There are 7 common mistakes made when trying to sell a professional services firm. On this episode, we interview TK Herman, President and Co-Founder of Aptera, a focused IT consultancy and managed services provider.
Transcript
Sean Magennis [00:00:15] Welcome to the boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board Member, and your host. On this episode, I will make the case that there are seven common mistakes made when trying to sell a professional services firm. I’ll try to prove this theory by interviewing T.K. Herrman, president and co-founder of Aptera. Aptera is a focused IT consultancy and managed service provider. Aptera transforms your ability to deliver custom software with high performing development teams, coaches and consultants. They are a trusted partner of Fortune 500 companies with a track record of tackling complex global development projects. TK, great to be with you and welcome.
TK Herman [00:01:21] Yeah, thanks so much for having me, Sean, I really appreciate the invite onto the show.
Sean Magennis [00:01:25] It’s such a pleasure. Let’s start with an overview. Can you briefly share with the audience an example of a mistake to avoid when selling your firm?
TK Herman [00:01:35] Yeah, I think, you know. So we recently went through an acquisition, so I’ve got experience in this realm and you know, one of the things that I would say that there are three areas of knowledge in the world. There’s the what you know, there’s the what you don’t know. And then there’s the what you don’t know that you don’t know. And and through the whole process, there were a lot of things in the realm of what you don’t know. You don’t know that I came across. And so I’m I’m a much smarter person today than I was, you know, four or five months ago. And one of those things would just be, you know, kind of asking the question and really trying to spend more time aligning some of the changes that are going to be happening with the integration of the two companies. Because, you know, I think that everyone is focused on getting to the same endpoint, but how to get there in the timeframe and in how to go about that, I’d be a slight difference. That’s just one example of of something that you might consider thinking about.
Sean Magennis [00:02:35] That, you know, that’s a wonderful example. And I share that with you because in a in an example that we’ve helped with recently. Soon, as the acquirer was identified, they advocated for starting integration conversations early on because it is often left to the end. And it really does make a difference when the rubber hits the road that you’ve thought through all the nuances so. So thank you for that example. It’s a critical one. And you know, if I think about selling a boutique, we know it’s a high risk, high reward initiative. We also know that every situation is different. So I’d like to spend some time getting your thoughts on the common mistakes made when selling. I’ve selected seven to walk you through, and I’ll ask to get your thoughts on each and feel free to share whatever comes up for you as we go through these. So the first mistake is that boutique owners are unclear as to what they want from a sale. So if you’re unsure of who you are, you’ll be unhappy with the sale. If you don’t know where you’re headed, you’ll be unhappy with the sale. What are your thoughts on this concept?
TK Herman [00:03:47] I would completely agree with that, I think that before you. The more time that you can spend sort of self reflecting and look in the mirror to really understand what is the goal and why you’re heading down this path, the more likely likely you’ll be to be happy on the other end of the transaction. You know, and again, I think you hit on those points, whether it’s, you know, what am I looking for for my company? Because, you know, more often than not, acquisitions are done to move the company forward. Right? And then also, from a personal perspective, you know, what is life look like after that? And what does that mean to you? And and if you’ve had the business for quite some time and you have somebody else coming in and kind of running the business, you know, is that going to affect you emotionally? Some people will say yes, some people will say no, but I think, I think really sitting down and reflecting on those points and having a very clear understanding of where things sit for you personally on the side. And I think to the last thing I’d say is is the more conversations that you can have with people that have gone through this process to just try to learn from them along the way, I think that that that would be extremely helpful.
Sean Magennis [00:04:55] Those are those are great points of advice. And that brings up mistake number two, which is sometimes boutique owners try to sell an unsellable business. And so your boutique needs to be attractive to a buyer. It almost requires you to look at your business through the lens of an investor. What do you think of that TK?
