Latest / Exit Algorithms / The BUILT Method: Reverse Engineer Your Exit Before It's Too Late | Laurie Barkman (#65)
Transcript
- Pete, Exit Algorithms Host: 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, Laurie Barkman joins the show. She's a certified ⁓ &A advisor, certified exit planning advisor, former CEO of a hundred million dollar revenue company, ⁓ author of the business transition handbook. and founder of the business transition Sherpa, where she advises business owners on building businesses that run without them and are ready to sell. Lori, so excited to have you here. Welcome to the podcast. Laurie Barkman: ⁓ Pete, it's great to be with you. Pete, Exit Algorithms Host: Yeah, I can't wait to dive in and learn more about your story. ⁓ For listeners that haven't heard of you before, do you mind sharing sort of your business journey and maybe your transition from corporate life to starting your own business? Laurie Barkman: Transition's a great word, think you're going to use a lot. And you said in the intro, business transition Sherpa. And so just to hit on that word one more time, it is a path from here to there. And we all have our transitions in our lives, in our work stories, in our personal stories, ⁓ especially as business owners. So for me, most of my career was spent working for in someone else's company, right? I wasn't the founder. And on startups, on big companies, corporate, public, publicly traded companies and everything in between. Most of my career was in growth roles like business development, marketing. And one year, about 10 plus years ago, maybe 12, 13 years ago, I got a call out of the blue from a recruiter that said, we're recruiting for a CEO position. It's part of a long-term succession strategy for a third generation transportation logistics company in your town. And I was... really surprised. One, why am I getting this phone call? You know, here I am on the marketing track. I didn't think in my young 40s I could interview for CEO role of something like that. I had to get over the imposter syndrome stuff, which I did, and I went for it. And it worked out. It was a very intense interview process. lasted six months. And when I joined, essentially it was, like I said, a planned succession. My business unit was over 100 million revenue. The total company was over a billion in revenue. So just to give you a perspective on that. The space that we were in was ⁓ reverse logistics, some forward logistics, but ⁓ mostly reverse logistics. The company was well known for that in North America. was at the time the second largest ⁓ transportation logistics company in North America. It was a wild ride because in the interviews, we were talking about, hey, this is part of long-term thing. We're talking 20 years, not two years. That was music to my ears. I was so excited about that. Again, putting me back at that time in my younger 40s. So ⁓ it didn't last 20 years though, Pete. It lasted three. And the reason why is because the company was acquired halfway in my tenure. I was there for a year and half and we were acquired by a global Fortune 50 transportation logistics company who needed and wanted this particular specialty. So myself and the other executives became part of FedEx. Excuse me. Yes, that company became part of that global company. And it was really interesting to go all the way through from the transition, the transaction to the transition and post. On the integration side, ⁓ there's a lot of dynamics as I'm sure you've seen in your career ⁓ integrating businesses and you can imagine at scale, you know, the some of those challenges and ⁓ gosh, it just really taught me a lot and realized I'm kind of a deal junkie. I kind of like, you know, the buy side, sell side, how do we put things together? And the notion of transition is just fascinating to me, especially seeing this third party logistics company. ⁓ go through the transitions it went through from Gen 1 founder to two to three, who was my boss at the time, and in his 60s. And there was no family in the business, I should say, as well. So part of their transition is part of this story, right? Again, I wasn't family, I was an outside hire, so there's that perspective on it, dynamics, whether it's family, whether it's not, how do we think about transition, succession, and that's what really motivated me to launch the Business Transition Sherpa business because I really want, I'm on a mission to help owners be successful and transition on their terms. Pete, Exit Algorithms Host: Yeah. Wow. No, that's, that's an incredible story. There's a, there's a lot of tangents I picked up on. could probably go on. ⁓ I do want to touch a little bit more on the, you know, the imposter syndrome, ⁓ side of things that, know, transition is a big, ⁓ part of selling a business or growing a business. There's always a transition you have to go through and you step out of your comfort zone and you know, you ultimately grow into that new. Do you have any advice for business owners that are going through a similar experience? Laurie Barkman: Yeah, and I appreciate that everybody can have an imposter syndrome about something when it's new. If we run for president of the United States, unless you're running us through a second term, it's the first time, right? So everybody goes through something new and you might feel like, am I really qualified for