Boost Business Value – Dustin Williamson

Dustin Williamson:
There’s a lot of owner fallacies that I run across all the time and this one kind of gets into not being able to dive in and understand what drives the value of your business and be able to stand back and look at it from a buyer’s perspective. And this is critically important because let’s say you running your company and five years ago somebody got $100 million down the street similar company, you don’t know the inner working and certainly time plays an issue of this. But if you get stuck on that a hundred million dollars and you cannot shake loose of it, how we’re going to get there in a quick manner means that you got to substantially grow value in cash flows in a short amount of time.

Dana Robinson:
Exit Plan is a podcast for business owners and those who want to be business owners. I’m always in search of the lesser known stories of entrepreneurship in the Exit Plan podcast. You’ll hear stories from startup to sale and hear from the professionals who helped business owners achieve their exit. Hosted by me, author and private equity manager Dana Robinson, along with my co hosts and guests, you’ll hear real stories, tips and tools that will help you plan for the exit you want whether you are still working at a day.

Dana Robinson:
Job or running a business.

Dana Robinson:
Let’s get started with this episode of the Exit Plan podcast.

Dana Robinson:
Hey everybody, it’s Dana Robinson coming back with another episode of Exit Plan, the podcast that is made for small medium enterprise owners, people looking to eventually transact exit their business. And I love having guests on who are all about having helping people optimize their business and get more out of that eventual sale to somebody like me who is in private equity that buys your business. I would much rather buy your business having been run better than buy it cheaper and not have these things fixed. So I’ve got Dustin Williamson on today. Thanks for coming on Dustin.

Dustin Williamson:
Thank you Dana. I really appreciate you having me on.

Dana Robinson:
Yeah, my pleasure. Dustin’s got a business called VCFO vcfo.com, it’s an easy one to remember compared to a lot of domains. Good for you for grabbing that one, man. We got a bunch of topics and I don’t know if I’d have to look back and see if I’ve had a CFO of your type on the podcast. So I mean we’ve got a lot of directions we can go on what you do. I’d love to just have you start by telling me your story. How’d you get to be doing what you’re doing? And then we’ll learn from you.

Dustin Williamson:
Yeah, first I’m the managing director of Houston of vcfo. So there’s several markets that we’re in, but Houston is a big one. So I started out, you know, I grew up in small town West Texas and ended up going to Baylor. And at Baylor, I ended up doing an international exchange program. And I was like, man, international is what I wanted to do. That was like international business, was it? And so I came back and I went through the accounting program and I was getting recruited by the accounting firms and, and signing up with Arthur Andersen, which at the time was like, that was the place to be. That was the number one. Yeah, it was the number one accounting firm to be a part of.

Dustin Williamson:
And they were cocky, they were brash, and so was I, so. And so they say, you know, you get through the process. And they’re like, so what do you want to do? You want to do audit? You want to do tax? And I was like, international tax collect? Well, you didn’t, you didn’t quite understand that question, did you? It’s either or. And I was like, I want to do international. And so I wouldn’t let up. And so I was like, four months in and one of the partners in Dallas gets a phone call from one of the partners in Brussels. And they were, they were kind of like, hey, we need somebody to do a three year assignment over here as a staff person. And do you know anybody? And so this is really rare.

Dustin Williamson:
Like, usually it’s partner, senior partner, or senior manager somewhere in there that they get to go over and do that. They’re kind of like, do we? This guy won’t knock it off about international. I bet he would go. And so they called me into the office. And so they were kind of like, well, you know, what do you think about Brussels, Belgium? And I was like, well, I’ll take it. And so that night I go home and I find the globe, and I look up to find where I just.

Dana Robinson:
Signed up to go.

Dustin Williamson:
And so I really didn’t. I knew it was in Europe somewhere, but not, you know, no idea. And so, you know, at the time I was like, fresh out of school, just had moved to Dallas, and my then girlfriend at the time moved to follow me. And so the next question is, once I find it on the globe, I ask her, you know, hey, what do you think about Brussels, Belgium? And she’s like, I just moved to Dallas, follow you to come over here. And now you’re saying, Brussels, Belgium. She’s like, not without a commitment from, you know, bigger commitment from, you.

Dana Robinson:
Negotiating.

Dustin Williamson:
Yeah. So she, she laid down the law and next thing I know we’re right before I leave that August to go to Belgium for three years, you know, we, we got engaged before I left and so, so spent Brussels, Belgium, international tax on the corporate side, maybe a little bit of individual, if they were individual owners, but it was inbound, outbound US taxation. There was some VC activity, there was private equity. It was all over the map. And so if you were investing in Europe or investing into the United States from Europe, then that’s what we did. A little tip though, the fees were less if you paid from the European offices versus the US offices. So you might be able, depending on the office you might be to able. I’m sure it’s still the same way.