TK Herman [00:05:17] I would 100 percent agree with that. You know, when when you’re selling a professional services company, there’s no, you know, machines to buy or inventory to buy. The person that’s acquiring your business is really acquiring the team that you’ve built and the client relationships that you’ve cultivated over the years. And so you need to be really need to become really clear on that. And then also look at and say, how reliant is this business upon you or you and a few people? Because the the the more you can get the business to the point where it’s not really reliant upon you to drive the day to day pieces forward, the more value there is in the business.
Sean Magennis [00:05:58] You know, again, I can’t agree with you more because that’s what we see so often. Getting in the way of a successful sale is that the owner founder hasn’t thought of it in the way that you’ve just expressed. You know, mistake number three. It can take years to sell a boutique. Yet some owners try to sell a boutique in a matter of months, and a good exit is an exit on your terms. It does take time to stack the deck in your favor. What are your opinions on this?
TK Herman [00:06:29] You know, it’s so interesting because we did not anticipate going through the acquisition even at the beginning of this year. And so this is we obviously knew an acquisition would happen at some point in time. That was always the end game. But did not expect that this year, even really in the next couple of years. And and the right opportunity came along and we decided to move forward with it now. We were fortunate that we had sort of positioned the company and set things up in a way that it made that process easier. But I’ve spoken with a handful of people since the acquisition that just reached out for some advice. And you know, I can’t stress enough the importance of again, making sure you have the right leadership team in place, making sure you have, you know, processes and procedures and those kind of things that are easy for an acquire to come in and kind of take charge of and move forward. But then also there is just a tremendous amount of back back office work that needs to be done. So making sure that you’re accounting, you know, is all in order making sure our files are all in order. Because the more that know, the more time you spend there, the the easier it’s going to be through the diligence process. You know, that’s one of the things that that, you know, our comptroller had mentioned to me during the process. Gosh, if I had known we were going to do this, I could have spent the last year actually even preparing that much better. And I couldn’t argue with that. That’s a very valid
Sean Magennis [00:07:52] No, it’s a very valid point. No. And but that’s a great point for our listeners, too, is that, you know, you’re a practical example of somebody that was fortunate because you were prepared and you had a lot of things in place. But if you had had to do it over again, potentially, you know, in the example of the accountant having that time to prepare is so much better and could potentially impact, you know what you get out at the end of the day from the from the sales price. So let’s talk about you. You alluded to this several times. Let’s talk about succession planning and often owners under invest in succession planning. And after you sell, you’ll want to see that your boutique does well without you. So what are your thoughts on the importance of succession planning?
TK Herman [00:08:42] I think it’s I think it’s highly important again, even if a sale is is. You know, a decade down the road. Yes, I think from day one, when you start a business, you should start setting the business up for it to run without being there day in and day out. And it’s the old adage, you know, you have a choice. You can either work in the business or you can work on the business side. And it’s it’s very difficult. You know, I’ve certainly empathize with companies that are small that have, you know, just five or 10 people because the owner has a really difficult time sort of balancing those two things. But if you can, if you can from the beginning focus and say, I’m going to spend, you know, even if it’s 51 percent of my time on the on the business things. And over the course of time, you’ll get to the point where where that becomes kind of your main role in the business. And I think there’s there’s to me, there’s three key ingredients to setting up a leadership team or setting up a team to be able to carry the business forward. And they’re very simple. The first one is just hire outstanding human beings. Yes, just just great people. Obviously, they need the skill set that they they you just want great human beings to represent you to to work with you every single day and to help deliver that great experience to your clients. And then the second piece is is point them in