“If marketing and sales live only in your head, you’re the risk.”
This week, Bill chats with Rob Waring, Managing Director at Strategic Exit Advisors. Rob shares how marketing — or the lack thereof — can drastically impact both the valuation and structure of a deal. Bill and Rob dig deep into how founder-led sales, lack of scalability, and unprepared exits can tank deals or lead to painful earn-outs. With real-world anecdotes and years of experience, Rob explains what buyers are really looking for, how to de-risk your exit, and why marketing is more than just lead gen — it's a key to unlocking higher multiples.
Rob Waring is a Managing Director with Strategic Exit Advisors, a boutique sell-side investment bank serving entrepreneurial companies with EBITDA from $2 million to $8 million. SEA helps owners achieve their ultimate exit by focusing their process on strategic buyers willing to pay higher, strategic valuation multiples. SEA understands what you’ve been through building your business - their job is to make sure you get paid for it.
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Bill: Thank you for joining the Missing Half podcast where we're discovering what's missing in manufacturing and B2B marketing. We're also exploring marketing's impact on multiples in mergers and acquisitions. And I have a very special guest with me today, Rob Waring. Rob is with Strategic Exit Advisors. Rob, thank you for joining us today.
Rob: Bill, great to be here. Thank you for having me on.
Bill: Appreciate it. So Rob, why don't we just start by you telling us a little bit about Strategic Exit Advisors and what your role is there and then what your company does in the market, please.
Rob: Yeah, absolutely. So Strategic Exit Advisors is a sell side investment bank. So the majority of the work that we do is representing business owners, families and founders who are looking to ultimately exit their business. You know, they spent a lifetime, sometimes multiple generations building a business. A lot of times their net worth and their retirement is tied up in that business. So we're here to help them run a process to make sure that they get the best possible outcome from an economic standpoint, but more importantly, or certainly equally importantly, that the business that they've built is honored, the legacy that businesses honor, the people are taken care of, the culture that they've developed is maintained or enhanced and improved and certainly appreciated. So where we shine is business owners who really care about what happens to the business five, 10 years after the transaction.
Bill: Love that. So having grown up in a family business and I did a lot of mergers and acquisitions with my father early in my career, we did about 30 deals where we did a, we kind of spun up and did a run up on a couple of industries. Certainly have some appreciation for what you're saying there because a lot of the times when we were doing deals, it wasn't just the number on the check. It was about those like non- or intangibles you just talked about legacy, like roadmap for the employees, making sure that the business was maintained over time. So I love that kind of like middle America values approach to mergers and acquisitions as opposed to the cutthroat Wall Street. Right. Like take a chainsaw to it, fire everybody the day you buy it. And there we go. Right.
Rob: Absolutely. I mean, it's not M&A around spreadsheets. You know, it's not pro forma income statements. It's about what really matters here and what are the objectives of the buyer and the seller. And let's find alignment there before we proceed into a transaction.
Bill: No, I love that. And Rob, when you talk about Strategic Exit Advisors, you guys are located, your corporate headquarters is in the Eastern part of Pennsylvania, but you guys are doing work all up and down the East Coast and even all over the country and in some cases all over the world. Maybe talk a little bit about your scope, the scope of your services and who you're serving.
Rob: Yeah, absolutely. So as I mentioned, we work with families and founders, primarily manufacturing value-added distribution B2B service businesses. That's our core. Every company we represent, honestly, is unique and individual and has a specialty niche. There's something unique about what they do. People talk about like, what's your NAICS code? And our clients always have like a 999 at the end. It's like the all other, because they don't fit in a bucket. Now, they're very unique.
Bill: I love that. I'm gonna steal that.
Rob: They're very unique, interesting businesses. Exactly right. So yeah, so a lot of our clients, almost all of our clients come to us through referrals. So other advisors to business owners. That could be wealth management people, that could be lawyers, it can be business coaches. We interface a lot with the coaching community. Two to eight million approximately of EBITDA is where we'd love to be. So think about business valuations, typically close to 10 to 50 million in valuation is the majority of where our transactions fall. From a geographic standpoint, just because of the people that know us and the people that refer work to us, it is heavy sort of Pennsylvania, New Jersey, Maryland, Delaware. We've done a bunch of businesses up in New England. We've done businesses down in the Southeast. We've done businesses out in California. We did a transaction last year with a company that was up in Vancouver that was sold to a buyer based out of France. A lot of buyers from overseas. So we'll look for buyers all over the planet. There's a lot of interest from European buyers in the US market. So we tend to get a lot of responsiveness out of European buyers. We focus on strategic buyers. Strategic buyers tend to pay the best values. Honestly, our clients like talking to strategic buyers the most. But strategic buyers can look a lot, you know, they look like a lot of things, right? So they're they're publicly traded companies. They could be large privately held businesses that are strategic in nature. And a lot of them are private equity-backed because there is a lot of private equity money that fuels this lower middle market that we plan.
Bill: Yeah, it seems like there's a lot of activity right now with private equity moving into the mid-market. And whether it's a strategic buyer or access to a different market, we actually lost two clients in the past year. We have like a 90% plus retention rate with our clients. And we have clients that average six to seven years with us. I mean we keep our clients for long time, but one of our number one reasons for losing a client is they are acquired by a multinational or a strategic buyer. And we're representing a company that's grown to $50 million a year and doing very well. And they're bought by a multi-billion dollar corporation that already has their team in place for marketing and has a different vision. So like, it's congratulations, enjoy that retirement and we're fired. So that's part of the game. So, but we feel very proud to participate with those companies to help them get to that goal. We hate to see them go, but such is the nature of business.
