Host Laurie Barkman, The Business Transition Sherpa, talks with Mike Malatesta, CEO of LJP Waste Solutions. Over the past 30 years, Mike’s experienced the highs and lows of entrepreneurship. He built and sold two waste recycling companies that grossed more than $500M. He’s also an author, podcaster, and advisor to business owners.
Mike talks about the unexpected death of one of his business partners due to a workplace accident. Dealing with the loss was challenging and accelerated their interest in a potential exit.
You’ll want to hear why Mike believes entrepreneurs should not sell their business without the help of advisors and the mistake that cost him $4 Million.
For a successful exit, reflect on where you are now, what you want, and what the first step is to move towards that goal.
Listen in to learn more about:
- Why entrepreneurs should not sell their business on their own
- What triggered a $4M reduction in purchase price from the strategic buyer
- Why due diligence when selling your business can be overwhelming
- Selling a business, negotiation mistakes, and lessons learned
- Avoiding negotiation pitfalls when selling your business
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Laurie Barkman guides entrepreneurs to create life-changing succession stories. Dramatically increase enterprise value and build with your exit in mind.
Find clarity on the often overwhelming process of transition planning. Visit https://thebusinesstransitionsherpa.com to schedule a conversation and get started.
SHOW TRANSCRIPT:
Laurie Barkman
Mike Malatesta Welcome to Succession Stories. I’m so excited to be with you today.
Mike Malatesta
I am as well, Laurie. Thank you so much for having me. Thank you for the work that you’re doing. Thank you for doing this podcast too. I’ve been listening to some episodes and you’re a pro!
Laurie Barkman
Thank you. That means a lot to me also, because you have podcasts and that’s how we met on your show, How’d It Happen? And I thought we had a great conversation. It was lovely to be a guest on your show. And I said to you, hey, how would you feel if we flipped the mic around? And you jumped at the invitation. I’m so grateful because I think people are going to benefit from hearing your story, as an entrepreneur and some of the challenges you faced along the way. Of course, how you’re helping people today. Why don’t we start there? Why don’t you tell us a bit about you and your entrepreneurial journey?
Mike Malatesta
Sure. I co-founded my first company in 1992, which makes me seem ancient probably, but I was a very young man at the time, 26. It was in the waste industry and I had come to that industry very accidentally, through a love of trucks. When I was a kid, I loved trucks. My dad was a truck driver, we lived across the street from a trucking company, and I was just all caught up in everything truck. I started working with trucks when I was a teenager and then when I was in college, I wanted to drive a bigger truck.
I started knocking on doors at waste companies because I thought trash trucks were really cool, and one of them hired me. It was well, I couldn’t believe that they hired me because I was only 20 years old. Everyone else was saying they couldn’t insure me and that kind of thing. I was like, okay, and I thought I would never get it. Anyway, I got this summer job and I thought it was great. I just thought it was amazing; the work that the company was doing, cleaning up stuff, recycling stuff, just being very helpful in building projects, and all that I just an end and the trucks and the equipment, and I just thought it was great.
That led me to talk to the owner about a career in this. Bill told me that I should go work for one of the or try to get a job with one of the big companies because they were a family-owned business, and that’s what I did. I did exactly what he told me to do. I ended up with a big company and I learned. I was with them for five years, I learned a lot of different parts of the waste business.
When I had the opportunity to go out on my own, I rounded up the money and cashed in everything. We had rounded up some investor money, and I just bought a truck and just started from there. The short story LOI is that we had a 22-year run in that first business and it grew very nicely, very consistently, with a lot of challenges, and a lot of great things that happened along the way. Then in 2015, I had an opportunity to sell that business and did a much larger strategic acquire but it wasn’t done yet, and I’m still not done.