Dustin Williamson:
But you could. The fees were the fees. So cool. Fast forwarding. When Arthur Andersen And Enron and WorldCom kind of blew up at the same time, they were on the audit side and you know, I had a three year contract and it just so happened to coincide when I had been applying to grad schools and I ended up going directly to Thunderbird. And so I was the last fee earning employee I’m pretty sure of for the Dallas office because they asked me if I wanted to go back and the answer was would you move me to Glendale, Arizona? So I just kind of stopped through to collect the unemployment check and go to Thunderbird. And so from there I decided it was going to be a venture capital and ended up working for Thunder, the Wasatch Venture fund through the Kauffman foundation and really learned some important lessons in entrepreneurship and what makes one work and what VCs looking for and what they’re not looking for. And one of the important lessons was from the partner that I did the most work for was Bob Pothier.

Dustin Williamson:
This is called Epic Ventures now it was Wasatch Venture Fund. And Bob Pothier would routinely like remind me of what’s the cutting edge versus what in the bleeding edge versus what is an investable, you know, just right off of the edges, an investable product that, that might have legs. Might have legs. You’re guaranteed to lose your money if you’re on the bleeding edge. The market’s just not ready for it. And so in doing that I ended up going from there to a family held fund that was out of Phoenix and we did all kinds of investing. It was from, from private equity to like one of them was the vanguard over the road trucks out in New Jersey and you know, venture capital deals. Lloyd’s of London syndicates, water rights in Mexico, you name it.

Dustin Williamson:
We were all over the place. And so did that for a few years. And then I ended up getting opportunity to move back to Texas for a German investment bank that was looking to set up, set up, set up operations in Austin. And so from there it doesn’t sound very entrepreneurial working for an investment bank, but my job was to make a. Make a duck look like a chicken and talk like one too. And so if you go back to my international tax background, you know, we would use the tax treaties for German investors to invest into the United States and so make it, you know, like for German tax law, they would. An LLC would be considered as a C corp for German tax law. And so you could make it make sure that those individuals might be, or that they are engaged in the U.S.

Dustin Williamson:
trade or business and really lower their tax rates. And so we would bring in the German equity. But my job was to go out to. I’d go to trade shows and we would go in. We were looking for operators that did multifamily funds, wind development, solar development, airline leasing, things of that nature. And it’s called, this was called Deutsche Structured Finance. And and so it was very entrepreneurial because we had to like, go build a structure and build it from the ground up. And I had to go in and pitch and I had to learn how to pitch more so than whenever I was getting pitched to, you know, the prior six years before.

Dustin Williamson:
And now I was the pitchee and I was like, trying to sell our equity to these, to these, these operators. And then in 2009 and 10 is when things blew up. There weren’t any deals that’d be done. Nobody was getting funded. Nobody was. It was all turnarounds or nothing at all. Like, people were just in survival mode. And so they all went back to Germany.

Dustin Williamson:
And I was sitting there in Austin, I was like, what do I do? So I was like, you can’t. I’m not gonna move. I just had a young family and I was like, I’m not gonna move all the way to, you know, New York City or, or San Diego or somewhere like that just to, just to go do structured finance. And so, and those are the, really the hotbeds, California and New York. And so I, I tried my hand at doing turnarounds on wind deals. I knew everybody and anybody in the industry and I thought, man, I could, I could really get in on these, you know. You know, one park was like $100 million. And so I could get in and, you know, really help revamp them.

Dustin Williamson:
And it ended up being kind of like in the 80s in the jingle mail is what they called it where jingle mail was when the mailman would come and the mail would jingle because the real estate owners would just send the keys back to the bank. There was no turnaround. And so I did a couple months of that and banging my head against the wall and realizing my value proposition in my target market wasn’t what I thought it would be. And I was my, at one time I was the largest client for an Austin based law firm. And I was sitting there with a partner and over lunch and looking at my wounds and he was like, well you have a CVA and a cpa. Why aren’t you out there doing valuations? I’ve got tons of them sitting around, I’ve got a whole pipeline. I was like, well, you know that that seems to be cash flowing better than what I was doing, so let’s give it a go. And so I, I started out doing valuation until the deals came back.

Dustin Williamson:
And so then I got into back as soon as probably about 2011 or 12, things started shaking loose and people started raising funds again. So I would do valuation, fundraising and then eventually got into a fractional CFO work. And so everything from breweries to payment technologies to in Austin, Texas, it’s a little bit different market than it is in Houston. But eventually what I really truly found my love for was turnarounds, those cash flow. So let me back up to tell you why startups aren’t my favorite thing. It’s because if you have a family and you have early stage startups that might be pre revenue that are not being funded, let’s say in 2011 and 12 and kind of struggling, you know, kids don’t like the taste of stock options. You can only eat so many stock options for it. You just, they don’t, it’s.

Dustin Williamson:
It has to be acquired taste and I never acquired it, so.

Dana Robinson:
Right. Yeah.

