“Get your ducks in a row—NOW.” – Janice Miller, Managing Partner at Miller Haga Law Group, LLP, and author of Coopertition®. 

In this episode, Janice offers her legal expertise on the world of exit planning and the common issues she sees owners deal with when going through an exit, specifically in today’s post-COVID environment. 

Janice discusses how to best prepare for an upcoming exit, including the importance of knowing what you want to accomplish from the sale and assembling a team of professionals to help you achieve those goals early on. 

She shares the significance of having a buy-sell agreement in place, comparing it to a pre-nuptial agreement in a marriage. She shares with us why she believes everyone should have one, detailing how they can strengthen a business relationship and set clear expectations and parameters for leaving a partnership.

Janice talks about the why behind her book, Coopertition®, including how it is the concept that “competitors can work cooperatively together to benefit all: benefit their clients, benefit themselves, benefit their competitors.” She says she lives and breathes this concept, which inspired her to trademark the phrase and write the book.

Lastly, she shares two action items for owners:

1.      Give yourself the gift of time, and don’t expect to do a transaction now if you have not spent time getting everything in a row first.

2.      Be true to yourself and have clear goals that you want to accomplish from the transaction. Don’t stray from these goals unless necessary. 

Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.

“I have this belief that skateboarders are actually great entrepreneurs” – Mikey Taylor, former professional skateboarder and founder of Saint Archer Brewing Company. In this episode of The Ripcord Moment, Mikey shares his life story of being a professional skateboarder turned entrepreneur.

One of the areas Mikey opens up about is the mixed emotions he had with the sale of Saint Archer to a major corporation. Growing up in the anti-establishment culture of skateboarding, the idea of selling a business to a large corporation was perceived as “whacked.” However, with a bit of reframing and support, he was able to push through this discomfort. He also expected mildly positive feelings around providing a positive return to his investors. In actuality, though, the joy and elation he felt were substantially more fulfilling.

Lastly, he thought he would be more excited from the personal financial windfall. However, Mikey candidly explains that the reverse happened—he was fearful, which he wasn’t expecting. He says he went from a growth mindset to maintenance mode, asking himself “how do I not lose it.” Luckily, he had the right support team around him both personally and professionally to give him honest feedback. He says it’s important to not have “yes” people or “hype guys” around you to placate your wishes but rather people who will “keep it real with you.”

Mikey shares some interesting insights on brand management in an exit and how to best navigate the differences between a smaller niche company and a large corporation that will likely move slower. When contemplating an exit with a company that has a strong brand, Mikey says it’s a balancing act to create a brand that is culturally cool but doesn’t push the boundaries so far that it limits your optionality with a major strategic acquirer, which might have some hesitation around narrowly focused messaging that doesn’t appeal to a wide enough audience.

Lastly, he shares his two action items for owners:

1. Don’t celebrate the deal until it’s done: It’s important for sellers to manage their expectations. Many deals fall apart during the due diligence phase and up until the closing. He suggests sellers maintain a healthy awareness of this possibility until the deal is fully complete.

2. Recreating your identity: Mikey says that it’s a process that will need to run its course. It takes time to figure out who you want to be next. This requires owners to be patient with themselves. He suggests you take time to reflect and decompress. Then, you will be able to get back into the creative zone of tackling your next adventure.

“It’s freaky—having people work for you that you never met” — Michael McCrary, founder and CEO of PureSpectrum, a complete end-to-end market research and insights survey platform with the mission of making researchers’ jobs easier. In just five years, the company has sourced over 32 million online interviews. Recently, the company was ranked #21 on Deloitte’s Technology Fast 500 list.

Michael shares his insights in procuring $17 million of Series B financing (growth stage capital). With this explosive growth, Michael used this opportunity to take some chips off the table. He surveyed a number of other entrepreneurs and it was unanimous that he should sell some shares in the process.

Some of the key benefits for Michael were “de-risking” his personal financial plan. From a psychological standpoint, he says it was nice to see some reward for the last five years of work and effort.

