Show notes
What are the different aspects needed to grow a sustainable business that is transferable and valuable? Today's episode is all about planning a successful strategic exit plan when selling your business. Whether it be online, offline, or hybrid, how you lay the foundation for your business is the key to a smooth transaction even before you start the process of selling. We are talking with Ryan Tansom, a fellow podcaster, consultant, and successful business seller all about how he turned his sale into a springboard for helping others accomplish a great exit. Episode Highlights: How a strategic exit compare to a financial exit. Figure out how to align growth strategy with exit strategy in order to get what you want out of the deal while taking into account the financials, the company culture, and the potential legacy involved. When an offer comes to the table it is important to weigh all the variables. Think about any way that the buyer can do to add to his profitability. Show them all the things the things they can do and package it up for them. Network early and often with people who align their motives with yours. Make sure you know what the buyer's business continuity goals are. From knowing their goals you can come up with ways to fill their strategic plan. Understand the industry on both sides of the transaction so that you can design how the business can look for a strategic exit. Prepare early for the sale of a business so you don't get any nasty surprises during due diligence or negotiation. Ryan lays out the framework of a strategic sale. When strategic exits work and when they don't. Transcription Mark: Joe, how are you? Joe: I'm good, feeling old and tired but pretty good how about you? Mark: You are old and tired and I'm catching up quickly. Joe: But I'm not cold it's 63 in North Carolina today and you going to get snow this weekend right? Mark: Stop it, Stop it, by the time this episode airs it's going to be a beautiful year and I will no longer be recording episodes, I'll be outside enjoying it. Joe: Yes. I mean 36. Mark: Something like that, alright when we talks to people that want to sell their business, pretty common scenario, they're looking for a strategic exit or maybe they'll say, you know, we go to the whole valuation process and then they come back and then say "I've got a couple of companies of mine that might be really good fits to acquire the business right?" Nothing about strategic. I'm sure you get the pretty often on your side. Joe: Sure. Yes. Mark: Yeah, right. So strategic, how do you actually do them? Are they worth it? Do we actually get more money from them? That is the subject of today's interview. I sat down with Ryan Tansom. Ryan has his own podcast which we talk about a little bit, but he's got a really cool story, he and his dad were in business together in a traditional offline business. They are selling copiers and had all sorts of contracts there. And they went to the process of merging that company with another one. They first try to sell the company, and found out how difficult it was, then they spent some time retooling in and really planning their exit, and after they've retooled and planned their exit they were able to do a deal in just a few weeks. So his whole thing right now is to help people plan their exit and build value on the business at the same time, but I wanted to talk to him about how do you plan an exit if you want to do a strategic sale? Does that make sense? That you actually get more money from it and what are the chances that's going to happen? This is a fascinating conversation. Joe: Good. One thing that most people don't do, and that's plan their exit. They usually just wake up one day and decide, "I'm tired I want to sell the business I'm ready to move on, So you know I've talk to Ryan a number of times and I think He's life experience, what he went through with his business with his father trying to sell finding, it was difficult and then actually putting a plan together and deciding, when he executed that plan and he'd sold the business very quickly and I think to a strategic buyer. He learned a lot and he's sharing that with people now. So It's nice that he's got the first hand experience in the sharing with people and I think he does a really good job at it. Mark: Yeah, and so in this we're going to talk about what do you need to do to get strategic exit setup and not surprisingly, it's a lot of the same stuff you have to do if you're going to have a financial exit or a regular market type sale. Just take a little more upfront work and we talk about the chances of it actually happening. I also talk about how that it's not always the best thing. The very first business I sold went itself to a strategic exit. We ended going to a financial buyer because they actually got more money from it so we talk little about that as well. Well we get on into it because it's a lot good mini topics in this episode. Joe: Let's do it. Mark: Ryan, hey how are you? Ryan: Good Mark, how are you doing? Mark: Thanks for joining me. It's been a while since you and I met, well I think we're just talking about this a year and a half ago or something like at Caribou Coffee here in the Twin cities. Yeah you're local to me which I like. Ryan: I know we're local yet we're sitting here on video right? Mark: We should've done the very first podcast with [inaudible 0:03:58] and where he would have be like saddled up right