Latest / The Life-First Solopreneur / 11. 3 Deal-Breakers and Other Great Advice for Trying to Sell Your Business With Zane Tarence
Transcript
- Zane Tarence (00:02): There are solopreneurs, One-Person business owners, that are absolutely getting deals done with institutional buyers. So the good news is, let me tell you that this is not pie the sky. To be able to build a company that has so much value that an institutional buyer will look at it and say, "Hey, I want to pursue a relationship. " Intro (00:25): Bigger doesn't always mean better. Welcome to the One-Person Business podcast where people who are flying solo in business come for specific tips and advice to find success as a company of one. Here are your hosts, Joe Rando and Carly Ries. Joe Rando (00:43): Hello and welcome to the One-Person Business podcast. I'm one of your hosts, Joe Rando. Carly Ries (00:49): And I'm Carly Ries Joe Rando (00:51): Today we have a real treat for you. We have Zane Tarence, the founder of Founders Advisors, and he is now a partner and managing director there. Well, what is Founders Advisors you say? Well, it's a company that sells businesses. Basically an investment bank, but an investment bank for smaller businesses. And Zane has sold a lot of them over the years. So today we're going to talk about selling your business. I know many of you probably aren't thinking that way, and maybe you don't want to think that way, but if you are, or thinking maybe you should, Zane has the insight to tell you what you should be thinking about. Now, a little background on Zane. He founded Founders Advisors in 2007. Way back in the late nineties to 2000, he founded a company called Virtual Learning Technologies. And if I understand it, Zane, you sold that and then started into some work with Houghton Mifflin CTS, Inc. and Alliance Consulting, but then you sold your business, and realized you could help other people sell theirs. Is that a fair assessment? Zane Tarence (02:01): You were spot on. We saw that this market of smaller, very quality businesses were underserved. And me being one of those entrepreneurs that had a river guide as a banker help me, I felt like it was an underserved market. So you're exactly right. Joe Rando (02:19): And a little bit of full disclosure here. You helped me sell a business a few years ago, and it was a great experience. Zane Tarence (02:28): Thank you. You were a wonderful client. Our team loved working with you, even though you're from Boston, , you talk a little different than us down south. A great deal. You and your team had built an amazing company and you were rewarded with some institutional buyers that wanted you. So congratulations. Joe Rando (02:44): Yeah, thanks and thanks for all the help. So, let's jump in here. I guess the first question we have is for you to maybe tell a little of your story, in your words about how you did this, why you did it, and just convince people you're qualified to talk about it. Zane Tarence (03:06): Sure. I think you gave a good background, but I feel like I'm getting old now. Turning 56 in a couple of weeks. I've always been an entrepreneur and I started with IBM. I worked with IBM for 12 years. I co-oped with them in college. Then really was just so grateful because I think I got a blue chip business education working for IBM in the last four years of my career. I ran a consulting practice for IBM Global Services in the Southeast. And really loved that. I was blessed that I had a P & L within IBM in my little practice. And long story short, I invented a product, my practice did at IBM. IBM ended up giving me that product, signing that product over to me, funding my business as a corporate venturing partner. (04:01): When I was 33 years old I left IBM, in my first true entrepreneurial venture with them as a partner. They funded me. We ended up getting venture capital, then we got private equity capital. And then, we ended up selling the business to a Boston based company, Houghton Mifflin that you mentioned. Through that experience as a software engineer turned entrepreneur, I really had a unique seat at the table to see how beyond the make capital works, how value is created. We ended up selling that business to Houghton Mifflin. I worked with them a year but then was able to transition my team into the business. We got our earn out, y'all know that's important. You have to hang around a little while to get your earn out. (04:50): And this colors me, I then started a venture capital model incubator because I thought, wow, I'm seeing how value is produced. There are a lot of great software entrepreneurs, but they really don't know how to professionalize their business. I had been on a very interesting journey and learned a lot. I still had a lot to learn, but I started a VC model incubator back in 2003. For four years we invested in basically, one-person software companies. They really weren't companies, I'll talk about this in a minute. They were products, but we invested in them, worked with them. And at that time, my partner, now business partner started Founders Advisors