A couple of years later, three years later, I was able to partner with a private equity firm become an operating partner in their fund, and start a similar type waste business to what I had owned before. We had grown our initial business organically and through acquisitions, so I was very familiar with the growth triggers in both sides of both triggers in that business. We put a platform together, buying a few companies, and started to you know, branded it, started to improve it, run it better, and we ended up being able to sell that business in 2021. For you know, and so that wasn’t a good outcome. Another great experience for me and for the private equity firm and for the people that I had the chance to work with as well.
Laurie Barkman
Of course, there are lots of things to ask you about in this story here. I’m going to rewind and take us back. Let’s go back to the first business and what was the name of that company?
Mike Malatesta
Advanced Waste Services.
Laurie Barkman
Advanced Waste Services. How did you get people to invest in you? What was it that you said? Hey, this business is going to be a winner. I’m the guy to take it forward. Were these friends and family? Was it a commercial bank loan? How did you put the plan together and get people excited about it?
Mike Malatesta
Good question. This is exactly how it happened. I had worked with a fellow who became my partner, his name was Butch Weiss. Butch and I both put in everything that we had, which was approximately $100,000. That’s cashing out 401k, cashing out my wife’s 401k which had a CD that he cashed out, I borrowed from my parents, and I also borrowed from my wife’s parents. We went to the bank with that and we were able to get an SBA-backed loan. But near the very end of that process, they told us that they would need an additional $25,000 of equity in order to do the loan, which we did not have. I went searching for I had a very limited network because I had moved around a lot with the company I was with.
I was in Milwaukee, which is where I am now. I had a limited network of people that I knew, but I knew one person who I thought might have the money and might have been interested or know us enough to have an interest. I went to Chuck and I asked him. Short story was he didn’t want to do the whole 25 but he would do half and his friend would do half. I was like, Of course, that’s fine. I ended up with three partners at the beginning, which was Butch and then Chuck and his friend, Larry. That’s how we put the company together at the beginning.
Laurie Barkman
Were all three of those partners involved in the business or just Butch?
Mike Malatesta
Yeah, Larry and Chuck had their own businesses and were doing their own thing. They were great partners, really good mentors, but day-to-day was just Butch and I.
Laurie Barkman
Gotcha. Take us through kind of the growth story you started from. We started from literally zero, you’re basically zero, and grew the business and had a successful exit. At what point over that 22-year period did you say to yourself, and you and Butch and the other partners, that you were thinking about an exit or thinking about a sale? And how did you get ready for that process?
Mike Malatesta
I think that the real trigger, Laurie, was in 2003, October of 2003. About 11 years into this business, my partner Butch passed away. He was injured in a fire at one of our facilities, and he passed away a few days later. That was a real challenge for me and for the other partners, but for me, specifically, because we work together, we complemented each other. He was just like a father figure to me. He was also my biggest supporter. When that happened, I was asking myself a lot of questions, not this necessarily about exiting, but whether I still wanted to keep doing this because I felt responsible for what had happened. I just didn’t know that I could navigate.
I could continue to navigate and run and lead the business without him but ultimately, I call that sort of my anti-fragile test of eventually; most people can get past things eventually. I was able to get past that. Fast forward, at that time, I knew that this thing could implode that at any second, which I had never really thought about before. I just thought it would always be here, whether it was always great or not, I didn’t know but it was always be here. That made me think that maybe it wouldn’t always be here things can happen.
That led us on a journey towards really figuring out the value drivers in this business and how we can maximize those because you never know. Fast forward to 2009, six years later, I think this was the thing that really got us thinking about exit. We went through a recapitalization process with an investment bank becausell for a lot of reasons that aren’t important to this discussion, but what is important to this discussion is going through that process really opened our eyes and my eyes in particular to all the things that a buyer is looking at when they are evaluating whether they want to acquire a company and at what price they want to acquire the company. That process, we didn’t end up going through it, but the education we got going through that process was invaluable. After that, we just started being like, buyers lens on this business. We still got to focus on our growth, we still got to focus on the things that matter, of course, but we also have to think about what’s this going to be like, after we’re done with it.
