Podcast: Have You Ever Considered an IPO as an Exit Strategy? Interview with Cathy Demers
Ever wonder what the process looks like when you turn your business into an IPO? Did you ever think this could be the perfect exit for you when you're ready for the next step? Cathy Demers tells you her journey and shares the wisdom she derived from it.
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 The Value Advantage™ that helps in exit planning, value building and financial management.
About the Guest
Founder of BusinessSuccess.com, and host of the Business Success Cafe, Cathy Demers is known for her direct but friendly and supportive style as well as her business savvy and “let’s get ‘er done” approach. She combines the wisdom that comes from her vast business experience with her unique talent for helping business owners get fantastic results by being clear, staying focused, and taking inspired action. When it comes to proven business success, Cathy Demers is not a “wanna be”. In fact, she co-founded a company with a tiny $10K investment and successfully launched an IPO, turning it into a publicly listed company worth over $20M.
Winner of the Canadian Woman Entrepreneur for Western Canada and a member of the Forbes Council of Coaches, Cathy is a sought-after expert and has presented keynotes and courses for organizations worldwide, including the Women Presidents’ Organization, Wired Women, and Novice to Advanced Marketing Systems.
If you listen, you will learn:
- All about the day that Cathy decided to become an entrepreneur, what her business idea was, and how she and her business partner went about gathering up the money needed for them to get started.
- How Cathy got into using recurring software before it was popular.
- Why the partnership needed investors and what type they were looking for, as well as why they chose the angel investor that they did.
- Cathy’s thoughts about the negotiation process.
- How the growth process went once the company went public, as well as some of the stressors that Cathy didn’t anticipate.
- Some of the key things that had to be done to prepare for the IPO.
- What the process was like, Cathy’s emotions, and how her day-to-day role changed.
- The decision to exit: how Cathy and her partner knew it was the right move.
- What Cathy did after she exited the company.
Ryan: Welcome to Life After Business the podcast, where I bring you all the information you need to exit your company and explore what life can be like on the other side. This is Ryan Tansom, your host. I hope you enjoy this episode.
Welcome back to the Life After Business podcast. Today’s guest name is Cathy Demers. I was super excited to have Cathy on the show because Cathy took her company public and she is going to share with us the entire journey. She started her career at IBM and Microsoft and then back as the internet was really coming around, her and her business partner came up with this idea about how to create a gateway software that was able to take the internal private email of businesses and then connect them to the World Wide Web.
Cathy and her partner took $10,000, bought a computer, and then took this to market. After getting some gold plated clients, they were able to build some recurring revenue to attract an angel investor whose soul focus was to bring the company public. They eventually went public for $20 million and Cathy is going to share with us the entire ins and outs of the challenges that she had as she was going public and then how exiting a public company is actually potentially more difficult than it is taking it public because of all the compliance and intricacies of having everything you do in the limelight and being public.
Cathy gives a very, very great picture of how she transitioned into a life after and started to find her new mission and purpose to help business owners and help people find their why. Cathy is extremely involved in Forbes as a Forbes council of coaches. She is Women Presidents’ Organization, Wired Women, and Novice to Advanced Marketing Systems, just to name a couple of them.
She also owns a company called businesssuccess.com, where she’s done over 200 interviews and it’s a 20 minute nice little coffee break for business owners who are looking for some advice. I really hope you enjoy this interview with Cathy. She did a fantastic job explaining her journey so without further ado, here’s the interview with Cathy.
Good afternoon, Cathy. How you doing?
Cathy: I’m doing terrific, Ryan. Thank you for this opportunity, I appreciate it.
Ryan: I’m looking forward to your story because I think it’s a very good one. I got introduced to you through Chris Yates’ [00:06:50] Community. I think we’ve had them on here and we’ve got a really interesting story that I think you’ll be able to share with us because a lot of our listeners do not have a lot of exposure into the IPO world. Before we really dive into that, can you go back and for our listeners’ sake, explain to us the day that you decided to be an entrepreneur and how did that unfold?
Cathy: I remember the day quite clearly. I had that work for a long time, as you know Ryan, for Microsoft and then I went on to work for IBM. While I was with both of those organizations, it was highly entrepreneurial. At Microsoft, I was their second employee in Western Canada. We didn’t even have an office. I was working on the coffee table of my manager who managed Western Canada.
It was kind of funny because I had to make sure that he was out of the shower, ready to go before he went into his home to work. It was wonderful. It was so entrepreneurial. I loved it. Even within IBM, I found myself gravitating towards entrepreneurial pursuits. I got internal funding for a large multimedia center and basically built that from the ground up within this large organization. It became really obvious to me that I was a dyed-in-the-wool entrepreneur and I really needed to do that.
The day that I started this business that I eventually listed on the stock exchange was very momentous. I remember talking to my business partner and he had an opportunity, an idea, I’ll spare you the technical details. He was the geek of the outfit, Ryan. In my world, geek is a term of endearment.
Ryan: We both have got the IT background too so we’ll spare all of the listeners from the technical stuff but I think explain a little bit about it because it’s some pretty cool stuff that you guys are doing.