to help give advice to be a river guide for businesses that wanted to either raise capital, get liquidity, sell their business to a strategic, and I was on his board. Three years later, I transitioned my VC firm to Founders Advisors, our platform. (05:45): So since 2007, I have been helping companies with my team, raise capital or sell. And now we have 40 bankers in Houston, Dallas, and Birmingham, Alabama and about 10 support staff. All we do all day every day is help business owners reflect on the value they've created. Tthen if they decide they want to traverse the capital continuum, we're their guides to help them do that, hopefully in an efficient manner. And I'll tell you, It's the joy of my life. I'm having so much fun. Joe, as you know, we also take equity in a lot of these companies. So I have the joy of being on the boards of several of these companies as well. Joe Rando (06:27): Well, I think you're qualified. I think we got that covered. So the next thing, talk a little bit, if you would, about the most important things that solopreneurs and freelancers specifically need to think about when they're addressing selling their business. Zane Tarence (06:46): Absolutely. First of all, we all live in this amazing time in history. The fact that there are solopreneurs, one-person business owners, that are absolutely getting deals done with institutional buyers. The good news is, let me tell you that this is not pie in the sky, to be able to build a company that has so much value that an institutional buyer, will look at it and say, "Hey, I want to pursue a relationship." So that's the good news. We live in a time and history where that's possible. One of the reasons that's possible, and this will get into to answering your question, is this wonderful world we live in now where the world is flat and this gig economy where there are amazing experts that can help you in your one-person business in bubble projects where they can be contractors, they can come on board for certain seasons of your company to help you accomplish things, but you don't necessarily have to build a full-time team. (07:50): So we're seeing a lot of this. It happens, It's for real. If you had said this to me 10 years ago, I would've said, "that's a stretch". But we've done now, I think about three companies that were individually owned. One of them we sold for 35 million. One of them we sold for 18 million. The other we sold for about 21 million if you include the earn out that they receive. So this is real dollars. It's not just selling your one-person business to a friend down the street. So here are the things that matter. I think also, every solopreneur ought to think about their business in terms of enterprise value. Even if you say, I really just have a job that I love, I'm able to work this business on my own. I'm just gonna make a lot of money and save it so I can retire. (08:39): I might never sell my business. Even if that's the way you're thinking, can I encourage you to really try to build an attractive business that could one day be sold? Because those kind of businesses are more fun to own, to operate. You have more freedom. You have more cash flow because those kind of businesses are worth more to a potential buyer plus to you as the owner. I want to encourage people to always try to build an institutional investment grade company, even if that's not in the cards for you. First thing, and I mentioned this a little bit earlier, make sure you're actually a company versus just a product. A lot of the entrepreneurs I see that are solopreneurs, and even some companies that have 14 to 30 employees, they've got a product, but they really haven't built themself out as a company with systems and processes that can consistently reduce risk and help their business grow. (09:39): So really think of yourself as building a holistic company versus I have a product or service that I am delivering or producing. Try to get that mindset to make sure you're in a position to sell, because really what ultimate investors and buyers are looking for is a business that can scale. Even if you didn't scale it, you wanted to have to have it scalable, ready. I give just simple advice like draw out an organizational chart like a real company would have, where you have sales and marketing, you have finance, you have a CEO, COO function, an HR function. Your name might be in every one of those boxes right now but make sure you're looking at your business as a company that has all the right departments and segments to make it a real company. Does that make sense? Joe Rando (10:35): It really does. I never would've thought to suggest that, but when you think about it, it's a good way to see where the holes are in the way that you're operating your business, even as a one-person business. Zane Tarence (10:48): Absolutely. You can show those gaps. Just imagine, one day if a strategic buyer knocks on the door and says, "Wow, we really like what you've done. We'd like to talk to you about it." When you're communicating about your business, instead of saying, Yeah, it's just