Podcast: Growth and Exit Planning Are Two Sides of the Same Coin, an Interview with Ryan Tansom
If you prepare your business from a buyer's perspective, you'll get a higher price and more favorable terms.
About the Host
Mark Daust is an entrepreneur who has carved a niche out for himself in the business website industry. He knows what it takes to properly grow and sell a company, particularly web-based ones, and wants to share his insights with you. Check out his podcast here: Quiet Light Brokerage.
About the Guest
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.
If you listen, you will learn:
- My entrepreneur journey and joining my dad in the family business.
- The reasons people leave money on the table during a deal and how to avoid it.
- Why due diligence is so important and will kill any deal if done wrong.
- Strategic sales vs. marketplace sales
- How to think like a buyer and present your best pitch to a potential buyer.
- How to get your financials and value adds in perspective for the buyer.
- Know your market and be proactive in finding potential partners and buyers.
- The pros and cons of strategic sales.
- The circumstances when a strictly financial sale makes more sense.
- Good growth strategy is good exit strategy.
- The importance of having a great team of advisors.
Ryan Tansom: The reality is it was as good as mortgages because you can't cancel, so it didn't really matter when you know when you think about a strategic sale like that, the relationships with the salespeople, the admin, all the infrastructure was redundant because we can literally just take a bunch of paperwork and give it to someone else and so you're mitigating less on the sale, on the EBITDA multiples because the cash flow is not the situation. It is your handing over contracts.
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: Hey everybody and welcome back to the Life After Business podcast. This is episode 128. I'm switching it up a little bit for this episode because I was on a podcast recently with my friends, Mark Daoust and Joe Valley who run Quiet Light Brokerage and they have the Quiet Light Podcast. So today's episode is going to be me being interviewed by Mark on the Quiet Light podcast. Mark and the team are awesome because what they do, if you're not familiar with Quiet Light Brokerage, is they're an online business brokerage website and service company that helps buyers and sellers in the online space, so whether it's websites, seven figure ecommerce, Amazon, FBA sites, softwares and service content sites. Quiet Light is one of the top brokerage firms that is helping people in the buying and selling of the online companies and if you're familiar with this space, great. If not, go on to Quiet Light's website and they have so much material about how to buy and sell websites.
Ryan Tansom: So if you're a traditional business and you're looking at getting into ecommerce or content marketing or honestly you need to acquire some marketing talent, go there because they have so many different types of companies for sale. That could potentially be an awesome bolt on acquisition for you. And then if you're looking to sell it, Quiet Light's got amazing service. Absolutely love Mark and his team. And the reason I wanted to have this episode of me on the life after business podcast is because Mark's asking me about my background and my story, but more importantly about selling to a strategic buyer and how that's different than selling to a financial buyer. And we just have an awesome dialogue around both of the different topics and it's interesting because I think for my audience and for you guys here, because you'll be able to hear a little bit more of me talking instead of asking a bunch of questions to the guests. So I really hope you enjoy this episode. If you've got any questions about strategic sales or acquiring online companies, reach out to myself. Reach out to the Quiet Light team. So without further ado, here's me and Mark Daus.
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: Ryan. Hey, how are you?
Ryan Tansom: Good. Mark, how are you doing?
Mark Daoust: Thanks for joining me. It's been a while since you and I met. I think we were just talking about this, what a year and a half ago or something like that at caribou coffee here in the twin cities?
Ryan Tansom: Yeah.
Mark Daoust: You're local to me, which I like.
Ryan Tansom: I know yet we're looking at, we're sitting here on video.
Mark Daoust: Right? We should've done the very first podcast where you wouldn't have to be like saddled up right next to me. Alright, cool. Well, on our podcast we like to let our guests introduce themselves partly because we're really lazy and don't like to do the upfront research, but also because guests do a better job of introducing themselves. So could you introduce yourself a little bit to our listeners, you know, what's your story? What's your background and why are we talking?
Ryan Tansom: Yeah. Yeah, I appreciate it. I'm glad to be on the show. I'm usually the one doing the interviewing, so this is actually a lot of fun. So Ryan Tansom, my dad and I had a family business kind of the middle of, as a backdrop back in 2014. We ended up selling it. He grew it from the ground up, bought a semi truck full of copiers in the mid nineties and ended up growing a very substantial business. I think we topped out at about 20 million and 100 employees and I, uh, joined the firm full time in a financial crisis and it was pretty much a lot of all hands on deck for the seven years I was there. It was, we, we realized that the company was not sellable because, uh, there was a private equity firm that was buying platform companies in each marketplace and we had the opportunity to potentially be one of those and they passed on us.
