In this super-practical episode, Michael demystifies growing and selling your business and provides real-world advice for real owners and their businesses.
Scott Ritzheimer
Hello, everybody. Hello and welcome. Welcome to our latest episode in the secrets of the high demand coach podcast. And I’m here with yet another high demand coach, a dear friend and fellow scale architect Michael Van Michael is the president of the van group. It’s a strategic consulting and transactional advisory firm that works with owners and leadership teams of privately held small midsize businesses. And he’s also the co author of buying out the boss, which has to be one of the best book titles ever been buying out the boss, the successors guide to succession planning, which is just fascinated me ever since I saw that you were at the book. And he’s, again, like I mentioned a fellow skill architect from the northeast. So we’ve got a northerner here with us today, which will take me a little closer to my roots. And we’ll have a good time. But Michael, thanks for being on the show. As we open up, why don’t you tell us a little bit about your story? What were you doing before consulting, if anything, and what got you into it? And what’s the why behind that for you.
Michael Vann
So I have an interesting experience as a consultant and that is what I’ve done my entire life. My first job out of college was essentially as a consultant for a fortune 500 company, in you know, just kind of got thrown into the into the mix for us to kind of on the financial side, which I knew nothing about. And then started moving into more like the strategy side of it and fell in love with with that aspect of it. And so I literally none nothing else as an as an adult other than serve as a as a consultant. So it’s kind of a fascinating thing. Because usually, you know, as you know, most coaches or consultants start, you know, somewhere else doing something, and then, you know, transition into it. So, I’ve been fortunate I’ve done it from day one.
Scott Ritzheimer
Fascinating. And so we got a little taste from your bio, but tell us a little bit about kind of the what, like, what is it that you do for your clients? Where do you find yourself helping them the most?
Michael Vann
It’s interesting, because our clients kind of come into three buckets. So we’ve got those that are working with on the on the growth side, you know, so that’s where we’re utilizing predictable success a lot in helping those companies figure out well, do we want to be in fun? Or do we want to scale into predictable success, and usually dealing with those kind of whitewater pains. That second bucket, though, is in that succession and transition planning spot, which is where we’re working with owners to figure out well, what am I going to do with this business? You know, is it going to transition internally? Are we going to look to position itself internally, so, you know, there’s some commonalities with what we do on the growth side there. And then that third bucket is, well, those were saying, just get me out of business today. You know, and so we’re handling the transaction. So in that standpoint, you know, we’re doing all the things that you need to do to get the company to market and sold. So it really kind of is dependent on where in that overall, you know, lifecycle of, you know, business ownership they are and what they’re what they’re looking for. So we’ve been really lucky that we can kind of plug into each one of those key phases of the week generally stay away from the startup stuff.
Scott Ritzheimer
Right. So you, Brian brought up an interesting point, I think that this isn’t one that a lot of folks recognize, especially those who’ve had kind of a cursory introduction to predictable success, which, you know, most of our audience at least is aware of it. But one of the things you brought up is this decision between fun and predictable success, which seems like an obvious one at first, right? If you’re they’re stuck in Whitewater, no one wants to be in Whitewater. And so we want to get out. And the obvious choice is, well, why wouldn’t we get out and go to predictable success? Right? That’s the name of the book. It’s the top of the arc, it sounds wonderful. Everything about it is peaches and cream and rainbows and unicorns, right. But you and I know working kind of down at the ground level with folks that there’s a very real decision that needs to be made between fun and predictable success. So for the sake of the audience, why don’t you describe a little bit about what that decision looks like? How you walk folks through?
