Podcast: Could Your Business Survive a Recession? Scott Schwefel Talks About Rebuilding After Crisis
What you need to be prepared to do to survive a major economic crisis and still come out on top.
About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
A serial entrepreneur, Scott founded and grew Minnesota’s largest technology training company to over $12 million in sales, and then sold the company in 2003. His company was named one of the 50 fastest-growing private companies in Minnesota in 1997 and 1998, and he was named to Minnesota’s 40 under 40 list of successful top executives. Scott then founded and grew Insights Twin Cities to over $3 million in sales and sold it to Insights in Scotland in 2014.
For over a decade Scott Schwefel has been speaking and teaching new communication strategies to companies and associations globally. He has presented in Paris, London, Amsterdam, Geneva and Shanghai and Kuwait, and he has also trained and coached over 1500 CEOs personally. He is a published author, has lived remotely with the Hadza and Maasai tribes in Tanzania, Africa and is a top-rated speaker for Vistage (More on Vistage), the largest membership organization of CEOs in the world.
If you listen, you will learn:
- Scott’s early days in college, and a change in career.
- The Pro Net Marketing experience and what it taught Scott.
- The importance of having a good spouse who will support your entrepreneurial dreams.
- Scott’s time in the food industry and what he learned.
- What it is like working with a venture capital investor.
- The mistakes Scott and his partner made in the food business.
- How to measure the value of a business when there was no profit.
- The beginning of Benchmark.
- Why Scott chose to go into a tech business.
- Knowing your team and the role you play within it.
- The 2000 tech crash and how Scott bounced back.
- How the Discovery method changed how Scott does business.
- How Scott rebuilt Benchmark.
- What Discovery can do for your business.
- What Discovery can’t do for your business.
- How to build a company that doesn’t need you.
- Why Scott loves what he does.
- The benefits of CEO peer groups.
- Scott’s advice for the audience.
Announcer: Welcome to Life After Business, the podcast where your host, Ryan Tansom, brings you all the information you need to exit your company and explore what life can be like on the other side.
Ryan Tansom: Welcome back to the Life After Business podcast. This is episode 106. Today's guest's name is Scott Schwefel and he has a laundry list of accomplishments, bumps, bruises, wisdom and stories to tell us today. Today, currently Scott owns a company called Discover Yourself where he teaches coaches, CEOs and senior executives and sales leadership and team performance. He is a missionary and advocate of Discovery Insights, which is a personality profile test that helps culturing companies align their leadership, their communication styles and their delivery within their company, but Scott just didn't land at this spot where he is unbelievably passionate about coaching and training and leadership his way and his journey to getting here is one heck of a story. He started as an entrepreneurship career when he started a company that did not end the way he wanted it to, so he decided to form and create the company called Benchmark Learning, which is one of Minnesota's top technology training companies, and he eventually grew that company into the eight figures and was looking at potentially selling, trying to figure out what's going on in the marketplace when the financial crisis hit, and that he took it a humongous head to his sales and his entire operations, so he had to start bootstrapping it back up to grow it. Eventually ended up acquiring one of his largest competitors to become the biggest company in the technology training business, and then he eventually ended up selling that so he could follow his passion and do what he always wanted to do, and he was more than honest about all the trials and tribulations that he had in multiple companies to get him to the point of where he's passionate and doing what he loves. Tons of gold nuggets and lots of wisdom that Scott was very open to share. So I really hope you enjoy this episode with Scott.
Announcer: This episode of Life After Business is sponsored by GEXP Collaborative. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your time frame to the buyer of your choice at the price you want.
Ryan Tansom: Morning Scott, how you doing?
Scott Schwefel: Excellent. I'm doing fine, Ryan.
Ryan Tansom: I'm looking forward to having you on the show. You and I, uh, met six plus years ago when I was actually in our family business. I saw you present to our Vistage group and you're doing some really, really fun things these days with Discovery Insights in a bunch of cool stuff that we will eventually get to. But you have had some of your own journey. Is that, um, I was excited to get the full scoop behind the scenes. But you know, for the listeners that aren't too familiar with you and you've even done a Ted Talk for the, for the people that haven't seen or been exposed to you maybe bring us back to the day that you accidentally or decided or however you got into the journey as an entrepreneur.
Scott Schwefel: Well, I tell you what, it actually goes back to becoming a failed mechanical engineer. So when I had done initially is going to the University of Minnesota thinking mechanical engineering was a future for me. Uh, I got a job, an internship after about two-and-a-half years of school at Honeywell and I just within a couple of weeks thought this is not the kind of work I see myself doing. And then right when I was starting to question that, a friend of mine called me up, we went to work for IBM and he said, "what are you doing in Honeywell? You're not an engineer." He said, uh, let's, let's get a business started on the side. And it was a marketing company back in the day, direct sales. But the whole idea of being pushed into that and recognizing that I didn't necessarily have to go to work for somebody but could launch something on my own and be my own boss and of course as you know, work three times as hard for the opportunity not to be told what to do. I just became hooked on it. We, we ran, we tried that business together for about two-and-a-half years. It was called ProNet Marketing. We merged it with a couple other guys here in town. Um, and ultimately that business went bankrupt, which was a brilliant learning curve for me because I've learned a lot of stuff and a lot of it I'll share with you as it comes up, but a lot more from my failures, which that absolutely was. But from those failures I really got a sense of, you know, what's it going to take the next time around to try and grow a business. And I've done it in a number of different variations since then.
Ryan Tansom: So maybe we can kind of just walk through the, the, the journeys that you've taken and you know, sharing your lessons with people. So curious what, so how did that go bankrupt and what did you guys do that led to that and then what did, how did you bridge into the next venture?
Scott Schwefel: So the, uh, the initial model was it was a direct marketing company with a focus on sort of healthcare products with vitamins and signing up people that would sign up. Other folks, great company, legit company. What we did is get real excited about signing up a lot of additional distributors but didn't do a good job helping distributors continue from that point forward to do what we were doing. And at the same time we ended up finding somebody that was better capitalized who literally was doing the same thing, representing the same company. So we merged our two companies together, moved into offices together and then got a little carried away with how we expanded and how we chose to market. So the idea for selling health products got expanded into trying to sell them to professional athletes. So part of what happened is the, uh, the partner that we were with began to sign up professional athletes within this concepts of this program and we ended up investing so much money in the marketing and setup of everyone that we ran out of money operationally and just filed bankruptcy for that company two-and-a-half years later.
Ryan Tansom: And that was after you guys merged?
Scott Schwefel: Yeah.
Ryan Tansom: So what did that teach you and then how did you, did you just pick yourself right back up and jump into another venture or what was the? I mean you had to have had a little bit of, um, a little bit of shell shock.
Scott Schwefel: Uh, there was a little bit of shell shock for me, but that was the beginning of what I think is the absolute most valuable understanding for any entrepreneur to have. Um, and as a friend of mine coined it way back when, when I was a member of Vistage, cash is king. Day and night, cash is king. Would that got translated to for me was, you know, profit is like blood. You can lose blood for awhile and you're going to be okay. Cash is like oxygen and when you're out of oxygen, you're in a bad place. Because there's just a point where you can't go chase it down sometimes.
Ryan Tansom: Those are extremely valuable notes right there. Because... So how did, how did you set up your second venture and how did you, I mean, after you take that away, where did you kind of have some reservations about continuing this whole entrepreneurship deal?
