Podcast Transcript

[00:00:02] Shawn Flynn: On this week's episode of the Silicon Valley Podcast, we sit down with Sean Steele. He builds and enables businesses to fulfill their potential impact in the world. He thrives on helping leaders and their teams understand and exceed their own expectations of themselves. On this week's episode, we talk about, how does a buyer look at a strategic acquisition? How does one go about getting every dollar they deserve when selling a business? When does the integration conversation start to occur when acquiring a company? And Sean's philosophies on strategy. This is much more on this week's episode of the Silicon Valley Podcast. Now let's begin. Enjoy. 

Welcome to the Silicon Valley Podcast with your host, Sean Flynn, who interviews Famous Entrepreneurs, Venture Capitalists, and Leaders in Tech. Learn their secrets and see tomorrow's world today.

[00:01:01] All right, Sean, I want to thank you for being a guest on this week's episode of the Silicon Valley Podcast. I'm very excited. For our listeners out there, I've actually been a guest on Sean's podcast twice. He's got the greatest name. What else can I say there? But Sean, can you give our audience a little bit of background on your career up until this point?

[00:01:19] Sean Steele: Absolutely, mate. And actually, at the end of the podcast, I'll make sure we reference the episodes so people can go and listen to you on my podcast because they were great fun and I think we probably laughed more than we spoke, but anyway, it was good. All right, let me backtrack. I came out of school with terrible scores, which my teenage sons always think is hilarious. I started a music degree, switch to management because I realised there was no jobs in music and I certainly wasn't going to be a famous musician, which pretty much qualified me to do nothing. So, I found myself in sales, as many of us do, and I just, sometimes you kind of find yourself just in the right place. I landed in sales, first tele-sales job, I did like almost 400% to target in four months, and I won a trip to South Africa and I was like; sales is awesome. I was making all this money. And then I got promoted. I got another sales job. I did nearly 400% again in the next nine months. I won a trip to Tahiti, it actually became my honeymoon with my wife, who I bet at work, married almost 20 years now. And I loved sales, but I really wanted to be a GM. So, I found a guy to mentor me. I said, what do I have to do to become a GM? He said, you have to do all the terrible jobs, like you're doing sales, that's really nice, but you need to do like customer service and quality and data and like you need to understand the business. So, I spent time in different parts of the company doing other jobs, and then I just had this entrepreneurial itch to scratch, which kick me off into education first. I set up a training business in neurolinguistics, kind of like the early days of Tony Robbins. If you're a Tony Robbins guy.

[00:02:34] Shawn Flynn: I have my master prac in NLP. What can I say? I love it.

[00:02:37] Sean Steele: Oh, that's amazing. I have taught many master practitioners as a trainer, so that's cool. Actually, with my wife as well. And then look, it basically kicked me into 17 years of working in education for different investment and education groups, either helping them to build or scale or buy or integrate or turnaround education businesses. And in that process, I was just this sort of voracious learner, trying to implement everybody's methodologies, like taking all of the Fern harness, scaling up stuff and Simon Sinek stuff, and Jim Colins stuff, and Tony Robbins stuff, and Brian Tracy stuff. I was just trying to apply everything. And in that process, I was really just trying to figure out what worked and what didn't for in my perspective and with the way I guess that I led them with my teams. And that over the last eight years, that created a hundred billion bucks of revenue for four other companies. And so, I got to kind of wrapped up the last gig. I didn't really want to be a CEO for anybody else anymore, so I did two years of an advisory business, and that's now turning into a brand that I'm just about to rebrand called Scale HQ, which is where I'm really helping other founders; typically seven figure founders scale up to eight figures, maybe to nine, but really that's kind of my sweet spot. And so, building out advisory models, community models and education models to help them get the insight they need to do that. 

[00:03:47] Shawn Flynn: Okay. I was curious because I know you had the nickname, “The hundred million Dollar Scale Up guy”, and so now I know the story of that. And for our listeners out there that are global, there actually really is a big neural linguistic program and community here in Silicon Valley. Uc, Santa Cruz is down the street. There's a lot of history of group study in that. So, for our listeners out there, definitely, recommend getting a little bit background on it. And actually, it's been referenced in a lot of our past episodes with points of you, yourself, the person across from you, third person, fourth person, all those things and being in control. There's just so much there that has been referenced on this show in the past with Chucky Orbita, the centre for the Pittsburgh Steelers when they won the Super Bowl, he was referencing that. So, Sean, I'm pretty amazed that you taught that. Now, one of the things that you also mention, being a GM and getting to know all these different components of a company, how important do you think that is for first time founders, entrepreneurs out there, especially the ones that are going straight from college to starting a company or wanted to start a company?

[00:04:51] Sean Steele: That's a good point. I guess, you know, if you've already become a founder, then you don't have the same luxury, right. You've already jumped that step. But I think about that in the context of your leaders. Because most founders want to build a management team and usually want some kind of, you know, groom, some kind of GM. Like maybe they've got a sales guy or a marketing girl, or you know, whoever. They've got somebody in the business that thinks got potential, but they've only got this kind of one set of functional expertise. Think you've got to broaden those people as fast as possible, because if they stay in their functional expertise and you elevate them too high too quickly, they really struggle to see the upstream and downstream impacts of their decisions. So, even though I had to, took huge pay cuts and did some awful jobs that were really mind numbing or really difficult, but I grew a real sense of respect, I always think the CEO or the Founder has to know enough about each functional area to be sort of dangerous and to be able to test or prod the expertise of the person that reports to them, but never so deep that they're all of a sudden trying to tell that person how to do their job. And so, I think if you don't get that breadth, it's really hard to do that as a CEO. 

