How To Sell Your Online Or SaaS Business At Maximum Value With Mark Woodbury

 

Most entrepreneurs’ exit strategy is selling their business. But how do you sell your business at the best price? Mark Woodbury is the Managing Director at Raincatcher, helping entrepreneurs buy and sell remarkable companies. Today, he joins Bob Roark to break down the process behind how they help clients get maximum value for their businesses. He shares mistakes to avoid and things to prepare when you’re planning to exit and sell your business. Tune in for valuable insight on how to make your life’s work sellable!

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How To Sell Your Online Or SaaS Business At Maximum Value With Mark Woodbury

The big questions are, “How do business owners like us spend our own money, time and effort? How do we grow our business and jump the line that lets us accelerate the delivery of our products and services while being smart about our growth, profits, culture, instilling increased value in our business?” Those are the questions in this episode. We will share some of the answers.

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Our guest is Mark Woodbury. He’s a Managing Director of Raincatcher. Mark, welcome to the show.

I appreciate you having me on.

I appreciate your time. Tell us a bit of you and what got you from there to here?

My background was in finance and I have worked in finance as my first job out of school. I always had an itch for a little bit more independence and less rigidity than I had. Since this is my first job, there is supposed to be some rigidity and you have to earn your stripes a little bit. I learned a ton. I liked what I was doing but I had an itch towards self-employment. They say, “Necessity is the mother of invention,” meaning if you want to start a business and you don’t have any money, you better figure out how to start a business with no money. For me, that was learning the digital space.

It was a very low barrier to entry to do business online, to build websites as a service. At that point, start a website, get into eCommerce with very low customer acquisition costs. That’s what I did. I dabbled around online and figured things out the hard way. Initially, I taught myself a lot of hard lessons. I stumbled and fell many times but this was nights and weekends for a while and I ended up having some success.

I was at the right place and at the right time. That was an easier time to get into eCommerce. It’s much more competitive now. There are a lot of software that has decreased the barrier to entry even further. There are probably 10, 20 times as many merchants online competing for the same ad space as when I’ve got into it.

I’ve got in and got my feet wet into self-employment. I learned the hard way about keeping your books and quarterly estimated taxes. I learned that lesson the hard way. Plenty of stumbles, as you have seen with yourself or potentially your clients. I ultimately ended up selling that. I didn’t know what my next venture would be until I sold that company. Throughout the sales process, that’s where I learned, “This is what I want to do.” I have done consulting at other firms before. I wanted to do consulting and eCommerce. I wanted to do consulting for some supply chains and logistics.

It didn’t ring a bell but when I sold my company, I realized this is what this person does. They understand the M&A process and know who all the key players are. It’s a lucrative space to be. It provides value. It’s fun. It’s very goal-oriented. I’m not racking up hours on somebody else’s bill. I’m working for free most of the time until I close something. That’s how I’ve got into the business brokerage space. I started at my own company with a partner and we had a couple of employees. After a few years, he and I split off. He went to work with his wife on her business.

Fortunately, I met the folks at Raincatcher, which is the firm you are familiar with and the group I’m at. It has been a great transition. I still have the flexibility. Somebody sets their schedule and I run my division. I also have the scale of a large company with processes and made many of the same mistakes that I was making. I have learned a lot of lessons the hard way and now I don’t have to learn the hard way. I’m a part of a much larger organization. We are an Inc. 5,000 company. We are one of the larger business brokerage companies in the US.

You were talking about your eCommerce company. What niche did you finally land on?

We ended up dropshipping equipment. This is still done now but to a lesser extent. You make a sale, and then you turn around and buy that product from the supplier, the manufacturer. We used primarily woodworking equipment but we had metalworking. We had desks and tables as well. We branched out. This is before Wayfair and Houzz. There were some furniture elements to it but we also had equipment. This was before the major equipment dealers had a large online footprint. My partner and I at the time had figured out online marketing before many of the major companies with larger budgets than we had. We sold equipment primarily online.

I’m trying to match what you learned in college and your first job with what you were doing. What did your degree prepare you to do as far as it goes with this?

 

I learned the basics of accounting. I learned that relationships matter. That always rang true. I don’t know if that’s necessarily coursework. That was my life experience. It taught me that. Other than the basics of finance and business management, we scratched the surface of sales and marketing. A lot of it is on-the-job experience. My best lessons have come from stumbling and falling or I have sidestepped maybe some mistakes by observing what other people have done by surrounding myself with people smarter than myself and who have done it before me. That’s how I have gravitated to learning as opposed to a textbook per se.

