How to Prepare Your Business for a High-Value Exit with Josh Donnelly

Welcome to the B2B Growth Blueprint podcast, where we talk with entrepreneurs, founders, and leaders at B2B services, tech, and SaaS companies to learn the systems and processes they've used to create success for their business. And we'll also learn from marketing and sales experts to provide insights to help you grow your business. I'm your host, Mark Osborne. And the podcast is brought to you by Modern Revenue Strategies and their 10x ROI B2B Growth Guarantee. Schedule a free diagnostic call to learn the fastest path to double your B2B revenues in just 90 days. Hello and welcome to another episode of the B2B Growth Blueprint Podcast. I'm your host, Mark Osborne, and today I'm very excited to welcome my guest, Josh Donnelly. Now, Josh is the founder and managing partner of Stone Canyon Advisors, where he helps founder-led businesses navigate high-stakes M&A transactions and maximize enterprise value. Over the past decade, he's advised $1.5 billion in deals across both M&A and bond financings. Before launching Stone Canyon, Josh became the youngest partner at Shoreline Partners, building a reputation for clarity, candor, and delivering results when it matters most. Today, he's rethinking the traditional investment banking model, building a full ecosystem around sell-side M&A that supports business owners at every stage, from early exit planning to transaction execution. Josh is also deeply embedded in the dealmaking community, serving as president of ACG San Diego and contributing to several national ACG conferences and leadership forums. So Josh, welcome to the show.

Thanks for having me, Mark. I'm excited to talk.

Yeah, absolutely. I've been looking forward to this conversation too, but we've got some really interesting topics lined up. Before we dive into them though, why don't you give our audience a little bit of a background on sort of you and the kind of twists and turns of your career that brought you to where you are today?

Yeah, happy to. So I've made a career as an investment banker across, you know, across different firms and kind of different markets and geographies. And you referenced earlier in my bio that $1.5 billion number. And I always tell people that if you think about that number, that's a lot of experience and a lot of deals. And what I had learned after doing those many deals was that, you know, really none of them, or not very many of them, were prepared to transact. And I spent most of that first part of my career doing what I call lipsticking pigs.

Right.

And I got very good at it, right? And and there's a lot of value to be had by knowing where to apply the lipstick and knowing you know the right way to talk about it once you once you have a lipstick pig. But the truth is is that it's best if you can actually just go to market with a racehorse or or with you know kind of a market ready hog or something like that that's really built for and fits the market. And that was my desire was as I looked at kind of what the skill sets were that I'd built and what the reputation was that I had and how can I For next part of my career, how can I build on that and how can I create a lot of value? I'm very focused on creating a lot of value, and to me that really came from influencing companies earlier and earlier. And how can I build an ecosystem and a service offering around building the value with inside the company before they ever get to market so that ultimately we're we're transacting yes and we're selling that that company but we've had a couple of years maybe with them. to really influence the outcome and to help them to go from kind of like a 1x value, right? Something like that's kind of like this much value to maybe something that's 50% higher or twice as high or 3 times as high. The amount of value you can create in a short amount of time if you understand the buyer universe and how to sell companies is really incredible. So that's been, that's Stone Canyon Advisors. So the manifestation of all those thoughts is the service offerings we've built and the company we built here at Stone That's fantastic.

Well, there's so much stuff to unpack there and we're gonna get to a lot of it. And one of the things that you and I were chatting about a little earlier was that, you know, in the sort of the deal-making space, whether it's, you know, M&A advisors or investment bankers or private equity looking for deals, you know, there tends to be a lot of competition around those deals that are, oh, they're all ready to go. It's already, you know, as you say, a prize hog, a blue ribbon pig. And a lot of folks are fighting for those deals, but really the real opportunity in the marketplace is on really getting in and advising companies on how to become that prize pig. And so I know we've chatted about, it's operators, not bankers, that really drive exit readiness and going beyond just the financial readiness that so many advisors kind of, that's where they stop and they just focus there. Talk to us a little bit about, you know, what are the other things that companies should be thinking about as they think about getting ready to transact or even, you know, take an investment round or have something along those lines? What are things that other folks oftentimes overlook?

