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

Anthony devotes much of his time to expanding the firm’s Quality of Customers® (QofC®) offering—a proprietary process that incorporates voice of the customer research into customer due diligence pre- or post-close on behalf of private equity and strategic acquirer clients.

He works in partnership with clients to design and implement research initiatives to address common questions that arise during the due diligence process (the stability of key accounts, the target company’s ability to service key accounts, confidence in senior management, etc.).

Through the QofC® process, he then provides deep insights into a customer’s level of satisfaction and loyalty as well as competitive positioning, innovation pathways, pricing optimization, etc. Ultimately, this work enables Strategex to transform research findings into actionable growth strategies.

Before joining Strategex, Anthony held senior-level positions at two leading market research firms where he specialized in insight, strategy and innovation projects for global financial services, consumer packaged goods, and pharmaceutical clients. He is well-versed in multiple methodologies including brand positioning, segmentation, advertising effectiveness and pricing optimization.

A veteran of the United States Air Force, Anthony holds a B.B.A. in economics and international business from Loyola University Chicago as well as an M.S. in public policy from the University of Oklahoma.

If you listen, you will learn:

  • ow customer due diligence is different from traditional market research.
  • How both sellers and buyers can benefit from hiring Strategex.
  • The key aspects customer due diligence shows the client.
  • Customer research can improve organic growth and control the message you want to convey to a potential buyer.
  • The triangular approach to making sense of the data collected.
  • How customer due diligence can direct a business decision.
  • The importance of having good fundamentals in your customer experience.
  • How customer due diligence can affect a customer contract negotiation.
  • How Strategex filters through all customer feedback.
  • The top 5 points highlighted in a Strategex report.
  • The common trends Anthony is seeing in recent research projects.
  • A recap of Anthony’s takeaways.
  • Why you need to take the emotion out of business deals.

Full Transcript

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 93. Do you ever wish that you could have a direct feed into your clients' heads and what they would be thinking or saying about you and your company, your service offering, your customer support, all that stuff? Well, if you were able to get the feedback that you wish you could, what would you do with the information? Would you fix things? Would you pivot your product or service offering? How would you actually digest the information? I think a lot of us as entrepreneurs are so busy working on the business, working at building out the products and services, delivering them, billing them, doing all this stuff day-to-day that we really don't understand or really know what our customers are thinking and/or the what they want - and I'm talking not just the net promoter score and getting a rating on this, but truly understanding what they see as the value of what you provide the customer support that you provide, the different products and service offerings, if there's something that you could do differently, whether they're planning on leaving you, ditching you for someone that's more innovative, whether there's going to be a contract that runs out and they have no intentions of actually renewing. And I think these realities are something that we intrinsically know, but we don't know how to address it and we don't know how to deal with it. But the reality is any potential business buyer who is looking at a pretty solid and a large acquisition is going to do that due diligence. They're going to pick up the phone and they're going to call your customers, and that's exactly what I've got Anthony Bahr on the show today because he works at a company called Strategex that is normally hired by a business buyer to call customers, interview them on quote unquote a customer satisfaction survey to really understand what they're thinking about this potential business that they're about to buy.

Ryan Tansom: Because the risk is for that buyer is that the customers are actually planning on leaving. They're really not that happy with the table stakes and all the different things that could come out and the skeletons that can be exposed once the deal is done. So when you're listening to this conversation, think about it from two different perspectives. One is that a business buyer could potentially hire a company like Strategex who is going to call your customers and going to find all your dirty laundry regardless because there's risks there and they're trying to mitigate their risk. But then if there's a wonderful insight about all these different things that they wish that your customers wish that they could do with you and that they're really happy, all these different things, the customers are going to give that buyer additional ideas that they're going to use to grow the value of that company that they're purchasing.

Ryan Tansom: So those clients of yours are going to be giving that potential buyer a ton of information for their strategic roadmap. So the other perspective that I want you to think about while you're listening to this is that if you proactively do this, your customers are going to tell you what they want from you. They're going to tell you what additional products or services they would buy from you, if you offered them. Things that you could do that would better your company, make it more valuable and this entire process, you can extract that value before you hand deliver it to a strategic or a financial buyer down the road. Lots to think about while you're listening to the episode and our conversation with Anthony, I really hope you enjoy it. So without further ado, here's my episode and interview with Anthony.

Announcer: This episode of Life After Business is brought to you by Solidity Financial's growth and exit planning. They're 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 right buyer at the price you want.

Ryan Tansom: Morning, Anthony, how you doing?

Anthony Bahr: I'm well, thanks.

Ryan Tansom: I, I'm looking forward to having you on the show. I read one of your blogs on a, a common forum that we both follow and I think it was, it was axiom? [Anthony interjects: Axial] Though you had written a about the customer due diligence and the due diligence process which really sparked my interest because it's something that not a lot of people think about or talk about and they don't realize that when they're going to sell their company that a lot of buyers are going to potentially reach out to their customers and the relationship and the interactions that they got with their customers are crazy important. Um, so before we get going, why don't you give our listeners a little bit of your background and the background of the company and how you guys got into the unique niche that you're doing right now?

