Interview with Rob Follows
Making Extraordinary Exits Possible with Rob Follows
Have you ever thought about what it would take to sell your business? Or what you’d even be able to get for it? The process can be overwhelming, and getting it right is crucial. But fear not, because in this episode, I’m joined by Rob Follows, the founder of STS Capital—a one-of-a-kind M&A firm that helps businesses achieve extraordinary exits.
Rob has been in the driver’s seat for over a thousand mergers and acquisitions, with deals worth over $100B. When he sold his business for 27x EBITDA, he thought he had struck gold, only to find out later that the buyer would have paid a whopping 300% more for it. This experience led Rob to start STS Capital, which focuses on using strategic buyers to get the highest price for their clients.
In this episode, Rob shares his expertise and knowledge, giving you the tools and strategies you need to maximize the value of your business exit.
In this episode, you’ll learn:
✅ The benefits of going with a strategic buyer instead of VCs and private equity firms.
✅ How to cut out the middlemen, identify and engage with the right strategic buyers, and negotiate a deal that benefits everyone involved.
✅ The preparation required to 10x the value of your business and achieve an extraordinary exit.
Featured on This Episode: Rob Follows
✅ What he does: Rob Follows is a successful entrepreneur who sold his marketing and strategy business in 1992 for 27x EBITDA while in his twenties. When he discovered that the buyer would have paid 300% more for it, he was frustrated because he could have donated the additional upside to support philanthropic charities. He vowed to give other entrepreneurial business owners the advice and expertise he never had. That led him to found STS Capital Partners, a unique M&A firm focused on making extraordinary exits possible. Joe’s purpose and passion are to help entrepreneurial business owners achieve maximum value when the right time comes to sell. He has been involved with or led over a thousand M&A transactions, with a total transaction value of over $100B. As the Chairman of STS, he focuses on further external business development efforts that include engagements with clients, participating and recruiting in the speaker circuit, and writing his book “Everyone has Their Own Everest, What is Yours?”. In addition to being Chairman and Founder of STS Capital Partners, he’s the founding Chairman of Altruvest Charitable Services. This Canadian charity provides training and tools to improve the performance of charitable organizations so they can give more to their causes.
💬 Words of wisdom: “Whatever you can conceive and believe, you can achieve.” – Rob Follows
🔎 Where to find Rob Follows: LinkedIn
Key Takeaways with Rob Follows
- You choose whether adversity and suffering will weaken you or light a fire under you.
- How to create healthy adversity for your kids and spark their entrepreneurial spirit.
- The lessons Rob learned from selling his business for 27x EBITDA and finding out that his buyer would have paid 300% more for it.
- How financial buyers, VCs, private equities, and SPACs aim to buy low and sell high to strategic buyers.
- The painful lesson Rob learned from losing $5 million in one night.
- The advantages of selling to strategic buyers that business owners won’t find anywhere else.
- How to escape homeostasis and overcome fear and ego to create your dream lifestyle.
- Using your wealth to create a legacy that will last for generations.
Free Strategy Session
The Lifestyle Investor Insider
Rob Follows on Getting Maximum Value When Exiting Your Business
Rob Follows Tweetables“When circumstances are what they are, you can choose to accept them, or you can choose to see them the way that you would want to see them through a lens of what you choose life to be for yourself.” – Rob Follows Click To Tweet “When you create the vision, and you spend time in it, well, the universal law of attraction will bring it to you.” – Rob Follows Click To Tweet
- STS Capital
- Rob Follows on LinkedIn
- Cameron Herald
- Napoleon Hill
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Read the Full Transcript with Rob Follows
Rob Follows: You’re looking good.
Justin Donald: What’s up, Rob? It’s so good to have you on the show.
Rob Follows: It’s really my pleasure and honor to be here, Justin. Thank you for taking the time.
Justin Donald: This is so fun. Well, you and I got a chance to meet through an investment community that we’re part of where there are all kinds of incredible people, very smart, very successful in all walks of life. And it has been fun getting to know you and all the cool things you’re up to. You’re a world traveler, you’re doing all kinds of crazy expeditions, and your life story is just so fun. And I’m excited to get into it today.
Rob Follows: Well, thank you. It’s an honor to be here again. Thank you.
Justin Donald: So, I’m curious for you. You’re a guy that has had a lot of success in the way that most people would define success. You grew up in Canada. You moved to the U.S., you moved outside the U.S. You’re very international. I’m curious kind of what kind of created that desire in you to start traveling, to start living abroad, to get comfortable living outside of your home country because I think that’s a hard leap for a lot of people.
