Latest / Exit Algorithms / How to Prepare Your Business to Sell: PE Insider Secrets with Michelle Stuntz (#67)
Transcript
- Pete Vera, Exit Algorithms: Welcome to exit algorithms, the podcast where we decode what it really takes to unlock growth, streamline operations, and prepare your business for a high value exit. I'm your host, P Vera. And today I'm excited to bring on Michelle Stuntz. In her impressive career, she's led transformations at Deloitte, scaled one of the fastest growing verticals at the publicly traded talent placement firm, Korn Ferry, and drove a high impact consulting practice. at ZRG Partners inside a PE-backed buy and build platform. She's now taking everything she's learned and channelling it into her own firm, Stuntz Growth Consulting. Michelle, so excited to have you here today. Welcome to the podcast. Michelle Stuntz: Thanks Pete, I'm super excited. Pete Vera, Exit Algorithms: Yeah, me too. Yeah, I know we got to talk a bit about your background and everything on our pre-show, but I'd love if you could share with the audience, for those who haven't heard of you, can you share some of your business journey? Michelle Stuntz: pretty sure nobody's heard of me. ⁓ But yeah, thanks. I ⁓ actually started in kind of a non traditional way. I started my career in nonprofits. So coming out of undergrad, I joined AmeriCorps, I worked with at risk youth in inner city schools. And, and then from there, I joined the Peace Corps, and I lived in sub Saharan Africa for three years, I was in Zambia, it's three up from the bottom for those whose African geocopy is a little bit off as mine was when I first moved there. And then when I came home, I ended up in grad school and I kind of stumbled into consulting. I just went to a grad school where consulting firms recruited heavily and I ended up going through the recruitment process with several consulting firms. And as it turns out, consulting was a great fit for me. It was something I enjoyed doing. It was something that I took quite quickly and easily to. And I've built a really cool career around that. So following ⁓ that initial foray into consulting, kind of built my career in terms of being promoted and advancing at Deloitte. And then I moved on to to Cornferry, ended up running a P &L there. And then I moved on to run the entire consulting business for for ZRG. And that's where I actually landed in private equity. And private equity has become a special area of interest for me. And it really taught me around value creation. and how you drive value in the private equity world. And so now I work with founders and their teams to prepare for sales to private equity, as well as working with private equity firms who are looking to create value in the acquired port coast. Pete Vera, Exit Algorithms: Yeah, awesome. Wow, solid foundation too, I imagine ⁓ from Deloitte. Was there any lessons there you learned early on that, you know, carried forward in your, the other things you've done in your career? Michelle Stuntz: You know, I'll say the most important lesson that I took away from Deloitte that is very applicable to private equity ⁓ is a mentor of mine at one time. We were talking and I was lamenting what my personal brand is and what I'm known for and things like that, because that was something that we were encouraged to think about at Deloitte. And he said, brand, you don't need no stinking brand. The only brand you need is getting S done. And, ⁓ and I really took that to heart because getting stuff done, mean, yeah, I could do that. And so I did for a lot of years. ⁓ and that's so applicable to private equity because moving forward is more important than getting it perfect. ⁓ and having making progress and, making things better as you go, it's just, it's more important than a super sound strategy with all the right bells and whistles. ⁓ that's not as critical in private equity. Pete Vera, Exit Algorithms: Yeah, no, I love that GSD, right? Yeah, get shit done. Yeah, and done is better than perfect. I like that philosophy I'm trying to, as a perfectionist myself, you probably can relate like that type of, it's sometimes better to just finish it and be okay with, if it's 90%, it's better to get multiple things done and just get it out, right? Michelle Stuntz: That's right. That's right. Yeah, exactly. And it's, know, for any parents out there, this is an important parenting lesson as well, ⁓ because kids develop perfectionist tendencies when they're quite young, when people encourage them to do things right or to do things until they're perfect, when not everything needs to be done until it's perfect. Some things just need to be done. It doesn't matter if the clothes are folded perfectly. It matters if they're folded and put away. Pete Vera, Exit Algorithms: True, yep, exactly. ⁓ And ⁓ I remember also you were behind an acquisition, right, in your time at ZRG, was it? Michelle Stuntz: Yeah, yeah, absolutely. So CRG