Cathy: I’m a marketer, not so much on the technical side, I can figure out how to push a few buttons. My business partner who was the technical brains of the outfit had this idea. I’ll just give you a real brief explanation for it. At the time, it was very difficult for companies, large organizations with distributed offices worldwide to connect their internal email systems to the internet. It was difficult and it was expensive.
He came up with this strategy of basically back calling all of that work into a central location, required a very expensive computer. I went, “Wow. This sounds like there’s a real opportunity here. I’ll go and talk to a few people who might purchase it and if it looks like it has legs, I’m in.” I went and talked to half a dozen potential clients, which is the way you’re supposed to do this, talked to half a dozen clients and they said without exception, “If you build this thing, we will buy it.”
I went back to my business partner and I said, “That’s it. Let’s do it.” We scraped together $10,000, which was all we had at the time and he spent it on a single computer. All of it. The entire $10,000. They were a lot more expensive back then but we needed something really powerful and then we were broke. We had a few clients lined up, it was a recurring revenue model, relatively small monthly billing that we were hoping to build over time.
When you’re in the high-tech business, you know this, Ryan, I’m sure, you need to grow very quickly. It’s very difficult to do that without financing. Also, one of the things you come up with pretty quickly is the landscape change is very fast. You have to be light on your feet. We were in some ways just slightly ahead of our time, which is not a good place to be if you don’t have enough money to grow quickly. Basically, that’s when we started going out looking for financing.
I did a few rounds of private financing and the exit strategy for those people who are helping to finance the company and eventually for ourselves too, was an IPO. That’s how that came about.
Ryan: I love it. There’s so many different dovetails that I wanna go into. Let’s start at this recurring revenue model that you’re referring to. You bought the $10,000 computer, when you scraped all the money in together, what was the business plan? How do you project what you guys wanted to accomplish? Did you fall in the recurring revenue model or was it specific and intentional?
Cathy: It was very specific and very intentional. Both my business partner and I had been quite successful working in other organizations or doing consulting. That’s a pretty tough way to grow a business especially if you want to exit at some point, separate the business from yourself. Right from the get go, right from the very day we opened our doors, it was based on a monthly recurring billing.
I remember our very first client. When I quoted him the monthly price for the number of users that he had, he said, “Can I pay for a whole year up front?” Inside, I went, “I don’t know how we’re gonna do that.” But to him I went, “Absolutely.”
Ryan: I will go find a place you can wire the money.
Cathy: When we started to scan around for potential partners and investors, we had a revenue stream already setup. It wasn’t huge but we had some gold plated clients as far as the recognizable customer names. They could see our revenue each and every month. We knew how much money we had coming in this month. We knew the next month, it was going to be similar. If we didn’t build, we might have had a few customers leave, obviously. But it’s very easy when you do that especially for an investor, it’s very easy for them to project out.
If we had more money to offer more services and to do more marketing and bring in a sales team, then it was a curved line, like a hockey stick, in projecting our revenue. From an investor’s perspective, the proof is already there, people were already paying monthly and it was just a matter of growing those numbers.
Ryan: What were you billing the monthly services to? Were you selling hardware? Were you selling monitoring services? Exactly what was the services that they were paying monthly for?
Cathy: The equivalent in today’s world, in today’s language, it was like a software as a service. Without getting into all the technical details, I’m going down rabbit holes here. Basically, what we did was we provided an offsite gateway that would translate their internal email, which was in a proprietary system, to internet email. We were the gateway for that. We handed all the technical requirements to get the email from their internal systems out to the internet, and from the internet back into their internal systems.
We wound it all centrally and we charged them a monthly fee per email user, per email address. A relatively small fee if it was a small law firm with 20 employees and a larger monthly fee if it was a large organization such as Intrawest that has ski resorts all over the world, then we will charge them a larger monthly fee. They loved it because it meant they didn’t have to handle any of that complexity, any of the technology. It just worked. We just bought bigger and bigger servers.
Ryan: You wouldn’t have to sell them boxes or anything like that. Was it software that you’re putting on that gateway or was it actually an equipment that you were financing?
Cathy: No, it was a software on the gateway. All we had to do is set them up, set up their access in the gateway. We charge them a one-time setup fee for that, and then they just became one of the services on that gateway.
Ryan: I love it. You are way ahead of your time on the recurring software. Everybody is doing that today. Everybody has got a monthly subscription that they’re probably sick of. Did you have any challenges trying to sell it like that?
Cathy: Not so much with the customers. They loved it. They loved it because it was a dramatic reduction in their cost. We could spread our cost out across many customers. It worked quite well for them. We did run into challenges at that time when we wanted to add other components, other services that required our suppliers to get on board with monthly recurring billing. They’re like, “We don’t do that. We sell software in a box.” If you want 100 users, you gotta buy 100 boxes. We’re like, “This is a bit of a challenge.”
It’s challenging to be just slightly ahead of your time especially if you don’t have the financial legs underneath it to support you. Once we got going on this, there are a lot of people trying to figure out how we were doing what we were doing.
Ryan: When did you start to feel the squeeze for the lack of capital because the beauty of monthly recurring, like you had said, is you’re building this cash flow platform. How long into the business did you start to feel the squeeze of what was it that you were trying to accomplish that you knew that you needed to go out and look for outside sources?
