Podcast: Creating a Positive Distance Between Yourself and Your Business, an Interview with Tom Heller
Figuring out how to create distance between yourself and your business improves your inevitable transition from it and will drive a higher valuation.
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
Tom Heller has been working in the communication field for more than 20 years. He is a resourceful leader, visionary, entrepreneur, and creative thinker. He has worked with some high profile clients and built some genuine goodwill with clients and stakeholders alike.
Tom studied design and visual communications at the University of Minnesota and marketing at the University of St. Thomas. He was the owner of Soulo Communications and exited the company as the executive account director.
Currently, he is a martial arts instructor at his local YMCA and is active in his church. He is now the director of marketing for Nativity Lutheran Church and has plans to use his experience and talents to benefit the church and his community.
If you listen, you will learn:
- Tom’s background in marketing.
- The growth process of Tom’s business.
- The pros and cons of sudden business growth.
- The mistakes Tom made at the beginning of the business.
- Why you need to include an attorney in your business.
- The importance of embracing who you are in your industry.
- Why Tom decided to exit his company.
- The struggle of being professionally unemployable.
- Why there is no set equation to calculate the value of your business.
- Why Tom used a value-based price system.
- Tom’s due diligence process and lessons from it.
- How Tom dealt with his role change within the company.
- How Tom transitioned out of the company.
- Tom’s new life and future plans.
Tom Heller: It's tough, you know, I think again, statistics, 85 percent of small businesses fail because people give up. It's really easy to give up. We made the go for 20 years and you know, finally came to the conclusion that it's not that we wanted to give up, we'd done what we needed to do or wanted to do and we were ready to move on.
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: Everybody. And welcome back to the Life After Business podcast. This is episode 124. And finally getting rid of the cold that I had in the last few intros. And so I kinda sound like myself again and uh, I'm really excited for today's episode because I had a guy named Tom Heller reach out on my linkedin after some of the postings that we'd done about one of the recent episodes and he had noted some of the things that he went through in his exit. So I asked him if he'd be on the show, he's a local guy here in the twin cities Minnesota and he shared just a super real authentic story of growing, building, selling and transitioning into life after. And I just had an absolute blast with him because of how real he was. So he describes how he started it, how he was growing his agency, buying a company, learning things along the way to the point where he hit some threshold personally and then also from the law, the restrictions on capital and then really some thought that he put into what should I be doing with this business, what's going to happen on the forefront and then how do I unwind my identity and my capital from this company that I built and what is this 20 year marathon actually doing and what do I want the next chapter to be like?
Ryan Tansom: So he was just an absolute gem on the show and describing his story. And we also talked in some very colorful stories about his experience with the broker and uh, some of the challenges they had when he was going to market. But I think this episode is important for anybody that is listening that has a business and could potentially be selling their business to a third party because Tom explains what it's like to end up working for someone else and just eyes wide open. Going that knowing that you've got to build a valuable business, but then picking that right by where it feels right and that you trust them and then what is your relationship going to be with that business. Post-Closing is a big chunk of your money. You're going to be tied to an employment green and earn. Earn out where your success is tied to you being an employee and making decisions in the living in that environment over the course of the next few years.
Ryan Tansom: I just think it's something that you really need to think about because it's something that is a real option compared to some of the other third party or the other internal ones like an aesop or internal transition or whatever it might be. I just, it's. It's so important to think about before you're sitting at the deal table, making sure that you have to get that deal done because you've already gone that far, so I really hope you enjoy this episode with Tom. If you have any questions or want to do any more research on the different exit options? How much will your company's value go onto the GEXP Collaborative website? We've got the Ultimate Guide on How to Value a Business and all the different financial numbers that are going to be important to you. We've also got two different guides about all the different internal and third party exit options and the pros and cons of each of these so you can think about it before marching down one direction. With that being said, without further ado, here's my episode with Tom Heller.
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 timeframe to the buyer of your choice at the price you want.
Ryan Tansom: Morning, Tom. How you doing?
Tom Heller: Good morning. I'm good. How are you doing?
Ryan Tansom: Good. I'm looking forward to our, uh, our interview here because we had some mutual contacts and we were all kind of chatting up on a linkedin post that I did and we had, there was a little shout out to him that had reply because he had read the built to sell book and he had been talking about the different things in his business that he had been working on as we're looking for the future for his. And you had commented and said that yeah, there's some serious things that you need to know because you've been through your own and then you and I started chatting and I was like, well this is going to be fun because we're both here in the twin cities and you've been through an exit and you've had a pretty long run at it, Tom. So, you know, before we get into the meat of it, maybe you had, as we were chatting before, you had said that you had started the business in college, but you know, why did you decide to become an entrepreneur? Like, how did that whole situation come to fruition?
Tom Heller: Um, well I don't think that I decided to. I'm an entrepreneur. I'm an entrepreneur by birth. Um, fortunately or unfortunately, but I started my first company, um, and that's how Derek and I met. We were actually in the same class at the University of Minnesota Design Communications and I had an opportunity through one of the classes to do some work for the American Lung Association, a couple of direct mail pieces and I think I was working full time and taking 17 credits at quarter. And so I, you know, obviously a really busy. I'm crank some stuff out minutes before class they ended up loving it and that kicked off about a six year working relationship with the American Lung Association. That basically started my company.
Ryan Tansom: So you were doing direct mailing for them?
Tom Heller: Yeah, a lot of their direct mail sticker campaigns, fundraising campaigns.
Ryan Tansom: So and what would a, what part of college was this in? Was this mid, mid college or like?
Tom Heller: Uh, I believe it was my sophomore, junior year. And again, I feel like I'm, I'm a born entrepreneur. When I was in fourth grade, I want an entrepreneurial essay contest, spent summers with my grandfather who ran his own marketing promotions business down in Mankato. And so I think it's always been in my blood. Um, and then this opportunity came up in college and I just ran with it. So who was your heart always drawn to? Marketing. Yeah. I've always been a creative person. Yeah.
Ryan Tansom: So how did you decide to build them? Like was there any kind of thought behind like, okay, here's what the service is going to look like, here's what I'm going to be doing for them, or is it just more of like kind of shoot from the hip?
