104: 5 Steps to Exit Ready with Darryl Bates-Brownsword

Darryl Bates-Brownsword is the owner of Succession Plus, a boutique consulting firm that helps get businesses exit ready so owners can step back, maximize value, and leave on their own terms. We discuss the five steps to creating an exit-ready business, ways to add massive value to your business, and factors that shape a successful exit plan.

—

Listen to the podcast here

 

5 Steps to Exit Ready with Darryl Bates-Brownsword

Our guest is Darryl Bates-Brownsword, the owner of Succession Plus, a boutique consulting firm helping to get businesses exit ready so owners can step back, maximize value, and lead on their own terms. Welcome to the show, Daryl.

Thanks for having me, Steve. It’s great to be here.

I’m excited to have you here and tell us a little bit about your entrepreneurial journey. How did you go from mechanical engineering to exit consulting? Is this like a logical road that leads there or there were some kind of detours along the way.

It’s not a logical path. I give you that. But look, I started life and I wanted to go to uni and I couldn’t figure out what to do, but I liked figuring out how things worked and using my hands. So mechanical engineering was the logical thing at the time for me to get into. I had a great time. I worked in the power industry and work out how things worked and getting involved, and it was fantastic. But 10 years in, and my director sat down with me one day, and he said, Darryl, you’re not developing any areas of specialization like all of your colleagues. And I’ve gone, oh, it’s great, isn’t it? Oh, I don’t fit in here, do I?

And I had that awareness and realization that I like to keep doing new things, I like to keep things exciting. So I went and joined the consultants who were consulting to our industry. I didn’t, I recognized fairly quickly that I wasn’t the corporate guy. I didn’t like working in the corporate space as a consultant or an employee. So I approached, started working with SMEs and recognized that things happen a whole lot quicker in SMEs.

Growing businesses, you know, putting in all sorts of strategies, business modelling, designing, and I guess that’s where my engineering skills came out and systemizing things and going, how do I work, but recognizing that energy and the human factor had a much bigger impact in business than just how things work mechanically and without soul. And after consulting with businesses for a long time, I recognised that a lot of them were getting to the point where their business was their baby, it was accumulation of their life’s work and they were saving it up, they were treating it as their pension, but they weren’t doing any pension planning, Steve.

So seeing this and identifying this need, what I recognize is that business owners just didn’t realize, they weren’t aware, especially here in the UK, that if you want to get the most of your life’s work, and if you want to maximise the value of your business, you need to start thinking about it differently. So that’s the short story of how I went from engineer through to exit planning, and I guess the common thread is the systematic thinking, the structured thinking, and from mechanical things to energy things, human energy things. So that’s the thread I can weave for you there on that one.

Okay, well, I’ll leave you. I mean, you need to really engineer a good exit and that takes a lot of forward thinking and systematic approach. And you want to use all the best practices that you can get. So, tell me about your blueprint. And we’ve talked about this on the pre call that there is maybe it’s called a succession plus 21 step system or there’s another name to it. But what is the main idea behind this 21 step process that you have.

So yeah and as you were talking then save I think maybe you’ve just coined a new term maybe we should be engineers. Yeah, it does chime pretty good. Yeah. So you might want to copyright that real quick. So what do we do is we recognize the pattern. And with that systematic thinking, my partner, who’s based in Sydney in Australia, a guy by the name of Craig West, has been doing it for a number of years. And he recognized the pattern and the theme of things that business owners needed to do to prepare their business, and if they wanted to be considered exit ready in advance of an exit.

So he was recognizing that it is actually a good thing to get your business exit ready even though you may not exit. So the five key stages are the first thing we need to do is we need to identify the value you’ve already got in your business. What does the business look like today and how does that compare to what you want the business to look like when you do exit? So, what’s the gap between where you are and where you want to be? The next piece of what we do is then we need to protect the value. So protect the value is protect it from that unplanned exit. Protect the value you’ve built so far and protect the valuation from the perspective of if you were to exit today, if you were to sell it, at least you would get the standard industry multiple when it comes to the valuation.

Protect the value you've built so far and protect the valuation from the perspective of if you were to exit today, if you were to sell it, at least you would get the standard industry multiple when it comes to the valuation. Click To Tweet

Then if you’ve got a bit more time up your sleeves, there are a number of things we can do that now that the foundations are laid and the business is in a good position, we can start changing the mindset from growing the revenue and just looking at the revenue growth to increase the valuation, to looking at the business as a system and an asset value, what’s the asset value of the business? And now we can start to maximize the value. That’s the third step.

What are all the things we need to do to maximize the value of the business and make it more attractive to an acquirer and make sure that your business is one of the 20% that do actually get sold? Because 80% of businesses that go to market just don’t get sold. And to me, that’s tragic. Once we’ve maximized the value and the business owners are ready, then we need to extract the value from the business so that the owners and the founders can get the most from their life’s work.

