Welcome to the maximize business value podcast. This podcast is brought to you by mastery partners, where our mission is to equip business owners to maximize business value so they can transition their business on their terms. Our mission was born from the lessons we've learned from over 100 business transactions, which fuels our desire to share our experiences and wisdom so you can succeed. Now, here's your host, the CEO of mastery partners, Tom Bronson Hi. This is Tom Bronson and welcome to maximize business value podcast for business owners who are passionate about building long-term sustainable value in their business. This episode is part of our series called tales from the 17% club, as I've said over and over again, a full 83% of attempted business transactions fail to reach the finish line, meaning that only 17% are successful. In this series. We interview people who have successfully sold their businesses. We call them the 17% club to learn more about the process and to hear some interesting stories along the way, you won't be disappointed today. So in this episode, I'd like to welcome our guests, Stephen van Owen, former CEO of track, what matters, which we rebranded as rhino fleet tracking a business. He and his investors exited in January of 2020. So here's how our paths cross turnout turns out that the original investors in Stephen's company were the very same people who had invested in one of my businesses back in 2001. In fact, the first time I met Steve was when one of the lead investors in that business asked if I would talk to him as a potential CEO candidate and investor in one of his other businesses. And I remember it because I was on vacation at the time, and I stood in a parking lot talking to Steve while my family was shopping. So our paths crossed again at business owners, ed, the nonprofit organization that you've heard me talk about on this show after he sold his business. And I immediately begged him to come on the podcast and share his story with you. So here he is welcome to maximize business value, Steve, Well, thanks Tom. Glad to be here. I'm so thrilled that we're able to do this. Now tell us about track what matters or I guess you were more commonly referred to as rhino toward the end, but tell us about that business that you sold in 2020. Sure. So I mean, if you give the elevator pitch kind of piece of it, what we really did was fleet tracking. A lot of times when people think of fleet tracking, it's more the over the road, long haul trucking kind of thing. And that really wasn't us. It was more small fleets, local fleets, more than anything else. So think plumbers, electricians, you know, pool service, things like that. So it was really, you know, if you think about a primary service we provided, it was for business owners to know where their guys were, how long they spent there, where they actually doing what they said they were supposed to do, which obviously created labor efficiencies, fuel efficiencies, all that kind of good stuff. So a SAS business that we built up, you know, it was kind of a, to me in a, in a lot of ways for me having come out of what I call seven and a half years of hard time at Verizon in the, in the big, big corporate life, I exited that I was managing, I guess, 45 developers in nine cities in three different countries. And wasn't having a lot of fun doing that. And so, you know, if you think of the Genesis of what track, what matters became, that was really a, Hey, we're doing something from our angel, this group of angel investors, and you want to come try and build this thing. And so that was kinda my early start. And then, you know, we had to get good at, Hey, you actually need to now sell this product because the guy that was going to sell a product, he's not actually staying around. So go figure that out. So I kind of had a unofficial MBA in the real world that I wouldn't trade for anything, but that's kind of the Genesis. And then we built that up. Yeah. I don't want to get too much. I know you've got questions on the actual sell process and that sort of thing, but you know, we built that literally from zero, no customers whatsoever and then got to break even after about two and a half years. And then kind of, I'm going to say Peter Long continued to grow, but at a, at a relatively slow clip, wasn't enough profit in there for anybody to get rich. And then we've kind of figured it out at the end of 15 and had a nice hockey stick at that point. So that's kind of the real short of it. What, what did I leave out that you want to know about? Oh, no, that's a, that is a lot. I mean, that is, that is a greatness, you know, you've, you've told us a little bit about what the company is and what it does. And of course I know all these investors that you're talking about and, and really good folks, and actually had David hammer, which is one of your investors on our podcast. A couple of episodes ago, a couple of episodes before this, we went so long talking about business transactions that, that we had to break it into two podcasts. So, well, let's, let's talk now that we know a little bit about the company, let's talk about the exit strategy now. Of course, I know your investors. So I'm guessing that they were pressing you from perhaps day two for an exit. I know what that feels like. Right. But did you guys have an intentional exit strategy or did ultimately your transaction fall in your lap? Yeah. So, you know, day two, did we have an exit strategy? Not more than, Hey, we are going to exit, right. And that's one of the things that always told people on the other side. And especially when I was integrating with the other company that the PE group bought it, same time as ours is, look, this isn't my baby. It was something built from day one with the intention of selling. Now we wanted to do good in the world and that sort of thing, but it, it absolutely had the intention of selling. So when you got to X's strategy, you want to kind of know the story behind there about when we got to middle part of 2018, I really started to have the itch if you will, or the, the thought process that, gosh, I want to sell a 19 because I don't want to sell in 20, which was an election year. That was my motivation behind it. And so introduce the idea. We actually took the board to a ended a board meeting in Napa. We never paid our board. And so it was kind of a thank you trip with our spouses and, and really introduce that idea then. And then we got some confirmation evaluations and things like that as we entered early 19, had some people that were really in the industry, some bankers and things like that, that, that really confirmed that that would be a good idea. And so I think it was kind of March of 19 when we said, yes, we're going to sell and we are going to hire an investment banking firm for that process. So, so from that standpoint, we absolutely went on the market very, very intentionally. So you, you had a timeline in mind, I guess that was, what did you say the middle of 2018 when you had your board meeting in Napa? Is that, Yeah, so it was, I'd say September, it was September of 18 that we had that conversation and really that conversation was just, Hey, I, and my partner that was with me in the day-to-day operations, we had both agreed obviously before that meeting that, Hey, we were