Michael Vann
To me, it’s all a question like, how much pain Do you want to go through? You know, and where do you want to get your business to, if you’re really looking like it someday, we want to build a lot of value here, and then have a great exit. Then predictable success is the way you go. But if you’re thinking, like I don’t want to kill myself over this business, I want to have a nice, a nice business that’s going to provide a good income, maybe there’s an exit, and maybe there’s not been that fun stages, you know, where you start to transition back to. And so to me, it’s really where does that owner want to get to? You know, and as you know, we’ve got a lot of owners who want to start that journey to predictable success. And then realize, you know, what’s going to take to get there, this next piece is and whether too much risk or too much effort. So they say, well, let’s figure out how we work in in the fun stage. Yeah, so I think it depends on where the owner is in the in their mindset as to where you want to get to.
Scott Ritzheimer
Right. So you bring an interesting element to this that, that not many of our scale architects have done especially not to the extent that you have But kind of seeing the predictable success world and model through the lens of succession and succession planning. And so there’s an interesting kind of addition to the whole idea of what stage do you want to be in? Which is what kind of what stage do you want to exit from? Right. And so I’d love to so early struggle with, you know, exiting from early struggle means it didn’t work, right. So that happens a lot. And again, we’re making a little light of it, but it’s a painful process. And, and I feel for anyone who experiences that, but it’s a relatively simple one to understand right? Now. From there, I almost feel like it gets exponentially more complicated once you’ve got some modicum of success. And so you move into fun. Tell us a little bit, I would say, first and foremost, what does a successful exit and fun look like?
Michael Vann
I mean, a successful exit in in fun is no different than the one on predictable success, it’s really what changes is the multiples. Okay, you know, by and I think by and large, because those ones who are in particular success are inherently going to have just a larger, I think, a larger scope to them, than the phone company. So a lot of times the fun company someone coming in to buy, it is really looking at replacing the owner in that seat, you know, rather than is more of an investment side of it that a strategic or financial buyer might be looking at, unless it happens to be one and I won’t get into the nuances of platforms and, you know, add on acquisitions, but you know, there are those where it does get acquired by a financial even though it’s smaller, because it just plugs in. So I think for most people an exit out of fun means you might be selling to an internal employee, you know, a group of employees, you might be selling to, you know, someone local, who wants to own another business and kind of step into your shoes. Whereas, Woodson, particular success exit, it’s, you know, just a much larger, more complex, right, exit.
Scott Ritzheimer
Got it. So someone’s there and fun. They’ve made peace with that they’re loving it, they’re having fun, right? And they know, hey, this is where the sun’s gonna set on this business, like, someday I’m going to exit from fun, what are some things that they should be doing now in advance, to make that process as successful as possible?
Michael Vann
I mean, too assertive is no different than what you do in predictable successes, can you get to the point where the business runs without you? You know, where it’s less reliant on what you need to do. And I think there’s some limitations into fun as to, you know, how how far you can get into that perspective versus predictable success. But ultimately, if, as a buyer, I don’t have to worry about this business is going to fall apart. Because, you know, Joe, the owner and founder has left, you know, to me, that’s the key. So you have, you know, typically a really good solid tier two, you know, management team in place, you know, so we’re handling the day to day for you, they’re probably, you know, in the some tier three as well. And, you know, we’re getting into some of the, the terms here, but like, they’re doing more so than like thinking strategically about the business. And to me, that’s one of the big differences.
Scott Ritzheimer
And so just to interpret for a second, what you’re talking about is the idea that we call tour I right, there are concentric rings, if you will, kind of like a target logo. And then the very middle would be like a senior leadership team, right, or an executive team, the C suite of an organization. And they’re primarily responsible for mission vision, values, strategy, kind of long term thinking, right? And what you’re saying, in fun, you have that or not have that what’s really important is that you have an effective T to what we would call kind of a senior management group. A group of folks who are tying that strategic to the tactical. Yep. And in getting that team set up. Now, I think that’s actually a really, really big point. Because, you know, folks see big successful organizations and they think we need, you know, a bunch of executives, right, that’s how you lead an organization. But what I hear you saying, particularly from a transition lens, it’s not so much about having just this kind of very strategic executive team, it’s about having a solid, b two, is that am I hearing that right?
