Episode 35- Buying, Selling, and Scaling Businesses with Brian Lee Shields

In this episode of "Small Business, Big Moves,". Thomas Bennett is joined by guest Brian Lee Shields to explore creative strategies and innovative approaches that have propelled small businesses to new heights. Discover the steps to turn buying, selling, and scaling a Business.

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Small Business Big Moves is a podcast where innovation meets entrepreneurship. Join Tom Bennett as he explores all things  business growth! From business funding and business tax credits to conversations with leaders who have grown successful and innovative businesses! 

Transcript

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Welcome to Small Business Big Moves, the podcast where innovation meets entrepreneurship. I'm your host, Tom Bennett, and we'll explore all things business growth from business funding and business tax credits to conversations with leaders who have grown successful in innovative businesses. Welcome to the show. Today's guest will be Brian Lee Shields. Brian, I'll let you introduce yourself. Right on. Thanks for having me on Tom. So I think of myself as an acquisition entrepreneur and overall pretty cool guy You know, I spent a lot of my career Acquiring and building and selling companies at an institutional level with a private equity firm I also did that with a bunch of venture backed companies either growing them successfully or acquiring companies to grow them. And most recently did a roll up myself with my own money a few different businesses to completely turn around the operations, successfully exit them and and now rolling that forward to some new ventures that I'm really excited about, but happy to be here and talk all things business. I've been, I've invested in or owned or operated in 15 different industries. So I've seen a lot of best practices and I'm just happy to talk about all of it with you, man. Awesome. I love it. Yeah. And then before we before we jump into that, I want you to give us a quick background on your journey, right? I'm sure you've had some ups and downs as well, but just kind of where you started out and how you get to where you are today. So I'd like to think of my like general professional career in three phases. So far, phase one was learning what EBITDA is. And so I mentioned earlier, I started out at a private equity firm. So I was in New York for a number of years and you know, it was sitting behind an Excel spreadsheet. doing analysis, doing LBOs leverage buyouts, and just really valuing businesses and understanding what levers you can pull to make them worth more. And that was great. You know, I did that during the great financial crisis in particular, and that was a really challenging time for deal making for obvious reasons. So after a few years of that getting about 4 billion of deals under my belt, I realized I don't really know What EBITDA is. I don't know how it happens. How do we make it? What does it take to do it? So I did a rotation with our internal resources group, which was staffed with all of the best and brightest consultants and operators who had functional and industry expertise. And so I learned sales and procurement and HR and inventory management and pricing from these people by doing it hands on with our portfolio companies. And I had fun. Then I went to go launch a division of one of the portfolio companies. It actually happened to be a business that I had bought three businesses to put together to build. And so I got a chance to launch something from scratch in the platform. And I was like, Oh, this is how EBITDA happens. You know, I was like doing the ride alongs with the sales folks. I was making marketing materials. I was setting up all the infrastructures, like moving machines to make sure that the things were ready to do the service. And I was like, I enjoy this. So through that process, I would say that's phase one, like I learned how EBITDA happens. Phase two was like, can I actually make businesses more valuable? And so I moved to the, to California and I started out in the Bay Area and I was like, convinced, you know, like startups are the thing. This is how I get equity. And so equity is ownership. I'm going to go make a ton of money doing this. And so I started out at this FinTech company running business development, built a bunch of new distribution partnerships for that and a couple of new tech integrations for it. It's great. The company went public a little bit after I left and I left because I got an opportunity to run a run growth at a venture backed property management business. And that was super awesome because based on my like general understanding of customer dynamics, which is like kind of my strong suit is just intuiting how customers make decisions and building around that. I recognized that we needed to buy companies to grow that business. So in two years I was able to lead the team to acquire 12 businesses expanding us into 16 new markets and taking our revenue from half a million to about a little over 10 million in those couple of years, you know, I, I fixed the sales team in that time period. I fixed onboarding. I developed a new pricing model, all the things that I learned in phase one, I was able to apply and I was like, Oh, I