Ben Rizzo, Founder of Hartwood Point, makes direct private investments across the US and UK, primarily in operator-led buyouts. Ben talks with Succession Stories host, Laurie Barkman, about acquisitions, and how he turned around a distressed business and sold it in just two years. Having experience on both sides of M&A deals, Ben shares practical tips for business owners and acquisition entrepreneurs. Owners will gain insights about what you can do now to get your business sell-ready and be better prepared for a great exit when the time comes to sell.
Listen to learn more about:
- Getting started as an acquisition entrepreneur
- How to look for recurring revenue
- Transitioning from family business to a new owner
- What an M&A process entails
- Selling to a private equity buyer
- Advisor network for acquisition deals
- Advice for small business owners looking to sell
Show links:
- Ben Rizzo: Ben@Hartwoodpoint.com Website: https://www.hartwoodpoint.com/
- How will you decide when to sell? Text ‘Transition’ to +1-646-495-9867 to get the EndGame eBook.
- Follow the Succession Stories YouTube Channel
- Connect with Laurie Barkman on LinkedIn: https://www.linkedin.com/in/lauriebarkman/
- Get your copy of Laurie Barkman’s book, “The Business Transition Handbook” on Amazon https://amzn.to/3Hqj2eo
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About Succession Stories Podcast
Succession Stories is an award-winning podcast guiding entrepreneurs from transition to transaction. Hosted by Laurie Barkman, author of “The Business Transition Handbook: How to Avoid Transition Pitfalls and Create Valuable Exit Options.”
Learn more about Laurie’s strategic business transition planning and M&A advisory services by visiting: https://thebusinesstransitionsherpa.com
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Transcript
Intro:
Ben Rizzo is the Founder of Hartwood Point, making direct private investments across the US and UK, primarily in operator-led buyouts. He serves as CEO of SecureAire Technologies, a leading indoor air quality technology company, is an Advisor to Berkshire Partners, and Board Member of A-A1 Foods. Ben was previously the President and Owner of Hadfield Elevator where he led the company’s transformational growth and sale to 3 Phase Elevator.
We talked about Hadfield Elevator, Ben’s first deal, a distressed business, how he turned it around through COVID. After only two years, he went through a successful sale process finding a buyer who was the right fit. Having experience on both sides of the table, I enjoyed what Ben advises is really important for business owners to know, and practical tips of what you can do now to get ready. When the time comes to sell, you’ll be prepared for a great exit to a buyer of choice with a vision to ride off into the sunset and be happy. Both acquisition seekers and sellers will find value in my Succession Stories conversation with Ben Rizzo.
Laurie Barkman:
Ben Rizzo, welcome to Succession Stories. When we’ve had people on the show in the past who can talk about both buy side and sell side, it’s so compelling, and that’s exactly what we’re going to talk about today, so welcome. I’m glad to be with you.
Ben Rizzo:
Glad to be with you as well, Laurie. Thanks for having me.
Laurie Barkman:
Why don’t we start with your background? What got you interested in buying a business?
Ben Rizzo:
Sure, so I am an engineer by training and always thought I wanted to be an entrepreneur of some sort and I started a company during graduate school that immediately failed and I was like, “Man, I really liked this whole concept of being my own boss and having a company,” but I didn’t really have any great ideas and I was introduced to this concept of being able to buy a business and entrepreneurship through acquisition. I was like, “Oh, yeah, that’s what I want to do in some form,” and so I started kind of getting involved in learning about that space and the different forms of which people can do it and then set out to do it myself and gone through all sorts of different iterations of exactly the type of entrepreneurship through acquisition I’ve done over the past couple years, but have really enjoyed kind of the the entrepreneurship aspects. The acquisition aspects are good, too, but the the the ability to be an entrepreneur, working with other people and other people’s businesses, and make them my own in some way, shape or form has been really rewarding.
Laurie Barkman:
How did you go about it? Did you have investors that were backing you? Were you taking out a bank loan or an SBA loan?