going to say this that, Hey, we think 19 is a good time to sell. And, and there's some other stuff that went into it, you know, if you get into the Y, which I think so, I want to know what, what, what made you decide that it was time to think about selling the business? What, you know, what gave you that edge? What gave you that desire? Yeah, so, you know, obviously the, the, the pay, the payment, the bank account moving, that's always one. Right? But the other piece was really, I was constantly, and I'm sure a lot of, a lot of listeners are getting these once a week. Once every couple of weeks, somebody calling often, they're the pay. Would you like us to bring you some professional management, you'll sell your business and we'll bring you professional management, which my partner was always insulted by, but yeah, we were getting those, but we were also getting really legit PE firms that were calling and asking questions on a regular basis. And some of the markers that have been there in terms of 10 million revenue, 2 million EBITDA, that sort of thing, those just kept coming down. Right. And so now when you had a little less revenue and we were getting real close to those numbers anyway, but as those markers had just come down from the PE guys, there's so much money sitting on the sidelines, so much opportunity and the P groups who were realizing that, man, if I can get them even lower than that, and I can, I can actually put a little into them. Then the return on that is, is very outsized. And so that was coming from that standpoint. But then also, and again, you know, our investors and my board, for the most part, they SAS business really wasn't their historic business. And they'll tell you that. And so we were getting into this little bit of a battle and it was a business battle, not a personal battle over, should we be going after net, net revenue or EBITDA, or should we be going after growth more? Right. And so we were on the front of my partner and I inside the business saying, man, we've got to do everything we possibly can to fuel the growth within reason within good economics. But we need to push that hard in our, our board was, was much more the man, you just need to show him how much he can put on the bottom line. And so that just became a challenge over time. And it was just a little bit of, you know, and sometimes it's almost like I liken it to a little bit like a head football coach or something like that. Eventually the message is just, it's not getting through the team. And it's like, all right, well, it's probably time to change your head coach doesn't mean the head coaches bad doesn't mean the players are bad. It's just, it's, it's about time. And so I think all that makes together, you know, really kind of came to that because what my partner and I really wanted was man, we wanted to see how far we could take this. And we were in that let's grow. And the investors had been in for eight, nine years, 10 years, something like that at that point. And so it was really kind of, it was maturity and time. And so it all kind of played together. Oh, it's funny. I think until you brought that up, I hadn't really thought about that. The whole growth versus earnings of course, earnings is wildly important. Now, most businesses transact on a basis of earnings. I know that you guys did. And then we're going to hear more about that shortly, but the, one of the rules that I've always used, especially in a technology company and you guys really technically we're a technology company. Right. And so, you know, I use the rule of 40, which says that that growth and earnings added together, percentage of growth, percentage of earnings added together should equal 40. And if you can grow at 40% or more, it's okay to not make anything to the bottom line, because it's clear that you're, that you're offering the sacrifice of your earnings to get the growth. And the other side is also true. Once you stop growing, you know, or if you're growing at 10%, well, you better be taking 30% of the bottom line. Right. And so, so I think that you guys, I would tend to agree with where your, your assessment was in that, that, that you all probably weren't quite to what a term that I actually got from one of your investors. And that's the harvest mode. It's when you kind of reach a plateau and then you can harvest the profits, but it sounded like you had a good opportunity for growth. And you're right. When, when you don't see, I die, I've actually sold a business at one point because I didn't see eye to eye with the, with the investment group that, that had it. And so it was time to move on, even though there's more to be done, time to move on. And so I, I thoroughly respect that. No, it sounds like you stuck with your timeline. You said you wanted to close at 19, but I know you closed in January of 2020 say you're feeling pretty good that you guys really stuck to the, to the predicted or desired timeline, is that correct? Yeah. Yeah. It was literally January 2nd of 20. So it was as close to 19 as we could get Very, very commonly referred to in the M and a industry as December 32nd. Right. But actually, there's, there's some good news about closing in January because then the taxes are not going to be due for another, you know, 15 months. Yeah. And if you, if you hit a COVID year, it actually takes you to 18 months. So with these mentioned, so it's just awesome. It was market timing. You guys knew that COVID was coming. And so, so, so tell me about your transition team. You hired an investment banker. Did you guys go out and interview a bunch of investment bankers? Because as you say, I very commonly hear and I was the same way at Granbury. I'm getting a call every day from an investment banker, either investment bankers or private equity firms that, that were, you know, just ringing me off the hook. And by the way, if you're getting those calls, don't think you're anything special. You're a number to them. And, and just because they're calling doesn't mean they're a serious buyer because at the end it's going to be one buyer. Right. And so, so I just want to clarify that for our audience, but did you guys intentionally go out and interview a bunch of investment bankers? Or how did you go about this? Yeah, we did. Let me make one comment on, on your, on your last deal about the people that are calling into you. What I would say is if you're on the other side, use it for some learning, right. Go ahead and take some of those calls, learn what they're looking for, you know, share what you're comfortable with. Don't give away the farm. But that was, for me, that was a huge part of my own education was just going ahead and have them a conversation. Hey, tell me what you're looking for. Tell me where the, because that was part of where I got to understand where the numbers really were starting to come in at. So, And I thoroughly agree with that. I, as I tell everybody, I was getting those calls, you know, three or four times a week. And I talked to all of them, you know, my rule was I'll talk to him, I'll give anybody 30 minutes. Sure. And, and you're right. It's like getting an MBA when you have that. So I'm glad you, that you mentioned that point. So, So on the, on the investment banker side, yeah. I went out, I was tasked with it in the beginning and then