Tom Heller: No, definitely shooting from the hip. I had no clue what I was doing. Um, yeah, it was a, it was flying by the seat of my pants. I had a couple of really great mentors at the University of Minnesota. Felix Ampo was an illustration professor who has since passed away, but he was unbelievable. Um, and there's a number of other professors, Patrick Redmond and a few others. I apologize if I'm not naming all the proper names, but some really great mentors that helped me along the way how to price my work, you know, even in business advice that was way out of the realm of, of you know, what they were supposed to do for their students, but they went way above and beyond and really helped me get it, get it off the ground.
Ryan Tansom: That's super cool. I think that's what a lot of people don't necessarily have is some. Some foundational people there that are giving them solid advice instead of them just kind of flying by the seat of their pants and I'm curious, Tom. It's like, so what are some of the major milestones? So maybe kind of give us like as you were growing the business, what were the, what was the direction that. Did you have a strategic plan? Where is it more of just getting clients that are coming in? Kind of what was the first growth phase like and how did you approach that?
Tom Heller: Well really, again, the kickoff with that big client with the American lung association that kind of carried me through and then just through sheer will and determination, I added clients along the way. Um, did some networking, you know, the, the obvious things around town, chamber of commerce and other things, uh, connecting with friends and family. Uh, but I would say the biggest growth spurt for us was probably 2005, I believe, right around there I decided to purchase another company. So I've been on both sides of the sale and purchase of a company, having purchased another company and then sold mine.
Tom Heller: That immediately took us overnight from, you know, me working out of my basement and doing very well, uh, as a sole proprietor to now I've got three full-time employees. I'm soon to add more and office space and all kinds of other issues that I had never really had to deal with. And uh, and so that was a challenge. And shortly after that I had done some consulting work for I don't think it's a problem to name names here, but for National Alec Elmo car rental before they moved their headquarters down to Tulsa. So I was doing some graphic design consulting work for them. And then when I purchased the other company I essentially my contract, my consulting contract with them, and one of their managers went onto Honeywell and she called, she called me shortly after that and said, you know, we're, we're looking at outsourcing all of our technical communication and just wondering, I know you purchased another company and you're ramping up your business. I'm wondering if you'd like to bid on the contract. And I was embedded with the tech comm team at National Alamo. So I, I had a good understanding of that business, um, and that service offering. So I said, yeah, what the heck. And so I bid on the contract ended up getting it. And those are the things that some business owners look at it or people who want to start their own business. And they're like, oh, how awesome is that? You landed a huge contract with honeywell. It was awesome. It was great, but it was unmanageable growth for the most part, it, you know, my wife and I didn't take a paycheck for maybe six months because we had to ramp up, hire three or four people, um, by all of the equipment, add additional office space and, based on the terms of the contract, we didn't get paid for over 100 days. Oh my gosh. So, you know, we had to really scraped together everything we could, uh, to, to get through that gap. Once we did, then it was great and we ended up, I haven't keeping the, the honeywell contract for well over 12 years now after I sold the company, they're still working with honeywell.
Ryan Tansom: So that's super interesting story. I don't know and I kind of unpacked that in some of the phases. So curious. Tom like, so what made you able, what, what triggered it from you going to work in the basement to buying a company? Like was there like a reason to get into additional products and services or buying talent or it sounded interesting or was it a friend? Like what? What? Give us some color and backdrop on that.
Tom Heller: Um, I think the timing was right. I was doing a lot of consulting work. I was growing my freelance business and somebody actually, the owner of that company sought me out and I don't know how he found me if it was, you know, through networking groups or local chamber of commerce or, or what it was, and I have a background in book design and typesetting, publishing, and that was the company that I purchased, it was almost exclusively book design and type setting. I'm working with publishers and vanity presses and so he sought me out and the timing was right. Like I said, I was growing my business and I was, I was getting a little bit tired of kind of hitting a ceiling with my own freelance business and sole proprietorship and I wanted to. I wanted to take that leap. Now I didn't do it in a very strategic way. I made a lot of mistakes, but the purchase of that company vaulted me to that next level.
Ryan Tansom: What kind of mistakes when you say that? I'm assuming there's a couple of vivid ones that are on the top of your mind. Is there anything you'd like to share?
Tom Heller: Well, there's, I think there are countless errors and mistakes. Fortunately, I married well, my wife is extremely organized, analytical, planner, you know, all of that. All of the things that I'm not, um, you know, by birth, I'm a, not only an entrepreneur but a creative person. So I'm right brained. I tend to be a bit unorganized. I think after our second federal tax penalty, she took over the books for the business and helped with all of that. But, uh, I would say the biggest mistakes was just not being strategic, not being really thoughtful about all of the details of not just running a business and buying another business and the employees and everything that went into it, you know, some of the down side to going basically straight from college to running my own company is. I didn't, you know, I worked for a small publishing company for a little while and I like to say that I learned everything about managing people based on my bad experience with that.
Tom Heller: And I won't name names there, but it's just going straight from college essentially to running my own business. I didn't have that experience to drawn of working with employees and running a company, all of the numerous things that go into that. And so it was basically just trial by fire and learn from your mistakes, hopefully, you know, don't repeat them.
Ryan Tansom: So how did, how did you end up valuing the business and what was the kind of, the structure that you went into that with? Was it more just you acquiring them and their customers and cash phone or over? What was some of the ways that you learned as far as how to purchase a company?
Tom Heller: Yeah. Well, with regard to that, I worked with little, little bit with an attorney, but again it was, that was uh, uh, an educational experience more than anything. And I think we did pretty well. The company was a small company. We didn't, we didn't pay a ton of money for it and it ended up working out really well for us at bolted us into the next level. I basically just purchased their, their client list. They had numerous clients that they build direct to the client, but the, the way the business was structured was they essentially worked with two major publishing companies or vanity presses, so even though they build the clients directly, independent authors and others, they would have to then pay a percentage of any, any of that work to those two publishers. And so I took all of that into consideration when we were negotiating the sale of the business and I think we did okay in the valuation part of it, but I'm, I made a lot of changes right away after taking over the business that helped increase revenue, decrease expenses. Quite honestly it, I changed the entire business two years after I purchased the business. Within two years we had more than doubled the revenue and I had basically eliminated the two major sources of revenue when I purchased the company. So I diversified the revenue stream and then doubled it.