Rob: Unfortunately, it is. Yeah, and what we've seen, it's interesting because we looked at this, if you look at the last 25 years, investor money, where has it moved? And what you have seen is you have seen a pretty significant decline, probably about 40% decline in the number of publicly traded companies in the US. What you have also seen is the rise of private equity over the last 25 years. So a lot of investment capital has moved to the world of private equity. And what we've seen over the last few years is post-COVID, in 2020, the M&A markets were very, very active. In 2021, were very active. 2022, they were very active. I mean the markets were really heating up. So, private equity was deploying a lot of capital. They were raising their next fund. That was going very, very well. 2023 hit, and interest rates went up, concerns over recession, inflation went up. And 2023, sort of the last three quarters were very slow. And that continued into 24. 24 was up a little bit, but that slowness continued. So what private equity has done very, well over the last two years is raise capital. What they have struggled to do over the last two years is to deploy capital. And if their money isn't deployed, I think the last count between private equity and I think strategic, there's like $2.6 trillion looking for transactions. And so what they're doing now is they're very, very, I don't want to say desperate, maybe that's not a fair term, but they're very, very anxious to get that money to work, to generate returns for their investors. So they're going direct to business owners. So there's a lot of reach out from private equity directly to business owners that's happening right now. And those are a lot of the calls that we're getting is, Hey, I have a, an LOI from a private equity group. haven't signed it. You know, would you guys look at my deal? And so we're helping a lot of business owners navigate that because, you know, at end of the day, we always tell people, look, if you're talking to somebody about selling your company, you are in a process. What you have to ask yourself is who owns the process? You know, if it's not your process, guess what? It's their process. If it's their process, guess who controls the timelines, guess who makes up all the rules of the process? So that's why our role is to run a process for an owner so they make up the rules, they control the due dates and deadlines and everything else.
Bill: No, I love that. And Rob, when you, so let's get down into the details here of this process and maybe let's explore. So let's say a business owner comes to you and whether it's because they have an LOI in front of them or because they're just in that, maybe that maturity of their life or the business they're at a crossroads or see a crossroads coming. What do you think are some of the biggest challenges those business owners face as they start on that journey to think about a sale or how they're going to move this forward in a way that isn't consistent with the way they're doing it today?
Rob: Yeah, the not invented here syndrome is very, very real. Let's face it. I mean business owners, they built their business a certain way. And they did it because a lot of them followed their gut. And sometimes they were wrong. Most times they were right. That's why they're still in business. That's why they're successful. It's very hard for a business owner who's gone through sometimes multiple generations, but certainly 10, 20, 30 years of running a business to understand the difference between being, you know, owning a business and being a business owner. And those are two very, you know, those can be two very different things. And when you're, when, when you identify yourself as an entrepreneur, your sense of your own self-worth is tied up and fully intertwined with your business and how important you are to your business and how important your business is to the market. So the biggest challenge I think with entrepreneurs and that's the market we serve is getting them to understand the difference between those things and then how to find value, personal value and a sense of self-worth and purpose that's outside the business. Because when it comes to selling the business, that codependence on the business is really troubling and can be very problematic for a transaction. It's really about the transferability. What is the business worth without the owner in it?
Bill: So one of the things we're trying to discover here in the Missing Half is marketing's impact on multiples. whenever you take a look at that company and let's say we can get the owner there out of that co-dependency, we can get the company to operate theoretically without them, right? So that it's a transferable asset. It's a living, breathing entity without that owner, founder. How important is a repeatable, scalable, and predictable marketing engine that drives organic growth? How important is that to the buyer? And what have you seen maybe when you've seen companies that have that, companies that don't have that, or somewhere in the middle? Maybe describe your years of experience and kind of what you've seen and the value or the pitfalls of that whole situation.
Rob: Yeah, no, absolutely. What I will say, I would love to be able to say like, look, having strong marketing processes is a two times EBITDA sort of valuation differential. I would love to be able to quantify a lot of various factors. At the end of the day, when a buyer is valuing a business, they are, you know, they're looking at the future cash flows of the business and that can mean a lot of things. Future cash flow is, you what are the forecasts for the standalone business? Can I sell more of my stuff if I own this business because their customers buy what I do and my customers buy what they do so I can sell more of their stuff? And then there's a future exit value. There's a lot of ways to evaluate that, but it's all adjusted for risk. So risk comes in a lot of forms. And a lot of times, the owner is a big contributor to risk. So from a marketing standpoint, there's marketing and there's sales. A lot of people lump them together. They are two different things. But when it comes to marketing, specifically, how is the business messaging and who is it messaging to? And what is the message that it's telling? I mean, it's differentiation. If you're a me too business, that's going to be worth significantly less than if you are truly different, unique, and you've built that differentiation into your marketing message, and you're putting that message in front of the right audience. That's worth a tremendous amount when it comes to a transaction. And then if you talk about, know, valuation is one piece of the equation, the other piece is structure. You know, and that's the thing that a lot of people don't talk about. You know, everybody loves to like, you say I got 12X for my business or whatever it is, but you got 4X at the table and, you know, you got, you know, 8X still like hanging in an earn out based on some sort of lofty objectives that you're never going to meet. So structure is really, really a big, it's a huge piece of the equation when it comes to a transaction. And if they perceive risk, especially if that risk is associated with they don't have a marketing process, they don't have a sales process, the client, the new client acquisition is really dependent upon that owner and their personality and their personal reputation in that industry. That's a massive, massive risk to a buyer. So if I'm a buyer, I'm not going to write you a huge check and let you walk away the day of close. Because if that happens, the new business generation, new business development goes away. Existing client relationships are at risk. So I'm going to tie a lot of your transaction to the future performance of the business post-close, because I'm going to want to make sure that you stick around. So it's a massive determinant of risk, therefore valuation. It's also a massive determinant on structure of the transaction.