Rob Follows: Well, thank you for asking. I really do believe in life planning, Justin. And it started for me very, very young. When I was 16, where to be really honest and open and vulnerable with you, I was living in a very, very difficult set of circumstances. The circumstance is really dark. My mother died when I was two. We had stepmothers. I’ve had five stepmothers, which is a blessing, right? All that hardship because they didn’t want me. They wanted my dad’s money. This isn’t a victim thing. This is around strength coming out of adversity for me, which is a real blessing, and I’m very thankful for it. I would do it over again knowing all the strength it brings. But what it taught me was when circumstances are what they are, you can choose to accept them or you can choose to see them the way that you would want to see them through a lens of what you choose life to be for yourself. And so, out of that, grew what I eventually learned to call life planning, Justin. So, I’ve done many speeches on life planning and I’m writing a book on that now, What is your Everest?: Life Planning and Living Your Life to the Fullest. And so, going back to your question, the basics on that, I suggest that all entrepreneurs and budding and prospective entrepreneurs and those who want to take control of their life, I mean, that’s the people that I’m speaking to here with this message. And that is, if you want to do more, be more in your life, you can set that goal, and it’s an inspiration, however inspiration comes to you. It could be, I’ll use some different examples.
A movie I saw once called Missing where I saw these kids having a great time and it turned out to be Santiago, Chile, before, of course, all the drama of the movie have. And I thought, “I want to live in a Latin American city and learn to speak Spanish.” I didn’t speak a word of Spanish. And I put that on what I call, Justin, an open list of dreams. And I suggest to everybody keep an open list of dreams. And I didn’t know how or when that was going to happen but flash forward, I’m sitting in St. Louis, Missouri in a boardroom and somebody says, “We should shut down Mexico. There’s nobody decent at a high level who would want to live there. You know, our guys don’t like it.” And they were derogatory about Mexico City and I said, “Really? You have nobody. And how long have you been there?” They said 25 years. And I said, “So, you’re going to throw away 25 years of legacy because nobody here understands Mexico City in the way the Mexicans want to work. I’m Canadian. I can tell you that we work differently in Toronto than in St. Louis, Missouri. So, why don’t you let me go and explore it for 60 days, and I’ll come back and let you know?” The next morning I was at the airport in St. Louis getting on one of those old TWA flights, Justin, which you might recognize because I think you lived in St. Louis. Yeah, and when I landed in Mexico, I was given the title of president and there was no return ticket. My dream of living in a Latin American country came true and I learned to speak Spanish fluently enough to live in Mexico as the only non-Mexican there.
I joined the YPO chapter there, and it just became a flower that opened up lots of beautiful experiences. So, back to life planning, you can set goals. Any one of us can set goals not knowing how they’re going to manifest and my book will teach seven different types of life planning that’ll tie back to the seven summits. But that’s one example of the ties back to international. But I would encourage everyone here to do life planning and live their life to the fullest, Justin.
Justin Donald: Oh, I love it. And by the way, I’ve got to tell you, I think that’s one of the most important things that you do. Since 2006, I have had an open dreams list, and it has been revolutionary for me. It’s been revolutionary for my family, for my wife. I mean, it’s so powerful when you also can start creating some of your quarterly, like for us, our quarterly meet-ups, our quarterly overnights where we check in, “How are you doing on your dreams?” Because it’s inspiring when you’re checking off like lifelong dreams. It’s motivating and fun and it creates a lot of purpose.
Rob Follows: It does.
Justin Donald: I love that you teach that and I love that you share that. So, when did your entrepreneurial journey begin? Because you have so many businesses, you have started companies, you’ve bought companies, you’ve sold companies, you’ve invested in a lot of companies. I’d love to hear kind of where that began.
Rob Follows: Sure. Well, again, adversity creates strength, right? And so, one of the questions, by the way, that I’d love input from anyone on is how you create adversity for your children that you love so much because they need adversity in their lives to create strength in the future. When I was going to university in high school because I didn’t have an allowance or money, I started selling things. Well, way back in grade school, actually, we had these lollipops that weren’t available in our grade school and we had bicycles. We’d ride, it would take us, I don’t know, an hour-and-a-half on Saturdays, maybe 2 hours. Trevor Burns, my friend, and I would ride to another community, buy all these lollipops that were $0.05 each and come back and we would compete for the highest price we could get for the lollipop because we were creating or spending money. And Trevor won. He sold one for $5, right? So, we learned there were lots of margin there in bringing unique products to a different market. But later in life, on a more serious note, I mean, I did start B&F Seasonal Services when I was 12 with Trevor Burns and Follows, and we would cut lawns and do pool cleaning. And then we hired, we had about 75 employees the first summer because we got so many lawn contracts. There were no lawn-cutting companies then. There was no FirstService then. And we would hire them for $0.50 an hour. We’d get $10 to $20 per lawn. And that was an entrepreneurial business until we made a mistake once and learned from that mistake. We pulled the pool cover that dropped 3 feet of leaves into somebody’s pool and they made us promise we’d shut our business down.
