Shownotes
Things are not always sunny when it comes to running a business. There will be days where it seems like one disaster is pouring after another. Sweeping in just like her company’s name, Raincatcher, to help businesses is Marla DiCarlo. With her experience, Marla can fully empathize with the owners, especially with exiting their business. She shares her story of transitioning from a CFO role to becoming the CEO of Raincatcher, and imparts valuable advice on selling your business or building one. She also gives valuable insights on attracting buyers through digital marketing and generating leads. Learn what makes a good leader and how to navigate the business world and more in this episode with host Bob Roark and Marla DiCarlo.
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Marla DiCarlo: How To Exit Your Business And Successfully Start Over
We’re in the world headquarters of Raincatcher with Marla DiCarlo. She is the CEO of Raincatcher. Marla, thanks so much for taking the time.
Thanks. I’m happy to be here.
Tell us a bit about your business and who you serve.
The name of our company is Raincatcher. We choose this name purposely because we always talk about that it’s hard to make it rain but easy to catch the rain. That’s what we’re doing. We’re trying to catch these business owners who are out there who need help. They want to make this once-in-a-lifetime event decision and they’re not prepared. We come alongside them and help them to not only market their business, find the right buyer and get the right price but also to spend time with them to help them prepare to sell. We do that by doing some tests, looking at the overall score of their business and figuring out how we can improve it. It’s like staging the house. I tell people often that you can have a nice house and a great area, but if you haven’t taken the time to clean it and remove the junk and some of the personal stuff, somebody is going to go in and go, “This place is a mess. I want to drop this down to $10,000, $20,000.” The same applies to business. There are certain things that they need to do to stage the business before they go and sell the business. That’s what we’re good at and what we’re all about at Raincatcher.
Before Raincatcher, you had quite a bit of experience going out and working with companies. You did a bunch of due diligence work. Let’s talk about the experience when you got to look inside companies and how you bring that forward to helping the companies now.
I love talking about this. This is where the passion for small business comes out. First off, I have to back up all the way. I originally went to school to become a social worker. I tell people that because it’s important. It talks about who I am as a person. What’s important to me is helping others. It’s something that’s in my core, something I care about. When I was in school, the problem was I thought differently. I realized among my peers I thought differently and my director of human services brought up that I didn’t quite think like everyone else. I have a very analytical side. I understood math. I’m very geeky that way, which served me well in my career. I became an accountant. The people component helped me in my career. I always cared about making a difference and wanting to change things and make them better. I became a corporate controller at a very young age. I was only 27 years old. I moved on with the founder of the company I was working with who created a fund. It was a $500 million fund that we could pull from. We worked with business owners to either help them exit their business, sell or maybe merge with another company.
We were doing this back at the beginning of the 2000s. My job was to fly out and perform due diligence on the small business owner, create the CIM (a Confidential Information Memorandum – It’s the marketing package for your business and the information about your business.), take that back to our group and figure out how we could help them. What I saw over and over again when I met with the owner and the staff and looking at the company is how underserved they were. That’s cliché but it was true. It was incredible how many times I would go into a business owner’s office, look at their financials and they would say, “We’re operating at a 45% gross profit margin.”, but once would start digging in I would mention, “You’ve got this overhead associated with a product, or you don’t have cost of goods allocated properly.” It was small changes that would have made a difference in the decision that the CEO would make about the company had they known. They didn’t have good numbers. Also, they didn’t understand their numbers most of the time. This was coming towards 2007. I realized, “I can change this.” As a controller, as a CFO for a company, I do look at things differently. There are certain things that I see in my job to communicate that to the CEO and the staff and be a part at that decision-making of how we were going to handle the use of historical information to handle the future, then make proactive decisions.
I was looking with the buyer’s eyes as I was looking for these companies.
That gave me credibility that I would not have had I come in telling them, “These are the things that you need to change in your company.” I was coming in as a potential buyer or someone that could help them to find a buyer, they gave me credibility that maybe others wouldn’t. They listened. What I learned very quickly was this is very personal to this owner. Everybody thinks their baby is pretty. It’s true. My daughter is gorgeous, just ask me. It’s hard to tell the business owner, “You have a beautiful baby, but they need to grow up. They are not ready yet.” I learned how to communicate with that owner in a way where it wasn’t coming across as, “Here are the things you’ve done wrong. This is what you need to do differently.” I learned how to work with them and get them to see things in a different way to make a different decision. I left the portfolio and the work that we were doing. I started Kaizen Business Results. We provided CFO and Controller services. This was before CFO became the “it” word, which is what I call it now, which is very important. I’m not downplaying it. I’m glad it has become something that people embrace. When I started, I had to explain to business owners what a CFO was.
