How To Buy And Sell A Business - Lowell Ricklefs - Traction Advising

SPEAKER_01 0:07

The show that goes way beyond the story. Welcome to the show. Thank you.

SPEAKER_00 0:26

Good to be here. Appreciate it.

SPEAKER_01 0:27

It's great to have you here. Thanks for taking some time out of your day to hang out with us here on the Beyond the Story podcast. I sure do appreciate it. I look forward to digging into your story and learning a little bit more about you and what you've built over at Traction Advising. But before we get into all that, let's help our listeners better understand a little bit more about you and your backstory and what really brought you to present day with what you're what you're working on.

SPEAKER_00 0:50

Yeah, it's uh like accidental banker is what I call it. I mean, I was a computer science electrical engineer back in the day. Uh went to work for a Portugal 500 company, Rockwell Automation, went in their sales training program. So I actually never did any engineering. Uh my wife says I'm a fake engineer, which is probably true. Um, I did try to do some wiring in-house once, and that's very different than engineering. But uh yeah, I had a career at Rockwell for uh over 15 years, went up to the sales ranks, and then uh went to a startup, um, uh online market research data collection company, early stage, helped scale that from a million to 50 million in revenue, and then went to work for competitor based in Europe. I was there for six years and helped scale that from 10 million to 120 million. Um, and then I went and co-founded a company, um, uh FinTech, Healthcare FinTech Company, as CEO for six years. And then all three of those companies were acquired, one by uh private equity, one by a strategic, um, and then the last one by a strategic as well. And along the way, I acquired about a dozen companies, was a part of acquiring and integrating about a dozen companies. So I became familiar with the MA process and uh was not impressed with the banker's ability to sell. And I had an enterprise selling background. So when it came time to sell a company that I co-founded, I just thought there was a better way to sell technology companies. I I believe that positioning a technology company is much like selling a technology product. It's not like selling a financial instrument. So it's 80% selling, it's 20% financials, which in fairness to many companies that are that are complicated, right? If you've got offices in 12 countries, if you've got you know complicated assets and you've got work in progress and you've got intercompany uh transfer pricing and and uh foreign exchange, you know, you've got a complex thing. You you need a banker because you've got complex financials and you need to get it right before you sell it. But for SaaS companies, financials are relatively simple. So I believed I could do a better job of selling the company. I ran the process ourselves. We were successful. I had an investor ask uh me to help out with another project, which I did, and realized there's an opportunity out there to help small B2B SaaS companies, you know, five to twenty million in revenue, uh to kind of do a better job of representing them to help their founders, you know, get to a liquidity event. So that's that's how we ended up here. That was about seven years ago, and um it's it's been a lot of fun. And I think we're pretty good at it.

SPEAKER_01 3:16

It sounds like you enjoy what you're doing. I mean, my goodness, buying 12 companies at one time. You're kind of lazy.

SPEAKER_00 3:24

Well, that was over a period of time, so sure. Yeah, but yeah, yeah.

SPEAKER_01 3:28

I I I guess once you do it and you've got experience doing it, and you definitely think that there can be a better way, a better process of doing it. And I would assume that the process becomes a little bit easier for you. Does it ever get easier and easier with with with that process?

SPEAKER_00 3:42

It does. I think um, you know, a sales process is a lot about walking the buyer through the the the buying process, right? Buying a company is not trivial. You don't just say, you know, selling, you know, buying a new refrigerator. You say this was, you know, it's it's a big deal. There are a lot of different moving parts internally. So understanding what the how the buying process works is is a little bit of the uh uh hidden advantage that I've got. I just know I've lived that side of it, right? It's that this so if you haven't done it, you just don't always know the conversations, the backstory is how HR is involved, the CTO. So it's just a little bit different. Um, and then you know, it just having a sales background. I I I love selling, have been involved in it my whole career. And, you know, one of the things I tell people, you know, it you you would never put your CFO in charge of sales and marketing, right? So why would you hire a financially driven company like bankers to sell your company? I mean, yes, it just doesn't make sense. Most most CFOs would be bottom quartile salespeople, right? But this in fairness, it's just a different skill set, right? Salespeople would be terrible CFOs for the most part. They would be awful, right? You would you would so uh you would never put your your your SVP of sales in charge of of your finances because it would be disastrous. So they're just different skill sets, but um just historically, when companies were complex, financially bankers were required, but but they're just not natural salespeople. So it's a bit, it's a bit of a process, but there's a lot of art to it and nuance and reading body language and people understanding obstacles, identifying people's concerns. There's a lot of emotion that gets involved in it, as logical as we'd like to think a lot of these big deals are. Honestly, even billion-dollar deals, there's often um emotion and and ego and paranoia, all of those things get wrapped up. So you have to understand the human side of the equation to get deals done as well.