Yeah, so we know there to be like 4 pillars And under each of those pillars is a deep pool of things and levers that you can pull. But really, they kind of fall into like 4 categories: efficiencies, financials, culture, and scale. And you'll notice financials was one of them, and it is super important, but it's not the only one. I think that, and it's, this is a positive thing in the market, it's kind of a well-worn path now to understand you need to have clean financials and good financial reporting and that you need to be something that's kind of approximating or very close to GAAP-based reporting. That's a well-worn path and that's very good. But there's 3 other things, really 3 other major categories that when buyers look at a company, they're going to feel comfortable or nervous based on how kind of dialed in those other pillars are. So our process really is focused in on all 4 of those and You know, this— we live in a great technological age. And so we get to leverage a lot of technology in the way we do things. We start every client with a 75-point diagnostic that all of the executive team takes. So if there's, you know, if there's one owner and then there's like 5 executives underneath them, then 6 people will take that. So you're gathering a lot of data points on the company across functional areas and kind of across visibility within the company. And you'll see some really surprising things come out of that diagnostic. Now, that's a great way to start an engagement because it helps us to learn a lot very quickly from all of the people who have the knowledge. That's certainly just the beginning, right? That's the tip of the iceberg. But you see some interesting things. For example, almost every time we do the diagnostic on an executive team, the CEO always is the most optimistic. That makes sense, right? Correspondingly, the CFO is often the least optimistic about how things are going. Makes sense, right? That's kind of a stereotype, right? And it makes a lot of sense. The CFO is known for being the no man and the CEO is known for being the yes man. You actually see that come out in the data. But as you go much deeper into how the responses vary across all of the questions and the categories, you start to see things that are really important where there's misalignment Within the executive team, somebody thinks this works really well. Somebody else thinks that works very poorly. That's worth really digging into because a buyer will find out about those types of things in due diligence. So it might be a thing that we should fix. So that is the you know I'm kind of I'm kind of going deep here on that that diagnostic. But it's really interesting because we love data and we think that there's a lot of power in data. And and and. And specifically, you know, if somebody is thinking about an exit and they're thinking about having clean financials, that's certainly a great start and it's an important thing to think about, but it's one of many things that really they should be thinking about.

That's right. Well, and we're seeing more and more, you know, the sort of the pressure on the financials, you know, moves beyond just clean backwards-looking books, but is getting into more of like the quality of those earnings or even the quality of the sort of revenue systems that underpin those earnings. As, you know, buyers are really sort of scrutinizing, okay, so you had a good 3 years, you're projecting an even better next 3 years. How is it that you're projecting that? Do you actually have the operational expertise and the sort of the bench of experts to drive that success?

Yeah, and I think that's what I really love about what you do is just that kind of like that thought around the branding and the go-to-market strategy and how that drives revenue, which is what drives financials, right? Financials are only as good as the kind of revenue stream that creates and justifies them. It's really important and we kind of categorize that under scale. So as we think about the scalability of a company, that includes like the revenue systems and the product and the go-to-market strategy. And is that like, is that sufficient to get them there? Yeah, I think that I totally agree. I'm seeing quality of earnings reviews, which are historically like accounting heavy, right? They're kind of like an accounting, like a, like a how does this deviate from GAAP, right? Like how the current financials deviate from GAAP was kind of a heavy part of it. I'm starting to see it a lot more get into the quality of revenue and predictability of revenue on a go-forward basis. Yeah.

So you said something to switch gears a little bit, although it's pretty related. is that oftentimes as you're meeting business owners, they're kind of either too early or too late for their transaction. Talk to us a little bit about what do you mean by that and how could a business owner be thinking about, you know, being more on time?