next to me. Alright cool, well on our podcast we like to better a guest introduce him selves, probably because we're really lazy and don't like to do the upfront research but also because guest do a better job at introducing themselves. So could you introduce yourself a little bit to our listeners? What is your story, what's your background and why are we talking. Ryan: Yeah, I appreciate it, I'm glad to be on the show I'm usually the one doing the interviewing so this is actually a lot of fun. So Ryan Tansom, my Dad and I had a family business kind of a little bit of backdrop back in 2014 we end up selling it. He grew it from the ground up, bought a semi [inaudible 0:04:32] of copiers in the mid 90's and ended up growing a very substantial business that I think we've topped for about 20 million and a hundred employees, and I joined the firm full time in financial crisis, and it was pretty much lot of all hands on deck for the seven years I was there. It was.. We realized that company was not sellable because there's a private equity firm that was buying out platform companies in each marketplace, and we have the opportunity of potential to be one of those, and they passed on us so we spent pretty much in next 6 years, 7 years going. Okay what do we need to do to build a sellable business that either I buy it or we sell it to someone else we didn't really know what were options so we just roll up our sleeves and did a bunch of stuff. Build out the outsource, the IT. Remarketed ourselves, did a bunch of stuff, and then in 2014 ended up selling it to a local competitor here which the sale went very well financially, but we left a lot of money in the table from a lack of tax planning and some other deal structure that things we could done creatively, and then also we found out a strategic sale like that that there's a lot of redundancies, so I ended up having to fire a lot of my good friends, and family and the employees, so since then I've been in a mission to figure out how do you align your grow strategy with your exit strategies so that you will get what you want, regardless whether it's financial or you know, anything associated with your business that you know, whether it's legacy or culture, and stuff like that. Hopefully I sent too much but it's definitely the backdrop of why I'm doing what I'm doing. Mark: Alright so there's a lot that we can unpack here and we're going to have try to pick a branch and go with it, because I think there's a lot that we can unpack here. Business that you and your dad sold, this is more of a traditional offline business right? copier sales? Ryan: Yeah, where on we have15 sales representatives that were knocking on the doors and I wish we would have done something that would have been a hybrid, and we would have probably gone that direction, had we, continue grow on the business, but I think, you know, every offline businesses, which is what we were, has the opportunity to have the hybrid online stuff that a lot of that community that you're involved and I'm involved you know. Mark: Yeah, I think a lot of the online community is moving towards this more traditional business model, at least in the E-Com Space and you've seen it all. So in the and largest as company, because they do develop our staffs and in onboarding, customer service and all that. So similar to your stuff.. So I guess, let's talk first about the fact that you left money on the table, with your.. You spent six years trying to hammer the business industry, I think there's a discussion in there on it's own, like, how do you line your crawl strategies and your business strategies with an extra strategy, but I like to know a little more about the money on the table. A lot of times when we say people leave money on the table, that's because they have maximized the sale price of their business, but were there other areas where you've guys felt that you left money on the table? Ryan: You know, I think yeah, there's a lot of different variables in this, and you know, I've got a Podcast too. I've interviewed lots of entrepreneurs that have soul and I've tried to unpack this exact topic as well and there's the "Hey there's a price so I might want to give you 2 million dollars for your business" it doesn't mean that you're getting 2 million bucks because you're paying taxes, so there's the whole deal structure whether it's asset sales or stock sales, or how the deal structured from earn outs, from an SBA loan financing, whatever it is, you know, when someone starts courting you, whatever dollar amount is thrown out, there's a lot after the fact than what actually comes in your bank account. So whether that's a tax planning, the deal structure, you know, escrow all that kind of stuff, and then there's the maximize the value of the business, so there's kind of, two different key components to it. Mark: Yeah and I think, just by way of example, within online businesses, say that your [inaudible 0:08:10] corp, and somebody wants to buy your business for 5 million dollars. Great, and they're getting an SBA loan and everything looks good, but then you get to it and at the end of your purchase agreement there's this asset allocation agreement that's to how is this been allocated tax wise, and the buyer says "Well, we want to pay, out of 5 million, we want 1 million to be your salary for the next 2 years for consulting, that's part of the purchase price" well now that comes at