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Decision Vision Episode 34: How Do I Get an SBA Loan? – An Interview with Joy Manbeck, Vinings Bank

October 3, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 34: How Do I Get an SBA Loan? – An Interview with Joy Manbeck, Vinings Bank
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Mike Blake and Joy Manbeck

Decision Vision Episode 34:  How Do I Get an SBA Loan? – An Interview with Joy Manbeck, Vinings Bank

What are the different loan options in the SBA loan program? How do I qualify? Joy Manbeck, a banking veteran with particular expertise in SBA lending, joins “Decision Vision” host Mike Blake to answer these questions and much more. “Decision Vision” is presented by Brady Ware & Company.

Joy Manbeck, Vinings Bank

Joy Manbeck

Joy C. Manbeck is a Senior Vice President and Director of SBA Lending with Vinings Bank. Joy is an Atlanta native who has been in banking for over 35 years. For most of her career she has been in commercial and small business lending with several different Atlanta-based banking institutions. Her community and civic roles include 2019-2020 President of the Rotary Club of North Fulton, alumnus of Leadership North Fulton, board member of Capital Partners Certified Development Corporation, member of the Board of Trustees of Alpharetta First United Methodist Church, and volunteer youth leader at Alpharetta First United Methodist Church. Joy is a graduate of Georgia State University with a degree in Finance, and her hobbies include fitness, gardening and violin.

Vinings Bank was established in 2007 to offer something unique by combining community-based banking expertise with services that create an environment that encourages both growth and prosperity. They offer a full range of financial products and services including specialized deposit solutions for business checking, sophisticated lending options, and outstanding cash management services to help businesses thrive.

To contact Joy, you can email her directly or call (678) 710-2820.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Michael Blake: [00:00:21] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:39] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator, and please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:04] Our topic today is, should I consider taking out an SBA loan? And I’m excited to cover this topic because although I don’t do a lot of stuff with banks, frankly, my skill set is more on the the equity side as a recovering venture capitalist and so forth, but I do—it is my belief that the SBA loan program is one of the least understood or most commonly misunderstood opportunities for small business finance out there. And frankly, it’s also—in spite of the fact that there are many outlets and many venues that are promoting the SBA program, it’s a program that not many people even know about. And if you’re a small business, and you’re looking at financing, if you’re looking at acquiring a small business, it might even be a franchise, if you don’t know about the SBA program, you really are leaving important options available to you off the table.

Michael Blake: [00:02:05] And like I said, I’m really not qualified to talk more than a very superficial level about the SBA program. So, if you’re a listener to the show, you know what’s coming next. I’ve brought in an expert who does know about the SBA program quite a bit. And here joining me is my pal, Joy Manbeck, who is a Senior Vice President and Director of SBA Lending with Vinings Bank.

Michael Blake: [00:02:32] And sort of funny story. Joy and I have known each other, I think, for 10-12 years or so, and we haven’t been in contact. We sort of all do our various things. Joy was off taking over corporate America, and I was probably in a gutter somewhere. But we happened to run into each other at an event where we had both recently joined our new companies as a mixer to my firm, Brady Ware, and her bank, Vinings Bank. And it turns out now that we are about 500 yards away from each other in terms of where our offices are; though, neither of us is actually ever there because are always on the road. But at least, theoretically, now, we’ve come together. And that’s kind of what got my wheels spinning about this particular topic.

Michael Blake: [00:03:14] So, Vinings Bank was established in 2007 to offer something unique by combining community-based banking expertise with services that create an environment that encourages both growth and prosperity. They offer a full range of financial products and services, including specialized deposit solutions for business checking, sophisticated lending options and outstanding cash management services to help businesses thrive.

Michael Blake: [00:03:36] Joining is an Atlanta native. Haven’t heard of any Atlanta natives left anymore. Has been in banking for over 35 years. She graduated from Georgia State University with a degree in Finance. And her hobbies include fitness, gardening, and violin. I did not know that. We’re going to have you on our band.

Joy Manbeck: [00:03:52] I would not at all.

Michael Blake: [00:03:53] We’ll do a Dexy’s Midnight Runner kind of cover situation there. She has a number of community and civic roles. She is a 2019-2020 President of the Rotary Club of North Fulton. She is an Alumnus of Leadership North Fulton. She is a Board Member of Capital Partners Certified Development Corporation, is on the board of trustees of Alpharetta United Methodist Church, and is a volunteer youth leader, also, with the Alpharetta United Methodist Church. Joy, thanks for coming on the program and somehow making time because you do a lot.

Joy Manbeck: [00:04:27] Well, thank you for having me. It’s an honor to be here.

Michael Blake: [00:04:29] People talk about banker’s hours, man. They have not met you. So, let’s get started. Let’s start with the very basics. What is a small business administration loan?

Joy Manbeck: [00:04:42] Well, an SBA loan, SBA was started in the 1950s to help businesses who were struggling with getting loans to help incent banks to make loans by guaranteeing a portion of the loan. So, 7-day loan, that’s the seven day program, it has a 75% SBA guarantee. And then, the bank takes the risk of the 25%, and then the SBA guarantees the 75. The bank makes the whole loan. And then, the government guarantees it.

Michael Blake: [00:05:15] So, why do companies consider taking out an SBA loan versus a more conventional financing instrument?

Joy Manbeck: [00:05:21] Well, several reasons. One is the longer terms. Financing equipment, usually, is over a 10-year period. No balloon payments. Real estate, we can finance over a 25-year period. Again, no balloon payments. And then, the amount down can be as little as 10%. Also, businesses that are special use like a daycare, gas station, car wash, they have a little bit more trouble in the conventional world getting financing. And so, SBA is, usually, a partner with those type businesses.

Michael Blake: [00:05:54] And so, you say, for example, a 10-year repayment period. In a more conventional loan, what do those repayment periods look like? Is it like a three to five-year or maybe even quicker?

Joy Manbeck: [00:06:05] Typically, usually three. At least, they’ll amortize them sometimes over 20 years if it’s real estate. 20-year amortization, three, five or seven-year call feature typically on those.

Michael Blake: [00:06:17] So, my understanding is that not all SBA loans are created equal. There’s actually a number of programs out there. So, can you highlight a few of those specific programs?

Joy Manbeck: [00:06:25] Certainly. As I mentioned, the seven day program a few minutes ago, these are eligible for any most small for-profit businesses. And it’s for a myriad of things. It could be to purchase real estate, construction, buying fixed assets, purchasing another business, starting a business, or working capital purposes. Seven day covers all of that. Then, you’ve got the SBA, what’s called a 504 program. And that’s only to buy real estate or fixed assets. And then, another one that’s become very popular is something called the cap line, C-A-P L-I-N-E. And that’s another 75% guarantee program up to $5 million, but it is an in an out line of credit.

Michael Blake: [00:07:09] Now, in the past, I think the SBA has also had so-called express loans. Is that right? Like for veterans, things of that nature. Do they still exist? Am I right? And if so, can you tell us about those?

Joy Manbeck: [00:07:20] They do. This is not something I have a lot of expertise in, but it’s a—an express loan would also be a line of credit. It would be a shorter term. And those loans are usually $350,000 and under.

Michael Blake: [00:07:31] Okay.

Joy Manbeck: [00:07:33] You have 50% guarantee on those.

Michael Blake: [00:07:35] So, for your needs, as long as you’re not trying to buy Apple, sounds like there’s potentially an SBA loan out there for somebody.

Joy Manbeck: [00:07:43] Absolutely.

Michael Blake: [00:07:44] So, what kinds of companies are good candidates for SBA loans? I assume there must be some that are kind of better than others.

Joy Manbeck: [00:07:53] Again, it’s for for-profit businesses. And basically, I mean, there are certain industries. Gambling, we can’t loan to. We can’t lend to finance companies. But pretty much anything, any for-profit business professionals. As I mentioned, car washes, restaurants, daycares, funeral homes, you name it.

Michael Blake: [00:08:15] And the SBA is actually a big source of franchise financing, right-

Joy Manbeck: [00:08:18] Absolutely.

Michael Blake: [00:08:18] Because it, actually, maintain—I think, it’s a pretty interesting list of the most successful franchise in terms of low failure rates, and then ones that are a little bit dicier-

Joy Manbeck: [00:08:27] Correct, yeah.

Michael Blake: [00:08:29] … for lack of a better term.

Joy Manbeck: [00:08:30] Right.

Michael Blake: [00:08:31] So, what about—the world I play in, as you know, is a lot of technology companies. Now, I presume that SBA is not a replacement for venture capital. There’s just not that kind of financing. But are there scenarios in which a technology or technology-driven company might also consider an SBA loan?

Joy Manbeck: [00:08:50] Oh, absolutely. And we loan to technology-driven companies quite a bit. So, they are totally eligible. Their terms are usually going to be—it’s usually for working capital purposes. So, if it’s permanent working capital, like a 10-year term, but the lines of credit are also good for those.

Michael Blake: [00:09:08] Okay. And then. you talked about companies that are not good candidates for SBA loans. You talked about casinos, I guess. Gaming is not going to be a good candidate.

Joy Manbeck: [00:09:18] That’s right.

Michael Blake: [00:09:21] I would assume a marijuana company is not going be a good candidate yet. That may change. But right now, we’re not there.

Joy Manbeck: [00:09:26] You’re right.

Michael Blake: [00:09:28] Finance companies. So, you don’t want people borrowing money from the SBA to, then, lend it out to somebody else. That’s not-

Joy Manbeck: [00:09:33] That’s absolutely right.

Michael Blake: [00:09:34] That’s not the goal of the program. Any other companies that, probably, come to your mind that they may not be great fits.

Joy Manbeck: [00:09:41] Not that are for-profit. Pretty much—I mean, if it’s legal, and if it’s not a finance company or a gambling company, typically it’s eligible.

Michael Blake: [00:09:53] Okay. So, I’d like to spend our time on the seven day loans because, I think, one, I’m not knowledgeable about real estate at all. I’m not even very good at monopolies. The 504 things have been great to me. But I think most of our listeners are more likely to be interested and candidates for the seven-day program. So, can you dive a little bit deeper into that? What does a seven-day loan look like? We talked about a 10-year term. Was it look like in terms of typical collateral coverage, interest rates, things of that nature?

Joy Manbeck: [00:10:23] Okay. Very good question. First of all, SBA gives us a set of regulations that we have to follow. But then, banks can use their own, I guess, credit guidelines. So, SBA is not a collateral lender. So, if the loan is not completely collateralized, andmost conventional lenders want their loans completely collateralized. So, that’s up to the lender if they want to make the loan with an SBA guarantee on it. However, if the loan is not fully collateralized, and the borrower has outside collateral, personal collateral, SBA does expect them to pledge it. So, that’s one advantage of getting an SBA loan. It does not have to be fully collateralized, but we are required to take available collateral. The other thing is cash flow. We’re gonna look at debt serviceability. SBA’s minimum debt serviceability is 1.15:1. We, as a bank, like to see 1.25:1.

Michael Blake: [00:11:22] And that, what’s that? What does that ratio mean?

Joy Manbeck: [00:11:24] That means that your cash flow available to cover the proposed debt service on-

Michael Blake: [00:11:29] Principal and interest.

Joy Manbeck: [00:11:30] Principal and interest.

Michael Blake: [00:11:30] Okay.

Joy Manbeck: [00:11:32] Absolutely. But again, that is up to the bank. That’s a guideline with SBA on the 1.15. So-

Michael Blake: [00:11:38] Okay.

Joy Manbeck: [00:11:38] … we can—our bank looks at loans globally. We’ll look at all the components and make a decision from there.

Michael Blake: [00:11:46] And what about interest rates? My understanding is, at least, the one point that used to be fixed to the prime rate, usually, 1% to 2% over prime. Is that accurate? Is that still true? What does that kind of look like?

Joy Manbeck: [00:11:58] Well, we offer—Vinings offer is a couple of options. And most banks don’t offer fixed rates. We occasionally do, especially on our real estate loans. They’re going to be probably in the mid to high sevens. And they’ll be fixed for the full 25-year term. Typically, most SBA lenders are going to loan over prime. It’s gonna be typically around prime and two. You can loan up to prime plus 2.75. And then, it’s adjustable usually on the calendar quarter.

Michael Blake: [00:12:27] Okay, which makes sense cause that’s usually when the Fed adjusts anyway. So, you’re kind of on the Fed’s calendar.

Joy Manbeck: [00:12:35] Absolutely.

Michael Blake: [00:12:36] So, the question I think a lot of people will ask and where I find that the greatest misunderstanding about the SBA program is that you hear SBA, you hear that it’s got the eagle on, it’s got the federal logo, and everything; and therefore, you think like Donald Trump is writing your check or a Washington-based loan.

Joy Manbeck: [00:12:58] Right.

Michael Blake: [00:13:00] That’s not actually the case, is it?

Joy Manbeck: [00:13:01] Not on seven days. On seven days, the bank makes the loan, and SBA guarantees it. So, your funds come from the bank. They’re guaranteed by SBA. And then, the borrower makes the payments directly to the bank, and the borrower communicates directly with the bank.

Michael Blake: [00:13:17] Now, you at Vinings Bank are preferred lender.

Joy Manbeck: [00:13:20] We are

Michael Blake: [00:13:20] As are other banks, but not all banks are. So, what does it take to become a preferred lender. And if I’m a borrower, why should that matter to me?

Joy Manbeck: [00:13:28] Well, it’s huge for the borrower. First of all, to be able to qualify, you have to, in a 24-month period, have five loans that are approved by SBA on a direct basis. That means your bank approves them in our loan committee, and then we submit them to SBA, they underwrite them, and they are proven. So, once you’ve gotten to that five-limit approval of loans, then you can apply for preferred lender status, which means that you have the choice of once you approve the loan at the bank level, you can go ahead and just say it’s approved, and get your SBA loan number, and go move forward with closing.

Michael Blake: [00:14:02] And if you’re not a preferred lender, how does that differ?

Joy Manbeck: [00:14:05] It could take up to two to three weeks to get your loan approved with SBA, a lot longer.

Michael Blake: [00:14:10] And that point, I want to zero in on that a little bit-

Joy Manbeck: [00:14:14] Sure.

Michael Blake: [00:14:14] … because, again, one of the one reason that people, I think, shy away from SBA loans, when I say, “Think about the SBA,” they say, “How long is the government going to take to make a decision?” But in fact, the government, especially if it’s a preferred lender, is not making the decision at all, right? They’ve empowered the bank to do that.

Joy Manbeck: [00:14:32] That’s correct. I mean, and we do have to make sure that we do everything according to their regulations because we’re going to get audited eventually. And then, we’ve got to have everything as instructed. But we take care of that on our end. We do all the underwriting, but we underwrite them completely with SBA guidelines or regulations.

Michael Blake: [00:14:50] And so, the relationship is that the bank is lending the money and the US government is basically a guarantor-

Joy Manbeck: [00:14:56] That is correct.

Michael Blake: [00:14:56] … in case it doesn’t work out, basically.

Joy Manbeck: [00:14:58] Absolutely correct.

Michael Blake: [00:14:59] So, this may not be a fair question, but I just have to ask you. I mean, what happens if a loan does go bad?

Joy Manbeck: [00:15:07] Well, the first thing we do is try to work with the borrower. We try to get with them, find out what’s going on. Do they just need a payment deferment for a while, or are things turning around, or is this a case where the loan is just defaulting, and there’s nothing to be done? So, then, we begin to foreclose. We foreclose on whatever collateral is available. Then, if there’s a gap, then there’s always a guarantor on the loan, personal guarantor, at least, one, anybody, 20% and over as far as shareholder. They’re required to fully guarantee the loan. So, we will go to them, work with them, and try to resolve that gap. But if not, then we take further steps legally.

Michael Blake: [00:15:51] So, another point, one of the things I advise my clients who are asking about the SBA or talking about the SBA is that I think the SBA lenders do as good a job as any in trying to prevent a default, right?

Joy Manbeck: [00:16:07] Absolutely.

Michael Blake: [00:16:08] I think you get a lot more flexibility from an SBA lender than you do most conventional lenders because you really have no interest in foreclosing, unless there’s a gun to your head, basically, right?

Joy Manbeck: [00:16:18] That is absolutely—that’s the last thing we want to see.

Michael Blake: [00:16:20] And in that respect, it strikes a lot like student loans. I mean, you have to work hard-

Joy Manbeck: [00:16:25] Yes.

Michael Blake: [00:16:25] … to default on a student loan on an SBA. Is that—if your business has any chance at all of becoming solvent and repaying this thing in the future, there’s a lot of rope there, isn’t there?

Joy Manbeck: [00:16:38] There’s some. I mean, we can do it three payment principal and interest or principal deferment twice during the loan. But if the borrower defaults and is just not paying, then we have no choice-

Michael Blake: [00:16:52] Sure.

Joy Manbeck: [00:16:52] … but to foreclose.

Michael Blake: [00:16:52] That’s the way the world works, right?

Joy Manbeck: [00:16:55] Yeah, absolutely.

Michael Blake: [00:16:55] It’s not a grant. It’s not free money.

Joy Manbeck: [00:16:56] That’s right.

Michael Blake: [00:16:58] So, let’s say somebody now in earshot is interested, and wants to learn, and wants to maybe take a shot at SBA loan or pursue that, what does the application process look like?

Joy Manbeck: [00:17:08] Basically, we’re going to send them a list of the items we need. We’ll ask for always three years personal tax returns, three years business tax returns, current personal financial statement, current interim profit and loss statement balance sheet. If it’s a startup, we’re going to want two years of monthly cash projections and a good business plan, solid business plan. And then, depending on the company, whether we’ll ask for things like accounts payable aging, accounts receivable aging, just depends on the structure of the company. We’ll get things like resumes from the borrower, history of the company. We’ll go out and do site visits, meet with the borrower, and we do a lot of handholding with our borrowers.

Michael Blake: [00:17:50] I imagine because a lot of your borrowers aren’t necessarily financially sophisticated in the way they’re putting those projections, and you have to teach them the language of banking, I would imagine.

Joy Manbeck: [00:18:01] Sometimes, we do. Most times, I’ll encourage them to work with their CPAs. If they’re a startup business, and they haven’t had a lot of financial experience in the past, I will strongly suggest they sit down with their CPA and go through that projection process.

Michael Blake: [00:18:16] Okay, good. Now, I’ve seen cases where, also, on rare occasion, an SBA requires a third-party appraisal or valuation of the company to be done. When does that get triggered?

Joy Manbeck: [00:18:28] On a real estate appraisal, if the loan is over $250,000, then we’re going to require a real estate appraisal if that’s our collateral. And then, if you’re buying a business, then if the amount that you’re financing, that the bank is financing is over $250,000, we’re going to acquire a third-party business valuation.

Michael Blake: [00:18:49] Okay. And how long does that application process usually take?

Joy Manbeck: [00:18:56] If we’re gonna send a preferred lender, we’re gonna do it without having to submit it to SBA, typically—and I underwrite my—all of us at Vinings underwrite our own loans. And it takes me, usually, two to three days to underwrite a loan. Our committee meet once a week. And then, from there, we issue a commitment letter. Once the borrower accepts that, then we start ordering appraisals, we engage a closing attorney, and I tell people from start to finish, usually 45 to 60 days to close.

Michael Blake: [00:19:26] Okay. And that’s a lot faster. I think most people will appreciate it. Again, I think they’re used to certain kind of banking stereotypes, and they’re used to government stereotypes as well. But in reality, you most likely will receive funding through the SBA much more quicker than you will from a venture capitalist, right?

Joy Manbeck: [00:19:44] Absolutely.

Michael Blake: [00:19:45] VC is going to be a four to six-month exercise if it’s fast tracked.

Joy Manbeck: [00:19:49] Right, sure.

Michael Blake: [00:19:52] So, are there certain—are there any restrictions on what SBA funds borrowed can be used for?

Joy Manbeck: [00:20:02] There are—we can’t loan money to pay a borrower—give money back to a borrower. Say that they’ve bought a piece of property, and they contributed a certain amount into that property, we can’t loan money to give that money back to them. We can’t loan money to have somebody invest in a business. They can buy the business if they’re going to buy at 100%, but it can’t be for a partial investment. I’m trying to think of some other scenarios that go outside the realm.

Michael Blake: [00:20:33] Well, there’s one part that I think that I didn’t know. I knew you couldn’t borrow in order to buy minority interest, but I did not realize you couldn’t borrow if it’s a majority interest, only if you’re buying 100% percent.

Joy Manbeck: [00:20:45] That is correct. You can’t just buy in.

Michael Blake: [00:20:51] In your experience, where do you think most the funds get used?

Joy Manbeck: [00:20:55] Real estate.

Michael Blake: [00:20:57] Yeah.

Joy Manbeck: [00:20:57] Yeah, because those are gonna be those bigger loans. SBA goes up to—the loan can be up to $5 million. With their guarantee, $3.750 would be their portion. So, those are always, typically, going to be bigger loans, the real estate loans.

Michael Blake: [00:21:10] So, not all SBA loans are approved.

Joy Manbeck: [00:21:17] Correct.

Michael Blake: [00:21:17] Of course, you’d love to get them all through. Especially you, you would love to get them all through. But the reality is that there’s not 100% guaranteed promising.

Joy Manbeck: [00:21:22] Sure.

Michael Blake: [00:21:23] So, one, in your experience, what percentage of applications you think make it through where the loan is actually approved?

Joy Manbeck: [00:21:31] Most of mine, if they’re not going to make it, it’s gonna be a desk turned down. Meaning, I’m going to look at it and realize it’s not going to work. Most of them we take to loan committee are approved. And then, since we’re preferred lenders, we approve it at our bank, and we just get our SBA number. So, we don’t have a lot of turn-down scenarios.

Michael Blake: [00:21:53] Yeah. You make sure it doesn’t get to that process. I’m sure-

Joy Manbeck: [00:21:56] Try to.

Michael Blake: [00:21:56] I’m sure the borrowers appreciate that too, right?

Joy Manbeck: [00:21:58] Right.

Michael Blake: [00:21:59] Much rather a quick no-

Joy Manbeck: [00:22:00] Exactly.

Michael Blake: [00:22:00] … than a long maybe.

Joy Manbeck: [00:22:01] And we try to do that.

Michael Blake: [00:22:04] What are the most frequent reasons you find yourself at that desk level saying, “We have to take a pass on this for now?”

Joy Manbeck: [00:22:12] That’s a very good question. One would be inexperience of the borrower. Somebody wants to start a restaurant, but they’ve never even worked in a restaurant, or daycare, or whatever it’s gonna be. Another is cash flow. The cash flow, the historical cash flow of the company doesn’t show that it can service the loan. And sometimes, we’ll do a projection base. They they’re going to add another city to their company, or they’re going to add people, or whatever, then we’ll look at projections. Another would be that it’s way under-collateralized, and we’re taking too big a risk there. And then, another would be trends. Maybe the companies showed some negative trends over the past few years.

Michael Blake: [00:22:53] But the good news, I think, some of those can kind of be fixed, and they can be addressed proactively. You can’t necessarily fix your history, but you certainly can kind of rework the business, right?

Joy Manbeck: [00:23:04] Absolutely.

Michael Blake: [00:23:04] So, in a way, that can actually be a very educational process because you may be—you may, for a lot of these businesses, be the first kind of professional finance person that has looked at the business in that way. And that feedback can be very helpful, right?

Joy Manbeck: [00:23:18] Sure, absolutely.

Michael Blake: [00:23:18] So, have you ever had boomerangs where you’ve said, “Look, this isn’t ready to go now,” but maybe six months or a year later, they are ready, and you wind up being able to approve them?

Joy Manbeck: [00:23:26] We have. I’ve had a few of those in my history. But usually, they tend to go another avenue. But sometimes, they’ll be back.

Michael Blake: [00:23:36] So, you hinted this before, but it’s worth kind of focusing on. If if I’m an SBA borrower, particularly, I’ve never done something like that before, is it worth hiring an accountant or an attorney? Maybe both? Maybe somebody else that can to help me through that process?

Joy Manbeck: [00:23:53] I totally would. I mean, I mentioned earlier, a CPA to help you with the numbers, with your projections, and see what’s reasonable. Also, an attorney to walk you through getting your business opened with the State of Georgia and just advice. As far as contracts, they need to have someone look at a contract with them who has legal knowledge.

Michael Blake: [00:24:18] So, one—I’m going to get to a piece of advice I often tell my clients. Boy, I hope it’s right. And that piece of advice is that if you’re declined by one bank for an SBA loan, that doesn’t necessarily mean that every single bank’s going to decline it. Is there truth to that? If bank A declined it, maybe they might come to you, and you might view that differently. Is that a valid piece of—is that a valid thought?

Joy Manbeck: [00:24:49] It absolutely is. All lenders have their own guidelines. We all have to go by SBA regulations. But different lenders have different priorities, like where—we look at a loan globally. I mean, we’re going to look at all aspects of it. Other SBA lenders only want real estate, and they want coverage of 85% or whatever. And we—most of the SBA lenders in Atlanta know each other, and we know what each other will do that maybe our bank won’t do. And I referred a number of times somebody to another bank that might look at a loan that’s gotten low cash flow to debt service coverage or collateral is way off. But yes, I mean, those are bank guidelines, as long as you’re following SBA regs.

Michael Blake: [00:25:32] And it doesn’t mean somebody is right or wrong. It can just be a comfort level of the kind of business you’re in, right?

Joy Manbeck: [00:25:37] Exactly, absolutely.

Michael Blake: [00:25:38] So, let’s take you, for example. Are there certain kinds of businesses that you just feel like you just know really well and you can really get into them?

Joy Manbeck: [00:25:46] I do. Yeah, I become a car wash lender for one.

Michael Blake: [00:25:50] You mentioned that a couple of times, yeah?

Joy Manbeck: [00:25:52] Yeah. And restaurants, I’ve done a lot of restaurant lending, daycares. So, those are industries that are sort of my area of expertise. But we do really so many different industries. So, we don’t want to limit it-

Michael Blake: [00:26:04] Sure.

Joy Manbeck: [00:26:05] … ever, so.

Michael Blake: [00:26:06] Sure. Well, what do you—besides what we’ve talked about, are there any kind of other kind of misconceptions about SBA loans that you think that the audience ought to know about?

Joy Manbeck: [00:26:19] In addition to the timing, if you work with the preferred lender, and there are other lenders that are what’s called GP, general participant, that can get the loans done efficiently. So, it’s not only at PLP lenders, but we can certainly get them done faster than the ones that aren’t PLP preferred lenders. The other thing is paperwork. Well, like I say, we do a lot of handholding. We try to complete as much of the paperwork as we can, our processing department. So, a lot of people shy away from it because they think it’s just gonna be tons of paperwork. So, that part, I think, in the past was more true than it is now.

Michael Blake: [00:26:57] I’m gonna go off the script a little bit because I thought of a question I can’t resist asking. You might not be able to answer. If you can’t, that’s fine. We’ll move on. But I’m curious, is there a favorite borrower that you’ve had that just took an SBA loan and just did fantastic things that sort of stands out? Maybe built a car wash empire or something like that?

Joy Manbeck: [00:27:18] It’s funny you should mention that because I learned—I did a 504 loan. That’s the loan that you can only do real estate and fixed assets. It was probably three years ago. He probably had 2.5 into the whole thing. Two years later, one of the big car wash franchises came and offered him $7.5 million for it. And so, now, we’re doing another one for him.

Michael Blake: [00:27:41] Wow!

Joy Manbeck: [00:27:42] Yeah.

Michael Blake: [00:27:42] I’d say he’s a good risk.

Joy Manbeck: [00:27:43] He is. They did everything right. So, good borrowers.

Michael Blake: [00:27:47] Well, this has been great. There’s a whole lot more knowledge that I know that you have. And if someone wants to think about working with you, and they’re getting the sense that I already know. I mean, you’re just a great person to work with.

Joy Manbeck: [00:27:58] Thank you.

Michael Blake: [00:27:59] So, if somebody wants to contact you to learn more about if an SBA loan is right for them or not right for them, how can they do that?

Joy Manbeck: [00:28:07] Probably the best thing is the e-mail address, which would just be jmanbeck@viningsbank.com. And I can spell that out if you’d like me to o-.

Michael Blake: [00:28:16] No, I think Vinings Bank, I think, is fairly self-explanatory.

Joy Manbeck: [00:28:20] Okay.

Michael Blake: [00:28:20] And if they can go the website, they’ll see the spelling. So-

Joy Manbeck: [00:28:22] Absolutely.

Michael Blake: [00:28:23] Okay. Well, that’s going to wrap it up for today’s program. I’d like to thank Joy Manbeck so much for joining us and sharing her expertise with us. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcasts aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, franchise loans, Michael Blake, Mike Blake, Preferred SBA Lender, SBA CAPLine Program, SBA Express, SBA Lending, SBA Loan, sba loan program, sba loans, Vinings Bank

Decision Vision Episode 33: Should I Sell My Business? – An Interview with Ed Rieker, Serial Entrepreneur and CEO, Avondale Innovation District

September 26, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 33: Should I Sell My Business? – An Interview with Ed Rieker, Serial Entrepreneur and CEO, Avondale Innovation District
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Mike Blake and Ed Rieker

Decision Vision Episode 33:  Should I Sell My Business? – An Interview with Ed Rieker, Serial Entrepreneur and CEO, Avondale Innovation District

What should I be doing to be ready to sell my business when the right time comes? How do I know when that right time is? Find out answers to these questions and more as “Decision Vision” host Mike Blake interviews serial entrepreneur Ed Rieker, a successful seller of multiple businesses he founded. “Decision Vision” is presented by Brady Ware & Company.

Ed Rieker, Serial Entrepreneur and CEO, Avondale Innovation District

Ed Rieker

Ed Rieker is a serial entrepreneur and currently the CEO of the Avondale Innovation District™. Ed was a founder or co-founder of four healthcare software companies. He navigated successful exits for three of these companies, as two were acquired by public companies and another by investors. The fourth is still running.

Two of these software companies were accepted into the Advanced Technology Development Center at Georgia Tech (ATDC), and one is an ATDC graduate.

Ed previously served as an ATDC Entrepreneur in Residence (4x) and an ATDC Executive in Residence (1x). He has served as a Venture Catalyst at ATDC between startups.

In 2004 Ed purchased an online community, built the business up and sold it to a public company in 2011. He has owned and operated a private coworking and technology incubator. Ed is an angel investor in various startups.

Ed was awarded patent #5,832,447 for an Automated System and Method for Providing Real-Time Verification of Health Insurance Eligibility (a co-inventor).

He is the owner and developer of Tudor Square, a community-oriented, quality, dinning, shopping and entertainment venue, supporting small independent business owners in downtown Avondale Estates, GA

Ed is currently the CEO of the Avondale Innovation District™, located in downtown Avondale Estates, a place-based urban development designed specifically to support entrepreneurs and creative professionals, foster open innovation, attract and accelerate new business ventures.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Michael Blake: [00:00:21] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts of how they would recommend thinking about that decision.

Michael Blake: [00:00:39] My name is Mike Blake and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe and your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:03] So, today’s decision that we’re going to discuss is, should I consider selling my business? And for most people in business, there will never be a bigger decision you ever have to make in your life than whether when, how, and on what terms to sell your business. And selling a business is maybe even more challenging because most people only do it once in their life. There are a few people that are serial entrepreneurs, and we’re going to talk to one in a second, but most people, if they’ve had a good run, they sell their business, they get out, and then they go do something else, particularly if they happen to be good at leisure.

Michael Blake: [00:01:52] And the thing about selling a business, and I’ll be the first to admit this, even though I advise people on selling businesses, and I charge exorbitant fees for helping people do so, is that, actually, when you get right down, it’s not rocket science, but a lot of it isn’t necessarily intuitive. And the process of even wrestling with a decision on whether to sell a business is often such an emotionally entwined decision that has far reaching implications, even outside of the business itself that it can be very challenging to have a clear head when you’re approaching that decision.

Michael Blake: [00:02:33] And, generally speaking, in selling a business, there is no do over, right? Once you sort of sign those documents, and money comes out of escrow, and if you have that kind of business, the keys are turned over if it’s a virtual business, then all the the pass codes, passwords are handed over, that’s sort of it. So, if you have sellers or more, your only real recourse is to start new business and do better the next time.

Michael Blake: [00:02:54] So, it’s an important decision to get right. And it’s one that, like I said, you don’t really get a mulligan on this. And in trying to figure who’d be the best person to talk about this, I’m fortunate that a friend of mine actually is one of those few that has actually sold multiple businesses. So, he’s been through a few of these rodeos. And he hasn’t sold them for other people. They’re actually his businesses.

Michael Blake: [00:03:23] And so, without further doing introduce my pal, Ed Rieker, who has come all the way from Avondale Estates, which if you look at a map of Atlanta should be about a 10-minute drive. But the way our highways are set up at, it paces about an hour and a half. So, I really appreciate him coming into the studio today because he’s also got a 90-minute drive back.

Michael Blake: [00:03:47] But Ed has actually started and sold four businesses, at least, four of which I’m aware. He’ll correct me once he comes on. But he’s currently CEO of the Avondale Innovation District, an Avondale Estate Georgia. He is also the owner and principal of Tudor Square, a community-oriented quality dining, shopping, and entertainment venue supporting small independent business owners in downtown Avondale Estate Georgia.

Michael Blake: [00:04:10] He is the General Manager of the 151 Locust Fund One LLC, which is a fund established for the purpose of providing seed funding to Metro Atlanta technology startups. Ed was also the mayor of Avondale Estates for six years and is an adjunct faculty member in the Emory University Business School’s startup launch accelerator program. Ed Rieker, Your Honor, welcome to the program.

Ed Rieker: [00:04:33] Thanks, Mike. It’s a pleasure to be here.

Michael Blake: [00:04:36] So-

Ed Rieker: [00:04:37] By the way, I took a jet pack here, right.

Michael Blake: [00:04:39] Did you take a jet pack?

Ed Rieker: [00:04:40] Yeah.

Michael Blake: [00:04:40] I think that’s the best way to get here.

Ed Rieker: [00:04:42] 10 minutes.

Michael Blake: [00:04:42] Really?

Ed Rieker: [00:04:43] Yeah.

Michael Blake: [00:04:43] Now, thank God for Georgia Tech inventing that stuff, man.

Ed Rieker: [00:04:47] Absolutely.

Michael Blake: [00:04:47] So, let’s dive into it. There’s a lot of ground we can cover and hope we can cover all of it. Can you talk to us a little bit about the businesses that you have actually owned and sold?

Ed Rieker: [00:04:58] Absolutely. I’m mostly a software guy. So, the businesses that I’ve founded or co-founded were really about software, about the creation of value through pushing little buttons to make stuff happen. So, when I’ve had the privilege of being on some really great teams and also being able to cash out a few times. So, I started in 1988 when you weren’t born yet.

Michael Blake: [00:05:30] You silver-tongued devil.

Ed Rieker: [00:05:34] Absolutely. And so, what we did was we built a software system that actually worked with hospital systems and large systems to kind of get people in the hospital as quickly as possible. What it turned out to be really was a marketing thing. And so, we built that up, sold that to a group of investors in 1991. And then, I was a minority shareholder in that. I had an angel investor that had put money into that.

Ed Rieker: [00:06:09] Then, the next one, we also was in healthcare. I think once you get to be in a domain, you get to know people, they get to know you, you start to kind of build a reputation. So, health care’s been very, very good to me. And I’ve done four health care startups and sold three of those or two of those to public companies. And then, in 2004, I actually bought an online community, because I’m very interested in community and built-

Michael Blake: [00:06:37] Yes, you are.

Ed Rieker: [00:06:38] Yes, I am.

Michael Blake: [00:06:38] That’s definitely bring your MO.

Ed Rieker: [00:06:39] And both online and in the real world. And it’s just fascinating to see how people work together, and how they don’t work together, and what they need, and how it might be able to help. But we built that online community up and sold that to a public company in 2011. So, that’s kind of the story is the ability to build a solution, a tool that solves a problem, build a team, build it up.

Ed Rieker: [00:07:10] And then, the first one, I think you mentioned, was really difficult to sell because I was a minority shareholder. It was everything to me at the time. And when it got sold, it—here’s the thing though. When you—you talked about the escrow, the cash coming in, and you think about buying the yacht, but you missed a step. And that’s the part where you have to stick around for a little bit and deal with the new owners. So, that was the first time I had done that.

Ed Rieker: [00:07:46] And what happened was, is they kind of put me in a room and ignored me for a while. And then, I watched them kind of do what they wanted to do. So, you can’t make decisions anymore because you’ve sold it. You’re exactly right. But normally, once you sell it, especially like a software business, any other business, you’re gonna be there for a while to watch that transition. So, that can be a difficult thing. And over the years, I’ve been able to kind of look at the idea of building with the end in mind, which is to sell it, so.

Michael Blake: [00:08:24] Now, what was that transition like? I mean, I know you personally. I don’t see you as a very good employee.

Ed Rieker: [00:08:34] I’m a horrible-

Michael Blake: [00:08:34] And I mean that with all the love I could possibly muster.

Ed Rieker: [00:08:37] Yes, absolutely. I  know.

Michael Blake: [00:08:38] But I consider myself, and my firm will tell you, I’m a terrible employee.

Ed Rieker: [00:08:42] Right, yeah. I’m a terrible employee. I will admit that. And I think the first time I sold, I was also a terrible seller because I was so emotionally involved and so focused on what I thought was right for the business, but I didn’t have any say anymore. I didn’t have any vote anymore. So, it becomes very difficult to hang around and see people do things that you probably don’t agree with.

Ed Rieker: [00:09:13] And, also, remember, the alignment I had with the sellers was they had the money, they had an idea of what they thought they wanted to do, and I really didn’t know on that well. And when you start to kind of see the team change and see kind of what they think is right, it can be very difficult for a seller to kind of be in that world. Most of the time, after you sell something, if you look at the statistics, the CEO goes bye-bye about six months, the old CEO.

Michael Blake: [00:09:48] I was going to ask you about that because most sales I’ve seen if the CEO is asked to remain at all, it’s a two to three-year period.

Ed Rieker: [00:09:57] Right.

Michael Blake: [00:09:57] But I don’t think most CEOs actually wind up serving out that term.

Ed Rieker: [00:10:01] They’re usually gone in six months. And that’s the thing you have to learn about in terms of selling. There’s things like earn-outs. So, when you get to the part where you agree on what the value is and what the terms are, part of that term can be the offer of, “Oh, we’ll double the what we’re buying you for if you’ll stay and hit these metrics.” And normally that’s kind of phantom money. That’s really hard to do because you don’t have control over how to reach those metrics anymore.

Michael Blake: [00:10:33] Right. I mean, the special sauce that you brought is now not being used anymore. It’s just sitting in the refrigerator with the label on it saying, “Add special sauce.”

Ed Rieker: [00:10:41] Right. You’re lucky if it’s in the fridge.

Michael Blake: [00:10:46] Right. I can’t shake this vision. I mean, having sort of been put in a room, you sort of watch everybody do the thing with the business after you’ve sold that, and you just sort of have to be at peace with your powerlessness by doing that.

Ed Rieker: [00:11:00] Yeah, and I wasn’t. I absolutely wasn’t. I mean, I think I was probably a bad seller at that point because I looked around, and it wasn’t going in the direction and as well as I thought it could go. And so, I didn’t really stay for the whole six months. I kind of bugged out of there because I had other things to do.

Michael Blake: [00:11:24] Yeah.

Ed Rieker: [00:11:24] Yeah.

Michael Blake: [00:11:26] Your experience of that sounds like my experience parenting a teenager.

Ed Rieker: [00:11:31] Yeah.

Michael Blake: [00:11:32] You watch it, but there’s only so much impact you can ultimately have. It’s sort of it’s just going to happen. So, how long did you own those businesses before selling them?

Ed Rieker: [00:11:42] So, I’m looking at my notes here, and I think ’88 and ’91. So, what’s the math? That’s three years. So, I probably worked on that a little bit longer than that. So, probably looks like the average is three to four years.

Michael Blake: [00:11:56] Okay.

Ed Rieker: [00:11:57] Yeah.

Michael Blake: [00:11:57] That’s not particularly long. Even in venture capital, that’s a fairly quick turnaround.

Ed Rieker: [00:12:02] Well, I like small teams and early stage stuff. And so, I like building it up to a certain point. And one of the things, I think, that if you’re a business owner of any kind of type, what you want to see is that every six months or so, the phone rings and somebody says, “Hey, I’m thinking about doing business with you or transaction with you.” And it evolves in this sort of, “Hey, we’re thinking about buying you.” If you’re not getting that call every six months or that activity every six months, then I feel like there’s something wrong with your business-

Michael Blake: [00:12:38] Huh!

Ed Rieker: [00:12:40] … because that’s one of the key indicators that you’re on to demand is that you get these situations where maybe you’re serving a large customer. and they say, “Well, maybe we should buy you instead of being a customer.” So, you want to kind of see those things happen every six months. If that’s not happening, then there’s something wrong with the business.

Michael Blake: [00:13:01] I’m gonna go off the script because I think that is insightful point that I want to explore a little bit more because I would not have thought of that in a million years, but I think I got it. So, let me tell what I think I get, and you tell me why I’m wrong. And what I think I get is people want to buy you because they notice you, and they’re making an impact, and you’re so important, they can’t afford to not you being available at some point down the road.

Ed Rieker: [00:13:31] Yeah, absolutely.

Michael Blake: [00:13:32] Right?

