Podcast: the Impact of Culture on Business, Interview with Sherry Deutschmann
Employee-first culture is vital in today's business world if you want to build a successful and profitable company.
About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
Sherry Deutschmann left her career with a major medical billing company to start her own. That company became LetterLogic. Sherry built a highly profitable business on the mindset of employee-first. She saw rapid growth within 18 months and moved her business out of her basement. LetterLogic was present on the Inc 5000 list 11 years in a row! This impressive growth and unique culture made her business very attractive to buyers. After an emotional sale, Sherry started an angel investment firm for women entrepreneurs called Sunset Ventures. She has shared her business experience as a mentor and is the author of many upcoming business books.
If you listen, you will learn:
- Sherry’s business background.
- How LetterLogic began.
- How Sherry pivoted from outsourcing to moving her services to in-house.
- Sherry’s initial goals for the business.
- Why she decided on an employee-first business model.
- How profit sharing changed Sherry’s company culture.
- How Sherry treated her employees.
- The customer reactions to Sherry’s way of doing business.
- How an expensive mistake drove Sherry to sell the business.
- The way Sherry’s mindset changed once the due diligence started.
- Why Sherry hired the business broker she did.
- The types of buyers that were interested in LetterLogic.
- The must-haves Sherry had to sell her business.
- The 15% profit share of the sale Sherry gave her employees.
- Why Sherry wasn’t satisfied with being on the company board.
- The ways the company changed after the sale.
- What Sherry would have done differently.
- Transitioning into an angel investment firm.
- Sherry’s upcoming book.
- Sherry’s advice to listeners.
Announcer: 00:04 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: 00:14 Welcome back to the Life After Business podcast. This is episode 88. Have you ever wondered what impact the culture of your company has on your profitability and the eventual sale of your company? Welding today is an absolute must listen to because we have on this show, Sherry Deutschmann, who started a company called Letter Logic and was able to grow it from zero employees in her basement up to 55 employees in $40,000,000 in revenue. Hit the INC5000, 11 years in a row and overpay her employees, create a profit sharing plan and this entire mix of all the things that she did allowed her to do things that almost is unheard of in business because of all the different things that are pressuring us to drop money to the bottom line. Sherry's mentality was employees first and if employees were treated well and they had the best place to work and they were treated fairly, then everything else falls into line. Sherry shares with us today all the different ways that she helped drive employee-first culture and then what it did to her bottom line, but she also was extremely open with us and how the sale of the business and the transition out of her company impacted her identity and who she was because of how intertwined she was with her people and her culture. This episode was a long time coming since I met Sherry back in November, so without further ado, I hope you enjoy the episode with Sherry.
Announcer: 01:41 This episode is brought to you by Solidity Financial's growth and exit planning. 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 right buyer at the price you want.
Ryan Tansom: 01:41 Morning Sherry, how you doing?
S. Deutschmann: 01:41 I'm doing great, Ryan, how are you?
Ryan Tansom: 02:08 Doing good, and we're five months in the waiting for us to finally record some of the fun conversations that we had when we met in Palm Springs and, for the listeners that don't know about you, maybe can you take us back to the day that you decided to become an entrepreneur because I think he did some pretty cool, crazy things in order to jump in because you jumped in with both feet for sure. So what happened? Was it, where were you and then how did you end up doing it?
S. Deutschmann: 02:35 My company is in Nashville, Tennessee, and I was working for another company in this space and though my title was vice president of sales, my real job was a professional apologist. Um, everything you could do wrong, we were doing wrong. And it just got to where all I did all day long was apologize to customers for all the things that we were doing wrong and I could not get my bosses to listen to my ideas for ways to improve our service. So, uh, in frustration, I just quit my job and had a week long yard sale and sold all my personal belongings and cashed in my 401k and set up shop in my basement competing with my former company and um, it turned out pretty well.
Ryan Tansom: 03:25 I was going to say that! That's called both feet in completely. Give us a little bit of a rundown of exactly what the nature of the business was.
S. Deutschmann: 03:35 Company was called Letter Logic, and it was processing and delivering patient statements for hospitals. So healthcare entities nationwide would send their billing data to us electronically. And then we would download the data, do some calculations for them, rearrange the data so that it looked beautiful on a page. And then we would print a physical bill and had machines that would fold it, stuff it, sort it by zip code and then mail it. And at the end we were doing about 400,000 of those a day.
Ryan Tansom: 04:06 There's a huge infrastructure because I'm familiar with your industry and how, how did you end up doing that in your basement? I mean, how did you start with all... Was it, did you, did you have a bunch of that equipment, or were you outsourcing that and how did you find the clients?
S. Deutschmann: 04:20 Early on in my basement was was me with a couple of filing cabinets that I bought from Goodwill and an old door that became my top of those filing cabinets and um, I was strictly a sales organization. Um, I found a company in town that one company that I outsourced all the IT work to another company that I outsourced the fiscal, the fulfillment part to, and it was just a sales organization until we were about a 2,000,000 in revenue. And then I realized I just had to start doing all those other functions myself in order to make the company scalable.
Ryan Tansom: 04:59 How long did it take you to. What was the timeframe between that and the 2,000,000?
S. Deutschmann: 05:03 About 18 months.
Ryan Tansom: 05:05 That's pretty, pretty fast growth. And what year was this that you started?