ordinary income tax, cruise up your whole tax, percent tax situation.. Ryan: Because you know [inaudible 0:08:41]? Mark: Yeah, how much are you getting from that point, and you're from, for buyers trying to relegate towards income, makes sense because they can learn it off in a way, because they were going towards assets, it's a long period of times that they can make that of. So, there's a lot of, like you said there's a lot more complexities there, in terms of the deal structure. So let's talk about maximizing the value, the dollar amount. Did you feel like you guys left some money on the table with that? Ryan: No, actually we did as much as we could of, because our business naturally.. I got it appearing to what is the, honestly the best kind of business because we had contracts, that were locked in with reoccurring revenue, backed by bank financing, we've bundled them with maintenance, so like, if you want to buy, manage IT services with.. You know, bundle them with servers, firewalls, maintenance, copiers. I mean you'd be bundled in finances and then, it'll be 60 months typically and it'll be in.. It's as good as a mortgage, so when you're looking at what we did and what our industry.. It wasn't something that we were like geniuses or anything, either the whole industry, I've been gone that way and I think the whole industry was built of greedy sales people. In reality it was good as mortgages because you can't cancel. So, it didn't really matter when you think about a strategic sale like that, the relationships of the sales people, the admin, all the infrastructure was redundant. Because we can literally just take a bunch of paperwork and give it to someone else. And so what you're mitigating less on the sale on like the, EBITDA, multiples, because the cash flow is not the situation, it is your Han dinging over contracts. So I don't think there's anything we could have particularly done on that aspect to maximize the sale of the business, but the industry itself taught me, what, "we got lucky, is pretty much what it came to" versus "we could always use other business, where it might be, a 50 million dollar consulting company and there's nothing to sell besides a bunch of people". So, I realized, after the facts that we got lucky and there's a lot of other ways to maximize the value of the business from the strategic operational side of it. And then it comes down to, we sold a couple of branches prior to selling the corporate headquarters, so the first time we sold our branch we got about half the price because we didn't have preliminary due diligence done, they didn't trust us, we couldn't get the right documents and all these different things so there was technical stuff on that aspect that we, by that time we ended up selling, we knew what questions are coming at us and why. Mark: How did that impact the price the second time around? Ryan: Second time around when we ended up settled… I mean we closed in 2 weeks. Mark: I know how. Ryan: Very substantial sale so average closing is, either we talk in months and months and months, either because, we came there with a package and said this is exactly what we have, here's our profitability, here's where every single dime goes in and out of the business, here's why, here's our, I mean employee contracts, customer contracts, lender contracts. I mean everything was just ready, versus the first time and we knew it was like, we're bumbling idiots. Didn't have any clue what they're asking and why. Mark: Yeah, we've created a very simple paradigm at Quiet Light Brokerage that we call the 4 pillars of value and that is, look at the risk of your business, the growth opportunities, how transferable it is and the last one would be in documentation. Now I think sometimes people take that documentation that light as to.. Well, it may not really make that much of a difference on the value of the business, it's just going to make it easier, actually makes a difference in the value of the business too. Ryan: 100% yup, I got people that I know, that I've interviewed and talked to, where their value actually went up by 30% because.. But with a click of a button, especially by drop box these days and software where you can, "Hey here's everything" A – you can get more buyers at the table quickly, if you can do that instead of having threads through all these documents, but, you end up as the seller end up guiding the process more than the buyers. Because in the marketplace 90.. No, plus % the time the buyers are coming in there and they're going to find every reason to discount that companies so they can make in return. Mark: Right! and on top of that it's risk right? So a buyer takes a little good in business with poor documentation, and they don't know what they don't know. And so they see that as being risky and they will discount an account for that risk as well on the purchase price, and you don't have your stuff together, you can't defend against it. Alright let's talk about strategic sales. Because you guys did a strategic sales and this is something that I find a lot of questions on. First let's talk about what was the difference between a strategic and a marketplace sale in your realm. Ryan: So it's my world it's every world right? So a strategic sale realm, let's start with the financial sale. The financial sale whether it's an ecommerce business or if it's a traditional business or whatever it is, someone's looking for a cash