SPEAKER_01 5:38

And what does that human side look like? Let's talk about that for a minute because I find that interesting. Because usually, you know, from the outside looking in, you think, of course, these deals, you know, they either happen or they don't. And if they don't, well, we move on with our day. And if they do, you know, people are excited and happy. But that in between, just like you got done saying, there's a lot involved with that process and human emotions and that that entire side of things. What are what are some of the things that that that you've experienced through that?

SPEAKER_00 6:02

Most of us are wired fairly similarly, at least at some level, right? There are a lot of different opinions, stuff like that. But at the end of the day, most people they they want to do a good job, they want to be successful, they want to make money, they want their boss to be impressed with what they do, they want some sense of achievement. Um, so you know, it's a it's on both sides, by the way. It's for the the the sellers got issues, there's things that they're that they're they're afraid of, or things that they don't understand, so kind of protecting them. But then on the on the buy side, ultimately people will buy a company because they think it benefits them. They're not doing it because they want to make you wealthy. They it somehow it selfishly benefits them, which is fine. So part of this is understanding what that might be. Are you is there a product gap? Or is there, are you based in Europe and you want to move into the US? Are you in the US, you want to move into Europe? So you want to buy a company that's similar, uh, that that's based somewhere else. And then understanding uh, will it be successful? You know, or um, you know, helping them understand, hey, you know, it's a it's a $5 million company today, but they've got a hundred customers, you've got 10,000. If even 10% of your company is adopted, you know, that the company is now 10 times what it was before, you know, that's a pretty low bar. Um in helping them understand why it would be successful, it's kind of reaffirming um why things would work. But but part of it is um there are a lot of different reasons. You know, we had uh remain unnamed. I remember a uh BP did an acquisition once at a company I worked for, and that had a bad year. And he said, well, if we do an acquisition, it scrambles the numbers and we kind of start over again. So it kind of masked the bad year. So, you know, it was a little bit tongue-in-cheek, but there's a little bit of seriousness behind it that uh that it it helped to buy them more time, take to take the spotlight off them. So there are a lot of different reasons and emotions why people would do what they want to do. And sometimes it really is driven by I I want to win, I want to be powerful, I want to I want to be number one, you know, whatever it might be, to the extent that this this fits into their their worldview of what they want to become, um, is more likely to get done.

SPEAKER_01 8:08

Why do you think the number one reason, not number one reason, I guess that let me rephrase that. The the the the most popular reasons are that someone would actually want to sell a business. Because if the business is thriving and it's doing well, why in the world would you ever want to sell it? If the business sucks and it's not making money, why in the world would anybody want to buy it? And me having having never sold or bought a company yet, keywords here yet, uh, I always ask those questions. I know it's kind of like the um, you know, the the the average, you know, the the average person asking that question, kind of outside looking in, but I'm always curious on why people want to. I mean, I, you know, outside the obvious of you know, life change, they want to retire, which not a lot of people do these days, but curious to hear your question.

