234: Sell Your Business & Keep Your Legacy with Scott Eisenberg

14
Aug

Scott Eisenberg, Founder of Franklin Capital Advisors, is driven by a deep desire to help people and solve problems collaboratively, shares his insights on how to sell your business and keep your legacy. 

We learn about Scott’s journey as an award-winning investment banker, restructuring and transaction financing specialist, and serial entrepreneur. He explains his framework for selling a business like Gino Wickman. This framework involves grooming strong leadership roles, setting clear expectations for your post-sale role, and choosing a buyer aligned with your vision and values. Scott emphasizes the importance of empathy and trust in these processes. He shares his experience advising Gino Wickman on selling EOS Worldwide and discusses the importance of alignment, cultural fit, and strategic planning in successful business transactions. His ability to build trust quickly and his commitment to delivering positive outcomes for clients are central to his frameworks.

—

Listen to the podcast here

Sell Your Business & Keep Your Legacy with Scott Eisenberg

Good day, dear listeners, Steve Preda here with the Management Blueprint podcast. And my guest today is my good friend, Scott Eisenberg, the Founder of Franklin Capital Advisors. He is an award winning investment banker, restructuring and transaction financing specialist. He is also a serial entrepreneur, having started or co-founded four different companies. I feel very privileged to have Scott here on this call because I was serving along him as a board member of the International Network of Mergers and Acquisition Partners, shortly known as IMAP. So, welcome to the show, Scott.

Well, thank you, Steve. It’s great to be here. We’ve known each other 20 years, so this is exciting to be able to do this together.

Oh, my God, you are aging me here. Yes, indeed. At least 18, maybe more than 18. That’s right. Closer to 20. Wow, time flies. So let’s talk about, I mean, you’ve been in this business of investment banking, corporate finance advisory. I have always known you as a very purpose-driven individual. When we were on the board, that’s shown through as well, and how you made your decision. So what is your kind of guiding light? What is your personal “Why,” and what are you doing to manifest it in your life?

That’s a great question, and thank you for asking that. What I found is I like helping people. I like helping. And when you asked me that question, I immediately had a flashback to a conversation I had with my dad when I was, I think, in high school and talking about what I want to do as a career. That was before I really knew much about the business world. And I said, I was thinking like maybe I want to be a therapist, a psychiatrist, or something like that, because I enjoy helping people. I enjoy helping them solve a problem with them together. And if you think about what I do, whether it be mergers or acquisitions or restructuring, I’m dealing with someone who has a life event. It’s something that they have happened to them maybe a couple of times in a lifetime. But it’s a life event. Some of them might be the only time in their lifetime. It’s really mission critical to be on game, mission critical to deliver results. It’s also, I would say, mission critical to be sensitive, especially in privately owned businesses, to the emotional and psychological issues that they’re dealing with when they’re going through these issues. It’s a great mixture. The advisory work I do is a great mixture of combining those skill sets. The business skill sets with the, I'll just call it the empathy and the caring that you need to bring a positive outcome for our clients. Share on X

Yeah, I mean, I remember that feeling that you’re describing here from my days as an investment banker, because oftentimes the biggest impediment of a transaction was the lack of trust between the parties, the fear that they would be taken advantage of. And in order to allay that fear, job number one was to win the trust of the client so that they would believe you if you said that maybe there was no ill will on the other party or something that they demanded was not unreasonable or maybe there’s a way to bridge gaps and it definitely takes a lot of empathy and kind of a psychology. You’re putting yourself in the shoes of the other person so that’s definitely the case.

Yeah, and I also find that at times, and I see this sometimes, I see this in both healthy and distressed situations, where there’s times you have to tell your client, no, you need to listen to me. Your preconception here is wrong, and you need to listen to me, and you need to trust me on this. And there’s times where you have to do that fairly strongly. So when clients know you have their best interests, they’ll believe you. They’ll say, yeah, no, I’ve been working with Scott, he’s delivering and when he says something’s going to happen, it happens. When he says something won’t happen, it doesn’t happen. And being able to build that trust in a short time period is critical to getting a good outcome, as you know, because you’ve been there.