me. You can say, it's just me but let me tell you how I think about my role. I'm in sales and marketing, I'm in product development, I'm in legal and finance, but I have those bases covered and here's what's beautiful. That strategic buyer can look at your business and say, Oh my goodness, what if I can put my people in these different roles to have more focus, more resources, we could really take this company to the next level. And remember, a company is worth how a buyer views its risk adjusted future cash flow. So when they see you built this really nice business, but you built it in a way that it can scale, if they want to grow it and add people and resources, that's when you get buyers excited. So always think of yourself as a company, not a product. Work on those different areas of the business, even if you're the only one doing every job. Joe Rando (11:53): That makes a ton of sense. Also, I encourage people to look at which jobs they might want to think about offloading to some other outside contractor. So you're staying a company of one, but maybe there's something you're doing that you're spending more time doing than you should, et cetera. So great idea. I love it. Zane Tarence (12:12): Joe, I want to say something else on that point you just made. You're absolutely right. Then I can objectively look at the roles in my company, what needs to be done, and hopefully have some people to tell me my blind spots of what I'm really good at, what I'm not good at. I need to spend time on the things I'm really gifted at. Then you can outsource, fractional CFO, if I'm not good at finances or a product manager or some of your development to the Philippines or whatever, you can outsource that. Nowadays, as such an efficient market, you can find experts for every one of these functions that will work on a fractional basis. I'm seeing people work on product management, fractional product management executives, of course fractional CFOs, fractional marketing people, customer success people. So it's a really good way to look at your business, determine where you need to invest some time and energy and you can take action. So, great point. Joe Rando (13:09): Excellent. Let's talk about the other side of it. So that's what they should do. What are the mistakes you see people make when negotiating the sale of their business? Most specifically the one-person companies, What kinds of things do they tend to think the wrong way about or do the wrong thing with respect to? Zane Tarence (13:27): Great question. Let me answer that question. First of all, the three things I see kill deals, The three things that once somebody's interested in you and a one-person business starts talking to them, let me tell you the three things that pour cold water on that romance faster than anything else. Then I'll specifically give you some things to do about it. Number one is your business starts not performing. People like businesses that are growing. That are doing well. If you start having discussions and then all of a sudden you lose your biggest customer, something happens in your industry with headwinds, even if you can't control it, boy that pours cold water on the romance. Second thing that kills deals from individual owners is financial records. The strategic buyer or the investor, so excited they ask you for your financials and it's a disaster. (14:26): You really don't understand how you make money, how you spend money, You don't have good records. You don't allocate your expenses correctly, you've got some mistakes. Maybe you haven't done your taxes very well. We've got to remember, you're only as good as your record says you are as a business person. And guess what? Your record is your financials. I see people like me, as an early entrepreneur I said, "Oh shoot, financials are just to make sure I pay taxes and don't go to jail." No, financials are really the health of your business. I see a lot of small business people do a poor job in their finances and find out they cannot sell to anybody. I see that as a huge mistake. Take care of your financials, take then seriously. The third thing that kills deals that I see, especially solopreneurs do incorrectly, that don't get a deal done is ego gets involved. (15:21): I think we all, and I still do, I did and I do . I connect so closely to my businesses, they're my babies. It's personal. Sometimes when a serious buyer is looking at you, if they notice something and they bring it up, if you have an ego and you get offended, you take offense. I see a lot of people take offense and they back out of a deal that could have been amazing but their ego won't let them continue. Or the buyer says, "This person doesn't have good self-awareness. I'm not sure I want to try to buy a business from them, it might be very difficult." Those are the three things I think can kill deals. Another thing I think they do wrong, and this could be a little self-serving, but I believe this with everything in me. It's the reason I'm in the business I'm in now after being an entrepreneur. (16:07): I think a lot of entrepreneurs, especially