How To Scale & Sell A Business
Bill Poston
Devin Miller
The Inventive Journey Podcast for Entrepreneurs1/20/2022
How to Scale & Sell A Business
The Inventive Journey
Starting and growing a business is a journey. On The Inventive Journey, your host, Devin Miller walks with startups along their different journeys startups take to success (or failure). You also get to hear from featured guests, such as venture firms and angel investors, that provide insight on the paths to a successful inventive journey.
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say go sell something right if if you're trying to determine whether your your concept is going to work and whether this is a viable business you can't figure that out in a conference room right you got to go get in front of people that have needs for your services uh you know i call them prototype conversations call them whatever you want but get out in the market in front of people that buy the thing you're selling that's the only way you can validate the concept understand whether your your pitch and and the business that you want to start is going to work [Music] hey everyone this is devin miller here with another episode of the inventive expert i'm your host devin miller the serial entrepreneur that's grown several startups into seven and eight figure businesses as well as a founder and ceo miller iplock where help startups and small businesses with their patents and trademarks you ever need help with yours just go to strategymeeting.com always here to help now today we have another great guest on the podcast bill poston um and uh bill we're going to talk a lot about a lot of fun things so management consulting on how to start scale and otherwise sell professional services businesses which is a very good discussion in and of itself because i think a lot of times it is hard to especially on the scaling and selling of a professional services and we'll talk a little bit about the difficulties there but also how to make it successful some of the models that people use that may or may not be worthwhile to pursue and may or may not be successful and how to build a business that isn't uh built around a business and so that would be an interesting discussion as well as um not to grab growth unnaturally so a lot of good discussion points excited to have and with that much is introduction both on the podcast bill thanks glad to be here absolutely so i just went over a lot of the i think will be great discussion points but maybe uh before we dive into that just introduce yourself a bit to the audience as far as why you have experience and background in this area and why know what you're talking about thanks so i am the ceo of the launch box the launch box is a business that is a platform for starting new professional services firms management consulting is my personal background and an area of focus for us but we've also started a marketing firm a leadership development firm we're looking at engineering businesses anything that is really driven by people and i spent 27 years as a management consultant 10 years at deloitte consulting which i consider to be an extended apprenticeship that gave me a foundation and the the experience and the capabilities that i needed to launch my own firm which i did in 2004. that was a management consulting firm focused on helping large branded product companies improve their ability to bring products to market um so very niche set of services around product development innovation uh and and the engineering process uh with uh my partners at calypso we grew that business over a 16-year period uh to about 300 people um 60 plus million dollars in revenue and sold it in early 2020 to rockwell automation my first thought was well let's go do it again right we did it once with no money and not really knowing what we were doing so certainly should be easier the second time um but as we started down that path realized that it might be a lot more fun and ultimately a lot more lucrative if instead of doing it once ourselves we helped other people do it and so that really is the genesis of the launch box and we've launched four firms in the last eight months and have a pipeline of new opportunities that we plan to continue to launch new businesses in the year ahead awesome well well that's definitely an awesome background and there definitely gives you some experience in the topics at hand so well now with that let's dive into it a bit and i know i'll press it a bit so i think that it's interesting you know i like the idea of talking a little bit about professional services firms because as opposed to you know so you take a what would be a normal product firm or you know something that has a physical tangible hard asset hey i'm selling widgets i'm selling you know whatever that might be it's a bit easier to you know at least sell off the business or otherwise scale it or sell it off to others because what you're selling is what is a product maybe intellectual property around it your customer list is that is buying it in other words buying the product but it's just easier because it's not as directly tied to a lot of times an individual or to the relationships that are built and vice versa when you get into the services services industry you're uh very largely driven by relationships in other words who you know you know do you maintain their relationships with your clients do they like working with you do you think they're you're competent in all those scenes and they it is great as long as a person that has those relationships are around but when you go to sell the business it makes it a lot more difficult because when you sell it you're no longer around the person that has the relationships is no longer there and the person that comes in maybe doesn't appreciate