The Wise Exit

CRAIG DICKENS - Episode 43 of the Cashing Out (M&A) podcast

00:00:00:02 - 00:00:17:23
Craig Dickens
Most entrepreneurs they buy for the growth rate part of the equation while we're growing and we're growing higher than our industry average. So we must have some secret sauce that's working right? If you ask investment bankers, they go to those financial metrics that you mentioned earlier. Yeah, and they go to quality of earnings. Well, look at this. You know, they're up and to the right.

00:00:18:01 - 00:00:23:04
Craig Dickens
If you ask buyers what they want is a differentiated company.

00:00:23:06 - 00:00:51:08
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today, my guest is Craig Dickens, a serial entrepreneur with multiple exits who decided to start an investment bank to help demystify the M&A process and help our fellow founders create the exits they deserve.

00:00:51:10 - 00:01:15:03
Todd Sullivan
Craig is one of the investment bankers on the Exitwise platform, and we decided to bring him on to share his particular expertise for guiding first time sellers to not leave money on the table when selling their companies. In today's discussion, we chat about what to watch out for with unsolicited offers. We talk about translating emotion into finance by educating our clients before and throughout the entire sale process.

00:01:15:05 - 00:01:38:00
Todd Sullivan
And finally, we share why all business owners should have an investment banker on speed dial years before you're ready to sell your business. I hope you enjoy my conversation with Craig Dickens. Craig, thank you for being here. Really excited to have you. We got a chance to chat earlier today and I've done a lot of research on you as my whole team has.

00:01:38:02 - 00:01:59:19
Todd Sullivan
And I think what I was most excited about is you have done so much, so much in that entrepreneurial journey. So many companies that you've built, so many that you've purchased, so many that you've sold, and then you've gone from that an entrepreneurial journey into helping others at the end of their entrepreneurial journey by helping start an investment bank.

00:01:59:21 - 00:02:22:00
Todd Sullivan
And I know how you think about building this investment bank, right? That this is going to be one of those things that you exit someday as well. Right. So it just it's fascinating entrepreneurial journey, so many amazing experiences. And I know you're going have a ton to give to our fellow founders. It was very easy. Mark Cuban had this spot booked today and I said, I'm sorry, you got to wait.

00:02:22:01 - 00:02:24:06
Todd Sullivan
I got Craig and he's up.

00:02:24:08 - 00:02:25:01
Craig Dickens
So look out.

00:02:25:01 - 00:02:26:14
Todd Sullivan
Thank you for being here.

00:02:26:16 - 00:02:46:17
Craig Dickens
I thought your intro was a way of calling me old because I've had so many experiences. So now that's great. I'm excited to be here, and I love the work that you guys do, and I think we share a passion for entrepreneurs and entrepreneurship in general. And ultimately, I think we're both in the business of helping folks ring the bell, right?

00:02:46:17 - 00:03:02:23
Craig Dickens
And, you know, so many businesses don't achieve that life changing event, right, with the sale of the company. So that's what I get up every day thinking about, like, all right, how can we help other people do that? I've been there, done that several times, but now the journey is a little bit different at this stage of my career.

00:03:02:23 - 00:03:08:07
Craig Dickens
How do we pass that wisdom? And you know, share the scars on the back and the plaques on the wall, right?

00:03:08:09 - 00:03:26:07
Todd Sullivan
Absolutely. Yeah. I mean, you said it. The fact that you've been through it, it really resonates with people and it gives us an opportunity to give back and what a rewarding thing it is. And it isn't just ring the bell. It's like, how do you think about when you should do it, how you should do it, why you should do it.

00:03:26:09 - 00:03:44:03
Todd Sullivan
It's that a little bit of the preparation, right? But kind of the, the mental game of is this right for me at this time and then making sure right like I think you say nothing in the bone pile. Right. I can't remember your phrase. Great. All right. But you got to make sure that your clients are successful, right?

00:03:44:03 - 00:03:54:21
Todd Sullivan
It's everything to them. And we know what it means, Right? So another reason I was so excited is that you have been through that journey and we sit in a very similar seat today.

00:03:54:23 - 00:04:19:01
Craig Dickens
Mm hmm. Yeah, it's, you know, and the statistics are out there for everybody to take a look at. And I think people listening to this will go, Yeah, that's kind of me. You know, entrepreneurs as a class, we're optimists and we're risk takers. And oftentimes, you know, we'll go all in, right? We'll just push the chips in and say, okay, I'm going to have a lot of my net worth tied up in my business because it's my passion, it's my sense of self.

00:04:19:01 - 00:04:40:15
Craig Dickens
It's my purpose in some instances. And, you know, that's not always the best advice, right? But that's the nature of the beast. So when we talk about the stakes, the stakes are pretty darn high for most entrepreneurs. And if 70 or 80% of their net worth is tied up in their illiquid private company, generally speaking, you know, that's a that's a tricky spot to be in.

00:04:40:15 - 00:04:50:13
Craig Dickens
So we take our work very seriously in terms of creating those exits and we just don't give up. Right? It's like we will find a way if somebody wants to get to an exit.

00:04:50:18 - 00:05:12:02
Todd Sullivan
So, I mean, let's let's go back and kind of share with people who you are, how you got started, because this entrepreneurial journey is really, to me, unparalleled. The number of things that you have been able to accomplish in a short period of time. I was definitely not calling you old because it was more like how I kept kind of racking my brain.

00:05:12:02 - 00:05:22:09
Todd Sullivan
How did all of this happen? You make me feel very lazy, so please take me back when you knew you had the bug and you were going to start kind of the first company.

00:05:22:11 - 00:05:38:12
Craig Dickens
Yeah, I guess. You know, I had a mentor who who said, Gee, you've got a lot of ambition, you've got a lot of ideas. You know, maybe the constraints of a corporate career are not for you, right? So that I'll give him credit for kind of opening my mind to the entrepreneurial path. And I'll also give some credit.