Bill: No, I love that. And I think you're exactly right, Rob, because I don't think there are formulas or a lot of research that's been done on an exact mathematical model that we could say, OK, strong marketing, 2X more, right? I think when you look, especially in our market, I think if you look at SaaS, I think there is a much more structured mathematical model around churn, customer churn and CAC, customer acquisition costs and those type of things. But when we think…
Rob: Absolutely. You get the rule of 40 in. Yep, absolutely.
Bill: Yeah, so in that space, which is not my space, not your space, that mathematical model exists. My premise is that while we do not have a mathematical model, it is important. We can see it, touch it, taste it, feel it, smell it, but we can't yet mathematically define it. But like you said, it's there. And that risk, the structure, the earnouts, all of those things become dependent on really marketing and sales being able to do something else. The other thing we've seen is when we're, especially when we're dealing with private equity is they're really good at spinning up companies and having to run up and buying all these different units that are similar across the geography, industry, whatever. And on paper, on the spreadsheet in New York City, they can put it all together. What they really struggle with then is at some point in time, the fund or whoever says, I'm not buying any more growth. You have to go get the growth, right? Organic growth. That's where we see a lot of private equity plays struggle is they really have a hard time pivoting from acquisition growth to organic growth. Have you seen that occur in the market?
Rob: Yeah, there's no question. And it's not universal. Okay, so there are some private equity groups that their model, they're really good at M&A. They're really good at buying low and selling high. And in those models, they're very good at sort of executing on the model you talked about, you described. We're going to buy a platform, we're going to buy a bunch of smaller companies, we're going to roll them together. We're good at integrating, we can take some cost out of the system, we're going to raise EBITDA, we're bigger, we have a higher multiple. And then we do a sale to a larger private equity group typically. You know, that's the big fish eat the little fish. That's the way that world works. Organic growth, there are some that are really good at it. There are many that are not. So really getting into the strategic plan for growth. I mean, one of the things we always tell clients is if you're meeting with a company, especially with a private equity group, or a private equity back strategic, one of the questions they're going to ask is how do you double this in three years? Like, what does it look like? What are the pinch points? What are the impediments to doubling this in three years? How much capital would it cost? Forget acquisitions. Is there a market to grow it and double it? Do you have the capacity to grow it and double it? Do you have the processes in place from a marketing perspective and a sales perspective to wind that stuff up to double it in three years? And if you don't have a good answer to that question, it reduces the valuation. It's one of those questions. They want to know, what's the growth plan? Can you execute on it? And do you have the scalability within the business to actually handle the growth? Because, you know, businesses can sell as much as they want. I came up from a consumer products background for a period of my life. And one of the things we always said is, there's no point advertising to empty shelves. If you don't have the product available and you spend a lot of money to get people to come out and buy it and you can't deliver, it's a waste of money.
Bill: Yeah, it's been my experience that if that conversation is occurring, how can we double it in three years? What are the processes? If you can then, whenever that question is asked, push the plan across the table. You de-risk that situation. All of sudden, a contentious, nervous moment becomes, yeah, we got this. No, it's still…
Rob: Yeah. And if you can, and if you can, I'm sorry, go ahead. I was going to say, and if you could point to examples of how you've done it in the past, like if you can say, we put a plan together, we executed on the plan and we delivered. If you have a history of being able to do that and you have the plan for going forward and you can show here's the size of the addressable market for what we do. Here's some new stuff that we're going to roll. You know, if you have that, that strategy laid out, that you've built the playbook for them, that is, that's worth its weight in gold.
Bill: Yeah, that de-risks the situation. It goes from contentious to envisionment. There's still risk. All plans don't come to fruition, but at least there's a plan. Someone has done the napkin math and done some research to make sure that there is a probability of success as opposed to, if you're in that situation and it's crickets and everybody's looking left to see if somebody else has the answer, that valuation is the reverse hockey stick. It is going down and fast.
Rob: Yeah. It's going down, or it's gone to zero because they're just not going to move forward if you don't have an answer. And that's the interesting thing that a lot of people don't understand. I could do all these things I need to do to make it more attractive and more valuable, but I'll just take a lower valuation. And what they don't seem to understand is a lot of these are go-no-go decisions from a buyer's perspective. It's like you don't get a deal. That's sort of the the dirty little secret out there is there's a lot of businesses out there that really buyers, the real buyers won't move forward with. They're just not going to move forward. They don't want to buy it on the super cheap if they feel like it's going to be a huge headache and it's going to be an impediment to their ability to execute on their plans. So not every business is saleable at any price to the right buyers. Sometimes it's very black and white go no go decision.
Bill: Rob, you're so right about that. Outside of 50 Marketing, my family has other businesses and we were looking at buying a business over the past two years. And we went through a process, due diligence and that's exactly what occurred. The group was not willing to make changes. They were not willing to engage a process that would get it ready for sale and clean some things up. And at that point they were like, well, just offer us, offer us what it's worth today. And we were like, yeah, sorry, we're done. Like we're not interested at this situation. And so that happens a lot. And I think, well, and I think this pivots to another area of conversation. When you're preparing companies for sale or transition, I'm sure you have to have a process because what I've seen in the market is, and probably for folks in your space, people come to you, and they're three or four years away from being ready and you're giving them guidance. Like, Hey, yeah, great idea, but here's the things we need to do to get ready for sale. Could you maybe talk about that please?
