Latest / Beyond Leadership - Adopting a Coaching Mindset / #03 - Not a Happy Ending... But Maybe a Salvation

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#03 - Not a Happy Ending... But Maybe a Salvation · Beyond Leadership - Adopting a Coaching Mindset

• 0:00
  Michael Hoffman: Mitch Sowards and his wife owned  an IT services firm for exactly 30 years.  
• 0:07
  Mitch Sowards: Well, wait. From the day I founded  it to the day we sold it was exactly 30 years.  
• 0:20
  Michael Hoffman: Welcome to Beyond Leadership:  Adopting a Coaching Mindset. In this series,  
• 0:26
  our conversations are not about biography  or polished advice. They are about how  
• 0:31
  decisions are made in the real world when  the pressure is on. We will anchor on one  
• 0:35
  situation where the path was not obvious and  explore what goes on in the mind of a leader  
• 0:41
  when confronted with real tradeoffs, imperfect  information, and the need to move anyway.  
• 0:51
  This podcast is brought to you by  Peer Plaza, human help instantly.  
• 1:01
  Mitch was proud to have built a  successful and thriving company. In 2021,  
• 1:07
  he and his partners sold to a larger  firm. Mitch stayed on with the buyer,  
• 1:13
  striving to ensure the best outcome for his  clients and employees. At the end of 2024,  
• 1:20
  he departed and took up semi retirement  as an executive coach, mentor,  
• 1:26
  and consultant for C suite executives. Welcome to the program, Mitch.  
• 1:32
  Mitch Sowards: Very happy to be here. Michael Hoffman: And we should probably  
• 1:35
  say that we have worked together before. Mitch Sowards: We have, just a little bit.  
• 1:41
  Michael Hoffman: You served as my  executive coach for about eight  
• 1:44
  years before we sold the company. Mitch Sowards: That is right.  
• 1:47
  Michael Hoffman: So I think the first thing we  should do is set the scene and tell our listeners  
• 1:53
  what situation we are walking into right now. Mitch Sowards: Yeah. It is interesting. My wife  
• 2:01
  was one partner, of course, but we also had  three younger partners. And for many years,  
• 2:06
  and I am talking like a decade, we had a  plan for the continuation of the company.  
• 2:14
  Kind of like, at least in America, law firms  or CPA firms, where the older partners,  
• 2:21
  when they are ready to retire, the younger  partners cough up the money to buy them out,  
• 2:26
  and you move up the chain and become more and  more senior partners. That was our plan.  
• 2:32
  We called that being a generational company.  I am not leaving the company to my children,  
• 2:35
  but I am leaving it to the generations behind me.  And it had been that plan for like 10 years.  
• 2:42
  Then as that horizon approached, we started to  say, okay, gentlemen, because they were all men,  
• 2:50
  gentlemen, it is time, and here is  the price that I want to sell at.  
• 2:56
  And I have to say, written into our partnership  agreement was a formula calculating a value if a  
• 3:04
  partner was forced to sell, or if a partner wanted  to voluntarily depart the partnership and was  
• 3:09
  going to force his partners to buy. Michael Hoffman: That was part  
• 3:12
  of a shareholders agreement. Mitch Sowards: Yeah. But it was never intended  
• 3:15
  to be a premium price, just a fair price. So I asked more than the minimum price. I said,  
• 3:23
  “Here is the value I have placed on the  company. Here is what my stake is worth.  
• 3:28
  I want you gentlemen to pay that price.” And they were like, “We are not sure that  
• 3:34
  is fair. Is that really a fair price?” We were perfectly clear for a decade on what  
• 3:40
  was supposed to happen, and then as the date  approached, suddenly there was uncertainty.  
• 3:46
  So no problem. We said we are going to go out and  get a company to come in and value us. So we did,  
• 3:54
  and we paid a company to do a  valuation, and the value came in  
• 3:59
  five times higher than what I had it at. Michael Hoffman: That is not chump change.  
• 4:08
  That is millions of dollars. It will be curious  to see if this changes the relationship between  
• 4:14
  Mitch and his partners as we go on. Mitch Sowards: So we got that valuation  
• 4:21
  back and I will have to say, we also asked,  are we sure that is a good valuation?  