00:05:38:12 - 00:05:59:23
Craig Dickens
I've had some amazing partners and you can't run two businesses at a time, right? Sometimes I had to going, you know, kind of the parallel entrepreneur track without having great partners. So and also great teams around me. And, you know, ultimately, whether it be a private equity partner or a family office partner or just operating partners. So I'd give them a lot of credit.

00:06:00:01 - 00:06:19:06
Craig Dickens
And certainly my wife, you know, she puts up with that entrepreneurial A.D.D. that I have, which, you know, again, I take my hat off to every entrepreneur because it's not the easiest way to make a living. But I think the rewards, not just financial, but just, you know, the element of control of your life and flexibility and building something yourself is fun.

00:06:19:06 - 00:06:41:10
Craig Dickens
So I would say, you know, my first entrepreneurial endeavor was, you know, back when I was 24, 25, I started a mail order company and it was really based off of a hobby and it was an expensive hobby. So it was triathlon-ing. And so we'd go away, you know, to these races every weekend and, you know, hotel bills, entry fees, the latest equipment, this, that and the other.

00:06:41:10 - 00:07:10:09
Craig Dickens
Right? So I decided to turn it into a business and I saw kind of a seam in the market in that there were these staunch traditional bike enthusiasts and you know, Campagnolo Italian parts are the only way to go. Right? But then we see these freaks of nature, these triathletes with aero bars and disc wheels and, you know, all of that and all of those people had some really high discretionary income as a rule, doctors, attorneys, etc., that like, Hey, I want a challenge in my life, right?

00:07:10:09 - 00:07:30:00
Craig Dickens
It's either I'm going to climb Everest or I'm gonna be a triathlete. So we said like a lot of discretionary income and it was specialized and kind of early adopters and they were being ignored by the traditional cyclist market, right? So that was my earliest venture and that was the earliest bug. And I had a full time job to start with.

00:07:30:02 - 00:07:49:22
Craig Dickens
So that's really where some of that that fuel got added to the fire in that particular business. And that story, interestingly enough, we grew that very rapidly and captured a lot of share among triathletes. And this was old school, right? This was eighties when I was 25 years old. You know, it was mailing lists, it was placing ads, it was direct mail.

00:07:49:22 - 00:08:13:09
Craig Dickens
You know, we didn't have email blasts and the like, but we actually got a preemptive offer from the number two player in that market, the traditional mail order cycling company - they are still out there. And I was excited and we did the dance and we got what we thought was an amazing offer. But I had this little nagging feeling. And again, you know, I know better now, right?

00:08:13:09 - 00:08:32:17
Craig Dickens
Preemptive offers are never usually great offers, and usually when you have one buyer, you have no real buyers. They're just potentially kicking your tires, right? Yeah. So I got the gall to call the other big player in the market and they didn't really love each other. So I said, Hey, I'm in play. And, you know, would you be interested in what we built?

00:08:32:17 - 00:08:52:12
Craig Dickens
So that was the first lesson in M&A was always get competition involved. You know, and don't take that first offer. And we get lots of people who call us and say, you know, I've just signed an LOI (letter of intent), can you help me? Yeah, I'm like, well, maybe, but let's orchestrate some competition immediately so that, you know, we keep that buyer honest.

00:08:52:12 - 00:09:15:18
Craig Dickens
But anyhow, that was my, my first foray into the business. I started up seven companies and acquired seven companies, so a total of 14. And then on those companies I added 22. Add on Bolton's to grow enterprise value, you know, quicker right? Yeah. So I've been a buyer and a seller and had some great exits and had some ok exits and learned a lot of lessons along the way.

00:09:15:20 - 00:09:34:14
Todd Sullivan
Thanks for sharing, Craig. You know, I go back to the first company you started. You had a full time job and so the light bulbs kind of going on to me that you are a multitasker. You can run two businesses essentially at the same time, employment and your own company. I want to give a shout out. I've invested in the triathlete space.

00:09:34:14 - 00:10:00:09
Todd Sullivan
Right. And it's not that I'm an expert, but I have friends that do it. And so. Fares Ksebati who has MySwimPro is really the the top swim community and coaching app in the world right now it's amazing. And so a lot of triathletes use that product and then. NIX Biosensors. Meredith Cass has built this company where she is measuring real time hydration for really triathletes, distance runners.

00:10:00:11 - 00:10:32:15
Todd Sullivan
So yeah, you absolutely learn about that audience and the disposable income. And so I'm getting to a question here. When you went to sell this business today, we would see all these businesses saying, okay, here are some financial metrics and multiples, but look at the data that Craig must have the access to this buying group. Right. Can you talk about maybe that exit and the certain asset that might have really helped drive that competition that I'm guessing, right.

00:10:32:15 - 00:10:40:18
Todd Sullivan
I don't know. Was more than just the financial metrics because that's how you get the outliers, right, where you find something. Wow, everybody needs this.

00:10:40:20 - 00:11:06:02
Craig Dickens
Yeah, I would say it was a great introduction. And again, it's old school people in marketing take this for granted now. We bought a lot of data. We kept rolling profits back into this list and this differentiator. You know, nowadays you can use the credit card agencies, right? And we did that back then to get that ideal profile and to get, you know, now they call it buyer intent.

00:11:06:02 - 00:11:29:21
Craig Dickens
And, you know, it's much more sophisticated now. But really what they were buying was access to that market and access to our data. Yeah. I mean, anyone can we weren't manufacturing products. We were buying products that were geared to that market and we were becoming the channel to go out and procure those folks. But really we had a list of 26,000 triathletes.

