The Exit Engine Podcast Episode 55: Moving from Founder to Chairperson

Welcome to the Exit Engine Podcast, episode 55. What we coach people to do is to have that plan, right? What you do— what kills deals besides the due diligence part that we all know But the thing that kills the deal from the buyers, from the seller side most of the time, is cold feet.

Exactly. And usually from what I see, at least for the type of audience that you're talking to, these are people who have not thought exactly about the strategic aspects of carrying out a sale before. So it's always the wrong moment for them to go into the nitty-gritty legal and due diligence details pertaining to an exit.

And what we're trying to do is help them do that ahead of time, right? And see that through the buyer's eyes and that kind of thing. But what I love about Anthony, what you bring to the table here, is that you've got a kind of unique perspective that spans across that gap, right? It's like, I know what it looks like before it's sold. I'm brought in oftentimes after it sold to basically say, you know, we've done this thing, we did the best deal we could possibly do, but now, Anthony, we're going to rely on you to really make this, you know, grow this thing 30% over the next 3 years, etc., etc., right?

Yes. Got it.

And yeah, and, and we're recording now, so, you know, we can, you know, we'll, we'll— but that's already started. We'll do it in sort of intro later. But, but what I want to dig into, Anthony, is sort of you when you're When you're going into a situation, right, you're either, you know, from your time at an entrepreneur-in-residence or you're being brought in from a couple of business partners like you mentioned in Germany or even your role in Boston Consulting Group. What is the, what's the 30-60-90 plan? Or when you, when you come into a company, what are the first few things that you do when you're, when you're in that assessment stage of sort of where am I, right? You're parachuting in, to use a metaphor.

Yes.

What are the tools and the systems you're using to assess where you are and sort of what you need to do to get where you wanna go?

Of course. Let's get the system first straight, as in there's a limited amount of levers that you can pull anyway. So you can optimize spending, you can increase revenue, you can increase retention. all of your actions need to be anchored around these specific targets or goals, that no other action is relevant. However, depending on how the so-called value creation plan has been created, should have, if it even exists in the first place. So it's a plan of the group who has acquired the business of what to do in the first 90 days in order to validate that what they bought can grow and make sure it is capable of going there after due diligence have successfully been completed. So based on the value creation plan, most likely the first action is making sure the team is still operational, as in operation that you have enough people on board to Take care of business as usual, but it also means taking care of them in a sense that they know what's coming. So inasmuch as you can, you need to guarantee them that there will be no staffing changes in the next 6 months, 3 months, 2 months, so at least they can get their thinking in order to make sure that they are not too stressed out. As soon as possible, you should be able to fire, reduce the workforce as per the mandate of the company acquiring it.

Sure.

But it should be done tactfully and with transparency in a sense that people know that it's over. When it's over, people have to know it's over. If you can't afford it, you should be also— we should also be ideally helping people move on to the next position, but it is usually a luxury to have, and not many companies have the budgets to do it.

It's redundancy, right? Really? Is that really what it is most of the time? I mean, like a redundancy situation?

Yeah. Yes, yes, absolutely. Because you will see, especially buying smaller companies, that the positions have been staffed because these people were there in the first place, not because it comes from a top-down perspective of a plan that makes sense.

Right.

Moving forward, you will be looking at the easy levers that you can optimize costs on. Are we paying too much for something? Can we renegotiate with a supplier? Are we paying for something we're no longer using? So cleaning the house, and making sure that there's nothing, no skeletons in the closet or no weird bills that we can throw out. Sometimes you will also renegotiate the terms because you're coming in with some new negotiation power, maybe with a larger group behind you to negotiate with your suppliers.

Yep.

Thirdly, you'll be looking at the product or service itself and see what are the quick wins to optimize the product, and most likely sales and marketing are typically the quick wins where due to applying a new perspective or using a different set of tools, you can reposition or open a new channel or market relatively easily. And typically the previous owner didn't have this perspective simply because it worked the way it worked. This is not a downside to the business, it's It's simply a matter of, you know, we used to do it all the time this way, it worked for us, why should we open a social media channel?

Right, right.

Well, I was gonna say, Jess, so many people, right, come with a— with not understanding that the things that the plans they had and never did, right, could actually be valuable to you as as an asset, right?

Yes.

So you come across that? Do you ever come across that, you know, in practice, or is it a nice theory we have? We always try to coach people that if they have a plan, if they had something they didn't get to, it's worth bringing up and sharing, right, with the new owner, because that could be a piece of low-hanging fruit for you.

I would say that such a plan would be even attractive on the due diligence stage where you could show to the potential buyer that you're not burnt out and you're actually thinking about the next step.

Yeah.

And you maybe even made some first inroads with suppliers or a product in order to develop the next step. Whether or not the acquirer actually uses that plan and follows through with it, that remains to be seen. However, just the initiative of having a plan that demonstrates that there's no stagnation is a very valuable asset to have. Personally, I haven't seen that. Usually the companies that I went into were on the downtrend.

Right, right, right. So you're working for companies that were acquired because they were basically in a, you know, starting to lose revenue or started to kind of go backwards in terms of their growth, right?

Yes, exactly.

And that value creation plan you talked about, Anthony, like Anthony, The, you know, because I can imagine that some of those people that are no longer with the company after the value creation plan is created, it's because they don't fit into the plan, right? Their skill sets are not, are sort of, maybe were needed in the past but were not needed in the future. But can you talk about, like, how do you decide the value creation plan and where does the either entity that brought you in or you, like, how much flexibility do you have in In modifying/creating that plan?

The best acquisitions would have a value creation plan put in place before the papers are signed. Some things remain to be corrected once you actually dig down into the details, but optimally, you know why you're buying an entity and you can start executing on that plan the first day You acquire it. Now, regarding flexibility, what I think most of the time practice reveals is that things are not as great as they seem to be.

As they seem, yeah.