• 4:25
  So we paid a second company  to also do the valuation,  
• 4:28
  and they came back with the same  number, or virtually the same number.  
• 4:31
  So I went back to my partners and said,  “Guess what, guys? Now that we know the  
• 4:35
  company is worth five times what we  expected, I am raising my price.”  
• 4:42
  Actually, I did not. I said, “I am willing to  sell to you guys for only half that value.”  
• 4:49
  Michael Hoffman: That sounds generous to me. Michael Hoffman: So what you are saying is you got  
• 4:54
  a new valuation and it was five times more than  what you had figured on. And instead of saying,  
• 5:01
  “Hey guys, everything has changed, it is now  five times more,” you offered that to them for  
• 5:09
  half of that, so two and a half times more. Mitch Sowards: Yep. That is exactly correct.  
• 5:14
  And I felt comfortable doing so because my wife  and I had our own retirement plans and nest egg,  
• 5:19
  and we knew what number we needed. This was  going to be so much bigger than what we needed  
• 5:23
  that I felt very comfortable doing that. Remember legacy, right? I wanted my customers  
• 5:29
  and my employees to all end up in a better  place. So I was perfectly happy to do that.  
• 5:36
  Seems simple, right? It did  not work out that way.  
• 5:45
  I had three younger partners. One of  them, after I told him the price, said,  
• 5:51
  “Where do I sign? I am ready. Let’s do this.” One of them said, “I do not know if I am willing  
• 5:58
  to borrow that much money,” because they did not  have the money in cash. They were going to have to  
• 6:02
  go out and get a big loan, and they were going  to be on the hook for this loan for 10 years.  
• 6:09
  One of them just said, “I do not know if I am  willing to put my name on a loan that big.”  
• 6:12
  Michael Hoffman: Understandable. Mitch Sowards: Yeah. And then one of  
• 6:15
  them said, “We are worth five times what  we thought. We should just sell. Let’s  
• 6:22
  just sell the company if we are worth five  times what we thought we were worth.”  
• 6:26
  I was like, oh man. So we went back to the drawing  
• 6:31
  board and said, okay, there was also still some  doubt despite the two valuations. Will anybody  
• 6:37
  really pay that much for our company? So he said, “Well, let’s try it out. We  
• 6:42
  will put the company on the market,  use the same broker, the one who did  
• 6:46
  the first valuation, and see what happens.” And then that was followed by two years of what  
• 6:54
  I call kissing frogs. Michael Hoffman:  
• 6:58
  I think what Mitch means by kissing frogs  relates to the Frog Prince fairy tale by  
• 7:04
  the Brothers Grimm, where the frog must be  kissed before it turns into a prince.  
• 7:11
  So just to describe the  process, the brokerage...  
• 7:13
  Before you go into the process, I want to ask  you, how difficult is it to sell an IT company?  
• 7:20
  Mitch Sowards: There are a couple of  different answers to that question.  
• 7:22
  If all you are interested in is getting the  maximum amount of money that you can get, it  
• 7:28
  is not that hard. Valuations are up, there is tons  of money sloshing around from private equity, and  
• 7:37
  they are all trying to build the biggest company  they can. There is lots of money out there.  
• 7:42
  And this was back in 2019 and 2020.  We thought we were at the peak,  
• 7:48
  but I have talked to that same broker since  then. He says, “It just keeps going up.  
• 8:00
  We have not reached the peak yet.” So it is easy to sell your company if  
• 8:04
  the only thing you are interested in  is money, and if you have a well run  
• 8:06
  company. You have to have a well run company  and the fundamentals all have to be there.  
• 8:10
  Michael Hoffman: So even if you did have  a very well run company, still the due  
• 8:18
  diligence was not so simple, was it? We did it at almost breakneck speed,  
• 8:23
  although my understanding is that a lot of  these deals go at breakneck speed these days.  
• 8:28
  We did it in under three months, and at the time I  was told there is no way you can get this done in  
• 8:34
  three months. You normally have six months of due  diligence, but we got it done in three months.  