Anthony Bahr: Yeah, of course. So I've been doing consumer or customer research for about 15 years. I started out my career doing healthcare, qualitative research for pharmaceutical companies, medical devices, moved onto financial services, fast food, kind of burned out on the consumer world and doing a lot of work, not seeing a lot of payoff. Wanted to make a switch. So about a year ago I came over to Strategex, now I'm doing B2B, same skill set, same type of work, just a totally different context and I'm specializing in our quality of customers product, quality of customers, parallel to quality of earnings, right where we're using the voice of the customer methodology or VOC to uncover customer insights that can be used for due diligence purposes on either the buy side or the sell side. So we're going into a target company, we are interviewing their top accounts, we're ascertaining the strengthened those relationships, we're determining if there's any accounts that we considered to be at risk and, more importantly, we're coming up with strategies to retain those accounts because we see time and time again, everyone, everyone's seen that, you know that statistic, that 70 to 90 percent of deals fail, but we don't always ask ourselves why. And when we do, we often say, "oh, you know, it was an integration issue. Didn't have a good post-close strategy." In reality, what we're seeing is that one of the major drivers in a failed deal, especially in B2B situations where you have customer concentration, is that top customers walk away post-close or are they lower their, their spend and the whole evaluation model is shot. So our job is to go out on behalf of the buy side or the sell side and mitigate the risk of customer concentration, identify ways to ensure our top revenue generators stick around and then in the long run come up with ideas to further increase organic growth.

Ryan Tansom: I think it's very interesting in how you guys are doing this because we just had someone on the show recently, um, uh, it was a private equity firm. They were talking and hammering the quality of earnings, quality of earnings, quality earnings because it's validating from a third party that it's legit and I don't think a lot of people think about what you're talking about here. And until after the fact or in the middle of the deal or I had all of these just unknowns that are essentially one arm's length away just talking to the customer. And how did you guys get into this? Because it's so unique.

Anthony Bahr: So Strategex, we've been around since 1993, specializing in voice of the customer from day one. Since then we've done about almost 800 voice of the customer engagements. I'm industry agnostic, but the common thread is everything we touch is B2B, and the reason for that is because we tend to find there's much more value in doing this type of work when you do have customer concentration. If you have a consumer business where one customer is equal to any other customer in terms of share of revenue, if they walk, it's not that big of a deal, there's another one to replace them. Right? So thinking bottled water, right? If I stopped buying a certain brand, that brand's not going to suffer. If I am a customer of a jet engine manufacturer and I walk, well that could potentially be the end of the business, right? You had, you had a guest on a few weeks ago who 99 percent of his revenue was with one customer and they walked.

Anthony Bahr: Right? That's why we focus on B2B. How we got into this diligence game was interesting. We had a long-standing client who had been coming to us for voice of the customer work. Um, it's a multinational multi-division. We would do VOC work for each other divisions. They were doing a buy and build strategy, lot of add ons. They were looking at a acquisition target that would put them in sort of a new space. Right? So of course they did their commercial diligence. Of course they did their QofE, but they still felt like they needed an added layer of validation. Right? This was a new platform that we're building out. New Industry they weren't totally familiar with. So they reached out and said, hey, can you do a VOC on a company we don't own yet? Right. So interesting idea. So you know, we, we, we talked with the target poplar, the acquirer came up with this pretty novel approach of us as a third party reaching out to a target company's customers under the guise of customer satisfaction.

Anthony Bahr: Right? So we would call on target companies, customers saying, hey, we're Strategex, we're here to talk to you. We want to identify ways that the target company can better serve you. We never disclose a pending acquisition, right? We position it as customer satisfaction and we position ourselves as third party. All this means that the customers are going to give us feedback pertaining to the state of the relationship as a whole, not a reaction to the deal, which is what we have when private equity or acquires do this internally. When they call, they have to say, "Hey, I'm with private equity group, we're thinking about this acquisition and can I ask you a few questions?" That's going to disrupt things as usual. [Ryan interjects: Red flags.] Yeah, it's going to make the customer nervous. They're going to be opportunistic, they're going to know this is on the table. They might say, "Hey, this is great, but I need lower prices. It's great, but I need more engagement."

Anthony Bahr: I mean it's in their... It's in their interest to do that. When we call under the guise of customer satisfaction, they're thinking, "okay, this is my chance to say what we can do to improve the customer experience, what we can do to make me more satisfied." So we're getting a more holistic, unbiased sense of the relationship. So you know, we did this once, really successful. The business kind of took off from there. This was about three years ago. Since then, we now have about 30 private equity firms we do this with and a couple of dozen strategic acquirers. Really, really taking off. In the last six months, in particular, I would say we've seen a huge spike in interest in doing this. Not just on buy side, but on the sell side.

Ryan Tansom: Right. I was just going to ask you, so is it primary that primarily that you're coming in as a potential buyer, representing the potential buyer? Or are people kind of like what we were talking about on a previous episode that you know, do the quality of earnings yourself so that way you're not having to have the potential buyer do it. Are you having people that are getting prepped, wanting to learn about their customers or business and kind of the state of the union before they even kind of prep themselves for market?

