Why 80% of Businesses Never Sell | Cameron Bishop

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. 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, Cameron Bishop. Cam is a managing director at Raincatcher, which is a lower middle market investment banking firm specializing in sell-side M&A for privately held businesses. His over 40-year career, he's led companies from startup to scale, including helping grow a business from $7 million in revenue to $400 million with $100 million in EBITDA and more than 2,000 employees across multiple countries. He later built a private equity-backed company from his kitchen table to $120 million in under 4 years. Cam has executed more than 40 buy-side and 20-plus sell-side transactions representing over $500 million in enterprise value. He's a member of the Forbes Human Resources Council and the Kansas City Business Journal Business Council. He's authored multiple books on leadership and executive performance, including Head Noise: Tales from the Executive Suite. Today, his passion is helping business owners maximize value at exit and avoid the costly mistakes that cause founders to leave millions on the table. So, Cameron, Cam, welcome to the show.

Hey, Mark, thanks so much for having me.

Yeah, absolutely. I've been looking forward to this conversation. So, before we jump into some of the topics that, uh, we, we've sort of been chatting about, why don't you sort of tell your story a little bit of some of those twists and turns that brought you to where you are today?

Yeah, you bet. So, I'm an investment banker today, which my career path is extremely unusual for an investment banker. Started my career as an advertising copywriter with a journalism school degree from the University of Missouri. And sometimes luck happens and the small B2B technical publishing company I was working in was Sold to the Macmillan book publishing company, which was a Fortune 100 at that time. They loved the company. And we said, we want you to grow. Go out and buy more companies. Didn't tell us how to do it. Just said, do it. So, we started that process. And you learn very quick, typically from your mistakes first. But over the course of time there, again, 23 years, we did grow that company from $7 million in revenue when I started. I left there as the CEO for the last 2 or 3 years. And we were doing about $400 million and $100 million in EBITDA profits. It was pretty much a money machine at that point.

Yeah.

And it's one of the drivers for me today that similarly, the company I started with JPMorgan Chase Bank's private equity division, we did more acquisitions there. And Mark, when you're doing acquisitions, it's actually very difficult to buy successfully one business You usually look at 40 to 50 deal opportunities. And across all those deals, I probably looked at 600+ deal books now, which are published to market a company for sale. And you just see so many mistakes that these business owners make and they leave oftentimes so much money on the table. And of course, I was the buyer. It wasn't my job to tell them That I could be paying them more if they would have simply taken some fundamental steps as managers or owners to prepare for that exit process. So, that kind of became a passion of mine. I spent 5 years as a partner in a boutique consulting firm doing exit and transition planning for those owners. I took a detour and spent 3 years doing a very complex turnaround on a troubled $60 million 501 charitable business.

Uh-huh.

That engagement ended during COVID And I get bored very easily. And I said, well, what do I like to do? I like buying and selling companies. I was very fortunate to do the research and found Regcatcher. We were extremely and immediately aligned on mission, vision, values, ethical standards. And the goal of representing privately held businesses when it was time to sell. And that's an exploding area because at this day and age, most of these business owners are baby boomer generation or near that. And they don't have children who want to come into the business.

Yeah.

The company is their key source of generational wealth and ability to retire comfortably. And they're left with no other choice but to sell. And the lower middle market is a very underrepresented sector, kind of $2 million to $10 million in EBITDA profits. Those companies are too small for the big investment banks and generally too big with too much financial complexity for traditional, what's kind of referred to as Main Street brokers.

Right.

So that's where we come in is to help these business owners. And that's my mission. And appearing on podcasts like yours to help your listeners to learn what they can do and what mistakes they can avoid.

But that's such a great sort of vision, mission really that you're on is to help these. You know, in our previous conversation, it's very clear that you're not necessarily coming at this from, you know, a mercenary position, more of a missionary position where you're really trying to help folks. And that's so inspiring and you bring so much insight. And so, there's a lot to unpack from your history. And one of it is, you talked about that you'd look at 50 different deals to find one that was kind of worth pursuing. And that sort of information imbalance between the buyer and the seller is so often an issue that so many sellers, you know, kind of don't think about as they come into it. They're like, I've been running this business great, I know it backwards and forwards, I'm going to be, I'm going to be fine, uh, going through this sort of transition. And they don't realize the value of advisors like Raincatcher or, uh, yourself, uh, and, and guiding them through that process. And, and it's so important because the startling statistic— and I've said it before on this program, but it's worth You know, repeating and for our audience here to hear, which is 70 to 80% of businesses that want to sell are actually unsellable. They don't sell. They just disappear. Talk to us a little bit about, you know, given your perspective on, you know, seeing the businesses that do sell and seeing those 49 others that sort of weren't even worth the conversation. Much less the deal breaking down once you got into it. Talk to us a little bit about some of the issues that those businesses have going on that prevent them from being able to have a successful exit.

Yeah, it's one of the— I love what I do and the work we do to help these owners. But the one part of my job that I'm not real enthused about is we get dozens and dozens, probably hundreds of calls from business owners every year who are interested in selling. And it's a tough message to send when I kind of go through our sort of litmus test for sellability.