Ben Rizzo:
Yeah, so traditionally, entrepreneurship through acquisition is financed through a group of investors bank that I ended up buying a business that already had a lot of debt on it, and was able to write a check myself and then restructure some of the debt and so that was essentially the purchase price was an assumption of liabilities and that was a relatively unique structure and not something that I was looking to do but it was the right thing.
Laurie Barkman:
Well, why don’t we talk about that, let’s talk about your criteria. How did you go about your search? What were you looking for and then ultimately, how did you get connected with Hadfield Elevator?
Ben Rizzo:
I was here in Pittsburgh, looking for something locally that I could buy, insert myself and run and generally, the criteria for that type of thing is a good solid, small business, where there’s been some sort of need for transition, death, divorce, whatever, family issues, they just decided to sell, but a good small business that has a nice revenue stream, and very repeat or recurring and I found this elevator business through one of their professional advisors and they said, “Hey, there’s this business where something needs to happen, you might be a good fit,” the fourth generation owner was about my age, and we hit it off and it was a situation where there were some family issues and there’s some also some project issues where the business was financially having some issues and they really needed some help on the general management side, they need some financial restructuring and so what I saw on the business was, hey, this is a really good industry, elevator services, really good characteristics, elevators go up and down, they keep running no matter what buildings kind of have to service them and so I liked that aspect of it and was able to get comfortable with even though this business is in a tough position, this can be a good business and should be a good business and we can make it that and so was able to come up with a deal with a family members to buy them out, and then insert myself and run the business with keeping some of the family members on staff with salaries.
Laurie Barkman:
What was the rough target of the revenue that you were looking for companies when you were looking around? Was this a smaller business?
Ben Rizzo:
Generally, it was looking for something with you know, five to 15 million in revenue and that was right in that range.
Laurie Barkman:
Gotcha. Okay, and looking for recurring revenue, so for Hadfield, they would implement the elevators if it was a new building, right, they would install the elevators but then did they also have service agreements? Was that the recurring revenue?
Ben Rizzo:
Yeah, the majority of the business is the recurring maintenance service contract. The business actually didn’t do a lot of new installations, which I liked, new installations and construction can be very lumpy and so yeah, the gold standard in terms of acquisition entrepreneurship is recurring revenue where the same customers are paying you year over year, month over month and elevators have that frequently. It’s not that straightforward. It’s…there’s repeat revenue or reoccurring revenue where they keep buying, but it’s not cool that contractually recurring revenue is really kind of the gold standard for, hey, you know, there’s money that’s gonna keep coming in for whatever the life of the contract is.
Laurie Barkman:
Yeah, that’s a really good point. Let’s just pause on that because I talk about this a lot. When I do CEO workshops, the difference between recurring and reoccurring, and not everyone understands that you articulated it very, very well, so just want to underscore that for our listeners, that recurring revenue is contracted revenue, there’s different different types of recurring revenue models, like Netflix, where you put in your credit card, and they just are happy to take your money until you unsubscribe and with a service company, like Hadfield was it multi year contracts, what was the nature of the of the service agreements that made them recurring?
Ben Rizzo:
Generally, it was a multi year contract with automatic renewals unless cancelled and there is different flavors and generally, the long and short of the elevator industry is the big players will install elevators and new buildings that are relatively low margin in order to get the service contracts. They have a mixed mixed reputation at best in terms of their efforts during those service contracts, because they’ve got you for many years and then they’ll just can keep those on repeat for as long as they can hold the hold on to you for and so the independent players like the Hatfields, try and be the service providers of choice and that was another thing when I was diligence in the industry, I was like, “Oh, the reputations of the industry are good.” Most building owners do not like their provider of these services, because they know that they’ve have to buy the services prices are very high so my competition is not particularly well, like I should be able to beat them.
Laurie Barkman:
How did you get introduced to Hatfield? How’d you find them?
