Latest / Exit Algorithms / Why He Said No to Private Equity and Sold to His Staff | Chris Burke (#115)
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, Pete Vera, and today I'm joined by Chris Burke. Chris started his company Brickenden in 2010 with an advance on his mortgage, a laptop, and no clients. No funding, no investors, just execution. Over the next decade, He built it into a global consultancy of more than 300 people, generating over $250 million in revenue, before going on to build Hybrid Hero and then acquire Aduvo, where he now helps founder led businesses scale, create value, and prepare for exit. Chris, excited to have you here. Welcome to the podcast. Christopher Burke: Yeah, hi Pete. Thanks for having me. Pete Vera, Exit Algorithms: Yeah, great great to great to meet you. I'm I'm excited to get into this. D do you mind starting off, Chris? Can you share for our listeners a bit about your background and business journey? What what led you to Aduvo? Christopher Burke: Yeah, great question. So so I'm I'm an Aussie, as you can probably tell by my accent. I've I've lived in London for a long time, but haven't managed to lose the accent yet. I I grew up in country Australia. I grew up in a small farming, farming town of 286 people, according to the signpost. And early on when I I think I was twelve or twelve around twelve, I started you know, my my parents told me that if I wanted to get the new bike, I had to I had to wait till till Christmas or to my birthday, which is like 10 months away. So I ended up going and and picking raspberries and strawberries and you know, working dawn till dusk and sort of learnt I guess early on that you know you had to put put your effort into to get something out. And that kind of led me on the sort of a path where I then started buying cattle and and raising those and and selling those and finally sort of got into I guess in my teenage years, started getting into the stock market with well, I guess with help from my father and grandfather. And found myself in a in a reasonably good position in my my early twenties, being able to sort of either pay cash for a for a house in my my my town, but I probably made the the most painful decision and that I that I I invested in a business that I didn't control and I ended up losing everything. So so the earl early days were were tough. Yeah. So in terms of that lesson sort of learned early on. yeah, so so if if I sort of sort of roll on, then I I I sort of was always very interested in business and founded a couple of smaller consultancies. But as you said, in twenty ten Brickenden became a big success and then and then then hybrid hero after that. And more recently I've been been running the Aduvo, which is Latin for the help, and we c we kind of look to help, you know, firms who are, you know, maybe in five to fifty million turnover, how they can exit or grow or maximize profit, maybe pass it on to their kids. And what are they going to do to try and build the processes that enable them to step out of their businesses? Pete Vera, Exit Algorithms: Yes. And I think that's what we'll definitely dive into that as the meat of the show here. I'd love to hear about, you know, that you we talked to him on the pre-show about your initial exit. You basically sold it to your employees. I'd love to hear your kind of your thought process around that. And yeah, maybe some benefits of doing that over a traditional sale to a strategic acquire or private equity group. Christopher Burke: Yeah, so so we w had a lot of people looking and circling the business. It was Brickenden did very well. It was established in blue chip clients. We had, you know, the JP Morgan's, the Citibanks, the Deutsche Banks, HSBC, these kind of clients. So we had a lot of private equity money circling around, but quite often they come with a sting in the tail. And there was there was various clawbacks and, you know, five year, seven year tie-ins and then Even one of the one of the contracts which was lucrative it looked like, but then when we looked at the sort of the small print, it was, well, at any time we can fire you and you lose all the the the five or seven years effort if you're not there at at final exit. So the accountants recommended us to go, and I think you said it was called an ESOP in the US and and and in is that is that correct? Yeah. Pete Vera, Exit Algorithms: ESOP. Christopher Burke: ESOP. And in the UK, the equivalent was an EOT, which is employee ownership trust. And Back when we did this in twenty twenty three, you could transfer the the ownership to the staff and you loan the staff the money to buy it from you. And that would be a capital gains tax event with zero tax. So it was quite for a founder, it was an amazing opportunity to A, I guess, give give the business to those people who've been with you on the journey, but also to be able to exit a business with without the tax man taking taking any of it, which was which is really quite quite something. Pete Vera, Exit Algorithms: Yeah. that's that's incredible. Did you have any involvement as do you have a role in the business after that that sale? Christopher Burke: So so I I I still hold effectively a figurehead. So so the way it is is that the business pays me out a loan over a period of time. So I still sit on the board and sort of advise and and help steer them in various directions because it's in my my I guess it it's it's good for me if the business continues to make money and can pay me back sooner. but yeah, in terms of the data operations, that business sort of now r is run by the management technology. Pete Vera, Exit Algorithms: It yeah, so there was someone in the business ready to kind of step up into that that CO CEO role. Christopher Burke: Yeah, there was a gentleman who who stepped up, he'd worked for me for ten years. He'd he'd worked his way up from very junior to sort of partner level and and then he wanted to take over the running of the business. So when I stepped back, he he stepped in. Pete Vera, Exit Algorithms: Yeah. that's that's