Yeah, yeah, it's interesting. What I've learned is that CEOs or owners or founders or kind of however you want to refer to the universe of people that have to think ahead about an exit. They're either thinking about it like too early because they're really excited, right? That's kind of the end goal that they have. So they're thinking about it in like great anticipation. But the company isn't to a place of like scale and sustainability in particular where it's really saleable and attractive to the buyer universe. There is a scale component that just makes companies attractive to buyers. So, you know, you see that in, in the multiples that are paid across EBITDA thresholds. So, you know, the multiple that you can get for your company if you're doing $500,000 in profit is very different than the multiple you can get for your company if you're doing $5 million of EBITDA or $10 million of EBITDA. So it changes because the desirability of the company increases the larger it is. So people often think about it too early where they've got a lot of work ahead of them. They've got a lot of building left that they have to do for the company really even to be eligible to be sold. And I get that because sometimes it's very hard to build, right? Like, as you and I both know firsthand, it's very difficult to build. But sometimes it can be nice to think about the exit goal because it feels like a parachute. The too late is generally when Somebody hasn't planned ahead and they get to kind of that burnout phase or that burnout stage, or or maybe they're not burned out, but a buyer approaches them and says, "What you've built is really attractive. We'd be very interested in buying it. We'd love to make you an offer. We don't need a lot of information." This you know this CEO or this owner has never considered selling before, and all of a sudden now they're in the middle of information sharing with a buyer who's gonna judge everything they look at and. Place a value on it, that's too late, right? That's too late to have thought about an exit because you really can't change anything at this point. So whatever hair or whatever, like, bone, like skeletons kind of buried in the company or in the closet, whatever's there is there. Like, there's no time to go, there's no time to hide it. There's no time to, at that point especially, there's not even time to lipstick it because they're waiting on you to give them information and they're kind of, they got you on the clock, right? They ask for you to share information so they can make an offer. And they're making a judgment based on how long it takes you to get the information, how kind of dialed in you are. So that is like a very common and very clear example of a too late and what too late looks like.

Yeah.

And you kind of, you asked about like how to get it right. I think always I think if you can be, if you can be in the early stages of your company and be very satisfied with how things are going, right, and understand that like building a company is just a daily knife fight and be satisfied in that to where you're not shortchanging any of the build phase. Also recognizing simultaneously that sometime in the future, probably a little distant future, You're going to sell the company, that creates for you a changed mindset. So for example, one of our core values at Stone Canyon is a 10-year mindset. So we ask everybody on the team to have a 10-year mindset. Now there's plenty of team members who don't need to have a 10-year mindset, right? There's a lot of people who their job is next week's social media posts or—

Right.

Or yesterday's leads, right? Or this morning's leads that came in, or tomorrow's buyer conversation that they have to have, you know, for our execution folks. But we ask everybody in everything they do to have a 10-year mindset. And we think that that we think that's one of the kind of cultural underpinnings of of getting the timing right, thinking about an exit because every decision you make, you're going to be thinking. that far in the future and that far in the future, the likelihood that somebody else owns your company or is about to own your company is much higher than if you're thinking about just this week or next.

That's right. Well, and you raise such good points that, you know, remind me of some, some of the statistics that get thrown around a lot, which is, you know, half of business owners will be forced to sell when they weren't planning on it. Now, some of that will be opportunistic because something came up, but oftentimes it's disagreement with a partner or divorce or disability or some other disease or something that kind of forces them. So, if they aren't thinking with that 10-year mindset so that they're ready when that happens, then they really get caught off guard.

Yeah.

And then the sort of corollary to that is And 70% of business owners that do sell regret it within 2 years. And some folks will say that number is even higher. And, you know, I've heard it said around, you know, private equity that they're shopping for deals. Like, that's why they're out in the marketplace.

Yeah.

And so, if they're not coming to you necessarily with top dollar, it might be a decent deal for you, but it's probably not the best deal for you. And if you aren't ready for that call when it comes, that's certainly gonna drive some of that 70% of not being satisfied with what came out of the deal versus really being ready and knowing how much your business is worth so that when that call does come, you're able to take advantage of it.