the direction that you want them to go. And the more narrow that direction can be, the better, obviously. So yes, we we were for a long time kind of a shotgun approach, and we started trying to narrow that down to more of a rifle, but point them in the direction you want to go. And then the third piece is, in my opinion, it’s the hardest piece and that is get out of their way. So in other words, you know, you’ve hired great people, you’ve pointed them in the right direction and then now it’s your job to get out of their way and let them move forward and let them make mistakes, you know, and let them learn from those mistakes. A phrase that I always use is Don’t let perfect ruin good. If there’s one thing that I can say that my business partner and I have did a good job of over the years was creating an environment where we let people try things and make those mistakes. And there were times where I, I would look at something that somebody wanted to do, and I would think in my head, that’s never going to work. But I also looked at and said, OK, if it doesn’t work, is this going to be a detrimental thing to our business? Is it going to hurt the client hurt and hurt an employee? And if the answer was no and there really wasn’t a significant risk and let them go down that road because A, I could be wrong, I’m not. I don’t have all the answers, right? But B also, if if it if it didn’t work, there’s a whole lot of lessons to be learned there. And the more that you empower people like that, the more you’ll find yourself having time to work on the business as opposed to in
Sean Magennis [00:11:25] Outstanding and I loved you three key ingredients, and I’ll refer back to them at the end of the of the podcast because I think they they certainly resonated for me. So let’s talk about mistake number five. This mistake is where entrepreneurs think that they can sell their business on their own. It can result in tactical execution errors that can cost millions of dollars, and our recommendation is to hire the best advisors that money can buy. What is your opinion on this best practice?
TK Herman [00:11:55] So actually, it is actually kind of a funny story that reflects back to Greg Alexander, who obviously has been on your podcast numerous times. Yeah. And so we were fairly deep into diligence and deep into the process, and I was having a conversation with Greg and and he said, Hey, do you have counsel? And I’m like, You know, of course we have a lawyer, and he goes, No, but do you have somebody with experience in this? And I’m like, Oh, I think they are. And and he goes, OK, hang on. Let’s pause a second. And he said, You have to you’ve got to go out and find somebody that really not only not only in an attorney, but also your accountant, and make sure that they’re experienced in this. And so I did that. I took that advice and and asked around, found somebody and holy mackerel. My eyes were open because we again we were we were fairly deep into diligence. I was very fortunate that that that this law firm was able to to take us on. But there were so many things, so many things that I had. I would have had no idea of the level of questions that needed to be asked. And so I can’t stress that point enough. That’s 100 percent true.
Sean Magennis [00:13:01] Absolutely fantastic. And then mistake number six is boutique owners often get attacked after the sale. This is more personal. You know, they can take it personally, and this causes seller’s regret. So our recommendation there is give yourself the permission to not take it seriously and really guide yourself. What are your thoughts about this?
TK Herman [00:13:24] Yeah, I would agree with that. I think that you have, you know, a wide variety of reaction, you know, everything from from people that are very upset that you sold the business to people that are excited about the opportunity and it’s easy to find yourself like anything else. For example, if I was a new YouTuber and I started a new YouTube. You know, I’m going to get some heat and some shade thrown at me on on the comments and I have a choice to make. Do I focus on those? Yes, or do I focus on the positive things that are coming out of it? And so like anything else in life, whether it’s whether it’s selling your business or anything you do. You know, the more that you can like align your your, your mindset and and your heart under the positive things, the better off you’ll be, for sure.
Sean Magennis [00:14:10] Yeah, wonderfully answered. And then finally, mistake number seven is to be sure to understand who the business is being sold to and what their motives are. It’s particularly important if you’re on an Earnhardt or rolling in some equity. This prevents unwanted surprises from cropping up. The buyers ultimately own the asset once you’ve sold it. What are your thoughts about this? And I know it’s early in for you, but what are your thoughts?