But in all seriousness, when my dad said to me, “You will take over the family business,” my dad had started a packaging machinery business, I for as long as I could, avoided this conversation with him because I knew I was, he said, “You’re the oldest son. I’m selling European packaging machinery in the United States. As Canadians, we have relationships on both sides and you will take over the business.” I said, “Dad, I can’t do that.” He said, “No, no, you will.” And I said, “No. Dad, no, I’m not going to.” So, he threw me out. He said, “Well, you’re thrown out of the family financially.” And by the way, I said, “Fine, I’ll go and make my own money to pay for my own school.” He said, “Well, hang on, you’ve got a bill here. You owe me $20,000 at 18% interest.” And I’m like, “No, I don’t.” He said, “Well, you do. And by the way, the rent will be this much going forward, etcetera.” So, I went and got bartending jobs because I’d also started a bartending company when I was underage because I wanted to go to parties and that was a fun way to do it. So, I knew how to bartend. So, I started bartending and I started a business that when I was in Banff, Alberta it was a wholesale produce-selling business. But when they went bankrupt because they sold too much produce, which is another whole lesson, they transferred me to a marketing services firm. I opened the branch in on, this is fun, the guy came.
The suppliers called me, Justin, and said, “If you don’t separate from that guy because all the volumes coming from you and all the customers in Toronto, we’re going to give you full credit,” his name was Bill, “then we’re going to cut you off.” I said, “We can’t. They’re my friends.” They said, “Well, then you need to separate.” So, I called Bill and said, “I don’t know quite how to say this.” He said, “Well, let’s play a game of pool for their business.” I said, “On my pool table in my house?” He said, “Sure.” It’s crazy. So, he comes by. He’s from Calgary. We played a game of pool in Toronto, and of course, I win. I wasn’t going to lose that game. And so, the next day I thought the name up overnight, AIM, Active Impressions and Marketing for marketing business. We started that so that I could pay for my school and I paid for university. When I graduated, I had to make a decision. What was I going to do? I wanted open list of dreams to go and see the world and I thought, “If I work two solid years, I’ll have enough money to go and see the world.” That business became the largest. We kept growing and adding to, growing and adding, and it became the largest independent marketing services firm in Canada. When free trade opened up, there’s a huge lesson here, I ended up selling it to Maritz Inc. out of St. Louis, Missouri to become part of a global operation but that is a whole other story. But the entrepreneurship came from having to pay the bills.
Justin Donald: Wow, that’s incredible. And I’d love to learn more about that story. But before we get into it because I know you had an incredible multiple on that business, but before we get into it, I think you spent some time being educated at Oxford, isn’t that right?
Rob Follows: Yes. Yeah, fortunately. Yeah.
Justin Donald: So, what was that like? I mean, I’ve met a ton of people. I’ve had a lot of people on my podcast that are from the Ivy League schools here in the U.S. I have not had too many people from Oxford.
Rob Follows: Yeah. It is a different university. It’s full of independence. And so, all the Dphil, Ph.D. students, the professors, most of them have chairs. And so, it’s a very independent world where you do a lot of work on your own. You’re surrounded by all these resources. So, my experience was being invited to a month-long in 1999, which was a raving time for people learning about the Internet because it was unproven at the time if you can imagine that. And they said, “We’re going to pick two students from Canada.” One was one of the senior executives at Nortel, and thankfully the other one was me for a month-long course at Oxford. So, I went to the month-long course and they said, “Present your business model.” I said, “I’m not going to do that. The Maritz business model is too proven. It’s worldwide. It’s $3 billion of revenue a year, 30% margin, 22,000 employees. That business model is quite strong but my charity that I sold my business to start many years ago, charities have trouble scaling.” And so, I wanted to do this on charities, how to help charities understand how they can scale because scaling a charity still to today, Justin, is not easy. And so, they said, “Well, okay, you can present that then.” And it really opened up the conversation because it wasn’t competitive. I was the only one doing charity work and there were some brilliant minds there. And at the end of the course, they called me in, three of the professors.
I said, “Well, I’ll open with an apology. I’m sorry. I’m running $1 billion.” It was $980 million business at the time for Maritz. “I have a lot of work to do. I know I couldn’t make all the dinners. I apologize.” They said, “Rob, can you please wait until we speak? This is Oxford. We speak first.” I’m like, “Okay.” He said, “We’re here to offer you a Ph.D. placed in our Ph.D. program.” “Sorry. What are you saying? I didn’t apply.” They said, “Well, we’re the acceptance committee. You know, you took us out for dinner a few times and shared things with us. We appreciate that. We know you don’t know that we’re the acceptance committee. We’re the acceptance committee for the business school and we’re accepting your application to do a Ph.D. program on the idea of the charity that you just spent a month on. If you could take that idea and contribute it to the world, the charity is called Altruvest, then we will accept you to our Ph.D.” I said, “I can’t do it.” They said, “No, no, Rob. Do not say no. Can we give you some advice? Not many people get this. Just be quiet. Leave the room. We can go have drinks together later but in this official room do not say no.” I said, “Okay.” So, I flew back to St. Louis. There was a direct flight then from London. I went and sat down with Bill Maritz and I said, “Bill, I have to quit. I’m going to go do a Ph.D.” And he said, “I’d love to have a Ph.D. guy from Oxford, Rob, on the senior leadership team because I’m dying.” I said, “What?”