the board kind of took it over after a little bit, but I did initial research. I, I grabbed one of the ones that had called me and then another, that I'd been introduced to, from one of the local guys with Silicon valley bank that I'd talked to a couple of times and then propped up another one that I literally found through a blog posting. And I had, I'd gone out and searched, you know, SAS, investment bankers and something else. Right. And searched some different ones looking for really kind of boutique firms. Right. And so ended up in that process, meeting the group that's out of Birmingham, Alabama of all places that, that ended up being who we went with finally. And there's a story around how we got there. But so actually, David hammer that you mentioned, he kind of took a lead off of, you know, from me in, in whittling down some more, I think he looked around a little further, but he ended up, we ended up landing on those three that had kind of brought to the table. And then what we did is we brought them all in, you know, have a couple of calls here and there did some, you know, obviously they got to do some calls with us and the management team and they were allowed to prep some stuff. And then we had, I think two or three days literally rented a room at DFW airport. They were able to fly in, we had lunch and then they came in and they all had a prep book for us, told us about the market, told us about the industry, you know, basically told us all they knew. Right. And then at the end they always waited until the end. They gave us the range of valuation that they thought we were worth. And so two out of three were pretty close to the same one was considerably less. We didn't, you know, and they were really our third choice prior to, you know, kind of getting to that valuation. But they were, it was just very different. Right. It was kind of the, I mean, quite frankly, they were the New York, New York company and then we had Alabama and then we had Colorado. Right. And it just, the New York guys felt like New York guys. And then the Southern guys felt like Southern guys. Okay. It was the New York guys would not play well with some of your investors. I know It would have been funny. Yes. It would have been wildly entertaining if nothing else. Yeah. So anyway, the, and really, if there's a one or two learnings in there, we actually picked one group first and really almost the entire board did, except our chairman. He, he picked the other one and it was really like I had, I actually had a scoring system on my own. I had a bunch of questions and I was scoring everybody on the question. I just wanted some kind of systematic way other than gut-feel. And so in that if, if number two was an 85, number one was a 91, kinda, it was, it was right there tight for me. And then the rest of the group I think was really kind of the same thing. So we ended up at the end of the board meeting, picking, you know, after the last group presented, picking who we, and then I took my family on vacation. Right. We'd worked up to this, Hey, I got a week off. We're not going to do anything in that week. And so then I start to get the calls that, Hey, we got their engagement letter and it was 30 something pages. And they were documenting every way. They'd gotten screwed over the last 30 years. And they were preventing that. I that's, the way I read it right, is that they were just, they'd put in clauses. Like, man, if you guys quit us and you sell within a year, even if we didn't bring you them to you, we still get our commission. I think just really owners. And so obviously we went, Hey, we can't do that. Went to the other guys, the number two group, which is the group out Alabama, couldn't be happier. There's was like five or six pages. It felt like a partnership. And it was really, really great from that point forward. Now the, the breakup with those other guys that wouldn't real clean, but you know, we didn't hadn't signed anything. We just verbally said, Hey, we plan to go with you, send us our letter or send us your letter. And that's kind of how that played out. But I, I imagine that there, there was some fairly strong language going back and forth. But as you said, since you guys hadn't signed an engagement with them, I assume that they didn't threaten the legal action or anything against you. Certainly not, certainly not. It was just a verbal at this point, we pick, you send us your engagement letter. So the big learning from that is when you're talking to your IBS, before you even get into that next step, Hey, send me your engagement letter, a sample. I want to read through that before we even get going much further than this. So that's, that's certainly my new wisdom on the other side of that is let's do that first because, you know, Hey, before we start dating too long, let me see the prenup, right? So, Oh, that's a, that's a brilliant strategy. I'd never really thought about that. And not, not one that I had used before, but I will add that to my bag. I think that's some great, great advice. Now, clearly the one that you chose, by the way, you know, you said Birmingham of all places, I love Birmingham. I think it's a wonderful town and any of our listeners that are in Birmingham, then we love you. So, but it is an interesting place for a business like that to be based. And so in fact, one of the, one of the great banks and I think it was a bank south or something like that, south bay, I can't remember the name of it, but, but a great bank that was courting us in the early days of a, of another transaction that I did when we were rolling up a, a distribution business. But so I spent some fun time in Birmingham. It was a, it was a great place now. So the group that you chose, did you know, what role do you feel like they played and shepherding you through the process? Sure. You know, and often IBS are kind of equated to a realtor except they do a whole lot more work than any realtor I've I've ever met. No offense to my realtor friends. Right. But I mean, literally it was everything from, you know, interviewing us to begin with, which of course they'd done that before this meeting. And so they knew a whole lot about us. Then we had a few more calls. We flew into their office, been a half day or so with them to prepare it, to get to the point of preparing a teaser document. And then they queued up. I was just looking at the numbers this morning. They queued up 184 potential buyers, a mix of strategics and private equity for us. They contacted every single one of them after they sent out this one page teaser. And of course that was code name. Nobody knew who we were yet, all that kind of fun stuff. And then, then they helped us put together the sip or SIM confidential information, memorandum or presentation, whichever you want to call it, which then I think that's like 40 pages or something like that. 33, I guess. So looking over here. So they helped us put the, and really they put it together. We give them data, we gave them information, but they really made it pretty. And, and that allowed us to keep some of our job actually work on some of what we needed to work on in the meantime. But they have, you know, one of the great things, actually, this group pulls a lot of old miss Alabama, Auburn kids, and, and really, they do a fantastic job, right? You