flow. What's transferable cash flow? So if I want to buy Quiet Light, if you guys are dropping a half a million bucks to the bottom line or whatever it is, I want to.. How transferable is that? So that's where the multiple EBITDA comes from. So, if I can buy that chas flow without having any risk that it's going to decline, and you apply a multiple which is how many years, what's my rate of return that I want, 3 years, 5 years, whatever it is, and the more transferable that is the higher the multiple goes up. So, I mean someone that's looking for cash flow as a lifestyle buyer, a private equity buyer, I would say that there's also strategic financial buyers which is someone that understands MNH extremely well and knows how to do this, that's kind of like a hybrid. So they're looking for cash flow and they're applying a rate of return based on the risk of the business and the asset. Then you and this strategic sale which I think is one of the funniest ones because every business owner, every entrepreneur that I sit down in front of, or I talk to, you know your business, you're intrigued better than anybody else out there, right? So you know who you'd partner with, where they collaborations with you, all these different things, and I don't want to say the multiples even they go out the window, but it's more of how fast, in terms of, if thinking of rate of return from 3 years to 5 years, or wherever the buying might be, and the rate of return is, how fast can we pay for that? So regardless of the EBITDA, now you're saying "okay well, are there complimentary products and services? Is there a cross pollination between customer list" Is there horizontal ways, there are vertical ways you guys can expand, and if you can think about everything in the terms of the buyer, the strategic buyer and what they would do with your business, you can literally model it out for them, how fast they can pay you for your company. Mark: Yeah, so this is great. I want to talk about this because we get this question, wow goodness, probably one out of every four or five people that contact us to sell. One of the very first things that they say is "Well I have a few companies of mine that might be a good fit for us" and they're thinking it in terms of that like strategic sale, they think it's going to be much more valuable to them and there is some truth to this the webhosting industry it's a classic example, webhosting, at the very first I sold working with Quiet Light Brokerage, first started Quiet Light Brokerage was a webhosting company, and webhosting company has a tons of roles because it has a bunch of user accounts that is on our servers and it's very easy to migrate that user accounts over to another server, keep the packages the same as really just paste and transfer it **** sometime **** and a monthly contract so it's really really easy without transfer overall stuffs, so like you said all of the expense profile of those companies you do really care about that because if I me acquiring a company I already have those expense profiles. I know what to cost me to host for 500 clients, so it will become a client count. Now when you're talking about strategic sale, like I said, there is not only to redundancies which you dea'lt with, first hand, it sound like, in your sale redundancies where you have multiple sales people doing the same thing so you a lots of people go, but there is also the synergies of my crop up with one company that is a name in an industry right? Ryan: Right! And there's [inaudible 0:16:28]for us, it was, that we didn't sell telecom. It was the one thing in outsource, the IT in office technology that we didn't do, since okay, we got, you know, 2 or 3 thousand accounts, how many people can you sell telecom to? A lot, probably. So that is not guarantee in profit that they're going to make, but it makes a deal look better, you know, then you can make some basic assumptions or something like that, and then you know, cash or order discount on suppliers. We weren't taking advantage of that. So we start to think about any way. Going to that buyer and saying, here's all of the things that you can literally get packaging up for them, and you know, I think there's some people that you and I know in Rhodium, and why see that, the reason that they start on their family to start in the retail, wedding industry, they got online… well, weddings usually don't have repeat customers, you know there are couple every now and then. Mark: Hopefully not. Ryan: I usually do subscription services so, what are different ways that they can expand their products and services, because they have a crazy amount of volume that come through their doors every single year. Because they got a very good foothold in Minnesota here, but so it's their robes, it's their jewelry, it's there. Other things that they can sell them and they know the volume of their customers, so you know, yeah there's the sale or the purchase price and the profit but they're more looking at do I build it or I buy it? So they know how long it's going to take the opportunity cost of how long it's going to take to build it, screwing things up, all that kind of stuff. Mark: Right, alright so let's talk about how you would.. Let's say, we have a listener out there, they own a business and they're thinking, "I've really like a strategic sale just because my business is unique enough I think there will be enough benefit for maybe 3 or 4 