S. Deutschmann: 05:05 January of 2002.
Ryan Tansom: 05:15 2002... So you were going out and just finding the clients and then what were some of the things that triggered you to then bring some of that stuff in? Was there just capacity issues, or?
S. Deutschmann: 05:25 Really just the awareness that I was giving all my money away. Could never really get ahead by not bringing those functions in house and also not having control of the service and just wanting to be in control of every facet of the service for the clients.
Ryan Tansom: 05:48 Relates to the question that I was going to ask you about when you started the business in, you know, you said you were a professional apologist, what was your vision to set out? Was it, like did you have, when you are sitting in the basement by yourself or did you have like a target revenue amount? Did you have like a certain thing that you want to do to the industry to change it or you know, what was getting you up and what was driving every day?
S. Deutschmann: 06:12 I wasn't really smart enough to think about it you know, the way you just presented it. Um, I just knew that I could do it better than the folks that I've been working for before. And I pursued, um, I wasn't pursuing a particular revenue number. I was just pursuing being the best in the business. And I thought that I could accomplish that by taking better care of the employees, because when I looked at my previous employers, all of our problems were, or a human error. Simple human error. And I thought nobody cared as much as I cared. If they had cared as deeply about the product as I cared, then we wouldn't have had all the screw ups. So I'll just set out to make a culture that took such good care of the employees that because they were so engaged and cared so much that they would then take great care of the customer and the customer would take care of me that paying more for the product and that would take care of me, the shareholder. And...
Ryan Tansom: 07:14 And I think your philosophy has a rec, a track record of working spectacularly right. So let's see some of the things that you've done that the listeners need to hear. So let's, let's peel that back a little bit. What, what is some of the ways that you implemented this and how did you take that idea and then actually spread that throughout, um, the company? Because you, you've gotten a lot of attention and limelight around this because of some of the interesting things that you implemented.
S. Deutschmann: 07:43 I think the most important thing that I did that really affected the business positively was the idea of sharing the profits with employees. So I gave a 10 percent profit share every month and the important part of it is that it was the share was split evenly. So no matter what your role within the company, you got the same dollar amount. That meant the CFO got the same thing the truck driver got and um, the, the point was to make everybody know that their job was just as important as every other job in getting out a perfect product at the end of the day and no job is more important or less important than the others. And it also really changed behavior. We were very transparent with the employees to show them exactly how we made money and what, how screw ups would impact profitability and how that would then affect their profit share checks. And so it, it changed the behavior of the employees and make them care a whole lot more about the end product.
Ryan Tansom: 08:47 How did you get your employees to understand? Was there like financial education that you were giving because I think there's so much, there's so much, um, preconceived notions about doing what you were just saying and I think you saw the ramifications and the benefit of doing that, but you know, there's all these reasons that people give on why they shouldn't do that. How did you teach your employees to get that and how did, how did you get to the point that you were OK being transparent with everybody?
S. Deutschmann: 09:14 I think that's just my nature to be direct and transparent. So that wasn't, that was not a hurdle for me. There was a hurdle in teaching people about what creative profitability within the company. And so every month we had a, a meeting where everybody dropped whatever they were doing and we came together and we reviewed the financials, we reviewed the top line revenue and bottom line and all the things that impacted the two. And so we could celebrate new clients and then lament big screw ups that we had internally and, and with a company that small initially everybody knew if you screwed something up, everybody knew exactly what we were talking about, but we could see there live on the screen, the number, the dollar amount that was attributed to that.
Ryan Tansom: 10:03 It's huge. It's huge. I mean, did, did you have hard times when people catch on or was it, was it weird for people, new employees as they were coming on the, the, the, the probably shift in culture versus where they were coming from?
S. Deutschmann: 10:17 No. You know, from the beginning of the profit share text for like $7 and then $10. And it's amazing that even at that point where, you know, the profit share check as a $17 physical check, we celebrated that and every person was happy to get that extra $17. But toward the end, it was almost $1,500. So every person could see our progress internally and know what was creating that higher number. And it's one of the few organizations that I've, that I've seen where people didn't resent the salespeople. Um, everybody knew that the sales team made a lot more money than everybody else, but because they were bringing in everything that drove that top-line, we celebrated them and we did not resent the bigger paychecks that they were making. A lot of profit share systems within companies, they don't include the salespeople because they think what the salespeople are already the highest paid, they shouldn't have part of this. But I think that they absolutely should be included so that they are incentivized to sell the right type of account at the right price. So I think that the profit share piece all around was transformative for us and it's vital- crucial to who we were and to our success.
Ryan Tansom: 11:38 When you were telling me this really cool story about how they were making decisions together on a team and I can't remember exactly what it was, Sherry, but it was like we needed to hire someone. And then you had these two people sat down and they kind of went through it. Does that ring a at all? I mean, I don't know, maybe it's that example or you got another example of how people would solve problems in a bigger picture?
S. Deutschmann: 12:01 I can give you a dozen examples, but the one you're talking about is where the sort team said they needed two more people and so I sat with him and said, fine, we can absolutely do that. We, I agreed to bring on the two people and then I said, have y'all discussed how this is going to affect profit share? If we have two more people with which to share that pie to share that Pie, with whom to share that pie, what does that do? And somebody did the calculations very quickly and said, "Ooh, we need to think about this." I came back the next day and they said, "Oh, we've figured this out. We've totally got it. We only need one person." It totally changed their behavior that way.
