How To Sell Your Online Or SaaS Business At Maximum Value With Mark Woodbury
18th November 2021 • Business Leaders Podcast • Bob Roark
00:00:00
00:44:30
Shownotes
Most entrepreneurs’ exit strategy is selling their business. But how do you sell your business at the best price? Mark Woodbury is the Managing Director at Raincatcher, helping entrepreneurs buy and sell remarkable companies. Today, he joins Bob Roark to break down the process behind how they help clients get maximum value for their businesses. He shares mistakes to avoid and things to prepare when you’re planning to exit and sell your business. Tune in for valuable insight on how to make your life’s work sellable!
Sell Your Business: The best lessons have come from stumbling and failing.[/caption]
I learned the basics of accounting. I learned that relationships matter. That always rang true. I don't know if that's necessarily coursework. That was my life experience. It taught me that. Other than the basics of finance and business management, we scratched the surface of sales and marketing. A lot of it is on-the-job experience. My best lessons have come from stumbling and falling or I have sidestepped maybe some mistakes by observing what other people have done by surrounding myself with people smarter than myself and who have done it before me. That's how I have gravitated to learning as opposed to a textbook per se.
You went from an employee at an investment firm into a digital marketing space-built company where somebody wanted to purchase it from you. You went through the entire transaction journey. In your next step, were you in M&A, in the digital space, as well?
I had a couple of side projects at various times. Some that went well, some that didn't. I am with a friend who sold scrubbing brushes at the end of drills. We sold them on Amazon. That was his business that I supported. At this point, I lived in Los Angeles. I took a consulting role at 20th Century Fox. I have seen behind the hood of the Fortune 100s and how they operate.
I'm much happier in a small business environmental setting. That was a fun role to be around that type of corporate environment and to go to work in a 36 story tower on FOX+ every day. That was fun. That was an eight-month. It was supposed to be 6 months but it lasted 8 or 10. We had one project that kept on dragging on. The problem carries on.
I had some different ventures in that time before I’ve got into brokerage. I had the itch to be self-employed the whole time again. Maybe not the masochist of learning all the same problems over. I didn't want to get back into eCommerce and navigate the supply chain. I thought M&A and being a broker would be a good space, and it was but I had plenty of problems that I had still yet to solve and had a slow start in the brokered space. In my first few listings, I thought I knew what I was doing and it turned out that I didn't know so much.
This is a lot harder than I thought it was going to be. The buyers don't come flocking to each deal that I have. That was an issue. I didn't have a great amount of success in my first year in that business. It took a while to start getting some closes under the belt and that learning curve flattened out as it does in any other career and I started getting a pretty good hold of it.
I think about how you grew up as a kid and you hear about people that take a job or get into a profession, and then he stayed there their entire lives. You think about the folks that take your route. If you had kids, how do you encourage your kids to be an entrepreneur? What did you do to foster or point you toward this direction?
[bctt tweet="You sidestep some mistakes by observing what other people have done, by surrounding yourself with people smarter than yourself and people who have done it before you." username=""]
They think I'm crazy for going in this direction. They have the steadiest careers as you can imagine. My dad worked for the government. He worked for the Social Security Administration. He took a job with them when he got out of college, and then took any promotion he could get. He worked in Guam to take a promotion with him. He moved to Los Angeles and that's how he and my mom met.
She was a financial analyst in the Social Security Administration. They both worked for the government, which is as steady as it gets. Meanwhile, their youngest doesn't want anything to do with a steady career, would rather learn things the hard way and do it himself. I guess you could say I'm hard-headed but it works for me.
In the Rich Dad Poor Dad series, Kiyosaki talks about the quadrants and so on. You think about the folks that are the employees, the professionals, and then you have the other crazy group that goes out in the entrepreneurial space and learns by failing forward. You have a varied career in finance and M&A building, selling the company, helping others and so on. When you are talking to a business owner in the SaaS space or online retail, what is it that you bring to the table that you think resonates with them when you are having the first conversation?