Yeah, yeah. And the reputation goes into it as well. So if you come in with recommendations that other people feel that you did a good job, then that helps, too. So on this in this way, I’d like to raise a topic which I found very exciting for personal reasons. You were the advisor of Gino Wickman when he sold US Worldwide, he was the majority owner, and you were his advisor, his M&A advisor in this transaction. So what was his mindset to the extent you can disclose it? I’m particularly interested because he’s in the same space as I operate in, business operating systems, and he put together a system and a company that was very attractive to several investors. So I was wondering, what was his mindset and how could you help him? And how was he maybe unusual or different from other clients that you have had?

Yeah, well, so first, the number of things about Gino and selling his company. Gino’s been a long time friend. We met in what’s now EO, the Entrepreneurs Organization. It was YEO, Young Entrepreneurs Organization when we first joined. And we were members together for many, many years. And so we knew each other for, I think I met him in 1996 or 1997, probably 1997. Actually in a small world syndrome. I met his father and a client of mine in Deloitte, like in 1986 or 87. So there’s long history, long knowledge and friendship and trust, and that helps. So anyone who knows the EOS system, they talk about a 10-year, talking a 10-year horizon, have a 10-year vision, and Gino’s 10-year vision. So the transaction closed in 2018. Somewhere in the early 2010s, Gino knew this was something he wanted to do. He knew that he’s great at starting small companies, he’s great at launching them, and as it scales, that’s not where his passion is at. His passion is starting businesses and getting them launched. So his 10-year plan already knew that, so what he did is he got the company in position to sell. So what did he do? He had a visionary and an integrator, and a CEO and a policy COO, for lack of a better term. He had those seats filled long before we started having the conversation of, he’s thinking of doing something. And how many business owners that own a relatively small privately held business do that? Very few. Usually, it’s all about control and they know how to do it, they can do it. I call it the Tarzan approach, they’re beating their chest and, let’s be honest, we see that with our so many privately held businesses, and partly because that’s how those companies got successful. The drive to the owner, the vision of the owner, the owner’s able to muscle his or her way through the situations they deal with, and that’s how they get success. And so the last thing that someone does usually is say, I’ll step back and let someone else run the day-to-day, someone else be the visionary. So that’s, first of all, so he did that. That in itself is a kind of a remarkable statement. Now, it doesn’t mean he was sitting in the owner’s box totally out of the picture. He was actually the company’s implementer. He was very involved. He’d be at their all-time meetings and it’s not like he was just checked out and it was a passive investment, no. But he had people designated in those seats. So then it was very clear that he did not want to stay on in an active role post-transaction. So that was something that he made very clear to the buyers. He said, I’ll be the implementer, I’ll help you, I’ll guide you, but I’m not going to want to be the person running the day. I’m not running the day today. I don’t do it today. I’m not going to do it tomorrow. And the other thing that Gino did that was, I’ve seen situations where people do this, I’ve seen situations where people don’t do it. It’s like, there’s a real delicate balance in how do you handle your customers when you want to sell your business? I know a lot of people that they’re so afraid that their customer will know, and usually the answer for your customers, when we go through a sale process is, this topic comes up and what we advise our clients, you have to assume your customer will find out. If you sell to Walmart, and Walmart’s 30% of your business, 40% of your business, whatever, sooner or later, someone’s going to look at the package on the company, and they’re going to talk to Walmart. And they’re going to say, how does ABC company do? And they’ll be talking to a buyer. And the buyer at Walmart will say, yeah, I know they’re pretty good. We’ve been buying them for years. Good company. Why do you ask? And the person talking to them, who might be a competitor or might be a private equity firm that owns a similar type company, is going to say, I can’t tell you. I signed the confidentiality agreement. And what they just said, they just said the company’s for sale. So my modest top run is assume your customer is going to find out and plan for that and manage around that. And that sometimes you tell them, sometimes you don’t, but have a good answer. And the answer usually is, as well, we’re looking to explore partners where we can deliver better services, have more resources, more capabilities. I mean fill in the blank however it is for your business, but we’re going to make this win-win for everyone and that we’re always exploring opportunities to partner with other people and just be a better company. So Gino took the approach. His customers are the implementers or the coaches that EOS uses. Gino made a speech and announced it to his whole community that they’re selling the company. And so that was just a choice of his. And it was very well received, but he made it public. He didn’t try to hide it. He didn’t try to sweep it under. Let’s wait, we’ll announce it after closing. He announced it up front. And again, I just appreciated that approach and it worked very well for him and the community that he has.