And if the value creation plan is based around the idea that you're trying to reduce the service or product down to its core, shed any weight or baggage that was accumulated. And then you're adding on additional services and trying to cross-sell, upsell, and optimize with new ways of selling and servicing. But first you need to shrink it down, only later to expand.

And that's not— when you're saying shrinking, I can imagine that that's like, if you're thinking of a technical product, some of that's probably technical debt, or some of that's probably, you know, either feature bloat or something along those lines. Can you sort of give us a little color or story about that?

Yeah, so usually this is operational debt. So processes where, let's say, they grew in a weird way for too many departments, too many dependencies on the different staffing, on different staff members in order to process Something easy, or perhaps too many capacity— too much capacity has been built in-house to service something which is easily outsourced. Typically HR, payroll, and in these areas.

Back office services, things like that.

Back office services. When it comes to tech, usually it's about relying too much on capacity and services built in-house. So custom software that requires requires maintenance and requires a specialized engineer in-house in order to maintain it. And usually it's better to replace it with an off-the-shelf compartment.

And so you're stripping down, you're getting down to the core elements of what the company is doing and sort of how they differentiate themselves and getting it down to that core thing, stripping away things that can be either provided by an external service, but really what's the differentiating factor for the company, getting it down to that and then building it back up with sort of additional capabilities. Is that what we should think about?

Precisely that. And while you're shedding the extra weight, you're also uncovering inefficiencies in how the product was marketed and sold.

Love it.

Because the way the product used to be seen and the way that the owners thought the product should be sold might not be the most optimal way, in many ways, for it to be sold in the future. Sometimes this is a matter of turning around the value proposition and repositioning the product in order to have a different audience, a different buyer, Sometimes this is about changing the price point. You might want to raise the prices in order to attract more respectable and larger clients, or you're going down because you want to sell the product easier and have a mass market appeal. All of these answers depend on where you want to move in the market.

Absolutely.

Going back to your original question, John, about value create— where does the value creation plan come from?

Yeah.

It comes from a perspective of where do we— are we getting more capital on board in the next few years? Are we growing through external funding? Or are we merging with another company in the portfolio? Or are we keeping the company as is and earning a dividend and revenue on the company as is, and planning backwards from that, you can decide which areas to grow, which areas to keep, and which areas to trim.

But it's really, it's a pruning, right? I mean, is that right? I mean, the idea is that you're kind of, you're taking this kind of really nice rose bush, right? Okay, and it's got lots of things growing out here and there, right? And there's thorns here and stuff, and some, some growth is really concentrated here, and there's sparse branches here. And cutting all that stuff back to keep the core of the beauty of the thing. And then, then it grows. Then now it can grow easily in any direction you want it to from there, right?

And that's precisely the right metaphor to describe why founders, owners are not the right operators to stay on and operate, operate the acquired business. Because having been so invested in a business, You are not in the right mindset and emotional state to be able to do the pruning.

Yeah, it's an excellent, excellent point. And that mindset is so important. You know, there's no question. That's what we see is, you know, most of the people that we work with, you know, we find are at some kind of crossroads, right? And that crossroad is, you know, should I sell or should I grow is what we say, right? Should I— is it time for me to leave? Well, what I— or, or, and, and then, then why? Is it because I've, I've outgrown— the company has outgrown me, right? Which is, which is kind of what you're saying. It's like I've taken it as far as I can take it with my skill set and my ability and everything else. Um, what you want to see on the other side, right, is a company that can be disengaged from the original founder relatively easily, right?

Absolutely.

You want to see a staff that's there that knows what they're doing and can run that thing without the main guy.

Right.

What are some of the other things that you want to see, you know, in a perfect situation when you're taking that company, that handoff?

And before you ask this question, you also raised a very interesting point which I want to circle back to. Yeah, the perspective, people at crossroads, as in you're dealing with founders who are at the crossroads, and I would say that From what we've seen in the past acquisition, I would advise founders to speak to people like you in order to find out what is their plan, where they wanna be with their business early on, and optimize for that. Because building a business around you to have a lifestyle business is a totally different type of path than trying to build a system in place which is easily acquired.

Yeah.

Usually these decisions should be done very early on. However, most companies have a way— have an unclear path forward, especially this is visible in the area close to my area of activities, agencies and productized services. Where the border between what is a service and what depends on the person is very narrow.

Right. Yeah. Yeah. And you're, you know, talking about productizing services and the sort of the discussion we were having even before we were recording today is, can you talk a little bit about how you advise companies where if you maybe you buy a product company and you take it, you turn it into a service, or you have a service company and you, you know, make it a product. Just talk a little bit about sort of how you differentiate those two and do those things.

I had the pleasure of talking to an Eastern European consulting company who's competing with McKinsey mostly, but downmarket from them. And they're consultants, a huge team. They've never had a chance to successfully build a product in spite of being experts at being consult— in consulting.

Sure, right.

And I would say that the origin of, of this challenge is twofold. First is account-based selling. You're selling to a brand, you have an account manager, and then they pick a service out of a catalog of what your company does. So you're kind of locked to the business development perspective of the account-first approach.

So individual products sold to one account in maybe multiple ways or whatever, but the account is the account and there might be multiple lines of business within them.

Yeah, and this type of perspective is exactly what prevents you from looking at product lines as first-class citizens. that should be sold and marketed. If we could draw this, this would be a grid, right, where you had vertically, you had each business unit which is taking care of its accounts, and horizontally are actually the products that you're trying to market and sell to people.

Sure.

The second reason why it's so challenging for service-oriented and consulting companies, it's because incentives don't align with top performance. Top performers who are very good at doing consulting and selling consulting hours, if they have to focus on developing products, then they are losing money. So in a consulting setting or service setting, these incentives simply just don't align. To your point about going the other way, building a service around the product. I would say that this is something that happens more in, let's say, brick-and-mortar businesses where you can turn around something that is typically a one-time offer into a subscription. Especially here in Europe, we see services where you can pay a subscription fee To get a retainer on— okay, I need a break. How do you call everybody who comes to your house and fixes things? Contractors? Or more broadly? Yeah, right.