Ryan Tansom: 12:36 How about the culture? So I mean you got the profit sharing, which is at the core of the financials, which changed a lot of people's behaviors. What are some of the other things in your culture that were changing behaviors or what was some of the impact on the behaviors that you noticed?
S. Deutschmann: 12:51 Well, I'd say, you know, but uh, the other, the second most important thing we did was make sure that everybody was paid fairly, a fair living wage. And for us, we looked at the two lowest paid employees in the company and determined if these two people get married, in what neighborhood can they afford to live? What schools can their children attend? Will they make enough money to save money to be able to afford an education for their children or to be able to afford a vacation, even. And so, um, with that mind are starting minimum wage was $16 an hour in the factory where in Tennessee it's $7 and twenty five cents an hour. So we paid more than double what we could've gotten away with in Tennessee because we wanted people to be able to focus on their jobs when they were at work, not whether or not their lights would be on when they came home.
Ryan Tansom: 13:51 Well and didn't you like see someone speak and you came home and didn't- It took a couple tries to get to that $16 figure, didn't it?
S. Deutschmann: 13:53 Yes. We were at $12 an hour and then somebody tells me this theory of, of looking at the, the two lowest paid people on what happened if they got together and so immediately within about 48 hours I had changed our minimum wage to $14 an hour and then I kept doing the math and I just, I just had to make it $16 an hour because no matter how I did the math, $16 an hour in Nashville was the magic number that would make somebody be able to have a fair living wage.
Ryan Tansom: 14:25 And wasn't there the specific um, woman or employee that was working a bunch of jobs and then all of a sudden... I mean, it changed people's lives. Just that whole... just that one move.
S. Deutschmann: 14:37 It's changed so many lives. The one woman is my age. I'm 58 and she said this, that that point, making $16 an hour, it was the first time in her entire life that she had been able to work only one job. And ironically, she was now working just one job and taking her grandchildren in so her daughter could work a second and third job, so that was just a crazy cycle. But I have another employee, Maria, who when we hired her at $16 an hour, she was able to work just 40 hours and go home and take care of the kids. And her husband who's a highly-skilled construction worker could for the first time take on overtime because he didn't have to be home with the children and they were able to, in 18 months, save $50,000 to buy their first home.
Ryan Tansom: 15:26 That's so crazy. Is she the one that was the story about you guys potentially... because you did some really interesting things about helping people get into first houses and such like that, right? I mean, was that the example? Or maybe give the listeners um some of the other interesting things that you were doing to help your employees actually have better lives.
S. Deutschmann: 15:45 Yeah. Well, some of our other benefits were the ability to bring your kids and your pets to work. And so the pets were there regularly, the kids were there on snow days or for holidays that where they needed to be at work, but you know, they just brought their kids in and then we also helped people buy their first home, so a gift toward the down payment of the first houses. And so I think through that program we help 19 employees buy homes.
Ryan Tansom: 16:13 Oh my gosh. I mean it's, it's such a different perspective of, instead of using the employees as worker bees and shippers and doers and cogs and actually helping them change their lives. And I find it just the question that I think a lot of people have shared is how do you afford that? So did you just have a really profitable industry? Were you able to just, you know, kind of like Google does just give stuff away and have lattes and all that stuff? Or well, you know, I think that that's a big challenge because there's the whole minimum wage thing right now is on the hot topic list for a lot of retailers, a lot of people, where they rely on these lower income people. So where's the, is it the chicken or the egg? I mean, what did you experience?
S. Deutschmann: 17:01 When people ask me, how could you afford to do this? You know, my stock response to them and to you right now is that we weren't successful in spite of the crazy benefits that we provided. We were only successful because of it, We were actually... we entered the industry when the market was mature. I didn't know enough about business at the time to know that I was entering a more mature market. It was mature and very, um, commoditized, very thin margins. And so I knew that we had to be as error-free as possible to eek out a living doing it. And that was... having a culture that took care of the employees seem to me to be the best way to drive profitability. It was just a common sense approach to me that really did work. And so I looked at all those things that we did for the employees like it was an investment.
Ryan Tansom: 18:02 Was there, you... I think you were telling me... how did, uh, how did, how did your customers see the impact and how did your pricing... You told me some some interesting facts about, you know, your pricing and the margins and interactions with the customers. How does that ripple effect go all the way going all the way down to the actual transaction of your services?
S. Deutschmann: 18:23 That's a really good point. So our culture became - we didn't spend any money on marketing - our culture became marketing the marketing tool because when an employee, potential clients heard about our culture day immediately recognized how that would affect the service they were getting and so we have many customers who said we chose you because of that. We knew that having people totally engaged in taking care of the business w would positively affect us. And so it enabled us to be the price leaders nationwide. So we we were 10 percent higher than just about anybody else in the industry and still grew at a pace that allowed us to be on the INC5000 list for 11 straight years.
Ryan Tansom: 19:12 That's crazy. So we'll go one layer deeper for the listeners and what are some of the major milestones over the course of the years that you hit from employee size, revenue, size, whatever you're willing to disclose?