He said, “You think your announcement’s important? I think mine’s a little more important, Rob.” And not everybody knows about that. He was my mentor for ten years. He would say this in mentorship, “I don’t know the questions. You ask the questions. And the better the question, the more time I spend with you. You better come up with good questions. And so, I’ll meet you once a month. If you don’t have any good questions, it’ll be a five-minute meeting. If you have really good questions, we’ll go to the cabin in the woods and we’ll spend the evening.” So, I did my best, Justin, to ask a lot of good questions. He said, “I’m dying. I need you to stay. What is it you need?” I said, “Well, I guess I need people to run the business while I’m at Oxford.” He said, “Fine. Open-ended budget, hire the CEOs you need, and you’re the chair of the international and go and get your Ph.D. And eventually, I’ll be announcing my circumstances because it’s irreversible cancer.” So, I said, “Bill, when’s the funeral celebration?” He said, “You do not come back for my funeral. And this is another whole story of play a polo game in my honor because I know you love that.” And we did a polo game with purple on one side, purple and green and white, and green on the other, and had a whole polo game in London in his honor. I was afraid of horses. That’s why polo’s a whole other story. But at any rate, I stayed there for three years in the program. I worked full-time. At the same time, I got challenged because you’re not allowed to work full-time while you’re there.
And I told them, I felt that would be not a smart thing to tack me on because I go to the press and say, “Can only rich people go to Oxford? Like, why can’t a guy that has to work go?” And they left me alone on that but there were some other issues that came up and eventually, it was a strategy issue. It’s very political in high-level academics and strategy as a discipline, which is what I was working on, how do CEOs, I just adjusted my thesis on how do CEOs make their decisions to give corporately for corporate philanthropy, which is only 1% of philanthropy. And so, that’s what my thesis was on. And when a new strategy guy came in who was very serious, he said, “That belongs at Harvard because philanthropy is in the industry-specific competitive advantage area. We’re firm-specific over here. You need to be transferred to Harvard. We’ll arrange it tomorrow. And that’s where you need to go. And if you don’t go, we’ll have to fail you on your Ph.D. and I’m doing you a favor.” So, this doesn’t feel very much like a favor. “You’re going to fail me?” He said, “I’m doing you a favor. You don’t spend seven years with pass fail and fail. I’m telling you right now, Rob, we like you. We like what you’re doing. We think it’s a good contribution, but it won’t be finished at Oxford. It has to be finished at Harvard.” So, that’s when I started STS Capital Partners, which my supervisor said, “Rob, the work you’re doing in wanting to contribute, selling to strategics to these high banking students is really the work that could help make the world a better place. Why don’t you go do that?” And I did.
Justin Donald: Wow, that’s just incredible. So, a few things. I’ve got a few questions because I kind of want to tie this together. So, when you sold your company, you sold it at a crazy multiple, although you later found out maybe you could have sold it for more, but you sold it to Maritz and the founder of that company really became your mentor through that process, right?
Rob Follows: Yes, sir.
Justin Donald: So, let’s talk a little bit about that transaction because I think most people have no idea how crazy these mergers and acquisitions can be that there’s all kinds of tricks of the trade. There’s all kinds of things that happen in the 11th hour. We’d love to get your thoughts on this and just kind of learn some of the things you learned vicariously through you.
Rob Follows: Well, thank you for asking. So, the second message I would have for everybody here that’s important, I think, is you too can sell to strategics. And I want to talk about Maritz as a strategic for us and all the learning in the background there. One of the reasons I started STS Capital Partners is because I couldn’t find somebody, Justin, to represent me that really understood the buyers and who out there would see us as strategic, not as just to plug in financial multiple. And so, the lesson here, as I tell the story, is one of the important lessons is to be represented when you’re going to sell by somebody who really cares about you. You’re not a number to them. You’re somebody that they’re going to help maximize value and create an extraordinary exit and isn’t talking about how the financial markets work and all that but rather how in your business there are things that will matter to the buyer that you can’t see matter to the buyer. And they can matter to the buyer so much that forget about EBITDA multiples or sales multiples that they will pay, they will share some of the upside that they’re creating with the acquisition of your firm. And if you can come to understand that, you can create incredible valuations, which we have at STS, but it’s not because we’re brilliant. It’s because we’re disciplined at only focusing on helping the sellers understand the value.
You know the Rembrandt in the attic example? You know in that example is that if your spouse came home and said, “Hey, I want to buy a house here on this street. Can we please go and agree on that? But it’s $5 million more than all the others on the street.” You would say, “Well, the bathroom’s beautiful. You know, I’m in love with it.” And an inspector comes in and says, “The house is great, but have you seen the paintings in the attic? This is unbelievable. We’re going to bring Christie’s in because it’s signed Rembrandt and there’s more than one of them.” And so, you then go to the real estate, you just say, “Oh, then we’ll take it,” right? Because you’ve discovered something that the seller didn’t see, that is that they had Rembrandts in the attic. What are the Rembrandts in your attic? What are the assets, the skills, the processes, the knowledge that you’re taking for granted that if they were integrated into a buyer’s, that they would make so much more, who can make $1 billion owning your business for instance? So, I’m spending some time there because that’s where the value is created. And in my case, in selling to Maritz, I had no idea. I couldn’t find somebody to represent me. And that’s one of the main reasons I started STS Capital Partners to help people get, you’ll hear this in a second, the hundred times EBITDA that Maritz was prepared to pay me that I never knew about until I became part of that team and saw my own file.