• 8:40
  Mitch Sowards: Yeah. But still, it  required a lot of focus, a lot of effort  
• 8:45
  to do that. My partners had to keep running  the company, so most of that effort fell on me,  
• 8:50
  although there is a little cautionary tale there  that will come up later. Almost all of that labor  
• 8:55
  fell on me during that due diligence period. But remember, I said there are two answers to  
• 9:00
  that question. One, if all you are interested  in is money. But if you are interested in  
• 9:06
  preserving something, if you want something to  get better, if you want your clients to be happy,  
• 9:11
  then you have to kiss a lot of frogs. Sometimes you are the princess and  
• 9:17
  sometimes you are the frog. Michael Hoffman: I just want to say,  
• 9:20
  sorry to interrupt, but you are mentioning that  you want your customers to be happy. I remember  
• 9:26
  how much intensity you put into making  sure that your employees were happy.  
• 9:33
  Mitch Sowards: Yes. Michael Hoffman: That was  
• 9:35
  very important to you at the time. Mitch Sowards: Yes. But there is more  
• 9:38
  cautionary tale here. This story is not all  happy endings, and it was not a smooth road.  
• 9:46
  Michael Hoffman: No. Mitch Sowards: So, kissing a lot of frogs,  
• 9:50
  right? Sometimes you are the princess and  sometimes you are the frog, because the broker  
• 9:54
  brings this giant list of candidates and you  get to screen them kind of like a dating app.  
• 10:01
  You know, I do not even like that one. I  have got to check this one out a little  
• 10:04
  more. I have got to read their profile. So there was plenty of rejecting. No,  
• 10:07
  this one is not going to work. We got rejected  quite a bit too. We had people say, “You are  
• 10:12
  too big. You are too small. You are in the wrong  geography. We want this specialty or that.”  
• 10:17
  So a lot of princesses rejected us,  and we rejected a lot of people.  
• 10:22
  But even when you pare it down, you  really get into what I am going to call  
• 10:25
  dating with serious ones that you are really  interested in. And we did not get married.  
• 10:33
  There were plenty of them that we dated and  investigated and then it did not work out.  
• 10:38
  Then there was one that we thought was going to  work and we said, “Okay, let’s do this.” We got  
• 10:44
  into what I am going to call pre diligence.  We never really got to diligence because they  
• 10:49
  could never come up with the financing. So we had a six month period where we were  
• 10:54
  kind of, I would not say locked in because  the term sheet did not say we could not look  
• 10:59
  at other people, but we did not. Michael Hoffman: What was the  
• 11:02
  primary reason why you would reject? Mitch Sowards: In some cases I already knew  
• 11:07
  them because they were a competitor and I had  some kind of inside knowledge, and I was like,  
• 11:12
  “Nope. My employees would never like working  for that guy. This is never going to work.”  
• 11:18
  Others, it was too exotic. Their business  model was too different from our own. No,  
• 11:24
  this is not going to work. And then some of them, it was just  
• 11:27
  geography. It is like, this is a company out  of California that wants to open a San Antonio  
• 11:31
  office. No, this is not going to work. And then once you got into the dating,  
• 11:35
  you are guessing whether there is going to be  a good cultural fit. Sometimes the answer was  
• 11:40
  no. We do not think this is going to be  a good cultural fit. And sometimes they  
• 11:43
  rejected us for that same reason. I see you are taking notes there.  
• 11:49
  Michael Hoffman: Yes, I am. I am wondering, well, I will spill  
• 11:52
  the beans on that note that I just took. I  am wondering why it would not work out being  
• 11:57
  a subsidiary for a company in California, for  instance. It seems that you would have a little  
• 12:03
  bit of autonomy. You could almost maintain the  way you run the company to a certain degree,  
• 12:09
  but you did not feel that that would work. Mitch Sowards: It could work. It depends on  
• 12:13
  their commitment to the community. And I have to say that we did business  
• 12:16
  in San Antonio for 30 years, and I watched  companies from out of town come to town,  
• 12:23
  buy a local competitor, and two years  later they were gone, out of business.  
• 12:28
  It is a high risk proposition in my mind,  having watched that happen for decades.  