Dustin Williamson:
And so, so that really got me into doing this type of work was, you know, I turned around and sold a company and then it went out and, and turned around another one and didn’t sell it and then came on board with vcfo, the one that I didn’t turn around or that I did turn around but didn’t sell, it was out in Midland and it just wasn’t easily sellable. And I realized that through the process of COVID and so we did. Along the way I’ve had several exits, helped exits, been around exits and then on the buy side too in investments. And so we can drill into maybe a couple of those. But I came on board with VCFO and ended up being the managing director for here in Houston. And so it may seem like we do a lot of energy, but each market is different. Like Austin is very technology oriented. Houston has technology, a lot of it.

Dustin Williamson:
But they also have large manufacturing base, large aerospace base, obviously a lot of energy services, but and real estate. Dallas is more real estate heavy and it’s, and they have some technology. And then Denver might be a lot of biotech and aviation. And so it really depends on what, what the environment is and how you’re going to be able to adapt at that, you know, that lower middle market area. And so vcfo, that’s what we do is on a fractional basis we bring top end talent to the lower middle market. And so how we do that is be able to offer it in a fractional way. So it’s basically dollars. We charge a fee like somewhere between like a law firm or accounting firm might be, but we break it down into an hourly rate and then you know, instead of hiring a CFO from 250 to 350 and that’s just a, you know, a base on a lower middle market.

Dustin Williamson:
It goes way up from there on, you know, on the public deals and things like that. But let’s say 250 to 350 is a salary you’re looking at to pay a CFO. And you’re not going to be until you know, maybe 50 million, 40, 50 million. Are you going to be even close to that market and being able to like justify the cash flow for that? And that’s just the base. Remember if you’re offering equity, you know, depending on your, your value of your equity that you’re giving up, that’s exponential, you know, on top of that. So and then add in taxes and benefits and things like that. So we, we break it down into hourly rate and if you’re, if you’re needing like 8 hours a week, 10 hours a week, even 15 hours a week of CFO time, it really makes a lot of sense for that lower middle market that doesn’t have the, the, the need or the wherewithal to, to be able to hire at that level.

Dana Robinson:
Yeah, no, I, I’m a fan. I’m a fan. Our we, our fund has made six acquisitions in 18 months. You know, we, you know, are flexing between the 40 and 50 million revenue mark and we’re way better off with the fractional CFO that we’re using and he’s been versatile, you know, grow with the, the, the business and, and brings talent that a lot of people don’t know that they, that they need. We, we knew we needed it, but I think a lot of small businesses that they don’t know that they need it. So this I’ll use a Donald Rumsfeldism that, you know, your existence is a. Something that most of my listeners don’t know. They don’t know the, you know, typically they.

Dana Robinson:
They’ve got an accountant, and the accountant is a, you know, tax CPA probably, or they have an account internally that’s maybe not even really an account and they have an external cpa. Their books are, you know, kind of homemade. And how they track gross margin is maybe not how the industry does. And they don’t track ebitda. The. And, you know, they. A lot of businesses, I’ve seen a lot between 5 and 10 million in revenue that could borrow to grow if they had books that were really in order they could borrow. You know, once you’re above a million of.

Dana Robinson:
Of ebitda, which is probably an owner who’s got, you know, half million bucks that they’re keeping. They. You can get mes debt like no personal guarantee in some cases. The, you know, the ability to borrow is, however, contingent on clean financials that’ll survive debt covenants on a monthly or quarterly basis, and they can’t do that without you. Their, their CPA will shake their head and go like, I don’t know which way. I don’t know what a debt Covenant is. The CPAs, they, they, they do great work for, you know, taxes and whatnot. But before I do, I want to drill into, like, what you do, what you could do for what I keep seeing, which is 5 to, you know, $10 million.

Dana Robinson:
Companies with messy books that want to transact at some point and can’t.

Dustin Williamson:
Right.

Dana Robinson:
But you did two turnarounds, and I think while we’re still on the tail end of your personal journey, you know, is that the tale of two cities? They’re. They’re both turned around. One you couldn’t sell. Can you tell more? Tell me more without divulging, you know, confidences about what, what you did to turn them around. I, you know, turnaround stories to me are interesting because we can all learn from someone else’s mistakes and hopefully not our own.

Dustin Williamson:
Yeah. So there’s a lot of owner fallacies that I run across all the time. And this one kind of gets into this is one of the many reasons not the only reason, but many reasons, but it’s a big one. And I see it repeatedly is not being able to dive in and understand what drives the value of your business and what, and be able to look at it from, stand back and look at it from a buyer’s perspective. And this is critically important because, you know, if you go through, let’s say you’re running your company and five years ago, somebody got $100 million.

Dana Robinson:
Somebody, there’s.