is an inorganic growth platform in private equities. So I was responsible for evaluating and acquiring new companies onto the platform ⁓ and ⁓ as well as inherited companies that already existed on the platform. So yes, I both worked on ⁓ existing ⁓ acquisitions as well as new acquisitions and then all of the post merger integration. which I had done from a corporate standpoint. I had done that for my clients, but this was the first time I was doing it for myself, that I was the actual operator leading my own integration of acquired assets. Pete Vera, Exit Algorithms: Yeah, wow, what a great experience. What were some of the things you looked for when you ⁓ were looking at a potential target for acquisition? Michelle Stuntz: Yeah, I think one of the main things that I was looking for was what was the best ⁓ natural fit with the services that we offered and what would make the most sense from a market standpoint. You have to think about it always from your customer standpoint, from the market standpoint and what will make sense to your customers. And if we're going to a customer saying, hi customer, we do X, Y and Z. ⁓ And they're like, you do what? Who are you? That doesn't make any sense. ⁓ And so a large part of it was ⁓ acquiring the capabilities that sat ⁓ closely aligned with the capabilities that we already had. ⁓ And then there was also geographic considerations to ⁓ what we would acquire to build, ⁓ you know, when you're building a smaller business, ⁓ concentration matters a lot ⁓ because concentration allows you to appear bigger than you are. And appearing bigger than you are when you're growing something is super important. So if you have concentration in a certain geographic area, then you can have a reputation that is much larger than the revenue that you do. Whereas if you have that same revenue distributed across this huge country that we live in, then you have no reputation to speak of. Pete Vera, Exit Algorithms: Interesting. So it's actually can be an asset to be concentrated, at least geographically concentrated, Not separate from customer concentration. Michelle Stuntz: Yes, geographic concentration in some circumstances does make a lot of sense. It can also make a lot of sense also as you are building your sales function, as you're building your commercial function. And focus is one of the most important aspects of doing that. And the more you have people's time distributed across different things, the less effective that time is going to be. And I think we all experience this in our daily lives, right? The times that you have, you feel like you have a hundred things on your plate and you're not doing any of them well versus if you really know, hey, I want to accomplish these things this week. There's 10 things I want to accomplish this week. And you start knocking them out of the park. Pete Vera, Exit Algorithms: Yeah, 100%. Yeah. Focus both on the micro individual level, but also of course it applies to business as well. Yeah. You can't, you know, chase two rabbits, catch none. ⁓ Fallacy, But yeah. So, and then during integration, what are maybe some of the lessons learned? Was there any time where it was extra difficult or things weren't so smooth? ⁓ Michelle Stuntz: For sure. Exactly. Pete Vera, Exit Algorithms: hear your experience on that. Michelle Stuntz: Yeah, it's such an interesting question and it's one that I contemplate a lot these days and think a lot about with the work that I currently do. ⁓ I guess there's there's so many aspects of it and I had done a lot of post merger integration as I had already mentioned prior to this. And as you probably know, and as your audience probably knows, a lot of ⁓ &A fails, lot of mergers and integration fail. And it's hard to pinpoint why. We like to say it's because of culture or people or these types of things, but it doesn't really, it's not instructive as to what was done wrong or what should be done differently to have a different outcome. And so I think one of the things that I've uncovered and that I believe is true is that the integration is deeper than a cultural integration. In a lot of these organizations, there's a very specific identity. that exists and organizational identity that is different than culture. It's different than the strategy. It's different than your go-to-market. It's something that it's the philosophy on which the organization is built. It's the philosophy on which the products and services are built. And integrating that philosophy, that identity, that's something that is nearly always overlooked. And I think that's part of what really drives the failure of a lot of integrations. Pete Vera, Exit Algorithms: Yeah, wow. Well said. Is there anything you can do to mitigate that ⁓ before the process, before the deal is closed or identify potential mismatch before you even invest the resources to pursuing that deal? Michelle Stuntz: Yeah, I think so. know, honestly, there's