Ryan Tansom: So we spent pretty much the next six years, seven years going okay, what do we need to do to build a sellable business that either I buy it or we sell it to someone else, we didn't really know all of options. Um, so we just rolled up our sleeves and did a bunch of stuff, built out, outsourced it, remarketed ourselves, did a bunch of stuff, and then in 2014 ended up selling it to a local competitor here, which the, uh, the sale went very well financially, but we left a lot of money on the table from the lack of tax planning and some other deal structure that things that we could have done creatively. And then also we found out a strategic sale like that if there's a lot of, there's a lot of redundancies so I ended up having to fire a lot of my good friends and family and the employees. So since then I've been on a mission to figure out how do you align your strategy with your exit strategies so that you get what you want regardless whether that's financial or you know, anything associated with your business that, you know, whether it's legacy or culture and stuff like that. So hopefully that's not too much, but it's a, it's definitely the backdrop of why I'm doing what I'm doing.
Mark Daoust: Alright. So there's a lot that we can unpack here and we're going to have to try and pick a branch and go with it because I think there's a lot that we can unpack here. Business that you and your dad sold. This is more of a traditional offline business, right? Copier sales.
Ryan Tansom: Yep. Um, we had 15 sales reps that are knocking on the doors and I wish we would have done something that would've been a hybrid. Um, and we would have probably gone that direction had we continued growing the business, but I think, you know, every offline business, which is what we were, has the opportunity to have the hybrid online stuff that a lot of the community that you're involved in, I'm involved in now.
Mark Daoust: Yeah. And I think a lot of the online community is moving towards this more a traditional business model at least in the ecommerce space. And you're seeing it also in larger SaaS companies because they do develop larger staffs and onboarding and customer service and all that. So similarities definitely are there. So I guess let's talk first about the fact that you, you left money on the table with your deal. I mean you spent six years trying to hammer the business into shape and I think there's a discussion there on its own, like how do you, as you said, how do you align your growth strategies and your business strategies with an exit strategy. But I'd like to know a little bit more about leaving money on the table. A lot of times when we say people are leaving money on the table, it's because they haven't maximized the sale price of their business. Uh, but were there other areas where you guys felt that, that you left money on the table?
Ryan Tansom: You know, I think, yeah, there's a lot of different variables in this. And you know, I've got a podcast too that I've interviewed lots of entrepreneurs that have sold and I've tried to unpack this exact topic as well and there's the, hey, there's a price. So I might want to give you a $2 million dollars for your business. It doesn't mean you're getting 2 million bucks because you're paying taxes. So there's, there's the whole deal structure, whether it's asset sales or, or stock sales or how the deal is structured from earnouts, from, you know, an SBA loan financing, whatever it is, you know, the, when, when someone starts courting you, whatever dollar amount is thrown out there's a lot after the fact of what actually comes into your bank account. So whether that's the tax planning, the deal structure, you know, escrow, all that kind of stuff. And then there's the maximizing the value of the business. So there's kind of two different key components to it.
Mark Daoust: Yeah. And I think just by way of example, a w with an online business, let's say that you are a sub S-Corp and somebody wants to buy your business for $5,000,000, great. And they're getting an SBA loan or a and everything looks good, but then you get down to it and at the end of your purchase agreement there's this asset allocation agreement as to how is this being allocated tax wise. And the buyer says, well, we want to pay, uh, you know, out of the 5 million we want 1 million to be your salary for the next two years for consulting. That's part of the purchase price. Well now that comes into ordinary income tax screws up your whole tax personal tax situation because you how much lumped. Yeah. How much are you getting from that then at that point? And, you know, for, for buyers trying to relegate towards income makes sense because they can write it off right away. If they're going towards assets, it's a longer period of time that they can write that off. So there's a lot of them. Like you said, there's a lot more complexities there in terms of the deal structure. So let's, let's, let's talk about maximizing the value. The dollar amount. Did you go, do you feel like you guys left some money on the table with that?