Dustin Williamson:
Always somebody, somebody got $100 million down the street, similar company, you don’t know the inner workings and certainly time plays an issue of this. The timing drives valuations in some instances. But if you get stuck on that $100 million and you, you cannot shake loose of it. And so like, for example, started out with that discussion, I was like, well, you know, okay, I understand that, but you know how flexible are on this valuation cycle? Oh yeah, I’m very flexible. And I was kind of like, well, the deeper I got into it and the more, you know, we’re going through it, it’s like, well, you know, your EBITDA is only about, you know, 4 million. You don’t even come close to supporting 100 billion. So like what, let’s talk about how we’re going to get there. And so if how we’re going to get there involves, you know, in a quick manner means that you got to substantially grow value and cash flows, particularly in a short amount of time.

Dustin Williamson:
So you can do that one of, one of two ways, three ways. You can grow your, grow your sales revenues, you can acquire, which could really burden you with that, or you could shrink your expenses, or you could do all three. But the willingness to do that is sometimes another fallacy is what you got there, what you got, what got you here will not get you there type thing. So sometimes companies outgrow their, their leadership and they just have trouble getting from one level to the next. And so pigeonholing and not understanding value and then really basing your value on what the other guy did is a terrible, terrible, terrible strategy. And so, and another one thing is to listen to the advisors because they’re like saying, hey, this doesn’t make sense. You need to, let’s be a little bit more realistic. And so it’s certainly, that is one factor.

Dustin Williamson:
Another factor is what I call the string theory of strategy. You want to pull on the string versus pull on the string, push on the string. I should say pull on the string versus push on the string. So if you’re pushing on the string, example Is cells aren’t materializing to what you think they might be, should be what your plan was and certainly what you need them to be to be able to get the valuation you need. You’ve got several choices, but if one of the choices is to sell harder or another choice is to cut all expenses or send more sales emails or sell, you know, sell, sell, sell and cut prices and like, you know, go against, like try to meet and beat every competitor’s deal, that’s really pushing, you’re trying to push your company up the hill to get it to the point. But if you’re pulling the other, the other side of that, like on strategy development is really look through your value proposition and how it’s being distributed throughout the channels and is it being received and if it is, is it the right value proposition? Because obviously it’s not resonating in the way that you think it should. And so while it may be valuable to glean some data and sell harder, that’s typically not going to be what gets you to the next level you need to go to. That makes sense to you.

Dana Robinson:
Yeah, yeah. So the, when you tackled the, the businesses that you got involved with personally, you know, what, what were some of the knobs and levers you, you know that you used to, to get this to say the one that you got to an exit, you know, what were the things that you did within that business that helped turn it around?

Dustin Williamson:
Yeah. So I mean as cfo, I mean I’ve helped several get to exit, but as cfo, the one that did do the exit and a pretty good sized one, was really focusing on not only growing the top line, reducing expenses, but really focusing on the target market in those channels and trying to communicate the value proposition and hone it in to the point where it was a no brainer type deal, like the value overwhelmed the price. And so a great example of this, and I really recommend it to any of the CEOs that I, that I sit down with and start talking to about strategy is to read the Blue Ocean Strategy. I mean like hands down, that is probably the best book that I’ve ever seen for strategy development and framing out your strategy. I got introduced to it at Thunderbird and I really didn’t pay much attention to it until the last five to seven years. But they have several sequel books. But I can give an example that’s outside of what experience I’ve had. The really fascinating part about it is that there’s always a market for your goods and services.

Dustin Williamson:
You’ve just got to be able to learn what the competition’s doing and make them irrelevant. And by mean that, what I mean by that and just really it’s an easier illustration than talk about, you know, let’s say oil field services turnaround because everybody would get this part. It’s, it’s really diving into the strategy. And I don’t know if you’ve heard of it, but most of the, most of Texas in the southern US have by now heard of Buc EE’s. And so Buc EE’s is a. Is a gas station. It’s like beyond any gas station that you’ve probably ever visited. But it has a rabid fan base.

Dustin Williamson:
It’s. It’s got a competing factors in the Red Ocean is like, you know, there’s a gas station on every corner. Why, who in their right mind would go say I’m going to compete in the gas station space? And so what Buc EE’s did was they went in and stopped competing on what the others were. If you drive by, you don’t even see a price outside on the, on the street advertising their price of gas. You know, that tells you they’re not competing with the others. And so when you drive by they have you these mega gas stations within a half a mile of them and they’re empty, they’re ghost towns. And then Buc EE’s is chock full. And the question is why? And so they figured out what everybody was competing on and did not the opposite, but found what the customers valued.

Dustin Williamson:
And that was clean restrooms, very high quality food, high quality atmosphere. And that was probably, that’s probably the biggest sticking point is their culture that they built around from the moment that you walk into that store to the moment you walk out, the experience that you have. And so and high quality merchandise. And they, if you really look at it, what they did was they copied that part, the merchandising part from Cracker Barrel, one of the highest grossing per square foot retail spaces in the United States. Definitely at the time whenever they started Lucky’s. And so it’s a fascinating story, but there’s tons of those stories where when you start out on the Blue Ocean strategy, it talks about Cirque du Soleil and how they upended the whole circus industry by rethinking how like what the middle market of consumers, like the middle class of consumers truly valued. And it wasn’t these circus acts. You know, the circus industry was declining, if not like dead whenever they started out.