Anthony Bahr: Yeah, absolutely. You know, as cust- as the notion of customer diligence has become more common on the buy side as adoption of it has increased. We're seeing that it is, it impacts deals, you know? It, it can kill deals, it can squeeze valuation. So sellers are starting to take notice and they're starting to do this proactively, right. So leading up to sale, they'll say, "hey, instead of you know, instead of me having a, a couple of suitors for my company and then reaching out to my customers, why don't I just get ahead of the curve and do this myself?" Right? It does a couple things. It helps me determine if the time is right for sale, right? If I get feedback that indicates customers are at risk and there's systemic issues and to turn the company around will require significant investment that may not make the investment hypothesis worthy for, for an acquirer, it might tell us, you know, we've got some homework to do, let's implement some improvements. Let's reevaluate. Let's decide at the time is optimal for sale. It also lets us control the message, right? Because think about it. As this becomes more common on the buy side, let's say you have two or three potential buyers. Chances are they're going to do this anyways. So do you really want two or three people reaching out to your customers each doing their own customer diligence? Or do you want to be able to say", Hey, I've already checked that box", handover a customer diligence report conducted by a third party, so it puts buyers at ease, right? They're not questioning your motive if you do it internally and minimize the disruption on your customers, it minimizes the chance that they may be tipped off to the idea that something's going on, but more importantly, it lets you control the message, right? Nobody knows the state of these relationships and the nuances behind them than the people who are managing your customers. So if we can get these results and put them in context and say, "yeah, you know, they're the, they're complaining about lead times, but here's the context behind that. Here's what we're actually doing already internally." You don't have the opportunity to do that when the buyers are doing this. So it really is about message control.

Ryan Tansom: Well and, and you can't really fix much once the buyers are doing it.

Anthony Bahr: Exactly. I mean, right, think about it, if you do it on sell side, it's win-win. If you, if it's on the buy side, it could be win-lose, right? It could be win if it's validating and it gives the the acquirer or a confidence to move forward; it could be lose if it's... If it's giving them second thoughts and not not corroborating QofE and other diligence they're doing, it could taint the deal or squeeze valuation. If you do it on sell side, it's a win if it's bad because it tells you you're not ready and there's things you need to do. And if you do them, you're going to get an even better valuation. If it's good, it's also a win because it says, "hey time's, right, let's go. We have a good story to tell."

Ryan Tansom: Well I think is so interesting too. There's so many different ways I want to go with this because of how valuable I think this exercise is because I'm thinking about our last business that we had. So it was the copier services is how my dad started. We got into the IT services that document management and all these different peripheral services and you know, I think we were like 2-3,000 customers something and you always sit in these management meetings and these strategy meetings making shit up about what you think your customers think about you and you just have no idea. I was in this group meeting, a peer group meeting yesterday and one of these guys said it was an interesting thing that he does after they win a deal. They said, why did you choose us and why did we almost not win?

Ryan Tansom: And it was just like interesting because that's just one question. So think about the insights that they're getting from you because I, I think there's a huge argument for our old industry that a lot of people shouldn't have gotten into software services because it's a different business model. The customers were not necessarily needing it. There was different buyers. There was different, like all these different things that you just didn't really know and you just went full force into a, uh, into something anyways even though you didn't really know. But, so there's, can you maybe we'll take this in chunks, Anthony is like the, when you're going through this, how does that impact, you know, the client concentration, what... you know, what insights do you get from the customers, how they buy... you know, building on additional products and services? So kind of, you know, maybe just start with like what are the huge spectrum of insights that you end up getting?

Anthony Bahr: Yeah. So when we're designing this, you know... first of all, I should say this is not market research in the sense that many people might be familiar with, right? When you take a flight or stay at a hotel, you get that email with the web survey. Two or three questions. This is distinctly not that, right? Well, the way we do this is really in depth and dynamic phone conversations. You know, 25, 35 minutes on average, conducted by an executive interview or someone who has expertise in B2B interviewing with, with senior-level decision makers. And the beauty of it is that yes, we do prepare a discussion guide that's tailored to the objectives, but it's dynamic and they're conversations and if the customer brings something up that we didn't anticipate, we can follow that line of thought, extract insights that we weren't even expecting to hear going into it.

Anthony Bahr: They can also probe deeper, right? And what's nice is that it's quantitative and it's qualitative. So we are getting statistics, we are getting scores to validate, but I would argue more importantly, we're getting qualitative commentary to back up those scores. So if a customer says, "Hey, they're, they're product quality's a seven." Okay, so seven out of 10, that's okay, I guess, but what makes it a seven, right? And more importantly, what can we do to make it a 10? So we're getting a nice blend of both stats, context behind the stats, but also insights for improvement. The way we designed this, you know, getting back to your question is let's say we have a 30 minute conversation scheduled, about five minutes of that conversation upfront is dedicated to a series of questions that we asked across almost every engagement, one of which being the net promoter score industry standard metric for quantifying degree of customer loyalty.

Anthony Bahr: NPS is one of the very few metrics that is predictably reliable, forward-looking measurement of a company's growth potential. What's the value proposition? We asked what are the top areas for improvement, you know, common questions across everything we do. The rest of the time on the line with the customers, the meaning 25 minutes or so, is tailored to the category, the company and specific concern, specific objectives, specific opportunities we want to pursue. So you know, in some instances we go really heavy on the customer experience, right? What are all those major touch points in the customer experience? How are we performing today? What can we do to get better tomorrow? Sometimes we go really heavy on future growth outlook, right? Is there runway for growth? Is there innovation opportunities? Is there opportunities to increase price and sometimes we go really heavy on competitive benchmarking. Let's say we, we, we have a pretty good sense that we're strong today and we want to understand if that strength is really a competitive advantage or if you know that strength really is on par with what others are doing.

Anthony Bahr: So the way we approach it from an analytical perspective is all three of those angles, right? We look at, we look at it from net promoter score perspective, we look at it from a customer experience perspective and we look at it from a competitive benchmarking perspective, and we never really make a conclusion. We never say there's an opportunity, unless we can point to all three of those corners of the triangle and say there's, there's a triangulated story here to tell. So for example, uh, let's take price, right? Let's say one of the objectives is: can we raise prices? Is there, is there a ceiling to, to increase our price.

