Exiting a business is often as pivotal as starting one. When is the right time to move on, and how do you structure a deal that supports both your team and your financial goals? Join Ashok Sivanand as he shares his journey of recognizing when it was time to “shut down” his firm and transition to a new venture. This session will dive into evaluating the decision to exit, understanding market and personal signals, and structuring a unique deal that allowed for a smooth team transition while securing royalties on future contracts. Gain practical insights into balancing legacy and opportunity and evaluating when it’s time to move on.
TRANSCRIPT
Greg Alexander: Hey, everybody. This is Greg Alexander. You’re listening to the Pro Serve Podcast brought to you by Collective 54. This is a show for founders of boutique professional services firms. So if you’re in the expertise business, let’s say you’re a marketing agency, a consulting shop, an IT shop, etc., this is for you. On this show, we aim to help founders grow, scale, and someday exit their firms.
Greg Alexander: On today’s episode, we’re going to talk about something that we’ve only spoken about one other time in the five years that we’ve been doing this. What we’re going to talk about today is, let’s say you’re a founder of one of these firms, and you’re at a crossroads. You’re saying to yourself, “I can continue on as is, and the probability of success is X, or I can wind my firm down, shut it down, and find what’s behind door number two.” Understanding that decision is a really important one. Entrepreneurs, by nature, have high risk tolerance and a ton of perseverance, which is why they reach any level of success. But is there a good time to hang it up and go do something else? That’s what we’re going to talk about today. To help me with that is someone who just faced this very thing and went through it. He’s got a very interesting story, and I would like for him to share that story with us. So, hey, man, it’s good to see you. Why don’t you introduce yourself to everybody?
Ashok Sivanand: Everyone, my name is Ashok Sivanand, and I was the founder and CEO of a digital transformation consultancy, a software development firm named Integral.
Greg Alexander: Integral. Yeah, okay, great. So let’s start with the backstory. What happened? You were headed towards shutting the firm down. Tell me why and how you got to that point.
Ashok Sivanand: I had been running this firm for about six or seven years at this point. We had grown it to over 50 people, over eight figures in revenue, and achieved a 38-39% CAGR in growth. Things were going really well, and then we got hit by a few things. First, our core customer base was having major issues. We were largely working with large automotive companies like Honda, Ford, Bosch, and Airstream. We later diversified into financial services, working with companies like Rocket Mortgage and others in the lending space. When interest rates went up, it became apparent that I didn’t have an MBA because that diversification wasn’t very effective. The auto and lending industries are both tied to interest rate cycles, and they tend to go up and down together. This was a challenge as our customers pulled back on spending.
Over the years, we worked on exciting projects like helping patients with a carpooling app for non-emergency medical transit, working on autonomous vehicles, and simplifying vehicle architecture for connected vehicle applications. However, when the pullback happened, clients reverted to what they knew, focusing on selling more vehicles rather than transforming the industry. This led to my third point—my personal energy levels. I was no longer excited about the work we were doing as a company. From a founder bottleneck standpoint, I had invested in getting a COO and a sales team in place, but we didn’t have enough momentum in either area. We also lacked the pipeline to change direction or customer base to pursue more exciting work.
By the third strike, I was feeling burnt out. My work was less creative and less impressive, and it affected how I treated myself and others. These factors forced the decision. Winding the firm down was a difficult proposition, but with your help, I realized there was still value left in the business. We had been conservative with cash, and between the cash reserves and contracts with big-name clients, there was value to be extracted. This helped me think about more nuanced options rather than the black-and-white thinking of continuing as is or shutting down completely.
Greg Alexander: Yup. That’s great context. Thank you for sharing that. I want to add a couple of things to this. You had a business that, after six years, was growing 30-plus percent top line every year. When you’re on a cycle like that, because there are cycles in the economy…
Greg Alexander: When you’re doing this for the first time—this being, when I say this, what I mean by that is this is your first entrepreneurial journey. At first, we’ll go at having a firm. You don’t realize that things can change, and they can change in a hurry. Very often, what causes the change, which was certainly the case here, is something outside of your control. So the interest rates go from basically 0 to 7, 8, 9, 10% in a year, and all of a sudden your end customers, which are levered to interest rates—big auto lending, etc.—start to hit the ship.