You went from an employee at an investment firm into a digital marketing space-built company where somebody wanted to purchase it from you. You went through the entire transaction journey. In your next step, were you in M&A, in the digital space, as well?

I had a couple of side projects at various times. Some that went well, some that didn’t. I am with a friend who sold scrubbing brushes at the end of drills. We sold them on Amazon. That was his business that I supported. At this point, I lived in Los Angeles. I took a consulting role at 20th Century Fox. I have seen behind the hood of the Fortune 100s and how they operate.

I’m much happier in a small business environmental setting. That was a fun role to be around that type of corporate environment and to go to work in a 36 story tower on FOX+ every day. That was fun. That was an eight-month. It was supposed to be 6 months but it lasted 8 or 10. We had one project that kept on dragging on. The problem carries on.

I had some different ventures in that time before I’ve got into brokerage. I had the itch to be self-employed the whole time again. Maybe not the masochist of learning all the same problems over. I didn’t want to get back into eCommerce and navigate the supply chain. I thought M&A and being a broker would be a good space, and it was but I had plenty of problems that I had still yet to solve and had a slow start in the brokered space. In my first few listings, I thought I knew what I was doing and it turned out that I didn’t know so much.

This is a lot harder than I thought it was going to be. The buyers don’t come flocking to each deal that I have. That was an issue. I didn’t have a great amount of success in my first year in that business. It took a while to start getting some closes under the belt and that learning curve flattened out as it does in any other career and I started getting a pretty good hold of it.

I think about how you grew up as a kid and you hear about people that take a job or get into a profession, and then he stayed there their entire lives. You think about the folks that take your route. If you had kids, how do you encourage your kids to be an entrepreneur? What did you do to foster or point you toward this direction?

You sidestep some mistakes by observing what other people have done, by surrounding yourself with people smarter than yourself and people who have done it before you. Click To Tweet

They think I’m crazy for going in this direction. They have the steadiest careers as you can imagine. My dad worked for the government. He worked for the Social Security Administration. He took a job with them when he got out of college, and then took any promotion he could get. He worked in Guam to take a promotion with him. He moved to Los Angeles and that’s how he and my mom met.

She was a financial analyst in the Social Security Administration. They both worked for the government, which is as steady as it gets. Meanwhile, their youngest doesn’t want anything to do with a steady career, would rather learn things the hard way and do it himself. I guess you could say I’m hard-headed but it works for me.

In the Rich Dad Poor Dad series, Kiyosaki talks about the quadrants and so on. You think about the folks that are the employees, the professionals, and then you have the other crazy group that goes out in the entrepreneurial space and learns by failing forward. You have a varied career in finance and M&A building, selling the company, helping others and so on. When you are talking to a business owner in the SaaS space or online retail, what is it that you bring to the table that you think resonates with them when you are having the first conversation?

I’m a cut from the same cloth. That wild entrepreneurial have figured out by trying cloth as many of these people are. I was that guy. I had to figure it out. A lot of these people desire to have the freedom and flexibility that goes with running an online business. Some of these people transitioned upon having a family. They chose to leave their job and wanted to be able to work from home. They are working 60 hours a week as an engineer and I would rather work twenty. They buy a business and some people want to learn how to launch a business with low upfront costs.

They learn how to get into digital marketing or how to get into selling products on Amazon. I’m cut from the same cloth as a lot of those folks and can relate to them. I also have the benefit, which many business brokers don’t have, of being focused on one industry. I focus on the digitally native space, be it SaaS, eCommerce or content media websites. I know many of the key players in the space. I have spoken at a couple of conferences in the industry. I know what moves the needle in terms of value with those types of businesses. People find that to be valuable.

For that business owner who’s in the digital space, who’s reading this episode and they go, “What are the value drivers and what things do I need to make sure that I’m doing in my business? What things do you talk to folks and advise them to do?

 

The short of it is making your business as sellable as possible is to make it run without you. It’s a business that you don’t want to sell. It’s the one that’s most sellable because there’s a much larger pool of buyers looking to buy a cash-flowing asset than are looking to buy themselves a job. Millions of businesses out there make $100,000, $200,000 a year but they require an owner to step in and operate. It works 30, 40, 50 hour weeks, which can be done. Those can be sold but the ones that are sellable at a higher price are the ones that have management in place, have operating procedures, and more or less have navigated or grown through the phase where it’s reliant on the owners and the operator.