Ed Rieker: [00:13:32] And it’s the noticed part and the can’t live without you part that drives the price up. It could be a strategic or a technology acquisition. And most of the stuff that we did was a technology acquisition because we had found a pocket somewhere in health care that we were serving. And it was important enough to a large corporation that instead of building it, they would try to buy it. And that’s exactly kind of what you’re looking at.

Michael Blake: [00:14:01] So, that’s interesting. So, kind of a bullet point is a lot of business owners will tell me that they get annoyed they get offers to potentially buy and sell. They don’t want to do that. But in a way, if you’re getting those calls, even if they’re not particularly serious, the fact that you’re on somebody’s radar screen means you’re doing something right-

Ed Rieker: [00:14:19] Yeah, that’s correct.

Michael Blake: [00:14:19] … in terms of the market.

Ed Rieker: [00:14:20] And every once in a while, you actually want to follow through with those calls because that’s a great way to to create a valuation for yourself, to kind of figure out, you’re in that business, you’d be a great advisor to call. And it [crosstalk]-

Michael Blake: [00:14:32] “Hey, thank you, Ed.”

Ed Rieker: [00:14:34] … product placement. Was that on the script or?

Michael Blake: [00:14:38] It should have been.

Ed Rieker: [00:14:39] It should have been.

Michael Blake: [00:14:39] It should have. My marketing department is, right now, tearing their hair out, saying, “Why do you make everybody say that?” So, you said that you’re a bad seller when you sold that first business.

Ed Rieker: [00:14:50] Absolutely, yeah.

Michael Blake: [00:14:51] And part of that was because you’re a minority shareholder, so you couldn’t really drive the bus. You could almost sort of grab the steering wheel every once in a while. By sale four, in what way were you a better seller? Were you a better seller?

Ed Rieker: [00:15:03] Well, absolutely, yeah. What happened is that I was so emotionally attached to the first one. It’s not the same thing, and it’s probably a really bad analogy, but it’s like selling your baby or selling one of the things that you love, a family member. It just really was—I was that emotionally attached to it. And then, after I went through that, when I realized that perhaps my career, if I could call it a career, would be building and selling companies. I began to think about it in a different way that the actual in-game was to sell it and to sell it successfully. And by successfully, it meant that they were happy, I was happy, there was a good outcome for both of us, and that the transition part was actually part of building the business that I was able to transition out of the business to be able to go do the next thing.

Michael Blake: [00:16:02] So, the transition was organic. And in fact, they should stick somebody else having to stay with the buyers instead of you.

Ed Rieker: [00:16:08] Absolutely.

Michael Blake: [00:16:08] Right?

Ed Rieker: [00:16:09] Absolutely. So, that’s the process, then, is to build a team, so that I was dispensable. And actually they didn’t—why should we keep that guy?

Michael Blake: [00:16:19] Now, I’m curious. And I may be all wet here, but I’m curious if, also, the financial dynamic changes. When you sell your first business, I suspect but do not know that that was a lifestyle changing event for you.

Ed Rieker: [00:16:37] I would say the first one wasn’t.

Michael Blake: [00:16:39] Okay.

Ed Rieker: [00:16:39] When you start getting into the second and third, because the first two, I had to have angel investing to build the business up.

Michael Blake: [00:16:47] Yeah.

Ed Rieker: [00:16:48] Everything else was out of my own pocket, self-funded.

Michael Blake: [00:16:52] Okay.

Ed Rieker: [00:16:52] And the reason for that is that I found out in the way that I work is that I am able to risk my money, but not so much somebody else’s. I’m more careful with other people’s money, so that it hindered the ability for me to actually do the kind of the on-the-edge things that I wanted to do. I can do that with my own money but not necessarily with someone else’s.

Michael Blake: [00:17:18] I can understand that. And I’ve long thought, even though the standard playbook for startup entrepreneurs is hit up friends and family, right? On the other hand, that can lead to some very awkward Thanksgiving dinner conversations if things don’t go great.

Ed Rieker: [00:17:36] Absolutely.

Michael Blake: [00:17:37] Right?

Ed Rieker: [00:17:37] And the first one was what I would consider friend who had resources that actually funded the first one. And, of course, we don’t talk anymore. So-

Michael Blake: [00:17:50] Okay.

Ed Rieker: [00:17:50] Exactly right.

Michael Blake: [00:17:51] Yeah. So, that is a risk.

Ed Rieker: [00:17:52] Yeah, that’s the risk. Yeah.

Michael Blake: [00:17:55] So, it sounds to me like—well, I’m gonna ask the question for this. That’s why I have you here. To what extent were these sales planned versus opportunistic? They sound like a hybrid to me, kind of.

Ed Rieker: [00:18:07] Well, I think the first one was opportunistic because I really didn’t understand. I mean, I was an idiot on the first one. I really was. And I had a deep desire to create something, and a desire to perhaps bring that into the world and make it bigger. And what I didn’t understand was that through my immaturity, I was not a really good boss. Not only not a good employee, but not a good boss. And so, I think that having that sale hit me and all the emotional stuff that went with that, just reconsider a lot of stuff. At least, I did. And then, as I built teams that actually were the core of the success, you can’t be successful without a great team. I’m just really fortunate to have people that were able to help me, and teach me, and gather the things that we needed to be successful that we’re able to build these businesses up and sell them. So, I think I avoided your question. I am not sure I-

Michael Blake: [00:19:20] No, I think you, eventually, got around the answer.

Ed Rieker: [00:19:23] Yes.

Michael Blake: [00:19:23] Yeah. So, a common thread here is that all of your business is sold within two to three years or so. What did those businesses look like? What did they have in common that made them salable at that three-year period? Why do you—I’m sure it wasn’t luck.

Ed Rieker: [00:19:42] Well, yeah, it is luck. I mean, it’s—there’s a thing called the lucky bus that drives around. And if you’re standing out on the street, and the lucky bus stops in, and they say you’re ready to go, you got your bags packed, and you have your bags packed, and you’re ready to go, you can hop on the bus. And the bags packed is actually the work to be done, the job to be done. If the lucky bus stops, and they say you get your bags packed, and you go, “No, no, wait a minute, I’ll go finish packing,” when you come back out, the bus is gonna be gone.

Ed Rieker: [00:20:18] So, the idea I think we had going forward after the first one was to kind of always be in the way of a larger company. How could we—imagine this giant that’s walking or stumbling around. How can we annoy them enough that they’ll look down, and pick us up, and go, “Oh, yeah. This looks tasty. I’ll eat it.” That was the idea. So, what we did was we developed ways to deploy software and ideas in the world, so that we wound up in front of a large corporate entity that we knew eventually would probably want to do what we were doing, but they weren’t fast enough to be able to do it. And so, they would say, “Okay. Well, it’s just cheaper for us to kind of scoop this up and go with it.”

Michael Blake: [00:21:12] So, what that tells me is that your approach has been always be prepared to be opportunistic.

Ed Rieker: [00:21:18] Yes.

Michael Blake: [00:21:18] Right?

Ed Rieker: [00:21:19] So, yeah, to sell. Right. And to sell. And one of the things I would encourage entrepreneurs and CEOs to do is there’s a thing called due diligence, which is very exciting. And it’s even more exciting if it’s a public company because when they want to buy you, they really come and look at everything.

Michael Blake: [00:21:38] It’s basically a product logical exam without the anesthetic or-

Ed Rieker: [00:21:42] Yeah, yeah.

Michael Blake: [00:21:46] Just leave it-

Ed Rieker: [00:21:46] Yeah, yeah. And at last, not seconds, but hours and days. Yeah, absolutely.

Michael Blake: [00:21:51] Just to make it extra fun.

Ed Rieker: [00:21:52] Yeah, extra fun. So, what I learned after the first one was to create. And I’ll make it simple, like these little paper boxes that you put files in. So, when you’re doing things, like you have a contract, you have an employment agreement, or you have anything that’s paper that’s important that they’re going to look at later on, you just make a second copy and throw it in that box. And you know when the due diligence comes around, you can just go point at that box, and go, “All the stuff you want is in that box.” And it makes it a lot easier because when they do come and do due diligence, if you’re not ready, you’ve got to go through all your files and find this stuff. And it’s really time consuming.

Michael Blake: [00:22:34] And distracting.

Ed Rieker: [00:22:35] And distracting.

Michael Blake: [00:22:36] Right?

Ed Rieker: [00:22:36] Yes.

Michael Blake: [00:22:36] And, also, I gotta believe, and I’ve always advised clients about—on this, so I hope I’m right, there’s something to be said for making yourself easy to buy.

Ed Rieker: [00:22:49] Absolutely.

Michael Blake: [00:22:50] It doesn’t necessarily make you more or less valuable-

Ed Rieker: [00:22:52] Right.

Michael Blake: [00:22:52] … but just offering that path of least resistance.

Ed Rieker: [00:22:56] Well, what can happen is that, for instance, when you talked about opportunity, one of the purchases that was made on one of the software companies was that the public company had actually issued some bonds. So, they had gotten some cash, and they had a timeline when they had to spend that cash. So, you know.

Michael Blake: [00:23:17] So, that the government-

Ed Rieker: [00:23:19] Absolutely. We’ve got a budget to buy stuff. Let’s go buy stuff. And that’s somebody’s job to be done is to do an M&A.

Michael Blake: [00:23:26] Yeah.

Ed Rieker: [00:23:26] So, somebody at a corporate office is absolutely getting bonuses and pay on buying companies. So, there’s actually people that do that, and they have goals, and they have responsibilities. So, if they had this money, they had to spend by a certain time. So, it gave us a couple of things. It gave us the upper limit of the purchase. It gave us the timing. And then, we kind of—that gives you a leverage that perhaps they might not know that you know and helps you in the negotiations. So, you got to make sure that when you’re getting bought that you’re paying attention to those kind of things.

Michael Blake: [00:24:10] Boy, that’s interesting. That’s a a blog post I’ve been aching to write. But you’re right, there is sort of this moral hazard on the buy side when companies have a dedicated business development from an acquisition perspective or corporate development function, right?

Ed Rieker: [00:24:27] Right.

Michael Blake: [00:24:28] Those are people who are judged based on how much stuff they buy.

Ed Rieker: [00:24:31] Yeah.

Michael Blake: [00:24:32] And often, whether or not it’s a good acquisition or not, there’s so much turnover. Those people aren’t around-

Ed Rieker: [00:24:36] Yeah.

Michael Blake: [00:24:37] …  whether it’s a good deal or not, right? And although the prudent thing to do, because we have a pro deal bias, the prudent thing to do may be to walk away from a deal. Nobody ever gets interviewed on Bloomberg or on The Wall Street Journal for someone who walked away from a deal.

Ed Rieker: [00:24:54] That’s correct.

Michael Blake: [00:24:55] It’s never happened.

Ed Rieker: [00:24:56] Yeah, yeah.

Michael Blake: [00:24:56] Right?

Ed Rieker: [00:24:58] Yeah.

Michael Blake: [00:24:58] So, if you are being approached by someone that’s got that corporate development function, they need wins.

Ed Rieker: [00:25:04] Yeah. They need wins.

Michael Blake: [00:25:04] They just do.

Ed Rieker: [00:25:04] And they need certain dollar ranges that they’re buying in. There are certain ways that they’re buying in terms of how they model their transactions. So, cash, stock, earnouts, what happens to the founders, what happens to the team. All those things are consideration. A lot of us think about the buyout as being, “Oh, it’s a certain dollar amount,” but there’s a lot of nuance that you can create for yourself and your team that you can do in a deal.

Michael Blake: [00:25:35] And I don’t know if you’ve been in this situation because your model for building and selling a business has been so focused on a venture capital type model, but I am going to throw it out there anyway. And that is, are there signs out there where an owner needs to think about actively selling a business as opposed to being opportunistic that you can think of, or maybe you’ve experienced it where we’re at a point now where it’s really time for this business to sell, or it’s time for me to get out, or some combination? Is that something you can speak to?

Ed Rieker: [00:26:07] Yeah, sure. I think that that’s an interesting thing that happens. There’s cycles that we see. We’re in a happy time right now. It’s not going to continue to be a happy time. And that’s just the way the market works.

Michael Blake: [00:26:21] Yeah.

Ed Rieker: [00:26:22] So, I own some commercial real estate now. Now, I’m thinking about it’s time to sell because I think we’re in a pretty good place in the market. And I think that’s also true of a business. There could be things going on with the team, there could be things that you know about the technology and perhaps where it’s going that you may want to try to cash out. So, absolutely. I think an example for that for me was that 2008 was the precursor to a horrible 2009. And we had the online community, and there was a company that was rolling communities up. And they had approached us about selling the year before, and we said no because we were still—revenues were rising, and we were still building things. And I was of a mindset that, “Oh, this is going to continue and go up next year.” And the guy that was wanting to buy us, we’re on the phone, and he’s literally screaming at me on the phone saying, “Take the cash, take the cash, I’ll pay all cash.” And I’m saying, “No, I think we’ll be worth more next year.” Well, guess what? We weren’t worth more.

Michael Blake: [00:27:44] It didn’t work out.

Ed Rieker: [00:27:45] It didn’t work out. It went down, and it took us a couple more years to sell it.

Michael Blake: [00:27:49] Huh! Okay.

Ed Rieker: [00:27:51] Yeah.

Michael Blake: [00:27:51] So, when you sold your businesses, were these do-it-yourself jobs, or did you kind of put a team around you to help you?

Ed Rieker: [00:27:58] Well, the team part is the CPA and, also, we used the same legal team to do the sell part. The deal structure, the first one, I was a minority shareholder in. And so, I wasn’t as involved in that and progressively got more involved in the other ones and pretty much full on. I think the idea is that you agree on a face to face, usually. You kind of agree with the principles. This is the price, the terms, what happens to the team, what happens to you? Then, you kind of wind up with maybe a one page or a page and a half. And then-

Michael Blake: [00:28:42] It’s called a term sheet-

Ed Rieker: [00:28:43] Yeah, yeah, yes.

Michael Blake: [00:28:43] … for those of us in the audience.

Ed Rieker: [00:28:44] Term sheet.

Michael Blake: [00:28:44] Yeah, term sheet.

Ed Rieker: [00:28:45] Thank you. I knew there was a name for that. And then, what happens is that two pages turns into 30 or 50 pages of mind-numbing legalese fees and schedules.

Michael Blake: [00:28:58] Oh, boy, you’re not kidding.

Ed Rieker: [00:28:59] Yeah. And so, that’s-.

Michael Blake: [00:29:00] Except, it’s only one of the most important decisions in your life, so you have to read it.

Ed Rieker: [00:29:04] You have to read it. And you have to have a team that can interpret it for you. And you have to have, both on the financial side and on the legal side, someone to make sure that what you think is happening in your head is actually what’s in the document. That’s the most important thing. It’s like you can look at the documents, and you can see what the outcome will be if certain things happen. I got tripped up once by one word in a document that was part of an earnout. And, it costs a big bucket of money because we interpreted that word differently than what it actually meant. And that was one word in probably a 40-page document.

Michael Blake: [00:29:53] Whew!

Ed Rieker: [00:29:54] Ouch.

Michael Blake: [00:29:54] Yeah.

Ed Rieker: [00:29:55] And so—yeah, but unless you make those mistakes and see them, you can’t learn from them, so.

Michael Blake: [00:30:01] Well, yeah. And exactly why I think you have such a fascinating and valuable perspective because you’ve had the opportunity to make those mistakes live to fight another day, right? And like you said, most people don’t see four transaction. They don’t see four sales.

Ed Rieker: [00:30:17] Right.

Michael Blake: [00:30:17] We’ll see one.

Ed Rieker: [00:30:18] Yeah. I’ve been lucky. Absolutely.

Michael Blake: [00:30:21] So, at any point, as you were considering a sale, were you concerned over what would happen the day after, what would you happen to you the day after you wake up, all of a sudden, there’s no office you have to be in?

Ed Rieker: [00:30:35] Well, that there was never a no office to be in. There is always a time you have to stay with the business. And after the first one, I was able to say, “All right. I know my job to be done in the world is to start them and to sell them.” So, I know when the new people come in, I want to underpromise and overdeliver. But I also want to have a team in place to where the business really doesn’t need me. My job was to think about the really big things. And so, usually, by the time the deal was done or even before that, I would be envisioning the next thing that I would be building. And that’s always been the case is that, “Okay. I know it’s time to sell because I’m thinking about something else.”

Michael Blake: [00:31:22] Did you ever find that being involved in a sale was kind of an emotional roller coaster?

Ed Rieker: [00:31:28] It’s absolutely an emotional roller coaster all the time. And remember, this idea of kind of looking at every six months, someone calls you, and they say, “Hey, maybe we should do a deal.” Well, I would do those to see kind of what the value is, to see how prepared I was, to see if our story was right, and to see if it was a real deal. And sometimes, there are corporations that want to really go to school on you. So, they’ll say, “Hey, we’re interested in buying you.” And you go, “Oh, that’s exciting. Come on in. I’ll tell you everything.”

Michael Blake: [00:32:01] Right.

Ed Rieker: [00:32:03] And then, they go, “Oh, we’ve decided to build it ourselves. Thanks.”

Michael Blake: [00:32:05] You’re totally catfished.

Ed Rieker: [00:32:07] Yeah-

Michael Blake: [00:32:07] Basically.

Ed Rieker: [00:32:07] Absolutely. So, you have to know at what point when you go, “Oh, these guys are going to school,” and then you just kind of shut it down. So, I’ve had those experiences where I’m like, “Oh, okay. Yeah. No, I’m not going to show you that. Thanks.”

Michael Blake: [00:32:26] And how about within? I mean, in my experiences, most deals are called off, at least, once before they ultimately happen.

Ed Rieker: [00:32:36] Yeah, absolutely.

Michael Blake: [00:32:36] Right?

Ed Rieker: [00:32:37] Yeah.

Michael Blake: [00:32:37] And how do you kind of stick with that and keep a level head as opposed to just setting up a YouTube video of yourself taking a baseball bat to a roomful of computers and file cabinets or maybe you do that, and that’s how you sort of keep your head on straight?

Ed Rieker: [00:32:51] Right. That’s-

Michael Blake: [00:32:52] How do you manage that?

Ed Rieker: [00:32:53] That’s why glassware is always in danger when you’re around me. So, please don’t bring me glassware. I think the idea is to isolate it from the team and compartmentalize it in your brand because what can happen, I’ve seen this with teams, where the CEO gets excited about a sale, and they move off the mark of what they’re trying to do with growing the business. And these things can take six months, a year. It can take that long to find out it’s a folly. So, if you’re get pulled off growing the business, what happens is your business dips. So, your next sell gets delayed because you’ve got to build that back up. So, the idea is isolate it from the team until you actually have a term sheet that looks real, and looks doable, and maybe even the first draft of the purchase agreement. And then, make sure that while you’re doing that, you’re continually serving the business.

Michael Blake: [00:33:54] And that’s another great reason to sort of have your due—basically build your due diligence package as you go along-

Ed Rieker: [00:34:00] Absolutely.

Michael Blake: [00:34:00] … because, then, you don’t have to bring your team in.

Ed Rieker: [00:34:02] Yeah.

Michael Blake: [00:34:04] And there’s no sort of smoking gun.

Ed Rieker: [00:34:05] Right.

Michael Blake: [00:34:06] If you’ve hired people that are smart, you start to ask for documents, all of a sudden, they’ll realize that’s why.

Ed Rieker: [00:34:11] Yeah.

Michael Blake: [00:34:12] Right? But if all of a sudden, you just have this box, you just say, “Here,” then that gives you the option-

Ed Rieker: [00:34:17] Right.

Michael Blake: [00:34:17] … to be able to let more-

Ed Rieker: [00:34:17] If you’re walking around saying, “Can you sign this employment agreement really quickly?” yeah, it’s a little late.

Michael Blake: [00:34:24] Yeah. My lawyer will be back to you with some thoughts on what I’d like in order to sign that agreement.

Ed Rieker: [00:34:32] Yes.

Michael Blake: [00:34:32] And some of the other side to that too is deals die a thousand deaths, but, also, deals are never done until they’re done. And I think I’ve seen, as you’ve probably seen it too, is plenty of businesses die while they’re up for sale-

Ed Rieker: [00:34:52] Yeah.

Michael Blake: [00:34:53] … because the process of selling a business really becomes a full-time job.

Ed Rieker: [00:34:56] Right.

Michael Blake: [00:34:57] And it can very easily distract you from actually running your business to the point where maybe a deal just doesn’t happen because it doesn’t happen, or I’ve seen—I’ve even seen it where the business has deteriorated so much during the due diligence process that it’s just no longer the valuable asset that prompted the initial proposal to buy in the first place.

Ed Rieker: [00:35:17] Yeah, absolutely.

Michael Blake: [00:35:18] Right?

Ed Rieker: [00:35:19] That’s correct, yeah.

Michael Blake: [00:35:20] And that’s why it’s important, I guess, to have those advisors and have that due diligence ready to go because you’ve got to just accept that it’s two full-time jobs.

Ed Rieker: [00:35:29] Yeah. It’s the exact same thing as raising capital, only you’re selling the business. It’s the same kind of process. And so, when you’re raising institutional money, you’re also doing the same kind of things, and it’s the same kind of roller coaster, but it’s the end game.

Michael Blake: [00:35:49] And I’ll share with you a secret that I tell my buy side clients.

Ed Rieker: [00:35:53] Oh, a secret?

Michael Blake: [00:35:53] Yeah, a secret is that many sellers, if they’ve never sold a business before, they start to get what I call Costa Rica syndrome-

Ed Rieker: [00:36:05] Yeah.

Michael Blake: [00:36:06] … which means that mentally, the second they think that those dollars are coming in-

Ed Rieker: [00:36:11] Yeah.

Michael Blake: [00:36:12] … they’re already halfway to their condo in Costa Rica.

Ed Rieker: [00:36:16] Yeah, absolutely.

Michael Blake: [00:36:17] Right?

Ed Rieker: [00:36:17] Yeah.

Michael Blake: [00:36:18] And once they’re there, the buyer acquires extraordinary leverage.

Ed Rieker: [00:36:24] Absolutely.

Michael Blake: [00:36:25] Right?

Ed Rieker: [00:36:25] Yeah.

Michael Blake: [00:36:25] And even for [indiscernible], let’s say that initially talked about a $10 million purchase price, well, in our due diligence, really, I only want to pay seven.

Ed Rieker: [00:36:34] Yeah.

Michael Blake: [00:36:35] Right? And if the seller has exposed themselves where the business is going to be hard to recover but, also, mentally-

Ed Rieker: [00:36:43] Yeah.

Michael Blake: [00:36:43] … they have to now say—they have to get back from their tropical paradise.

Ed Rieker: [00:36:48] Yeah.

Michael Blake: [00:36:49] Right? And cocktail drinks and so forth. They come back. They don’t want to do that. Now, they’re just looking at that $3 million difference as a number. But, well, I still got $7 million left. Just let me do this, so I can go to my Costa Rica.

Ed Rieker: [00:37:04] Right.

Michael Blake: [00:37:04] Right?

Ed Rieker: [00:37:04] Yeah.

Michael Blake: [00:37:04] And I think it confers a tremendous amount of leverage-

Ed Rieker: [00:37:09] Yeah.

Michael Blake: [00:37:09] … for the buyer.

Ed Rieker: [00:37:11] Yeah. I’ve had stuff happen at closing or right before closing where a buyer will come back and say, “Well, maybe we should do this,” and you have to be prepared to say no.

Michael Blake: [00:37:23] Yeah.

Ed Rieker: [00:37:24] You have to be able to say, “You know what? That’s okay. We’ll pass.”

Michael Blake: [00:37:29] Yeah, that’s right.

Ed Rieker: [00:37:30] So-

Michael Blake: [00:37:30] If you can’t walk away from a deal of any kind, you’re not negotiating. You’re just asking.

Ed Rieker: [00:37:36] Yeah. And that’s the part about the business. If your business is solid enough that you can say no, that’s a great business to have because that means there’s gonna be another buyer. And also, you always want to have a horse race, even if it’s a pretend horse. So, that-

Michael Blake: [00:37:55] The stalking horse.

Ed Rieker: [00:37:56] Yes. So, that when you’re winding up with a single buyer, there’s always this other entity that perhaps might pay more, or do quicker, or be kinder to your employees, that sort of thing. So, a one-buyer deal is really no fun.

Michael Blake: [00:38:12] Well, and even by setting yourself up the way that you’ve described, the other horse is you, as yourself, right?

Ed Rieker: [00:38:19] Right, yeah, you can stick around.

Michael Blake: [00:38:19] I can always not sell.

Ed Rieker: [00:38:21] Yeah.

Michael Blake: [00:38:22] And because I’m the idea person and not the operational person, my lifestyle is still okay.

Ed Rieker: [00:38:30] Yeah.

Michael Blake: [00:38:30] Right? And we’ll just sort of reset and wait for the next person. And that makes you pretty much impervious to the Costa Rica syndrome.

Ed Rieker: [00:38:40] Yeah.

Michael Blake: [00:38:40] And nothing against Costa Rica. I could have just as easily said Tahiti, but a friend of mine-

Ed Rieker: [00:38:44] Yeah, or Macon, Georgia.

Michael Blake: [00:38:46] Or Macon, Georgia, yeah.

Ed Rieker: [00:38:46] Absolutely.

Michael Blake: [00:38:46] But a friend—one of my clients sold a business, went down to Costa Rica, and they love it, so.

Ed Rieker: [00:38:51] Yeah.

Michael Blake: [00:38:53] Well, this has been great. We’re sort of running out of time here, but there’s a lot of ground that could be covered. If somebody is kind of thinking about maybe selling their own business, could they contact you for a little bit of advice?

Ed Rieker: [00:39:04] Sure, absolutely. Yeah.

Michael Blake: [00:39:05] How will be the best way for them to do that?

Ed Rieker: [00:39:07] Send me an email, ed@softlinc.com. S-O-F-T-L-I-N-C dot com.

Michael Blake: [00:39:14] Okay.

Ed Rieker: [00:39:15] Or call Mike. Yeah.

Michael Blake: [00:39:17] There you go. But Ed might be free. I know that I’m not.

Ed Rieker: [00:39:21] Yeah.

Michael Blake: [00:39:22] So, that’s gonna wrap it up for today’s program. I’d like to thank Ed Rieker so much for joining us and sharing his expertise with us. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, due diligence packages, due dilligence, earn-out, Ed Rieker, emotional roller coaster, merging a business, Michael Blake, Mike Blake, selling a business, serial entrepreneur, strategic acquisition, technology acquisition, valuation

Decision Vision Episode 32: Do I Need a Succession Plan? – An Interview with Bruce Gaynes, Kitchens Kelley Gaynes P.C.

September 19, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 32: Do I Need a Succession Plan? – An Interview with Bruce Gaynes, Kitchens Kelley Gaynes P.C.
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Mike Blake and Bruce Gaynes

Decision Vision Episode 32: Do I Need a Succession Plan? – An Interview with Bruce Gaynes, Kitchens Kelley Gaynes P.C.

“All of us will exit, voluntarily or not.” Words to ponder from “Decision Vision” host Mike Blake’s conversation with Bruce Gaynes, Kitchens Kelley Gaynes P.C. What are the three most important aspects of a succession plan? What are the different options I should consider in planning for the next steps in my business? These questions and more are addressed in this “Decision Vision” interview, presented by Brady Ware & Company.

Bruce Gaynes, Kitchens Kelley Gaynes P.C.

Bruce Gaynes

Bruce Gaynes, a founding shareholder of Kitchens Kelley Gaynes P.C., has over 35 years of experience helping clients. Prior to practicing law, he worked in the tax department of a national accounting firm and became a Certified Public Accountant. His law practice focuses on corporate, estate planning and tax matters.

Bruce’s work involves all sizes and forms of entities. He handles matters concerning the full business life cycle, beginning with organizational structuring and formation. As business and professional practices develop and grow, Bruce helps them properly document and protect themselves, in ways such as operating agreements and shareholder agreements, with independent contractor agreements, employment contracts, and non-disclosure agreements, and with other commercial transaction agreements. As clients look for exit strategies Bruce negotiates merger and acquisition documents, advises families on gifting techniques, formulates reorganization strategies, and spearheads family and tax planning.

As part of his work for business owners, executives, and professionals, Bruce maintains an estate planning practice, counseling individuals and families in their tax-reduction and asset-transfer strategies. As a consequence of his involvement in trust and estate law, Bruce also has extensive experience helping clients with probate matters.

Kitchens Kelley Gaynes, P.C. has been providing experienced legal representation for clients in virtually all areas of industry and commerce since 1985. We work closely with our clients to form long-term relationships based on top quality work and realistic legal advice. Our clients trust us to listen to them, understand their businesses and craft reliable legal strategies that will help them achieve their goals. Every client, no matter the size, receives the same quick, efficient and effective response.

For more information on the firm, go to their website, or you can call Bruce directly at (404) 467-7526.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

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Show Transcript

Intro: Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Michael Blake: And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. But rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts for how they would recommend thinking about that decision.

Michael Blake: My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton;  Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe to your favorite podcast aggregator and please also consider leaving a review of the podcast as well.

Michael Blake: So, our topic for today is, do I need a succession plan? And I’m intrigued by this topic for a number of reasons. One, as things have sort of worked out, I’m doing a lot of work in the succession planning area, and the dynastic wealth or intergenerational wealth preservation area, and developing strategies to to execute that, figuring out what works, what doesn’t, and helping families build governance around that, so that we don’t have the issues, the so-called shirtsleeves-to-shirtsleeves phenomenon where wealth made in one generation is typically gone by generation three. And in the podcast that was released in the week before, this one had Chris Demetree on talking about establishing a family office, which is one vehicle that is often used to do that.

Michael Blake: And so, this is an area that I like to think that I’ve learned quite a bit about in the last few years I’ve been doing this. It’s also intriguing because I find it somewhat countercultural. We have, I think, in our society and our economy a a pro exit bias. And we talk with entrepreneurs, you talk to venture capitalists, you talk to people in business, and the goal is about exiting. How do I get out? How do we jump off the plane? How do I start to take my chips off the table, and retire, and have a boat that is so big that when people step on it, it does not move? And that’s fine, sort of, as far as it goes.

Michael Blake: But I think it does kind of other options and injustice because there is no law out there that says that the only way to become wealthy and financially self-sufficient, financially independent, and financially impactful is to have an exit. In fact, and maybe there’s something else I’ll do in a podcast later, but there is significant empirical data that suggests that one of the worst things you can do to preserve family wealth over an extended period of time is exit.

Michael Blake: And the reason for that is twofold. One is because, now, you’re liquid. So, it’s easier to do dumb things with your wealth because you can now spend it. And second is that when there’s no longer a family enterprise, there’s less of a reason for the family to be cohesive. It’s easier for everybody to kind of go off and do their own things. And you lose some of the the scale economy’s benefit of having that that wealth kind of amass and in one place. And when it comes to wealth, as some often is greater than the sum of its parts in terms of the impact that you can make. So, I think it’s important to have this voice out there that talks about the other options available other than simply exiting because you don’t necessarily need to do that.

Michael Blake: And I’m not necessarily an expert, but I scratch my head for about two seconds. Then, I remembered a friend of mine who is an expert. And that friend of mine is Bruce Gaynes. And Bruce is a founding shareholder of Kitchens Kelley Gaynes, has over 40 years of experience helping clients, and before practicing law, worked in the tax department of a national accounting firm, and became a CPA. So, he’s your double threat. His law practice focuses on corporate, estate planning, and tax matters. His work involves all sizes and forms of entities. He handles matters concerning the full business lifecycle, beginning with organizational structuring and formation. As businesses and professional practices develop and grow, Bruce helps them properly document and protect themselves with the use of operating and shareholder agreements, independent contractor, and employment contracts, non-disclosure and non-compete agreements, and other documents. As clients look for exit strategies, Bruce negotiates merger and acquisition documents, advises families on gifting techniques, formulates reorganization strategies, and spearheads family and tax planning.

Michael Blake: And I’ll add to that is that he is also the longtime host—I don’t know if he is the founder or not. We’ll ask him about that. He’s the host of the Succession Planning Group, which he’s been hosting in Buckhead for as long as I’ve known him, which has been over a decade, which involves a group of professionals that talk about not exiting, but actually the process of planning for succession and planning for enterprises to go beyond simply their founder or their direct descendants. As part of his work for business owners, executives, and professionals, Bruce maintains an estate planning practice counseling individuals and families in their tax reduction and asset transfer strategies. As a consequence of his involvement and trust and state law, Bruce has extensive experience helping clients with probate matters. Bruce, welcome to the program.

Bruce Gaynes: Thank you very much.

Michael Blake: So, Bruce, like I said, I’ve teed you up. You know, I think you’re about as knowledgeable about succession planning as certainly as anybody I know. So, let’s help people understand what that is. I have a vocabulary reset here or a vocabulary set. What is succession planning?

Bruce Gaynes: Okay. Well, actually, let me say that at the outset that I think that I view the whole topic a little more broadly than you do because I look at this kind of planning as being alternative choices about do we, for instance, keep the company with insiders? And by the insiders, I mean people who are perhaps relatives or people who are not relatives but who are working inside the business, or do we have this go to outsiders? And that’s an important question, because all businesses or all all owners of businesses are going to exit at one point or another. They may do it voluntarily. They may do it involuntarily. And involuntarily might be going bankrupt. It might be just closing down the business because it’s—they’re tired of doing it. It might be just dying or becoming disabled. And so, they might leave, as they say, feet first.

Bruce Gaynes: So, the role of of our law firm is to help our clients maintain control of what’s going to happen in their future. And some of that may involve disposing of the business in a way that’s perhaps more favorable to the owner, either because they are happy that they are keeping it within the family or keeping it within the employee group or because they are going to cash out and sell to a third party. Those are the two primary ways that businesses are disposed of in one fashion or another.

Bruce Gaynes: And the other way that sometimes you see, it’s not very common, but there are also opportunities to go out of a business through an ESOP, an employee stock ownership plan. But that really requires a whole different set of circumstances. You absolutely have to have a bunch of people who are there, who can operate the business without you, which, sometimes, you have people who can be successful as long as the owner is there. Their ability to succeed going forward is dependent sometimes upon them having the proper direction or the proper knowledge. Furthermore, they’ve got to be able to run the business in a manner where cash flows enough, so that the ESPO works. And by the ESOP working, that means that that the ESOP is able to pay normally through a loan, pay for the purchase of the stock of the owner.

Michael Blake: Okay, yeah. And that’s fair. And certainly, in fact, later today, we’re recording a podcast on exiting the business through a sale. But, you know, I mean, it’s my own personal opinion. I do think that the exit by sale is, sort of, the sexier, higher visibility kind of path, right? Everybody loves a good exit. Nobody really—nobody ever writes in The Wall Street Journal about, sort of, a peaceful transition of a business internally, right? But it’s important, obviously, sort of to have all those options on the table.

Bruce Gaynes: Yes. And I think they all need to be considered together, and the same solution doesn’t work for all businesses. Every business is different, and the considerations are different. But the whole idea in putting together a succession plan is to evaluate. Make that evaluation of what’s the proper next step for the business. Put it down in writing in a written plan, and then to implement that plan. And normally, that’s something that takes place over time. And so, ideally we’d like to have at least a few years, some say maybe as many as five, but we want to be able to plan this out because not every business is ready for some form of disposition. Again, whether it’s internal or whether it’s external, it does take some planning in advance.

Michael Blake: Yeah. You know, like you said, I think that’s a great quote. We all will exit, right? Sometimes voluntarily, sometimes not. And if you really decide you’re going to hang on to the very end, it’s sort of feet first. And so, when we talk about—and what I like about what you’re describing too is that, sometimes, a succession plan means that a succession in the classical sense just may not be feasible, right?

Bruce Gaynes: Right.

Michael Blake: Or it may—and it may not be feasible from an economic perspective. It may not be feasible from a family politics perspective, things that have nothing to do, at least, directly with economics. So, you know—and if you know how to do that, if you kind of know that going in, right, that means you’re not going to waste a lot of time and energy on things that just aren’t going to work out.

Bruce Gaynes: Right, right.

Michael Blake: And I think that’s critical.

Bruce Gaynes: And sometimes you have to find out what’s going to work and what’s not, because it’s sometimes the owner assumes that something will work, but they don’t necessarily have the objectivity that that is required to evaluate it. Sometimes, they don’t even have the conversation, particularly if they want to keep it inside the family. They just assume that son or daughter is ready to take over the business. And when you talk to son and daughter, they may not have any intention at all of staying in the business after mom or dad is gone.

Michael Blake: And I think I think adding to that, I mean, you know, we both know we’ve been around long enough. We know that when you have this Venn diagram of family and money, conversations get awkward-

Bruce Gaynes: Yes.

Michael Blake: … at a minimum, or, sometimes, it never happened at all, which is where it kind of where we come back to the succession planning. And I’m curious. if you agree with my observation. I think for a lot of business owners, succession planning is up there with writing a will and taking out a life insurance policy because, in some respect, you’re confronting your mortality.

Bruce Gaynes: Yes. But it’s more than that because, you know, sometimes, people have an awful lot tied up in their business in terms of their own self-evaluation, their own ego, et cetera. Their own purpose in life is, sometimes, tied up in what they do 40 plus hours a week. And so, for a lot of people, it may be even more difficult than death because after death, there’s not much that they need to do. But during their lifetime, they’ve got to figure out, “Okay, how is this going to affect the way I look at myself? How is this going to affect the way other people look at me and treat me? Are they going to ignore me now that I’m no longer the boss?”.

Bruce Gaynes: And then, they also have to confront, what am I going to do now? You know, am I going to be happy playing golf seven days a week, or tennis, or whatever else they might do? What are they going to do to find any kind of meaning at all in their existence? Some people have a great deal of difficulty facing that. Just this past week, I was talking to a friend of mine who left an executive position in a major company, and he’s not had any problem at all, but I do find that his carefree feeling about what he’s doing now is probably less common than the complaint of, “I left my business. Now, I’ve got—I’m trying to figure out what it is I want to do with myself.”

Michael Blake: So, when a lot of people think about succession planning, I think a lot of people’s minds turn to this notion of managing tax liability. And taxes in a succession can be very important. In fact, one reason between the New York Yankees and the Washington Redskins is that the Yankees apparently have very good tax planning because the Steinbrenner is still on the team, right. But when Jack Kent Cooke died, the Washington Redskins did not, and Dan Snyder, and people are gonna start booing at their radios now for Redskins fan, but Dan Snyder is on that team primarily because they couldn’t afford to pay the taxes to keep the team, basically. But it’s—I mean, that’s part of it, but it’s also more than that, isn’t it?

Bruce Gaynes: Well, yes. The taxes are important because, certainly, almost every client wants to minimize estate gift to income taxes. And that’s going to be part of the plan is to consider those aspects of it because it’s going to have a direct impact on what the owner is going to be able to take away from the business. And by the way, that’s irrespective of whether it’s an inside or outside transfer, you’ve got to figure and think about the taxes either way. But that’s not the the only goal of entering into the succession planning arena, and doing so with both feet, and being serious about this as a critical part of the business and the business life cycle. You want to figure out, for instance, for the owner, if they’re going to dispose of the company, and they might be bought out by a third party or might be bought out by an insider. What is it that they’re really going to need in order to retire or move on to the next phase of their of their life?

Bruce Gaynes: They also want to think about—and this is why it takes some planning and some advance preparation, they want to think about what it is they need to do with, if anything, to build their business, to get to that point where they’re going to walk away with enough money to to satisfy themselves. They’ve got to get each element of the business that they can under contract. When I talk about element of the business, I’m talking about having employees who have agreed contractually to stay on for a particular period of time, to not compete with the company because a buyer isn’t going to want to buy a business, and then find out that the sales force just left and created their own competing company.

Bruce Gaynes: And that’s a a serious risk. Normally, you want to find a management team that’s going to stay on, with whom you had a serious discussion about the fact that they’re being hired or their continued employment is premised upon the fact that they are going to be around after the sale, and it may be appropriate to compensate them for that, but that would be a matter of arranging things in a way, a smart way, so that your management team doesn’t walk off just as you’re negotiating a transfer of the stock, again either to an insider or outsider. These are considerations really for either situation, maybe that you need to increase the earnings, the EBITDA, the earning earnings before interest, taxes, depreciation and amortization. It may involve even jettisoning certain aspects of the business to make it attractive for the next owners to come in.

Bruce Gaynes: I’m working on a case right now where we’ve got a company that is in the construction business, and they’ve got a retail operation. The retail operation is a little bit of a distraction, both in terms of time and money, and it’s not part of their core business, and it makes their company less attractive to others who might be coming along. And they’re in a situation where they’ve got people inside the business, younger generation inside the business, that could take it over, but they might decide to go sell to an outsider.

Michael Blake: And, you know, these things you’re talking about, they are so much more expensive to solve when there’s a transaction on the table than when there isn’t, right?

Bruce Gaynes: Right. That’s right.

Michael Blake: Because these people are not dumb if you hired correctly, and they’re going to stay when they have leverage.

Bruce Gaynes: Yes.

Michael Blake: Right? And that gets to, you know, looking at things years in advance. It’s not just because businesses are aircraft carriers, and they just have a very long or wide turning radius. It’s also you can just imagine if you go to an employee and said, “You know what, I like to sell my business, and I’ve got $20 million dollar offer on the table, but they won’t do that deal unless you agree to stay for two years,” right? Well, well, well.

