entrepreneurs called Sunset Ventures. She has shared her business experience as a mentor and is the author of many upcoming business books.

My guest today is Larry Anderson. Have you ever wondered what you would do if your biggest client suddenly dropped you? Larry has experienced that first hand. He is an “accidental entrepreneur” that came back home to help with the family business. Since getting his start in the industrial repair field, Larry has pivoted into many technology niches including contract manufacturing and most recently, the online freelance market. During today’s episode, Larry walks me through his business experience and offers some hard-learned lessons. He is inspirational for his tenacity and flexibility within his industry. If you are looking at a possible pivot, Larry Anderson is an excellent example of staying positive and moving forward. You will learn about: Larry’s entrepreneurial background. How industrial repair and contract manufacturing differ. Lessons Larry learned from his first business sale. The ups and downs of serving just one large client. Why the contract manufacturing industry changed. What came after the big blow? How Larry pivoted Finding the right buyer and business broker. The importance of doing due diligence before exiting the company. What Larry would have done differently. Today’s guest covers a couple of big risk topics, namely lack of customer diversification and technical expertise. We all get into our businesses to satisfy a need and should never undervalue our expertise in that market, but when it comes to expanding to areas we aren’t familiar with (including selling our business), it’s best to reach out to others who have a greater understanding of these areas. For Larry Armstrong, these two factors caused him to become an entrepreneur in the first place and have led to the reason why he is on the show today. Diversifying from Your Biggest Customer Is Mandatory to Increase Company Value When it comes to customers, there is safety in numbers. Larry, however, had a business where one client made up 99% of their revenue. While that wasn’t a concern for him at first because that client was so reliable and they had such great communication, it eventually became a bit of an issue. As much as you want to trust the people you work with on a daily basis, the bottom line is that each one of us has to look out for what’s in our best interests. When Larry’s client eventually came to the conclusion that different services would better suit their needs, Larry was left holding the bag and putting money into a company that wasn’t putting out returns. Eventually the client let Larry know that his services weren’t required anymore, but Larry had already been hanging on for two years and not turning a profit. While there are some businesses that do only have one or two major clients, it’s important to get as much information from them as possible about their future plans so you’re not left in the lurch—or, better yet, go out and actively seek new clients so your portfolio is more diverse. Another way to decrease risk for your business, without necessarily expanding your clientele. Go for long-term contracts and renewable contracts. The more locked-in a client is, the more likely they are to stay. Clients stay where they’re comfortable and well taken care of, so as long as you are fulfilling your contractual obligations with this client, you should have no issue getting a long-term contract from them. This gives you an idea of the stability of your future earnings by those who agree to stay for the long-term and being shown those who are flight risks. Get Good Advice When Selling Your Company When Larry sold this company, while he asked around for advice, he didn’t get what he could have out of the situation. He sold for 1.5x revenue (though his company wasn’t doing the best in sales at this time) to the general manager and had to finance part of this deal himself. He suggests reaching out to a professional for advice and getting the business ready for sale far in advance. No matter how much you like or trust a person, you should always get an unbiased party involved to help with the transaction so it is fair for both parties and also so that contingencies are taken into consideration. As it was, two years after he sold his business to the GM, the GM died unexpectedly and Larry never received full payment and there was nothing in place for business continuity at that point, either. While getting advice while selling your business is a good idea, you still need to evaluate who is giving you that advice. You’ll need to consider their fit—do they understand what you’re looking for in this business exit and transaction and are they familiar with your industry? If the advisor makes sense for you to use, great; but if he or she doesn’t, it’s important to find the one who does. Don’t settle because then you’ll end up accepting a lower-quality deal, whether from a financial or emotional standpoint. Before you make the decision to sell your company, you need to think about what selling means to you. And you need to do this years in advance! There can never be enough preparation when it comes to selling your business. Figuring out your operations and finances, looking for any potential skeletons (risks) in your closet and all the other elements involved in getting a full and thorough valuation is vital for the sales process. Once you know what your company’s worth, you can start negotiating for things that might matter more to you than simple dollars—things like legacy, brand and reputation. When you are surprised by a sale or suddenly reach your point of fatigue and decide to sell in a single moment, you are more than likely leaving money on the table and not securing your company’s future. Prepare for this by starting your due diligence now so you can be ready for whatever comes at you. Pivot, Pivot, Pivot When you reach rock bottom, all you can do is rebuild—or sell. When Larry’s company ran out of clients and revenue, he decided to pivot his business. He stayed in his industry, but changed his market focus. In doing this, Larry’s business was able to recover and start churning out a profit again. Larry had plenty of cash to help him with this pivot, so avoided bankruptcy claims or the need to seek outside investors. However, there are plenty of options available to a willing business owner when a pivot is required for sustainability and continuity. Don’t be afraid to rebuild yourself if you want to continue operating as a business. It’s important to read your market and stay abreast of current trends and demands. If you see your particular niche narrowing to the point where you’re not sure if you can continue as a going concern, do a market evaluation and figure out where a potential pivot is for your company. Takeaways: Make sure you have all your ducks in row when making an agreement with a client. Especially if it is a large client. Put the work in and make sure you cover yourself in the deal in case things go bad. Prepare your business for sale. No matter if you plan to sell in the short-term or long-term, if you do the prep work as you go, when it is time to sell, you are sitting on a valuable company. Trust your experience in the industry. Hire the right  partner who also gets the business and don’t put all your trust in a broker or some other business partner. You still have control over your business until the sell is final. Links and Resources: Gihgs Larry Anderson on LinkedIn Larry’s email About Larry: Larry Anderson is a business development and sales expert. He studied marketing at the State College of Florida-Manatee-Sarasota for a short time. He began his “accidental” career in entrepreneurship with his family’s industrial repair company in Minnesota. After growing the business and expanding to Wisconsin, Larry sold the business to his general manager.  He learned some tough business lessons in the process that he carried into his second endeavor. Larry focused on contract manufacturing. The company ran wildly successful for 10 years. When a major technology breakthrough decreased the demand for his product, Larry pivoted into automation. He stubbornly ran the business for another 8 years before selling to a larger and well-respected local company. He bounced between companies before settling into his most recent business. Gihgs.com embraces the online freelance market trend. “Gihgs.com is the new marketplace that helps trusted, independent talent (gihgsters) connect with flexible work (gihgs). We welcome you to join us; sign up today at www.gihgs.com as a gihgster to bid on available tasks/ jobs (gihgs) or post free gihgs as a customer and get work done!” — Larry Andersen