Yeah, I totally agree with that. And, you know, like one of the best stories that I've been through, so many transactions where it like there's regret afterwards or Or it was just difficult. It was just a very difficult transaction to get to closing for various reasons. Some of them that could be prevented, some of them, you know, sometimes circumstances come up that make things hard. But one of the best things that I always like to have my partner share is that like when he was building his company with 2 other partners, they had never considered selling it. It was never on their radar. It wasn't the reason they built the company. They— but they did build a great company. They did it though out of like pride of ownership and they wanted to have a great asset for themselves. When a strategic buyer came knocking on their door, that was like the first time that they had ever considered it and that was what compelled them to consider it. It was opportunistic and it was very positive, but there was so much angst and so much anxiety in a short window of time to get the company sold to that strategic buyer for a great value. But that, you know, life was kind of hell, so to speak, and they lived a double life a little bit for a year while they were working through that transaction. And that's, you know, that is so— even that in a nutshell is such a small microcosm of all the issues that can come up. But there's so much that can be prevented with some foresight.

So let's switch gears a little bit. So we've talked a little bit about being caught unawares.

Yeah.

For companies though that are maybe they're a little more in that, you know, 10-year mindset and so they've been planning for this a little better and as they're getting ready to sort of move into this transitional period, I know that you, you know, you take what you call market soundings and I love that concept. I'm Big sailor, was just out on San Diego Harbor for a tour at the ACG conference down there in San Diego. And take the idea of taking a sounding to see what it looks like underneath the surface of the water. Talk to us a little bit about what that market sounding concept is and how that really prepares a business as they start to think about transactions.

Yeah. So everything we've talked about up to this point is what I call internal readiness. So there's kind of 2 scorecards out there. One is internal readiness. That's all the things we talked about, like, is the company built to be ready to sell? The other scorecard is external readiness, which is the buyers, right? Because a sale of a company, an exit, is a 2-party tango, right?

That's right.

It's a buyer and a seller, and both have to think this is a great opportunity for that to work, for that to close. Kind of by definition, if one of them doesn't, if it doesn't work for one of them, it's not gonna happen, right?

Yeah.

So a huge part of our process in our pre-M&A business, which we call Growth Advisors, is these market soundings, which is understanding the likely buyers, who they are, what they look like, what have they done out in the marketplace that's kind of publicly known to show us that they are a natural buyer of this type of company. That could be things like It could be a clear track record of acquiring companies just like this. It could be like they've made selective acquisitions, but they kind of have a hole in their geographic map that fits our client. Could be like product and market kind of fit that's missing a product that fits their market, right? Or it could be the opposite. It could be a market that fits their product, but they don't have that market. So there's a lot of ways to, from the outside looking in, think that a buyer is interested. Really, really great entrepreneurs are natural at that. They oftentimes kind of have an idea of who's interested. The problem arises when you don't actually talk to them and confirm that they're interested, right? And so that looks to me like the way I describe that is like you get to the altar with your kind of arranged marriage that you've believed in your head, like I'm interested, she's interested, this is gonna work out. It's just up to me to To ask, right?

Right.

And then when you go to make the ask, like there's no interest, they're not actually interested. And there was never any confirmation to really drill into what they were interested in or to confirm your thesis. And so a huge part of our growth advisors process is to have these calls and to talk and build relationships with those buyers confidentially. So they're not, they don't know Either they may not even know we represent a company. They may not. They certainly aren't going to know who the company is, but they are going to know that we as a firm really want to get smart on this industry to a kind of deep level, and so they will help us do that. That's a structured agenda. The the notes from those calls are invaluable because you're doing, you're getting deep to the point of confirming. Buyer and their channel preferences. So, okay, if you have an acquisition in this kind of industry or category, you know, we know there to be kind of 3 primary channels where business can come from. Do you have a preference how that channel mix shakes out? Everyone almost, you know, 99% of the time, yes, they do have a, they do have an opinion on how the channels shake out. Very few people don't have opinions on specifics if they know an industry well. So getting that data, confirming that data is invaluable because it prevents you from getting to the point of asking for their hand in marriage and finding out they're not even interested, which is one of the most painful things that I've lived through with a lot of entrepreneurs where they've dreamed or thought for, you know, 10 years, 15 years that that's the natural buyer. And then they get to the end of that and they ask and there's just no interest for various reasons. It's like in your business, right? If somebody said like, this is my ICP, right?

And then you talk to 5 of them and they're like, nope, no interest at all.

