[EP 279] The right way to grow and the right time to sell (Part 2)

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Intro [00:00:00]:
Ladies and gentlemen, good evening.

Intro [00:00:02]:
Are you ready? Okay, here we go. You’re listening to the Dealroom podcast. Join us as we bring you the inside scoop on business, sales and acquisitions. Get across trends in the area and hear the industries best recount their real life tips, traps and experiences. Now here’s your host, Joanna Oakey.

Joanna Oakey [00:00:24]:
Hi, it’s Joanna Oakey here. And welcome back to the Deal Room podcast, a podcast proudly brought to you by our commercial practice Aspect Legal. In this episode, we have part two of our interview with Kody Thompson and his remarkable journey to exit. Kody shares valuable insights into what goes into building a successful business so that when the time comes, it’s a saleable one. In part two of this interview, he dives into the emotional and practical aspects of selling a business, offering invaluable insights and lessons learned about preparing for exit, the importance of a strong team culture, and the lessons learned from navigating the sale process. This episode, along with part one, is absolutely a two part roadmap for entrepreneurs at any stage of their business journey. So if you’re an entrepreneur, a business owner pondering an exit, or simply fascinated by the blend of personal values and business acumen, then, then this episode is a treasure trove of wisdom and inspiration. Get your earbuds ready.

Joanna Oakey [00:01:34]:
Here we go with part two of our interview with Kody Thompson. And if you’re interested in finding out more, make sure you don’t miss our upcoming event with Kody. Building to exit, where we walk through step by step practical sides of what goes into creating a deal and what business owners can do to ensure they’re building and preparing for exit in a way that will maximize value.

Joanna Oakey [00:02:00]:
Okay, so you’ve talked about, you’ve talked about some of these learnings, and I love that, you know, I track, rather than track profit. I track value, enterprise value. That’s, I think that’s just a master stroke. What else, what are other things, you know, from a practical perspective that you do differently now than even when you started in business or even when you, before you had the learnings of selling.

Kody Thompson [00:02:27]:
Your, you’re the, we document everything and we, you know, like a big part of people going through the sale process, I imagine you would have this all the time, is building their data rooms of all of their systems and processes. Now, I sist I already had systems and processes with my previous business, but not to the level that I’m doing it with workpot. Like, we are documenting everything. Like, how does the IT infrastructure for facility a, B and C work? Well, we get proper schematic drawings from the IT person and we put it in our data room. How do we do? You know, just so that if I was, even if something was to happen to me, that everything has to be documented so that. So that the business can operate effectively and that there’s less risk in the business. So from a practical standpoint, I would encourage people to do that, to take, put more attention on actually documenting their systems, making sure that they’re, you know, that they’re actually very neatly put together and that they’re in a single platform. So, like, have some, a single intranet platform.

Kody Thompson [00:03:34]:
Make sure all your reporting documentation, like your profit and loss stuff, your financial projections, all the stuff that you kind of do for your finances, all of that is neat and documented neatly. So we just do all of that now, I guess, as if we were bringing on buyers. And potentially with our business, we may need to bring on investors to continue because we’re growing so fast. We have to build facilities all the time, so we may be bringing on investors along the way. So it helps to have that data room always up to date so that if we need to raise capital or whatever, we can. So, yeah, I think from a practical standpoint, documentation, we’re definitely putting a lot more effort on that than we did in our previous business.

Joanna Oakey [00:04:18]:
Love it. And what about team? And obviously, Workpod is all about the concept of building team, but what’s your lessons in your journey about team and how team helps create value at exit?

Kody Thompson [00:04:32]:
Yeah, I mean, like I said earlier, I didn’t realize how special what we had built was until someone else from the outside walks in and then seeing their reaction to the culture of the team, how the team operates, the talent that we’d put together, it made me realize, I mean, like I said, I already valued the staff, but I didn’t realize how special what we had built. So, yeah, I mean, as a business owner, it comes, like, everything about leveraging your business comes from building a great team. You know, no one’s gonna build anything super valuable without having people to execute the business strategy. So that’s really what we do now at Workpot, is help people build teams in the Philippines. That allows them to leverage their time so they can buy back their time. They can outsource or offload a lot of the repeatable tasks in their business. They can get those for five to $10 an hour instead of paying $30 to $50 an hour. And that allows their local teams to be empowered to.