can. Make businesses more valuable. It's great. So then phase three which brings us here, it was like time to do it on your own, like prove it to yourself, Brian. So I left that company because I got an opportunity to acquire. An HOA management business called Hill and company, which is up in the Bay area. And this company was like the traditional founder run ready to retire kind of business. So they had built this business 30 years ago, run it over time. Had a lot of things that they did well and a lot of things that they could improve if they had had the perspective and experience that someone like I had. So it was a perfect opportunity for me. We took over and closed December of 2019. You may remember that March of 2020. The world completely changed through COVID and it created this just bananas experience of accelerating all of our modernization plans. And so to spare you a lot of the details, we can get into them later. Basically we took over the business. It had a negative 50 net promoter score. And then in six months we were able to get that net promoter score to positive. And in a year we were able to get the business onto like best property manager in the Bay area kind of lists. Which is great because we were delivering service that people talked positively about and it helped us grow the business. We got new clients, we launched some new service lines there, and ultimately we were lucky and blessed to connect with a few strategics who were interested in getting their toes into the HOA space. So we were able to exit to a partner who we ended up growing their HOA division, both through our. Contribution of our business as well as add on acquisitions that we were able to drive and bring in. So, you know, I took a sabbatical after that because that run was really, really exhausting and, and taxing. And I'm really excited to look at new businesses to buy now, but I think that's how like my, I think about my, my, my, my track. No, I love it. I love how summarize that up for us, right? Because a lot of people, like you said, they get into something, they start learning about it, then they realize, okay, this is something I really like, I'm going to keep going with this. And then that's kind of where they stop. But I like that you took a step further. Now you actually truly practice what you preach. So I'm sure that that helps you a lot in business as well. Absolutely, man. I like to, I like to talk to people from lived experiences. And I got a lot of cuts and bruises and scrapes from. stepping in potholes and tripping over things that I probably could have avoided. So I'm just always happy to share from that. Absolutely. Yeah. And I wanted to really jump right into it too, right? I know one of the things that really sticks out to me is obviously growing and scaling a business, right? Walk us through how a company can actually even triple their investment and really what it takes to sell a business for three times what you initially paid or bought it for. Yeah, so, you know, like, I will use case studies from, you know, my company, my most recent company. But I'll, I'll, I'll speak academically to this broadly, right? Like, when someone is looking to acquire a business, right? They are looking for, let's just put it simply, a cash machine, right? Or a value creation machine. That means that if I put dollars into the machine, those dollars then multiply through some set of activities and ultimately come out on the other side more, right? And so, what I always like to look at is understanding what are the transferable assets necessary to make this business sustainable. Number one, because like if it goes from person A to person B, it's gotta sustain what it is doing. So the need to be transferable assets that includes processes that includes management team. Hopefully that includes brand, et cetera. And then second. What internal and external factors are going to enable this business to grow. And so usually I think about that from a customer's perspective first. So just use the property management opportunities as an example, my thought there, when I came to that venture backed company was, Hey, how do real estate owners of investment properties think about their property management? And what I discovered was that they kind of tolerate it, that it's really hard for them to change from one to the other. that something catastrophic really has to happen to inspire them to move. So what did that tell me? That told me that, Oh, sorry. Let me add one more point. They also typically always need him. Like most people don't want to be in the day to day of managing their, their, their building or their property. And like, you know, like, I don't know about you, but I don't want to get the middle of the night phone calls about toilets or something like not interesting. No, so, so the, so that all that being said, that told me that growing through traditional marketing channels is very difficult, right? Like you can't just put a ad on Google or do a bunch of mailers and then expect the clients to flood in because they take time and there's a high amount of trust and a high amount of pain that they have to have and go through to be able to change. So I was like, Why don't we just buy the businesses? And what we came to find was that that motion of growth