Exitwise Productions

(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.) They tripled our type of earn out magnification

just in a very quick time because they

understood every industry has its quirks It's nuances

and things like that HR tech is obviously

no different But the way they were able

to come in and go no no Like

this has value and this is how we

can substantiate that and this is what this

dollar Really means to you as a public

company once they are at the door Welcome

to the exited founder podcast today My guest

is Sean McKenna Sean founded data fusion HCM

a human capital management software and integration company

within nine months of launch Sean received an

offer to buy his company from Ceridian now

day force which Sean ultimately accepted creating multi

-generational wealth because of Sean's industry expertise Operational

chops and understanding of how to optimize and

earn out in an M&A transaction specifically

within payroll software and HR tech industry Sean

decided to join us at exit wise as

an exited founder to help his fellow business

owners prepare their companies for sale and Help

them maximize the sale of each business.

I hope you enjoy my conversation with Sean

McKenna Sean Thank you so much for being

here I'm really fired up that you're giving

us this time for for everyone listening Sean

has just joined us as an exited founder

Which means he's gonna carve out some time

to help our fellow founders who are gonna

go through M&A and join their M

&A teams Particularly the ones in the HR

tech space and maybe even more specifically in

payroll.

So thanks for doing this.

I appreciate it I'm happy to be here

super excited to see how I can help

So I think for everybody let's just we'll

start at the beginning.

What made you decide to start this company?

Well so After a long career of sales

and then really getting into software integration and

HR tech sales I saw that there was

a niche and I saw that it was

an opportunity to really grow a part of

this market that I think was largely overlooked

possibly because of how complex and difficult it

really was to tackle but You know complex

puzzles have always been something intriguing to me

So when I looked at my former company

and what they were doing I really saw

an opportunity to grow in this area and

I thought it was a great growth opportunity

So I actually tried to purchase my former

company I love to say with you at

exit wise and unfortunately we came up empty

-handed that didn't that didn't work out but

we learned a ton along the way and

I was able to start data fusion in

June of 2020 and what we brought to

the market through innovation and just Understanding what

was needed there.

It was just something that I couldn't put

aside.

I had to do it was very risky

It was very challenging scary, but that's that's

Where I went with it, you know I

think when you say scary and challenging when

I think of you as entrepreneur having known

you over many years now and Essentially to

M&A transactions your level of risk-taking

your your comfort with that You are a

very brave off footer or the moods that

you make so I don't want to gloss

over You tried to buy a company where

you were working because you had all these

these conversations Enormous customers right off from a

sales perspective.

You saw something was missing You saw an

opportunity and you said it would be better

to fix this opportunity with the existing company

They weren't willing to move in the direction

you want to move buy them fix that

problem and build something special Tell me more

about that.

Like what brought you to that conclusion?

And then why didn't it work?

So that's great question because as I was

really trying to push kind of the ceiling

of that organization we Were really a very

talented organization.

There was immense talent throughout.

In fact, my sales team was Outperforming, you

know the rest of the organization in so

many ways that we almost got a little

You know over our skis if you will

as an organization because of how well we

were doing in the market and so We

started to feel that squeeze we started to

feel kind of that crunch our salespeople as

well as our operations and our development side

and to be honest one of my top

salespeople were looking at leaving because They just

didn't see that the growth was really going

to come to fruition and I kind of

tongue-in-cheek said, you know Hey, if

you can find me, you know several million

dollars I'll buy the company and I'll fix

it and He actually introduced me to you

Several months later and said hey, there's actually

a way to do this and he opened

my eyes to What being a fundless sponsor

was or you you helped in that capacity?

So then I just seized that opportunity I

really went with it as a chance to

be an entrepreneur and create, you know a

growing software company Yeah, I think you learned

a ton even though we didn't end up

buying that company and I think you can

point a lot of Reasons like the value

that they kept changing over and over was

was very frustrating And then how are you

gonna finance this deal?

You really had to have a valuation grounded

in some real metrics But in the end

you don't buy it But I remember you

talking about how much you learned from that

process that you took into well Actually, I

don't want to split the day you said

they said I'm sorry We're not selling you

this company.

Tell me what happens.

Well, first off.

I believe you might have said I'm not

sure if you want to be an entrepreneur

Sean.