Yeah.

And series of questions to have to tell them that A, they're either never going to sell or they're going to need anywhere from a year, 2 years, 3 years, could be longer. to transition their business to get it to a position where it's sellable. Or if it does sell, it may sell at a steep discount and with generally pretty unattractive deal terms and a deal structure. So those are kind of the trade-offs in the business. And the key fact I see is that business owners don't understand the difference between running a business for daily operation where they're most generally focused on revenue, tax avoidance, legal I do mean. But, you know, the things that you can legally do from an accounting standpoint to mitigate or reduce taxes as much as possible. And most of these companies are what are referred to as pass-through legal entities. They're S corps or LLCs. So they're taking home the profits in the form of a distribution at the end of the year. And that's their primary focus. And that in many cases is the opposite of what they need to be doing if they want to prepare a company for exit at the maximized valuation. So my expression there is they spend 95% of their time working in their business and perhaps only 5% of their time Working on their business. And there's a big difference between the two.

Yeah, absolutely. And so, as they make that transition to working on the business instead of in the business, talk to us a little bit and specifically around the context of someone who is now moving into, I want to sell when I can, when the value is there that I can really get What I think the company is worth. What are the things that they work on in the 2, 3, 5 years between when they make that choice to work on their business and get it ready for sale versus as they're running away, you know, running, you know, head down, nose to the grindstone, running the business? What are the different— what's from a role?

Well, the first thing they have to do is make a determination on when they will sell their business. And fact of the matter is everybody is going to leave their company someday. They can leave it voluntarily or they can leave it involuntarily.

That's right.

So it's a much better strategy to leave it voluntarily so that you don't have to pass along the business to family members who could unfortunately be dealing with what to do with your company at the same time they're grieving over You know, your passing or what have you.

Yeah.

It's just, and I've seen sad situations where that has been the case. So I really encourage business owners to think about that and to plan well in advance. In a perfect world, you should begin preparing for an exit 5 years before. But in our world, if they're, if they've been working on that with that focus, even a year, we're thrilled. 2 years, 3 years, we've think we've done gone to heaven is investment bankers because we know they're going to be in really good shape because a lot of the changes that need to occur take time to roll out and be demonstrated and improved in a company. There, you can't just, you know, make a decision and see the impact or improvement from that decision overnight.

That's right. And And so you raise an interesting point, which is we're all going to leave eventually. And another startling statistic is that 50%— so if there's 100 entrepreneurs listening right now, half of you will be forced to sell, not when you're planning to. And that could be through death or disease, could also be through divorce. And Your wife or partner might be a part of the, you know, sort of foundation documents as part of, you know, sort of the entity formation. Could be disagreements with your partner or even with a supplier, which oftentimes people don't think about, but can actually be sort of a showstopper. And the last one, which is, you know, so often the worst, which is sort of declining performance. And you talked about knowing when you're going to sell, being able to pick that point so that you can then go out on a high note really leads to maximizing that value rather than, well, things starting to go poorly and then declining performance. And now, well, I just kind of got to get out because I don't know what else to do. That's really how you sort of minimize the outcomes that you can get.

Yeah.

that you're going to get from that. What are some of the things in a business that leads to that sort of declining performance that is beyond just sort of like the balance sheet or the profit and loss statement? So, beyond just, well, we're running a business that generates income, but actually some structural issues that people might be thinking about as they're running their business that they should be.

Yeah. Yeah, for sure. Well, unfortunately, you're spot on with your description of reasons business owners have to sell. Sadly, we see that almost every day. The owner has got— has declining health, or his or her spouse might have declining health. Those can be drivers. We've seen disagreements among partners. We've seen factors around divorce where the the business is a, you know, the key asset that has to be in some way divided or monetized. So yeah, those are all driving factors. Since COVID there's been another real driving factor that didn't really occur much pre-COVID. And that is a lot of business owners, again, many are baby boomers. They had to survive or suffer through the steep recession, kind of that '07 to '09 or '10 time period. And that was exhausting for them. They recovered from that. They had a great period of time. And then COVID hit. They had, you know, all kinds of dynamic issues around that, you know, employee challenges. Do you require your employees to get COVID shots or not? You're going to make half of them unhappy one way or the other. Then they went through supply chain issues that came out of the COVID time period. Then we started seeing rapidly rising interest rates and pricing. And one of the key reasons I hear today is that they can't find people to go to work for. Or they hire somebody, they don't show up. They hire somebody, they show up for a week and ghost them. They're frustrated because they can't grow their business because they can't get the additional staff. And that's a fairly regular motivating factor we hear today. And it's cumulative for all of those things that they've lived through as business owners. So the challenge for them is that if they again haven't thought about creating an Exit Plan to drive value, the first thing they've got to look at where we see huge problems is poor accounting, sometimes no accounting, and they've, they must get that fixed. It takes time, it takes money. Most of these owners are on a cash basis because again, they're pass-through entities.

Right.

But almost every buyer is going to need to see their accounting completed on an accrual basis and hopefully a GAAP, GAAP accrual basis.

Right.