companies that are sort of [inaudible 0:18:03]my industry. How would they want to go about preparing their business and thinking about that exit, a potential strategic sale. Ryan: That is a good question and I think you know this whole conundrum of exit planning and grow planning.. I believe that if entrepreneurs are running the business the way that they should and working on the business not in the business, and treating their business like an actual investment, then it is like, where are all the different options that I can sell to whenever and how fast can I [inaudible 0:18:29] so it's being ready no matter what. If you are in love and addicted to a girl then you're having a blast, great! But always be ready for industries that change, Google changes their algorithm, Facebook gets kind of a little bit a heat like they are right now, always preparing yourselves so that, the first and foremost is the due diligence, your docs, and knowing, and really cleaning up your financials because, if you can answer any kind of questions that even your friend would ask, the buyer is gone just, completely slam you down. So getting your house in order, the financials, and the due diligence is one thing, but then, thinking about, "Okay so these are going to be.. These five companies are companies that i can eventually sell to" Who are they and what, why and how will your decisions in the business affect where you're going. So for example if one of the companies is running and you know, he is an Amazon merchant or something or someone is running on Shopify, don't go build out a Magento, you know, spend 300 grand in Magento if someone that you're going to sell it to is doing Shopify. I mean, that's the same thing that we did. We spent 300 grand on an ERP's because 85% of the people on our industry had it. That's why we could close in 2 weeks. Knowing how you are spending the money and why in relationship to where you're going to sell, and again, so if you think about, if your service has complimentary service to just someone else. Don't go spent a bunch of money building out something that they have. Because you are not going to get a return so you're going to spend, your immediate cash flow, but then you're not going to get the attitude because they don't seem [inaudible 0:19:58] I think it's aligning where want to go and why and then also that strategic decisions that you are doing in between there. Mark: Yeah, alright I want actually bring a really basic level here, because the thing is important point to make special more talking about strategic sales. I think people get with the financial market sale where you take a look at the profitability of the company and you have Joe blow buyer come in who really isn't related to the industry. We all know that he wants to get return on that investment after 3 or 4 years, you'd see that investment come back in so it's pretty easy to apply a multiple. Sometimes when we're talking about strategic sales people come and go crazy and they start thinking, well, look at all the upside potential that is going to come about from this and so they start lowering their valuation expectations through the roof because sometimes strategic do get really high relative valuations of this realm to the financials, that said, I'm going to make a very basic statement here and I'm sure you'd agree. Strategic still need to see an ROI, right? They still need to see a return of investment. Yeah so, what you're saying is when you're building out your company, when you're really planning that exit and working on the company, think about the ROI that the potential buyer is going to have and don't build something that's going to super expensive for them to migrate it over, right? Ryan: Right and it's like, so how we went about it is, I want to know this business, I want to know why they should buy this business more than anybody else. So like, I want to know everything about their business, I want to know exactly what their marketing strategy is, what their profitability strategy is, I want to know their strategy just as well as they do, whether you can or not. Because then you can show exactly how you fill their strategic plan, based on what they're buying. Mark: Right, so let's talk about modeling a little bit. When you're talking about strategic sale in your case with your dad in your business, [inaudible 0:21:41] done in season staff and so, when you're looking at presenting the financial picture to potential acquiring company, how did you go about that? How did you pitch it as far as the ROI? Ryan: So, I had like literally our entire.. I mean we have cash list statement and we learned a lot first time, right? So I knew every single penny that went in our business and why, so we did some serious cash flow modeling so we had our whole P&L, and then we had the forecast of what was going on to the sales and the cost of goods, our profitability, and I hacked a bunch of stuff through it, and I said okay, and I buy GL code Mark.. Mark: Wow Ryan: We did a.. Yeah, I know. Because there's the, in the financial buy, there's the add backs, right? So, a hundred grand might be 300 grand on the value, whether it's being added to the value or not. So, usually in the financial buys, you want to take that off to increase your EBITDA, so that way it's applied to the multiple. But in this system the same thing were [inaudible 0:22:41] you don't need these people, you don't need these