I'm a cut from the same cloth. That wild entrepreneurial have figured out by trying cloth as many of these people are. I was that guy. I had to figure it out. A lot of these people desire to have the freedom and flexibility that goes with running an online business. Some of these people transitioned upon having a family. They chose to leave their job and wanted to be able to work from home. They are working 60 hours a week as an engineer and I would rather work twenty. They buy a business and some people want to learn how to launch a business with low upfront costs.
They learn how to get into digital marketing or how to get into selling products on Amazon. I'm cut from the same cloth as a lot of those folks and can relate to them. I also have the benefit, which many business brokers don't have, of being focused on one industry. I focus on the digitally native space, be it SaaS, eCommerce or content media websites. I know many of the key players in the space. I have spoken at a couple of conferences in the industry. I know what moves the needle in terms of value with those types of businesses. People find that to be valuable.
For that business owner who’s in the digital space, who’s reading this episode and they go, “What are the value drivers and what things do I need to make sure that I'm doing in my business? What things do you talk to folks and advise them to do?
[caption id="attachment_5943" align="aligncenter" width="600"]
Sell Your Business: A business that you don't want to sell is the most sellable because there's a much larger pool of buyers looking to buy a cash-flowing asset than are looking to buy themselves a job.[/caption]
The short of it is making your business as sellable as possible is to make it run without you. It's a business that you don't want to sell. It’s the one that’s most sellable because there's a much larger pool of buyers looking to buy a cash-flowing asset than are looking to buy themselves a job. Millions of businesses out there make $100,000, $200,000 a year but they require an owner to step in and operate. It works 30, 40, 50 hour weeks, which can be done. Those can be sold but the ones that are sellable at a higher price are the ones that have management in place, have operating procedures, and more or less have navigated or grown through the phase where it's reliant on the owners and the operator.
I think about the difference between a job and a business. When you are talking to the various potential clients that come in and contact you if you could characterize, do you think that those business owners recognize the difference between having a job and having a business or are that something that's forced on them in the sales process?
Most people, especially in the digital space with the clients I work with, it’s them. They are the artist and this is the artwork that they are selling. They don't often realize how reliant on them it is. We counsel them up and say, “There needs to be an operating procedure. Somebody else needs to be able to step in and operate this.” I will say that some have learned the work-life balance and have learned the importance of delegating.
Even if that means a couple of errors are made while a new person is broken into a position, it doesn't have to be perfect. What needs to happen is these people need to learn and you need to build a management team underneath you and be able to step out and work on your business instead of in it. That's the minority in my view of small business owners who understand that but as they get larger and that becomes a necessity, that's when owners become more owners, as opposed to owner-operators.
The things that strike me as I think about the various business owners are that we all come out with formal education, typically and the formal education usually has nothing to do with what we are doing. That Organic Chemistry took me out of med school, went through the Army, went through Intel, and now I'm in the finance space, a new world. Those don't match up at all. When you were running your business, was there a pivotal book, resource mastermind group or influencer that helped you get ready to sell your business?
Was there one that helped me get ready to sell my business? I would say no. I wish that resources were available to me. In terms of exit prep, there are a lot of brokers out there that we say are there for the fireworks. They are there when you want to sell, we sign you on as a client, we sell the business and it's off our books. I would say it had I come across Raincatcher or a firm like Raincatcher that has an exit prep part of the business or a business coaching part of the business.
[bctt tweet="The short of making your business as sellable as possible is to make it run without you." username=""]
Somebody to teach you how to keep better financials, how to delegate and build standard operating procedures in your business or how to price your product and service. A lot of people don't. If the pricing is too low, they don't realize it. There's price sensitivity. You can increase your price by 20% and only lose 2% of your customers, potentially.
I would say the management consulting or business coaching aspect has been missing for a lot of brokerage firms. That's something we incorporate at Raincatcher that is very valuable. I went in blind. Knowing what I know now, I would have done a lot of things differently. I still would have sold because it was very reliant on my partner and me at that time.