SPEAKER_00 8:48

Yeah, no, it's a it's a really, really, really good question. And it's one of the first questions I'll ask people like, why why do you want to do this? Like, what do you what's behind it? And and what you find, people just by nature, right? By they're almost self-defining people that start up a company are entrepreneurial, like they have an idea, they want to solve a problem. And at some point when you're successful, it becomes operational, right? You can't have everyone, you know, once you've got a hundred employees, you you can't have everyone being entrepreneurs and creating new and different ways to deliver products to people, right? Because it's chaos on the customer side. So it just by necessity becomes more operational to scale it, which can be less interesting. Um, some companies, uh oftentimes entrepreneurs, particularly on the tech side, they have they're gonna build the, they want to be a they want to be a unicorn, right? They want to build a billion-dollar company. And they're five, six, seven, ten years into it. And it's a linear growth company, right? It's it's 10, 15, 20%. It's a good company, but they're never gonna hit that hockey stick growth. And and they're tired and they want to do something else, right? Or they want someone else to feel the pressure that they've been owning. Um, the other piece I would say is often someone will be five, seven, ten. You know, if you're a five to ten to twenty million dollar, you know, ARR decent company, you know, the multiples on that, just pick a median multiple of five, right? That's a that's a 25 uh to a hundred million dollar company. That's a lot of money. And often people have all of their eggs in one basket. We talk about their personal balance sheet. You know, they've got uh significant personal wealth and it's it's not liquid and it's all in that company. And something could disrupt that dramatically and make it go away. So it gives them a chance to take some money off the table. If they're bought by private equity, often private equity may buy 70% of it, they can roll over 30%, they can stay on. So it allows them to put some money in the bank, give them some stability, some security, and then move on. So, but that's a you know, the other thing is sometimes you've got investors, often have investors. Um, investors' funds have a life, right? They've got a tenure life. You know, if you're if you come in in the middle, you know, five years out, they're they're looking for some liquidity. So there may be pressure from investors to uh to put put some money back to their investors.

SPEAKER_01 10:53

And it I've I've been hearing a lot of conversations lately, and I don't know if this is just these, you know, an unconventional uh new method. I'm sure it's been around for quite some time, but being able to buy businesses or buy a percentage of businesses with no cash, meaning they're willing to give up a percentage of the company uh in order for you to to buy it or whatever the are you is that is that ever on your radar at all, those type of deals happening, or are they all strictly investor and one person selling, one person's buying?

SPEAKER_00 11:24

Um, I'm not sure I'm familiar with that when you say what what what are they getting in exchange?

SPEAKER_01 11:29

If they're not getting cash, were they getting stock in the new company, or is it yeah, they're buying the company, basically coming on as an advisor uh and a partner with the company and gaining a percentage versus buying into the company. Um basically saying, hey, you've got a company that's doing five million a year, I can get you to 10 million a year, but I want 20% of the company and I'll come in and show you how to do it.

SPEAKER_00 11:49

Interesting. Yeah, you can do that. Um typically uh I would advise people you're probably wiser to do that with stock options because you just don't know, right? You have to vest into it. Um, there are other complications if you give people equity, but you might want to. You know, you bring them on as a as a co-founder and you give them equity instead of compensation. That's certainly that's something that some people will do. Um, but but it's a pretty big bet. And and you know, I I've seen oftentimes you'll bring someone on because you think they'll fill this role, but then it turns out they don't. For whatever reason, it doesn't work out. Right. If you've given away 20% of the company, you can come to regret that. So you want to do it in a way that's fair to both parties, um, but is also fair to both parties if it doesn't work out for whatever reason.

SPEAKER_01 12:35

Absolutely.

SPEAKER_00 12:35

Which can be as simple as you just don't like each other. You just don't want to work together, right? Or they don't have the skills that you thought they did, or or the advisor in the moment thought it was interesting, but then they get distracted and all of a sudden they're not really as involved as you'd like them to be.

SPEAKER_01 12:49

Yeah. I mean, there's several different uh what I like to call Scooby-doo endings that could that that could that could happen there. What would you say what would you say the most difficult part of your job is?

SPEAKER_00 13:03

Um I'd say the most difficult part, the the part that's most challenging is often when you get uh close to closing on on some deals, uh the tensions get higher, the political capital has been exhausted, and and when things come up, uh it can be pretty tense. People can react more strongly than they would earlier in the process. So um managing emotional um responses to things and finding sometimes, you know, we need this, we won't do it. Finding a third way that satisfies both parties is probably um sometimes the most interesting part, like that's where the art part comes in, you know, to be be creative, to truly understand each party's concern and then find a way to address that concern, but satisfy the other party's need for whatever needs to be done. That's probably where the most sort of creative diplomacy is required.

SPEAKER_01 14:01

And and so you've been doing this for quite some time, do you think you'll ever stop doing it?