TK Herman [00:14:36] Yeah, I would totally agree with that. And even if there’s not an earnout or there’s not equity, I’m very much I’m very much invested in the people. You know, we had our business for 18 years and I care deeply. I care to actually care more about the people that work for us than I care about the work product that they delivered. And I always believed that if we if we operated that way as a company that will come back and give us good karma sort of in return. And so, yeah, I would totally agree with that. The more that you can align yourself and ensure that the things are aligned, the better the whole process will be. And you know, some of those things, that’s where it goes to, I think, going out and asking a lot of questions of people who have been through the process before because you as somebody new coming into this won’t have any idea of what questions to ask. And and that’s that’s certainly an area where there are things that that could probably be easily missed
Sean Magennis [00:15:33] A great point. And again, thank you. I mean, these are all very vital mistakes to avoid, and there are many others, too. To your point, I mean, going through and having great advisors, having them give you the benefit of the wisdom of what they recommend asking is also very key and every situation is different. However, we’ve given you seven of the most common mistakes for you to avoid as a boutique owner of a professional services firm. TK thank you. This brings us to the end of this episode. I prepared a 10 question Yes/No checklist, listeners. Please ask yourself these 10 questions. If you answered yes to eight or more of these, you will avoid making these mistakes when selling your firm. T.K. has graciously agreed to be our pure example today. Thank you, TK. So I’ll ask you the essential question so we can all learn from this example. So question number one, do you know what you want from the sale?
TK Herman [00:16:38] I would say yes, when we went into this, I would say yes.
Sean Magennis [00:16:41] Excellent question number two. Do you know what you were going to do after the sale?
TK Herman [00:16:48] Yes, that was a yes for for me personally as well.
Sean Magennis [00:16:52] Great. Number three, is your business attractive to a buyer?
TK Herman [00:16:57] Yes, it was. You know, and again, we we worked hard over the years to to to be very deliberate about creating an attractive company.
Sean Magennis [00:17:07] Great. Number five, do you have a handpicked successor?
TK Herman [00:17:12] We did have a leadership team that was able to basically roll the business forward, even if we hadn’t sold the business they were, they were making the majority of the decisions along the way. So we we were in a good spot for sure.
Sean Magennis [00:17:24] And I did skip number four because you had a sellable boutique and you’d kind of illustrated that before. Number six is the successor ready to take over?
TK Herman [00:17:36] Yeah, I would say yes. But again, we we were purchased by a large company, so that’s a little more complex. But but as far as that, the people we had, yes, I would say without a doubt, they’re just top notch people.
Sean Magennis [00:17:49] Excellent. Number seven, have you lined up an all star team of advisers to help you?
TK Herman [00:17:56] I didn’t, but I have them now. So if I was ever going to do this again now, I would know who to call. Excellent.
Sean Magennis [00:18:05] Eight. Are you prepared for the post-sale criticism headed your way?
TK Herman [00:18:10] You know, I don’t think that I was I know that there would be a lot of emotion around it, but some of that I did not expect. But I understand it for sure. And so that’s probably one area that I didn’t prepare mentally for, like I like, I probably should have.
Sean Magennis [00:18:25] Yes. And then number nine, do you understand who you were selling your boutique to?
TK Herman [00:18:30] Yes. Yes.
Sean Magennis [00:18:32] And No. 10. Do you understand their motives for buying?
TK Herman [00:18:37] Yes, we’ve we’ve we felt pretty confident in in their motives and why they wanted to acquire us. We actually had the good fortune of having a very, another company that was acquired by them that we were very friendly with their owner. And so we were able to get some behind the scenes look into things prior to the acquisition.
Sean Magennis [00:18:57] T.K. Fantastic. I’m just going to remind the audience again about the three key ingredients that you alluded to during the course of our time together. The first was hire outstanding human beings. I thought that was profound. And then point them in the direction that you want them to go and keep it narrow. And then the third, which I think is a vital lesson. Certainly, it has been for me and I think it will be for our listeners. In fact, I know it will be for our listeners is get out of their way, which is the hardest thing to do. So again, thank you all of our listeners. You’re building a business that you could likely run forever. You’re also building a business you could sell tomorrow if you do decide to sell. You want to do so on your terms. Give yourself plenty of time to avoid the mistakes that T.K. and I have shared with you today.
And if you enjoyed the show and want to learn more, pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander.
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