More broadly?

Tradespeople.

So you can pay a retainer for having tradespeople come in and do whatever you need. So this is usually a play on changing the acquisition channel of customers and building a marketplace around what used to be a one-time product.

Got it, okay.

So it extends the product into a service to support the product or support use of the product or something that you can basically charge a regular fee for on a monthly basis or whatever, right? So the product doesn't change, but what you're kind of doing is is adding the support of that product or some extensible, repeatable situation.

And usually this comes as a byproduct of discovering that the act of meeting the right provider is the pain point for the customer. So you insert new layers of interaction in front of the customer for them to interact with multiple vendors at the same time. This is a play that has been done over and over again, and lends itself very well to turning a product into a service. Interesting.

Okay, and Anthony, talk to a little bit about the sort of entrepreneur-in-residence aspect of your job, right? When you were in that position, what were you— what were your activities, right? What were the sort of situations you went into? Because I can imagine you learned a great deal about a number of different companies. So If you have any stories about that particular role and what you did in that role and the companies you helped, I think our users, our listeners rather, would find it very interesting to talk about that diverse experience.

So an entrepreneur in residence is a very exotic title.

Right.

I love it. I think it hasn't been in the market for more than 10 years or so. Ideally, it's a position at a corporate client that has discovered that it would like to do a carve-out or a spin-out unto itself. So it is cognizant enough to discover that it doesn't have the right capacity and the right talent to build out a new product line. So for example, you could think of an insurance company who wants to come up with a new way of selling insurance. However, insurance companies have never— it's so monolithic, it's difficult to create a new product line. So they invite an entrepreneur in residence, sometimes at the discovery phase.

Yeah.

What should we build in order to diversify? Sometimes at the validation phase, should we actually be building it? And sometimes at the execution phase, here's a few millions in order to build it, these are the KPIs. And the intersection of the entrepreneur-in-residence type of role are multiple with different types of areas. It originates from corporate venture building and corporate innovation. However, now these types of roles are also present in other segments and also in VC and PE, because VC and PE are moving downmarket and being more hands-on in building value and building new entities. So this is also where such positions exist. As for me, I've had this title at least twice, if not more, I think. I had the pleasure of being invited as an entrepreneur in residence to turn around a concept for a company who has never built products before.

Okay.

And this was a consulting, small consulting company who knew they had an idea for an HR-based product, but they never executed outside of a workshop setting. So now the question is, how much capital should they be risking? Why should they be doing it? How to do it? The how is easy, but the other questions are more difficult. And also, can they afford to build it on their own? Should they be seeking outside capital?

Sure.

And because a company, and usually this is, I can extrapolate to any company, the company, unless it's a specialized holding company, they cannot afford to think about such low-level problems like what should be on the screen and what should be the user journey of our new clients. So my role is to make sure that we are on the same page about the goal of building it, make sure that the KPIs—

Excuse me.

That we're building towards are realistic for everybody. Because coming into the product world from the outside, entrepreneurs and owners will have a blind spot when it comes to sales and marketing.

Yes.

And this is especially painful for them looking at the progress from the lens of product and marketing. So typical parts of the job are ideation, validation, prototyping, seeing what floats, seeing what people are buying without spending much capital on it, and then building a team and executing upon a product roadmap and trying to do it while being in agreement with the original investors and founders.

Yeah.

They still can use it And to relate to it. Tough job.

It's actually the tough job. Yeah, just a tough job because you have— you're dealing with a set of owners, right? The people who are running the show. And then you have a legacy product and you're in the middle trying to figure out or trying to identify what part of— what part can I stay or can stay? What part needs to go? It's that pruning analogy, right? Making sure you cut the right branches keep what you want, the direction you want to go, when you have the ability to go in probably a couple different directions.

But, but the, but the, the key thing here that I think is cool about this is that it is taking this thing and building, whether it's a spin-off, yeah, like you said, right? Or like a, a lot of this stuff is basically, I mean, we can talk about it being, you're not being a product manager in this case, and I want to just make the differentiation, right? It's about, it's the, the, these entrepreneur-in-residences things work because there's going to be a, you know, the plan is I think we can spin off a large part of this thing into its own business, right? As opposed to just a product.

Yeah. Yes. And usually, right, and usually those positions are opened before the what has been discovered, right? So usually the why— we need a new product line in this area, we need to find a new product line for senior citizens. We need a new product line that sells this type of insurance. So business on a board level has identified an opportunity gap, and then it's unclear how to address it.

Yeah.

So this is, let's say, a strategic position that touches upon the global company strategy, but goes down as low as the product itself.

And this isn't something, this isn't something, Anthony, that basically that you can hand off to like a lower level, like a, like manager person to do, right? This is a skill set because what you're saying is, here's a bunch of, here's a, here's a small— by the way, I think, I think in this case you're saying here's a small amount of money right now, but you're going to jump into this and you're going to basically be the entrepreneur. Pretend this is you starting with this idea.

Exactly.

And you're right, we're going to charge you with an idea, but it's all you and you're going to come up with just like an entrepreneur starting a fresh thing. Here's what it's going to be, and here's who the audience is going to be, and here's how we're going to market it, and we're going to try this, and we're going to see, and we're going to listen to the market react, right? And you're going to take that time, you're going to probably have a little bit of leash, right? To a degree. Yes, probably very little.

So, right, there are 2 consequences of exactly this capital problem in this position. Uh, first is that this whole journey is very compressed because you're not only dealing with capital restrictions, you're also dealing with typical corporate expectations or board expectations of driving results, and they cannot hang around indefinitely, even if they could afford it.

Which you don't normally have if you're a solo entrepreneur doing a thing by yourself or whatever. You have yourself, but you don't have a board of directors already. Tell me you want it.