Kody Thompson [00:05:37]:
To go out and bring in more revenue to do the work that the specialists here in Australia need to be able to do. And if you can offshore a lot of those repeatable tasks, you can pull out higher profits in the business. You can do things to scale the business that you could never do. Like you can market the business differently. If you’ve got people that can work for five to $10 an hour, you can, you can implement tactics that you could never implement if you were paying someone $30 to $50 an hour to implement those tactics. So, yeah, I think teams so important in growing something that’s going to be valuable at exit.

Joanna Oakey [00:06:18]:
Love it. And I 100% agree. And I agree with absolutely everything you’re talking about. I see you talk about the recurring revenue sort of boost that. That you had in the value of it that. Absolutely, you know, I see recurring revenue businesses, businesses with that recurring revenue element. Just, number one, they’re far more valuable. Number two, there’s just a lot more buyers who, who are out there.

Kody Thompson [00:06:46]:
And because you’ve got this value that’s more transferable as well, you know, so. That’s right, exactly. And then team. Absolutely. And then, you know, because a lot of what you’re talking about, Cody, you talked about, you know, the documentation requirement, but also the fact that you did have documentation in systems. And I find that it’s these businesses that go to market or get to the point of exit where there’s the value in the business is so inextricably linked to them or other. Just a few key people in the business, they’re very hard to sell, generally have a low, a small, much smaller buyer pool, but also some of them just don’t sell, you know, and it’s just, I just, you know, and it was actually one of the reasons I wrote the book because I’d just seen so many transactions over time. But lots of business owners who have a business that they can’t sell, and I just think that’s.

Kody Thompson [00:07:49]:
And, you know, building a business is not just about ultimately selling it, but when, at the end of the day, business owners have put their heart and soul into building this thing and then not be able to turn it into, crystallize it into, you know, money as they retire or go on to do the next thing. It’s just really sad to realize that there’s things they could have done along the way. So, you know, I just feel like this sort of information point is just so important to give people this story of how it, the things that actually made a difference. At the end of the day, it.

Kody Thompson [00:08:25]:
Was like I was saying before, one of the revelations for me was realizing that what a buyer wants is what, because they’re going to become the owner of the business. They actually should be the same things that I want, you know, which, you know, as I said before, so it’s sad that we business owners, we can get distracted, you know, just working in the day to day of the business and not working on the things that are important. Because if you can put the same amount of effort in to your point before, but if you’re putting the effort in the wrong places, then you’re not building something that is going to give you what you really deserve as a business owner. You’re going to be just stuck in the rut of running the business. Whereas if you put the effort into building the things that make your business scalable, that make it, you know, less risky, that make it more consistent, that produce profits every month, then these are the things that you should want. And if you get those things, then, heck, you don’t have to sell it if you don’t want to. You can keep it and just let it produce income for you on an ongoing basis or you’ve got the option. You know, if you’ve built a business that produces income without you, then there is going to be thousands of buyers who would be interested in buying a business like that.

Kody Thompson [00:09:32]:
Whereas if you’ve built a business that relies on you, you’ve got a very small number of buyers who might be silly enough to buy a business that is too intrinsically linked to the previous owner of the business.

Joanna Oakey [00:09:47]:
You’re just spot on, Kody, spot on. And now I want to move a bit more just, you know, to that sale process, the things. And I guess, like the team around you. What, what do you think, like, what are the things that surprised you about the process itself? And what do you think, you know, what do you think is important for sellers or, or buyers to look at in order to work out who the right people are to work with them? Because this is a space. People generally who come to sell the business haven’t sold it before. They don’t know how to look for who to help them. They don’t know what to look for. They don’t know where the surprises might sit.

Joanna Oakey [00:10:31]:
So what’s your thought around all of that?