Ryan Tansom: You would directly ask them that?

Anthony Bahr: Yeah. Yeah. Well, we would never directly ask a customer, right? Because think about it, but it's in their interest to tell us [Ryan interjects: right, right, right.] these are too high, right? But if we ask what are the top strengths of the company? And we ask it open-endedly and they say "price", and then when we get to the ratings, we say, how would you rate them on price? And they say, well their price is too high. But then when we get to the competitive benchmarking exercise and we say how are their prices compared to competitors? And they say our prices are lower than competitors. Now we have three data points, right? Have them saying your prices are lower than competitors. Your price is one of your top strengths and your price is too high. Well of course they're going to say a price is too high. So we kind of discount that. Yeah. So in an instance like that where we have two points indicating prices might be low relative to the value they're receiving, that that's, that's, that's telling a story that there could be an opportunity to increase price. So we never look at this from one angle. We really try to take this triangulated approach and tell a more well-rounded story behind the insights.

Ryan Tansom: That's amazing. So then you know what's outside of price? I think there's a lot of entrepreneurs out there whether they're literally planning on selling or not just trying to make up their future growth because everybody's trying to grow, whether they're trying to sell or grow. It's all the same thing because the, you know, the future buyers you know want to grow it, so no matter what, this is important. What strategy and the right strategy of growth, and I think a lot of like I was saying earlier is a lot of people sit in a room with their executives making stuff up about how they want to grow, what, you know, do they go vertical or horizontal with their products and services. I mean all these different things. How do you... do you take insights from the customer, if you're on the sell side, on going to the, to the clients? Their ideas, or do you find new ones or a combination of both? Maybe kind of give a couple examples of how things come to fruition that there was confusion and then someone found clarity because of the exercise.

Anthony Bahr: Yeah, a combination of both. So what we, what we do is we ask the customers themselves how likely are you to increase spend with this company over the next few years? And they can say it's going to increase, decrease, stay the same. We then probe a little bit deeper and we try and get an estimate of what, what percentage increase or decrease and we get context behind what's driving that growth or what's driving that decline. You know, we often hear things like, well my customers demand are increasing so that's going to trickle down to the supplier. You know, we're planning to expand internationally. We want to bring them along with us. We hear, you know, a lot of tangential... Our growth is tangential to the company's growth, right? So we're complementing that. Other situations we hear, hey, you know it's going to be flat and might decline because competitor x came out with this new generation of product.

Anthony Bahr: It's more compatible with the forward-looking innovation pipeline of our own products, we're going to put more eggs in that basket, right? That's kind of going back to the guest you had on a few weeks ago. The reason that top account left was because there was a disruption, there was a new generation of product developed, the customer was working on it internally, competitors were working on it and, and we were kind of in the blind, right? So we hear that quite often. It's also an opportunity to validate ideas, right? So if we have new product or service concepts that are sort of half-baked and before we end sink money into bringing them to market, it's a good opportunity to put those concepts in front of customers, and gauge whether or not there's demand and if there's any market potential is, you know, especially in um, certain industries, we see that innovation is often born in the lab, right? It's, it's a function of R&D. We come up with some novel technology. We think this is groundbreaking. Customers are gonna love this. We, we put a ton of capital and to bringing it to market. It's on the shelf and no one buys it because we never asked if they wanted it. We never asked them if there was a practical application, so it was innovation for the sake of innovation, but no practical application. It was a fantastic opportunity to validate that before we get too far in the development cycle.

Ryan Tansom: When have you- I'm assuming, because I think you and I, in a previous conversation we were talking about the digital world does this extremely well where they asked their clients what they want. It's like, hey, if we built this or did this, would you buy it or and/or that literally are asking. People are saying, "Hey, you should build this because it's complementary." So are there, you know, something that wasn't even on someone's mind, but they like someone, someone's customer says, "Hey, you know what? Because of their product..." I mean a lot of that... A lot of the times I see it because someone's service is so good or their their way of doing so good that people would like them to expand, expanded to other areas. Have you seen like things come up that were totally unexpected that someone built out a whole new product or service because of that?

Anthony Bahr: Yeah, absolutely. So this was a, this is actually a buy side deal we were working on. It was diligence. Uh, we had our standard diligence objectives, but we wanted to reserve some space at the end because part of what made this target companies so attracted as they were developing a new generation of products and they had, they had concepts developed. So for the end of the interview we said, "Hey, you know, this company is thinking about developing this line of product with these features at this price point. Is this interesting to you? Do you think your customers would want it? Does the price value equation seemed to make sense?" The two or three concepts that we, you know, the firm concepts that we actually put in front of customers, all tanked. None of them were appealing. None of them are relevant. None of them really generated strong purchase intent.

Anthony Bahr: But we then at the very end of the interview, ask an open-ended question: what else would you like to see the company develop? And again keep in mind, this was a, this was a company with very loyal customers performing very well on the fundamentals, strong value proposition. So customers were open to innovation or I think that's an important caveat to make if, if you aren't winning on the fundamentals, if you don't have a strong value prop, if you don't have loyal customers, innovation should not be your top of mind thing to do. You need to fix the fundamentals first. So that box was checked, they had permission to innovate. Customers were expecting them to do it. So this open-ended question we had. We said, "hey, what else can the company do? What else are you looking for from them? What are, what are your pain points? What are your unmet needs? What our competitors offering that they're not? What are customers asking you for that we're not able to deliver on?" We developed 200 unique new product innovation opportunities from that one question alone. [Ryan interjects: Oh my gosh] 200 unique distinctly unique ideas that customers were saying, I'm getting requests from my own customers to offer this. Is there anything you can do to work with me to develop this? So you know, the three things we put in front of the tanks, but we got 200 other things to work on. So what actually happened is that the deal went through and what they did is what the top accounts, they actually instituted co-creation programs where engineers from the target company were on site with their customers one day a month going through schematics, going through, building out product concepts, doing prototypes, bringing them out to customers. That's been extremely effective. And the future growth outlook of the company and the future goes with the company itself has far exceeded what was expected.

