Alinea Growth and Preparing Businesses for Sale

It takes timing, preparation, and strategy to sell a firm. These are all a part of the procedure, which, depending on the size of your organization, may occasionally be difficult. To get you the finest outcomes and uphold the reputation of the company you've built most in your life, there are services out there that may offer you consultations and even coaching. In today's episode, Kit invited Phil Curatilo, founder of Alinea Growth, an exit prep consulting and coaching firm. They discuss the proper process of selling a business, things to practice when planning to sell, the difference between consulting and coaching, the rules when thinking about selling the business, and lastly some key points about the distinction between investment banks and business brokers.

Key Takeaways

Who is Alinea Growth and what are its services
Examples of the area of weakness during the selling process of businesses
Consulting services versus Coaching services defined by our Guest
The future of Alinea Growth and where it headed to
The rules and facts they established when selling the business
The difference between investment banks and a business broker

Quotes

"If you're talking as a standalone business, a new platform for buyers, customer concentration is in fact important." - Phil

"One positive thing that the pandemic gave us is that people are now and companies are now much more willing to participate in learning and meeting like we're doing right now virtually." - Phil

"Consultants usually have a specific area of expertise and coaches takes some of it but they will help you discover things, meaning you do some work on your own to help you that discovery." - Phil

Featured in this Episode

Christopher Lisle
Growth strategy advisor for the ecosystem of investors, IBanks, and the companies they work with (middle market).
Linkedin: https://www.linkedin.com/in/kit-lisle
Websites: Acclaropartners.com / strategicgrowthcouncil.com
Contact: [e-mail] / 703-867-7269

Phil Curatilo
Founder, Alinea Growth
Linkedin: https://www.linkedin.com/in/philcuratilo
Company Website: http://alineagrowth.com

Words from our Sponsors

Thanks to our sponsors Acclaro Growth Partners, a strategic consulting firm serving middle market mergers and acquisitions. You can visit acclaropartners.com. Our other sponsor, of course, is Strategic Growth Council, not the podcast, but the Peer Advisory Council slash virtual roundtable slash mastermind group for senior execs and business owners. Contemplating what an acquisition, a sale, or just strategic growth is? Strategic Growth Council collaborates with participants in the M&A ecosystem, such as private equity groups, lenders, investment banks, and relevant service providers. Visit strategicgrowthcouncil.com to learn more.

Chapters

00:00 Introduction
01:47 What is Alinea and its origins
02:45 Our guest's background and his business ---
06:47 Common examples of an area of weakness in selling the business
18:46 Webinars as a way of learning things
20:33 Clients they cater
23:25 Importance of peer groups
27:18 Definition of coaching from our guest
29:27 Where is business heading to
31:16 8 unassailable facts
36:18 investment banks vs business brokers

Produced by Heartcast media
https://www.heartcastmedia.com/

Episode Transcript

(00:09):
Welcome to Strategic Growth Council, apodcast about strategic growth and mergers and acquisitions
for the middle market. Now.Strategic Growth Council provides growth strategy planning,
work and peer advisory councils and meetvirtually every month and we focus on solving
members cases or business dilemmas as agroup, intentionally, consistently and as dedicated

(00:36):
support for one another. I'm justthe moderator, But if you want to
learn more, contact me Kit Lyleat Strategic Growth Council dot com. So
my email address Kit at Strategic GrowthCouncil dot com. And this is our
podcast. If you're interested in learningmore about organic growth, growth by acquisition

(00:56):
or the sale of your company,this show will be interesting and or useful
to you. And thanks to oursponsor, a Claro Growth Partners, a
strategy consulting firm serving the middle marketof M and A, and every episode
I interview an expert or at leasta participant in the world of strategy growth
in M and A. Today I'mjoined by an expert and a participant,

(01:19):
Phil Garrottello of A LINEA Growth Exitprep consulting and coaching. Phil. Welcome
Kid, Thanks so much, happyto be here, very excited and looking
forward to participating today. Great,well, I want to hear thirty to
sixty seconds background on yourself, butif you don't mind, let's start with

(01:40):
alenia. It's an interesting word youshared with me the definition. Where did
you come up with alenea? Yeah, so you know, alenia actually comes
from the topography world, and itactually represents the first indented line of a
new paragraph. So the reference pointhere is that we're private company owners change