I think about the difference between a job and a business. When you are talking to the various potential clients that come in and contact you if you could characterize, do you think that those business owners recognize the difference between having a job and having a business or are that something that’s forced on them in the sales process?

Most people, especially in the digital space with the clients I work with, it’s them. They are the artist and this is the artwork that they are selling. They don’t often realize how reliant on them it is. We counsel them up and say, “There needs to be an operating procedure. Somebody else needs to be able to step in and operate this.” I will say that some have learned the work-life balance and have learned the importance of delegating.

Even if that means a couple of errors are made while a new person is broken into a position, it doesn’t have to be perfect. What needs to happen is these people need to learn and you need to build a management team underneath you and be able to step out and work on your business instead of in it. That’s the minority in my view of small business owners who understand that but as they get larger and that becomes a necessity, that’s when owners become more owners, as opposed to owner-operators.

The things that strike me as I think about the various business owners are that we all come out with formal education, typically and the formal education usually has nothing to do with what we are doing. That Organic Chemistry took me out of med school, went through the Army, went through Intel, and now I’m in the finance space, a new world. Those don’t match up at all. When you were running your business, was there a pivotal book, resource mastermind group or influencer that helped you get ready to sell your business?

Was there one that helped me get ready to sell my business? I would say no. I wish that resources were available to me. In terms of exit prep, there are a lot of brokers out there that we say are there for the fireworks. They are there when you want to sell, we sign you on as a client, we sell the business and it’s off our books. I would say it had I come across Raincatcher or a firm like Raincatcher that has an exit prep part of the business or a business coaching part of the business.

The short of making your business as sellable as possible is to make it run without you. Click To Tweet

Somebody to teach you how to keep better financials, how to delegate and build standard operating procedures in your business or how to price your product and service. A lot of people don’t. If the pricing is too low, they don’t realize it. There’s price sensitivity. You can increase your price by 20% and only lose 2% of your customers, potentially.

I would say the management consulting or business coaching aspect has been missing for a lot of brokerage firms. That’s something we incorporate at Raincatcher that is very valuable. I went in blind. Knowing what I know now, I would have done a lot of things differently. I still would have sold because it was very reliant on my partner and me at that time.

It had served the needs that we wanted it to serve, which is get us out of working hard 9:00 to 5:00, trips for night and weekend jobs and doing a full-time job. We moved on to what’s next. In hindsight being what it is, we were not very well prepared to sell and therefore probably didn’t get as much out of the exit as we would have liked.

For the potential business owner who’s attempting to sell or come and go, “I want to sell. Should I sell? I’ve got an unsolicited offer, some combination of that or I’ve got help from them,” I think about the experience that you have had. “I may not be able to do exactly what to do but I can tell you what not to do.” In the business space, do you think there’s a greater recognition that the business owner needs to get a company or needs to look at enterprise value or to look at the value drivers in their particular business? Do you think that’s happening or is it still a vacuum?

There have been polls about this, asking business owners, particularly Baby Boomer business owners, who are coming to the age where many want to retire. Many of them who have wanted to retire for ten years is still unable to. How many of them have a legacy plan? How many of them know what their businesses are worth? The number is shockingly low.

Those polls, I don’t know what the sample size is but I can tell you from boots on the ground and talking to these people, it adds up because a lot of these people don’t know what their business is worth. It’s somebody at a conference who told them one thing, their friends sold for another and they try to put this together. They think they are in a good position.

It’s pretty rare that somebody comes in and has an accurate understanding of A) What their businesses are worth? B) What does the sales process entails? Are they selling stock or the assets of the business? Does it come with cash and working capital included or not? There are some caveats to it that people are uninformed about until they get into the process. It would be nice if people started up to a decade but at least 12 or 18 months before their planned exit to prepare for selling. They rolled up their sleeves and did a little bit of work ahead of time. They will get more out of it when they do finally pull the trigger and sell.

I have talked to other folks from Raincatcher. Some pitch, some can’t but that’s okay. The ones that can’t, we won’t mention by name. You think about what Raincatcher tries to do when you have a business owner that shows up that’s got a good business but it’s not ready to sell yet. For the folks out there that may be in that boat, can you walk us through what those steps look like?