solopreneurs, skimp on advice. They decide, "Oh, I want to get my buddy that was an attorney that went to college with me to help me when the right professional advice with the CPA, an attorney, a tax attorney. It can add so much value and you might pay a little more per hour. But I tell you, it is worth it. Just being naturally bright like I am at my age, watching pattern recognition, the smartest, most successful business people I have ever worked with, guess what they think about professional advice? They love it and they pay for it because they see the value. I see a lot of solopreneurs skimping on professional advice during their negotiation and it costs them, Joe Rando (17:03): That's awesome advice. It's so true. A lesson I learned from my dad who years ago when he was young, skimped on legal advice and ended up building a wonderful business, a restaurant doing the equivalent of like $6 million a year in today's dollars and didn't have a good lease. And the people that he leased the space from took it away from him. Zane Tarence (17:27): I've got to say this personally, I'm a personal guy. The deal we did with you, you actually chose one of the top law firms in the United States of America to do your deal. Some people would've said, "Oh man, they're three times as expensive." But, I'm telling you, it's the right decision. So practice what you preach on that, I saw it firsthand. Joe Rando (17:52): Yeah, it's worth it. You look at the number, the hourly rates and you get heart palpitations, but the reality is, it's better to get heart palpitations about the bill than about, the things that can go wrong down the road. And it doesn't happen when you have good legal advice and good accounting advice, et cetera. So I'm with you. Deal with a specialist, deal with somebody, that buddy up the street that practices family law and divorce law and estate planning. Great guy, but not the kind of person you want to help you run your business. Zane Tarence (18:25): Absolutely. Would you have your internal medicine doctor do your brain surgery? No. They're smart people. They're good people. But it's not their focus. I've got one other thing on common mistakes that is something I want to hit. Be prepared. Just like none of us want to go to a performance if we're musicians or if we're speakers, a nightmare to not be prepared. Sometimes I have dreams that I'm speaking in front of a thousand people. I'm a speaker and I don't know what I'm supposed to talk about and I'm walking out onto the stage. It's horrible. I see so many business entrepreneurs go into these discussions. They sell their business once in their lifetime. The buyers buy them every year, every week, and they're just not prepared. They don't have their story down. They don't understand how to walk through their financials. They don't have a compelling growth strategy. So be prepared. And that's common sense, like we tell our kids. It's amazing how many business owners I see that start having discussions and they're just not prepared. Joe Rando (19:30): So Zane, that's all great advice, but let's just say if there were one thing you wanted a person who's flying solo in business to take away from today, that one thing, maybe something you mentioned or something you haven't, but what would the one thing you would want them to take away from this conversation today? Zane Tarence (19:46): Well, that is a good question and always have two things. Let me reflect on this. I think it would be build a business as a one-person business owner, build a business, not just a good job. That's where the systems, the processes, the holistic view of your business that you take from a functional area. Build a company and a business, not just a good job for you. I think you'll be more fulfilled. Clearly you will build enterprise value so that when you decide to retire, you can have a lot of value in your business. I would just encourage you and have hope again that there is value in your business because a business, just like a piece of real estate, is worth whatever kind of income it can produce over time. If you have focused on building a business instead of a job, you can hand this over to a new suitor, a new steward, and they can make a lot of money with it, so therefore they'll pay you. Focus on systems, process, technology, your net promoter score so that you can create true value. Joe Rando (21:04): Great advice. Thanks. Lets talk about resources that you think would be helpful for a person going it alone in business. First and foremost, I'd like you to talk a little bit about your book. I know it wasn't written for freelancers and solopreneurs, but it is still something that might be helpful to them. So if you could, talk a little bit about your book. Zane Tarence (21:23): Sure. Well, thanks for asking about my book. One of my mentors that I wanted to write a quote on this book, John Maxwell, told me that, he did not like my title. It's not a good title, but I wrote it from the heart because I've worked with so many owners that were surprised that their company wasn't worth