Scott Schwefel: You know, actually it was almost the reverse was true. Once I had a taste of it and realized I could be the guy waking up doing the work, um, and I didn't need to go to somebody else to do that. I got pretty excited about it. I knew I had to, I had to bounce back and actually took a position selling computers, which is actually what allowed me to sort of fund myself briefly. But literally within about a year-and-a-half, I had teamed up again with another individual and it was actually through a personal relationship. So a good personal friend of mine, we were having dinner one night and he was talking about the fact that it was in a month old food company. Again, completely unrelated to anything I'd ever done before, but the one common theme obviously is an entrepreneur getting into something, growing something and building something. But he was talking to me about the help he needed in sales and marketing and his expertise was in production. And so that night coming from a computer background, uh, at least much more so than he had, I was showing him how we could do things like create labels. Now if you think back, okay, today anybody can do this, but this is roughly 1989.
Scott Schwefel: It was a big deal to be able to do it. And when I did it for him, he, he left that night, came back a week later and showed me the printed up 10,000, the exact same label that I had produced. And I said to them that was never meant to be an actual production version. I'm showing you what could be done. And he said, well, we got all the right information in here, so I'm selling it with this label. And he said, you know what I needed, I need help with these kinds of things. And what he had done at the time is actually gone into business with the two guys that don't Bernatello's pizza, pretty well-known brand here in the Midwest. And he said, dumb, these guys are just. They just gave me the space in the plant and he said you could buy one of them out if you want to.
Scott Schwefel: And I said, you seriously? And he said, yeah. I said, if you want to buy in, buy in to a third of the company, I'll produce it. You make it. We got one more partner behind the scenes, more or less silent and but, but providing the facility, what do you think? And I sat down and talked to my by by the way, brand new wife of about three months and said, hey, I think I want to quit my day job jumping into this full time. Probably not gonna make any money for about a year. And she was doing real well working at Xerox at the time and said, you know what, go for it. Right? There's the other, there's lessen two of entrepreneur: unless you're single, if you're with somebody, they better support you do. Did she know about your pro net arguing? Oh yeah, absolutely. That was involved in that when I met her. So knowing I had a swing and a miss, uh, my wife Linda opted in and said, you know what, I can tell, I know it's what you want to do. I believe in you. Go for it. [Ryan interjects: That's pretty awesome.] So I jumped in and did that.
Ryan Tansom: So how did, how'd you valued the company? And especially if it's a pretty recent startup. So how did you have to finance it? What did you earn it over time or like how did you structure that three-way partnership and then what was the, some of the milestones and the progression of the company?
Scott Schwefel: Well, this'll give you a sense of my style. I'm very much an act now and resolve it, solve it, figure it out later because these three individuals had each just tossed five grand in a checking account, capitalize the initial business at 15 grand. Then went out and bought about 50 grand worth of equipment to get. Tina was my partner up and running. One of them said, if you just want to buy me out, just give me the five grand back. You throw it in and we're good. And I thought, five grand know that's not going to break any bank. Let's go try it. What was funny about that is the day that I did it, I went into the office with Tina and myself and a guy named Bud who owned the owned half of Burnetello's and um, I gave him the check and he took his out, showed handed over the checking account.
Scott Schwefel: Then he handed over a really sick Manila folder and my partner Tino, who's very much a street-smart, former professional athlete, looked at the folder and said, what's that? Bud said, these are your bills. Understand, I'd never been privy to any of this. Didn't see them, didn't know what was there. I like to Tino and said, you didn't know these were here, and Tino said, no, I thought you guys were paying all the bills, and Bud said, no, they're your bills. Here you go. So from my five grand, I quickly went through that folder and total up about $75,000 worth of initial investment. I looked at Tino and said, "I just gave Bud five grand so that I could take on one third of 75 grand in debt and we haven't sold a single thing." Now this is where the street smarts kicks in and I'm sure today it's a little more environmentally incorrect, but Tina was driving a big dark Lincoln continental.
Scott Schwefel: I'm in the passenger seat and I'm looking through the folder saying, I think we better figure out how to sell something because some of these bills look like they're a month overdue. Tino rolls the window down on my side of the car from the driver's seat, reaches into my lap, grabs the Manila folder, and at 65 miles-an-hour throws it out the window. I looked over at him and my eyes just bugged out and Tino had been a world class athlete, lived all over the world, grew up in Italy. I just looked at him like, what did you just do? And in a really calm voice, he just said to me, when you owe people money, they find you. And I thought, what did all I could think of is what did I just get myself into? That was day one.
Ryan Tansom: So how, what was the progression of. How long did you guys own the company? And you had mentioned as we were jumping on the call that there was some other parties that were involved as well, correct?
Scott Schwefel: Yep, absolutely. So that's day one. We knew we'd better go sell something and Tino was right by the way, the folks that we owed money to reached out to us as needed and we were able to make it. But as we began to grow, we began to sign up distributors on the Midwest mainly. Um, the first year we did about five or 600,000 in sales and then we went to a VC firm because we knew that we needed to build a bigger plant, uh, rather than just lease out the space where we had initially started. In fact, we started in the same small production facility out in Norwood, young America that Bernatello's pizza started in before they built their huge plant out in maple lake. And as we began to outgrow that and outgrow the ability to store there, uh, we came up with the concept of going out to get VC money because we thought we saw such a great opportunity to grow it. So we did and we, uh, the three of us were still equal partners and we went and raised a venture capital investment initially of $750,000. That was into a business barely doing that in sales by the way. And so with that investment, we all obviously became diluted. And, uh, in that venture firm had warrants to exercise another 350,000 if needed for, for greater equity. Um, which we didn't think we would need. So we built a plant, the plant was over a million dollars and working with Kraus Anderson back at the time. We had the excitement of throwing the shovels into the ground and literally being the first business in a, in a new industrial park. So we continue to grow the business. But as most entrepreneurs figure out, as you grow, you eat up cash, you know, and it's difficult to grow a business while at the same time generating enough cash to fund that actual growth.
Ryan Tansom: So yeah, going back to your cash is king and I'm curious, even before you kind of expand on that is: when the VC firm came in, how did you value it at that point? And then how did you guys restructure the three partnerships plus the poster new equity and capital that they contributed?
Scott Schwefel: Well, part of what happened and we knew they were much more in the driver's seat than we were just relative to the um, the timing of bringing in my company where we were looking for an investment greater than the revenue that we had been delivering. So it was actually less of a negotiation with them because at the time we knew it was an option we wanted to pursue, so we stepped back and said if we can get terms that we feel are favorable enough, we'll dive in and do this deal. And what happened is they weren't looking for controlling equity in the business and so what that initial $750,000 investment they came in, I think in the neighborhood of about 42, 43 percent and then the other three of us equally split the rest of 56 percent of the business so that the three of us could still maintain control with that investment. And uh, and that's how we launched. That's how we built the plant, but through the building of the plant. And then as we expanded, literally within just six or eight months, we recognized we needed more of the cash which enabled them to be able to exercise the warrants which took the VC firm to 52 percent.
Ryan Tansom: Got it. So can you, because I think this is super, super important when you're talking about cash and growth and how that all works and you know, explain. So what were you using the cash for and how, you know, was it, was it further investments in the plant and equipment and stuff like that in order to generate the profits in like how, how did, how did the actual structure of the warrants, how did you get, what was the kind of the terms and conditions that allowed them to do that?