And those half a million dollars last much longer if you can decide how fast you're selling and when, versus when you have a corporate mandate of 18 months to build something and to ship something. So that's why it's difficult. But secondly, you cannot hand it off to somebody who's a domain expert in product marketing or sales Because of the compressed timelines, all the decisions have to be aligned with the board-set goals from the get-go. So you cannot afford a misstep. That's why even in the operations and setting a marketing strategy, this becomes quite strategic because it needs to look And convey exactly what the board wants, which is not visible to the marketing manager or the creative director or the product owner. It's because you're coming from a place of very high and abstract corporate strategy going down to small product decisions.

Right, right. The strategy, it's taking the strategy and implementing the tactics, right?

So Exactly.

Well, and let me ask you a question. So you're also a founder, right? You have a really interesting background and you founded a couple of companies. So tell us a little bit about what you've learned from, A, sort of founding these companies, and B, sort of with your technical background, right? Like to not geek out on the technical stuff when you're really focused on the sort of top line of those of those strategies. So like, what have you sort of learned from being a founder, and how has that informed what you're doing now?

I would say the biggest observation was that it is much easier to ride the wave than follow your conviction about certain visions and goals and high concepts. It's much easier to follow the lead of a trend. Currently that would be AI, but I've been through the big data wave and so on before.

Sure.

And try to find out which services will there be a gap for, which are secondary effects of this larger trend. So instead of being the leader in a domain, you're looking at, let's say, opportunities in learning platforms for this new trend which is coming. So second-degree effects is a playground where it's relatively cheap to start, start a new thing if we're dealing with bootstrapping situations or companies on a budget. Secondly, the change I have observed is that when I started out, you used to need to know how to build a product. Now, not necessarily so, especially in B2C. In B2B, I would still argue that you still need to have a technical team behind, but in B2C, at least getting started, the path to getting started is much shorter than it used to be. And I think a lot of entrepreneurs are now going towards the idea of experimenting for the sake of experimenting, throwing stuff out there and see what sticks. But this might not be the perspective of what capital wants. I would say that what capital wants is a more systematic And rigorous approach to experimentation, right?

Experimentation with an eye towards, we're doing, running 3 tests or 4 tests, we want to optimize revenue at the end, or the ultimate, the thing that passes this test is the one that optimizes revenue for us, as an example.

Yes, exactly. But let's say there's a certain startup smell that is no longer much desired in the higher echelons of capital.

It's true. And I think this is an excellent point to spend a couple of minutes on because I think that there's a lot of people out there that I'm sure are kind of frustrated about how difficult it seems to be right now, especially, you know, really the last couple of years in terms of access to capital and the ability to do that. And again, with the rates were really low and all that stuff was there, you know, the debt financing and all that stuff was, you know, probably easier to get, certainly back before 2008, it was really easy to get.

Yeah.

Right now we're in a situation where it's, it's just everything kind of seems like it's puckered up, right? And, and what it seems like, whatever, because of the recent history and all that stuff with the— and especially in this kind of second tech, uh, wave that we've seen in this, you know, in the last decade or so, that there is what the capital markets want as a sure thing and they want a sure-thing unicorn, right? I want to, I want to invest in a company that's going to be— that I know is going to be worth billions of dollars. I don't care that they don't have their plans sorted out yet because I know that they got subscribers or whatever it is, right? And that's what I'm going to bank it on, and we're going to figure out how to monetize all this later, right? But basically, it seems like— is, I mean, is my assessment of that kind of like true? Is that where, is that where the capital markets seem to be right now? It's like, show me Show me the next unicorn and I'm on board. But if it's, if it's something that requires me to like, you know, take a risk of any kind, it feels like the risk there, that capital markets are more risk-averse than ever. Is that true or is that just a, is that just a feeling?

I would, I will try to comment from a perspective of, uh, the environment of pre-IPO situations. Um, and over there, I would say globally, The trend is that because seemingly it is much easier to build a thing, whatever that is, there is an expectation from investors that you will show up with much more than you used to have when it comes to product development, market development, or even revenue.

More of those things finished, like kind of like done, as opposed to Yes. Things that are kind of waiting to be—

And I would say what is here perhaps the most relevant to your audience who might have not started new things for a while because they've been so focused and laser-focused on building the right thing in their successful business is that the advice that used to go around, around building new things having a thesis, having a problem statement, calculating the market size, and then proposing a prototype and seeing how many people click on a button. I don't think investors want that anymore. I think it's still— it is the valid way to approach the— canonically valid way to approach the problem. But I think what investors want is a rough prototype of something with multiple people, thousands of people not paying for it or paying a few dollars, and people following the development of what it is. So I think what used to be technical capital of founders or product capital is now social capital. So what investors look out for is people who have a following, who can build a following, and who can be visible, whatever that means in that particular niche.

What a wild world we live in. I mean, and I think you're right on. I think you're spot on, and it's incredible.

So, well, we're seeing this, John. I mean, we are seeing this ourselves, right? I mean, the reality is, is that, you know, when I was— we're coming up, you know, and we're all probably about the same age or so. We were coming up, and then the idea was that you built the, you know, you built product, you figured it out, you did it in your basement, whatever, you got your friends to use it, you did a thing, you got some stuff, right? And then you basically had this product and that you tried to get some capital so that you could put it behind getting the product out there, whatever, right? And then an audience came. It's exactly the opposite right now.

Yes.

Social media has changed the landscape, right? And so now what happens is that it's the, the people that are getting the money are the people that can demonstrate that I've got an audience, forget about whether— because they— here's the, the capital guys know that you can monetize an audience just about any way you want to if you have a— if you actually have an audience in front of you, right?

Yes. And to speculate further on this point, I believe that there are more people out there who are capable of building an audience than there are people who are able to build a product from first principles. And this is not a criticism. It is just the idea that if I had to put out capital, I would be looking at people who have an audience and then the product will follow. This is the type of thesis that most of investors have.

It's a decidedly human thing too, if you think about it, because the building of a product and all that stuff is kind of like less, less, I mean, it's a human thing to create that stuff, but the human interaction Right? It's the belonging. The audience building is very much a human touchy-feely, like, do you like me?

