264: How to Achieve Your Dream Exit - with Christine McDannell

I talk with a lot of software founders every week. And of course, the goal for most is to have an incredible exit, right? So you can have that amazing dream reach, you can get to that fun, like rich state that everybody thinks of, I'm making millions of dollars and I've got an island or whatever it is, that is your dream. But how do you get there? How do you set up your business to achieve that exit? And who can help you along the way to until you get to that exit? And at that point, when you're selling? Who's going to be the person who's going to actually facilitate how do they actually make it all happen? Fortunately, I talked to Christine McDannell, she is awesome. She's with The Magnolia Firm, and she helped sellers of companies understand how to set up their company be ready for the exit how to go through the process, and to make sure they're maximizing that valuation so you get the most to achieve your dream. Definitely listen to this one if you're an owner of a software company, because she gives some great advice on what you can do to be ready to exit.

Welcome to Scale Your SaaS, the podcast that gives you proven techniques and formulas for boosting your revenue and achieving your dream exit brought to you by a guy who's done just that multiple times. Here's your host, Matt Wallach.

Hello, welcome it Scale Your SaaS. I'm super excited to have you here. Thank you for being here. If you're watching on YouTube, thank you for that. If you're listening on the podcast network, thank you for that as well. My name is Matt, and we are here to help you scale your SaaS so you can understand the right methodologies for building an incredible process. You can close a lot of deals, make a great awesome company and then exit to your dreams. And that is what we will be talking about today that exit and how to set yourself up for the exit. And that's why I'm really delighted to be joined by Christine McDaniel. Christine, how're you doing?

I'm good, Matt, I love the energy that you bring to the show. That's awesome.

Thank you. And I know that you have that same energy. So I'm really looking forward to today. Let me make sure that everybody knows who you are, Christine. So Christine, guys, you're gonna want to definitely follow her and get to know her. She is the founder, business intermediary and broker at the Magnolia firm. She's a lifetime entrepreneur that has put in the work she started acquired and sold 20 plus of her own businesses and now helps others do the same. The Magnolia firm is a highly specialized boutique business brokerage firm supporting entrepreneurs through the finish line of the most important steps they will ever take selling their company. And having been through that process myself, I can tell you, it is very important that you have somebody who knows what they're doing helping you out. Christine, thanks so much for coming on the show.

Of course. Thanks for having me.

Absolutely. So tell me what's going on with you lately? And what's coming up?

Yes, so believe it or not, even with the scary R word, which is recession or the bank fallout that was very recent. If people are still buying companies and more so than ever, it's a still hot hot seller's market, you know, people wind I'm not just saying that, because I'm in the industry, people want to have, you know, more stability, right? And these are cash flowing businesses. So let me be specific. So people are acquiring cash flowing, stable, you know, companies that still showing growth through these times. Those are the ones that people are picking up very quickly.

Yeah, and I totally agree. That's something that I had to go through learning. But it's also something that you know, as a coach who helps people put in the right process of scaling and, and growing, people come to me because they realize, hey, we're coming to exit, I want to make sure we increase our cash flow, we increase our sales and, of course, our revenues and profits. So absolutely. I'm glad that you mentioned that because it is really important for buyers to have that right.

Without a doubt. And yeah, what you do, it's like I love if people go to somebody like you before they come to us. What ends up happening is they come to me and they say, Hey, I wanted to sell my business yesterday. So we're scrambling to try to position it the best that we can maybe their systems and I know we'll talk about like what they need to do now to position for great exit so they don't leave money on the table. But yeah, somebody like you to get in there first and systematize and really, you know, make it like a well oiled machine will add that much more value to that that exit number at the end of the day.

Yeah, I love it. I totally agree. I want to go back what gave you the idea to start the Magnolia firm?

Well, I myself have built and sold a lot of companies. So I'm over the last 19 years. Multiple startups, multiple exits, acquisitions, roll ups. That's That's my game. That's what I've been doing. And I did have a business broker business intermediary, my very first exit. And then after that, I'm like, Look, I started the company from scratch. I'm a marketer, I'm a salesperson, why can't I sell my own company? And so they're on after I was doing all my own transactions even along with the law. larger ones. And then my friends started coming to me and having me help them with their exits about a year and a half ago. And yeah, just like okay, I guess this is what I'm doing next. So launch the Magnolia firm.

Very cool. And you told me before we started recording, you were a SAS owner as well, right?