Ben Rizzo:
Through a lawyer, I was at a completely unrelated events and I was introducing myself to a group of people and I said, “I’m gonna look fine, run a business,” and a lawyer said, “Oh, I don’t do that. I’m a patent lawyer. But let me introduce you to the guy at my firm who does.” He introduced me to the guy who does kind of business representation in their law firm. I said, “I’m a guy looking to buy and run a business,” and he said, “Oh, I’ve got a business where something needs to happen,” the business was not wildly wildly for sale but they like I said, they were in a precarious position needed something to happen and the introduction and we really were a fit with, with Bob Hatfield, the guy who I ended up really being a partner with.
Laurie Barkman:
Yeah, let’s talk about the Hatfield family. This is so interesting that it made it to the fourth generation, which is already kind of beating the odds, a lot of a lot of family businesses don’t even make it that far but you alluded to in your introduction that Hatfield had taken on a lot of debt. What was some of the circles when you’re going through the diligence, you’re learning more and more about them? Just curious, what were some of the circumstances that were driving some of the need to turn around the business?
Ben Rizzo:
The biggest situation was a very large project that had gone awry. That was very well publicized, and I cannot comment further on but that was like, a very obvious for me in terms of diligence is like, “Oh, this was the thing that went wrong.” This was the bad situation, making sure this wasn’t going to happen all the time and then on the kind of surrounding that was okay, what were the management frameworks that allowed something like this to happen? Are those fixable are those going on all the time, and figuring out that that was a certain surmountable kind of change to make but it was really one. One big project of very ended up being a very large issue for them.
Laurie Barkman:
Gotcha. Without revealing things you can’t reveal why did Hatfield say okay, “We want to sell,” as opposed to them staying the course and staying within the family business. Were there more of a rift within the family that were somehow connected?
Ben Rizzo:
The family was working out kind of their own management issues and dynamics and then there’s seeking debt from a number of sources where the there were personal guarantees on so I kind of had to figure out hey, “What do we want?”
Laurie Barkman:
It’d be interesting to have a representative from Hadfield Elevator on the show, too, because it’s always interesting to get both both sides of it–so you’re going through diligence, you’re finding out more about it. Why didn’t you run for the hills? What kept you back in the process, rather than say, “Oh, wow, this is this is a turnaround. This is not an easy thing.”? What kept you going there?
Ben Rizzo:
Certainly that contractually recurring, I knew that there was money coming in; kind of some diligence of vendors they’d worked with before and other contractors ao I knew that was good industry. Good business. Bob Hatfield’s reputation was very, very good. In customer calls, hey, this guy shows up and does the work. It’s just a question of the kind of the back office, some of those issues. I was like, “Oh, that is more fixable than, Oh, this is a cultural thing where nobody shows up to do the work.” No, they do the work. We just need to make sure that the guide rails in terms of operating parameters are out there and that was kind of the oh, that in a good industry is an interesting situation.
Laurie Barkman:
So you close the deal, you’re now the owner? Was there an earn out? Or what were the terms with the sellers? Were they out on the day of closing?
Ben Rizzo:
They were out? Yeah, it was your sign here and then like I said I continued to employ some of the family members that were working in the contracts similar to other employees have, do the work and you get paid but that was a pretty cut and dry kind of deal structure from that aspect.
Laurie Barkman:
Did you have a solid business plan coming into this about taking over what to do now? It’s no longer owned by the family. It’s now and you know, it’s not fourth generation anymore? It’s a new owner. How did you think about that transition?
Ben Rizzo:
Yes, it was important to me, to keep the family members that were involved and work with them as partners, and absolutely continue to run it as a family-owned business, you just have a family, Bob has a family, we own the business, and then figure out again, what were the things that we needed to do to turn around the business to make it more like the attractive business to own or sell that it should be? That was really diving into those financials and operating metrics around project economics, work in process, those types of things that Bob just didn’t have time to do? Because he was out working so hard fixing elevators, I was able to sit in the office and figure out, Hey, man, here’s the projects that are profitable, here’s the ones that are not here’s kind of some general rules of thumb, as we’re doing bids is we’re doing maintenance routes, those types of things to make sure that we’re staying within our relatively safe zone of operations that we’re going to continue to grow the business and build a good business here.