was really productive because not only did it give us a book of business, but if you do it right, it gives you the other pieces of that to ensure that the clients stay and you can get more. It gives you ideally good brand. From the existing brand or the local person's reputation. It gives you a set of processes that work for that municipality or that state. And it gives you like hopefully a team and a set of vendor and other relationships that help you execute. the service effectively. So, so that's within this category, right? Where it's highly fragmented, the customer decision processes are very they're very, they're very like high threshold to, to make changes in decisions. But if you look at a different industry, like as an example I actually was I was talking to a jewelry company this morning. Like there's just a different set of customer dynamics. And in that business when I asked myself, how does a customer make a decision here? I don't know about you, but like when I got my wife's engagement ring, I was like, I talked to like 15 different people and wanted to understand who, like the person that they felt like they trusted with a huge, not only financial investment, but emotional investment to do it right. And. kind of in breaking down that customer like pathway, it becomes very clear that most people don't make decisions based on some like Facebook level ubiquitous brand. They want to know that Tom is the best jeweler in the area and will take care of you and will hear your story and build and design something that aligns with your budget. But more importantly, the emotional experience and narrative that you're building for your partner. And so that's like those kinds of decision making processes help me then dial in. what's going to create value in the business. And that's ultimately like the foundation that helps you get to three X is like, if you can solve what the customers really want and need and how they can get it in an efficient way, then you can draw a pathway to how do I do this in a way more valuable way than is being done today. So that in one year or 10 years or whatever, I can Exit this business with a meaningful enough nest egg for my retirement. I love it. No, it's spot on, right? Because I know there's unfortunately there's a lot of businesses out there that are just struggling to get by or just kind of hanging in there. I think the majority of Small business owners and businesses when you really look at it. So kind of piggybacking off what you just mentioned when you have these, these businesses that may be underperforming or struggling a bit. How can you save or revive them? Yeah, you know so my, my, my father in law's military. And I often, I find myself quoting basketball and I quote military a lot, two things that I'm like around. And he likes to say never waste a good crisis, right? I think Winston Churchill said that originally. And so in those situations, first you have to be clear with people the crisis, and that starts with the leadership. I, I talked to a lot of entrepreneurs that aren't clear themselves that they're actually in a crisis. And that's Fundamentally a problem. And so my relationship, when I advise folks like that or consult with them is I'll say, Hey, here's the data. If this were not your business, I feel very confident. You would say that there is a huge problem, right? You're burning cash or, you know, your clients are getting increasingly mad or you're losing clients or whatever. So if we believe that, then like. Let's accept that reality. So once you accept that reality, then the next step is to get your team on board, right? At least this is how I like to think about it because I'm a very people driven person. So if you can get your team on board with the understanding that there is an issue and the components of what are causing that issue, right? It might be the way we communicate with clients. It might be the turnaround time on our decision on our service delivery. It might be we're not giving them enough choice. Whatever those things are, right? Which you should construct and assemble from a listening tour from data objective means. Then you say, team, look, we're having an issue. Here is why we're having this issue. Here are the activities I think we should do. To solve that, do you agree with it? What do you have to add and make it as collaborative as possible for the purpose of not only getting great additional ideas, which you can by involving other people, but also to get their buy in because like the way I did this with my last company, when we were negative 50 NPS I laid, I laid out these things and said, listen. Team, does negative 50 feel like it represents the hard work and late nights that you all are pulling and the effort that you're putting out? Everybody universally said no. So if I said, hey, if you could respond to emails once a week and get this from a negative 50 to something way higher, would that be worth it to you? People were like, yeah. So then I was able to get that verbal energetic, emotional commitment from the team. And then we put in place metrics and things like that to measure it, to make sure we're aligning with the things that we said we were going to do and then tweak where we couldn't. But I'll tell you, man, like, like all the best laid plans don't matter