Rob: Yeah, no, happy to do that. And there was a period of time when we would engage in that type of consultative work. What we've done now is we have actually identified a couple of key strategic partners to the firm that actually are set up to be consultants. And you're going to see more of it. It's a burgeoning industry, which is helping business owners prepare for the exit and to sell the business. And when we first started SEA back in 2007, it was to be an exit planning practice, you know, and that's a topic that I think is still a little bit of in its infancy. It was almost 20 years ago too, the topic of exit planning. So we don't do exit planning any longer, but we're real active in that community. I'm on the board of the Philadelphia chapter of VPI, which is Exit Planning Institute. So we're real active in that community, but we have a number of organizations that we have identified that we partner with that work directly with business owners on just that is helping them get their business ready for a market process. What we do is we've developed a readiness assessment. We'll take owners through that readiness assessment. And it's a lot of Q&A. It's back and forth. And we're able to ultimately give them a score of how prepared is the business and them personally for a market process. And probably more importantly, we give them the areas of focus that they would, if you're not gonna go to market today, and we say you're not ready, and what that means to us is, look, I've never been so sort of cocky or arrogant that I'm gonna tell a business owner, you can't sell this business. That's not for me to tell them. Well, what I will tell you is, it is our opinion that you're not ready for a competitive market process, because buyers will drop off for the following reasons. And here's the areas that you need to work on. And then we can connect them with somebody who can help them actually through that process. But a lot of times it has to do with the owner and how tied in they are to the business. A lot of times it's things like client concentration. They've got a client that's 50% of their revenue. They sell one thing. You know, and one thing only. And if somebody beats them on that one thing, they go to zero pretty quickly. So we're looking for all these things that the buyers are going to pressure test. If they don't have their processes in place and documented. And that's a huge one. If everything's in the owner's head, somebody can't come in and pick up the business and run with it, that's problematic. If they don't have a management team in place. You ask questions of an owner, you know. What's the longest vacation you took this past year? When you were gone, how many times did you get on the phone? How many emails did you respond to? Did the business continue to march on? Who are your top customers? If they don't know who their top customers are, that's great. That means they're removing themselves from the business. Who's the contact at your number one customer? I don't know. I know who it was 20 years ago, but I don't know who it is. Beautiful. We love that answer. That's a great answer. So it's, you know, there's a lot of things associated with, with that. And most of it is around the business, the business, the transferable value of that business without the owner and then the ability to grow and scale without the owner post transaction.
Bill: Based on your experience of doing these assessments, where do you see the most consistent problem? Is it the owner? Or is it the business?
Rob: Sometimes they're so intertwined, it was hard to sort of be a clear answer on that, Bill. I will tell you the number one area where we find challenges would be in the sales and marketing area. And I think the reason for that, and it ties to the owner. So the problem is, we'll talk about, when a new client acquisition. Like how do you go about getting new clients? You know, existing client relationships, who manages those relationships? And a lot of times it's the owner is still very, very deep into those pieces of business. And I think the reason for that, you know, as an owner scales a business and they start hiring some of their management team, they are more than happy to give, get a CFO or a controller and like get rid of the financial stuff, right? HR, I don't want to listen to my employees complaining. Like I'll get rid of HR. Even operations and deliverables. Like I can bring somebody in who can streamline processes. That's their expertise. I'm what they, the last thing they will give up is their customer relationships. Like that is, that's how they started the business. They may still have the first customer that they ever had is still a customer of the business. And they credit themselves for like that relationships that they've made. You know, they've invited their customers to their kids’ weddings, you know, and so that's the thing. That's the last thing to go. So an owner will hold on to that till the very, very end. And if they, if they're willing to let that go, they've stepped out of the business. Like if that's in somebody else's hands, you can almost be guaranteed that the business runs well without them.
Bill: So Rob, these words are cutting very deeply in my psyche here, right? Because you're exactly right.
Rob: I don't know I should apologize or not, Bill.
Bill: No, but it's true. Like HR, I got rid of that as fast as I could. Accounting, oh my word, thank you. Operations, managing our PM system, managing our reports, our scorecards, gone. I'm on the road, I'm talking to people. I value relationships with owners and founders. And so yeah, that, wow. That, so what's missing in Bill's life with 50 Marketing? We just uncovered something that I know to be true, but it just, brings…
Rob: Guilty as charged, right?
Bill: Yeah, it's raw now. It's a, it's an emotional thing I'll have to deal with later today and this weekend, but no, that's, but it's so true and it's hard to leave go. And I think the other issue we need to recognize as business owners. We're not special. Everybody struggles with it and the degree to which you're more successful than your colleagues will be the degree to which you address and overcome this problem as a business owner. If you want 12X and you don't want a big, you know, a lot of hooks and strings attached to that, then you have to deal with this. And if you don't, you're going to get four and eight is going to be an earn out. And the probability of you getting that earn out is, you know, that's going to be the cut to your ego that you're going to live within retirement. It only ended up at five and you didn't get to 12. And that man, that'd be a tough pill to swallow sitting on the beach because that's going to eat at you every day, every day.
Rob: Yeah, it is. Yeah, and I think about that everyday. You know, when you think about the skill set of an entrepreneur isn't inherently a risk taker. They are inherently. Optimistic is the word. They're like who who quits a job that has a salary and benefits and all that stuff and goes off and says, I'm going to roll the dice and I'm going to gamble it all? I believe in myself. I'm incredibly optimistic. The skill set to create something from nothing and to build something is very different than the skill set when it comes to the other side of the coin, which is I now need to be a mentor. I need to be a leader. I need to be a mentor, but I need to delegate all of these things. And I've got to get the things that are important to me, the things that part of my sort of interlaced DNA with this business that I've created, I need to put that into process. I need to put that into the balance of my people. I need to put that into culture. I need to be able to transfer a lot of this stuff and separate those ties and know that that stuff still lives. It lives in the business, it lives in the people, but it's a different type of a skill set for a business owner than what it took to get it started and to grow it into something of some scale. It's just, it's a different skill set and there are some very unique ones that are able to do that.