servers, you don't need these things because you already have them. So, that is all dropping to the bottom line which will then help them calculate the ROI's so, we just looked on them and say okay, here's how much of the expenses you can take out of this, with these assumptions and then move back and forth, you said, what we actually need these people, we need these things, and then you're just negotiating back and forth but it was not more in the add backs, it's more of understanding the redundancies and the strategic value behind this. So it's a similar exercise but, you know, and now comes actually kind of the same but it's more specifically to operations. Mark: Well on the key pieces I think, needs to be understood is you need to understand the industry and the business itself. We work for the financial, forex leads site, this was several years ago. And they were getting lots of leads that they were selling and they wanted to arrange a strategic sale to a forex broker. Because they knew that they were jittering these leads and so that the equation really became okay. We know how much we're getting paid out on their [inaudible 0:23:43] basis for these leads. But as a forex broker, here's where the dollar amount for the valid leads are, and now we can start modeling our what does this look like, how much revenue is this site really making, from a forex broker's standpoint and then the other value proposition there. Ryan: Yeah it's literally of about knowing both of the businesses and the industry as well as you possibly can. So you can just design exactly how it looks. And then you backing up numbers, you know, I'm just kind of making some other things up but like, you and I have talked and I think that was when you were on my show, we're talking about the hybrid of the online versus offline and so, if someone has literally the best data ever on their drip marketing, their automation in their online marketing and knows exactly the entire cost of acquisition of one wheel, and whether it's Facebook ads or Google ads, all of what the email mark and you say "here's how much all this stuff cost," they can go in and if you're going to [inaudible 0:24:38] and sink that up with an offline business, like there's some huge power there because you know that they're not doing that potentially. So you can, there's just so many different ways to design that I guess. That's kind of the fun part. Mark: Yeah and the nice thing about strategic is that there's really, you have the ability to blow a traditional valuation out of the water, right? That's one of the big advantages. Transitions can also be a little bit easier because they already know the industry and so you don't run saying "here's how you do this little process that you should probably know anyways" it's a little easier to transition. When I talk to people about doing strategic, so I often tell them that I don't think it's a good idea for them. And the reason I say that is mainly because they're difficult to do if you haven't been preparing. How long do you think it takes to really prepare business for a strategic? Ryan: So I think maybe I'll go back with remarkable steps which is what's the order of operations I think you should do to do this correctly, right? So kind of the assumptions to repeat is beat your foundation setup, build your financials, build healthy business from recurring revenue, the clarity of all these different things, making sure you don't have a bunch of concentration in one client, all the typical ways of de-risking your business and if you're striving to make a healthy business like that then you'll have lots of options. So at the bare minimum, you should be able to sell to a financial buyer, so then called to 3 to 5 times multiple EBITDA. So you know that, financially going okay, if it's 200 grand, I know that I'm going to be getting 600 or a million. Whenever it might be, right? So I know that's how or that's my target. But with a strategic sale, you could completely blow it out of the water, but that's kind of like hunting. It's hunting for unicorns or really specific synergies so you mention 5 people, that's fantastic but, what if they don't want it? What if they're struggling? What if they don't have the money? Don't have the ability to get banked? All those different things. Those are things that you don't know and yes you should work towards them so I think, to answer your question, I don't know but really helps with that, it's like, we knew our buyer. Like half of our employees has hog back and forth, you know, we're in the same industry trade associations so, I actually had taught the woman I interviewed yesterday at my show, she would have spent 2-3 years building and fostering those relationships, so those people could have been at the table. She didn't do that, so this is more of a relationship building, going in Rhodium Weekend, going to the YC Events, going to [inaudible 0:27:00] all these different things where people build relationships. And then what ends up happening is, I [inaudible 0:27:06] the bar over a napkin, and then you're back in the stuff. Mark: Yeah absolutely, that's actually normal when I [inaudible 0:27:13] people that want to do strategic is, if you want to know strategic, 2 or 3 years down the road, contact the companies now and don't say "Hey I want to sell to you" just contact and do that real networking stuff and get out there. Once they've become aware of