Michael Vann
Yeah. Particularly in fun. You know, when you’re in predictable success and looking at those types of exits. I think the stronger your your T one team is, the better opportunities, you have to exit. Yes, you know, some of the challenges when you’re T one is really playing tier two and T three roles all at the same time. You know, someone’s coming in and looking at that. So a lot of times a private equity will come in and buy one of our companies and they’re looking at those leadership and management teams. And if they’re looking at Oh, my seller, yes, sorry, the I just got this zoom pop up that says I was logged out. You know, so like a private equity buyers are looking at they’re like, Oh, what do we have to bring in for teams and like, suddenly they’re bringing in what we need to bring in a senior business development manager, senior Operations Center, senior CFO, because that company didn’t have it. You know, so I think that impacts impacts value, because someone’s looking at there. They’re impacting your EBITDA, basically, because they’re going great. We got to add a $200,000 a year CFO here, because you don’t have that currently.
Scott Ritzheimer
Right. The other thing that you mentioned, and this is this little circular here, sorry for everybody. But one of the things that I wanted to make sure that everyone was familiar with because this, this stunned me, like I get it, it makes total sense once you hear it. But until I saw it, I like it, I never would have thought it but so in fun, you know, there’s tend to be smaller organizations with smaller revenue, sometimes really great profit margins, sometimes not right, just kind of dependence. But with a big factor that you brought up in between a fun versus a predictable success sale is this idea of a multiple, right, which is a typically going to be a multiple on earnings of some sort. So you’ve got a $3 million business 33% margins, you’re making a million dollars a year in profit, just be a great performing little organization. From there, you start looking at how much is this organization worth? You’re looking at how many times that million dollars, it’s worth, is that right? Exactly. And so somewhere in the fun stage, what would that multiple range be? I know, it’s gonna be, you know, industry and all kinds of factors but a ballpark?
Michael Vann
There’s a lot that goes into that. But you might see in a three and a half to four and a half multiple range on a million dollar EBIT a company, depending on the on the industry, and how that, you know, the revenue comes in all that stuff. But that’s typical.
The multiples get get larger, you know, so if you’re at a three or $4 million EBIT, uh, now you’re talking to five or a six multiple, you know, that just the scale the transaction, even that one turn, is huge. Difference between a four and a five on 5 million bucks is, right, 5 million bucks.
Scott Ritzheimer
Yeah and just just to play that out, right. So our our million dollars of of profit becomes a three and a half to four and a half million dollar acquisition or transaction in fun. Yeah. Now you fast forward, you do the heavy lifting, and it’s not easy, but you do the heavy lifting and getting through whitewater getting deep into predictable success organizations growing because it’s scaling. So now, you know, you’re you’ve got a $3 million profit at the end of the year. So it’s like, okay, great. That’s what 12 and a half, you know, 13 $14 million transaction. That sounds great. But now what you’re talking about is that’s not that’s not all of it, right? Not only are we going from more profit, which means a higher transaction, but we’re also looking at a higher multiple on that profit. And so it’s a significant dynamic gain in predictable success.
Michael Vann
Yeah, the multiplier just changes vastly because that EBIT is going higher, so that every turn on that EBITDA or on that multiple, which just increases it substantially.
Scott Ritzheimer
Yeah. So let’s move to Whitewater, because it’s kind of where we’re going to be making the decision one way or another. What do you see folks doing around this whitewater stage in terms of selling or not selling? Or, you know, is this where you would say, some of your get me out of here, now folks are coming in?
Michael Vann
Absolutely. Because they’re looking at it going, like, we can’t take this any further. And a lot of times, we can’t go backwards. You know, because the business has hit such a critical mass, the overhead, you know, whatever it may be is now like, we can’t go backwards, and we’re not prepared to go forward. So let’s get out. So it’s, it’s pretty common to see that I’ve had owners say, I’ve taken as far as I can go, you know, and it’s now up to somebody else to do it. Yeah. And that’s, and that’s where a lot of our sellers who are not at a retirement age come into play.