50 Marketing break
Bill: So Rob, you mentioned a few minutes ago that the number one problem you see is sales and marketing, because the owners still are intertwined, they're still in that function. Have you seen some examples or observed some owners who have, you've helped them identify that, they go away with an advisor, with a coach, whatever, and then they've been able to you know, kind of check that box and say, okay, I'm no longer the only sales and marketing engine. It's not founder-led sales. And they've been able to successfully extract themselves from that function in the business. And if so, what did they do or what did you observe that was, that made them successful or what were the keys to that? So it's a very broad question, but I'm trying to unpack that because I think there's a gold nugget there and I want to unpack it if you're, if you can share.
Rob: Yeah, let's dig and look for it. When you talk about sales and marketing, you'll hear people, the hardest thing to do is to find good salespeople. But at the end of the day, what you need to do is you need to find somebody who is passionate about the business and shares your passion for the business. Sometimes they look for, I need to find a seasoned sales executive. Sometimes the people that could be great at sales, especially if it's more of a technical type of a sale, are in the business already. You just, never put them in that role. You never put them in that position. And so that's from a sales perspective, from a marketing perspective. That's a whole strategic effort. And I think that requires outside help to do that. You we often recommend to owners that they work with a coaching organization like an EOS or Scaling Up or one of the others. But then those aren't firms that bring marketing savvy. You know, they don't bring that process. So working with that, we work with an outside marketing firm on our strategic plan for marketing our business and that helps us with all of our social and all of our content and all of our messaging. I think every company benefits from that. And a lot of it is you need to repeatedly message out what makes you different and unique from your competition. We'll talk to people and say, well, why do new clients hire you? Why do new customers come to you? And if the answer is price, it's the worst answer we could possibly hear. We're the cheapest in the world. That's awful. That's a terrible answer. You know, and our margins are, you know, we have 2% bottom line margins. Like that's, that's an awful answer. Your customer should be coming to you because they can get something from you. They can't get from anybody else. Or even if they just, they perceive they can get something different. I believe people that hire us come to us because they recognize that we put so much value and emphasis on the, on the sort of tangible intangibles of the business, if you will. And those are the things that make the business unique and special. And it's part of the culture of the company. And the customers feel it. They see it. They come there for a reason. And this has nothing to with price. I'd rather hear that you are the most expensive in the industry. And customers keep coming back for more. That, to me, is the best answer out there. So there are companies that will recognize that. It's a process, though. It takes time for that owner to remove themselves, get a strategic plan in place, get their processes documented, and then get other people executing on those processes. That's a multi-year process to really do it right and to get those pieces in place. It can be done though. And I think it's pretty eye-opening because we have had owners who have gone through that journey and their business starts to grow much quicker than it was growing before. Because as much as they think they're doing it as well as it can be done, they, you know, let's face it, the entrepreneur, nobody can do this better than me. Right? That's, you know, we feel that way. I feel that way. I'm sure you do too, Bill. But we're sort of kidding ourselves because the reality of it is we can't do everything better than everybody else. There are people out there that are really, really good at this. And you want to find somebody who understands what you're trying to achieve. I wouldn't say an industry specialist per se, but they need to be knowledgeable and they need to really be able to go through that discovery process of understanding what makes you unique, special, and different, and then how to message that problem.
Bill: So I couldn't agree more. A couple of things you said there. When you look at the sales organization, some of the best sales people we've seen and sales organizations we've seen developed organizations come from operations. They are not super slick on Salesforce. They’re not, you know, they don't know the tie down clothes, but they know the product and they know the value proposition and the pain points of the customer better than everybody else. So I couldn't agree more with that. The other thing you talked about there was getting outside marketing help. We get more inquiries on strategic planning, strategic marketing planning and branding than we do on anything else, especially in the mid-market, because companies do have some type of process. They do have some type of, and can they find someone local who can click on Facebook and do those very like technical repeatable processes that are fairly binary, sure. There's not a lot of differentiation in that. But when we look at a strategic perspective and a strategic marketing plan that uses their brand to add value and hopefully could impact a multiple, everybody doesn't have that skill set or that knowledge to do that. And then the last thing you said about entrepreneurs. My theme of this year, I put it in one of my LinkedIn posts right after the first of the year is I am the problem. I'm trying to take the opposite approach. So I look at like everybody else can do it better than me. I just have to enable them to have the opportunity, the resources, the time, the training, the support to go do it, because I continually see myself as an entrepreneur being the limiter of my business. And I'm taking that contrarian approach because for much of my career, it was, I'm the best, only I can do it. Everybody else just get out of my way and support me. And that certainly limited my ability to scale, grow and produce those predictable, repeatable results. So I think that's always a challenge. And especially when you see someone who's been like, you look at some of these manufacturers, they invented some amazing thing. They're an amazing engineer, the amazing productivity guy. And they've done it for 30 years. The reality is in certain senses, they are the best.
But they cannot perpetuate that until Elon gets the neural link and we can download ourselves into robots or whatever. With the current realities of mortality withstanding, that cannot be perpetuated indefinitely.
