Last week I bumped into Earl, who I hadn't seen in about four or five years.
Last time I saw Earl he was contemplating selling his firm.
Last time I saw Early he was not a happy man.
This time Earl was grinning from ear to ear as he recognized me.
After exchanging the perfunctory pleasantries of people who hadn't seen each other in years I blurted out,
"Hey Earl, why the big stupid smile when I first saw you?"
"Well Jeff, I just came from my banker's office where I sold my company for more than 8 figures."
"Wow and Congrats," was all I could initially muster before continuing after a brief pause and a clumsy fist bump maneuver.
"When we last met Earl you were hoping to get a million or two at most, what changed?"
"Simple, one thing Jeff, I embraced obligations."
"Embracing obligations, I think I am going to like it Earl but just to be sure what does that mean?"
"Well, for the first 6 years or so of running my firm, I was very cautious. For example, I nickel and dimed when selecting professional service providers - for instance hiring an accountant that did a good job of helping me with the past but not with the future. I had opportunities to increase margins, but would have had to make long-term commitments for additional staff and infrastructure. The offers I made to clients weren't much different than other offers in the marketplace. I spent very little money on marketing and building the identity of the firm. I was practically saving myself out of business which is why I was eager to sell. The firm was profitable, but was going nowhere."
"Anything else Earl?" I replied half joking as I intently listened.
"Sure, I tried to do too much myself, so I always ended up hiring people that weren't that ambitious or when I hired somebody ambitious they would end up leaving because I wouldn't give them any real incentive or accountability to stay. My most valuable clients and staff realized that way before I did."
"Interesting Earl, so what obligations did you start to embrace?"
"All areas Jeff. For instance in staffing, the biggest move I made was bringing on a President three years back to focus on new sales. He was a real firecracker, completely driven by money with a great prior track record. I gave him a piece of the company tied to increasing firm value. He was very expensive but I embraced the obligation, knowing it was more expensive in terms of creating firm value to not have him on board. I embraced additional expenses that enabled us to make more valuable offers to my customers and at the same time reduced our variable costs by taking on significant obligations in terms of increased infrastructure and staff costs."
"Fascinating Earl, how did you decide to embrace those obligations, I would think it would be pretty tough to do that after around 6 years running your business."
"Funny enough Jeff, it was the advice I got when I was interviewing investment bankers when I was originally looking to sell. All the bankers except one were pitching me on how they would market my business. The one banker basically said, I can sell your business now or you can take it off the market and you can make it worth a heckuva lot more. He was the only one thinking long-term for me. He was the only one that said I should invest in my business and that I could make it worth 10x more. I just had to embrace obligations. The very next day I put an ad in The New York Times looking for a senior sales executive and also started to take on the additional obligations with my staff and with the offers I made to my clients. By embracing obligations, I was able to charge more and significantly increase the rate of acquiring new clients."
Earl continued.
"If I hadn't met that particular banker and embraced obligations I would have sold my firm way too early and would never have known it and that banker would have lost out on a payday about 10 times bigger than what he originally expected.” Earl gave me another of his ear to ear grins much larger than the first one and then concluded, "a much larger obligation I was more than happy to pay."
"Good to catch up with you Jeff, but I got to run in order to make a board meeting of a firm I just invested in, isn't life fun." And Earl was off again.
If you plan to significantly step up the value of your firm, be prepared to significantly increase the obligations of your firm.
Comments