S. Deutschmann: 19:25 Um, well we started in January 2002 with just two employees and when I sold the company in 2016, we had 54 employees. Um, and we grew from zero to $40,000,000 in revenue and um, you know sustained growth, especially I guess we were at the beginning year of INC tracking these are growing companies. So every year 5,000 list.
Ryan Tansom: 19:57 That's crazy. I mean that's sustainable growth like because some people will hit it with once or twice, but that's way different than obviously you had implemented something, especially with your culture that made you, your, I mean, your company a marketing machine. That's. So...
S. Deutschmann: 20:12 One year, we were number 4,999. But we still made the list!
Ryan Tansom: 20:15 Hey, that's, uh, that's all that counts. You were on the list! Where was it, Sherry... I mean like where was it that happened for you to decide that this was going to be something that you wanted to sell? I mean, was there a triggering event? How much you loved your employees and your culture, everything like that. What, what made you decide that this might be the right time to sell?
S. Deutschmann: 20:37 Well, we had gone through a phase of profitable month-after-month. Maybe we had 60 or 70 months of profitability and then back-to-back two months, I lost money and then had to go in front of the employees at with his full transparency and say we didn't make money so there are no, there's no profit share. And I realized that it was my fault that we were losing money because I was pursuing, you know, what I call now a shiny object. While our company had historically printed and mailed bills, the industry was going toward having everything done electronically. And I was, I was, uh, trying to build a machine internally for us to be able to do that instead of partnering with Third Parties. And I had spent millions of dollars pursuing this e-commerce model when I realized that that was really not good for the company and that I was really trying to become something that we weren't. We were a great service company and instead of embracing that, I was chasing something else.
S. Deutschmann: 21:43 And so when that, when I realized that and started dropping that pursuit for the first time ever, our bottom line started really outgrowing the top line. You saw a chart... If there's a chart in front of you, of, of our history from day one to that moment, anybody in the business of selling companies would tell you that was exactly the right time to sell, because we had a 12 months of the bottom line shooting straight up. And the top, the top line is still growing significantly. And so from the trailing 12 months, even off-picture, which is how companies, the company valuations are created often, um, it was just exactly the right time of sell. And it coincided with the fact that my granddaughter, a teenager, was coming to live with me and I knew I needed to be more available to, to be a mom again in a sense for awhile. And so just, you know.
Ryan Tansom: 22:45 Was there someone that mentioned to you, like, where did you get that, OK, this is the right time to sell. Was her like, you know, was it a peer group posing an advisor or was it someone in the industry? Was there maybe just your education over the time?
S. Deutschmann: 22:59 Oh, no. Lord no. Uh, it was a, an outsider. Brad Stevens is his name and I had hired him to be an interim ceo just to help me figure out what was wrong and why we were losing money. And I knew it instinctively, but I just wasn't willing to face it. And so within a few weeks he sized up what the problem was and was very direct with me about the situation and what I needed to change. And so I just listened to him. And then he, he started a process with my leadership team where every Monday and every Thursday we had a mini valuation leadership team. [Ryan interjects: Why those dates?]. Um well we had our leadership meetings every Monday and every Thursday just to see where we were. And you would think that a company valuation can't change much from a Thursday to a Monday, but if you lose a big customer, it can change a lot. Or if you add a good-sized customer, the valuation can change a lot. And it did. And so it might all of us aware of what was driving the value of the company and changed our behavior, too.
Ryan Tansom: 24:08 What are some of the value drivers that's ended up sticking out for you?
S. Deutschmann: 24:11 Most importantly, I think having the right pricing model, um, I realized that a lot of our biggest customers, our flagship customers, we weren't making any money on. And what's the point in having them if you don't make money on them? So I personally called each of them and said, I'm raising your rate. This is how much. And it's amazing, but not a single customer left us.
Ryan Tansom: 24:36 Interesting. How did you... was it like some sort of deep dive into like the, the, the contracts with them or like, you know, how did you end up finding that you were losing money on them?
S. Deutschmann: 24:46 Just looking at profitability overall and how much energy and how much of our resources these larger clients took. That, you know, the larger clients have the lowest prices, but they were consuming less of the company resources and just asking him to pay more and they were willing to do it.
Ryan Tansom: 25:06 I think that scares the heck out of a lot of people. I remember going through that with our business and it's a very, very common trap that entrepreneurs get into. You know, was there some way that you relate it to them? Was there any kind of tips that you have, like how do you even have that hard conversation?
S. Deutschmann: 25:24 I think it mattered a lot to the customers that I did it myself. I didn't put it off on anyone else. I called the highest level person within each organization with, with whom... that I dealt with. So if it was ceo to CEO or sometimes CEO to the CFO, I made the call myself and said, I hate to deliver this bad news, but have to raise your rate and this is why. And I went into every single phone call knowing that I might lose the customer, but that our company was better off not having this customer if they weren't profitable. And, and then it kind of became fun actually and to have the conversations with the customers who were laughing. A few laughed at me and said, man, I wish I had the courage to do this. So you're just, you've set a great example for me. And, and the fact that we could do all that and not lose any customer really spoke to how well our business model worked. How well that employee-first business model affected the customer and affected their loyalty to us.