[00:05:49] Shawn Flynn: So, if you had just started a company straight out of university, how would you go about learning a little bit about each of these areas or are you just going to get replaced? 

[00:05:58] Sean Steele: Well, I think if you are the Founder, the reality is you're going to get exposure to all of those areas pretty quickly. But how do you know that you've got the right kind of capability of thinking in those areas? Well, I think that kind of depends on the size of the business, but I guess that's where typical business education, you know, MBAs and stuff come in play because you learn a small amount about, pretty much each functional area, usually other than sales, which really just frightens me that we spend all this time in MBAs teaching everybody about maybe marketing strategy and when maybe we talk to them about finance and corporate finance and blah, blah, blah, but there's really like a good quality how do you build a growth engine of a business model, which is such a critical area. Anyway, I'm not going to rant too much about that, but I think, you know, coupling the reality of just that you have to pretty much do everything with, you probably need a bit of formal learning, or at least a mentor in those areas where you can just tap into short parts of advice to check your thinking, the kind of combination of those two can help people broaden pretty quickly. 

[00:06:51] Shawn Flynn: Okay. So going back to scaling up companies, I mean, you scaled a hundred million. When you were looking for a company that you wanted to scale or think was scalable, how'd you go about looking for them? What did you see in these companies that you said; okay, by just doing this, I can take this to this point?

[00:07:06] Sean Steele: Yeah, that's a good question. I mean, I really enjoyed the last four years where I'd set up an education portfolio for a publicly listed company, and the job was pretty much to scrutinise deals, buy businesses, and then mentor the either replace that leader with our own leaders, if we liked the business, but we didn't like the leadership. Or mentor the founder and their leadership teams to develop the growth strategy and then execute it, whatever that required. So, from macro staff to really detailed stuff. And so, for me, and these were not tech businesses, so just to be really clear, you know, I am not a tech founder. I don't know how to build a SAS business from startup. It's not been my background. All services, businesses, people selling time or product or knowledge essentially. And so, I guess some of the criteria I thought about was; number one, are they doing real good in the world? And that's because I'm just pretty values driven and I don't really have the mental capacity to dedicate any time if I don't care about them. I don't think there's good outcomes. So that's kind of one. Second, of course, the founders themselves, you know, the motivation, the capability, the experience. Do I believe in them and do I believe in their capability? I was lucky to be in a role where we could replace them. And so, if I didn't have that, but I liked everything else, then we would just replace them. The third would be scale constraints and you know, in a lot of SAS Models because it's already software based. The scale constraints are maybe really kind of market oriented, like what's the TAM (total addressable market)? Whereas in a services business, there's a lot of other constraints. Like if you have physical infrastructure, your canvases, you are trying to build a services business that requires specific skillsets to deliver the service, like pest controllers or you know, technicians of some kind. Then you may have a real people constraint. So, you may have a great growth strategy, but you can't actually scale up the delivery. So, I'm always looking at scale constraint. I'm looking at all that the rest of the leadership team, do they have the capability to execute the plan? Do I think there's a material competitive advantage, not just sort of an incremental one and a sort of space that can be owned? Like is there a bit of white space that I can see from a market perspective that these people can play a role in really sort of taking leadership on? I definitely look for strong recurring revenue opportunities because a lot of services businesses are pretty transactional and so they're often replacing the same revenue next year with a whole new set of customers. And so, every year it's like; God, you got to replace last year's revenue and you've got to grow this year. Really, it's kind of hard going if there's nothing recurring. And then finally, I'm always looking for what are the two or three initiatives, like not the million things. What are the two or three things that if we can do those in that business, we'll really catapult the growth over the next three, four, or five years. So, I'm always trying to figure out what those couple of things are. Of course, in discussion, usually the founders have some great ideas. So, it's not like I come in and go; well, I'm the magician and I've got all the ideas and you don't know how to run this business. Completely the opposite, usually between their customers, their team, and the founder and the market. The answers are sitting there. It's just about how you execute them.

[00:09:45] Shawn Flynn: So, with all that kind of, what's your philosophies when it comes to strategy? 

[00:09:51] Sean Steele: Philosophies when it comes to strategy? Well, I like to think of strategy pretty, I guess pretty simply in my view, strategy is really about, it's about asking the right questions and as a result of the right answers, how are you going to have clarity about what are the two or three things that you're going to double down on that are going to help you build real competitive advantage in the medium term? I like to think of strategy as competitive advantage in the medium term. Like that's pretty much as simple as I like to think about it. A lot of people have business plans, which are nice, you know, they're full of, you look at them and a big list of key results and priorities and stuff. But is that going to build a bigger business? Might do, but is it going to be a better business, a more valuable business? The business that's going to be harder to compete with, it's going to be a stronger advantage if it doesn't have that. If you do all those things in three to five years, will you actually have a stronger, better, more valuable business, or will it just be bigger? If it's just going to be bigger, actually makes you weaker because you become easier to disrupt. You spend more time on the turning the wheels and everybody else who's got a smaller business who's far more nimble can easily upset your business model. So, I think that's, to me, the core of strategy. 

[00:10:48] Shawn Flynn: That's super interesting about the sizer. I mean, here in Silicon Valley, it's all about disrupting, taking on the big guys. But you know, before you get there, the big guys just acquire you, and that's kind of the cycle. But you were on the buy side for a long time, when you were looking at companies to acquire, what would catch your attention? How does a buyer look at a strategic acquisition? 