the relationships certainly is coming into a cold maybe or may have a different uh or style or approach and it just makes it much more difficult to have any successful exits of a service-based business other than if you have a very long transition period to where you bring someone on and 15 years later you finally remove yourself you can transition those relationships but that's not what most people want to do and they're looking to make an exit so within that kind of as a setup when you're looking to you know start skill and otherwise um at some point sell a services-based firm what are some of the thoughts or how do you go about approaching that yeah so i mean what we try to do is uh begin these businesses with an exit in mind and so you know from an intellectual property standpoint that means being very buttoned up in our ip protection arena we have employment agreements with all of our employees that protect the intellectual property of the business you know i'm not really big on trying to necessarily patent or protect things in professional services as much as just make sure that we're keeping our trade secrets um secret and so it's it's really not just about the work that we do it's all of the information that makes the firm valuable and creates the engine that drives revenue so we we we take that intellectual property protection very seriously right up front and that's one of the benefits of having the launch box is you know we have the legal staff to be able to do that where someone just looking to start their own consulting firm might not have that expertise might not be willing to make the investments up front to do that so that's one aspect of it the other is the business model itself and you know we're trying to create something that has enduring value that has a core team of professionals that is dedicated to the business and is going to stick with it and that really involves making a calculated decision to have not only a full employee based model rather than a contractor or a variable model but also to be very clear and articulate about the values and the culture of the organization that you're creating and make sure that the people that you're bringing on are aligned with those those mission vision values that are so important to long-term success uh uh and client service now let's get into it a bit and i'll give you an example so let's say let's take the law firm i'll just say miller ip law because it's an easy one to grab and let's say i'm not saying we do or don't do it well but i'll just give the example you know every all the relationships revolve around devin miller in the sense that i work with all the clients i'm the one bringing him in i'm the rain maker i have all that maintain great relationships reach out to clients on a continual basis maintain those and now let's say i start or want to start with the end in mind if i want to set it up that someday i'm going to retire whatever that day may be and i want to not just make a good living while i'm running the firm but also have an ability to sell off the law firm when i'm done and somebody else will take or take over so if i'm looking at that mind and let's give a an arbitrary 20-year timeline so i'm i say i'm going to work for the next 20 years i want to retire i can say how old i am i'll say i'm 37 so let's say by 57 as you can see i'm not that old so i can still save my my age but you know i'm 57 about when i want to retire so i want to retire a little early but i want to make sure that after i've spent 20 years building this firm or 23 at that point i know i have something that i can also sell off or make a good exit on so if i would take that as you say now take the end of mine i give you i want to retire at 57 want to sell to someone else i want to make as good of exit as i can what are some of the things that i should be thinking about as i'm setting it up to kind of that end in mind so the first thing you have to recognize is in order to sell something you actually have to have sufficient scale to be of interest to a potential acquirer and so i i talk to a lot of people on a week to week basis and it becomes pretty clear to me in the course of my conversation that what they really want to do is start a lifestyle business right they want to they want to check out from you know the the big corporate consulting world and they want to downshift and you know be able to make a good living um but they're not really committed to scale and let me ask one thing on that just because i can see where you're headed but let's you know i if i were to play and as you might guess as attorneys like to play devil's advocate if there's a lot of people or a reasonable portion of the population that is looking for a lifestyle business can i set up my firm or you know we'll just continue on with military law that it's a lifestyle business for me but it also sets it up that i can sell to somebody else that also wants a lifestyle business in other words should i be looking it up that i have to scale to a big degree to where it's hey another big law firm or a medium-sized firm is looking to gobble me up to increase theirs or can i look and say hey i want to set it up that in 20 years i still have a lifestyle business i enjoy it it stays small and i can sell it to someone else that also wants a lifestyle business does that make sense it does i'm just not sure how the economics work for both parties because you're looking to exit and presumably continue to earn an income in retirement and so now you have to pay not only you you also have to pay your acquire and so i just don't know how you split that and still have sufficient value to accomplish your objectives in retirement no that makes sense i know and that's maybe one question i'd say once now i'll give you and i know