Scott Schwefel: Well, one of the things that we initially did is, is, um, to estimate that that 750 would get us full and done built into the new production facility. Um, and we were a little off by then, but only maybe by 100, 150 grand. Where we really got into trouble is as we were out through this whole process of selling products and trying to understand, and again because of both of us were brand new to the, not just the grocery industry, but the restaurant industry, the vending industry, we were selling a product that was comparable to today's hot pocket, a higher quality, but it was literally called and we branded it under Tino's name, so it was Tino Latares Italian Panzerotti and that product itself, which was basically an inside out pizza could take so many different forms with so much different packaging. We found ourselves adding a skew based on a new customer that would want it about every week or two. So all of a sudden we were investing hundreds of thousands of dollars and we had the space to build unique products for all these different customers. So one of the big mistakes that we made early on was was not having a niche figured out. We either should've just been in restaurants or just been in deli or just been in the frozen. Every one of those is a whole different business model. And we went after about six of them at the same time. [Ryan interjects: Oh my gosh.] And so most of the cash was expended in, in buying a raw ingredients and building up that inventory and then selling only a portion of each one of those. So all of a sudden we literally had to add another freezer into a plant which was fairly new.
Ryan Tansom: So then what was the VC's opinion on how you were handling this? And then with them going to controlling, interested, they jump right in and then actually start like managing the day-to-day stuff?
Scott Schwefel: They never actually tried to get involved themselves in managing the day-to-day. But what they actually did is in a belief to help us grow, bring in some expertise in the form of a new CEO. And at the time it was a gentleman who's no longer with us, but he was the former CFO of Supervalu. [Ryan interjects: Oh my gosh.] So then, and again, one of our partners was silent, so it was Tino, myself and John was the individual that would sit down and now the three of us will put our heads together trying to understand, um, oh, of all these six or eight areas that we're going after, what made the most sense? And obviously John came at this with an expertise coming from an understanding of distribution within Supervalu, um, which again, once you get into this, you start to recognize that you don't simply make a product, up-charge it and then take it into a retail grocery outlet. There's so many layers of distribution along the way in so much additional cost along the way, we were kind of shocked because it was. I mean, every time we got an order we found out a new level of expense we didn't realize was there. It was really one of the, it was like trying to repair a car engine at 60 miles-an-hour.
Ryan Tansom: That net profit of your blood as you call it. And it was not as thick as you thought, Huh?
Scott Schwefel: Oh my God, not at all. Not at all, and I mean that was a great learning curve just to see all the things involved in running a business and understand that like being the entrepreneur, you've got to have a handle on everything. You can't just, you can't just bring a CFO in and trust the numbers are handled there without understanding the numbers yourself. You can't bring in a production manager without having some sense of what's that role look like and who we need in that position. Um, so many different moving parts.
Ryan Tansom: Well it's tough because you want to, you want to just trust completely in the people that you build in your team. But then you realize that there's no way to vet out whether it's actually going the way it should or not.
Scott Schwefel: It is tricky, you know, and I know there's different schools of thought, find experts and put those experts in charge. But my experience has been and, and have an idea of what success would look like because that's your job as a manager is leaning over their shoulder to make sure that they are doing all the things they're supposed to be doing.
Ryan Tansom: So what did, what did the, what was the VC's intention with the million bucks or whatever that plus that they put into the firm was it, was it they wanted to liquidate and sell that at some point and walk away and like what, where were, where did their intentions line up with what you and your partners were trying to build?
Scott Schwefel: Well, their attention, you know, kind of as stated when we started was to look to a three to five year exit so that they could sell it along with what we were doing. That was the goal. So the investment in the new plant, the ability to ramp up production and then in the food industry as you as I'm sure you know, uh, acquisitions are just rampant, right? Again, and one of the hardest things to get is actually just a USDA-approved production facility. So we put a lot of time and effort into that and we had a bunch of different product lines that we're up and running and it. And it appeared to be a business positioned fairly well to continue to grow up to a point to sell it for some more significant equity. But what happened is that a contact within Schwans and uh, uh, which led to the decision, right, as a majority shareholder to sell the business. And in that case a Schwans was the buyer and which ones wanted more than even the product lines was the facility. So, uh, at that point, if, if, if we still had controlling interest, we would not have sold because in our minds it was premature.
Ryan Tansom: Premature from a valuation standpoint or based on what you guys wanted to accomplish in the industry?
Scott Schwefel: The value of what we thought we could accomplish, but also the fact that, that we were getting traction in, I mean, our sales were over a million dollars. We were getting traction all over the Midwest and starting to build, um, uh, the beginning of a building of a brand name for ourselves and felt like we're going to hit that point and have that momentum drive product sales. Now with the production capacity to deliver it and Schwans valued the company, not so much on that brand promise, but on the production facility itself.
Ryan Tansom: So how do you know? So with the, with the majority controlling shares that they, was it a certain dollar amount that is, you know, what we get our money back plus some and now we're good and we just kind of want to get rid of this and do something different or what was the... I mean...
Scott Schwefel: There was one more level of equity investment, which again, there may... they made by choice, um, which is how we got so diluted at the time at that final acquisition. But again, you know, it was three years in total. Learned more about a business, running a business, running financials, understanding financials, understanding customers and distribution and operations. Uh, and that experience was invaluable.
Ryan Tansom: So it's, it's, I totally can see that in. I'm, what I find fascinating is that you were actually building that to sell it. I mean, so how, how did that whole as you kind of unwound and ended up selling, did you stick around because you've got so many different ventures as well? What was the intentions and how did that building to sell? How were you measuring value creation? Was it a profit, you know, multiple EBITDA, or was there a certain thing, value drivers within that industry that you're marching towards? I'm just kind of curious because so many people don't do that with intentionality.
Scott Schwefel: Well, and, and um, because the investment initially was, was making that venture investment for the purpose of funding growth. The intent wasn't devalued a business then based on profitability. It was based on potential and it was two things, right? It was the brand and the shelf space that we had out there which was just beginning to add its value. And then the actual production facility which was turnkey rather than somebody spend a year-and-a-half, like we did building it and getting everything approved, which was really quite a process. It was just taken over, turn the key, walk in the door and start producing anything you want. Which was the majority of the value in the business at that time. If we could have run it for another two or three years, I think that brand promise would have, would have eclipsed the value of the production facility.
Ryan Tansom: So what... did you stick around after this sold to Schwans or what was your role before and during the exit?
Scott Schwefel: Uh, we, we both stuck around and signed on for some agreements that bound Tino as the sort of the founder of the brand for longer than I did and just took a, a regional sales manager role. But literally I was just there for about two months knowing that that was just to get the deal done so that I could start something else.
Ryan Tansom: Did you already have that something else in mind?
Scott Schwefel: I knew it was going to be back in technology, something tied to technology and computers because I had always enjoyed that. I'm not a, I'm not a cook, I'm not a chef like Tino, you know, so there, there wasn't a desire to be in that type of business. It was just this sudden opportunity to own a business. That's what brought me in. So then after I had that experience, I stepped back and said, okay, now that I know what it means to own a business, what's the type of business I want to own?
Ryan Tansom: So how did you make the determination, then?
Scott Schwefel: I knew it was technology, I just knew there was a computer component to it and this is now I'm talking 1990, 91, 92. The, the, the worldwide web didn't even get named I think until about 1993 or four. And so you just kind of had a sense of all of these things that were happening and for me the opportunity was to jump into a computer training business, but with which I needed to find an investor to buy the fledgling training portion of that computer business because it was just starting to take off.