00:11:29:21 - 00:11:54:16
Craig Dickens
Unbelievable that spent an average of $1100 dollars with us, right. In a 12 month cycle. And I'm not even talking about today's lifetime value. Right. Because he's always come back for more with heart monitors or, you know, so really, it was all about the data plan. And really the lesson there is why do acquirers acquire? They really own the bike market and they had the mail order catalogs back in the day.

00:11:54:16 - 00:12:16:18
Craig Dickens
Right. And they would catalog bomb the same people, but they didn't have what you'd call today, our ICP, our “ideal client profile”. And they really bought the list, if you will, because and then they added it to their machine. So with that discretionary dollar, I mean, they tripled their average cart at today's standards and in Ecom just by having access to those folks.

00:12:16:19 - 00:12:53:16
Todd Sullivan
I love to, you know, back into that and what the kind of teachings could be, because to me, we see a lot of business owners who are looking to sell and we say, wow, okay, so you've got size, you've got growth rate, you've got great profitability. And what is that like intangible thing that you have? And when you see the audience that you've captured and then very little churn, right, or a very high repurchase rate, that that audience is incredibly loyal, that is of those opportunities to really go beyond what any industry multiple on revenue or EBITDA might be.

00:12:53:21 - 00:13:02:13
Todd Sullivan
Is there anything else that you would add to that little picture I painted for for business owners to think about when they're thinking of the value of their business?

00:13:02:18 - 00:13:25:18
Craig Dickens
Yeah, great question. And I think you hit on it earlier and I. JD Merritt, you know, we've done some and working with other colleagues, we have done some survey work around why buyers buy. And if you ask most entrepreneurs they buy for the growth rate part of the equation while we're growing and we're growing higher than our industry average, so we must have some secret sauce is working right?

00:13:25:20 - 00:13:39:19
Craig Dickens
If you ask investment bankers, they go to those financial metrics that you mentioned earlier. Yeah, and they go to quality of earnings. Well, look at this. You know, they're up and to the right. And if you ask buyers what they want is a differentiated company.

00:13:39:21 - 00:13:40:15
Todd Sullivan
There you go.

00:13:40:17 - 00:14:00:07
Craig Dickens
So really what we were in folk saying, you know, and and I have a mentor of mine, Greg Alexander, you know, and many people have coined this before him. But, you know, the riches are in the niches, right? So, I mean, we were this little niche of, you know, everybody thought hunting was going to be a fad. Right now, it's a fad.

00:14:00:07 - 00:14:17:21
Craig Dickens
We're not going to pay attention. We're not going to pay attention. We're not going to attention. All a sudden, it's, you know, half a billion dollar market. So that differentiation. So my advice to entrepreneurs is to really think, especially presale, you know, everybody has their elevator pitch, everybody says, here's why we're different. And, you know, a lot of that is drinking your own Kool-Aid.

00:14:17:21 - 00:14:39:23
Craig Dickens
But really focus on what is different about your offering or your ideal client profile, that someone can pour fuel on it and have a disproportionate win rate or a higher profitability or a higher growth rate, because those same things are true right in the buyer's eyes, but they want to know if this thing is going to go from $30 to $100 million.

00:14:40:04 - 00:14:54:02
Craig Dickens
Right. And it's all in the differentiation. I can sell differentiation. I can grow differentiation. If I'm a me too, I'm not going to get an outlier outcome. And from an investor standpoint, I'm not going to get the returns. That would be sticking it in today's T-bills.

00:14:54:02 - 00:15:12:00
Todd Sullivan
I love it. All right. That was perfect. Those were kind of what I was looking for. It was how I thought I saw it. And you really kind of clarified it could we go back? I know you got a bunch of exits in your buying companies, but you touched on something that comes up a lot for founders, which is this, quote, inbound interest.

00:15:12:02 - 00:15:38:08
Todd Sullivan
Right? And so I kind of try to tell a cautionary tales that a lot of these calls that you're getting are from analysts at firms that are just kind of poking for information and that in general, inbound interests tend to be a waste of time for founders. And it's not to say that we haven't transacted with those exact same buyers for founders, but you made the comment you’ve got to create competition, you got to do it really quick in those situations.

00:15:38:13 - 00:15:43:02
Todd Sullivan
Maybe you can expand a little bit more, right? Because that is one of the secrets for sure.

00:15:43:08 - 00:16:14:00
Craig Dickens
Yeah, it's a great question. I think, look, you know, business is a full contact sport and if you have private equity and other investors, they are going to spin up a business development outbound marketing campaign and what their goal is. And I don't besmirch them this because I do it myself. I've done it myself and we do it on behalf of clients is to generate preemptive deal flow, meaning deal flow that doesn't have an advisor that doesn't have great an intermediary or even an attorney or CPA.

00:16:14:01 - 00:16:38:12
Craig Dickens
They want to get their hooks in you so that you'll share a bunch of information and that they can potentially buy you at a discount to market. Yes. And again, buyers are investors. Really? Yes. Right. And the old investment adage is buy low, sell high. It doesn't get much more complex than that. Correct. So I think and part of their marketing is, yes, they will come to investment banks like us and say, what great assets do you have?

00:16:38:14 - 00:16:58:04
Craig Dickens
But they will also have a preemptive strategy to go out and get to owners directly, establish a relationship, rapport, you know, hopefully have that connection and be able to develop that relationship so that the owner goes, you know, this is a pretty good fit. I like these guys. It's a quote unquote fair offer. But if you don't have anything to compare it against, how do you know it's a fair offer?

00:16:58:06 - 00:17:16:00
Craig Dickens
Right. So and, you know, the cautionary tale there is and you hit on it. Look, you're the boss, you're the entrepreneur, and if you're bored one day you take the call. Or if they happen to get through your executive assistant, you take the call and it's you know, it's kind of an ego boost. And you start to think about your business and all of a sudden you get 20 calls.