i'm interrupting because it makes it it makes it answers my questions as they come up but let's say on the other hand i'm saying i just want to sell the business out right in other words i don't want it to be an ongoing you know payment so to speak i just want to sell it for half an item i'll make a half a million dollars and i'm saying that will exceed my retirement i'll invest in mutual funds or real estate or whatever i do and so i'm just saying hey i just like to sell it is that is that still doable or is it basically the problem that you often run into is that you're not able to reach it to a size of scale that makes it reasonable as a selling point for the acquiring party yeah i mean i i think in those in those situations at that scale you're probably going to wind up with uh some form of structured payout um you know maybe your your number two or your most senior employee is the one that you want to to sell it to they're unlikely to have the cash to write you a big check and so you're going to wind up with a structured payout which essentially means they're buying you with your money right it's a great deal for them if they can buy something with somebody else's money and then pay me with my buddy that it's a great deal for the person buying it yeah so you created the value those client relationships are going to be somewhat sticky even in in your retirement uh and the income from those is what's going to allow them to pay you um we're we're looking for people that want to they have the ambition to drive these startup firms to 20 to 25 million dollars quickly right four to five years let's get this scaled up with a full employee-based model where you have sufficient scale and sufficient um partner leverage where the value of the firm goes beyond just the founder right founder may always may always be important they may always be a big driver of revenue but you need to diversify that and in services in a partnership model we scale with partners and there's a logical limit to how much revenue a partner can manage uh and still ensure quality of delivery and quality of service and so it's there's i'm sure there are exceptions to this but there are very few 25 million dollar professional services firms out there where all of the revenue flows through one person so now let me ask you i'll give you a contention at least i don't know contentious in the sense that you know it goes conflict didn't do that and in the sense that i work i work with a lot of startups in small businesses with the law firm and one of the things a lot of times the reason people exit you know working for someone else is they want to maintain that control or they want to be able to do their own thing right they want to capture their own ship and it's not that they don't want to build a big company themselves but they want to do it their way and some of them are adverse to bringing on partners or to bringing on other people that are you know co-founders or managers some people love it and they're saying it offsets their talents but for a portion of them they're saying that one is i want to be able to just do it my own way not have to answer to anybody else if you're that type of a person should you just simply be looking for saying you're not going to be able to make an exit later on or it's going to have to be a different type of exit where it's not going to be as lucrative or as big in other words you always need to have those multiple people multiple partners multiple owners or founders or those type of things in order to make a business in scale and just help us understand that a bit i i yes i believe that's true especially if you're looking for any kind of multiple on your business yeah i talked to a lot of people they've been at it for 15 20 years um it's partner-led you know single partner firms they're doing eight 10 12 million dollars worth of revenue and making a phenomenal living and it's great i mean they they've done well they've done something uh very successfully uh the problem comes when they look to retire and in their mind they say if i have a 10 million dollar business someone should be willing to pay me 20 million dollars for it uh unfortunately there's not a big market for firms of that size you you know you move up the ladder you have multiple partners you've diversified the revenue away from that founder and now you have something that an acquirer sees as more sustainable and you can get a multiple on firms where you've got a little more um you know a little more of a solid foundation for the revenue than it all flowing through the founder and so it's not that you're precluded from exiting it's that you're probably exiting at a much lower valuation and value multiple than you would if you took it to scale and you know you can run a lifestyle business for 15 or 20 years and then say let's scale it and we've had conversations with people that are in that business they're looking you know four or five years down the road they're recognizing the difficulty of exit and say why don't we put together a plan to juice this thing and get it to the point where someone really wants to buy it no and i think that makes sense and so that that does sound like a bit of maybe for those listeners are saying for at least now i want to do a lifestyle business i want to take a break i don't want to be in the you know rat race or whatever you want to call for a period of time so i'm going to take a lifestyle business and then i'll plan on in hey if i'm looking to exit in 20 years maybe for the first 10 15 years i'll do a lifestyle business and then for the last five or ten years i'll really ramp that up and make it so that i can not or also make an exit for um for retirement so now now shifting gears just a bit or kind of maybe continuing on so talk here help