Ryan Tansom: 26:28 When you're probably doing it now you've got 55 employees looking at you going, Sherry, you got to go call these people because we want our bonus checks. That's awesome. Sherry, as you're going through this and you're having these mini business valuations, I mean, how did your, did your mindset shift at all? And like start planning what is, what is like, what is this going to look like or how did you, how did you go from starting to do that to actually engaging in the process to, to the actual sale?
S. Deutschmann: 27:03 Um, well it started with hiring a business broker. I hired Mike Noland with Empire Business Brokers in Raleigh, North Carolina, and he had a really unique approach to brokering a company in that, he does free valuations for companies um and he just hopes that eventually when you're ready to sell, you'll use him. But he took a, like a teacher stance. Um, he taught us, my executive team, exactly what was driving profitability and what would drive the value of the company and what were things that we were doing that would not increase the value of the company and so he calmly and quietly and humbly taught us. And it became really a fabulous learning process. But it was fun. The process of getting the company ready to sale was the most fun we ever had and especially when you can see little tweaks that you can make to the business model that make everything tighter and more scalable. It was a blast.
Ryan Tansom: 28:02 W, what are some of those besides the pricing model that he, that he exposed?
S. Deutschmann: 28:08 Uh, the, the impact of just having one extra person that there was not an ROI on that person. That's the one that I can think of right now.
Ryan Tansom: 28:16 Totally fine. And I'm curious. So he's a business broker and I think there's a lot of confusion sometimes out in the marketplace versus an investment banker and at 30,000,000 in revenue, you're totally investment banking material. Was, he actually an investment banker? Would he, did, did you, was there any kind of difference in what, how he approached it versus how some of the other people do?
S. Deutschmann: 28:40 I interviewed several people. I interviewed some of those investment bankers to talk to them about selling the company, but I just liked his approach more. Um, he had been with Ernst and Young for years as a CPA and also a lawyer. So he's very smart, but he really just took more of a, of teacher's, or coach's standpoint and wasn't pushing us to sell the company. Just telling us when you get ready to this is these are things that will help you get the highest price for the company.
Ryan Tansom: 29:12 So as he's doing this and educating you, was there a triggering event or somewhere in the process that you said, OK, now is the time.
S. Deutschmann: 29:17 It was just looking at the trailing 12 month's picture.
Ryan Tansom: 29:21 So then what did you engage with him? And then did he... So did you have an idea of who would be the buyer? In your mind, because I mean, as entrepreneurs, a lot of us are visionaries and I know you've got a lot of aspirations of big things, so did you have an idea of what this journey was going to look like?
S. Deutschmann: 29:40 Sort of. We had had a lot of interest for the past, for the previous five years from people wanting to buy the company and most were competitors, but other people who just wanted to buy a company like ours to sell and scale, um, to, to, to buy to scale and sell, I should say. And so, uh, w know we had a shortlist of people we knew would be interested in Mike expanded that list and say he, he casts a fairly broad net and we had several buyers at the table. And so, you know, he coached us on, on, um, you know, answering their questions and doing the quote unquote dog and pony show.
Ryan Tansom: 30:20 The dog and pony show I think is an interesting... What were some of the things that you found throughout the process that people were looking for? Is there any kind of takeaways you had over the dog and pony show and how the different buyers like different things? What was, what was your favorite or most interesting part about it?
S. Deutschmann: 30:40 Well, you know, some people were looking for, you know, a business in a box, something that would operate totally on its own and that they would not have to be involved in at all just, you know, a cash machine. And others were really looking for companies that they could run. And so the difference between the two is that some would want to keep our entire leadership team and every employee in tact and that was vital to me and others were upfront about the fact that you know we're going to replace your entire leadership team because we want to be the leadership team, but we will keep your other employees.
Ryan Tansom: 31:12 What were some of the, I mean because you had mentioned it on the employee-side, what were some of your table stakes that this is what I have to have. Was it a dollar amount in the bank? Was it culture, employees, what they're going to do with the business? What were some of the things that were crazy important to you?
S. Deutschmann: 31:27 Most importantly was that they would take care of the employees and try to maintain the culture that we had and you know, I also had a dollar figure, but what was enough for me to be able to move on to the next phase of my life? It was a combination of things.
Ryan Tansom: 31:43 How did you handle that? When you're, when you're sitting across from these buyers and you've got these 50 people plus that are sitting there that are your family, how did you... How were you.. How were you gut-checking them? You're graduating your kids to someone else to be watched and I don't know if that's a weird analogy, but I mean how... How were you mentally in personally going through that?
S. Deutschmann: 32:07 What I try to make them see is that the reason you want this company attractive on paper is because of the people and because of our culture and taking care of that is exactly what's driven the value of this company and please remember that and try to keep all of these things that we have going right now in place. If if and I want it to gauge their, their commitment to keeping the culture in place. And having them come in and meet some of the employees, noticing the employees as they walked through and see how engaged they were.
Ryan Tansom: 32:44 How did you make sure that as you're structuring the deal, what kind of advisors you had at the table, but making sure that, for example, if it's a PE firm or if it's a venture capital or if it's a company like yours and they understand, you know, how to squeeze more blood out of the turnip. I mean, was there stuff in the language that you put in there to make sure that there were certain things that were taken care of or was it just more of like, Hey, more on an oversight of, hey, we just want to make sure that it's a good culture fit. Was there certain... How did you guys end up structuring that?