this? How am I gonna go about it? And so that negative self-talk can creep in at any time. I don't necessarily think it's, because you're ⁓ a newpreneur or... because this and that, you might feel it as a new parent, let's face it, you just have a baby. You've never done it before, so are you qualified for this? There's that negative little self-talk on your shoulder. And I think like any technique, we have to kind of recognize it and maybe unpack it and say, five times? Why am I thinking this? Why am I thinking this? And get to root cause of why you're thinking it. And then you can really address it. So. I can't exactly say what I was feeling at the time. think it was more around, I haven't done this before. And that is a very natural, there's been studies on it. There's some gender differences that have been done, gender studies on applying for a new job. And women, for whatever reason, tend to want to match up their qualifications with the job spec, like 80 % match. whereas men will be comfortable with a 30 % or lower, you know, and so that's one dynamic. And I think that ⁓ if you're aware of it, you can overcome it. I became very aware of it and I overcame it. In other situations, like when I started in the role, then it was, ⁓ we had certain dynamics because the prior person who was in the seat before me was still in the building. ⁓ So I had certain challenges with that transition because it was very helpful. to have him in the building, but let me be more specific. He set up his new office three doors down from me. That was not good. So I had to request, which we did. I went to my boss and said, look, for the various reasons, great guy, it just isn't working to have him three doors down. ⁓ And so the office got moved and things like that. So I think there's some environmental factors. which can be eating at your confidence ⁓ and transition success once you're in the seat. And that means also looking at the teammates around you, whether you're direct reports or otherwise. So it's very common when we're new in the chair to make changes on our direct report team. ⁓ I won't go into details in this particular part of story, but yes, I face that as well. ⁓ you look at any CEO, new and chair, public companies, et cetera, they have to take a hard look at who's around them and are they really on board and supportive of who you are, what you want to accomplish, or are they threatened by you and are going to be backstabbing you because they don't want to see you be successful. So you have to be really mindful of that. So yeah, it's important to... If you have negative self-talk, just call it out to yourself and try to unpack it and then see if you can put it at bay. Pete, Exit Algorithms Host: Yeah, that's a great takeaway. ⁓ Great start to the show. Thank you for sharing that. ⁓ I'd love to learn more also about that sale to a Fortune 50 company. ⁓ A lot of our listeners are business owners. They're growing their business with the intent to sell at some point. Were there any big takeaways or lessons you learned from that transaction? Laurie Barkman: Oh yeah, a lot. One of the big takeaways from the transaction was buyers buy on their time, not yours. And I know you're a buyer, so maybe I'm singing on the same song sheet as you. For you, the owner listening to the show, I think the biggest thing to know is that buyers might be watching you from afar. And that was our case. It was a big company, as I mentioned, it was over a billion in revenue and it had grown significantly over decades. You know, this is 120 plus year company at the time. And this other company, the global one that was a global enterprise that needed and was looking for specific niche had been watching this business for six, seven years. When they called, that's what they said. This was not a company that was listed for sale and being actively marketed. there was no, this was in the parlance of acquisition entrepreneurs and others, this was a proprietary deal. And what that means is it wasn't, there was no other bidders, there wasn't a competitive situation, it was really a strategic buyer saying, hey, we're interested in what you guys are doing. So that's really the takeaway of buyers buy on their time, not yours, because they can approach when they're ready. As an ⁓ &A advisor, I've seen this before also when I do have a client on the sell side and I reach out to buyers and they say, ⁓ this looks like a really interesting fit, but we just bought another company and we're working on integration and we can't take it on right now. Again, in an example like that, they're acquisitive, there could be a good fit, but the time's not right. So it's really hard to match up, right? Unless you have... ⁓ Pete, Exit Algorithms Host: Mm. Laurie Barkman: Well, even in the big companies, you can only do so many integrations at once. So I think that's really my first takeaway that I would share. Pete, Exit Algorithms Host: Yeah, that makes a lot of sense. ⁓ Yeah, and you mentioned, you know, transition, like the timing, the timing has to be right. And it's not necessarily just for buyers or just for the seller, right? ⁓ I'm curious, know, when your time ⁓ working with business owners, what did they get wrong with timing that transition? Laurie Barkman: Well, I think a lot of business owners try to time their transition. They think ahead. A lot of people are in the