(02:01):
the way they think and to startthinking and creating in a new way.
Part of our logo is the reversep that editors oftentimes use. It's also
called a pilcrow to designate a newparagraph. So that's really the derivation of
the name and how it represents whatwe do in our business. And it's

(02:24):
a it's representative of a fresh newstart, obviously, exactly right, exactly
right. And how about yourself.I know you've you and I've known each
other for a long time through theAssociation for Corporate Growth. I know you've
been a private equity investor, butour audience doesn't know anything, presumably about
you. So let's let's hear.Sure, Well, you know I've been

(02:46):
a private equity principal investor and abuyer of privately held companies for more than
thirty years. But maybe most importantly, I worked for a break even private
company before that that I helped grow, and I helped raise growth capital before.
So I've been on both sides ofthe table, if you will.

(03:09):
And in addition to my principal investingexperience, I've performed teaching and consulting,
including in the former Soviet Union duringthe time of their governmental coup, which
is real interesting. Seeing tanks rollingthrough the street as you're teaching a class.
Quite an interesting environment, but obviouslyvery educational. It was. Actually

(03:36):
I was there the summer of nineteenninety one, spent most of my time
in Lithuania, and at the endof the summer I took a twelve hour
train ride from Vilness, the capitalof Lithuania, to Warsaw, Poland.
Got across the border, was tryingto get to Vienna, so I checked

(03:59):
into a hotel to get some shutI woke up and the coup had essentially
happened just a few hours after Icrossed into Poland. Wow, so talk
about timing. Let me maybe tellyou about a linear growth. In a
bit more detail, So we reallyhave two lines of business. The first

(04:20):
one, as you started to describe, is we work with private company owners
to help them prepare their business sothat it is better performing, so that
when it comes time for them toexit, the business is ready to go.
They're ready for prime time and theycan garner the maximum valuation price,

(04:45):
and that could take twelve to thirtysix months. Frankly. We offer this
through a virtual webinar series about eightweeks long. Once a week, sit
in a webinar for thirty to fortyfive minutes. One other time a week
there's an open Q and a session, but that goes for about eight weeks,
and then we help you really makesome changes in your business, so

(05:09):
essentially dealing and addressing the top criteriathat aggressive buyers will evaluate your company buy.
So that's the first line of ourbusiness. The second line of our
business is, let's say you've gonethrough our webinar series and in a number
of months you've made these changes andnow you are actually ready to sell.
So what we will do is wecan be a coach and this is more

(05:33):
one on one and we're very selected. We only pick about four or five
clients per year, because it doestake some time and energy to do that
coaching. And we will help theprivate company owners set up their deal team,
select their seal side investment banker,help vet those investment bankers to pick
the right one that's appropriate for theirsize, company, their industry, etc.

(05:56):
And essentially hold their hand and bea third party as they go through
that process. Fascinating. So that'sreally what we do and how we do
it excellent. Well, let's let'sstart on the on the consulting side with
the webinarers. Who better to knowhow to prepare a business for sale than
somebody that's been involved in on thebuy side and acquiring businesses. And you

(06:20):
know, frankly, you find youfind situations that create uncertainty or angst or
potential for stress down the road,and so you start to to discount a
little bit on those those topics.What's what's a common example of an area,

(06:42):
let's just say, an area ofweakness that you see in businesses that
are for sale. Yeah, youknow, it's funny, there's surprising consistency
when you're talking about you know,middle market and lower middle market companies,
right, And I think there aretwo main areas that pop up over and
over and over again. The firstone that I would say is that you

(07:08):
have a private company owner who themselvesare responsible for almost all of the sales
relationships. Okay, so customers areused to having that person to deal with
as opposed to having a sales manageror a couple of sales reps that have
those relationships dispersed. Now, ifI'm a private company buyer and I see

(07:32):
a company with that situation, it'sgoing to give me a concern and cause
for concern. And I'm going tobe saying to myself, well, if
we already don't have a company inour portfolio like this, then I can't
let this owner walk away at theselling table. I need to tie him

(07:53):
up or her up for three orfive more years so that those relationships can
eventually be transfer to the sales teamso that company can be run without him
or her. Okay. So that'sthat's one of the things we find,
and that's one of the things thatwe help private company owners address. Up

(08:13):
in there the intent the couple thingsto clarify the intent there is not necessarily
to eliminate that business owner. That'snot necessarily the intent. The intent is
to reduce the risk that is associatedwith what's called key man risk and to
improve the balance of the sales effortacross an entire team. That's just part