Bruce Gaynes: Right, right.

Michael Blake: I am going to call my attorney, and I’ll be back in touch with you in about a week or so with my list of requests-.

Bruce Gaynes: Right.

Michael Blake: … in order to agree to a stay bonus and signing [crosstalk]-

Bruce Gaynes: Like terrorists, yeah.

Michael Blake: Yeah, exactly right. Exactly right. So, now, I introduced the show from a long-term succession planning perspective. But there’s also a different time horizon, which is the short-term succession planning perspective to write and, really, it’s more like contingency planning or an unexpected succession but, nevertheless, it’s a kind of succession, right? I mean, that’s something that’s also important to think about, isn’t it?

Bruce Gaynes: Right, it is. It is. Many years ago, I had a client—and succession planning is not just for brick and mortar businesses. It can be for service businesses. And this particular client was a CPA who had a firm that had no other CPAs in it. He had, essentially, bookkeepers working for him. And he was concerned about his clients, and it wasn’t really quite as much a matter of, “How am I going to make money out of this?” but he was concerned about what happens if something happens, you know, “If I die, become disabled, who’s going to take over my practice, and see that my client’s tax returns get filed on a timely basis?”.

Bruce Gaynes: And so, frequently, if you had a firm that had several accountants, you might have some sort of buy/sell agreement between the the the owner, the practice, and people who were familiar with the clients, who are working on the clients, they would be the logical people to take it over. But he didn’t have that because he couldn’t continue as a CPA firm unless it had a CPA who is running the firm. And so, what we actually did is we reached out to a friendly competitor, and we did a buy/sell agreement between the two CPAs, and so that if one or the other were to be unable to continue to practice, the one who was able to continue would be able to take it over. There would be a set formula for determining what was going to be paid for that, and it would then inure to the benefit of the possibly disabled CPA or perhaps to the family if the CPA passed away.

Bruce Gaynes: So, that’s the contingency type of planning that really is still part of that larger picture of succession planning. When we do think of succession planning, traditionally, we think about something that’s more long term, three years, five years, as I mentioned. And it would involve trying to possibly improve the businesses, so that the next parties are able to run it more successfully, or pay more for it, or able to achieve some other goal.

Michael Blake: So, when we talk about a succession plan, is it something that needs to be a formal document? Do people maybe just take notes on their phone? Is it on a napkin someplace? Is there a 60-page document? What, in your mind, is the kind of deliverable, if you will, of a succession plan?

Bruce Gaynes: Well, I think it’s very important to have one that’s written. Does it have to be that way? No, but I think it’s much better because if you have a written plan, it records what your thought was back in 2019. And then, you know, in 2027, when you’re looking back at it, you’ve got some sort of track record of, what did you have in 2019? How have things changed? And it’s part of your overall general strategic plan for the business. But the succession plan itself is something that ought to be in writing (A), for the owner himself or herself; and then, (B), for others if the owner is no longer around, if we do have that situation where the owner is taken out of the business rather suddenly. So, the least, they’ve got some sort of idea. Plus, it becomes the basis for how you’re going to make the business better.

Michael Blake: And there is a lot of legal documentation that can go along with it. And in addition to aN overall sort of non-legal strategic plan, it may involve getting restrictive covenants, what we sometimes call covenants not to compete or covenants not to solicit. Maybe a function of getting that in place, getting confidentiality agreements in place. It may be other forms of buy/sell agreements. Maybe even agreements that deal with co-ownership such as shareholder agreements or LLC operating agreements in place. It may involve having a lease. A lot of businesses, at least, in part, the success of the business is dependent upon their location. If you don’t have a good lease, or the lease is not long enough, or you’ve not negotiated the rights in correct kind of terms, it will have a significant impact on either the salability or value of the company or both.

Michael Blake: And it seems to me, the way you describe a succession plan, it sounds like kind of a business plan but with a very narrow specific focus. Is that fair?

Bruce Gaynes: Well, it doesn’t have to be a narrow, specific focus.

Michael Blake: Got it.

Bruce Gaynes: I mean, the plan itself, I think, is an integral part of your overall business paperwork in terms of having something that is strategic, something that looks at the various elements in the business, and that has implementary documents such as the legal agreements to keep management in place.

Michael Blake: So, we’re talking about legal agreement, but a succession plan itself doesn’t necessarily have to be a legally binding agreement, right?

Bruce Gaynes: Correct.  It would refer to those legally binding agreements. And it might have, as I say, the sort of things you would ordinarily find in a strategic plan. It might have, how are we going to improve these these earnings before taxes, et cetera, what we call EBITDA? And it might have in there, what’s going to happen to the business? Who are the people who are going to be capable of taking it over? The functions that the owner is performing at the current time, if there are functions that they’re performing, who’s going to perform those functions?

Michael Blake: So, as my own kind of war story with with succession planning and legally versus non-legally binding, a client of mine, right, that I’m working with right now is working through a nasty shareholder divorce. And the genesis of that divorce is the fact that my client, who’s the majority shareholder of that company, had conversations with the minority shareholder about maybe someday down the line, right, majority shareholder would agree to be bought out by the minority shareholder but with no particular commitment, no particular timeline.

Michael Blake: And then, one day for reasons that are not clear, the minority shareholders said, “You know what? I gotta have this thing now. I just do.” And my client wasn’t right to do that yet. And it’s led to, as I said, kind of a nasty kind of shareholder split that I don’t think has been really positive for either party, in all candor. But thank God that there was not a legal agreement in place because one person was ready to do that transaction, the other person wasn’t. So, you know, the benefit of some flexibility, I think, has served my client very well in that regard.

Bruce Gaynes: Well, it does serve clients well in some regards. On the other hand, there are situations where the minority partner has a particular or critical skill. and walking away from the deal or having the company split can be very damaging to both parties. Well, if they had properly discussed and documented, it’s not just a question of some lawyer coming along and him imposing upon the parties some particular paperwork, is really the situation that you described might very well have been handled best, not by lawyers, but by just frank conversations and honest conversations.

Bruce Gaynes: And sometimes, when I represent the minority owner or somebody who’s coming into a business, the commitment to transfer the business to the person who’s coming in. And, frequently you got to understand, they may be leaving another really good position. There’s somebody of value for a reason. They’ve got a history of success. They’ve got, perhaps, promises for other opportunities that they’re walking away from. And normally, I would want to see some sort of agreement upfront of what’s going to happen in over what period of time, and so that these things would be agreed to upfront. We would want to have that, so that everybody knows, at least, at the outset, you you never can predict the future, you’d never know if things are going to work out as as either the parties or their lawyers hope, but, at least, you’ve got a plan that can be altered, can be amended, may need to be amended, but a plan where we don’t have people second thinking all of this and having one party dedicate himself or herself to a particular course of action, and then having the other party not comply.

Michael Blake: So, you said something that I want to underscore because I think it’s quite smart. And that is that part of the calculus here is identifying individuals that are absolutely critical to the ongoing kind of continuity, success, and value of the company, right? So, that succession discussion may take a—probably will take a different flavor, a different character, depending on the nature of the person involved, right? And in some cases, I have business owners, and I think you have clients like this too, they identify individuals they just want to take care of, right? They’ve served the company loyally for 25-30 years, want to give a little something on the way out to thank them for their service and loyalty.

Michael Blake: And then, there are others where, like you said, this business becomes less viable because that person is in it or, at least, a massive pan the neck to try to then have to recover with that person out of the business, or even just a third disgruntled. And for whatever reason, they understood something differently from what the other shareholder did. And, you know, a disgruntled shareholder employee can do immense damage to a business without even leaving.

Bruce Gaynes: Right.

Michael Blake: Right?

Bruce Gaynes: Right.

Michael Blake: They can break a lot of China on the way out. So part of that decision process in the succession is assessing kind of who needs to be taken care of and what their role is in terms of a successful succession.

Bruce Gaynes: Correct. And it may be that if you’ve got somebody who is not capable of running the business themselves, but you’ve got some reason to believe that they’re not going to take direction from anybody other than the current owner, you may need to remove them from where they are before you ever begin the discussion because they may be the problem. And in setting the succession up, you may have vital tasks that they are accomplishing, but if they’re not going to do that for somebody else, you may need to get somebody in there ahead of time to fulfill that role.

Michael Blake: So, I think we made a pretty strong case that a succession plan is desirable, and there’s some exposure there if you don’t have one. So, I’d like to move ahead and talk about, can we identify maybe the three most important features of a good succession plan? There are actually 28, but we don’t have time to go through 28. Nobody will remember more than three. So, if we had to sort of pick three, what might they be?

Bruce Gaynes: Well, I think, you know, I tend to agree with you, with the 28. You know, I think the most important thing is to assess the business because, I think, the three most important things are going to change, depending upon what business you’re talking about. And so, in some cases, it’s going to be driving a higher EBITDA because that’s the only way that the owner is going to be able to get out. In other situations, it may be resolving. And this is particularly the case in family businesses, resolving how are my kids going to get along after I’m out of the picture? Will they get along?

Bruce Gaynes: I’m dealing right now with a rather new client. So, I’ve sort of jumped into the middle of the fray, but we’ve got one sibling who died, one sibling who’s detached, two siblings who are—the spouse of the deceased sibling and another sibling were half in and half out. And we’ve got a significant problem because we’ve got to deal with who is going to own what aspect of the business, and how is any kind of transition going to be financed. And in fact, I was brought into the business or referred into the business by the banker who is trying to help them solve the financial aspect to this. And, you know, unfortunately, this this business did not have a succession plan that was good. It’s a successful business in some ways because it’s in the third generation of the business, but it’s because of the lack of planning, having written, agreed-upon plans for this, there’s kind of a mess there right now.

Michael Blake: So, this segues very nicely into the next question that I have, which is, you know, a succession plan, to my mind, is a fairly intimate document for the family if it’s going to continue to be a family business. We’ve been very clear. it doesn’t have to be that way. But, certainly, for the business, how do you help businesses kind of formulate those plans and make sure that they work correctly?

Bruce Gaynes: Well, I think the thing that that we need to do first is to assess what the objectives really are. And part of that involves finding and figuring out what is it that needs to be done with this respective business, and then bringing in the proper advisors to help them do that. And there are people who are dedicated, if you will, or hold themselves out as people who do nothing or succession planning generalists who try to look at a—take a holistic view of the company, delve deeply into various aspects. They might be spending significant amounts of time in the business, learning what’s going on, getting an independent view of this business, and then making recommendations.

Bruce Gaynes: Sometimes, there are situations where you’ve got a lack of legal documentation. You may need business lawyers in there. You may need some estate planning lawyers in there. I usually cover both the business and the estate planning because you’ve got significant tax issues, as you mentioned before. It may involve getting the proper accountants involved. I’ve got a case right now where the entire accounting is based upon some people whose loyalty to the company is not assured. And so, you may need to get the proper accountants in there, so that they get their arms around what this business is worth.

Bruce Gaynes: I’m dealing with another business. As matter of fact, I was talking to my client on the way over here. And again, a new client. She’s allowed a management company to run the business for the last several years. And the management company just has completely fallen down in terms of providing proper accounting, and proper records, and general ledgers, and things like that. So, sometimes, you just gotta get that right person in there. It may involve getting financial planners or insurance agents in there. That may involve getting a business broker. If we’re going to sell to a third party, maybe that we need to get a business broker in there or an investment banker if it’s a larger business. We may need to get a business valuation person involved because it might very well be that the owner has no idea of what their business is worth or no accurate idea of what their business is worth.

Michael Blake: Thank you for that, by the way. I appreciate that. Well, Bruce, we’re running out of time, and I know you’ve got a lot to do, and we yanked you many miles out of town to record this. And as you’ve indicated, there are 28 other things that could be looked at here. If somebody wants to learn more about succession planning and wants to ask you a question about it, maybe they would even like your help, how can they best contact you?

Bruce Gaynes: Well, I can be called. I mean, my office is inside the Atlanta-Georgia perimeter, what we call the Perimeter Highway, just off of 400, Georgia 400. I can be reached by phone at 404-467-7526. That’s my direct dial. I can be found on the Internet. Our firm can be found at www.kkgpc.com And KKGPC stands Kitchens Kelley Gaynes Professional Corporation. So, I can be reached by either of those means.

Michael Blake: All right. Very good. Well, that’s gonna wrap it up for today’s program. I’d like to thank Bruce Gaynes so much for joining us and sharing his expertise with us. We’ll be exploring a new topic each week, so please turn in so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsors is Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, exit planning, exit strategies, Family owned business exit planning strategies, Kitchens Kelley Gaynes P.C., Michael Blake, Mike Blake, small business exit planning, small business exit planning strategies, succession plan, trust and estate law

Decision Vision Episode 31: Should I Start a Family Office? – An Interview with Chris Demetree, Demetree Brothers

September 12, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 31: Should I Start a Family Office? – An Interview with Chris Demetree, Demetree Brothers
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Decision Vision Episode 31:  Should I Start a Family Office? – An Interview with Chris Demetree, Demetree Brothers

What issues should be considered in starting a family office? What makes a family office successful? The answers to these questions and more come out of “Decision Vision” host Michael Blake’s interview with Chris Demetree, Demetree Brothers. “Decision Vision” is presented by Brady Ware & Company.

Chris Demetree, Demetree Brothers

Chris Demetree

Chris Demetree is one of the co-founders of Demetree Brothers, Inc. and currently serves as Vice President. Chris has served as the Managing Partner for Alico Estates Development Associates and as Vice President of Demetree Pasco Properties, Inc. His past developments include over 2,000 single family lots, a golf course country club community, and numerous commercial office/retail centers. Chris has served on the Board of Directors of several private and public companies.

Chris possesses a strong record of entrepreneurial success, with over 25 years of experience building successful technology businesses. He is currently the CEO of Lazlo, a digital platform that enables new channels for monetizing digitally stored value. Lazlo evolves traditional gift cards, coupons, lottery tickets into dynamic digital assets that can be used as a vehicle for advertising, data collection, and branding, while adding security to digitally stored value.

Prior to Lazlo, Chris was a founder and partner in V-P Ventures (VPV), a private investment firm focused on early stage and private equity transactions. Before VPV, he held C-level roles with successful startups including Recordant, STC Corp., Intelligenxia and Urban Media. He has a B.S. in Industrial Management from Georgia Institute of Technology.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

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Show Transcript

Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Mike Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different business topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Mike Blake: [00:00:39] My name is Mike Blake, and I’m your host for today’s podcast. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Mike Blake: [00:01:03] Our topic today is family offices. And family offices are probably one of the better kept secrets in the American economy. For the most part, family offices do not seek rock star status. They’re very different from, kind of, your Silicon Valley, fast company, red herring, sort of, I don’t say want to say attention-seeking, that’s not fair, but very high profile organization. The fact of the matter is you may work next to a family office, you may live in the same neighborhood as somebody who’s in or works in a family office or has a family office, and you wouldn’t even know it. We don’t have Yellow Pages anymore, but if we did, there probably would not be an entry for family offices. And I think we can all kind of appreciate that as to why that is. But the fact of the matter is that they are increasingly popular as a tool and an infrastructure for managing wealth.

Mike Blake: [00:02:15] And a lot of us on the radio, myself included, would love to have the problem where we have so much wealth that it becomes a different kind of responsibility to manage it. But the fact of the matter is it is a responsibility to manage it, especially if you’re in a position where you are sharing it with family, and there are not just family relationships, but fiduciary relationships involved. And it’s important, also, because I think a lot of people who are creating wealth, particularly those who are creating it this generation, they’re building it, and then either exiting it, or transitioning their core enterprise, they’re starting to realize that something called a shirtsleeves-to-shirtsleeves phenomenon.

Mike Blake: [00:03:00] There are all kinds of studies out there – I don’t have to cite one in particular, you can Google it – that say that for the most part, if a family makes, or generates, or produces an amount of wealth, let’s call it $20 million just to pick a number out there, statistically speaking, in three generations or by generation three, only 10% of that wealth is going to remain. And by the fourth generation, 3% of that wealth remains. And a great case in point is the Vanderbilt family. They built their wealth in the early 19th Century, and basically doing ferries around Manhattan and Pennsylvania. But the name is much stronger than the wealth. In fact, Anderson Cooper of CNN, who is actually a 6th generation Vanderbilt, has gone on record saying there ain’t no trust fund waiting for him. And perhaps if they’d had a family office or a structure like that, maybe that scenario would be different.

Mike Blake: [00:04:06] So, the goal of this podcast is to shed a little bit of light. If you’re thinking of whether a family office or something like that structure is useful for you, or maybe you’re advising somebody who’s thinking about a family office, the goal of this podcast is to provide some insight into that. And to help us with that we’re talking with Chris Demetree. And Chris is a very successful entrepreneur in his own right. He has more than 25 years of experience building successful technology businesses. He has extensive experience with family offices and is also an active player in the Atlanta startup community. He is currently the CEO of Lazlo, a digital platform that enables new channels for monetizing digitally stored value. Lazlo—I’m sorry. Lazlo evolves traditional gift cards, coupons, lottery tickets into dynamic digital assets that can be used as a vehicle for advertising, data collection, and branding, while adding security to digitally stored value.

Mike Blake: [00:05:06] Prior to Lazlo, Chris was a founder and partner of VP Ventures, a private investment firm focused on early stage and private equity transactions. Before VPVChris held C-level roles with successful startups including Recordant, STC Corp, Intelligentsia, and Urban Media. He also has a Bachelor’s Degree in Industrial Management from the Georgia Institute of Technology. Chris Demetree, welcome and thank you so much for coming on the program.

Chris Demetree: [00:05:33] Michael, thanks for having me. I appreciate the opportunity. Looking forward to today’s conversation.

Mike Blake: [00:05:41] So, Chris, before we begin, I want to give you a little bit of an opportunity for a soapbox here because I know this is a venture that’s very near and dear to your heart. Tell us a little bit more about Lazlo. What does a listener listening to this program need to know about Lazlo, if anything?

Chris Demetree: [00:05:56] Well, no, I appreciate the opportunity. I love talking about investments. As a—unfortunately or fortunately, I’m a serial entrepreneur at heart.

Mike Blake: [00:06:05] We haven’t been able to cure you yet.

Chris Demetree: [00:06:08] Say that again.

Mike Blake: [00:06:09] We have not been able to cure you yet.

Chris Demetree: [00:06:11] Yeah, no kidding. No kidding. I told somebody, it’s literally like a drug. When you get involved with early-stage companies, especially if the first one goes well, it’s hard to kick that habit, but no. So, well, with regards to Lazlo, our core technology and our core platform is focused around changing the way physical instruments today, physical value instruments today are converted into the digital world. And so, we’re creating a new digital platform to share, to purchase, and to disseminate stored value being gift cards, coupons, event tickets, that type of stored value. So, we’ve been working on it for a little while, and we’re very excited about our future. We think there’s a real big opportunity here. So, thank you.

Mike Blake: [00:07:09] We’ll be looking to hear more about it as time goes on. So, let’s dive into the-

Chris Demetree: [00:07:15] Well, Michael, Michael, I want to go back and point one thing out. As Anderson Cooper said, there’s no big trust fund there for him. That’s only because he didn’t want it.

Mike Blake: [00:07:25] And so, you can tell.

Chris Demetree: [00:07:26] When his mother passed away, there was almost a quarter of a billion-dollar fortune in place.

Mike Blake: [00:07:31] Oh, is that right? I didn’t know that.

Chris Demetree: [00:07:33] She died with estimated $200 million net worth.

Mike Blake: [00:07:42] Okay.

Chris Demetree: [00:07:42] But yeah, that’s—he was—that’s self-promotion on Anderson’s part, but, no, there was still a significant amount of wealth in her name. And she’s what? As you said, I can’t remember what generation, but she’s quite ways down the line.

Mike Blake: [00:08:00] Yes. She’s 5th. So, Anderson’s 6th. So, again, it’s the first learning point of the day. We know a little bit more about the Vanderbilts.

Chris Demetree: [00:08:10] Yeah, there we go.

Mike Blake: [00:08:10] So, we’ve talked a little bit about this offline. And I understand that you’re not necessarily involved in a family office, but I know you’re involved in some things that are family office-like or have some family office features. So, I think that there’s a lot that we can talk about and educate the listeners. But let’s start with the basic vocabulary starting point. To your mind, when somebody says family office to you, what does that mean?

Chris Demetree: [00:08:38] Well, a true family office, in my mind, is a—it is a family network that operates very similar to a venture capital fund or a family office that operates very similar to a private equity fund. The main difference is—and again, it goes back to what you were saying with regards to how high a profile these family offices typically try to keep, they don’t need to keep a high profile. The reason they don’t is because the LPs are the family; whereas, for private equity and venture, they do have to tout themselves and their successes to the marketplace because they’ve always got to go create that next fund to sustain their long-term viability. And that means attracting new LPs, in addition to the existing LP network that you had in your first or second fund for each one thereafter. So, that’s a big part of the difference. But when you think of family offices, again, I think of a family office working very much like venture or private equity. How it is structured is completely different, but the LP network is what I think separates it the most. Meaning, all family versus outside capital.

Mike Blake: [00:10:01] Okay. And so, to that end, yeah, let’s then kind of operate with that working definition that is a captive investment fund that just happens to belong to a group of people all with the same last name or, at least, DNA traits.

Chris Demetree: [00:10:17] Sure.

Mike Blake: [00:10:17] Does that mean then that the family office also then faces similar challenges in terms of deal flow and decision making, in terms of good deals versus bad deals, governance, things of that nature?

Chris Demetree: [00:10:32] Number of questions there. So, deal flow, I will tell you that the investment community around a family office. So, let’s take for instance here in Atlanta, if there are family offices here in Atlanta, typically, the investment community, whether that’d be private equity, venture capital, the accounting world, from a deal flow standpoint, will have a good sense of what that family office likes to look at. As far as types of deals, what their appetite may be for size of deals, whether they want to own a majority stake in the company, or they want to follow behind an investment group. So, deal flow, to me, is not quite the same as a private equity group, who’s out there looking at everything. They can be—the family offices have the tendency to see less deals but more targeted deals, if that makes sense.

Mike Blake: [00:11:36] It does. That gets back to the thing you mentioned, your definition then, the network is really a key defining trait of the family office, isn’t it?

Chris Demetree: [00:11:46] It is. It is as far as pre-screening deals. Unlike, I will call it a true venture group or venture capital group who wants to look at most every deal, because, again, that’s kind of their charter is to find, to look at everything, and know the marketplace, know everything going on in the marketplace, especially within its sectors. The family offices don’t have to do that because they’re typically invited in or invited to participate in deals, or they’re looking at something that may be a core expertise that they want to own the whole deal or a majority of the deal.

Mike Blake: [00:12:32] Okay, So, I sidetracked. So, so I won’t get back because I think-

Chris Demetree: [00:12:35] Oh, that’s right.

Mike Blake: [00:12:36] …you had mentioned another part, which is about governance. Do family offices and private equity funds face similar governance issues, or they wind up being very different?

Chris Demetree: [00:12:46] Again, it—and this is one man’s opinion, but I believe it’s just how they are structured. You can have some family offices that are operated literally by a majority of outside advisors and investment advisors, or you can have family offices that are run more by family members that are making investment decisions. I think a lot of that comes down to the capabilities of the individuals. And as I’ve said to you before, I think a lot of that comes down to what the generation that’s setting up the family office believes they have done to prepare the next generation to be able to do that themselves. They very much face similar types of issues when it comes up with regards to—I’m sorry, the success and failures of deals.

Mike Blake: [00:13:48] Okay.

Chris Demetree: [00:13:48] Depending on the profile or the mix of the investment strategy of a family office, whether it’d be outside investors or the family-managed investments. If they are looking at higher risk investments, then, again, at the end of the day, they’re going to have a very similar track record to that of a venture capital firm looking at early to growth capital type of investments. If the family office takes a more conservative role, and they’re only looking at what I call it [indiscernible] businesses, then I would expect to see a higher success rate. I can’t tell you whether or not it’s going to be higher rates of returns or not. That’s just—only time tells you that with your investments. But they’re subject to the same exact issues that a venture capital firm is doing.

Mike Blake: [00:14:47] Okay. So, I think you’re starting to answer this question already, but I want to hit it directly because, again, I think it’s an important question. So, I think when outsiders look at family offices, I think we tend to have an image of our mind of the playboy, the constant gallivanting around the world, the golfing, et cetera, et cetera. But you’re kind of painting a picture that’s much more of a business entity where you’re out there, and you’re actively doing—you’re working, you’re doing deals. The job is different, but it’s certainly a job, and one that has to be taken seriously. Is that a fair characterization?

Chris Demetree: [00:15:29] It’s absolutely. I mean, it is—yes. And that it is a job that has to be taken seriously. You are managing LPs money. It doesn’t matter if you’re managing your own money or if you’ve got advisors that are managing that capital for you. So, I mean, for true family offices, it is a business. And they hold themselves—and again, as I said to you, I mean, every one of them can be set up differently, but I know of a few family offices, and they hold themselves to very strict standards with regards to looking at all of their investments, looking at what their IRR is. Does it make sense to stay in this vertical? I mean, again, no different than how a business would be run. That is slightly different than how you preface the conversation by saying or the question by saying, “Some people think of a family office as a trust fund baby.”

Mike Blake: [00:16:35] Right.

Chris Demetree: [00:16:37] They’re out there. Absolutely, they are. It’s getting harder and harder to generate that type of wealth, although the dot com industry would tell you maybe not, or the Silicon Valley, but it’s getting tougher and tougher. But it’s the same—how do I say this? There may not be as many of those type of flamboyant playboys out there anymore. They don’t need to be. It seems to me that the entertainment industry is more than sufficient at providing us enough icons to follow that are gallivanting around and throwing money away.

Chris Demetree: [00:17:21] I think the family offices now—and again, this is just an opinion, but I think the participants try to keep a lower profile because you were exposed to so much more today with cell phone cameras and everything else going on in social media that the lower profile you can keep, the less you are going to be subjected to risks. And those risks comes in the form of lawsuits and that type of stuff. It’s just different. But it all goes back to what the founder or the creator of that family office thinks of the next generation or the next generation after that.

Mike Blake: [00:18:12] Now, most family offices, I think, are ultimately founded by the success of one core business. And even today, the Rockefeller zone, a stake in Exxon Mobile, and the Fords on a stake, and Ford Motor Company, although there’s a weird story behind that, they should own more, but they don’t.

Chris Demetree: [00:18:32] Right.

Mike Blake: [00:18:32] Mark Zuckerberg has his own family office now, and that still owns a big chunk of Facebook, even though it’s public. Is it your impression that most family offices, once the wealth gets organized in that way, do they tend to then start to branch out into other businesses?

Chris Demetree: [00:18:53] The diversification, absolutely. I mean, take, for instance, Mark Zuckerberg. Zuckerberg has no idea what the next generation is going to look like. And with—though, just an his age, I mean, he’s, what, 20 years younger than I am probably, and I’m not old yet, but he has no idea what it’s looking like. So, I think part of it is going to be transferring wealth generationally. That’s part of why you set up the family offices. Diversification is not only for his future generations, but for him. The old adage, “You never want all of your eggs in one basket,” even though you control that basket.” So, you may even drop it, but yeah. So, if you can diversify—and that is a way to do it and keep it in a structure that is not subject to the transfer taxes later. And again, as you said, he got a—he set up the foundation or the family office most with stock. Well, that affords him the ability to grow the value of that family office as he grows his core business. And that just allows him the chance to move more money into that tax-free.

Mike Blake: [00:20:28] Now, there are kind of different flavors of family offices out there. There’s the classic, sort of, single family office where everything is, sort of, captive. There’s the multi-family office where it’s kind of like a co-op or a fractional ownership of a jet. And then, they’re kind of even virtual family offices where there’s some certain family office characteristics, but it’s not necessarily formally organized that way. Are you aware of those distinctions? And are you in a position to maybe talk about maybe some of the pros and cons of those kind of flavors?

Chris Demetree: [00:21:10] Well, I mean, again, I can give you my opinion for whatever it worth. Every man has one, or every person has one nowadays. I apologize. I didn’t mean to sound that way. So, I am—when I think of a multi-family office, I think of a similar DNA that travels throughout that family office. The names of the players may be changed with regards to marriage and that type of stuff, but there is an inherent DNA that runs through all of them that traces back to the origin of the family office, I could be wrong. Again, I don’t call them family offices per se to know that many of them.

Chris Demetree: [00:22:04] I think of a true functioning family office as being one family. And then, I think there’s two flavors. And again, it goes back to something you taught me, which is that shirtsleeves-to-shirtsleeves. That’s not something I heard before. I do understand it. I didn’t know they put that name to that phenomenon of losing your wealth after two or three generations. I believe—and I hope I’m not rambling too much for you, but I believe that it goes back to what I said before, when you set up that family office or the originator, the titular head of the family sets it up, he or she has kind of made a decision in their own mind, I believe, of what they have done to prepare the next generation. And you have some that look at it and don’t believe they prepared them very well. And they structure that family office where it’s got to be managed by an outsider. The next generation needs adult supervision because they’re not capable of doing it themselves. Well, I will tell you that, for a different myriad of reasons, that goes back to—more times than not, it falls back to the person that’s setting that fund up.

Chris Demetree: [00:23:34] But as I’ve said to you before, we do not operate a formal family office, but I was also forced to work. We didn’t come from that kind of wealth. And my father’s attitude was even if he does create it, we were going to know—his kids were going to know how to work, all of us. The boys were stuck on construction sites, and the girls were typically stuck in the office. That was 30, 40, and in some cases, 50 years ago with my older siblings. So, that was just how they did it. That was his way of doing it, but he did prepare us. He taught us to work. And we were very fortunate as a family that we worked together. I worked with my brothers, and my sisters, and my dad on a daily basis, whether it was running our family development business or whether we were analyzing things to invest in.

Mike Blake: [00:24:41] Now, you said something I want to zero in on because I hadn’t thought of that, and I think that’s so insightful, which is the DNA. And as I interpret it, I know that there’s a biological DNA, but I think there’s also a philosophical DNA.

Chris Demetree: [00:24:55] Correct.

Mike Blake: [00:24:56] And getting into multi-family offices, and I hadn’t—frankly, I had not thought of this issue before. There are plenty of folks out there that offer multi-family office services, all the big wealth management firms, whether it’s Merrill Lynch, or UBS, or whoever, they offer that. And it’s like you want a family office, but maybe your wealth isn’t at that point where you can justify taking on all the overhead yourself, so you get that fractional approach. But then, it occurred to me that, what if the other people kind of in your—that they’re going to be invited into your condo, or in your campsite, don’t share the same values, don’t have the same needs, and short and long-term goals, that can probably very quickly become an awkward fit and hurt the success, really, of everybody involved.

Chris Demetree: [00:25:56] So, Michael, what I hear you describe in the way you’re asking that question or the way you’re kind of describing that scenario, what I hear or think of in my head is an LP network. So, when you talk about a Merrill Lynch that’s managing multiple family offices, I would look at those multiple family offices as limited partners that Merrill Lynch is providing the partner—the management piece of. But, again, each one of those family offices is going to have a—in this term a DNA, it’s going to be an investment strategy, and a theory, and a philosophy of what do they want from that investment. Is this high growth? Is it—do they want something that’s income producing? As I call it, mailbox money, where it’s slightly lower growth, but it’s 8% or 6%, whatever, they can count every year coming in that mail. You’re not going to cross-pollinate if you are the manager. And then, again, we’ll stick with your reference to Merrill Lynch. If Merrill Lynch is the one managing those multiple portfolios of family offices, Merrill Lynch is not going to cross-pollinate a growth family office with an income-oriented family office.

Mike Blake: [00:27:29] Right, or, at least, they shouldn’t.

Chris Demetree: [00:27:31] Or they won’t be managing the money long if they do.

Mike Blake: [00:27:34] Yeah, I would imagine that’s true. So, you touched on something I want to touch on. And I needed to ask this question delicately, and you’ll probably want to answer it very delicately, but it’s important. In terms of the management, the operative word in family office is family. And you mentioned that, sometimes, there are circumstances where it’s not appropriate for a family member to manage the family office. Maybe the people are just too young. Maybe they’re not cut out for it. Not everybody—even if you’re in a wealthy family, that doesn’t necessarily mean you’re good at business, you have any kind of aptitude for it. So, in your experience and what you’ve observed, how does that get kind of worked out? Do families kind of default to the eldest working-age person, or do you find that they go out and hire kind of professional management, or is it some mix of the two? Is it all over the board?

Chris Demetree: [00:28:42] I would—again, not speaking specifically for anything that I know. Again, just an opinion, but I believe it’s all over the board. There are a couple of key things that I have often thought I think are important in a family office. And when I talk about a family office, I think of it as a family that’s investing together, whether that’s formally or informally. When you speak of a true family office, that setup, that dynamic is a formal instrument that drives an organization, whether it’s an LLC, or LLP, or MLP, whatever it may be.

Chris Demetree: [00:29:33] But there are some things that, with an informal arrangement, there are some key things that have to be in place. Otherwise, an informal process doesn’t work. And then, one of the key ingredients is there’s got to be an inherent respect between the players that are sitting at the table, whether those players are all related through their biological DNA, or whether or not they are related both to DNA in operating agreement that says they need to be there. So, if there’s an advisor at the table, the family members need to respect that advisor.

Chris Demetree: [00:30:21] Secondarily, I think, for an informal office to work well, you have to understand that among the family members, there is a hierarchy. You do have older and younger siblings, And there’s a respect that should run regardless of—and, again, it’s just how I was raised. There’s a respect that runs through the family for your older and younger siblings. You look to the older one in a quick diversion, but I can—in my particular instance, I’m the youngest of five kids, and I remember it wasn’t long ago that I lost my dad. And, I was talking with my father before he passed away, and I looked at him, and I’ll never forget it.

Chris Demetree: [00:31:14] We were sitting outside talking. This was probably within a month of when he passed. We knew it was coming. And I said to him, “I’m not ready for you to go yet.” And he goes, “No, you’re going to be fine.” And he goes, “You’ve got your mom here. You’ve got your brothers.” I said, “No, but I’m not ready to be that next generation.” I said, “I’m used to having you.” And my point is we have that older generation to look for. When my father passed, yes, my mother is still part of that generation that is still there, who I still respect and looked to, but a lot of it reverts to my older brothers, my older sisters. I look to them. That is kind of our hierarchy. I’m comfortable of that. Some people might think I was crazy.

Chris Demetree: [00:32:08] And then the last piece, Michael, that I will touch on is in order for an informal office or family to work as a family office, you got to like being around each other, you got to like working together. It’s not just about making money, it’s about being together, and doing things together. When one succeeds, you all succeed, regardless of the degree of success. Everybody kind of does it together. So, that’s more of an informal process. A formal process, it’s all scripted out on paper. Here’s who’s going to make the decisions, here’s how they make the decisions, and that’s got to be decided by the creator of that family office.

Mike Blake: [00:32:59] I think that’s a great way to—I think it’s a great way to kind of finish it. I really appreciate you sharing that story. You can, sort of, hear a pin drop in the studio as we were listening to that. That’s powerful stuff. And I want to go back to something you and I had in a private conversation that I don’t think you’ll mind that I express is that you told me that if the first motivation is about the money, it’s never going to work.

Chris Demetree: [00:33:27] It will never work.

Mike Blake: [00:33:28] It’s got to be the relationships first.

Chris Demetree: [00:33:30] It will never-

Mike Blake: [00:33:30] The money is there but-

Chris Demetree: [00:33:31] Now, Michael, that’s not a family office. That’s life. That’s life. If your only motivation in life is money, you’ve got a long, long road ahead of you and a very sad life ahead of you. It’s not about that. It’s about your family and it’s about your faith. And you follow those two things—that was the core value my parents taught me. You follow those two things down life, and you will have not only a good life but a very successful life. The rest of it will fall into place, but you follow your family and your faith.

Mike Blake: [00:34:09] I can’t think of a better ending. So, I’m going to quit while we’re ahead.

Chris Demetree: [00:34:14] Yeah, because you never know what I could say after that.

Mike Blake: [00:34:16] Or me. I’m not going to add anything to that. So, that’s going to wrap it up for today’s program. I’d like to thank Chris Demetree so much for joining us and sharing his expertise with us. And do check out Lazlo as well. It’s a cool company, I think, we’ll be hearing more of in the future. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. That helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor’s Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, Demetree Brothers, diversification, family limited partnership, family office, family office management, family offices, family relationships, generational wealth, limited partnership, Michael Blake, Mike Blake, multi-generational wealth, starting a family office, wealth management

Decision Vision Episode 30: Should I Implement a Sustainability Program in My Business? – An Interview with Troy von Otnott, Massive Technologies

September 5, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 30: Should I Implement a Sustainability Program in My Business? – An Interview with Troy von Otnott, Massive Technologies
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Mike Blake and Troy von Otnott

Decision Vision Episode 30:  Should I Implement a Sustainability Program in My Business? – An Interview with Troy von Otnott, Massive Technologies

How do I start a corporate sustainability program at my company? What do the insurance markets reveal about the necessity of a sustainability program for my business? The answers to these questions and more are covered by Troy von Otnott, Massive Technologies, in this important discussion with host Mike Blake. “Decision Vision” is presented by Brady Ware & Company.

Troy von Otnott, Massive Technologies

Troy von Otnott

Troy von Otnott is the CEO of Massive Technologies, a clean technology and sustainability consulting company in Atlanta, Georgia. Massive is currently pursuing business opportunities in commercial/industrial solar asset financing and deployment in Puerto Rico, development of graphene-enhanced ballistic products for the U.S. and Canadian militaries, and is currently consulting with a major Chinese investment bank on a strategic plan to significantly reduce China’s carbon emissions and pollution by helping to transition some of  their electric generation assets from coal to cleaner burning natural gas.

For more information, you can email Troy directly.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

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Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional full-service accounting advisory board that helps businesses and entrepreneurs make vision a reality.

Mike Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Mike Blake: [00:00:37] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast? If you like this podcast, please subscribe on your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Mike Blake: [00:01:01] So, our topic today is sustainability programs. And whether the issue or the conversation has revolved specifically around global climate change, whether it has been around local pollution, whether it’s been about economic sustainability and recycling materials, whether it’s been about land conservation, some elements of the environmental movement and, by extension, sustainability, I think, is in everybody’s corporat⁠e⁠—everybody’s consciousness.

Mike Blake: [00:01:35] And maybe it’s considered polarizing, maybe it’s not, but it’s not something that nobody has an opinion on. And there’s a sense that companies have⁠⁠—at a minimum, all companies have an opportunity to be constructive in terms of environmental sustainability, and how they impact the environment, and what their footprint looks like, and are they reinvesting back what they’re taking out of the environment to conduct their commerce?

Mike Blake: [00:02:03] And then, I think where there’s a disconnect is, what is the obligation of the corporation to, somehow, either ameliorate the impact that they themselves have on the environment, or even to be a net positive contributor to the environment, even beyond whatever impact that they have? And I don’t think it’s fair to say there’s a right or wrong answer to the question. But if you’re a business leader, you’re faced with the question of, should we be doing something to be promoting the environmental, ecological sustainability of our business? Should we be doing more than we’re already doing? Or in some cases, are we doing too much? Should we be scaling it back? Because there can be a cost to this, at least, in the short term.

Mike Blake: [00:02:50] And that’s particularly noteworthy in the public markets where the public markets reward investors. Frankly, they reward managers based on short-term metrics and short-term gains much more than they do long-term metrics and long-term gains. And so, to some extent, there actually can be a fundamental financial and economic disconnect that maybe, otherwise, prevents some behavior that managers, in fact, would like to do but, somehow, feel constrained.

Mike Blake: [00:03:23] And so, the decision really that’s, then, put before us as business leaders is, should we be thinking about the environment more? Should we be thinking about the environment around us, not just as a publicity exercise, but is this something that we can and should be building into our business plan? And most importantly, we’re often told that there’s a palpable cost, there’s a tradeoff that, well, you can plant some trees, you can save a polar bear, you can help rising sea levels, but this is going to cost you something to do that. And maybe we’re going to challenge a little bit of that perception today or maybe we’re going to confirm it. And that’s about as much as I know. So, I’m going to stop talking about that myself and bring on our guest.

Mike Blake: [00:04:12] I’m very pleased to introduce Troy von Otnott. Troy is the CEO of Massive Technologies, a clean technology and sustainability consulting company here in Atlanta, Georgia. Massive Technologies serves as a consultant to renewable energy and sustainability-focused companies. The company also facilitates sustainable mineral and fuel commodity transactions on behalf of a large Chinese investment bank, helping to mitigate their pollution and climate change challenges, which we know are myriad. And we probably don’t know the full story because they’re not exactly the most transparent country in the world when it comes to their own issues. Troy is also the ambassador for Cleantech Open, a national nonprofit program that encourages entrepreneurs to develop technologies to address environmental sustainability challenges. Troy, welcome to the program. Thanks so much for coming on.

Troy von Otnott: [00:05:02] It’s great to see you, Mike.

Mike Blake: [00:05:04] So, we almost missed the podcast because we are talking so much before the podcast. You got so many interesting things to talk about. And I’m going to dive right into what was a fascinating backstory that I did not know. How did you become engaged as you have been with the sustainability? This is not something you necessarily grew up from as a kid thing thinking, “I’ve got a—this is my thing,” right?

Troy von Otnott: [00:05:27] No, not at all. In fact, I’m from New Orleans. And as you know, Louisiana is one of the largest oil and gas production states in America and a petrochemical production center as well. And so, being an environmentalist in Louisiana is kind of weird, and you’re thought of as a bit of an outlier.