Ryan Tansom: No, actually I think we, we did as much as we could have because our business naturally I got to peer into what is the, honestly the best kind of business because we had contracts that were locked in with recurring revenue backed by bank financing or bundled in with maintenance. So like if you wanted to buy, you know, managed it services with bundled in with servers, firewalls, maintenance, copiers. I mean you'd be paying, you'd be bundled in, financed and then it'd be 60 months typically and it'd be in. It's as good as a mortgage. So when you're looking at what we did and what our industry, it wasn't something that we were like geniuses or anything like that. The whole industry had been gone that way and it's, I think it's the whole industry was built off of greedy salespeople. The reality is as good as mortgages, because you can't cancel, so it didn't really matter when you know, when you think about a strategic sale like that, the relationships with the salespeople, the Admin, all the infrastructure was redundant because we can literally just take a bunch of paperwork and give it to someone else and so you're mitigating less on the sale, on the EBITDA multiples because the cash flow is not the situation it is.
Ryan Tansom: You're handing over contracts. So I don't think there's anything we could have particularly done on that aspect to maximize the sale of the business. But the industry itself taught me what we got lucky is pretty much what it came down to versus you look at all these other businesses where they might be a $50 million dollar consulting company and there's nothing to sell besides a bunch of people. So I realized after the fact, you know, that we got lucky and then there's a lot of other ways too. We couldn't wait. There's a lot of other ways to maximize the value of the business from the strategic operational side like that. And then it comes down to, you know, we sold a couple branches prior to selling the corporate headquarters. So the first time we sold our branch, we got about half the price because we didn't have the preliminary due diligence done. They didn't trust us, we couldn't get the right documents and all these different things. So there was technical stuff on that aspect that we, by the time we ended up selling, we had, we knew what questions were coming at are coming at us and why.
Mark Daoust: How did that impact the price that second time around?
Ryan Tansom: The second time around, will we ended up, we closed in two weeks on a very substantial sale. So average closing is, you know, you're talking months and months and months. It was because it was. We came there with a package and said, this is exactly what we have, here's our profitability, here's where every single dime goes in and out of the business. Here's why. Here's our employee contracts, customer contracts, vendor contracts. I mean, everything was just ready versus the first time. I mean, it was like we were bumbling. Idiots didn't have any clue what they were asking and why.
Mark Daoust: Yeah, we. We've created a very simple paradigm, a quiet light brokerage to that we call the four pillars of value in that is look at the risk of your business, the growth opportunities, how transferrable it is, and then the last one will be in documentation and I think sometimes people take that documentation but light as to, well, it may not really make that much of a difference in the value of the business it's just gonna make it easier. It actually makes a difference in the value of the business.
Ryan Tansom: 100%. Yup. I got people that I know that I've interviewed and talked to where their value actually went up by 30 percent, 30 percent because. But with the click of a button, especially with like dropbox these days in software, we're like, you can, hey, here's everything and you can get more buyers to the table quickly if you can do that instead of having to trudge through all these documents, but you know, you end up as the seller and the guiding this guiding the process more than the buyers because in the marketplace, 90 plus percent of the time the buyers are coming in there and they're going to find every reason to discount that company so they can make a return.
Mark Daoust: Right? But, and on top of that, it's risk, right? So a buyer, it takes a little of business with poor documentation and they don't know what they don't know. And so they see that as being risky and they will discount and account for that risk as well. And the purchase price. And you don't have your stuff together, you can't defend against it. Yeah. All right, let's talk about strategic sales because you guys did a strategic sale and this is something that, uh, I find there's a lot of questions on. Firstly, let's talk about what, what's the difference between a strategic and a marketplace sale, uh, in your, in your world?
Ryan Tansom: So, and it's my world, it's every world, right? So as your sale, let's start with the financial side of the financial sale, whether it's an ecommerce business or if it's a traditional business or whatever it is, someone's looking for cash flow, what's transferable? Cash flow. So if I wanted to buy Quiet Light, if you guys are dropping half a million bucks to the bottom line or whatever it is, I want to. How transferable is that? So that's where the multiple EBITDA comes from. So you know, if, if it, if I can buy that, that cash flow without having any risk that it's going to decline, then you apply a multiple, which is how many years, what's my rate of return that I want? Three years, five years, whatever it is. And the more transferable that is, the higher the multiple goes up. So I mean, someone that's looking for cash flow, is a lifestyle buyer, a private equity buyer.