there's only so much one can do pre-close because everyone's on their best behavior pre-close. Whether you're the acquirer or the company being acquired, it doesn't really matter. Everyone's trying to sell themselves in some way. And so you're only seeing the best version. ⁓ Post-close is when you see all of it. But I think that ⁓ dealing with these issues head on is definitely the way to go. So making sure that you're bringing the right parties together and having open dialogue about what that philosophy is, what that identity is, and coming together around a shared new philosophy or identity is really important. ⁓ What happens a lot post integration is that everyone wants to be nice and nobody wants to step on toes or rock the boat or make people feel you know, that they're less than in some way because of the integration. Maybe they used to have one title and now that title doesn't carry the same weight because you're in a new organization. Perhaps you were the founder or the CEO and now you report to somebody and you haven't reported to somebody for 20 years. And so there's a lot of tiptoeing that happens in a post integration environment in order not to hurt feelings or challenge people. And really that just creates a bigger mess. ⁓ because it allows people to fill in the gaps in their own head and to assume that what they're doing is right. And then it makes those things really hard to undo on the back end. Pete Vera, Exit Algorithms: Yeah, that's a good takeaway right there. I appreciate the perspective. Yeah, the focus I think of this episode will be how to maximize value when you go up to sell, especially from a private equity lens. in that, talking about that, probably the number one thing is eliminating key person risk, right? I saw you made a post about that recently. We've talked about this before. ⁓ Yeah, can we unpack what that looks like a little bit? How does a company, ⁓ what are the steps they can do to eliminate key man risk and make the owner not the bottleneck of the business? Michelle Stuntz: Yeah, absolutely. did, you know, I had had so many conversations about this key person risk concept that I felt like it justified a LinkedIn post. So I wrote one very recently. ⁓ And what I wrote about and what I think is true is that we think of key person risk as being sales related, that there's a person that drives a certain amount of revenue and that losing that person ⁓ is a risk to revenue. That's absolutely true. That's a very real key person risk. But there's so many other things that are overlooked when you're looking at a founder led company or any other company where there could be additional key person risk. So some of those might be like the reputation, the founder or the leader or a set of leaders are the face of the organization. And without them as the face, the organization loses credibility. You have to plan for a replacement for that reputational person that's driving the outward reputation of the organization. And that takes years to do. So if you have that and you're looking at acquiring a company that has a person whose name and image and their approach is very much the face, the public face of the company, it takes years to replace that with someone else. So you should be looking at at least a two to three year cycle ⁓ to mitigate that risk. ⁓ Another risk is that I've seen is around delivery and that even though there is a team to deliver the work, the only people who really know how to do it are maybe the founder or maybe a very senior team. And they haven't taught others in the organization how to do the work as well as they can. And so they've created kind of a dependency on themselves. And so that also creates a challenge because then you have to retain those people. Maybe you don't want to, ⁓ maybe you do want to, but you don't want to at the price point that they want to be retained at. There's any number of things to think about. ⁓ Let's see, other things could be ⁓ like decision-making. Often in smaller organizations, the decision-making is so concentrated that you remove that person or that person removes themself and then nothing can happen because nobody knows how to make the decisions. They don't understand the strategy. They haven't been able to make any decisions. ⁓ Or it could be around operational things or the sharing of critical information. ⁓ I've definitely worked with organizations where there's no information shared below the very senior leaders. And so without those senior leaders either there or fully engaged or fully on board with what you're doing, then the organization really flounders. Pete Vera, Exit Algorithms: Love that. Yeah, thank you for all that insight. Those are really good ⁓ tips and I think if you hit up all of those then you're on your way. You mentioned it can take two to three years to do. Is that ⁓ probably a recommended timeline for a small business owner gearing up to sell? What'd you