Was that your first business start?
You can have a nice house and a great area, but if you haven’t taken the time to clean it, somebody is going to drop its value.
It was my first business start-up.
There’s a moment. You’re doing all this stuff and flying all over the place. You go home and say, “I think I’m going to do this.” Take us to that story. For many business owners, there is a moment where you decide to leave whatever security you might have thought you had to go out on this business venture of your own.
There’s so much to that. At the same time that I had this idea of Kaizen, I had a company that I was interviewing with for a development controller position. It was the VP position of a prestigious development company in Denver. I was on my sixth interview with this company. It was great money but I turned down the position. There are lots of reasons why I turned down this opportunity. I knew this was something I had to do, and I was going to help small business owners. There was a faith component behind it as well that mattered to me. I had some guidance from my faith as well. I called the VP of Finance and withdrew my name from the interview process. I remember the VP of Finance saying, “Are you sure?” I paused for a minute thinking, “This is life-changing,” you see your life spiraling in front of you. I knew this was something I had to do. It went back to who I am and my core. I was never satisfied with doing the mediocre thing that everybody does. I needed to make a difference. I needed to feel and see it. I knew I could do this with Kaizen. So, with the support of my husband and family, I started with five clients. I was able to grow that business to 48 clients in six months.
You were the CFO for 48 companies.
Yes, but I did have staff. I realized quickly when I started the company that I would need to provide accounting and bookkeeping. I realized in the first month, “We need to have this.” Garbage in, garbage out. I needed to have control over the output to provide the right advice. I was the CFO for 48 companies. I realized I needed to hire people and have processes in place. A year later, it was right below 200 clients. I had 50 subs and 50 employees. I grew too fast. I didn’t have time to hire the right people. I was looking for a warm body. The vision I had for Kaizen was not what the company had become. Owner fatigue sets in. I’m no different than any owner making those bad decisions. Everything came back to me, every decision. On top of that, I felt responsible for these owners and companies. I needed to make some changes. I learned the power of documenting processes and process mapping. That’s so important. I learned how to hire the right people, why culture is so important, how to say no to a customer that I just knew was not a good fit. That is important too, the power of interviewing the customer. I wanted to make a good impression and I wanted them to hire me, but I turned away quite a few customers because I knew that they weren’t willing to listen and make changes that were necessary for them to be successful.
It fits in nicely to what you’re doing now.
I moved on. I sold the company to a national company, but it didn’t work out. It wasn’t what I thought it was going to be.
How dissimilar is that from many of the stories you hear from business owners? I started out here and ended up there. What I thought I was going to do isn’t what I ended up doing.
I can empathize with the owners are getting ready to sell their business and going into that panic mode. This is my child. I’m turning my child over to a new person. I can remember sitting in a room and having this moment of panic like, “What am I doing?” It was hard. It was very emotional. There are so many things I would have done differently now. I would have written contracts differently. I would have asked different questions. I would have brought somebody in as a third party to manage. Even though I knew what I was doing as a CFO, when you are the owner of a company that you have built, you are too close to it.
You still have to run the company and do this sale thing part-time. I think about the emotional response to large life events. You see a time where somebody says, “If I had to do it over again, I would get past that emotional time frame and make a better decision.” You’ve been down the track of building a business, working for an M&A firm effectively, looking at lots of businesses from buyers’ eyes. It’s extremely critical to develop that buyer’s eye mentality.
Exiting Your Business: When buying and selling the business, the seller wants to maximize value and get the best terms while the buyer is going to mitigate risk and discount things they’re unsure about.
Everybody has an agenda when you’re buying and selling the business. The seller wants to maximize the value and get the best terms that they can get. The buyer is going to look at it from a risk position, mitigate that risk and discount things that they’re not unsure about. If they feel like, “This guy doesn’t have things buttoned up. I’m not sure what it’s going to look like when we do the transition, what will happen to the revenue.” Don’t think that’s not going to be the terms in that purchase agreement. They are going to cover their risk. It’s all about mitigating risks.
The problem is the business owner may not see that as a risk, “This is how we’ve done business and we’re good at it.”
I was talking to an owner about this. He is a sophisticated businessman. This guy is polished. He’s selling his business and chose us. He was talking about maybe they should come in and help with some of the negotiations because there are some little issues about their business that’s different. I said, “Here’s the deal. Here’s one competitor that I talked to. This was the feedback that they gave me about your company. I knew it would be a dagger. I know that’s hard to hear.” He said, “That is hard to hear.” I said, “I know. It’s because you’re too close to it.” “When that competitor said that to me about your business, I’m not close to it. I saw it for what it was. They were using it as a way to discount your business and get the terms that they wanted. I didn’t get emotional. I was able to use what he said and counter back. Had you been a part of that conversation it could have gotten very emotional and very ugly.” It’s hard to hear. It’s hard for somebody to tell your baby is not pretty.