It’s different for everybody. Broadly speaking the steps to get ready to sell or to grow the business to the point where you can hire management and it runs without you, I would say that’s the number one thing that inhibits its owner from selling or inhibits there from being a competitive buying process is it’s still very reliant on the owner. Part of that is the size of the business.

If you run a small coffee shop with you as the owner, it’s somewhat reliant on you to run. It’s never going to be large enough to where you can have a full org chart underneath you, and you step aside, at least not many coffee shops. There’s a market for small businesses out there where the owner is also the operator.

 

If you can get to a point where your business is large enough, where you can step back and hire somebody to run it, that person has been in that driver’s seat for at least a year, that’s a far more sellable asset. Another one is keeping clean financials, CPA-compiled financials with accrual basis or cash basis. It’s having clean books and records. Keeping documentation, articles, organization and operating agreements. These seemingly small documents that you never think will come up. When you go to sell the company, they are going to come up. They think through things like that. They need to.

We try to help folks do that. One thing we have learned and I can’t take credit for it. This has been Raincatcher’s process since before I stepped in but I learned it the hard way. It is to hold the seller’s hand, do sell-side due diligence, ask a lot of questions going into the process and get them prepared for what the process is. If this means we spend 5 or 8 weeks working on the business before we market it, so be it. Otherwise, these issues will come up further down the road and we are going to have a fire drill looking for some documentation. We try to coach the seller up on what’s going to happen and how a transition service agreement works.

If we hold their hand and have some genuine conversation with them a couple of times a week while we are getting the business prepared to sell, our finding is that it makes for a smoother process in close and diligence. Also, if we can authentically present a picture of what that business is to the buyers if we have already turned over all these stones, and we already have answered all these questions while we are doing the buyers’ work for them, that makes it more appealing. That’s what our job is. Part of our job is to counsel the seller on the process. We are in a competitive process to get them the best economics.

You do a fairly robust job of making diagnoses with software than your Value Builder application.

We use the Value Builder System. We are big believers in how that diagnoses the multiple facets of a business that move the needle on valuation. If you have one supplier versus you have several owner alliances, how many competitors are there? How long have you been in business? What do the financials look like as a high or a thin-margin business?

It would be nice if people started up to a decade, but at least 12 or 18 months before their planned exit. Click To Tweet

All these things move the needle, whether you are evaluating a public company to invest your client’s assets in or whether this is a private equity group evaluating one of our client’s businesses as a potential acquisition. If we could show that this doesn’t strong market position, is well-reviewed by other customers, has a durable supply chain, product, and service that is well-liked by the end consumer. That’s a far more desirable asset if we can prove any of that.

As you are out there and around, there’s more than one type of buyer. Do you think that the business owners are well-versed in the range of types of buyers?

Unfortunately, the answer here again is no. In my industry, we often sell to XYZ company. I was at such and such industry conference and this group was there soliciting bids. Another business owner I knew sold to them. That does happen. They can cue us in or point us in the right direction of who are going to be the potential buyers but oftentimes, they come to us for that answer. These small businesses can be worth under $1 million. It’s going to sell to another competitor in their same business model, typically in the same city or an individual.

Some serial entrepreneurs might build a business, sell it, go on and buy the next. They look for multiple ventures at a time. Some businesses lend themselves to the owner-operator stepping out like gas stations and liquor stores. These are not companies that I work with. It’s the digital advice, but those make a good passive business asset that some people own a portfolio of. I would say no. Eighty percent of these business owners think they have an idea but they don’t know who the end buyer is going to be.

The larger businesses, $135 million-plus in annual profit, “We know private equity groups out there or occasionally such and such private equity group has already shown interest. Should I take their offer? Can we run a competitive process? We need some professional handholding to get the deal done. Also, can you get me some competitive bids?” They don’t know the names of private equity groups but they know there’s an investment group, family office or a private equity firm out there that’s going to buy.

I think about the experiences of life. When was the last time you did something well, the first and only time you did it?

It’s one of those things that most people only do once. We are selling a third-generation family-owned business. This will be the only time it has been sold. It was started by a great grandfather. Other people start a business and it is their wellbeing and livelihood for 30 years. They ended up selling it. I will say that my niche is a bit the opposite in that way. Some of these digital entrepreneurs are like me. They are onto the next thing. It’s the shiny new object syndrome.

They sold a product on Amazon and they’ve got it to a certain point that no longer are they jumping out of bed to work at it. They sell that and now they want to start a software business and a web development business. The younger generation gravitates towards doing that. We have trouble staying in one place for any time but also the digital native space where you scale a business more quickly through digital marketing than it used to be just word of mouth marketing or offer a service in a local area, which took longer to reach this critical mass. Most people only sell once.