[00:11:09] Sean Steele: I reckon four or five things that I used to think about. Can I create revenue synergies? Like, okay, maybe not can I, I'm assuming that I can, I'm not going to buy a business unless I can, but where can I create revenue synergies? Where can I create cost synergies? And in some businesses, that was really important to us. In other businesses, it wasn't important to us at all. Like if we really back to founder, we loved what they were doing. We weren't coming in going, how can we take cost out of this business? We were thinking about how do we help them accelerate this business and leave it pretty much the way it is. Like leave them in as much control of it as we can, but how are they going to be open to our mentoring and our helping of the shape of their strategy to make sure that it's as good as possible? And what else have we got that helps to create synergies? Where is it going to build? Well, if I think from a strategic acquisition perspective, if you're a strategic acquirer, you've already got a platform business, like you've already got a mothership if you like, because these are all going to be pretty much bolt-ons in some way. So, I'm thinking about, if I buy this business, how is it going to help me build the best competitive advantage in the whole group? Like, how does it actually add to our whole competitive advantage, our whole proposition, not just is it a nice business that we think we can make some money on? Fourth, this is not the model for everybody, but we were…this would be a terrible word to use if you were to say like we're vultures. But there are some businesses that don't have the capability or the desire or doesn't align with their objectives to do turnarounds or to find businesses that are a little bit not working well. They're a bit damaged or a little bit cheap. I don't mean bad businesses, but you know, if stuff where you go; you know what? I'm willing to do the work on this thing to create value in it. And that was our model. So, I'm looking for a favourable price where I can see immediate upside before I even get any growth. I can see that we're going to make money on the way in based on the price that we buy it at, based on what I think we can create in the first, the revenue and cost synergies quickly. And then finally, we're always looking to protect our downside. So how do I ring fence my risk? How do I protect my downside? Like, what's the worst possible outcome if we screw this thing up? What's going to go wrong? How much risk am I willing to take? And how do we protect that? If I can answer those sort of five questions and feel confident that even on the risk side, we're not going to get a buy a business that has no risk. But can I get comfortable with the key risks and how we're actually going to get through those? And do those other things stack up? If they stack up, then I think it's probably going to be a good bolt on. 

[00:13:16] Shawn Flynn: I do want to ask about the comment about vultures. Very common. How'd you get the companies to get their price down to the level that you wanted? But I'll ask another question so there's that little gap so we can circle back and people will forget that it's attached to you and they'll still think you're the good guy. So, how does one of these companies get your attention? 

[00:13:36] Sean Steele: We were regularly engaged with lots of sell side advisors, so people were always bringing deals to us because they knew we were of a decent size. They knew that we were professional, that we would evaluate things quickly. We wouldn't muck around if we liked a business. We'd do good quality due diligence. We were easy to deal with, so we would have people coming to us. Took us a lot of time to build those kind of inflows of deals. One of the things that I quite often talk to my clients about this, if they think they're selling to a strategic, so kind of putting it on the other shoe is, find a way to build a relationship with them, because strategics quite often will do. You know, if you're a small business as part of a big one, you actually take the same amount of headspace from them. When you're a 2 million business as a 50 million business, like the onboarding often takes the same amount of time, but due diligence takes the same amount of time. Like it might seem like it's bigger numbers, but it's actually just as annoying. Probably more annoying to buy a small business than to buy a larger one. And so, how do you kind of alleviate that risk and what you find a way to test the relationship? So, for example, I had a client last year and we'd identified the right strategic buyer for them. Okay, one of a few, but we thought this one is actually like perfect space for you. So, we just got the CEOs to get in touch and talk about ways to collaborate on some stuff. To give both of them an opportunity that's not in a sale process to actually build a relationship and sort of sniff each other out. Because it's like if you like doing business with each other and you are learning that stuff over time, then you build a bit of trust in the relationship in the way that you engage. And all of a sudden, they hadn't even done anything together, but they'd had multiple meetings and three months later they'd got an offer from the strategic who came to the table and was like, we really want to buy this business. And I was like; Bingo. That was such a great example of build a relationship with strategic. So, I think you go direct, like, you know, subject to if you've got a sell side advisor, depending on how you want to do your sale process. And I definitely think having a sell side advisor is a good idea. Then yeah, see if you can test the relationship. I think that helps. 

[00:15:19] Shawn Flynn: Isn't it kind of odd how some of those initial conversations of, “Hey, let's just become partners on this.” Turns into “I'd rather not partner. I'd rather just acquire you.” 

[00:15:28] Sean Steele: They like your business and they're just thinking, well, yeah, I actually could collaborate with anyone, but why wouldn't I want to take a stake in your success if I've got a big balance sheet and I can afford to buy you, then why wouldn't I? I may not buy all of you, but maybe I buy a small portion now, and then actually, we agree to buy the rest of you. So, I can help you grow, participate in that sort of five years, but I also know that I've got access to you, and if I help fuel your EBITDA, you know your profitability, then we're both going to win, we're kind of aligned on the outcome. 

[00:15:55] Shawn Flynn: And with that investment, you're kind of keeping track to make sure they're not partnering with your competitors and maybe have a seat on the board, you know, who knows? All the strategic points behind it. But actually, I'm kind of curious if you were in any of those positions where it was strategic of, let's just put a minor investment here just so we can monitor and check them. I mean, with that, either that question or the question of going back to what are some of the tricks that buyers use to get the best deals?