You know?

And again, that's why the authenticity matters so much now and all that stuff too, right? It's like, just be real, right? And you will find, because of the long tail of the internet, right, you will find your audience. And these capital guys, they don't even need the audience to be huge. They needed to be, but they needed to be defined and niche, right?

Yes.

Because now I can create for that audience as opposed to an actual audience that exists that will feed back to me in real time, as opposed to this audience that I have in my mind that I've been building this product for back here. And one day I'm going to find those real people, uh, right? I mean, it's kind of like, it's like, no, no, find the real people, figure out what it is that they really want and whatever. And now even if you've got a notion of it, Now you can listen to that market and fit that into that audience, as opposed to, you know, again, it would take— what used to take years and years and years of product development, right, now can happen basically in a matter of like weeks or months if you've got enough data that comes from the audience that you put it in front of.

Yes, however, I also think, as a counterpoint, I also believe that there are more false signs out there for people who have a following, not for the buying intention of the audience, but for other drivers of attention. So being controversy, humor, popularity, and fame, and they might be mistaken for monetizable audiences, right? Secondary driver, TMZ, right?

So like TMZ, like those types of things are not viable audiences, whereas opposed to, you know, there's other types of business influencers that have that audience. Yeah, sorry, continue.

Yeah, yeah.

Unless you can sell— unless you're selling— unless what you're selling is advertising.

Fair point.

The only, only thing that you're going to get out of a TMZ audience, right, is the ability to be able to say, I've got a bunch of people who will buy other people's stuff, so let me monetize it that way, the way that the social media companies have ever, you know, have monetized it through advertising and stuff like that, right? Which is the original television model, which is a proven model to work. The difference— what, right? They have another— they turn the thing on and they put programming out there, and then they just keep trying to see what programming works, and they build an audience over time because they have a series of— I mean, that's the way that the television industry grew up, right?

Yes, however, I can tell you an anecdote about a disruption in the audience model that I lived through a few years ago in one of my companies. So we were building a service that replaces big-name influencers with, as you said, Joe, a long tail of influencers. So it was an operational challenge for the marketing agency or for the brand to handle tens or hundreds of small accounts that had the same impact as if you rented one influencer who you have to manage and pay a lot more. So we had the technical solution to manage a long tail of people, incentivize them, and the numbers impact would be the same. I didn't want to segue back into my own thing, which I did. What I wanted to point out is that also, I think companies will discover soon that talking directly to multiple people will be cheaper than renting out and buying big media.

Interesting.

But to your previous point about the direction of where capital is going and what capital expects of founders and entrepreneurs. I think that because so many— there are many more smaller VCs out there who simply cannot afford the operational overheads that used to come with the business. The way they are scanning for signals— Excuse me. Now relies more on actual data closer to the business line than clear analysis done by a human actually. So it's an easy shortcut for an investor to ask to have direct access to your e-commerce store in order to crunch your numbers. It's a cheap way of getting to the source of truth.

Interesting.

And this has been happening for a few years now. Very cool.

Very cool.

Yeah.

I, I think it's a very— it's fascinating, kind of where we are and the way that the world has changed over the last 20 years in particular, you know what I mean? And, and in so many ways. And obviously we could, you know, there's a whole, you know, globally, even the, you know, sociopolitics and all that stuff, right? I mean, the reality is it's a very kind of like uncertain time, right? And I think that the capital markets kind of tend to follow on that. Whereas, you know, whereas it felt like 10 years ago everybody— and this is what happens too— everybody thinks they know, right? And they think they spot the thing, and this is the trend, and now everybody flocks to that thing, right? And then suddenly there's someone else, and then the— and then the— and then some VC, some, you know, discerning VC company, you know, decides that instead of putting my money over here or whatever, I'm going to put my money over here. And then, you know, eventually— and that pays off. And so now everybody, the flock just kind of moves right over towards that. So the capital markets, just so everybody knows, okay, they don't know anything either. Okay?

No.

They don't know. Big no, right? Um, for those of you listening on the— for the audio version of this podcast, Anthony just shook his head big time, like, do not know. Okay, so what's frustrating for founders looking for capital is that you do probably know more, okay, than any kind of individual VC is gonna know about your market, about what you're doing, and all that stuff. But, but the idea is that the— but the proving it to them is now really the thing, right? With numbers, with whatever you can prove, that's what's gonna get you the capital, right? And, and you're gonna— you're probably gonna have to be a little bit further down the line than you would've been a decade ago.

Yes, and you're also looking for, as a founder, you're also looking for indirect ways to provide evidence that people are motivated in order to do a purchase and to be involved, be it from readership, audience, followers, intent to buy, everything that is real so that you can unfortunately simply build attention and build FOMO with your investors.

Yeah, well, it's interesting. It's like, and that's a lot of communication, right? So that, and it's a different type of communication. So I think like one of the things that sort of stands out for me from your background is like the way that you were a technology— you were a technologist and you still are a technologist, but like, can you talk about like the communication aspect of it is how Because you just talked about it from the founder's perspective, but communicating a technology in a simple way to investors to get them to invest in your business can be very difficult. So like, what have you learned along the way about the ways to communicate sort of complex product features or sets or where you want to go and how to convince those investors to get on board?

Usually founders have their own story about what they're trying to sell. Because usually they know too much, or they know— or they're focusing too much on the actual solution and not about the opportunity.

Yes.

So ideally, you want to start any story from the market opportunity behind an innovation. You want to start with Who will I be selling the solution to once I have it built? What's the market size? And here's, by the way, here's a letter of intent and 3 first customers already signed up. And what is difficult in balancing here, because I would say the narrative from the investors have shifted their expectations a lot in what they expect of founders. It used to be that you need to be structurally sound, diligent, and deep in your analysis. And you as a founder had the expectation that you will be x-rayed for the validity of your thinking. I don't think this is the case anymore.