It had served the needs that we wanted it to serve, which is get us out of working hard 9:00 to 5:00, trips for night and weekend jobs and doing a full-time job. We moved on to what's next. In hindsight being what it is, we were not very well prepared to sell and therefore probably didn't get as much out of the exit as we would have liked.
For the potential business owner who’s attempting to sell or come and go, “I want to sell. Should I sell? I’ve got an unsolicited offer, some combination of that or I've got help from them,” I think about the experience that you have had. “I may not be able to do exactly what to do but I can tell you what not to do.” In the business space, do you think there's a greater recognition that the business owner needs to get a company or needs to look at enterprise value or to look at the value drivers in their particular business? Do you think that's happening or is it still a vacuum?
There have been polls about this, asking business owners, particularly Baby Boomer business owners, who are coming to the age where many want to retire. Many of them who have wanted to retire for ten years is still unable to. How many of them have a legacy plan? How many of them know what their businesses are worth? The number is shockingly low.
Those polls, I don't know what the sample size is but I can tell you from boots on the ground and talking to these people, it adds up because a lot of these people don't know what their business is worth. It's somebody at a conference who told them one thing, their friends sold for another and they try to put this together. They think they are in a good position.
It's pretty rare that somebody comes in and has an accurate understanding of A) What their businesses are worth? B) What does the sales process entails? Are they selling stock or the assets of the business? Does it come with cash and working capital included or not? There are some caveats to it that people are uninformed about until they get into the process. It would be nice if people started up to a decade but at least 12 or 18 months before their planned exit to prepare for selling. They rolled up their sleeves and did a little bit of work ahead of time. They will get more out of it when they do finally pull the trigger and sell.
I have talked to other folks from Raincatcher. Some pitch, some can't but that's okay. The ones that can't, we won't mention by name. You think about what Raincatcher tries to do when you have a business owner that shows up that's got a good business but it's not ready to sell yet. For the folks out there that may be in that boat, can you walk us through what those steps look like?
It's different for everybody. Broadly speaking the steps to get ready to sell or to grow the business to the point where you can hire management and it runs without you, I would say that's the number one thing that inhibits its owner from selling or inhibits there from being a competitive buying process is it's still very reliant on the owner. Part of that is the size of the business.
If you run a small coffee shop with you as the owner, it's somewhat reliant on you to run. It's never going to be large enough to where you can have a full org chart underneath you, and you step aside, at least not many coffee shops. There's a market for small businesses out there where the owner is also the operator.
[caption id="attachment_5944" align="aligncenter" width="600"]
---
How To Sell Your Online Or SaaS Business At Maximum Value With Mark Woodbury
The big questions are, “How do business owners like us spend our own money, time and effort? How do we grow our business and jump the line that lets us accelerate the delivery of our products and services while being smart about our growth, profits, culture, instilling increased value in our business?” Those are the questions in this episode. We will share some of the answers.---
Our guest is Mark Woodbury. He's a Managing Director of Raincatcher. Mark, welcome to the show. I appreciate you having me on. I appreciate your time. Tell us a bit of you and what got you from there to here? My background was in finance and I have worked in finance as my first job out of school. I always had an itch for a little bit more independence and less rigidity than I had. Since this is my first job, there is supposed to be some rigidity and you have to earn your stripes a little bit. I learned a ton. I liked what I was doing but I had an itch towards self-employment. They say, “Necessity is the mother of invention,” meaning if you want to start a business and you don't have any money, you better figure out how to start a business with no money. For me, that was learning the digital space. It was a very low barrier to entry to do business online, to build websites as a service. At that point, start a website, get into eCommerce with very low customer acquisition costs. That's what I did. I dabbled around online and figured things out the hard way. Initially, I taught myself a lot of hard lessons. I stumbled and fell many times but this was nights and weekends for a while and I ended up having some success. I was at the right place and at the right time. That was an easier time to get into eCommerce. It's much more competitive now. There are a lot of software that has decreased the barrier to entry even further. There are probably 10, 20 times