say? ⁓ Michelle Stuntz: Yeah, I think so. think if you are, I mean, not all of those key person risks would take two to three years to solve for, but if you have ⁓ that client facing that face of the business key person risk, that one is a long, that one takes a while to solve for. In any case, I do think that it is fair for a founder who's looking to sell their business to say that I'm going to start a two to three year journey. to prepare my company to sell the business, to make sure the underlying structures and growth enablers are all there to make my business as attractive as possible so I can get the most value out of this amazing thing that I built. Pete Vera, Exit Algorithms: Yeah, what does that look like? What are some of the big ticket items to get the most value and, you know, this is you consult with, how do you prep them for a sale? Michelle Stuntz: Yeah, think one, I mean, you look at things in the silos, right, or in the verticals, you look at those sales and marketing, the growth part of the organization, and making sure that that is not dependent on individuals or circumstances or good markets, but that you have a real system set up that generates leads, generates revenue, and that can keep going, the proverbial flywheel, right, that is moving. because it does make your organization more valuable if it's something that can persist over time and that can continue to grow even in the face of hard markets or challenging circumstances. I was actually talking to a founder this morning and we were talking about some of the market circumstances that have driven ⁓ certain account behavior and the market circumstances are what they are. can't impact those. What you do impact is how you react to those and having an appropriate system set in place where certain things happen as a result of ⁓ maybe a loss of revenue with a client or something like that. Then you do have control about over how you react to it and that usually dictates how far down that dip goes. ⁓ In any case, so you have the growth piece. You also have the operational piece that includes finance that includes ⁓ HR things that includes recruiting, that includes a lot of different things, compensation, how you look at the overall organization. And if you're looking at it from an industry standard standpoint, ⁓ or if you have systems that are in place that just worked for you at different times of your growth journey, but they're not real systems that can scale, ⁓ that are proven to be scalable by other organizations in your industry. Pete Vera, Exit Algorithms: Mm. Yeah, great points. Yeah, I know you've also done a bit around turning businesses around as well in your career, I'm curious if there is any lessons you learned from those experiences that just broadly speaking generate more value for a company. Michelle Stuntz: ⁓ goodness. So turnarounds are a special ⁓ animal. And I think that a lot of people who have done turnarounds would agree with this. The first challenge that you have in a turnaround ⁓ is actually convincing people that a turnaround needs to happen. Because often, ⁓ there's only investors or sponsors or senior leaders that see that there's a turnaround that needs to happen. and the rank and file aren't necessarily aligned with that. So your first challenge is convincing people that a turnaround needs to happen. The second challenge is convincing people that it's doable and that it's in their best interest to do so and why. so turnarounds can be especially challenging. In a turnaround situation, the thing that's most important is quickly identifying where the holes are and taking the measures to stop the water from leaking out. And so, what is it that's happening? Is it that there's a group of people that aren't operating the way they should be? Is it that there's ⁓ a financial structure that isn't the right one for the organization and the way that organization creates value? ⁓ Is it that the ⁓ marketing engine has somehow stalled? what is it that's causing the water leaking or the bleeding, however we want to put it, identifying those things and changing them very quickly. Pete Vera, Exit Algorithms: Yeah, that makes a lot of sense. Did you find, you know, were there common causes of the leaks? Is it a financial issue most of the time, like cash flow? Or, yeah. Michelle Stuntz: Yeah, I think in in founder led companies, think largely what happens is that founder led companies are usually started, even if they're not expressly stated as such as a lifestyle business. And so things that made sense in the lifestyle business just don't make sense in a growth business. And so a lot of the times it's not having the transparency and awareness around certain things. So, for instance, people are doing great work, but they don't realize that they're selling the work at a margin that's not a sustainable margin. Because that didn't matter when you were operating as a cash lifestyle business. But