Yeah, that’s very courageous of him to have done it. And the other thing that I was very impressed with when you talked about how he basically interviewed the customers, because normally the buyers, the prospective buyers, they will do the management, they will request management presentations and they will kind of do their due diligence and ask a lot of penetrating questions of the seller to make sure that they are buying a good company. But actually, you told me that Gino asked his own set of questions because he wanted to make sure that he’s selling to the right buyer. So what was that like?

Yeah, so, I mean, everyone that knows Gino knows that he’s very principled, and culture is really important. The culture of his community is important, the culture of his company is important, and that’s, if you know him, you know that’s very important to him. And so, in this case, he wanted to have a buyer that had a good fit. And so he had his list of questions that when the management presentations, when buyers came in, he would just talk to them about the, he’d ask them these questions. And like one of the things, as we said earlier, so I don’t want to run the company, I’m not going to run the company. You may ask me to do this and that, and this is what I’m willing to do. I’m willing to do X, not Y. Are you good with that? And just anyone through a litany of questions like that, that just really help set the tone for managing expectations of what they’re looking for in a buyer and what he’s willing to do and how he’s willing to participate post-closing. And he just set the ground floor, the ground table for that. And that was extremely helpful in really figuring out who was the right buyer. And so that was something that he did I thought was very valuable. And I would encourage, let’s take this out of Gino for a second, I don’t want to make this all about Gino. I think every seller should do that. They should take the time to understand what expectations are of everyone and just make sure there’s alignment. And that’s when you think about it, really what this all is. It’s just alignment, because everyone goes through a sale process, it’s a funnel process. You start with X number of names and they get a teaser and then a lot of them don’t see the teasers. They are not interested and then it gets filed away but number of almost signed confidentiality agreements, get a package on a company, and then ultimately submit a preliminary offer to get them into the management presentation round and it’s really good companies, people are scratching and clawing to get in and people may say anything to get in and so, one, you want to be able to flush out who’s just saying this to get in? Who’s serious? But ultimately what you really want to do is as an advisor to a company going through this process is identify not only who’s serious, but also understand their intentions. So let’s say, to use an example, let’s say you got a warehouse and you distribute pens. And you have a warehouse and your crosstown competitor that’s owned by private equity fund, who’s got six warehouses and the whole region around you, they’re going to come in and buy you. And it’s going to be clear that they’re going to shut down your warehouse and just consolidate it in. A few of your people might get jobs, but most will not. If you care about that, you need to know that up front, because if that’s something that’s non-negotiable for you, then they’re not the right buyer. And it doesn’t matter. If it doesn’t matter what price they pay, then they’re not the right buyer. On the other hand, if you’re saying, well, I’m okay with that, I’ll take care of my valued employees. The people have been with me for the journey, I'm going to take care of them. Share on X I’ll give them all a year or two years compensation at the closing because it’s okay. I’m okay with them not having a job with the buyer, then it’s a different story. And I’m not saying one’s right or wrong, they’re just different views. And so, but it’s clear, I’m clear on having alignment on many things. It’s alignment on how’s the business going to be run, it’s what kind of decision-making authority, I mean, I can’t tell you, and we’ve all seen this in deals where the buyer comes in and they come in with sharp elbows and they take an entrepreneur who’s been very successful in their formula, but they want to change everything to the buyer’s way of doing things and then six months later it’s a mess.