Greg Alexander: Well, guess what they’re going to do? The first thing they’re going to do is they’re going to contract. They’re going to cut their discretionary spending, which is what happened in this case. So now you have to adjust to that. What does that mean? That means your day-to-day is like laying people off. Your day-to-day is hearing from your clients about fee pressure. It is all this non-fun stuff. So you have two choices in that scenario: either say, “I’m going to double down and hang in there and dig myself out of this,” and that has its pros and cons, or you say, “Nope, I’m going to shut this puppy down, and I’m going to move on to do something else that might have better growth prospects.” Making that decision is really, really hard. So I just wanted to encapsulate the context there. Let me get to my next question. When you evaluated that—wind the thing down and go do something else, or dig in and slug it out for the next 5 to 10 years, maybe to just get it back to where it was previously—tell me about how you evaluated that, maybe from a risk-reward perspective.
Ashok Sivanand: Yeah, I think, you know, if we talk about the risks, we’ve all—especially if you’re first-time founders or if you’re the founder yourself—those first few months, maybe the first couple of years, were pure chaos. In my case, I was working 100-hour weeks, and I don’t have any kids of my own, which is maybe relevant to this conversation. But it sounds very similar to parents talking about the first few months of having a baby and never wanting to go through those first few months ever again. That was something that was stuck in my head of, “Hey, if you wind this down, you’re going to have to start something else from scratch,” which I kind of knew I was going to do. I turned 40 around this time last year, and that also, I think, weighed on my decision around what I was working on. Nevertheless, I felt like, “Hey, I don’t know if you have it in you to start this all over again.” Then the second one is, “Hey, I don’t know if you can build this level of momentum where you were growing this business 30 to 40% every year, starting from scratch.”
Ashok Sivanand: In those cases, having a peer group and having advisors are really helpful to get you out of that yes-or-no binary thinking and whittle it down a little bit further. I realized there were a lot of assumptions I had in there—that if I was doing another thing, I had to start it from scratch; if I was starting one from scratch, I was going to go about it the same way with brute force versus some combination of experience and energy. Looking back, I could have probably avoided about 90% of the things I was doing during those 100-hour work weeks, and the outcome 5 years later or 3 years later would not have been that different.
Ashok Sivanand: A note at the time, and then, on the reward standpoint, it felt like, “Hey, this would be a lot more nimble.” Given a lot of big changes happening in our industry, artificial intelligence was a big one. Even before that, there was a lot of push towards co-shoring or near-shoring the work, and our team was entirely onshore in the United States. Things were moving really fast, and I felt like it was starting to be a little bit more like an ocean liner versus jet skis when we got started. On the reward standpoint, I wanted something that was a little bit more nimble. I wanted to get more energy back because I was clearly burnt out, and like I mentioned, my ideas and my work product weren’t really reflective of what I think my capability was.
Ashok Sivanand: Then, thirdly, the financial outcome that I could achieve, even if I just walked away from the business, was something that I made peace with. There’s a local founder, Doug Song, who sold a business to Cisco for almost $3 billion. I’d met him, and he was kind enough to share some advice. One of the things he mentioned to me that not a lot of people know is that this was his third venture. The second one, he said, gave him enough money in the bank that he knew the bank could never take his house away. He said, “When you can do that, you can go after only swinging for the fences afterwards.” That kind of firsthand experience from a peer, albeit a very successful peer, was also really helpful in terms of how much money is enough money, which is a very personal question to answer. At the end of the day, for me, it felt like, “You know, I’ve got enough here where I’m going to have to make some lifestyle trade-offs for sure.”
Ashok Sivanand: But my bills are covered. We were lucky not to have any debt, and so, when weighing these risks against the rewards, we actually, Greg, you and I applied together this probability math which I overcomplicated, and again you made it a lot simpler for me, saying, “Hey, what do you want to grow this firm to? What do you think you can get to in the next 2 years, the next 5 years, the next 10 years?” Then apply a probability to that. We realized that the 100% probability of the current situation was not a bad one compared to the uncertainty that sat as things were changing so much, and being on the other side of a cycle and having to rebuild a lot of the business anyway. So those were some of the risks, rewards, and how we short-circuited all of that with some math, albeit fairly imprecise math, but it was precise enough to arrive at what I wanted to lean towards in the decision, even though we didn’t have all the decimal points in there.
Greg Alexander: Yeah. So the probability math that he’s referring to is this thing called expected value. To overly simplify this for the listeners, what that basically means is: what is the probability expressed as a percentage of success? And if you are successful, what’s it worth? For example, if you have a 50/50 chance of making a million bucks, then that’s 500,000 bucks. Then you compare that to the probability of failure expressed as a percentage and the cost of that failure. So in that scenario, if you had an 80% chance of failing, and the cost of the failure was a million dollars, then that cost you 800 grand. You go forward with a decision when you have a positive expected value. That’s the math behind that. This isn’t anything I invented. This comes from the great investors on Wall Street, etc. Expected value has been around for an awful long time, so hopefully that might be helpful.