(08:33):
of professionalizing the team. And thenone other definitional term, you use the
term lower middle market middle market.I use the term earlier, but for
just for clarification's sake, you know, I think two million to twenty million
of eba dah is a fairly acceptableterm for the lower middle market. Some
people have a different term, butit can vary slightly depending on industry and

(08:56):
so forth, but that's a generalterm. Sorry, yeah, no,
um, I think that's that's agood a good reason to pause. We
actually start working with companies that areat about one million of ibata um,
and what we find is that twomillion of IBA is really that line of

(09:16):
demarcation where institutional buyers of companies firstbecome interested in private companies. So even
if they're focused on the lower middlemarket, that tends to be the point
at which they're becoming really interested andreally aggressive buyers. And so that's the

(09:39):
gateway. And to get from saya million ibada two million of UH,
presumably there are a lot of steps, you know, and then it's not
necessarily those steps are not necessarily thesame height. Some are big steps,
some are longer steps, some areshort steps, but there are oftentimes a

(10:01):
lot of steps to get through toget to that point of being a desirable,
attractive acquisition target for the community ofbuyers that are looking at lower middle
market deal. So my point insaying all that is, Phil you've you've
chosen one million of EBITDA because you'reyou know that in most cases those businesses

(10:22):
do have some steps to go throughand that you can provide assistance. That's
a smart place to start. Yeah, and be clear, we're also working
with larger companies, So if you'reten or fifteen or twenty of IBADA,
that doesn't mean you don't have issuesthat need to be solved, sure,
and growth that needs to be provenin order for you to again maximize your

(10:45):
exit value. Yep, and goright ahead. No, I was going
to ask if there are any othercommon themes. I mean, we talked
about the key Man resk, anyother any other topics that come to mind?
For sure, as you might expect, the angels. So that includes
a whole bunch of different things,And the first would be, you know,

(11:09):
the companies really need to be onan a cruel based accounting system,
not cash based, because that's howsophisticated buyers are going to want to eventually
take the company. They really shouldbe on an industry recognized accounting and reporting
package, so some sense of automationin that process. And because at the

(11:37):
end of the day, aggressive buyerswant to be able to trust the numbers,
and if they don't trust the numbers, and if the numbers are suspect
in any way, they're going totake all of them with a grain of
salt, and they're going to discountthe price that they offer you. As
a private company owner. What amazesme is that they're they're sometimes as resistance

(11:58):
to that change. But what amazesme about that resistance is if you,
as a management team are using thecompany's numbers that are incorrect in order to
make managerial decisions in the first place, you essentially are using incorrect data.

(12:18):
So the chance of your decisions beingcorrect on incorrect data is pretty low probability.
You know, my daughter, who'sten years old, is very good
at math, and she brought homea math test one day and she didn't
do as good as we expected herto do or as she expected to do.

(12:39):
So you know, we're actually lookingat the test together and what she
did right and what she did wrong. And I looked at it and I
asked, well, this question.Read the question and she said, yeah,
okay, and what's your answer.Well, that's the answer I got.
Read the question again slowly, andshe goes, oh, So my

(13:01):
point is, I told her,if you really don't understand the question,
the likelihood of you getting it rightis very low. Same thing with the
private company owner. If the datathat you have is suspect, how can
you possibly imagine that you're making thecorrect managerial decisions with that data? And

(13:22):
you know, and the other thingthat I would say is something that's becoming
more and more popular is a sellside QE or quality of earnings report.
Right, so before you go tomarket, you have a reputable accounting firm
that does a quality of earnings reportthat you, in turn, can provide

(13:43):
to your perspective buyers. Now,it doesn't mean they won't want to do
some of their own, but theycan at least use yours as a starting
point, and that will help solidifythe appropriateness of those numbers and the accuracy
of those numbers, so that theyknow that six, seven or eight times
even doubt if they're willing to pay, is actually going to be delivered.

(14:07):
Yeah, So a couple a coupleof things to summarize there. I love
what you just said, and Ihope I can do justice to summarizing all
this. So number one, largerdeals have historically used a quality of earnings
report on the cell side, andthat's now migrating down to smaller deals.

