|
|
|
|
Guest: Jeff Tennyson, a Coach and Partner at CEO Coaching International and the former CEO of Lima One Capital, one of the country’s leading lenders to real estate investors. Jeff is also a former coaching client of CEO Coaching International.
Quick Background: Every entrepreneur dreams of a BIG exit. But having a dream isn’t the same as having a plan. To attract an ideal buyer, owners and CEOs need to scale smart, assemble the right team, and adopt a strategic mindset that will turn their dream into a reality.
On today’s show, Jeff Tennyson shares his blueprint for preparing yourself and your company for a BIG exit.
4 Keys to a BIG Exit From Jeff Tennyson
1. Identify Your “Why.”
Selling your company is not a get-rich-quick scheme. Typically, it’s a 3-to-5-year process that’s going to affect key stakeholders at every level of the business, and potentially family members — including yours. If you’re just trying to get from your office to a beach as quickly as possible, you risk damaging the business and disrupting lives.
“ When you think about why do you want to sell, I really think of it in three different ways to simplify it,” Jeff Tennyson says. “Two of which are good reasons. One, you need capital for future growth and you no longer believe you can effectively raise that amount of capital and support it on your own budget. Two, you’re ready for a new chapter in your life and you feel the time is right to exit for personal reasons: family, retirement, or simply, ‘I want to get enough money out of this and never have to work again in my life and sail off into the sunset.’ That’s a good reason to sell because you don’t have the same focus and interest and passion perhaps that you would have had previously.”
What about the CEO who’s tired or burned out?
Do you really want to sell? Or have you been neglecting your self-care? Skipping vacations, hobbies, and family time? Failing to unplug at the end of the day?
Selling your company is going to add to your to-do list for the next few years, not subtract from it. If your life and work are out of balance, Jeff recommends using your executive privileges to “buy back” your time before you consider a sale.
“I just finished a great new book called Buy Back Your Time by Dan Martell,” Jeff says. “And in that book, Martell talks about this concept that entrepreneurs have an opportunity to find ways to buy back their time within their business and don’t necessarily have to sell. Those are the three things I think people have to really think through around ‘Is it time for me to sell?'”
2. Establish value.
Great companies are always sellable because their CEOs have assembled top talent and established systems that drive sustainable growth. But when it comes to the value of that kind of high-performing company, the CEO is usually a BIG part of that equation as well.
“Buyers believe that most owners are critically important to the business and its success.” Jeff Tennyson says. “It’s one of the major assets a new buyer is acquiring: the entrepreneur or CEO. Typically they’re going to want you to stay, and that’s going to be a big part of the valuation. And so you have to assess, do I want to stay? There’s different mindsets involved in selling your business. The owner’s mindset is, ‘I’m in charge. I get to make all the decisions, the vision and direction of the company is primarily dependent on me and it all ultimately resides with the way I drive and push the business.’ A seller’s mindset is, you’re no longer the owner. And I think entrepreneurs forget that. You effectively become a hired gun, depending on the percentage you sell, and you’re there to run the business for the new owners. They get the ultimate say and set many of the rules that you never had to deal with before. And so you’ve got to make sure you’re ready for that.”
The mark of a truly valuable company is often how prepared it is to keep succeeding without its founder or current CEO. If you ARE your business, buyers are going to price in the cost of you leaving. But if you’re willing to stay on for a couple years and execute a well-designed succession or transition plan, buyers will appreciate the stable foundation you’re ready to leave behind.
“If the goal of the owner is, ‘I don’t want to be here at the close,’ then yes, they separate themselves and find a way to do it,” Jeff says. “Alternatively, if the owner’s not ready to leave, they want to stay, they want to see the business continue, that’s going to require a really good team. And in the due diligence process, it was very important for me that I demonstrated to the buyer that there were alternatives to me, maybe not today, but in the very near future in case something would happen to me. If buyers can see one or two people that are ready to go in the time frame that you’re going to leave, I think it enhances the value of the company to have you and a team to carry on the business in the future.”
3. Prep the sale.
“First of all, I think one question that has to be answered is, ‘Is the business ready for a sale process?’ Jeff says. “And what I mean by that is, has it scaled relatively big enough to be a meaningful liquidity event and a meaningful value? In my most recent transaction, the owner said, ‘I want to sell this thing.’ And I said, ‘You’re not big enough to sell today. Nobody’s going to give you a big enough value. In this industry, buyers want to see a particular scale and size.’ He said, ‘What is it? Let’s get there.’ And so it took us 3 years to get to that point.”