Greg Alexander: I want to talk to you about one thing that I think gets in the way of a lot of members, and that is ego. I have calls with members every week, and some of those members are in situations not too dissimilar to the situation you found yourself in. The second half of 2023 and 2024 was not a positive economy for many in the professional services space, and they should probably shut down and move on to the next venture, because the next venture might have some wind in their sails, the sun might be shining on their face. However, the idea of having to admit to themselves and to others that the business they were so passionate about at one point didn’t necessarily play out the way that they would have hoped is too big of an ego hit for them. So tell me how you got over that.
Ashok Sivanand: I think, Greg, this might be something that’s common amongst many founders. There’s an ego hit in business. If we were working in a lucrative job, and we had to break away from that, and all our colleagues are continuing to make a lot of money, and we decide to put that all at risk to start something else, it’s oftentimes because there’s that voice inside us that’s telling us that we can do it, or there’s something wonderful we can bring to the world, and it’s all going to be worth it, including the risk. Once we get in there and we get to some level of success, unfortunately, in my case, that voice became a little bit more subdued. I was listening to the business books, listening to the market, listening to my colleagues, my advisors, and a lot of other folks, even though to some extent I’d say that inside voice had been telling me for about 18 months before this that, “Hey, I don’t think you’re getting the same level of energy from this. It’s not firing you up. It’s not lighting you up. You wake up in the morning worried about problems that you’re solving. You don’t jump out of bed wanting to go bring this magnanimous change to the world that got me to take this leap of faith in the first place.”
Ashok Sivanand: So I think the first piece is I had to do a number of things to get back to the basics in terms of why I started this. This may sound selfish, but ultimately, what’s in it for me? I don’t think it’s selfish, because I think if we take care of ourselves and our own energy levels, that gives us so much more energy to then serve our customers, serve our colleagues, serve our community, and everything else. As much as that was hard to admit, I kind of realized that, “Hey, this is my life, my body. For various reasons, I believe I’m going to live to over 120 with different things.” So if I turn 40, I’ve got two more rounds of this, and I’ve got myself to be accountable to.
Ashok Sivanand: Versus the people at my golf club. The people who know what car I drive, or anything else that doesn’t matter as much. I don’t think, in the grand scheme of things.
Greg Alexander: Yeah, that’s a very healthy way to look at it. And I sure as hell hope you do live to 120. I’m open. I just make it to 70. The so here’s some perspective that I would give people, because on my entrepreneurial journey I have had dark days myself, and I have had moments of doubt. And I think when you separate the emotion from it, and you just look at the facts, which is so hard to do, but if you can do it, be logical as opposed to emotional, you can make a better decision. That expected value, probability, math I gave you is one way to look at it. Let me offer another way. I want you to think about opportunity cost. And, Ashok, I’d like to get your thoughts on this.
The conventional wisdom today says that a professional career is approximately 30 years in length. It starts at age 30, and ends at age 60, because in your twenties you’re going to school. Maybe you’re getting a Master’s degree. You’re starting your first couple jobs. You kind of really don’t know what you’re doing. But when you turn 30, you’re hitting your stride in the prime of your career. Then, at age 60, for biological reasons, mostly energy levels fall down. You’re starting to think about retiring. Maybe the kids are grown and out. Maybe you and your spouse want to go do something, whatever you’re starting to ease into retirement. So the prime of one’s career is 30 years.
So when you think about hanging it up and starting something else, or continuing on, what you have to say to yourself is, what is the opportunity cost? Here at Collective 54, we believe that the cycle of a boutique pro surf firm is approximately 15 years. So if you’re, let’s say, 7 years in, and you’re 45 years old, you have to say to yourself, okay, well, to get to the finish line, it’s going to take about another 8 years. So now I’m 53, and I only have 7 years left in my prime. When I look at it that way, does that inform me as to whether I should keep going or I should do something else? Could I get to the finish line faster doing something else? Because the first few years in the startup are also not that easy. I mean, you have to figure some stuff out. So think about opportunity cost in terms of years of your life invested in option A or option B. So did you think about opportunity cost? And if so, what were your thoughts there?