We started to professionalize our financials. For example, we started to really look at branding, trademarking, IP and the story about our business that made it different than others, other people’s, or other competitors. Other light businesses, management, really focusing on me not being the tallest building in the business, for example, or the dancing bear, the one who always sort of has to be front and center for the business to continue to operate. We built a management structure that was much different and I continue to educate myself through groups that I would belong to mentors that I would engage with, about what is the real role of the entrepreneur, the founder, the CEO in a business, and I came to the conclusion that my real role is not to be needed.
First and foremost, certainly not to be needed on a day-to-day business to be very structured, and focused on the things that I do, or can do that really drive value and importance in the business and not try not to do anything else. My job is to maximize value, that’s my job. Whether you’re gonna sell the business or not, my job is to maximize value. That progression of things, I think started with Bush and then sort of accelerated through 2009. By the time we had an opportunity to sell the business, we were, I would say, very prepared. Way more prepared than most, but still not as prepared as I would be If I was doing it all over again.
Laurie Barkman
I get the benefit of hindsight and I am so sorry to hear about Butch’s tragic passing. I very much appreciate that you are bringing this up as part of the story because many of our listeners are in partnerships in their business, and when on this show and webinars and other things where I’ve talked about contingency planning, and that we try to control as many things as we can. But ultimately, there are things that are out of our control such as what happened with your partner. Now, what happened in that circumstance? Did you end up buying the shares from his family, his heirs?
Mike Malatesta
We had a smart planning from the beginning. We had a buy-sell in place from the very beginning because we had a three or four partner group and we had a formula that we established for that for that buy-sell. We have key man insurance on every person in the business to fund that in the event that we needed it and that’s how we ended up doing it. It’s a funny thing because even today, when I talk to people that they just well, like you said, that you never think anything’s gonna happen and whatever but even the simplest things that are just kind of malpractice, not to have like a mechanism to buy out your partner’s estate if something horrible would happen to that person, or a formula established to value it, then a funding mechanism like insurance to have it. I find that there’s still so many people out there just don’t do that, haven’t connected that dot, don’t want to spend the money on insurance. Nobody wants to spend money on insurance because you think you can live and not need it, but man oh man. To go through a horrible thing, like we went through with Butch, and not have had just think of what it would be like, if we didn’t have all that in place, it would have been just much more challenging.
Laurie Barkman
Absolutely. You’re dealing with grief, your deal, and then you have to continue to run the business, we could do a whole episode just on how your business recovered from such a shocking event. We’re in the space of 2009 when you started to work with the eye bank, and did the same investment bank represent your company for sale to strategics?
Mike Malatesta
In 2015
Laurie Barkman
- What was the process to bring it to market? Yeah,
Mike Malatesta
Here was the process, like I said, we had done a lot of work from 2009, up through and by the way, in 2013, I was able to buy out my other two partners. Which had been a goal of mine for a long time. I was effectively the 100%, owner of the business. By the time 2015 rolled around, I’m a little embarrassed to say this, but I thought I knew everything I needed to know, Laurie. I handled it myself.
I did have the benefit of the right advisory team that I had already built because we’d been doing acquisitions for a long time. I knew that we had the right team in place. I did get a lot of support from the team but in terms of negotiating non-legal terms, just financial terms the with the buyer, and employment with the buyer and those types of things, I did that on my own. I would not recommend that to anybody because I will tell you that by the time that this happened, as I mentioned, we had already gone through a process in 2009. I’d been a private equity investor since 2010, or 12. I had a lot of deal experience, I purchased my I don’t know, maybe like 18 companies at that time. I had a lot of experience but I still would have definitely benefited from someone who saw interest in the sales process.
Laurie Barkman
You didn’t take things personally, did it make you emotional? Did it give you anxiety to be kind of on the front line of those negotiations? What do you think would be different from how you felt about it or approached it? If you were using a third party like myself as a mergers and acquisitions advisor? We don’t know exactly but how do you think about it?