if you don't have the team's buy in and belief that it's the right direction to go in. So I would say first, it starts with the leader. Make sure you're clear. And then second, do the things that you know you can do or bring in people that have the diagnostic eye to assess and explain the problem in a way that other people can get on board with solving. Definitely. Oh, it's huge. I mean, to your point there too, I think it always does start with leadership at the top. And unfortunately, more times than not, I don't think business owners realize that. And then next thing you know, they get a company that's. Struggling to get by. So I liked the approach that you took there to really get everyone bought in because once the leaders bought in and then you get the team bought in, then it's a, a whole different, whole different company at that point. Absolutely. And, you know, I know there's some people out there that will say like, well, I don't have time for that or what, you know, they are my employees and they should listen to me and like, sure, that is a perspective to have, but I will tell you that there are two different types of leaders generally, right? There's a wartime leader and a peacetime leader, right? And if you're in a situation where you're not where you really need to be, and there's some urgency around getting there, you're in wartime, buddy. You can tell people like get with the program or you're out, but you also got to remember that, especially for a lot, I suspect a lot of people listening or small business owners, like you might have five people on your team. So if you go down one person, now you're down 20 percent of your team. So you could have sold this person on the vision and given them a better understanding of how their role impacts it. And taking that 10, 15 minutes to do that. And then had that 20 percent capacity, or you could have been like, Hey, it's my way of the highway, and then they hit the highway and then you're out 20 percent capacity. And then you have to do all that work. So, so there's like, yes, you can be forceful, but I think there's ways to be forceful and hold people accountable in wartime that doesn't cost you attrition of team and bodies. And frankly, like everybody would be happier if you do it in a different way. 100%. And back to that point, you just mentioned too, right? A five person team is probably pretty neat. Pretty common throughout the small business space. And like you said, you lose one employee when you look at it like that, 20 percent of your staff, now that now you as the owner are handling that responsibility, or you're dividing that up between your team and having them do stuff they didn't sign up for, do stuff that they may not want to do the next thing, you know, now, now you lose another employee and then it's a big, big problem. So yeah, that's a, it's a huge point right there. Oh, yeah, man. Oh, yeah, the landslide is real. Yes. And then probably two parts here, right? But I know kind of the main main focus here is obviously kind of buying and selling businesses, right? How can the how can someone prepare for that if they want to either buy a business or maybe they want to sell their existing business? I think it's two things that people probably aren't prepared for either one. Yeah, yeah, I will tell you. Okay, if you're listening and thinking about buying a business, and I'm gonna assume you're a current business owner I would first be super, super, super clear about why you are buying the business. What is it gonna do for your long term plan? How does it help you deliver better service to the customers? Et cetera, right? If you haven't noticed, I think about the customer first and a lot of things that I do. So as an example, if you could be like a wine store and then say, Hey, I'm going to buy this wine bar, that's a couple of doors down. Great. How does that make your wine experience better? Right? Like, and it might not candidly. I've actually seen this play itself out where because of the. the dynamics of a restaurant and the ability to easily lose cash running a restaurant. The wine store actually drained all of its profits to fund the restaurant and it pulled both businesses down. But their vision was, and so that's not good for the customer, obviously. But their vision in their mind, they had convinced themselves that like people are going to come here and sample wines, go buy, go hang out and socialize there or vice versa. Like people are going to go sample wines at the wine bar and then come here and buy the bottle. And that just didn't actually happen because that's not really how people make those decisions. So being honest with yourself about like the strategy and why you're doing it and pressure test it. Talk to people like me so I can be like, that doesn't make sense. Here's why it doesn't make sense, but here's a way it could make sense. Like. That would be number one if you're thinking about buying it. If you're thinking about selling, The number one thing I would tell people to do is transfer as much of your knowledge, processes, and responsibilities to the team as possible, as soon as possible. That means like if you are typically responsible for the final quality check on things, write out how you do it, and then train a couple of your managers to do it and