Dustin Williamson:
So yeah, it’s really important to rethink that and constantly rethink it because you’re that, that your ocean space is constantly moving. And so when we went through, let’s say going back to our, you know, the big, the really big exit, we had a strategic and one really important lesson learned that you know, with strategics approach the. They make a lot of promises, nothing’s going to change. You have a family business and that’s what the family business owner wants to hear. That you know, nothing’s going to change, their legacy’s there, but it always does. Soon as that, as soon as that ink dries, things start to change. It may not be immediately, but within six months, you know, the people that you’ve built and helped families, you know, raise their kids and, and get them like they’re all grown up and they’re, you know, they’ve been there with you for years are now starting to feel the heat and they don’t like the change. And so it’s really important to make sure that you know, your leadership team is cohesive and intact.

Dustin Williamson:
You’ve got the right talent around the table and they want to stay post transaction because that’s one of the worst things that you could do is have a transaction happen in your talent walk out the door.

Dana Robinson:
Right.

Dustin Williamson:
That’s one of the buyers biggest fears.

Dana Robinson:
Yeah.

Dustin Williamson:
So but as far as turning around, I’d say that 90% of what gets companies in trouble is mindset and 100% of what gets you out of it is mindset. And so creating a company culture, that’s a can do and aligned culture is absolutely critical to making your company work and start helmet. And so and if there are, there will be speed bumps in the road and there will always be disagreements. But if you are in the position of trying to lead through that and lead your company to an eventual exit, if you ignore that, it will hurt you at some time or another. So culture is by far the most critical element of keeping a sustainable business model and strategy in place.

Dana Robinson:
Do you find that like when you’re whether, whether it’s, you know, in your work that these companies that you’ve been more personally involved with or, or in your, you know, CFO work, the. Is the culture something that ha. Like is it more common that you have to make an impact there? Like it. In other words, culture isn’t can do when you go into a situation where somebody wants to improve the value of an exit or do you think the culture is something you can’t fix easily and quickly and it’s. If it’s there, it’s going to drive some value in a transaction. If it’s not, then it’s a longer game to kind of realign on it. Dana Robinson here.

Dana Robinson:
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Dana Robinson:
If you’re watching this, I’ve got it in my hand.

Dana Robinson:
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Dana Robinson:
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Dana Robinson:
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Dana Robinson:
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Dana Robinson:
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Dustin Williamson:
Well, no, I can give you a really good example. It was the first time as managing director I walked in to a, it was a company in just say the east side of Houston. And so it was the first one that I’d like signed up as a managing director. And, and so I sit down and it’s like, hey, Mr. CEO, how can I help you? And he’s like, looks around in his office and he kind of, he stands up and he, and he, he starts Inching closer to the door and then kind of shuts it behind him. And he comes, sits down and looks at me and says, is that guy down the hall? Although he didn’t use the word guy. It’s my CFO and I need a new one pronto. Like yesterday I was kind of, well, I think we can help you.

Dustin Williamson:
And you know, this is something I learned and I kind of skipped over a couple of things but like I, I picked it up along the way in Six Sigma Green Belt, you know, getting, getting that, going through that process. And it’s called the blame culture. And this is a quick fix you can, you can do to help culture. It’s not going to be the fix all for everything, but it’s a quick fix for fixing major issues. If you have silos with, I think within the company, which this one did, it creates rifts for years, you know, of just of, of information hogging people hanging on to things. You’re not getting the information you need when you need it and neither is anybody else. And I see this all the time. And the easiest way to fix it, because I see it, whenever I see it, it’s like I stop them.

Dustin Williamson:
It’s like, hey, this is usual result of a blame culture. Somebody at the top, it doesn’t have to be the CEO, but somebody is standing up and blaming, shaming. Every time an error happens, they run it up the flagpole and they’re making a, they’re creating a culture of fear. And when you do that, people hang on to information. Yeah, if you stop that, your silo will go away and you start looking at it from a team approach and a can do approach versus who did this and how did they do it. And like let’s, let’s make sure we put a big spotlight on them. And so that’s an easy fix. What’s the harder fix is the long term cohesiveness of the group rallying around the strategy.

Dustin Williamson:
So there’s not really any right or wrong answer other than unless everybody is rowing in the same direction. Yeah, you’re not, you’re not going to go anywhere. And so as far as the, the way that VCFO and the way that we help our clients is especially on that 5 to 10 million dollar range and even up is a lot of times what you like. One of the things that you mentioned earlier was they don’t know what a CFO brings to the table. And a lot of times it might be somebody that just knows the books, has been there for 20 years and they know quickbooks and they might be called controller, may even be called cfo, because they’ve been there the longest. And the only thing they know is the system that they’ve created. And sometimes, whether right or wrong, that system is in place. And so what ends up happening is the, you know, the, the CEO and owner wants to grow.