S. Deutschmann: 33:17 I would probably structure it a little differently now in hindsight, but we try to make sure that there was a good cultural fit. So then we had several prospective buyers and several offers. We ultimately chose one that un it was a PE firm that was buying us to combine us with another company in their space, in our space, that they had already bought. Um, and we already knew and liked the leadership team of the other company and felt like they would most probably most be able to protect the culture that we built.
Ryan Tansom: 33:51 So was there other people that were... so if they were in the same industry, were there other buyers that were in different industries or customers or like, what were some of the other backgrounds and other buyers?
S. Deutschmann: 33:58 Several others in the industry and um, other wannabes. People who just really wanted to get into the healthcare revenue cycle.
Ryan Tansom: 34:09 So when you said there's a couple of things you would have done differently, maybe before we go into the after you had signed the deal and some of the time afterwards, when you sat at the table and you're signing those documents and did you feel the deal momentum entrepreneurs feel it's just driving forward and you haven't had time to mentally process it and then all of a sudden you're sitting there at the signing table. Can you kind of walk us through what was going on in your head when you were sitting there actually realizing what was going on?
S. Deutschmann: 34:41 I don't know that I went through that. I know that there was a process maybe in the last 30 days when when the final parts of the due diligence are being done and they're missing documents here and there and everyone is frantically looking for those documents and I think it must be like, um, well for me, it was like planning your wedding and it's just, you're getting cold feet the last few days before the wedding, but you've already got all the guests are on their way already and the cake is in the oven and you realize you have to go through with it. I probably had a little bit of that. And mostly it was around my people knowing that I would be walking out and leaving this group of people that, that I, that I love, that I'm really close to.
Ryan Tansom: 35:27 Did your employees know that what was going on or who was involved in that?
S. Deutschmann: 35:32 Um, I didn't tell them. I told the leadership team. Um, there were a total of six of us and I told them and uh, and gave them a nice chunk of cash to put as a percentage of the deal for them to be engaged because I told them they'd probably never worked harder in their lives than they would during that 18 month process to get the company ready. And um, so I told them and then I told the um, employees after the day the deal was done. So I brought everybody together in one room and um, told them that I had sold the company and my last day would be the following Monday. [ Ryan interjects: Was that hard?] And I'm crying now talking to you about. Yes, it was hard. Um, but, uh, I was, you know, through the years of giving 10 percent of the profit month to the employees, I was able to give 15 percent of the cash price to the employees at the end.
S. Deutschmann: 36:41 And for the first time it wasn't split evenly, it was split based on their tenure within the company. And so it was pretty funny to be with somebody that, you know, I would ask one... is I had one-on-one meetings with every single employee, and said "If I were able to give you $10,000, what would you do with it?" And to have them talk about what they might do with it. And then to be able to say, well here, here's $50,000, I, you know, hope you enjoy this. But to see how they treated the money after that. I mean one of the, one of the most satisfying things that happened to the entire time onto the company came as a result of this gift that I was able to give each person. When a 25 year-old woman approached me two months after the sale to tell me that she had paid her parents' house off with her money. [Ryan interjects: How cool.] They, um, they were Serbian refugees and she had overheard them talking about as soon as they got their house paid off, they would be able to send funds to Serbia to help some relatives there find a home. And so she just said, I'm paying it off for you, mom and dad. And she said she would not have thought about doing something like that had she not been in the Letter Logic environment of taking care of each other and treating everybody like family. That was very satisfying.
Ryan Tansom: 38:00 It's something that is a direct reflection of you and how you, how you manage the culture and the morality. What was it like? So aside from giving people the money, which is- gotta feel unbelievable, but how did you feel knowing that you were no longer going to be part of that community anymore?
S. Deutschmann: 38:22 Sad. I made the mistake of um, I was asked to help out with an all cash deal. I was invited to invest in the new entity and to be a member of the board. Um, and uh, I chose to go that route and um, so I told them, you know, I'll be around, I'll be on the board, I'll be able to influence from that vantage point and um, it's just really hard to be a minority shareholder and not really have the control that I was accustomed to. So about six months into my investment, um, I just um, cashed out and exited the board too. It was just too difficult.
Ryan Tansom: 39:08 What were some of the difficult things other than the control, how things change as far as the culture or the operations? Were there things there that you were watching not having control over that were very difficult?
S. Deutschmann: 39:23 Yeah. Well the first thing that changed was they did away with the profit share model and instead instituted a matching 401k, which was nice and I can see benefits to that for helping employees learn to, you know, plan ahead and manage their money better. But it was so integral to who we were that, that was, you know, pretty, uh, pretty painful. So, um...
Ryan Tansom: 39:23 Did it affect the culture at all?
S. Deutschmann: 39:52 I think it did, a lot of the employees left.
Ryan Tansom: 39:56 A good chunk, or?
S. Deutschmann: 39:59 I would say that probably only about 50 percent of the employees that were there when I left are still there now.
Ryan Tansom: 40:14 50 or 15? [Sherry answers: 50.] Okay. Wow. So I'm curious because I went through this and I've heard so many stories, how did the employees and the executive team afterwards and that six months? I mean, did they engage with you the same or was it different? Did they, how did they handle that?