Ryan Tansom: Well, let's, let's kind of unpack that because you're learning so much at that point between those couple of different ventures and you know, the actual operations from cash and value creation while going through that exit and then having a VC person or firm, you know, watching them exercise their warrants like that. How did you take all of that and filter that into your strategy with this company because I think, I mean, you had to have looked at everything slightly different.
Scott Schwefel: Well, what I, what I did have a sense of is that venture capital works in a certain way and there's only a certain type of business, you know, relatives to some huge growth potential where it makes sense to do that versus in the next case I went and found an angel investor that would come in at minority percentage of ownership to be able to fund me to be able to do that deal. And so it was, um, I, I think it was more about what's the right kind of funding source to be able to get into that kind of business.
Ryan Tansom: Well yeah, and I think you hit on a couple interesting things because cash is king in capitals, King also, right? In a way where you get your capital is different so you, you know, whatever dollar amount, call it, half a million to a million bucks or whatever it is, is different from the whole spectrum of what people want with it and whether it's just passive investing or if it's someone that is strategically helping you out. So I mean what kind of sources did you go to and then what was, what was the strategy with the company and kind of walk us through the whole formation and how you found that person.
Scott Schwefel: Well, and so, so what, what happened in the structure of the computer business for about a year. Um, so I took a job running the division which was trying to move from selling computer boxes to computer consulting. So it really was a move from hardware sales into consultative service sales. And then within that consulting piece happened to be training and this is 1993, which really if you remember back and maybe you don't, but it was literally the beginning of sort of computer networks. [Ryan interjects: Yup. Yup.] And so the world needed a computer network engineer more than anything else because the world was hooking itself together. And so Microsoft. Novell, you know, vendors that we're focused on providing curriculum in that area while we're out there trying to sell the computer networks, we realized there's nobody that understands how to use them or install them or run them. And yet everybody needed to make that move from mainframe programmers literally into network engineers. And so the business just began to take off a little bit on its own. You know, the phone just started ringing. The founder of the computer business was used to selling 25-50,000 dollar big computer installations. So the idea of selling a little class tied back to a software vendor for 500 bucks or 800 bucks, I'm just wasn't sexy at all. It was almost like a bit of a nuisance. Why do I want, you know, when I can go out and get a $50,000 computer deal, why would I ever switched to a part of my business to selling something for less than a thousand bucks? And because of that mindset, it opened up an opportunity for me in, in being internal to see that that was happening, to say I'd like to spin this part of the business off. It's, it's 500 to a thousand dollars sales at a time selling to individuals for the most part. Um, which is something I knew the owner had no interest in doing.
Ryan Tansom: What was the, what was the revenue and the infrastructure like when you were looking at that?
Scott Schwefel: Well the overall computer business was, you know, 10 million plus and this little training piece, the first year that I was there sold just over a quarter million dollars.
Ryan Tansom: Okay. That's as, as a decent quantity of customers at that price ticket.
Scott Schwefel: But the momentum was clearly there to know that the next year it was going to double at least and then double again. Um, which was my estimate. And so what I was able to do is, is create a sort of a dual structure. I had the seller finance a five year deal, a five year note for me, on buying the business from him at the same time that to help on the deposit or the down payment side. For me, I went to family members for a loan and I and I constructed the loan to be a loan plus equity.
Ryan Tansom: Then what was the actual. How did you value that you actually value the business? Or did you just mean how did, how did you guys come to the actual terms and the price of spinning that off?
Scott Schwefel: Actually kind of similar to the previous deal, it was much about looking at the actual financial, direct impact off any direct formula. And it was more tied to sort of, uh, a Dutch auction. What's it worth? Uh, you know, uh, I've always ascribed to this idea that anything is worth what somebody's willing to pay for it. And we literally just went back and forth in a combination of what's the overall value of the business today? And then that five year deal that I did allowed for a ride along on potential future growth. So I was selling the opportunity of how big I could make this in five years as a reason to both fund me to do it as well as share on the upside at the back end.
Ryan Tansom: Super cool. So what, you know, once it was in your, in your control and Benchmark Learning, it was I mean it was built to sustain a big substantial business. So like what did you do the moment that you had the reins, how did you, how did you take it to market and did you have... And what was the strategy of the business? Have a, having a couple of ventures behind you. What was the, the, the end goal?
Scott Schwefel: Well, for me, this one also, I didn't go into it at the front end too. I'm clear that I wanted to build it and sell it. I went into it knowing there was a huge growth opportunity in an area that I had an interest in. And so that's what, what, what provoked the things that happened. I think that made a really big difference in their very first year for me. Two things. One is I joined Vistage. Vistage today, but back then it was called TEC, The Executive Committee. Somebody had teed up, you know, the possibility for me to be a member. A, it was a very exclusive group and it's called Vistage today, but it's the, you know, one of the largest CEO membership groups and of which there are many, but they'd go by many different names, but I knew that to go from, at the time when I executed that deal, the company had just done almost three quarters of a million in a year-and-a-half and took us to get the deal done. And in my first year of ownership we did, uh, uh, I think it was 1.6 or 1.7 million, so you could just tell the growth momentum was there. And I knew that I'd never run anything that big before. So what I wanted to do is get together with guys that had written something a lot bigger once a month and figure out what I was doing. Um, that experience turned out to be invaluable to me because it was my board of directors. I could go to them for anything.
Ryan Tansom: What were some of the big things that you found yourself stuck that you know some of the big pieces of advice that you've learned along the way in the group?
Scott Schwefel: Well, when I bought the company, there was a staff of 11 and so the idea of, of what the structure should look like was informed by a book that I've recommended to hundreds of entrepreneurs called the E Myth. You might've heard of it by Michael Gerber and it's the entrepreneur myth and it and it speaks to when somebody is good at something and then buys the company in which they were doing it. They fail and it gets you thinking about the different roles that you need to play as an entrepreneur and understanding when you're participating in which role and the book. It's great because it's a, it's just a really simple version of a small business. It's a CEO who manages four people, which is really four functions and it is sales, marketing, operations and finance, and almost any business can be structured in a way to think about it in those buckets. And so for me, in picking up the business, I had to look at, you know, I was obviously the CEO, I had a CFO who was there that, that came with the acquisition, so he was in that top financial box, um, and I had a woman who was running operations and I realized I had no head of sales and I had no head of marketing, so I took those two positions. So for me it was recognizing when am I managing these other two people as their, as the CEO and when am I actively engaged as the head of sales and actively engaged as the head of marketing and just having clarity around the roles that I played. Also helped me know when I needed to hire a real head of sales and put them in that position. And then ultimately I actually never let go of the head of marketing. Uh, I just felt so strongly about that because marketing to me is just always been what do we sell to whom and for how much and in a fast-evolving business like what technology is coming down the pipe, I never wanted to let that piece go. So I always held those two positions.
Ryan Tansom: So what was some of the, as you progress with the business, what were some of the revenue and employee count? What are some of the milestones that you were hitting and how did the industry landscape change to that? Where were you... what was the ultimate goal?