Ryan Tansom: So then we're on that two year mark afterwards. Like what was the, you know, the, what was your vision? What was the vision for the business? Was it just to keep bringing in certain kinds of work? Was it like there was a, you know, a bigger vision that you had kind of in the back of your mind as far as you where you wanted to take the company?
Tom Heller: I think, you know, when I was a young, stupid creative entrepreneur, I thought, well, you know, I want to run a big minneapolis agency, but I didn't have any agency experience. I didn't know how to run a big, you know, Minneapolis Agency, but I didn't have any experience. I didn't know how to run a big Minneapolis agency, or any big city agency for that matter. So I think the vision that I had for the company was unrealistic. And over time I came to realize that I was what, what I was, was essentially just a really good boutique agency, a marketing creative in Minneapolis. And that's what it was. We did, you know, certain types of work. We also did some technicals. We had kind of this right brain left brain thing going on, which made us unique in this market. But I came to realize over a number of years that I was never going to be that $10 million, $20 million, $30 million dollar agency in Minneapolis. And I was, I learned to be okay with that.
Ryan Tansom: So then what was the what? Which is great because I mean I think that's, I think there's internal conflict that people have when there's like this big vision because a lot of us entrepreneurs are, we're big vision people, right? So if you're trying to chase something that's unrealistic, I mean it puts a serious stress on your family life, your personal, your personal mentality, insanity. And then you know, which is interesting too because you had also mentioned that, you know, capital is an issue with you as you guys are growing too in there. That's the challenge with a lot of small businesses have, trying to make sure that they can afford the growth because with growth comes significant risks, risk and significant capital issues. So like you know, as you know. So I'm trying to think of like how to put this into the timeline. So about what year was that? That you acquired it then as you're kind of having that mental shift and like, okay, this is the, we're a boutique shop here. What was it just, what was the triggering event that led you to this potential sale? Was there, was there issues going on in the industry? Was there things going on and you know, what instigated some of this stuff and like how much time went by from you kind of hitting that like, okay, I understand where, what we're doing, where we're at from that triggering event?
Tom Heller: Well, again, we purchased, um, the, the other company and about that, about 2005 and I would say probably around.... Between 2012, maybe 14. I hit a really nice place where I was real content with where we were at with the business. It was steady income. We were growing but not unmanageable growth. It was comfortable. I was relaxed. I, I had great client relationships, great people working for me and with me. But then I looked out at the horizon and I thought to myself, well, and I don't know all the statistics, you probably know I'm a lot better than I do, but I heard something somewhere that within the so many number of years, 40 percent of the workforce is going to be leaving the workforce or some, some number like that. And, and I thought to myself, well, looking out 10 years, 15 years down the road, I'm 47 years old and if I'm going to retire is, is there gonna be anyone left that can buy my business or wants to buy my business? I mean with the baby boomers all retiring and slash or eventually happens to all of us. We pass away. Is there gonna be any, anybody there that wants or, or you know, is willing to take over my company? My kids have all told me that there's no way in heck they want to do it. So, you know, I, I was looking out and I thought to myself, well there is no better time for me to, to put my company up for sale and get the most money for it then now.
Ryan Tansom: So super interesting because yeah, there's, like you said, there's some interesting stats that are underlying that and like Kennedy or thought process and here's we're, we're, we're you w was there any researchers or resources or something that you were getting that, that was kind of feeding that, that thought process and then the next level that is I want to get into what do you mean by like ready for it and how long did that take yet? So like, you know from the kind of the decision of like uncomfortable to having those thoughts, like how long did that take and where were you getting that information?
Tom Heller: Well, I went through a curated and historically I've never been a reader per se, but I went through a period where I was just reading business books. Everything I could get my hands on as well as, you know, everything on the Internet that I could look at it from a business standpoint. So it was a lot of different sources that were feeding that and although I was really content in my business and comfortable and relaxed and everything was going great, I also wanted to anticipate the future. It's funny because I, I'm watching, I'll probably get the name of the show wrong, but Marvelous Miss Maisel right now. It's pretty popular. Amazon prime show and there's a business owner on there, um, one of the main characters, fathers and he made a comment in a just so hit a chord with me and he said it feels like I've been running a marathon for 20 years and that's exactly how I felt in the moment that I decided really seriously consider and, and talk to my wife about, you know, putting our company up for sale.
Tom Heller: And that's really how I felt was it's this constant hustle. Even if you're in a comfortable place with your business and it's doing well, you know you've got a great client base, repeat customers, your, your billing structure, your corporate structure, everything is is where, you know, where you worked all these years to get it to. I just felt like, man, I'm exhausted and if we lose honeywell tomorrow I gotta get, I gotta get something else. And so it's this constant mental strain and stress and the constant hustle of it. And I was just tired of running that 20 year marathon and decided to market my company and that, that, that kind of mental switch I would say really hit probably right around 2014, 2015.
Ryan Tansom: And that. So that's when you were watching that TV show?
Tom Heller: No, that's actually right now. So they're in their second season and I, I heard that comment and I was reflecting back on everything.
Ryan Tansom: Yeah, right. Well it's funny when it happened for us because like how weird grind and grind and grind and like rebuilding the business and like investing in the new industries. And my dad and I went out for beers and he just looked at me and right actually by granite city and Roosevelt, he was like, I'm over. This shit was just like, alright, I get it in because it is a, it's such a, it's such a marathon. And I, you know, I'm curious because of the size of your business and like, and I don't know if there's, if you're, if you're open to disclose as far as how many employees or top line revenue or anything, but just for some benchmarks. If not it's okay. But I'm, I'm curious on that. And then like your thought process behind, you know, I think there's this huge hurdle in the, we call them like, you know, like the sec, the first stage, second stage businesses are hitting some of those big milestones from the million dollar, the $5 million dollar, these, these are, that are really big where there's a lot of capital thresholds that becomes very difficult. Where I see that there's so many entrepreneurs where they, they finally start making the money that they've deserved for like a decade. And then it's just kinda like, okay, versus piling it back into the business to keep hitting the growth. So there's this like kinda almost like, you know, risk adjusted situation in their head and like I'm finally making the money. And then like, did you consciously looking back, did you kind of hit something like that or was it more like, like, does that make sense at all?