And then once they’ve hopefully got a bank account full of cash, how do they manage the value? Because what do business owners and entrepreneurs love to do if they’ve built their own business and they’ve successfully exited? A lot of them want to go and roll the dice again, so to speak. They’ve had a successful exit and they want to reinvest in the entrepreneurial community and they may want to become angel investors. So how do you look after that and minimize that risk for them as much as possible so that if they do go and angel invest, how do we manage the whole of their portfolio and they don’t risk too much? So there are the five key stages. Identify, protect, maximize, extract, manage.

I like that. That’s really interesting. I’m particularly interested in the last one, but let’s go a little bit in order. So these are the five stages and you said that there are 21 steps. So how do those steps get distributed between the different stages?

That’s a good question, Steve. So the 21 days, there’s a couple of steps for each stage, and it’s not the same number of steps. It’s just, it’s kind of like a layered system, as you might do if you’re going to break things down as an engineer. And there’s a number of steps, and we go, here’s the key points that you need to do for stage one, if you’re identifying value. And when we identify value, we start with, what is the business, what’s the best thing for the business, and also what are the owners looking for?

So we look at a personal and a professional and a business perspective, because one of the biggest blockers to a successful exit happening is the owners don’t know where they’re headed next. And for entrepreneurs, entrepreneurs are visionary people, and once they grasp a vision of something about the future that they see and they want to move to, they’ll sprint to that. But if they haven’t got a vision, they’re just going to keep working and tweaking and managing and improving what they’re doing. So we need to help them prepare their exit vision of what they’re going to do life after this business.

One of the biggest blockers to a successful exit happening is the owners don't know where they're headed next. Click To Tweet

Yes.

And we talked about angel investing, or it could be retirement, it could be sitting on a beach, whatever it is.

I like that point very much because I think there’s a lot of confusion in the minds of business owners. I just did a talk this morning and I also started the talk is, what is your personal number one goal for the business? Not the goal of the business, not the vision of the business. What is your personal goal for your business? And you know, most of my audience members who are business owners, they were kind of stumped with this question. They couldn’t, they didn’t know how to approach it. They didn’t think about separately to ideal.

And then what happens is their personal vision becomes the business vision. And then they want to sell the business three years from now because their goal is to exit. And suddenly the business doesn’t know where it’s going because its owner is leaving. The owner didn’t take the time to create a new vision or help the other people who stay in the business to create a new vision, and now why should anyone buy a business without a vision? Yeah. Do you find this being an issue for your clients?

Yeah, look, and what you’re saying I think is bang on, and it reminds me of, you know, that whole conversation around vision and purpose and mission and direction of a business. And some people say what’s the purpose of the business is to make the shareholders more money. And that’s a finance-led vision. And if you think of the whole idea of a purpose and a vision is to inspire and energize the people in the organization, so imagine that scenario. You’re recruiting someone new and they go, hey, what’s this business all about? And you go, well, it’s all about making me more money.

And they go, well, that sounds pretty uninspiring. It’s all very transactional. So in that case, I’m going to just negotiate the high, the only metric I’ve got to go by is currency. So I’m just going to negotiate the highest salary I can and I’ll treat it as a commodity transaction. Whereas those businesses that have got a higher purpose, they’re far more inspirational and they’re businesses with heart and soul. And when you get the heart and soul of someone, you get a whole lot more. So, I think I may have deviated from your original question a little bit, but energetically, I think I think it’s in line there.

I agree with you. It’s really important to harness. I mean, if you want people to bring more than just a mercenary mindset to your business, if you want them to bring their passions and and be bring their energy and creativity to the business, then you have to inspire them. And how do you inspire them? Not with talking about how much money the owner makes, which is actually not, cannot be the purpose of the business.

A business, Peter Drucker talked about it 50 years ago. The purpose of this business has to be to create a customer, to provide a service or a product to a customer that makes their life better or helps them achieve something. It has to be outside of the business itself. Otherwise there’s no societal benefit of the business being there in the first place. So, okay, so identify value, protect the value, maximize the value, extract the value, and then manage. So, what are the ways to protect the value of a business?

So, protect the value is, you know, it’s a classic pull, you know, for protecting it for an unplanned exit and protect what’s there. So we’re talking about all of the things that will improve the P side of the equation. So let’s get all the insurances, let’s make sure the owners have got the right sort of buy-sell agreements in place. We’ve got shareholders agreements in place. We’ve got all of our governance requirements are under control. And then we start looking at good financial management. Have we got a clean set of accounts?