Cathy: We started to feel it almost immediately because, as I said, my partner bought one computer but obviously we needed business computers but we also needed backup systems. One of the things that we needed to do was to have a completely offsite backup to protect our business and to protect our clients, services that we were offering them. One of the things we did was we parked a server at IBM on the other side of the country and they charged us monthly for that. That worked out well but we felt it immediately.
The other thing we needed to be able to do was marketing and sales. Nothing in this world is if you build it, they will come. That costs money and that takes staff. We felt the cash crunch pretty much immediately.
Ryan: Did you know, going into this, that you’re gonna need to look for capital right away?
Cathy: Yes, we did. But we also knew that it was going to be much easier to raise capital and we were going to have to pay a much lower price for that capital in terms of share of the company or whatever it is if we had a proven recurring revenue model, so we wanted to build that first.
Ryan: I love it. It’s building it to sell it but it’s also building it to get investor which you have to go through the entire valuation which I wanna dive into. Let’s take this in steps. Now you’ve got something that you feel confident that you can take to investors. What kind of investors were you looking for? Was it angel investors, private investors, VC funds? Where did you go with this intention because you had a lot of intention, where did you start to explore?
Cathy: I think I have an interesting answer that some people might not have thought of. I handled the business side of the business, the finance, the admin, the sales, the marketing. My business partner handled all the technical pieces, all the techies, techy, the term of endearment but I don’t get them, they don’t get me. I kept those parts of the business quite separate which was great. But what happened was I didn’t have a lot of experience in dealing with angel investors or dealing with underwriters or dealing with brokerage firms, I just didn’t.
My partner and I had a saying and that is, “When you’re swimming with sharks, bring a shark with you.” What we did was we sold a large chunk of the company to one angel investor who had a very specific job. His job was to finance the company, his job was to find financiers and put us on that path to being public and raise more money. He was very well connected.
The good news was he didn’t understand much about the technology we were dealing with. He didn’t understand that much about what we were trying to accomplish as a business. I kind of liked that, honestly.
Ryan: How did you find him and why was he comfortable with the fact that he didn’t know much about the business?
Cathy: He looked at the numbers. He could see where we were going. He could see that there was a market opportunity for certain but also, as I mentioned, we got busy building proof of the recurring revenue stream and we did it with gold plated clientele. By that, I mean highly recognized names. When he saw our list of customers and our recurring revenue, basically that was all that he needed to know.
He didn’t need to understand why they were buying what they bought. He understood it in general terms but he didn’t know enough about it to be able to drive the technical direction of the company or, quite honestly, interfere with the technical direction of the company. We told him very often, when we first brought him in, is that, “You’ve spent a lot of money to buy yourself a job.” He would laugh but that was the setup. He was the one who wants to bring us to the next steps in our financing.
How did we find him? We started talking to a couple of our lawyers asking them for recommendation, asking them for a strategy. That’s eventually how we came to know him.
Ryan: What was his background? Was it private money? Did he make it somewhere else? Was he in the business of doing that and raising capital?
Cathy: Yes, that was his business. He was an angel investor and some of his properties eventually went public and some didn’t, some went privately. But yes, he was looking for his next ten bagger.
Ryan: Hopefully, you being that one. I’ve had this conversation with a couple other people on the show, the difference between the valuation of a 20 year business that’s got a consistent 3% growth in EBITDA, that’s way different than valuing a startup. Maybe, also the recurring revenue did it but how did you guys go about valuing the business for this individual and then understanding exactly how much to give him?
Cathy: That’s always a guessing game. It’s very easy and hindsight to go back and say, “We gave away too much.” I think that’s what a lot of us feel, it’s a little bit of seller’s remorse. Taking a look at it, we really needed his skills, his expertise and we needed him fully invested in the company to get us to the next level. We were so young in the company but given that we hadn’t invested that much cash ourselves, we needed to take that into account. There was no science to it, I will tell you, Ryan. We just negotiated the number that both of us could live with.
Ryan: Did you have help with that negotiation because I’ve heard that story from a lot of people that are in the startup world. It just comes down to negotiation in percents of what you’re comfortable with.
Cathy: Yeah, it comes down to what you’re comfortable with and the value of what you are getting. My partner and I, we didn’t have the ability, we were a fish out of water. Going and working with these angel investors and getting underwriters and dealing with all of the legal paperwork and everything, and everything that needed to be setup to go public. We couldn’t have done it without someone like that investor.
Ryan: Did you put any benchmarks or KPIs for him that he needed to hit in order to vest earning?
Cathy: In this particular case, those key performance indicators would’ve meant that he had an exit strategy. He was not interested in leaving his money to sit there while we slowly build the company either. He was smart enough to understand that we have a very small window. We needed to move fast.
Ryan: What was that time frame in the window?
Cathy: 12 months, not to go public, it took longer than that. But in 12 months, we needed to grow the business quickly enough so that we were positioned in order to take the next step which was the IPO. It is primarily because of the speed at which the technology and the marketplace was changing.
Ryan: Yeah because at that time, you get a big IBMer or anybody else that can reverse engineer it and you’re immediately competing with their funds and their resources.
Cathy: Yes, absolutely. In fact IBM approached us about that. They were actually looking to get us to help them build a similar system but I ended up doing, because that’s my skill, basically they were subbing out all their business to us. I had IBM selling on our behalf. That helped as well.