Tom Heller: Yeah it does? Yeah. And I would say that's you. You definitely hit on it. I mean that's, that was a big part of it as well. I mean we finally got the business to where you wanted it to be. We were making good money, we were paying our employees could money. Everything was going really well. But yeah, it was, it was a point where I was more or less burnt out.
Ryan Tansom: Right. Well and the reason I asked that Tom is because like I sat down with someone recently and I was like okay, because they were like almost 2 million bucks, you know, they're probably pulling down 200 grand and like the question was there a similar situation? I like big customer concentration. Their vendors heads, there's some constraints and all these different areas, hey, like if you could double or triple the value of your company in the next two or three years would you do it? But knowing that you would have to find more money or like, you know, reinvest that yourself and do these hard things? And then it just looked at me like no and no.
Tom Heller: And that's exactly where we were at. And I think my wife had come to the conclusion that I slowly came to probably around 2010 or earlier, you know, she's, she's not well, she's much more averse to risk than I am, you know, being an entrepreneur, the entrepreneur that I am. So, you know, she, she would always make comments like, well, are you ready to get a real job? You know, things like that much sooner than, than I came to that conclusion. But yeah, it's, it's tough. Uh, you know, I think again, statistics, 85 percent of small businesses fail because people give up. It's really easy to give up. We, we made the, the goal for 20 years and finally came to the conclusion that it's not that we wanted to give up, we'd done what we needed to do or wanted to do and we were ready to move on and not ready to reinvest huge sums of money or take out loans or debt. We ran the company debt free for over 20 years because we had a line of credit, but we never had any debt, so we, we just weren't really. Especially at, you know, 46, 47 years old. We didn't want to take out a bunch of debt.
Ryan Tansom: Um going back to when your previous governments have taken a real job. So like, I don't remember who it was early on in the bike as someone said something about entrepreneurs is what's our title and the title is we're professionally unemployable. We have never worked for someone else, but like we're kind of trapped in this big golden cage that we've created ourselves.
Tom Heller: Yeah, no, it's true. I mean, after the sale of the company, I have a noncompete so I have some limitations with, with, uh, my ability to, to work and generate income and in certain areas, um, but through the negotiation on the sale of my company, the one a business or company or entity that I, I deliberately wrote into the contract as an exclusion to my noncompete was my church and they ended up, it was the, again, the timing was right. They needed somebody full-time in that, in that capacity and so they brought me on full-time and it worked out great. But to be completely honest and you know, I had a two year employment agreement after the sale of my company to help transition and just personality differences and things. I mean, they're, they're a great company. They're doing things really well. They're doing it their way, which is, you know, what they should be doing, [Ryan interjects: which is not Tom's way.] Yeah, and I have to respect that. I'm not the owner anymore, but I, in that two year timeframe, I was thrown out a few resumes, but I think you're absolutely right. I mean, I feel like myself and a lot of people like me are more or less unemployable, you know, a lot of these HR people, the recruiters, they'll look at your resume and they're like, oh, you're in your own company for 20 years. Well we don't want you because you're not going to do it our way.
Ryan Tansom: My Dad's literally trust me. Like that's why I started this business and that's why I like it. There's this whole like you can't go back. Yeah. Yeah. Oh, so let's go back to. Because like some of the notes that you'd written on linkedin thread I think will be. We can kind of unwind from your transition and so like, so from the moment that you kind of got your head into the. Okay, I think this is going to be time, um, from, you know, you had mentioned the industry in the academy and certain things like that. What was your level of exposure to understanding what your company was worth, what the process was, and maybe kind of explain the journey to getting to the point that you were at that table with that buyer?
Tom Heller: Well, again, I think like other entrepreneurs, business owners, I certainly thought my company is worth a lot more than what the, the uh, the brokers and the lawyers and everybody else came to in the end, but you know, my wife and I were realistic about it as well and we were able to, to work through that with everybody and come to, to a number and a valuation that I think made sense for us obviously. And for the individual that ended up buying our company.
Ryan Tansom: How did you guys, just to kind of take a pause there for a second. So how did you guys come because that is a big challenge that a lot of people struggle with because there is no, there's really no transparency right now. Like here's how you value a company and here's why and here are the metrics and all that stuff. So there's a lot of guessing that goes on, which it makes it very difficult for entrepreneurs to plan anything. And like in each buyer will pay different amounts for different reasons and such. But like, so what was the process you guys went through and what did you find out of why it was not worth what you thought it was worth?
Tom Heller: Well, I, you know, I think we as business owners get a little too close to it and, and there are certain things, intangibles, perhaps, where you look at it and you go, well, you know, of course it's worth a lot more than this, but when you really break it down by the numbers and you do the percentages and I don't have all the equations in my head if it's 20 percent of five years' revenue or whatever it is. There's a lot of things that factor into it. And I think it, it depends on the type of business, you know, does it carry inventory and if it's just for us it was all service based. So you know, there's no inventory, it was basically just client base we were selling. But the, the thing is is it's different for every company. And I think that's why it's not that there isn't, I think a lot of transparency. I think people don't want to put an exact equation to it because that equation doesn't apply to all businesses across the board I think is really unique. Every situation is really unique and so you have to go through a very deliberate process to kind of come to that, that bottom line number. It's kind of like.... And I think Derek would would agree with this kind of circling back to Derek and the connection there. It's like branding a company. There's no set process or, or, or, uh, you know, equation that you, you work through to get to your new brand identity. Every company is unique and every individual and business owner is unique and how you get to that, that new identity, that new brand. It's different for every company. There's some of the same steps, but how you get there is different. The Path is different.