Ryan Tansom: You know, I would say there's also strategic financial buyers, which is someone that understands M&A extremely well and knows how to do this, you know, that that's kind of like a hybrid, but so they're looking for cash flow and they're applying a rate of return based on the risk of the business and the asset. Then you in the strategic sale, which I think is one of the funnest ones because every business owner, every entrepreneur that I sit down in front of or right talk to, you know your business and your industry better than anybody that's out there. Right? So you know who you would partner with, where the collaborations would be all these different things. So it's all, and I don't want to say the multiples even to go out the window, but it's more of how fast in terms of thinking of rate of return from three years to five years or whatever the buy might be. And the rate of return is how fast can they pay for that. So regardless of the EBITDA, now you're saying, okay, well are there complementary products and services? Is there, you know, cross pollination between customer lists, you know, is there a horizontal or vertical ways you guys can expand and if you can think about everything in the terms of the buyer, the strategic buyer and what they would do with your business, you can literally model it out for them how fast they can pay for your company.
Mark Daoust: Yeah. All right. So this is great. I want to talk about this because we get this question. Oh goodness. Probably one out of every four or five people to contact us to sell. One of the very first things that they say is, well, I have a few companies in mind that might be a good fit for us and they're thinking in terms of those, uh, that, that a strategic sale and I think it's going to be much more valuable to them and there is some truth to this. The web hosting industry is a classic example, right? Web hosting at the very first company I sold working with quietly brokerage, or when I first started quiet light brokerage was a web hosting company. And what posts? The company has tons of roll ups because you have just a bunch of user accounts that are on servers and it's very easy to migrate those user accounts over to another server, keeps packages the same.
Mark Daoust: It's really just displays and transfer rates. At least at the time, that's what it was. And a monthly contract, so it was really, really easy without transfer over all the staff. So like you said, all of the expense profile of those companies, you didn't really care about that because if I'm the acquiring company I already have, that was expensive profiles, I know what it costs me to host four or 500 clients. So it really became a client count. Now when you're talking about a strategic sale, like you said, there's, there's not only the redundancies which you've dealt with firsthand, it sounds like in your sale redundancies where you have multiple sales people doing the same thing, so you have to let some people go, but there's also the synergies that might crop up with one company that's in a neighboring industry. Right, right.
Ryan Tansom: Alright. Well, so like for us it was a, we didn't sell telecom, it was the one thing in it and office technology that we didn't do. So you say, okay, we got it two or 3000 accounts, how many people can you sell telecom to? Probably so that's not guaranteed profit that they're going to make, but it makes a deal with better. Then you can make some basic assumptions or something like that and then you know, cash with order, discount on suppliers. We weren't taking advantage of that. Can they, you know, so you start to think about any way that you like going to that buyer and saying here's all of the things that you can use. Literally packaging it up for them. And you know, I think there's some people that you and I know in Rhodium Nyc that. So using the, they started their family started in the retail, a wedding industry.
Ryan Tansom: They got online. Well weddings usually don't have repeat customers. You know there are a couple every now and then, but usually dealing with subscription services. So you know, what are different ways that they can expand their products and services. Because they have a crazy amount of volume that come through their doors every single year because they've got a, they've got a very good foothold in Minnesota here, but so is their robes, is their jewelry, is there other things that they can sell them and they know their volume of their customers so you know, yeah, there's the sale or the purchase price and the profit, but they're more looking at it. Do I build it or do I buy it? So they know how long it's going to take the opportunity cost of how long it's going to take the build it, screwing things up, all that kind of stuff.
Mark Daoust: Right, right. Alright. So let's talk about how you would, let's say we have a listener out there, they own a business and they're thinking, you know, I'd really like a strategic sale just because my business is unique enough. I think there'd be enough benefit for maybe three or four companies that are sort of in my industry. How would they want to go about preparing their business and thinking about that exit, a potential strategic sale?
Ryan Tansom: That's a good question and I think, you know, you know, this whole conundrum of exit planning and growth planning that I think I believe that if entrepreneurs are running the business the way that they should and working on the business not in the business and treating their business like an actual investment, then it is like where are all the different options that I can sell to whenever and how fast can I divest? So it's being ready no matter what. If you're loving and addicted to the girls and you're having a blast, great, but always be ready. Industry is that change. Google changes their algorithm. Facebook gets kind a little bit, uh, uh, heat like they are right now. Always preparing yourselves so that, you know, the first and foremost at the due diligence, your docs and knowing really cleaning up your financials because if you can't answer any kind of questions that even your friend would ask the buyers, you know, just completely slammed you down.