notion of retirement age. And I think this comes from in the U.S., the creation of the Social Security Administration and setting a retirement age of when you can start to receive your Social Security benefits. Now for our generation, I think I might be, I'm a Gen Xer. I'm not sure if you are in that range or not, Pete, but for our listeners and people listening who are you know, let's say in their mid fifties, we're looking at the baby boomers going, yeah, you know, we don't really want to do it the way they've done it. A lot of those folks are, especially even the traditional generation, the traditional generation now is in their kind of 80 plus and many of them are still working because it's their identity and they just don't know anything else. And so they don't want to let go. is what they do and it's probably keeping them alive, frankly. the baby boomers who are setting their age and life stage goals are setting it probably in their, hey, I'm in my blank, I'm in my late 60s, I'm in my early 70s. And the notion of retiring quote unquote, I think is evolving for not only the Gen Xers, but the generations that have come coming after us who, once again are saying, hey, I just wanna do things a little differently. I don't wanna kind of work to the bone until I'm 94. and then die at my desk. ⁓ Now, that said, still one of the common threads of a potential pitfall of all of these decades are people starting too late. So clearly in the story I'm telling you, you can look at folks in their 60s and 70s, and if they haven't started now, they're not going to, and they have what they have. The business is what it is. It's probably not gonna grow or evolve unless they're working with somebody like me that's really pointing out opportunities to protect value. and grow where we can. I do have clients in their 60s and 70s, by the way, and happy to share a couple of anecdotes around them. ⁓ I do also have clients in my 50s and 40s. And for those folks, they do have time to make impact and change in the business. Because if one of their goals is, I want to have a business that can thrive without me, well, you can't just turn that on a dime, right? All of these things are battleships, not, you know, small, small speed craft. Pete, Exit Algorithms Host: Mm. Laurie Barkman: And they do take time to not only set the goals of what do you wanna do and why, but also, you know, then implement. ⁓ So that's the other observation I have. Pete, Exit Algorithms Host: Yeah, ⁓ love it. Yeah, and yeah, you mentioned some of the stories. I'd be curious, know, those are two different, big different life stages. ⁓ Do you advise based on, you know, their financial goals or maybe you have a story that, you know, they didn't time it well. I'd love to hear, yeah, an example. Laurie Barkman: Yeah, think, well, in terms of, let me introduce a framework that I work a lot with engineering companies. I call them my analytical owners. So architecture, engineering, design, firms that have, ⁓ they can't rely only on gut, they need data. So transportation logistics falls under this as well. ⁓ I call it the built method. And this is in a physical space. ⁓ So it's the built environment, as we call it. And built stands for something, each letter stands for something. back to your question, I think this will lead us down a path to talk about each of these elements. The B is blueprint, right? This is the goal setting part. This is the, what's your vision for you personally? What's the model, the vision for your firm? Where do you see yourself down the road? You know, let's flash forward. Again, for many people that I wanna work with who are in their mid 50s, we're talking five to seven years out, right? This is not a one to three. If I hear the one to three, that triggers for, yep, you got to shift to ⁓ &A and you got what you got, right? Even if they say three, ⁓ you're running out of time ⁓ to make an impact. So for folks who are five, seven, 10 years out from a transition, ⁓ yes, we start with goal setting, because it's really, really important. What are the goals for the business? What are the goals for you personally? What are the financial goals that you have? What gaps might we have in enterprise value? So if you're thinking, hey, I want my... business to be worth 10 million one day so that I can net seven or eight and then I have a nest egg that I can live on for the next 20 to 30 years. We have to back into certain numbers. I've created a whole financial ⁓ estimator for that. I'm not a financial planner, by the way, and I'm happy to refer them, but it is part of the early dialogue that we do on goal setting. The U is unlock, which is what do we have to unlock? Are you the bottleneck in your business? You know, that's for many firm owners, that is the problem. What other operational bottlenecks might we have? And the I is for integration. And so once we can figure out how are you spending your time, where do you want to be spending it? How is the team set up? Are we missing any roles? What are gaps do we have? And we can go through a discussion around scale and outsourcing and. delegation, because it comes down to system structure and your people. the I for integrate is all about that. And then the L is about leading. And you as the founder owner, you need to lead with clarity. A lot of people feel chaos in their brains because they, especially when they