(14:28):
It's become the norm, and there'sa couple of reasons for that, as
you pointed out, One is thatit provides more tangible proof to a buyer
that the cash flow the earnings arelegitimate and real, and therefore the valuation
that they're putting on the business isconfirmed or they have comfort in it.

(14:48):
Secondly, having those numbers are inand of themselves important because now we have
solid numbers, but the numbers showthat management presumably is making the right decisions
as you pointed out, based onthose numbers. And Thirdly, the third
benefit of having that sell side studyis that it enables the acquisition process to
go more rapidly and their benefits inthat while you know the obvious benefit is

(15:13):
you know you want to close thedeal quickly, but what you might not
have thought of is that sometimes thingshappen. And I'll give you a simple
example from our last guest, CarolineYoung of Crassberry Consulting, and she pointed
out that something good might happen forthe company's sake. You might have your
number one customer place a huge orderthat grows their percentage of the of the

(15:35):
share of business from being maybe athirty percent customer to a forty percent customer,
which sounds great a from a businessowner standpoint, but from a buyer's
perspective, well, now you've gotforty percent of revenue tied up in one
customer. So even though that seemslike a good event, it's not a
good event from an acquisition standpoint becauseit just creates a little bit of uncertainty.

(15:56):
So moving rapidly through closing is agood thing for everybody and having that
quality of earnings, which the sponsorof this program, a Clarogrowth Partners does
sell side market studies and they alsohelped to move the process along more expeditiously,
so makes sense. Yeah, andyou know, you've brought up customer
concentration, right, and that's oneof the issues that we address with our

(16:19):
clients that needs to be corrected.But the important thing is it depends upon
the buyer that's at the table,right. So for example, financial buyers,
you know, at a linear growth, we've identified seven different primary types
of buyers for your business, oneof those being financial meaning private equity firms.

(16:41):
They've raised an institutional fund of capitaland they're trying to put that to
work. Okay, if they areinvesting in this business as a platform investment,
meaning their first investment in that industry, then customer concentration is very critical.
You know, they want to seeit below thirty percent typically. But

(17:03):
if you're either a quasi strategic buyermeaning you're a financial buyer with the platform
already, or you're a strategic buyermeaning a bigger corporation looking to add on
that, customer concentration doesn't mean asmuch, right because you're adding it to
a bigger base. So it alldepends upon the buyers that are at the

(17:26):
table and how they're going to evaluatethat. And frankly, in some industries,
even not having the customer concentration withcertain customers raises questions. For example,
if you're selling products hardware products,okay, and your two biggest customers
aren't home Depot and Lows and theydon't represent a large percentage of your sales,

(17:51):
buyers will ask why what's wrong withyour products? So it's really interesting
the perspective that you take in regardarts to that. But if you're talking
as a standalone business a new platformto buyers, customer concentration is in fact
important. Great. Great, Soyou know, for the benefit of our

(18:11):
audience, I want to point outthat the Phil has the perfect mix of
experience as an operator, as aninvestor, and now as a consultant to
help businesses prepare for sale. Sowe're honored to have you with us.
Phil. You mentioned webinars, Sowhat's the model here? Are you recording

(18:33):
the webinars so that people can listento them at their own and their own
time. Do you have stated timesfor specific webinar events? How many of
them will there be, etc?Sure? Well, you know, if
there's one positive thing that the pandemicgave us is that people are now and
companies are now much more willing toparticipate in learning and meeting like we're doing

(18:59):
right now, virtually right. Thesewebinars are initially going to be live.
They'll be once a week, butfrankly, after several recordings, they will
be recorded and available at on aspecific day, a specific time of day,

(19:19):
so they will be scheduled. Theywill be scheduled one a week,
and then we will also have aspecific schedule for the Q and A sessions
once per week. Okay, theyare not going to be downloadable. This
is all proprietary information. Obviously,this is our business model, so we
don't want people downloading it and sharingit with others. We're happy to have

(19:42):
those others be customers as well,and we're happy to work with them.
So, for example, if yousign up with us today and a week
or so, will schedule your firstwebinar session, and then it'll be on
the same day each of the followingseven weeks, and then your Q and
A session will be later in theweek, but also on the same same

(20:03):
day for each of the following sevenweeks. Yep, good. So can
you tell us a little bit aboutyour your client mix or client selection process.
Are there criteria? So, forexample, we heard a million dollars
of ebitdas is a good number,but but you certainly go larger than that
are there in dust industry areas offocus. Uh you know, do you

(20:26):
have a specific number of clients thatyou take on. I think you said
on the coaching side there is alimit. Maybe on the consulting side,
there's not. Correct. Yeah,since it's a virtual model, it's scalable.
It's we can handle as many thatwe get. But you know a
couple of criteria here. Besides themillion plus of ibada, really up to

(20:48):
about fifty million of IBADAM. Sothese are private companies who own private company
owners who own businesses that have beenup and running for at least five years,
So that means no startups, nodevelopmental stage companies. And that one
million needs to be obviously positive ofibada, so that means no turnaround situations.