give them like half of your workload. If you are responsible for hiring, involve some of your other staff in hiring and making some of that decision too. Why? Because when I take over the business, I'm looking for that machine, right? That thing that when I push a button, it just keeps doing the same thing over. And if all of the processes and the value creation are tied up in you, And you leave, then I don't have a business. And that jewelry business I was talking about earlier is a perfect example. It's hard for someone like me to buy a jewelry business when, first of all, I don't know anything about jewelry, Tom. Okay. Like I know I like, I like literally the only thing I wear is this ring. I have a Garmin watch. Cause I just like ride my bike and you know, I used to do triathlons. That's it. So. Me stepping in to then be like, I'm gonna design your jewelry is crazy. Like, the clients are gonna trust that. I'm not gonna trust that it doesn't make sense. But if the person sold to say, like their apprentice, then I know that the knowledge has been transferred and the value has been transferred to that apprentice. So that business has a higher likelihood of continuing to provide value in the way that it had before. And so I, I will say like, look, it doesn't have to be perfect. You know, I, I mentioned before like the bus last business I bought was not. Set up in a lot of ways for that process, continuity and success. So as a buyer myself, like I bring that sophistication and can work with people to help maybe organize it before they sell or just say, Hey, look, like I'll take it over as is and figure it out and make sure that we make, manage the change management effectively, but I'll be candid, the company that has done that work is worth more than the company that has not, it just is. And so if you want to put a little bit extra in your nest egg, But no, that's all valuable for sure. And then we'll switch gears here a little bit, right? I know we're kind of in crazy times right now between the hustle culture and then the people that just don't want to work, right? It's the big, big gap between that. But how can and I know they say like why work 40 hours for someone else when you can work 100 hours for yourself or then there's the people that just don't even want to work 40 hours a week. What would you say like if a company is or someone is looking to really give it all they can but not reach that point of burnout or exhaustion? But still might want to thrive and have a successful business. How, how can they go about that? Great question, Tom, you've done your research. So just for context when I, after I sold that last business, I actually had to take a year sabbatical. Why did I have to take that year sabbatical? Cause during the time I was running that business. I put all of it out on the line, right? Long weeks, high amounts of responsibility, putting out fires and working on the business. And, you know, to be candid, like I took, I hold. A lot of responsibility and accountability for employees and for other people's money. So like I care about that stuff and I want to make sure it's done right. But that being said, honestly, like I, I put out so much of that, that I didn't have enough reserve left for when real life happened to me. And so subsequently after selling, I experienced a lot of family loss and a lot of transition that I could not emotionally withstand. Because I put so much out to my business. So I had to take time off to recover, you know, and I don't wish that on anybody. Like it was, it was a blessing that I was able to, but I don't wish it on anybody. And so in hindsight, after having now read, I don't know, 50 white papers on burnout, I coach on burnout and peak performance management for executives and entrepreneurs I, the number one thing that I tell people to think about is. Like, rest now. Like, take the breaks. You may be saying to yourself, well, how can I do that when I have like 1, 500 things and my to do list keeps growing? I'm gonna tell you, your to do list is gonna grow no matter what you do. But the most important muscle in an entrepreneur is their mental muscle. And if you wear that out by constantly working, by overloading yourself with decisions and getting the decision fatigue by not allowing yourself the time to experience some joy and laughter and, and like just relax the mental muscle a little bit, not only are you going to burn out. which I'm here to tell you is possible. And like I said this earlier, man, like I used to work a hundred hour work weeks on wall street. Like I'm not a stranger to work volume or intensity. And this was next level. Like being an entrepreneur, it's just different. But you also you, you negatively impact your business because you're not giving yourself the time and opportunity to have like Eureka moments, right? Those big picture solution ideas that you come up with when you're not working. Right. I mean, you know, for all of you listening. just like conceptually raise your hand if you've had like a brilliant idea in the shower, you know, you're not working in the shower, at least like most of us aren't some, I sometimes send text messages in the shower. So, but the point is that like you need that space and time and it actually makes you better at your thing, at your business, at