As you are working with your customers, I don’t know how much of an emotional sale event it was for you but when you are working with these business owners, how do you try to pre-frame the emotional roller coaster of the sales process?

For a lot of these people, their businesses are their babies and it’s probably understandable. If you are a business owner, you will get it. Most of these people have raised their kids in the business. They might own the business real estate. They serve the community and their employees. Oftentimes, our customers are like family. It’s about finding the right fit, a buyer who’s going to take care of it as well.

It is a very important step and we find that trust is paramount in them deciding who they are going to work with and for them to be happy with the outcome. We don’t push anybody. We are upfront and honest about what the valuation is and back that up with the facts, figures that are at our disposal, and the experience that we have.

Oftentimes, questions will arise. What does this look like? What does that look like? They have built it out around their vision and it was time for somebody else to step in. Oftentimes, they have questions about what that will look like. Some of those we can answer, some of what we have to wait until these offers come in, introduce them to the potential buyers, and wait for there to be some dialogue there for the seller to other get comfortable or potentially not with who the new owner is.

 

When you sell your business, the likelihood of that being the biggest check you ever had in your hand is probably fairly high.

I would say it when I was 25 years old and still had student debt, whether you gave me $200 or $200,000, it felt like a ton of money up until a few months earlier that year. I never thought I would have needed more money than what I had at that point. It goes quickly.

It goes with the territory. You hear that 80% of the business owner’s net worth is tied up in their business. It’s their pet, taking care of their family legacy, this, that and the other. There’s that tipping point where the business goes through, the funds are wired in or they get the check-in their hands. What’s your observation on talking to those folks the next day or the week after they closed transactions?

It sinks in usually a bit before then. It sinks in right when they start to get offers. You see that glimmer, excitement or that sometimes second-guessing themselves. There are mixed emotions there but it’s backed by a lot of excitement when they get indications of interest and ultimately sign away from their business. When the wire comes in, they are very grateful. It’s almost a weight off their shoulders. It’s free. You will see people still married to it and want continued success and try to help in any way possible.

They are still very tied to that business, the customers and the employees. In the digital space, these people are already onto their next venture. Before they even sell, they’ve got another venture they are already wrapping up and getting rid of this old one. Out with the old, in with the new like house flippers. These people who buy a home put $50,000 into it and it’s back on the market. There’s not much emotional attachment there. That happens more in the digital space than it would with somebody who runs a manufacturing business for their whole career.

I’m struck by the business that is sold and there’s that sobering moment where your post-sale, where they feel like they need to do something with the funds.

The number one thing that inhibits its owner from selling or inhibits there from being a competitive buying process is it's still very reliant on the owner. Click To Tweet

We try to bring a deal team together with wealth managers like yourself and M&A attorneys. It helps to have good advice all around in trying to build a deal team. Oftentimes, they have a plan for what they are going to do. Some of these more traditional businesses will sell the home and go sell the business. They are moving somewhere that they are buying a beach house. They already have plans in their head on what they are going to do. The serial entrepreneurs who were gravitating towards the digital space roll that money right into the next venture. It’s more about this addiction of building in the next business than feeding a lifestyle.

To model a call, let’s pretend that I’m a digital firm. I have received an unsolicited offer from my company. I’m going like, “I don’t know if this is good up, down, left and right.” The advice is, “I want you to call Mark.” I call and go, “This is what I have going on.” Walk me through your process of talking to some of these guys who have potential offers for their company.

It’s good that you bring that up. We have a client like that now. These are conversations I have had a lot, “It’s somebody who I don’t know what it’s worth. I don’t know if this is a good offer or a bad offer. That’s a lot of money but is that the right amount? Am I leaving some money on the table? How do I sell it? Assuming I want to take this offer? What happens to my employees? What happens to my contracts? What do I need to do to sell it?” That’s a whole other conversation itself. There’s a lot to be done but typically we will counsel them on what is fair market value for the business.

That starts with gathering the financials, understanding their operations and how reliant on them it is. As you mentioned, the value builder assessments. We have some software to diagnose these companies. We also have some candid discussions about how reliant on them it is. How long they have been running it? How clean are the financials, etc.? We will say, “Are you interested in taking such, and such offer?”