Have we got some business plans and budgets in place and are we running and are we controlling the finances or are we just spending and looking at the bank account and going by what’s in the bank account. So getting more and more financial control and then we start looking at things like, you know, what sort of reporting have we got regular reporting processes and I’m talking about reporting more than just financial reporting. elements I look at to protect the value. And I call them foundations because they’re the basic requirements of a good quality business. And then the exciting stuff for us is the maximised value, Steve, I think, let’s face it, as a consulting organisation.

It’s what are the clear, clever, strategic things we can do with a business that can really start to crank up the intangible assets and really start to stimulate the owners and minds and engage their minds and re-energize them because when you get tap into their creative juices, again they become re-inspired and they bring new and fresh energy to the business as well when you get them out of their old job because they’ve become career bored.

Okay so that’s a great topic so, how do you do that? How do you add value? I mean, you’re an outsider, you come into the business, you don’t know the business of the company to the degree that the owners know. What is your process to find those gems or those ideas or insights so that you can actually re-energize the owners?

Yeah, so much is, you’ll find a business owner and when they’ve been doing things a certain way, or they’ve been running the business for a number of years, they’re doing so much what they think is intuitive, and they go, look, it’s just intuitive, I just know how to do it. But the bottom line is it’s practice and it’s rehearsed, and it’s ingrained habits. So when we come in and we’re not overly familiar with the industry, that’s often a good thing, because we’re not bound up with the way things happen in this industry. We can come and ask those innocent questions and go, well, why do you do it that way? Yeah, but why? But why? But why? And just keep asking why.

But the big piece where we can really add value is we’ve got a way to help unpack IP. We’ve got one of our products we call building a product architecture architecture for a business. And this is particularly valuable for service type businesses who are conditioned to believing that we’re selling time, because it’s a creative industry or it’s a knowledge industry, we’re caught in the rut of selling time. And in that scenario, time has become the commodity, and that’s the commodity trap that we’re stuck in.

So we have to get the best people so that we can sell at a higher rate and make a higher margin and make a better profit. But that’s just a belief that can be changed. So what if we change that belief and said, well, instead of just selling hours and selling times and saying, hey, Mr. Client, I’ve solved this problem many times for many other clients, I’ve got all of the knowledge and experience, what if we were able to say, well, yeah, look, we’ve got all that knowledge and experience and we’ve been able to understand it so well, we’ve been able to model it, and we’ve been able to process and demonstrate this into a model so that we can provide a solution for you.

So here’s the way we provide a solution. Much like our five stages as a solution for exit planning, how do we capture that model for whatever client we’re talking to? And then when we’re selling the solution to the client and we can demonstrate and draw a simple model, and you’ve got one over your shoulder there. There’s what I would call a simple model that can be presented to a client fairly quickly, and they’ll get it at a contextual level.

Once you show them that, they’ll go, ah, that makes so much sense now that you explain it to me like that. And when you’ve got a model that gives the client the ah-ha, you’re now selling a solution rather than time, and that’s one of the best ways that we can add value, asset value to a business, because we no longer have to employ smart people. We just have to train smart people to follow the process and use the system.

So is this similar to when we talk about productizing a business, packaging solutions that can be repeatable for other companies, and then actually promote these solutions as distinct products or product services?

I think, yeah, it is, Steve. And it’s sort of systemizing a business and then putting that on steroids, because what a lot of people do is, let’s call it level one productizing a service, is that they go, hey, look, what have we got? Well, here’s our five-step process. And they go, here’s our five-step process for solving your problem. And the clients look at them and back and, you know, them. And the clients look at them and back and imagine we went to a restaurant and the waiter sort of asks us for our meal and we order a steak and they say, how would you like it?

We’ll go, I’ll have it medium rare, thanks. And they go, look, Steve, okay, here’s our five-step process for how our chef is going to cook this steak medium rare. You’re going to look at them and go, I don’t care about your process and how you cook it. I just expect that you’ve got the process and you’ve trained your people. Tell me about the sizzle. Tell me about how I’m going to feel when I enjoy this state, when it’s perfectly cooked to my desire. That’s what you should be coming back to me.

Clients don’t care about our five-step process. They expect us to have it because we said we’re experts in that area. What they want to know is the next level up is why is this good for me? talk to me in my language about me, about solving my problems and the value I get from using your five-step process. And that’s taking it to the next level, which most people are, you know, they’re stopping after they’ve got the five-step process.

So sell the sizzle, not the steak. I get it. So you basically just have to have the process, which helps the clients, and then you just follow it. But it’s not about the process, it’s about the clients, what their needs and you just customize your product to the client so that they feel like it’s designed for them. So let’s go to the last one because it’s really intriguing when you said managed value, maybe the business owner says their business, maybe they become an angel investor, which yes, they do it sometimes. Often it can be a dead end. It can be a good way to, you know, to get, to give away the money that they have earned with so much sweat and blood.

Sell the sizzle, not the steak. Click To Tweet

It’s a big risk than running their business, I think.