anything. So I appreciate that. It's really just a list of things that I've noticed over the years in due diligence that drive value. It's kind of common sense. I don't know about you and Carly, but there are a lot of things I know that are common sense that I can't execute. I actually know how to eat a balanced diet. I know at 56 how to have a flat belly. (22:08): Why don't I have a flat belly? Because I don't execute. I don't need another book about diets and healthy eating. My daughter's a professional CrossFit athlete, a nutritionist. I know exactly what to eat and what not to eat. John Maxwell said, "Zane, it's not that we need more knowledge, we need more execution." So my book is about some of these common sense things to create value. You don't need customer concentration. You need to be a company of innovation. You need to be able to explain why you exist. Who would come to your company's funeral if it died? These kinds of things that create value. You need to have recurring revenue streams, not just one time revenue streams. You need to have a barrier to entry. It's these 17 things that most of us would know. You would say, "Thank you, Captain Obvious", but we don't do. (23:01): I try to give practical ways that you can rate yourself. How am I doing? How did I do today in building better sales and marketing processes? How did I do today on working on the top end of my sales funnel? I think it does apply to solopreneurs because it's common sense and it's what drives value. The reason I wrote the book is because of a specific example. I've had these situations a lot in my career, but when I was working with a family, their business was a very, on paper, successful business. They were making over 6 million in EBITDA, in profit. EBITDA does just cash flow. They were very excited about it. The patriarch and matriarch of the business were in their early seventies. (23:51): Their older son was running the business. Their middle daughter was married to an OB/GYN and raising kids. Their baby son, honestly was in and out of rehab, he was struggling. He had worked in the warehouse and then he would go to rehab and they called us to help them raise capital for their older son to buy out the business, put money in the trust fund for the younger son and for the daughter and for the parents to be able to retire. We were very excited. They had heard they should trade for about eight times EBITDA, so we're talking a $50 million business. Can I tell y'all, we got their data, we prepared, we went in to talk to them with their wealth managers, their CPAs, their attorneys of many years. (24:33): And I had to deliver the message that this business was unsellable. There would not be an institutional buyer that would want it even though they were making this kind of money because they had fundamental issues with customer concentration, with capital expenditures that they haven't kept up to date over the years. I had to deliver the message, keep the business, take the cash flow, and invest it in apartment complexes because this business is not sellable. I did not like that conversation. So I wrote this book. I speak about it all over the country because I love entrepreneurs to have the data they need to build value. This is about their families. It's about their wealth. It's about their stakeholders, their employees, their customers. So it was really a passion project for me. (25:28): Again, it's not gonna be a best seller, but for anybody that has a business, I think it's common sense stuff from a banking lens that says, Here's what drives value, just to help you make sure you know you're working on the right thing. So that's what the book is. We've done a lot of videos on it. Something else that we did, and this is free, I would do these speeches and podcasts and people would say, Hey, I wonder if I'm a 17 reasons company. Have you got one of your bankers I could jump on the phone with and talk to? We tried to do that, but we got to the point where we couldn't scale it. So another resource we've just completed, and I don't know if I mentioned this to you, that's gonna be free and we'll figure out how to give it to you in some way, put the link out. Joe Rando (26:12): Yeah, I'll put that in the show notes. Zane Tarence (26:12): Okay, great. It's an assessment that I have spent a lot of money on software engineers building a branching assessment to where in 20 to 22 minutes, an entrepreneur can take an assessment around hard hitting questions that can help you determine if you're institutional grade. There are 9 questions. It gives you a definition of what things are if you don't know if we say, what's your gross margin? It'll show you exactly how to calculate that. Then it gives you a report, a guide to interpretation to say, these are areas that you're not probably doing as well as other people in your type of business. Here's where you're doing better. Hopefully it can help you point actions and activities to certain areas where you're weak and encourage you on areas where you're doing better so you can double down. We did build a 17 