Dustin Williamson:
And so in, in doing that, they’re starting to ask more and more of that person. So you’re the finance person, you’re the accounting person. Why aren’t you doing this? And so you really got to think about, you know, that person in that role. As you’re growing, the company might outgrow the person in that role, or they never got the training, or they never got the experience, and they just don’t know. And there’s another element to this is, you know, sometimes that’s all they, they like to do. Like, for example, you have bookkeepers and controllers, and they’re very much in the box. They love to have the box. And their job is to look from today backwards, to look back in time and report to you what happened.

Dustin Williamson:
And so there’s two things going on here. You’ve got someone that might be limited, and they may not have the personality to take it to that next level. And by meaning that, I mean they just don’t have the drive to go out and say, what if? Or they don’t have the drive to say, well, let’s. If you did this, then this is how it’s going to impact cash flow. They may not have the drive to go out and negotiate with the banks, negotiate with, with maybe a potential buyer, and they don’t have the wherewithal to, or the personality to do any of that, but they’re really good at doing the books. And so basically, if an owner does that to them, and this is where another part of this frustration happens, is the owner does that to them. It’s the equivalent of that owner going to them and saying, hey, you’re a donkey. Let’s get you ready for the, the Kentucky Derby.

Dustin Williamson:
And so that he may be able to enter it, but that the horse is not going to race, you know, Right. And so what, you be cognizant of the talent you have at the table, and not only that, but the personality. And if they have that drive, because the CFO’s job is to look from today forwards, and they’re the ones that are going to be able to put, understand what’s happening, you know, in the close of the books and what’s happening with the numbers and what’s happening at the controller level. But their job is not to be there. Their job is to be looking forward. And if you try to get a CFO to go do for very long a controller’s role or a, even a bookkeeper’s role, they’re going to go mad. They’re not built for that. They have a different personality.

Dustin Williamson:
Like, like they may be numerically focused, but they want to be out there and, you know, kissing babies and shaking hands. And they want to be out there talking with the bankers. They want to be, you know, projecting cash flows and asking what if? And talking about Blue Ocean strategy and talking about, you know, what if we acquired this company and what would it give us and is this the right value? And, you know, helping with the board of directors and being like a wingman for the CEO. So, and this is the one of the other discussions I get into with other CEOs, is what’s your time really worth? Because when you start thinking about everything that we just talked about, whether it’s closing the books or doing bookkeeping, and you’re talking about, you know, what the controller’s role is and what the CFO’s role is, at the 5 to 10 million to even, let’s say, 20 million mark, you find CEOs. And I’m asking them, you know, I’m talking about these buckets of. Buckets of, you know, not only time and ability and personality, but I start asking them of these things that I’m talking about, which ones are you doing? And like, nine times out of 10, it’s like, oh, I’m doing like all the CFO stuff, plus some controller stuff.

Dana Robinson:
Yeah.

Dustin Williamson:
And then that’s when we’re kind of like, okay, well, you have X amount of opportunity, you know, if you, if you’re in the job of, you know, leading and directing this company and being the chief negotiator and dealing with all your clients, what is it one deal worth much less, you know, 10 deals worth that you could land or partnerships you could land versus being in the weeds of a controller, especially, or even being in a CFO mindset. And it’s always more than what you could pay a fractional cfo.

Dana Robinson:
So when you come in as a fractional cfo, do you find it easy to get the existing team realigned to their skills? So you get the person who thinks they’re CFO or controller doing what they do, which is private bookkeeping. Are you able to kind of get them, get them pacing along, doing what they, what they actually are good at, even though that’s in, in many cases they’ve been over titled, you know, and can you get the CEO or you know, just call them the, the owner operator is the, is usually the, the limiting factor, but they bring you in. Are, are you, are you able to manage the owner operator to kind of help them get out of their own way? And, and what are some of the ways you’ve done that?

Dustin Williamson:
Yeah, so number one was clearly defined the lanes. But there is a, there is something that’s critical that I get in front of it if I detect that that’s happening. Like for example, somebody, especially if they’ve been called the CFO and there may be a glorified bookkeeper, if that CEO marches me in and says, hey, meet Dustin Williamson with vcfo, he’s here to help you, it’s dead on arrival. I will not get any cooperation. And so the better strategy is to work through those lanes of travel, like whether that’s the bookkeeper, the controller or CFO and his own lane too. And then not only clearly define it, but let me get time with that controller and let me ask them what do they want to do and what do they feel comfortable doing. And if, if, if it’s the situation I described, they’re usually relieved. Yeah, but I got to do it in a non threatening way because otherwise if it’s very threatening for them for that CEO to march me in and say that I’d rather like take them to lunch, kind of talk through it, make sure, deescalate the situation.