got some really smart Vanderbilt kids that are coming in into their groups. So they did all that. And then they actually, I mean, week to week, I was getting updates and we, we, as a group were getting updates on who was still interested, who wasn't, why weren't they interested? What did people like? What was that feedback and their conversations that we're having. So we were really seeing along the way, you know, what that level of interest was, you know, in essence, if you want to equate it to the real estate deals, how many showings did we have? What was their feedback, all that kind of stuff. And so then we got to idolize or indication of interest had had many of those. I don't remember the exact, That's what I was going to ask you. Another 180 4, how many of them gave you an expression of interest or, or a indication of interest? Yeah, So I think it was in the 20 range on that. And then, and of course they were all over the place. And then as we got down, we whittled it to six that we invited him for management meetings. And so that part of the process was usually they came in for dinner the night before we recapped a little bit driving. So, and in fact, the IB flew in for all these meetings. We held them rather than going to these guys. We had a central location where we did the actual meetings. The couple of principals from the investment banking firm came in and they met with, met with us usually before dinner. Then we went to dinner, we kind of recapped what, what we all thought about the group there. And by went home, came back and had a four to six hour management meeting where we went through another deck that included a lot of what the SIM did, but it also had some, you know, we dove deeper into some other things in that. And then he restarted all again. I literally would go finish one of those meetings, go home, take a nap, get a shower, get ready, and then go redo that for six meetings. And, and I think we spread six meetings over two weeks. And for me it was a blast, but it was tiring because you were on, you were on at dinner, you were on in that six hour meeting. Heck you even the bathroom break you're on because you're actually having a conversation. And then you're finally running to use restroom and come back. So, but to me, that part was a blast and they really walked us through that whole thing. That's awesome. And a good one. We'll do that. And so, so then you had those management presentations, by the way, did your board participate in the management presentations or was that just you and your partner? No, certainly not. That was me and my partner. You know, I would equate that to taking your parents on a date with you. Sure. Don't want to do that. Yeah, you're right. I mean, there were fully exiting, you know, might be a different story if, if your board had operators in there, you know, people that had been along along the ride, but I think it would have, and in the IB agreed that it would have greatly decreased our value if they came along and were part of it and they, and the board honored that it was a little tough for some of them, but they honored it. No, I think that, that's a, I think that's a great strategy. So you had the six management meetings then out of that, how many letters of intent did you get? We ended up, I think we had five LOI. Okay. So one of the six dropped out after the management. Oh, the six dropped out altogether. The w we really had to clear runners at that point. And, and so they were, they were neck and neck and total valuation, but terms, you know, one was clearly better than the other. Unfortunately that was the one that we preferred anyway. But you know how you got to the execution and the final valuation with the second one, just wasn't near as clean as the first one for our investors or for my partner, me and we had another equity guy that continued on No, that, that makes a lot of sense. And so you, you narrow the search down and then you pick the one that you're going with and that's when due diligence starts. Right. And so, so how did I, we've written a blog and I did a, a podcast on what I call the dreaded due diligence process. How did your due diligence go? And did it add value or take away value from the sale if you had the re-trade conversation? Yeah. Yeah. So to answer the last question, there was no value change whatsoever. No kidding. That's awesome. Yeah, they, and, and for a couple of reasons, one, one of the things that we didn't come, it was just a flat, here's what we're interested in paying versus a, we will pay you X percent of multiple. Now. That's how they got there to begin with, but it was just a, Hey, we plan to pay you X. So we didn't have this deal where we could artificially inflate something in between or anything like that. That's where we're going. And so, you know, it was, it was pretty much that. And then one of the things that, that I told the IB upfront, our board certainly told the IB upfront, and I even had a chance to tell the PE guys in a conversation kind of offline, look, this group will not retrade. Yeah, they're okay. Walking away. And, and really the nice thing is I was able to put that on the board rather than being me who would go forward. And, and of course the investment banker was obviously able to do that and separate me and my partner from that part of the conversation. And it's part of the reason that we had the board handle a lot of this stuff. And I think very wisely, they insisted on it, but it allowed us to have this cool separation, you know, whereas, you know, we were at least able to say, look, we don't have the votes to pick. You are not picky. We don't have the votes to finish this deal on our own with or without. So you gotta, you gotta take care of our investors. And, and I liked that part. I wanted to be honoring to our investors regardless, but allowed us to play a really cool kind of kinda middle ground, if you will, to, we were on the same page probably as our investors, but we knew we were going forward. And so we were kind of on both sides of the fence and it was kind of better not to, not to have to tow the hard line ourselves. Yep. That's brilliant. Now, without giving away any numbers, ultimately your transaction was not based on earnings, correct? Correct. So we were a, a multiple, really multiple recurring revenue, mainly because we were high 90% recurring revenue. We had a hardware component. So in the fleet tracking space, you need a piece of hardware that goes into the vehicle, and then you have the recurring monthly revenue for the service piece. Right. And so really, even though we were growing at, we were adding more than 2% a month, two and a half, 3% a month in the last year. So I think total growth of annualized recurring revenue in our last year was 38% the year before was 48 the year before that was 69 and 70. And so we had this really great. So you talked about rule of 40, our exit rule of 40 was 56, which was awesome. And obviously if you look back at prior years, it was 70 plus in some of those years. So really good stuff from that standpoint. But in that SAS world, now don't expect to be sold off a multiple of EBITDA. And in fact, you know, again, without giving the numbers and we love David hammer, who's the, you know, really awesome conservative sales guy has historically reported