us understand a little bit about scale because i do work with you know some i see some services based businesses that do awesome at scale a lot of them struggle everybody wants to be a sas company so you just get recurring revenue and then they say okay now now i could say that i i've scaled because i've you know i've removed it away but how do you kind of go about scaling a service based business um to make it or kind of set it up for those multiple set it up for those exits so uh in in a partnership model in services which is what we see quite a bit um you scale with partners so you know in our model uh just a couple of examples i mean we have founders that started businesses eight months ago there now have revenue run rates at you know a million and a half two million dollars a year and by the end of the first quarter they're going to be at three three and a half four million dollar run rate um we need to be identifying the next partner to bring in for that business because we're gonna hit the limit where the founder all of a sudden is trying to manage four or five million dollars in revenue by himself and he can't grow right you just can't go beyond that without the wheels falling off the bus so you know we're already starting to look for that next partner because it's like likely to take them three to six months to ramp up their own book of business and get to the point where they have sufficient revenue under their management and so you're always having to stay ahead of that um that recruiting challenge of making sure that we're bringing people in that can help us drive additional revenue no i think that that makes sense and one kind of follow-up question to that so now let's say okay i need to bring on partners so that way with this we continue to the scale we continue to grow they also we have people that can manage those and otherwise uh you know be able to um take or take on that growth so you're not having to all do it yourself now one of the questions is are you looking when you say bring on a partner should you be bringing on the partners that kind of already have that book of business in other words you're looking to acquire that you know acquire the business you know acquire those kind of that book of business and then use that to scale which sometimes can get expensive and or you have to fire you know find those people that are willing to entice them to want to come into your business are you saying no you're more looking for the people that are able to manage and otherwise bring it on you're less you're figuring out other ways to scale bring in that business and you're just simply taking and passing that business along to those partners does that make sense yeah so i mean there's always an institutional lead stream associated with these uh organizations that can help a partner begin to build their own business but ideally you're looking for people that have a track record of great client service and the ability to sell and and give them enough runway to to rebuild that with a new firm now the other way is to go find someone with a lifestyle business and say hey you having a hard time selling this thing why don't you just fold your business into you know this new rocket ship and you can be a part of our growth strategy and exit with us as we get this new firm to scale oh i think that that definitely that makes sense so you know so a couple options now if i'm going for the person i'm saying hey i'd like to bring someone on that has that proven track record how do you find that person or how do you identify the characteristics in other words you just simply look and say hey who has built you know i go and look at who's successful in other businesses that has built a good big business or a book good big if i just spit it out book a business and i simply look to kind of entice them to come over here or how do you kind of identify those people that help you to scale with you yeah well you're looking for people that have that track record uh the the trick is trying to be able to discern uh people that have been successful commercially because of who they are versus they've been successfully commercially because of the firm at which they worked and this is a particular challenge when you're recruiting out of big consulting because there are many many many very successful partners in big consulting that were successful because of the place they worked right i mean the organization set them up for success it there's an institutional lead stream that feeds them they never had to go out and scrape and scratch and claw in a startup environment to secure new client work so you really got to kind of uh dig into the the house in terms of their success because every partner is going to have a resume that talks about the millions of dollars that they sold no i think of that that uh that makes sense now one of the things shifting here is just a bit that you'd hit on or we chatted on a bit before the podcast was uh sometimes you get into this hey we have to scale we have to grow and we have to reach that size we have to bring partners on and you know which is all true and i think that that makes it makes perfect sense if that's what your end goal is and we talked about that earlier setting that goal in mind but the other thing that sometimes forces people or unintentionally forces people to do is do unnatural growth in other words you start to make bad decisions because you're trying to scale or trying to grow so quickly so what are some of those kind of bad decisions or things that people often get kind of directed into as they're trying to scale and how do you kind of go about avoiding those yeah i mean the most common one that i uh see and hear about is trying to expand geographically too fast you know in in the launch box in