Rob: Yeah, it's interesting you say, you know, the I am the problem mentality is, God, it's so important. And it's really, I think the importance of that is understated. I mean, when we're talking to a business owner, we're looking for somebody, we're asking questions. We don't ask them to say I am the problem, but we'd love to hear something like I recognized I was the problem. You know, that like when we're, we're looking for somebody, we ask them about their outside advisors. Like who advises them in a business? And if they say, yeah, I'm working with this EOS or Scaling Up coach and this is my outside marketing firm. Like when we know their mindset has reached the point of, I don't know everything and I am coachable. I am willing to hire outside advisors, pay them money and actually take their advice. Those are character traits we really look for when we're potentially engaging a client. Because if they're not doing those, if those behaviors don't exist in them, that's a big concern for us. Because at the end of the day, they've never sold a company before, most of them. So if they think they know how to do it better than we know how to do it, why are you hiring us? Like you're just not going to be a good client for us. So let's, let's agree that, I mean, we, we probably engage one in 10, you know, prospective clients that we talk to for a variety of reasons. They're not, they're not quite big enough for a competitive process. And that's not a, it's not everything. I mentioned you two to eight million of EBITDA. And the reason those are our parameters is we feel like we can be really impactful for those people. We, those tend to be the people that are very, still very emotionally tied to the business. And we think that's where we shine. That's where our process really resonates and makes a lot of sense. Below two million, one to two million, we'll look at companies. If they're in interesting niches and we can validate there's a really good market for the business, we can take those companies out. Trajectory is everything. But from one to two million, you start to get more and more traction with the real serious buyers. And once you get over two million in EBITDA, you get a lot more traction. So in order to be able to run a process and dictate the terms and the rules of that process, buyers have to be worried they're going to miss out. And below a million of EBITDA, it's just really hard to get them to stick to deadlines. Bids are due on the 15th. Okay, guys, we're not going to put anything in on the 15th. We might get to it next month. So it's not a snobbery thing. There's a lot of great companies that have less than a million of EBITDA. But it is about how well does this process work? Work for them. But what you said about the I am the problem is a huge question. That's a huge question we sort of try to unpack during our vetting process.
Bill: No, one of the turning points for our organization here at 50 Marketing is we hired an agency coach who helped us implement EOS and also like EOS from a mindset of agency operations. So not just plain and not plain vanilla EOS. I mean, EOS is an amazing system. Couldn't recommend it more to anybody who's listening to investigate it. I might not be right for you, but yeah, yeah.
Rob: We run on EOS as a firm, by the way. Yeah.
Bill: It's, it's, and I'm sure you guys have seen amazing results from it, but this agency coach was able to help us implement EOS and also just from an agency perspective. And he has other agency clients, hundreds of them over the course of his career. So he was able to really bring a lot of industry-specific insight into our process and the results have been dramatic. When you start dealing with a coach, it's kind of like when you're in high school, you don't wanna do the reps. I don't wanna run up and down the floor. I don't want to do whatever the exercises are. I don't want to do all the workouts. Like that's just the human nature, right? But then when you, when you start to win, when you start to produce consistent results, it gets easier to show up at 4 a.m. and go to the gym. It gets easier to do this stuff. So yeah, I would encourage anybody who's listening, who's thinking about M&A, who's in this process, definitely look at those coaches. The other thing is, you know, the cost of coaches, you can get good coaches for $5,000, $10,000 a month who will return you insane. The returns can be insane. So oh wow, that's a lot of money. Oh, $25,000 for this coach a month is a lot of money. Well, if they can have a 3X impact on EBITDA and a multiple at the end of it, you would write that check every day of the week if you could, right? So just do it.
Rob: I will say whether it's an EOS or a Pinnacle or a Scaling Up, Gravitas, mean, there's a bunch of great systems. There's a lot of commonality amongst them. We love working and taking companies to market that have been working with an outside implementer with one of these processes. They just show better. You know, they have the data, they've been tracking their KPIs for years. They've got their backlogs, pipelines, like their management team is much more aligned and much more complete. Cause as they're going through these processes, they find where the holes are. Everybody has a voice, but everybody then ultimately, you know, you bring more good ideas to the table and then, and then you ultimately agree on like, here's our strategic plan. This is what we're going to execute on. And we're going to get this stuff done. There's, you know, without, without, um, without one of these systems in place, it's very hard for an owner to create that type of culture of accountability that comes from one of these systems. mean, when teams hold each other accountable for something, rather than having the owner have to be the chief accountability officer and call people out and meetings, stuff's not getting done. When you create that culture of accountability, not only does that business show better and get a higher multiple. But I pretty much can guarantee you that that business is growing faster, it is more profitable, and it has more of the pieces in place. Because what we like to tell people, and we always tell people this, at the end of the day when we take a company to market, we're storytellers. It's not numbers on a spreadsheet. The numbers are data. At the end of the day, we're telling a story about where did the business come from, where is it today, and where is it going? And the P&L and the balance sheet and the forecast and backlog pipeline, all the data has to support that story. So there's a narrative. There's a narrative that we create. And it has to be an accurate narrative because eventually we're going to have to give all the data that supports that narrative. But it is a storytelling exercise supported by data. And when you talk to a company that has been going through one of these processes, they just tend to be tracking all of the data that you need to really craft that narrative and ultimately support it.
Bill: The aha moment for me with scorecards was whenever I got to the point in this business where I was just seeing the roll up and wasn't dealing with departmental scorecards. And if I had a question on the roll up, I could just go to that departmental leader and then they could pull up their scorecard, which obviously had many more inputs and KPIs and measurements that I was looking in the roll up. And they could explain a story or communicate all the details back very quickly. It wasn't like, we found a problem. OK, now I'm going to go look at that problem for a month. OK, let's go to the detail scorecard. Let's look at the actual pain points. Where are the problems and get through that? And I could see how if you're sitting there, you know, so here's our story. And then you get to the moment of in God we trust, all other spring proof. Right. And then there's the numbers. Right. And you're showing the financials, you're showing the ops procedures. And then if a buyer has a specific question, if you can go to a scorecard and really bring that subplot to the story to the top, that would make me as a buyer feel much more comfortable and de-risk that conversation very rapidly. Absolutely.