(21:15):
Okay, And of course you needowners that are in the right mindset,
right, they're concerned about maximizing theirexit value. They're probably twelve to
thirty six months from starting the sellingtransaction process. And you know, let's
face it, they need to beculturable. You know, we say life's

(21:36):
too short. Right on both sidesof our table, right. You want
to work with people that are motivated, that are interested, that are willing
to listen to someone with an expertisethat they don't have. And frankly,
you know, we spend a decentamount of time up front talking with business
owners about their company, the situationthat it's in, and what they really

(22:00):
need to do in order to gettheir maximum exit valuation down the road.
And sometimes we just say, youknow what, Joe, I don't think
this is the right situation for us, either because of where they are as
a business or because of Joe's attitude, you know, so that the last
thing we want is an owner that'snot committed to the process. But also

(22:23):
realizing, you know, we're notgoing to be doing their doing the work
for you, right, We're goingto be coaching you on that work,
and it's up to you to getit done. You mentioned the fictitious Joe
and having the wrong attitude, andI want to elaborate on that. Strategic
Growth Council runs peer advisory councils forgroups of sea level executives, and we

(22:45):
embrace business owners and sea level executiveswho are open minded, who are candid,
who're willing to share who are willingto make themselves a little bit vulnerable
and say, hey, I don'thave the answer to this, and I
can't exactly turned to my right handman, my COO. I need some
advice from my peers. That's whatit's all about. But in order to

(23:07):
get to that point, yeah,you've got to develop the chemistry, the
rapport, a spree to corps reallyof a group, and they have to,
as I said, being a littlebit vulnerable. It sounds very similar
to what you described or am Imissing something? Did that resonate Phil?
Yeah? And I think peer groupsare very important. So in my last

(23:30):
investment firm, we had an annualexecutive summit where we would invite the CEOs
of all of our portfolio companies andfrankly, even those investments that we exited.
You know, just because we havestopped investing doesn't mean that they're not
part of our family anymore. Sowe would invite them and on an annual

(23:51):
basis, we would bring in subjectmatter experts to talk about some topical topic
that would be important to them.You know. One year we did it
on digital marketing and social media,another year we did it on HR.
In a growing economy. Last yearwe did it on cybersecurity. Who's not

(24:15):
interested in that right now? Right? So what we did is we bring
in a few subject matter experts.They do presentations for a few hours,
there's Q and A, and thenwe have breakout sessions groups of the executives
led by one of the subject matterexperts, and we have them answer several
questions. Then they come back andpresent it, and then we have an

(24:36):
overall sharing of best practices amongst theCEOs, with all of our investment professionals
and with some of our investors actually, and that kind of sharing is really
really important. And obviously, aswith most of these things, every year,
we would do a survey and we'dsend it to the participants, Hey,
would you think do you have anyrecommendations for a few your topics?

(25:02):
You know, typically we've done theseface to face, but this year was
virtual. How did it go?Those kinds of things, And one comment
that comes up almost every year isthat they want bellow CEOs and their best
practices, right because a lot ofyou know, the CEOs are out there
on an island all of themselves,and when they're having a bad day or

(25:26):
they're struggling with an important decision.You know, they can always go to
their management team to get input ortell them how they're thinking. So being
able to pick up the phone andcall another CEO who is not quite disinterested,
but a third party, and say, John, you gotta minic.