off, you know, sold off EBITDA and a multiple of EBITDA, which may range from six to 8% or eight times in there. And so I've actually got these cool little rock glasses that I had made for our, for our board and on the back, it's a little 35 X, which is just a little nod to David. Cause that was, that was a multiple of EBITDA in essence for what we were doing there. That's brilliant. That's the Fine. Yeah. And that's, and that's very rare, you know, I just, I want to point out for our listeners that, that, you know, 98% plus transaction of, of all transactions are based on earnings and David's not wrong when, but occasionally you, you find this great opportunity, like what you guys had and you sold on a multiple of recurring revenue. And I think that that's awesome. In fact, I wish I'd met your investment bankers before we sold it. I can only imagine at my last company, which we sold just two years prior to yours in 2018, it was also a SAS company. I wish I'd discovered your investment bankers before we did that. One last thing before we take a short break. And that is how many employees did you have when you actually sold the business? 31, if I remember right. My number correct. And, and how did the team react and, and how did the transition affect them? So, you know, from really, probably the two to three years before which obviously with high growth, we had higher employee growth rate in that period of time. I started telling internally if I hadn't told them already, but certainly new hires, Hey, we are a company that's high growth with the intent to sell it some time, if that scares you. You're probably not in the right place, which, which I loved because, and I still interviewed everyone. And that was kind of my deal. I wanted to be the last in the list and yeah, Hey, don't bring them in my door unless you really, really like 'em. And, and that sort of thing, but I'd always ask two questions in there. You know, one is where we consistent did our entire employee, all these five or six people you've already talked to, were we consistent in our message and what we talked about? And then the other piece would be, Hey, we plan to sell. Are you cool with that? You know, because the other side is probably great opportunity, but it also has some risk. And so if you fear that, you know, I don't want you to come on board and then you'd get to the other side and that scares you. So once we voted as a board, that, yes, we're going to pursue this process. We're going to hire an investment banker. We're going to go through that process in our, you know, I think we were weekly at the time, our weekly, Monday or Tuesday morning meeting, I stood up and said, Hey, you know, I've told you guys for years, Mike and I both have told you that we, we certainly plan to sell at some point, don't be afraid, but we're going to start that process. And so if you see that we look busier on stuff, that's not your stuff, or we're in on a phone call longer than you expect. And things like that. Don't let us shock you. We will keep you updated all the way along the way. So when we hired an investment banker, we told them when we sent out the teasers, we told them we, you know, so, and I would encourage that for most. I know there are cases where somebody says, now my people would freak out. Well, if you plan on selling in the next few years, start grooming, start grooming the organization now, because there'll be so much cleaner. I've got a friend right now who is, I think they're closing. I think they'll close next month. It's their new diligence is extended, I think, six weeks or something like that, but they're not telling their, their employees. And so what they're having to do is they're a little late their leadership group where they're kind of trying to make up for that is they're scheduling the day of close. They're going to take them away for an extended weekend and you know, kind of, Hey, let's go on a little retreat. We're going to tell you about it over dinner. And then we've got this whole day where you can ask us anything you want. So they're trying to bridge that. I ideally would do it much, much earlier, but they're trying to figure out a way to bridge that because they know the risk on the other side. I think that, that it's smart advice to talk about it. Every business on the planet will eventually transition and, and business owners that say, I don't want my people to the thing that I'm going to sell. They all think you're going to sell. There is no secrets, right? They all know that either you're going to sell or you're going to die. There's one of the two things, right? And so, so I've always been very open with my employees. And I think that that makes it so much easier because the day that you close, it's not a shock to anybody. Right. And so you're right. And so I think that is also great advice, man, look at this. You're giving us one nugget right after the next we're talking with Steven van Allen, a member of the 17% club. Let's take a quick break. We'll be back at Every business will eventually transition some internet employees and managers, and some externally to third party buyers, mastery partners, equips business owners to maximize business value so they can transition their businesses on their terms. Using our four step process. We start with a snapshot of where your businesses today. Then we help you understand the way you want to be and design a custom strategy to get you there. Next, we help you execute that strategy with the assistance of our amazing resource network. And ultimately you'll be able to transition no business on your terms. What are you waiting for more time, more revenue. If you want to maximize your business value, it takes time. Now it's that time get started today by checking us out at www.masterypartners.comoremailusatinfoatmasterypartners.com. We're back with Stephen van Owen, a business owner who successfully sold his business in 2020. So Steven, you told us a lot about the story and took us all the way up to the close. What did you learn going through the process? Oh man. Yeah. I, I would say that's that's of endless, right? So, you know, it was, for me, it was the first time to go through the process all together. So, you know, you think about learning about the investment banking process, learning about how piece we're learning about, you know, just everything involved in due diligence and all that sort of thing. You know, one of the things I would thoroughly recommend, there's a little book called the private equity playbook written by a gay guy named Adam coffee. It's like 110 pages or something super easy read. And that was just one of those, one of those things that I picked up in the process, eh, just man, I want to know what I'm about to get into the more I've actually know who the players are, where they fit, you know? Cause one of the things that you find out with PE and, and investment bankers is the director is actually higher level than the vice-president in. It's like this flip title thing that's outside of normal business stuff. So you get this managing director and that's all different. So, you know, part of that, you need to know that private equity playbook helps with is just understanding really who's the boss, you know, cause you may have a, like in the case of you get these unsolicited