Scott Schwefel: Well, it's um, I was fortunate to be in a business where it wasn't so much about trying to go out and drive demand for what we had. The demand was there except the demand could be spread across five different companies. So it wasn't just a benchmark had to go out and create the need for network training. The network training need was there, so we had to find a way to stand out amongst our four other competitors. Five, I guess, five other competitors. So six major companies in total that to a large degree were offering the same class because the classes were determined and created by Microsoft and Novell and other vendors. We had to, we had to justify why would you come to Benchmark over the other five guys. And so it was a very unique marketing challenge that we had, which is to say how do we separate ourselves from everybody else? And part of that meant how do we make everybody else look the same. So it was, it was a real interesting marketing and positioning thing. So the one other book, and there's only two that I've recommended more than any other one, was the E-Myth for how to structure yourbusiness. The other one, which is probably 30 years old now by Trout and Reese was called The 22 Immutable Laws of Marketing.
Ryan Tansom: Never heard of that.
Scott Schwefel: Oh, it's fantastic. I mean, they, they, their, their claim to fame was the book called Positioning and that's probably 35 years old, you know, it's why Coke outsells Pepsi and it's all about being able to own a category that people can hold in their mind and allows your business to be described by your customers with superlatives. So what does it take for a business to be the only business that blank or the largest business or the first business. And the cool thing about Benchmark is we had spun off from the computer company, so we had the ability to, to lay claim as Minnesota is a technology training company and then Minnesota is largest computer training company and then for awhile we were Minnesota's first and largest computer training business. And so all with the goal of saying you can look at everybody else, but there's only one Benchmark that was, that was the constant positioning we did at one point we even, uh, and again in part of fueling that growth, always a big investment in marketing. At one point we bought a dozen billboards in the twin cities, black and white, and they just said computer training with our phone number. That's awesome. We wanted to send a message that we didn't even need to put our name out there because we were already standalone from everyone else.
Ryan Tansom: So, you know, how many years did it take you to get there? I mean, in what? What was the size of the business when you were, when you were at your top?
Scott Schwefel: Well, it wasn't 100 percent growth all the way because as you probably recall, on January 1st of 2000, post Y2K and the tech industry took a hit like nothing else. Um, it was because people were waiting for the world to end. Then on January first when it didn't, they looked at all these billions of dollars. They had invested in Y2K solutions and felt like they had been ripped off. I totally disagree. I believe that if those investments would not have been made. The world would have stopped, but I mean literally the three, four year ramp up to Y2K is when everything got resolved. But from us, we were doing, at that time, just under $12,000,000, and in January of 2000, 40 percent of our annual revenue canceled for the year, um, first time in my life I ever had to execute a layoff. We had two layoffs that year. The business dropped in revenue that year from 12 million to 7 million and were really hanging on for dear life. Now interestingly, back in December and November of the previous year, before that Y2K component hits, we had received offers to sell. Oh my gosh. And we turned them down because why would you turn them down when things are going so well.
Ryan Tansom: Right? So was it investors or finances or whatever?
Scott Schwefel: There was private equity groups that were out buying up groups of technology training companies because it was only one national brand at the time. And it was all franchises. It was called new horizons. So in every other marketplace there were independents like, like us, like benchmark that dominated the marketplace, but that, but that had no national affiliation. So big, um, other national companies or companies seeking to become a national training concern were the ones that were buying companies and a lot of people did sell and did roll-up their businesses in 98 and 99, Carson and we were the market leader and things were going extremely well. So that's maybe my third lesson I had to interject for you right away. Sometimes the offers the right offer and you should just take it.
Ryan Tansom: So, so how did you, what was the actual process? Did you actually go through and do it from real preliminary due diligence or did you hear numbers from these people or what was your EBITDA and and like how did they come to that?
Scott Schwefel: Oh absolutely. We had a, we had several offers at the time and give or take a percent or two because I just, I don't have the exact number in my head, but running at about a 10 percent profit, but, but at a staggering growth rate in fact, that, that, that company Benchmark was, was, was in the Minnesota fast 50 privately, fastest growing privately held companies in 1997 and 1998.
Ryan Tansom: So I mean at 10 percent EBITDA like that and that kind of growth rate of, I'm assuming in, especially with all the hype going on. I mean, I'm assuming the number, the offers were pretty decent.
Scott Schwefel: Oh yeah. We had offers that were seven figures, 2-3 million and some of them that also had a back end in one case that might have taken it as high as $4 million if we would've just continued on the same growth curve we were on. Now that being said, we didn't, it ended in 2000. Um, but you know, in some cases almost 2 million of that would have been cashed and secured at the front end. But it's really hard when you're in the midst of a really successful business to understand what it means to secure it on a cash event like that and how valuable it is.
Ryan Tansom: So, and I agree with that. There's, I actually had a gentleman on the show called the miss exit. He went for it. I think he had like a $90,000,000 offer in like literally it went away, like his whole business disappeared. And I think there's this delusion that we get stuck in as entrepreneurs where it's so much fun and you're having a blast and you're making money and you have people around you and you know, there's a lot of competitive natures. And as we kind of tie this into what you're doing now, I am curious of the personality profiles of a lot of these entrepreneurs, but how, you know, what was going on in your head got like for you to really quickly say no. Was there a like, dollar amount that you, that you were striving for that it didn't reconcile? Or is there something like market share? What was driving you to quickly say no?
Scott Schwefel: Well, in one instance we thought we were going to go down the pipe and part of it was, um, I would call it a little bit of arrogance in our negotiating when we said no, it was with an expectation they would come back a and right near the end. One of them that was the probably the best offer that we just sort of in all the principles of negotiation, you know, the expected no, not even close, which is literally what we said. And then waited for the phone to ring back and it never did.
Ryan Tansom: Yeah. Because 60 days later, Y2K...
Scott Schwefel: That's literally what happened. If, if that would've happened a year before and we would have had that year to dance, we probably would have gotten that deal done.
Ryan Tansom: Wow. So what would have, what did you do after. I mean after 40 percent of your revenue goes away, so was there no contracts with these customers then? I mean, how, like how did that, how did you end up coming out of that?
Scott Schwefel: Well, two layoffs. I mean literally it, it really, we really, really struggled to put a lot of personal investment back into the business and for awhile there I never say that I didn't think we were going to make it, but I started to wonder about what kind of exit or bankruptcy or, or issue, um, we would hit and underneath it all there was always the hope that somebody would want to come and acquire us because of the brand we had and the reputation we had the only company at this point that was near us in size was another company called Mindsharp and they had been a rebrand of a company called First Steps. So they literally started life as a staffing company recognizing people needed computer skills to be staffed. So they actually started offering computer training 10 years prior. So they built themselves up. When we were doing 12 million, they were doing about 9 million. We crashed down to seven. They crashed down to about four. And because they were owned by Rheinstad, a global billion dollar staffing company, we had the sense that they would be the ones that wanted to come in and buy us. And what happened is the father, son that were running that business came over and we had the expectation that we're going to drop down an offer to acquire our business and instead they dropped down to book, um, to let us know they were for sale again, just the, just their $4,000,000 training business. And we were the only potential purchaser in town because we were the only training company large enough to absorb what they'd already presold and had to deliver.
Ryan Tansom: Oh my gosh. So how did that change your strategy? Did you think about them? Did you purchase it? Or like how did you guys...
Scott Schwefel: Well we did and uh, they were asking a million dollars cash for the purchase along with the acquisition of some of their hard assets. What we figured out when we drilled into the numbers is they had pre-sold so much training that if they shut their doors and didn't deliver it, they would have had to refund 1.4 million dollars to those customers. They didn't have it. So what it helped us figure out is they weren't worth a million dollars to us, but we could save them a million four. So we actually executed the sale of their business for a dollar legally along with the guarantee of a quarter million dollar loan to make sure that we did not run out of cash fulfilling on the debt that they had accrued. And they accepted that offer. So when they spun out, um, we, we brought over all of their staff, initially. Took over there, two leases and literally went from 7 million back to 11 and a half million in one day.