Dustin Williamson:
Like sometimes we can be in and if they have the, if they have the personality and the skill set and they just need some coaching, then we can write the ship and get out and we can, we can, it’s more of a short term project and be there for them if they need it. But a lot of times when I walk in there, there’s a lot of built up animosity between, you know, that like hey Mr. Donkey, I want you to be in the Kentucky 5 Kentucky Derby and we’re gonna, the race is tomorrow, you know, and so we, we, that’s where the interim comes into place. Like we can be interim. Fractional is one thing. That’s usually 15, 20 hours a week or less. Interim is for, you know, maybe three, four months while they find a replacement person. And so either somebody has left or about to leave and so we can come in in the interim and fill that role for you know, let’s say 30, 40 hours a week.

Dustin Williamson:
But it’s a very much short Time and the goal is different. Fractional is, is focused on getting, you know, five, 10 years out, looking out into the future and interim role is getting the stage set for the next person to be successful. And so, and then we train, we train those people. Like what? Like for example if we’re fractional we’re trucking along and they hit 50 million mark or 100 and now it’s time to really, now it’s time to really get a full time resource. There’s no, the overlap is, is seamless. Like we train them up and we get them ready and we’re there for questions. And that’s not necessarily the case. Whenever you let go of somebody you.

Dana Robinson:
You’Ve done evaluation work and, and M and A work and prep companies that are looking to exit the, you know, the typical companies that, that I see again tend to be 5, 10, you know, maybe they’ve somehow gotten you know, some quick growth to get to 15 or 20 million. But they’re their books, their organization’s flat. Their, their books are, you know, if recast well, they’re, they’re putting 3 or 4% to the bottom. So you’ve got a very low EBITDA margin, usually losing a lot on some component of the business and they want to sell in like the next year. So I don’t know if you’ve had many assignments like that, but it’s the thing I see is fix this business in a year and, and help me sell because the value just isn’t there. Like I’ll give you a real example. If I a 10 million top line business putting 400,000 to the bottom. You know, in our, in our business we’ll pay five times.

Dana Robinson:
So you know, this person doesn’t want to sell a 10 million dollar revenue business for 2 million bucks. They’ve got to fix a bunch of stuff and, and that’s got to be accretive to you know, at least a pace on their ebitda. That makes it something that we can pay you know, six times for and have a, you know, a 6 to 8 million dollar exit or something like that. You see common traits. Do you see things that are easy or challenging? If that’s my business and I call on you, can you fix it? Can you help me get through that in a year? And what would you do?

Dustin Williamson:
Okay, so number one, you need three to five years of focus, time to do what you need to do, to try to. There are things you can do within a year and basically that’s identifying the low hanging fruit. We have A process that we go through with a lot of our clients that are inclined to exit. And we do basically a value, as we call it a V360. And we do a value as of today. And then we turn around and look at. Since value is inversely related to risk. So the more risk you have, the less your value.

Dustin Williamson:
Your value is going to go down. So, yeah. And so we look at five, six different categories, everything from culture to leadership to financials. And, you know, we go through them and we start grading them on a risk scale. And then we go through and say, okay, how do we address those risks? And some of them are easy, some of them are long. Like, here’s one that’s like, you need at least 18 months is like an EOS, you know, management structure.

Dana Robinson:
Yeah.

Dustin Williamson:
Which if anybody listening to this has not checked out, eos, it’s how we run our company. But we highly recommend it. Although there’s others out there that, that are effective as well.

Dana Robinson:
Yeah, yeah. I’ll do just a quick plug if for anyone listening, it’s Gino Wickman’s traction book turned into a business operating system, which is a sort of Michael Gerber’s E myth on steroids with, with a sort of system and, and process around it. So anyway. But yeah, Eos, you need 18 months for that to be effective. But you could, you’re saying de. Risk the business a lot by taking 18 months to do that.

Dustin Williamson:
Right. Obviously, the more time you have, the more you can work the risk out of the system. It, it certainly, if you have a year, and really that conversation starts whenever they say, I want to do it in a year, I’m calling, are you sick? Are you tired? And you know, how much energy do you have? Because you really need three to five. But if you, if you really need, want to do this within a year, we obviously can help you. You know, there, there’s going to be a lot of. Basically this is when you’re putting lipstick on a pig, though. You know, it’s like you’re, you’re. If you want to sell, there’s always going to be a buyer for the right price.

Dana Robinson:
Right.

Dustin Williamson:
And so if you’re in a hurry, they’ll sniff that out. And so, and the situations that I see where you just can’t talk them out of it is they’re tired.

Dana Robinson:
Yeah.

Dustin Williamson:
They’re tired of the business, they don’t want to do it anymore. They’re burned out. Or they. Some type of illness.

Dana Robinson:
Yeah.

Dustin Williamson:
And they, and really, that type of illness, if you had EOs in place is one of your major risks. If the owner is the business, you’re going to have a very tough time selling it. So you got to have that management team in place that can, that can lead the business even if you’re not there. And so that’s, it’s critical. So there’s two answers to that. There are things you can do, although we’d really recommend like three to five years of focusing on what de risking your business. And so when we do that, we do that value of today, what it could be if you de risked it, you can’t eliminate all risk businesses not going to be eliminating. Maybe some you can, but you know, most is mitigation and getting it to the point where it makes it very attractive for a buyer to step in and take it over.