calls from PE groups and things like that, well, they have this really great sounding title. Well they, they're not the boss, right? Oh, I need to go talk to, to my director or whatever like that. And you're like, wait a minute in that, then that fit differently. Well, no, that's actually the person above. And so that's certainly one of the things that I learned really from taking those calls. But in addition, you know, when they said, Hey, let me bring in this person, your story is interesting. Now we moved from an uninterested to an actual, Hey, I'm going to put you on the list. And they were on the list when the IB asked about our, you know, who we thought we might sell to, I was able to go back. I, I actually had kept the list of everybody. Who'd called me what those conversations were, who those contacts were. And I sent them to the investment banker to make sure that they were on the list and I kind of scored them and stuff like that. So, Oh, I wish that, that, that you hadn't said that because I thought that I was the only person on the planet that did that. And I was given myself credit for being the smartest guy ever. And here you are doing the same thing that I was doing. I, I just being tired and he didn't. So I think that's a smart play is to make sure that you remember those conversations. Yeah. You know, so, so obviously learn that piece. And like I said, they're relatively endless. The cool thing was when we sold and we sold to a private equity firm called Excel KKR, which is fantastic, Gregory reputation time. They, they have a history that goes back to KKR, which I think held the, the record of the largest deal for like 18 years or something with RJR Nabisco and, and all that. And so the cool thing with that, I said on the other side for the 19 months that I stayed in my role, right? So as a CEO of one of their companies, they actually have dedicated to the fund. The guy whose full-time job is to go out and find companies like ours, that aren't for sale yet. And then go call them up and try and create relationships and see if we can buy them before they hit the market. And so, and then when different things went on the market, I guess, sit on the other side of due diligence and, and really on the evaluation, if who we've won to bid. So getting to see both sides of that was, was fantastic. The other thing that, that I would say I learned greatly from the PE side was, was the use of debt for growth debt instruments and, and all that. You know, the returns of private equity gets the tissue really, really good with that money juggling piece. So sometimes it's really growth and operational improvements, usually it's, it's that tied with the use of debt to create a bigger organization, greater revenue, greater profits on the other side. Now that doesn't mean, and it's really not, it's not a K here, our playbook to go and just strip everything down, like a lot of PE groups and then, you know, take it to nothing and create the biggest amount of profit. On the other side, that's, that's a private equity playbook, AK here, ours desire is to go, how can we turn on the growth? How can we take in yes, create some efficiencies as we buy up different things, but really ad-ons that allow a bigger suite of products or we take advantage of, you know, this company over here is really good at customer acquisition costs and, and their CAC payback time is really low. So how can we take that with maybe a superior product? Let me put those two together. And we can feel growth with some level of profit, you know, their, their model, isn't the, you know, grow at all costs, but that's kind of their approach. And so you, you combine that with understanding how to leverage debt and all of a sudden these limited partners, their return is very outsized compared to the market. And so I had to learn a ton of that stuff. That was just way out of, you know, even our investment group who is incredibly seasoned of really sometimes 50 years, maybe even 60 years on a couple of them. It's not, it, that's not the way they played. Right. So just one more piece of learning there. Awesome. Is there anything that you would have knowing what, you know now, is there anything that you would've done differently in the process? So I guess the one thing I'd say I, I brought up when we were selecting our investment bankers get their engagement letter first. Right. So let's just say that again, knowing that knowing cause really you are for the period through the transaction, you are married to those people. And you know, if you do need to separate because you didn't play a right, you know, you didn't guess right. Or semis, right. That, that they're the right ones. You need to know what that walkaway looks like. And really I'd say, you know, in the ideal scenario we would have. So we had this real interesting thing that happened with us in that I literally got a call of, you know, several weeks before we transacted. And it was a, Hey, you know how we said, we were going after your industry, will we purchased one of your competitors? They don't talk about you. You don't talk about them. We think it's going to be a good fit. We want you to run them both on the other side. Okay. Awesome. Well, what that meant at that time was that those of us who are rolling forward a substantial part of our proceeds, we were really buying into that company. And so we got a little data I probably would ask for more. It was a little there, there were some surprises there. And so I guess, you know, but one of our thought processes there was, we really wanted to get over the finish line for our investors. We'd gone far enough down this line that we were willing to take that risk that may not be perfect. And we probably made a little more assumption that the due diligence and squared away, if they're buying us and they put all this into us and we've gone through the process, will surely they did that over here. No, in truth. I think what, what it probably was was, Hey, you guys are really awesome. And we know that maybe you can fix some of the issues and concerns we have over here. So in the end, that was, and that's a whole different story of, you know, how do you bring companies together and stuff like that. But that would probably be it, just ask a few more questions, even if you're probably as long as you're not a jerk about it, you probably ask a lot more questions. And then you think you can ask without spoiling the deal Or any other advice that you would give to a business owner. Who's thinking about a transition. So another book that are probably read two or three times in the year or so, even before the process was finished big by Bo Burlingham, you know, former Inc guy he's spoken to a couple of business. Owners said things over the years. What I like about that book is it really kind of tees up your mental thought process of what the other side looks like. You know, and one of the things I'd, I'd say more than anything is you need to emotionally disconnect yourself from the fate of that business. On the other side. Now, if you're still running, it stay connected as long as you're still running it. But if you are going to exit, you need to understand that you have, you have sold and given it away, don't, you know, maybe you drive by your old house that you sold and you're