Laurie Barkman:
When you took over how many employees were there?
Ben Rizzo:
Like 20-25 or so.
Laurie Barkman:
Okay, and how long till you sold the company? How many years? Did you own it?
Ben Rizzo:
I owned the business for just two years.
Laurie Barkman:
Did you have that intention when you bought it, did you think that you were gonna sell it so quickly?
Ben Rizzo:
Not particularly. I’d rather own a really good business for a long time than and then sell it. What happened with us was your COVID, hit six, five months into owning the business, and we had just kind of turned around, and we managed to COVID. Okay, we ended up growing pretty aggressively and then towards the end, we were getting into significantly larger projects that I was comfortable with, and I said, “Hey, last guy knew a lot more about elevators than I did, and got into some projects that caused some problems, we’ve done a pretty good thing here.” Understanding what I could do and what I couldn’t do as an owner and it was time for me to kind of find the next home for the business that could continue the growth and offer more sophisticated support to Bob and the other guys that I wasn’t going to be able to.
Laurie Barkman:
You think that was more technical, that it was because you’re looking for maybe a strategic acquirer that was in the elevator industry to get it to that next level, is that what you’re saying?
Ben Rizzo:
Yeah, I mean, I knew we were having those thoughts, it was pretty obvious to me who I wanted to buy the business in terms of a financial partner that would leave operations as Hadfield Elevator, rather than selling to a strategic that was going to fire most of the people and just take the customers. That was really not interesting, but the ability to find a strategic partner that was in the industry that wanted to continue to support growth and continue to employ the employees and management staff and operating kind of mostly as obviously no buyer is going to keep everything as is. That was really the compelling thing to me.
Laurie Barkman:
Gotcha, so did you look to private equity groups?
Ben Rizzo:
Yeah, it was a private equity-backed roll-up. There were a number of them that were in the elevator industry, a couple of geographically contiguous and so I a specific banker that did a really good job kind of augmenting my knowledge, I knew a couple of groups had contacted us and said, “Hey, we were interested,” and there were a couple that I didn’t know existed, making sure that those groups were still kind of within market for either new entrants and private equity firms or the strategics, OTIS, Schindler and those types of groups that making giving me knowledge of here’s what people pay for businesses about your size with these characteristics and making sure all those things set, and then interviewing the private equity firms in the lobby the platform loan, and then figuring out who we fit with who had kind of the operating parameters and operating procedures that I thought could help the business and then create as best of a bidding war as possible.
Laurie Barkman:
They ran a process for you. Ultimately, how many indications of interest or letters of intent did you get in that first phase?
Ben Rizzo:
We had a pretty targeted process where we did not go out to the broad market, but we had about five groups that we circled initially and then I would say three of them were pretty serious and then we were able to understand from those three groups, some nitty gritty details pretty quickly and figure out who we wanted to go with. It was a very tough decision, though, because the different groups and financial considerations being within the same ballpark, the different groups were all really well represented and kind of had their own unique flavors of exactly how the business was going to go forward and it’s very hard to know what level of support the business was going to need to continue to grow and provide a good environment for the employees.
Laurie Barkman:
With this approach, were you looking for a private equity group that saw your business as a platform or saw your business as a token or an add-on?
Ben Rizzo:
We were talking, and I knew that where there was interest for us to be a platform, but I knew there were a number of platforms already and so it wasn’t super exciting for me to launch a new platform and try and compete with them but tuck in where we were a new geography and so that was a nice aspect of where we were in the brands and the markets where we were acquired and so the best shot at kind of giving the business its own life as it functions within the platform.
Laurie Barkman:
Gotcha. As you look back at the negotiation process, and all the, as you said, trying to figure out the right fit, what do you think are some of the biggest ‘watch out’ if you were gonna give some guidance to others who are looking to sell one day?