[00:16:20] Sean Steele: Two questions there. First part is, have we ever bought anything where we really just wanted to make sure they couldn't kind of work with anyone else? I didn't as the leader of that portfolio. However, I did do a bunch of advisory to another publicly listed company that was buying education businesses. I helped them on the acquisition strategy and find the targets and all that stuff. And there's a particular segment of education where there was very few good quality players and there was really two businesses that you'd actually want to have any level of investment in, and the rest of them were just kind of rats and mice. And so, we had a big conversation about that. I was like, this business is not going to be cheap to buy, and fundamentally, you guys can afford it. There's no wonderful deal to be made here in terms of getting a great price on the way in or whatever. However, these guys are absolutely accelerating. They're going to scale. They have the best IP in the business. They have an excellent leadership team. They have a great quality board. They are absolutely going to continue to go well. So, it makes a lot of sense for you guys to get in now, and you probably can't even afford to take a majority. You know, take a minority, get in the game, get them working with you and find the opportunities and so that ended up being what they did. The second question that you asked was, what are the tricks? Well, I think we may, and we may have touched on this a little bit in some of our episodes, but one of the tricks, I guess, and I don’t know if it's a trick, but it's conveniently favourable, I think, when you are the buyer to have time drag out and there's lots of other kind of methods. But when you are the buyer and you've got into an exclusive period on a deal that you want to make, And, you know, usually all the discussion front is like, oh, you know, due diligence is we're going to have a couple of weeks of conversation, then we're going to do due diligence for like four to six weeks, and then we're going to get a plan, we'll all be done in three months. And the reality is, I mean, you're the expert here, but I don't know how many deals get done in three months, but not very many from my side. And so, what's happening during this, as this, let's say four to six weeks of DD or eight weeks of DD starts to drag out as the buyer you're getting trading updates, which is very helpful because you're kind of seeing how do they go in terms of meeting the expectations they've set for you and their team. Second, the owners often actually get distracted and when they get distracted, because the sale process is annoying and it takes a lot of their time, the performance can start to suffer. And if the performance starts to suffer, it's playing into my ability as the buyer to improve my negotiating position because like, oh, I mean you guys said you were going to do like two mill this month and you're only at like 1.7, like maybe it's not as strong. And they're like, all of a sudden, they're sort of selling back to me. I'm like, okay, this is good. I'm getting more cards right. And if you think about time as the buyer, you are either building confidence in the business because you're not finding anything that's alarming. You are building confidence that they can execute on their numbers. So, you're building confidence and the more time you've got, the more that confidence builds. Or it's eroding confidence because you're like, maybe I actually don't want to be in this deal. Maybe it's the wrong deal for us. And so, you're seeing how they respond to pressure, how they perform, how they deliver. And really the only negative outcome is of course, if it's going really well, then your price could be going up. Because depending on how it's been structured and what the timing is with financial years and things, maybe your price is actually going to get higher, but it's only going to get higher if they're really kicking ass. And so, take the fact that, okay, maybe I'm going to be paying a little bit more. But on the flip side, I've actually got greater confidence that this is a great business and so, I might have to pay a little bit more, but I've got the benefit of all that is your confidence so it's reduced my risk. So that's definitely one time I think is a big winner for the buyer that don't have a lot to lose by dragging it out.

[00:19:22] Shawn Flynn: It's really crazy the amount of time that due diligence takes, and I'll talk to people that, oh, it should only take…They really guess it's going to be a short amount of time, because oh yeah, my company's really simple. But then once the conversation's of; okay, this group does it due diligence, this one's checking HR, this one's checking Legal. And people have no idea, wait, you're going to do cyber security due diligence on a vendor? Wait, why are you going back to every employee that I haven't even known about? It's incredible, the depth that people are not aware of, that everyone is doing to check the boxes. And from your side. Do you ever think it's a little bit too much? 

[00:20:02] Sean Steele: A hundred percent. So, when you're on the selling side, you've got to remember that the buyers, it's like the CEO or the person who's leading the acquisition, the person who's going to be responsible for creating value out of your company, they're looking for all the opportunities to uplift and grow and all the rest, but they might have 3 or 5 or 10 or 15 people or whatever in the background who are all trying to find reasons not to do this deal. And they are super negative Nancys and they're looking for every possible problem. And so, when they see a problem, they then ask for more information or they see something they just don't understand and they ask for more information and they get a bit more information, they ask for even more information. And so, it just drags out. And I absolutely think there are some companies that really purposely drag out. So, I'm saying yes, I benefited from sometimes time slipping out. Sometimes we did it on purpose. Sometimes we just sort of let it happen. But you can really impact somebody's business by how much time this can consume for the seller. So as a responsible buyer, you really got to be conscious of that. But as a seller, it's kind of like watching, you know, don't be surprised that you've got super capable, very intelligent people who are trying to find everything wrong with your business, and they are going to be more thorough than you can possibly imagine. You just have to be prepared for it, and you have to have somebody as if you are the founder, somebody in your business that can protect you from the amount of time that it's going to take. Like you've got to have a good CFO in particular, virtual CFO, depending on subject to the size of your business, but like someone who's going to take the load off you to go and find all these answers and collate them and get the right conversation, the right narrative around it, present it back to you so you are not running off and doing all this because it's a huge time.

[00:21:30] Shawn Flynn: So with this timely process, and maybe even before due diligence, maybe the whole process itself, how does a company going about getting every dollar they deserve when selling their company? 