Ryan Tansom: Well it's interesting. I, I, I wholeheartedly agree with you in like kind of my, my take on it since I have delved into this since our sale is that, you know, you've got like the financial benchmarks are always going to be the same. So you had, okay, there's a, you know, here's your EBTDA, you normalize it. Then there's a multiple applied to based on how risky your company has. Right. So that's if that's, if it's going to be purely a financial buyer, but you know, if you think about how many times they're just purely a financial buyer, you know, I, I mean I actually don't know that the total stats for the amount of transactions and how many are financial buyers, but then you layer on the fact that there's probably a strategic buyer or there's a strategic multiple reasons that they're buying you, then it's totally like a jigsaw puzzle and that's it. It's more of an art than it is of the pure financial science-minded. And I think that's something also a lot of people struggle with because that art takes a lot of work and a lot of experience in order to master it. Yeah, absolutely. There's the art, the intangibles and the things, you know, some of the things of those intangible things you can mitigate. And we did through through our negotiation and sale by saying, okay, well if I come on with a two year employment agreement, which we negotiated independently separately from the sale of the business, he was able to say, okay, well you're willing to put a little skin in the game and you know, do it on an earn
Tom Heller: out basis and you know, if you do that and you come on board, it's in both of our best interests for you to help transition those clients and you know, further foster those relationships and bring on more new business. And so, and I was very confident in my ability to do that. And so I think that was a factor in the sale of the company as well. And he later told me, he said, well, if you hadn't agreed to a two year employment agreement, I probably wouldn't have ended up purchasing your company.
Ryan Tansom: And what were his concerns because of the. Sounds like honeywell was a big percentage of your customer base and stuff. So like throughout the due diligence, what were there concerns that had risen up? I mean was it like, was it not really? I think in the linkedin string there was, you know, insights that you've learned from the due diligence and like how they were analyzing the different things that they were potentially concerned about.
Tom Heller: Well, I think obviously the, the main thing that anyone's concerned about is, is long-term contracts, relationships, repeat business and revenue streams. And fortunately for me and for my company years ago, we kind of changed our pricing structure and, and how we worked with clients and that that ended up being a very attractive piece of the sale. Because we weren't as a service based company, we weren't selling our time, we didn't track our time, we didn't bill by the hour. Everything was value based billing and it was based on longterm contracts, you know, three months, six months, 12 months, and in some cases, 24 month contracts with clients. And we never, we never punched a clock. We never even tracked our time since I would say probably 2012-13 on. I made all my employees read. Uh, I don't know if the title is correct. It's Value Based Pricing by Ron Baker.
Ryan Tansom: I was going to ask you, how did you guys come to that determination? Was it was a like business, like the operational way of doing it the other way was so painful that you found a way to do it differently? Or is it because you were trying to build the value of your business?
Tom Heller: Both, yeah, both. I mean I've, I believe very strongly in and for me it was always about the relationships with the client and I want them to always feel like no matter what they could call me and I will be there for them and it wouldn't be okay, I'm punching a clock, I'm charging you for this phone call. And it was all about the relationship and the service that we could deliver for them. And I was very adamant when I was going through the, you know, some of the initial discussions with potential clients and putting together proposals that you don't want to buy my time, because you can't afford me. If we do this on a value-based model, you get what you want and need. And so do I think yeah, that's extremely important.
Ryan Tansom: And I mean if you think about, yeah, I don't want to go down a rabbit hole, but like CPAs and attorneys and consultants or anybody that bills on time, it's immediately like you have an adverse reaction to talking to the person.
Tom Heller: And not only that, not only do do, does that, you know, kind of create that dynamic and the conversation and then the negotiation, but it's focused on all of the wrong thing. No. So if you can change that, why not? And I mean obviously there's so many hours, so many hours in a day. If I'm billing by the hour and you know, I only get a couple hours of sleep, but I, I might be able to bill 10 hours a day max. Right? But if I'm feeling of what that customer feels, the value of that end deliverable is then if I can get that done in two hours, who cares?
Ryan Tansom: They don't either. Right, exactly. You get to the outcome that they one. So you read that book, which significantly helps. So what are the, you know, as they're going through the due diligence, what were some of the other eye openers that you had realized? How was the due diligence experience and then how many, you know, I heard you mention brokers, so did you actually hire a broker....
Tom Heller: I did, I did. And again, I'm not going to name names. That was a, a poor decision on my part, at least the one that we picked. I don't think they did anywhere near what they could have or should have done based on the amount of money that they made from the, the sale of the company. They had lawyers that they would bring in to the process, write all of the contracts up. I actually had to have my attorney rewrite everything because it was horrible. It was just garbage.
Ryan Tansom: Like I wish I wish for everybody out in the market that this was the first time I heard that story, but like the amount of times that I hear these stories with brokers out there, it like, it's such a, it's, it destroys the wealth that people in the lower market have created because there's no incentive for them to get the deals. I'm curious like what was their commission structure and like how, like what was the percentage that they ended up getting from the total sale?
Tom Heller: Oh, I'd have to look back. I don't want to miss-quote a number...
Ryan Tansom: It was between five and 10 percent I'm assuming or something like that. Yeah, because they can even get really high, which I find is so crazy because you've made the fact that you said that your attorney had to look at which means that you are at least looking out for yourself because there's no incentive for them to even make sure that you net as much money up front or the deal structure is done correctly. The whole goal is just to get the deal done, right?
Tom Heller: Yeah. Yeah. They're incentive is, is purely just to get the deal done.
Ryan Tansom: So did their compensation get impacted and whether you had an earnout or not?
Tom Heller: Um, it did. Uh, but it was based on projected or. No, so if I blasted that out of the water, um, which I did, uh, they were, they were capped at a certain point with.
Ryan Tansom: Okay. But like I guess, yeah, which makes sense and then the, at least the kind of my, my takeaways from all the stories I've heard is that, you know, if, if you've got half up front versus half an or or it's not like dramatically going to impact your comp, you know what I mean? So like it's, they're not like overly incentivized to push the buyer to getting more upfront because it just isn't worth the effort for them.
Tom Heller: Yeah.
Ryan Tansom: So we'll, we'll, we'll, how, how did that process work? I mean, did they help you do any preliminary due diligence before you started the whole process and how many, how many potential buyers did you actually talk to or engage with or what was that kind of that whole situation?
Tom Heller: Yeah. Actually, um, we, I think we, I sat down with maybe five or six different potential buyers, um, so in the sense that as a broker they were able to identify and bring in a number of interested parties in that sense they did their job, but in the actual closing of the deal, it was just horrid. It was just a mess. Um, and we actually had, I know we had two firm offers, um, there might've been three offers total, which is not real common, especially for a business like ours and the size of ours. Um, and I ended up picking the one that ended up purchasing us just because I thought it was a better fit all around.