as many merchants online competing for the same ad space as when I’ve got into it. I’ve got in and got my feet wet into self-employment. I learned the hard way about keeping your books and quarterly estimated taxes. I learned that lesson the hard way. Plenty of stumbles, as you have seen with yourself or potentially your clients. I ultimately ended up selling that. I didn't know what my next venture would be until I sold that company. Throughout the sales process, that's where I learned, “This is what I want to do.” I have done consulting at other firms before. I wanted to do consulting and eCommerce. I wanted to do consulting for some supply chains and logistics. It didn't ring a bell but when I sold my company, I realized this is what this person does. They understand the M&A process and know who all the key players are. It's a lucrative space to be. It provides value. It's fun. It's very goal-oriented. I'm not racking up hours on somebody else's bill. I'm working for free most of the time until I close something. That's how I’ve got into the business brokerage space. I started at my own company with a partner and we had a couple of employees. After a few years, he and I split off. He went to work with his wife on her business. Fortunately, I met the folks at Raincatcher, which is the firm you are familiar with and the group I'm at. It has been a great transition. I still have the flexibility. Somebody sets their schedule and I run my division. I also have the scale of a large company with processes and made many of the same mistakes that I was making. I have learned a lot of lessons the hard way and now I don't have to learn the hard way. I'm a part of a much larger organization. We are an Inc. 5,000 company. We are one of the larger business brokerage companies in the US. You were talking about your eCommerce company. What niche did you finally land on? We ended up dropshipping equipment. This is still done now but to a lesser extent. You make a sale, and then you turn around and buy that product from the supplier, the manufacturer. We used primarily woodworking equipment but we had metalworking. We had desks and tables as well. We branched out. This is before Wayfair and Houzz. There were some furniture elements to it but we also had equipment. This was before the major equipment dealers had a large online footprint. My partner and I at the time had figured out online marketing before many of the major companies with larger budgets than we had. We sold equipment primarily online. I'm trying to match what you learned in college and your first job with what you were doing. What did your degree prepare you to do as far as it goes with this? [caption id="attachment_5942" align="aligncenter" width="600"] Sell Your Business: The best lessons have come from stumbling and failing.[/caption]
I learned the basics of accounting. I learned that relationships matter. That always rang true. I don't know if that's necessarily coursework. That was my life experience. It taught me that. Other than the basics of finance and business management, we scratched the surface of sales and marketing. A lot of it is on-the-job experience. My best lessons have come from stumbling and falling or I have sidestepped maybe some mistakes by observing what other people have done by surrounding myself with people smarter than myself and who have done it before me. That's how I have gravitated to learning as opposed to a textbook per se.
You went from an employee at an investment firm into a digital marketing space-built company where somebody wanted to purchase it from you. You went through the entire transaction journey. In your next step, were you in M&A, in the digital space, as well?
I had a couple of side projects at various times. Some that went well, some that didn't. I am with a friend who sold scrubbing brushes at the end of drills. We sold them on Amazon. That was his business that I supported. At this point, I lived in Los Angeles. I took a consulting role at 20th Century Fox. I have seen behind the hood of the Fortune 100s and how they operate.
I'm much happier in a small business environmental setting. That was a fun role to be around that type of corporate environment and to go to work in a 36 story tower on FOX+ every day. That was fun. That was an eight-month. It was supposed to be 6 months but it lasted 8 or 10. We had one project that kept on dragging on. The problem carries on.
I had some different ventures in that time before I’ve got into brokerage. I had the itch to be self-employed the whole time again. Maybe not the masochist of learning all the same problems over. I didn't want to get back into eCommerce and navigate the supply chain. I thought M&A and being a broker would be a good space, and it was but I had plenty of problems that I had still yet to solve and had a slow start in the brokered space. In my first few listings, I thought I knew what I was doing and it turned out that I didn't know so much.
This is a lot harder than I thought it was going to be. The buyers don't come flocking to each deal that I have. That was an issue. I didn't have a great amount of success in my first year in that business. It took a while to start getting some closes under the belt and that learning curve flattened out as it does in any other career and I started getting a pretty good hold of it.