Ryan: After you get this angel investor on board with you, you don’t have to disclose anything that you don’t feel comfortable with like size of employees, what was the growth rate in those 12 months and how did you deploy the capital to hit some of the numbers that you wanted to?
Cathy: It was interesting because a good part of that capital actually went to the IPO process. It’s expensive. It is really expensive. We took the remainder. I’m not gonna say the majority of it but a good chunk of it. Going public is a very, very expensive process. We took and we hired sales people, trained them up, we hired some salespeople in both Canada and the United States even though we were officed in Canada, and building out the technology quickly. I can’t get into more specifics than that but it was a crazy fast growth.
Ryan: That is a lot of growth. You hit the 12 months. From that first year of growth, what was the actual date of the IPO? If we can go back in those, what were some of the other major milestones that you were working towards once you hit the numbers you felt comfortable with?
Cathy: As far as IPO goes?
Ryan: You got that whole year, we had a crazy fast growth, what was the next stage before you actually did the IPO? Was there other benchmarks or other things that you needed to do in order to qualify for the IPO?
Cathy: Yes. It’s gonna depend a little bit on the strategy and thing have probably changed but you have to have a specific number of investors in your company before you can list. I think, at the time, it was 500. I can’t remember the specifics but I think we had to have 500 investors. It’s interesting because you don’t wanna predilute the companyyou don’t wanna predilute the company, I’m getting into some specifics here. You don’t wanna predilute the company prior to going public, and yet on the other hand you have to have enough investors so that you’re on the path to doing the filing. As you can see, Ryan, as the CEO of a company, on a path to an IPO, there are a lot of distractions beyond growing the company.
Ryan: Almost all of them.
Cathy: Pretty much. I’ll tell you something else that I learned that surprised me. This might be interesting to people who have considered this path. That is, what I hadn’t anticipated was the stress that would be created by trying to make everyone happy. In my business, currently my job, is to do the best job I can and make most people happy. But when you’re running a publicly traded company, there are so many conflicting interests.
There’s always somebody mad at you, there’s always somebody [00:23:32] good job, there’s always somebody who thinks the decisions you make are not serving them, it might not be. The other thing I think about going public, this is a nuance that I hadn’t recognized. I heard about it but I hadn’t recognized it and that was that when you’re the CEO of a publicly held company, you have a fiduciary duty, a legal duty, to protect the best interest of the company.
What people think that means is the best interest of the shareholders but it doesn’t because what’s in the best interest of the company could be very different than what’s in the best interest of the shareholders. You can see where the conflicts arise.
Ryan: You’re like one of those stretched Armstrong action figures trying to get ripped in both directions. I know you got some interesting insight on what it’s like to go after but I wanna go back as you’re going through this process. 500 investors is a lot that you have to find, what were some of the main things that you had to do prior to going public? Walk us through that process. Maybe even before you do that, I’m just curious, Cathy, why did you guys decided to go public instead of potentially ramping up your infrastructure technology and selling to IBM instead? I made two questions, let’s go into why IPO versus strategic buy and then we can get into the process.
Cathy: There are two primary reasons why we chose going public, there’s no right or wrong decision here. But at the time, because it was internet services and the internet was relatively new, it was really difficult for us to raise private financing based on an exit strategy, that would include us selling to someone else at that point. It was challenging.
Ryan: What was the year that this was happening?
Cathy: 12 years ago now, quite a while. There’s a little recovery period for me afterwards. At that point, the exit strategy that was most desirable by the initial investors that we brought in, the seed investors was an IPO exit strategy. Again, we needed to raise money quickly, very, very quickly. Besides, it sounded like a great thing to do. It really did. In many ways, it is a great thing to do but like I said, it’s highly risky and it’s very stressful. That was the main thing, we didn’t see a whole lot of people out there who would potentially stand up to buy an internet company at that point. Today, sure.
Ryan: Now that you got the investor, you’re spending a lot of money in that process. I’m assuming the attorney has got a good chunk of that. What were some of the main key things that you had to do in order to get ready? 500 investors, what are some of the other staples that you had to accomplish?
Cathy: We really had to continue to build our client list. The longer our client list of gold plated clients, the easier this whole process was going to be. We needed to build our sales team. That was really important. The whole IPO process, you’re right, the lawyer is taking a very large chunk of that. There’s a lot of filings that have to be done. You have to have the prospectus written. That’s not an easy process. We had to have all of our book audited, bring in a CFO which we never had before. Lots of things.
Ryan: Were there any epiphanies that you had as you are getting it ready for an IPO because you’re building it to sell it. I think a lot of the challenge and a lot of the private market has is they don’t have to have that pressure. As you’re writing the prospectus in building all these, the sales team, your client list, all these different things, you’re building value for the actual public offering, was there anything that you had an AHA for like, “I didn’t realize that we had to do this to actually make a valuable company.”
Cathy: I can’t think of anything off the top of my head. Certainly, the accounting overhead was bigger than I thought it should be but it was all necessary for that IPO process. Just the accounting overhead and the legal overhead that could’ve been all stripped away if we were not on an IPO path which would’ve left more profit, I think. That’s an important thing. The inklings of this is we were going through the IPO process but certainly, this chicken came home to roast not too long after we went public.