Ryan Tansom: Well it it, it's so... It's so funny because the concept is so simple, Anthony, but like no one does it and it would. I just think of how many headaches it would have saved mean because the biggest thing is like first of all, most most owners don't... They don't know where... You don't know where you're going to grow and why and then to, to have your customers who have the paychecks willing to pay you and tell you what to do is just like such a shifting in mindset, but what I think is an interesting scenario and, and in a variable what it does for the negotiation where, so if you're going in as a seller and you know it's price, price, price, multiple of EBITDA or discounted cash flow or whatever it might be, and instead of making crap up about all the future growth potential, you have validated and say hey, if we do this, it's literally, I mean, you could, you could literally forecast out additional opportunities that you don't have. So it, it gets away from the EBITDA or drives up the multiple.

Anthony Bahr: Exactly right. Because, think about it, when, uh, when, when a acquire gets a sim or a lender document, whatever, whatever you generate to give to acquire, to tell your story. There's going to be pro formas in there. There's going to be a QofE, there's going to be maybe one slide in there that says, hey, here's our top accounts and here's two or three quotes saying how happy they are. The second an acquirer gets that, they're going to start picking it apart, being super... I mean buyers are becoming increasingly discerning.

Ryan Tansom: Well first of all, you look at it and immediately before you even see probably they're probably going bs.

Anthony Bahr: It could a part of the second they get it and buyers are becoming increasingly discerning about where they invest with multiples being what they are, and with holding periods extending, if they're going to spend capital in something they want... They want a home run, right? That 70 to 90 percent of deals failing stat can't fly when you're paying 10 x EBITDA and you're going to hold it for six years. That becomes unattractive. So you know they're. They're getting increasingly discerning about this and if you have great financial story to tell and you can validate it with customer feedback, if you can say, you know, the reason we're projecting a 10 percent increase in our top account over the next five years is because look, here's, here's three statistics and here's five quotes to put those statistics in context directly from the hearts, the minds, and the mouths of the customer themselves, that's going to make them feel a lot better about the estimates rather than say, hey, we did some secondary research. We bought a syndicated database that said the industry is going to grow 10 percent, so we just extrapolated that across all of our accounts. Right? No, that's not going to happen, but if it's coming directly from the customer themselves, you, how can you refute that? Complements what we're already doing this. I'm not suggesting this as a replacement for anything, I'm suggesting this is a way to validate those critical components of diligence we have to do anyways.

Ryan Tansom: Well, and I'm just thinking too about like, you know, if you got this pro forma and you've got your client's buying, they're saying that they're going to pay for something that you are going to develop because they told you to develop it, have you ever seen it where, and this kind of goes down the road uh, and I'm curious on your thoughts on you know, there's the contracts because you've got client concentration that's usually an issue with a lot of companies and then you've got lack of contracts or different types of contracts. But then let's say even before, before we go down that road, if you have a... I'm just thinking of some of my old customers or some of my clients, big customers that they kind of have that partnership like you were just talking about where they get that co-engineering or whatever it is. Have you ever seen a customer finance someone's new product or service? Because then the question is how do you, how do you finance or fund the new product or service? But have you ever seen someone because they customer bought in and sold themselves and what they wanted actually prepay or something like that for something?

Anthony Bahr: I can't say I have a specific example for that. Yeah. Uh, I would say that it's an option. It's an option. I can't say I've seen that firsthand.

Ryan Tansom: Because I'm just thinking, you know, it just, there's a couple of examples in my head that I was thinking of were, you know, the potential conversation to be had because if they wanted that bad and they're, they're willing to partner up for many, you can co-finance it together, which, you know, I think I'm just thinking now in terms of, you know, if you're the seller and you've got all these different things, you, you've built this plan. I mean pitching it to a potential buyer is extremely valuable.

Anthony Bahr: Yeah. I shouldn't say that because I can think of one example. And I think you have to be careful if it's a new product service being developed exclusively for a certain customer. We have seen instances where a joint venture was established between company and supplier to bring that to market and share some of the expenses. But I think that's a, that's pretty isolated to see. I've seen that in a pharmaceutical and medical devices a few times where the development costs are absorbing it together under the assumption that there's exclusivity, but I would say for most of what we work on is mostly the lower middle market, B2B, manufacturing and distribution type companies. I wouldn't say that's too common.

Ryan Tansom: So then I guess the second part of that question or the war that was originally coming from was a lot of these. I, I interviewed a woman named Vicky, that they did, they were doing some pre-work a couple of years in advance and they had very large customers and large concentration because they had few, uh, you know, we're in this process. Do you look at the contracts that they might have? Because you might have a client, you know, a concentration issue, but how do you, how do you help them figure out what to do about that?