your company, and you start to learn each other's companies, then you can sort of see that conversation for down the road. Ryan: And then you get out on their radar, right? Because you're not on their radar otherwise. So, there was actually a really interesting story that I heard Mark from one of the guys I interviewed in my Podcast, where he was at a trade association, he started talking one of the base competitors and he goes "Why don't you buy me?" and that's how he started and they started, you know, BS and then it went around and then the guy has said "You know what? Let's have a [inaudible 0:28:00] every 6 months call to see how you're doing" and these people literally told him exactly what to do, so they could buy him. Mark: That's great. Ryan: That was super unique, right? His name is Norm Brodsky, he wrote Street Smarts and he was a part of the small giants book, so he's on the cover of [inaudible 0:28:16] and a lot of exposure but like, I think the concept is very unique, because if you wanted to buy my business, why don't you just keep telling me what to do, and if everything works, I mean, like I said it's kind of a shooting for the starts, but I mean, you got really nothing to lose at that point especially if you don't need to sell. Mark: Yeah alright. So you said a couple of things a while ago, I think is a good foundation I have and this is a general advise, and feel free to disagree with it if you disagree with any of the advice that I typically give people and respect them on this. With strategic, yeah you can get the out of the water valuation sometimes. But it all starts with first making their business safe, financially viable business and in someone that you can sell in a financial market. You are dealing few buyers, this is probably the biggest obstacle to a strategic sale, you might have half a dozen companies that can potentially acquire a business and the sake people make is they went in and say "I want to sell my business" then they called ABC company and ABC company's saying "Yeah we don't have a million dollars" or "You were not in our annual budget this year" or "Acquisitions were not in our plan for this year". Ryan: Right, I'd pause you there for a second. They may have the money, but like, everybody's busy, right? So what if they're developing their own software or doing something else, they might just not have the physical time to integrate the two companies. Mark: Right. Yeah absolutely. So you need to have that relationship in place and it has to make sense as being a natural evolution. Kind of like a marriage, right? I mean.. Ryan: Yeah, totally. I mean, you're partnering up with someone. Mark: Yeah, and last thing I would say is, take a look to see if actually does make sense. That first company that is sold, in the webhosting space, I could've sold that very easily in a strategic sale, because there was so many strategic happening, we did a financial sale because we knew we're going to get more money. So, where you can often blow the top of the valuation with this strategic, it doesn't always happen that way. Sometimes financial actually does work a little bit better. Kind of a weird, odd case. Ryan: Sorry you're.. Mark: No, go ahead please. Ryan: I think the one thing to that people really need to think about, because you might blow the valuation off the charts, but I tell you what Mark, the reason why I do what I do now is because we got the financial target that we wanted to hit, I literally had to fire 60 of my friends and family. So if your culture in your employees and the clients.. You have to understand what's important here because in a strategic sale redundancies are huge. So, how will you stomached that afterwards? Like going and calling all of our employees in, they was way at 85 or something like that at that time and they only kept [inaudible 0:30:47] I mean like, that's literally the stomached ache. Are you going to be proud and happy about what you build? Is it just a financial target that's fine and you have people dispersed across the US and there's a lot of VA's and you're not orally loyal to them or if there's people that you care about, like they are role playing that strategic sale I think is extremely important so you can calibrate against all your options. Mark: That's a really, really good point. So what do you do now? What are you doing these days? after the sale, of course. Ryan: So other than being in the Podcast just like yourself, so, we have a company called GEXP Collaborative, so, it's Growth and Exit Planning collaborative, that's what it's stands for, and it took a lot of time, over the last for years.. Exit planning I think there's some negative [inaudible 0:31:33] to it because you might not want to sell right now, but it's literally both having a good business. So we combined the two which is growth and extra planning because it's like, we're talking about what are your plans and then how do you back in to all your strategic plans, they sell where you're trying to go with you options and I found some amazing people in the industry that have different disciplines because you got legal, finance, the front insurance, deal structures, you have the business brokers, you got all these people, and they all play a roll, and how do you back into that plan? So, if you kind of think, we're almost like a building, If you start a building you start with the budget and a blueprint, because you can't build a