Scott Ritzheimer
Because Whitewater is just miserable, right? Anyone who’s there now they know this. Anyone who’s been there knows that anyone who’s not been there doesn’t think that the thing exists, right? Which is part of what makes it so miserable. So you’ve got this owner, they’ve just been rocking it out and fun. Me at least for years. Now. It’s up into the right things are going great. And then they wake up one day, they hate the company they work for, right? Like they would have quit a long time ago if it was that simple. They’re tired of you know, fussing with people fighting, they’re tired of firefighting, they’re just tired. Right? And then on top of that they’ve got what you brought up is this idea of it feels like existential right I can’t pay Take this any further, I’ve reached my max as far as I can go. And now they’re kind of back into a corner. Right. And so I would imagine, you know, from a succession planning standpoint, whitewater isn’t exactly where you want to be making a transition. Is that right?
Michael Vann
In an ideal situation? No, because that’s where there’s, you know, that’s where a lot of the, the warts get found in the due diligence process. And like, we’ve got one right now that’s going on. And, you know, the company is realistically doubled in size, in the past couple of years, in the destruction of the organization hasn’t kept up with it. So some of the basic, you know, things that you could do when you’re a to 3 million $4 million company, you can’t do as a $12 million company, you know, so those things are all catching up. And of course, someone coming in who’s doing due diligence and you’re looking at it, well, $15 million company, in a purchase price along those lines is going well, you don’t have this, you don’t have that you didn’t do this right in you just had you get beat to death and due diligence. And it’s frustrating and painful.
Scott Ritzheimer
Yeah. And again, we’ve talked about predictable success a little bit, but I want to fast forward, because there’s a lot of similarities. I’ve seen at least from a distance between selling out of whitewater and selling out a treadmill, and a sense that that clock becomes much more to do with like the internal clock of the person trying to sell than it does, what’s the opportune time for a market or for our lifecycle stage. So if we were to fast forward to treadmill, right, we see lots of founder exits, in particular around the treadmill stage. Why is that? And is that beneficial?
Michael Vann
Is it beneficial? I mean, it is because the organization is consistent at that point, you know, good, better indifferent, you know, so it means that the EBIT is probably pretty stable. Sales is pretty stable, we’ve got our, you know, we’ve got our teams in place. So from a buyer’s perspective, going great, there’s not a lot of surprises that are waiting for me, and now I’m looking at is like, okay, what can I do with this organization to get it to that next level back, basically back into a predictable success, where it’s growing again, and has a lot of opportunity? You know, so that’s, that’s one of the advantages of selling in treadmill, it’s very consistent, you know, you don’t have to worry about a lot of the due diligence things that pop up, you just may not have the hockey stick of growth in imita growth that might have, you know, acquire a higher multiple, but anything on the size of where it’s at, it could very well because it’s stable.
Scott Ritzheimer
Right. And so, if we were to kind of boil this down, what I hear from you is best time to sell is going to be predictable success, both in terms of just transaction value, because of multiple earnings, all of that. Maybe second best time is going to be somewhere on treadmill, just because you’ve kind of fought the fight, you got a large organization, if you’re willing to make that sacrifice to get through Whitewater, and get into predictable success and really drive Exactly. And if you’re not, then settle into fun, build a strong management team. Have fun, enjoy it. And then when the time comes, you’re ready to go. Exactly. Got it. Excellent. Well, that’s that is Sound Advice. It sounds simple. And it sounds almost a little trite in a podcast from 1000 miles away. But the reality of it is, you know, as business owners, one of the things that I’ve seen is that our vision rarely exceeds our time with the organization. And it’s when you start talking about succession that you come face to face with that. And so I think a discussion like this is just massively helpful there steps that anyone can take now we’ll talk a little bit about that in a moment. But before we get there, especially in the context of all that we’ve talked about, one of the things I’ve been dying to hear, and I know our folks have as well is you’ve been doing this for a long time. And you’ve been doing it at this in this succession space, where the rubber really does meet the road. And so I’d love to hear from you. What’s the biggest secret that you wish wasn’t a secret, right? What’s the one thing that you’d want to share with everyone listening today?