don't have kind of this big picture plan, it's not, and if they have it, it's in their head, it's not written down, it's not communicated. ⁓ They don't know what their business is worth. And so it just feels really squishy. And so what happens, they end up kicking the can, kicking the can, they don't do this planning. And so our process really helps them find that clarity, that's really important. And then the T of course stands for transition, which is all right, how do we transition over time on your terms? What timeline do you have? Let's begin with the exit in mind, build with the exit in mind, and then work backwards. So I call it kind of reverse engineering your exit. And we wanna do that with confidence and control. because again, buyers buy on their time, but if you have a business that can sell at any time, guess what? You're gonna be better off. And not only better off because you'll be prepared for a potential conversation, actually mean more than that. Your business will be easier and better to run while you're running it. It's like having a house and when you fix up the kitchen and then you sell it, you never lived in that wonderful kitchen. You never got to it, really enjoy it. Why not have a business that can thrive while you're there? as well as Thrive Without You. Pete, Exit Algorithms Host: Wow, I love that framework. Incredible. So many good takeaways. One of my questions was going to be, what are some of the biggest ticket items to increase the value when they go to exit? It sounds like your framework will basically ensure that they maximize the value of their business before they sell. Laurie Barkman: Yes, I definitely hit on some of the big factors. think industry specific, there will always be different elements of the scorecard. You know, like as I mentioned, I work a lot with the built environment and there's elements, and manufacturing too, where we have sort of the physical nature of our people and our assets producing out, know, widgets, whatever they are, as a service or as a product. ⁓ How scalable is that a repeatable? How effective is it? How valuable these services are to your clients? ⁓ There's so many different dimensions Pete of what can create value in a business. But yes, the ones that I mentioned just right off the gates are gonna be financial, ⁓ owner related, owner dependencies set on the negative side. If you have an owner dependent business, that's going to be a detractor on value ⁓ as well as your processes and systems. which will be more of an additive to the value. And so you might have the scorecard, right? Up, down, up, down, up, down, neutral, neutral, neutral. And then at the bottom, that's how you can kind of, what we do is we look at that as a balanced view on the scorecard, because you can do weighted, certainly a weighted scale, or if everything's equal, you add up all your points and there you go. ⁓ That's a great exercise to do as sort of a health check-in. With new clients, we do it in beginning stages and then ⁓ I think it's smart to do it once a year and just sort of check in on what's working, not working. Pete, Exit Algorithms Host: Love it. Yeah. It makes a ton of sense. And I love what you said also. That's one of the through lines I always say too is the things that are going to make it your business more sellable actually just make it a better business to run in general, you know, more enjoyable. Also top of that list being having a redundancy, having a second person that can take over while you're on vacation and you know, you're not bringing your laptop and ⁓ answering emails like every day. ⁓ On that note, what's the first system or hire that creates the most leverage towards, you know, owner independence? Laurie Barkman: the first hire or the first system? Well, one way to look at it is that if the owner is the visionary in the business, chances are they need a compatriot, a second in command who is more of a integrator and a job title that could be director of operations, eventually as a C level, that could be a COO, chief operating officer. There's different functional expertise we need in our business. And so as the business grows, those roles go from founder to other people. It could be another unlock and those roles could be on the sales and marketing side. Because again, the owner can only do so much if we find that we are, you if you're running the business and you're bringing in more than 40 % of revenue in total. that's a red flag because that is a indication that the business may not be able to thrive once the owner moves on. And that's gonna be a challenge to a buyer. So what does risk perception mean? Well, it means a discount on the valuation. So those are some probably obvious ones to check in on starting with your role as the leader and the owner. What are you really good at? What are you not? What do you enjoy? What do you not enjoy? I love doing this exercise with clients. ⁓ Skill fund box, right? Where do you decide to spend your time matters and what can you outsource? What can you delegate? What can you eliminate? What can you automate? ⁓ And so as you're looking at the business and thinking about, do I need to hire someone full-time, part-time? There's so many wonderful skilled specialists out there now who are partial. Pete, Exit Algorithms Host: Mm. Laurie Barkman: blank, partial CFO, partial COO, partial CMO, right? This is