Sometimes that happens. People will come to us and they want to work with the people who have already made them an offer. They want some professional handholding to do so and to get the deal executed. Other times people say, “We have 2 or 3 interested parties. Can you run what we call a limited auction?” You will find these three parties, put a data room together and share the business documents. Meanwhile, if it’s a fit for these three companies, let’s try to fill in with 5 or 6 more strategic buyers behind it who could be a fit.

For the folks that don’t know what that is, what’s your data room?

The data room is web-hosted or cloud-hosted specialty software around getting a data room but many smaller brokerage firms use Dropbox or Google Drive where we grant access to buyers who have already proven that they are capable, showing interest and signed a nondisclosure agreement. We will grant that access to various data documents that are stored in that data room.

It’s a place to share financial statements, articles in the organization, an overview of the business, org chart and the employees, etc. It’s an expansive list of documents that go into it, especially with some of these larger companies. We have some that are in legal and financial diligence for several months before they end up closing. That data room gets worn out.

For a lot of folks, colonoscopy comes to mind when you do that process and do your homework upfront and/or know that this was coming. Let’s say you have that particular company and they have maybe more than one bit. The owner is going like, “I don’t know.” What do you do to take in and create more value for them in the process?

We have the benefit of the critical mass and our scale of having a large buyer Rolodex. I didn’t have this much scale when I ran my small firm. If we’ve got an offer, great. I’m trying to massage it, trying to get the financing and put a deal together. You were fortunate enough to work with some larger clients but even on a small deal, we can occasionally get a couple more offers.

We will have a marketing period. Once we prepare the business presentation documents and we have the recasted financials. We call it a CIM or Confidential Information Memorandum. It’s an overview of the business in the industry. We will go to market and that’s about a 4 to 6-weeks process. On market sharing on a confidential basis, the overview of this business and the parties were interested and capable.

They buy into the non-disclosure and we share the data room with them. We will then ask for indications of interest. These people will put forward a formal document. Non-binding at this point but we will put forward a formal document on the price. They can give a price range at this point and terms that they suggest that the transaction happened at.

Do they want to buy the whole thing? Do they want to buy 70% of it and keep the seller in place for some time? How much cash? How much debt? How much equity is going into the transaction? We will get anywhere between three of those. We’ve got seventeen for a business that one of my colleagues did. It’s ultimately selling to a private equity-backed strategy but we typically get some indications of interest.

We will discuss those with the seller, with our client who we represent and we will shortlist a handful. It could be 3 or 6. We will have discussions with them about where their offer comes in and not what would the seller like to see. What would make their offer more competitive? We will have a two-week process where we will introduce the parties if they haven’t already met. We will do a meeting in person.

 

The buyers are going to fly out to wherever the business is or where the seller is. We will fly out there as well. We mediate. We meet over lunch and go over the business. If there’s a facility, we walk through the facility. The buyers will ask any further questions. This is going to be somewhat of a partnership moving forward for at least a time.

This might be a prolonged transition where we don’t leave you the keys but we are working with you for 6, 12 months post-close. We want to make sure that all parties are going to get along. They would all want to meet one another and make sure their investments are safe in each other’s hands. In that process, we will do that with each of the selected parties who submitted an indication of interest.

We will then ask for letters of intent, the best and the final offer. We will give them guidance, “The seller liked this about your offer but they didn’t like this. Can you maybe change that a little bit?” We have a letter of intent and that outlines what the deal terms are going to be. At that point, we will move forward with one. The buyer and the seller have to agree on price and terms, and we will move forward from there.

In the world of earnouts, I don’t think there are very many deals that go without an earnout somehow. You could have an elevated offer with a bigger earnout and a slightly less priced offer with a smaller earnout. Do you find yourself negotiating and saying, “Here’s compare and contrast?”

Yes, that’s one of the caveats. How much do the sellers know when they go in? They know they want more and they know they want cash at close. They assume like a house. I get paid for the house. I leave the keys under the mat. More variables go into this. The buyers are going to ask you to stick around for some time. There might be holdback or an earnout. It’s tied to you staying back or around the business’s performance during that time. Some might have a lower percentage of cash paid at the close but your total compensation could be much higher.

Most people only sell once. Click To Tweet

Some, especially private equity groups will buy say, 80% or 90% of your business. They want you to keep a piece so you are continuing to assure the business success, although on a more limited working capacity ongoing. When they go to sell it again themselves in another 4, 5 or 6 years, they are giving you a second bite of the apple because you still own 10% of that. You get a second exit down the road, which a lot of sellers are enticing buyers like that. There are some moving pieces to an earnout. There’s a holdback that often goes into these deals as well.