our strategy with the the client companies that we're helping to start we have said we are going to exclusively focus on the united states it is the world's largest services market you know it's kind of if if you can if you can't make it here it's kind of hard to make it anywhere um and inevitably you know someone from the netherlands is going to have a problem and and want to to hire the firm you know or more often canada right oh they're just right there across the border surely we can go serve them um and it is not obvious at the time that decisions being made just what you're signing up for in terms of management time and attention complexity and frankly just associated with trying to serve clients outside the country oh and i i think that that is enticing you know one of the other things that kind of came to mind as you're talking to that is the other thing that i've seen is when you're trying to scale is you're also trying to diversify into a whole bunch of different verticals or offer additional services or bring on additional services and you're trying to say what we'll do is we'll just expand their offering we expand our offering we're offering more services more money will come in because we'll have more you know different clients and sometimes it's just hey you see what your competition is doing another time you have a client or two that asks you for those services and say well if they need it everybody else obviously needs it so is that a good idea and i have my preconceived bias my last question is you know is that a good idea should you look to expand your services out or should you niche down or kind of how do you balance that as you're trying to scale um be very careful um if you know the the more focused your organization is the more success you're going to have right i mean it there's nothing more powerful than going into a client who presents a problem and you say yes solving that problem is all we do and we we know your industry and we know this functional area and that is all we do that's a very powerful differentiator in a sales process and i am not opposed to expanding into new industry verticals but it requires bringing people into the firm that understand those industry verticals in order to do it well and so i would just be very diligent and deliberate about expanding the scope of services and expanding the verticals that you serve because you don't want to give up that focus that is is the main reason that you've been successful oh and i agree i think that you know sometimes it's enticing that it looks like you want to go after all those services that are going to bring drive in and for additional profit sometimes they are good if you have the experience the expertise i think is kind of hit on it may be a natural progression to expand out in those areas but other times you get kind of still saying get over your skis in other words when you get over your skis you tend to crash when you're skiing it behind the you know you're skiing and that you know makes it so that you crash and burn so to speak because you get out into areas you're not experienced are you don't anticipate you don't have the ability to meet fulfill all of the service offerings that you're providing and it can make it difficult so it does seem like it's that balance of the one area if you're experiencing you can offer those services it may be a great opportunity but you have to be very careful so and some industries are more like than others right there there are adjacent industries that make sense but if you've built a great business serving manufacturing companies and now you want to get into healthcare you know that that's that's a leap uh and that's that should signify a lot of risk and and a cautious approach to that kind of expansion no i and i can agree more so now with that or continuing down that any other things it is you're looking to scale that are things you should consider you should be doing or things that you should are red flags that you should be very careful or make sure to avoid it i mean i hit on it a little bit in the in the comment earlier but i'm a firm believer that if you want to scale a business you need to do that by making commitments to your people and in using a full employee-based model it goes a little bit back to the lifestyle business i mean a lot of people that want to run lifestyle businesses aren't interested in taking on the payroll risk associated with those commitments they'd like to keep costs variable they use 1099 subcontractors to deliver but that is a bet against yourself in my opinion right you're basically saying i don't believe that i can drive consistent demand to keep my people busy therefore i want to keep my cost structure variable and that means you're ultimately going to be paying a premium for the talent that you are employing um and you're you don't really have anything to sell at exit right if there's if a potential acquirer looks under the covers and you actually have no committed employees to deliver the work there's no asset there right all that could just go poof and disappear tomorrow because as soon as those contractors say yeah you know i'm not all that interested in working for the new company um you know i don't like their logo i don't like their expense policy i'm going to go do my own thing now now you've got nothing so now follow a question to that does that mean you should never use independent contractors or you should never employ them or is that a matter of for the key individuals or key roles or kind of is there that balance where you should should you say hey anytime we're going to hire we're just going to hire out right never use those people or should it be more of a balanced approach or kind of how do you consider that because you know i think i do if i were