And so, with my business, which became national in Canada, operating two languages, licensed in all the provinces, etcetera, etcetera, etcetera, it was a direct plug-in for somebody coming into the country under free trade that happened in the late 90s in North America. And so, my advisors said, “Rob, you better get down there and talk to some of the people that are doing this work.” So, I was skiing with my dad’s friends. One of them was a strategy consultant. I hired him and said, “You know, would you please take me down because you’ve got gray hair and I was in my late 20s and help me understand this?” So, I tried my best not knowing how to position with a strategic, bring a strategy consultant. We went to see him. He said, “This is incredible.” And Bill Maritz went to Carlson Marketing in Minneapolis first. The situation it turned out later, which I’ll describe to you was Maritz was making say, I mean, it’s hundreds of millions. I won’t get into exactly how many so you can publicize this, that they were making all this money on their largest client, which back then was General Motors. They had no representation, Justin, in Canada. I could fix that risk they had in one transaction. So, they gauged the value of my business on the money they were protecting for their global General Motors business because Carlson Marketing, their arch competitor, they go toe-to-toe with every year, General Motors and Ford and Chrysler, and all the other large vendors was getting all their intellectual property to implement in Canada because there were a thousand GM dealerships in Canada. That’s what drove the value. Nothing to do with EBITDA. Nothing to do with their customers. And I didn’t know this as the seller.
And so, I sold the business and they paid 27 times EBITDA for the business, which was fantastic. I was so thankful. I bought champagne for everybody in Burlington, Ontario in the restaurant that it’s covered I remember because I was so happy. Three years later, I ended up in St. Louis in my office. I moved to St. Louis as my base and I asked for my file. I finally got it. Late at night, I looked at my file. There was a summary on the cover of these files that used to be pinned. They weren’t electronic and it justified 100 times EBITDA for my business signed by the CFO. Jim was CFO’s name and I’m like, “Rob, you left 75% of the money on the table. How can we help entrepreneurs just to not leave 75% on the table and understand their value to a strategic?” It’s one of the main reasons we started STS and a huge lesson I learned from the sale of that business to Maritz Inc in St. Louis.
Justin Donald: Wow, that’s powerful. And it’s one of those things where, like, I love that you’ve got a good outlook on it. So, you lost out but you still did plenty great, right? But you see this upside, you see this potential. And so, I love creating a business model. I mean, this is exactly what I did with Lifestyle Investor, where I just saw the market did not have what Lifestyle Investor has but the market wanted it. Most people wanted it and they knew that they wanted it but there’s a large share that wanted it, but just didn’t know yet that they wanted it. And so, for you, like that’s it. You found this perfect product service market fit where you could help maximize a sale to a strategic. And so, I think this would be a great time to share with our audience today the different ways that you can sell because you can sell a company just straight up. You can go public with the company but selling to a true strategic that wants to acquire your business because there’s value add, meaning they don’t have to buy it, you mentioned this, they don’t have to buy it based on profitability. They don’t have to buy it on certain multiples of whatever metric of profitability that company measures or you measure. It’s truly a value add for their company, their clients, their team, whatever it might be. So, I’d love for you to get into some of the specifics on those different type of acquisitions and all the extra ways that you can get to that 75 additional percent that people can make on the exit.
Rob Follows: Absolutely. Thank you. So, the firm started at Oxford 20 years ago and in St. Louis and in Toronto all at the same time. And we’ve since grown to 34 cities around the world. The reason I’m saying that is international is another leverage to sell to international strategic buyers because they’re also buying the access to the American market if you’re a US-based or whatever country and they’re buying access to your market. And I’m the chair of the firm now. I’m not the CEO anymore. We have over 30 partners that are all operators. But here’s one of the keys, Justin, and I’ll explain this in a second, but in order to be able to help people sell to strategics, you needed to have been a strategic buyer before. And all of our partners have been strategic buyers and have also been operators and sellers of businesses. Whoever it is that you might as an entrepreneur want to have represent you, you want somebody that’s been an operator before, not just an i-banker or a broker, and has been a strategic buyer who understands the pressures and the risk that a strategic buyer takes when they go through this process. And that will really help. So, when you go to sell a business, first of all, the vast majority of businesses are private, Justin, and I’m sure you know that. They’re not. Although the newspapers are all full of the public information, the vast majority of businesses are private and we kind of represent those as circles, if you can imagine those.