Kody Thompson [00:10:34]:
Yeah, I mean, definitely the human element of selling a business is challenging. And that was the reason it took me twelve months sell it because I loved the people that I had brought together to build that business. And at first I felt like I was abandoning them by if I was to exit the day to day I felt that I somehow, you know, was doing wrong by them. And then I realized that, as I mentioned earlier, I realized that. I realized that if I stayed running the business and didn’t run it effectively, that I was actually doing them a disservice. I promised them the vision of growing the best WordPress web development company in the world, and they weren’t going to achieve that if I stayed as the CEO. And so that human element of dealing with the people in a sale is probably always going to be the most challenging thing. So I would just say in terms of choosing people, initially, I always tended to try to hire from within my own team.

Kody Thompson [00:11:36]:
I would hire people, typically younger people, not always, I hired some more experienced people here in Australia, but in my Philippines team, I typically hired people fairly early out of university for building websites because predominantly we’re a tech company. So I wanted people that were young. I didn’t want them to have too much baggage. Sometimes experienced web developers have ways of doing things that are outdated, and I didn’t want them coming with their outdated ways of doing things. I wanted to. We wanted to be able to mold them. So we typically hired younger and then we built from within. We would hire leaders and we focused.

Kody Thompson [00:12:13]:
I guess that’s a lot of what I learned as a youth pastor about building leadership and helping people to grow. Personally, I would try to do that within our team and hire from within our team as much as possible. And I think that was a big part of why our culture was so strong. We had very low turnover of staff and a lot of staff had been with us since the, you know, very early on, like seven, eight, nine years they’d been with the company. And that helped us, you know, when we sold, you know, that the buyer could see the talent and the connection of the team. And like I said, I don’t think I realized how special it was until I saw how the buyer reacted to that, to seeing that in action. So, yeah, I’d encourage anyone, if they’re thinking about, you know, building their team, whether they’re going to sell or not, you want to try to build leaders, build leadership capacity, because if you don’t do that and you are the only leader, strong leader in your organization, then things will always be reliant on you. So I try to make as least amount of things reliant on me as possible.

Kody Thompson [00:13:13]:
I want to try to give my staff as much opportunity to be leaders as I possibly can. Like, I’ve got some of my staff going and speaking at events, I could take those speaking gigs myself, but it’s so much cooler if I have staff that can go out and attend these events and become advocates for the brand. Otherwise, if I let my ego get in the way and I want it to be the Kody show, then it’s going to limit the growth that the business can have. Whereas if we focus our attention on, I’d love it if nobody knew who I was. To me, that’s the ultimate. As a business owner, if you can build a business and nobody even knows who you are, everyone knows the brand and they know the people in the brand that are like, are extraordinary people. You know, if nobody knows who Kody is, then I’ve probably done a good job, you know, so that’s, I guess, how I approach things when it comes to building out my teams.

Joanna Oakey [00:14:10]:
And what about your Deal team? So when you’re at the point of exit, like how do you choose, you know, your accountant and what are the things that they did that help? How do you choose your lawyer? How do you, you know, talk about what the Elements are there for your d team that you think are important for sellers or buyers.

Kody Thompson [00:14:29]:
You just contact aspect legal, don’t you, Jo? For the Law?

Joanna Oakey [00:14:33]:
No, I’m not paying you for this.

Kody Thompson [00:14:37]:
So, I mean, we’ve known each other, we’ve known each other for some time and, you know, so it was through relationship that we got connected. I think everything good that happens in business come from, you know, significant stuff comes from significant relationships. If you have connections, real, real connections with People, then it helps you to get good outcomes. And so everything from choosing my legal counsel to choosing the accountant, that came to me, it all came from through relationships. And that’s why you should run your business as a nice person. Because if you run your business as a nice person, then people will want to work with you. Hopefully that team at aspect league will find me easy to work with. And so when I’ve got stuff that I need done, they enjoy working with me and so they’ll give me good attention and we’ll get good results.