Ryan Tansom: So getting your house in order and the financials and the due diligence is one thing. But then thinking about, okay, so if these are going to be the five that I, you know, these five, you know, these five companies are companies that I could eventually sell to, who are they and what and why and how will your decisions in the business affect where you're going. So for example, if one of the companies is running on, you know, is an Amazon merchant or something, or if someone's running on shopify, don't go build out of Ingenico, you know, spend 300 grand in Magento. If someone that you're going to sell to is doing shopify. I mean this the same thing that we did. We spent 300 grand in an ERP system because 85 percent of the people in our industry had it. So that's why we can close in two weeks.
Ryan Tansom: So knowing you know, how you're spending the money and why in relationship to where you're going to sell and knowing again. So if you think about, you know, in a, in if there's a, if your service has complimentary services to someone else, don't go spend a bunch of money building out something that they have because you're not going to get the return. So you're going to spend, you know, there's immediate cash flow but then you're not going to get the actual because they don't see any synergies. So I think it's aligning where you want to go and why and then also the strategic decisions that you're doing in between there.
Mark Daoust: Yeah. Alright. So I want to actually bring this to a really basic level here because I think it's an important point to make, especially when we're talking about strategic sales. I think people get with a financial market sale where you're just taking a look at your EBITDA, you're taking a look at the profitability of the company and you have Joe Blow buyer come in who really isn't related to the industry. We all know that he wants to get a return on that investment after three or four years. You know, they see that investment come back. And so it's pretty easy to apply a multiple sometimes when we're talking about strategic sales people kind of go crazy and they start thinking, well look at all the upside potential that is going to come about from this. And so they start blowing their valuation expectations through the roof because the sometimes strategics to get really high relative valuations of these relative to the financials. That said, I'm making very, very basic statement here and I'm sure you would agree, strategic still need to see an ROI, right? They still need to see that return on investment. Yeah. So what you're saying is when you're building out your company, when you're really planning that exit and working on the company, think about the ROI that the potential buyer is going to have and don't build something that is going to be super expensive for them to migrate over. Right?
Ryan Tansom: Right, right. And, and, and it's like, so how we went about it is I want to, I want to know this business, I want to know why they should buy this business more than anybody else. So like I want to know everything about their business. I want to know exactly what their marketing strategy is, what their profitability strategies, I want to know their strategy just as well as they do, whether you can or not because then you can show exactly how you fill their strategic plan based on what they're buying.
Mark Daoust: Right. Alright. So let's talk about modeling a little bit about when you're talking about a strategic sale in New York case with, with your dad and your business. There were redundancies and staff and so when you're looking at presenting the financial picture to a potential acquiring company, how did you go about that? How did you pitch as far as the Roi?
Ryan Tansom: So I had like literally our entitlement. We had cash flow statement and get, I learned, uh, we learned a lot the first time, right? So I knew every single penny that went into that business and why? So we, I mean we went, we did some serious cash flow modeling, so we had our whole p and l and then we had the forecast of what was going on. So sales and the cost of goods a profitability. And I hacked a bunch of stuff through it and I said okay. And we, I like GL code by GL code, Mark. Like wow, we did it. I know. Because you know, there's the, the financial buyer, there's the add backs, right? So you know, a 100 grand might be 300 grand on the value or you know, plus her, you know, whether it's being added to the value or not. So usually in the financial buys you want to take that off to increase your eva. So that way it is applied to the multiple. But in this is 10 the same thing. We're just saying, okay, you don't need these people, you don't need these servers, you don't need these things because you are, you already have them, you know, so that is all dropping to the bottom line which will then help them calculate the Roi. So we just looked down and we said, okay, here's how much of the expenses you can take out of this with these assumptions. And then we went back and forth and said, well we actually need these people. We need these things. And then you're just negotiating back and forth, but it was not more in the add backs. It's more of understanding what are the redundancies and the strategic value behind the two. So it's, it's, it's a similar exercise, but you know, the outcomes actually kind of the same, but it's more specifically to operations.
Mark Daoust: One of the key pieces I think needs to be understood as you need to understand the industry and the business itself. Now we worked with a financial, um, uh, what was, it was a forex lead site. This was several years ago and they were getting lots of leads that they were selling and they wanted to arrange a strategic sale to a forex broker because they knew that they were generating these leads. And so the equation really became, okay, we know how much we're getting paid on an affiliate basis for these leads. Put as a forex broker, here's where the dollar amount for valid leads are. And now we can start to modeling out what does this look like? What does, how much revenue is this site really making from a forex broker standpoint? And then you have a value proposition there.