That is the saying, “He who has the most money, wins. Hands down, every time.” While my business partner and I held the majority of the stock, you would think that that would give us the level of control and comfort that we needed but we didn’t have the most money.
Ryan: Explain one scenario, you don’t have to name any names or any details that are uncomfortable. I’m sure you got one in your head, what kind of scenario is it that happens where that really, really comes to fruition?
Cathy: With a publicly traded company, the President and the CEO has a lot of control of the day to day function of the business but it is the Board of Directors that run the company. When you have people who are on the Board of Directors who have got a lot of financial ware with all and a lot of financial clout, they can very quickly determine the flavor and the direction of the board. Maybe you can hear what I’m not saying here.
Ryan: Because you got the Board of Directors, then you got your investors out of all of them and then you got your company. That’s a challenging dynamic to dance in.
Cathy: It is a challenging dynamic, it is. Like I said, I was ill prepared for that, I will tell you. Because in my world, we build a product, we improve it, we make it the best we can, we sell it, we make our customers happy. If our customers aren’t happy, we bend over backwards to make them happy. We hire great employees, we do what we can to motivate, inspire them and make them happy.
But when you’re dealing with the publicly traded company, there are so many conflicting interests, you just have to figure out how to let some of that go and grow a very thick skin very quickly.
Ryan: What kind of resources or who do you go to as you’re learning the stuff that you said you’re ill prepared for?
Cathy: In our particular case, we were very lucky because we had corporate legal counsel who was very, very skilled at the IPO process and really took us under their wings, “We’re not gonna let you fail. We’re not going to let you fail here.” A few shortcuts were suggested, a few things that would’ve been less expensive for us and our lawyers just basically put their foot down and said, “You’re not going down that path. You’ll get hurt in the long run.” I think that was one of the things that was really important.
The initial investors whose job it was to help us raise more money to go public and get those 500 shareholders in place, that was all very important and then really strong legal counsel.
Ryan: After you rang that bell, what were your emotions as you’re going through that?
Cathy: At the time, my father was dying of cancer. He was actually in ICU at the time. We’re taking this company through an IPO and that as well. We rang the bell on the morning. I’m on the West Coast. It’s 6:00 AM and immediately just dashed off to the hospital. Life went on. It’s a very short lived celebration but it was a celebration. It was fantastic. It was one of those where you hope everything goes well from here on end but no matter what, you’ve arrived. You’ve completed what many people try and had not succeeded at. It was a real huge badge of honor, for sure.
Ryan: Do you feel some closure?
Cathy: Yes and no because now we’re publicly listed but I also knew now we were public. You gotta think about the word public means you’re public, everything you do is public. I found that rather disconcerting, quite honestly. It’s mixed emotions. It was, “Yay, we’ve done that. It’s completed, no one can say we didn’t go public. Now what we have to do is make sure we’re not delisted by 2:00 PM.” It was just from one emotion to the next.
Ryan: What was the day to day like now that you’re public? Did your duties change? Did your role change unexpectedly? How long did you stay a part of the operations?
Cathy: The duties changed quite significantly through the IPO process and after that because a big part of my job was handling public perception, making sure that we were disclosing information in a timely manner when we needed to, what we needed to disclose. These choices were not mine anymore. Again, we have this duty. That changed things a lot. It was interesting also, Ryan, because I felt the responsibility of being a CEO of a publicly traded company very deeply. Not everyone shared that sense of responsibility.
Sometimes, I had employees that gone a little bit offside and you have to have a discussion with them and say, “Hey, we’re public.” I’ll give you an example, this is a funny example. April fool’s day, couple of our technicians decided they were gonna mess with our website and they put up a fake website because they could do it. They just literally switched out our website with something that was totally funny and fake.
I’m like, “You guys, come into my office. We have to talk. We are a publicly traded company. We cannot do things like this.” That’s just a funny example. There were some that were a little bit more extreme. It changed quite significantly.
Ryan: Did your culture change along with that?
Cathy: Not so much. I think at the top it certainly did. It had to. We needed to grow up, be serious pretty quickly. We were dealing with people’s money and a lot of our friends and family were invested in our company. We took that seriously. Still on a day to day, when you run a high-tech business, people need to have fun doing what they’re doing. It was an exciting time and the excitement was infectious.
Ryan: Did you get the money that you needed to? What are some of the financial benchmarks that are now public that you can disclose? How fast did you raise the money and was it enough to accomplish the vision that you and your partner originally sought after?
Cathy: I don’t mean to seem coy but I also wanna explain this in a way that would be a most help to people. This was a surprise to me again, one of the things in going public, we got a good chunk of cash. When you have people who are involved in raising capital for private companies or for publicly traded companies, they get paid when you raise money. If you’re well cashed up then they’re not really seeing an opportunity.
There was a lot of pressure on myself and the executive team to spend the money that we wanted to finance growth over the next two to four years but they were looking for us to having much more aggressive plan. We were at loggerheads, for sure. We were cashed up pretty well but, again, that is not always the position that some of the shareholders want you to be in.