It is a big risk. They think that they’re diversifying, but they are diversifying away from their, their know-how. And that’s, that’s a very risky thing. So why is it important to manage the value and what are the ways of managing the value? And I wonder why you raised angel investing as being one of the paths, because I don’t see it being a frequent path for most investors.

For investors, maybe not, but for a lot of business owners who’ve exited out of the SME space and for if they’ve done really well and they’ve sold their business and they’ve ended up with a lot of zeros in their bank account, they’re energized and they feel they’ve been very successful and they want to contribute back. So they’ll hive off a whole lot of money that they need to live off and keep the family happy and they’ve still got surplus. And they’ve got energy and entrepreneurs don’t stop.

They might say they want to sit on a beach and drink pina coladas, but after three weeks of doing that, they’re bored and they’re out there doing something that they get twitchy. So they want to do something. So some of them want to get into angel investing, and that’s why I mentioned that example. But the key is, it’s about estate planning, Steve. It’s about going, hey, look, if I’ve managed to be that successful and that fortunate, how do I look after my money so that my next generation and the next generation.

And how do I plan for how that money is used and set up, and so that I can do with that money and that fortune as I desire? And definitely, there’s no right or wrong way. It’s just making sure that the tax and the planning all goes so that the business owner, or the now business, exited business owner, gets to live on their terms.

That’s great. So does it mean that you keep like wealth management services in-house or you work with someone else who’s specialized in that? Yeah, we’ve got specialized partners that we work with.

We don’t do the wealth management ourselves. Our focus is on the consulting and preparing the business for exit and preparing the owners for exit. When it comes to doing the transaction and managing after post-transaction, we’ve got partners that we work with and we’ve gone out to market and there’s a lot of players now. We’ve found the people that match and work well with us.

So, what would you say are the five most critical success factors of a great exit planning product or a great exit planning outcome. What are those mindsets that business owners should be embracing if they were to want to do that?

I don’t know if I’ve got five, but I’ll give it a go.

I asked for three.

Okay. So the first one is we need to make sure that we are not required in the business from an operational perspective. We can be involved in the business, we can be chairing the business, we can act in that role as founder, but we don’t wanna be involved operational. We wanna be able to demonstrate that the business, there’s upside to the business and it will keep growing. And those forecasts that you’ve shown the investors, the acquirers, you wanna have some sort of system that can show them and give them confidence that those forecasts will be achieved post-transaction.

Otherwise, they’re going to make demands that you’ll be there to make sure that those forecasts are achieved. And the next one I think that’s really important for a successful exit is don’t get out at the top. You know, make sure that you’ve got a plan there that says, here’s the upside of our business and here’s the forecast and our strategy to double whatever over the next five years and here’s where we’ve come from over the last five years. We’re not exhausted in getting out of the top.

We’re selling or getting out and we’re showing you the upside. So we’re leaving a lot there so that there’s value there so you can come in and invest and realise that value. So we’ll never get it right timing perfectly, but if we can show some upside, then that’s a great way to realize good value when you do exit.

Well, I fully agree with you. It can be kind of an attractive idea to capture all the value in the company, but part of the value of the company is that blue sky, that perception that this company has still a good run ahead of it. And if you don’t leave it there, then people are going to think about the future revenues and profits at a much more diminished way, or they may not even be interested because they don’t want to buy a company at the top. That’s a really interesting point that you’re making.

To explore that just a bit further, one of the things we play with is capacity. If you demonstrate that you’ve got the capacity so that you could soak up a lot of that upside without increasing your costs. You’ve got it within the existing capacity. Most people don’t measure or monitor capacity. So if you can show that to the acquirers, there’s another feather in your cap and it will just demonstrate that you’re really on top of your business. You really understand the business and you’re looking at this from an asset perspective rather than just an income revenue perspective.

Love it. So, Darryl if listeners would like to get in touch with you and learn a little bit more about what you do or want to reach out and have a conversation, where should they go?

Our website’s going to be the best first port of call, and that is succession.plus, P-L-U-S. And wherever you are in the world, that’ll take you to a local landing page. Or you can find me on LinkedIn, Darryl Bates-Brownsword. There’s only one with that name, so really easy to find on LinkedIn.

Yeah, that’s for sure. That’s very unique name. Well, Daryl, thank you for sharing your amazing insights on the Management Blueprint Podcast. And for those of you listening out there, if you enjoyed this conversation, stay tuned next week for another interesting entrepreneurs coming on the show. Everyone has a great day. Thank you, Darryl.

Thanks for having me, Steve. Thanks for having me, Steve. I’ve enjoyed catching up with you.

Important Links:

• Pinnacle: Five Principles that Take Your Business to the Top of the Mountain
• Stevepreda.com
• Darryl’s LinkedIn
• Succession.plus