Ryan Tansom: So how did that, you know, as you're, as you're going into that meeting thinking you're going to sell and the next thing you know you're buying a company. And how did that change your strategy for your exit and for the valuation or value in your head of your company and where, you know, who did you think would be a potential acquirer, if that, if the only one that you thought was not an option?
Scott Schwefel: Well, what we thought, um, it's, it's interesting because there was a bit of despair right behind where we were at. We just couldn't... everything that had previously worked for us. Didn't work and it, I mean it'd be like to, you know, it'd be the equivalent of '08 where everybody just shut everything down and going through layoffs and a company is horrible. And um, and trying to come in and sort of maintain some sense of hope that you're delivering to the rest of the staff. So we went from 48, I think down to maybe 21 people. Um, and I, I'd wake up every morning and go for about a three mile walk, just, just sort of struggling with where's this all going to turn out. But at the end of that walk, I'd come back and say, okay, I've got to go into the company and demonstrate that we're going to be okay even though I'm not sure we are, um, and that, that took about a year, but, but as soon as the possibility, when they dropped that book down in front of us, we were so shocked. And then when we started to just reflect on it and think about what does this actually mean, this could get us whole if we do this right. And so it really went from despair to almost back to excitement and thrill and we're gonna make it. And we were now the giant in the market again and we're big enough to cover what we do. We went from 21, Becca 40 some staff that day and it was almost like, it never happened back on top except for me. I had gone through a huge personal transformation or realizing almost rich almost broke might get rich again. I want to do something that I really, really love because you never know how it's gonna turn out. It was, it was the moment when I shifted from, I just want to be a business owner and I just want to build something and I want to sell something and I want to make money to what's something I want to do that I really love. Well, building a business and I can do it the rest of my life.
Ryan Tansom: So how did you get to that point? Even though you got now you've still got all this responsibility, you got Benchmark, you've got to this company and customers and obligations. How did you unwind that and eventually sell it? So I mean, you get your mindset had to be completely different because you're now, I'm assuming there was discrepancies to where you want it to be and where you were.
Scott Schwefel: There were, but that, um, that the, you know, the saving moment of acquiring that other company created a solvent business for us again. And I had brought in a minority partner at that time and at that time I had a, I owned 51 percent of the business and I still had my angel investor and I had the minority partner. We structured a deal for the minority partner to buy out my silent investor, which enabled just the two of us, right, to have the equity in the business and then I negotiated the sale of that business with him very much on the same structure I had purchased it from, which was cash up front, money over time, five years in this case, and then also a share on the upside of the growth.
Ryan Tansom: Why would he - I mean he or she - Why would they want the business after watching everything that you've gone through was there, was there future value in the fact that you're, you're the market leader, but what was the domain? Was the demand coming back? I'm just curious. I'm like going through that entire whiplash situation. Why would you want to do that?
Scott Schwefel: It was driven by two things. One is because he wasn't minority partner and wanted to have control of the business. That was probably the number one driver, right? Almost a little bit like me. I just knew I wanted to own a business and at least be one of three equal partners. He wanted to, to have ownership of the business and it was coming back. The business was beginning to flow. Um, plus we had taken out our number one competitor in the marketplace, so now it was really dominated by Benchmark and then three or four other little guys and really little in comparison. So that was what created the opportunity. And for me, I just knew it's not what I wanted to do every day. I didn't want to come in and have that be the business that I spent my life on. And it knows two things probably that were transformational for me. There was that the realization that it wasn't the kind of business I wanted to be in, but it was also because at that point I had been a customer using this model that I teach today that I, that I build my business around today called insights discovery. In 1999 is when I went to the program where that was introduced to me. And in that moment, I saw something that I knew would lend itself to speaking, training, consulting and that I loved it and I could be really good at delivering it.
Ryan Tansom: That's a good segue because I think, you know, through all your different exits and what you've learned, being able to wrap that into people, which is where you're spending a lot of your time. I'm, I'm curious on your perspective of, well, maybe give, give the listeners a little bit of a background of insights and then you know, in how do you look at the businesses and apply the people part because the people, you know, cash is king, but people have to execute on the cash. And I think it's an extremely important thing is people are building their teams and understanding what their strategies are.
Scott Schwefel: Oh absolutely. And it was the beginning of 99 when I went to that session. So there was two things I did. One was experienced Discovery as a customer and then take the whole company through it and just watch how it transformed, how we communicated with each other. Uh, the other one that was just driven by me and the success of the business up until that point was I took a month off of work and I literally went to Tanzania, Africa, and I lived with a hunter-gatherer tribe along with Richard Lighter. I'm sure a lot of your listeners know Richard Lighter. He's sold 20 million bucks, but they're all about purpose and mission and doing work that you love. And he's in Minneapolis guys, well, fantastic consultant, resource speaker. But I've watched him speak back in 96, 97, 98 and he always referenced this trip where he takes a dozen people and you literally live with, with no connection to the outside world and you, you live in camp with a hunter-gatherer tribe.
Scott Schwefel: And the whole point of it is to let go of all the baggage and sort out what you really want to do with your life. So in January of 99, I went on that trip with him and then in literally February or March, uh, was introduced to Discovery. And the two came together perfectly. I knew I didn't want to stay in the business I owned, which I think is true for a lot of entrepreneurs. You start to think about, you know, when something's working, what, what do you really want to do? And then I, I, I found out about the Discovery model and Discovery is basically a modern day. Myers Briggs, you know, we'd been using NBTI and disc assessments in our company. We were trying to figure each other out, figure out our customers, but Discovery has, this has this magical formula of, of using colors, very simple colors with a lot of tools that help people remember to use the system on a daily basis.
Scott Schwefel: And so in our company we had 45 desks with 45 sets of the colorful tools and it simply was an easy way to remember that people want to be treated differently and it's actually easy to do if you remember to do it. So I, for one year I watched this amazing transformation of our business while I was being personally transformed into knowing the direction I wanted to go. And then I was just sidelined by that, by that crash in 2000, and so it took a year-and-a-half a year-and-three-quarters to rebound the business, acquire our number one competitor, um, and then be able to sell it productively for me to turn around and take a year off. First thing I did a and then launched the business, which I did in 2004.
Ryan Tansom: So there's a lot of different parts of that that I, I really enjoy. And I'm curious, Scott, because I think a lot of entrepreneurs deal with that where they feel stuck or they feel trapped because they built this business and they're financially trapped or might be, you know, out of energy because they've lost the passion and you know, so a lot of people deal with that. But then you got essentially kicked in the teeth while you're going through that mental journey. How did you know, how did you cope with that being even more stuck because of the crash and knowing that that is no longer what you wanted to do. How did you work yourself out of that? Like how did you keep yourself up?
Scott Schwefel: Well, part of it, and that's what I mentioned before. I mean I literally, I didn't choose to get up. I woke up at four in the morning and when you're up and, and you know, immediately your thought just goes to the ship is sinking. You've got to get up, get outside and have some kind of physical exercise. And for me I would just, I'd get out there with a set of weights and hike about two, three miles every morning and just kinda shake it all off, take a shower, knowing that I had to come in the office and tell everybody we were going to be okay. But I'm sure there was a hundreds of those days when I really didn't believe were. But you got to come in and, and, and, and you got to take the lead and show people that it's going to work so that's what we did.