Ryan: That probably spirals into what you’re saying that the people who had the money wins. Were these situations driving some of the future vision and future decisions that you felt you no longer had complete control over?
Cathy: It was time for me to leave, let me put it that way.
Ryan: You’re one of the first people we talked to that have gone public. The biggest challenge that a lot of people that sell their companies have is the earn out. When privately held companies buy other privately held companies, it’s a long drawn out compensation that’s tied to. You’re no longer the boss and you went from being one of the bosses to literally having thousands of bosses of Board of Directors and a bunch of different stuff so I couldn’t imagine how your entrepreneurship perception changed.
Cathy: It was still very entrepreneurial, there were just a lot of other people and they’re very legitimate desires, I’m not belittling it, very legitimate desires to take into account. I had said, when you’re swimming with sharks, take a shark with you. Here’s another same metaphor, it became a bit of a feeding frenzy in the publicly traded markets and our company was not immune to that. The other saying is that when there is blood in the water, get out of the water.
Ryan: Was there anything specific that triggered you to really be done? Was it an interaction or was it just an ongoing thing?
Cathy: It happened over time. It wasn’t an ongoing thing but it did happen over time. I was, in particular, at loggerheads with the direction that the company should take and the way that we should spend the money that we had raised. There were some specific disagreements about that. This is true for any CEO, whether it’s a private company or a public company, at some point you’ve gotta go, “Is my staying good for the company? Is it time to put the company in different hands, different steerage?”
It was not an easy decision for my business partner and I to make, we both exited at the same time but it was definitely the right move. The company was eventually sold to another publicly traded company and then it was taken private. It’s gone through a couple of iterations, it didn’t implode after we left which is good.
Ryan: That’s really good because you built something that was sustainable.
Cathy: I wanna mention something else about that, though, that I wasn’t aware with the publicly traded company is that you own a stock and generally there’s different types of shares and that type of thing. Exiting a publicly traded company is a very challenging thing to do. I wasn’t aware of that. We hadn’t thought that far ahead, quite honestly. It was, in many ways, as difficult as building the company was to begin with.
Most people think, when you’re a publicly traded company, it’s just a matter of selling your shares, you just share your shares to somebody and you’re out. It’s not that simple.
Ryan: That was actually the question I was gonna ask. Literally, financially, how did you divest? Did you leave the money there? How was your investment structured? What were the stipulations on when and how you could literally sell the stock? Walk us through that.
Cathy: It gets rather complex with the different share structures and different maturity on the options and things like that. We had also gotten some shares in lieu of some of the time we had spent building the company that we didn’t receive a salary. It’s complicated. Basically, when you’re trying to exit a publicly traded company, you can’t just sell your stock onto the market because what happens when you do that, you drop the value of the stock. Everybody gets hurt, including me.
When the President and the CEO of the company starts selling her shares, that has to be publicly disclosed. That’s not gonna work very well, it’s just not. We’re just like, “Uh oh, now what?” Basically it required us to find investors who were going to pick up our stock, negotiate a specific price, halt the stock from trading on the exchange. Obviously we had to get the Securities Commission to approve all of this beforehand and halt the stock, transfer the shares and then start the stock trading again the moment the press release was issued saying that we had resigned.
It was all very, very coordinated. But the problem is, this was a big challenge for me, we needed to do it legally on the up and up which we did but we also couldn’t discuss with a lot of because we were a publicly traded company which meant that my staff who had stuck buying me from the very beginning didn’t know a single thing about what was going on until the stock was halted. My partner and I walked into the board room, with all our staff there, and announced that we had resigned. One of the worst days of my life. I will tell you that.
Ryan: How come?
Cathy: Because the sense of betrayal in the room was unbelievable because they never saw it coming. That was part of my responsibility as a CEO of a publicly traded company. It’s to make sure that information is released at a time that serves all of the shareholders. At least we have fair playing field.
Ryan: Did you feel the same way walking in there? Did you feel guilt like you’re gonna be betraying them?
Cathy: Yes. I knew I wasn’t. I knew I wasn’t but I knew that I couldn’t explain to them the situation either. It’s like, “Could I explain to them afterwards?” We couldn’t disclose what was going on until the stock was halted to protect all the shareholders.
Ryan: How did you overcome the feeling that the people had?
Cathy: I think it’s just a matter of waiting for the shock to wear off and that they knew that my heart was in the right place, that they knew that I was just handling very carefully my responsibility to the people who’d invested in our company.
Ryan: In the private world, it’s up to the discretion of the business owner and you hear some horror stories about how they tell people before they shouldn’t. There’s a lot of gray area in when and how to tell employees and all that stuff. Did you feel a little bit of assurance in the fact that there was a specific rules in the game plan of how you had to handle it?
Cathy: Yes, that was really helpful. The challenge is you need to understand what they are. It was really, really easy to make a misstep and not even know you had done that. The only solution to that is to basically keep your securities lawyer in your pocket, keep him on speed dial and check everything with him before you do anything because it’s a minefield and not only will it hurt me had I just even inadvertently done something but it would’ve been harmful to the company, to the shareholders and to the staff. I felt like I was walking on eggshells a lot.
Ryan: Was there an opportunity or a thought in your mind to keep your investment there but just resign?
Ryan: It was totally one and the same thing.