SPEAKER_00 14:08

It's a good question. I love doing what I do. So uh, you know, as as I I've I've got a 10-year roadmap right now to keep doing this. And then I think even after that, maybe in a lesser capacity would like to still stay involved. It's it's fun for me to hear, just like you ask people their stories. Maybe I should come work for you. I love learning people's stories. And the fun part is when I pick up a new client, it's like, you know, they've got a vertical niche software in things that like I can't even believe it exists. I'm like, wow, that's a thing. You find out, wow, that's a this this really works. Like that's really cool. And then when we talk to the buyers, we get to hear their story about the company and what they're in. So so the it satisfies sort of a like an intellectual curiosity part that that that I find interesting. And um, and it's rewarding to help invest. I know how hard it is to start a company, have any kind of level of success, and then to have a liquidity event is is really fun. You can't put a price tag on, you know, when it closes and the money hits the bank and the smiles on their faces after because it's hard. This I mean it's hard to build a company, it's hard to sell a company. So when you hit that finish line and kind of win together as a team, it's uh it's priceless. It's it's pretty cool. So I I would never I would hate to ever have to give that up. Yeah.

SPEAKER_01 15:17

And well, as soon as that's all done, you get to start all over again.

SPEAKER_00 15:21

You do, yeah, yeah. You have to be a little bit a little bit ADD to do this, you know, because you got about a six-month process and then you start all over again. And a lot of people just wouldn't want to do that. Once they've done all the hard work to learn it, they just want to keep doing it. But I I'm wired strangely that I love starting over again.

SPEAKER_01 15:37

So when you're not helping people buy and sell companies and and involved in that world, what uh what what what keeps you busy? What do you like to do outside of uh the world of business?

SPEAKER_00 15:47

Uh well, I strangely I do uh I do like angel investing, so I I uh mostly through funds now. So I I that that's kind of similar, kind of staying invested that way. But uh play a little bit of tennis, um bought a cottage on a lake back in Michigan. So um got a boat now and a top for the summer, right? For the summer. I live in Seattle, then we go to Michigan, yeah.

SPEAKER_01 16:08

But uh I live in Seattle, we go to Michigan for the winter, it's beautiful there on the lake. Yeah, why would you not do that?

SPEAKER_00 16:14

Yeah.

SPEAKER_01 16:14

Yeah. Absolutely, absolutely. So I I bet so it sounds like you're right, you're you're doing life right, Lil. You're you you know you're enjoying what you do, you do what you love, you love what you do, and uh, you know, enjoy yourself all the way through the process. I think this day and age that our business becomes more a it really complements our life and our lifestyle a lot more than it ever used to. Before it was, you know, Monday through Friday, nine to five, and then you got the weekends and holidays, deal of your life. Now everything in the past couple years we've figured out how to do just about whatever we need to do to just operate with life and business and and and keep it going. So yeah, well, yeah, it's it's been great to uh to hear your story and learn more about you and what you're doing to help businesses um acquire and uh be acquired. Uh obviously work that matters keeps the world going round as well as the the the world of business going round. Uh any final thoughts for our listeners?

SPEAKER_00 17:07

No, just like you said, I mean, life is short, it goes quickly. Like figure out what you truly figure out what you're good at and uh and and what you like to do and and try to find a way to do that, and you'll probably be successful with it. Um, however you mark success, but you'll probably be a lot happier. You spend a lot of your most of your arguably your best hours are spent at work. So if you're miserable, go find something else. Life's too short. Yeah.

SPEAKER_01 17:30

You can make just as enough money doing something that makes you happy.

SPEAKER_00 17:33

Yeah. There's a lot of things you can do. Yeah. People get stuck in something that feel like they they well, you know, they get comfortable with it. Um, but you know, scare yourself, you know, some just just jump, try something new and different. Yeah. Yeah.

SPEAKER_01 17:46

That's how you're entrepreneur, the world of entrepreneurship for you. Constantly uh and constant uncertainty. Um, but uh you know, we're we're cut from a certain thread here. Well, Lowell, it's been great to chat with you. Thanks again for your time and hanging out with us here on the Beyond the Story podcast and wish you nothing but ongoing success with what you're doing, and we'll have to uh maybe uh hit some tennis balls one of these days when I'm in Seattle. That sounds good. Yeah, yeah. Thanks for having me. Yeah, thanks for doing what you do. Thanks, Lowell. I appreciate it, man. Yeah. Until next time, friends. Thanks so much for tuning into this episode of the Beyond the Story Podcast. I'm sure to appreciate it. If you have it done already, make sure you subscribe to the show. This way you'll get updates as new episodes become available. If you're so inclined, please leave us a review and be sure to appreciate signing off from the podcast, launchlab.com studios at