00:17:16:00 - 00:17:35:21
Craig Dickens
You're like, Wow, I must be in a great tailwind sector, or people have found me now or my SEO is working and now I'm on their radar, right? But it can be a colossal waste of time and even more so, it can be a little bit more damaging if you share too much information. Correct. I got a couple of friends in the business and a couple of people have changed the iteration.

00:17:35:21 - 00:17:49:02
Craig Dickens
But you know, buyers are the old adage is, you know, buyers are full time predators and you're part time prey. Yeah. And ultimately, that's how that dynamic works. When they're reaching out to you, they want to buy you at a discount nine times out of ten.

00:17:49:04 - 00:18:16:10
Todd Sullivan
Yeah, absolutely. When it is kind of that unicorn situation where it is actually a buyer that is serious about buying your company, we often see that you've already had a relationship with that group. There's a business development piece going on, maybe some co-development, and they're saying, you know what, we should really just own this company. And so they're coming from a little bit more of a position of knowledge about the business, and that makes a lot more sense.

00:18:16:10 - 00:18:39:05
Todd Sullivan
But it doesn't make sense to not spin up competition. And you were able to do that on your first exit. And it's one of the things that really investment bankers can do for you, right? And particularly if they know the buyer set, they know that that industry well, spinning up that competition can allow you to say no to the first one, bring some leverage and eventually find the right buyer, the right numbers, the right terms.

00:18:39:07 - 00:19:13:04
Craig Dickens
And I want our kind of back up a little bit. Right. So entrepreneurs have chosen their field typically because they want to be in control and a preemptive approach or even spinning up quick competition when you're not really ready to sell is a passive reactive approach to monetizing your life's work, right? So a lot of times, you know, there's a fear that entrepreneurs have that, well, you know, if I bring in professional advice when I have a preemptive, I'm going to scare them off.

00:19:13:04 - 00:19:14:04
Todd Sullivan
Oh, yeah.

00:19:14:06 - 00:19:35:06
Craig Dickens
Right. And so, you know, the consequence of not being ready can cost you millions or a failed deal or huge distraction. Yeah, but I think I want to dispel the myth a little bit. And there's really three reactions that a preemptive bidder will have to use, saying, Hey, I want to pause. I want to bring in great advice.

00:19:35:06 - 00:19:36:08
Craig Dickens
I want to get my ducks in a.

00:19:36:08 - 00:19:37:04
Todd Sullivan
Row, right?

00:19:37:05 - 00:19:50:10
Craig Dickens
Yeah. The first reaction is, oh, well, really sorry to hear that, but we're out. Which again tells you something about the quality of the buyer. It tells you about their intent. They were trying to steal your company hundred percent.

00:19:50:11 - 00:19:51:13
Todd Sullivan
100%.

00:19:51:15 - 00:20:18:12
Craig Dickens
The second is excellent news, because now I know you're serious. If you're getting professional advice and me as a buyer, I know you're not just wasting my time tire kicking to get a free valuation of your company, Right? So they say yes. Put me into your process. Let me know when you're ready. We'll still be here because we have strategic intent and we're glad you have a professional involved because you can still run the company without being distracted.

00:20:18:14 - 00:20:34:22
Craig Dickens
And then the third out potential outcome to saying I need some help and I need to slow this down a little bit is, you know what, we really don't want you to go to market. So now we're going to up our offer 20 30% with a fast closed because strategically you're you know, you're worth that much to us.

00:20:34:22 - 00:20:51:09
Craig Dickens
We've done the homework on you and we're serious about buying you. So sometimes slowing that down is the best approach and really being ready and having all your ducks in a row and we kind of call that the trifecta of M&A, but we can get into that in a little bit.

00:20:51:14 - 00:21:19:07
Todd Sullivan
So those are three great buckets in particularly, I think number three, I'm giving you an offer to not go to market. I think having that expertise behind you to know is that really the take me off the market offer or not? Right. A banker is going to have a very good sense of of whether that's true. And I really like the number two bucket as well because as business owners we think that every buyer is just trying to steal the business.

00:21:19:09 - 00:21:49:01
Todd Sullivan
No, like the ones that want to be part of a process, they have a real mission to buy a company that is strategic just like you. And if the math ends up working for their model and they can justify their real strategic value, they will be there at the end. Right? And they understand that they're professional buyers. So obviously, bucket one, you really want to stay away from anyone that makes an offer and then runs the second you want to, you know, get professional help is never going to be a serious buyer.

00:21:49:03 - 00:21:55:03
Todd Sullivan
Yeah. So, yeah, I love that. I love how you broke that out. The three buckets. I'm definitely going to remember and share that.

00:21:55:05 - 00:22:12:14
Craig Dickens
Yeah. It's a you know, I sit on the board of an outdoor products company and one of my main functions on the board too. And I think this, you know, the more entrepreneurs can get educated on the ecosystem of who buyers are and even through the lens of those, you know, who are the good guys, who are the time wasters, right?

00:22:12:14 - 00:22:30:00
Craig Dickens
Who are the ones that are professional buyers? Part of my role is, I mean, they get inbound all the time, right? Within 2 minutes I can figure out what type of buyer are they, a search vendor looking for anything or are they committed capital? Have they made acquisitions in the space just because I have knowledge and data behind me.

00:22:30:02 - 00:22:49:14
Craig Dickens
So, you know, if you have a mission and you don't want to get distracted from your mission, you know, understanding that this is really just a huge time suck if you don't have some help figuring that out and if you're not prepared to do anything with it, the old I just signed an LOI (letter of intent), now what? Right. The odds of that deal getting too close are pretty slim.

00:22:49:16 - 00:23:14:00
Todd Sullivan
I love that you said that because when I look back at my entrepreneurial journey for companies, I wish I had the investment banker that I had at the end on my advisory board throughout just having that insight of what's going on in the market, what's being valued, what's not, it is like playing inside baseball. I'm not exactly sure what that term is, but it is an unfair advantage.