I think about how you grew up as a kid and you hear about people that take a job or get into a profession, and then he stayed there their entire lives. You think about the folks that take your route. If you had kids, how do you encourage your kids to be an entrepreneur? What did you do to foster or point you toward this direction?
[bctt tweet="You sidestep some mistakes by observing what other people have done, by surrounding yourself with people smarter than yourself and people who have done it before you." username=""]
They think I'm crazy for going in this direction. They have the steadiest careers as you can imagine. My dad worked for the government. He worked for the Social Security Administration. He took a job with them when he got out of college, and then took any promotion he could get. He worked in Guam to take a promotion with him. He moved to Los Angeles and that's how he and my mom met.
She was a financial analyst in the Social Security Administration. They both worked for the government, which is as steady as it gets. Meanwhile, their youngest doesn't want anything to do with a steady career, would rather learn things the hard way and do it himself. I guess you could say I'm hard-headed but it works for me.
In the Rich Dad Poor Dad series, Kiyosaki talks about the quadrants and so on. You think about the folks that are the employees, the professionals, and then you have the other crazy group that goes out in the entrepreneurial space and learns by failing forward. You have a varied career in finance and M&A building, selling the company, helping others and so on. When you are talking to a business owner in the SaaS space or online retail, what is it that you bring to the table that you think resonates with them when you are having the first conversation?
I'm a cut from the same cloth. That wild entrepreneurial have figured out by trying cloth as many of these people are. I was that guy. I had to figure it out. A lot of these people desire to have the freedom and flexibility that goes with running an online business. Some of these people transitioned upon having a family. They chose to leave their job and wanted to be able to work from home. They are working 60 hours a week as an engineer and I would rather work twenty. They buy a business and some people want to learn how to launch a business with low upfront costs.
They learn how to get into digital marketing or how to get into selling products on Amazon. I'm cut from the same cloth as a lot of those folks and can relate to them. I also have the benefit, which many business brokers don't have, of being focused on one industry. I focus on the digitally native space, be it SaaS, eCommerce or content media websites. I know many of the key players in the space. I have spoken at a couple of conferences in the industry. I know what moves the needle in terms of value with those types of businesses. People find that to be valuable.
For that business owner who’s in the digital space, who’s reading this episode and they go, “What are the value drivers and what things do I need to make sure that I'm doing in my business? What things do you talk to folks and advise them to do?
[caption id="attachment_5943" align="aligncenter" width="600"] Sell Your Business: A business that you don't want to sell is the most sellable because there's a much larger pool of buyers looking to buy a cash-flowing asset than are looking to buy themselves a job.[/caption]
The short of it is making your business as sellable as possible is to make it run without you. It's a business that you don't want to sell. It’s the one that’s most sellable because there's a much larger pool of buyers looking to buy a cash-flowing asset than are looking to buy themselves a job. Millions of businesses out there make $100,000, $200,000 a year but they require an owner to step in and operate. It works 30, 40, 50 hour weeks, which can be done. Those can be sold but the ones that are sellable at a higher price are the ones that have management in place, have operating procedures, and more or less have navigated or grown through the phase where it's reliant on the owners and the operator.
I think about the difference between a job and a business. When you are talking to the various potential clients that come in and contact you if you could characterize, do you think that those business owners recognize the difference between having a job and having a business or are that something that's forced on them in the sales process?
Most people, especially in the digital space with the clients I work with, it’s them. They are the artist and this is the artwork that they are selling. They don't often realize how reliant on them it is. We counsel them up and say, “There needs to be an operating procedure. Somebody else needs to be able to step in and operate this.” I will say that some have learned the work-life balance and have learned the importance of delegating.
Even if that means a couple of errors are made while a new person is broken into a position, it doesn't have to be perfect. What needs to happen is these people need to learn and you need to build a management team underneath you and be able to step out and work on your business instead of in it. That's the minority in my view of small business owners who understand that but as they get larger and that becomes a necessity, that's when owners become more owners, as opposed to owner-operators.