Ryan Tansom: Well, and let's... I think that's important for the listeners to really understand too, because like he actually, I talked to a friend who just recently sold his company at 25 offers. I mean it's a, it's depending on the size of the business, the industry. It's kind of hot out there, but like I think just because you have three offers sit in front of you, doesn't mean they're the same. Right?
Tom Heller: Oh No, no, they were vastly different.
Ryan Tansom: And can you explain the difference of them from like maybe the structures or what they're offering and the actual people or companies. [inaudible] and what did, what did you mean by better fit?
Tom Heller: Um, well, of the three, um, there was one set of buyers that were basically just investors, um, and they were looking at trying to acquire businesses that we're just going to make them money. That's all they were focused on. There was another one that was essentially be exactly like me who had run successful creative agencies in the past, you know, kind of done the rollercoaster ride up and down with a couple of different companies and was looking to ramp it back up and low-balled me offer and I wasn't going to take it. And then the other one was, which was the buyer that ended up acquiring us, um, many years in the business had 17 acquisitions previous to ours, but was in more of a manufacturing side of creative and wanted to get more into the, the marketing strategy and brand development and creative and kind of expand his business and revenue streams and it just seemed like a really good fit. Uh, and so that's, that's how we move forward. And the offer was good.
Ryan Tansom: So that's super interesting. So what was the actual bit, so you said manufacturing, so they weren't, they were not a creative agency or anything where it was more just like a bolt on to what they're already doing. And so what was, what's their background and what was the value other than the cash on the client's, like, what was like their motive for getting the deal done?
Tom Heller: Well, again, when I say manufacturing, it was, it was print based, so I'm 25 years in the print industry, um, and knew it inside now. And obviously based on what we did from marketing creative standpoint, more often than not we would get a lot of prep work and do a lot of print work for our clients and we would sometimes broker it and sometimes just refer it out to great vendors. And, and so for me, I thought it was a good fit. He, the buyer, uh, for number of years had wanted to expand and kind of grow his business more into that creative space and have it be more service, relationship based. Um, and so he thought, well, I've acquired 17 companies already and they were primarily print- companies. Um, best way for me to, to make this shift and migration is to buy it.
Ryan Tansom: What was like the, the dialogue that you guys are having, you know, as you, as the numbers are kind of slowly working themselves out as far as like what your role is going to be and like explain like the emotional or the, the, the, the thought process you were having along that as far as like reimagining yourself, working for someone else.
Tom Heller: Um, well I, I think I had decided when I decided to sell the company I had already begun that, that kind of emotional shift or separation for so many years, I mean since its inception, the, the company was so closely linked to my own personal identity that when I decided to sell I had to almost immediately start to create a separation from it. I mean even to the extent that the brand and the colors and the brand, we picked orange because I have a photograph of me when I was three years old and an orange polo shirt and it was my favorite shirt and so the company brand and logo had the color orange and that was our primary color.
Tom Heller: And even to the extent that you ask any one of my friends or business colleagues, what's the primary color in my closet? My wardrobe, orange, orange. And so everything, what I wore, who I was, how I acted, everything was so closely intertwined and integrated into that brand and that identity that I had to. I had to start to buy new clothes.
Ryan Tansom: Did you, did you go to blue? Like was it...
Tom Heller: Actually I did. I was like, Hey, you know, my, my wedding, uh, the colors that are wedding were blue. My wife loves blue. So yeah, I, I actually deliberately started to shift my wardrobe, my color, my mentality, everything tomorrow. Just a calmer, more laid back blue.
Ryan Tansom: Oh, that's so funny. So you know, as you're doing that time, because I think that's a lot of it, you know, some from some of the interviews done with the people that said that they went through a process to sell their and it took them awhile. They had a little bit more time to almost unwind that identity. And then emotional tie is there like, will you just kind of naturally doing that as you kind of are like reimagining what this is going to look like? Or is there other things that you did that helped in maybe have a more detailed question, would be like, you know, your work life balance before you ended up kind of going down this route. Like did you have outside hobbies and outside social connections and stuff like that that helped with that process? Or did you have to really start to like start from ground zero?
Tom Heller: No. Yeah, I think it was a slow transition. I mean, like I said, from the time that I decided to sell, I started to mentally make that transition and it didn't really manifest itself physically until I started to actually change my wardrobe and things like that. But I also have the benefit of working for the new owner for 20 months, almost two years, um, and, and even more more so make that transition mentally, physically. Um, and otherwise I was really good friends and still am with all of the employees that I brought in to the sale. Um, and, and so that I even had to navigate some of those waters and create some separation there and say, you know, we can still chat and be friends and go for drinks, but, you know, it's, it's different now. Um, so yeah, I would say overall I probably had close to four years to kind of make that mental and physical separation and that helped, that helped having that time.
Ryan Tansom: Think about that. That's for years, right? I mean, so like, and it still probably is not 100 percent closure.
Tom Heller: No, I still have. I'm wearing a sweatshirt right now that has the, my logo on it.
Ryan Tansom: It's awesome. So like I'm curious in your experience when you, so after that closing and how many employees did you have when you ended up selling?
Tom Heller: I think at the date of sale we had six full time employees and probably two to three contractors that we used on a very regular basis.
Ryan Tansom: So then what was it like for you all of a sudden now not having the final say and like as you're now having to deal with like how they are taking over customer service and handling your customers because you had a level of pride and ownership over your customer service and then also your employees who you were probably uh, a high degree of the sense of culture. So as the culture and the management responsibilities got taken off of you and then also that the customers or how did that work? Did you, was there any kind of gap in your style versus their style and like how did that emotionally sit with you?