Right.

Because now everybody's looking for ideas which appear great. And everybody's agreeing to only look at the surface level for early-stage companies anyway, because investors are in agreement that the market will only be looking at the surface level anyway. So they should not be going deeper in their analysis because it's the appearances that matter. That's why you're optimizing for clarity and purpose of the communication.

Yeah.

And you're optimizing for making sure that you have as many possible stories to tell investors to keep them engaged in following the developments of Yoodoo. What used to be a deep deck with a thorough analysis now is a series of small messages, small Instagram or TikTok stories.

Small stories.

Yeah, this building out loud concept, right?

Exactly.

A lot of people, especially on TikTok, uh, but some on LinkedIn and stuff too, where you're seeing people saying, I am a founder, I am building this thing out loud in public. everybody to see, and I'm going to share all the stuff, the good, the bad, the ugly, the whole thing, and I'm going to post it and whatever. And so you kind of become like a minor celebrity, right? You gather a following for your openness and your transparency.

Yeah.

Question is whether or not— is that working for your ability to be able to grow a business and get capital and stuff like that? And what you're saying is there's a good chance that potentially that would be a strategy that would work.

I think what you— what they are interacting with is an echo chamber. However, there are secondary effects to the strategy that you will have. The surface of your luck will increase because people will discover what you're doing.

Right.

And while you're preaching to the choir about being an open entrepreneur and showing everything, What you're actually underneath the surface, what you're trying to attract but you're not optimizing for, is being— getting attention from investors. But that's a secondary effect of you doing the communication strategy. And I think this shift when it comes to the strategy of communication outside is very difficult for people who have seen the way companies needs used to be built. I think this is not natural over a certain generation of people.

Right. I was gonna say, there's obviously— it cuts across, you know, obviously from generational lines, right? Because again, like I said, we are, you know, we're just young enough for us at this point in our lives right now to be able to make this shift. Whereas, you know, people who are 20 years older than us or whatever, you know, are probably at a time where they're at the very end of their career, they're getting ready to to retire or whatever, you know, they're probably in a situation where this, again, this is a crossroads for them, right? This is the kind of thing that stops people from being able to move forward, right? Is to say, okay, I am now in a situation where in order to do this, I need capital, I need to do things this way. What do you mean I need to be out there on social media?

You know what I mean?

Whatever those, that, you know, my father is just not gonna do that.

You know what I mean?

Yeah. Um, and, and the re— the reality is, is that, you know, there might be He may, as an example, you know, he's been retired for years, but he may have said to a younger staff thing, hey, we got to get into this and you got to be the face of this thing, you know, out there or whatever. And he may have entertained the young kids doing this thing or whatever, but that's not the same thing as a strategic shift from the top down, right? That says, no, this is the way we do business now. Forget what we've been doing before and how we've done it. We've got to be able to adjust in the whole thing. There are not people— people are just not capable of doing that at a certain point, right? And this is the way that it is. And a lot of it is also burnout and being tired of it, right? And it's very difficult to get yourself psyched up for, you know, a major shift like that. But that's the opportunity that we think is actually maybe the best opportunity, because at that point, that's when you want— this is the point at which you want to stop and start taking stock of everything, right? Where am I? Is this required? This is requiring me to do this thing. This is a good time for me to step back and say, okay, who am I? You know, am I, am I this guy? Am I going to be able to do this? And again, this kind of also dovetails into another one of your kind of experiences, Anthony, which is that, you know, often you could be brought in as this, as the CEO to an existing company before it's sold.

Yes.

Right? The ability to be able to say to the original founder, or that the original founder says, I can't take it here to get to this place, I'm getting tired and burned out and whatever, but I know there's more left here from the business, right? Doesn't it make sense then for me to go and hire, move myself up to be like chairman of the board, right? And bring in someone like Anthony to be able to— who's a seasoned CEO product person who can come in and say, this is how we're now going to take this company from, from here to there. Thank you so much. You know, And before you sell it, right? That's a very viable, very probably very smart strategy for some people.

I would say it is an extremely difficult position for the prospective seller to be in because being able to detach yourself and go up a level of abstraction higher and not interfering Oh, yes. Requires a lot of mental discipline and emotional intelligence to be able to delegate this trust to somebody else. Now, this trust might be facilitated by burnout, or it can be facilitated by having a value creation plan and making sure that all parties are aligned on the strategic goals of why am I here? What's the purpose? And usually it's best to start at the desired outcome, as in we have procured a particular buyer at twice the valuation you used to have a year ago due to the following levers that we jointly pull.

Right.

But I think you've seen this Even more than I have in my career, that this shift of mindset required from the owner is something that rarely happens in practice because it is extremely difficult to be so involved and then detached in order to hand over the keys to somebody else.

What we find though is that, Anthony, is that it's actually really smart practice.

It is smart, but it's very difficult, isn't it?

Yeah, it's hard.

It's like the excellent basketball player becoming the excellent coach, right? If you think about it, that's the— that's the— right? It's like Michael, you know, I don't want to pick on Michael Jordan because he was obviously the best basketball player ever. We can talk about that debate later. But like him becoming the best coach in the world was so— would be such a rare feat. You know, Bill Russell is the example where he was a great basketball player and a great coach. So those 2 skill sets are, you know, as you said, very difficult. You have to have high levels of emotional intelligence. But like, we're coaching our founders and our clients to do just that, right? To take a step back, to be the, to be the chairman, to work on the business. And we talk about it as sort of levitating above the business, hiring a CEO, or elevating someone from internal, from an internal role and, you know, putting the control and the power within that person to— so that they're running the business and then you're at the point of selling the business, negotiating offers, that type of thing. So that you can do that, you're freed from the day-to-day running of the business so that you can sell it and prepare it for sale.

So maybe we should talk about what are the moves that an owner can do to support the CEO.

Yes.