And the people that come to buy them, private equity, venture capital, SPACs, special purpose acquisition companies, strategic opportunity funds, those are the people that are actively chasing you to buy your business. And normally when somebody is chasing you to buy your business, they’re not your friends. They’re doing it for their own interests. And they’re really, as we try to teach again and again middlemen, the buy low, Justin, in order to sell high to who? To strategic buyers. And if you think of those are different shapes and colors of different strategic buyers, really what you want to think about is if they’re buying low from you to sell high to a strategic and sometimes in other private equity guy in between, then why can’t you? How do you position yourself not with these private equity and the others that are chasing you to buy your business low but actually take the time and the concentration or hire advisors – I think hiring advisors is important. I didn’t have one. I wish I did – to sell to a strategic. You mentioned the 11th hour. I lost $5 million on the last dinner, Justin, because I was paying two lawyers and I thought, “I don’t need these lawyers anymore. They’re costing a fortune. This is just a celebration dinner.” I didn’t understand the process and where the points are and how far you have to stay away for the buyer, by the way. You have to keep them in love with you but stay away from them and keep your team away from them for sure. That’s just one learning point and I didn’t realize that. I went out for dinner with them.
And even though the papers are all in the boardroom table back then, it was hard copy signing. $5 million, gone, because I didn’t have a good advisor on the last dinner. So, remember this, please. You’re a private business. You’re the gem in the universe for private equity and other VCs and other financial buyers to invest. And they will tell you they’re the only way to go and there’s been a huge pattern developed in the marketplace that support that because that’s in their interests. And these are very smart people and this has happened over the last 20 to 30 years. There wasn’t this propensity of financial buyers way back. So, it’s this generation. So, please remember that you as a private business owner can sell to a strategic. You just have to understand how to position yourself, what the value is, what they would see as the Rembrandt, how to position yourself with them. And I would suggest getting great representation to do that of people that understands future buyers. Now, the difference between a – can I go on, Justin? Is that okay?
Justin Donald: Yeah, please do.
Rob Follows: A financial buyer is somebody that will come in and use financial models that look at your EBITDA, that look at your sales. They’ll do lots of due diligence and the due diligence is not in your interest. And they will, for the most part, look at finding ways of reducing the price so that they remember on the private equity model, I won’t get into it, but they keep $0.20 on every dollar they don’t pay you or that they can sell for under their model. It’s called a 2 and 20 with an 8% EARL rate normally. I’ll get into that, but that means that they’re incented to not pay you a dollar because they keep $0.20 of it. That’s quite an incentive. So, financial buyers are trying to understand what they can resell to a strategic. And so, they’ll go and talk to the strategics, which really pollutes the environment for you. Because if you also want to sell to a strategic, they’re going to say, “Oh, no, we’ve got this company. There’s warts on it and there’s problems with it, but don’t worry, we’ll fix it up over the next 3 to 5 years and sell it to you. But tell us, what is it that you would really value in that?” And then they create a model that they present to their committee. They usually meet on Monday mornings, their credit committees, and they already have the exit plan. So, knowing all that now, please know that you too can sell to a strategic.
And the way that works is by stopping as early as you can, one or two or three years in advance of selling, and saying, “Okay. What will this strategic value my business? Who are these strategics in my home country, if it’s the U.S., and in the rest of the world? Are they an adjacent business next to mine? They want to come into my industry? Are they in my industry, vertically integrated intention maybe? What are they?” And it’s different for everyone. And so, then identifying who they are, we do a mind mapping process with clients to identify different vectors of those. And then how do I position myself to be a value to them? At STS, we can talk about it later. We have a ValueMax process. We actually start working with people in their coaches, in their teams a couple of years before. But here’s the message, Justin, hopefully, it’s succinct. You too can sell to a strategic. You don’t want to have to sell to financial buyers. The goals you have, which we can talk about in a few minutes of required outcomes can be yours. You can make that dream come true. You can make a list of all the things that must be and must-haves and like haves. And you can eliminate buyers that won’t support those. So, you write your own ticket, Justin.
Justin Donald: Yeah, I love that. And I think it’s important for our listeners and those watching to recognize that when you go to a typical investment banking firm, they’re going to drum up whoever is in their list of contacts. And hopefully, if they do a good job, there’s going to be some sort of a bidding war. They’re going to try to drive value up that way but what you’re saying is that market may not be the greatest value-producing market. So, one of the things that you guys do is you go beyond this group of people looking to buy companies and find these strategics and often, by the way, overseas. So, these are groups, these are companies that a lot of investment banking firms, a lot of other mergers and acquisitions, M&A groups, aren’t able to find because they’re not sourcing beyond maybe their own ecosystem of buyers. And so, it makes sense to kind of put on the radar, “Hey to this company who doesn’t even know you’re selling and hasn’t ever bought a company from us in the past, we actually think there are some synergies with this company. You should take a look at it, even though you’re in London and this company here is in Austin, Texas.” Is that right?
Rob Follows: Absolutely. Absolutely, Justin. Absolutely. And I would say that understanding the industry specialists are also conflicted because they’re going to be focused on the buyers and working with non-industry specialists who have great advisors in your industry, or maybe you’re the advising industry and work with them to create a list of strategic buyers who your advisor is not betrothed to because they go back to them every month. You want to be careful of all the conflicts in the financial services world. There’s many, many, many of them. But one of the biggest ones is these advisors are more interested. There was a legal suit with Hewlett-Packard about this. They’re more interested in serving the buyer over here than they are you as the seller because they’re going to do many transactions with the buyer. And those are challenges that you want to avoid. And so, absolutely, working with a generalist that has experts in your industry that won’t be married to the buyers but will position you properly with each of the buyers and maybe even start of years early getting on their radars. They tell you what they want to see, Justin, that will maximize value for you as the seller.