(25:47):
You know, I got to tellyou about this situation. This is what
I'm thinking. Have you experienced anythinglike this before? And that's perfect the
beauty of it all right, exactlyand that what you just described. Hey,
John, I got this situation.You have a minute. Let me
bounce this off of you. That'sad hoc informal, sort of off the

(26:07):
cuff, but when it's intentional,dedicated, recurring, it's the same group.
I don't want to use the wordmagic, but it's even more powerful
because things arise now. The topicsthat are typically discussed are not at the
level of topics you would bring upin a board meeting, but they're up
at night issues that happen on adaily, weekly, monthly basis. So

(26:30):
our peer advisory councils are are monthly, they're virtual, they last about three
hours, and they're designed. Youknow, these kinds of peer advisory councils
or mastermind groups roundtables serve three purposes. Networking is one, learning best practices,
case studies as you were describing philas a second, and then solving

(26:51):
what we call cases is a third. But that's a nice segue to talk
about coaching. We've been talking alot about your consulting service area, and
so about the coaching side. Imean, just a naive question, what
how do you define coaching? Andif a listener, if one of our
audience members says, huh, that'sintriguing. A lot of the benefits that

(27:12):
we described with peer advisory councils takeplace also in a coaching environment. But
what is coaching? Yeah, youknow, you know, it's it's really
nuanced. Right. You can callus a lot of things, But the
way we look at it is aconsultant you usually has a very specific area
of expertise and they tell you whatto do. A coach takes some of

(27:36):
that but also helps you discover someof the things that you need to do.
Helps you discover, meaning you dosome of the work on your own
to help that discovery. And thatthe big difference is between our coaching and
the way people typically think about acoach, right, I mean Michael Jordan
had a coach, right. PhilJackson hadn't played basketball for a whole lot

(28:00):
of years when he was coaching MichaelJordan. We're still in the game.
I'm on the advisory board of amiddle market investment firm. I'm also on
the advisory board for a boutique investmentbank, so I'm really keeping my fingers
in the game to understand where themarkets are, even though I'm not a

(28:23):
principal investor anymore. So we're tryingto bring all of this together. Sometimes
you're a little bit more consultant,sometimes you're a little bit more coach.
It really depends upon what that ownerneeds. But if you think about,
you know, the coaching component atthe end, where we're helping them to
create their deal team and to vettheir investment banks, there's a little bit

(28:47):
more hand holding and it's a bitmore real time as new information is added
that sort of begets other activities.Makes sense, So on the on I
don't want to say on the personalfront because that's not exactly the question,
but um, you know you thisis relatively new for you, and a

(29:11):
linea is as we did, aswe learned earlier, sort of a representative
of a fresh start, passions,personal interests, goals. You know,
where where do you see this newrelatively new business heading. Sure, why
did you decide to do this?Sure? Um? Well, you know,
our our personal interests certainly are alwaysentwined with our business interests. UM.

(29:37):
And frankly, Um, I feltafter a thirty two plus year career,
UM, that I wanted to spendmore time with my family. You
know, my kids, my dogs. Um. You know my personal passion
for women's college basketball. Uh.You know, being based here in Connecticut,

(29:57):
we have reason to root for thehome team most years. So it's
really an interesting group and an interestingcoach, by the way, and how
he gets the most out of thepremier athletes in the world. Right,
So I learn a lot from himjust looking on the outsider or watching his

(30:18):
interviews. You know. My professionaldream is obviously building a linear growth into
a nationally recognized brand for helping privatecompany owners enhance the value of their company
when they're ready to exit. Thisis a passion because I see so many
company owners that don't prepare. Rightif you're if you just wake up one

(30:41):
day and he say, you know, I'm just tired of this I'm tired
of banging my head against the wall. You know, I've been at it
for twenty or thirty years. I'mjust done. You know. Let me
take up the phone, call mylocal business broker, put it on the
market. Let's get out of here. There's no way that you maximize that
exit value, and you're leaving somuch money on the table. So you

(31:04):
know what I really believe, sinceyou know the old adage is that private
company owners have ninety five percent oftheir net worth wrapped up in the value
of their private company. Okay,we have come up with eight tenants,
or as we call them, unassailablefacts when it comes to exiting your business,

(31:27):
and the first two are really whatwe created the illnear growth business model.
Around one is the worst time tosell your business is when you have
to Okay. In the second isjust because you want to sell your business
doesn't mean you can. You know, there's an IBBA study that came out

(31:51):
in International Business Brokers's exactly correct.In two thousand and twenty one, only
forty five percent of all the businessesput up for sale that were private companies
that year ended up closing. SoI want to jump in and ask a
question because this is fascinating. So, first of all, you've developed eight