Anthony Bahr: Yeah. So we don't, we don't focus too much on the contracts and that tends to be handled in more of a illegal diligence aspect. I think what we can provide in terms of customer insights is yes, there's contracts, but this safety net, perceived safety net, of long-standing customer relationships implies that for some reason the customer is stable and loyal. That's where our insights can shed some light because we might say, "Hey, you know, buyer, don't worry. They've been with us for 20 years. They're not going anywhere." Well, they may have been with you for 20 years because you developed a niche product and they needed you and the only one that can do it, but they moved on and they don't need you anymore. Right. They might have that 20 year relationship because you know, we know people don't do business with companies. They do business with other people and their account rep left, so maybe they're not as stable as we think.

Anthony Bahr: So I think that's where we learn more value is going into situations where we think we have stable accounts by virtue of long-standing relationships and we started asking questions and we find they are not loyal at all. Right. I presented a diligence report just on Wednesday, two days ago. Small manufacturing company in the northeast. Three customers were 80 percent of revenue, one customer was 48 percent of revenue. Long-standing relationships. Two of those top three were considered to be at risk. One of them told us outright that they were one to two months out from onboarding a new supplier that they were going to give 50 percent of the business to. The other- and the and the reason for that was poorly lead times, never met delivery dates. The other at risk account saw a five to 10 percent decline in spend over the next 15 years because the component that the company was manufacturing for them was going into equipment that they were planning to phase out. And these were two accounts that they had 20 plus year relationships with. Both of them were either in the process of giving business away or planning to do it, so in the next year. So I think the beyond contracts, which are. I'm not discounting the importance of looking at it. From a customer perspective, it's, it's digging into these longstanding relationships and figuring out whether or not they really are stable.

Ryan Tansom: Well, and I think you bring up, you mentioned an interesting point about people do business with people and yeah, more so than than businesses and I think a lot of... So how have you... what, what insights have you seen when. I'm just thinking about the kind of the different relationships that we used to have where you'd have like account reps or major account rep so it would have primary that relationships, right? Um, and then you're trying to figure out who should stay and who should go and who is potentially, you know, for your employees with a potential buyer. And then also... so how do you, how do you figure out the dynamics of those relationships that the people, the customers interact with? Because there's touch points within the business. And then also, you know, a, a layer above that or below that is a lot of entrepreneurs are the hub and spoke to John Warrillow's Built to Sell terminology where the owner is touching a lot of these big suppliers or their customers. So what have you seen in the air and whether they validate that because I think a lot of business owners go, I have to call, I have to call these customers because they only liked me, so have you. What kind of insights and how do you, how do you address those kinds of situations?

Anthony Bahr: That's one of the benefits of using a third party is because when someone objective is reaching out, somebody who doesn't have a vested interest in the relationship, the customer is going to give us more candid feedback on sensitive topics like personnel, like prices, like competitors. So we absolutely dig into it in in two fronts. The first is from a primary contact perspective, so we have the customer do is tell us who they consider to be their primary day-to-day contact. We don't give them a name, you know, it was always interesting to see who they think it is. We we get a satisfaction rating on their performance. We identify what they can do better. We get ratings on how well do they know your business, how strong of a partner are they, how well do they communicate with you? So we're able to understand individual performance of people, which is helpful when you're making those HR decisions later on.

Anthony Bahr: We also approach it from an engagement perspective. So beyond your day-to-day contact beyond you're doing your business as usual, how do you rate the company with the level of engagement overall? Senior level engagement, frequency of meetings, you know, are they a partner or are they more of a vendor? Do they... Are they the go-to for challenging projects for innovation projects? So we're able to get, you know, the nuance and the day to day will also understanding if there's enough engagement from senior level people that have, as you can imagine, there's implications from from staffing perspective, but also implications from how we manage these accounts going forward. Particularly to your point, you know, in family businesses where they're looking to exit and not... And the primary contact is this, the founder or the CEO has been there for 40 years. He's not going to be around anymore. How much you know, gravitas does he have, how much weight does he carry? Is the value proposition really anchored in his or her expertise? If that person walks and if one of our top strengths is our expertise in the, in the, in the area, you know, do we, do we need to shore that up with a really strong operating partner, for example? So a lot of ways to think about it from a engagement and just day-to-day perspective.

Ryan Tansom: Well yeah, so I'm just, my mind's spinning because you know, as you're getting all of these insights from the horse's mouth, I mean, how do you filter through all this stuff because you got everything from growth strategies to client relationships, to innovations, to, you know, relationships to all of this stuff. Like how do you, how do you filter through all this and say, okay, should I actually bring this to market? Should I not? What should I actually do in my business? I mean, how do you prioritize and clear through all that?

Anthony Bahr: Well, we try and make it as digestible for our clients as possible. We have an incredibly talented team of analysts who know how to pour through thousands of pages of contents and highlight what matters the most and put together really compelling summaries. But we also, you know, the reports are helpful, but they, they tell you the data in aggregate, right? X percent say this, this is a theme we're seeing. So, those reports while essential when we actually hand out the individual transcripts, right? Because remember these are phone conversations and we're able to create transcripts of the conversations. Nearly verbatim transcripts on what customers are saying. After we, after we do the presentation of the report, which is the results in total, we then break out the relationship owner for those accounts that we spoke with and we give them the transcript and we have them read it and once they see what customers said, the context in which they said it, that's what really drives it home and that's where they take ownership for it.

Anthony Bahr: You know, the, the, the ones that are vested in the success of their, their clients will take it to heart, they'll act on it and it's really eye-opening in that sense. So it's, you know, it's a function of us being able to tell a really great story with the data, but it's also a function of, you know, distributing the results on an individual basis and trusting that the people we have running these relationships are doing their jobs and they're doing what's best for their customers and they're going to take this to heart and not make excuses out of it. Not get defensive, but really consider it an opportunity to strengthen the relationships that they have.