00:23:14:00 - 00:23:30:14
Todd Sullivan
So it's not only that you won't get distracted because you have somebody to tell you, hey, is this real or not? Or how should I react to it? But I just think the insight that some of these people have is so deep and it is a way to like think about building your business. What are the next steps?

00:23:30:16 - 00:23:53:18
Todd Sullivan
Some of the bankers we work with, you know, I just I had a call today even where they were saying, hold tight. What you're going to see in the next 90 days is going to change the way you think about this industry. Right. And who knows that kind of data. Right. It's somebody that really is in the weeds with the biggest clients in the space that are making enormous moves.

00:23:54:00 - 00:24:04:20
Todd Sullivan
And to see some of these smaller companies to have that knowledge, it really it's incredible. So I'm excited that you're doing that for founders, not just the investment banking side. Right, but that advisory side.

00:24:04:22 - 00:24:24:09
Craig Dickens
Yeah. And one other thought there, and this is a help to management teams too, You know, and I've written a couple of blog posts relative to why you should have an investment banker on speed dial prior to that advisory. And, you know, we've sat through lots of board meetings and different companies and you know, management is very proud of the fact that of X, Right.

00:24:24:09 - 00:24:46:09
Craig Dickens
Well, we've we've grown 20%, you know, at the press of a button. We can find out all of the industry stats, you know, who's growing at what rate, what the average is, what the metrics are, what how fast they're collecting their cash. Right. So when we say, okay, kind of reverse engineering your exit if we're going at 20%, but my industry is growing at 30, I am a laggard, not a leader.

00:24:46:09 - 00:25:09:13
Craig Dickens
Right? So I know we have a problem against this big data set. And so a lot of times we can help management teams really clarify. And it's not just through the lens of a buyer. You may never exit, but you want to run a great company so that you're defensible and derisked and you know that you're not going have to worry about going out of business if you're compared to your peers, right?

00:25:09:15 - 00:25:24:17
Craig Dickens
So a lot of times we can serve that function and help management teams really drive outstanding results because, you know, we look at hundreds of companies a year. So we have good personal data sets, right? In addition to all the data and subscriptions globally that we know.

00:25:24:19 - 00:25:50:08
Todd Sullivan
That might be some of the best advice. We haven't really given that before. But if an entrepreneur is thinking about, Hey, I'm going to have an exit someday, understanding who the best investment banker for them might be, who that person might be, and engaging right and inviting them into understanding their business and giving advice along the way. Whether it's formal advisory role or not, I think it just makes so much sense.

00:25:50:08 - 00:26:10:05
Todd Sullivan
The inside information that you have, not just like that we've subscribed to all these data sources, right? And we can pull your a laggard or you're a leader from a growth rate perspective, but it might even be, you know, in the market today, the the best outcomes are created by the ones with the highest growth rates and profitability is less important.

00:26:10:06 - 00:26:38:17
Todd Sullivan
And that might have been two years ago. Right. But today and a lot of what we see is the companies that have that profitability now are the darlings of the ball. Right. And just to have that insight as you're growing a company, I know I would have loved to walk into my board meetings as CEO and describe kind of the external industry map and where we fit within it and where we need to go to get the best return on everyone's investment.

00:26:38:18 - 00:26:56:11
Todd Sullivan
I love that, right? I say it every once in a while, but I think you really clarified it in the fact that you're playing that role today. I love it. I wish I was doing more of that myself. Could we? I don't want to derail this side of it, but you've got you've got so much experience. Can you talk about some of the other businesses you've bought?

00:26:56:11 - 00:27:02:21
Todd Sullivan
Sold, Built. Right. I know you've kind of combined a lot of that because I bet there's more learnings there for us.

00:27:02:23 - 00:27:25:06
Craig Dickens
Yeah, you know, there's two that I think would be help to, to your audience. One, I'll keep the story real brief, but I bought a company I own the company a total of three and a half years and this is the lesson here and I'll I'll bottom line it first and then tell the story. You know one of the major things that I think and we all get so ingrained in the weeds of our own business, right?

00:27:25:08 - 00:27:54:07
Craig Dickens
But if we're thinking about exiting the business at some point in the future, we need to start making that mental shift from working in the business to on the business right. And we also need to start thinking like an investor because ultimately that's who your buyer's going to be. And if they have to change a bunch of your decisions and lifestyle decisions and all the other stuff that entrepreneurs get, you know, in the weeds on running a bunch of personal expenses through and, you know, all those kind of fun stuff, but thinking like an investor.

00:27:54:07 - 00:28:16:18
Craig Dickens
So I bought a company, it was in the plastics business and it was in what's called the labware - test tubes, petri dishes, you know, things that are used in the lab, you know, specimen cups. Really sexy stuff, right? You know, I bought this company. It was a lifestyle company out here in Washington. And all of the customers were on the East Coast, practically.

00:28:16:18 - 00:28:38:09
Craig Dickens
I mean, there was some West Coast business, but, you know, matching the population of the U.S. and our our client base. Our customer base were the big diagnostic laboratories and the distributors that serve those laboratories. So like LabCorp, Quest Diagnostics, our people and so on. Looking at the business, I said, okay, I'm here. And this is a delivered model, so I'm shipping air.

00:28:38:09 - 00:28:58:09
Craig Dickens
A test tube is mostly air, and I'm shipping it to the East Coast on a delivered freight basis. And when freight rates were cheap and when gas was cheap, right. It's a great business and the EBIDTA was terrific. But I basically made the decision and played chess versus checkers and said I'm a think like an investor. And I'm I think what I can do for the exit.

00:28:58:11 - 00:29:28:13
Craig Dickens
I saved $2 million by closing the plant down in Washington and opening a plant on the Eastern seaboard. Right. 2 million times a seven multiple. Yeah, like that Right now, if I had thought about the lifestyle business and all of that. No, all I wanted out here and maybe we can grow our West Coast stuff, right? So I really want to encourage entrepreneurs listening to, again, play a little chess versus checkers and say, strategically, how can I create value in this business?