Ben Rizzo:
I think getting the accounting done upfront is really important. We had reviewed financial statements ready to go. You don’t need audited financial statements, but you do need something more than compiled so having those for a couple of years in advance is really worthwhile, rather than, hey, we’re going to sell we need to go back and reopen everything because everything’s going to be reopened. Have it done ahead of time and then more so than just having it done really understanding the cashflow cycles, and the working capital swings, and the work in process financing for all of your projects and your business because that’s where there’s going to be, even if not someone trying to screw you, there’s just going to be a lot a lack of understanding of your business. And those dollars can add up to significant sums very quickly and so you need to be able to understand why you might have to leave working capital in the business in excess of what you usually do, or why the buyer may want guarantees on certain things because they’re abnormal. I think that’s where you just have to go in with a mindset of education, rather than defensiveness because you’re going to get asked a lot of questions and it’s not that they think you’re hiding something, it’s that they don’t know what you’re doing and small business accounting and is always very unique to the small business and so you just have to be prepared that what you’re doing is probably fine but not the same as everyone else and so in order to in order to kind of protect and make sure you get the money that you should you got to know what you’re doing and how to represent it.
Laurie Barkman:
Yeah, absolutely. The financial piece is so important and I don’t think enough small businesses spend time on this, and I like what you suggested which is you don’t need audited financials but reviewed financials, which is this specific process and the documentation gives that confidence to the buyer that what they’re receiving has been validated and it makes it easier to move forward and the diligence process. I have some clients now it is painful, where we’re going back and we’re reviewing taking some things out manually in Excel and it’s hard to reconcile all of those things.
Ben Rizzo:
Especially for add-backs because most small business owners, if not all small business owners are running some sort of excessive personal expense, to some degree, through the business, that is fine and that may not be egregious, but you’re going to want to say, “Hey, buyer, I’m doing this because it’s my decision to have this luxury office or a nicer car than I really need,” that the business is paying for, I’m not going to pay for the buyer to have that. I want credit for my desire to just cash in this way but I think like, you got to have the deal because the buyer gonna say like, “No, that adjustment is that’s the way the business is going and we’re going to keep the only way you add it,” and so you need to have a pretty damn byline and the reason for those add-backs and that can really help diligence go that much faster of note, these are the things here’s all the documentation, this is why it should be an add back with your advisor, they have that prepared because that is always a point of contention as well.
Laurie Barkman:
Now you sit on the other side of the table, you had this by experience, then you sold it and let’s talk about what you’re doing today because now again, you’re on the buy side, you’re looking to find companies as an investor, and maybe even find one and run it again yourself. Let’s talk a little bit about that whole portfolio.
Ben Rizzo:
Lke I said, the traditional form of entrepreneurship through acquisition is by say, a million dollar EBITDA business for four to five times. You get a couple million dollars in bank debt, a couple million dollars in the seller note and then you need a million dollars and most people don’t have a million dollars that are doing this and so then you go and raise it from investors and I fund in minority positions, investments like that pretty regularly for men and women across the US and the UK, buying all sorts of businesses that I didn’t know existed until I hear about them that are great businesses, diverse customer base, whatever you’re providing them as a small percentage of their overall cost base so they don’t really notice it but they have to buy it so cleaning services, home health care, all sorts of contracting services, contracting businesses, ever everything under the sun that you can think of somebody has to own it and as you are talking about, there’s so many businesses and baby boomers where they’ve got a great business, they’re making a lot of money. Their kids are now educated, doing something completely different and there’s who’s going to run the business, who’s going to own the business next and there’s a big, big gap of these businesses all over the country in every type of industry, you can imagine.
Laurie Barkman:
Absolutely. It’s absolutely something we talked about here on the show, who’s going to own your business next is a key question and sometimes it might be family, but then when you really get into it, they might not have the skill set, they might not have the interest themselves and in your opening remarks, you talked about some other situations, that can be very unfortunate when someone dies, especially if it’s a business partner or if it’s a married couple and the surviving spouse just does not want the business or has really no role in it and that can be very daunting, how to take that on so it’s good to think about it.