One of the unique characteristics of your company is you have the depth of field, the people on the team. Marla has been a Fractional CEO for hundreds of companies. If you look at Cam Bishop, I don’t know how many companies they have been through. We talked about Gary Wofford in the franchise space and I don’t think that’s common.

We have the benefit of being a true team. A lot of companies say that we mean it. If I had a question about franchises, which I would, I don’t know the first thing about how to orchestrate in launching a franchise. Gary has got twenty years of experience in that. What Gary doesn’t know is anything about online marketing. He can rely on me for that. I’m working with a colleague whose background is in investment banking. He did risk management at a Big Four accounting firm.

He’s another one of our Managing Directors. We are working on a deal together. That’s an eCommerce business. I know the business very well but I have never done a recap of an $80 million company but he has. Collectively, we are uniquely well-positioned to service a lot of companies. You mentioned Gary’s expertise with franchises, the accounting background. Some folks on our team have manufacturing expertise. We are covering that in investment banks. Cam did leveraged roll-ups for KKR, which is a huge private equity group, publicly-traded. We have a robust experience on our team and are humbled to be a part of it.

For the business owner that’s going, “What makes you different or better? Why should I call?” My broad sense is that if you are the business owner reading this, and you are not sure, make the call. That’s one of the things I have noticed. If they want to find you, how do they reach out to find you on social media?

You could search Mark Woodbury of Raincatcher on LinkedIn. You will be able to pull me up. You can find me on Facebook as well at Mark Woodbury. You are welcome to add me. I have been active on LinkedIn. I’m fortunate to be focused on your show. I have been on a handful previously, so I should try to stay very active in those communities. I have been part of a couple of other professional networking groups as well, which have been great but LinkedIn is probably the best way for these folks to get ahold of me or Mark.Woodbury@Raincatcher.

We talk about the business owner that comes to you who is ready or the business is ready to sell and it goes to sell well. There’s that other business owner that’s not quite ready yet. You have started trying to address this challenge or a deficit in the marketplace. What do you do for that business owner who’s 2 or 3 years out from sale and needs some training or help?

This is a lot of credit to Marla, our CEO, and as well as Jason for having the foresight to not just be a transactional company but to be these small business owners or mid-sized business owners, trusted corporate finance council. We have a coaching arm of our business and we are very fortunate to have Susan Frew who’s local in the Denver area as well to run our business coaching team. She has a whole roster of coaches under her with expertise in various fields. A colleague of mine who’s an expert in the Amazon space, Scott Margolis. He’s doing work with Susan in helping these business owners plan for exit.

Other folks with expertise in finance, team building and marketing. We try to help these business owners shore up whatever part of their business is lacking. Instead of putting it on the business now and selling it for whatever it gets, “Let’s help you shore up and soft flight your business. You have been running this for 25 years. You can make this 30%, 40% more valuable if you work with us for another year and a half.”

Most of the time, people are going to want to make that investment and put off retirement. We are going to get an extra 30% for our business by making it more sellable, by putting in an extra strategy in a place like keeping, cleaning up our books, and cleaning up our financials. That’s what Susan and her business team coaching team are great at. We are major advocates of not selling your business to retire and investing with a wealth manager but in prepping for that process ahead of time.

Given all the changes in the tax structure that may or may not be coming depending on whatever, picking up an extra 30% or 40% sales. What you thought you were going to gross, you will net by the big price. That’s a benefit. The folks that I hang around with go, “The standard common is you have to have good financials.” You go, “I should be taller,” but at the same time, do you understand your financials? Do you know where the value drivers are? Are you pulling the right levers? Do you have client concentration risk? A lot of the things that are normal vocabulary for you, for a lot of business owners, you go, “Do I want to take a low margin, a big client order or do I want to have diversified orders from multiples?” That’s an interesting question to bring up with you.

 

If you have one supplier relationship, that’s great. That supplier has always been able to deliver for you but do you have a backup plan? It can’t go to zero if the supplier shuts down tomorrow, which we have seen in COVID, unfortunately. Another one is service companies. In your service business, we see accounting CPA firms. I have worked with digital marketing agencies in the past and I’m fortunate to work with a lot. I’m hoping to onboard one here in the next few weeks.