[00:21:41] Sean Steele: I guess the way I think about that is if you're a founder who's put a lot of effort into your business, this may be the only time you go through this process, so it's kind of like doing renovations. You're probably only going to do that, but like, okay, I've got to replace some bathroom tiles. You're probably going to do that once. So annoyingly, you do a pretty average job. You've watched some YouTube videos, you have a crack at it, and it's pretty average. You're probably not going to do it again. So yes, you could put a lot of more effort in and get those tiles really right, or you can kind of suffer the consequences later. It's annoying that you have to really think about how to do this super well, but it's the reality because it's very easy to put leave money on the table. So, when I'm thinking about this, I'm like, I'm putting myself in the mind of a founder who's maybe seven figure founder. Okay, the business is sub $10 million. It's not a huge business. And you've got to be thinking about; okay, what are the buyers going to see as risk? If the buyers see more risk, they are going to reduce the multiple they're going to pay you, full stop. The riskier the business looks, the less they're going to pay you for it. The better, the stronger, the more predictable the cash flows, et cetera, the more quality of the management team, the greater the scalability, the greater the opportunity. All those things reduce my risk profile, so I'm willing to pay you more for it. So, when I think about how to get every dollar you deserve, it's about not setting yourself up to have stupid things that reduce the multiple. Like you are way too involved in the day-to-day running in the business. And so, the buyer's thinking, if this person leaves, the business is going to fall over. Okay. It's like strike one. Number two, I can clearly see they've actually got a pretty incapable CFO or M&A lawyer kind of behind their team, and they don't really know what they're doing. We're just getting a whole bunch of cards here, and therefore we can play all sorts of games that are going to make their job harder. It's going to drag it out longer or make them kind of more defensive, that all helps us. The selection of the advisor and the M&A lawyer, like I can't stress highly enough how you just have to invest in time in kissing some frogs, to be frank. You've got to find an advisor who's going to be the right fit for your size of business, the industry that you're in, the kinds of people that you might need to sell to. And that's hard if you've never done it before as a founder, it's a bit scary, right? They've all got a sales pitch and so on, but you need to really find someone who you think, I think in particular, if you can find someone who already knows the strategic buyers that you want to sell to, has already done deals with them, can pick up the phone tomorrow and sort of anonymously test your business against the CEO and their interest, that is worth its weighting goal, especially if you don't want this process to take a long time. 

[00:23:51] Shawn Flynn: Sean, thank you for that amazing set up right there. When I'm not the host of the Silicon Valley Podcast, I'm a mid-market investment banker focused on mergers, acquisition, growth capital. Connect with me on LinkedIn or go to the SiliconValleyPodcast.com. All my contact information's there. Sean, please continue. 

[00:24:05] Sean Steele: That was a good plug. That was a good plug. Perfectly timed. Last two thoughts on this one. Places where you leave money on the table preparation. Preparation for management meetings in particular, like who's going to be in the room, what are they going to ask? Practice your responses. Like, don't let idiots in your business in the room, don't let the buyer chat to whoever they feel like during due diligence without you sitting there to control the narrative. Like you actually have to control the narrative, the positioning of your business, your motivations for leading. Like you can't just wing that stuff. If you wing that stuff, you're going to give up a whole bunch of information that's going to be to your detriment and to the buyer's advantage and all of those things just sort of nibble away at the potential value. And that's what I mean by leaving dollars. You're kind of leaving dollars on the table every time you do one of those things. 

[00:24:44] Shawn Flynn: For our audience, please listen to that two, three times. Go back. There was so much there. Alright, Sean, story time. You took a company from revenue of 3 million to 50 million in four years. Tell us about that growth story. 