That's a hard road to Walk, but let

me see if I can find you some

CEO positions at some other companies And I

just I couldn't let go of what we

were doing in what I really felt at

that time I was the best in the

world it at what we were doing Yeah

And so I I just said, you know

what Todd?

I think I have to sit and I

have to pursue this in a different manner

took some months to myself You know, my

family really figured it out and you know

and and said hey, you know this is

this is my chance to really go out

there and and do it the way that

I see it and The way that I

think would be most beneficial to the market

and really, you know build a valuable organization

and I knew I had a lot of

great people in my back pocket that could

help me on that journey and might really

be very inspirational but also very Powerful in

how we we move forward and push the

market and so yeah in the middle of

the pandemic After taking out a sizable loan

to buy this organization coming up empty-handed

and I'll throw out there that I had

my fourth kid Right at the end of

2019 before the pandemic I decided you know

what You know, what the heck let's let's

do this and let's pursue this I just

had this confidence in what we were doing

and what the market needed and who I

thought really could could help Contribute to that

journey from from your position at this old

company.

You developed amazing sales Relationships from a sales

perspective with some of the biggest companies that

would become your customer, right?

So we're not starting from scratch.

You have a ton of industry knowledge.

You see the opening You've got customers on

the horizon And I think the other it

really important point that I want people to

understand is that you had built so much

Allegiance within your company the best possible people

would follow you, right?

so you quit when you can't buy this

company and you're taking enormous risk and you're

taking some people along with you, so It's

not like it's a long journey.

Yeah, because after nine months Somebody knocks on

the door not a somebody a public company

and says we want to buy you take

me through that Yeah, so we really spent

the first six months working on our MVP

For our software application and really trying to

get you know, the ball rolling I mean

the pandemic was actually a great kind of

spell for us to be able to focus

on that and not pursue as much You

know sales in that in that vein But

what we did was we we put together

a product that really changed the course of

that particular Area of HR tech and then

you know very quickly right out of the

gates once we had an MVP.

We started selling Really fast, but we only

had seven clients when we got our first

offer In fact, I actually laughed at the

CEO when he made the offer.

I didn't think he was serious I said

I you don't have any revenue We only

have seven clients right now and he says

I don't want your revenue or your clients

I want your software and I want your

people with their experience and that really Flipped

something where we realized that you know We

had some tremendous value and we had to

start looking at it through a different lens

We had to quantify it differently then we

were able to really, you know partner with

this organization bring a solution to fruition very

quickly and that was kind of the you

know, the action that needed to be taken

to really Cement this offer and take it

into the next the next phase of the

process.

All right What's interesting here right is you

get an inbound offer It's a number that

you're gonna pass on Right, but this is

a public company and a CEO of a

public company calls him So, you know, it's

important Yeah, a lot of people get calls

like oh we want to buy your company

and it's some analyst at some PE firm

It is a total waste of time.

You know that this is real you say

no He doubles the offer on the spot,

right?

And I think what you just said is

critically important to The strategy of creating a

great M&A experience is that the next

thing you do was a strategic relationship with

them Showing them what you could deliver Faster

and better than anyone.

I mean way faster, right?

The other people that they've gone to are

already failed Yes So now you've got this

like proof point and it is just risen

the stakes for them that we have to

have this coming Right, what happens next?

Yeah, so as as we go so I

immediately reach out to you once the offer

was tempting right and We waffled a little

bit and we talked to our investors.

We had some friends and family We're we're

bootstrapped with some small friends and family investors.

That's it You know, we really were so

taken aback by how quickly this happened and

where we were at I mean, we were

in rocket ship mode.

Like we're just trying to take off.

We're really ironing a lot of things out

I think at the time I was still

shopping for a CRM like that's where we

were in the phase of our Organization when

we came to you and at exit wise

and said hey, you know, this is a

real opportunity We really need to look at

this, you know We decided to say no

at first because we just we just told

them we weren't ready but thereafter it created

a lot of intrigue as to why would

they turn this down so quickly and Honestly,

I made a kind of a tongue-in

-cheek comment about you know If it was

three times that I couldn't have said no

and then you know a week and a

half later the CEO and the M&A

Team are back with us going what why

why do you think like you're worth this

much, you know, where where's your TAM?

And you know really tell us about the

revenue model and once we explained that revenue

model they realized the upside they realized how

much they could capture in this market and

We went forward with that So I think

some of the lessons right that you would

bring into another someone else's M&A transaction

Is that decision of like is the offer?