• 12:34
  San Antonio has a certain culture. It is different  than Houston, Texas. It is different than Dallas,  
• 12:38
  Texas. So even companies coming from nearby  or relatively nearby failed because of  
• 12:43
  cultural differences between cities. Michael Hoffman: So interestingly enough,  
• 12:47
  you become a kind of perfect filter because  you are interested in the legacy, which  
• 12:56
  should be important for the buyer, right? Mitch Sowards: Very important for the buyer.  
• 12:59
  They do not want the expansion  into your city to fail.  
• 13:03
  Michael Hoffman: You become  a great filter for them.  
• 13:05
  We have already talked about some  of the bumpiness. This is where the  
• 13:08
  story starts to go a little sideways. So obviously, we found a buyer, right?  
• 13:13
  Mitch Sowards: Right. There was a company that  was already Texas based. They were more or less  
• 13:18
  family owned, which was attractive to us.  They already had a Texas presence. They had  
• 13:25
  offices in Dallas and in Houston, and they had  a presence in the Austin area with some remote  
• 13:32
  workers. They also had an office in Seattle.  That was kind of unusual. I call that far,  
• 13:36
  far west Texas, Seattle, Washington. So expanding to San Antonio was a really  
• 13:41
  good fit for them, and it seemed like a  good fit to us for the cultural reasons I  
• 13:46
  just told you about, and also because there  would be that little bit of autonomy.  
• 13:50
  But things did not work  out the way we expected.  
• 13:55
  Michael Hoffman: You can hear how carefully Mitch  considers every aspect of ensuring the success of  
• 14:04
  the sale of his company. He even says that if all  you are looking for is the money, then selling an  
• 14:10
  IT company is easy peasy. Turns out that ensuring  the welfare of his employees and safeguarding his  
• 14:18
  legacy is anything but that. Mitch Sowards: Perhaps we did  
• 14:24
  not do enough due diligence. And in fact, my wife would say that  
• 14:28
  part of the fact that I took on the whole burden  of doing the kissing of the frogs meant that my  
• 14:34
  partners were not involved. If they had been  more involved, they might have put the brakes  
• 14:41
  on this deal. But they trusted me. Michael Hoffman: What do you take away  
• 14:45
  from that? Just that idea of had you involved your  partners a little bit more, maybe, we do not know,  
• 14:53
  but maybe they would have shut it down. Mitch Sowards: This is kind of funny. I know other  
• 15:00
  business owners who are sole proprietors, right?  They are the only owner of the company. They have  
• 15:06
  sometimes asked me, “What is it like having  partners? Was that good or was that bad?”  
• 15:12
  And I unequivocally tell them it was fantastic.  You always hear two heads are better than one.  
• 15:19
  Well, I will tell you, five heads are better than  one too. It is wonderful to have that many smart,  
• 15:25
  committed, dedicated friends on your team. Michael Hoffman: Owners.  
• 15:30
  Mitch Sowards: Yes. And in this case, I foolishly  did not take enough advantage of those five heads.  
• 15:40
  So I think that something we had done so well  
• 15:44
  outside of this arena, it was a miss. Michael Hoffman: It is so refreshing to  
• 15:50
  hear somebody admit that. Mitch Sowards: Yeah.  
• 15:53
  Well, there was another big miss too,  unfortunately. This is a bad one.  
• 16:00
  We always ran an open book company and we were  very open. I mean, not exclusively or 100 percent  
• 16:07
  open. Amongst the employee population, we had a  smaller group that we called the leadership team,  
• 16:13
  and we shared even more with them. It was about  making sure initiatives got the right input  
• 16:19
  and we had the right stakeholders in the room  whenever we were making significant decisions.  
• 16:26
  Normally I would have involved the leadership  team in such an important decision, but everyone  
• 16:34
  without exception told me, “Do not do that. It  is a terrible, terrible mistake. You cannot say  
• 16:43
  even a hint to any of the employees.” The broker told me that. The buyer told  
• 16:49
  me that. As soon as you let word out that you  are thinking about selling, your employees will  
• 16:55
  start quitting. Word will get out to your  clients and clients will start leaving. So  
• 16:59
  you cannot say anything to anyone.