[00:25:00] Sean Steele: That was most fun I've ever had, I think in a business, so that was the education portfolio I was talking about. Public listed company asked me to help them build a portfolio. Our goal was to build the largest pure play vocational platform in Asia Pacific, which we achieved, and that was primarily focused around digital skills, soft skills, and future skills in terms of the market. So, how do we buy education businesses that have got good IP in those areas and that we think we can scale out of Australia into other regions. And the model that I built was to build quite a small corporate services team. I don't like the word corporate services cause it wasn't like, I don't mean like, you know, legal and IT and stuff. I mean, we had myself, we had a basically a chief people officer, someone who was just amazing at M&A and onboarding businesses and leadership and culture and so on. We had a CFO and we had a sort of Chief Growth Officer, Chief Sales Officer role, and our job was like, okay, four pretty good calibre, highly paid executives that could essentially, as we bring on these businesses, make sure we onboard them right, support the founders to develop the strategy, support those founders to execute the strategy. But as mentors, if you like, rather than we're going to strip all the parts out of your business, bring them into a centralised services model, which absolutely can work, and many companies do it very well. We take finance, we take I.T, we take HR, we sometimes we take sales and marketing, sometimes we take product development. Like there's all sorts of things that get stripped out of businesses in these kind of roll-ups. But for us it was like, we don't want to spend time, for example, saying to everybody, okay, you all need to be on Dynamics 365 or you all need to be on Salesforce, because that's the corporate system. And you know, like you can waste so much time in trying to over integrate, I think businesses, especially smaller ones, into a larger mothership. So, our model was by the business support the founder, develop strategy, execute it, and to make sure that we had optionality. So, we wanted to be able to, in the future, either sell the business as a group or be able to split things off if we wanted. If one business was getting annoying or we were done with it or whatever, then we could split it off without too much kerfuffle. So really, finance was pretty much all, we kind of essentially integrated and a little bit of I.T support and that was about it. So, I guess the story was we kicked off with a couple of small acquisitions, which were trades training businesses like we were teaching people like carpentry and bricklaying and painting, decorating and all this sort of stuff. They gave us a bit of money to start hiring a team, so we started doing a turnaround there because it was not the greatest businesses. And then we saw an opportunity to purchase the largest I.T training business in the country, which is exactly where we wanted to be. And it was going to require a turnaround. It was doing like 35 mil, but it was practically losing money. I remember like going around to the, in my first, right. So anyway, we bought it very cheaply and our job was like, okay, this is actually a pretty high risk turnaround because it was, our forecast was, I'll never forget this meeting. Our forecast was this business is going to do a hundred thousand dollars in profit if we do nothing to it this year they were making 35 million. They're spending 34.99 million. And somebody in the room's like, I'm pretty sure the coffee cart downstairs makes more profit than that. And I was like, yeah, and if they screw up the coffee cart, they're not going to lose millions of dollars in the next five seconds, which is basically what we were facing. So, we had to do a turnaround. Yeah, we did a full overhaul the business, the whole thing, like CEO left on day one, new CEO came in, complete revamp of culture, system, sales model, everything pretty much except for some product iteration. But the product was good. We liked the people. It had been around for a long time. It was a good stable revenue base, it had just been unloved for the sort of previous five years. So, that was the first anchor in the platform. And then we looked for bolt on. I remember in one stage we were in due diligence on seven businesses at exactly the same time, like an exclusive due diligence period. So, we had like people everywhere and like seven projects going at the same time, like Gant charts coming out of our ears, bit crazy. In that time, we started some new businesses in the group. We started a new training business AIICT that did 5 million in the third year, was a great little startup. We, since I left, which was August-September, 2020, the teams carried on and finished a whole bunch of the acquisitions we were already working on. Now they bought a big tech training business in New Zealand, a negotiation skills business, a communication skills business, another I.T training business. And today the business is doing well north of 70 mil, very healthy EBITDA. And the team that I recruited are still there and they're kicking goals and doing an awesome job. So, it was a great journey.

[00:28:54] Shawn Flynn: Oh, that's fantastic. And for our listeners, there's a couple things there. This is a platform and then we're looking for bolt-ons. So, you dive a little deeper in what's considered a platform, what's considered a bolt-on?

[00:29:04] Sean Steele: Yeah, that's a good question. I think the characteristics for me of a platform require sufficient scale and maturity, particularly in scaling revenue and customer numbers. So, you can see there's a lot of customers, there's a lot of opportunity in terms of the size of the business, how much market share it's got. These guys had a good, solid, excellent corporate relationships, great market share. And the second element is leadership. We didn't consider it a platform business until we'd done the leadership work, but once we'd done the leadership work, we were like, okay, how do we bolt businesses onto this, because to me, it's not a platform business, even if it's scalable, if the leaders aren't capable of integrating bolt-ons. So, if you are actually going to attach new businesses to that, you actually have to have a quality of leadership that are skilled enough to run the current business, skilled enough to integrate the new business, create value out of it, and therefore it's got to be a good leadership team, right? That functions well and has the right expertise. So, I guess to me that's how I think about the platform is like you can see that it's going to be a stable, profitable, cash cow type business that once it's really refined, it's going to pretty much sort of take care of itself and continue scaling. Now I can add these, I can buy that business in and of itself might be worth 9 times or 10 times EBITDA, now I can buy businesses at three and four and immediately make some uplift because the whole portfolio is going to get valued at 8 or 9 or 10 times. But actually, each one I buy, I'm getting the arbitrage on the purchase price. And the ability to sell up later at the higher price. 

[00:30:23] Shawn Flynn: Okay. And going back to some of the deals that you've done in your career, okay. Which is harder turning a company from negative 350 K quarterly to profitable or taking a company from 83 to 123 million in revenue?

[00:30:39] Sean Steele: Oh, I would say for me, my leadership got tested much more in doing the negative 350K, a quarter to 6 million. That journey was Hard. That was hard, man. Like it's a small business. It was sub-20 people and every bit of your leadership is being tested in that environment. Like you might have a whole bunch of expertise and a whole bunch of things, but lots of them aren't going to be relevant if we don't get 12 leads tomorrow and convert them at 7% and that turns into exhales at these dollars. Like you're not going to actually break even if you can't dive into that level of detail. But at the same time, if you have to lead people through a crisis, it actually requires transformational leadership, perhaps more than transactional. You got to get a whole bunch of, you know, I remember going to these people, this was a small education turnaround, week coming in, the business that had bought, it was a corporate business that's now listed that had bought this small training business, and they told us that, you know, it's doing like 3 million bucks of revenue and it's profitable as like doing 15% of EBITDA. Okay, fine. Cool. By like the seventh day I was counting the students and it was like you told me those 330 students, there's actually 107, I've gone around and chatted to everybody. They've counted like the kids in the classroom, there's 107, we would be losing money. And they're like, what? And due diligence was not great. Anyway, the MD of the business that had bought it, he said, well, I know you've just left your business to come and join us and build this thing, but you guys have got four months to put it back in the black otherwise, we'll just. I'd come on board as the GM. There was a CEO that had been put in, he's one of my closest friends still to this day. Amazing guy. And really, we split up responsibilities. He took like transformational leadership; how do we get this team on board? And you know, we had to go to people and say; Hey guys, you may or may not realise it… I remember putting the numbers up on the whiteboard going; this is how much money we made in revenue last quarter, and this is how much money we lost. It's being red number. That number needs to be black, so it has to get to zero in four. And it's going to be a super hard journey. So essentially, everyone's got the opportunity to get off the bus right now. If you don't want to be on this journey, please step off the bus, but it's going to be hard and we're going to have to do it together as a team. And I have never been more proud of a group of people than I was of that group of people in that four month period. Getting that business back into black, it required so much hard and so much work and so much unity and willingness to step into the unknown and the uncertainty of their jobs and all this stuff. So, I think that tested me. I learned a lot more about what people can do in a crisis based on how you lead them than I learned in any other journey, as long as you are transparent and give people the opportunity to sort of buy in. 