Rob: And to us, it's about knowing the answers to the questions before they're asked. When you look at the information, if you examine it through the right lenses, which owners oftentimes can't do on their own, but that's our role, is to say, here are going to be the questions. Here's the information we're providing. And here, these are the questions that we know are coming back. There might be one or two curveballs that we didn't anticipate. But we know eight questions that are coming back on this. So when you have answers to those, when we push the data out, let's also push the answers to the questions out at the same time. Let's answer the questions before they ask the questions. When you can do that, that risk profile goes way down. Buyers are like, got it. Now we understand it.
Bill: Yeah, because the worst time to get a question in a deal is an hour before closing.
Rob: Yeah. Oh and by the way, can you send us the X, Y? Yeah, that's the worst, the words you don't want to hear. I mean, that's the problem with the dynamic that is at play right now that I was mentioning before with private equity. We see a lot of private equity is going to business owners direct, they're signing an NDA, they're getting financial information. Right there, the business owner has handed over control of that narrative I was describing. They handed over control of the narrative to the buyer. The buyer is going to look at the numbers and write the story off the numbers without any context. So without any recasting, you know, all the stuff that has to be done to control the narrative. So when you do that, when they're writing your story and when they're, they're providing the data, it's, it's really hard to get control back. And what you end up with is they get this, the numbers, they write their own story, they send you an LOI. The LOI is based off of very limited information, often misunderstood information. And then they want 120 days of exclusivity. So what that means is you can't talk to another buyer for 120 days while we're doing our due diligence. Business owners tend to say, this is great. I got my deal. It's a good number. And they sign it. And then the due diligence starts. And then the words you do not want to hear after you have signed an LOI is, from a buyer is, we weren't aware that XYZ. Oh, we didn't realize. So anything that they come up with that they were not aware of before they sign that LOI is a reason to renegotiate the LOI and tear it up. Business owners sign an LOI, they're like, this is great. They go boat shopping, right? It's like, the deal is not the deal. Three out of four LOIs that are signed are probably gonna not close. They're probably gonna fail. And the one in four that does close may not close under the terms that you went in with. So it's sort of the dirty little secret that's out there. And that's a problem. So you've got to get everything out ahead of the LOI. If there's anything that needs to be uncovered, like we'll talk about weaknesses in the business, but we'll put them in, position them as opportunities. So we never want the buyer to be able to come back and say, I didn't know. Yeah, you did. We talked about it. It was in the management presentation. It was in the book. It was on this page. We got everything out ahead of the LOI that needed to get out so that the deal won't change. We call it a sturdy LOI. We want to make sure we have a really sturdy LOI and that the deal closes on the same terms that we went in with.
Bill: Because my guess is in your career, you have rarely, if ever seen someone come back and say, I didn't know that. I want to offer you more money. Right?
Rob: Yeah. That doesn't seem to happen. The numbers tend to shift in one direction once you've signed an LOI and there's xQP. So the key is they're not going to get better. It would be really, I can't think of a time when it got significantly better. We've been able to negotiate some terms because of some things that have happened that are new. But generally speaking, our goal once we've gotten under LOI is to preserve the deal. Like, let's make sure that nothing, we don't give them any reason to go back on the deal and make it less desirable for our client. And we've been very successful at that.
Bill: So one of the other things, Rob, I think that's very interesting about your company and the value you're providing in the marketplace is that you're a go-between. And when we look at the pressure that's on PE firms, these PE firms have, like you said, 2.6 trillion or whatever the astronomical insane number is, and they're getting a fee to manage that fund and they have to provide a return greater than that fee where everybody's angry. And I've just grossly oversimplified the whole process, but let's just boil it down. So if they're not deploying capital at a rate that is going to allow them to get that return above the fee, they're in trouble. And sometimes the unfortunate reality is these funds are set up with unrealistic expectations targeting markets that really don't have that opportunity but it sounded really good at the country club or the golf course over martinis. So they went for it, right? So whenever that occurs, I think you have a lot of business owners who are being contacted by PE firms to rush into a hastily arranged marriage or potential marriage without, it's kind of like the Fiddler on the Roof, right? It's prearranged and then, now we'll meet each other and maybe we'll get married, right? It's that type of situation. Whereas, you know, this allows you to have a better plan. It de-risks the seller's position because they have an opportunity to prepare themselves and get in the right situation and find a buyer who can see more value than just the one who shows up and calls and says, hey, do you want to sell? So I think that's really interesting what you guys are providing. I mean, do you see that PE firms are just out there like grasping at straws, just trying to find deals? And then because of that, that's where you get to the one in four? They only do one out of the four because they just have to increase their surface area to find what they need.