your role. If you give yourself periodic breaks. So take a 15 minute walk every day, schedule 10 minutes between calls to just like recover. You know, I, I told, I prescribed going to matinees three times a week to one entrepreneur who was burning out and convinced herself that she could not take a break, that the business would fall apart without her. And she was like, I don't know, how do I do this? I was like, listen, just start going. And what'll happen is you'll start prioritizing things better so that you can make the time. And you'll delegate better and you'll come back more refreshed and then be like, Oh, you know what? That thing I was stressing about, actually, the solution is this. I don't know why, like, I don't know why I couldn't see that before. So you're, you're, you're processing speed and decision making gets better. So, you know, I would say like all of those things are things that are on the table and it's going to feel weird. You're going to be like, this seems like indulgent, but that's okay. Because if it makes you a hundred percent capable of operating at your peak, then do it because then you're a hundred percent you, and a hundred percent you is incredibly valuable to the business. Yeah. There's so much value in that. I appreciate you sharing that. And once again, being able to Obviously relate to that and again practice what you preach. So I love how it all kind of comes full circle with you for sure Yeah, I I know we threw a lot at them today, but I know there's a ton of value you can can give them today Anything we might have left out or didn't cover on that you think would be important to leave them with I think the only thing I would want to add is You know, I think that what's really important in the coming generation, right, is finding the right kind of talent to be responsible and steward businesses into the next generation, right? So like I've, so, so if I think about like my career as like I was buying businesses and I burned out now I'm buying businesses again. And when I think about this and I talk to selling entrepreneurs, what a feedback I get a lot is. that they're always appreciative of, I'm asking them about like why they started the business, what values they use to run the business and things like that. And I've heard more than once that people like sellers think about the value of their business as like more valuable than their own kids in a lot of cases. And you know, like a lot of that's time allocation, right? Like you just allocate more time to the business and the kids. So, you know, it's just, it is what it is. So that being said, The next generation of entrepreneurs matters a lot, right? And selecting the right to people to take over and to steward your businesses is really important. And like, I would be happy to have that conversation, you know, I'd throw my hat in the ring, but more importantly, what I hope you hear is eat, whether it's the people you have today, On your team or somebody you have in your network or who you're seeking out to just create liquidity for you so you can retire, like have a high standard and a high bar for the people that you're keeping in your lives who could then steward your legacy into the next generation. Because. Like there are a lot of people that are financial buyers and all money's green. So, you know, if you want to protect your legacy and also ensure that the value to the clients continues for the longterm, it isn't just hacked to pieces by, you know, people who have raised funds and are just trying to get a return in a five to seven year period, like be thoughtful about who you're selling to. So we know it's spot on. I mean, we've, we've all heard the horror stories of. People that will take over a business and run it to the ground. And I was actually just talking to one of my close friends about that yesterday and just someone that kind of took over a business and just didn't prioritize service and that company just went from someone that everyone wanted to work with to just don't, don't do business with these guys. So you don't want to go in that road either. Yeah, I mean, look, like from a very practical perspective, a lot of people are going to sell businesses with seller notes, right? They are going to be the lender. That's a credit risk, like just from a practical perspective, from a, you know, more philosophical perspective. I just believe like not just because every somebody has raised a search fund or has a private equity firm or whatever, it doesn't necessarily mean that they are going to be good stewards and operators of those businesses. Because a lot of times those people are divorced from the impact of the policy. Of their decision making has on the team and the client. And so, yeah, it might be good for working capital management. But then, you know, to your point, the clients are running for the hills and like, where's the business at that point? Exactly. No, for sure. And no, I appreciate all the value today. I know we threw a lot at them. That's going to be a wrap on this episode of Small Business Big Moves. If you got value out of this episode or know someone that did, what we ask is that you like and share the podcast. And you can find me on all social media at Thomas Bennett. And we look forward to seeing you on the next episode.