[00:32:57] Shawn Flynn: So, with that, how does a CEO or a person go about developing either their leadership or know how far they can push people? I mean, I know everything's situational, but still, well actually with your NLP training, probably pretty simple, but how does one go about being the best leader, I guess? 

[00:33:13] Sean Steele: Maybe if I just contain it to the sort of crisis style, like to your point, how do you get people on board? First of all, I think you have to be really human and vulnerable. If people see like a big disconnection between them and you're like, oh, it's always got it together and it's always on game and never has a bad day, and like just this, like CEO chasing perfection, it's very unrelatable for people. When you come in and you are like ‘Hey guys, we're actually not in a great space. I just want to tell you the facts. This is where we're at. Like problem, problem, problem, problem, problem. This is where we're at today, and my commitment is to help us get from here. My responsibility is, you guys, is the survival of this business. And I think the opportunity for us looks like this. Like who's with me?’ Like how do you get people into that space of vulnerability? Treat them like adults, give them the opportunity to choose. And then have a real humility about yourself. So, when things are going well, I think it's about how do you create this kind of authentic, vulnerable, yet confident, I don’t know, there's probably like a word you could smash together there. I think there's the perfect blend of confidence and vulnerability for a CEO is the powerful blend. Anyone who's ever worked for a leader that they loved working for, there was a level of openness and humility and vulnerability. They're not the superstars who are just full of confidence 24 hours a day, those people feel untouchable. People don't follow those people. They wait for them to move on to something else, and they hope that they don't fail in front of them. That's all that happens, but when you can bring people into where you're at, the opportunity, where the business is at, what's required, and give people a chance to choose, many people step up. 

[00:34:38] Shawn Flynn: So, for that one company, you know, just counting the students' numbers, how that was raw. Fail and due diligence there, but what are some of the red flags? Just a little, what are some of the red flags you looked for when looking at a company to potentially acquire? 

[00:34:55] Sean Steele: Flags, yeah. So, leadership and culture first, and I say that, is it a healthy culture? How does decisions get made? Is it toxic? What's going to be required to get it to be the right culture? And other current leaders, the ones who are going to get it to be a culture that's actually going to see the culture perform. I don't work in a model. I see HR as some support function like we always called as a result of Nicola, my amazing CPO, we always called it people and performance because it was about the integration. It was expecting to create a culture of performance through the way that we led people and through the way that we helped them understand what success looked like for them, what success looked like for the company, what's required for them, and then how we enable and support them to get there. So, if we saw stuff that we were like, wow, this culture's so broken, we don't think we can fix it, Red Flag. But if we thought there's a culture here that we think is actually really wants to do well, but is being suffocated by the leaders, then either that's a leader replacement opportunity and a kind of culture building opportunity for us. So that's leadership culture first, Red Flag. Funding. Funding is not obviously a thing for everyone, but there's lots of education businesses that are funded by national governments or state governments or you know, they follow funding dollars around. And that's always a recipe for disaster. You know, those businesses can get switched off overnight. It's too dependent on a source that they don't control. And so, as you extend, I'm always looking at dependencies. How much concentration is there in a segment, customer group, a product type, geography, a system, you know, is there a weak link here that's just making up too much of the business, and I'm not also a fan in the same breath of trying to diversify everything and losing your specialness and not owning a space, I don't think like that either. But dependencies are of course, a risk that I'm looking at. Industry headwinds, they come and go, but sometimes you can see like three or five years of headwinds and you're like, maybe this is a timing issue, so maybe I wouldn't buy it for that reason. And social proof, what's going on in this business these days is widely available on Glassdoor and Google and Facebook and every other place that people talk about you. So, there's a lot of clues as to actually what the business is like to work for. And then of course, in DD. Any financial funding business, if we can't recreate their model ourselves. Yeah, that's, so someone gives us, says, oh, this is what the forecast looks like. This is our budget. We of course recreate our own financial model for that business and try to figure out what it's going to look like, make our own forecast, our own estimates. The funding business flows through to that process. So, if there's a whole bunch of, you know, just numbers that just don't make sense, then don't stack up and they can't give you good responses. You just put, makes you nervous. And then the last part is probably, I always think that, and maybe this is the NLP training in me, everything is information. There is nothing that is like haphazard ad hoc. Yeah. So, the side comments, I'm listening to all of those. I'm looking for the patterns that make you go; okay, how quickly do they respond? How haphazard is a response? What's the quality of the response? How open are they in meetings? Do I trust them? Fundamentally, it's kind of leading to trust and, you know, the integration of all that leads up to trust. And then finally, I would just say gut and conviction. There's gut involved in these decisions. It's not all numbers. It's wonderful to have the150-page investment paper written by your DD team and go, okay, this is our recommendation. You are the one. If you are the person who's going to buy this business, you still have to believe and check your gut and go, do I think I can make this work? Your balls are going to be on the line and if you don't think you can make it work, you got to check as to whether that is just that you are nervous and a bit scared of stuffing it up, or whether there's actually something fundamentally the wrong in the business that you are a bit rose coloured glasses and you're just trying to sort of bypass something that's actually a really major risk. But because you really want to do the deal, cause the numbers look nice, you still want to get it done. But that to me is always that last sort of last check. 