CEOs and their CFOs need to have a clear understanding of what those scale thresholds are in their particular space. For some businesses, that might be an EBITDA number. In other industries, a small but nimble start-up that just needs fuel for the fire might be more attractive than a more established company with less growth potential.
CEOs also have to understand what kinds of timelines specific buyers are on. A larger competitor might want an acquired CEO to stay on for a couple years to ease long-term integration. Private equity might be expecting BIG profit on a shorter horizon, and perhaps even another sale.
Once you’re confident your company has crossed the appropriate checkpoints, make sure you have a team in place that will both attract buyers and execute the deal: CEO-ready executives, a CFO with a background in M&A, a strong bench of young talent in leadership positions, and some outside experts.
“Do you have a good accountant?” asks Jeff. “Do you have a good deal lawyer? Those are the true critical third-party sources in making sure your company is ready. And then you need to determine value. And that’s typically done with an investment banker or a business broker or someone who you can trust, who has experience within your industry to help you understand the value of your business. In some regards, that is going to dictate whether this is a Go or No-Go. You need to be comfortable with the valuation levels that you think your business is worth, because that will give you negotiation confidence and you can determine if it’s worth doing.”
4. Seize your moment.
It’s not always easy to spot the right time to sell. But you’ll definitely be able to spot the opportunities you missed.
“In almost every industry there’s optimal windows,” Jeff Tennyson warns. “I often told my team that an opportunity of a lifetime must be seized in the lifetime of the opportunity. That was the situation at Lima One. We were ready for a sale in 2019 and early 2020 and the world collapsed from COVID. And so in September of 2020, because we were ready at the end of 2019, we had everything going and we were the first business purpose lender that got sold, at the highest multiple that had been offered for that industry at that time. And it was really because we were ready, and we hit the right opportunity.”
Again, running your company so that it’s a perpetually attractive acquisition target is always good business, whether you’re prepping a sale or want to keep Making BIG Happen. But if you sense that a window is opening, or if you want to plan a sale around your own life or career goals, you could benefit from an expert perspective on how to maximize your company’s value and your own as a leader.
“Coaching has been critical to me throughout my career,” Jeff says. “With my most recent sale, I’d been a seven-year client of CEO Coaching International with Sheldon Harris, and it was really valuable in the early days when we knew we were preparing to sell. That was one of the early Crystal Ball Exercise that we went through to say, ‘This is a clear thing that we want to be doing out in the future. And so we started right then with the right disciplines and activities and things to work on to get there. Larger institutions want to see existing disciplines and structures in place today. If you’re promising all these things that you’ll do once they come in, first of all, you’ll be frustrated because it’ll be overly bureaucratic and you don’t want to do it their way. If you’re an entrepreneur and want to be in control of what comes next after you sell, just get their approval for adopting all the things you’re currently doing today. But that means you’re doing some very tangible, specific, measurable activities in your business and have good disciplines: good financial discipline, good sales activity discipline, a good way to plan every year, a good way to budget every year, a good financial system. All those things are important. And in my situation, the coach was very helpful in giving me that inside advice from someone that had been down that path.”
Top Takeaways From Jeff Tennyson
1. Clarify your goals. Selling your company should be step one on a new path to BIG.
2. Know what you’re worth both to your company and to potential buyers.
3. Always be ready to recognize and seize your moment.
Links:
Hired Gun CEOs Can Use This 3-Step Process To Keep Hitting the Founder’s Targets – On his previous appearance on our podcast, Jeff Tennyson explains how to step into a founder CEO’s shoes while still making the job your own.
6 Keys to a BIG Exit – At a recent Make BIG Happen Summit, three of our most successful coaching clients delivered master classes on the vision, strategy, and commitment that CEOs need to bring their businesses across the finish line
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, the firm has coached more than 1,500+ CEOs and entrepreneurs across 100+ industries and 60 countries. Its coaches—former CEOs, presidents, and executives—have led businesses ranging from startups to over $10 billion, driving double-digit sales and profit growth, many culminating in eight, nine, or ten-figure exits.
Companies that have worked with CEO Coaching International for two years or more have achieved an average revenue CAGR of 31% (2.6X the U.S. average) and an average EBITDA CAGR of 52.3% (more than 5X the U.S. average).
Discover how coaching can transform your leadership journey at ceocoachinginternational.com.
Learn more about executive coaching | Meet our world-class coaches