Michael Vann
Is kind of, you know, we’re Patriot fans up here. And oh, my goodness. And, you know, so there’s a lot of drama right now over who’s actually the offensive coordinator in the play the other night and Bella check kept saying, Well, you know, we’ve got a process that we’re going through, we’ve got a process we’re going through and he says, To me, the key advice is trust the process, you know, when whether we’re starting with predictable success in the growth or we’re dealing with succession planning or merger and acquisition. You know, there is a process that you follow in the process works. So trust it, you know, if you can do that and buy into it, well, then you’re going to see the result. Our clients who fail are the ones who don’t trust the process. You know, time and time again, they just worry about it, they fall off. They just don’t do the you know, they don’t have the discipline to do it. And that’s what happens.
Scott Ritzheimer
Yeah, I think that’s fascinating. Because when you look at who your clients are many of them these very entrepreneurial, kind of founder type visionary type. They thrive on just destroying processes left and right, absolutely, but but when it comes time, and this is, again, such a powerful point that you’re making, there is a place for process. And it may not have been in what brought you success leading up to this point. But when it comes to either getting out of whitewater or comes to working through a detailed transaction, right, there is process that comes into play. And when you bring someone along like the van group, so when he’s like, this is what we do all, you know, all day every day. Yeah, you’re absolutely right. What’s funny is just how viscerally difficult that is, for the those visionary types. But if you can do it, it’s a temporary Whoa, for a much longer satisfaction, if you will.
Michael Vann
No doubt, I think some of the challenges because it’s such a big change, as you know, when you start to go through through these processes from the way they’ve, they’ve operated. Now, it’s like, alright, well, you’re gonna, you’re gonna delegate more, you’re gonna allow your team to make mistakes, you’re going to, you know, like, we was talking to one client the other day, and they’re like, they were involved in discussion as to where the snack machine was going in the company, you know, and when it was getting moved, what are you doing? It’s just not, it’s not at your level of the organization. But, you know, they’ve grown up that way with the businessman being involved in all those decisions. So yeah, brass when that when that CEO and owner can make those decisions, like, you know what, I’m not going to get involved this, I’m going to trust the process. I’m going to be cognizant of those things is when when the magic happens. Yeah, that transformation is excellent.
Scott Ritzheimer
At which no visionary would ever say, right, like the magic and excitement happens as the result of a process. Again, it just like, it’s a complete world breaker, but it’s so true again, especially in this context, and recognizing that when and like, you know, there’s there’s a time for kind of breaking things, but there’s also a time for aligning with things. And I think you’re very right to.
Michael Vann
I think one of the fascinating past parts of that, too, is like that, when you have that visionary CEO, and you’re talking to him about these things, it’s like, you’re gonna be successful by being less involved, you know, less engaged in a lot of these things in there, you know, that kind of get the cocked head and the third scratcher like, no, no, no, because it’s fun. So counter to what they, what they do and what they think they built this. And now I’m telling you, I’m gonna step back. Matter of fact, I don’t want you in all these meetings, I don’t want to do it. I’m bringing in occasionally. So it’s.
Scott Ritzheimer
It’s so true. There’s so much wisdom in that. We don’t have time for it. But it’s fantastic. So I’ve worked with enough coaches to know that we have a knack for spending all of our time, best time energy and resource on our clients and helping them and helping achieve their goals that we can lose sight of our own. So I’d love for you to take your your kind of consultant advisor hat off for a moment, put your president of Vanguard hat on and talk to us a little bit about what what growth looks like for you in your business?