Ryan Tansom: You have no, almost no choice at that point. So what know the Discovery Insights, which is amazing. I've taken it multiple times and know you'll learn so much about yourself and your people, you know, what is it that you see because you know, traction is like the operation system or or Rockefeller Habits or whatever people like to use that aligns communication and and kind of have everybody on the same page, but I believe personality tests and something like Discovery Insights does that for the people part of this. How did you, how did you, how did you see that working and how did that help you in the middle of your situation with the business and then how have you watched that with other companies where the right unit, because you had mentioned the Emyth you got all these different functions, you know, how do you take what you're doing and then make that into something that's actually you can you can use in your business?
Scott Schwefel: Well, part of it, as you touched on it, right? The Emyth and the operational structure of a business is key. And then to me there was that marketing piece because every business should be consumed with the most important aspect of business, which is what do we sell, to whom and for how much? That's marketing and that's, that's, that's sits at the core of every business. So that's a role that I never release to someone else. I wake up everyday thinking about what do we sell to whom and for how much. Um, but then the third piece you mentioned is the people and when you've got people slotted in the right positions, what, what you do to help them communicate with each other becomes key. And you know, I've been, I've been using systems. I was certified to teach Myers Briggs and I did and our business, our business had Briggs designations, disc designation on everyone's office and on everyone's cube. And we thought we were doing a pretty good job of trying to use it. But when Discovery came in and one day we realized that, you know, on a, on a graded scale, we were operating like a D-. And within one day of implementing discovery, our communication moved to A-.
Ryan Tansom: And in what are some of the technical way that that happens? Because I think, you know, the reason I'm a, the context of this question is that so many people have miscommunication in the business, right? So when, when people get on the same page of how they talk about their objectives and their rocks, are there projects or the KPIs and all that stuff, that doesn't mean that you're dealing with the people thing because people are all different. Right? And so how are you actually implementing that in changing the culture and the communication within the business? And then do you see differences or different types of personalities in different roles? Because I think it's so challenging to get the right people in the right seats and then actually have them communicate correctly.
Scott Schwefel: Yeah. And to your, to your point, you know, using Discovery, there's four colors and there's the order that you demonstrate those colors in. So there's 24 pretty unique combinations. And so what emerges from that is patterns that are consistent with the competencies required for certain types of jobs. So most sales and marketing types tend to be extroverted, right? No surprise there. Most doctors tend to be thinking-based decision makers. Most nurses are feeling based-decision makers, but for every one of those generalities that I would make, there's a feeling based surgeon out there somewhere or there's an extroverted, enthusiastic CFO. So the challenge with a model like discovery is it helps inform who you are dealing with whom you're working with. And even in a hiring process, it does help you learn a lot more about a candidate. But what it can't ever be is the reason that you eliminated a candidate from the process. Because there's no way Discovery can guarantee that a person can't do a job. It can only help affirm if they can. So we tell people that if it's used as part of a hiring process, it needs to be used very, very cautiously and with an awareness of what it can do and what it can do. But what it does better than inform hiring is you've got a company of 20 or 2000 people and they need to understand how to work with each other and not just academically where they have a good session or they go out and they do a [unclear]. it's got to be something that they can execute on on a daily basis and so what I watched with Discovery because of the system itself, the the amazing profiles that the people got and then the tools that sat right in front of everybody. You had to look at them to speak to someone and that immediate trigger was the kind of conversation you were about to have and because it was triggered to consciousness, you did it. I watched my company in two days, absolutely become a different group of people. I'd never seen anything like it. The transformation was so profound and that was 1999. So that's when I began to formulate the idea that this is really the work I want to do. I just had that almost two year hiatus to be able to get in there and do it. Because if your people get along and if you can communicate what you need to people and get them to respond to what you want and need, you can get anything done.
Ryan Tansom: Well, I think that that is such a huge part of building a machine of a business, right? Because people are the hardest part. I mean finding the right people and then once you get them, keeping them and then making them like working with each other. You know, a lot of people spend so much time on the KPIs and the numbers and all that stuff, but how you get your management team or the people in your company to actually talk to each other in a way that makes sense for them. And you guys, when I saw you present, Scott, there was like a way that you described the even like a. I don't know if it was an email or like you, you have a pretty good explanation of how the different types like to consume information. [Scott interjects: Oh absolutely.] As an email or like a dialogue that someone. I don't know how exactly how you guys do. You might be right on the tip of your tongue. You know what I'm talking about?
Scott Schwefel: Well, at one point we, you know I shared, I share examples of what email looks like and the fact that if you just simply respond to an email in the way that it's written to you, you're going to build better rapport, whether it's internal or external. In fact, I even reduce it now to: If you simply start to read your email with an awareness of is somebody sent a greeting before the content or is there no greeting and the email goes right to content and the the, the. The lesson is if greeting in, greeting out, right? You respond the same way they wrote to you. If they've sent no greeting into you, do not send one back, and that simple trigger of being aware that that every email you get, it has a potential to go one way or the other. Now you're beginning to pay attention to the uniqueness of other people and as subtle as that sounds, it's really, really important because most of us don't pay any attention to anybody. We think we do, but we don't.
Ryan Tansom: Well, and I think this is it, it's a tool that's so important because with the culture being such an important part of business and culture making it a good place to work and then also the communication, I mean it's a valuable business, but then it's also makes it all manageable and it's how everybody interacts together that makes the business worth waking up and actually enjoying to go to everyday.
Scott Schwefel: See and I think that's huge. There's so much value to be had if you understand what's important to your people and that's a function of who they are. That's a function of their personality. Who wants that financial reward and who wants more vacation time? Who wants time off once more authority, more flexibility. Those are the things that keep employees happy. I have my goal around all these businesses has always been to try and take better care of my staff than anybody else can, so that if somebody has a choice, I'm all money being equal. They see a better opportunity working with us and it's tied more to the freedom that we get. Um, the freedom that they get, I treat everybody in our company today and it's only six people like entrepreneurs because we can also leverage a network of trainers so they don't have to be full-time staff for me, but the staff that we have has unlimited vacations as an example, just like an entrepreneur has unlimited vacations. Um, and what you realize is, and I'm sure you did it too, right? We take less vacation than our teams and, and I've always said to them, right, do the work, get the work done and I don't care where you are or how it gets done. Because with that, with that flexibility comes the responsibility to take care of customers first.
Ryan Tansom: So with that being said, how do you know with all the people thing I mean because you, you've got so much experience out on the people side and the monies that an operation side. So out of all these different ventures and such, what is it, what are some of the bigger takeaways that you've had on how to juggle the people and the financial piece of this? Because I think you know it. It's creating the business that you want to walk into, but then also having something that you can transfer at some point. It's just a big balance. And so what? What is some of the biggest things that you've learned over the course of those four or five different ventures?
Scott Schwefel: Well, as simple as th e Emyth sounds, you know, and adventures I've been involved in confirmed it, the ultimate path to be able to sell a business. It is that it is not dependent upon you and if you understand this concept of the CEO and the four functional boxes, the first thing you do is get out of those functional boxes. Then you get up into that CEO box only and then you put somebody else in that CEO box and you jump up to one called owner. And in that owner capacity. You've designated the day-to-day management of your business to that CEO so that when you sell it, you don't need to be part of it.