Tom Heller: Oh, it was a blessing and a curse. I would say a blessing in that I had the benefit now of, you know, if something was not going the way somebody necessarily wanted it to, I could say I don't own it anymore, you know, I had some separation in that way. The curse was, is that. Yeah, I mean for, for 20 plus years I ran the business. I created the culture. I fostered those relationships and to not have the same level of control and ability to do that was difficult and I think ultimately it's probably why I ended up leaving a little bit early out of my two year employment agreement. Again, they're doing their thing, they're doing it really well, and it's more me, I guess, than them [Ryan interjects Rightfully so.] Yeah. I, I just the emotions of it for me and, and I think pretty much any business successful business owner will agree the relationships are everything and I had great relationships with the employer or the not only employees but with my clients and I honestly, and I'm not just saying this, but I honestly didn't care how much money I was making for anyone from any one client. I cared about whether or not we were really helping them and they knew that and that set the tone for the relationship and it set the tone for my company and my culture and all of my employees believed and felt the same way. And not that they're not doing that now, but it's different. It's just different.
Ryan Tansom: Totally different. And it's like, it's like weird when you have like a, I can kind of all related to my own experience where like, yeah, when you, because I built out the managed it services so like all of a sudden you're taking out like new, like you know in the, in the document management and all these different like where the people are taking a risk on you. So you treat them like kings and then all of a sudden when you're not responsible for the, like the final outcome for them where there's a different variable in the mix, it's just tough because you can't own it, just like, you know, like it's good or bad. It's just a totally different dynamic and relationship than you had prior to the closing.
Tom Heller: Yeah. Yeah. And I was, again, not the, this is good or bad or again, it's just different. But I was, I was the type of business owner and manager were, you know, we would do regular quarterly meetings, reviews. We worked the EOS system and traction. We started implementing self-implementing EOS probably five or six years before the sale of the company. [Ryan interjects: Early adopter. That's awesome.] Yeah. Yeah. And uh, they had worked it to one degree or another and so having, you know, been on kind of the same operating system. I'm more or less, it was a very helpful in the transition of the sale of the company. With that said, I would, you know, have my weekly meetings, level 10 meetings. I'd have my quarterly meetings, um, you know, with my leadership team, annual meetings, but when one of my people, and again we're high on fairly high end professional services, creative services, writing, um, when, when I found that an employee was doing just an overwhelmingly exceptional job, I reward them right then on the spot. It's not like we would have to wait for a review. It's like you're doing a kick ass job, you're making me money, you're helping my company, I'm going to help you. And so some of those decisions then after the sale they were taken from me obviously in rightfully, but I felt like, you know, that separation again created a different dynamic with the employees that were my employees previously. And so as much as I wanted to, to work with them and help them and reward them and do those certain things, I couldn't.
Ryan Tansom: I think you articulated that at an extremely well wait time because like I, it is not a good or a bad thing, right. As far as who the buyer is and say sometimes. I mean like sometimes it was really horrible, horrible stories too, but I think what you've described is something that the, the, the listeners in and anyone that's going to sell at some point with a third party like needs to just think about because like if there's a high degree of the purchase price is going to be an earnout and tied to like performance of working for someone else. It's just a totally different dynamic. Even if they're good people. I remember sitting down with Neil, the CFO of Loffler who purchased us when I, when I resigned like couple months in and like I was, I had pretty much most, most of the intention to doing that. And he's like, why do you want, why do you want to leave? I'm like, Neil, who's name is on the wall. I'm like, it's not mine. That's my problem, not yours. So it's just like, you know, I, I, I couldn't have an idea on the way to work and implement it by noon. I mean it just, it's just not the way it works and it's just not good or bad. It's just kind of the dynamics that just ended up happening.
Tom Heller: Yeah, yeah. Yeah. And it's funny because it's one of the reasons why my wife, I mean more recently within the last couple of weeks, she's like, well, you're really excited about starting another business at some point, aren't you? Yeah, because I woke up one morning and I was like, I have an idea, like...
Ryan Tansom: Uh-oh, don't say anything. Go to work or go do something, then come back and then tell me.
Tom Heller: Yeah, go to church, go to work.
Ryan Tansom: So how are you with that, you know, the, the life after business and now it's been a few years and you're off working for the church now and you know, what is like, how have you started? Like, what are things that have helped you, Tom, as you're starting to reimagine what the next chapter your life is going to be like?
Tom Heller: Um, I would say ultimately it's, it's absolutely phenomenal. I don't regret my decision to sell the business. I think at the time was right. Um, I think the buyer was right. I don't have any regrets with regard to that. Um, I would like to see my position with the church grow and, and you know, probably stay with them for another 15 years, you know, if, if, uh, if it works out. Um, but it's, it's been, the way I describe it to people is again, you know, it was like running a marathon for the last 20 years, but not just a marathon. I felt like I was running a 110 miles an hour, seven days a week for 20 years and no vacations, you know, business owners will relate to this. When I went on vacation, whether it was Disney world or wherever with my kids, my computer was always there at the hotel and my wife got mad at me and we, when our kids were young, I've got a 19 year old, 17 year old, 14 year old now. But when our kids were young, we took them to Disney world and I took a phone call while we were at while we were there and my wife got really angry with me until I told her that I just paid for our entire trip.
Tom Heller: And then she was okay with it. That one phone call basically, you know, paid all the expenses for the trip, but that's, that's the way it was for 20 years. And that's the way my kids grew up with was, you know. Yeah, we'll go out if we're on vacation, we'll go out and have fun with that during the day. But as soon as we get back to the hotel, he's working. And that was, that was our reality forever. And, you know, fast forward to the sale of the company. I'm not running 110 miles an hour, seven days a week anymore. I'm very busy with the church. It's fulfilling, it's rewarding, it's challenging. Um, I get to exercise some creative muscles that I haven't for a while because, you know, as a business owner, I hired that talent and stepped back from a lot of that. So in some ways it's even better.
Tom Heller: Um, but I have, I feel like I have a better balance. I'm, you know, I might be going 60 miles an hour most days, some days that ramps up to 100, but I have a better balance now, work life family, um, and I'm still able to exercise, you know, who I am as a creative person as an entrepreneur. Um, fortunately my church is, uh, they don't like to use the word progressive, but they're progressive church and we're looking at ways that we can diversify and expand revenue for the church using my entrepreneurial talents. Uh, we're looking at adding a paid coffee shop into the church and even looking at a, there's a church in Chicago, I forget the name of it off the top of my head, but they, they have a whole youth entrepreneurial program that they started and they launched a line of a body care products with ohms, lotions and different things. And I think their annual revenue is somewhere in the neighborhood of $7,000,000 a year now just from that youth entrepreneurial program. Wow. And for me to bring my entrepreneurial talents and expertise to my church in my community and be able to do something like that, even if it wasn't anywhere near the seven million, but if, if I could create a revenue stream that basically funds the, the church's entire annual operating budget, that would be so fulfilling for me as an entrepreneur, as a creative person, as a marketing person. So I'm, I'm able to, I was able to make that transition I think fairly well. Um, but that said, I do have ideas on certain things that I'd like to do in the future and I can do that while I work at the church and yeah.