Ben Rizzo:
It can be very value destructive to leave it to that point, because that’s the point where the business has to be sold, and every buyer knows that the business has to be sold and there’s clearly something driving it that is not going to create the best dynamic to sell it with the way the best dynamic to sell when you have the optionality to because you may not like the prices or the markets or the buyers that are in that current market and you can reflect that and it’s pretty easy to see through as a buyer of this is someone that has to sell this business versus no this is a good opportunity that we’re trying to get into that and have to pay for that.
Laurie Barkman:
Yeah, thinking back to your elevator company experience. you’d had two years under your belt to transform the financials and get more operations in, call it a directionally successful path versus where they were previously. Just curious if you would share what’s the ROI as you look at the return on your investment. I’m just curious at a high level.
Ben Rizzo:
Very high.
Laurie Barkman:
Yeah, so you got the business sell ready, and you brought it to market maybe sooner than you would have thought but that’s given you a really interesting playbook. Now, as you look at businesses, what are some of the key criteria you shared, of course, recurring revenue, and how the business is kind of this everyday entrepreneur type of company, we need these services. What are some of the other characteristics about the person or the team that’s looking to acquire when you say, “Yeah, I’m betting on this business,” but you’re also betting on the new owner?
Ben Rizzo:
So much. Absolutely and especially in small businesses, there’s always a distinction of is this person selling a business or are they selling a job? We try not to, I try not to invest in jobs, it’s really hard to sell jobs but there are some great jobs out there and in terms of the business, then you’re inserting a new person into a business who is generally replacing someone who’s been there is either the founder, or the son or daughter of the founder, or has been there for 50 years, and has zero industry experience so military veterans are always a great group that I like to invest in because they’ve got leadership experience and they’ve been through all sorts of things that I can only imagine and they can be a very steadying leadership presence in these small businesses of like, oh, that person’s kind of been through the wringer and there’s just a lot of rightful respect conveyed to veterans.
Engineers are another one, I may be biased because I’m an engineer, but the problem-solving skill set that comes with engineering is very frequent, and then so much of it is fit, and so much of it is random fit. I invested in a guy who was buying a food-related business, and his career was completely unrelated to food other than he grew up with parents that were franchisor franchisors or franchisees, for a fast food chain. He had been around food businesses, I was like, okay, in addition to him being extremely competent and generally, well qualified and polished, I was like, oh, that’s kind of, he gets it, he gets what his now customers are going through.
Another business that was dealing with a guy who had kids with special needs himself, what an amazing fit. Again, that’s usually these things don’t have to get decided by investors, the owners are the ones who decide because they have some degree options of who to sell the business to and they’re going to pick and usually do pick, the person that they see has some unique characteristic that clicks with them of like, oh, this person can do it. The woman selling the business with the kids with special needs met this guy’s like, you’re the one who I want to take care of my, my children and that’s how she referred to the kids that her business took care of and to the investors get kind of second guess, and is this a right fit but frequently, you’ll find some connection like that, in addition to this person is well put together and put together a good financial model of understanding what’s going on and those things are all very learnable so it’s just, does this person really want this and have they invested the time to understand what’s going on? It’s the random personality or experienced characteristics that fit with a seller that makes it a best chance at being a surmountable transition.
Laurie Barkman:
As an acquisition entrepreneur, it’s a funnel, let’s say, you’re gonna talk to 100 sellers so you’re going to maybe put 10 LOIs out there, and one will actually transact. Is that a fair way to look at it? Or do you think the top of the funnel is even wider?
Ben Rizzo:
Much wider.
Laurie Barkman:
How wide?
Ben Rizzo:
I think it depends on your strategy for contacting entrepreneurs contacting businesses to buy. There’s generally a mix of people that are doing cold outreach; I’m going to email blast and call 10,000 businesses in an industry that I like, the hit rates on that are obviously very low, especially with technology today, you can do that very effectively but business owners are getting bombarded by random people’s with random emails and among other things and then there’s the kind of trusted adviser path, you’re talking to people like yourself or other intermediaries, bankers, brokers, saying, you know, “Hey, I want to buy,” and that’s a much more curated list of businesses because once they’re involved with an advisor, usually a transaction is going to happen and so I pretty much skew my personal searching towards the adviser path and that’s where I see deals getting done. Of the 15 or so deals I’ve done in the past five years, a large majority are coming through a banker or a broker, or something very similar to that. Just because those are the deals that are happening.