Mike Malatesta
Yeah, so certainly, there were times story and anyone you know, your audiences is sophisticated. Anyone who has not been through the due diligence process for the sale of a business, any business of any size, you’re really in for a ride; the expectations, the amount of information, the questions, the document requests, everything is coming at you. You’re trying to run your business to write and you’re trying to keep it a secret, and you’re trying to do all this stuff. Emotionally, it can be very difficult.
You asked me about anxiety. Sure, I felt anxiety from time to time, but I think that the thing that was a mistake for me during this process was that I think I talked too much to too many different people from the company that was looking to acquire us instead of having someone to help me understand when and what I should and should not offer. I’m not trying to suggest you hide something from someone but you and I start talking right and then we’re just like, Oh, now we’re friends, right? We’re and there is kind of that but there’s also like, I want the best for you if you’re buying me, you want the best deal for you, right? And I want the best deal for me. We can get to a win-win, but it’s not always going to be the same. I think I left about $4 million on the table is the bottom line.
Laurie Barkman
Why do you say that? How do you have to come up with that number?
Mike Malatesta
Because they reduced the price by $4 million. They repriced it near the end and there was, in my opinion, the reason for it was I offered some information about my particular financial situation with my partners. I was just doing that just to be transparent, like, this is how it’s going to go. I just thought I was having a conversation with somebody about something turned out, this is, I don’t know, I was not in the meetings or anything, but I feel like they saw that as an opportunity to reduce the price. I felt like I had made a mistake there as a result. I also felt like I was too far into to reverse course. I think if I had to have someone working with me, I would not have done that. If they had come back with a price reduction request, I would have had a better response to it and I probably would have had more courage and confidence to stand my ground.
Laurie Barkman
Very, very interesting. Yeah, I guess in the technical terms, we call that a Retrade. They were you said about two weeks out from the close date?
Mike Malatesta
Well, I didn’t say that but it was within a month.
Laurie Barkman
It was a relatively short time horizon. They learned something in the diligence process they hadn’t asked about, but you had offered. And then they saw some advantage in the situation, because as you were saying, they interpreted what you had shared with them as a reason for a discount or as an opportunity for discount. They bet correctly that you wouldn’t say no. I can understand why, in the big picture, if you were going to redo part of that negotiation, it’s a very, very important learning for the audience.
I really appreciate you sharing it because I’m sure, sometimes in life, we regret what we do and we regret things we don’t do. It’s hard to know exactly how to handle things. You did the best you could in that situation and you had a successful exit. Did you stay on in the sense of it was a no from your bio, it sold for I don’t know what number you are able to share but eight-figure eight-figure exit is what I read, which was probably a good exit for you and for your family. Of course, there might have been more on the table there, as you explained, but how did you feel about the exit generally?
Mike Malatesta
Besides that mistake, I felt and I want to be clear, I don’t think that they just played the game. I mean, I gave them an opening to play the game, they played the game; that’s, that’s how this works. That’s why it’s so important to have someone playing the game for you or with you and not trying to play the game yourself. As I mentioned, I was pretty sophisticated at that time. Many people I’m sure that are listening haven’t been through the same experiences that I had been through, and would be and are even more lost and intimidated and unsure and whatever, as they tried to go through and manage this process, this type of process on their own. But once so, you can always say no of course, right? I had the option to say no, I could have said no, I don’t want to do that. I said yes. As soon as I was going through the process of evaluating what to do there, I just said to myself, if I say yes to this, that’s my decision. It’s not anything that they’ve done and my job as I stay on with them, is to help them achieve their goals and not have any regrets about what I’ve done. I do not have any regrets about it. Except I don’t consider that a regret, I call it a mistake. I’ve made a mistake and now I’m helping people not make that same kind of mistake.