And for a historical period of time. So that means if they don't have the in-house accounting expertise, they need to hire that and have those accountants go back and restate their financials for at least the last 3 years to be on a GAAP accrual basis. And as I say, that takes some money, and certainly that takes time.

Yeah.

So that is factor number one that we see that is a huge impediment to a company being able to sell or to sell at a peak valuation.

Well, and there's so many things that happen from a sort of looking at it on paper perspective when you move from that cash basis to that accrual basis that really sort of highlights different choices that you would make in your business, where when you're just looking at it on a cash basis, you might make certain choices and they look fine on paper. But when you're looking at it on that accrual basis, you can see how that shows sort of fragility, brittleness within the business operations, that you understand why that introduces risk for a particular buyer. And so Having that sort of accrual basis accounting to look at as you're preparing for sale leads you to make so many different choices that make, you know, puts you in such a better light when someone comes to look at your books as they get ready to sell. Are there some things beyond just the financials? So you talked about, you know, sort of the human element and the challenges people have.

Yeah.

with recruiting and hiring and training. One of the things that we've seen is we work with companies on sort of the marketing and sales systems to make their businesses more transferable is by reducing, by really creating systems that aren't reliant on a key person like that superstar seller, that oftentimes reduces the risk for a buyer. And so you can say, Well, here is our process, our binder for how we generate leads, nurture them, create proposals, close them, and anyone can run it. It doesn't have to be the founder. It doesn't have to be some superstar seller that's been in the industry forever that knows everyone and can glad-hand them. And then that allows a potential buyer to see how they could plug anyone into that role and see success. which mitigates some of those, you know, kind of HR issues. Are there other kind of non-financial components that you oftentimes see as sort of challenges or blockers?

Yeah, absolutely. And the first one ties in exactly as you've described it in terms of the sales and marketing channels. So, the first thing we look at when we're first talking to a business owner who's thinking about selling is we measure or try to get a handle on what is referred to as owner dependency. And there are a number of characteristics around that. In certain kinds of businesses, they— the owner is oftentimes the key holder of critical knowledge that doesn't really exist with anybody else in the organization. And they don't understand what a risk factor this is for buyers. Buyers ironically are open to taking on risk because they're looking at buying your company. But at the same time, they are very risk-averse and they do everything they can to assess the level of risk in the acquisition and determine ways to mitigate or minimize that risk. And if the owner is the key source of knowledge of the company. They're going to require that owner to stay on for some period of time, which is usually the opposite of what that owner wants to do when he or she is selling the company.

Yeah.

Second to that, the second question we ask is, who's responsible for sales in your organization? And again, very often that business owner is also the front man or woman in terms of business development and sales. Mark had a recent call with a business owner and we asked him that very question. Who handles sales? If the phone rings from a customer or potential customer, who answers that call? And he said very proudly, well, they call my cell phone.

Yeah.

Well, that's a huge, huge red flag for buyers.

Yeah.

So, that's where investment in the company needs to occur to pass along those responsibilities to other individuals in the organization or invest in hiring that kind of talent for the company to reduce that risk. And of course, they look at that as a new expense. But they don't look at the upside that that could create on a return on investment From a valuation perspective.

That's right.

So they have to learn how to delegate. If they don't have a strong number 2 manager in the organization, that's something else they need to look very seriously at because the buyers are going to say, well, if the owner gets hit by the proverbial bus or he says, that's it, I can't stay as long as you want, I'm retiring, how do they run that business? A lot of times, Again, they will pay less for it to reflect the risk, or they'll create an unattractive deal structure or a combination of the two if they buy at all. So, that's where the people factor, the intangibles come into play very early on in the process. The last question we ask them is, interestingly, when did you take your last vacation? A lot of them will probably say, oh, I haven't taken a vacation in 2 or 3 years. Well, for us, again, that's a red flag because that generally indicates that the business is heavily dependent on them.

Yeah.

I got one client, he spent like 3 weeks big game hunting in Africa. That's a very attractive characteristic about a well-run company and a business owner who has the confidence in his business that it's going to continue on just fine even if he's not there.

Yeah.

So, those are kind of some of the key tangibles around high-level personnel at the organization.

Yeah. So often, we see the same thing because we say, well, what is your, you know, who's your number one salesperson?

Well, it's me.

Do you want to be the number one salesperson for the new owner? No, I want to get out. And so, we're like, well, then we've got to turn you into a process That can be scaled out to other people and transferred with the business. We also oftentimes see, as you described, that the owner has kind of built, you know, sort of the brand of the business around their own personal brand. And so, there's a bit of a process to sort of extract that, not only to make the business more transferable and to protect those assets. But also because when the owner's identity is wrapped up in the business, as they get closer to that sale point, they start to question, well, what am I going to do when I'm no longer the person running this business? And then they get cold feet. And the number one deal killer is that the seller backs out because they don't know what they're going to do on Monday morning after the sale happens. And I'm sure you've got—

Yeah.

The stories everyone does of we had the deal, letter of intent, we're all ready to go. And then the, you know, because the founder hadn't thought through what they were going to do afterwards, their sort of reality and personality was so enmeshed with the business that they sort of put a stop to it because they weren't sort of ready to make that transition.