Ryan Tansom: It's literally about knowing both of the businesses and the industry as well as you possibly can so you can just design exactly how it looks and then you back into numbers. You know, I'm just kind of just making some other things up. But like you know, when you and I have talked and I think that was when you were on my show, we were talking about the hybrid of, you know, the online versus offline. And so if someone has literally the best data ever on their drip marketing, their automation in their online marketing and nosy the, they've got the entire cost of acquisition of one lead and whether it's facebook ads or Google ads, all with the email marketing, they say here's how much all this stuff costs. They can go in and if you can layer that in and sync that up with an offline business, it's like there's some huge power there because you know that they're not doing that potentially. So you can. There's just so many different ways to design it. I guess that's kind of the fun part.
Mark Daoust: Yeah. And the nice thing with strategics is the, there's really, you have the ability to blow a traditional evaluation out on the water, right? That's one of the big advantages. Transitions can also be a little bit easier because they already know the industry and so you don't have the same. Here's how you do this little process that you should probably know anyways. It's a little easier to transition when I talk to people about doing strategic strategic, I often tell them that I don't think it's a good idea for them. And the reason I say that is mainly because they're difficult to do if you haven't been preparing. How long do you think it takes to really prepare business for a strategic?
Ryan Tansom: So I think you know, was maybe it was. I'll go back a couple of steps, which is what's the order of operations I think you should do to do this correctly, right? So kind of the assumption is that repeat is get your foundation set up, build your financials, build healthy business from reoccurring revenue. You know, the clarity of all these different things, making sure you don't have a bunch of a concentration in one client, all the typical ways of de-risking your business, and if you're striving to make a healthy business like that, then you have lots of options and so at the bare minimum you should be able to sell to a financial buyer. So then call it the three to five times multiple of EBITDA. So you know that financially going, okay, if it's 200 grand, I know that I'm going to be getting $600 to a million, whatever it might be.
Ryan Tansom: Right? So I know that's how that's my target. But with the strategic sale you can completely blow it out of the water. But that's Kinda like hunting. It's hunting for Unicorns or really specific synergies. So you mentioned five people, that's fantastic, but what if they don't want it? What if they're struggling? What if they don't have the money? Don't have the ability to get bank, all those different things. Those are things that you don't know and yes, you should work towards them. So I think to answer your question, I don't know, but what really helps with that, it's like we knew our buyer. Half of our employees, it's hot back and forth, you know, we were in the same industry trade associations. So, um, I actually, I talked to the woman I interviewed yesterday on my show, she said she wished she would've spent two to three years building and fostering those relationships. So those people could have been at the table. She didn't do that. So this is more relationship building, going to Rhodium weekend, going to the YEC events, wanting to shop, talk, all these different things where people build relationships and then those things, what ends up happening is it happens at the bar, over a napkin and then you back into stuff.
Mark Daoust: Right? So that's actually the number one tip I give people that want to do strategics: Is if you want to do strategic two or three years down the road, if you want to do a strategic two or three years down the road, contact the companies now and don't say, Hey, I want to sell to you. Just contact them to do that real networking stuff, get out there and once they become aware of your company and you start to learn each other's companies, then you can sort of see that conversation for down the road.
Ryan Tansom: You get on their radar, right? Yeah. Because you're not on their radar otherwise. So like, you know, there, there was actually a really interesting story that I heard Mark from, uh, one of the guys I interviewed on my podcast where he was at a trade association. He started talking about his base competitors and he goes, why don't you buy me? And that's how he started. And they started BSing and then they went around and then the guy, the guy that said, you know what, why don't you just, let's have a quarterly, every six month call and see how you're doing. And these people literally told them exactly what to do so they could buy them. [Mark interjects: That's great.] That's super unique. Right. And he was a, his name is norm Brodsky. He wrote street smarts and he was a part of the small giants book. So he was on the cover of inc. And yet a lot of exposure, but like I think the concept is very unique because if you wanted to buy my business, why don't you just keep telling me what to do and then if everything works, I mean that's like I said, it's, it's kind of shooting for the stars, but I mean, hey, you got really nothing to lose at that point, especially if you don't need to sell.