Additionally, it helps protect the value of the overall enterprise in case something unforeseen were to happen. He wouldn’t be forced to take a lowball offer due to a scarcity mindset. With personal security checked off the list, he can focus on taking the company to the next level. Michael says that the key is to strike the right balance in the deal structure so that an owner can’t ride off into the sunset. The owner should be incentivized to work.

Unlike many technology companies that partner with private equity firms based in major hubs like San Francisco or New York, Michael partnered with a Minneapolis-based firm. As he explains, there was a better cultural fit and he felt a better alignment of interests. He says it’s not just a quarterly board meeting. You are inviting these investors to be a “fiduciary” to your company. He thought of it like hiring another executive.      

Lastly, he shares his two action items for owners:

1. Tax planning – With tax rates likely to move higher in coming years, Michael strongly encourages owners to do their tax planning well ahead of the transaction. Specifically for lower middle market companies, he encourages them to research Section 1202 of the Internal Revenue Code, which outlines the benefits of a qualified small business stock sale and how to potentially eliminate federal capital gains taxes.
2. Assemble your team – Michael stresses the importance of assembling your professional management team, specifically your wealth management advisor, estate planning attorney and CPA. These transactions are complicated and you need professional advice. He also says it is critical that they know each other and are able to communicate with one another openly.

“If it’s going to be worth something to someone else, it has to create value for them” – Chris Yount, former CEO and 3rd generation business owner of Fortifiber.

Hear Chris’s story as he shares how he rescued the family business from bankruptcy during the Great Financial Crisis, revamped the company’s strategic initiatives and led the company to its highest level of profitability in its 80 year history.  As Chris looked to the future, securing his family’s legacy and financial security was a top priority.  He chose to sell the company to Henry Co., a strategic buyer backed by a Private Equity firm.   

In this episode, Chris discusses some of the finer points between a family succession plan and a transaction with an external party.  For example, with a family succession, Chris points out the importance of clearly defined leadership roles for the new management team so it’s clear to employees how they need to prioritize their work and responsibilities.  One potential solution Chris suggests is to consider moving the former CEO to a more remote office away from the main office. 

One of the beauties to family successions, if over multiple generations, is the cumulative lessons learned along the way which can be retained and passed from one generation to the next.    

When it comes to an institutional buyer, Chris says cultural differences will shine through.  For example, a Private Equity firm has a more formal structure and will look at the acquisition through the lens of risk management.  This will cause the due diligence process to be more onerous than with a private non institutional buyer, who is likely looking to be more opportunistic.  The process is much more formalized than with a family transfer.  

Chris strongly encourages entrepreneurs to consider having a board of Strategic Advisors.  These are non-fiduciary members who can push the owner to think about the company in a different manner than they are accustomed to.  Additionally, these advisors can help professionalize the company which will enhance the enterprise value of the business and make it more attractive to a potential suitor.  

Lastly, he shares his 2 action items for owners:

1. Push to professionalize your business: Specifically, Chris encourages owners to ensure their financial record keeping is accurate and robust. Sloppy accounting and financial records will not stand up to the rigors of due diligence when dealing with a strategic institutional buyer or a Private Equity firm.
2. Value Creation: Set the business up in a way that can create value for anyone not just you.

Chris now spends his time consulting with other businesses and writing for Forbes magazine.  If you’d like to connect with Chris Yount, he can be reached via his website at https://www.christopheryount.com/contact.

“Believe in yourself as much as others believe in you” Caroline Connolly, CEO of Optotest – a worldwide leader in fiber optics testing solutions based in Camarillo, California. 

What is interesting about Caroline’s journey is how she transitioned from a minority owner in the business to the majority owner and CEO.  When her business partner died in 2013, there was no formal buy-sell agreement in place. It took several years of discussions and negotiations between herself and her former partner’s family to agree upon the transition plan.  She shares how she had to embrace a variety of risks in order to make the jump to majority owner and CEO.  She credits her support system, specifically her Vistage group, with helping her make the transition.  One of the critical lessons Caroline learned is that a formal buy-sell agreement is mandatory.  Many entrepreneurs understand the need for one but think they will get to it later because early in the lifecycle of the business you need to focus on sales and revenue.  The problem is that owners typically don’t go back and formalize the agreement which puts everyone at risk.   