S. Deutschmann: 40:31 I think that was the hardest part for me is that the senior leadership team really wanted to have the autonomy and to, to be on their own with this other management team they were, they were paired with. And so in the first few weeks they made a few phone calls to me. And then after that, it was only in crisis they would call. And the other employees, you know, I have a closer relationship with, I think. I see them fairly often, but it was, uh, I'm surprised that none of them were angry at me or resented me for, for selling. They were grateful for the time that we had together. And um, and for being part of something really fabulously unique and I love the way the employees that are still there have, have kind of banded together, uh, and create for themselves within these little little circles the same culture that we had. And it was it hard realization for me that know the goals of private equity, um, they're not evil, they're just, their goals are different than the goals of the founder/entrepreneur.
Ryan Tansom: 41:36 Explain that a little bit more because I think the listeners need to really understand that.
S. Deutschmann: 41:42 Well, the goal for me, as the founder of the company, was about building the best company I could build, the tightest company, and you know, the group of happy employees. And you know, the group, uh, that the goal of private equity is to satisfy the needs of the shareholder. And so, um...
Ryan Tansom: 42:04 So how would you have, you know, when you, when you think about these entrepreneurs that are potentially going to go through the sale or the exit over the next handful of years, how do you figure out what those goals are and how do you line those up? I mean, would you have done anything differently?
S. Deutschmann: 42:20 Yes.
Ryan Tansom: 42:23 Well, maybe let's start with what would you, what would you have done differently to have a different outcome?
S. Deutschmann: 42:31 I think that, now with hindsight being 20/20, 18 months later, um, I would not have been acquired. I would have done the acquisition myself. I would have, um... I thought that my smaller company could really, um, infect the larger organization with our positive culture and the family-like culture and I think that's really hard for a smaller group to do that. So I would have been the acquirer and just handheld the process to, to have the culture of shift to the other company, too.
Ryan Tansom: 43:08 I think ya, well, you know, when you have two way different cultures, I think it's what, you know, it can really affect the success of the merger or acquisition. And I think you and I were talking at breakfast that one morning you know how the PE industry or that whole world, it's like the checkers versus 3D chess where, you know, as an owner you've built this amazing thing and you're changing an industry and all of a sudden you're sitting at the table, and it's trying to understand their motives and what their goals are. How, how, you know, do you have any advice from what you've gone through questions to ask and how to understand whether that buyer in that situation is going to actually accomplish what you want?
S. Deutschmann: 43:59 Um, I don't. But that's a great question. I need to ponder that. Um, I'm sorry. I don't have an answer for that, Ryan.
Ryan Tansom: 44:04 I think it's, I think it's, it's very, it's totally fine because I don't know either, that's why I asked. But a lot, you know, Bo Burlingham and his book Finish Big talks about knowing who you are, what you want from your business and why, and if you know that, that's great... but you still don't necessarily know how to align and who this person is that's sitting across from you and what they're going to end up doing with your quote unquote baby. And it's very difficult to, to understand that.
S. Deutschmann: 44:29 Yeah and you really have no control over it. And um, maybe some, some influence, but no control.
Ryan Tansom: 44:38 right. How did you mentally handle the transition after, so after that six months, I mean internally, did you, were you OK with it or were you, did you have any regret or I mean, how were you dealing with that?
S. Deutschmann: 44:54 Um, I have no regrets. Probably a cried a lot. Um, part of it was about losing my own identity, you know, being just totally consumed with building this company for 14 years and then one day not being involved at all and not, not being invited to the company Christmas party and not being invted to the company summer party was really, really difficult, but um just remembering what, you know, my passion was around helping other people and especially helping people achieve financial independence through entrepreneurship, which is something that I'd done at Letter Logic. I'd helped employees build their companies and even finance companies since I now spend the bulk, a lot of my time doing that. I started an angel investment firm to help women scale their businesses and I'm mentoring over 17 people with growing their businesses. So I was just able to refocus my attention away from the Letter Logic family and more toward the entrepreneurs.
Ryan Tansom: 46:02 Sherry, what are some things that helped you in that transition? Was there books, was there people? Like how did you actually process that and actually go through the shift?
S. Deutschmann: 46:11 That's a great question. I had been a member of EO, but I'd dropped out of EO when, uh, you know, because I was just too busy to attend the forums, I told myself. And so as soon as I sold the company, one of the first things I did was rejoin EO because I felt like I needed to keep my chops up in regards to, uh, you know, leading a company in case I ever wanted to do it again. And I found such consolation through them and through consolation and encouragement, you know, that I still had value to, to bring and a wealth of experience to share with other people so I could get satisfaction that way.
Ryan Tansom: 46:54 Did you feel the need to jump right in? Did you give yourself some time? Obviously getting some help here. The reason I asked that Sherry is that so many entrepreneurs either like jump right into something or you know, deploy all their money in search of trying... it's like failing in search of trying to find your new identity. I mean how did, did you give yourself some time or did you immediately jump right in? Or how did, how did you go about that?
S. Deutschmann: 47:20 Somebody gave me a book called Crazy Times when I sold the company, which was about how you really go kind of crazy when you first sell a company. You spend too much money or, or you start a new company to quickly. Um, and so I was mindful of all that. I was a little cautious... I think I should've been a little more cautious in regards in philanthropic activities. I just said yes to everything that came my way, thinking I would have tons of free time and I don't. But um, uh, although I invested in some women-owned businesses about that time, I have been very careful with my money.