now more of a availability of talent that I think evolved in the last five plus years, which is great for SMBs, small, medium sized businesses, who can't necessarily afford the full time and pay the benefits and all of that stuff. It enables owners to augment the team in a different way, as well as virtual assistants. So depending on the business, again, automation is a whole other topic, right? I'm not even diving into that right now, because that's a whole other can of worms. ⁓ But yeah, you can see how the options really will present themselves depending on what it is that we need to help the owner with. Pete, Exit Algorithms Host: Yeah, absolutely. I definitely, I was talking to someone else about this, concept of fractional CFO or COO. It's becoming more more popular. It makes sense. People are retiring and find their kind of bored and they have all of this expertise. Why not spend part of their time helping a business? And I can further that business owners. end in becoming less dependent, the business being less dependent on them. I love it. Yeah, and I wanted to give the opportunity for you to explain a little bit more about your book, The Business Transition Handbook. If you don't mind sharing maybe some of the core frameworks or takeaways from that, I'd love to hear it. Laurie Barkman: Yeah, the book is written for business owners in plain language with lots of stories and anecdotes and it's actionable. It's why I call it the handbook because I want, the end of every chapter, I want you to make your action plan for what you learned in that chapter and what your takeaways are. So that's how it's set up for action planning. It's meant for owners to have intention and do something about it. Now, the flow of the book starts with personal transition for the reasons that we discussed a moment ago. It's too easy to kick the can. If you think about the notion of us as owners and leaders, there's head, there's heart, and there's wallet. And what do we talk about first? Usually wallet stuff, right? Numbers, transaction value. It's very quantitative and objective. The subjectivity, the emotion is in our head and our heart. And sometimes those are harder to articulate and acknowledge because we might feel fear, we might feel sadness, we might feel anxiety. And so what do we do? We don't talk about it. ⁓ I have some folks that have come on my show and said in advance, yeah, I've told my people I'm retiring in three years. And I said, how does it make, how did it make you feel? He it was like a weight coming off my shoulders. Why is, why is succession a taboo topic? It really shouldn't be. ⁓ But for variety of reasons, and it depends on the organization, it is. ⁓ So the book is basically saying, get your mindset straight around transition, that it's a normal thing, it's gonna happen with everybody, be proactive about it, and build with intention, because as you read the book, and it's funny, I've had like, this book is written for mature companies that are, you know, have been around five, seven plus years, not necessarily startups, but I've had some startup owners read it, and they're like, ⁓ this is great, because. I am trying to build my business with an exit in mind. I want to create value along the way. ⁓ It moves into the other topics of financial readiness. What do we need to do to think about value? And then it shifts gears into the business side. So the three legs of it are personal, financial and business. The business chapters, there's a lot of them. It even, you know, it's all the value drivers and what do we need to do to be thinking about value creation? What are then the risks? There's always two sides to a pancake. We've got the value creation and we've got the risk mitigation. So if we understand what some of the biggest risks in the business could be, how could we mitigate that? So that's the subtitle of the book, how to create valuable exit options and avoid the exit pitfalls. mean, that's really the game, right? How do we have the gain and how do we avoid the pain? ⁓ A big theme in the book is planning. And I introduce a concept that I call strategic transition planning. I don't introduce it in the first chapter because what are gonna plan if you don't know what you're supposed to work on, right? It's in the final chapters for a reason. And the other thing that I introduced towards the end of the book are chapters around ⁓ &A because a lot of business owners don't know the concepts. They don't know the language and maybe they get called or maybe they get emailed and they don't know what to do with those emails. Maybe those outreach is coming from you, Pete. And they're like, as an ⁓ &A person, they've told me, they're like, I don't know if this is real. I don't know if this is not real. ⁓ Pete, Exit Algorithms Host: Mm. Hehe. Laurie Barkman: Not you specifically, of course, but, ⁓ and so this is a way to kind of help them understand what their goals and intentions are. And so when this is chapter six is one of my favorites, which is who should own your business after you. And they don't even realize the different kinds of buyers that are out there. And they only hear about certain ones in the public domain. And they think, ⁓ that's not for me. That's not for me. But then they don't know about other options. So we introduce goal setting around what you want, right? Then we think about, well, given