That was the last venture that was the hardest. I know. I said, I could speak to the SAS community. Yeah, three years didn't hit revenue, was still able to exit it. But it was like pennies on the dollar, we'd raised a lot of capital. I mean, I was lucky in the sense for two things that I was it was the heydays of, you know, 2018 to 2020 2019. The valuations were off the charts, you know, for my SAS company to be 1010 months old, pre revenue to be worth $10 million is like, unheard. Like, it made no sense to me. But I just went with it. And we raised on a 10 million cap. And so it was a wild ride, it was 90 hour weeks is no sleep. It was it was the most stress I've had in my life for three years. But the second thing that came out of it was now I can help SAS companies exit, right. I know the game, I know, the raising capital. And to that point to, you know, I know you have very savvy listeners and followers. But some people now are coming to us and saying, you know, because they raised on a 10 million cap or whatever it was on a certain valuation. Okay, well, I raised I just raise capital two years gone. 15, you know, my company was worth 15 million, I want to sell it right now for 15 million. And I'm like, Yeah, that's not what you can get for your company as a purchase price. So So sometimes, you know, I do have to educate people in the sense that, that, yeah, that doesn't necessarily mean your company, somebody's gonna pay that much for a company.

Yeah, I'm sure it's important for somebody to have that person to kind of really kind of level set with them and get their expectations in the right place, right? Because so many of us founders, were always like, Oh, my company's worth this and this, and it's really more about the market the data, right? What what do you look at when you're looking at the valuation of a company?

Yeah, I mean, out the gate, it's going to be that baseline of profit EBIT a seller, SD, whatever you want to call it, you know, sellers, discretionary income, earnings, I mean, at the bottom of the bottom line of, you know, all the money you bring in, and then you take out and we're adding back your ad back. So obviously, you guys are running stuff for your business, everybody knows it. So we add that back into that bottom, because then the multiples based off of that, that's number one, that's kind of my base or baseline. I'm not a fan of people just strictly saying it's a multiple of your profit it is, first off that that what your company is worth is what somebody's willing to pay for it. I've said that forever. And it is so true no matter what, okay, that's what your company is truly worth what someone's willing to pay. But okay, we're going to take that that net profit as a baseline, but then I'm going to check, I'm going to start adding on to that, right, like, what's your reputation, like how many years in business, the longevity of your team, your systems in place, all that stuff, it comes into play. And that's what we start putting into a package and, and marketing the company for sale. Just like if you're raising capital, you need to put a lot of work into how you're going to position it for sell. And I don't even see like decks done when a company is going to market for sale. They don't even do a pitch deck. And I'm like, Yeah, but you'll do one to raise all this capital, this slick deck and this presentation. So yeah, it's been, that's the part we do for people.

Awesome. So what exactly would an advisor like you like if somebody's like, Okay, I'm starting to get there. How do you guys help? Or anybody who's helping like an advisor on a buying or selling transaction?

Yeah, so we're mostly on this sell side. We do actually double sided transactions a lot because a buyer comes to us unrepresented. So I'm usually helping both sides, which I actually love to do. So yeah, we're just kind of a hand holding our seller, you know, we want to come with a an asking, we're not going to pressure them. It's their company, like I never ever want to bully or pressure a seller into taking a lower price, or taking them to market and then pushing them down on price. I've seen that done in this industry, which is really sad to watch. So yeah, we collectively agree on a go to market price, right? It's got to be a reasonable price. And they could stay true to that number for as long as they want, you know, and based on market conditions, and if they're patient, I don't you know, that's fine. We don't have to lower the price. Even if everybody's telling us hey, it's too high. It's too high. You know, we we relay that to our seller, like hey, here's the objections we're getting, or, Hey, you're too You're involved too and for your listeners. Another thing you want to work out, you know while you're doing this planning is working yourself out of the company. So we see the company I'm sure you see that I'm sure that's what you come in help them fix is that you're so like the company's wrapped around you, if you were not there, that company would fall apart. So are you just the only one doing the bizdev? Like you're the one landing all the big clients, you know, if that's the case, you got to put somebody in for bizdev position, take yourself out of it. Because again, when somebody goes by your company, they're gonna say, well, shoot, it's wrapped around you and you can't leave, or you're gonna have a long urn out like a four year earnout, which I'm telling you do not we will not let our sellers do that we won't let them do really any error now, but you want to avoid that.

I totally agree. That's something I do help with. And just to add some piggybacking on that, absolutely. In the early days, I highly recommend that founders are the ones who do the sales, it's really important for you to get to know your market and your buyer and what they want what they need. It helps you understand marketing messaging helps you understand your sales process helps you build out the product even better to fit them. But once you get that, you need to make sure you shift it to somebody else, you need to have the right process right formulas in place, the right playbooks, so you can bring somebody in, they can take over, they can walk through that exact same thing, sell just as well as you which a lot of founders have trouble with getting that next person to sell as well as them with the right process. You can do it, but you need them selling as well as you and then that is a very sellable business, because you're not involved in something that somebody else can take over. I totally agree with you. Great point. Christine.