great. Yeah, I think that's a that's a really a good option for a for a lot of people, at least something to consider. not only for the financial reasons, but but also, yeah, if if you you trust someone in your business to take the take it forward, why would you know, then you may as well leave it give them ownership as well, right? Christopher Burke: Absolutely. And and and part of the structure we were setting up was that they would then get a further stake as the business performed well. They would actually then take the the trust could then give them actual equ equ extra equity, if I could say that correctly. Extra equity to to onto them for for for good performers. Yeah. Pete Vera, Exit Algorithms: Yeah, I'm I'm curious how did how was your strategy building that business over over those those fifteen years? without you you didn't take out any any loans or any investors, right? Christopher Burke: No, it was a it was a f it was an interesting strategy because, you know, I think it became a very cash hungry business. So a lot of money that we made, we had to leave in the business. And I'm not sure with the listeners who their clients are in their businesses, but the worst payers in in my experience in business are banks and governments. And that's pretty much the clients we had was, you know, large banks who might pay you in six months. The governments could pay you in a year. So you had to leave an enormous amount of cash flow in the business. So so while that business grew grew, I still just kept on leaving and reinvesting the profits so that we could always run for my aim was always to run for two years without without issue. So if you've got two years of cash in the business, if you if you can be so lucky to have been that successful, you then remove an enormous amount of stress. And I don't I don't want to say that with a caveat, the first five years were were, were hell. You know, there was always a situation where you were getting down to the wire Will I make payroll? Will this client pay me? But once we got past that first five years, then we just built up the cash buffer so it didn't become an issue. we all we also, to be fair, we had also had a a facility from a bank that helped us to cover cover it if it really got tight. But yeah, that was that was how we ran it. Pete Vera, Exit Algorithms: Yeah. very impressive. Yeah. I I'm curious as you, you know, think about building companies. You've done acquisitions yourself. yeah, from I think it's valuable for listeners to to have a idea of what a a buy what goes through a buyer's head when they think about buying a a business. And what you know, when is it appropriate to buy for for revenue expansion rather than than grow organically, in your opinion? Christopher Burke: So so growing organically is is very difficult. So it'll get to a certain point where you cannot get that level of growth without acquiring. I mean, I think there might be businesses that have done it, but you generally, again, in in my experience, you've always got to look at, well, I've grown to this level, but if I want to go another another chunk above that and whatever that might be, maybe you've got to ten million to get to fifteen, you have to acquire someone to do that. Because you've got to think about setting up in a new market. or or a or a new location. You've got to, you know, there's a no there's staff you've got to hire. There's, there's, there's an enormous amount of investment anyway. So if you can bring in a a business that already has staff and clients and know-how, you might find that you're actually easily out of acquire. So we so we had very tight metrics around earnings, around, you know, number of clients, around also around the the the I guess the culture, which is, which is the toughest part. the other things you can get around, but if the culture doesn't fit with your culture, you know, you've got oil and water, you've got a really big differential in in what you're looking at there. So we had a very tight tight thing and we we found found some acquisitions along the way that really helped us grow. And that that brought us new clients, new expertise and new markets, which which was really, really amazing. And then we were able to grow those substantially on our journey as well. Pete Vera, Exit Algorithms: Yeah. that that's awesome. yeah, l love your story. And then you know now you're able to help others on their on their business and entrepreneurial path through that growth and and exit process, right? yeah, I I'm curious what is what Christopher Burke: C correct, yeah. Pete Vera, Exit Algorithms: is what are some of the the first things you look at when you when you take a new client on? Christopher Burke: So I so I think everyone's different what clients want. Some people would like to be able to step back and have a management team. Some people maybe want to wanna exit to their their children and pass it down. Although we seem to find at the moment a lot of the I'm gonna say boring businesses, but maybe the more traditional businesses that aren't quite so so sexy and exciting aren't quite as appealing to the younger generations. Or you might want to exit and and Finally, you know, reap some of the rewards for all those years of, you know, long nights and weekends and, you know, telling your wife you you can't go to dinner or whatever it might be. So I think we we sort of look at what the client strategy is and then then help them execute it. But I guess the the the three things we always look at is is revenue growth, maximizing profit, and then how do you exit this business? Because if you cannot step out of your business. And the business can't run without you and and we look at can you run two weeks, four weeks, eight weeks without you being there, then you don't have a business. So just let that drop Pete Vera, Exit Algorithms: You have a job. Christopher Burke: for a second. If you can't step away for two, four, or eight weeks, you don't have a business because you are the business and you have a job. Pete Vera, Exit