I think about that as a business owner. If you can step back from the emotional moment and listen to the feedback. My next question would be, what do we do to mitigate that challenge or problem, what the buyer sees as a risk? What do I need to change? What’s my timeframe?
That’s one of the things that we do at Raincatcher that makes us unique from competitors in the market. We will spend time on sell-side risk assessment as part of our initial marketing package, working with a customer. We’re 100% success-based, meaning we believe that there needs to be skin in the game from us. The same way that the seller trusts us, we need to trust them. We work together. We put together the marketing package. All of the costs are upfront on Raincatcher’s end. Part of that package is doing the risk assessment of the business. We look for those skeletons in the closet, those red flags. If we know about it ahead of time, especially before we’re in due diligence, there are things we can do to change it and also ways that we can be forefront and honest about these things to be prepared on how to answer some of those harder questions.
We did it on purpose. We recognize the benefit of owning a small business. We accounted for it this way and we recognize it.
What happens a lot of times, especially in due diligence, is for a lot of people this is the first time they’re going through something like this. They weren’t even aware that this was an issue. We’re in due diligence and there are all kinds of things. We try to ask the right questions but there are so many things that can come up. We had a company where we had their tax returns. It was signed off by a CPA. Normally, a CPA won’t sign off on a tax return without them being the ones to file. It’s a weird situation. For whatever reason, the CPA allowed the customer mail in the tax returns. The guy didn’t realize his wife hadn’t done it. We get into due diligence. We’re an underwriting, two weeks away from closing. All of a sudden, the IRS says that they never got their tax returns. For four years, they had not been filed. The seller had no idea this happened. That causes doubt for the buyer. They think, if the seller does not know this, what else don’t they know? What else is there? I do want to see those other contracts.
It’s like the cockroach theory. There’s no such thing as one cockroach.
Most of the time, that’s true. When an owner is disconnected from their business, there are a lot of skeletons in that closet. It’s not because they were lying or dishonest. They just didn’t know.
I think about sitting across the table and everything is going. All of a sudden, the owner gets hit flatfooted with something he plainly didn’t know. It hit the confidence factor and negotiating point and all of those things, which would have been so much better in that de-risking stress test pre-sale.
Most business owners start on passion and end up with business.
You’ve got the situation where you’re trying to play damage control before the whole deal blows up. It’s hard. I remember that owner saying, “I’m an honest individual.” The buyer is taking him at his word, but it got heated. It’s being able to do that risk assessment ahead of time, verifying top twenty things that are important when you’re going into underwriting when you’re performing due diligence. We can’t fix everything but if we know about it, there are ways that we can handle having those conversations with buyers.
If you think it’s worth X, but you’ve got these things going on here, that’s going to affect X.
Yes, especially financials. This comes up all the time. This goes back to my Kaizen days. I don’t think that business owners spend the time and energy that they should, understanding their financials and the importance of those numbers and making them useful.
If this is that and we’re winning a bid, do we push our margins? What did we do? If we bought this company over here, but it created everything else, I don’t think they know. Most business owners start on passion and end up with business. A lot of them start out buying businesses to be a business owner.
Oftentimes, what I see is an owner who was successful in spite of themselves. I’ve probably worked with well-over 500 businesses in my career. I can’t tell you how much I love hearing how they created their business and thinking as I talking to them, “You can sell this and make money off of this. This is incredible.”
It’s the reason for this show. I’m a fan of business owners. I’m a business owner. You watch what they do and you go, “You did what? Did they pay for it?” We see this all the time. The reason we do is memorialize that journey. You got apprenticed in an M&A firm.
I had an amazing mentor. He was incredible.
You think about how hard that is to find an ethical mentor, which is even better. You go through it and go, “I’m going to be a CFO.” You get this fire hose effect of all of these businesses with all of these different things. It all boils down to similar concepts, numbers, procedures, policies, process and all that stuff. I’m going somewhere with this. You decide then at some point that you’re going to get involved with Raincatcher. What was the transition like when you went from CFO for the masses to go into Raincatcher?
It was exciting because I had already worked with Robert Hirsch. He was the founder of Raincatcher. I’d been a CFO for quite a while. I was honored to be invited into Raincatcher. I loved what they were doing. I get to help hundreds of business owners with making sure that they’re not leaving money on...