After such a transition has been done, what, like, after interfering, how about supporting? I would say that the relationship that the owner has built needs to be to some extent handed over, or at least shared with the CEO, in order to explore new opportunities. And I find that owners find difficult, find it difficult to share those relationships because they're afraid of them being tarnished or exploited by the incoming CEO. What about, what else have you seen? Because I can share a few stories here.

Yeah, please share. We'd like to hear some stories.

Absolutely. That's why you're here.

Unclear expectations or rolling out the plan As we go. So I come in as a CEO and each time the plan that I am to execute upon is updated on a quarterly basis without a clear long-term vision.

Scary.

This, exactly. As you can tell, this clearly leads to short-term activities and a lot of effort being put into appearances, because a lot of the work of an early time in the early phases of a CEO is communicating, is facilitating communication between the team, the market, and the owner, and making sure that the owner sees the way I see, and that we are in agreement about the direction. And sometimes this is a push and pull. pull mechanic about where the owner thinks we should be heading, but I'm sitting here closer to the market and I'm seeing different signals. Now, a lot of the work then is about negotiating the plan and arriving at something that is realistic, but maybe not as close as the owner wanted to the destination point when it comes to how we are building something, how we are marketing Something, right? Where are we positioning a product? Yep.

I think, I think that the, that the way that this tends to work best, and as you said, it does require a mindset shift, there's no question about it. The triggers for that mindset shift though are often dollars, okay? And, and, and then also, and the immediate freedom. So, you know, the, the, the places that we see this kind of strategy work best are with, obviously, with the founders who are at that crossroads of like, okay, I am tired, right? And I know that I can't, you know, I may not be able to take this any further, but there is some optimization work to do. There are some things to do over the next couple of years that would really optimize the sale, optimize the exit, and raise that value, right? And so if I can You know, if we can develop a compensation plan, right, that says— with the CEO that says, okay, you're going to get bonus for doing X, Y, and Z, or whatever, as opposed to— right? Because what's the fear? The fear is really, I'm going to bring someone in and they're not going to do it, right? That's the fear. The fear is that I'm not going to do— the guys I'm going to hire isn't going to do it, and we aren't going to get there. And so I would have wasted this time and maybe even ruined the business in the process. Or that's the fear anyway, right? But if you can, if you can align— what you're saying is align the communications for end goals. So the first thing is to say, what are we trying to achieve here? And, and I got to be, as the founder, I got to be open enough to be able to at least listen to this expert I'm bringing in to say, no, this is the way that we should build this. This is the thing. This is why you're hiring. And by the way, the cool thing about being the founder of this situation is that You can interview as many CEO candidates as you want, right? So you can pick the one that resonates with you best. You can pick the one that basically, you know, is aligned with your goals or aligned with the thing. But I think that the, the clear kind of like way that this works best is because as the founder, what you're gonna get ultimately, okay, is the higher valuation, the more money in the end. But you're also going to be able to, to, to be able to pull back now. That means potentially, right, spending more time with family and doing that stuff, getting the grandkids, doing that stuff, whatever, still having the money to do the stuff, spend the time on the boat. We, we, we, we've worked with CEOs all over the place who are taking this kind of smart route. And even, even if they're not bringing another CEO, they are basically, they are stepping back and allowing that lower, that next level of people to run stuff. We ask people all the time, is it, could you take 5 days off, okay, and not attack the business?

Yeah, so yeah, yeah, I mean, that's the—

but that's the challenge. And the answer is almost always they say yes, and then the result— yeah, yeah.

Even if they are technically— if the company technically could operate without them for 5 days, they find themselves itching to contribute, to contribute to something which in the end, with all due respect, is meaningless because it amounts to correcting a presentation or clarifying communication with an external stakeholder that in the grand perspective of things doesn't really matter.

And, but you know what, and if I'm the CEO and that thing, I'm gonna leave room for that stuff too, right? I'm gonna say, I, I, the CEO also has to understand what the situation is. Right? And coming in and saying, look, I know I'm gonna deal— this is what you've had to do, is deal with that owner who's still sitting there, right? And going—

The owner's like right here. Like, you feel them, you feel the breath on the back of your neck. You're like, wait, the keeper's right there, you know?

Yes. And I would say, unfortunately for people in my position, sometimes managing expectations of Managing up, as you say. Managing up.

You certainly have to manage down and do that, but part of it when you're coming into your situation, it's like the— it's what we talked about earlier. It's the corporate side of the business has expectations and goals and things, and you're in the middle and you're caught between— you're trying to, you know, run a marathon while having open heart surgery, right? It's like, wait a second, how do I do these 2 things?

I appreciate the compassion you have for people in my situation, but maybe this will be helpful to your audience to think about and reflect about the type of personality they're hiring as a CEO that should be aligned with the goal that you're trying to do. So you should not be hiring somebody who's operationally and analytically oriented if you're trying to build a new market or you need to expand the product line. And the opposite is also true. So, and secondly, pedigree might not be as important when hiring an incoming CEO because you have still the opportunity to guide them by setting guide rails and directing them and They might have a bit more motivation because they are younger and motivated to grow into this role, but you need to set the expectations of how much guidance you provide and how much freedom they will have, because especially first-time CEOs might be under the impression that they will have a lot more room to play with and actually You have constraints all over, every which way you look.

Well, Anthony, that's a fascinating point, and we agree wholeheartedly, and we really appreciate you joining us today on our podcast.

You know, I think time goes so fast, John. I don't know how we did this.

Yeah, I know. I looked and it's like there's so many things we want to talk to, you know, we're gonna have to have Anthony on again because we didn't even talk about some of the things that he has in his background.

Thanks.

Yeah, but we really appreciate it. One thing, how do people— how will people, or how should people, I should say, get in touch with you after the podcast if they want to reach out and talk and sort of engage you in conversation?

I would love to speak to your audience. My LinkedIn messages are open, and my email address will be shared as well.

Great.

And we'll put all that in the show notes as well, everybody.

Absolutely.

For discussion.

So, yes.