Michael Vann
So we’ve made the fundamental decision to be in the fun state. You know, I did what I think a lot of CEOs and owners do is like, Alright, I’m going to build this big consulting group, and we’re going to start to add and move services and things like that. And I made the decision after struggling with it in my own, you know, own kind of stages with it, forget it, we’re going to, we’re going to scale down, it’s going to be me, it’s going to be outsource resources. And just focus on working with the companies that we’d like to work with. And so that’s been really the kind of the growth strategy has been to take on the stuff that we like, you know, because it generates, you know, it generates great income when you when you do that, you know, when you’re in demand for that stuff, rather than trying to sell more people. You know,
Scott Ritzheimer
And that’s a hard decision to make. Right? So being on this side of it, what what would you say to someone who’s sitting there trying to make that decision today?
Michael Vann
As to whether to grow or, or not?
Scott Ritzheimer
Yeah, is it like, is it okay to go? It feels like it’s going backwards. Right? So is it okay to go backwards for your business?
Michael Vann
It is because if it’s what you want, and it’s gonna make you happy. You know, I had a great client who illustrated it for me a few years ago, and she, she had a still does a really successful recruiting firm. And she realized after right before the pandemic actually started, she said, I’m just chasing growth because that’s what everybody says I’m supposed to be doing. I’m supposed to build this a big organization, you know, she was part of EO and these types of things. And it was like, That’s just stupid. You know, it’s just it’s about collecting things rather than what I really, really want. So, you know, she’s been really intentional with the business today as to how she’s running it the size it is, you know, she was able to go back into fun while we were coming out of whitewater and just really nailed the business to what she wants. And I think she’s really happy with the decision, because from a lifestyle standpoint, and from an income standpoint, it works. Yeah, you know, she’s not spending a lot of money on on managers and, you know, throwing everything back into the company, so she gets to harvest it and, you know, have her time to do what she wants to do. So, it was was like one of those eye opening moments, you know, oh, yeah, it is okay to do. It doesn’t have to be bigger, just to be bigger.
Scott Ritzheimer
Very, very good advice. Not what everyone is expecting to hear coming into this, but but immensely sound advice. Alright, last question for you here. I know, some of our listeners would love help. They’re there, you know, either have been thinking about succession, or they realized they haven’t been thinking about succession, or, you know, like me, they read the they heard the title of the book, How To Buy your boss and be like, Okay, God, I’ve got to know more about that. How can folks connect with you?
Michael Vann
Well, you can find us on our web page, you know, certainly WWW dot Vann dash group.com. And up there, we’ve got, you know, some great videos as to talking about our process in how we work, which I think is, you know, really critical to understand because we’re not, you know, we’re not selling something per se, we’re, you know, talking about our philosophy, and then you can also catch me, you know, on email is the easiest one to just let’s go at Van dasht group.com. I don’t have much of a social media presence.
Scott Ritzheimer
Okay. Awesome. So again, that’s www.vann-group.com. So two N’s in that van dot dash group.com. Or let’s go at band dash group.com. Michael, thank you so much for being on the show today. I really appreciate it.
Michael Vann
It’s been a pleasure, Scott. Thanks for having me.
Scott Ritzheimer
Excellent. And for everybody else listening, when we say it all the time, but we mean it every time. Your time and attention are the biggest honor that we could receive. And so we thank you for spending time with us today and look forward to seeing you next time. Take care.
Contact Michael Vann
Michael Vann is the president of the Vann group, a strategic consulting and transactional advisory firm that works with the owners and leadership teams of privately held small/mid-size businesses. He is also the co-author of “Buying Out the Boss: The Successor’s Guide to Succession Planning. He is also a fellow Scale Architect and hails from the northeast!
Want to connect with Michael or learn more about his work? Check out his website https://www.vann-group.com or his brilliant book “Buying Out the Boss: The Successor’s Guide to Succession Planning”.