Ashok Sivanand: Big time. I think the 15-year life cycle is maybe a healthy place to get started. And when you said, “Hey, you’re 8 years in, and you got 7 more years left,” there’s an assumption that it’s not just 8 years of time, but 8 years of maturity. And when we hit up against a big thing in the industry or in the economy that’s outside of our control, the maturity around that doesn’t go back to zero. But there’s a couple of more years you got to add to that thing, that overall math there.
And then, in my case, it was asking myself, “Hey, if you got to start over today, is this the business you’d start?” And then I wrote down what business I’d want to start that day. And this was, mind you, a burnt-out person writing this idea. But it already looked very different from the business I was running.
Ashok Sivanand: And then I was looking at what it would take to transform the business into the ideal version where we wouldn’t have to go through constant ups and downs. I weighed this against the probability of being more successful starting from scratch versus continuing from the current point. There is a lot of experience and assets we bring forward that would help in the transition. However, there is also a lot of debt or liability—not just financial. There is momentum from people who joined, customers with expectations, and a market that expects certain things, all pushing in one direction. Convincing everyone to turn and roll the other way or making significant changes can be just as painful as layoffs.
When I weighed it all out and looked at the business I was in, it felt like it would be more beneficial for someone else, who was more passionate about where we were, to carry it forward compared to my personal energy levels. It never hurts if you can easily switch to a more frugal lifestyle and have enough cash in the bank. I wasn’t over-leveraged as a business owner, so I didn’t have the bank coming after me to pay off business loans. We had made some investments through leverage before, but thankfully, we were able to pay it all off. These factors gave me the privilege to even consider this decision, which is worth noting.
Greg Alexander: So let’s end on this. You ended up landing your firm with another firm, and in the process, took care of your employees and clients. A lot of people listening to this are probably worried about the same thing. They might be thinking about winding down their business and doing something else, but they don’t want to let down their clients or employees. Those are valid concerns. So, how did you manage to land the plane?
Ashok Sivanand: Step number one, from an ego standpoint, was wrapping my head around both sides of the opportunities that existed on each path. The more time I spent with it, the more I realized it wasn’t just two paths—there were nuances and many ways to approach it. Once I came to terms with the worst-case scenario—winding the business down completely—and made peace with that, I started to look at acquisition opportunities that had come our way over the years.
Initially, when people approached me about an acquisition, my ego would kick in. I’d think, “I’m going to grow this to a million dollars or more before even considering selling,” and I wasn’t as polite or courteous as I could have been with those offers. Thankfully, in the years prior, I matured and spent more time engaging with potential buyers. I’d fly out, meet them, have dinner, and understand their business thesis and why they wanted to acquire us.
Once I made peace with the idea of winding down as the worst-case scenario, I revisited three different parties and brought them to the table for acquisition discussions. We structured a deal with the one that had a similar culture to ours, ensuring minimal disruption for our staff and clients. Personally, I didn’t want too much of an earn-out. I left some money on the table with this party and even more with others, where I could have had a better financial outcome but would have been tied down for 2-4 years to earn it out. Knowing my heart wasn’t in it and I needed to step away to regain energy, I saw this as another opportunity cost—a microcosm of the broader decision to sell in the first place.
The advice I’d give is to not limit yourself to one or two options. Talk to peers, mentors, and others to explore different ways to structure deals. Secondly, build and maintain relationships with potential buyers early. In our case, these were competitors. We competed with them in bids, but it didn’t have to be cutthroat. We respected each other when one or the other won. Ultimately, we were able to structure a deal that worked for everyone. Even though we were impacted by specific economic factors, the larger firms we dealt with had diversified portfolios and could allocate our staff elsewhere, ensuring continuity and growth for everyone involved.
Ashok Sivanand: Building a high-quality team and building customer value—that fundamental never thankfully changed for us and came in handy a lot towards the end.
Greg Alexander: All right. Well, we’re out of time here. Listen, on behalf of the community, this is a great share. So thank you for being willing to come on and share your experience. Really appreciate it.
Ashok Sivanand: Thanks so much for having me.
Greg Alexander: All right. Couple calls to action for listeners. If you’re not a member and want to become one, go to collective54.com, fill out an application, and we’ll get in contact with you. If you are a member and want to ask questions during the Q&A session, look for the meeting invitation, and you’ll get a chance to ask Ashok your questions directly. That should be coming out shortly. Let’s end on that front. Thank you, everybody, for listening, and I wish you the best of luck as you try to grow, scale, and someday exit your firms.
Note: This transcript was generated by Zoom.