reasons assessment that will allow you to very quickly, just like my doctor gives me my blood report on my lipids, on my calcium in my blood and compares it against the other 56 year old guys. We do that for you. That's something we're super excited about. We announced it about a couple of weeks ago and I'd love to give you a link to that. Joe Rando (27:29): That sounds amazing. Yeah, we'll get that into the show notes for sure. Excellent. So how about just your favorite quote about success? Zane Tarence (27:44): Well, and I'm a quote guy. I believe whatever you laminate is holy. I have some things laminated actually in my office that I like my employees to see, my kids to see, my future son-in-laws to see. I have three daughters, so why don't I read you two. Joe Rando (28:05): Sounds good. Zane Tarence (28:06): I'm looking over on my whiteboard that I have a laminated note. This is one of my favorites. "If you win the morning, you win the day." As I look at successful people, and that's in business, in their families, their relationships and their spiritual lives, one thing I consistently see, even when I read biographies, I love reading biographies and autobiographies. People win the morning, they get first things first. They know the big rocks they have to accomplish. If there's one or two things in the day they have to do and they do it. When you win the morning, through your health, through your meditations, through your focus on your calendar, the things you're gonna do and not do through the important people in your life. There is so much noise today. Focus in the morning and win it. That's probably one of my favorites. (28:57): Another one I have on my wall that I read somewhere, is the saying "everything in life worthwhile is uphill." You don't drift to a great business as a solopreneur. You don't accidentally say, "Well damn, I don't know what happened. I just drifted to a great business." Everything worthwhile in life, a good marriage, being a good parent, being a good son or daughter, nothing accidentally happens. And most of us have uphill goals. I want an amazing business. I want all these friends. I want a great marriage, great relationship with my kids, but I have downhill habits. I want to have a flat belly with a six pack, but I like croissants. So our success is based on doing the hard things, doing them early in the morning. I believe that's a recipe for success. Joe Rando (29:54): That is great, Zane, Thank you. Really inspirational. You're absolutely right. Everything that's worth doing in life is, I guess uphill is the right way to put it. Slog no, battle, no, but uphill, you're gonna be working at it. I, I love that. Zane Tarence (30:12): Absolutely. Joe Rando (30:14): In closing, is there anything that you would like to put out there in terms of people connecting to you or getting your LinkedIn profile or something like that, if people want to see it. Zane Tarence (30:29): Thank you. LinkedIn is a great place and I have such a strange name. You can just put Zane, Birmingham, Alabama, and you'll get everything. I'm pretty much out there on LinkedIn, on our website, Foundersib.com. Then I have 17-reasons.com. That's kind of where I am. I don't do Instagram and all that, but LinkedIn and those three places. We love serving entrepreneurs. We're in this for the long haul. We just feel like every morning it is so exciting to work with entrepreneurs and also hearing stories and seeing successes. Joe just working with you and seeing how y'all built the company and then you have a great exit. I've had the opportunity to work with so many entrepreneurs that have one and that's exciting. That's kind of the stories we like to tell and serve. Any way we can serve your listeners, we'd love to. They can find me in those three areas. Joe Rando (31:31): We'll put those in the show notes as well. I don't know about you, Carly, but I think this was fantastic. Carly Ries (31:38): I was just gonna say, Zane, speaking of winning the morning, you are definitely a replacement for a morning cup of coffee, very energizing. I don't have a company to sell right now, but I want to go sell something after talking to you Zane Tarence (31:54): Hey, thank you. Well, hey, you just gave me my love language because I'm a three on the Enneagram, if y'all know what that is. So man, if you give me encouragement, that'll keep me going a whole year. Thank you for that. Joe Rando (32:06): Very good. Well, we've come to the end of another One-Person Business podcast. Thanks a lot for listening. If you enjoyed this, please be sure to subscribe and we'll be back shortly with another show. Closing (32:20): You may be going solo in business, but that doesn't mean you're alone. In fact, millions of people are in your shoes writing a one-person business and figuring it out as they go. So why not connect with them and learn from each other's successes and failures? At LifeStarr, we're creating a One-Person Business community where you can go to meet and get advice from other solopreneurs. Be sure to join in on the conversation at community.lifestarr.com