It’s the businesses that have personal relationships with their clients. Ideally, you get to scale where you have a team. You have some people under you who you can have responsibility for the majority of that relationship. They could still know you and come to your company parties but their account manager or point of contact will be an employee. The sales rep are not the owners’ relationships because that makes it far more difficult to sell if these clients are sticky. I’m dovetailing again to another aspect that makes these companies sellable.

The thing that strikes me about all of this, I’m a fan of business owners. I wouldn’t have the show or I wouldn’t own a business myself. I’m fascinated by the courage and gumption that business owners have and how they decide to get in one thing or another. Yet, at the same time, the deficit in what they know about value drivers because having a business ready to sell is good business. You don’t have to have it as an event at the end of your business to the time doing it. Part of the reason why we spend a fair amount of time with Raincatcher is that I know the principles well. What Raincatcher brings to the table is a business owner-centric ethos. It’s not saying that, it’s watching what you do.

We certainly strive to be of service to the small business community. Our tenets, our core values are that business ownership is the American dream and we are here to serve that community and those folks. We work almost exclusively with an entrepreneur or family-owned companies, whether they are 1st or 2nd-generation.

We consider ourselves to be their protectors when they step into the world of private equity groups and corporate finance. The people who know more about the M&A process than they do. We think of ourselves as an added service in that community when they go for and in all likelihood be by far the largest transaction of their life. They capture that value that took them three generations to build.

Which is back to the comment early on, when’s the last time you did something good the first time you did it?

I almost wish everybody failed at selling their first business, a lemonade stand, right off the bat so they could understand the process that goes into it and come seek counsel the second time.

There is nothing like getting beat up in route to take and give you some perspective.

We see it from some people trying to sell the business themselves or work with some inexperienced advisory groups, which may come back to us six months or a year later. We never fully count those out when they try to do it themselves because there are a lot of questions that are going to come up that we are here to answer when they do.

To bring this to a close. For the business owner who’s trying to get a general idea, you have a link on your website where they can go through the Value Builder process, correct?

Yes. We have the Value Builder software, which for folks who are interested in where their business stands, it’s completely free to use. They can go in and test out on these various value drivers. How does your business score? If you were to make some adjustments, what would increase your business’ salability score? What would that manifest itself have in terms of a sale price? How much more money would you be able to get if you could tighten up your accounting if you can get a second supplier in place, limit that concentration, etc.? It’s fun for a lot of these business owners.

We talked about many of them are not prepared. I find that the ones who dove into this process early and take a liking for it are the ones who will have a successful exit, 3, 5, 10 years down the road, people who are preparing with this in mind. I spoke to a woman at a conference who was reading up all about it. She bought every book she could find about exit planning and she had a bunch of very well-informed questions. My thought was, “This is going to be a good one.” We are staying in touch with her. This is going to be a juicy one. This is a very sellable deal because she knows what she’s doing.

Some days you come into work and for the folks in snow country, it’s like having your brace on at night in a snowstorm because there are tons of snow on the windshield. With that thing in place, you can start to prioritize effort and measure improvement down that road. Small percentages here and there add up over a short time.

It’s an adjustment for a lot of business owners to make for delegating or changed from knowing their business and how they get all locked away in their brain and documenting the operating procedures. That’s what makes the business transferrable to another.

Mark, this has been a joy. I appreciate your perspective and insights into the digital SaaS space and the fact that you have been around the track building and selling a business. Working in the industry has been a real plus. I appreciate your time. Again, for the folks that are looking to find you, they can find you on LinkedIn. They can also find you at Raincatcher.

Feel free to reach out. I appreciate you having me on.

It has been a joy. Thanks for the lessons.

Important Links:

• Raincatcher
• Rich Dad Poor Dad
• LinkedIn -Mark Woodbury
• Mark.Woodbury@Raincatcher
• Value Builder System

About Mary Woobury

Mark Woodbury serves as Managing Director of the Raincatcher Digital Division. The Digital Division is dedicated to assisting successful entrepreneurs through the nuanced process of evaluating and selling their eCommerce, SaaS, media website, marketing agency or other digital service business.

Mark jumped on the opportunity to join the Raincatcher team and assist in building out the digital division after cofounding and acting as the CEO of a boutique brokerage firm that worked exclusively with digitally native companies. Mark has been a guest on a handful of podcasts and conferences to discuss everything from the nuances of selling an Amazon business to how business owners can mitigate risk with content websites and prepare them for an optimal exit.