it does matter when you're talking about investing for growth. So I think that's usually what you find is that there's just systems that weren't actually intended to grow exponentially over time or to support growth exponentially over time. So I think it's often around pricing is something that you find. ⁓ It's role structure. ⁓ is accountability. ⁓ that's a big one actually. Accountability is one that you'll often find that there's a distinct lack of accountability in organizations that you need to turn around. And accountability is often something that is not, let's say, a welcome change in those organizations. Pete Vera, Exit Algorithms: Sure, definitely. and essential as you grow and scale the company, right? Did you find that you were in that position in any of your acquisitions and integrations kind of having to spearhead some of those changes? Michelle Stuntz: Yes. Yeah, absolutely, for sure. ⁓ some of them take time. And some of them, you kind of need to take the Band-Aid approach and rip off the Band-Aid. Because to my earlier point around the tiptoeing, ⁓ one of the lessons learned that I have is that if you take too long or do too much ⁓ gaining of buy-in, then you just lose ground and lose time. That's really valuable. And so ⁓ Sometimes it is better just to make the change that's needed and allow for the fallout to happen. And if there is fallout from a change, you want that fallout early in the process rather than later in the process. So the best thing that you can do is to make the change quickly, communicate it clearly. And if there is fallout that happens, you mitigate that and deal with it on the front end rather than one, two, three years down the road. Now you're dealing with that same thing, but now now you're looking to sell and now you're dealing with this situation. Or if you're already private equity backed, maybe you're looking to ⁓ recap and you can't because now you're dealing with this situation that creates risk in the business. Pete Vera, Exit Algorithms: Yeah, great takeaway. Yeah, on the topic of change, I'd love to open up the can of worms here with AI. ⁓ As I know, you're deeply entrenched in using AI and consulting around it. I'm curious, how are you personally leveraging AI today? Michelle Stuntz: Yeah, mean, AI can make a lot of things that you need to do faster. you know, whereas in the old days, you might have put all your thoughts on paper and then scoped, then not scoped, I'm sorry, but then shaped out a PowerPoint presentation for how you're going to convey those ideas. And then you would find the graphics to go with it. And then you put it all together. It's rough. And then you have to edit it and all those things. AI speeds that up, right? You can just. put your thoughts together and then AI can create something and you don't have to do that piece of it, that creating of a document that's structured or a PowerPoint presentation that's structured. So in my world ⁓ or financial analysis, you know, that's a big one. If you didn't have the PowerPoint skills to do all your own financial analysis, then you're relying on an analyst to build you a dashboard or to do that for you. And so being able to ask AI to do that is really important. Where I find, and I think a lot of people would agree with this, where I find the biggest challenges right now is that people are relying on AI to do the thinking in order to work past maybe their capability or the amount of time that they have to put towards something. ⁓ And where AI can be really powerful is actually that combination of human intelligence and artificial intelligence. Pete Vera, Exit Algorithms: you Michelle Stuntz: coming together to create something faster and more dynamic than it could have been. But personally, when I use AI, I give a lot of instruction to whichever ⁓ agent I'm using. And then there's a lot of work that goes on in the back end, because then you have to interact with it and decide what it has produced, what it actually means, and how you move forward with it. But there's a lot of AI slop out there right now. I know it's a favorite topic like on LinkedIn, everybody talks about all the AI slop, but it's more than that. In business, there's a lot of AI slop. You look at any strategic plan, a marketing plan, an account plan. Anytime there's a plan involved, ⁓ you find a lot of AI slop. And the challenge with that is people don't use it because they didn't understand it to begin with. Pete Vera, Exit Algorithms: ⁓ Yeah, huge. Michelle Stuntz: So anyway, I guess my point is that it's really important that you have the interaction between the humans and the AI and that you're still doing the thinking that AI is doing work for you, but not thinking for you. Pete Vera, Exit Algorithms: Definitely, yeah, ⁓ absolutely agree. It should compliment your skill set, not replace. ⁓ It's funny, I just interviewed a guy named Rob Colley. He founded a business brokerage website, Business