00:29:28:15 - 00:29:51:07
Craig Dickens
We were growing organically, terrifically, and then making that move, right? That was the difference. I didn't do much right to improve the profits of that business 15, 20% over that hold period with, you know, 10% organic growth. But by making that one strategic move, which now in hindsight seems like a no brainer, right? That's a little bit of, you know, orchestrating your exit a bit.

00:29:51:07 - 00:29:59:11
Craig Dickens
Sure. But the time was then because we captured all of those savings by moving it to the East Coast. So that's just a quick story.

00:29:59:13 - 00:30:19:12
Todd Sullivan
It's a great one. I think a lot of us founders would not see that, right? We wouldn't see it. We've built a business. It's serving our purpose. Right. To your point, it's probably our it's our personal piggy bank. It is our lifestyle. And it might occur to us, right? Oh, yeah, probably would. Makes more sense over there. But really, financially, what what is the impact of that?

00:30:19:12 - 00:30:35:01
Todd Sullivan
And if you come in and look at it, would I invest in this business today? What are the three things that I could do to dramatically improve the value of this business? I love it. I step back and take a look at your own business and see what you should do as an investor. It's a great, great piece of advice.

00:30:35:03 - 00:30:57:07
Craig Dickens
Or the other thing. And also look, sometimes in today's marketplace, and I want to be timely for people that, you know, some companies are struggling, right. And some companies, through no fault of their own right, they're growing and their cost of capital is just doubled and tripled. Right. So their line of credit and all that. So I want to share a story because not every exit has a perfect index.

00:30:57:09 - 00:31:21:15
Craig Dickens
So I had a company and I had originally had the company with a partner. We brought in a family office partner for Growth Capital and then we were growing pretty dramatically and my partner wanted out, so I bought my partner out of that business. And then 2009 hit and we were kind of a second half business, so we built up a bunch of inventory and we have strong, strong demand in the second half.

00:31:21:15 - 00:31:45:10
Craig Dickens
Well, when the world stopped back in the Great Recession, we were growing 40% a year. For the two years prior, we had some Fortune 500 contracts that we landed and it was like Katie bar the door, right? Everything was good. And then 2009 hit. So the value of my inventory dropped dramatically. I was stuck with a bunch of inventory and the bank came to us.

00:31:45:10 - 00:32:07:06
Craig Dickens
And I think there's probably some folks out there now that are getting some pressure on leverage rates and cost of capital. And they said, look, and it turns out they were a bad operator. They swept our account right. When they didn't have the legal right to they were a zombie bank. They went to zombie just like that because they had too many commercial loans and real estate loans that were going bad in that mix.

00:32:07:08 - 00:32:26:20
Craig Dickens
So I was forced to either, you know, shut it down because they were going to pull our line of credit or sell the business. So what I decided and nobody was from a capital standpoint, nobody was investing during that time. There was no capital available. I couldn't go to Banks and ABL’s and others to kind of dig out of that situation.

00:32:26:22 - 00:32:48:19
Craig Dickens
So what I did is I ended up selling the company and there were three pretty distinct divisions right, of the company. So I broke them up because, you know, there were they were distinct. So there wasn't a true pure play buyer that would be interested in all of them. So I broke them up into three different pieces, sold them to three different companies.

00:32:48:21 - 00:33:15:12
Craig Dickens
Now I left probably ten or $15 million on the table, but I satisfied. That's right. And I basically from an ROI standpoint, I still did well on owning that company, but not as good as if the market conditions were better. So my point here is if I hadn't had that mindset to use M&A as a tool, right, I probably wouldn't have been able to execute, you know, breaking it up into three pieces and whatnot.

00:33:15:14 - 00:33:37:16
Craig Dickens
But, you know, the cautionary tale there, as for entrepreneurs, is, you know, you always have to run the company in such a way that you can be prepared for those kind of events and that you can be prepared to execute well in that situation. And, you know, M&A is a powerful tool when you have to get out of hot water versus, you know, lose it.

00:33:37:16 - 00:34:00:04
Craig Dickens
All right. And, you know, with personal guarantees and all that on the line, it's also a great argument for, you know, in these kind of markets, partnering with private equity and others so that you can de-risk your personal assets a little bit. So, you know, I want to share that story in full transparency, because while it wasn't a great exit, it was a good exit, but an unconventional one.

00:34:00:06 - 00:34:21:10
Todd Sullivan
Yeah, I mean, remarkable that you were able to kind of see the pieces of the puzzle and separate them in a way that somebody or multiple parties could find value in it. Where I thought you were going was, you know, kind of understanding, timing and how the world can change on a dime. And, you know, when you invest in your business, when do you actually sell your business?

00:34:21:12 - 00:34:39:12
Todd Sullivan
And I got caught in 2009 with a business that was growing really well and I was selling the business and I was selling to a major competitor much bigger with, you know, all the financing in the world. The biggest names you can imagine right in Venture were on the board of this company. And I was just I was thrilled.

00:34:39:12 - 00:35:07:20
Todd Sullivan
I was moving to Silicon Valley. I was going to be one of those guys that had the success moved out. And I was apartment shopping and I had a desk at the acquirer and the final signatures were going to be signed at a board meeting a month later after we'd basically already inked the deal. And so I'm sitting there in their office and I get a tap on the shoulder and it is August of 2008 and they're saying the world is coming to a stop.

00:35:07:20 - 00:35:27:02
Todd Sullivan
We are canceling this. And they pulled back everything and walked me to the door and and I thought you were going to have this terrible experience that I had. And you have to go home with your tail between your legs. And, you know, going through an M&A process is very difficult and you're going to lose employees, or at least we did in that situation.