Yeah.

How many times have you seen that in your career?

Yes. And even if it’s not a mess, I mean, I think it is a very, it can be a very important aspect of selling a business that it is kind of a legacy that the entrepreneur built. And if you let it just to be demolished and folded into something else, and employees are leaving, there’s nothing left, then you kind of, you made some money, but there’s not much to show for it. I mean, you really don’t leave the results of your work visible behind you. And that can be very, very sobering, especially if you invested 20 years of your life and your heart and soul into something. And making money is important, but it’s also important that you feel like you have done something versatile. And when you have a good buyer, which takes care of your company and grows your company, it can be very satisfying. I can tell from personal experience, I sold my investment banking firm and initially, I was kind of disappointed that they could run it themselves and they didn’t need me anymore. But looking back, they’re still in business, they’re still successful. I’m kind of proud of having played some part in them being where they are. And I can point to that company, hey, I started this company and it’s still successful. It’s a very satisfying thing.

Yeah, absolutely, yeah.

Yeah, and what I have seen many entrepreneurs do, they sell their business and then six months later, they realize that they lost their purpose and they wish they didn’t sell their business. And if the business has gone away, that’s even a worse feeling. Then the business is no longer there. They don’t have anything similarly valuable to do and it can be a disheartening feeling.

One more thing to add to that is that, I went through this, and by the way, when we sold my company, it’s kind of interestingly, 2005, someone came to us, tried to buy our company, and it was a big national firm, and they came in and started talking about some of the changes they wanted to make, we kind of all looked around the room and said, this doesn’t really sound very interesting to us. It didn’t matter what price, we just felt it wasn’t right for us, it wasn’t right for our team. But when we did sell the company, I was used to being part of the team that made all the decisions, ran the company, designed strategy. And we merged into another firm and you’re not in charge anymore. And if you remember those who saw the play Hamilton, you talk about I want to be in the room where it happens. Remember that song from Hamilton? If not look it up, it explains it all, and all of a sudden, you’re not in the room. And then the firm we sold from to got acquired by another firm. So I was maybe in the first transaction in the outer, maybe I was in the room, maybe I was on the foyer outside, the lobby outside the room. But once the second firm came in, I was five floors removed from being in the room. And as an entrepreneur, that’s difficult. And I think that’s one of the things you really have to also understand when you’re selling your business. Just what’s that relationship going to be? What’s the authority and how are things are going to be done? I mean, I’ll tell you some of the best companies in the world, buying companies like a Masco, actually, Brookshire Hathaway, they let the owners continue to run their businesses. And a lot of people say they will, but won’t. And I think that’s one of the things you really got to understand, just that cultural impact.

Yeah, it is huge. So transitions are easier to envision than to actually live through. And I think it becomes more important even after the sale, after the dust settle. Okay, you acknowledge you made this money but it’s kind of part of reality and it’s not exciting anymore, it’s just is. And then you look at your company and you’re out in the foyer or even five grounds below or five levels below or they pulled your company into another one or they do something with your employees that you didn’t agree to and you didn’t even expect, but it was not part of the agreement and now the employees feel like you betrayed them and that’s a terrible, that’s a terrible feeling. Yeah, I didn’t know Gino did that, but it was very impressive. I know that he did change the visionary seat, that it’s Michael Payton took over from him. They re-recorded all the videos so he was not seen as the only one knowing the system. It was something other than the creator to deliver that was impressive and he built a really impressive team around him as well. So thank you for sharing this. So last question, what are you working on that excites you right now?