Cool, thanks. Yeah.

So you mentioned that sometimes you're working with buyer and seller, I think that's great. How do you balance the needs and interests? When you are working with both of them? How do you make sure that everything kind of aligns?

Yeah, I'm a really big fan of winwin. I know, some people, you know, don't don't think that's even possible. But I disagree with that point that people make. It's it's definitely what you know, it takes some negotiations, it takes them a little bit of give maybe on each side to get to that point. But it can be a win win, right for both parties, you know, and f being having high integrity and ethics, and I have to be able to sleep at night, like I have to be so there's there, I have to know I'm doing best for both parties, a lot majority of our buyers Believe it or not, are first time business owners, you know, they're leaving corporate, they got you know, COVID gave them that taste of freedom. And then they go back to the office. And now they're like, Look, I just I'm ready to kind of strike out on my own. So that's exciting. So a lot of times, and I'm passionate, even more passionate about helping somebody that's getting into entrepreneurship for the first time.

I love it, definitely, it's super cool to see somebody take that venture and kind of that feels like a leap to them. But something that you and I both know, is going to be a fantastic journey and a lot of learning along the way. But I want to ask you, of course, as a software founder, if you're aiming for an exit, we want to maximize that exit. So what are some of the things that software leader can do early on, to kind of make sure they're set up for a great exit down the road?

So again, there's different stages. So obviously, you guys are, you know, you're trying to scale up, right, you're putting every penny into marketing and growth and systems and all that fun stuff. So I don't expect to see a lot to the bottom, if anything, right. It's not, you know, especially not the first or second year. So you know, you're you're kind of maybe putting people on the platform for free and getting, you know, you know, doing a lot of SAFS. That's how they start, right, they put you on for free, and then they start charging a little down the road. So so that makes sense. But then at year three, and pass that, you know, we need to start seeing the profit, especially for positioning for an exit within fi a lot of people are trying to do five years, which we've seen, you know, you know, millennials, Gen Z, you know, they don't expect to own a company for 20 years, like that's never gonna happen. A lot of our recent clients, they're in there, the youngest is like 24, our average right now is like 33 to 35 year olds that are exiting their first company, they've had it for six years, it's profitable, they had a great run at it, they just don't have the skill set to take it to the next level. And be there like the startup person, they're the idea visionary person, so they're ready to get to the next, you know, start the new thing from scratch. So yeah, I mean, I would say definitely net profit, once you can get to that point is super important. And then the team, so keeping your team happy is huge longevity, and then reputation. So of course the potential buyer is going to Google your company, they're going to look at the reviews, they're going to look at the social media comments, you know, do they like their product? What are the complaints and address those quickly? So I think that that those are the main and systems would be the last one like solid systems. I always love to say even in my companies, like right my playbook or the standard, you know, the procedures, the operating manual, whatever you want to call it, in my company, right at like a 10 year old can come in and run the company like run it like write it that detail then that's simplified. So if a 10 year old came in, they can literally run the company so So in that takes time, and it's a living document, and but just make sure you do that from the start.

I love that. And I totally agree. That's something that I tried to help people with. And I've had some of my clients tell me that, hey, we had an exit, it was awesome. And because we had that process in place, and the playbook there, the buyers absolutely loved it. And I think that's part of it. You're right, like you said earlier, you know, your company's worth, whatever somebody's gonna pay, well, they're willing to pay more and you're willing to have, you're gonna have more buyers. If you have it set up. And it looks so good, it looks great. You've got the process lined out and looks like someone could just take over and make it happen. I have been both a buyer and a seller of companies like you, Christine. And I can totally agree with that. It's absolutely cool when you've got that process nailed,

right? Yeah. And you will get out of that company even quicker, we just had a 3.5 million closed just two weeks ago, even with the banking drama, like the media tries to scare everybody, you know, our deal still closed two weeks later, and it was SBA loan, but the banks didn't get spooked, it was totally fine. And that owner gets to leave in 60 days, you know, he gets to train for 60 days, and he gets to write off to the sunset, because the company was so dialed, and he was only working about 10 hours a week, he was pretty, you know, all the way out of the company already, you know that, again, with those systems in place and those processes, then you're out, you're out of there, if they're, if those aren't in place, you're gonna, they're gonna want you to stick around for a year or two, the training is going to take longer, it's gonna be harder, you know, you're everything in your head. You know, and I'm one of those founders do, right? It's like, oh, it's in my head, like, that doesn't work. When somebody buys your company, you're gonna have to get it out of your head somehow.