Exits. And ⁓ he has a no AI generated response rule for businesses that come on. ⁓ and he, he'll, he'll spot it like immediately if it was, you know, generated by Claude or Jachie BT. ⁓ but yeah, there's just so much sloth out there and you're right. You know, now there's, yeah, there's articles written with AI about AI sloth, right? It's like getting meta. Michelle Stuntz: And it's getting better. Well, and actually, it's also, you know, it's alarming to the number of times that AI is wrong. And we're just kind of accepting ⁓ that AI is wrong. I remember just very recently, I had an argument with AI about myself because there was something that I was trying to remember a date that something happened or somebody who was involved in it. And this is information that should be publicly available about me and something I accomplished many, many years ago. And I was trying to find it and AI just gave me incorrect information. They told me, absolutely. Michelle Stuntz did that and she did it in this year. And that year was, I didn't, I didn't even live in that state that year, much less do that that year. And then the AI said, okay, fine. It wasn't that year, but never got it right. And so I went back and forth, like every time it gave me an answer and it kept giving me answers. And I kept telling, no, if you're not, you're still not right. and it never got it right. Pete Vera, Exit Algorithms: Yeah, it's frustrating how good it is at some things and how, yeah, it's still kind of how much it falls short in other areas. Michelle Stuntz: But on the plus side, I really do enjoy using it and I enjoy a lot of, know, not having a strong finance background myself. ⁓ I do enjoy how much financial analysis I can do ⁓ just with me doing the thinking and AI doing the spreadsheet generation, which I really do enjoy. And I love how as a leader, it really allows me to think about things a different way when I don't have that lag time. in asking for something or the frustration of a dashboard that isn't exactly what I need. I need the data in a little bit different way than this dashboard was built. And now I can just get it the way I need it and the way I'm thinking about it. And so it allows me to really iterate on my thinking much faster than I could have. ⁓ And it's kind of fun. Pete Vera, Exit Algorithms: Yeah, yeah, I definitely agree. I think that's where it excels is the data, know, analyzing data and yeah, and along that point, a lot of people I talked to, you know, the new thing is reverse prompting, right? Where you get it to ask you questions. Ultimately, you're just giving it really high quality data so that it can generate, you know, better, more accurate responses. I think that's a... Michelle Stuntz: Yep. Yep. Well, that's one of my favorite prompts. Ask me at least five questions before you do this. Pete Vera, Exit Algorithms: There we go. Yeah. Yep. I think if you did, if you took the time to do that every time you're gonna, you're, you're going to get a pretty good result. ⁓ rather than, yeah, the basic user just using it as like a Google search engine, for example. Michelle Stuntz: Yes, it is not a Google search engine, that is for sure. Pete Vera, Exit Algorithms: Awesome, Michelle. Well, it's been an amazing conversation. At the end, I always ask guests to summarize and ⁓ put it into one practical tip for business owners. We'll say in this conversation's case ⁓ to increase a business's value right now. Michelle Stuntz: I could give one practical tip to business owners, especially if you're talking about the lower market or mid market. It's to be open to what the rest of the world has to offer. Often businesses are created kind of in vacuums with founding teams or a founder and they do a great job, but they become pretty siloed in that business. And there's a lot that's going on in the world around you that can lend a lot of value to your business that can make you exponentially more successful if you're open to being wrong about some things. If you're open to other people's opinions, if you're open to other people adding value, ⁓ there's just, there's a lot of knowledge to be gained from the market around you if you're willing to let that knowledge in. Pete Vera, Exit Algorithms: Well said, love it, great way to finish the show. Michelle, I also wanna give you the opportunity, where's the best place listeners can find you and learn more? Michelle Stuntz: ⁓ yeah, just on LinkedIn. You can find me on LinkedIn and contact me there. ⁓ Or I put a lot of my thoughts and experiences out there for folks to take advantage of, whether it's practical tips or or just contemplating different things that I'm experiencing or that I'm hearing from the different people that I work with. So definitely LinkedIn is best. Pete Vera, Exit Algorithms: I'll leave that in the show notes. Thanks so much for your time, Michelle. It was great talking to you. Michelle Stuntz: Thanks Pete.