Right, right And when you go into an

M&A transaction like you're thinking about I'm

gonna market this business You want to achieve

certain goals financial goals professional personal goals?

When an inbound offer is dropped on your

lap, you really haven't thought about that, right?

But because you tried to buy a company

your business was set up in a very

transferable way, right you learned that yes So

now an offer comes in makes you think

about what that offer is I remember when

you asked me it's like hey, you already

doubled it change your life right now Let's

take this offer.

Okay, and you're like no, I think and

after conferring with your people Yeah, I think

we have so much more juice in the

tank.

And so the line we we gave them

right was I'm sorry We're building a rocket

ship.

We love having you as a partner Yeah

Why don't we have revisit this conversation in

a couple of years when we go from

seven to a thousand customers?

And you are basically shooting a bow a

shot over the bow right saying like we're

coming for you Yeah, and that was received

really really well Yes it was talk to

me about how we basically at that point

we banker up and how your role of

that initial and Negotiation getting it that far

is then handed off to kind of separate

you as the absolute talents in the team

Really in the world that they need.

Yeah So, I mean and I think this

has always been one of the best traits

with exit wise I mean you says you're

a generalist, right?

Like you like you can look at anything

but you really were like I want to

bring in a specialist that Understands what you

do how it needs to be done and

has waited in these waters before right and

transacted with Right and then to boot they

have you know the experience and already working

with this public company with this organization So

there's a track record there.

There's familiarity and all it did was really

just you know Created a lot of legitimacy

to the process and they understood what we

did Exceptionally well and was able as as

a banker to step right in and go,

you know in some case I mean, I

think we were looking at an earnings, you

know Like a 2x or now and they're

like 6x should be where you're at Right,

and they negotiated that very quickly for us.

So they tripled our type of earn out,

you know magnification Just in a very quick

time because they understood I think that's that's

the big thing is, you know Every industry

has its quirks its nuances and things like

that HR tech is obviously no different but

the way they were able to come in

and go no no like this has value

and this is how we can substantiate that

and This is what what this dollar really

means to you as a public company once

they are at the door Yeah, I think

when you bring in an industry expert on

your team First of all, I didn't know

what pep them was right and they walk

in, you know every metric Yeah, and they

sold a company to Your public company.

It was like 30 days before.

Yeah, so they've already been through it went

So when you say we'll give you two

times every every dollar of revenue and your

banker now says no, it's six That's what

we negotiated last time, right?

It's so much power in your hands So

anyway that the experts can do their side

and they can go to war right?

We brought the tank Tip to the battle

But then you as as the founder get

really elevated you get to start thinking very

collaboratively with this team And I think that's

a really important point that that business owners

are thinking about selling their business need to

know there has to once Once you get

that team in place We separate you right

and now you we are thinking about elevating

you within that organization not just what your

employment agreements gonna look like but how you

truly gonna function or and be Successful on

the other side of the transaction you talk

a little bit about You know, if founders

are gonna go through that how you would

coach them.

Yeah, so I mean number one is Know

your stuff, right?

like I mean I think that's one thing

that I could take away from my experience

and what really led to my Confidence in

the negotiations and the discussions was that I

knew the business so I could look at

them and go Listen the way you've been

attacking this business as a public Organization, you

know, you could tilt this this way right

and look at the opportunity, right?

Look at our experience in this market and

see how you know The name and the

technology you have how it can be one

plus one equals three you know like that

was the major thing that I You know

could be as a storyteller and an educator

to this organization Because nobody knew this industry

as well as I did so I could

help them Understand the industry better and see

how much they could capitalize on it And

that was something that you know Our banker

kept going is like this is a one

plus one equals three scenario like this This

is how we're gonna really show tremendous value

in this acquisition You know, here's here's the

you know, really the the opportunity for value

Yeah, and then here's how the realization of

that value really so it's not just take

anything away from the banker We brought the

right people to the table.

They crushed it, but your ability to understand

operational How the business will add value how

does it integrate?

How do you execute with the people that

you have bankers cannot do that?

They don't do that They don't see that

side of it And so when we add

somebody like you to an M&A team

specifically in HR tech and you can have

that Conversation all of a sudden a tremendous

amount of value Gets applied to the team

to the founder themselves and and you were

certainly were elevated through that organization To the

point when you left their acts the c

-suite's asking for to give you a consulting

agreement to help them Right still right?