[00:38:14] Shawn Flynn: Couple questions before wrapping up. How come you've focused on the education space your whole?

[00:38:20] Sean Steele: Probably from the very start, I found myself always just loving the opportunity to coach and develop others. Like when I was in sales and I was early days and I was smashing out these big numbers, I was so invested in my personal development with Tony Robbins and Brad Tracy and all these guys. And so, the leaders were always asking me to do goal setting sessions with the rest of my sales team, you know, in my peer team. And it just started. I loved seeing people exceed their own expectations of themselves. And so that kind of always led me into leadership roles and developing roles where you are helping and supporting other people. But I think the thing I love about education, even though now I support a lot of businesses from a lot of sectors, when people go into education, they quite often are making a big sacrifice of time, money, effort. Let's be real. Nobody wants to do the course. Have you ever enrolled in a course where you actually want the content? That does not happen. You don't want the content, you want the outcome on the other side of the content. So, the education's just a vehicle. And if somebody is…I've often worked in environments where there's like really, it could be years, could be tens of thousands of dollars, could be a huge commitment. That's a lot of trust to give someone, I think. They're saying, I'm willing to give you like four years of my life, or two years of my life, or $10,000 or whatever it is. I feel very grateful and very sort of obligated to make sure we do a great job because usually they're doing this to try to create better opportunities for themselves and their families and, okay, unless it's like a, you know, a work course, because you've got to learn how to do an Excel or something. Okay. Maybe not so transformational, but in the bigger course stuff, I think that's a real honour. And so, I took it really seriously. I loved that opportunity to, because of that pressure that I felt to help lift a team and make sure they really put themselves in the mind of the student and didn't think about it just as numbers in the business. 

[00:39:52] Shawn Flynn: And with your whole career, all these transactions, what were some of the key takeaways from all these acquisitions that you're a part of, and what are you also currently working on that you could tell our listeners about? 

[00:40:02] Sean Steele: Takeaways? I actually really love acquisitions is a great way to make money. I think it's a great way to make money. It's an incredible way to build value in a company as long as they're sensible and they're not just based on numbers. Second, you have to probably assume that you're going to have to look at a hundred to find one that's actually suitable. So, it takes time, you’ve got to get experts involved because it's a major distraction. So, you can't take on too many. You've still got to run the operating business. Don't lose focus on the main game. It has to be resourced appropriately so you can stay focused. Fourth, I think if you are the person who's acquiring other businesses, you just can't let it drag on forever. Like when you're onboarding an acquisition, like all this effort goes up to the point where you acquire the business and often so little effort goes into the onboarding of the business, but that is the most important part once you've got the right fit. If you haven't spent the time on your onboarding plan, like a good onboarding plan that has, you know, work streams on reporting and cash and leadership and governance and all this stuff, you are going to end up dragging out the amount of time it feels like that they've been until the team that you just purchased feel like they're integrated in the group. And that can just create a huge amount of fatigue and really, you know, disintegrate the value. So those are probably some key takeaways for me. Stuff I'm working on while I am in the process of this kind of rebrand. Right. So, we've already got advisory offerings, mentoring and advisory boards. We facilitate and chair advisory boards and set them up and stuff for companies. We've just launched, our first course that's due to be, enrolments are opening from the first of. It's called Scale Up Roadmap, and that's all about developing growth strategy. So how do you help Founders just develop a really kick our strategy for the next three years that's better than the one they've probably got on the back of the envelope right now, back of the napkin. And then finally the community model, which will come out later this year. And that's about creating peer mastermind groups. That's sort of a different approach to the YPOs and the EOs of the world, or like how do you create the right support structure around Founders in that seven figure stage. So, I guess your second question there was how do people get in touch with me? There's three ways. One, we've just released a free checklist, so on that growth strategy course that we're about to do, there's an eight-step checklist. You just go to www.scalehq.com.au.au/checklist, it's www.scalehq.com.au/checklist, and you can grab that. Second, I've just started a Newsletter on LinkedIn. So, I've just started a weekly and I follow your on newsletter, Shawn, I love getting yours every week, so a little plug for you. But if you follow me on LinkedIn, you'll get access to that. And then finally, ScaleUps Podcast. It's easy to find me. Just Google ScaleUps Podcast you'll find me there. If you want to listen to Shawn Flynn and he was in episodes 47 and 52, and you'll find that on all the usual stuff. Apples, Spotify, YouTube. And fundamentally, I interview founders that are scaled, aspiring founders that are still trying, experts on scaling. And then I do some 10-minute tutorial stuff on scaling.

[00:42:28] Shawn Flynn: So, for our audience, I can't recommend Sean's podcast enough. Everyone check it out, especially the two episodes that he mentioned. We'll have all that information in the show notes. And for audience out there, I already did a shameless plug, but I'll do one more. If you're looking for an investment banker to help you with merger acquisition, growth capital, Please connect with me on LinkedIn at SeanFlynnSV, or go to TheSiliconValleyPodcast.com where we have all our past episodes, a lot of those episodes, amazing content that can help you at any stage of your company. And with that, Sean, I really want to thank you for your time this week on The Silicon Valley Podcast. 

[00:43:01] Sean Steele: My pleasure. Thank you, mate.