Ryan Tansom: 47:58 So what, uh, what is on the agenda in today's time, because I know you got a book that you're working on. Maybe give us a little bit of, you know, what's the premise of the book? How did you pack all this passion and experience and what's kind of the message of it?
S. Deutschmann: 48:18 The book is called S.Q.S.: The Status Quo Sucks.That was our motto at Letter Logic, you know, to, to encourage everybody too. Don't, don't be afraid of making a mistake, you know, we can correct a wrong, but just, you know, always be willing to try something new. And the Status Quo Sucks is about, you know, my belief that every company would be more successful if it took better care of their people. And so I talk about what that meant to us practically and some wonderful programs that we have within the company and a favorite of which was my practice of what I call Lunch With Lucy, which was uh Wednesdays were open for any employee to take me to lunch. Um, they would choose the restaurant and they would choose who else would accompany us. I would pick up the tab, but we would go and talk about anything that they wanted to talk about. And that Lunch With Lucy gave me tremendous insight into things that were going on within the company that I would not have been aware aware of otherwise. But it also gave me insight into that person and what, what drove them and what their dreams and passions of so that I could help them realize some of their dreams. And so the book was practical tips for ways for employees to- employers to engage with employees without breaking the bank.
Ryan Tansom: 49:40 That's so awesome. I mean, I think it's all the compounding little things and really caring, you know, you can just send to the, with your genuine care that people are willing to go the extra mile. But because it's a mutual relationship, it's not a dictatorship at all.
S. Deutschmann: 49:56 Yeah. I love those people. We built the company together. I could not have done their jobs and I miss them.
Ryan Tansom: 50:06 I love it. And you know, when we think about all the things that we've talked about, Sherry, is there something that you want to highlight? Is this make sure that you leave the listeners with or if there's something maybe we haven't touched on about culture or the actual selling or transitioning? I mean, is there one thing that you want to leave them with?
S. Deutschmann: 50:30 Over the last year and a half to sell the company, I've had so many other entrepreneurs approach me that have sold their businesses and either stayed in for, you know, a tale of 18 months to five years. And those who did, and those who didn't, and I can tell you without a doubt, the happiest ones are the ones who exited with the sale and had zero involvement after that. And every one of us that I've talked to, they all believe that the company is healthier because of it. And the employees were able to make an easier transition because of it.
Ryan Tansom: 51:12 Were they ready? Those people who were really happy, did they see that? And were they emotionally and socially prepared to walk away?
S. Deutschmann: 51:22 Yes, one, I've made sure that he was socially prepared for it by planning for the entire next year to be traveling around the country so that he would not be, would not be here to witness the, the pain.
Ryan Tansom: 51:39 What does... I think it's interesting how you, how you label it as pain. So w, what do you think is so painful about it?
S. Deutschmann: 51:47 Well, to me, it really was like giving up a child and I'm interviewing potential parents for the child and hoping that uh, the parent with the new parent would love the child as much as you did. And in hindsight, it's not that the, the new parent doesn't love the child the same way, it's just that they, it's not that they don't love him as much, it's they love them differently.
Ryan Tansom: 52:11 No, no, I think that's a really good way to articulate it because I mean, it's, it's, it's very intangible sometimes, isn't it?
S. Deutschmann: 52:20 Yes. Yes.
Ryan Tansom: 52:22 If there is a good way for listeners to get in touch with the and to look out for the book and um, that's coming out soon, what is the best way for them to reach you?
S. Deutschmann: 52:30 The best way is to email me at Sherry, at Sherry Deutschmann dot com, um, LinkedIN is a good way to get to me too.
Ryan Tansom: 52:39 Sherry. I'm so happy we've got to finally reconnect. And then thank you so much for coming on the show.
S. Deutschmann: 52:39 Thank you, Ryan, it was my pleasure.
Ryan Tansom: 52:50 I hope you enjoyed that interview with Sherry and thanks for sticking around until the end. My main takeaway is that Sherry had the tenacity to really enact the employees-first mentality that a lot of us owners know we should have, but we always get stuck looking at the bottom line. And she had the faith in the longevity to implement the hard processes and procedures that allowed her to measure what she was doing. Training and educating your employees on the financials, making sure that you're guiding and mentoring your employees and then being able to filter out the people that don't fit within the culture is really important. And Sherry genuinely cared about the people so it wasn't some fake facade that she was putting on in order to make her look good or company look good. It was something that she truly believed was going to make an impact. And by changing lives the ripple effect happens within the business, but then it directly affects your clients, your suppliers and everybody that is associated with your company. And she approved by her numbers are financials and what she got for her company that it was worth the effort.
And I think if there was one other main takeaway, it is that she, in every one of us that has an employee culture first company has to understand the integration that that business in community has with our identity and our social being because it is like ripping yourself away from a group of friends. If you sell to a third party and drastically have to remove yourself from that entire environment. So knowing what you want from your business, why you want it is extremely important. If you enjoy the episode, go on to itunes and give us a rating. Otherwise, checked the rest out on itunes and I will see you next week.
Written by Ryan Tansom
Ryan runs industry-specific podcasts on his website which pertain to mergers and acquisitions, and all the life lessons he wish he had known then. He strives to bring this knowledge to his listeners in a way that is effective and engaging by providing new material each week from industry experts.