Ryan Tansom: So what was said and I think, do you see with your clients, especially with you as you're doing the people self within the discovery insights that they ended up liking their people so much more because people are interacting with each other the way that they should be interacting. How do you I mean from all the clients that you've worked with? How do you suggest making sure that you don't become so dependent emotionally in these relationships? Or maybe it's okay, but how do you, do you follow what I'm saying? Because you end up having all these family and friends that are in your business because you got to know them so well and your tool makes that even better. How do you make sure that at some point that that'll transfer to someone else without having to be stuck in that situation?
Scott Schwefel: Well, and for me that being stuck was back in 2000 when I had to go in and lay off people some of format. I considered good friends, um, and some have recovered and come back around and understood why we did what we did. But had we not done that, the entire company would have been gone and because we did that, the company stayed and survived with most of the people that were with me then for over a decade. And so it's accepting kind of the responsibility at that ownership level that sometimes you've got to make those really hard decisions. But also it's a function of within this Discovery model, it's the kind of leader that you are that really dictates that I, in our model, I lead with yellow, I'm energetic and enthusiastic and I'm very strong in relationship and that's the type of leader that I am. I'm the opposite of a leader that's all about structuring, KPI and formulas, you know, and yet I recognize the need for that in parts of my business. But if you polled all of my staff today, um, they tell you that our culture reflects the kind of leader than I am and you just have to be true to who you are in terms of how you build a business and work with the people around you.
Ryan Tansom: Yeah. And do you see that as like, I see that as a potential challenge when you're selling your business or exiting because it's such a reflection of who you are that it is literally just part of you and so making sure that and maybe it's just being aware of that and that being a situation that you're going to have to find that fulfillment somewhere else.
Scott Schwefel: Well it is, but if you look at the role that I play now, um, and then you're aware of it without getting into a global company I represent, changed our business model that enabled me to have yet one more sale of our business back in 2014 and it allowed me to do exactly what I've now done for 15 years under my own brand. But I'm not looking at the work I do today with an intent to sell it, although that is still a possibility because I enjoy the delivery side of what we do and would like to do it for another 20 or 25 years. I can limit the amount of time I spend doing it. But if you think of that Emyth organizational chart, I've still got the CEO job, I've still got head of marketing, but underneath operations, I'm simply one of our trainers. So while our business contracts trainers around the world, I know that at times I am operating as simply someone on the operations team. You know my Ted Talk, my deliveries, my keynotes. That's not me as a CEO, that's a trainer and a speaker and a facilitator and as long as I want to do that, I probably won't step back and think about structuring this business to sell it until I'm ready to pull out of that job because I don't want to do that job working for somebody else. I like doing that job working for me.
Ryan Tansom: Right. Big caveat, right?
Scott Schwefel: Yep. As long as I love it, I can keep doing it. And yet knowing what it takes to be able to sell a business like this, it doesn't have to depend upon me because there's really brilliant trainers around the world that we already contract and somebody who took it over would simply contract them. And maybe some of me or none of me or my wife and partner Linda, who is one of our speakers and trainers. So as long as the two of us love what we're doing, we're going to maintain the business and continue to grow it like it is.
Ryan Tansom: So with all the different things that you've gone through, as we're kind of wrapping up here, is there something, because we talked about a lot of different things that you'd want to highlight for the listeners or maybe there's something that we missed that you want to bring up?
Scott Schwefel: Well, and I think I probably touched on all of them a little bit, but if I summarize like what, looking back, what made the biggest impact on me? What helped me the most? The CEO peer group that I joined was incredibly powerful. These are, these are people that I maintain relationships with today, but if you don't have a peer group to, to tell the truth to about your business, you need one. And you know, Vistage is the largest. I know there's, there's a lot of local ones, right? Even here in the twin cities as well, but you've got to have that board of directors with you and you got to spend a day with them every month so that you're working on your business. And then the other ones are, you know, those are books that I'm suggesting, the ems and 22 immutable laws, but I also, I don't know how back in the day I had cassettes in my car, you've got to be reading, you got to be reading something to teach yourself something to be better at what you do. So if you're busy running your business and you're not learning anything new, you're going to fail.
Ryan Tansom: Yeah. There's no reason to do it alone. And we've got more information out there than we'd ever know what to do with.
Scott Schwefel: Well, and it's now, it's beyond books, right? It's your podcast. It's there. There's so many ways to take in the learning. I fly every week, some speaking all over the world every week, and it gives me a whole lot of hours to continue to read books on my phone. Audio books. I love audio books. Um, there's just, there's so much more to learn and every time you think you're done, there's 100 new books you need to read,
Ryan Tansom: What is the best way because you have a bunch of material and a bunch of stuff that's out there, what's the best way for listeners to go find more information or to contact you?
Scott Schwefel: Well, if it's assistant to chase me down, you know, um, Scottschwefel dot com is the website where I promote myself in the keynote speaking. I do our consulting business is called discover yourself dot com. But if it's curiosity about insights discovery, I would direct people to the Ted talk, like you said that I did. That's just Scott's Ted talk dot com and that gives a 15 minute overview of the whole model.
Ryan Tansom: And I'll put it on this show notes too for the listeners.
Scott Schwefel: Yeah, that'd be great.
Ryan Tansom: Well thank you so much for coming on the show, Scott. I really enjoyed it.
Scott Schwefel: That's awesome. Thanks Ryan.
Ryan Tansom: Thanks for sticking in there. I hope you enjoyed the interview with Scott. He had a lot of ridiculous stories that I've really hearing with all the different companies and the things that he's done and I think if there's a couple big things that I learned and took away from his wisdom and his stories that he was able to share with us is make sure you know why you're getting into a business and knowing what you're trying to get out of it is super important.
So if you know why you're going into a business and then you know what the outcome is that you want, then layer into the equation. What do you want? What makes you happy? What roles do you want to play within the business? Are you a visionary? Are you the creator? Do you like leadership? What is that? So that way you're growing a valuable business with an outcome and an end result in mind, but then you're enjoying every single day. I think about the hard things that Scott had to go through to make sure that he financially got the return on the Benchmark Learning company after all of those trials and tribulations after the unknowns impact your business, making sure that you're passionate about it so you get the energy and the effort there so you can pull out from under that and then sell it or transition it to the person when you want to, and the whole goal is to be able to have the integration between your passions, your life and your work like Mike was talking about on the last podcast.
So I think if we have the end in mind and we prep ourselves too, knowing that there's going to be random things from the economy that could potentially happen. Our energy levels could change or our interests can change and that we have a rip cord that's available that we can pull whenever we're ready. That is preparatory work. That is totally worth it because the whole reason we take these risks and these insane amount of responsibility as entrepreneurs is because we enjoy what we're doing. So do all this stuff ahead of time so that way when you immediately don't enjoy it or you want to go do something else, you've got your out and it's less up to circumstance and that's more because you decided to. Because I think about how much Scott enjoys what he's doing right now, every one of us as entrepreneurs deserves that and let's make sure that we don't have to go through as many learning curves as Scott did. So I really hope you enjoyed the episode with Scott. Hopefully it took a couple of big takeaways from his stories. If you enjoy the podcast, please go on and give me a rating, share with your friends and I will see you next week.
Written by Ryan Tansom
Ryan runs industry-specific podcasts on his website which pertain to mergers and acquisitions, and all the life lessons he wish he had known then. He strives to bring this knowledge to his listeners in a way that is effective and engaging by providing new material each week from industry experts.