Cathy: Yes. Not that I didn’t think there was a good opportunity in the business but I’m an entrepreneur. I was not gonna just retire and hope that my investment in this thing that I had built and left was going to be successful. I really wanted to go and do other things.
Ryan: That’s a good segway into life after. As we go into what you ended up doing afterwards, did you have a plan of what you’re gonna do afterwards in the weeds trying to deal with this to not think about that. Let’s take it from that day forward, what was the plan and what were you gonna be doing and how did you deal with it?
Cathy: The initial thing was just to exit. Honestly, I didn’t look much further than that because that was a supreme challenge and incredibly stressful. But once we had accomplished that and it was over and done, then my first strategy was, honestly, take some time off.
Ryan: What did you do?
Cathy: I travelled for about three years.
Ryan: Did you really?
Cathy: Yeah, I did. I just took time off, travelled, you and I were talking earlier, I love salmon fishing, we went camping, fishing. I just seriously took some time off. I didn’t have any specific plans to start another business although I knew I would but I just really needed to recover.
Ryan: Did you have a family at this time?
Cathy: No. I was married at the time, no kids or anything like that.
Ryan: What was the favorite place you went over those three years?
Cathy: I live in British Columbia. We have the most amazing forest and rocky mountains and stuff.
Ryan: Favorite place is close to home. That’s awesome.
Cathy: And Italy.
Ryan: As you’re going through those three years, I’m always curious because I find it difficult to turn it off. What were you reading? What were you consuming as far as the material and the things that you’re surrounding yourself with? Were you able to totally shut it off or were you slowly working your mind back into it?
Cathy: One of the things that I did, especially after the first year which is decompressing from all of that. But then it was really important to me to take a look at my motivations for starting the company and taking the path of an IPO and taking all of that on. At the time, I still think it was the smartest way for us to grow quickly. We had to grow quickly or we couldn’t execute our plan at all.
But I really needed to take a really hard look at a bigger picture, what was I trying to accomplish because it all comes down to mission, a mission in life. I’m an entrepreneur and I just love helping other people be successful. Many of my employees back then are either still working with me in this new iteration of the business, we’ve had great relationships.
But it was important for me to say, “Once I get clear about my mission, then I can build another company that supports my mission.” It’s nice not to have the financial pressures that I did so I can build this thing differently because I managed to obviously do some cash out.
Ryan: The gentleman I interviewed last episode, he actually worded similar and he had this venn diagram when he was talking. We have skill sets, passion, and money. They all intersect and he goes, “It’s nice not to have the financial pressure so you get to love what you do that you’re good at and the money is a bonus.”
Cathy: But I think you also get to be more deliberate in how you live each day in the business. I was very clear, Ryan. I was not about to build a pressure cooker like that again. It wasn’t necessary. I worked very, very hard to build the company to where it was, we didn’t take any money out of the company for the first 18 months or so and even after that, it wasn’t much. We sacrificed a lot. I sacrificed a lot of my sleepless night.
Getting clear about my mission and having enough cash that I could design this thing in a way that will work for me and serve more people. It’s been a real gift, it’s a luxury a lot of people unfortunately don’t have.
Ryan: I love the fact that you’re doing it very deliberately, like you said. I’m curious, what is your new mission? But before you’re gonna answer that, what are the things that you did to come to that new conclusion? Was there great resources that you went and explored? Was there people you talked to? How did you actually go about doing that and then what is it today?
Cathy: I took a couple of personal development courses. They were retreats, workshops, if you will, to get really clear about my personal mission, my reason for being here on Earth. I think all of us have a specific mission. It’s up to each of us to uncover it. For me, it comes down to really being in a place of being what I call a catalyst for growth. That means that I have an opportunity, a mission, calling, even a responsibility, to create opportunities for people to move forward.
How I do that is in the arena of small business growth. That’s where I’ve chosen. It could be in a number of different places. I have this calling, this responsibility, this pleasure, to put myself in a place where I can assist people to grow their small businesses. I discovered that it’s really important to me to contribute to the prosperity of the world. That’s my place in this fabric. Prosperity means more than money, it means a lot of other things in addition to money.
Ryan: What does it mean to you?
Cathy: It means freedom. It means flexibility. It means freedom of choice. It means self-determination. But a lot of those things are really difficult to do without money so money is in there for sure.
Ryan: Very well said because it is so difficult to have this recalibration after the financial win has been made. I think there’s this introspect of journey that people have to go on and it’s very difficult for a lot of people because you’re no longer being measured by balance sheets and quarterly reports, you’re having to go, “What’s is all for?”
Cathy: Exactly. I’ll tell you stories about when people retire. They die shortly after. They get very sick shortly after and I think it’s because those people, my guess is, because they’ve been busy with their careers but haven’t really stepped back and go, “Why? Why this?” I believe that business is a game, it’s just one of the many games we play as human beings. We play the game of wife, we play the game of daughter, we play the game of politician or whatever happens to be.
It should be fun, games are supposed to be fun. Sometimes, we win. Sometimes, we lose. But unless we have a really strong internal sense of why we’re playing the game. If the game is over, it’s difficult for us to know where to go next.
Ryan: Was there development things that helped you find your why or did you just take time?