Ryan Tansom: Well I think that is unbelievably sweet by the way. We're going to have to offline, they want to hear more about that program because that sounds pretty cool. But you know, just some observations, Tom, is that like you're able to still have goals and creative abilities and use your skill sets. You're not pretending you can play golf all day line. Right. And that's, I think there's this big, huge false notion that that's what is going to be and like where I'm going to retire and read books and do cross words and sip Perkins 6:30 in the morning and you know, versus like actually going out and doing what you're doing and I'm curious as well, first of all, just your relationship and you're being able to like, you know, pull that relationship and invest more into it is awesome.
Ryan Tansom: But what was the experience in it, and I don't know if you've ever thought about it, but is the fact that you pulled some capital off the table and derisked, did it allow you to then explore what you really wanted to do without having to make a bunch of money right off the bat?
Tom Heller: Yeah. Yeah, it did. Obviously with the church, well obviously are not with the church. I make a lot less money than, than what I paid myself and/or what I was paid when I was working for the new owner of my company. Um, but yeah, it definitely gave me and my family a little bit of freedom to pursue and to do some of those things and my wife was finishing up her master's degree and this is just got a new job and that's working out really well as well. So it's just the ebbs and flows in the transitions of life and we've been fortunate. The timing has worked out really well for us all, all through the process.
Ryan Tansom: Oh, that's super cool and super happy for ya and I think there's a, there's just a lot of entrepreneurs where they were so intertwined with their business and their identity when they pulled it off, they got a bunch of money but they had no outlet to doing certain things even though the money doesn't matter. So I think that's what I kind of was referring to at the church is like I kind of assumed like, yeah, you're not getting paid cookoo bucks or anything like that, but you're functionally, you're still working with the people that you want to and solving the problems that you want to. So therefore because of the slight liquidation liquidation event, you don't have to. So therefore it just doesn't really matter.
Tom Heller: Yeah, exactly. Yeah, and I do have other outlets, I mean you mentioned some of the extracurricular activities or hobbies or different things on it, you know. Yeah, I've got all of those things. I'm an avid martial artists and you know, there's a comment that I heard once more recently and I know you want to cut this short, but um, you basically have three places. There's three places, three primary places that you go to in your life and typically that's work for people. Um, and this I think came from starbucks or the owner of starbucks or something because starbucks wanted to be one of those three places and for me it's work, which is also a church home and family and the karate Dojo. I haven't, those are my three main places, if, if you call me up, I'm one of those three places everyday of the week. Um, but it helps keep me balanced. It helps keep me sane.
Ryan Tansom: That's super cool. I don't know if I've ever heard that three places, but that makes a ton of sense. So as we're wrapping up here, um, is there, you know, there's a lot of stuff that we talked about, is there one thing that maybe you want to highlight for the listeners and one thing that we didn't cover that you want to leave the listeners with.
Tom Heller: I guess again, as business owners, we touched on it a bit in our conversation, um, as a business owner, if you feel like your business is entirely intertwined and connected with your personal identity, explore that and figure out a way, if you're, if you desire to sell your company down the road, figure out a way to navigate away from that a little bit, create some separation. I think it will be healthy for you whether you sell your company and, or not, um, but definitely will help you along that way Uh, and that, that path to a sale.
Ryan Tansom: Couldn't have said it better myself and as the title of the podcast. Right? So what's the best way for our listeners to get in touch with the time?
Tom Heller: Probably my linkedin profile and they can find me at a, it'll be Tom. Well Slash Tom Art Guy.
Ryan Tansom: And now I'll have that link, the link in the show notes too. So Tom, I absolutely had a blast. Thank you so much for coming on the show.
Tom Heller: Yeah, thanks for having me. It was a. It was a lot of fun.
Ryan Tansom: Well, I hope you enjoyed that interview with Tom. I loved how real he was about the entire process and I've got a couple of big takeaways for you as you're wrapping up this episode. And the one big takeaway is that if you think about what you want way ahead of time, so one to three years out. If you're planning on taking your company to market in 2019, the first part of 2019, there's only so many things you're gonna be able to do, but if you think about what you want between the next 12 to 48 months, so one, two, three years, four years, then you can start doing the things inside the business that you need to clean it all up, get you prepped, understanding how much money you need upfront, how much money you're willing to take over time. And then the more value building things you do inside your business, you can go get the exit that you want, whether it's a third party that's a strategic buyer or a private equity financial buyer or an aesop or an internal transition. You understanding what you want, will help you then build the plan and go get what you actually deserve and what you want.
Ryan Tansom: Because if you don't think about this stuff, there's a high probability that you could be sitting across the table from a potential buyer that is one out of a handful of buyers that it has terms, conditions, and the situation in front of you where you might be forced to be an employee over the course of the next two to three years in order to get the money that you need to actually be financially free. And if you can get most of that as much of that money up front as you possibly can because you've done certain things in the business, then the rest can be gravy and you can feel like you're not trapped. Once that thing is closed and you are sitting there in strategic meetings knowing you can't make any decisions because you're an employee, so if you are not familiar with the GEXP Collaborative process, go onto our website and take a look at what the process is that will help you understand what all your options exit options are, how to increase value your business and go get an engineer the exit that you want so that way you can be as happy as you possibly can be afterwards and get the money that you deserve because you've maximized your outcome.
Ryan Tansom: Tom was extremely lucky because of how much thought he put in through it over the years, but I just really encourage you to not wait until you're burnt out because you're going to make sacrifices that you wish you wouldn't have and there's going to be a high degree of probability that you might be regretful polls closing, so I really hope you enjoyed this episode. If you've got any more questions, go onto our website, shoot us an email. Otherwise 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.