Yeah, it's very true. We think about it all the time. Right? So eventually, you're gonna have to stop thinking about easier said than done. I would agree. What would you say to some of the founders and leaders who are asking when is a good time to sell their business? You know, I'm sure that a lot of people are thinking, Hmm, should we sell now? Should we wait a year? Should we wait a few years? Like, when should we do it? What do you say if they ask you that question?

I know what I wish, I tell everybody, I wish I had a crystal ball, right? Because we speak to some that aren't quite ready. They're just like, look, we're scaling, we're doing great. Like, you know, how about that, you know, we want to hit this exit number. So some people have a number in mind that they're working backwards from totally get it, you know, and a lot of times, it's that nine figure number, they just want to hit this, you know, eight or nine figure number, and then you know, they'll go towards that. But then I tell them, because right now, again, super hot seller's market, but what happens if now you're you work another year to grow it even more, and you put all that work in? And what if the market comes down, and but you grew it, so you're ending up with the same purchase price anyways. So again, I don't have a crystal ball. So there's no way for me to say if that's gonna happen or not, I have no clue. So what I tell people, it's when you start getting burned out, like, you're gonna have to kind of run the marathon, finish the marathon, you know, on the exit, you want to have high energy excitement, you know, you still enjoy the company, you don't hate it, you're not burned out, because it's going to be that much harder to sell it. Because you need that enthusiasm, to convince somebody else to buy it. You got due diligence to work through again, we try to make it as painless as possible, sometimes not the case. You got lawyers involved, you got sometimes banks involved. And so you got to tough that out for a couple of months. So yeah, it's just if you're burned out, it's not fair to your team, your clients. You know, if you if you're getting burned out, that's probably the time I would tell people to try to sell on the upward, obviously upwards to me. Yeah, before you're in, that's the hardest time because you're like, what we're doing so good, you know, this person was doing $100,000, you know, in his biggest month as it was under contract, and he's like, Oh, my gosh, this is so hard to sell it right now. It's making so much money. And I'm like, No, but this is the best time to sell it.

Your point? That's something I wouldn't think about either, but that's awesome. So what advice would you have for software leaders who are thinking about this? It's a future thing for them? What would you share with them?

Yeah, I mean, I don't know if much after kind of the points I've already made that, you know, you just want to concentrate on that stuff. You want to, you know, start start laying out a plan. So if you've been talking to people that they're two years in, and they they're going to x in five years, and again, they've just reverse engineered it, and they're on track, they'll just if needed, some of them are ahead of schedule, which is kind of cool to see. I think doing that is really cool. Just build I mean my biggest tip to be honest, and I was really good about this with the software company for some reason I wasn't I think it was just all the hype is not just thinking about that exit number all the time. Okay, and I have a lot of friends making the mistake right now I'm gonna exit for five whatever 5 billion and all these crazy The numbers and and they just started. And I'm like, Look, if all you concentrate on is building an amazing product, amazing product, happy customers, if that's all you do that exit will, will come automatically. But if you're only only building it for the exit thinking about the exits, very distracting, you're in it for different reasons, obviously, you know, probably the money because you keep thinking about the money. I think that that's a harder route. To be honest,

I would totally agree having that number in your head. And I've had founders that I work with that kind of have that and it takes you away from what really matters. And what really matters is if you deliver an outstanding product with great service, people are going to love you, and people are gonna come to you. And if enough people love you and come to you, which if you set up the right process, they will, then you're gonna have that great exit. So focus on what's really important, and what's gonna get you there instead of that, that final end result. I totally agree. So, Christine, this has been awesome. Thank you so much for everything and for sharing all of your wisdom. How can our audience learn more about you and then Magnolia firm?

You could definitely check out the Magnolia firm.ca Oh, online. That's our website. It's got a lot of fun stuff on there. But me personally, I'm great at LinkedIn. So feel free to connect with me there message me there happy to help. If you have any questions, any scenarios you want to run by me. I'm super passionate about entrepreneurship, as you can tell, you know, 19 years in the game and still still as excited as day one. It's a fun journey.

I love it. And we'll put all those links into the discussion. So everybody who is on the podcast or on YouTube, you'll see it down in the comments there. But Christine, this has been awesome. Thanks so much for coming in and sharing all this with us. No, of

course Matt, thanks for having me out. It was a blast.

Absolutely, likewise, and everybody else out there. Thank you for being here. Really appreciate it. Make sure you're subscribed to the show. You don't want to miss on any other awesome leaders like Christine coming in sharing their advice. So hit that subscribe, you'll be good to go. And then we will see you next time. Take care

thanks for listening to Scale Your SaaS for more help on finding great leads and closing more deals. Go to Mattwolach.com