One of the things I do want to leave your listeners with is, there are too many. In my experience, there are too many business owners who sell their business and do have regret, like four out of five have some type of regret and that is not where you want to be. When you make this most significant transition in your life and life-affecting transition, you do not want to be there. You are helping people, as am I trying to not have a transition that has anything close to regrets attached to it.
There’s a mindset that goes into that, of course. There’s a lot of planning that goes into that. A lot of times, people just need to be told–not told but but guided through the process. Let’s set the expectation right up front, let’s not set it up later as you go down the road. You’re in this negotiation with people, let’s set it up and let’s make sure we get to that expectation. If you get to that expectation, boy, it’s going to be hard for you to tell me that you have regrets about it because that’s how you adapted the mindset. You set the goal, you had the expectation, and that’s when you get that should be a dream.
Laurie Barkman
I love that philosophy. I think that’s really important. How can how can owners build with an exit in mind? It’s one of the reasons I know for you while you’re pursuing this passion of helping entrepreneurs on this phase of their journey, right? If we kind of shift into what you’re doing today with the podcast, book, and other resources that you’ve put into the world and a fairly meaningful way for entrepreneurs to benefit. Tell me about the dream exit process and how that’s helping founders and owners.
Mike Malatesta
Thanks for asking. I started doing some coaching after I wrote my book, which is called Owner Shift, How Getting Selfish Got Me Unstuck. You can get it anywhere, books are sold, except in a bookstore probably can’t get it there. People reached out to me after I wrote that book, asking me if I could help them. I started and I had never been a coach or thought about coaching. I had coached a lot of people, but I had never put my hand up as a coach. I started doing that with a few people. I was really thinking about, there’s a lot of people out there that are coaching business owners and entrepreneurs, and a lot of great people who can help them maximize this or leverage this or add this, there’s all kinds of expertise out there.
I was trying to figure out where’s my real expertise, and I saw a quote by Charlie Munger, and it said something like the most impactful thing that you can do is teach somebody something new. When I read that, I thought, so when I try to apply that to what I’m trying to help people with now, where does my experience and skill set really line up in a way that a lot of other coaches might not have, that can make a really significant, positive impact on the people that I work with. By this time, I’ve got experience with 25 acquisitions, I’ve sold two businesses through two different processes through with two different structures, I’ve been an investor board member, I’ve got a lot of exposure to this. I’ve been the entrepreneur, I’ve been the founder, I’ve been the CEO. I determined that the best way I could help people was by being that person who can get in their shoes, understand their language, understand their thought process, and get them focused on setting up themselves and their business for maximum value and maximum meaning down the road. That’s where the whole dream exit thing came from. It’s like where can I have the most positive impact on people?
Laurie Barkman
Do you think that people struggle to articulate what they want out of an exit?
Mike Malatesta
Yeah, I think.
Laurie Barkman
Why is that?
Mike Malatesta
Because no one ever asked them what they want. I don’t know what your experience is, Laurie, but mine is when you’re the business owner, the entrepreneur, the leader, everybody’s sort of figures, you know what you want. They don’t ask you what you want and not only do they not ask you what you want, they don’t hold you accountable for you achieving anything you want. It’s kind of like that thing where we like to hold everybody else accountable. We’re gonna hold you accountable, but we don’t want to be held accountable ourselves.
For me, I think that and you know, of course, we walked the walk, we talked the talk, we can have these kinds of conversation, with business owners to get them focused on what they actually want. I mean, it’s just an amazing question, right? What do you want? Who shouldn’t know one? Isn’t anyone out there that shouldn’t be able to answer that question? That can evolve, of course, but there’s no one out there who shouldn’t be able to answer that question. But boy, boy, when you know what you want, and you define it, it’s a lot easier to walk back and get everything in place to achieve what you want than it is for you to get started on something not knowing what you want, because the likelihood you’re ever going to get set up to get it is too fuzzy, right? You don’t have a target, you don’t know. You’re just kind of moving and not moving intentionally.