Cathy: With anything that we’re not really skilled in and I wasn’t really skilled in that, getting help makes sense. These were programs designed for that and I immerse myself in them. I’m like, “I wanna make good choices. I have the luxury of time to figure some of this out. I want a strong sense of fulfilment.”
Ryan: The fulfillment of enjoying it is the whole point. I’ve had conversations with people, they literally just work 60 to 80 hours a week. Warren Buffett did it for seven years before he started giving back to charity, nonprofits, because all he measured himself on the valuation isn’t net worth, you can’t take that with you.
You’ve said a lot of amazing gold nuggets here, Cathy. But if there is blessing of hindsight biased and being able to look at this and maybe speaking to someone that still hasn’t had their ability to exit, how do you balance all this and how would you go about if you were to go to do it again interjecting your why into a situation where you got the business and you’re still grinding away like that?
If you were to be talking to yourself when you’re in the thick with the IPO, when you’re not necessarily as in tuned with that why, how would you help yourself figure that out while you’re in the middle of all that?
Cathy: I would’ve invested some time. It’s important to carve up some time, invest some money, get some help or whatever to figure that out. I think it’s also really important to recognize that if you approach small business as a game, there are many different ways and many different types of games that you can play. Continuing the metaphor, it could be baseball, it could be football, it could be hockey, which is a great Canadian sport, I love that.
You can be that person, you can have that mission, that drive, you can excel in whichever one of those games you choose. The problem becomes when you start to switch games, looking for it and you can’t find it. That comes across this lack of focus, lack of tenacity and perseverance. The trick is, I think, in the game that you have chosen, how do you understand your mission and live it to its fullest within the game and stay focused?
I think that lack of clarity and understanding causes them to do a couple of things and one is to continue to switch focus or try to buy their way out of a problem. We see it a lot with serial entrepreneurs. Getting that clarity and just playing the game you’re in really, really well and being tenacious and persistent. If I could stamp anything on my forehead, that’s what they would probably stamp “she was tenacious” and enjoyed the process. The grass isn't greener on the other side.
Ryan: That game usually has an end. Knowing where that game and the end fit into your whole picture makes that game even more focused.
Cathy: Definitely. Having an exit strategy in any business that I’ve been in whether I planned on executing it or not, I don’t have a crystal ball, I like to think that I’m gonna be in this business for the next 20 years. That may change tomorrow. I just wanna set it up so I have a choice.
Ryan: Choices and freedom. As we’re wrapping up here, explain to the listeners what it is that you do now.
Cathy: I’ll give you a couple things. One, it’s fairly recent so don’t judge it too harshly but I’ve just launched businesssuccess.com. Awesome domain name, there’s a website there, we’re getting that going. I have big plans for that particular business but businesssuccess.com seems bigger than me right now but we’ll all grow into it. Like I said, I have a big mission for it.
There, you will also find businesssuccess.com/cafe. It’s a weekly interview series that I’ve been running now for over four years. I’ve done over 200 episodes. It’s called The Business Success Cafe. It’s 20 minutes of education each week and I call it The Perfect Coffee Break for business owners. I’d love to have people come and join us there.
Ryan: I love it. I’ll put all of that stuff in the show notes. What is the best way for our listeners to get in touch with you?
Cathy: Best way is to go that site, businesssuccess.com, and all the information is there.
Ryan: I love it. Cathy, thank you so much for coming on the show.
Cathy: Thank you, Ryan. I appreciate you. You ask some really tough questions.
Ryan: I enjoyed it very much. Thanks.
Cathy: You’re welcome. Thank you, Ryan. Bye.
Ryan: I hope you enjoyed the interview with Cathy. I had a blast talking to her. I think she just did such a fantastic job explaining all the different parts of her journey. Three of my main takeaways that I got from talking to Cathy was one, being that an IPO goal really makes you start with the end in mind because of the goal of going public so you have to do a lot of the stuff that we should be doing as entrepreneurs to your business to make it valuable and to do the things right because of the standards that are set in place.
She did a lot of things right from building out the sales force, getting the gold plated clients, building that recurring revenue because of the end that she had in mind.
I think the second main takeaway that I got was he who has the money, wins. I think it’s a really good lesson because I think intuitively, we all know that. But knowing that money and influence will dictate a lot of outcomes so whether you’re selling to a financial buyer, a personal investor, a competitor or even going public, knowing that influence and money will really dictate the terms and conditions and how things pan out for you as the seller is really important because money can buy a lot of influence and knowing the politics that goes into that, that you go from being a business owner really focused on your clients and your industry to becoming almost a quasi politician, knowing that you’re going to have to be dealing with these battles is extremely important regardless of who you’re selling to.
I think the third main takeaway I got was that approaching business is a game. I loved how she worded this because I think all entrepreneurs, we do that anyways but really articulating it and becoming aware of it, every game does have its ending and knowing what game you’re playing will allow you to judge and put all the decisions that you’re making into that context of the game and really sitting down with yourself and saying what is it that dictates a successful win for this game, whether it’s a dollar amount or legacy of your employees or whatever it is and the game of business is in the grandeur game of life and making sure that those are in balance or at least in a way that are a healthy relationship.
I hope you enjoyed the interview with Cathy and until 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.