your goals, who might be the right fit buyer. And sometimes it's challenging their assumptions and sometimes it's just really introducing new concepts and then you build from there. Pete, Exit Algorithms Host: Yeah. Wow. Love it. I'll definitely leave that in the show notes. Sounds like super valuable book for business owners. ⁓ Yeah. And ⁓ one of the things I think I talked to a lot of business owners and ⁓ they just, yeah, they don't know the ⁓ &A process or what the sale process entails. ⁓ The reality that a large percentage of deals fall through during due diligence. I was curious from your perspective, what are some of those pitfalls that cause deals to fall through and ⁓ be unsuccessful in a business sale? Laurie Barkman: There's really, again, two sides to a deal, and I think deals can fall through for many reasons. ⁓ On the buyer side, I would say, you know, one of the experiences that I had directly with a client was that the buyer, to us, to the seller, felt there was some dishonesty. Maybe he was and maybe he wasn't, but it felt that way. And what transpired was ⁓ really felt like a dragging out. It was dragging out for months unnecessarily. And when he said that he had applied for the SBA loan and hadn't, that really put the nail in the coffin. ⁓ And I think his strategy was basically a re-trading strategy, which felt very unethical. ⁓ So that's one example. If you're a buyer, don't do that stuff. I mean, come on. ⁓ The other... Pete, Exit Algorithms Host: Yeah, come on. Laurie Barkman: The other thing that I would say on the sell side for the sellers is you really do need to know where your headset is. There's deals that fall through because ultimately you or your family members don't want to sell, but it hasn't been articulated until the 11th hour and the deal falls through because you don't have all the votes. So again, from a planning perspective, you got to know who the decision makers are. Sometimes they're non-voting, but they're important. there's grandma and grandma really doesn't want the grandsons to sell, that happens. And then again, the deal falls through when grandma passes, then the deal goes, you know, continues. ⁓ That has happened, not to me, but I've discussed it with other people. ⁓ I think that another category on the seller side is there are issues in the business and they do come up during diligence. So what I would say to that is be as forthright in the diligence process as you can be. Nobody likes surprises. And an example of a surprise could be, know, there's a legal lawsuit, there's something pending or there's something from the past that's not been settled. Now, obviously this depends on the nature of the... The terms of the deal, I don't want to go deep on ⁓ &A stuff, but know, was an entity sales and asset sale and are they acquiring the liabilities or not? And is there insurance and all that, you know, reps and warranties and yada, yada, okay. So maybe these things are solvable, but we need to know about them so that they can be addressed upfront. Don't make it a surprise and diligence. Nobody likes surprises. So just remember that. You can include it in the SIM documentation. You can call it out whenever as early as you need to. Pete, Exit Algorithms Host: Mm. Laurie Barkman: I would recommend that being forthright. Those are probably the biggest ones. Readiness from all parties on the stakeholder side and a business that can be transferable or if it's got some risk or liabilities to it, make sure that the buyer is well aware. And so again, no surprises that might derail the closing. Pete, Exit Algorithms Host: Yeah, wow, a lot of good takeaways there. Man, thank you, Lloyd. This has been an incredible conversation. I know we're coming up on time here. ⁓ I always leave the last question I ask guests is, if you could leave one practical tip for small business owners wanting to maximize the value of their company when they go to exit, what would that be? Laurie Barkman: I would just say, look, you've worked really hard to build your business, build the business that can thrive without you. And I know it might feel scary to let go, but this is how you can unlock true value and have a transition mindset as an owner. Pete, Exit Algorithms Host: Well said. Wow, so many good takeaways and good nuggets from this show today. Thank you so much, Lori. If listeners enjoyed this as much as I have, where can they find more about you and learn more about your book and your business? Laurie Barkman: A great place to go is lori barkman.me and I've got all kinds of resources there. The book, as you mentioned, is available as a download. If people want to download a digital copy, they're welcome to, or it'll pop them over to Amazon if they want to get a hard copy. And there's different assessments that I have for folks. If they're interested, one of them is a succession assessment. We didn't talk about it, but in terms of internal options, do you have your successor in the business? And so I have an assessment around that for another URL if you're interested in it. My website is btsherpa.com slash succession and they can grab that assessment and take it multiple times with different people in mind. Pete, Exit Algorithms Host: I'll leave that in the show notes. Thanks for coming on today, Laurie. Great talking to you. Laurie Barkman: That's my pleasure. All right, thanks so much, Pete.