(32:15):
unassailable facts, tenants. You've gotthat, that's your intellectual property. Based
on your experience, you can helpguide business owners to a more effective sale.
Second thing, just in summarizing,sometimes people want to sell and they
want to sell rapidly, and theygo to you know, the broker down
the street, and maybe the dealgoes through quickly, but your point is

(32:37):
you're not maximizing the value of thebusiness. Third, we've talked about maybe
the time period to properly prepare abusiness to sail is one year, three
years, maybe even longer than that, depending on you know, how many
of those steps and how steep thosesteps are to get the business ready to
sail to sell. And then fourthwe talked about once you hit the go

(33:01):
button and the business is on themarket at that point, just for clarifications
sake, you do want it togo rapidly. You want that transaction period
to be rapid so that nothing arrivedhappens during that period when the business is
actively for sale. So backing up, fill to those eight unassailable points and

(33:22):
anything you can share about that that'sinteresting. Yeah, and by the way.
Not only have we come up withthese eight tenants, but we've also
come up with a list of thetwelve biggest mistakes that company owners commit when
selling their business. They're all goingto be on our website. We're launching

(33:43):
the news site hopefully in the nexttwo weeks. What is the website.
It's growth dot com so www dotlinear growth dot com a l n eagrowth
dot com perfect, So all ofthat's on the website with a little bit
of background on each so you know, for example, one of the mistakes

(34:07):
that I think Merit's discussion is abusiness owner decides to sell their business,
whether they've prepared for it or not, and you know, they were convinced
by us that you really need tohire a saleside investment bank. Okay,
I'm going to do that, andthey select their investment banker strictly based on

(34:30):
the valuation that the investment banker predictsthey can deliver for the client. Okay,
And that should be a warning ifthe investment banker says that can get
you a value much higher than anyof the other investment banks that you've interviewed
say they can. And by theway, we recommend interviewing at least three,

(34:50):
probably a maximum of five. Anymore than that's a bit of overkill.
So if you interview five and fourof them say you know what we
can get. We think in thismarketplace today between ten and twelve million dollars
total enterprise value, so maximum egsitvalue. And somebody comes in and says
they can get you fourteen or fifteen, you probably want to think twice.

(35:15):
At the very least, you needto understand their methodology and confront them saying,
listen, we've talked to four ofthe groups. They're all in this
ten to twelve window. And bythe way, each of them have industry
expertise in my sector, so Ifeel like they know my industry pretty well.
How'd you get to fifteen? Explainthat to me. Because by the

(35:39):
time you sign that one up andyou go through the process of putting your
company on the market and you sendout the indication of interest requests, you
get those iois back, and thevaluations come in and it's not fourteen or
fifteen, it could be ten eleven. It's too late to fire them.

(36:05):
You don't want to start all overfrom the beginning because your transaction will get
tainted, and the buyers that sawit the first time may not want to
look at it the second time.So that's a big mistake that people may
Ye. So, Phil, thismay not be a fair question, but
I mean, who better to askthan yourself. Business owners have a number
of options when they're contemplating a sale. They can say, I'm just going

(36:29):
to do it myself. I'm goingto sell the business myself. I know
some people that might be interested inbuying my company. They can go to
a business broker, as you said, you can go to investment banks,
and one of the deciding factors,presumably, is the size of that enterprise.
The larger the enterprise, the morelikely perhaps that you would go with

(36:50):
an investment bank. Presumably. Anotheroption is to go to somebody that like
yourself to shepherd them through the process. But what what can you augment to
what I in addition to what Ijust said? Or can you contradict anything
I just said? No, youknow, we typically have recommended investment banks.

(37:10):
You know. Listen. In mycareer, I've evaluated over six thousand
businesses, and I've hired scores ofinvestment bankers and have talked to hundreds of
others, And I've also talked tobusiness brokers because we do utilize them as
a source from time to time.Business brokers have their place in the marketplace.