So one of my projects right now, I’ve been working on for a long time and I’m posthumously optimistic we’re going to be really successful here. It’s actually been a re-transformation of a company that manufactures a consumer product that’s used in the home kitchen. I’ll leave it at that without getting too detailed about it. And when we first got involved, the company was struggling and needed a refinancing and it refinanced. And we helped get a refinancing done, and we thought we would be done, and that was that. And as a couple of months after the refinancing, they’re struggling, and they’re struggling, and it gets worse, and ultimately, we did all kinds of cash flow projections and models, and they were failing to meet everything. And what it really came down to was there was bad discipline and bad systems in place. Plus, they were not charging properly for their products. Their product is very heavily steel based and steel prices went up from four or five years ago. Effectively, now they’re 50% higher on top of all the other inflation that we’ve had, wage inflation and health care insurance and property casualty insurance and everything has gone up. And so you look at this company and they’re losing millions of dollars and they sell to major mass retailers and instead you got to go to your customers and get price increases. We did a product by product, gross profit by SKU, so by each unit, each stock keeps a SKU, for those who aren’t in the retail world, stock keeping units. So for each unit, every product they sell, and they’re losing money and everything, and it’s because the steel prices are going up so much. And we basically push them hard to go to their customer and get a price increase. And I said, never will happen. It will import the product from overseas. The punchline, after a lot of pushing and shoving and a lot of discussion, is that they have gotten a substantial price increase from their customer. And that was some other things that we are doing to just drive down cost efficiencies, we are going to turn a company that was literally on its last gasp, it was dying. It was on its last gasp and we’re cautiously optimistic this business is going to be saved. And so it was really the playbook for the turnaround world looking backwards was always cost-cutting because there’s too much capacity and you got to get your costs down and you got to get your costs in line. And at some point, it was a race to the bottom. And that playbook, while it still can be helpful, is not the playbook of what we have in the 2020s in this post-pandemic world. There’s many things we’ve seen, there’s been shortages of products. But I’m saying a lot of companies, their margins have been beat up. And their margins are beat up because they don’t know their costs, and they’re not charging their customers enough. And I can’t stress that enough for companies to be on game with that.

Yeah, that’s really important. So yeah, so that’s what happens when you’re a trusted advisor. I’s not just one solution, selling the company, it could be refinancing, it could be figuring out the right pricing, it could be reorganizing the systems and processes, document processes, reorganizing the functions. So there could be many, many things to do. And if you have someone who is experienced and have seen a lot of businesses, then you can rely on them. That was one of the aspects I really enjoyed, most enjoyed perhaps, in being an emergency management advisor, that we had the plan A and plan B, C, D. So if the straight sell didn’t work, maybe private equity, maybe a management buyout, maybe a restructuring, maybe selling some assets, repositioning the company, so we could get involved in other areas. And that was very, very satisfying. Scott, I really enjoyed the conversation. Thanks for coming and sharing, spilling the beans on, obviously nothing confidential, but the whole mindset of the EOS sale and how Gino approached it and how he took care of his people. That’s very, very insightful. So thank you for doing that. Thanks for doing what you do, helping people, entrepreneurs save their companies and helping them make it most valuable. And those of you listening to this, stay tuned because we bring people like Scott, who’s got their finger on the pulse of the business world on the show and share really good insights. So thanks for coming, Scott, and thank you for listening. One more thing before we wrap up. If people would like to continue a conversation, where can they go and how can they get in touch with you?

Sure. My website is franklincapital.us

That’s how I remember it.

And my email is eisenberg@franklincapital.us. I’m on LinkedIn. I’m on Facebook. And if anyone ever wants to just discuss the situation, whether it’s a healthy sale or they’re going through a challenging period, I’m always happy to have a conversation, see if I can help. No obligations, no commitments, always happy to help.

That’s awesome. Well, with Scott, you would be in the very best hands out there, if you’re a small to medium-sized business. I can attest to this. So, Scott, thank you for coming and thank you for listening.

Thank you, Steve. 

 

Important Links:

This entry was posted in . Bookmark the permalink.
kristine