Mike Blake: [00:05:50] Small club, right?

Troy von Otnott: [00:05:51] Yeah. And so, it’s not something that I ever thought about being involved in. In most of my adult life, as I was mentioning before the podcast began, I spent most my life doing event production. New Orleans produces a lot of events, and I was enjoying that career. But in 2005, my world and all my fellow citizens in New Orleans worlds changed due to the impacts of Hurricane Katrina. And we lost a lot. We lost over 2000 lives, billions of dollars of property value. And I, personally, lost an entire career.

Troy von Otnott: [00:06:34] And so, it was at that moment that it made me start to reflect and think about why was this particular storm more damaging, more impactful than others. And after doing a substantial amount of research, I started to understand a little bit more about global climate change and felt like I needed to direct my talents and my skills to try to play a small role and do something to have an impact and try to rebuild the city in a more sustainable way.

Mike Blake: [00:07:09] And I mean, it really was a much more impactful storm because let’s face it, New Orleans gets hurricanes, right? I imagine—I don’t know, I grew up in Boston, we got one hurricane every 20 years, and it’s a category one. I imagine, New Orleans, wake me when it’s a Category IV, and then I’ll start to get excited.

Troy von Otnott: [00:07:26] Absolutely. The complacency for Hurricane Katrina was staggering. In fact, on a personal basis, my sister, and my niece, and nephew were very complacent. And as much as I had a bad feeling about this one and begged them to leave with me, they decided to stay. And for about two weeks after the storm landed, they were lost, lost in the system. And I thought they were dead because the ranch home that they were living in, in a suburb of New Orleans, had about three feet of water over its roofline. And fortunately, they were able to swim to the only two story home on their street and were rescued by helicopters. You probably remember those images from television.

Troy von Otnott: [00:08:08] So, it was, personally, a devastating experience and literally made me just want to completely change gears, switched direction, and try to see if I can add value to figuring out solutions, and become a part of the solution, instead a part of the problem.

Mike Blake: [00:08:26] So, I’ll interject. They said that humor is tragedy plus timing. We’re talking about this before. And I thought I was in Connecticut when this happened. I was not. We, actually, just moved to Atlanta. And when Katrina happened, it occurred at the same time as Dragon Con happened. And I remember being at Dragon Con. For those of you not in Atlanta, that’s basically our Comic Con. So, if you’re into dressing up as a Wookie, Dragon Con is for you, right, Labor Day weekend. And I was actually in a bar. I was not in costume. I don’t do that. But there are actually a couple of folks that had fled the city. And I was sitting next to this guy and he was—we’re watching on TV as they’re doing—just as you said, they’re pulling people out.

Mike Blake: [00:09:10] And here’s a guy whose life is completely uprooted. He’s watching it being uprooted in real time. And in the background behind him, there are storm troopers. There are people in Star Trek uniforms, Battlestar Galactica, Japanese Anime, everything you can possibly imagine. I’m thinking, “Boy, this poor guy next to me must think he cannot catch a break in any—” Either that or he thinks he actually fell asleep somewhere on the road, and he’s still dreaming. It’s a very odd juxtaposition. So, you-

Troy von Otnott: [00:09:44] By the way, not quite as odd as you being an esteemed accountant by day, father of dragons by night, so.

Mike Blake: [00:09:48] There you go, there you go. So, you had the shift, It made a huge impact on you. And was your family okay by the way? I didn’t ask you about that.

Troy von Otnott: [00:10:01] Yeah. Everyone survived. And lost property, but property can be replaced. In fact, that’s exactly what the first thing I did is I started working with the local city planning commission to work on building code improvements because we needed to build structures that we’re going to be able to sustain a Category IV or Category V storm. We don’t have a lot of those structures in New Orleans. We’ve got 150-year-old structures that, actually, did survive the wind loads from the storm but didn’t survive being submerged in 12 feet of water for two to three weeks.

Troy von Otnott: [00:10:34] So, I started building sustainable housing. We created a modular home company and was very successful. And ironically, I wanted to try to build a highly efficient and energy-efficient home. And we accomplished that after a couple of iterations working with our manufacturer. But I got to a point where I couldn’t make the home any more energy-efficient without adding some form of renewable energy. And so, I started doing some research and looking for a solar energy company. And lo and behold, there was not one in the entire state.

Troy von Otnott: [00:11:12] So, I started researching why that was the case. Why is California, why is New York and Northeast leading in the early stages of solar energy development, but we weren’t? I mean, we’re an energy production state, but we’re producing fossil fuels, not clean energy, and that didn’t make any sense to me. So, I worked with a group of of caring and passionate environmentalists, and we actually drafted a bill, which was a Louisiana renewable energy tax credit bill. And when I say we had no idea what we were doing, we really didn’t know what we were doing. But we were bull in China cabinets, and we were just committed to getting it done. And at the end of the day, at the next legislative session, we wound up passing a clean energy bill that in recent memory, none of the politicians could remember when a bill actually passed unanimously in the state legislature. They thought it was like a unicorn, it didn’t exist.

Troy von Otnott: [00:12:10] And so, I remember getting a call from the governor’s office after the bill passed, and they said, “Well, look, you’re the lead guy working on this bill. You need to come to the State Treasurer and meet with him.” And I said, “What did I do?” And he’s like, “Well, you need to tell the government how much money this tax bill is going to cost our state treasury.” And I literally said, “I have no idea.” And they’re like, “Well, you better figure it out because you did this bill.”

Troy von Otnott: [00:12:34] So, I go to the State Treasurer’s office two days later and they said, “Okay, how many individuals, or homeowners are likely to put solar panels on their house?” And I just kind of came up with a number and literally out of the air. And the guy was writing on a notepad, and he’s like, “Okay, so, that is equivalent to about $500,000. Does that sound right?” I said, “It sounds great to me.” And so, he’s like boom, stamp, “It’s good. Governor will sign it tomorrow.” I’m like, “Does this really happen?” And he’s like, “Yeah, it’s happening.”

Troy von Otnott: [00:13:06] And so, two days later, after the governor signed it, I get a phone call. It was from a 303 area code, and it was a guy named Shane. And he’s like, “Hey, are you the guy that did the renewable energy tax credit bill?” And I was like, “Yeah.” And I was like, “Did I do something wrong?” He’s like, “No, you did something extraordinary.” I was like, “What do you mean?” He goes, “Do you know you passed the most aggressive state tax credit in the United States for renewable energy?” I said, “I did?” He’s like, “Yeah. California has about a 10% tax credit. You have a 50% tax credit. How did you do that?” I was like, “I don’t know.” He said, “What business are you in?” I’m like, “I build energy-efficient houses.” He’s like, “You’re not in that business anymore.” I said, “I’m not?” He said, “No.” I’m like, “What business am I in.” He says, “You’re in the solar business now. I’m coming to see you tomorrow.” And I was like, “Okay.”

Troy von Otnott: [00:14:00] Guy gets on a plane, comes and meet me at the local hotel on Canal Street. And after about six hours, he said, “Hey, I’m with a company called SunPower. We’re one of the biggest brands of solar panels in the world. And you’re now our partner in Louisiana.” And literally, within a week, we formed a company called South Coast Solar. And within about six months, it went from me, my old friend, Tucker Crawford, and a solar expert named Scott Oman, and a part time accountant operating in my friend’s second bedroom to a downtown office with about 10 employees and about $3 to $4 million in sales.

Troy von Otnott: [00:14:36] And within two years, we became the largest clean energy company in the southeast. And it was a really interesting and wild ride. And we got indoctrinated into the national scene because people were just so excited to see someone outside of California or the Northeast actually develop a sustainable clean energy business industry. And so, we’re really proud of what we did with South Coast Solar.

Mike Blake: [00:15:00] So, that segues perfectly to the next question, and that is that especially here in the southeast, red state haven, there’s a perception and, really, I think, kind of a knee jerk reaction about when you say sustainability, you’re kind of bracing yourself for pushback, argument, lots of questions. I mean, as it turns out, I drive electric. And I still I remember one of the first times I drove outside of Atlanta, I went to a hotel. That’s where there’s a place to to plug in my car. They said no, but they said no in a way that their eyes said comrade at the end, right. Go back to Russia basically.

Troy von Otnott: [00:15:45] Right.

Mike Blake: [00:15:45] And I think we still—I still think we face a lot of that in certain sectors. And I got to imagine you face some of that in Louisiana, right? Especially a fossil fuel state. Talk about entrenched interests.

Troy von Otnott: [00:15:56] You know, it’s funny. I had a very close friend who was actually the CEO of of Entergy, which is the dominant energy company in New Orleans. And this is a friend that used to sit on my sofa and play Madden football with me. And so, now he’s running the biggest utility company in the south at that time. And he said, “Hey, I’m supportive of what you’re doing. I want you to know that.” He goes, “But you guys have got to get your cost in line because solar is way too expensive, and we can’t buy any of it.”

Troy von Otnott: [00:16:27] Well, flash forward 13 years later, and they’re still singing that same tune, right? So, it’s—and ironically, what’s happened in Georgia, regarding Georgia Power and Southern Company, is when I first moved here in 2010, they were not very supportive of the solar energy industry. In fact, it almost felt like they were running disinformation campaigns to suggest that clean energy doesn’t even work in Georgia. But at the end of the day, what all these utilities come to the realization is they have an obligation to their ratepayers to buy the cheapest form of energy that offers the most stability and that their ratepayers desire, right? Those are the three things. But number one is cost, right?

Troy von Otnott: [00:17:16] So, in 2018, solar is, by far, the cheapest energy outside of coal, natural gas, nuclear. It blows them all away. The only thing that’s cheaper than that is wind, but we don’t have a lot of onshore wind in this part of the country. So, now, even though Georgia is not a renewable portfolio state, there’s no mandate by the government to do this, Georgia Power, with the help of the Public Utility Commission, winds up buying a substantial amount of solar. We have a problem, it’s a problem, but it’s also a blessing that Atlanta is called a city in the forest because there’s so much tree cover that it’s almost impossible to find a home that’s not surrounded by 40 or 50-foot pine trees, right?

Mike Blake: [00:17:59] Right.

Troy von Otnott: [00:18:00] And so, you can’t get a direct line to the sun. So, you have massive shading issues everywhere. So, while there is very little residential solar in the market, in fact, I think in the entire state, only 40 homes last year put solar on their houses-

Mike Blake: [00:18:14] Okay.

Troy von Otnott: [00:18:14] … but utility scale solar has taken off. In fact, I helped Georgia Power put together a construction team to build 17 solar farms just last year. So, the fact is that they are now moving towards greening their own grid. And they’re doing it, not because it’s green, not because it’s sustainable, because it’s the lowest form of stable energy that they can offer the ratepayers.

Mike Blake: [00:18:43] And I’m curious, have they crossed the 1 gigawatt of capacity yet, solar?

Troy von Otnott: [00:18:48] They have.

Mike Blake: [00:18:48] Okay.

Troy von Otnott: [00:18:49] Yeah. In fact, the PUC just put out a new directive for them to buy, I think, another 1.6 gigawatts-

Mike Blake: [00:18:56] Okay.

Troy von Otnott: [00:18:56] … over the next few years. So, while that’s a decent amount of clean energy, I mean, it pales in comparison to what’s happening in California, pales what’s happening up in the Northeast. But it’s so much better than what it was five, six, seven years ago, right? So, at the end of the day, if you pull the ratepayers and ask them, “What form of energy do you want coming into your home or your business?” 80% of them will say, “Give me the clean stuff, right. I don’t want the coal because I don’t want my kid suffering from asthma.”.

Mike Blake: [00:19:31] Right.

Troy von Otnott: [00:19:32] Natural gas, that’s better. It’s a transition. It’s a bridge fuel. Let’s do that because we don’t want to have coal. The nuclear is just so expensive. It’s almost impossible to get a plant up and operating. And then, talk about annual maintenance and then decommissioning, which never gets into the economic model, which is kind of crazy to me.

Troy von Otnott: [00:19:50] But at the end of the day, cities and states are taking lead in the clean energy transformation. And there’s over 125 cities in the United States now that have mandated 100% clean energy sometime between 2035 and 2050. So, it’s coming, and it’s coming a lot faster than most people ever thought it would. ***

Mike Blake: [00:20:12] So, you bring up an interesting point. And I think, if I had asked this question five years ago, the answer would have been very different. What percentage of the sustainability program question now is being driven purely by economics, where it’s a more manifestly positive business case as opposed to, for whatever reason, we feel it’s the right thing to do case?

Troy von Otnott: [00:20:37] I would say 100% of it is, because at the end of the day, the definition of sustainability is having a business that will be around, right?

Mike Blake: [00:20:47] Yeah.

Troy von Otnott: [00:20:47] And so, what sustainability, ultimately, means is driving down cost of your operation, right? And so, when you talk about greening your supply chain, or you’re talking about more efficient lighting, or you’re talking about clean energy, all of those things have a return on investment, right?

Troy von Otnott: [00:21:05] So, at the end of the day, in order to be sustainable it means, you have to be able to turn a profit. And the only way you can turn a profit is to manage your operational cost. And everything that happens, whether you’re recycling, reusing, using smarter forms of energy, more efficient forms of energy, dealing with your waste issues in a more sustainable way, it’s all about saving money. And almost every single sustainability officer at any smaller, or midsize, or even large corporations here in Atlanta will tell you, this is not about politics. This is not about green versus red. This is about being green to make green. And so, if you think about it from that standpoint, everyone should be doing it because if you don’t manage to be profitable, you’re not going to be around to even have this discussion later on down the road.

Mike Blake: [00:22:01] So, I want to go to the flip side now. As I mentioned, we’re in a red state, there are a lot of red states around us. And you and I are roughly the same age. I was not a voting age when Jimmy Carter was president, but I do remember the whole sweater thing, turn the thermostat down, the 55-mile-an-hour speed limits and so forth. But that is because we just couldn’t buy the oil we wanted, right?

Troy von Otnott: [00:22:26] Sure.

Mike Blake: [00:22:26] It was scarcely there. And everybody mocked the solar panels on top of the White House. The first thing Ronald Reagan did was take it down-

Troy von Otnott: [00:22:32] Take it down.

Mike Blake: [00:22:33] … supposedly.

Troy von Otnott: [00:22:36] Yeah.

Mike Blake: [00:22:36] In a conservative environment, has the risk of stigmatizing yourself by being seen as too green, and hippie, and whatnot, is that no longer a concern? Is that sort of an old stereotype that’s gone by the wayside, or is that something that somebody needs to really kind of think about depending on what business they’re in and where they do it?

Troy von Otnott: [00:22:55] So, that question is interesting. And I think you get different answers from different people, right. If you talk to people in our age range, they probably are not as educated about these issues. But if you think in terms of the current generation of workers coming into the workforce, the millennials, the millennials care about this more than anything. They care about the environment more than anything because they are the ones that are going to be living in a completely different environment as they age, right.

Troy von Otnott: [00:23:29] I mean, you can have a political discussion, I guess, to some extent, about whether climate changes are anthropogenic or manmade, right? You can have that conversation if you want to. But at the end of the day, you cannot refute that the climate is changing and that it’s affecting agriculture, it’s affecting refugees, right. It’s affecting access to clean water. It’s affecting transportation systems. It’s affecting our entire global ecosystem, right. So-

Mike Blake: [00:24:01] And public health.

Troy von Otnott: [00:24:01] And public health. Public health is a really big issue that really people should be focusing on, but they don’t. I was just reading an article yesterday that I don’t know how many people died in Japan last week because of the heat wave, but it’s almost unsustainable. And so, if you think about—if you’re developing a workforce, and let’s just say you’re Coca-Cola, and you’re hiring millennials, they care about your environmental and social governance more than any other generation because they’re the ones that are going to have to deal with the ramifications of a changing climate.

Troy von Otnott: [00:24:38] So, if you don’t speak that language, and you don’t address their issues, the next company will. And so, it’s a recruiting issue more than anything. You’re not going to get the best of the best unless you are being environmentally and socially responsible, not just from a greenwashing standpoint, but this is a core tenet of who we are and what we are as a company.

Mike Blake: [00:24:59] And greenwashing is what?

Troy von Otnott: [00:25:00] I mean, greenwashing is a company saying that we’re doing all these amazing, wonderful, green things. But at the end of the day, it’s more of a PR campaign than it is an actual programmatic impact that the corporation is having to the bottom line, right. So, you can—Coca-Cola, actually, got pinged on this in the last few years, where they were making assertions in the global media that they were addressing water shortage issues or water quality issues all over the world. And when it came down to a lot of third-party independent organizations that are charged with understanding water scarcity issues, they realized that those issues haven’t been affected at all, and they haven’t changed their policies and their procedures to really ensure that there’s not an overuse of water in their respective markets where they’re operating their bottling facility.

Troy von Otnott: [00:26:00] So, they took that very seriously and said, “We cannot be looked upon in the world as a company that says what they’re doing and not do what they’re doing,” right? So, that’s what really greenwashing is. It’s just sort of a PR campaign to say we’re green just because it makes everybody feel good, but you can’t sit down and put your your corporate sustainability report out and have confirmed metrics by a reputable third-party organization.

Mike Blake: [00:26:28] Now, you touched on something that harkens back to a conversation we had before we hit the record button that I want to come back to, which is it’s not just about millennials anymore either. The capital markets are now paying a lot of attention to this. I read an article recently where I think something like 78% of Wall Street analysts now are factoring in the impact of climate change-

Troy von Otnott: [00:26:49] Absolutely.

Mike Blake: [00:26:51] … in their valuation models.

Troy von Otnott: [00:26:52] But you know why?

Mike Blake: [00:26:55] I may or may not. Tell me.

Troy von Otnott: [00:26:56] Because of the global insurance market, right? I mean, insurance drives everything, right? And if you can’t insure a business, there is no business. And so, the insurance markets are basically saying, “Hey, this climate change thing is real. It’s now. It’s not something that’s coming 10, 20, 30 years from now. We’re experiencing impacts of it right now. And if we don’t start addressing this issue, we’re not going to be able to insure businesses. And if we can’t insure a business, they cannot operate.”

Troy von Otnott: [00:27:26] But you mentioned financial aspects of this whole industry. And we talked briefly about this part of this—part at the start of the podcast. But, you take an organization like BlackRock, right? I think they’re the largest financial management company in the world. They have several trillion dollars under management. Their CEO last year, Larry Fink, put out a directive to all of their associates globally and said, “You guys better start taking environmental social governance seriously. And if you don’t, and you don’t have verifiable third-party validation of what you’re doing regarding ESG, you’re highly likely not going to get capital from us again.”

Troy von Otnott: [00:28:05] And it’s weird because BlackRock still funds coal plants, and they still fund natural gas, and they still fund oil and gas. And so, you can’t just turn on a dime, right? This is a battleship. It takes a very slow curve to change direction. But when it comes top down from the CEO saying, “You guys better take this seriously, or you’re not going to get capital,” I don’t care how big of a company you are. Apple has probably more cash than anybody in the world and are constantly borrowing money because debt is cheap. They don’t want to use their own capital when they can get 2% money from the bond market.

Mike Blake: [00:28:38] Sure.

Troy von Otnott: [00:28:38] Well, you’re not going to get that bond market money if you don’t have a serious commitment, a verifiable commitment to environmental and social governance all throughout your organization.

Mike Blake: [00:28:49] And part of that goes back to the insurability. You’re not going to get 2% money-

Troy von Otnott: [00:28:55] No way.

Mike Blake: [00:28:55] … if you’re not insured.

Troy von Otnott: [00:28:56] No way.

Mike Blake: [00:28:56] Right? You suddenly go from a-

Troy von Otnott: [00:28:59] Well, you can’t even operate.

Mike Blake: [00:28:59] Right.

Troy von Otnott: [00:28:59] You cannot operate. I mean, I was working on a new business model just last year trying to help Native American tribes do some interesting things that their laws, their sovereignty allows them to do. And unfortunately, we could not get the tribe insured. And we dealt with the top 17 global insurance. I mean, all the big names in the world. And every single one of them, over the course of a year, said, “No, we cannot give you a policy.” And therefore, there was no business. So, I have firsthand experience knowing that if you cannot get insurance, you cannot operate a business.

Mike Blake: [00:29:39] So, let’s say we want to think about setting up a sustainability program for our company for the first time. We often hear that some companies—that companies have a chief sustainability officer or one individual that, at least, ostensibly answers for all these sustainability initiatives. Is that a requisite? Is it such a distinct skill set that even if I’m a small company I, kind of, just going to bite the bullet and hire that? Or are there companies that have successfully rolled that portfolio into other responsibilities that already exist?

Troy von Otnott: [00:30:08] I mean, I think it depends on the size of the company, right. So, if you’re planning on putting out a corporate sustainability report, you’re going to need a CSO. But if you’re just a small to mid-sized business, there are really simple things that every business can do. I mean, really simple things like, reduce your energy load, right. I mean, the cheapest and easiest thing to do is to address your lighting in your building, right. And the technologies are so far advanced now and the short payback period is ridiculously low. I mean, any kind of a major LED lighting conversion in a small office like this or a manufacturing facility, two-year ROI max. A lot of them are coming in at one year. And so, if you can’t fund something on a one-year ROI basis, you’re in the wrong business.

Mike Blake: [00:30:56] Right, right.

Troy von Otnott: [00:30:57] So, there are things you can do to address your supply chain. There’s things you can do to address your waste material resources. There are things you can do to to address more sustainable transportation. I mean, there are many simple things that can be done. You don’t have to have a very complex program. But what I’ve learned in talking to companies and students all over the south over the last couple of years about this issue is, they want to be involved, and they want to be engaged, right.

Troy von Otnott: [00:31:26] So, it’s kind of a—I relate this, not on a really appropriate couple basis, but if you think about XPRIZE, right. XPRIZE does these really interesting challenges, whether they’re medical, whether they’re lunar landings, whether they’re clean energy or clean water, but they create competitions, right? And people like to compete. It’s the very nature of who we are. We always compete with each other.

Troy von Otnott: [00:31:52] And so, smart companies create these little, sort of, sustainability competitions, and they create real incentives and real rewards. So, whoever wins, I’m the most sustainable employee in my group for the first quarter, guess what? I get a trip, and I get to go to Cancun, and lay on the beach for three days with pay time off. So, I mean, I think the more you can engage a, sort of, employee plan that allows them to feel like they’re taking some responsibility and doing something that has impact, and it’s not just truly a top-down directive, it’s literally a bottom up, it becomes fun. You can even gamify it and really create teams. And people care about the stuff, and they want to feel like they’re having impact. That’s the biggest struggle.

Troy von Otnott: [00:32:39] Climate change, the biggest problem with climate change is the enormity of the scope. Every time I talk to someone who’s ill-informed about climate change, I might as well be watching a slow motion train wreck, right, because at the end of the day, their brain just melts down. They just like, “What can I do about carbon emissions in the atmosphere? I can’t go up there and grab those molecules.” And it’s just like if the problem’s too big, people don’t know how to deal with it.

Mike Blake: [00:33:08] Right. So, The good news, I think, is that sustainability is a trend that is accelerating now for various reasons, and some of it we’ve spoken about today. Is there a company or organization out there you think is in a particularly good job that has some lessons to teach other companies to follow?

Troy von Otnott: [00:33:26] Yeah. So, I didn’t even know about this until a few years ago when I heard a chief sustainability officer for Cox Enterprises give a presentation at Georgia Tech. I was speaking on clean energy, and they came in and talked about corporate sustainability. And I was literally blown away at how much impact one of Cox Communications divisions has on sustainability. So, they’ve got a good internal group called Cox Conserves. And this is a really dynamic division of that communications company. Well, they’re more than a communications company now. They’re pretty diversified.

Troy von Otnott: [00:34:03] But this organization does some extraordinary things, not the least of which they actually have their own budgets. So, they’ve created their own entrepreneurial co-working ecosystem within that organization. And they, basically, instead of just saying, “Hey, guys, we’re going to have a competition to see who drives the fewest amount of miles or who recycles the most cans,” I mean, they literally say, “Hey, Bob, do you have a really cool idea about how to save the planet? If so, why don’t you write a little executive summary and submit it to us? And if we like it, we will fund you. We will use our own internal capital resources to turn our employee into a sustainability entrepreneur.”

Troy von Otnott: [00:34:49] Like, that kind of forward thinking is really what’s going to be needed in order to make this transition. Because this problem is so big, it needs a lot of people working on it. And people don’t understand that little things actually add up to big things, right. I mean, to change one bulb, recycle one can, drive one mile less than you did yesterday. I mean, a lot of little things can add up to a big thing. And so, when people say, “I can’t do anything, this problem is too big,” that’s not accurate.

Mike Blake: [00:35:20] You mentioned about gamification, and I think you’re really onto something. So, I drive a Volt, and which is a serial hybrid. First, it’s rated for the first 38 miles on electric. After that, it’a nine gallon gas tank. And there’s a very active Volt community on Facebook, Volt owners basically. And there’s a competition to see how much mileage you actually can get out of that car on battery, right. And so, people are doing all kinds of things. Probably, it may or may not be the safest things in the world, but they’re over inflating their tires, right, like, 48 PSIs. So, you go over a bean bag, and you are jolted, right?

Mike Blake: [00:36:04] Right, right, right.

Troy von Otnott: [00:36:04] Or, how much can you coast, and maybe you don’t turn the air conditioner on. And the most I’ve ever gotten out of was 46 miles an hour, and I was miserable. I’ll never try that again. But it does work, right?

Troy von Otnott: [00:36:17] Absolutely.

Mike Blake: [00:36:18] And I think the Volt’s dashboard is set up for that feedback because it shows in real time how much distance you have left, right? And I’ll tell from my own perspective, because I grew up in a fossil fuel internal combustion engine world-

Troy von Otnott: [00:36:33] Sure, we all do.

Mike Blake: [00:36:33] … because I could put gas into my car but don’t really want to, every day that I—especially, every day that was, sort of, at the outside of my range, I don’t put gas on my car. I don’t feel like I’ve saved a polar bear. I just feel like I stole something for free.

Troy von Otnott: [00:36:49] Sure.

Mike Blake: [00:36:49] Right. And the gamification really works.

Troy von Otnott: [00:36:52] It really does. In fact, the old adage, everything old is new again. You’re probably old enough to have driven the original Model T, right?

Mike Blake: [00:37:01] Almost.

Troy von Otnott: [00:37:01] Exactly. So, the original Model T was electric.

Mike Blake: [00:37:05] I did not know that.

Troy von Otnott: [00:37:06] There you go, boom. Dropping knowledge, baby.

Mike Blake: [00:37:08] No, I did know that. I mean, there-

Troy von Otnott: [00:37:09] There were two versions of the Model T, by the way. One was electric. One was-

Mike Blake: [00:37:13] I do know that, at the time, that internal combustion started to catch on. There was a competing industry than battery. And we know the history—the rest of the history.

Troy von Otnott: [00:37:24] Right.

Mike Blake: [00:37:26] And we flirted for battery for such a long time. Now, it looks like we’re rapidly approaching battery ICE parody.

Troy von Otnott: [00:37:33] We are. I mean, two or three years ago, I think people were saying that internal combustion engine parody level was going to be sometime around 2030.

Mike Blake: [00:37:46] Right.

Troy von Otnott: [00:37:48] Now, it’s 2025. And then, I read a report the other day where it’s like 2023. Like it keeps getting shorter. And it’s because R&D in battery technology is one of the bright shining spots of clean tech. A lot of money is flowing into battery storage. And the amazing work that Tesla is doing, and Panasonic is doing, and others is really the north star. It’s where all the major successes are going to happen.

Troy von Otnott: [00:38:17] And so, the utility companies actually didn’t see this coming, right. And so, now, they’ve got to kind of change their whole mindset and say, “Hey, you know how we were going to build this natural gas combustion system, and we’re going to generate 500 megawatts power?” well, they’re not really economical now that we’ve got battery storage. So, instead of building picker plants, these coal firing plants are now in demand, right? And so, at the end of the day, battery storage gets dramatically cheaper every year. And in a couple of years, none of these plants outside of solar, wind, and storage are going to be able to compete.

Mike Blake: [00:39:00] And oddly enough, I think the⁠—this is off topic, but I’ll throw it out there anyway. The VW diesel scandal, I think actually moved that.

Troy von Otnott: [00:39:10] Dieselgate.

Mike Blake: [00:39:11] Yeah, exactly. I think that moved the needle significantly.

Troy von Otnott: [00:39:16] Absolutely.

Mike Blake: [00:39:17] They went from ICE to electric, really, in a period of two and a half years.

Troy von Otnott: [00:39:23] And by 2025, every model that they make will have an electric version.

Mike Blake: [00:39:27] Yeah, right. And Volvo is following through.

Troy von Otnott: [00:39:29] But that fine they got was painful. It wasn’t a light fine. I mean, they got punched in the mouth.

Mike Blake: [00:39:37] And I think⁠—I mean, I don’t think it hurt him as much in America, but I think in terms of-

Troy von Otnott: [00:39:40] Publishing.

Mike Blake: [00:39:41] … public relation and branding-

Troy von Otnott: [00:39:42] Yeah.

Mike Blake: [00:39:42] … killed them in Europe, right?

Troy von Otnott: [00:39:42] Right. It hurt them bad in Europe.

Mike Blake: [00:39:45] I think they thought⁠—and it costs the CEO’s job.

Troy von Otnott: [00:39:47] People⁠—but not only that, but people felt betrayed.

Mike Blake: [00:39:50] Right.

Troy von Otnott: [00:39:50] I mean, I’ve got a good friend of mine who lives here in Atlanta who is a lifelong Volvo and VW enthusiast. And he literally felt btrayed. He felt like he was completely lied to. And he, not only sold his car, he never bought another car.

Mike Blake: [00:40:08] Wow!

Troy von Otnott: [00:40:09] Like he literally got an electric bike, and does public transportation, he does Uber, and was just so incensed by being lied to by that corporation that it changed his whole relationship with the brand. It ended it.

Mike Blake: [00:40:22] That’s basically breaking up with your boyfriend and keying his car on the way out.

Troy von Otnott: [00:40:24] Absolutely, absolutely. See you.

Mike Blake: [00:40:31] So, I’ve read a literature. You probably have too. There are studies now coming out that companies that have a strong sustainability posture tend to outperform others, kind of, in areas that aren’t directly involved with sustainability also. Have you seen that? Is there credibility or are we getting ahead of ourselves?

Troy von Otnott: [00:40:50] No. So, there’s a study done last year, well, in 2018 that said companies that have embedded ESG programs have a valuation basis somewhere between 175 and 250 basis points better than those that don’t. And I mean, I know that’s financial speak.

Mike Blake: [00:41:11] Right.

Troy von Otnott: [00:41:11] But that’s real money when you talk about-

Mike Blake: [00:41:13] Loss 2% profit margin,.

Troy von Otnott: [00:41:14] … 2% profit margin. It’s really⁠—it’s a big number when you talk about a lot of companies are in single digit profit margin.

Mike Blake: [00:41:23] Yeah. If you improve Coca-Cola’s profit margin by-

Troy von Otnott: [00:41:25] 1%.

Mike Blake: [00:41:25] … 2.5%.

Troy von Otnott: [00:41:26] It’s a Big deal.

Mike Blake: [00:41:27] That’s a lot more electric-powered private jets are getting.

Troy von Otnott: [00:41:31] When I first came to Atlanta in 2010, Coca-Cola was the first company that I met with. And we were working with them on some different recycling technology. And they literally said, “If you move our profit margin by 0.5%, we will do it. That’s all you had to do.” I mean, that’s how big of a scale global operation they had that that’s a tremendous amount of revenue to their bottom line. And so, now, Coca-Cola is, obviously, one of the global leaders in sustainability. I mean, they are almost single-handedly focused on water efficiency because, look, we’ve got problems with the changing climate. It’s not just that it’s getting hotter, it’s not just that seas are rising, but it’s affecting global agriculture. It’s affecting our ability to get potable water. It’s affecting health services. It’s affecting disease. We’re destroying species at a rate that’s never happened in the history of mankind.

Troy von Otnott: [00:42:35] And so, you got to kind of steer the conversation away. “Oh, well, I could just turn my air conditioner up a little bit more. Who cares if it gets a little warmer?” Look, we’ve got a problem with our oceans, right? We’ve got a major problem with plastic in our oceans. But if you think about the biggest global carbon sink that we have is our oceans. And the more acidified those oceans become, the more it destroys aquatic ecosystems. And I promise you, if you haven’t thought about this, a dead ocean equals a dead planet.

Mike Blake: [00:43:05] Yeah.

Troy von Otnott: [00:43:06] Right? And so, at the end of the day, it doesn’t matter how much money you think you’re going to make, or how much money you need to make, you will make no money on a dead planet. And so, we’re all not going to Mars. I mean, God bless Elon, but that atmosphere is not very inviting. I’m not going to Mars.

Mike Blake: [00:43:21] No.

Troy von Otnott: [00:43:21] So, we’ve got to fix this planet. And we owe it to the future generations. I mean, look, at the end of the day, we’re all going to be here. God bless if we were healthy call it 80 to 100 years, right? But that’s just a⁠—it’s a blink of an eye on a geologic timescale scale, right? And it means nothing, but we’ve done more damage in the last hundred years to our global ecosystem that’s ever been done in the history of the world. And so, there’s this old Indian proverb. It’s like, “We don’t inherit the earth from our ancestors. We borrow it from our children.” That’s the⁠—like people, like the minds of men altogether.

Mike Blake: [00:43:58] Yeah, right.

Troy von Otnott: [00:43:58] Think about that for a second. So, even though I don’t have children – you do – I care about your children just as much as I care about a child in Ethiopia, or a child in India, or a child in Europe. It’s like we owe it to them to leave this planet better off than when we found it, or if not, just the same as, not worse. We have a responsibility for people that come after us. If we don’t, when it’s our time to leave this planet, we’re not going to do it in great graces. I promise you that.

Mike Blake: [00:44:31] So, a couple more questions before we wrap up here. Let’s say that I’m a listener, and, now, I’m convinced, we really got to put in some kind of sustainability program. What are the first steps to think about?

Troy von Otnott: [00:44:44] Well, there’s this amazing new invention called the interwebs, and you can-

Mike Blake: [00:44:49] I’ve heard of it.

Troy von Otnott: [00:44:49] Yeah. You can get on the internet. I mean, there’s so much public available information. The good news is that if you Google or search corporate sustainability reports, a lot of the reports are in the public domain. And so, you can get a report from Apple, which has a phenomenal program. You can get a report from Cox. You can get a report from Coca-Cola, from Alliance, from, major insurance companies, anyone. I mean, there’s tons of public available data out there. You don’t have to reinvent the wheel. There’s a lot of great case studies about things that work, being proven, easy to verify, not hard to implement.

Troy von Otnott: [00:45:30] And, the one thing at the end of the day, beyond, sort of, “trying to save the planet” is the the morale impact that you will have on your employees is palpable. I mean, when they feel like they are actually contributing to something good, and social impact is really kind of a broad umbrella, but when they feel like they’re actually adding value, and they can go back and look at their parents, and go back and look at their kids and say, “I did something. Even though it’s small, I did something,” right.

Mike Blake: [00:46:03] Everybody, especially millennials, we  Gen-Xers are okay with slogging for the paycheck, millennials aren’t quite so much into that, right?

Troy von Otnott: [00:46:12] Not at all.

Mike Blake: [00:46:14] And maybe they’re smarter than are we, but-

Troy von Otnott: [00:46:16] They’re not smarter, they’re just more woke, right? I mean, at the end of the day, they know they’re going to be the ones living in a different environment. It’s not us. I mean, yeah, to an extent, if you’re 50 years old, in the next 30 years, by 2050, you’re going to see some pretty bad stuff. But 2060, 2070, 2080, I mean, you’re going to see a real huge problem.

Troy von Otnott: [00:46:41] And, to your point earlier, when we’re talking, it doesn’t matter how many solar panels, or how many wind turbines we put up, or how many efficient lights, we put it on, or how many electric cars we drive, there’s so much legacy carbon in our atmosphere that, a few years ago, geoengineering was a hot topic in the scientific community about should we? It’s no longer about should we? It’s we’re going to have to. We have to remove legacy CO2, or else. And so, when you’re given an “or else,” you better do something because it’s not going anywhere. I mean, like you said, it’s in the atmosphere for a hundred years.

Mike Blake: [00:47:20] Whenever⁠—even as a kid, whenever my parents said, “or else,” I never thought, “You know what, or else is probably the way I want to go.”

Troy von Otnott: [00:47:27] Exactly.

Mike Blake: [00:47:27] Never works out that way.

Troy von Otnott: [00:47:29] Give us some of that or else.

Mike Blake: [00:47:30] Give me a thing. I’ll have a second helping with the or else.

Troy von Otnott: [00:47:33] Exactly.

Mike Blake: [00:47:34] Troy, this has been great. Thank you so much for doing this. If somebody wants to contact you to learn more about this, maybe get some advice about maybe launching a program or tweaking the one they already have, can they do that?

Troy von Otnott: [00:47:44] Sure, yeah. You can contact me in my email. It’s troy@massive-tech.com.

Mike Blake: [00:47:51] All right. Well, that’s going to wrap it up for today’s program. And I would like to thank Troy von Otnott so much for joining us and sharing his expertise with us today. We explore a new topic each week. So, please turn in, so that when you are faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: Cox Conserves, Cox Enterprises, CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, Entergy, fossil fuels, Georgia Power, going green, green energy, greenwashing, insurability, Massive Technologies, Michael Blake, Mike Blake, millennials, public health, recruiting millennials, solar energy, solar power, sustainability, sustainability program, transportation systems, Troy von Otnott

Decision Vision Episode 29: Should I Cooperate with a Competitor? – An Interview with Tom Brooks, Windham Brannon

August 22, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 29: Should I Cooperate with a Competitor? – An Interview with Tom Brooks, Windham Brannon
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Mike Blake and Tom Brooks

Should I Cooperate with a Competitor?

Why would you collaborate with a competitor? How do you establish and maintain trust with a competitor you cooperate with?  Host Mike Blake, Head of the Valuation Practice at Brady Ware, discusses these questions and more with Tom Brooks, Director of the Valuation Practice at Windham Brannon. “Decision Vision” is presented by Brady Ware & Company.

Tom Brooks, Windham Brannon

Tom Brooks, Windham Brannon

Tom Brooks is a Principal and Director of the Valuation Practice at Windham Brannon. Tom has over 20 years of experience handling valuation and litigation support matters. He specializes in guiding clients with the valuation of their businesses, business interests, and intangible assets for mergers and acquisitions, gift and estate planning, financial and tax reporting, charitable giving, strategic planning, shareholder disputes, commercial litigation, and marital dissolution. Tom has worked with businesses of all sizes, including start-up companies to larger companies with over $1 billion in revenues. He is effective at communicating complex valuation issues and collaborating with his clients in building successful relationships.

Prior to joining Windham Brannon, he was a Senior Manager in the Valuation practice of a leading tax and advisory firm. As a licensed CPA in Georgia, Accredited in Business Valuation (ABV) and as an Accredited Senior Appraiser (ASA), Tom often speaks for organizations such as the Atlanta National Association of Certified Valuation Analysts (NACVA) chapter, the Georgia Society of Certified Public Accountants and Atlanta Alumni of Retired Revenue Agents. He has also presented for Georgia Tech and LaGrange College accounting students and at Merrill Lynch seminars.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Michael Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:37] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:01] So, our topic today is cooperating with competitors. And this is a a ticklish topic. We think of competitors in the marketplace, regardless of our industry, it could be public accounting, it could be advisory, it could be manufacturing cars, it could be airlines. Very few businesses are not in a competitive scenario in some case. And by the way, if you are in a business that isn’t in one, please write me. I’d like to know what that is, so I can then compete with you because that sounds great.

Michael Blake: [00:01:38] And what I’ve learned over the last 15 years or so that I’ve been in business is that some industries just can’t get along. Like years and years ago, I did a project for Coca-Cola Enterprises. And I was a contractor there doing some financial analysis. And at the time, you walk into their office, and everything is Coca-Cola red. They got polar bears all over the place, and bottles of Coke, and everything else. And it’s definitely rah-rah, sort of, company branding is at the forefront. And if—I did not do this, but somebody else I knew did, went off premises, and then came back with a bag full of Taco Bell, which at the time was owned by Pepsi Co. Now, Yum! Brands, I don’t know if Pepsi is owned by them or not, but that was a big no-no. Like even having food from the competing beverage was not a fireable offense, but boy, you’ve got the Coca-Cola stink eye, and then some when you did that.

Michael Blake: [00:02:39] I imagine there was a time when you had that kind of rivalry at Microsoft and Apple. I don’t think that’s the case today. And we think of of competition as something that, frankly, we have to destroy, that they are enemies, that they are opposing us, that they are taking food out of our mouths, and that they are something to be feared and disliked. But I think in modern business, that’s not necessarily always the case. And you see industries where, in certain cases, competitors do band together. The auto industry, as competitive as they are, they do band together in order to promote safety in their industry. They band together to make sure that regulations aren’t too constraining.