So yes knowing your stuff really important But

I think it takes somebody like you an

exited founder to help really let the other

side understand We're all the value in this

business is outside of the numbers Yes, what

surprised you most about the M&A transaction,

you know, there's a couple things one was

the amount of work It takes right?

I mean running the rocket ship startup software

company is you know, that's a marathon in

itself but to pretty much Add a whole

nother role on top of it, you know

That's one thing but I'd say kind of

the emotional journey the ebbs and flows was

something that you know Was pretty surprising to

me is you know elements of defensiveness like

that come out like when you're negotiating for

your baby, right?

You know, you know the educational component or

the frustrations like why do they not see

this right?

Like how can we provide a better?

Understanding of how these things work and then

even into the into the post exit, you

know kind of the coming back down from

you know, what is kind of the hand

-to-hand combat of Negotiations where it seems

very adversarial and in certain points then to

turn around and go, okay, we got through

it We got to the finish line, you

know, you're exhausted But then all of a

sudden you're lifted back up like because there's

this warmth that comes after these acquisitions It's

like hey this company, even though they were

trying to pay as little as possible for

your company They're super excited that they bought

something that they really wanted, right?

Like I mean, you know, it's like buying

a new car, you know, the process is

Terrible when you're in there at the deal

sheet and you're working through all the things

and no, I don't want the warranty But

when you drive off the lot, right like

it's the new car smell you feel good

You got your baby.

You got what you wanted and that's how

they were.

So they were very warm and inviting So

it's that ebb and flow of the emotional

journey.

Is it doesn't take us a little you're

running you're running two businesses, right?

You run your business and sell it so

that's that's double the work the emotional journey

I thought you handled that incredibly well and

coaching founders through that that is not an

easy task When do you really need to

focus when can you let others do their

job?

When do you let key people into the

process that are on your side?

When do you keep it kind of at

bay like you're obviously highly qualified for that

I think the other piece that really struck

me is your ability to help construct the

earn out So largely you get a big

chunk of money and you basically have to

say when you get in or out like

that is that is What I'm gonna live

with if I don't see another dollar I

have to be happy But in this particular

case you were able to help construct an

earn out That showed the other side how

they are gonna win and win big right

and then in from a legal perspective We

kept a lot of levers in your hands

and you knew this can't be a two

-year.

This can't be a three-year earn out

We got to extend this out because they

have to implement everything that we are able

to sell right and that takes time We

need to build a window for them and

let them be successful and I gotta tell

you like everybody says earn outs They're terrible

You can't count on them But your ability

to understand what the other side is gonna

do with these assets of why they're gonna

do it I think you can be incredibly

helpful developing earn outs that created multi-generational

wealth for you, right?

So, I don't know if you have anything

more to say about that But to me

is one of the really really impressive moments.

Can you talk about post transaction, right?

You're all excited, right?

Your employees are excited.

You made sure all of your employees were

excited Maybe talk a little bit about that

because I think as the founders we think

I'm selling my business what's in it for

me Yeah, yeah So something we did which

and I'm very proud of is that we

gave everybody in our organization equity So everybody

who was hired that was brought on before

our acquisition all had meaningful equity in the

company And that was something that was important

to me because as I understood how the

ear not was going to work It was

going to be based on how productive we

were how much we could sell how much

revenue we could drive But also how much

would be implemented and would be successful and

there's also a sense of pride of just

you know Wanting to continue to do good

work, right?

So that all aligned in the ear now

and what that allowed us to do was

it allowed everybody in our organization?

to actually have a meaningful outcome something that

they could be proud of and Then through

the earn out it was the carrot, right?

It was it was something that allowed everybody

to really strive to do their best work

to innovate to work through what is going

to be A very painful and difficult integration

process into a new organization, but also understand

our fundamental values Continue to embody those from

a day-to-day, you know place and

then you know what that led to was,

you know Five people became millionaires on our

team and every single person on our team

had well over a six-figure take home

from from that and so we really were

able to all rise and do it together

and Again, the way we structured our earn

now, you know I understood that those could

be levers that would really help maximize that

so, you know Not only was it you

know, how can this be, you know the

best, you know outcome for data fusion?

How can this be a great outcome for

day force?