sad. Cause I cut down that tree or something you need to get over it. And it's probably a mourning period, right? When I finally did exit, when it was clear that, Hey, this isn't the place for me. Long-term for different reasons. And, and I needed to go a different path. There was no question, a little bit of a mourning period, right? Because I wanted to take it to the next bite of the apple personally. And it just wasn't in the cards. But you know, there was definitely a period of anger and whatever else that comes along with that. If I thought it would work out different, but the sooner you can get your head around, okay. It truly, isn't a family member. It's not a baby. Yes. There are people that I care about in that business. But if you did everything right with those people leading up to their, if they're making a fair wage and you're helping them learn and grow on the process, they can leave. And then more than likely, they're going to leave for more money than they had with you. And they're going to take all that learning that you helped them get. And they're going to be rock stars over there. In fact, we've got developers now that had another one come through, I got two developers and we have small team, right? Five or six people I got and most of them are still with the business. But some of the ones that have left have been doing high level stuff at AWS, Netflix now Microsoft and places where you're going to holy crap, we just teed them up to go into the end of the play with the big boys. One of our old marketing people has been at commerce and, and now Nike doing SEO work on, on like this global scale. And, and that stuff to me is cool knowing that you didn't like, we've seen companies that had, they were trying to keep them around because they had these really crazy salaries for the market. They had really crazy benefits. Well, if that's, what's keeping you around, you're doing a disservice to those people because when it comes time and it will come time that they need to go find another job. Well, they've created a lifestyle that's up here when markets here, you know, and, and it just, isn't going to work. Yeah, no kidding. Now, you know, you already, you already mentioned that you did leave the company. How long did you stay with the company after it was acquired? I made at 19 months. And that was both you and your partner. Yeah, I think he may have been, nah, I think he actually ended up leaving the same time. And so what happened there is the PE firms ended up acquiring another company that was considerably larger than the combined two companies that we started with kind of felt the safe play was to go with that CEO. And, you know, we just kind of figured out that through a few meetings that, that probably wasn't going to be an ideal fit and really what was best for the organization was for the two of us to, to move on. Yeah. And that, and that happens so frequently. Right. And it's sometimes a, you know, your decision sometimes the other person decision. But one of the things that I just wanted to mention here to our listeners is that the average tenure for a CEO that, or a founder or CEO that sells his business to private equity is 17 months. If they stay on after the sale, many of them are selling and moving on. Right. But if they stay on after the sale, the average is 17 months because, and I don't know whether you experienced this or not, but I learned this about myself a long time ago. I'm a great CEO, but I do not like to be told what to do. Right. And so I am a terrible employee. And so, so whenever I've sold businesses, I made a plan for that transition right. From the beginning, because I knew, Hey, I don't, I don't own the pot of gold anymore. So, so it's, you know, it's, it belongs to somebody else. So now I know you've moved on from that. And you're doing some pretty exciting things right now. So what are you doing now that now that you've fully exited that business? Or can you talk about that now? Well, there's a mix of that. So one of the things I'd tell anybody, once you do exit try and take a little downtime. No, just kinda called it a sabbatical for a while now. I didn't know when it was going to end. It was just, what do you know? And I'm, I'm on sabbatical. I don't know what that means, but Then did sabbatical That's right. You know, always had the intent that, Hey, within a year, no question, I want to be doing something I'm yeah. I just turned 49. So one of the things I, I certainly figured out quickly, there's not a whole lot of mid, late forties guys out on the golf course on a, you know, kind of four days a week. I can play with some mid eighties guys every day of the week, but we would just different stage of life. Right. And so, but you know, if I had any regrets there, it's not that I regret my children. I just regret that we needed to be around for our children and my wife and I couldn't travel as much as might've done. Ideally, maybe on the second one. So, you know, I, I put that in place, you know, to begin with. And then for me at that point it was all right, well, what, what options do you have? Right. Well, I can go buy a distressed company and turn it around, you know, kind of in a way, did that with my own. And I've got some element to that, but then really kind of came around to the point when an opportunity came up and somebody basically gave me an idea for a startup and kind of a built-in partner that I'd kind of come to the point where startups probably where you fit better, because you can create that culture from scratch rather than changing it. And I love people, but I love to hire the right people the first time and not have to go through the transition and pulling out the wrong people and putting in the right people. That's, to me, that's a lot harder work than let's go find the right people from the beginning. So I'm actually in the process of, of doing that startup kind of started at the first of the year. And what I'll say with that is it's got a, it's got a video component, it's got a social media component to it and, you know, just kind of wait until the end of the year. And we'll, we'll probably have a point where we launch and it'll be amazing. And, and there's no way we're going to fail. Right? Absolutely not. So well good. Perhaps it's something that, that once you do launch that you can come back on the show and talk with our listeners about it. Maybe it'll be simple. They're they're interested in, well, this has been a great conversation before we go. One last business question and that is, of course this podcast is all about maximizing business value. So throughout your, throughout the lessons that you've learned, what is the one most important thing that you recommend business owners do to build long-term sustainable value in their business? One thing, and one thing only One thing only Now I've had Who give me three things in there. One sentence. So what I would say is if there's one overarching thing in there you better continually learn, right? So seek wisdom constantly in that, because it's not just one thing, right? It's you, you better know, understand your business model. You better understand customer acquisition costs, customer payback. You, you better have a certain amount of understanding of the financials. You better understand marketing. You better