Laurie Barkman:
Yeah, well, I see sometimes a seller has been approached, they say, “Oh, this is interesting. Let me go find out more,” but in doing so I think there’s a reality that that company might not be sell-ready.
Ben Rizzo:
I mean, and that’s the really hard thing to gauge as a searcher. Somebody responded to my email, very likely, they just want to know what their business is worth and so they’ll take up a bunch of time talking to you, but you have to filter very quickly is this person serious about selling their business? Otherwise, you’re gonna waste a ton of time having really interesting, pleasant conversations with wonderful business owners who just aren’t going to get to the finish line and so having that advisor involved is the best indicator you can have as a potential buyer that this person is serious about selling their business. The other one is, what is this person going to do after they sell the business? Why are they selling? What are they going to do? Is this someone who is 65 and going to go retire in Arizona and play golf because that’s where their grandkids are? Or is this someone who is going to spend the rest of their life in their business and doesn’t really have a plan? Because that’s another red flag as well because that that much more likely means that they’re just going to hold on and don’t have something else to go to, therefore, why would they give it up?
Laurie Barkman:
Yeah, it’s so interesting, you say that. I 100% agree, we see that all the time. Someone who I work with clients on their vision for transition, whether it’s the personal side or the business side, and when love to say when time is on your side, we have enough, we can create options, and we can figure out some of these planning but the other day, I heard from an executive at a privately held company, the owner is 92 and still there, the person who had reached out to me is 62, and had been working has been working there for years and years but there’s still no transition. Why is that? There’s many reasons why, “I don’t want to leave, I won’t,” but nonetheless, it’s not a good situation and it’s very tricky if owners don’t ultimately don’t want to leave, and people are gonna leave one way or the other, like, 100% of us are gonna leave our business one day, it’s just a reality so are we going to be participative and try to get the value in that are we going to ride it all the way to the end, and drive it into the ground?
Ben Rizzo:
Yeah, and if you’re going to do that, just acknowledge that you’re doing that, right, like, I’m here till it ends, for better for worse, I know what I’m doing so we can plan accordingly. It might not be optimal, but that’s fine. Like you own the business, you get to do whatever you want but having that plan for whatever it is and then also just understanding who do you want to buy the business in terms of those characteristics because the longer you go, the fewer options you have.
Laurie Barkman:
Absolutely. Let’s call it down to maybe three things and you can talk from the aspect of the sell side or the buy side. What recommendations do you have for owners, or buy side investors?
Ben Rizzo:
I think reviewed financials is number one. We already talked about that. It’s you have to get your taxes done. If not, you’re never gonna sell your business so you might as well have the review done then because they’re your accountants are going through everything. What else I was thinking about, who is going to advise you? Who will represent you, along with who do you want to buy you? Do you want your business to stand alone? Do you want your business to be part of a bigger thing? Do you want your employees to still be there? All of those things are generally within your power to some degree, depending on how much financial value you place on each one of them and what market you’re in and then what else do you want to do to position the business to sell versus what are you going to leave for the buyers to do? By identifying those things, you can put together a pretty compelling kind of pitch as part of selling the business. Here are the things that I did to improve this business or that we’re growing in these areas. Here are the things that I know we could do. I just haven’t done and so I’m going to hand them off to you because you may want to do them and I think that can be done. Who knows if the buyer will do them but if that’s a legit list that can really help you kind of create some interest for a business that may have fewer options otherwise if there is another similar business in a geography that would make sense for the businesses to both be bought together. If there’s a new market to enter, if there is a new software system to run the business with, that you don’t want to mess with, but you know, will help things run smoother. Those are all the types of things that most buyers will be interested in, as they think about what they’re going to pay for your business and the more obviously, the bigger the better but the more kind of arm’s reach that are with it, where I guess within reach, the better because those are things that you can get value from.