00:35:27:02 - 00:35:45:21
Todd Sullivan
So it really put an end to that company as we knew it. We certainly had some intellectual property and it was able to save a few things over time. But to me it was more about timing. Can you build a business that can weather those storms to your point? But when is the right time to sell a business?

00:35:45:21 - 00:36:12:09
Todd Sullivan
Maybe you could go into that because we cannot predict, you know, the next world shattering event. And I think and I've heard you talk about founders, oh, I'm going to wait till I'm 65, and that's the convenient time for me to exit. That is certainly an interesting talk track. But today I'm seeing more and more founders thinking about I'm going to do this multiple times and they want to maximize each time, right?

00:36:12:09 - 00:36:40:01
Todd Sullivan
It's a journey. And I love, love, love seeing that. But still there is this hesitance, see, like, oh, should I do it now or should I wait? Right. And you and I, we don't have crystal balls, but I'm in this situation routinely where I need to provide that advice. And having been in those shoes of, wow, the world just ended and it crushed our opportunity, it gives me maybe a little bit of a distorted perspective, but I'd love to hear yours.

00:36:40:03 - 00:36:58:12
Todd Sullivan
On how you advise clients who have a real opportunity to exit their business and how to make that decision. Pulling that trigger to sign that LOI. I really and go into exclusivity for the next 60 days to sell that business. It's a big, big moment. I'm wondering how you handle it.

00:36:58:14 - 00:37:17:00
Craig Dickens
Yeah, I think, you know, there's some general advice and some specific advice that I can think of. And we've had partners in our business. You know, one of our investment bankers is a four time venture backed CEO and one of the companies, he was literally in the final stages of investment from a company and I won't go into the company names.

00:37:17:00 - 00:37:37:21
Craig Dickens
You can probably figure it out. But the deal basically died on 911 because that company was in the World Trade Center and no investments were happening in the world. Right. So, you know, I think the first macro level is let's control what we can control and let's manage what we can't control, which is market right where we are in the market.

00:37:37:21 - 00:38:01:16
Craig Dickens
So I referenced the trifecta of M&A earlier. And, you know, it's our belief and, you know, the data would back it up that, you know, there's three things in the trifecta, personal readiness, your financial picture, you know what your number is, You know what you're you know what you want your life to look like in this second chapter, whether it's retirement or going on to do your next thing or what have you.

00:38:01:18 - 00:38:23:06
Craig Dickens
But you have to be personally ready. And we see so many people not taking advantage of all the personal readiness aspects, like your estate plan, your tax plan, you know, donor advised trusts, other things to do to not put so much pressure on getting the world beating multiple to meet your lifestyle. But let's be smart and get ourselves right.

00:38:23:08 - 00:38:41:15
Craig Dickens
The second part is getting the business ready. Do you have good accounting? Do you have low customer concentration? Right. This is the working on the business versus in the business. Reverse engineering your exit and making sure your company is prepared. When those two things line up, you're in good shape. And then third, now you can control all of those.

00:38:41:15 - 00:38:59:08
Craig Dickens
You can control personal and you can control business. And if you don't know how to control the business, get some advice right, or hire a rockstar CFO or, you know, start having that investment banker on your board, right. To to give you that roadmap. But the last one on the trifecta of M&A is market. You know, are interest rates low.

00:38:59:08 - 00:39:33:11
Craig Dickens
Is there a ton of dry powder Right. Is there a ton of cash on strategic balance sheets? Is M&A in your sector? You have a lot of transactions or very few transactions. You know, is there disruptive technology going on to to maybe have, you know, some headwinds against your industry? Are there regulatory changes? Right. Some of those things, all of those things you really can't control, but you can position yourself to be different or differentiated in the market or maintain a state of readiness, just like you mentioned earlier.

00:39:33:11 - 00:39:55:12
Craig Dickens
Right. Hey, wait 90 days because we know this is happening in the industry. When those three things when you get a handle on those things and there's a couple other macro cycles and I wrote an article recently on BoomerPreneurs and kind of securing their legacy. There are known transfer cycles in M&A. Right? And so, you know, talking to investment banker and saying, Right, when is it a good time?

00:39:55:12 - 00:40:04:10
Craig Dickens
What are the market conditions? But when you can get those three things to line up, two of which are in your control and one of which you just need to manage, that's usually when you can get the best outcome.

00:40:04:12 - 00:40:37:14
Todd Sullivan
Craig It's great. We talk a lot about this with founders. We're getting kind of personally ready. What is your number? Talking with wealth management, setting up trusts, being prepared, because when you go in to a transaction and you are anchored in a number that you know takes care of the things that you want to take care of, and maybe it's it's by the next business, whatever that whatever those needs are that you and your family have when you have that number in mind, not only is it create and of some grounding for you, but it aligns you with your team.

00:40:37:14 - 00:40:56:00
Todd Sullivan
Now, the investment banking team knows what you're going to say no to what you will say yes to. And what I would caution is what we see is not only do we often get that number and create structures to go far beyond those numbers, but when founders end up seeing, oh, there's more, they go, Well, well, is there more?

00:40:56:00 - 00:41:16:14
Todd Sullivan
Right? And everybody wants kind of that that last dollar. And so understanding what your number is is really important. And that is part of getting kind of personally ready, getting the business ready. I totally agree with you. Having even a controller on some of these smaller companies having that person on your team. Yes, a rock star CFO is fantastic.

00:41:16:14 - 00:41:37:08
Todd Sullivan
Right? To have your real kind of financial house in order makes a ton of sense. And then I think, you know, interestingly, I'd love to know your opinion today in the transactions that we see. You know, we're seeing them right around that $50 Million mark, right? Anywhere for us is $25 million, up to $250 million. But we have several that are right around that $50M mark.