Yeah, no interest at all. Okay, that's fine. But now we have to know that and as fast as we can know that, you know, the faster we know it, the better, because then we can iterate and go find out who the ICP is. That's right. Yeah. So it's very similar.

Well, and then there's very different choices you make. You talk about that 10-year mindset, you know, and you mentioned this before, the decisions you make every day in your business have long-term effects in terms of making you more attractive to one buyer versus another.

That's right.

And you use the great example of, you know, geographic area. So as a company's growing in one geographic area, they can make a choice. Do we expand to other markets or do we expand our, you know, Offerings of services within this one market. Well, if you're gonna want to be a fit for this strategic buyer, you would make one choice versus being a fit for this other, you would make a different choice.

That's right.

If you're not operating against the hypothesis and you're just flipping the coin or taking it as luck happens every time, you're much less likely to come out with a positive outcome that you're really looking for.

That's right. Like, here's a great example. It's one of my favorites. We had a client that We had a client that had, they had like 9 cities basically that they had expanded into over a 15-year period of time. So like they'd gotten really good at this. They had a greenfield strategy. It was documented. It was valuable. Typically an expansion into a new market was profitable within 12 months. So I mean, just a great, great model, repeatable model, executive team built around the ability, capability to do this. They had a list of like 23 cities that they wanted to expand into. And so I always say, like, if you have a list of 23 things that you want to do, then you have a list of no things that you're going to do. So we, we, we worked with them to get really tight on what are the next 5 cities, right? How do we go from kind of that 10 to 15 market number, uh, approximately, right? And, and, uh, so, so we got down to 5 cities based on outside research and, um, and then some kind of X factors. One of my partners calls it an X factor, like, do we know somebody there that's a key relationship or a vendor or can give us a lot of business. Through the market soundings, we learned that the buyer universe had kind of strong preferences that were diverse, but there was overlap. And 2 of those cities that were in the top 5 were consistently preferences that the buyer universe wanted to be in. Okay. Now we've got our first 2, right?

That's right.

We prioritize. We go from 23 to 5 on a, on kind of just like publicly available knowledge and research. Then we went from 5 to 2 based on confidential market understanding and research. So we don't end up at the altar finding out that they weren't actually interested in our last 2 expansion efforts. We would have wasted, kind of not wasted, but like, but like suboptimal, had suboptimal outcomes from the last 2 years of expansion.

Well, and so it becomes so obvious how deep you go with companies beyond just getting their financials in order to get them ready for a sale. But you're obviously an expert in a ton of really interesting topics and we could talk all day, but I gotta be mindful of your time. But before I let you go, like, kind of give us the pitch. Who do you work with? How exactly do you help them?

That's right. I appreciate that and I appreciate you having me on. So I'm managing partner of Stone Canyon Advisors. We go to market with 2 primary service offerings. One is everything before an exit and then one is the exit process itself. So we are kind of ideal client is going to be a family or a group of shareholders or an entrepreneur that is thinking ahead to an exit. And has some time to work on it. So that could be 12 to 24 months where they say, I am going to exit this and they feel very sure of that, but not today. And that's an ideal client, somebody who knows that and can say it and wants to then work on it to optimize the exit.

And what's the best way for folks to get in touch with you?

LinkedIn is great. So connect with me on LinkedIn, Joshua Donnelly. We have our company, we post daily on all the social platforms. So you can likewise follow us on LinkedIn, Stone Canyon Advisors. We produce a podcast called the Acquirable Podcast where we have founders, CEOs, and owners who've been through the exit process and they talk about it a lot. So I'd encourage you to go check that out as well. And you can kind of see how we talk with people that have been through the process and process this in our framework.

Fantastic. Well, Josh, thank you so much for taking the time to join us today. I learned a lot. I'm sure our audience did as well.

Thank you, Mark.

Talk to you soon. Thank you for joining this episode of the B2B Growth Blueprint podcast. We hope you've gained insights to grow your business. If you enjoyed this discussion, please rate, comment, like on your favorite platform, and share to others will find it useful. Do you know a CEO, founder, or leader at an early-stage B2B services, tech, or SaaS company who would like to be a guest and share their story? Send us a note. Let's schedule a conversation.