understand all those things. You better understand people and, and how to put an organization together and create a phenomenal leadership team and go through that whole thing. Right? So it's not, I mean, think of a basketball team. In fact, another favorite book is the culture code and he talks about the San Antonio spurs and, and Popovich and how he builds that organization. And so certainly if you go to Popovich and go, man, what's the one thing you need to the a great basketball team. Well, gosh, he can't say you gotta have great shooters. We better have some good defense too. Right. And it's the whole picture, but that creating a culture for Popovich would probably be the biggest thing. Right. And, oh, by the way, I need a great player. I need a, you know, but I would say continuous learning, right? So I can, you can go get whatever degree, whatever MBA you want. But if you sit and you stop there, you're screwed. Well, that's it. And I'm, you know, I'm a lifelong learner and I read our listeners already know I read probably 40 or 50 books a year. And because to me, $15 on a, on a business book is like buying an MBA. Right? It's the cheapest MBA that you can get. And, and, and I just think that that's a great, a great advice. I'm a, I'm a huge fan. Now. I'm not going to let you off the hook. I always ask this question. And so, and most of our listeners stay tuned just to hear the answer to this question. So the bonus is what personality trait has gotten you into the most trouble through the years. Gosh, it's, two-sided so we're, we're huge fans. I'm huge fans of culture index, so, and personal profiling and all that. And so my two widest trades, one is autonomy is, is farther to the right now. It's not crazy, but it's further to the right. It's my highest, you know, dominant trait, which has gas pedal. And then my lowest trait is conformity or detail oriented and all those sorts of things. So not terribly risk averse, right? So I'm going to go run and do it. And I'm, I have to hire the person that is going to make it stable. And so, you know, it's those two together really right? That are most likely to get me in trouble. But if you ask me who had a better hire, I've got to hire an accountant, a person that takes care of that low detail side of me. Well, it's funny you and I, we probably have the same. If anybody's watching this on YouTube, you'll see like culture index, you know, I am five deviations to the right, for a gas pedal and a zero, basically for detail orientation. I'm like you, I need somebody to go execute my brilliant ideas. I hear your differences. That you're your B, which is that social ability minds to the left. Oh, Patience is to the right. Right. So if I combine all those together, one of the things that, Yeah, I have, I have the patience of a nap and, but I can, you know, this is the way I described my a B trade is that I can tell you to go to hell in such a way that you'll look forward to the current. Yeah. See the problem is I'll probably just tell you to go to hell, right. And move on. And I'm okay that you, you said, that's fine. I'll go. Which is not a good trait, but you know, one of the things that I fully understand with that now, so on that culture index, I need a number two, that's an architect or a tech specialist with me because they really compliment me in my, my former partner was exactly that. Right. So where, where he would lean towards caution at times I go, no, no, no. Here's why this would work. And we could have those conversations and get there, but he'd spend the time actually talking to the people and getting into the details where I just went. Yeah, I'll be over here thinking of something new. Okay. Yeah. By the time you guys solve this one, I'll already have two more things for you to work on. Right. So, so that is, that is great. I think that that's a awesome missing, and you do need to find someone to compliment you. In fact, we're going to have a, a series coming up here in a couple of weeks that is on those testing tools. And we're going to talk about culture index. We're going to talk about predictive index and, and, and disc and, and everything else that's available, Graham and the whole deal. Right. So we're going, we're going, we're going to look at all of them. Right. And what you might throw into there, some of the big VCs will not fund a startup that doesn't have co-founders. And I think that's, that's really telling, right. Cause those guys, in fact, I'm, I'm listening to the book right now on the Instagram story. I think it's called no filter. That's when they got their investments, their first investment, they, they basically said, Hey, here's my criteria. I don't remember which investor was, but he said, had just, don't invest in single person startups. I will not do it. I need a co-founder because you need somebody side-by-side to tell you when you're being stupid. Basically. I think that that's Braden advice. In fact, one of the things that, that always concerned me and before I even understood culture index was that I needed balance. Right. And so I've always surrounded my people with myself, with people who, who have differing opinions than mine and different strengths and skills. And it wasn't, I didn't understand the science behind it, but now it makes perfectly good sense. Well, w w it's unfortunately, it's time we have to wrap up how can our viewers and listeners get in touch with you if they want to talk further, or if they want to invest in your new business. Ah, there you go. So I'll give you the, I'll give you the name of the business without telling anything about it. And you won't find a website. So firstname.lastname@example.org. So T O L D a L y.com. And that would probably be the best way to find me right now. Right. Otherwise LinkedIn's great. So yeah, I was going to say, you can find them on LinkedIn. So Steven, thank you for sharing your story with us and thank you for being our guests today. Glad to do it. Thanks. Now You can find Stephen van Owen on LinkedIn, or of course you can always reach out to me and I'll be happy to make a warm introduction to someone that I recently reconnected with. And I guarantee you, we're going to be lifelong friends. This is the maximized business by your podcast, where we give practical advice to business owners on how to build long-term sustainable value in your business. Be sure to tune in each week and follow us wherever you found this podcast. So you'll know every time that there is a new episode and by the way, if you or someone, you know, has successfully exited a business and therefore a member of the 17% club and would like to be interviewed on this podcast, reach out and schedule a time for a conversation. So until next time I'm Tom Bronson reminding you that it is never too early to start planning your own ideal exit while you maximize business value Tuning into the maximize business value podcast with Tom Brunson, this podcast is brought to you by mastery partners, where our mission is to equip business owners to maximize business value so they can transition on their terms on how to build long-term sustainable business value and get free value building tools by visiting our website, www.masterypartners.com that's master with a Y mastery partners.com. Check it out. That was perfect. I wouldn't make any changes.