The things that strike me as I think about the various business owners are that we all come out with formal education, typically and the formal education usually has nothing to do with what we are doing. That Organic Chemistry took me out of med school, went through the Army, went through Intel, and now I'm in the finance space, a new world. Those don't match up at all. When you were running your business, was there a pivotal book, resource mastermind group or influencer that helped you get ready to sell your business?
Was there one that helped me get ready to sell my business? I would say no. I wish that resources were available to me. In terms of exit prep, there are a lot of brokers out there that we say are there for the fireworks. They are there when you want to sell, we sign you on as a client, we sell the business and it's off our books. I would say it had I come across Raincatcher or a firm like Raincatcher that has an exit prep part of the business or a business coaching part of the business.
[bctt tweet="The short of making your business as sellable as possible is to make it run without you." username=""]
Somebody to teach you how to keep better financials, how to delegate and build standard operating procedures in your business or how to price your product and service. A lot of people don't. If the pricing is too low, they don't realize it. There's price sensitivity. You can increase your price by 20% and only lose 2% of your customers, potentially.
I would say the management consulting or business coaching aspect has been missing for a lot of brokerage firms. That's something we incorporate at Raincatcher that is very valuable. I went in blind. Knowing what I know now, I would have done a lot of things differently. I still would have sold because it was very reliant on my partner and me at that time.
It had served the needs that we wanted it to serve, which is get us out of working hard 9:00 to 5:00, trips for night and weekend jobs and doing a full-time job. We moved on to what's next. In hindsight being what it is, we were not very well prepared to sell and therefore probably didn't get as much out of the exit as we would have liked.
For the potential business owner who’s attempting to sell or come and go, “I want to sell. Should I sell? I’ve got an unsolicited offer, some combination of that or I've got help from them,” I think about the experience that you have had. “I may not be able to do exactly what to do but I can tell you what not to do.” In the business space, do you think there's a greater recognition that the business owner needs to get a company or needs to look at enterprise value or to look at the value drivers in their particular business? Do you think that's happening or is it still a vacuum?
There have been polls about this, asking business owners, particularly Baby Boomer business owners, who are coming to the age where many want to retire. Many of them who have wanted to retire for ten years is still unable to. How many of them have a legacy plan? How many of them know what their businesses are worth? The number is shockingly low.
Those polls, I don't know what the sample size is but I can tell you from boots on the ground and talking to these people, it adds up because a lot of these people don't know what their business is worth. It's somebody at a conference who told them one thing, their friends sold for another and they try to put this together. They think they are in a good position.
It's pretty rare that somebody comes in and has an accurate understanding of A) What their businesses are worth? B) What does the sales process entails? Are they selling stock or the assets of the business? Does it come with cash and working capital included or not? There are some caveats to it that people are uninformed about until they get into the process. It would be nice if people started up to a decade but at least 12 or 18 months before their planned exit to prepare for selling. They rolled up their sleeves and did a little bit of work ahead of time. They will get more out of it when they do finally pull the trigger and sell.
I have talked to other folks from Raincatcher. Some pitch, some can't but that's okay. The ones that can't, we won't mention by name. You think about what Raincatcher tries to do when you have a business owner that shows up that's got a good business but it's not ready to sell yet. For the folks out there that may be in that boat, can you walk us through what those steps look like?
It's different for everybody. Broadly speaking the steps to get ready to sell or to grow the business to the point where you can hire management and it runs without you, I would say that's the number one thing that inhibits its owner from selling or inhibits there from being a competitive buying process is it's still very reliant on the owner. Part of that is the size of the business.
If you run a small coffee shop with you as the owner, it's somewhat reliant on you to run. It's never going to be large enough to where you can have a full org chart underneath you, and you step aside, at least not many coffee shops. There's a market for small businesses out there where the owner is also the operator.
[caption id="attachment_5944" align="aligncenter" width="600"]