Justin Donald: I love it. Well, one of the really neat value adds that you have, I think, when I think about like your resume and your pedigree, Rob, is you’re not only an entrepreneur by heart but you also are an attorney by trade, right? So, you have this legal side of you but you also have the entrepreneurial side, which is nice. And you started talking a little bit about the ValueMax strategy. I think that there be a lot of value in you sharing some of the things that you do to kind of help people along the way as they’re trying to figure out, are we ready to sell? And what should we do and how do we raise the capital that we may need? Because most people don’t even know it’s expensive just to try to sell your company. And so, two different things. Number one, if you are trying to sell your company and you’re the person doing it, then it generally takes you out of operations and then the business suffers, which is not a good way to do it. And then number two, to take the company public or to get things in a place where you’re going to have the right strategic come in and buy at the highest multiple at the highest value, it’s going to take capital on the front end to like set it up, right? So, talk through that.
Rob Follows: I will. A couple of really important points you made. First of all, I don’t practice law. We’re not lawyers. We just focus on maximization of the sell-side just to make sure that’s clear. You have as an entrepreneur many options when you go to sell your business. And the one thing I want to make clear is, as you mentioned, an IPO, Justin. IPO is one option and there are other options that you consider as well. Selling to private equity would be one and SPACs another opportunity that would be in front of you. Really importantly, they’re not mutually exclusive. So, what that means is it’s not one or the other. And so, you can go to strategics and understand your valuation, whether it meets all of your goals. And if that doesn’t work, then you can do an IPO if that was really what you thought would be a great fit or you could sell to private equity, but 95% to 99% of the time, we see strategics really performing for entrepreneurs. And it’s a totally confidential process. If you’re going, “Oh, it’s private equity,” it’s not confidential. It will get back to your potential clients because they’re doing the research and the due diligence and might even get back to your employees. So, Justin, selling to strategics is an option that really is one that I would encourage every entrepreneur to start to prepare for early and that’s where our ValueMax comes in.
And so, committing that you’re going to sell down the road when you hit a certain number or another three years, I’m done or five years I’m done is important. And that’s getting back to life planning. What is it you really want to do with your life and how does your work support that? And so, many people use the $100 million. If I get 200 million then what if we look at it now? We think, well, we could probably get you to 200 million in six months or eight months. I mean, thinking about when you’ll be ready to exit and what life will be like on the other side of that? What is your legacy work that you’ll do on the other side of your transaction is really important. And so, we help with that as well, by the way. But step one is determining kind of when would be the trigger for you to sell. Is it a point in time or a number? And then you think about, okay, well, let’s say that’s two or three years down the road. It’s never too early to start. So, you can start now then, at this point in time, working through the different months and quarters as they proceed towards that exit and start to think about how do I maximize value in my exit. Well, STS knows that entrepreneurs need that help. And so, we’re in your corner. You’re selling to a strategic coach in your corner, along with your other coaches, your others you’re doing work with. We’d love to work with your coaches to help them integrate the work they’re doing into what the strategic buyers will pay the most for.
And so, starting a year or two or three in advance of ValueMax that might be whatever the list is of what you need to maximize value here. And sometimes you go out with your permission, your support to talk to the strategic and say, “Hey, what would you guys really value in three years? We wouldn’t name the business that you want us to for this type of business.” And if you want us to name it, if you’re open, we say, “Well, XYZ is going to be available in three years.” And I think that’s smart. And the reason is the strategic buyer, and having been one, keeps that on the radar. They actually put it in their plans. In three years, we’re going to acquire this. Maybe the CEO says, “Wait a minute, why don’t you buy that now?” And then maybe they come back. We have one now. We have 20 people interested in it. Somebody was calling me on the weekend, the managing director in charge of it saying, “Hey, do we accept this offer?” And I said, “Well, see, if you get 30 more percent out of them and then we’ll give them 30 days to close.” So, getting in front of those strategics is of great value. They can tell you what you can invest in along the way. We have a great example of a Polish baker that was for sale and the German buyer said, “I don’t want EBITDA. I won’t pay for EBITDA. I’ll pay for the routes you have times my top ten pastries profits.” We thought, “Wow.” So, we ran the test. If we took all the EBITDA and invested in more trucks and more routes, then the price would go up this much. And they were like, “Absolutely.”
Then so you never know until you actually talk to the strategics what they’re actually looking for and you can build towards that. And that’s what ValueMax is about, whether you need capital or you need executives or you need new knowledge, even more contact, new clients, new geographies, joint ventures, whatever it’s going to take to increase the value will work alongside your coaches to support that, given the commitment you’ve made selling that period of time. That’s what ValueMax is about.