building without either of those, so the budget is your financial targets, where you want to go and why, so is there debt, net, the amount that you need or cash [inaudible 0:32:22] and what's the blueprint. So what are the five different strategic buyers and then you got the six financial purchase, timing, role, responsibility, and you're back and do it, so you can then hire the team [inaudible 0:32:34] so the growth next to planning that we do with the collaborative team is literally building the budget and a blueprint, and then actually coordinating the team like a general contractor because no one person can do all this stuff. I've been doing it non-stop day and day of four years, and I still couldn't single hand lay out to someone. Mark: Yeah, there's a lot involved with that.. now if somebody is listening to this, one of the misconception running to all the time, with clients that come to us and say I want to sell, I'm not really ready because I did not plan ahead maybe should've talked to somebody 2 or 3 years ago. We try to get people to talk to us, the brokers, a few years in advance. For you, you're focusing again on that growth as well so even if somebody isn't ever planning to sell, it still makes sense to talk about that growth. Ryan: Because the reality is you're going to do the best of your business at some point. I mean, there's people, like I work within this, the baby boomers, well they're going to die in your business but then what you're doing is you're working on the shares and the estate planning and dispersing the shares to employees, and to kids, and do trust, so he's going to sell his company, and you know what, he loves it, great! But then there's, build a business that has value and has cash flow and you de-risks then you can literally do whatever you want whenever you want. So yeah you're right it's coming ahead of time but then also knowing the people like you and building these relationships, you can't do this at the last second, you're going to leave money on the table, you're not going to be as happy with terms and conditions and so many times Mark, and I don't know if you see this, but a lot of people that are out there, and the people that are in aggressive growth path, they're all acquiring company so the out of the blue offers happen all the time. So whether it's PE firms or funds or other strategic buyers, and how do you know what to weigh that against if you don't have a plan? So you don't even know like how much I'm going to get? What terms? I mean, you're thinking on the fly and that usually doesn't go as well.. Mark: Right! The number of time I've heard from clients, get in to this process and say, "Man, I really wish I've contacted you a year ago" I mean it happens all the time, no one ever thinks about selling their business until they actually want to sell their business and I think what's really cool about what you're doing is you're focusing again not just the exit, you're focusing on growth. Because a good growth strategy is a good exit strategy they often go hand in hand. Ryan: You're back can do it. You know, I just have a little plug for you guys too, because we do not do what you do, and I think a lot of entrepreneurs, they really think, because they understand their business so well that they can sell their business by themselves, and "Oh my gosh" it's the first time you're going to do it and why.. Like every one of those professional should pay for themselves, it should be your return of investment, what to spend, because you know it's an emotional roller coaster first of all and it's like a 24/7 fire drill while you are in the process which is what your team does, right? so I think all the people, if you have the right advisors, and that's another reason left a lot of money on the table, is you need to have the right advisers. I mean it wasn't people that do it all they want, they do transactions, they understand the market, your industry, and so having the right team is crazy important. Mark: Yeah, alright could you plug as well if anyone listen to this and enjoys the Quiet Light podcasts, and hopefully you do if you've listened this long, Ryan's Podcast talks a lot about the same stuff, you talk a lot about selling, you talked to a lot of entrepreneur's who has sold their businesses before, and you go over a lot of the same material, but with a little bit of a difference spinned to it, really, really high quality content and another one, what was name of the Podcast where can they find it? Ryan: "Life after Business" Mark: Life after Business. Awesome! So we will link to it in the show notes on our Podcast page, we'll also link over the Ryan's website, and Ryan, anything else that you want us to link or to want to draw attention to, please feel free. Ryan: We got a resources tab just like you, you're my model right? So I guess I said year and a half ago, you put me in the right direction with the presence that I wanted online, so we got white papers, and resources and Podcasts and all that kind of stuff so. Mark: Awesome, so definitely check at his site and feel free to reach out to him, if you just want to talk, he's a good guy to talk to. You know I can talk all day about this stuff and someday we probably will. Thanks for coming I really appreciate it. Ryan: Yeah, had a blast Mark, Thanks! Mark: Alright. Links and Resources: www.gexpcollaborative.com Ryan's website Life after Business Podcast Ryan's podcast link