Rob: Yeah, they are, so there's a tremendous amount of activity and the world of what's considered private equity has gotten kind of murky. So you have private equity groups that have, they raise capital, they create a fund, they raise capital into that fund. That fund maybe has a seven year lifespan. And so over seven years, what they have to do is they have to deploy that capital, meaning they gotta go out and buy companies. And then they've got to try to maximize the value of those companies, grow those businesses, do add-ons to their platform, take costs out of the system, build something bigger. And then within seven years, they have to exit. So that's a pretty quick timeframe to do that. So private equity is doing direct outreach. They've also got, there are folks that are fundless sponsors out there. So these are folks that don't have a fund. They don't actually have the money, but what they are is they are looking for private equity. So they have relationships with private equity. So they know if I find something, I can take it back to the private equity group to actually write the checks and provide the financial backing for this. Most of them don't really have dollars to invest. Then you've got search funds that are out there. Search funds are a couple of guys that have wealthy people behind them or some investors that may back them. You don't know who they are. And they're looking to buy one business and operate it. So they want to basically replace the ownership and they just want, they're looking for one business to run. They find the one, they buy it and they're done looking. So business owners can't really differentiate between all of that. So they're getting a lot of that noise. And I do think the desperation, the need to deploy capital and not trying to spend too much time upfront with diligence. Being as charitable as possible. Being as charitable as possible. They're so eager to start looking at deal flow and get deal flow going that they're signing NDAs, getting information, putting out LOIs. They're going to get a certain number of those companies under LOI. But they're going to leave the heavy lifting and the investment of their time, energy, and money into the diligence phase. The more nefarious view on that is they're doing that same thing, but their goal, their strategy is actually get it under LOI, get as much exclusivity as you can. As long of a period of exclusivity. 60 days into 120 days, the owner's getting a little fatigued and tired and burned out. That's when you're gonna say, here's some of the findings from diligence that we've done so far. By the way, your business is worth half of what we thought it was worth because we did not realize X, Y and Z. And here's all of these things. So the owner has a couple of options at that point. They start over, but they're still stuck under exclusivity potentially for another 60 days if they don't have an out. Or they agree to, you know, amend some of the terms of the deal. They take less money. They take more in earn out. Like their deal just changes. And so some will use that as an actual, like that's the strategy is lure them in with something that's really generous, sounds really generous, but it's very vague and doesn't have a lot of parameters around it. And then when we get into due diligence, that's when we can ratchet it back. That's the more nefarious sort of view on things.
Bill: Well, and I've, I've seen that nefarious situation play out with some of our clients where, whenever it appeared to me that when the owner signed the LOI and then we were brought in to kind of communicate to some of those folks as part of the marketing function, what we were doing and help kind of fill out that narrative that the owner had checked out, signed the LOI, checked out, and then you get to that 60, 90 day process. They're fatigued that they've already moved on emotionally, you know, and mentally. So then it's okay, half the money, fine, I don't care, I'm done. And that can, if you are a private equity firm, I know there are multiples that probably have that strategy and do quite well in that nefarious category. Well, Rob, go ahead.
Rob: No, I was going to say the thing the owner needs to keep in mind is that if they're talking to the buyer, the buyer is controlling the process and the buyer has one job. Their job is to buy it for as little as possible. And that's not evil, but they're looking to generate returns for their investors. So their job is to buy companies for as little as possible. I mean, that's just their job. You can't really hold that against them, but just recognize that. They are not there to make you rich as an owner. That's not their job. Their job is to make their investors rich. And they do that by buying as low as possible and selling as high as possible. It's pretty simple math.
Bill: It’s the name of the game. Well, Rob, this has been an excellent conversation. I really appreciate your candor on marketing's impact on multiples and mergers and acquisitions. You sharing some guidance for sellers, business owners who are thinking about selling. We like to give every guest on the show an opportunity for a shameless plug. So please give us your elevator pitch. Where they can find you. And all of this information will be in all the footers, all the posts, all the links to the videos and that type of thing. But go ahead and give us your elevator pitch so we can hear about your company.
Rob: Absolutely. Thanks, Bill. The shameless plug. You know, what I would say is we are here to help owners and help advisors to owners to really understand what's going on in the market, what their business is worth and what they can do to make it more valuable. There is a lot going on out there. There's a lot of noise in the M&A market. So for entrepreneurs who care about not just the deal and not just about the money. I mean, there's a reason we don't do private equity carve outs. We don't, you know, corporate carve outs, private equity spinoffs. We're working with owners. That's where we love to be because we get a lot of gratification out of it. So if business owners are out there or advisors to business owners are out there, where those owners, those things are important to them, people, culture, legacy. If those things matter to you. We'd love to have a conversation. If you are getting deals or if your clients have a deal and you want us to look at an LOI for you and give you our honest feedback, we will do that. We do a lot of pro bono work, a lot of work for free. Some of it turns into paid work. But our goal is to make sure that we level the playing field for business owners because we see business owners having their companies stripped away from them for a lot less than they're worth. We see it all the time. We're outside of Philadelphia, but we'll go anywhere for a good transaction. We've got clients all over the country that we work with based on relationships that we have. So again, if it's a two to eight million of EBITDA, manufacturing, B2B services, value added distribution, those are right in our sweet spot. So hope to be able to help some additional folks through this.
Bill: No, Rob, that's great. So I met Rob and some of his team at a manufacturing exposition in York, Pennsylvania. We immediately connected. We immediately developed a rapport. Certainly this is a genuine group of people who are living this mission that Rob's talking about. And I've seen that in our conversations on other topics and our communication. So I couldn't recommend Rob and his team more. Well, Rob, thank you so much for joining today. Thank you for sharing and we're going to have to run this back again sometime, dive deeper into this topic and really explore more about M&A activity and marketing.
Rob: Absolutely. Would love that. That's awesome. I really appreciate it, Bill. Thanks for having me on. This was great. I really enjoyed the conversation. As I always enjoy my conversations with you. So I'm looking forward to the next one.
Bill: Thanks.
Rob: You bet.
Bill: Thank you for joining the Missing Half podcast where we're discovering what's missing in manufacturing and B2B marketing. Like, share, subscribe. Have a great day.