Justin Donald: I love it. You’ve got all the strategies. If someone’s ready to sell now and they want the highest value, if someone knows in the future they want to sell, here’s how you make your company the most valuable it can be. And it’s likely not even the way that you think it is. What you and I probably early in our careers thought was the best, smartest, fastest way to grow a company is actually not necessarily what the strategics want, which is fascinating. Now, Rob, you’ve talked a lot about life planning and you’ve done very well in your life on many levels. You know, I am so excited about kind of like the way you split time with a home in Barbados and a home in Whistler. So, you get some hot months and beach months but with the nice pink sand but then you also get the cold months. You get some skiing. I would love to hear, and by the way, there is some strategy that you have even just with Barbados in general because, for you as a Canadian, there’s a tax haven there, right?
Rob Follows: I would say that whatever inspires and fills your heart with joy and happiness, thinking about a vision of something that you would want, whatever that is, whether it’s in my case, knowing that I started as a very high-strung guy, I need to be in relaxing environments, to be honest, Justin, to live long because a New York City would it would be too much for me. And so, I created the vision of living on a beach for a chunk of the time and we found this perfect place. When you create the vision and you spend time in it, well, the universal law of attraction will bring it to you. I believe very strongly. I have experience. And so, in my case, I had a rough go as a family. And so, one of my goals, Justin, was to create and live in a beautiful family and I’m very thankful we have that now. And so, I would say that I don’t want this question be about me. If you’re okay with it, I’d like to turn it back to the audience here and say there’s an old saying, “Whatever you can conceive and believe, you can achieve.” And so, I know that sounds trite but actually it’s very, very real. If you can think about and imagine and put yourself in the feeling of have a vivid vision, as Cameron Herald calls it, for what it is that would make your heart happy, make your heart sing either with or without the business. If the business that you have needs to be sold to support that, you can make that happen. If you want to blend them and have a blended life, you can make that happen.
What I learned in many, many events, I’ve been talking to many people as a speaker on this is that we go through chapters in our lives, Justin, I believe. And so, if you’re in this chapter now and it’s starting to feel like you’ve been there and done that and you’re an entrepreneur and you own a business, you can sell that business and start planning for your next chapter, and that will catapult you into the next level of awareness and of knowledge and of capacity. Because what I told many entrepreneurs who are not sure is, “Well, one thing to consider is if you sold and you build the business well, you put points on the board, it attracts capital and resources in your next chapter because people know that you’re a success.” And so, back to the life planning, I think you can, whatever you believe in, conceive you can achieve. I don’t remember who I’m quoting there but it could be Napoleon Hill. I can’t remember. But really taking the time to visualize what your life can be for you. And fear is the number one constraint there and I can go into that if you’d like, but I’ll just say this. Your ego and your subconscious are afraid of change. And so, they’re happy with what they’re comfortable with. So, if you don’t really try really hard, then you’re going to stay with what you know in your life and that will be how you pass. If you step into your fear and walk through your fear and I can talk about that using an Everest analogy, then you can open up the possibilities in your life. And I’ll just say one thing, which I think you know, Justin, and that is they’re endless.
Justin Donald: I love it. Yeah. Endless opportunities, endless possibilities. You know, one of the things that I love about you, Rob, is that you are incredibly charitable. We’ve talked about a lot of the different organizations that we support financially and with time and with other resources, connections, ideas. And we don’t have any more time to dig into any of the myriad of things that we can get into but I wanted to make sure that it is known to those that are tuning in here today that you are so passionate about helping create billions of dollars in the nonprofit space to be able to do good work in the world and to inspire and empower people. And so, I just want to thank you for that. You have inspired me in that category, and I just think it’s great. I love that you’ve got a company that, well, you have various companies that help people all the way from just getting started to ready to exit. And you’re just a wealth of knowledge and such a resource. So, I want to thank you for taking the time to be on the show. I want to thank you for your wisdom. And I want to ask you, where can our audience find out more about you for those that want to enlist you for their services?
Rob Follows: Thank you. Well, STS is success to significance through selling to strategics. You’ll find us, you can google us on the Internet. I’m Rob Follows: or rob@stscapitalpartners. You can email me any time and we have an offering for those that come through yourself, Justin, of a free valuation, a strategic. What would a strategic pay for your firm? We’re happy to do that work on behalf of you, Justin, for your group. So, rob@stscapitalpartners. And thank you. Really do appreciate you, Justin, all you’re doing to make this world a better place.
Justin Donald: Well, thank you. That is awesome that you’re offering such a value add to the Lifestyle Investor community. So cool. For those of you that are entrepreneurs, I highly recommend that you take Rob up on his offer. And you know, I just have heard nothing but praise from those that have worked with Rob closely and use his strategies for the ultimate acquisition of their company to a strategic. So, as those of you that have tuned in for a while know, I love to end every episode with a question. So, this is specifically a question for you, for the audience. What’s one step that you can take today to move towards financial freedom and really move towards a life that you desire that’s on your terms that’s not a life by default like so many live, but rather a life by design? Thanks. And we’ll catch you next week.