00:41:37:10 - 00:41:58:19
Todd Sullivan
And for us, it really feels like a sweet spot today. The market is saying there is a lot of dry powder out there and the credit markets are not impacting these deals at this size as much as the $150 to $250 million deals. And so all of this private equity, all these dollars are looking a little bit downstream and there's competition there.

00:41:58:21 - 00:42:22:12
Todd Sullivan
And I would just urge our clients, if you have your house in order, you know your number and you've reached it. This may be a really great time to kind of execute on that, on that LOI, I would love, even if you have a totally different opinion, I'd love your insight onto the market component today. And maybe this doesn't travel well through history, but but today for our founders, you know, what are you seeing?

00:42:22:13 - 00:42:24:05
Todd Sullivan
Sure.

00:42:24:07 - 00:42:46:06
Craig Dickens
Yeah. I mean, ultimately there are buyers for A-minus, A, and A-plus assets at multiples that are just as high as 2020. Yes, because there's more competition for better assets. Again, think like an investor. They look at your company as as an asset right. They go a lot deeper than that. But at the end of the day, what are my investment returns going to be from owning this company?

00:42:46:06 - 00:43:21:18
Craig Dickens
So, you know, B minus, C plus, D plus companies aren't transacting in this market because, you know, because of those, you know, the covering the debt service, right. The cost of capital to hire, etc.. So ultimately deals are getting done and the maintaining your state of readiness and being in a great position to transact those deals are. You know, I talked to a company yesterday, $112 million company revenues with $22 million and EBIDTA and you know, their EBITDA margin is clearly seven or eight points higher than everyone in their industry.

00:43:21:18 - 00:43:45:16
Craig Dickens
I'm like, you can transact and we can get just a rodeo for your your auction right there to make sure that you get the highest amount. So you know, market wise. The other thing that I would say for founders, you know, that that may feel like they're not quite ready use this time and this market where cost capital is a little higher take you know the lending environment takes a little more underwriting right to really get prepared.

00:43:45:16 - 00:44:07:13
Craig Dickens
And for boomers in particular, you know, the most entrepreneurial generation to date, there's going to be this unleashing. I'm already starting to see it. Everybody's getting prepared. Everybody's thinking about everybody's tired. I went through COVID. I've been through a recession, and now I've got this going on, right? Whatever we call this growth recession, there's going to be an unleashing of of, you know, in supply and demand.

00:44:07:13 - 00:44:15:09
Craig Dickens
Rules will come in just because you're ready when the marketplace is going great. Right. You're going to have 100 other companies just like yours on the market that buyers get to pick from.

00:44:15:09 - 00:44:37:12
Todd Sullivan
Oh, Craig, That's right. That's perfect. I think you you added kind of that fourth piece that I hadn't mentioned, really, which is the supply and demand component, right? There are a lot of companies that are holding off going to market. Is there very few great assets out there? And if you happen to have that scale growth rate EBITDA margin, the that profitability, there's a lot out there.

00:44:37:16 - 00:45:04:19
Todd Sullivan
You know, we're in one situation right now and I'm trying to impart. Right. We don't have the crystal ball. We have we actually have one investment banker that says, I have a crystal ball, but it's in the shop right now, which is fantastic by all accounts that we do since we've seen so much and we've been in these founder's shoes, we've been burned and we've been successful, I think we're in a really good position to give advice, right, Even though we really don't know what's going to happen in the future.

00:45:04:19 - 00:45:28:03
Todd Sullivan
It's a tough place to be. It's even tougher for the founder. So thank you. Thank you for that. Look, I want to be respectful of your time. I know we've just kind of scratched the surface of your kind of entrepreneurial experience. You've into building an investment bank. And I know you've even had a merger. Is that right? On that on that investment bank to grow further, you're thinking about not exit.

00:45:28:05 - 00:45:46:15
Todd Sullivan
I know there are ways that you and I are going to be able to work together just because we have that same kind of founder empathy, right? We know what they are going through. And I think both of us have that hustle is that it is our responsibility to not fail for these people that we have just amazing respect for.

00:45:46:17 - 00:45:55:06
Todd Sullivan
So I don't know if you have any more parting words of wisdom for for our audience. I don't want to take too much more of your time.

00:45:55:08 - 00:46:14:06
Craig Dickens
Yeah, no worries. This has been great. I've enjoyed the conversation. And, you know, we're brothers in this fight on behalf of our clients. Right. And, you know, I think it's, you know, the the entrepreneurial journey is not always an easy one. It can be a lonely one. And then when you're making those decisions, you know, there's a measure of life stressors.

00:46:14:08 - 00:46:46:23
Craig Dickens
Right. And we've all seen that listt you know, it's death of a spouse, you know, divorce. You know, getting married is a stressful event. Right. And if you go through that list, you'll see about 30 of the top 100 stressors in your life are potential items that when going through an M&A transaction. So getting, you know, quarterbacks in the mix getting excellent advice, getting people to manage all of those personal business right, M&A and market feedback, you know, it's pretty stressful.

00:46:47:01 - 00:47:05:05
Craig Dickens
But if you have those people on your team, it can be life altering and you don't have to feel like you've just gone through a war and done it all yourself after a long career. So really love the work that you do and your team does. And I think our role is to be the champion of the entrepreneur and make sure that they get the outcome that they want.

00:47:05:05 - 00:47:09:02
Craig Dickens
And to me, that's giving back, right? That's that. That's the fun part.

00:47:09:05 - 00:47:18:23
Todd Sullivan
Craig, thank you so much for your time. That was perfect. I really, really, really appreciate it. I know everybody is going to take a lot from this particular episode, so thank you.

00:47:19:01 - 00:47:20:20
Craig Dickens
Thanks, Todd. It's been my pleasure.

00:47:20:22 - 00:47:43:01
Todd Sullivan
Thanks again for listening to the Cashing Out podcast. For more Founder Exits stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember ex it was dot com and the cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.