Algorithms: Yeah. Powerful. Christopher Burke: Well, it's it's and and I've been there. You know, you're you're spinning the plates, you're on holiday, you're supposed to be with your your wife and kids and you're checking in once a day, once every two days to see what's going on, being on a meeting, being on a call. Okay, the the business has got to run and if if the people aren't empowered or skillful enough to do it, then you haven't got the right processes or you haven't got the right people. Pete Vera, Exit Algorithms: Right. So yeah, how how do you recommend business owners think about an exit? You know, like like how do you w guide them through that that process and and determine if they're ready to to sell their business? Christopher Burke: So so one of the first things is your ego. So if you've run a business for fifteen years like I did with Brickenden or maybe some of these people have been who are listening to this podcast, and maybe they've been 10, 15, 20 years, that becomes their identity. You know, I'm I'm I'm John and I run I run the housing business in this particular area or I'm a construction or I'm whatever it might be. So so how can you separate yourself? Because when you exit, that's that's the first thing. So are you ready to exit? and I look, I've I've been in an acquisition where the the the the fit was perfect and we got to the final stages, contracts were on the table, the champagne literally was on ice and and the guy turned around and said, This is my baby, this is this is what I am, I can't sell. and I still know him, and this is 10 years ago, and he's still running the business now. And it's not massively successful, but but people get very attached. So first thing is get get you away from that. And if you can, if you can do that step. Then the next step is do you have the systems and the processes where the business can run without you? So do I have enough senior people in each of the roles you need and then structure and process for them to be able to be empowered to run each bit again without you at you at the helm. Then you have a business, then you can exit. Pete Vera, Exit Algorithms: Yeah, and say a business owner doesn't have those things. How how do you go about implementing them? Like how long does it does it take? Have have you seen? Christopher Burke: Okay. So so this is a really I guess this is this is one one of I guess what we do. So this isn't my my I think I believe it's guy fine founded IMG, Paul, not McKenna. Sorry, I've had a mind blank, apologies. he basically says it's spent an hour, say five minutes. So so the the bottom line what you have here is For every process, it's gonna take you an hour to step out. So if I I need to do this process, it maybe it's a payment run, maybe it's how we pitch for work, maybe it's you know, how I do whate whatever it is I do. For me to document that to someone else to do and to to detail it, I've probably got to spend an hour. But that's gonna save me five minutes every time because that person now is empowered. So you've got to spend all that effort to put the systems and the processes and think about McDonald's, like McDonald's. Flip flipping a burger is is it's all down to the minute, the second, how long they do all those sort of things. That's all very, very documented. So think about can you turn your business into McDonald's? Can you make everything systemized and processed so you can have staff who aren't as skilled as you follow the process and and run those through? And that needs to go across all elements of your business, from sales to to HR to finance, the whole way through. And if you can do that, then you can step back and you can exit and and at any level. Maybe you can exit and just go and sit on a beach and the beach the business can run itself, or maybe you can sell it. Pete Vera, Exit Algorithms: Yeah, right. Yeah, you you know, it that that saying of you you fix the fix the house, you you might as well live in the house for a little while too, right? It's Christopher Burke: Exactly. Exactly. Pete Vera, Exit Algorithms: you build the business to be exit ready, it's a it's a much more enjoyable business to run that way in anyways, right? Christopher Burke: Correct, correct. Absolutely. Pete Vera, Exit Algorithms: Yeah, w what would you say are so there's owner dependence. what are some of the other big big but ticket items that will reliably lift the the exit multiple for for businesses? Christopher Burke: Well, I mean, anyone who's looking to acquire, you want to know that that that that you can get get economies of scale. So so again, people are going to be looking at what are the efficiencies that you've got, you know, and unfortunately, that can quite often be redundancies. So, you know, if they've got a finance department, or they've got their own HR department, if that's big enough and able to acquire your business and you can then then then step back. So that can be something that you can build into the model that either You keep my finance person or you keep your finance person, but actually we only need one. We don't need two. you know, the the the the ability to to merge things like systems, you know, even things like in sh people don't think like things like insurance. You know, you've you've got insurance of a 10 million turnover business and a 15 million turnover business, it's not that different. Okay. So one of those you can you can and you can start to really get these cost efficiencies through through the merger that that all of a sudden Maybe you've paid a multiple of six for that business, but all of a sudden it comes down to a four point five. Now you get some growth in there and you you you you're positive in two and a half to three years. And that's a that's a really good, good sort of way to look at this. Pete Vera, Exit Algorithms: Love that thought process. yeah, how how are you implementing AI these days? I'm I'm curious how is that affecting your work and and where do you see it yeah, affecting the the industries you you consult in? Christopher Burke: So I believe this is my fifth conversation today about AI AI, including including the beautiful couple I just had had dinner next to downstairs. So I'm in a hotel in Sydney at the moment. And they're celebrating their fifty-fourth wedding anniversary, which was absolutely beautiful. But I think there's there's a very interesting thing with AI and where it is at the moment is I believe if you're you're knowledgeable in the subject matter, it's incredibly useful. So, you know, Pete. you're you've got your skills and I've got my skills and we can look at what comes out of AI and four out of five times it's great and we can just use it. But that one in five, one in one in four, one in six, whatever it is, that it produces garbage or it produces the reverse of what you want, you know, you can spot it because you're skilled. So so the danger here is is that if you don't know the subject and you don't know exactly and you don't have In-depth knowledge of what it you is you're asking, then you take what it produces as fact, and quite often it can be wrong. And that's that's the huge risk we have at the moment. So I think no one really knows. We have a situation at the moment where we've got certain people in Silicon Valley pumping it up that it's going to replace everybody. we have, you know, some people think it's not going to do anything, but it's probably going to be somewhere in between. I think it's going to be a great enabler, and it definitely we use it all the time. We, we We use a number of different models. We've built models to do things. But I think y that comes with a grain of salt that you need to understand the subject matter. And if you don't know it, then there's a danger you're gonna get you're gonna get left naked, I suppose is is probably the the best way to phrase it. Pete Vera, Exit Algorithms: Yeah, no, that's that's a hundred percent right. do you implement any specific AI tools in in your in your businesses? Or are you in have you deployed any agents in your businesses? Christopher Burke: no, absolutely. So we we use a number of different agents and I sort of mentioned before I'm still still very much involved in hybrid hero sort of at the board level and we use that to to both create code and and also to to develop test scripts, which which it's incredibly effective. And probably we've probably increased efficiency by 40, 50 percent in terms of in terms of what we're able to produce there. On the other side, I have various agents that I put together and And it's it's a great way of producing large amounts of content. The challenge we have now is that if you've got good SEO on your website, you're feeding you're creating AI documents and blogs, and then you're feeding it back into the engine that then gets reconsumed back in if your SEO is optimized for AI. So I'm not sure how that that fits together that you've got AI creating documents that are fed back into AI. for it to make the next decision. And and that might be be somewhere where it becomes a gotcha. Again, I think it's still probably too early to s to tell. But we're seeing a lot of lot of clients at the moment doing that kind of thing. Do you realize, you know, you're you're ranking very high on AI, but you're producing blogs by AI. So you're basically creating this this cyclical thing. Pete Vera, Exit Algorithms: Interesting. An AI, yeah, echo chamber. Christopher Burke: Exactly. That that's I might I might steal that. Pete Vera, Exit Algorithms: Yeah. it it's really interesting. you know, we have we're still at the kind of the the beginning stages or at least maybe mid stages of AI development, right? So it's it's fascinating to think about where where it's headed. Christopher Burke: So I had I had I had dinner with someone a few weeks ago and they worked for a large German engineering company. And they had 120 people in their division and they fired most of them. I I can't remember the exact numbers, but it was like maybe a hundred of the hundred and twenty. So so the teams back to because it wasn't able to give them what they thought it was gonna give them. So I think we've got to I again I I I still I can see the potential, but then I I wrote an article in in twenty seventeen about automated cars when Elon Musk said next year the driver is dead, it'll all be automated vehicles, and here we are in twenty twenty seven, ten years later. And it's still, you know, there's certain parts of the world where it's taken it's taking up take being taken up, but huge parts it hasn't quite got there. So again, I think AI is probably the same. Pete Vera, Exit Algorithms: Agreed. Well, Chris, been an incredible conversation. I always at the end, I I'll leave the floor to you. if you could live leave listeners with one practical takeaway for you know, a business owner wanting to prepare for a high value exit, what would that be? Christopher Burke: So so I think you've got to gotta first of all get rid of your ego. I sort of mentioned that before. But the other thing is you've really got to think about creating your business so it can run as well as it runs today without you in it. And and if the business can do that and you've created that, then you've created something amazing. You should be incredibly proud of yourself and and you'll get a high value exit. Pete Vera, Exit Algorithms: Well said. Awesome. Chris, where can listeners find you and and learn more about your work and your your business? Christopher Burke: Yeah. So so people can reach out to me at the aduvo dot com, which is spelt T H E A D U V O dot com and there'll be a forward slash podcast, which this will be there'll be a link to your your podcast on there, Pete. And and they can they can connect with me there and you know, if they mention this podcast, we'll give them give them sort of a a good discount on on anything that they would look to look to do with us. Pete Vera, Exit Algorithms: Awesome. I'll leave that in the show notes. Thanks for your time today, Chris. Great, great talking to you. Christopher Burke: Thanks, Pete. Thank you very much.