Laurie Barkman
I find that a lot with people that I work with and talk to, they don’t know what their business is worth today. They don’t have a sense of what it couldn’t be worth if they made some improvements or changes. They’re just going through the motions, everybody’s so busy, and they’re working on what’s right in front of them, as opposed to looking ahead a bit and thinking ahead. Some investment of time to work on the business and not just in the business is super important. The folks that you’ve worked with Mike and your experience, how do we get them to cross that threshold from, I’ll kick the can to I’m gonna take this next step?
Mike Malatesta
It’s hard. It takes a forward-thinking person. Either they’re naturally forward-thinking, in which case, they’re very open to doing this or that something happens, a Butch type thing happens in their world, and they’re like, holy crap, they’re scared. I would say they just would rather not do something hard like this, they would rather just hope that it will happen at some point. It seems to me, the thing that they miss the most is that they think someone’s going to come along with a check, you’re going to give them that check. Everything’s going to be glorious, after that, because why wouldn’t it be, right? Because you got a check. They just totally missed the whole picture because one, as we mentioned earlier, your job is really to create value in the business. Is the cheque a good check or is it just a check that’s bigger than you’ve seen before? Those are two different, two different things. Then the whole thing, I’ve got money, so everything is going to take care of itself. Well, that’s often a baseball bat type to the head type thing after you get in that situation then it’s not this glorious, everything solved in my life thing. You start thinking about what should I be doing now. That’s a terrible time to start thinking about what you should be doing.
Laurie Barkman
The chance to exit planning when you’re exiting it’s just too late to give yourself the time and space. As we wind down our conversation, I want to ask you, to put it all together for us if there’s a top two list or a top three list of things that you want to suggest people start doing in the next 90 days or 60 days, whatever it is, six months or a year. What are those things that they should really consider doing? To look ahead and start working on an exit for their benefit?
Mike Malatesta
Here’s something you can do just completely on your own. Like just after you listen to this podcast or other you can just sit down and just spend 10 minutes thinking about this and I call it A, where are you right now? What I call the reality check. Where are you right now? Where are you with your happiness? With your busines? With your happiness with yourself? With whatever?
However, you want to think about that Z. Z is what do you want? That’s the that’s the question we were talking about earlier, what do you want? Then B is what’s the first thing you have to do in order to start making your way towards that. I think that if people were honest with themselves, and just took even a few minutes to write down what they think about that, it would be exceptionally helpful for them to identify the gap between A and Z, and not just the gap between A and Z, but also identify this first step that they could take today to start moving towards that Z and get off of the away from the A.
Laurie Barkman
It’s taking small steps, it’s figuring out where you want to end up and working backwards, which is really, really smart to do. Thanks for sharing that, Mike. If people want to get in touch with you, what’s a good way for them to do that?
Mike Malatesta
Yeah, super easy, dreamexit.com. You get to me, from there, mike@dreamexit.com is my email. You feel free to email me, happy to talk to anyone about where you are, what you’re thinking about, because I learned from everybody I talked to it’s not a one-way street with me. If I can help you, great. If Laurie is the right person to help you, that’s even better. I have a tremendous respect for her. In her book, The Business Transition Handbook, would have been a gift that you have available for free for people to download from your website. That’s very well done.
Laurie Barkman
Well, thank you. I appreciate you, Mike. I think the audience will learn a lot from the show and I do encourage folks to follow up if you are interested. In case people are wondering like, wow, Laurie has someone coming on the show? Who kind of does what she does? The answer is absolutely. There’s a lot of people out there who need the resources of what we are all providing. I think it’s a great venue to have a podcast like this where people can learn and click with those who can help them and there’s a lot of resources in the world, right? I’m not going to be a fit for everyone. That’s the number one thing is if people want to learn more and follow up with you, I absolutely encourage them to do that. Thank you so much for coming on Succession Stories and sharing your succession story with me.
Mike Malatesta
It’s been a pleasure. Thank you so much for having me. I really enjoy you. Thank you.