Mark Daoust: Yeah. All right. So I, I, you said a couple of things a little while ago I think is a good foundation to have and this is the general advice and feel free to disagree with it if you disagree with any of the advice to the public and people. I'd love your perspective on this. Uh, with strategics. Yeah, you can get the out of the water valuation sometimes, but it all starts with first making your business a financially viable business and something that you could sell on the financial market. You are dealing with fewer buyers. This is probably the biggest obstacle to a strategic sale. You know, you might have a half a dozen companies that could potentially acquire a business. And the mistake people make is they say, I want to sell my business and then they call it abc company and abc company saying we don't have a million dollars or you are not in our annual budget this year, you know, acquisitions we're not in our plans for this year.
Ryan Tansom: They may have the money, but like everybody's busy. Right. So what if they're developing their own software and doing something else, they might just not have the physical time to integrate the two companies.
Mark Daoust: Right? Right. Yeah, absolutely. So, so you need to have that relationship in place and it has to make sense. It has to be a natural evolution. Kind of like a marriage, right? I mean...
Ryan Tansom: I mean you're partnering up with someone.
Mark Daoust: Yeah and the last thing I would say is take a look to see if it actually does make sense. That first company that I sold in the hosting space, I could have sold that very easily in a strategic sale because there are so many strategics happening. We did a financial sale because we weren't going to get more money. So where you can often blow the top off of the valuation with the strategic. It doesn't always happen that way. Sometimes financial action does work a little bit better. Kind of a weird, odd case.
Ryan Tansom: Here's one. Sorry. No, no, go ahead. Please, please. I think the one thing too that people really need to think about because you might blow the valuation off the charts, but I'll tell you what martin was the reason I do what I do now is because we got the financial target that we wanted to hit. I literally had to fire 60 of my friends and family. So if your culture in your employees and the clients and what are, what's more important, like you have to understand what's important to you because in the strategic sale redundancies are huge. So how will, how will you stomach that afterwards, like going and calling all of our employees in there was we had 85 or something like that at the time and that they only kept two. They only kept the third. I mean like that's literally the stomach ache. Are you going to be proud and happy, but what you built is it, is it just a financial target? And that's fine and you know, you have people across, you know, dispersed across the us and there's a lot of va's and you're not overly loyal to them? Or if there's people that you care about, like knowing what they play, what role they play in that strategic sale I think is extremely important so you can calibrate against your other options.
Mark Daoust: Well that's a really, really good point. So what do you do now? What are you doing these days, after the sale of course?
Ryan Tansom: So, uh, other than being a podcast like yourself. So we have a company called GEXP Collaborative, so it's growth and exit planning collaborative is what it's what it stands for and it took a lot of time in over the last four years of... It is exit planning, I just, I think there's some negative connotations to it because you might not want to sell right now, but it's literally about having a good business. So we combined the two, which is growth and exit planning because it's like we're like, we've been talking about what are your plans and then how do you back into all your strategic plans based on where you're trying to go with your options. And I've found some amazing people in the industry that have dif, different disciplines because you've got legal, finance, I mean the insurance deal structures, you have the business brokers, you've got all these people and they all play a role and how do you back into that plan.
Ryan Tansom: So if you kinda think about it, almost like a building. If you start with a building, you're gonna start with a budget and a blueprint because you can build a building without either of those. So the budget is your financial targets. Where do you want to go and why? So is there a debt net dollar amount that you need or a cashflow amount that you need? And then what's the blueprint? So what are the five different strategic buyers? And then you get the 16 year old financial purchase timing roles, responsibilities, and you back into it. So you can then hire the team remains. So the growth and exit planning that we do with our, with a collaborative team is literally building the budget and the blueprint and then actually coordinating the team, like a general contractor because it takes... No, no one person can do all this stuff. That's, I mean, I've been doing it nonstop day in, day out for years and I still couldn't single-handedly help someone.
Mark Daoust: Yeah, there's a lot involved with that. Um, if somebody is listening to this, uh, one of the misconceptions we run into all the time, uh, with, with clients that come to us, they come to us and say, I want to sell. I'm not really ready because I didn't plan ahead. Maybe I should've talked to somebody two or three years ago. And so we try and get people to talk to us, the brokers a few years in advance. Um, for you though, you're, you're focusing again on that growth as well. So even if somebody isn't ever really planning to sell it, still make sense to talk about that growth.