She shares her perspective on why culture should be a CEO’s number one priority.  At Optotest, the company philosophy is that the customer is #1 but this definition is not limited to just external customers, it applies internally as well - meaning your colleagues.  Her management philosophy of changing the company’s organizational chart to an inverted pyramid is a practical application of the company’s values.  She recommends that CEOs document their company’s core values.  Additionally, set up a platform like regular meetings where staff are encouraged to talk about them on a regular basis.  This will ensure your team feels engaged.

Lastly, she shares her 2 action items for owners:

1. Be in a Peer Group - Use the group as a cabinet or informal board of advisors (assuming you don’t have one). They will help you grow both professionally and personally while also helping you strategize about your exit plan.
2. Read “How to Stop Worrying and Start Living” by Dale Carnegie - Caroline shares how the book provides a framework for tackling challenges she is dealing with in her business and how the process helps make her feel better until she arrives at a solution.

"Get comfortable with being uncomfortable” –Alec Eickert, Owner and Managing Partner of BDV Inspections and BDV Capital Group.  In this episode, Alec shares his story as a Generation 2 owner of a family business and how he navigated the challenges of losing his father unexpectedly who was the head of the family business.

Alec shares why contingency planning is so critical for all businesses, especially family-owned enterprises.  Specifically, he suggests focusing on building transferable and repeatable systems and processes as part of the core operations.  This will ensure the viability of the business.  He also strongly believes its critical for any business that wants to thrive to attract and properly incentivize the best talent possible.  Business systems can’t run on their own and by attracting the right team you can ensure the business continues to evolve over time to adapt to changing market conditions.  This helps to mitigate the “tribal knowledge risk” which is so common in lower middle market family-owned businesses.   

He also suggests owners take the time to play out various scenarios (i.e. if they are not around) and think through the ramifications to the business.

Alec shares his passion for ultra marathon events and how he plans to reach the highest peak in all 50 states.  He applies this mindset of embracing discomfort to running his business.

Lastly, he shares his 2 action items for owners:

1.  Develop the systems and processes early in the business and ensure the team is using the systems effectively. This action will help increase the enterprise value of the company.

2.  Surround yourself with a personal board of advisors and mentors.  This will help keep you accountable towards the success you desire.   

“The single hardest thing for me was being between my sister and my husband.” – Kim Millman, former CFO and 2nd generation owner of Girlfriends LA - a teen apparel mail order catalog company, which she grew to over 200 employees, producing 30 million catalogs annually marketing to over 8.5 million teens and ultimately sold to a NY based conglomerate.  Kim discusses the complexities of a family run business. She later says when her husband and sister didn’t get along - she felt like a human tug of war.

Kim shares how she started working in the family business at age 10.  Both she and her sister were groomed to be the succession plan for her parent’s roles. With her father’s premature passing, Kim found herself as CFO at 23.  She made the strategic decision to pivot the company towards mail order catalogs.  In what she describes as a mind altering experience, Girlfriends LA received over 6,000 calls on the 1st day after advertising in a national magazine.      

Kim shares why intrafamily business succession rates are so low and why it’s so challenging.  Specifically, the impact of time, money and resources has on the future generations makes it very challenging to keep them interested in the family business.  For most families, the future generations simply develop other interests.    

Kim has since transitioned to practicing law specializing in estate planning.  She feels she is uniquely positioned to help business owners since she understands the mindset of an entrepreneur.  She likens it to childrearing and the push/pull of wanting the business to fly on its own versus keeping it all to yourself. 

Lastly, she shares her 2 action items for owners:

1. Think about life after the exit: One aspect that often gets overlooked by owners is what it will be like having to answer to a new owner. Kim explains she had never worked for someone else– it’s a shock to the system.
2. Nothing to do: Having too much time on her hands, Kim struggled with how to fill her time to give her meaning and purpose – until she pivoted to law school. As she says, entrepreneurs don’t do well with too much time on their hands.  She suggests owners think about what they will do in the next chapter of their lives.

“It’s not just a business transaction – it’s an emotional transaction” - Chris Passmore, Managing Partner of Martini Partners - a Los Angeles Based accounting firm.  In this episode, you will hear how Chris led the 2nd generation of owners and how his team navigated the challenges of their succession plan.   