Ryan Tansom: So what are the, what are the biggest challenges that you see people have being able to... I mean, do you see a lot of people implement what you are giving back and like pushing the sale off or you know, focusing more on growth or what, what are some of the big hurdles that people have?

Anthony Bahr: Yeah. No we haven't. We haven't done enough on this, on the sell side to come up with a statistic that we're comfortable disclosing yet. On the buy side where we've done several of these, um, we can say with confidence that 15 percent of our customer diligence engagements on the buy side result in either the deal not going through or the valuation being adjusted. So it's certainly...

Ryan Tansom: Can I, can I ask you one clarifying question on that? So the deal not going through the, the, the deal not going through and the price is being adjusted. So because you're representing the buyer, and this is for the, this is for the sellers that are out there, the entrepreneurs who have the companies and are thinking from the other side... Is it because there was so much risk that they canceled the deal and that the valuation went down because of how well you guys are peering into the customers? I mean, how often is it a good thing for the seller versus... From the seller's perspective, not the buyer's perspective.

Anthony Bahr: Yeah, it's a good thing for the seller. When, when this is being done by an acquirer, it's a good thing for the seller, based on our work, 85 percent of the time, 85 percent of the time, it validates what you're asking for. [Ryan interjects: Got it.] It gives a buyer the confidence to move forward. 15 percent of the time, it gives the buyer leverage to negotiate against you. One hundred percent of the time, we're coming up with areas for improvement, right? We're coming up with, with things we can do better. We're coming up with recommendations, but only 15 percent of the time are the things that we're uncovering is so systemic and so insurmountable that the buyer either says, "Hey, this is off the table" or the buyer, says "I'm still going to go through, but considering how much I'm gonna have to sink into this considering margin compression that might come along with it, considering I my head to extend my holding period and all those things that they're thinking about us. They'll say, hey, I'll still go through, but I want, I want a hair cut on the price."

Ryan Tansom: Um, so the, from the seller's perspective and actually from- two different ways to ask this question probably to answer it. Is because of all the different projects and the initiatives that come out of this Anthony, what you know, who ended up implementing them. So if you're the seller and you're just a solo entrepreneur, you might have an executive teams from other resources, you know, who ends up implementing and prioritizing these things that there's a, the EOS or traction that's very commonly known around the Midwest and it's kind of percolating throughout the US, but you know, there's certain ways to prioritize things and then drive specific projects. So the entrepreneur, how do they implement and then the, the, uh, buyers, do they, because of the sophistication, do they usually take and run with it themselves or what happens after the fact?

Anthony Bahr: Know what we always do. We acknowledge the fact that yes, this is diligence, this checks the box on your diligence checklist. But the way we actually position it, when I was talking about that story that we put together, we're putting together two stories. We're putting together a diligence story. So we're thinking risk mitigation. But we're also putting together, you know, knowing that when we do this 85 percent of the time the deal goes through, we're also putting together a value creation story. So of all the things that we're hearing, I'm all the insights we're collecting, assuming the deal goes through, what are the three, four, five strategic opportunities that the company can pursue once the deal goes through. And we, we put that in, you know, from an outsider perspective priority order. So we'll give you five things to work on. We give tools, we give templates, we get guidance on how to implement them so you know it. It's not like we do the report and we check out, right? We do the report, we make it forward-looking and then we're available to assist in the implementation of those recommendations that we made.

Ryan Tansom: Is there with all the data that you guys are gathering from different industries and different companies, is there common trends that you're seeing out there from people that are doing things really well or common trends that are coming out of this, and I know that's probably a pretty broad brush stroke, but any major unique things that are kind of eye-opening for you guys?

Anthony Bahr: Yeah. I think what we're seeing recently is that if you are not just absolutely killing it on the fundamentals, quality, lead times, delivery, right? If there's, if there's going to be lapses in those things, that's okay, so long as there is communication and there is problem resolution, right? We acknowledged the issue, we tell you about it, we fix it. We tell you what we did to fix it. We tell you what we're going to do to make sure it doesn't happen again. Customers are, they know we're going to make mistakes. They're fine with that. They're, they're expecting it, but I think... over the past few years, there has been a dedication to improving customer experience and customer's expectations are increasing, so if we're going to add these lapses, we better make sure we're handling it well. If we don't, not only does it discredit us on the fundamentals, it's interesting. We're hearing more and more that these issues, if left unchecked, really diminished the trust integrity in the company themselves and once customers question your integrity once they date, that don't hold you to your commitments once they question if you're really trustworthy, that's where the relationship gets to the point where it's not repairable and that's where we see accounts being at risk and that's where we see customers, like I was talking about earlier, saying I'm giving 50 percent of their business someone else because they're terrible on lead times and delivery and I just don't trust them anymore. Right? So we have to be really, really sensitive to the fact that when issues happen, that's okay. As long as we resolved it and we communicate it. I think that's one interesting trend that we're seeing.

Ryan Tansom: Interesting. Anthony, it's such a... it's such a basic fundamental of human behavior, like, just communicate. I mean, we're all going to screw stuff up, but just admit it, own it. And then even if your lead times are not hitting the mark, tell them, and then they can accommodate and then they still trust you even though you.