Ryan Tansom: I mean, because the reality is you're going to divest your business at some point. I mean there's people like I work with and it's more in the baby boomers. Well, they're going to die in their business, but then you know, what you're doing is you're working on the shares and the estate planning and dispersing the shares to employees and two kids into a trust. So he's still going to sell his company. So that's, and you know what if he, he loves it, great. But then there's the build a sustainable business that has value and has cash flow and you've directed so you can literally do whatever you want whenever you want. So yeah, you're right. It's, it's coming ahead of time. But then also knowing that people like you and building those relationships so you, you can't do this at the last second. You're going to leave money on the table. You're not going to be as happy with the terms and conditions. And so many times, mark, and I don't know if you see this, but a lot of people that are out there, the people that are on aggressive growth path, their own acquiring companies, so the ato blue offers happen all the time. So whether it's PE firms or funds or other strategic buyers and you get that, how do you know what to weigh that against if you don't have a plan? So you don't even know like how much am I going to get? What terms? I mean, you're thinking on the fly and that usually doesn't go as well as it should.
Mark Daoust: Right? I mean, the number of times I've heard from clients who get into this process and say, man, I really wish I'd contacted you in europe a year ago. I mean, it happens all the time. No one ever thinks about selling their business until they actually want to sell their business. And I think what's really cool about what you're doing is you're focusing again on not just the exit, if focusing on the growth. Um, because a good growth strategy is a good exit strategy. They often go hand in hand.
Ryan Tansom: Get back into it, you know, just a little plug for you guys too because we do not do what you do and I think a lot of entrepreneurs they really think because they understand their business so well that they can sell their business by themselves and oh my gosh, is it's the first time you're going to do it and why you like every one of those professionals should pay for themselves and should be your return on investment with the spin because you know, it's an emotional rollercoaster first of all and it's like a 24 slash 24 slash seven fire drill when you're in the process, which is what your team does. Right. So I think all the people, if you have the right advisors and that's another reason we left a lot of money on the table because we didn't have the right advisors. I mean it wasn't people that do it all day long. They do transactions, they understand the market, your industry. And so having the, having the right team is crazy important.
Mark Daoust: Yeah. Alright. Let me give you a plug as well. If anyone listening to this enjoys the Quiet Light podcast and hopefully you do, if you've listened this long, I'm ryan's podcast talks a lot about the same stuff. You talk a lot about selling and you talked to a lot of entrepreneurs who have sold their businesses before, um, and uh, you go over a lot of the same material but with a little bit of a different spin to it. Really, really high quality content. And another one, what was the name of the podcast? Where can they find it?
Ryan Tansom: Life After Business.
Mark Daoust: Life After Business. Awesome. So we will link to it in the show notes on our page, on our podcast page. We'll also link over to Ryan's website. Uh, and Ryan, anything else that you want us to link or to you want to draw attention to please feel. Any closing thoughts?
Ryan Tansom: We've got a resources tab just like you, you're, you're my model, right? So like I said, a year and a half ago, you know, you put me in the right direction with the presence I wanted online. So we've got white papers and resources and podcasts and all that kind of stuff, so.
Mark Daoust: Awesome. Awesome. So defInitely check out a site and feel free to reach out to him if just want to talk. He's a good guy to talk to you and I can talk all day about this stuff. Um, and someday we probably will. Awesome. Thanks for coming on. I really appreciate it.
Ryan Tansom: I had a blast, Mark. Thanks.
Ryan Tansom: Hey everybody. Will. I hope you enjoyed that episode. It was a lot of fun being able to talk with mark and it's interesting being on the other side. It's a totally different dynamic because you have to be more on your feet versus just being able to ask people questIons out of curiosity. So I hope you enjoyed it. If you get any questions for myself on any of the topics that mark and I were talking about, reach out to me on linkedin or go to the GEXP Collaborative website. We've got a bunch of guides there as well. Mark has a ton of material on the Quiet Light site, so if you're interested in buying or selling an online company, reach out to Mark or reach out to me and I really hope you enjoyed it because there's a space here that I think is pretty green, so if you're interested in the merging of the online and the traditional space and how to bolt them together, I think it's a very, very worthwhile topic to explore and put some energy into it. So if you really enjoyed this, share the episode going to itunes, give me a rating so I can be getting additional guests. If you have an idea of a guest that you think would be great for my show because they're willing to share their story of growing and selling a company or there's an advisor that is really, really unique with their skillsets and could offer advice to everybody else. Reach out to me because I'm always looking for great new guests. And then with that being said, 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.