Michael Blake: [00:03:27] In the airline industry, I think the same thing. I think the same thing is true. You see partnerships all over the place where maybe companies are cross-selling each other’s services. And maybe, I’ll go back to airlines, they’re actually a really good example too because of your quote sharing. So, my family and I are going to take a trip to Scandinavia later this year, and our plane ticket says Delta. But at some point, we’re probably going to be put on an SAS plane, or a Norwegian airplane, or something. We don’t know that, but because those are competitors that are cooperating, right, that’s the kind of customer experience that we’re going to have. And because they cooperate, we don’t have to get out at Paris, and then walk the rest of the way to Copenhagen, which would be a real pain in the neck.

Michael Blake: [00:04:12] And so, I wanted to explore this because in my particular practice—and I don’t know if I’m exceptional in either direction or right about the average, but I can tell you in my practice in business valuation, about somewhere between 20% and 30% of my business actually comes from competing firms. And I don’t necessarily know that I’m exceptional, but on the off chance that is exceptional some way, that means that there’s a lesson to learn. I want to talk about what if your competitors aren’t your mortal enemies? What if you’re not just always locked in a life-and-death struggle with your competitors? And not in a way where you’re forming a cartel. I mean, our firm is not a big enough firm. I’m not going to cartel anything. But there’s a long—there’s a big gap between cartel and cutthroat, winner-take-all competition.

Michael Blake: [00:05:10] And so, that’s what I want to talk about today because if you’re not thinking about competitors in terms of if there’s a potential partnership and a potential cooperation and opportunity, you may be leaving money on the table. You may be leaving business value on the table. And maybe, also, you’re living a more stressful life than you have to. And so, I’ve brought in a guest today that, I think, this will be a little bit of a different conversation because I’m going to be more of an active participant rather than an interviewer.

Michael Blake: [00:05:38] But I brought in my friend Tom Brooks today, who is a competitor with whom that I cooperate quite a bit. Tom is a Director in the Valuation of Litigation Services Group of Windham Brannon PC, a midsized certified public accounting firm in Atlanta. I think about the same size as Brady Ware. I haven’t measured it, but I get the sense we’re about roughly the same size. Tom has over 20 years of experience handling valuation and litigation support matters. He specializes in guiding clients at the valuation of their businesses, business interests, and intangible assets for mergers and acquisitions, gift and estate planning, financial and tax reporting, charitable giving, strategic planning, shareholder disputes, commercial litigation, and marital dissolution. Tom has worked with businesses of all sizes, including startup companies to larger companies with over $1 billion in revenues. He is effective at communicating complex valuation issues, and collaborating with his clients, and building successful relationships.

Michael Blake: [00:06:35] Prior to joining Windham Brannon, he was a Senior Manager in the Valuation Practice of a leading tax advisory firm. As a licensed CPA in Georgia, accredited in business valuation, and as an accredited senior appraiser, Tom often speaks for organizations such as the Atlanta National Association for Certified Valuation Analysts or NACVA – that has got to be the weirdest, most awkward acronym in the history of mankind. And I’m a NACVA member, so I can speak to that internally – the Georgia Society of Certified Public Accountants and Atlanta Alumni of Retired Revenue Agents. He has also presented for Georgia Tech, and LaGrange College Accounting Students, and at Merrill Lynch seminars. And Tom and I used to work together. And he won’t admit this, but I actually worked for him technically, at least, 15 years ago. And we have tracked each other’s careers and have been good friends ever since. And it’s a terrific pleasure to have Tom Brooks in the program. Tom, thanks for coming on.

Tom Brooks: [00:07:32] It’s great to be on. Mike, I appreciate it. That’s quite an intro, and I think it makes me sound a little better than I really am. And yeah, you really didn’t work for me, Mike. That wasn’t really the case.

Michael Blake: [00:07:43] So, you see. I mean, he’s only saying that, so that if I do something bad, he doesn’t want the blame for it. So, talk to us a little bit about your practice in Windham Brannon. How big is that practice, generally speaking? I’m not looking for a number of terms or anything. And what do you focus on within that practice?

Tom Brooks: [00:08:01] Yeah. Our practice highlights a lot of what you highlighted in my bio, which is a mouthful, but traditional business valuation of privately held entities. A number of reasons that clients may perform those. You’ve probably talked about those a lot on your program and on the podcast here. But we do a lot of work around exit planning for our clients, management planning, which can be very broad, to keeping a scorecard.

Tom Brooks: [00:08:28] What’s my business worth? Why am I—the investments that I’m making, the growth that I’m achieving, why is that happening and how does it impact value? We do a lot of work as a firm in Windham Brannon. We’ve got a large high-net worth practice. So, we do a lot of work with our high-net worth clients that have their businesses. And they may be looking at transition planning. How do we transition the business to the next generation? If there’s no next generation, what’s the next—how do we exit? And then, financial reporting. And for accounting purposes, valuation for purchase price allocations, goodwill impairment, stock compensation. And then, finally, probably the last piece to our puzzle in terms of our jigsaw puzzle of our practice would be litigation support in terms of commercial litigation cases and where valuation comes into play in those.

Tom Brooks: [00:09:20] Our practice has been in existence now for 18 months. And we have within—we practice as a litigation and valuation group together. We’ve got two partners and a senior manager in that group. So, I will say that I’ve been announced as a new principal in the firm, Mike, so-

Michael Blake: [00:09:42] Oh, Congratulations! We heard it here first.

Tom Brooks: [00:09:46] So, it’s a great—it’s been a good—we’ve had a good, very successful start in the 18 months that I’ve been in Windham Brannon.

Michael Blake: [00:09:51] That is great. That is great to hear. I know that was kind of the plan when you joined, but I know you never take anything for granted. And that road to principle can be a bumpy one too. So, we’ll amend that bio. You’re a principal now at Windham Brannon. Your Excellency.

Tom Brooks: [00:10:08] Don’t go there, Mike.

Michael Blake: [00:10:12] So, you have chosen, I think, in your career, really, to be pretty open about cooperating with competing firm, not just ours, but others. We don’t need to be exclusive, so. But why is that? Why do you have that outlook and that philosophy?

Tom Brooks: [00:10:30] I think it all comes back to—and this may hit—this may be a recurring theme this afternoon. It comes back to trust. I mean, it’s not—I’m not an open book that no matter who I sit down with in terms of my competitors, but I’m not afraid to ask questions when you develop that level of trust with somebody to say, “Am I handling this client situation right?” And it’s not like we’re sitting here sharing our Rolodex or client names and revealing that. It’s talking more about issues that we may face as practitioners. And again, I’m sure these are topics that you’ve talked about. If we were to talk about technical topics and valuation, you and I could have two—there could be two very different approaches. And they may not be or they could be similar.

Tom Brooks: [00:11:13] So, so much of our—and in the career field of valuation, frequently, it said that it may be more science or more art than science, rather. And so, why wouldn’t you—in my case, I think it’s just kind of how I’m wired as well. Why wouldn’t you open yourself up and be trustworthy of some other folks potentially? Again, it’s not everybody but those, that over time, you developed a relationship like that with. You’ve just got to develop that high level of trust before you can get to where you’re going to kind of be a friendly, friendly competitor.

Michael Blake: [00:11:49] And I’ll interject to that. I think another ingredient to that is ego. I think in the valuation profession, more than most other areas of accounting, ego is more prominent and more pronounced, right? And we both know practitioners that what other faults they have, healthy self-esteem is not one of them.

Tom Brooks: [00:12:09] Right.

Michael Blake: [00:12:09] Right? And I do think that our profession, sometimes, encourages or discourages that. I think our profession, sometimes, a little bit more water coolery. Nobody is either sort of is good or maybe good in a certain area. But what we tend to put people in the bucket. They’re either a genius or an idiot, right? Not learning, not trending, whatever, right?

Tom Brooks: [00:12:35] Right.

Michael Blake: [00:12:36] And I think part of the willingness to cooperate is a willingness to be vulnerable, right?

Tom Brooks: [00:12:43] Right.

Michael Blake: [00:12:43] And say, “Look, I don’t know everything about this. I don’t.” We do some estate and gift tax work, but you do 10 times more work there. And that’s okay, I’m willing to say, “Look, I don’t think I need to necessarily give up the engagement, but I do need to sort of phone a friend,” right?

Tom Brooks: [00:13:02] And like you, I’ve got other—and you and I probably just talked about issues like that. And there have been issues that I’ve raised around technology that I’ve phoned you about. And I have other former co-workers and, now, competitors that, again, have very good relationships with. The same thing, you referenced the gift and estate. They’ll call and say, “Hey, I’m dealing with this issue. I don’t deal with it that often. Can you…”  Usually, most of the time even, you or somebody else are going to call and say, “Here’s the way I’m thinking about it.” They’re not asking you to solve their problem. They’re asking you to help them. And you may take them in a completely different direction. But that does speak yet of that vulnerability to be willing to listen, and ask somebody, and say, “Okay, there’s a better way to do it than the way I’m thinking about it. And I want to go find the right way,” because that’s the best answer for your client.

Michael Blake: [00:13:48] Yeah. And you’ll learn something, right?

Tom Brooks: [00:13:49] Right.

Michael Blake: [00:13:49] And one question you have to ask later. And you mentioned something I didn’t thought of. I think it’s a really important point. My father was in this industry too, but he had two jobs over the course of his career. I think I’m on number eight now, and I’ve got, at least, 17 or 18 years of work left in me, give or take health. So, will this be my last job? I don’t know. I think we all hope it is. That’s why I’m a director. But we’re, now, building networks of people that we worked with in our generation and subsequent generations much more rapidly than I think generations before us, aren’t we? And that probably contributes to this, doesn’t it?

Tom Brooks: [00:14:29] I think that’s the case. And again, this is not—there’s no, I guess, poll data to back it up. But I think you’re right. I think especially—and I can’t speak to any other platform other than accounting firms. That’s where I’ve spent most of my career. But you do, at times, get that hesitancy and sense. And maybe it is from some of the older partners or the generation before us. And it’s not to say all of them are that way, but there can be a very strong hesitancy. “Well, Tom, you want to refer our client that we can’t do work for to another accounting firm?” And that is one reason I would say our success has been great at Windham Brannon because my partners aren’t thinking that way. It’s just—but I’ve seen it throughout life in terms of my career, and I’ve seen it. Other practitioners will tell me the same thing that they experience some of those same roadblocks when you do want to have this healthy, friendly, competitive nature to your relationship.

Michael Blake: [00:15:32] Well, and we’ve had—you and I have had that because the firm I used to work for before Brady Ware was of that mind was that just referring stuff to another CPA firm, that was just not on the table.

Tom Brooks: [00:15:44] Right.

Michael Blake: [00:15:44] And it killed me that I had to basically tell you that because I didn’t want you to refer stuff thinking of those stuff coming back because it was not, and it did not. So, that was a very liberating thing about sort of planting my flag. And I think now, that other firm has sort of started to loosen up a little bit in terms of sharing. But that can be a real issue. And I’ll admit, maybe 10 years ago, I might have had—10-12 years ago, I might have had that same mindset. You’ve just got to hold on to every client like they’re the last life vest on the Titanic.

Tom Brooks: [00:16:15] Right.

Michael Blake: [00:16:17] Right? But then, with us, especially, we can get into something, what I call a valuation Vietnam, where you think you’re getting into something that’s going to turn out fine. And then, you get in, and you’re not, and it’s not. And maybe—and you look back, you think, “Boy, I’m not sure I should have taken that on.” But halfway through, you’re, kind of, committed. You just got to figure it out. And you learn that I don’t know that I even did myself a favor by taking every seat. If Tom were here doing this, he would have been done three weeks ago. And here I am, here I am tearing my hair out at 2:00 a.m. trying to figure out this problem. And I think there’s a maturity element to that.

Tom Brooks: [00:16:56] No, time teaches you a lot in any form no matter what your career choice is. I believe that especially when you listen to business owners and entrepreneurs. We’ve all failed probably in some capacity somewhere, and it’s how do you learn from that. And, again, it’s taking the ego out of it, and being willing to learn, and being open. It’s not—I think it’s along the same lines that when we’re told no, or we don’t win an assignment, probably when I first started, that would hurt me a lot more than it does now. You have to lose some engagements to figure some things out and to learn a little bit more about how people view you in the marketplace.

Tom Brooks: [00:17:38] And so, I think it just goes to some humility along the way too that you learn, and you make some mistakes, and being willing to learn from those. And so, again, as you age and mature in your business career, hopefully, you become more open to these types of concepts.

Michael Blake: [00:17:57] And I think it helps to have definition in terms of what you just know. You just know in your heart of hearts, you’re not very good at doing. I’ve been very open with you and anybody who’ll listen, I don’t do litigation. I’m not very good at it, and I’m not willing or interested to make the investment required to become even mediocre at it. So, being a mediocre expert witness, that’s a bad day, being deposed when you know you’re not that great.

Michael Blake: [00:18:29] And that is maturity, but I think it’s also liberating. And I think in a certain way to it, it actually helps your brand, right? I don’t get a lot of litigation referrals anymore, either now, because the market has known like, “Blake, he’s just not going to do it.” But I think that tends to lead to more projects that you are good at being sent your way. And I think the market respects you more when you’ll turn them down, right?

Tom Brooks: [00:18:58] I agree. I mean, what you and I do is professional services. This isn’t just about being a CPA. And for listeners out there, especially in professional services arena, this is really what it gets back to. It’s your firm’s reputation. And some people may have their own firm. So, the name may go—your individual name may go with the firm name. But at the end of the day, as a practicing valuation specialist at Windham Brannon, it’s both my reputation and the firm’s reputation every day that are on the line. And that’s a risk that I have to manage as a practice leader. And with firm leadership, when you have questions about engagements that you may or may not want to take on.

Tom Brooks: [00:19:36] But like you said, it’s kind of one of those, “Maybe I would have been better off.” But thinking ahead and as you encounter something that’s going to be considered maybe outside your comfort zone, it doesn’t mean that we don’t take all assignments outside our comfort zone because, sometimes, it relates to something we’ve done before, and you just got to stretch yourself and learn, like you said earlier in the podcast. And that’s what we—many times, that’s the way we take new tasks on or responsibilities is we learn. And some of it for us is on the job. And we don’t have all the answers, as you said, but, sometimes, it’s almost like phone a friend, right?

Michael Blake: [00:20:13] Yeah.

Tom Brooks: [00:20:13] I mean that’s what you just talked about. And sometimes, those things will help you kind of navigate those challenging situations. But, again, having those open relationships that you can do that, to use your word, it’s liberating to be able to know that in the event that I’m struggling with something, I’ve got a lifeline out there to help me make sure that I’m doing the right thing for my client.

Michael Blake: [00:20:36] So, I’d like to revisit the trust discussion because I think so much of that, ultimately, comes down to that. And there are two areas I want to explore. One is, what are some of those dimensions of trust? It’s obvious, part of it is going to be just, are you competent, right? I’ll give you the fine China, don’t drop it, please. But there are kind of other elements of trust that belong there too, right? So, talk a little bit about what those trust features look like.

Tom Brooks: [00:21:05] Yeah, I think that’s one of the things in thinking about what we’re going to talk about today as I went through in my head. It’s kind of, like you said, the opposite, potentially, of trust. Like you, you get to see a lot of work product come across your desk of your competitors, whether it’d be just one of your partners is asking you to review something because they had a valuation done by an outside firm, or maybe it’s the on the accounting side that our audit team needs something reviewed, and I’m looking at it. So, the first element is kind of that competency. It’s just kind of that, does the expert that we may send this out to, do they have the competency, and will they be taken care of? The way I think of it as well is, will my client or the firm’s client be taken care of as well as they would have been taken care of by me?

Tom Brooks: [00:22:03] So, it really does come down to that trust. Some of it is just years and years. In my case, it’s years. I mean we, I think, have trusted each other a lot longer probably than just the 10-15 years, and we departed the firm that we worked with together, but it’s also developed over time. And so, I think it’s time. So, there’s a time element to it because you got to get to know the person.

Tom Brooks: [00:22:25] I think you have to also understand – and I think maybe this is an element of trust is – are they motivated to do the right thing? Again, I think that’s something that you’ve got to gage. There’s a high level—in doing this, there’s nothing that we can grab at and grasp. There’s nothing tangible. All this is intangible, and there’s risk associated with that when you do that, when you’re putting yourself out there, and potentially handing another name off. So, I think it’s that, again, at the end of the day, these are all elements of trust. But really, that is the key element, at the end of the day, the kind of that you got to come back to.

Michael Blake: [00:23:05] And in the second point I want to ask about trust is, trust between the two direct participants, such as between you and me is great, but it’s not enough, right? We also have to have organizational trust. And unless you have another announcement to make, you’re not the managing partner of your firm.

Tom Brooks: [00:23:26] No.

Michael Blake: [00:23:26] And I’m not the managing partner of my firm. And there is no danger of that announcement ever being made. I can promise you that.

Tom Brooks: [00:23:32] This side as well.

Michael Blake: [00:23:32] So, in our case, in the case of many people, we also had to help build organizational trust, right?

Tom Brooks: [00:23:43] Absolutely. That was—when you and I first landed between Brady Ware and Windham Brannon, it was one of the first things that we did because our moves kind of coincided with each other.

Michael Blake: [00:23:51] We’re a month apart.

Tom Brooks: [00:23:52] Yeah. It was we got together for breakfast with our managing partners and some of our other key senior partners. And you just did begin to develop that rapport, and that openness, and, again, those lines of communication. Maybe this is the word I was looking for in the prior answer but transparency. And, again, it doesn’t mean that we’re coming with a client roster list and go, “And here’s ours. Where’s yours? Here’s yours.” And we’re just exchanging names like that.

Michael Blake: [00:24:17] Like lineup cards.

Tom Brooks: [00:24:18] Right. Client confidentiality still trumps all these and precedes all of these. So, that’s the utmost important thing that we have is to maintain. And again, in that confidence, that’s where your trust comes in. But it does take, in our case, where you’re with a larger firm organizationally, you’ve got to have that confidence because many times for you and I, it’s not just something that comes across my desk that comes through, say, a referral to me from one of my outside sources outside the firm. It’s something inside the firm. So, my partners have to trust that again and have that confidence that Mike Blake and Brady Ware are going to take care of them. And so, you’re right, organizational trust on top of the individual relational trust that exists is really critical as well.

Michael Blake: [00:25:05] And take care of them and not try to exploit the opportunity too, right?

Tom Brooks: [00:25:11] Yeah, right. That becomes an underlying element. And I think that goes back to when we talked about some of the distrust that occurs within many firms and across probably every professional service line there is that you would have in terms of thinking about sending a potential client out to a competitor is right. Are they going to poach them completely? Are they going to be looking to market other service lines in there? And you’ve got to have those conversations, and they’re just really open and direct. Those who are not, I would share when we had ours, those were not difficult conversations. It was just, “Well, here’s how we conduct ourselves.” And I guess it’s kind of like dating. I mean, it’s kind of like we were just figuring each other out, so to speak. And in our case, it’s worked really well that, again, between us and the relationship we already had and our partners, it’s just gone. We’re able to do that.

Michael Blake: [00:26:10] So, sometimes there can be speed bumps in a partnership, right? And these are—by definition, they’re sensitive relationships. No matter how long the trust is, there’s always going to be a speed bump. And to my mind, I’m always kind of worried that, “Oh, boy.”

Tom Brooks: [00:26:28] What did Tom do now?

Michael Blake: [00:26:29] Well, anybody, right?

Tom Brooks: [00:26:31] Right. No.

Michael Blake: [00:26:31] And I’ll tell you that I kind of tell our people, “This is a Windham Brannon referral. This has got to be red as red carpets on this one, because I don’t want to go back and tell—I don’t want to face him if it’s not great.” But there can be speed bumps. And how do you—what do you think is the best way to kind of handle those speed bumps, so that they don’t jeopardize the broader relationship?

Tom Brooks: [00:27:01] I think it goes back to what we kind of just articulated and spoke about in our last answer was that it’s got to be open lines of communication and transparency. You’re right. I mean, even if I had never handed that client off and, I could have done the work for whatever reason, clients are complex in terms of the issues that we face, and the demands that we face, the time, whether it’d be—the demands are just numerous. And it’s what we signed up for. We love serving our clients, but that hiccup could have occurred with anybody.

Tom Brooks: [00:27:39] So, I think it’s just important to know that, again, take the ego out of it. None of us are perfect. None of us has—again, these are intangible issues that we’re dealing with typically with clients. The technical issues, yes, but relational, this is all soft skills. These aren’t hard, tangible skills. So, I think, it’s, again, having that open line of communication and transparency.

Tom Brooks: [00:28:04] And if there was a hiccup, I think, first, come up with an action plan to solve the problem if you’re the firm that received kind of the referral. And then, obviously, if there was something that was significant enough, you need to reach back out across the aisle to the firm that referred the work to you, and say, “Hey, here’s what happened. Here’s what we did.” And if there is anything, potentially, they can help you with to get over that hump, then that’s it. I mean, the client has to come first, and their interests have to come first, and serving them, and making sure you get to the finish line. So, I think it’s just what has to happen to do that.

Michael Blake: [00:28:42] Now, one area that is most common that leads to competitor cooperation in our industry is a conflict, right?

Tom Brooks: [00:28:51] Right.

Michael Blake: [00:28:51] We can just get conflict. I tried to send you a piece of work, you got conflicted out of it. I know that was very painful, but you have to do the right thing for an existing client, right? But talk to our audience, what does a conflict look like? Is a conflict always black and white or the sort of shades of gray we have to make a judgment call? What is that conflict thought process look like?

Tom Brooks: [00:29:17] Yeah, I think there can be shades of gray. I mean, some are very obvious.  Let’s just—to use an example, litigation that if we were working for the plaintiff in some capacity, obviously, we’re probably hired by their legal counsel, and we’ve got an underlying client. But if we had been on—and then you look at the defendant, and go, “Oh, they’re an audit client of Windham Brannon. We’re not going to take that on. I mean, that’s just a conflict for us. It’s not something that where we would want to go. And I think there’s a direct conflict anyways.”

Tom Brooks: [00:29:50] Some of them can be a little more gray. I mean, this is more of an independence issue that we face as well. It’s not gray, but I’ll highlight it. So, for our auditors, our audit clients that have financial reporting issues that have valuation embedded in them, Windham Brannon can’t do that valuation work. So, we call it independence, but it’s really a conflict. We can’t produce a valuation, then, that one of my audit or that our audit teams goes and audits and signs off on it because we’re all under the same house of Windham Brannon. So, those are obvious.

Tom Brooks: [00:30:22] I think, sometimes, it can be—maybe it’s going back to the litigation scenario to paint just kind of a grey issue is you may not have a direct or a perceived direct conflict, but it may be that, in this case, again, let’s just say we were potentially representing the plaintiff. The defendant, somehow, isn’t a client of Windham Brannon, but they’re close to Windham Brannon. They have maybe referred some work to Windham Brannon. That’s just not a position. Potentially, again, it’s not that we couldn’t take the assignment, but you also may not take it because you’d say, “Well, that’s just not a position we want to put ourselves in with that defendant that the spigot may turn off or it may create, as you described before, one of those speed bumps. We really don’t want to have to navigate that speed bump.”

Michael Blake: [00:31:13] There are no speed bumps by accident. You don’t want to go making them on your own, right?

Tom Brooks: [00:31:16] Right, exactly. Well said, yeah.

Michael Blake: [00:31:17] So, another conflict I run to on occasion, which is not strictly one, but I get very uncomfortable with and, usually, we’ll try to try to sidestep it is maybe it’s not a litigation but a partner buyout, right? So, the client will come to us and say, “I want to buy out my partner,” or their service partner will come to me and say, “We have a client that want to buy the partner. Can we do an appraisal?” I said, “Well, we could do an appraisal.” And strictly speaking, there’s no conflict there, right? But let me ask you this question, if we come up with an answer that the client doesn’t like, right, is it going to make them mad at you?” They said yes. So, I don’t think we want to do this then, right?

Tom Brooks: [00:32:00] Right.

Michael Blake: [00:32:01] That’s not a conflict with a capital C.

Tom Brooks: [00:32:03] Right.

Michael Blake: [00:32:03] But it’s a conflict with a small C with a lot of underlines underneath it.

Tom Brooks: [00:32:07] Yeah. It’s kind of managing your firm risk at the end of the day. It comes back to, just like I said, just assessing, is that a place or a client relationship that we want to be in and take on? Sometimes, I laugh at it. You turn something away, or what you perceive is to do the right thing in some capacity, or you lose an engagement for whatever reason. Well, probably within, it may not be 24 hours, but within a week, there’s a better opportunity that turns around that you like better than the last one that had some hair on it, so.

Michael Blake: [00:32:43] Yeah, that’s called maturity. I like to think that in exchange for my gray hair and two arthritic ankles, I get some benefit out of that. In fact, to that point, I can think of a few assignments that I wish I had not taken. I can’t think of a single one that I turned down, and I wished I’d hung on to.

Tom Brooks: [00:33:04] Right.

Michael Blake: [00:33:04] Not a single one. Oh man, it never happened.

Tom Brooks: [00:33:06] Right.

Michael Blake: [00:33:08] So, talk about the sort of cooperation. In your mind, do you think you need to have sort of a written agreement? Does everything have to be kind of a papered over joint venture, or can these relationships be sustained on an informal basis?

Tom Brooks: [00:33:26] I think they can. I think it’s situational-dependent. So, we’ll go with it depends, which is always a good answer, right?

Michael Blake: [00:33:36] Jim would not like that one, right?

Tom Brooks: [00:33:38] That’s right, exactly. So, I think there’s—I can think back to 20 years ago at a prior firm where I had gone to work with. And I was a manager at that time, but was brought on to help kind of manage the valuation practice day to day that it wasn’t all the way up to a day-to-day practice. And before I got there, there were two tax partners. They had a retainer agreement with one of the more nationally known valuation experts. Then, it was the same thing like we talked about earlier, “Hey, I got this question,” or “Can you review this for us?” And that was padded with an agreement and a retainer that the experts, so to speak, just stayed out in front of.

Tom Brooks: [00:34:24] And I’ve had it as well where it’s not necessarily padded. You just, “Hey, I need another set of eyes to see this,” almost like a QC capacity, helping me review a project, and there’s no agreement in place, but a bill comes, and we pay it, and that is what it is. And then, there’s a larger—then, you may have a larger project maybe where it’s more of a subcontracting nature. Maybe you’re in a spot that you can’t produce all the volume of work, but at the same time, you certainly can manage it if you’re able to subcontract that. And that probably gets memorialized with an agreement with rates, and everything else, and protective language, “Yes, we’re not going to solicit your client,” those types of things.

Tom Brooks: [00:35:17] So, it may be a little bit of a long answer, but it depends. On each three of those scenarios or two of the three, you had an agreement. The other one, you don’t, I think some of it, then, comes back to that trust level as well. Again, we’ll keep harping on that as to the nature of that relationship that you have, whether you need to have it written or not. And then, it’s really up to both firms or individuals to figure out, how do we cement that?

Michael Blake: [00:35:47] So, one area that some of our listeners are probably thinking about is – boy, I’m not sure I like this one – when competitors start to cooperate, that sounds like they’re forming some kind of cartel, right. This is how it got started or whatnot. But in most cases, that really isn’t what happens. When we do this, we’re not price fixing or anything like that, are we?

Tom Brooks: [00:36:11] No, not at all. It’s, “Hey, here’s an opportunity.” Again, there’s no expected, “I’m going to get this back in return,” or no price fixing. It’s what’s best for our client. So, there’s just no, I’d say, illicit concepts in the background, lurking in the background that’s in either of our minds and what we’ve done. And I would never associate myself with somebody that would have that. To me, the world is too big, and there’s too many valuation assignments out there that even though, sometimes, you’re going, “Oh, man. I wish I had another one,” or whatever, but there’s plenty of opportunities for all of us to be efficient in the same pond. The pond is actually really big. And I actually think it’s really deep.

Tom Brooks: [00:36:57] So, many times, for the people even that I know and meet with as competitors, I can say that I’m very friendly with. It’s frequent that I don’t come up against them even in—whether it’s through RFP or there’s an opportunity, and somebody is reaching out to two or three valuation firms. Now, I don’t come across them. So, it’s just the concept, I think, of – again, I’ll repeat it – doing the right thing for your client, and who is that most trusted source, then, that you need to send him to for the situation you have?

Tom Brooks: [00:37:31] And I wouldn’t expect you to send me every assignment. You may say, “This isn’t right for Tom and Windham Brannon. It’s not something that—it doesn’t fit Tom’s bailiwick on what he does.” And I know that you’ve got other folks that you work with or that you spend time with in terms of opportunity. So, that’s not offensive to me.

Michael Blake: [00:37:50] Right. We’re seeing other people.

Tom Brooks: [00:37:51] Right. Yes.

Michael Blake: [00:37:52] And we know that. We don’t have each other’s varsity jacket, or a letter ring, or anything like that, right?

Tom Brooks: [00:37:57] You don’t have my class ring?

Michael Blake: [00:37:57] So, I want to draw this out. We’ve talked a lot about the valuation world, but I want to draw this out a little bit sort of higher level. So, one thing I’ve observed, and I’m curious about your experience, is that one way where competitors may cooperate is on an exit, right? If you’re a company that you’re getting to that point where you’re looking for a sale or for a strategic expansion either way, right, one of the most logical targets is going to be a competitor because they understand your business. They probably understand you.

Tom Brooks: [00:38:33] Right.

Michael Blake: [00:38:33] You may have some relationship with them. And down the road, that may be a very important value-building relationship. Have you seen something similar?

Tom Brooks: [00:38:45] I can’t say that I’ve necessarily seen it, but what I hear from the business owners I talk to, and I think you talked about it as well, and I’m not going to say that it’s generational, but I am amazed that when you do talk to clients and, again, business owners, entrepreneurs, how much they do know and how much time they do spend frequently with their competitors. And I don’t think it’s always just at a conference, like an industry conference. And maybe that is where a lot of these conversations occur, but I do get the impression that, again, it’s not sharing everything about whether it’d be their cost structure, if they’re a manufacturing client. “Well, we’ve got this technology now in place and this is setting us apart.” You’re not going to share that, but very much, many, I find, of my clients do know a lot about their competitors, or if they are looking at an exit, why certain competitors, they would prefer them to be a potential buyer versus others.

Michael Blake: [00:39:46] So, I want to be respectful of your time here. We’re going to wrap things up, but I do have a couple of other questions. If we can kind of sum up here ingredients that go into a good cooperative competitive relationship. We’ve talked about trust. That’s clearly one. Are there one or two other ingredients you can think of that help make relationships like that be mutually lucrative and sustainable?

Tom Brooks: [00:40:10] I think, I’ve used—the other word that I used is transparency and communication. It will probably be the other two words that I think if you summed it up. Again, transparency, to repeat, it isn’t just, “I’m going to tell you everything about my practice.” It’s, “Here’s a little bit about my practice. Here’s about our clients.” And obviously, when it comes to a specific referral, yes, you’re going to probably have a name at that point. But even when you’re meeting with people, whether it’d be over launch, or coffee, or a meeting at somebody’s office as a competitor, again, you’ve got to—if you want to, I’ll say, kind of be on the receiving end, probably, then you need to be, again, talking openly about your own business. So, that’s transparency.

Tom Brooks: [00:40:52] And then, that open line of communication is just be willing to—the other word, I guess, we’d say for it as vulnerable, as you talked about. And so, that’s just kind of just as a—I think you’ve got to get comfortable with that. And if you’re not, then you may struggle getting to that point. And the folks that you’re trying to be more friendly with may pick up on that.

Tom Brooks: [00:41:17] But the other thing that I’ve said frequently is that I’m willing to be the first one to extend the olive branch in a case because you don’t know how it’s going to go. Many times, probably—I don’t know if anybody else’s lunches are like mine, but sometimes it just becomes more of a social lunch. You have a great lunch, but you kind of go, “Well, that was great. And I really got to know somebody. And I think we could work together,” but does the phone ever ring for the work?

Michael Blake: [00:41:45] Right.

Tom Brooks: [00:41:45] So, I think that happens to all of us. But, now, now it becomes, how do you become more purposeful? And then, translating that to a relationship. So, it’s kind of that same thing. Be willing to be vulnerable and extend that olive branch to be the first one because, sometimes, it’s, “Well, are they in the boat with me or out? I have one foot in. Are we all in the boat?” So, that comfort level of knowing that I could extend it one time, and I may not ever get anything that comes back to me or an opportunity that I see come my way.

Michael Blake: [00:42:21] And alongside that notion of vulnerability, I think it’s also differentiation and defining yourself, right? I think if you’re in a business where you truly feel or think that it’s important that you handle every opportunity that comes through, no matter what, it’s much harder to find grounds for cooperating with a competitor.

Tom Brooks: [00:42:48] Right.

Michael Blake: [00:42:48] Right? And maybe that’s right, maybe that’s wrong for your practice. For mine, it’s not right. But on the other hand, if you tend towards more specialization, as I certainly believe. I’m a big fan of Rod Burkhardt. In this regard, he is a strong advocate of specialization and differentiating yourself that way. Then, the opportunities for cooperation, I think, become much more obvious-

Tom Brooks: [00:43:13] Right.

Michael Blake: [00:43:14] … and they become much more natural.

Tom Brooks: [00:43:16] Agree.

Michael Blake: [00:43:16] Right? This is in the wrong box. I know Tom’s got this box. So, we’re just going to do this. It really just sort of becomes a system.

Tom Brooks: [00:43:23] Right.

Michael Blake: [00:43:24] I don’t have to think about it.

Tom Brooks: [00:43:25] Right. No, absolutely. You got to know your own strengths and weaknesses. And again, maybe we’ll call that maturity. It does take some time to figure that out and as you’re building a practice. What do you want to be when you grow up? And we’re always refining that. But it just is that time teaches you a lot, and I still have a lot to learn.

Michael Blake: [00:43:50] And I will say this, a way that I benefit from cooperating with competitors is one of my marketing points that I use with prospects is that we get about 25% of our referrals from our competitors, right?

Tom Brooks: [00:44:08] That’s a good point. I mean, we’ve touched on it. I think it suggests that you know what you’re doing, and that you are qualified because in our world, Mike, as you know, and, again, maybe some of your listeners know in your podcast is that, you don’t have to have any credentials to sign a valuation report.

Michael Blake: [00:44:25] No.

Tom Brooks: [00:44:26] There’s nothing that you have to do. I mean, you could just hang a shingle and you could be mister, “Hey, I can appraise your business.” And it’s not all about the credentials behind your name. That’s part of it. So, that’s the first thing you potentially want to look at or consider when you’re thinking about looking at a friendly competitor, but then it becomes that reputation, and do they have the ability to do it? And so, yeah, if you can sit there and tell your prospect, “Yeah, 25%-30% of my work comes from my competitors,” that shines a pretty bright light on you. I think, it sets the bar pretty high for you as that specialist in that space.

Michael Blake: [00:44:59] I found that, I mean, especially since I don’t do litigation, they don’t even care about the letters after my name, right? I mean, they don’t know what they are.

Tom Brooks: [00:45:07] Right.

Michael Blake: [00:45:07] Sometimes, they ask and get bored about halfway through. But that part, because when your competitors are validating you, because ostensibly you know how to evaluate me much better than the prospect, well, that carries a lot of weight.

Tom Brooks: [00:45:21] Well, that’s right. And I’ve kind of figured out some math. And I don’t know if this is right, but I’ve probably reviewed several hundred appraisals of other firms, and I get to see their work. So, again, you begin to get to see-

Michael Blake: [00:45:35] That’s a lot.

Tom Brooks: [00:45:35] You get to see what your competitors and what their work product looks like. And so, you can begin to, in your mind, go, “Okay. Just even from a technical perspective, I can trust them,” or “I can’t trust them,” or they’re doing some things technically that you go, “I couldn’t agree with or sign off on. I don’t want our client to have to potentially get to a wrong answer because their provider is not doing the right thing technically for them.”

Michael Blake: [00:46:05] Right. So, we’re coming up to the end of our time here, but can people contact you if they have a question about a coopetition or cooperating with a competitor?

Tom Brooks: [00:46:15] Sure. Always be glad to chat with folks or email correspondence. Email is tbrooks@windhambrannon.com. And direct dial 678-510-2748 at the office.

Michael Blake: [00:46:40] All right. And there you have it. That’s going to wrap it up for today’s program on Cooperating with Competitors. I’d like to thank my pal, Tom Brooks, very much for joining us and sharing his expertise with us today. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, litigation, Michael Blake, Mike Blake, referral, referrals, referrals to competitors, Tom Brooks, Transparency, trust, valuations, Windham Brannon

Decision Vision Episode 28: Should I Raise Angel Capital? – An Interview with Charlie Paparelli, Paparelli Ventures

August 15, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 28: Should I Raise Angel Capital? – An Interview with Charlie Paparelli, Paparelli Ventures
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Mike Blake and Charlie Paparelli

Should I Raise Angel Capital?

What are the steps involved in raising angel capital? What traits are angel investors looking for in the founder of a startup? Noted angel investor and startup mentor Charlie Paparelli answers these questions and more in a wide-ranging interview with host Mike Blake. “Decision Vision” is presented by Brady Ware & Company.

Charlie Paparelli, Paparelli Ventures

Charlie Paparelli, Paparelli Ventures

Charlie Paparelli is a twenty-five year professional angel investor focused on helping entrepreneurs achieving their dream of starting and growing their own company. Five years ago, he began sharing his experiences in a twice-weekly blog to entrepreneurs and angel investors at paparelli.com. In addition to his writing, he is a speaker and a coach helping founders and their new teams build enormously valuable companies.

He invested in over 35 entrepreneurs over the last 25 years. He is the Angel in Residence at Georgia Tech’s Atlanta Technology Development Center. He is also a mentor at the Atlanta Tech Village. He is Chairman of the Atlanta High Tech Prayer Breakfast. The Breakfast is in its 28th year. It is the largest networking event in Atlanta technology, and it is an evangelical outreach. He has held many community leadership roles during his 40 year career in Atlanta technology.

Charlie is married to Kathy for 42 years. They have four children and three grandchildren with another on the way. They are members of Church of the Apostles in Atlanta. Charlie is an avid motorcyclist whose current ride is a 2019 BMW R1250RT.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

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Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory board that helps businesses and entrepreneurs make vision a reality.

Michael Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:37] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware &Company, a full service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator, and please also consider leaving a review of this podcast as well.

Michael Blake: [00:01:01] Our topic today is seeking angel capital. And for those of you who don’t know me, most of you don’t because you’re out somewhere on the internet, I’ve been a cheerleader and advocate in the angel capital world for really as long as I can remember. My first job out of school actually was helping entrepreneurs in the former Soviet Union and in Russia. And at that time, there wasn’t even a term for angel capital. It’s kind of fascinating because the whole business vocabulary was evolving at that time.

Michael Blake: [00:01:34] And  when I moved to Atlanta about 15 years or so ago, I got a taste of the early stage capital scene here. And the one theme that was recurring was you can’t get a deal done here, there’s no angel capital, et cetera, et cetera, et cetera. If you live in Atlanta, it’s tedious. If you don’t, this is news to you. And the thing I, sort of, thought was, well, I saw people making investments in Minsk. And I can’t imagine that investing in Atlanta is harder than investing in Minsk. Maybe I’m wrong, but I can’t imagine it’s that big a difference. There’s got to be something kind of going on here. And as it kind of got more into the community, I was very fortunate, the community embraced me very quickly. I started to learn about the gears and cogs about this.

Michael Blake: [00:02:21] And as I start to learn more about angel capital and early stage investing, in general, and with the travels I’ve had abroad, I came to a conclusion that for all the things that we, as Americans, think make us unique, I’m not sure anything makes us more unique than the angel and venture capital sectors. I’m not sure anything makes us more unique than the way that we support startups. And if you look at at the word “entrepreneurship” in other languages, if you directly translate them, they almost have a sense of doing something semi-devious. If you’re enterprising, that’s not necessarily a good thing. But in the United States, we have a unique cultural facet where the entrepreneur is folk hero. And I can’t think of any other place in the world where we elevate the entrepreneur to that status.

Michael Blake: [00:03:13] And one of the things that makes the entrepreneurial sector go is angel capital. You can’t bootstrap a new car company. You can’t bootstrap a new airplane company, right. And many of the largest companies, the most important inventions in the world that we think of today, at some point, were funded by angel capital. Columbus’s expedition to the new world was funded by Angel Capital called The Royal Family of Spain. Thomas Edison-

Charlie Paparelli: [00:03:53] Queen Isabella.

Michael Blake: [00:03:53] King Ferdinand, who’s with Queen Isabella, right?

Charlie Paparelli: [00:03:56] Yeah.

Michael Blake: [00:03:56] I was going to say King Ferdinand. I knew that was not right, so I choke. It’s Queen Isabella. Thank you. Thomas Edison was funded for the light bulb and for General Electric by a guy named JP Morgan. And so, angel capital pervades almost everything that we think about in terms of the American economic story. And I think if you don’t understand angel capital, you don’t understand a big part about how American business works.

Michael Blake: [00:04:24] And so, here to talk about that is somebody that I’ve known, and, for a long time, I’ve come to respect. He doesn’t even know this, but he’s a spiritual mentor to me. If you don’t ― if you haven’t listened to his or read his emails, get on his email list. There’s how many? I think three times a week. They’re just phenomenal. Not good – great. Required reading. And his name is Charlie Paparelli.