Kody Thompson [00:15:25]:
And so that’s what I always try to do in terms of like the specifics. When it comes to like, like a legal counsel, there’s lots of lawyers who kill deals. You know, like I had already hooked up the deal before coming and speaking to you. I already had a buyer who was interested. The worst thing that a lawyer could do would be blow that deal up by, you know, by getting into like, not trying to find a win win, but trying to protect me to an extent that it doesn’t take into account what the buyer is looking for. And if a lawyer does that, a lot of times they can kill deals that the founders might have agreed to make a deal. And then once the lawyers get involved and they get in the ear of each, each of the people, they can get scared of the risks and then bail on a deal. So when choosing a lawyer, I think you want someone who is going to make you aware of the risks.

Kody Thompson [00:16:23]:
So I appreciated that you guys were telling me where my risks were and what could be done to mitigate those risks, but as a founder, allowing me to take what I wanted to take to the negotiating table. And so for stuff that I didn’t add to contracts, I was aware of the risks that I was making, but I was able to make, you know, make educated decisions around how I was negotiating the deal with the other founder. So, yeah, from a legal standpoint, that was, I guess, what was important to me. You know, finding someone who was looking for the win wins, not just getting stuck in the I’m going to protect you at all costs type of legal approach.

Joanna Oakey [00:17:11]:
And I think that’s a great way. I mean, obviously that is our style. We are about the find the win wins and make sure good deals happen. But I think it’s really important for sellers and buyers, everyone who’s listening to this, to really bear that in mind, because I believe the best deals are the ones that truly are the win win. And I think they, it’s interesting because some people come to a deal focusing almost primarily on their own position. I tell you, they’re the ones that are tough deals. They’re the ones where, you know, it becomes hard to negotiate and there’ll always be something, some way in the future, I think, where this comes back to bite, to bite you. If you’re not thinking the win win, because quite often selling your business is actually an ongoing relationship, there’s quite often things that happen post sale that you may not even have realized.

Joanna Oakey [00:18:15]:
So I just, I love that you picked up on the concept of win win because I think they make that makes the best deal and it makes the best, certainly it makes the best negotiation, but it ultimately, I think, makes the best deal as well at the end of the day, which I think is very important. What else? What other things? Were there any other things you know about selling the business, the legal process or the accounting process that that was a surprise to you, that you think is useful for buyers or sellers? Just to know in advance.

Kody Thompson [00:18:51]:
In terms of a surprise? I mean, the biggest challenges for me is just dealing with the personalities involved in the deal. So if you’ve got shareholders or if you’ve got, you know, you’ve got the personalities of the buyers. If there’s more than one buyer, like more than one shareholder in that business, then you’re dealing with personalities. And I think that’s the part you got to gear up for. You were talking about energy levels and how it can be an energy sucking process. I think that’s where the energy sucking mostly takes place, is in dealing with the personalities involved in the deal, understanding where people are coming from and trying to find a win win. If you’ve got a good lawyer like you guys, and if you’ve got a good accountant, then the other stuff, I think, you know, can be easily figured out, you know, with your team of specialists. But the dealing with the personalities at the negotiating table, I think is really the, is really the art of the deal.

Kody Thompson [00:19:55]:
You know, where it’s really done is through the ability to figure out what people want and how you can align what you want with what they want. So you can create a solution for a deal and then just get the right team around you that can make sure that the contracts are good, that the decisions you’re making around how you’re structuring the deal, whether it’s an asset sale, a business sale, that you’ve considered the tax implications, you should be thinking about that before it comes time to sell, actually, in terms of when you’re setting up the company, that’s, I guess one of the things I didn’t consider as much until I realized how much tax I was going to have to pay on this recent deal that I put more effort into thinking about how I set this company up now, because obviously it’s difficult to change how something is structured later without triggering capital gains tax events. So you want to try to figure that out early. Obviously, lesson learned from the first time. So if you’re starting out, then learn this lesson from me so you don’t learn it from paying so much tax. Have a good conversation with your accountant from the beginning about how to structure this. You know, how to structure your company from the word go, so that if you are going to sell it later that you don’t get completely pillaged by the tax man at the end.