to defend this you know a business sometimes you're saying hey i don't want to bring someone only to let them go in three months and i you know i need to get this overflow or this their surge of work done and so i need that a bit of assistance so first a short period of time versus if it's longer sustained so is there any is there a balance to that or kind of what should they be thinking about yeah i mean i there are three instances where i think uh bringing in contract help is perfectly valid and a good strategy the first is that startup i mean we did it but the reason we did it when we started calypso was because we had no money i mean i i couldn't make payroll i couldn't make commitments to salaries because we had no we had no money um we we helped the firms that were starting through the launch box solve that problem by providing them with capital that they need to hire people and and get them busy in those startup months but i mean it works at startup allows you to build your working capital reserves and get to the point where you're more comfortable taking on a fixed cost base the other two is you know very specialized skills that are in high demand but you don't have enough work for those very specialized skills you know and you just need that one person for a couple of months a year that's a good a good role for a contractor and then burst capacity you know if if you've got projects that are stacked up on top of each other but you don't consider that level of demand to be sustainable and you don't want to have to downsize once you're through the bubble then yeah i think it's a perfectly valid uh area where you might bring on some temporary help no i think does that that make those are all good reasons to make sense as to the times that it may make sense and yeah if you don't have the money and you can't make payroll at all and you're just getting started probably a good thing to not bring out a whole bunch of employees yet but it sounds like you know you also shouldn't be saying for the forever four we're always going to use this model because there should be that transition to where you do recessibility you do reach more of that rhythm of hey we're expanding we can see reasonably account for the amount of growth the amount of work that's coming in and we need to have that talent that's more in-house we could talk about this for i'm sure a lot longer it'd be a great conversation we'd have a great time and people might start to say okay i've had enough i need to get or get back to what i was doing this is a lot of things i already need to implement so with that kind of with that in mind if people are to say okay love the podcast love the episode way too many things that i'm overwhelmed can't get going on this all today i need to scale i need to get ready for next i need to set my goals need to look at my employment and how i'm saying all that a lot of things they could be doing but if they were to just kind of say hey i'm going to pick one thing i'm getting started on today and it's going to be the thing that if nothing else i have a takeaway what would that one thing be that they should get started on i mean i i would always say go sell something right if if you're trying to determine whether your your concept is going to work and whether this is a viable business you can't figure that out in the conference room right you got to go get in front of people that have needs for your services you know i call them prototype conversations call them whatever you want but get out in the market in front of people that buy the thing you're selling that's the only way you can validate the concept understand whether your your pitch and and the business that you want to start is going to work yeah i know i think that that is a great takeaway in other words you know very seldom is there a problem that you can't be solved by getting out into work you know the best or best way to to solve your problems is is to get out and try and sell something because that will often time now don't just get into the thing where you always are trying to catch up and and never going but if you're just starting out you're getting to work sales can make up for a lot of things because that's where what drives a company so i think that that is a great takeaway yeah if you're i mean if you're on your 12th version of your business plan powerpoint document and no prospective client has uh seen it then you know you need to get out of the office more absolutely all right well as people if they want to reach out to you they want to be a customer they want to be a client they want to check out launchbox they want to be a employee they want to be an investor they want to be your next best friend any or all of the above what's the best way to reach out to you contact you and find out more find us on the web at thelaunchbox.com uh all of our contact information is there you can take a look at the team look at the companies that we've launched to date and happy to talk awesome well i definitely encourage um everybody to reach out connect and otherwise uh make sure to check them out because i think it's a great resource well thank you again for coming on the podcast it's been a fun it's been a pleasure now for all of you that are listeners if you can make sure to click uh subscribe click leave a review and share with all your friends because we want to make sure that all the startups and small businesses out there have the knowledge and the ability to listen to the experts and have that ability to continue to grow and scale their business and with that thank you again bill for coming on the podcast it's been a fun it's been a pleasure and wish the next leg of your journey even better than the last thank you devin you
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