Michael Blake: [00:04:47] Charlie is a 25-year professional angel investor focused on helping entrepreneurs in achieving their dream of starting and growing their own company. Five years ago, he began sharing his experience at a twice-weekly blog – so, it’s twice weekly, just assuming – to entrepreneurs and angel investors at paparelli.com. In addition to his writing, he is a speaker and a coach helping founders and their new teams build enormously valuable companies. He invested in over 35 entrepreneurs over the last 25 years. And we’re going to come back to that.

Michael Blake: [00:05:16] He is the Angel-in-Residence at Georgia Tech’s Atlanta Technology Development Center. He is also a mentor at the Atlanta Tech Village. He is chairman of the Atlanta High Tech Prayer Breakfast, which is the largest pre-6:00 a.m. start event on the Atlanta calendar. Now, that may be a small list, but it is a big deal. That breakfast is in its 28th year. It is the largest networking event in Atlanta technology, and it is an evangelical outreach. And as an aside, whenever I remember, I’ve been to about three or four of those, and one of them was an executive from Apple. Charlie will remind his name. But he’s an executive from Apple who had to come on and talk, I think, a day or two after Steve Jobs passed away, as I recall. And that was some powerful stuff. That was as raw as it gets.

Michael Blake: [00:06:11] Charlie has helped many community leadership roles during his 40-year career in Atlanta technology including Angel Lounge, which is an offshoot of Startup Lounge that serves to educate current and aspiring angel investors in the Atlanta community. Charlie is married to Kathy for 42 years. They have four children and three grandchildren, with another on the way. They are members of Church of the Apostles in Atlanta. And Charlie is an avid motorcyclist whose current ride is a 2019 BMW R125. Nope, that’s wrong. R1250 RT. Got it. That’s a lot of letters and numbers.

Charlie Paparelli: [00:06:46] That’s what it is, yeah.

Michael Blake: [00:06:48] Charlie, thank you so much for coming on the program. I’ve been looking forward to this since we started talking about it several weeks ago.

Charlie Paparelli: [00:06:53] Same here, Mike. I always love the work that you were doing. We started Angel Lounge as an offshoot, as you said, a startup lounge. I wanted to be a part of what you were doing. You’re saying we’re missing this piece. And that’s where we came up with the idea of Angel Lounge.

Michael Blake: [00:07:06] And I think due to that, I think there’s more capital available in Atlanta than there has been because I think you’re making people feel safer and more confident about making those commitments.

Charlie Paparelli: [00:07:17] Yeah. Angel Lounge, we focused Angel Lounge instead of trying to march more companies in front of people, it took us a while to get to the right formula. But the formula that we’re using is, really, our mission is to just help angel investors or those who are interested in becoming angel investors to help make them better investors by sharing each other’s stories and experience with them.

Michael Blake: [00:07:39] So, I’d like to start this podcast with the basic vocabulary question, because I think not everybody knows what angel investing is. They may think it’s venture capital, but angel investing and venture capital are related, but they’re not quite the same, are they?

Charlie Paparelli: [00:07:53] No, they’re very different. If you think about when we ― venture capital, basically, is mutual funds for high-risk investments, all right. So, if you know how mutual funds work, I mean, you have a mutual fund manager, and he has partners, and they raise money to, then, invest that money for other people in mostly public stocks. Public stocks, things that you can get in and out of pretty quickly. So, they might put in 1% to 5% of their own money into that big mutual fund. So, venture capitalists, the difference between them is they’re investing in companies that are privately held companies. And as privately held companies, you can’t get in and out of them quickly. Once you’re in, you’re in forever, okay.

Michael Blake: [00:08:47] Right. That door makes a loud slamming noise.

Charlie Paparelli: [00:08:48] It does, yeah. It’s all ― so, we’re all excited to get in. And then, next thing we’re doing is looking for exits, and we’re driving along the highway, and there are none. You’re just on there, and you hope you don’t run out of gas till you get to that last exit. So, venture capitalists, hopefully, people put money in venture capitalists, and big pension funds put money there simply because it’s a high-risk, high-reward alternative. So, you’ll find some of these big pension funds who will put in maybe up to 3% to 5% of their total fund into high-risk alternatives, of which venture is one of those.

Charlie Paparelli: [00:09:23] Angel investing, on the other hand, that’s like your own money. So, it’s like running your ― it’s like taking whatever money that you thought you wanted to put into higher risk ventures, whether it be $100,000, or $250,000, or some cases, it could be multiple millions of dollars, and you say, “No, I want to be an angel investor. I want to be on the ground. I want to invest in these early-stage startups. I want to work with these entrepreneurs. And I’m willing to risk my personal fortune on this one segment.” So, you have a lot less people, a lot less company — fewer companies that you’ll be spreading that risk across. And so, that makes the risk even higher as an angel investor versus venture capital.

Michael Blake: [00:10:08] Now, I want to clarify one thing just because you happen to be the guest, it only happens to be called an angel investor because that’s a term of art. It has nothing to do with a religious affiliation. Even though you happen to be very open about your faith, there are plenty of people who aren’t that way that are angel investors, right? There’s not a a Christian element to it, necessarily.

Charlie Paparelli: [00:10:28] There’s no Christian element to it. In fact, the term angel investor goes back to people in New York on Broadway who actually wanted to get their shows funded, their new ideas for Broadway shows. And people would come in, and they would ― very wealthy people would liked the idea, and they would fund the show. And those people were called by the producers of those shows angel investors. And that’s where the term ― that’s the genesis of the term angel investor.

Michael Blake: [00:11:00] I had no idea. I did not know that. And the producers, the people who funded Springtime for Hitler were actually angel investors.

Charlie Paparelli: [00:11:07] Oh, you would bring up that example, but, yes, that’s true. Yeah.

Michael Blake: [00:11:10] Well, my wife is Jewish. She’s a big Mel Brooks fan. And I will say, as an aside, by the way, the funniest six minutes in cinema is Springtime for Hitler. Only Mel Brooks can make the Nazis funny. So, we often hear about friends and family as investors. Do they qualify as angels too, or are they sort of a different animal?

Charlie Paparelli: [00:11:29] No, I would call — friends and family, there’s a term called the 3Fs, okay? Family, friends, and fools, okay, are those very, very early stage investors. And when you’re — when an entrepreneur is raising money, the first thing that he’s raising money around or on, as a foundation, is his credibility. Well, the first people that find the person, the entrepreneur, to be credible, especially if it’s his first time being an entrepreneur, is his family. If his family doesn’t think that he or she could do it, then why should anybody else think they should — they’d be able to do it?

Charlie Paparelli: [00:12:11] So, I think that the first round is always friends and family, because they’re other people that say, “Oh, my God. If Mike Blake is starting this company, and Mike is so smart, and I think he’s going to be able to build something great. I have no idea what his idea is. I don’t know what the market is. I don’t know anything. But I know Mike, and I’ll put money behind Mike.” So, I think they are angels. They’re the — they’ve been called fools, but I think what they’re doing — I know what they’re doing. They’re betting on the individual because they have a very deep and long personal relationship with them.

Michael Blake: [00:12:44] So, you bring something up that I want to make sure that we cover because there’s a timeline of maturity here, right? And that friends and family round, if you will, that investment is really banking on the credibility, which means there isn’t a business yet, right. There’s there’s a hope, an idea, right? A story, I guess-

Charlie Paparelli: [00:13:05] Yeah. Just somebody-

Michael Blake: [00:13:05] … in most cases?

Charlie Paparelli: [00:13:06] Most of the time, somebody will come to you and say, “Yeah, this is something that I’ve been doing. I’ve been working for such and such a company for a while.” These are the kind of people that I’ve gotten — I’m attracted to. “I’ve been working in this industry for a while, working for this company for a while. I’m 35 years old. I’ve been through… ” — either “I developed an expertise as a programmer” or “I developed an expertise as a salesperson,” or whatever. “But I know this industry, and I have this idea, and I brought it to my bosses, and no one’s interested in it. And I just can’t let loose of it. And I really want to start a company around it, but I have no idea how to do that. But I think a lot of people will buy whatever I’m going to build or sell.” And that’s kind of how it gets started.

Charlie Paparelli: [00:13:56] And then, the first place they have to go is they have to go to somebody. So, that’s all they have. They have this story. There’s interest and that they — it’s this passion. It’s, sort of, like a God-given idea they can’t let loose of, but they need to be able to feed — they’re 35. They need to be able to feed their family, and they need to start putting money away for college, and all this for the kids, and everything that we all do. They have houses, cars. They’ve got it all. How do they survive? Well, that’s where the angel comes in and says, “We can help you meet your personal expenses at the beginning while you develop — while you unhook from the corporation and your salary,” which is step one. And then, you start building out this idea.

Michael Blake: [00:14:38] You brought something up. I’m going to deviate from a script here because I think that’s — I think it’s important. That 35-year-old, the most — the iconic entrepreneur is somebody who’s in their 20s. To us, they’re basically kids, right. But they actually don’t start most companies, do they?

Charlie Paparelli: [00:14:57] No. You say iconic. What do you mean the iconic?

Michael Blake: [00:14:59] An iconic. Iconic, like the Mark Zuckerbergs, the Bill Gates of the world, Steve Jobs.

Charlie Paparelli: [00:15:05] Oh, I see what you’re saying, yeah.

Michael Blake: [00:15:05] In some case, they actually drop out of school, so they can start whatever it is they’re going to start. But actually, most entrepreneurs look like that 35-year-old, don’t they?

Charlie Paparelli: [00:15:14] Yeah, I think the statistics proved out that it’s somewhere between 35 and 38. And my statistics actually prove out this companies that were successful for me that I invested in, that’s exactly how old people were. So, they have enough. Really, like when I got out of college, I grew up, my father was a middle — he was a train man on the Jersey Central Railroad for 38 years. When I sat around the dinner table, we didn’t talk about business. In fact, I remember I was the first one in my family, first male in my family to actually get a degree from college. And I was getting an accounting degree, and they told us we need to read The Wall Street Journal. I’m reading The Wall Street Journal, and I didn’t even know what I was reading. It didn’t make any sense to me because I had no context or understanding of basic business.

Charlie Paparelli: [00:16:01] So, it’s really, when you come out of school, what do you know about business? What do you know about building a company? What do you know about the disciplines of building a product, the disciplines of launching a product? How to gain — how to hire people? How to do business reviews or reviews for people? Okay. How to properly give a presentation? You don’t know any of this stuff. You have to learn it. And so, that’s why I think those 15 to 18 years out of college, that’s the foundation where you have to prove out your functional expertise, as well as your management expertise.

Michael Blake: [00:16:38] I think the only thing I knew about business was what I remembered from watching that Michael J. Fox movie, The Secret of My Success. That was pretty much it.

Charlie Paparelli: [00:16:46] I don’t remember that.

Michael Blake: [00:16:47] Yeah, nor does anybody else. That’s-

Charlie Paparelli: [00:16:49] Okay.

Michael Blake: [00:16:49] Yeah. So, let’s, sort of, then, now get into the seat of that person that thinks they’ve got that idea, right, and they’re convinced that idea’s got legs, and the company they’re working for is not going to buy it. They sit down, they take you out to lunch, or they sit down for your own office hours at the ATDC. What do you tell them in terms of they’re if going to embark on a venture — I’m sorry, angel capital raising process, what should that entrepreneur be prepared to do?

Charlie Paparelli: [00:17:21] In order to?

Michael Blake: [00:17:24] To raise capital? I’ve got an idea. I need somebody to write me a bigger check than I can write myself. What is that process going to look like?

Charlie Paparelli: [00:17:34] All right. So, I’m going to speak beyond the friends and family.

Michael Blake: [00:17:37] Yeah.

Charlie Paparelli: [00:17:37] So, friends and family is going to provide that bridge to get you from a weekly payroll or weekly salary, if you will, to being an entrepreneur or starting your own business, in effect, okay. So, now, your future and your family’s future is dependent upon you making money. So, tell me again, what are you looking for in this?

Michael Blake: [00:18:03] I’m just looking for the process of raising angel capital, right. I’ve decided I’m going to raise angel capital. What do those steps look like to get from want to raise angel capital to having a check in the bank?

Charlie Paparelli: [00:18:18] All right. Part of this myth, I mean, you talked about entrepreneurs as folk heroes. And there’s a myth around the folk hero that soon as I come up with an idea, the next step is to actually raise capital, okay? Really, the next step is to start building a business. Capital is attracted to businesses. Capital isn’t just attracted to purely ideas, all right. I look back at Facebook, for example. So, when Zuckerberg — what happened with Zuckerberg, he started Facebook, basically, as a freshman at Harvard, I believe was Harvard.

Michael Blake: [00:18:58] I think so, yeah.

Charlie Paparelli: [00:18:59] Yeah. And, sort of, a nerdy guy, wanted to meet people, introvert. He didn’t want to meet people. He want to meet girls. So, what he did is he put together this little site to have people meet each other over this internet. And it was only open to the freshman class at Harvard. And he started to gain traction because there’s a lot of nerds, I guess, that go to Harvard.

Michael Blake: [00:19:30] I think that’s fair.

Charlie Paparelli: [00:19:31] Yeah. And they don’t-

Michael Blake: [00:19:32] I only drove by Harvard when I lived up in Boston, but I think that’s correct.

Charlie Paparelli: [00:19:35] Yeah, all right. Well, they needed to meet each other. So, they didn’t know how to do it. So, they started doing it over the web, this new medium, if you will. And then from there, it started to kind of take off. So, he met people. He became, sort of, a little bit of a rock star in his freshman class and other people in the college. And Harvard said, “Well, what about us as sophomores, and juniors, and seniors, and all that?” And, of course, we always know that seniors always like to pick up freshmen girls, right? That’s kind of how that works. And so, he opened it up, and it just became for Harvard. And then from Harvard, other people started to contact him, and said, “Hey, we’re at MIT. We want to do the same thing. Can you open it up?” So, he started to open up these silos where they couldn’t talk to each other. You can only talk within your educational institution. And from there, it’s sort of just expanded.

Charlie Paparelli: [00:20:27] At some point, people said — he said, “I need to — this thing is so popular now. I need to kind of get some money here, so I can live on and continue to build it out.” And that’s when he got his first venture capital. And by then, he had exposed — he had expanded to high schools, again, siloed. And when he first got some capital in there, it was probably angel money to start with, is they said to him, “Look, why are you doing this siloed approach? Why don’t you just kind of open it up horizontally to anybody who wants to be part of this?” And that was the beginning of Facebook.

Charlie Paparelli: [00:21:00] And that so — he started to build out the attractiveness of the idea and the business model, and that’s what it was. And he had no idea what the business model was going to be when he started. But later, it came about that it was going to be advertising-based because he had captured all of our data, and he was able to sell it to all of the advertisers.

Michael Blake: [00:21:18] Yeah.

Charlie Paparelli: [00:21:19] It worked out really well for him. But the first step, really, is for these — is to think, “I have to build a business.” Don’t think, “I have to raise capital. I have to build a business.” If you build something that looks like it’s going to be a business, that, actually, there’s some buyers out there for whatever service or product that you’re selling, then an angel investor like myself can come in and say, “It looks like this can turn into a big business,” or “This can turn into a $500,000 business, max,” or “Maybe it’s going to be a $5 million business,” then we can size what type of investment it would require. And then, we could figure out what kind of returns that we might possibly get based on the investment we put in.

Michael Blake: [00:22:00] And you and I, I think, both know and have met entrepreneurs that, I think, I’ve gotten that backwards where their business seems to be raising capital.

Charlie Paparelli: [00:22:09] Yeah.

Michael Blake: [00:22:11] That doesn’t work very well, does it?

Charlie Paparelli: [00:22:12] Yeah. One of the things I worry about in our community and other communities is we don’t celebrate. We don’t seem to celebrate the progress that a company makes in their marketplace. But what the news covers is how much money they raised on the last round. Money doesn’t build companies, people build companies.

Michael Blake: [00:22:34] Yeah.

Charlie Paparelli: [00:22:34] So, we should be celebrating, “Oh, my gosh, they did a deal with AT&T.” That should be the news, not that they raised $50 dollars in the last round at a $200 million valuation.

Michael Blake: [00:22:48] Yeah, I agree with that.

Charlie Paparelli: [00:22:50] Yeah, you’re right. So, the end point, what we celebrate is some milestone in the process as opposed to the business successes themselves.

Michael Blake: [00:23:03] So, to  raise money for a small business, angel capital is not necessarily the only game in town. It’s not necessarily the best route to go, right? You could — for example, you might be able to obtain a small business loan, right, or you may be to finance things through credit cards. Can you talk a little bit about what differentiates one opportunity that makes it appropriate for angel capital and what maybe makes another opportunity more appropriate for a small business loan kind of scenario?

Charlie Paparelli: [00:23:34] Yeah. Small business loans and credit cards, they all kind of fall in the same bucket. They’re probably 25% interest type loans.

Michael Blake: [00:23:43] Yeah.

Charlie Paparelli: [00:23:43] So, you’ve got to think of them more like working capital loans. So, I need some — I’m invoicing my — I’m doing a service company, so I’m invoicing my customers. I’ve got a 45 to 60-day, sort of, window before that money comes back in. So. maybe I can use credit cards, and I can use these business loans, if you will, to kind of finance that. But for longtime financing, 25% interest is gonna be quite a burden as you go forward. So, I see those as working capital loans.

Charlie Paparelli: [00:24:17] The angel, the other side is banking. Can I go to a bank and get a loan? Well, if you’ve got enough assets, enough collateral, and enough money in the bank, they’re willing to give you a loan. But most of these people don’t have the credit worthiness to get any meaningful sized loan that’s going to kind of move the needle for the business. So, it forces you into selling stock in your company as opposed to just accumulating debt to kind of go forward. So, with stock, you don’t have debt. You have — you’ve sold off a piece. But, now, you have a partner. And that’s what an angel investor is. They’re a financial partner in the company. So you’ve sold off 30%, or 50%, or whatever the number might be depending upon how early stage you are of your company to this investor who’s now going to be hanging out with you for a very long time.

Michael Blake: [00:25:12] And the timing issue, I think, is so important that an angel investor, if they’re experienced – and not all of them are – understands that doors are slammed shut, and you’re on a highway for a while, right? The bank, maybe they understand the door’s slammed shut, but if you’re going to be on that highway for a long time, that meter runs really quickly, right, as that interest kind of piles up. And it takes cash out of the business. But if you can pay that back fairly quickly, maybe that does make sense. If you have enough cash flow initially to kind of — as you said, as you sell through your inventory or whatnot, maybe it makes sense to do that.

Charlie Paparelli: [00:25:54] Yeah. It depends upon — I guess there’s a couple of things to consider is, what kind of business am I building? If I have to spend a lot of time in order to build out a product, a bank loan is probably not gonna be a good way to go. But if I’m doing a services company, or if I’m a reseller of some type of other products, so I’m really looking to just buy product, and then resell product, bank loans make a heck of a lot of sense because you can keep moving them. You can pay them back, you can take them down, you can do it that way. But if I have this long-term investment that I have to make in order to get set up to build my company, well, bank loans, like you said, accrued interest kind of grows very, very rapidly. And then, you’re kind of under water.

Charlie Paparelli: [00:26:44] The other thing to consider is that, do you know enough about what you’re doing to build a company? So, this is where angels come in too. They’re just not people who come with money, but they come with expertise and network. So, if you could find those kind of what I’ll call smart money angels, then they could bring a lot of value to the business to increase your chances of success and mitigate your risk.

Michael Blake: [00:27:11] I want to drill down on that because I know in your model, I think, your smart money is involved. I think you are involved with a greater degree because you do fewer deals, right? I think, in the intro, I think it said you did 30 deals over 25 years, something of that nature, right?

Charlie Paparelli: [00:27:28] Right.

Michael Blake: [00:27:28] So, you are not — you, yourself, you’re not spreading thin. You are going deep into one or two deals at any given point in time. And correct me if I’m wrong, but I think that’s, sort of, on the deeper end of the spectrum. Not all angels are as involved on a day-to-day basis as an intimate partner as are you. Is that fair?

Charlie Paparelli: [00:27:50] That’s very fair.

Michael Blake: [00:27:52] And then, there’s a spectrum. And then, on the other side — and I’ll just share with the listeners some insider baseball. We often call those doctor and dentist deals, right? Nothing against doctors or dentists, but there’s a stereotype that they have money but not the experience of being angel investors. Often, they’ll make an investment but not be involved, right.

Charlie Paparelli: [00:28:16] But the other side of the reason that doctors and dentists get involved too is there’s a jealousy that the business guys are making all the money.

Michael Blake: [00:28:26] Okay.

Charlie Paparelli: [00:28:26] So, they want to become a business guy and that becomes an easy, sort of, on-ramp angel investing, but it’s a quick way to kind of lose some of their hard-earned, sort of, cash flow too.

Michael Blake: [00:28:37] Yeah. Yeah. Oh, sure. That’s a great way to lose money, right?

Charlie Paparelli: [00:28:40] Yeah.

Michael Blake: [00:28:40] But as somebody who’s seeking angel capital, right, on the one hand, what you’re offering, you’re offering experience, you’re offering expertise, you’re offering support. The other edge of that sword is I got to share the steering wheel, right? There’s built-in, day-to-day, in-your-face accountability with which not everybody in the world is necessarily comfortable, right? And some capital seekers will say, “You know what? You’re telling me this dumb money is just going to write me $100,000 check, and then not bother me? Great. Where do I sign?” What does that funding seeker not getting right? What are they overlooking or what are — yeah. What are they failing to see because they see that “free money?”

Charlie Paparelli: [00:29:29] Yeah. I have people — I had a call just the other day, in fact, somebody who was saying to me this is their third time, actually, starting a company. And, actually, the first two companies, they had exits. So, they figured they had the formula down, they’re just going to be successful. So, this is a guy that has total exits that were equal to $37 million in exit. So, this is a pretty successful guy in health care, in the health care vertical. And he’s saying to me, “You know and understand. You understand how to price these deals out. I don’t have revenue yet in this one. I do have a lot of experience. I’ve got good track record. I think that people should pay a much higher amount of money as angel investors for the stock than I’m going to sell in this company at this stage.”

Charlie Paparelli: [00:30:16] And I said, “Well, you’ve got a choice. If you want people who are going to come in, who are going to add to the credibility of your new company, your idea, and also lock arms with you for any future, sort of — be of value add for any future funding that you’re going to do,” I said, “you’re going to have to — you’re selling to professional angel investors who are going to be asking for — they’re looking for good returns, and they understand how hard it is to build companies. So, you’re going to be pricing your company lower than you would with inexperienced – the doctors and dentists.” You go to doctors and dentists, and they say, “Oh, well, I’m pricing this brand new company, never raised money before, has no revenue, hasn’t built the product yet. We’re going to price it at $10 million.” Okay. And from the outside, you might say, “Wow, that’s a really good deal, $10 millions because I look at the stock market and all those companies have billion dollar valuations. So, this is a great deal.”

Charlie Paparelli: [00:31:14] Whereas an angel investor would probably say, “What did you raise money on your last deal for that first round?” He said, “Well, they got an outsized return because I priced it at $2 billion pre-money.” And I said, “Well, that’s what it was worth. And they didn’t get a ridiculously high sign.” I said, “What was the returns they got?” He said, “They got a 10-time return on their money.” I said, “So, what? So, what? Why does that bother you? You were a success. You made millions of dollars because of these people that put this money in.” He said, “Well, I think that I could make even more.” I said, “Well, how much more money do you want to make?” And he said, “Well, it’s not about the money. It’s about fairness.” And I said, “Oh, so it’s about greed, but it’s not about the money.” You know what I mean? It’s like a ridiculous conversation. So, I would say-

Michael Blake: [00:32:00] This is why I don’t argue with you, by the way.

Charlie Paparelli: [00:32:02] So, what do you like? Yeah. So, what you’re missing out on if you get what we’ll call as inexperienced money as opposed to using the pejorative term, is you’re missing out on the experience. I mean, I’ve been an entrepreneur in my earliest days. We built companies from scratch. We did exits. I worked for corporations. I know what it is to to build leaders. I know how to hire people. I know to help. I have a network of people I can bring to the company. I can make introductions to executives. That’s very valuable. Well, if you’ve got a doctor, and he’s not going to do any of that, he’s going to call you up and say, “So, what happened last week?”

Michael Blake: [00:32:44] Right.

Charlie Paparelli: [00:32:44] You know.

Michael Blake: [00:32:44] Unless somebody faints at the board meeting, that’s great. But otherwise, he’s not going to bring that much to the table, right?

Charlie Paparelli: [00:32:49] Exactly.

Michael Blake: [00:32:49] So-

Charlie Paparelli: [00:32:49] So, that’s what you miss out.

Michael Blake: [00:32:51] And you said something that  I want to touch on because I think this is really important. That 10x return, I don’t think that’s really an outsized return when you consider the risk that’s being taken, right? So, I just posted two days ago on my chart of the day, when you look at venture returns, which is more mature than angel, right, 65% of those deals don’t make their money back, right?

Charlie Paparelli: [00:33:14] Right.

Michael Blake: [00:33:14] So, it’s up to a 1.0x return, which means that’s cash and cash. Best scenario, you get your money back, which means that two-thirds of deals lose money, right?

Charlie Paparelli: [00:33:27] Right.

Michael Blake: [00:33:27] Two-thirds of deals in the S&P 500 do not lose money if you’re just sort of in a broad index, right?

Charlie Paparelli: [00:33:32] Right.

Michael Blake: [00:33:32] So, it’s kind of like drilling for oil that the deals that are successful also kind of got to pay for the deals that weren’t, right? The well that strikes oil also has to pay for the drills you put in that didn’t strike oil.

Charlie Paparelli: [00:33:46] Right.

Michael Blake: [00:33:47] And so, if you’re successful, perhaps you’re thinking, “Boy, you know, 10x returns seems rather greedy.” But from the investor’s standpoint, you got to have that, or you’ve got to have that aspirationally. You have to hit it once in a while or the economics, given the risk and the failure rate, just don’t work out, right?

Charlie Paparelli: [00:34:06] Yes. So, what you wind up with, I think that the average angel that has been doing it for some — let’s say, a 10-year period, I think their returns are somewhere — somebody — this is somebody that presented at Angel Lounge. I think those returns were somewhere around 3% to 6% as an internal rate of return.

Michael Blake: [00:34:26] Oh, my gosh.

Charlie Paparelli: [00:34:26] Well, that’s an awful lot of risk and an awful lot of work, okay, to get those kind of returns. And what happens is when you’re speaking with entrepreneurs, every entrepreneur know his company is going to be a great success, and it’s going to be worth a lot of money. What he doesn’t have is any kind of context to say, “As an angel investor, I’m looking at 20 people that look like you, okay, and I’m seeing — I really understand where the risk is because I’ve talked to people at all different levels. You seem to be the most attractive, but there’s no guarantee that you’re going to be successful.”.

Charlie Paparelli: [00:35:05] That guy I talked about in health care, I said, “You’ve got millions of dollars.” He says — I said, “Why don’t you put your money into this thing if it’s such a good deal?” And he said, “Well, I’ve already put $200,000 in.” And I said, “Well, $200,000 to you is nothing based on the exits that you had. So, you’ve got to be worth more than $15 million.” He goes, “Well, I’m not going to tell you what I’m worth, but you’re not far off.”

Charlie Paparelli: [00:35:28] And then I said, “Well, if this is such a great deal, if it’s so low risk that you’re going to be a success, why would you want to share it with anybody?” And he said, “Well, there’s always a chance that it’s going to fail.” I said, “Well, you didn’t say that in the first 20 minutes of our conversation, you know.” But you see, this is the reality of it. So, I want to take no risk, and I want all the risk to be put on the investors. And I don’t think they should get more than a three-time return if it works.” And I said to him, “Would you invest in that deal?” And he didn’t answer me. But you see, it’s crazy the way these deals get positioned.

Michael Blake: [00:36:06] Well, you know, I think in fairness, it’s sort of in a symmetry of kind of how you look at it. From the entrepreneur’s deal, they have one deal, and that’s it, right? But I want to build on something that you said. Even the deals you invest in, let’s say — I know you don’t do this, but let’s say you’re an angel that’s got money in six deals, right?

Charlie Paparelli: [00:36:26] Yeah.

Michael Blake: [00:36:28] When you put money in those six deals, you didn’t think any of them were going to fail individually. You wouldn’t have put your money in, right? You think that all of them are going to be successful when you put your money in, but you know that four of them are not, or five of them are not, or maybe all six of them are going to lose. You just don’t know which ones.

Charlie Paparelli: [00:36:45] You know, it’s funny that you say that, the four of the six will not be okay. There is such a deep sense of denial. Even me who has been through this that I still think I’ll be six for six. Okay? That’s why we do these deals. You know, I mean, you can’t be an angel investor, and not be idealistic, outsized, idealistic, and outsized hopeful. Otherwise, you wouldn’t do these things.

Michael Blake: [00:37:10] Right.

Charlie Paparelli: [00:37:11] So, that’s what happens.

Michael Blake: [00:37:11] Nobody would ever enlist for the army if they thought they’re the one that’s going to get shot.

Charlie Paparelli: [00:37:15] That’s right. That’s right.

Michael Blake: [00:37:16] You got to have that going in. It just doesn’t make any sense, right? So, how much lead time? I mean, how long do you think — how long does it normally take? Let’s say there’s a successful angel funding process that takes place. As an entrepreneur is thinking about their business plan, how long does that process usually take?

Charlie Paparelli: [00:37:39] Well, it’s a hard question to answer, but if I’d say in general terms, I would say 90 days.

Michael Blake: [00:37:47] Okay.

Charlie Paparelli: [00:37:47] Okay. But it’s highly dependent. If we’re speaking to entrepreneurs and business people here, it’s highly dependent upon the quality of your business. If you are sitting here, and you don’t really have anything, and the idea doesn’t really even solve a clear business problem, you can spend the next two years trying to find the first person that’s going to put money behind that. And in that two years, you’re going to change, change, change, improve, do better until you hit on some business that makes sense based on your expertise. And then, the 90 days will kick in.

Michael Blake: [00:38:23] Right.

Charlie Paparelli: [00:38:23] All right. So, it could be forever to never, okay? Or if you really do, in fact, have something, it could be as quick as 30 days, okay? That happens if you get the first person who has high credibility as an angel in the deal, then it’s a pile-on. Everybody’s got to be in the deal, right, because the credibility went up. If Charlie thinks that Mike has got a really good shot at this, and Charlie’s done a lot of these deals, I’ll put money in that deal. Well, what’s the deal? I don’t even know what it is, but Charlie’s on the deal. I’m going to do the deal. You know, that’s the old thing that we had about the t-shirt for Sig Mosley, right, who was sort of the godfather of angel investing in Atlanta that said “Sig said no.”

Michael Blake: [00:39:08] Yeah.

Charlie Paparelli: [00:39:10] Right? If Sig said no, you were dead.

Michael Blake: [00:39:12] That was already a horse head in your bed, basically.

Charlie Paparelli: [00:39:13] Yeah, exactly. That’s what it was. But if he said yes, everybody wanted in on the deal. They don’t even know what they were investing.

Michael Blake: [00:39:20] Right.

Charlie Paparelli: [00:39:21] That’s the [crosstalk].

Michael Blake: [00:39:22] It could have been alpaca as a service. And if Sig was in, you’re in.

Charlie Paparelli: [00:39:26] That’s it.

Michael Blake: [00:39:26] Now,  saddle me up, right.

Charlie Paparelli: [00:39:28] That was it.

Michael Blake: [00:39:29] So, what do you think about angel groups? There are angel groups out there. We have won the Atlanta Technology Angels, which, as my editorializing, some years are great; some years, you don’t quite know where they are. I don’t think you’ve ever been a very active member as an investor of angel groups, if I’m — correct me if I’m wrong, obviously. But do you have an opinion of angel groups as a place for somebody to go to look for capital?

Charlie Paparelli: [00:39:55] Yeah, I think that angel groups have been — angel groups have been through a process here over the last, I would say 20 years. And it’s taken them that long to get to a model that actually works. And what they’re serving is not entrepreneurs. What they’re serving as passive investors. And passive investors, I always say that wealthy — the passive investors are independently wealthy people. And my definition, personal definition of independently wealthy is I can do whatever I want, whenever I want, which means I have complete control over my time. Well, I might say as a wealthy individual, “I want to be an angel investor.” Well, if all of a sudden, I create a relationship with the entrepreneur, and I put money in, and he sees value in me, well, I might start getting calls like on Saturday morning, which is when I play golf, that this guy lost a big deal, and he just has to meet me for breakfast.

Charlie Paparelli: [00:41:00] Well, what happens is we have all these people that want to do it, but they don’t want to put time in. So, they need somebody to kind of represent them. So, what happened is over the years, these models went from sort of loosely-goosey, “Let’s have a meeting and see who wants to invest,” to actually putting putting in paying dues and paying a group of people to actually vet the deals, present the deals, do the due diligence on the deals, put the terms sheets together, negotiate the term sheets, and then present them to these passive investors. That’s where these groups have gone now. So, if you look at AIM, A-I-M-

Michael Blake: [00:41:38] Yeah, familiar with them.

Charlie Paparelli: [00:41:38] Right? Down in Birmingham. And then, you look also at Matt Dunbar Venture South in Greenville, they have adopted that model. It took them a while to get there, but they’ve adopted the model, and it works because it satisfies the needs and interests of the passive angel investors. So, they have these huge networks of people.

Michael Blake: [00:42:02] And they are funding deals. I know AIM would probably be one of the most active angel investors in Georgia, I think.

Charlie Paparelli: [00:42:10] They are one of. In fact, they started a group here in Atlanta.

Michael Blake: [00:42:16] Oh, okay. I didn’t know that.

Charlie Paparelli: [00:42:17] Yeah, they have their own group. And ATA, the Atlanta Technology Angels, like you said, they’ve had their ups and downs. And so, they haven’t quite had the leadership to kind of build something out longer term. So, they have ebbed and flowed, but they’ve been at a few good deals, you know. Even with this sort of loosey-goosey unstructured model that they have.

Michael Blake: [00:42:38] So, I want to ask you a question I get asked a lot. And that is, from your perspective, how much do business plans and financial models matter? Are they overrated? Are they underrated?

Charlie Paparelli: [00:42:52] Well, I’m a very early stage investor.

Michael Blake: [00:42:55] Right.

Charlie Paparelli: [00:42:55] Right? So, for me, they’re not rated, all right? So, what I look for is my business plan, where we kind of get started, is to say, “Let’s do a three-month forecast. Let’s start with how much money you’re going to spend over that three months.”

Michael Blake: [00:43:11] Got it.

Charlie Paparelli: [00:43:11] “And is there any opportunity for any kind of revenue in that time?” So, really, we’re very granular, okay?  But to sit here and say, “Well, here’s my five-year plan,” I say, “The first thing we need to do is we need to be able to get to cash-flow positive. Then, we can have a plan going forward. But if we can’t get the cash flow positive, that deficit is going to be make up by investors, and investors are going to be part of this drag on you as you try to kind of go forward.” So, I don’t know.

Michael Blake: [00:43:43] And that’s why you like — I mean, in your model, you like to kind of be the only guy, because I think it’s less of a distraction, right?

Charlie Paparelli: [00:43:50] Well, what I’ve done is always — it’s been me and maybe two or three other guys.

Michael Blake: [00:43:56] Okay.

Charlie Paparelli: [00:43:56] But they’re people that I trust. People don’t even know they exist. But I bring them along in some cases. Like one guy, I invite invested in a sales tax business that was selling to telecom, and there was a sales tax prep business, who I called it the ADP of sales tax. Well, I didn’t know telecom buyers. Well, I brought a fellow that’s a very good friend of mine who was a telecom executive, worked for AT&T, fast track guy. I brought him in. He walked me into two deals. Just walked in. One call, boom, we went in, they bought the stuff. Well, that’s really high value.

Michael Blake: [00:44:31] Yeah.

Charlie Paparelli: [00:44:31] So, he knew telecom, and he knew the buyers. So, I understand how to build companies from scratch, and I understand building leadership teams. He was on the other hand. He was the industry expertise that kind of brought us, and he had network like that. Sometimes, I’ll bring in somebody who’s a sales expert in the particular channel, and that would be another guy to kind of bring along that would be very helpful in the deal. So, everybody I bring along has got to be additive to the deal-

Michael Blake: [00:44:59] Okay.

Charlie Paparelli: [00:44:59] … to mitigate the risk and increase chances of success.

Michael Blake: [00:45:04] All right. So, we’re running out of time, but I have two questions I want to ask before we get you out of here and get you back to doing your angel investing. Three founder traits that turn you on?

Charlie Paparelli: [00:45:16] Three founder traits that turn me on. One is that this is the time for this company to start in this person’s life. So, I look at an idea as an arc, and I look at a person’s life as an arc, okay? So, I look at this intersection between where you are in your life as an entrepreneur, and this idea, and where it is in the marketplace. And if there looks like there’s an intersection, I call that, it’s almost like a God moment. It’s a miracle has happened, okay? It’s not artificial. It’s like it had to happen. And I think if we look back at companies like Apple, and Amazon, and Facebook, those are all those kind of moments. And I’m not saying I’ve ever invested in billion-dollar kind of companies, but that’s what I look for in an entrepreneur because it’s very personal. So, it’s not just, “Oh, I was walking down the street, and I came up with this idea.” It has to fit in their life.

Charlie Paparelli: [00:46:12] Secondly is they have to have — for me, they have to have the industry expertise. So, they are 35. So, they do have expertise in a particular functional area. And they also have a lot of experience in that marketplace. So, they have customers they can call on. They have employees who would like to come along with them because they respect them. So, that mitigates risk.

Charlie Paparelli: [00:46:35] And then, lastly, I look for character. And the character I look for, for me, which has been easy to just look for somebody who has a Christian foundation. And the reason for that is, at least, I know what they are supposed to stand for, all right?

Michael Blake: [00:46:54] I know why you’re saying it like that. Okay.

Charlie Paparelli: [00:46:55] There is some level. We’re all hypocrites, we’re all sinners, okay? But there has to be some level of integrity that we can count on. There’s a reason for your [indiscernible]. I say there’s two types of entrepreneurs. There’s those entrepreneurs who believe that there is a God, and it’s them. And there’s other entrepreneurs who realize there is a God, and it’s not them. I invest in the people who know there’s a God, and it’s not them. So, there’s higher level moral authority effect that speaks into their life. When everything’s going well, everybody’s honest, and everybody’s hard working, and everybody believes in helping the other guy. When things get tough, that’s when the values show up. So, I try to get — that last piece of character is very important to me.

Michael Blake: [00:47:41] That’s a great note to kind of wrap things up on. Can people contact you if they have more questions about this angel investing thing?

Charlie Paparelli: [00:47:50] They could write me. That would work.

Michael Blake: [00:47:52] How would they write you?

Charlie Paparelli: [00:47:53] They could send an e-mail to charlie@paparelli.com.

Michael Blake: [00:47:57] Okay.

Charlie Paparelli: [00:47:58] But sign up for the blog at paparelli.com.

Michael Blake: [00:48:03] Yeah.

Charlie Paparelli: [00:48:03] That would be great.

Michael Blake: [00:48:04] Do sign up for it. I kid you not, when it comes out, I read it. I don’t — I can’t remember the last time. It was late. It may have been late once or twice. And when it is, I miss it. So, keep doing. I’m very glad that you do it. It’s very inspirational.

Charlie Paparelli: [00:48:16] Thank you for your support.

Michael Blake: [00:48:16] So, that’s going to wrap it up for today’s program. I’d like to thank Charlie Paparelli so much for joining us and sharing his expertise with us today. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcasts aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor’s Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: CPa, CPA firm, Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Decision Vision, early stage startups, investing in startups, Michael Blake, Mike Blake, Paparelli Ventures, Startup, startup investing, startups, Venture South

Decision Vision Episode 27: Should Our Company Do More to Support Our Women Employees? – An Interview with Betty Collins, Brady Ware & Company

August 8, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 27: Should Our Company Do More to Support Our Women Employees? - An Interview with Betty Collins, Brady Ware & Company
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Betty Collins, Brady Ware & Company

Should Our Company Do More to Support Our Women Employees?

What’s the role of the C-suite vs. HR in encouraging women in the workplace? How does the #MeToo Movement change how companies should support their women employees? Betty Collins, a Director with Brady Ware and host of the “Inspiring Women” podcast, answers these questions and more in an interview with Mike Blake, host of “Decision Vision,” presented by Brady Ware & Company.

Betty Collins, CPA, Brady Ware & Company and Host of the “Inspiring Women” Podcast

Betty Collins, Brady Ware & Company and Host of the “Inspiring Women” Podcast Series

Betty Collins is the Office Lead for Brady Ware’s Columbus office and a Shareholder in the firm. Betty joined Brady Ware & Company in 2012 through a merger with Nipps, Brown, Collins & Associates. She started her career in public accounting in 1988. Betty is co-leader of the Long Term Care service team, which helps providers of services to Individuals with Intellectual and Developmental Disabilities and nursing centers establish effective operational models that also maximize available funding. She consults with other small businesses, helping them prosper with advice on general operations management, cash flow optimization, and tax minimization strategies.

In addition, Betty serves on the Board of Directors for Brady Ware and Company. She leads Brady Ware’s Women’s Initiative, a program designed to empower female employees, allowing them to tap into unique resources and unleash their full potential.  Betty helps her colleagues create a work/life balance while inspiring them to set and reach personal and professional goals. The Women’s Initiative promotes women-to-women business relationships for clients and holds an annual conference that supports women business owners, women leaders, and other women who want to succeed. Betty actively participates in women-oriented conferences through speaking engagements and board activity.