Laurie Barkman:
Absolutely. I love that. I love all of that. That’s a great summary.
Ben Rizzo:
I mean, I’ve even heard of fire probably not in this market, but in a hot market. financial buyers where they’ll know that you’re underpricing so they’ll put together a financial set based on your revenue being 5% higher because you’re under market and you can get paid for that. Now, very rarely, it’s best if you implement the price crease increase first, and then say, “Hey, look what I did, you’re gonna get all this credit for it. I want the whole price to be 5% or something like that. Those things are very plausible and do happen. Thinking through kind of where there’s the ability to push your business a little bit, doing some things yourself and then identifying the others can create a lot of value very quickly, some sometimes just from that thought exercise.
Laurie Barkman:
That’s great advice. Thank you. Let’s share a favorite quote. Do you have one that inspires you?
Ben Rizzo:
I’ve got a couple but a fun anecdote that I recently came across that is very relevant related to investing is Stanley Druckenmiller was being interviewed years ago. He got a very compelling pitch from an analyst that was managing some of his money and was convinced that Tesla was a short and at the very end of the pitch, Stanley Druckenmiller apparently says, “You made a very compelling case that Tesla is short. Have you ever driven the car?” and the analyst apparently said, “No,” and Stanley Druckenmiller then proceeded to pull his money so regardless of what you think about Tesla, whether it’s a short or not, I thought that was a very compelling thought that it certainly would have saved me a sense of have you driven the car, because there are situations where I wish I had driven the car before making an investment that I could have learned a lot more than being in a spreadsheet. That just very much stuck with me.
Laurie Barkman:
Yeah, that’s very much the Warren Buffett philosophy, right? If you can go to the store, buy it, if you like it, it’s a product that you would recommend, then chances are others will, too.
Ben Rizzo:
Yeah, and then, in terms of the kind of the people aspects we’re talking about, do you want to drive the car? Is that what you want to be doing? Would you rather have a motorcycle? Who was going to be driving the car for you? Is that staff? Do you trust them? Or would you not get in the car with them, but you’re going to invest in them? I thought that was a very good metaphor for a lot of things about investing. That kind of simplifies the thought process.
Laurie Barkman:
Yeah, and I’m just so curious, do you meet everybody face-to-face, or only over Zoom?
Ben Rizzo:
No. The first person that I invested in the first couple, I had some connection to them and then quickly, it expanded to connections of connections and connections and connections and during COVID, obviously didn’t meet many people so fortunately, earlier this last fall, I guess, I met a bunch of people that I had invested in, but I never met in person before so there’s a lot of fun. Usually, I will have I guess, almost always I’ll have some relatively solid connection to these people through and now through my investing network of, oh, this person knows you who have I’ve invested with a number of times those types of things but yeah, it’s crazy how quickly it is transition to someone that I know very closely that I’m investing into someone that I’ve never met before never seen face to face that I’m sending a significant check to.
Laurie Barkman:
You’re flying over the pond going to the UK sometimes too?
Ben Rizzo:
No, those guys, I’ve not met not yet. Those were all connections of connections.
Laurie Barkman:
All right, in the future. Well, this show is a global show. We’ll have people listening in the US and the UK so hopefully, they’ll want to get in touch with you. What’s a great way for them to reach out?
Ben Rizzo:
Sure my email is ben@heartwoodpoint.com. You can look me up on LinkedIn or my website heartwoodpoint.com. Pretty easy. I’m very accessible. It’s just me, so no problem.
Laurie Barkman:
You are a world of wisdom both on the buy side and sell side. I really appreciate you coming on the show today and sharing all your wisdom with us.
Ben Rizzo:
Well, this was a lot of fun. I appreciate the time being with you.
Laurie Barkman:
Thank you. So, I just want to thank our listeners. Be sure to like and follow Succession Stories on your favorite podcast player or YouTube, and to maximize the value of your business and plan for future transition, reach out to me for a complimentary assessment at meetlauriebarkman.com. Join me next time for more insights from transition to transaction. Until then…here’s to your success.
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