(37:32):
Right if you have a local,single location pizza parlor, flower shop,
convenience store, where there's lots ofother comferables available, the good business
brokers can do a decent job foryou. But if you own thirty two
of those pizza parlors in a broadgeographic region, if not nationally, and

(37:57):
you've got multiple layers of ownership,you're dealing with a much more difficult transaction.
You need more compisticated representation. SoI think that an investment banker is
most appropriate in that situation. Andyou know, business brokers are used to
offering their clients businesses for sale ata specific listing price, almost like a

(38:20):
real estate transaction where you're selling yourhome or a plot of land. The
history of that is many states inthe United States still require business brokers to
have a real estate license in orderto sell a small business. So they're
used to saying, hey, Joe, let's put up your listing five million
dollars. Let's see if there's anytakers. You know, our recommendation is

(38:44):
to never set the price up front, because although five million sounds like a
stretch price, maybe the beauty ofthe investment banker is that they know the
buyers for your kind of business inthat industry now pally, if not globally,
and they know the guys that needa company like yours today, and

(39:07):
they're not only going to be willingto pay that five but they may actually
be willing to pay six, seven, eight, nine or ten. So
I tell them how much you shouldsell for, so just to follow up
on that. Unless you're sizeable,meaning let's say five or ten million,

(39:28):
an oup of ibadah, one ofthe things you should be looking for is
a investment bank that knows your industry. Unless, as you said, your
business is very replicable, easily understood, there's a model for it, there's
an accepted norm in terms of price. But other than that, you're looking
for maybe a regional investment bank thathas some degree of specialization in your industry.

(39:50):
Is that a fair statement. Yeah, you know, each company is
different. I hate to say thatbecause you use it so much. Right,
Industry expertise is important. I thinkit's really important on the technology side.
If you have a software business andSaaS business, you need to know
people that kind of understand that technology. If you've got somebody that's in the

(40:15):
biotech space, you know, youdon't want to hire somebody that never took
into to biology, right. Imean, it's it's it's really a specialized
area. But generally you want peoplethat are either know the industry because they've
they've represented clients in that industry before, or at least tangentially. And what

(40:39):
I mean by that, well,industrial manufacturing companies. Right, You don't
necessarily have to have experience specifically invibration isolation equipment, but companies that manufacture
and fell industrial equipment generally that's agood experience to have. Ye. And

(41:02):
the other thing to remember is,you know, sometimes lower middle market business
owners get scared away by the terminvestment banker. Right. We're not talking
about Goldman Sachs or Merrill Lynch here, okay. And investment banks come in
all shapes and sizes, So it'simportant to know what the investment bank that
you're considering hiring, what they focuson. And they'll tell you, well,

(41:28):
we typically focus on companies two toeight million dollars of Vibada based in
the US. Blah blah blah.Okay, what you don't want is to
hire the guy who focuses on companiesthat are twenty of Vibada. You happen
to be two and he's trying towin your business because he's not busy,
you're not going to get the Ateam right. You want to make sure

(41:50):
that you're getting the A team foryour business because it's going to move the
needle enough for them. So ifyou're two million of Vibada, you want
company investment bankers that is that arefocused on that you know, one to
five range, right. And it'snot just the A team, it's the
connections, contacts, the knowledge ofpotential buyers that exists and inherenton. Yeah.

(42:15):
And the fact of the matter isthe bigger the company is, the
more the transaction is about pricing interms, right, the smaller the company
is, where the owner is,oftentimes the founder, there is a lot
involved with the fit, you know, the legacy of that owner. He

(42:35):
or she wants to be able towalk down main street in their town the
day after they sell, in theweek, in the year after they sell,
and not be confronted by people tosay, hey, you know what
these guys are doing. So thosekinds of things are really important as well
in smaller businesses, so they needto be taken into consideration. And you

(42:57):
know, one of the one ofthe situations to be concerned about is the
company and the buyers that you selectshould not just be selected based on the
overall price. You know, we'veseen transactions go smoothly, quickly and at

(43:20):
a very high price, but wherethe buyer did not offer the top tick,
right, they were within the topgroup within a certain level, but
the fit was so good with theseller that they elected to take less money
off the table, not a lot, but a little bit less because of

(43:42):
that fit. Yep, I seemyself, very very very compelling. Makes
sense. So this has been veryuseful, very tangible. Phil, You've
got a fantastic background. I lovewhat you're doing. The model of both
consulting, creating the webinars and providingthe coaching makes all the sense in the
world. Please visit Linear Growth dotcom right all right, and also visit

(44:08):
Strategic Growth Council dot com for allof our show episodes and to learn more
about our peer advisory councils and coaching. We've got plenty of past episodes there.
You can follow us on YouTube.You can put us in your listening
queue UH and give us a rating. This has been wonderful, Phil,
thanks again, and thank you toour audience for listening. Produced by Hardcast Media