But also how can these people continue to

be incentivized and really help drive this earn

out to a very successful outcome?

Yeah, it is remarkable.

That is not something your banker your M

&A attorney or your tax accountant can help

Orchestra, right?

So having somebody like you on a team

to be able to see, you know Yeah,

there's a transaction happening.

But now there's a life after that had

to be has to be Incentivized it has

to be enjoyable right and goals that are

really achievable It's just one of those things

if you don't have the operational experience, you

cannot add value It's one of the reasons

I am really excited to have you helping

our fellow founders in M&A transactions It's

certainly new a new way to do it

But you know I've done it ten times

now and I know the value that we

bring to these transactions Anything else that you

would want to talk about like how you

add value how you could add value to

someone else's transaction?

yeah, I think the way that I can

add the most value as an exited founder

is really to be able to to drive

my experience of Trying to buy it an

organization as well as trying to sell it

right is really looking at it through that

lens and understanding how to really pull and

push on the different value levers that are

really going to help you exit as Efficiently

and seamlessly as possible, but also as lucratively

as possible.

Yeah, that's no joke You you built a

company and had an offer in nine months

and sold it in 16, right?

There is a gap between first offer to

like the legitimate or offer the one you

were willing to take So getting something done

really efficiently, I think is is really important,

right?

It keeps costs down and time kills deals

and man.

Did you run through this really really quickly?

I think it speaks to why why the

outcome was so successful anything else any other

advice that you would give to our fellow

founders?

Yeah, I mean as far as advice goes

I think as a previous exited founder really

where I see it is is trying to

keep a level head understanding the emotional ebbs

and flows that are really going to come

from this type of an experience and then

just really Making sure that you don't lose

your passion for your business You never undermine

that don't let up on those components Right

and and really continue to to really bring

a team along with you.

That's really gonna help Not only built continue

to build the business during the exit process

because that can't be Alleviated right but continue

to you know drive forward for your team

And you know, there's a lot of people

that you can impact in that process and

I think it's something for me that was

the most fruitful and and best thing that

I've ever done is Being able to change

the lives of the people that were part

of this that really it was built on

their back They helped you get there.

Yeah for sure What what is you think

it surprised you most about the whole M

&A process?

You know the biggest surprise, you know, I

would say, you know going back.

It's the emotional journey.

It's the ups and the downs It's the

hard work, but you know, I I think

it's it's What happens afterwards, you know, it's

when you're working within the year now and

you know The different obstacles that are just

gonna inherently be in place by you know

folks within another organization that have different goals

and and there's Bureaucracy and there's political components

and all your links about you and how

much money you just made, right?

Yeah, so there's there's a lot of different

dynamics that happen during that and I think

that's obviously part of the negotiation Process is

putting yourself in a position to be able

to you know Obviously, you're not gonna be

the Titan of everything and be able to

make all the calls but really have the

span of control That's necessary to keep the

mission in the year and out alive and

the you're not so obviously always gonna be

there to be The backstop to say, you

know Hey, no we have to do this

because this will negatively impact our earn out

if we go your way but really kind

of Understanding those dynamics was you know, kind

of more of the biggest surprise, but it's

a great learning experience There's something I think

I can really add value to future, you

know exited founder for sure your employment agreements

in the way it was structured you really

were able to wall your Organization off in

order to perform without a whole lot of

like it was certainly oversight, right?

but nobody can come over and kick over

the can and tell you to do it

differently and If it weren't for that the

urinal would not be achieved and I know

there were some people over there that were

not Necessarily rooting for you and the fact

that you could identify that really helped construct

the right deal I think for another founder

you're gonna see I like to say that

exit founders see around corners That was definitely

one where you saw around the corner and

made sure that that wasn't gonna be a

problem Yeah, um, look this is this is

awesome.

I am so excited to have you as

an exited founder on exit wise I'm excited

for the next person that gets to have

you on their team because the bankers we

know we bring the best We know we're

gonna get you the attorneys the tax accounting

but an exited founder is really icing on

the cake So I really appreciate you giving

us the time.

Absolutely.

I am happy to be here and I'd

love to help where I can Thanks so

much for tuning into this episode of the

exited founder podcast for business owners We're looking

to sell or want to ensure their exit

ready.

Our team is here to help you maximize

your outcome So connect with us at exit

wise comm today