Joanna Oakey [00:21:19]:
Yeah, I think that’s a really good, really good point because so many people come to me with a deal that’s done, and then I say, okay, and have you thought, do you know exactly what this tax looks like? And then it’s at that point, you know, that sometimes that learning actually happens and we might have to quickly switch gears and find another way to work things out so that we get to a better outcome. But great. I think your point, like, once again, if you’re setting up a business from the beginning with a mind for exit, these are the sorts of things that you’re thinking about right at the beginning. Look, Kody, it’s BEEN an absolute pleasure to have you on the show. It’s been just fabulous. Love having you as a client. And, you know, I think you’ve got so many insights that are just the same sort of things that every business owner, almost every business owner faces again and again and again when they’re coming to the point of sale. So just really important lessons.

Joanna Oakey [00:22:25]:
And how do any of our listeners contact you if they’re thinking of, of course, you’ve got, you’ve GOt WorkPod still. So if they’re thinking of building a team before exit, which is a great way to really solidify the value of the business before you exit, or indeed, if you’re a buyer, you’ve just bought a business and now you really want to scale. Yes. How do our listeners get in contact with you?

Kody Thompson [00:22:52]:
Yeah, come find [email protected]. And yeah, if you’re selling your business, then building an offshore team allows you to make the business more scalable and it makes you can pull a lot more profit out of the business. If you’ve got a lot of the repeatable systems taken off the plate of your Aussie staff, you can elevate their responsibilities, build out a heap more value, make more money from the business, and then, of course, you can sell it for more. And if you’ve taken over a business and maybe it’s making less money than you thought that you were promised, maybe it’s harder work than you were promised, then building a team overseas to help you leverage your time can help you again, build stronger profit margins in the business, get the repeatable tasks off your plate, scale the business more effectively. And so if you need help in that space, wrkpod, we’d love to help you. We can help you find the staff in the Philippines. They can work from our service to office space.

Kody Thompson [00:23:53]:
You can build your own culture, your own team within our facilities, and you can have a direct relationship with those staff so we don’t hire them on your behalf and lease them to you, there’d be no value for you in the long run with your business if your staff are owned by our organization. So you can build a direct relationship with your team and just leverage our infrastructure in order to build a really great team so you can check us out. Workpod.com dot. We’d love to help any of your clients, Joe. So if there’s anyone who’s listening, they can come check us out.

Joanna Oakey [00:24:24]:
Oh, Cody, I just, I love it. It’s such a fantastic story and such a brilliant business that you have in Workport. And I just think, you know, the learning of team early on just is such a massively important element of properly scaling a business and then creating that value in it for the ultimate exit. So, Kody, thank you for coming on the show.

Kody Thompson [00:24:53]:
Thanks for having me. Thank you so much.

Intro [00:24:56]:
Well, that’s it for this episode of the Dealroom podcast. We hope you’re now primed for your next deal with these pointers and have enjoyed these fascinating insights. Now, if you’d like more information about this topic, then head over to our [email protected], where you’ll be able to download a transcript of this episode as well as access any contact details and any other additional information we referred to in today’s podcast. Now, if you’d like to get in contact with our guests today and the services they offer, you can go ahead and check out our show notes for a link right through to them and their details. You can also book in directly with our legaleagals at aspect legal. If you’d like to soundboard your next steps, discuss a legal question, or find out more how we can assist, whether that’s with buying or selling a business, or perhaps somewhere in between. Now don’t forget to subscribe to the Dealroom podcast on your favorite podcast player to get notifications whenever a new episode is out. We’d also love to hear your feedback, so please leave us a review and rating if you’re already one of our subscribers, or even if you’re listening to this podcast for the very first time, every review helps our team produce valuable content for you.

Intro [00:26:14]:
Well, thanks again for listening in. You’ve been listening to Joanna Oakey and the Deal Room podcast, a podcast proudly brought to you by our commercial legal practice, aspect legal. See you next time, ladies and gentlemen.

Intro [00:26:28]:
That will conclude this evening’s entertainment. Thanks for listening to the Dealroom podcast. To find out more about this episode and other episodes in the series, check out the show notes or head over to our [email protected], dot au.