He talks about why identifying the next generation of leaders early on is critical for a successful G1 to G2 transition.  It also requires a real investment on the part of the 1st generation to intentionally provide the 2nd generation with opportunities to lead and put their own stamp on how things are done.   

Chris discusses how he and his team have shifted away from the idea of “Mandatory Retirement” to creating a culture centered around “Mandatory Succession”.  From Chris’s perspective, this is not optional and it has to be part of your strategic plan in order to sustain the long term viability of the company. Chris credits the change in mindset across the firm and wide adoption of succession planning by all senior leadership as one of the main reasons for their success.

Chris dives into some of the challenges he faced in his new role including how he and his team had to overcome fear from his own staff of what this change would mean for them and the struggles some of the G1 owners faced as their identity shifted away from owner to something new.

Lastly, he shares his 2 action items for owners:

1. Establish the buy-sell agreement well ahead of the exit. According to Chris, it’s best to have the economic discussions and other items sorted out well before emotions get involved during the actual exit. 
2. Start developing the next generation of leaders yesterday. The amount of time it takes to identify and develop these leaders is often longer than most owners anticipate.  

“Slow Down to Speed up ” – Margalit Grunberger, founder of Gotcha Covered, an international wholesale linens company which she founded with a close friend and ran successfully for 20 years.  Ultimately, she chose to sell to a strategic buyer in 2016 and move on to the next phase of her life.   

Margalit has since transitioned to a business coach for entrepreneurs where she focuses on the mental fitness and the inner game of business and life.  Her motto is “Coaching leaders on what matters most”.  Often her coaching conversations focus on mindset, communication and emotional intelligence which were critical elements of her own exit. 

Hear how she leverages neuroscience and the understanding of how our brains work to help overcome fear and anxiety which are common during high stress situations like a business exit.  

She shares her story about how stressful the due diligence phase was and the importance of having emotional and mental tools readily available to help in the process.  Specifically, she suggests 1) deep breathing which can alter our physical, mental and emotional state, 2) cultivating self-awareness to question your thoughts, 3) have a coach or mentor to talk to regularly, 4) create a moral support team to lean on and 5) take the time to learn how the brain works and how it will help owners better execute their exit plan.    

Lastly, she shares her 2 action items for owners:

1. Prepare early: One of the benefits to preparing early is that it gives owners more time to plan methodically. She recommends using an exercise called Stop and Start where owners identify 1 thing they can stop doing and 1 thing they can start doing to move their business in the direction of what they want to create.
2. Take care of your emotional and mental state: By creating the space for self care, owners will have a greater likelihood for a successful and enjoyable business transition.

“Do we have the cast of characters in the right seats on the bus in order to bring us the next 2-3 years of growth” - Dan Doran, Founder of Value Scout and Quantive.

Hear how Dan’s unique skills as an entrepreneur, valuation expert and M&A advisor help bridge the gap between buyers and sellers.

Dan talks about how owners can overcome their blind spots which might cause them to perceive specific business risk differently than what a potential buyer might see.  He shares the importance of having an outsider provide their insight/perspective on the business.  For some owners, one way to do this is to consider setting up a non-voting advisory board to bring additional experience, resources and expertise to the table.

Additionally, many owners know they need to grow business value to fund their lifestyle or retirement but aren’t sure how to formulate an actionable plan.  It was this disconnect that led Dan to create Value Scout, a platform that helps entrepreneurs and their advisors more deliberately create business value leading up to an eventual exit.  Specifically, Value Scout helps owners create a measurable plan to correlates each tactical initiative back to the overall enterprise value.  

Lastly, he shares his 2 action items for owners:

1. “Do you have the best team in place?” He suggests owners surround themselves with the best team possible. The importance of human capital can’t be overstated. It’s what really drives the value of the business and owners should look both at their in house and outside teams.  
2. Understand the rules of the game – you can’t fight the market. Owners need to take the time to educate themselves on the M&A process well in advance of a sale. You don’t want to be the least knowledgeable person room at the time of a transaction.