Anthony Bahr: Exactly. And if there's trust, you can still build on that. Once that trust, once that integrity is gone, the relationship's gone. Um, I think another interesting trend is that again, you know, we, we, we do a lot of B2B lower mid-market so my examples might, you might sound a little redundant, but you know, we work with a lot of companies that have long standing relationships and these are customers that have been ordering the same piece for 20 years and they fax in their order every week and that's it, right? So we think, oh, things are working fine. This is the way we've been doing business forever and it's working for us. It's profitable um you know, we're seeing some growth. When you actually talk to the customers. They want more, they still want engagement, even though it might be a rote relationship, it's it's on autopilot. They do feel neglected. They do want to see more and you know it. Even though it might be an inconvenience for us, it's extra cost for us, it's super important to maintain relationships. Not just at the primary contact level, but also at the senior level engagement level because minute they need a new piece. They're not gonna think of you as a go-to supplier. They're going to think of the person that's onsite every quarter visiting with them you now doing the networking with them, the ones that had that partnership status, not the ones that they fax the order to once a week.

Ryan Tansom: Well, you know what's interesting too, I'm just gonna highlight the words that you said because I think it rings true in a lot of entrepreneurs had is that it's extra costs and I think what you were referring to in relating is that it's an investment and it's almost a better investment than any marketing dollar you'll ever spend because again, they're going to tell you they're going to buy. I mean, it's, it's a necessary thing and it's an investment to keep your business going and to keep your future growth strategy.

Anthony Bahr: Yep. Absolutely. And it's a whole lot cheaper than if you lose that customer and you have to go out and acquire a new one.

Ryan Tansom: Right? Right. So, you know, we, we've touched on a lot of different things and I think it's just a crazy, awesome thing that you guys are, are spearheading in the marketplace. Is there, you know, if you were to think if you're an entrepreneur on the sell side, um, and you were thinking, you know, I'm not really sure where the next year or two, what, what I'm going to do, how do I go through this? But, you know, what is one thing that you'd highlight to make sure that they totally take away? Or if there's one thing that we've missed throughout this, what do you think it would be?

Anthony Bahr: Listen to your customers. It's such a simple thing, but it's not done that often. If you're going to put yourself up for sale, you know, two or three years out. This isn't something you wake up the next day you're putting together documents. This is something that we know a few years out, there's ample time to check in with our customers, get a sense of the state of the relationships, identify what we can do better and you know, hopefully put together a really compelling story to tell that validates our financial story and all the other types of diligence we're doing. This can be a very simple thing that's done internally. It can be a more complex thing that's done with the system of a consultant, but no matter how you choose to do it, you have to do it. Customer expectations are increasing. Buyers are more discerning. Uh, the adoption of customer diligence on the buy side is pretty common. Uh, chances are they're going to do it themselves. So why not get ahead of the curve, do it ourselves, control the message.

Ryan Tansom: And one, one last question because I think there's probably a lot of people out there. What if you're scared to death about what your customers are going to say?

Anthony Bahr: Then you're not ready to sell.

Ryan Tansom: Right? No, I totally agree with you, but like what if you, you know, if you're just sitting there and then if someone's listening right now and they know that they probably got problems and they just don't even want to necessarily hear that. I mean, how do you overcome that anxiety or that stomach ache?

Anthony Bahr: So I mean, think about, you know, I think what's interesting, and you probably have more to provide on this, but a lot of times, I don't suspect sellers realize how much it costs them to go through this process, right? This isn't something where all the costs are on the buy side. Sellers incur a good portion of the expense for doing this. Um, so if you're afraid of it, you know, take the emotion out of it, right? Think about it from a more rational, financial perspective. If you already know that you're going to get hammered by your customers. And if we, if we have a fairly good sense that at some point the buyer's going to talk to our customers anyways, why wait until we're under LOI when we're so close to the finish line? We worked for years to get here. We're 90 days out from closing. The buyer says, "Hey, give me your customer lists. I want to make some calls." That's not the... I mean that's not the time to find out what the time to find out is when you're in control, when you can still do something about it.

Ryan Tansom: Yup, yup. very well said. If there's a good way for our listeners to get in touch with Anthony, what would be the best way?

Anthony Bahr: Yeah, it's strategex.com or you can reach me directly at a b a h r at strategex.com.

Ryan Tansom: Thank you so much for coming on the show. I had a blast.

Anthony Bahr: Yeah, appreciate it.

Takeaways

Ryan Tansom: Thanks for sticking in there and listen to the entire episode with Anthony. I had a blast chatting with him because all I could think about as I was interviewing him is all of the things I wish we would've done at our previous business and how valuable his service is, just because there's an objective third party extracting all of the thoughts and insights of your customers and hand-delivering them to you so you all the different mistakes you can avoid, all the things that you could fix without having to just guest... I can't imagine how many people sit in strategic meetings just making stuff up about what they think their customers are saying about them, what they should be developing for R&D or adding for products and services when they have a direct line, if approached correctly, to their customers.

And then I think it's a really interesting idea to proactively do that because you're going to grow the value in the right direction because of what your customers are saying for the long-term. But then also if you proactively do this and you don't have the time or energy to run that execution of what your customers are telling you to, you can hand-deliver a strategic growth map to that potential buyer who will then pay more money because you validated that there is a ton of upside and you've cleaned up all this stuff that could be potential risks. So I think there's so much value in understanding this process that it's really worth thinking about, because the alternative is just making stuff up and taking a blindfold, putting it around your eyes and throwing the dart against the wall. If you enjoyed episode, go to Itunes, give it a rating. Otherwise, until next week.