Awesome. Well, Anthony, thank you so much for joining us here on the Exit Engine Podcast. It's been incredibly insightful. I mean, we were kind of jumped all over the place today a little bit, but I think there's just so much insight. I think, look, the bottom line here, John, is that there are many ways to skin this cat when you reach this crossroads, okay? And the reality is, is that it's a matter of your intestinal fortitude fortitude, how much time you think you have, you know, the, the, you know, your wherewithal in general as the founder of the company. But a couple of things to think about are that are going to be, A, do I have the, do I have the capacity, the capital to continue to grow this, right? So it's my own capacity, it's the capital I have. Do I have that ability? Do— if, if not, can I go and get it? And if I'm gonna do that, then what do I need to understand about where the capital markets are today versus where you may have encountered them the last time you did this 10 years ago? And we talked about that profound change, right, in the capital markets. And, and, and that is that essentially capital markets, by the— by and large, want you to be a little bit further down the path maybe than you already are, even when it's a new thing. So understand that while I'm building this new thing, it's with that— unless I'm using, doing it through debt, right, which is, you know, a viable solution.

Yeah.

I'm looking for capital or investment to be able to build out this new thing. I better have already kind of figured out, you know, pretty much what that new thing is going to be and how it's going to work before I even entertain any kind of capital, right?

Yeah, and the importance of communication, right? The thing that Anthony emphasized is, right, that, you know, wherever you are, if you're, if you're coming in, if you're selling your company, if you're raising money, if you're working as a, as an entrepreneur in residence, whatever the case may be, communication about what you're doing, what the plan is, and the sort of long-term goals of what you're doing. Again, it creates clarity. It also creates sort of the ability for people to raise, you know, questions about that plan, and they can react to it. So it's not a quarter-on-quarter thing. It's, we have a long-term plan that will take 6 months, 9 months to develop. And as long as people are on the same page and understand that at the beginning, they're much more forgiving, as opposed to if you completely change direction and go against the plan you've gotten blessed by whoever's giving you the money or whoever is the owner, the corporate board, whoever you happen to be, you know, in the employ of.

And then the other thing we learned today too is that, look, the things that we've been talking about here for months, okay, about the things, the way that you got to examine your, not only your business, but yourself. And I think what Anthony kind of brings up too about this, you know, when we talk about this hire a CEO thing, right? Which, again, we think is a really good idea on paper and a really good thing for people if they were— if they could get out of their own way on it, right? Which is really what the problem ends up being. But this notion of being able to say, hey, look, it's about asking yourself these basic questions, OK? Where am I? What is my capability now in terms of what I want to have happen? OK? And that's why our process, John, right, starts with asking you what your goals are first.

Yeah.

What do you want to have happen? I want to sell my company and go and travel the world with my wife. Great. How much— my next question is, how much money do you need to do that, right? And let's see, can we get that much money out of the business? If, if we can, then great, let's do that and let's get that thing going. But as Anthony pointed out, there are about 3 or only 3 or 4 levers, okay, that you have access to at any given time that's going to help you change that, right? And, and it might take you 9 months, a year, or 2 years to be able to do that. The question is, can you do it, right?

Yep.

Do you have that, that wherewithal, or do you need help? And there are so many ways to get help, right? So many ways. You can get help from places like us, advisors like us. You can get help by hiring someone like Anthony to come in and either be your CEO or your entrepreneur in residence, right? Or whatever. You can go and get capital, you can get the advisors that will come, definitely come with that capital, as we all know, right? Or you can start to look internally. Do you have somebody internally that can start to bring and carry the mantle here that you already have a relationship with that will help you kind of carry this ball across the finish line, right? And so the idea today, I think, with Anthony, so much for joining us here and talking about, you know, all the stuff that I think really matters. you know, to founders, and we've given a lot of people a lot of good stuff to think about today. So thank you so much. Anthony, parting words from you.

Parting words: once your clients have successfully been on the boat trip, been across the world with their wife, and are back and are itching to do the next thing, then let's meet again and discuss the disciplined area of venture building, which is how can they spend their capital in order to build the next thing that they will have fun at in a disciplined way. So that's probably a suggestion for the next—

Exactly what we will do, Anthony.

That's very—

that's an excellent point. It may not be the end. Exactly.

And I want to leave with 2 things, is we are, we are building a product, um, and a community for entrepreneurs. To find out more about it, go to www.myexitengine.com. Sign up for our waitlist and we will email you in very short order. When we're talking in August here, we're talking in September. So do that. So sign up.

We won't spam you.

We'll send you only pertinent information. 2, go to podcast.myexitengine.com for other episodes of My Exit Engine with people similar to Anthony, not exactly the same as Anthony, because we try to talk to different people all the time. But there's other people in our inventory, I should say, of podcasts that are interesting. And check those out, podcast.myexitengine.com.

Awesome.

Anthony, thank you. Thanks so much again for being here. My name is Joe Stapleton. This is Jon Kniff. As usual, Jon, thank you so much. I'm so grateful for you being my partner. I'm so glad that we get to talk with people like Anthony like this all the time. And hopefully we are, you guys out there are finding some value in what we do too. Please remember to like, subscribe, and share this podcast. Please share it with a business owner that you love as well. Okay, maybe the things that maybe you're not in the right space right now, but there's somebody out there that will. There's 38 million small and medium-sized businesses out there in the United States alone. All right, so one of somebody's going to get some value out of this. So please share it around. We really appreciate all of you. If you need to talk to us, you can at any time. We are open. Anthony says his DMs are open. Our DMs are open also on LinkedIn, J.O. Stapleton, uh, also John Kniff, uh, and then also our emails. You can email us directly, jo@myexitengine.com or john@myexitengine.com anytime. We're happy to answer any questions you have, put you on the right road to, to it, to a successful exit on your own terms. Guys, thanks so much for being here. Anthony, one, one more time, thank you so much. John, as always, buddy, thank you so much. We'll talk to you later.

Thanks, Joe.