Betty is a member of the National Association of Women Business Owners (NAWBO) and she is the President-elect for the Columbus Chapter. Brady Ware also partners with the Women’s Small Business Accelerator (WSBA), an organization designed to help female business owners develop and implement a strong business strategy through education and mentorship, and Betty participates in their mentor match program. She is passionate about WSBA because she believes in their acceleration program and matching women with the right advisors to help them achieve their business ownership goals. Betty supports the WSBA and NAWBO because these organizations deliver resources that help other women-owned and managed businesses thrive.

Betty is a graduate of Mount Vernon Nazarene College, a member of the American Institute of Certified Public Accountants, and a member of the Ohio Society of Certified Public Accountants. Betty is also the Board Chairwoman for the Gahanna Area Chamber of Commerce, and she serves on the Board of the Community Improvement Corporation of Gahanna as Treasurer.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.

Michael Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:37] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator, and please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:00] So, today’s topic is, should I implement a women’s career support program at my company? And whether or not you sort of follow, engage with, identify with the #MeToo Movement, this is an issue that goes well beyond the increased awareness that that movement has generated over the last couple of years. I’m not going to debate that on this show, but it’s been long known through all kinds of empirical research that companies that embrace diversity of all kinds, but particularly gender diversity, do well. They outperform in terms of retention. They outperform in terms of employee engagement. They outperform in terms of company longevity and sustainability. And at the end of the day, they also seem to to make more money.

Michael Blake: [00:01:57] And so, it makes sense that, at least, at a high level, that companies really have a sense of enlightened self-interest, not just a sense of social obligation, to ensure that women are given the opportunity, the platform, to accomplish whatever potential they have or whatever goals they have for themselves, and they have a platform on which to thrive.

Michael Blake: [00:02:27] And we’re seeing more and more companies that are doing that. We’re seeing more and more organizations that are supporting that. I believe even the US military now has specific programs about how to help women make sure they reach their full potential as members of the armed services. And I’m not sure anybody would argue that that’s not an important thing to do. I’ve worked for many women in my life. I have had many women work for and with me in my teams, but that doesn’t make me an expert by any stretch of the imagination. So, instead, I’ve decided to bring on our in-house expert, and that is Betty Collins, Brady Ware up in our Columbus, Ohio office.

Michael Blake: [00:03:12] Betty is the co-leader of the long-term care service team of Brady Ware, which helps providers of services to individuals with intellectual and developmental disabilities and nursing centers establish effective operational models that also maximize available funding. She consults with other small businesses, helping them prosper with advice and general operations management, cash flow optimization, and tax minimization strategies.

Betty Collins: [00:03:37] In addition, Betty serves on the board of directors for Brady Ware & Company, and she leads Brady Wares Women’s Initiative, a program designed to empower female employees, allowing them to tap into unique resources and unleash their full potential. Betty helps her colleagues create a work/life balance while inspiring them to set and reach personal and professional goals. The Women’s Initiative promotes women-to-women business relationships for clients and holds an annual conference that supports women, business owners, women leaders and other women who want to succeed. She actively participates in women-oriented conferences through speaking engagements and board activities. Betty is also the host of Decision Vision’s sister podcast, Inspiring Women, the podcast that advances women toward economic, social, and political achievement. Betty, thank you so much for being on the program.

Betty Collins: [00:04:27] Great to be here today, Mike. Great introduction. Thank you so much.

Michael Blake: [00:04:31] So, let’s jump into it. There’s so much that we can cover here.

Betty Collins: [00:04:37] Yes.

Michael Blake: [00:04:37] But let’s sort of — let’s level the set. Let’s sort of set some basic vocabulary.

Betty Collins: [00:04:42] Okay.

Michael Blake: [00:04:43] Because not everybody, I think, is really aware of the challenges that women face in the workplace if it doesn’t directly apply to them. So, from your perspective, as a leader and, of course, as a woman in the workforce, what are the most important challenges you see women facing today?

Betty Collins: [00:04:59] Yeah, I think that when I started the Women’s Initiative at Brady Ware in ’14, one of the things I did was we had all the women come to our corporate office, and I, basically, told my story. And what was surprising about that was they actually listened. Five years later, by the way, they’re kind of tired of listening, but they really listen, and you could see a true interest. And I looked at it as this is just how my life evolved, and I was a shareholder, and I was at the table. And they looked at it so differently, and it kind of ignited something in me to say, “I have a responsibility to show them how to get here, even though I think they know.”

Betty Collins: [00:05:39] So, the biggest challenge for women is just navigating the different seasons that they have in life. And it affects, obviously, their career. So, your 20s look nothing like your 30s, your 30s don’t look anything like your 40s. And your 50s are certainly different. I have no idea what 60 looks like because I’m not there. However, women tend to stop at certain seasons because it’s overwhelming, whether it’s younger kids’ years, whether it is financial years that you just have to crank it out, whatever. Those seasons are different, and they tend to give up. They tend to stop, or they go, “This is good enough. I can’t go on.” I had a different way of thinking because I was a single mom, and I wanted to educate my kids. So, I had this drive behind me to keep moving. But most women, they tend to stop, and they’re very, very talented.

Betty Collins: [00:06:32] The second thing is they don’t see a path where they work. So, if you look inside a boardroom, and you see 22 people, and two are women in 20 are men, you think that room is for men. Okay, that room is for shareholders. Shareholders can be either one, but they don’t see that. And then, the other two biggest things I see are confidence. Just the lack of it is phenomenal to me, or it might be confident, but they’re not courageous on top of it to step in. And then, the other challenge — and it doesn’t matter what level you’re at in any of these things, confidence plays a role in it. And then women tend to accept their situation more than ask, and inquire, and challenge the situation. So, I see, though, especially over the last five years, I see those are the things that challenge women, hold them back in their barriers that really, really don’t have them pursue their distance.

Betty Collins: [00:07:36] And so, how do you work with those things? How do you get them to see it? When I came to Brady Ware, there were two shareholders who were women. There are seven now. So, there’s a little more excitement. And there are women, especially younger, those 40s, going, “Maybe I could do this.” There’s a lot more interest in it. And then, we try to work a lot with that confidence factor. So, I see those are the big challenges in the workplace today. It does not have anything to do with talent. It has to do with those things.

Michael Blake: [00:08:04] And seven, if I remember correctly, I mean, that’s about a third, right? We’re somewhere just north of 20 shareholders, right?.

Betty Collins: [00:08:10] We’re 30 — Yes. It’s 30%. And the average for a firm our size is between 21% and 24%. And then, when you have the tier right below directors, we are increasingly — I mean, our executive management team that’s not an owner is probably in the 65% range of women. And so, again, the room for the shareholder. It’s for the risk taker. It’s for the person with a lot of guts, but it’s for both. And whoever can seize it and go should have the opportunity. But those, again, come back to the challenges of women. They’re seeing it now at Brady Ware. They’re seeing it. And that’s a barrier that we’ve kind of eliminated.

Michael Blake: [00:08:56] So, let’s work through that and kind of make a case here. Maybe someone who’s listening to this podcast say, “That’s all great. And, of course, we like women to get as far as they want. But as a shareholder, as a manager, why is it my obligation to reach out and make an extraordinary effort to help women succeed? Why don’t we just sort of keep telling everybody a pull themselves up by their bootstraps?”

Betty Collins: [00:09:23] Right. Well, here’s the reality of the workforce that we now live in, in the business world, okay – and it could be any kind of job – women are outpacing men by sheer, there’s more. And on top of that, they’re outpacing them in education. Like for instance, accountants, well over 50% are women now. It’s not a good old boys’ arena, as everyone says it is, right. But at the leadership, it is. But I mean, overall, over 55% of our workforce are women. So, if you don’t empower them through those seasons, and you don’t get into the challenges that they face as women, you are going to lose the talent. You’re going to lose that 55% because they’re going to stop, or they’re going to go into something else. So, that’s one of the reasons.

Betty Collins: [00:10:18] The other reasons that you should care about it is one in four businesses today are owned by women. And that’s continuing to increase. So, when you are an advisor or a professional in the marketplace — because when the marketplace works, our country works, right? Households are taking care of all those kind of things. Women want to have women help them. So, you want your workforce within to have the skills to navigate women through businesses. It doesn’t mean that men can’t. It doesn’t mean that men are wrong. It’s just there’s different things that we often bring to the table. So, with the fact that over 50% of the workforce, we’re kind of outpacing in education, and businesses are being started more and more by women, the perspective from that woman is a really, really huge deal because men and women just think differently. No one’s wrong. We just think differently, and we execute differently.

Michael Blake: [00:11:17] So-

Betty Collins: [00:11:17] So, those are the things that I — and on top of that, women have just different challenges that men don’t have, and men have challenges that women don’t have. And so, you have to help that workforce along. It empowers them, and it strengthens it.

Michael Blake: [00:11:35] So, now, obviously, you’ve had an interest in this issue for a long time, much longer than two years. But in two years we’ve had something pop up called the Me Too era. And I’m curious now because in my observations that the Me Too era era, I think, has changed, at a minimum, the tone and the tenor of the conversation of women in the workplace.

Betty Collins: [00:11:59] Yes.

Michael Blake: [00:11:59] And it’s led to some strange overreactions. You hear stories about men now that just will not be alone with women in the workplace and will no longer do certain things, but are necessary networking things, which, to me, is kind of curious. But I like to hear your perspective. How is the Me Too conversation kind of flavored this entire thought process, if at all? Or maybe it’s just background noise. I’m curious as to how you see that.

Betty Collins: [00:12:29] I really don’t think it’s background noise. I think, at Brady Ware, the great thing, because we started this initiative in ’14, one thing I hear over and over again is we started a conversation, and it hasn’t stopped. So, so, issues for women, advancement for women, education for women, that has continued since 2014. And so, when the meaty — Excuse me. Listen to me. This movement came, and, now, it’s okay to talk about it. It took some pressure off people, first of all. And so, it has changed in the terms that we were more aware, we watch things, and if we see something that’s bothersome, we don’t just step back and go, “Well, that’s the way it is,” because there’s been some major discovery, and society is on the side of the Me Too Movement. It’s not okay. And now, it can be set a lot harder.

Betty Collins: [00:13:33] But the other side of that is, generally, the guy is the bad guy. So, it can be really detrimental to them when it maybe shouldn’t be. So, I think there’s a lot of — you got to be really careful with it, but I think we need to continue to have the conversation. We will at Brady Ware, and we have had that, because it has to be addressed. It’s not okay. It’s not okay from either side.

Betty Collins: [00:14:02] And so, it’s a touchy one. But I believe it’s background noise. I think that’s not even acceptable now. And people don’t even want — and sometimes, it’s not even okay to joke and laugh about it. It’s not appropriate. So, I think it’s been a good thing in that way. I just don’t want it to go overboard. I don’t want it to dominate everything because women have made a lot of strides and a lot of progress. So, I don’t know if that answers your question, but that’s my take on it.

Michael Blake: [00:14:33] I think it answers the question as well as it could be answered because I would have been surprised if you just said, “Here’s like our hard and fast answer carved in stone, the end.”

Betty Collins: [00:14:43] No. I mean-

Michael Blake: [00:14:43] And the movement is so new that it’s going to take a while for this to play out, right?

Betty Collins: [00:14:49] Right.

Michael Blake: [00:14:49] And you being in Columbus, think of the Ohio State Program, their legendary football coach was involved in some way. I don’t want to characterize him as being collateral because I don’t want to sound like I’m either assigning blame or not assigning blame. But clearly, that’s a position that not long ago would have been considered untouchable, right?

Betty Collins: [00:15:14] Yeah.

Michael Blake: [00:15:14] And then, his career was very quickly brought to an effective end.

Betty Collins: [00:15:20] Yeah. I mean, we have to be careful that like we tend to do this in the United States, I think. Something happens to two people, and we create a law, right. Okay, everyone, step back. So, you don’t want to overdo it because, then, nobody will take it seriously. But you want the issue to be gone. I think there’s just a lot more confidence to address it. And I think that that’s the powerful thing with it.

Betty Collins: [00:15:46] And again, Brady Ware, women will tell you, we started a conversation in ’14. Then, now, we can have them. I think they feel pretty open that they could have them about any kind of thing, including this. And that’s where Women’s Initiative. You get people comfortable, you get people going, “This is a priority,” then, when these type of things come in play, the conversation is easier to have, and it doesn’t get out of hand. You know what I’m saying?

Michael Blake: [00:16:09] Sure.

Betty Collins: [00:16:11] Okay

Michael Blake: [00:16:13] Some people I think, will think of — will look at women’s role in the workplace and providing the right platform for them. And I think, there will be some people who will be tempted to fall back on, “Well, that’s really an HR problem. This is something that the HR managers should be addressing. We don’t need to necessarily be involved with this at the C level. That’s why we have an HR department for.” How would you — I think I know how you’d react to that, but I’d like you to actually do it. How do you react to that?

Betty Collins: [00:16:45] Yeah, I think the HR gets involved at some point if it’s real and if it’s a problem, for sure. But I would challenge women in any company that when you see behavior, it could be that even the woman is not aware of how she’s conducting herself even, right, or putting herself in situations, women should be supporting women saying, “You need to be careful,” okay, or you need to listen to people who have may have been affected by this person.” So, I think that conversation has to be had by women to women. But I also think that women have to — if they want to get rid of a problem, you cannot just sit back and say, “It’s somebody else’s role to take care of this issue.” Women should support women by helping them work through these situations because maybe it won’t escalate into a really bad situation.

Betty Collins: [00:17:41] So, those are my takes on it. I, also, think that men also have to do that for themselves as well, that if they are getting lured into something that they just don’t see it, or maybe they are conducting themselves in a way that’s just inappropriate, and it’s just not okay. So, I think there has to be some of that as well. And I think it’s more acceptable to talk about it now.

Michael Blake: [00:18:08] Yeah, I think so, too. And to that point, I think, the other part, the other ingredient besides conversation, I think is also introspection. And you mentioned that 25% of businesses are women-owned, which means the other 75% are owned by folks with the XY chromosome. So, for somebody then who’s in that position, and maybe we’re starting to kind of make an impact, and thinking, “Well, geez, I really ought to be paying more attention to this,” how would you sort of advise someone to start kind of a self-examination as to whether they or their organization may have a gender bias? Is it as simple as how many women work in the organization, or how many women have been promoted, or pay gap, or is there something deeper that needs to be looked at for it to be effective?

Betty Collins: [00:18:58] Yeah, I think you always have to look at, “We have an organization that is successful, and we’re going to maintain its success. In order to do that, we’re going to have the best talent that we have. We’re going to go get the best talent always.” But women tend to hire women, and men tend to hire men. I mean, you just — and this is an example of I kind of found myself a while ago in a hiring situation. I really like somebody. I wanted to bring them in. And I had almost all women interview the person. And, of course, she was a woman. And it was like, “Why didn’t I include any men in that?” And somebody brought it to my attention, “Why was there no men involved with the hire?”

Betty Collins: [00:19:49] I don’t think I meant to do it that way. I don’t think it was intentional. But I look at that as, really, I was just bias to utilize all women. Why did I think like that? And that’s what you have in these situations to look at. It wasn’t that I was not willing to hire and get a guy. It wasn’t that I didn’t think guys knew enough about this woman. It just that’s how I navigated, okay. So, is that bias or is that not? But all women were involved in the process.

Betty Collins: [00:20:18] So, I think you have to, sometimes, step back also and get an outside perspective versus trying to do it internally. I’m a big fan of that. I don’t go around talking about the dirty laundry of Brady Ware. I don’t go around talking about, “Here’s what our company does.” But I will go to very, very successful people and say, “What do you think of this? Did I do the right thing?” And give them a circumstance or give them a scenario. They don’t know. They’re not biased. They don’t have any — they’ve nothing to lose in the game whether they pick one side or the other. And so, I think that’s a way you kind of identify those things sometimes. And then, when you see that women are only doing things with women or, “Hey, we’re going to hire all women. We don’t want any men here,” or, “We’re always going to pick women to do these things,” I think you kind of call it out and go, “Why isn’t this an all-inclusive group?” or “Did we pick the right talent? Who’s the right talent to do this?” Does that make sense what I’m saying?

Michael Blake: [00:21:21] Well, yeah, it does. And I think it highlights kind of the insidious nature of biases. It’s very hard, I think, in the moment, to detect it, right?

Betty Collins: [00:21:33] Yeah.

Michael Blake: [00:21:33] You almost have to be thinking about it all the time. And I think, frankly, that’s why there’s so much cannily resistance to this awareness. And even the Me Too Movement, I don’t necessarily think it’s because there are all these men out there that want to do evil things. But it is that it’s another mental thing that you have to have on your plate. And frankly, it’s exhausting to have to think about that all the time. Personally, the way I get through that is, well, if it’s exhausting to me, what must it be like to be on the other side of that table where you’re confronted with it all the time?

Betty Collins: [00:22:14] I was really glad that the person who saw me doing all of this person to hire them said something because I really didn’t see myself doing that.

Michael Blake: [00:22:25] Sure.

Betty Collins: [00:22:25] I didn’t. And so, sometimes, when you’re seeing that bias, you got to be careful how you do things. You got to be a professional. You can’t be constantly harping on something, right. When you see it, I think you need to call it out and do it in a way that is respectful. So, this person wasn’t on me. They just asked a simple question.

Michael Blake: [00:22:46] Yeah. Well, I look at it. And look, there are some people who who were listening to that anecdote, and they were jumping for joy, right.

Betty Collins: [00:22:54] Yeah, right.

Michael Blake: [00:22:55] There’s somebody who has sort of maybe a harder line, for lack of a better term, view of the entire question. And they’re thinking, “Yeah, you go. Make sure there’s nothing but women,” right?

Betty Collins: [00:23:07] Right.

Michael Blake: [00:23:07] And there’s even a perverse incentive in that direction that you got to be aware of. And it highlights sort of how multilayered the entire conversation is. It’s just so much more than just hiring women and paying them the same.

Betty Collins: [00:23:24] Right, right, I agree.

Michael Blake: [00:23:26] So, you’ve been involved with the Women’s Initiative for how long?

Betty Collins: [00:23:31] Since 2014. I was really the one who started it.

Michael Blake: [00:23:34] Okay, cool. So, five years. So, all five years.

Betty Collins: [00:23:36] Yes.

Michael Blake: [00:23:38] Is there a story? We’re not going to ask you to hang out dirty laundry, but I am going to ask you to put out some clean laundry.

Betty Collins: [00:23:43] Yeah, okay.

Michael Blake: [00:23:44] Is there a favorite kind of success story that the firm has had with the initiative that you could share with us?

Betty Collins: [00:23:52] Yeah. There’s two. I’ll give you two. One was when we first did this, this is when I knew this was really the right thing to do. And we had an intern who came to work for us. And she was fairly quiet and in a way. And she was definitely CPA type of personality, that kind of thing. But she came to the first Women’s Initiative. When I kind of challenged her and said, “What do you want it to be? Because this is really for you.” And so, I said, “I need someone from each office to kind of represent that office that where to start digging in and figuring out how we want to do this.” And she called me on the way home and said, “Has anybody taken the position to do this in Columbus?” And I said, “No, I’d love for you to do this.” And she was the youngest, which I didn’t think about that happening, right.

Betty Collins: [00:24:43] And she’d just — the Women’s Initiative helped her develop. I mean, she did things that were just unimaginably. She got on a committee yet at NAWBO, a group that we joined, where she was in sales and helping with guests’ retention. And I mean, it was phenomenal to me. And then, she ended up being a great networker, loved going to events. She went to them on her own without even sponsoring them. I just saw her come alive. She passed the test. She kind of stood up to some things in her life. And she isn’t with us any longer, but she was such an example of it really developed her in an early age. I wish I would have had somebody showing me that when I was her age. So, that’s always one of my favorite stories, even though she’s not here. I know she went out of here really confident, amazing young woman.

Betty Collins: [00:25:34] The other one is my tax manager, [Ronnie Orbit]. She grew up in Puerto Rico, and she has been part of the movement with Brady Ware. She, when Puerto Rico had two hurricanes within a week, about seven days, and the second one just — I mean, ruin the island as we all know.

Michael Blake: [00:25:57] It just wiped it out.

Betty Collins: [00:25:58] Wiped it out. And she went to a school in Puerto Rico for girls, and that school got wiped out. And they were able to do a lot of the cleanup, but the problem was nobody could get to their parents. So, we can’t afford it. We can’t work right now because everything’s a mess. And it just really got her. So, she came to me and said, “Can we do a breakfast and raise money?” And she pictured us all. So, I said, “Look, I’ll buy breakfast food, and I’ll pay for the food, and then everybody can pay 10 bucks, and we’ll do it.” We’ve got an office of 26 people.

Betty Collins: [00:26:29] But long story short, all four offices got involved with that. And her daughter got involved with it because she goes to a school for girls in the States, and she got her school to raise money. And so, they went down on Thanksgiving and took $10,500. And it was like raised in a couple weeks. Everyone just jumped in. She felt empowered. She felt like, “I have this Women’s Initiative. I’ve got these school for the girls.” And now, the school is our sister schools, the one in the US and one in Puerto Rico. And it was just a huge encouragement to them. but it was like a really cool thing that we got to do here. So, that’s one of my definite favorite stories.

Betty Collins: [00:27:12] And last one, I know I could give you a ton. We celebrate International Women’s Day. And the first year we did it, I went out to find the theme of the year, and I didn’t know that much about it really. It was all on persistence. And so, I had the women of Brady Ware give a chance to write, who is that persistent woman in their life? And man, did we have just, probably, 20 just beautiful stories of women that were persistent that were effective and impactful to them. So, those were just a couple of the — I’m going to call the rah-rah moments of the women’s initiative, for sure. And probably that we’ve seen two shareholders go to seven. That’s been a pretty big deal.

Michael Blake: [00:27:52] So, in addition then to the women’s initiative, now, Brady Ware, with your leadership, puts on the Women’s Leadership Conference.

Betty Collins: [00:28:01] Yes.

Michael Blake: [00:28:02] What kind of impact have you seen with that?

Betty Collins: [00:28:05] Well, it was really funny because we started that conference in ’15. That year, we had 135 people come. We had Jane Grote Abell, who is the Chairwoman of Donato’s come in to speak. We ate pizza that day. And it was just this two, maybe three-hour thing. And we just thought we were all that. It was really inspirational. And I said we need to do this at a bigger scale. But I’ve got a day job, and I can’t just plan events all year.

Betty Collins: [00:28:31] And so, I got connected with someone in town who has a great women’s organization. They jumped in with us. And then, they’re a non-profit. So, they get to kind of keep the profit from the conference. Then, we had another one join us as well. Some of these great partnerships. Brady Ware, the WNBA and NAWBO. And this year, we sold out at 350 national speakers power breakfast panel of just big women in Columbus, breakout sessions where we had 70 people apply to even be at the breakout. We only needed 8 breakout because we had to choose from 70.

Betty Collins: [00:29:07] And the day is energetic. I mean, it’s not just rah, it’s rah-rah stuff. It’s education. It’s advancement. You’re networking. You have peers. And, really, what it’s done is create kind of this community. It’s a very known conference. And we just built a great brand with it. And the impact of it to me will be, hopefully, that it will just be this major, major thing that happened in a way that people just know it, and they go in, and we will build on it every year. But it’s very, very good for women. And we have men go to that as well. So, it’s a very amazing event. I never pictured it turning into what it has, but I’m grateful that it has.

Michael Blake: [00:29:51] So, we’ll have to convince you to do that in Atlanta one year. We sure could use it.

Betty Collins: [00:29:56] I would love to do it there. And I’ve told them, I said, “You guys have to get some groups in town that can pull all the talent in,” because that’s the key to this because Brady Ware can easily do it, host it, sponsor it, and be the emcee. But getting your women’s groups in town to come together for a day, you’ve made impact and done something pretty phenomenal.

Michael Blake: [00:30:20] So, other people listening to this program maybe thinking about they want to, again, make sure that their companies are good platforms for women to thrive and reach whatever potential they have or feel that they have. Do you think they need to go so far as to have their own women’s initiatives and put on their own conferences, or can they stop short of that and still get a lot of the same impact?

Betty Collins: [00:30:49] Yeah, I think the most effective thing to do is pull the women together in your company and find out, survey them, find out what their challenges are. Find out what their barriers are. Find out what holds them back. Find out what tires them and keeps them up at night. So, you had to kind of start there to kind of go, “What is it that we could do to energize this force?”

Betty Collins: [00:31:18] And once you kind of find out maybe what they would like to be getting out of a women’s initiative, because everybody can do it differently. You don’t need to do a big conference. That was just kind of something I wanted to do for my community. But once you find that out, the top leadership, and I’ve had really, really amazing leadership in Brady Ware who support this, you have to go to them and get buy in. You’ve got to pour the Kool-Aid, and they’ve got to drink it. I’ve never had that issue at Brady Ware. They have always just, “What do you want to do, Betty? How do you want to do it?” So, the top CEOs, to the board of directors, to our shareholders, got behind it and said, “Go for it.” And then, they just let me go. But the women of Brady Ware really have created a lot of why we do what we do.

Betty Collins: [00:32:08] And so, for me, you don’t need a large company. You don’t need a ton of resources. It’s as simple as a book club at lunch. It’s as simple as finding something in town where you can go and hear women speakers, get perspective, and then you build on it. Because we all have day jobs, we all have stuff that we have to do. And by the way, it costs money to do it in terms of people’s time and how much you’re going to be committed to it, but I cannot emphasize enough the energy you will get from the women that will get in there and go with you. And we have that at Brady Ware. We have some phenomenal — you should always, by the way, do this for all of your employees. You always want to motivate them, right. So, I think those are some of the things you do initially. And then, you make sure there’s good role models around those women developing them.

Michael Blake: [00:32:58] As you’ve — actually, I want to ask one more question before I ask them the next one I had on the list-

Betty Collins: [00:33:04] Yes, okay.

Michael Blake: [00:33:04] … which is, I think. that the — some people look at women’s initiatives, they look at women’s groups, and I think, in my view, wrongly, right. But they think that it’s basically sort of an offshoot of Gloria Steinem and-

Betty Collins: [00:33:20] Sure.

Michael Blake: [00:33:20] … wonder if it’s really just sort of a guys for “radical feminism,” whatever it is that means but-

Betty Collins: [00:33:26] True.

Michael Blake: [00:33:26] … my understanding with most groups like this, I mean, not it’s not just a place where women just get together and hate men for a couple hours, is it?

Betty Collins: [00:33:38] Oh, heavens, no. I wouldn’t want to do it. I mean, people will say to me, “Well, you’re a feminist.” I’m like, “I don’t think of myself that way,” because when I think of a feminist, I think of this angry woman, or this angry group, or whatever. And I will tell you that there was a lot of fighting before me that had to be done. I mean, in 1988, until they passed law under Ronald Reagan, you could not get a loan as a businesswoman without your husband’s signature. 1988, okay.

Michael Blake: [00:34:06] Really?

Betty Collins: [00:34:08] Yes.

Michael Blake: [00:34:08] That’s astonishing.

Betty Collins: [00:34:10] It is astonishing. And so, there were things that had to really be pushed and fought for. And so, when I go to NAWBO, and go to lunch, or I go to a conference, or I partner with them, it’s not about, What’s the next fight?” In my mind, it’s about, “Thank you for the history. Thank you for trailblazing. And we’re going to honor you by seizing opportunity that we have today.” And what is that opportunity, right? I mean, I can be a shareholder at any company I want. I can sign a loan if I want. I can lead if I want. So, take the opportunity that we get to now have because there were people who didn’t fight. There was a time for fighting.

Betty Collins: [00:34:54] Now, the other challenge that I find at these groups, and that I think is we want the next generation to look at us and go, “Man, did they do an amazing job. And look what we get to do because they did this for us,” right, which is creating companies, which is starting 25% of the companies that are running today, et cetera. So, the women’s groups are not that. I mean, if they are like that, I don’t want anything to do with it. I don’t need to fight those fights. And I’ve had tremendous men in my life who have been great mentors. We have great men in this company, Brady Ware, that run it. And so, they’re not my enemy. They’re my shareholder. And it’s just, do I want the opportunity? And I have it. And I should be allowed to seize it if I’m good.

Betty Collins: [00:35:43] And so, that’s what those groups need to be about. So, like NAWBO is the National Association of Women Business Owners Columbus, and they’re a national group, and they’re the ones that actually got the bill passed under Reagan that you could sign your own business loan. So, that’s kind of their claim to fame. And so, they’re big in advocacy. But really, that group is just about — I mean, this is a supportive group. I consider them my tribe. They’re my team. They help me with the day-to-day stuff of running business and being in business.

Michael Blake: [00:36:13] So, in your involvement in this, are there things that you’ve learned? And I know you’ve probably start this thing that you — you started this thing with you being in the role of a teacher.

Betty Collins: [00:36:25] Yeah.

Michael Blake: [00:36:25] But what are some things that you’ve learned over the last five years?

Betty Collins: [00:36:29] Yeah. I mean, if I would have to go back and peruse that, I think it’s more that women and men are different, their perspectives are different, and they shouldn’t be favored one or the other. I can change how women in Brady Ware pursue a career, and make a career, and I’m an influencer. And I think that’s the biggest thing I learned that when you don’t think you’re an influencer, it goes away because you just stop trying because you’re not making change. It’s tragic.

Michael Blake: [00:37:08] Yeah.

Betty Collins: [00:37:08] So, that’s one of the things I really have taken from it. The other thing I’ve taken from it is that when you show them the path, and they see growth amongst women, the excitement builds, and you get more of them to go, “Maybe I can do this.” And I think I’ve learned that confidence is great. And there are people who have way too much of it, right. But if I can help get them to be confident, but then be courageous, I’ve done my job, I’ve left my legacy.

Betty Collins: [00:37:41] And that, I don’t see those two combinations happening all the time. You can be really confident, and you’re sitting in a meeting – because we’ve sat in shareholder meetings together, Mike – and you’re confident about something; yet, you’re not courageous enough to say what you need to say, right?

Michael Blake: [00:37:54] Yeah.

Betty Collins: [00:37:55] So, those are some of the things I’ve learned, confidence and courageous don’t generally go together. Sometimes, they do. And then, seeing the path. And then, you can have impact and influence, and you should use that it to the best.

Michael Blake: [00:38:10] So, if I’m listening to this podcast right now, and I’m thinking, “We probably need to do more to make our company a better platform for women’s success,” what are a few things that, today, this weekend, I should start thinking about if I’m a business owner or a business leader to focus in on initially?

Betty Collins: [00:38:37] Yeah. I would focus and just look at my workforce that I have right now and look at, “Am I missing my talent?” And if I am, or I have women coming and going, or even men coming and going, or I’m not seeing that that woman really is more than she is, and she’s not doing it, I think you need to step back and say, “I want to change that. I want to change that.”

Betty Collins: [00:39:08] Gary Brown and I have been business partners since 1995 or 2000, actually. He came to the firm in ’95. I became a partner with him in 2000. And one of the things he said to me was, “You act like an owner. Why aren’t you one?” And I said, “Well, I don’t want to be a CPA, and I don’t want to do these things.” And he said, “But you are already doing them. And how can I challenge you to do this? Because you’re going to regret it if you don’t.”

Betty Collins: [00:39:38] I am so grateful that he did that. So, he just saw it. He just saw it from a distance and went, “That’s somebody that it’s going to — it would be really tragic if we lost her. It would be really tragic if she didn’t seize her moment.” And I think that’s the first thing you really look at your organization and ask that.

Betty Collins: [00:40:00] The second thing I would tell you, if you’re an owner, and you’re a woman, or you’re a man, but if you’re a woman, specifically, and you’re just surrounded by more men than women, and sometimes you just would like to have more of a peer group that is relatable, you need to start checking out what’s in town that you can go find that from. I mean, I would suggest that.

Betty Collins: [00:40:21] And then, the other thing I would tell you is, for instance, I do this with the AICPA, which is our organization for accountants. I go on their website because this is my industry, right. I Google them to find what are they doing about gender? What are they doing about women in the workplace? What are they doing to keep their workforce energized? And they have some great information. And I look at that. And, sometimes, I’m going, “Man, we’re doing this Women’s Initiative right according to the AICPA. Let’s put it that way.”

Betty Collins: [00:40:50] So, those are things I would suggest initially just getting your head around. And then, find someone who’s done it and say, “Help me get something started. I got a day job. I’m really busy, but I’d like to get this started. What are the steps?” Those are things I would tell you.

Michael Blake: [00:41:06] All right, So, we’re coming to the end of our time here, but I want to make sure we get one more thing in because you’ve actually been doing your podcast longer than we’ve been doing Decision Vision. So, could you talk about that podcast for a few minutes? What you’re talking about, why you’re doing it, why you’re so dedicated to it.

Betty Collins: [00:41:28] Well, I get quite a bit of opportunities to speak. And then, I also do things with the Women’s Initiative and Brady Ware. So, if we have, sometimes, quarterly lunches, or we have our internal day, and so I come up with things to talk about. And so, in doing that, and writing PowerPoints, and I always leave energized when I go speak and talk about the subject. So, someone said to me, “You could do a podcast on these things. You’re a good storyteller,” which I just don’t see it, Mike, but you can hold me up on that.

Michael Blake: [00:42:04] You are.

Betty Collins: [00:42:04] But, okay, thank you. So, I try-.

Michael Blake: [00:42:07] I got mansplain to you and say that you’re a good storyteller.

Betty Collins: [00:42:11] Okay, perfect, perfect. So, I thought. And she said, “I really think you could do this. And I think people would really get something out of it.” So, I said, “Well, let me think about it.” So, she and I got back together, and she said, “Here’s how you do this. We’re going write up 12 topics, and you need to think about things that since you’ve been in this Women’s Initiative, you’re in women’s groups, you’re around women a lot, what are their challenges?” And I mean, I wrote down twelve things like immediately. I just know these are the things that women deal with.

Betty Collins: [00:42:43] And then, we came up with a kind of system in order. And then, I said, “Okay.” And then, I went ahead and started doing them. And I just get a lot of good feedback from people. So, it kind of motivates you with it. I’m not a big name in town. I’m not famous. So, it’s not like when Will Ferrell puts out a podcast, everyone listens to, right? And he’s a funny one. So, I didn’t know if it would take off or it would go, but it has impact to the people that listen to it. And so, that’s the motivating factor that I do it.

Betty Collins: [00:43:17] And it’s really on women’s issues that I know in my little world of Brady Ware, and NAWBO, and the WSBA. These are what women go through. And then, when you start Googling these subject matters, oh my goodness, it’s just layers of it. Layers of it everywhere. So, these are topics that apply to the everyday person. But I have a lot of male listeners. So, it’s not like it’s just for women. I have a lot of men that compliment it, so.

Michael Blake: [00:43:44] No, I’m not surprised. I mean, in my career, for whatever reason, many more women have reported to me than men. And I don’t know why, but that’s just sort of the way that has sort of shaken out. And as somebody who wants to get the most out of those people and, hopefully, also be a running platform, listening to podcasts like yours, and just learning how to think from the other side of the table, and look at it through the viewpoint of women, I think, is extremely useful. In fact, to me, I don’t think I can effectively lead or manage women without, at least, making an effort to kind of learn that language and be on that side of the discussion.

Betty Collins: [00:44:32] Right, right. Because they’re just not going to respond. Again, they think differently. And they do things differently. How they execute is different. And I tell women all the time, it’s okay to kind of leverage your uniqueness and your perspective. But if you think you’re funny, and nobody’s laughing in the room, you probably need to step back and say, “Okay, if I’m going to be heard, I have to know my audience. I have to know the people around me, so that I can get engagement.” And that’s what you’re really saying.

Michael Blake: [00:45:05] Yeah.

Betty Collins: [00:45:05] We have to learn how to do that.

Michael Blake: [00:45:07] The only time crickets are good sound is if you’re collecting them to go fly fishing the next day. That’s the only time.

Betty Collins: [00:45:11] There you go. There you go.

Michael Blake: [00:45:14] All right. Well, this is going to wrap it up here. And Betty, I’ll share with you a secret that that nobody, except for the internet, is going to know. But I had a professional crush on you ever since our first board of director meeting together last October. I mean, just the way that you do this, the leadership, the gravitas you have is just infectious. And I’m proud, as a shareholder of the firm, that you’re doing this for us. And thanks so much for coming on the program to talk about this with us and educate me, as well as our listeners, about what you’re doing, why it’s important, and how we can carry the ball forward.

Betty Collins: [00:45:56] Well, I so appreciate your kind words, and I love it. It really does fuel. It’s the fuel to my fire to be a good CPA, an advisor, and to — I mean, I’m energized by the marketplace. And when we’re successful in the marketplace, the country is successful, communities are successful. And so, it keeps me going because it’s something that’s fun because counting can be highly overrated, right.

Michael Blake: [00:46:24] So, I’ve heard.

Betty Collins: [00:46:25] I appreciate your kind word. Yes. Well, thank you for having me.

Michael Blake: [00:46:30] All right. So, that’s going to wrap it up for today’s program. I’d like to, once again, thank Betty Collins so much for joining us and sharing her expertise with us. We’ll be exploring a new topic each week, so please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoyed this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so we can help them. Once again, this is Mike Blake. Our sponsor’s Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, Inspiring Women, Inspiring Women with Betty Collins, MeToo, Michael Blake, Mike Blake, NAWBO, NAWBO Columbus Chapter, relationship building, Women in Business

Decision Vision Episode 26: Should Our Company Get Help with Leadership? – An Interview with Bob Turknett, Lyn Turknett, and Tino Mantella, Turknett Leadership Group

August 1, 2019 by John Ray

Decision Vision
Decision Vision
Decision Vision Episode 26: Should Our Company Get Help with Leadership? - An Interview with Bob Turknett, Lyn Turknett, and Tino Mantella, Turknett Leadership Group
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Mike Blake, Tino Mantella, Lyn Turknett, and Bob Turknett

Should Our Company Get Help with Leadership?

What are the qualities of a great leader? How do you recognize deficient leadership? How do you fix it? Bob Turknett, Lyn Turknett, and Tino Mantella of Turknett Leadership Group answer these questions and much more in an insightful and wide-ranging interview with “Decision Vision” host Michael Blake.

Overview of Turknett Leadership Group

With over 30 years’ experience, Turknett Leadership Group (TLG) is a nationally recognized leader in providing character-based leadership and organization development. TLG specializes in executive coaching and development at the individual and team level. Using the Leadership Character Model™, TLG has helped thousands of individuals become highly functioning, thriving leaders and has helped build teams that balance respect and responsibility with a foundation built upon integrity. Our goal always: organizations operating with complete integrity, optimized processes, and maximum financial success.

The firm has specialized in executive coaching since 1987, before the word coaching was common parlance. They combine scientific rigor with an unmatched ability to partner with our clients for deep sustainable growth and change. The founders at the firm are thought leaders and have lifted up character-based leadership through the Georgia Leadership Character Awards since 2003. These awards are now presented in partnership with the Greenleaf Center for Servant Leadership.

Turknett Leadership Group is committed to collaborating with the Gwinnett County Board of Commissioners to create a customized leadership development program that meets or exceeds any county specific needs. They are also confident in their ability to do so, as this is what we have done successfully with thousands of organizations, agencies, individuals, and teams for the last 30 years.

Leadership is their expertise. Turknett Leadership Group is the premiere resource for executive coaching, leadership and team development, talent assessment, culture change, succession management, and business focused engagement surveys. TLG has built a reputation for results and exceeding client expectations by creating high-performing teams for long term business success.

Details of our programs and client testimonials can be found at www.turknett.com.

Dr. Robert (Bob) Turknett, Co-Founder and Co-Chair

Bob Turknett

Bob Turknett served as CEO of Turknett Leadership Group for twenty four years, and now serves as co-chairman and senior consultant. Bob is a licensed psychologist, a trusted advisor to CEOs and boards, and a pioneer in CEO Coaching. He is often heard saying that he really loves coaching the top person because “it enables him to get his arms around the entire organization,” creating a high probability for real change. Bob has served as an executive coach to more than 1,000 executives in more than 100 companies.

 

Carolyn N. (Lyn) Turknett, Co-Founder and Co-Chair

Lyn Turknett

Lyn Turknett as President of Turknett Leadership Group for twenty four years, and now serves as co-chairman and senior consultant. The focus of her work is character in leadership, cultural assessment and change, and executive team development. Ms. Turknett’s consulting engagements have included leadership and executive team development, organization assessment and change, and individual feedback and coaching. She is particularly interested in helping teams at all levels improve effectiveness and working relationships, and in helping organizations maximize intellectual capital and create cultures that support innovation and initiative.

Tino Mantella, President and CEO

Tino Mantella

Tino Mantella became President and CEO of Turknett Leadership Group on October 29th, 2018. TLG is one of the nation’s top leadership development companies, driven by its proprietary Leadership Character model and grounded in science. TLG has supported hundreds of CEOs and their teams over the last 32 years Founders; Dr. Robert (Bob) Turknett and Carolyn Turknett will remain engaged and committed to the company’s mission..

Mantella brings over 30 years of experience leading some of the nation’s largest and most distinguished not-for-profit organizations including the YMCA of Metropolitan Chicago, the National Arthritis Foundation, and the Technology Association of Georgia.

Michael Blake, Brady Ware & Company

Mike Blake, Host of “Decision Vision”

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.

Michael Blake: [00:00:20] And welcome back to another episode of Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. But rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:39] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we’re recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe and your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:03] And today, we’re going to talk about leadership. And not just leadership, but how do you recognize if you have the kind of leadership you need in your organization? How do you recognize if it’s deficient? And how drastic steps do you need to take and can you take in order to to fix it? And I’ve worked with organizations ranging from startups to larger organizations. And probably. the only organization that does not need leadership is a startup with one person in it. And even then, you can make an argument that there are opportunities for leadership even outside of the sole practitionership.

Michael Blake: [00:01:44] Now, those of you who’ve been with the podcast for a while or maybe know me personally know that I play in a rock band, which is basically a relatively safe midlife crisis outlet. Certainly, safer than a motorcycle and cheaper than a Ferrari, which I can’t afford anyway. But one of the things you notice in the band is that you have lead instruments that are up front all the time, right. If you’re Elton John, there’s a lead piano all the time. If you’re Van Halen, there’s a lead guitar pretty much all the time. And then, there are instruments that you don’t necessarily recognize unless they’re exceptional, right. Very few people really notice the drummer of the band unless it’s Rush on Neil Peart going on, right. They don’t necessarily notice the bass player unless the bass player happens to be a front man. Again, Rush with Geddy Lee. But that kind of shows you the nature of the band they have.

Michael Blake: [00:02:37] And over the years, I’ve come to think of leadership kind of being as one of those things that at one end of the spectrum, I think we recognize great leaders and great leadership readily. And then, there’s another end of the spectrum, like sometimes instruments in a band, where, sometimes, the best thing you can do is you know you’re doing a good job, and nobody knows that you’re there, right. You don’t remember, “Boy, that drummer kept a great beat the entire time.” But if they go off beat, everything can come to a crash very quickly.

Michael Blake: [00:03:11] And leadership can sometimes be like that. We kind of take it for granted almost that we assume that it’s going to be there, and we often don’t think about it until it sort of pops its head up and say, “Boy, that’s just outstanding leadership, sort of a Mozart one in ten million kind of thing,” or it’s “Boy, we lack leadership here. We don’t have emotional intelligence.” And when you’re in a badly-led organization, if you can just watch about that organization, it’s uncomfortable. It’s bad to be in, it’s not comfortable to to even watch.

Michael Blake: [00:03:47] And today, joining us, because I don’t know anything about leadership other than what I try to do in my my day-to-day activities, but fortunately, we are joined by three people who know an awful lot about it. And we’re going to try to squeeze as much knowledge out of them as we can over the next 35 minutes or so. So, we’re talking to Lyn Turknett, Bob Turknett, and new kid on the block, Tino Mantella of the Turknett Leadership Group.

Michael Blake: [00:04:12] With over 30 years pof experience, Turknett Leadership Group is a nationally recognized leader in providing character-based leadership and organization development. They specialize in executive coaching and development, the individual and team level, using the leadership character models and capitalization trademarks, and nobody else can steal that. They have helped thousands of individuals become highly functioning, thriving leaders, and to help build teams with balanced respect and responsibility with a foundation built upon integrity. Their goal is always organizations operating with complete integrity, optimized processes, and maximum financial success.

Michael Blake: [00:04:48] The firm has specialized in executive coaching since 1987, before the word coaching was common parlance. I agree with that. They combine scientific rigor with an unmatched ability to partner with their clients for deep, sustainable growth and change. The founders are thought leaders and have lifted up character-based leadership through the Georgia Leadership Character Awards since 2003, which, by the way, I am a proud three-time nominee. I still have the plaques hung up my office. It’s the only thing that I, actually, bothered to hang up. These awards are now presented in partnership with the Greenleaf Center for Servant Leadership.

Michael Blake: [00:05:23] It goes on, and on, and on. I could tell a lot more things about the organization, but that means I’m not asking questions, and they’re not answering them. So, I’m going to cut to the chase and I’m going to welcome Lyn, Bob, and Tino to the program. Thanks so much for coming on today.

Lyn Turnkett: [00:05:36] Great to be here.

Bob Turnkett: [00:05:36] Thanks for having us.

Tino Mantella: [00:05:36] Thank you.

Michael Blake: [00:05:38] So, let me lead off. Leading off with this. I mean, is leadership important? Do you agree to some extent that it can sometimes be taken for granted, but, boy, when it’s not there, you sure do miss it?

Bob Turnkett: [00:05:52] I’d like to address that just in a general way first. And then, they may have some comments. But, for me, a driving force in terms of leadership is how important it is for bringing out the best in others. With every client I see, I try to always plant the seed and get them to think about viewing themselves as trying to bring out the best in every person and help every person become the best leader and the best person they can be. And if you think about it, and if we’ve all had that as an underlying philosophy in all of our interactions, what a great organization it would be and what a great world we have.

Lyn Turnkett: [00:06:29] Yeah, it’s interesting. I was just reading a piece from Extreme Leadership yesterday. And it’s about the SEALs, the Navy SEALs. And one of the first stories is about boat race that’s a part of their last training. And one boat keeps coming in ahead in the race every time. And there is one guy who’s the leader on a boat that keeps coming in last. So, the guy who wrote the book and who’s the guy, whatever his title is, says, “Let’s just switch. We’ll switch the leaders.”

Lyn Turnkett: [00:07:05] Interestingly, the boat that was coming in last came in first in the next race. It was all about the inspiration, the way that person helped align the team, helped them feel good about the goal, helped them take small steps together. But that guy who was in the boat who was losing had no thought that it was his leadership causing that. It was, as you said, an unrecognized factor. I love the idea of the drummer in the band keeping the pace and being in the background, but helping align the band.

Tino Mantella: [00:07:44] So, I’ll just add a couple of comments because I think when your listeners are thinking about leadership, they probably are thinking about the CEO or the C suite. And the interesting phenomenon now that’s always been there, but it’s been magnified in the last decade, is that leaders could be at any level of the organization. And going back to your first point, Michael, it could be that one person because they have to lead in a lot of different ways. I mean, they have to lead in respect to convincing people that their product or service is viable, for example.

Tino Mantella: [00:08:19] But we like to — I think that companies today are saying every low level — in fact, we get a lot of calls now around the director level. A few clicks down saying, “We want all those people to be leaders.” So, every person or organization, if you’re being fully functional and optimizing your results, you’re going to want to make sure that every person sees themselves as a leader. And that’s really different in some ways between a manager, and somebody that’s taking ownership, and feels like they’re really part of the company, and helping to drive it forward.

Michael Blake: [00:08:52] So, let’s go to that. Tino, you and I have a long history collaborating in the startup world. And you know this as much about as I do, if not more.

Tino Mantella: [00:09:01] I’m not sure about that part.

Michael Blake: [00:09:01] I think it can be tempting to think, “Wow! I don’t run a thousand-person organization. I run a team of four,” right. How much room is there leadership there? But you sort of touched upon it. Even in a group that’s small, does leadership become important? Maybe it’s even more important because you’re more exposed. What do you think about that?

Tino Mantella: [00:09:23] Well, I’ll start with that one because we – Lyn, and I, and a couple other people at Turknett – worked with a group of 15 women entrepreneurs as part of a city program. And the focus of Lyn’s program was on leadership. And what we found is in a lot of these entrepreneurial companies, they’re thinking about – you know this, Michael –  first, the market, product, finance. And one thing that gets put on the sideline is, “How am I going to work with people? And how am I going to bring them all together? And how is everyone in this small group going to be willing to take on more than one set of job skills? Because, frankly, if there’s three people, you don’t have a lot of specificity here. You’re going to be doing it all.

Tino Mantella: [00:10:08] And so I don’t know if it’s more or less important. The founders, who have a lot more experience on this and seeing it from that side, might have a judgment on that, but it’s certainly as important in a four-person company as it is in a thousand-person company, I would say.

Bob Turnkett: [00:10:23] And in terms of the women, we do have Women in Leadership Program every month, and we have about 50 or 60 attendees and a speaker every month. And the women and, sometimes, men, who are the speakers tell their story of leadership, and  you can just see from the reaction of the audience there that those stories are very inspiring, and very powerful, and how important leadership really is in terms of-

Bob Turnkett: [00:10:49] I mean, when I go away from that, I feel like this is the best thing I’ve ever experienced. I go away from it every month feeling like, “This is the best one yet.” So, there is something really special and unique about leadership when it’s working well and when people can tell stories about the leadership, where it’s done in the right ways and the best ways.

Michael Blake: [00:11:05] Now, I’m curious, do those individuals, do you think they feel that great because they suddenly recognize they’re in a leadership vacuum, and, now, they have tools to fix it? Or do they sense that in themselves, all of a sudden, they realize they have the skills and the tool set to create that leadership influence themselves, or some mix of the two?

Bob Turnkett: [00:11:28] I think both, but Lyn may have an idea.

Lyn Turnkett: [00:11:30] I’d say the latter. I think they recognize — I think what Tino said about leadership being broader now, I think it’s always been very broad, but I think, particularly, in companies now, it’s broad. One of the things we say is leadership is a choice, not a position. And there are always opportunities for choosing to lead.

Lyn Turnkett: [00:11:55] There’s a definition I like too that says, “Leadership is about going first in a new direction and being followed.” So, anytime you see something that needs to be done, a problem that needs to be solved, and you figure out how to move forward and how to get other people to move along with you, you’re exercising leadership. You are leading.

Lyn Turnkett: [00:12:17] And I think to Bob’s point about why hearing other people talk about it is so inspiring is that it does, to your point, make you feel, “Oh, my goodness. I could do that. I do that every day. I did that in high school. That could be me. I could do more. I could take more ownership. I can lead.”

Michael Blake: [00:12:38] So, I’m going to skip ahead to a question because it segues better here then. Is it your view that everybody can be a leader? It’s not just something that you’re born with and that’s it, but it’s a set of skills that you can develop, or, clearly, I know it’s it’s a mindset based on your character model, but you expand upon that.

Bob Turnkett: [00:12:55] And everybody is a leader, whether they really accept the idea or think about it that way or not because you’re a leader as a parent, you’re a leader yourself. I mean, if you think about our leadership character model, which we can discuss in a minute, to be able to — if you think about that in terms of all the qualities are involved in the leadership character model, you’ve got to lead yourself first. And no matter whether you’re on your own by yourself or with the group of people, all those qualities are critical and important in terms of who you are, and how you present yourself, and how to be.

Lyn Turnkett: [00:13:31] I think also once people reach adulthood, there are probably some qualities of personality that may help some people move more strongly. Certainly, we know they affect whether people are chosen for leadership roles. But I think to Bob’s point, everybody leads. Everybody usually don’t think about those times that you do, but everybody leads. And certainly, we believe that leadership isn’t simply a gift that a few people have. It’s something that everybody exercises and that everybody can get better at with effort, self-awareness, and work.

Michael Blake: [00:14:11] Okay. So, what are some symptoms of deficient leadership? If I’m in an organization, right, and like you said, with the two boats, right, sometimes you don’t know it’s deficient until you realize you came in last, and the only thing that changed was the leader, right. What are some symptoms of deficient leadership? What, as a leader, should I be looking for?

Bob Turnkett: [00:14:33] I started writing that down. And after I got to a hundred, I stopped.

Michael Blake: [00:14:37] Okay. Let’s take the top few.

Bob Turnkett: [00:14:40] Some of them are infighting, political behavior, chaos, silos, constant drama, low productivity, poor results, always reactive, low morale your best people leave, high absenteeism, and it goes on, and on, and on from there.

Tino Mantella: [00:15:01] I think Bob covered a lot in those statements. I, probably, am more of the practitioner in a group just given my background. The YMCA had 4500 employees. And it was interesting because our work was full of such passion of wanting to help people and make a difference. And some people rose to the occasion and some different. I don’t think it was because they had these innate skills where one would stand apart from the others, but it’s more the things that Turknett Group works with people on and groups on, and that is taking accountability, taking ownership, being able to work with people, good communication skills, the kinds of things that are required to get people excited.

Tino Mantella: [00:15:48] And from my own experience, I mean, I’ve had great experiences, I feel like, of bringing people through the ranks and others where it’s like, “Oh man, maybe I should have done this a different way,” because it’s always about, are you getting them motivated? Do they understand what the vision is, what the mission is, what the direction is? Are you leading and are they following or are they leaving? As Bob said, there’s a lot of different reasons. If you lose your best people for whatever reason that is, you’re going to have to take a hit. And we hear all the time, like a company recently contacted us and said, “Look, we’ve gone through four CEOs in the last two years. What does that mean?”

Michael Blake: [00:16:24] Yikes.

Tino Mantella: [00:16:24] Yeah, yikes. So, that means that they’re looking at turnover at all parts of the rank because nobody knows if their job’s secure, et cetera, et, cetera. So. it’s having confidence in leadership, but it’s not just the CEO again.

Michael Blake: [00:16:41] So, there are a lot of symptoms out there. So, let’s go to some of the causes. What do you see in all the work that you’ve done? And also Tino, your view as a practitioner, I think, is very important here. What do you see as the most common or obvious causes of deficient leadership that maybe a listener can, if they have the wherewithal to be self-aware and self-examining, maybe they’ll press pause for a second after your answer and take an inventory of those qualities are in themselves or others with whom they work.

Tino Mantella: [00:17:14] Well, I start with that one just because I think that the Turknetts talk a lot and people that work with us on the coaching side talk about blind spots. And to me, it’s like you know what you know, and you don’t know a lot, and you don’t see that you’re missing the boat. And also, there’s an ego piece to this I see. I think I’m a better performer when I leave my ego at the doorstep, then I’m open to people giving me comments. And that’s really hard for some people, and it’s been hard for me over certain times of my career to be able to embrace that.

Tino Mantella: [00:17:49] So, I feel like if you have a mentor, if you have someone, your spouse, as Bob’s often said and Lyn have said, someone that can give you real — my spouse doesn’t have make trouble giving me feedback. But anyways, real feedback where you have that sort of place where people can say, “You know what, you’re missing that,” they don’t feel like their heads are going to get chopped off for something they’re going to say. So, that’s a real practitioner answer, but I’ll leave it to the experts.

Bob Turnkett: [00:18:17] I would like to just frame it, and then Lyn can comment, but I’d like to just frame in terms of if you think about leaders who are too passive or leaders who are too aggressive, and you’ve got problems in both areas. Leaders who are too passive abdicate. They are too nice. They don’t want to do certain things because they don’t want to impose. So, they hang back, and they don’t communicate, they don’t get feedback, they don’t do setting goals with people. They don’t do all the things they need to be doing.

Bob Turnkett: [00:18:39] And then, a leader who’s too aggressive tends — and then, what happens, at first, when a great tension gets created, interestingly, it bubbles up. And then, there’s explosions in the organization and all kinds of chaos. And that leader who’s too aggressive also creates tension, but in a different kind of way. It’s i because of fear. People are afraid. So, if people shut down, you don’t get the best from them and all the side effects could go home. Hundreds more side effects there in terms of that as well. So, those are two kind of categories I see.

Bob Turnkett: [00:19:07] And then on the aggressive side, that’s probably been the — when we first started doing this 30 years ago, many of the CEOs that I worked with were in that highly aggressive side, and very command and control, very top down, and thought that was the best way. And so, it was a real convincing job for me and worked for me to help get them to see that they get more of their goals met and more of what they wanted if they could balance that with the both respect and responsibility that they needed to do.

Lyn Turnkett: [00:19:35] Yeah, absolutely.

Michael Blake: [00:19:37] There’s two tips. I’ll let you finish, but I want to interject something because it’s interesting you sort of time date that, right. And I wonder if kind of the movies of the time kind of you reflect that or somehow influence that, right. Greed is good. Wall Street, Gordon Gekko and the leader of the night. And we’ll get into this. We’ll get into this. But what we idolize is leadership in the 1980s being a really take charge, super testosterone kind of deal where baby boomers were leading people like me, Gen-Xers, right. That doesn’t play well anymore, does it?

Bob Turnkett: [00:20:12] No. And so, I see the way — you’re going back to the autocratic, and that’s very top down, and almost a bully kind of leader to the — I call it parental, but it’s really benevolent autocrat, but parental, kind of still the parents. I slap your wrist. I spank you when you misbehave, but I don’t do it often, but I do it periodically. So, it keeps you in line. So, it’s still a fear way of doing it, so you get the same side effects, or very similar side effects, or to a partnership model, which is what it’s moving toward. And there are many leaders that we can point to today who really work hard in that part partnership model and do a good job of it.

Bob Turnkett: [00:20:48] But it’s easy still for the person who’s doing the partnership, when the stress happens or there’s crisis or conflict, they tend to revert to the parental style thinking that they have to do that when they don’t recognize that’s the worst thing they can do because they’ve got did what they got to do, is work even harder and develop more flexibility, agility, and adaptability to be able to solve the problems that are in front of them. And that’s not easy.

Michael Blake: [00:21:09] So, Lyn, coming back to you, what about causes you see as being your most frequent causes of deficient leadership?

Lyn Turnkett: [00:21:17] I’d say a lot of that is the opposite of what people need. I was just thinking, Tino was talking about self-awareness, getting feedback, and I was thinking. Center for Creative Leadership a while back. They had 67 competencies. They found four. And I think these are not just were important then. They may be even more important now. And those were self-awareness. And so, a lack of self-awareness and a lack of understanding, that’s EQ, that’s emotional intelligence, not understanding how you’re coming across to other people, not getting feedback, and not being able to adapt. That’s huge.

Lyn Turnkett: [00:21:56] Learning agility was another one. To Bob’s point then, if you can’t figure out what’s wrong, if you can’t in a complex organization, which many people are working in right now, if you can’t figure out how to be partnering later, work across organizations, work with people outside the organization, learn quickly, you can’t lead. There’s also typical things like arrogance, which is a big derailer.

Michael Blake: [00:22:28] It used to be number one.

Lyn Turnkett: [00:22:29] Yeah, perfectionism, that’s a big derailer. People who are overly perfectionist with themselves and with other people are not inspiring. And they, also, obviously, move very, very slowly. We could go on and on on this too.

Michael Blake: [00:22:44] Well, the thing that strikes me, though, is I think all of those things have a common thread. I think a lot of it to me, I’m going to put my Dr. Phil hat here, but it does, I think, boil that down to a fundamental insecurity, right. And to me, it sounds like what that creates is a feedback loop because if you lead an organization that is in fear, right?

Lyn Turnkett: [00:23:03] Yes.

Michael Blake: [00:23:03] And where dissent, where if not self-awareness, then making somebody also where is punished, then you’ve got no shot. You’re going to have to have an outside intervention, I think, which gets to the next question then that I wanted to ask, which is, is deficiency in leadership something that can be self-fixing, self-healing, or more often than not, does it get to a point where there’s got to be kind of a grownup that comes in or an advisor that comes in, and helps ride the ship and hits the reset button?

Bob Turnkett: [00:23:38] I’ll make one comment. If they could fix it, they probably would have already. It wouldn’t be happening if they really knew how to fix it. And if there was a textbook or something that they could just read that would fix it, that would help, but there’s usually not something there because it’s got to change something that’s a part of them, who they are, and what they’re about. And that’s what leadership — that’s the most important part of leadership is you can teach skills, and all kinds of different things, and tactics it can do. But it’s who they are and what they’re about. So, their attitudes, and beliefs, their assumptions, all that’s really critical, and that has to be gotten at by somebody helping that person get at it, or they could possibly get it by reading, but it would take some in-depth kind of personal work on their part to do that.

Tino Mantella: [00:24:24] Michael, when I took over TAG, it was right after the tech bust. You remember that. It was 2004. And the interesting thing, and people have talked about this for ages, but the best time to take over organization is when it’s in crisis because, then, they actually listen, and they’re open to ideas more. So, to the point, I think Bob was spot on. But what I would add from my experience and from seeing others is the best time to — there is a great opportunity to have someone be most aware after they’ve failed at something. And they’re going to be open because it’s like, “I lost my job. We lost money, whatever it is, it didn’t work. Somebody has got to help me.”

Tino Mantella: [00:25:08] If you go along, and you’re in a pretty good place, and to use the TAG, if I came in to TAG, and everything was robust, everybody was getting investments in your area, then there wouldn’t have been that sort of opportunity for me to come in and say, “Here’s what I think we need to do,” because at that time, people were pretty arm weary in terms of what they were trying to do. So, they were very open. So, from my experience, people sometimes need to have that not-so-great experience to be open. And I don’t know what Bob and Lyn would say, but there’s probably not too many people that haven’t, somewhere in their career, had something that didn’t go the way they wanted to make it go.

Bob Turnkett: [00:25:48] Whatever they can, whatever happens to make us more vulnerable makes us more open. And certainly crisis, and hardships, and things that really are adverse, certainly, will help us become more vulnerable. And that’s one of the things that many leaders struggle with, and they need to be more vulnerable and more open. But it’s very, very hard for leaders to do that.

Michael Blake: [00:26:08] It almost sounds like going through the five stages of grief, right? You have a failing organization. You go through the denial, the bargaining. I forgot the other states, but at the end of the day, there’s acceptance. And at some point you’re sort of out of options, and you’ve got to be willing to change. And with leadership, it’s just a deeply personal exercise, too. It’s really hard to blame lack of leadership on somebody else. It really is.

Bob Turnkett: [00:26:35] Right, absolutely.

Michael Blake: [00:26:37] So, there’s a question I want to make sure that I get in because I think it’s very timely. For a long time, and still today, companies address the customer experience. But now, we’re hearing more of a term called the employee experience. I mean, is that a real thing or is it just sort of a buzzword that we had on Bloomberg Radio for a couple of weeks and it’s going to go away?

Bob Turnkett: [00:27:01] Lyn, you did the right work on that.

Lyn Turnkett: [00:27:01] Yeah.  I think it’s a real thing. Some of it, I will tell you, will go away. Any of us who’ve worked in this arena for decades now that the business cycle influences things like that. We’re in a time right now where getting talent is really tough. People are paying a lot attention to their culture. They’re paying a lot of attention to employ experience at every level when they first come to the website, and think they might apply for a job, to the time that they exit the organization.

Lyn Turnkett: [00:27:34] But I do think that one of the things I believe is that as technology increases, as organizations become more AI-infused, people become more important. People coming to the table, knowing that they are valued in the organization, using their brains in the organization, feeling excited to be there is even more important than it is in a factory where you put in the same widget every day.

Lyn Turnkett: [00:28:08] Now, people have to pay attention to that. I think in order for the performance of the organization to be great. So, I think, from that standpoint, even though it will diminish when the business cycle is down a little bit, I think it’s going to stay important.

Tino Mantella: [00:28:23] Michael, when I was — in all the organizations I really run, say, five years or later, we always talk, and I was trained, and I was passionate about the customer being the center of the circle, the customer, the customer. We will do anything, including sometimes ask staff to do something beyond what they want to do because it was the customer-centered circle.

Tino Mantella: [00:28:52] That just doesn’t work anymore because of what Lyn said. And I would add to that, and you already mentioned it, Michael, the generations coming up, they’ll just say, “Yeah, I’m not going to do that.” They’re not going to focus on it. And let’s not take it. Millennials have been probably much maligned over the last many years. But part of it is they really want work/life balance, and they have other opportunities now because the retention rates are so low, and they’re like, “Yeah, I need to go work with my charity tonight,” or whatever.

Tino Mantella: [00:29:23] So, trying to run with command and control or trying to run with customer being the center of the circle and putting employees at a different level below that, you can try as hard as you want, but it’s going to be very difficult because people are going to push back now more than I might say that 10 years ago, whatever job I had, it’s like, “Yes, you’re right. We will do that. We will follow those. We will march to the sound of the guns,” or whatever, but it doesn’t happen now.

Bob Turnkett: [00:29:51] And decades ago, there were some people who stood out in the employee experience area. They weren’t calling it that, but like Horst Schulze, the Ritz Carlton. I remember him giving many presentations, and the employees were really empowered to do things that even today, most employees still aren’t empowered to do. So, he was so much of a forerunner of the employee experience. But I do think, as Lyn said, it will probably fade to some degree, and then reappear in some other form, but certainly without the employee feeling highly valued and doing everything you can to create that.

Bob Turnkett: [00:30:29] I just had a CEO that I was working with yesterday who just lost three people. She’s trying to hire another top level person. And she said that the competition for talent is so strong. She said, “And the way we do things, we go through this interview process that takes a couple of months or more, sometimes three months.” And she said, “I’m just losing people. The best ones there are, they say, ‘I just can’t wait. I got these offers. After one month, I got these two offers. I got to take one of them.'” So, we are in a time when the talent shortage is really making a big difference in our culture.

Michael Blake: [00:31:06] It’s definitely time where labor has a bit more power than we saw 10 years ago.

Bob Turnkett: [00:31:11] Absolutely.

Michael Blake: [00:31:12] So, here’s another question I want to make sure that we cover, and that is, can introverts be leaders? I think many people look at, or if they consider themselves an introvert, they feel like, at a minimum, they’re starting 30 meters behind in a 100-meter dash.

Bob Turnkett: [00:31:29] I have a quick story I just tell and other things, but I had a person I was working with who was the CEO of a large architectural engineering firm. And he scored on the Myers-Briggs type indicator — most people are familiar with this business kind of a profile. And he scored high on introversion, about as far as you can go. And then, when he did a 360 where he’s evaluated by all the people around him, he came out with almost all fives, almost all top scorers from like 40 different people on presentation, formal presentation, all kinds of presentation.

Bob Turnkett: [00:32:04] And I said, “Wow, look at this!” And their comments, there were like 20 or 30 comments. They were all just outstanding kind of comments. I said, “How do you explain this being — you talk about yourself as being an introvert?” He said, “Well, when I was 14 or 15, I decided I want to be a CEO.” So, he said, “I just started paying attention to what CEOs did, how they carried themselves, how they went about things.” And he said, “I’m the kind of person that would like to, if you go to a party or a gathering, get one person, and go off in a corner, and just talk to that person.” He said, “But you won’t see me doing that.” He said, “You’ll see me going into a room with 300 people.” And before that night, he was probably touching in some way or talking with everyone of the 300 people. He said, “Because that’s how important that goal was to me.”

Bob Turnkett: [00:32:46] So, it proved to me that if the goal is very important, we can learn anything. We can change and learn pretty much whatever we want to learn if that goal is that if we had that kind of passion.

Lyn Turnkett: [00:32:57] Also, data from the Myers Briggs shows that introverts are as represented based on how many there are in upper management as extroverts.

Bob Turnkett: [00:33:08] Yeah.

Tino Mantella: [00:33:08] I would just add that part of it is when we talked about awareness  that if you’re a great offensive coach, using a football analogy, then you have to find a good defensive coach to take care of the other side. And I think if you’re really aware and you say, “Okay, here’s my skill sets,” then the great CEOs will look for those balance to make sure. Maybe they don’t like to be out every night at meetings, but they want to have somebody that’s representing them, it doesn’t have to be the CEO. But I think awareness does a lot because it’s, again, not ego, but it’s like, “I’m not that good at that. I need to find somebody really strong at that.” So, it provides that balance.

Michael Blake: [00:33:52] Well, good. I’m glad I’m not hopeless. So, I’ll share a personal story. My wife has one great fear with me, and that is that she fears I’m going to be picked for a Mars mission because I’m such an introvert. She feels that my dream job would be stuck in a tin can one hundred million miles away from humanity for six months where I can’t even have a live phone conversation. Now, I’m too fat near-sighted to do that, but that’s her greatest fear. But I’m glad for somebody like me, there’s even hope.

Bob Turnkett: [00:34:20] That reminds me of the woman I was working with, and she was talking about her husband. She said, “I just wish…” He was highly introverted, and he didn’t talk much with her, and she really wanted to communication. She said, “I just really wish I could get inside his brain, and just walk around in there to see what is going on, because I just can’t quite figure out what’s going on with him.”

Michael Blake: [00:34:37] That’s right. That’s right. Sometimes, it’s a boardwalk. Sometimes, it’s a house of horrors. So, Tino, I’m going to direct this question at you first, and then let’s you guys jump in, but I did have this question with you in mind. Because you have led so many different types of organizations – for-profit, not-for-profit, large organizations, smaller organizations with different missions – does your leadership style have to change based on the kind of organization you have or are there leadership principles that are timeless and ought to work everywhere?

Tino Mantella: [00:35:09] So, I’d say your leadership knowledge and skill sets don’t have to change, but what you have to understand that isn’t always easy is what culture you’re inheriting. And as, I think, Peter Drucker said, “Culture eats strategy for breakfast.” And I’ve seen that many times in organizations that I’ve been involved with and organizations that we’ve worked with.

Tino Mantella: [00:35:35] And so, when you go into an organization, something that worked phenomenally at one will not work at all in another because the culture is different, and they’re not going to embrace it. So, I can give lots of stories about what I’ve seen where it’s just you go in with the same roadmap, or Gantt chart, or operating plan.

Tino Mantella: [00:35:58] I’ll give you one example. Young company I’ve worked with, and I came in full of fire and brimstone saying, “Okay, we’re gonna do operating plan, performance standards, NPR scores.” And they looked at me like I had three heads because they’re a bunch of entrepreneurs that just want to do what they’re doing. So, you have to take your time, pace it, make sure you have the right people, and not do it your way, as Bob and Lyn said. Sometimes you have to be flexible enough to say, “Let me stop, and listen, and see what you need.”

Tino Mantella: [00:36:34] So, I think the core skill for me has been you can use some of the principles that you’ve always used to build organizations, but you can’t always use the same techniques because the cultures are different. Lyn is an expert in culture and Bob as well.

Lyn Turnkett: [00:36:55] Well, that just reminds me, we talked to earlier about what derails people. And I think, sometimes, success could derail people, too much success. And to your point about not being adaptive, I was thinking, I was listening to your podcast that reminded me of the story of Ron Johnson at JC Penney. He had been dramatically successful at Target. Then, went to Apple and was dramatically successful in building their stores. And then, went to JC Penney.

Lyn Turnkett: [00:37:25] And this was a podcast about decision making, but it talked about the fact that he thought he knew all the answers there. He came up immediately with a strategic plan. And there was a lot written at the time about he cutting all of their brands. He didn’t ask people who are there what they thought. He stopped all the sales. He thought what he did at Apple was going to fly here, and he was the guy who could do it. So, to that point, you’ve got know what you’re moving into. And in my opinion, also, you’ve got to know that no matter who you are, you can’t be the only brain in the room.

Michael Blake: [00:38:03] I’ve stolen a technique or question from a guy named Tom Keene. He does the morning show for Bloomberg Radio. And when he interviews people, he’ll take a position. He’s a very smart guy. He’s a CFA charter holder and an economist in his own right. But he’ll often ask, “What have I got wrong?” He doesn’t end the question for validation. He ends the question asking for what are the holes. So, he’s inviting people to criticize.

Michael Blake: [00:38:31] And I think that is so smart. I’ve stolen it because I don’t need people to tell me why my idea is great. I already think it’s great. I wouldn’t have suggested it. But that question as a journalist is, “What have I got wrong?” It creates such a constructive conversation. Just that opening can make the hugest difference and being willing to be wrong. And as Bill Gates is famous for saying, “Success as a lousy teacher.” Exactly to your point, because it may reinforce maybe something that you don’t need to have reinforced necessarily.

Lyn Turnkett: [00:39:04] Right.

Bob Turnkett: [00:39:05] And that success is a lousy teacher is kind of another problem in terms of the way — we talk about in our company the levels of leadership or the stages of growth. Robert Keegan at Harvard did the same on stages of growth. And so, most people in organizations, they’re in the stage 3 to 4. But when you get to stage 4, you’re really doing pretty well in most aspects of leadership, most aspects of leading a team, et cetera, et cetera.

Bob Turnkett: [00:39:31] So, you’re really pretty. You’re really very good, but what happens is that you get a little cocky. And I don’t mean in a real negative way, but you’ve self-assured to the point where you don’t think you need to learn anymore, or you need to grow anymore. And then, that’s where the success tends to then delude you into thinking you’re really that good. And then, to be able to move to a level five, you’ve got to be able to then kind of put yourself back in the position of learning from everybody around you and really being able to do that.

Michael Blake: [00:39:58] Is there more vulnerable a point in life than when you think you have it all figured out? I’m not sure that there is, right?

Bob Turnkett: [00:40:06] That’s right.

Lyn Turnkett: [00:40:06] Yeah.

Michael Blake: [00:40:06] That’s when you’re whistling. You’re looking for the clouds. And that’s where the manhole is right under your right foot, right?

Bob Turnkett: [00:40:13] Yeah.

Michael Blake: [00:40:13] So-

Tino Mantella: [00:40:13] We’re all a work in process, all of us.

Michael Blake: [00:40:15] We sure are. My goal is that my last assignment I ever do in my life is my best one. Just a little bit  than the one before that. So, I’m going to ask you for some free consulting here while I have you captive on the microphone here. And that is that I have this notion — As you know, I work for an accounting firm. And accounting firms have a reputation of being a certain way. And I don’t think I have to explain what that certain way is. But one thing that accounting firms have is we have this notion of busy season where we got to get stuff out by April 15th, and September 15th, October 15th, or the world simply ends, vanishes.

Michael Blake: [00:40:53] And that’s a very tough time for everybody. Morale can really drag during that time. It’s working 60 hours a week filling out people’s tax returns. I get it. I thank God I don’t have to do it. But I look at Silicon Valley, and there are people there that are technical, and they’re working, by all accounts, 90 hours a week or more to the point that they offer free food and dry cleaning. Literally, you can’t drag these people out of their offices.

Michael Blake: [00:41:25] Is it just something that’s native to technology, or is it fair to ask the question that I’ve been asking, and people are looking going, “He’s a witch”? Is there something we could learn from Silicon Valley that instead of making people like they’re on this forced march, but they just love doing what they do and have a sense of purpose that big problem is dragging them out of the office, or is that just a dumb idea? What have I got wrong?

Lyn Turnkett: [00:41:53] I think most of the time when people are working like that because they want to, and I don’t really have a great answer here, but I think, often, it’s because, to your point, they are so excited about what they are doing. They love what they’re doing. Often, if it’s a startup, they’ve got some piece of the action, they expect it to — they have a sense of ownership, and there is purpose and drive in that.

Lyn Turnkett: [00:42:20] I don’t know if you can have an accounting firm where people are that excited about — maybe you could. And that’d be an interesting thing is to look at the places where people don’t talk like that, and the places where they do-

Tino Mantella: [00:42:34] That might be our next research project.

Lyn Turnkett: [00:42:35] Yeah.

Michael Blake: [00:42:35] Would that be cool?

Lyn Turnkett: [00:42:36] Yeah. Yeah.

Tino Mantella: [00:42:37] I do think, though, you’re on to something with technologists researchers, people that can work more independently. Although, if technologists are listening in this, they’d say that they can’t do that anymore. The days of shoving a pizza under the door and seeing what happens in that room that nobody knows what’s going on are gone.

Tino Mantella: [00:42:58] CIOS that I know and I know many are talking about the importance of communication, and teaming, and being involved, but I do think that when I ran the Arthritis Foundation, you see the researchers, and you see that that the technologists that are really involved with a project that they’re working on science, that most people have no idea what it is. And they’re not solving — they’re not curing cancer. They’re just moving like an inch, but they’ll work 90 hours a week because it’s their personal passion to make that happen.

Tino Mantella: [00:43:29] So, I think leaders, they are trying to figure out, with every person, what is that thing? Although, we also want to respect that most people aren’t going to want to work 40 hours, 50 hours a week, I’d say. So, it’s kind of that balance. But I do think there’s certain positions that probably lend themselves more to that.

Bob Turnkett: [00:43:48] I think a good book to read would be American Icon. And it’s about Alan Mulally, who was CEO of Ford, brought in to Ford to be the CEO. And this is many years ago. But the book chronicles what he did and helped create in Ford transformation of a culture that was in real trouble to one that probably was one of the best in the world and did it through really empowering people, through creating teams in people.

Bob Turnkett: [00:44:18] If you read — Lyn and I got to hear him speak. He was given an award in New York from the Chief Executive Magazine. And you can just tell the combination of humility and also toughness, those two. It was really, really powerful with him. And he helped get the whole culture motivated in a way that very, very few companies have ever done. So, it’s very possible to do it. It’s just harder with certain areas than others, but definitely a lot of the same tenets apply.

Michael Blake: [00:44:51] So, you’ve given us a lot of time already, and I want to be be respectful of that. So, I just got a couple more questions. And one of those last two shots that I’ve got is, what advice can you give the company, somebody that’s listening right now, and they’re sensing a leadership deficiency, either with themselves or the organization? What’s a piece of advice you could give them in terms of what they should be thinking about in terms of addressing a leadership deficiency of some kind?

Bob Turnkett: [00:45:19] We can send them our leadership character model. Just kidding.

Lyn Turnkett: [00:45:21] Sure, read a book. Read our book.

Michael Blake: [00:45:24] Yeah, read their book. Go to their website, and your new podcast, which you just started as well.

Bob Turnkett: [00:45:28] Right. That’s right. Yeah

Lyn Turnkett: [00:45:30] Yeah, I would say this is a bit self-serving, but any way you can get feedback is really helpful. Have somebody assess things, come in with an outside perspective can often be very, very helpful. Your your question, “What have I got wrong?” is great. If you’re a leader, ask people that. We have a forum we’d be happy to share with people. That, just, is something you could give people are working with you. And one of the questions is, how can I support you better? And often, that question sparks a good conversation. But if things are really not going well, it is probably going to pay to get some outside help.

Bob Turnkett: [00:46:15] And in the days in today, while we do work with situations where nobody wants us to come in to help them because of a deficiency, much  of our work and most of our work is probably with companies that are doing well that want to get even better. And, also, they’re facing so much more complexity that everything is changing and so dynamic, it’s just difficult to keep up. So, they’re doing their — well, as Robert Kagan said in his book, In Over Our Heads, we’re all in over our heads. With with the mental and moral complexities of our culture and our businesses, we’re all in our heads. So, everybody needs outside help. Probably every individual, but also, for sure, every company, every organization.

Tino Mantella: [00:46:58] This individual does not, for sure. I know I told the thing. I was talking to Bob one day, and I was writing like a little blog, and I said, “I’ve never had a coach.” And Bob came over and said, “Didn’t you play all kinds of sports and do all these other things?” And I’m like, “Oh, yeah, I’ve had a lot of coaches.” And then, you start to be aware of it.

Tino Mantella: [00:47:19] A couple of points here. The best tennis players we, now, are watching on Wimbledon, Nadal, and all, and Serena Williams, they all have coaches. Every good leader has a coach, whether it’s in sports. And so, I think, now — and I had breakfast with the gentleman a couple of days ago, he said, “I think this next generation coming up is actually going to be even more open to having coaches because,” he said, “my kids play baseball.” He goes, “They have a pitching coach. They have a batting coach. They have an outfielder coach, whatever it is. So, they’re really used to having people that can bring them along.” And I think that’s a good thing.

Lyn Turnkett: [00:47:59] Right, great.

Bob Turnkett: [00:48:01] And I’m a real advocate of women in leadership. And there is two women, both have the first name, Frances. One is Frances Hesselbein, who is probably one of the best leaders. And she transformed the Girl Scouts. And then, Drucker, Peter Drucker had her come and run the Drucker Foundation. And the other is Frances Kinne, who is in Jacksonville, Florida, and kind of there. And she’s 102, and she’s still going strong. Just went to a board meeting just a few few days ago. And so, again, she’s — Everybody wants her. She was on 40 something boards at one time. Everybody wanted her as part of their business because she is just so inspiring. So, when you have that kind of inspiration, that kind of a feeling within an organization, it makes a huge difference.

Michael Blake: [00:48:46] There’s a lot more we could cover. And it’s tempting to try to make this a two-parter, but I’m going to resist the temptation. But there’s a lot more that people can talk about. I am sure there’s a lot of leadership — I know there are a lot of leadership topics that we have not been able to touch upon today that a listener is interested in having addressed. Can they contact you for more information, get some advice, or maybe it makes sense to bring in somebody like you guys? And if so, what’s the best way to contact you?

Tino Mantella: [00:49:13] I think you can just go to our website, turknett.com, or contact us. I’ll give my cell phone, 678-984-8528. You can call any of us. We’re really responsive, and we’re happy to help. And even if it’s just to spend some time talking about what the issue is, I think, we can be helpful in that regard.

Bob Turnkett: [00:49:35] Even to direct somebody to somebody else who might help them when they’re intervening. So, yeah, we’d be glad to.

Michael Blake: [00:49:41] Very good. So, that’s going to wrap it up for today’s program. I’d like to thank Lyn Turknett, Bob Turknett, and Tino Mantella so much for joining us today and sharing their expertise with us.

Michael Blake: [00:49:53] We’ll be exploring a new topic each week, so please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoyed this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.

Tagged With: Dayton accounting, Dayton business advisory, Dayton CPA, Dayton CPA firm, deficient leadership, deficit leadership, Dr. Robert Turknett, Drucker Foundation, emotional intelligence, Employee Engagement, employee experience, executive coaching, Frances Hesselbein, Frances Kinne, Georgia Leadership Character Awards, Horst Schulze, Leadership, Leadership Character model, leadership development, leadership for startups, learning agility, Lyn Turknett, Michael Blake, Mike Blake, Navy SEALs, passive leadership, perfectionism, Peter Drucker, President of Turknett Leadership Group, Ritz-Carlton, self-awareness, talent acquisition, Tino Mantella, turknett leadership, Turknett Leadership Character Award, Turknett Leadership Group

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