Dana Robinson:
Do you find that the things that you want to do to mitigate risk are consistent? The same story if someone’s again just using the compressed timeline as a hypothetical just to forced you to call out what’s what you do to diminish risk or does it vary depending on the type of business do you have? You know, the de risking in one business requires showing portable management versus de risking in another shows that you can survive with price increases or that, you know, you can sustain, you know, losing your largest customer. Or I mean, what. Just do a different analysis to figure out what, what are the things that we can do risk around quickly.

Dustin Williamson:
So here, here’s one that like for example, that I see a lot. It’s either vendor concentration or customer concentration. And those are a little bit. Vendor concentration is usually pretty quick. You know, like if you, you can, you can go always go find another vendor. Especially like if you just, even if you just identify them and, and get a contract in place, that’ll mitigate some of that risk. Customer concentration on the other hand, can be a lot trickier and take more time, but you can do it within a year. If you have somebody that’s more than 25% of your revenue, then you got a problem.

Dustin Williamson:
Yeah, it’s very risky. And then if you have them over 10% of your revenue, that’s still a problem. But going from 25 to 10 on a $10 million business is you can do it in a year. Yeah, at least, at least project it forward and mitigate some of that. So those are two things that like, those are slam dunk, like easy things to, to really watch for. And anybody can calculate that there’s tons of other things and they, it really depends on the how the Business has been run, but it also depends on the industry they’re in. Another quick fix is reorganizing the balance sheet around the debt structure, getting cheaper debt, reducing your cash flow, taking out the term longer than what you have going on right now on different loans. So you can reorganize that and they’ll take four to six months.

Dustin Williamson:
And then the other thing I would do is if you’re one year out, I would certainly talk to a broker, investment banker or broker to get a bidding process set up. And so it that I’ve done it without a broker and with a broker and I can tell you right now I have much, much less hair than I did when I was younger. But I think I might have lost it all because if not going with the broker, investment banker.

Dana Robinson:
So yeah, fair, fair. I, I the having done many transactions in my legal career and in my investing career, the broker can make or break a deal and unfortunately there’s plenty of them that are sloppy and, and not doing their job, which is to manage their seller’s expectations through a process that the seller has only done once right now. Right. The so a good banker broker can be a great asset because in theory they’ve done dozens or hundreds of transactions and ought to be smart, many of them. Unfortunately, I advise my listeners choose carefully because they can also be, you know, kind of lean into your own, you know, your insecurities about the deal instead of giving you bringing regulation to the nervous seller. But what I don’t see enough of is actually people who come to the transaction with a banker and an outsourced cfo. So to be honest, not to, you know, just throw you a softball for purposes of promoting yourself, but I really, really don’t see excellent books coming from sellers. Even if there’s a banker involved now they’ll go do the doctor up the books and give you a recasting.

Dana Robinson:
But it’s, it’s not the same as somebody who’s an outsourced CFO who’s had some time getting their hands dirty, who can answer questions and, you know, and, and respond to the whys, you know, why, why is this the way that it is? And instead of kind of, as you say, putting makeup on a pig is sometimes in the lower middle market what a lot of the bankers feel like they’re doing. And I’d rather have someone who’s got some integrity to it and say we, we have a thorough analysis from a cfo and I, I can’t imagine your fees are much more than the retainer fees that they’re paying to bankers for writing up the books and doing their adjustments to P L. Oh, no, we’re.

Dustin Williamson:
A fraction of what investment bankers would be. I mean we, we’re hourly. So like, you can set the pace and the budget for us, but if you don’t have either, you’re really in a bad spot. You don’t like, it’s for a CEO that doesn’t have either a banker and, or a fractional CFO at that level. By the time you realize you’re in over your head, it’s too late. So I’d really highly recommend not going alone at all. The and I’d be surprised you’re like, you’d be surprised about how many times I’ve seen it. And like, like I’d rather be deal with someone that maybe have tried that and they decided, ooh, I don’t want to ever do that again than someone that’s never, never been through a transaction.

Dustin Williamson:
And so yeah, it certainly puts hair on your chest to go through several of those. And, and like one of the worst like on, like on the buy side, one of the worst experiences that I had was dealing with an owner that had neither and had no experience selling a business. And man, the circus that ensued after that. And you know, it was pretty young, you know, like I was in private equity and trying to acquired like a, you know, a majority position in the company. And I, I vowed never to ever do that again. And you hear it like from other people that, that have, are in the industry that, you know, it’s like they won’t even touch it if, if people around the table don’t have experience in selling the business.

Dana Robinson:
Yes. Yeah, well, and I, in I, we have three deals under IOI or, or some form of post IOI to LOI discussions without intermediaries. And as far as I can tell, no, no CFO figure one of them just let us know that they’re going to get a banker. And you know, a lot of people think in our business that we only want deals that don’t have bankers and we’ll pay them. I mean, I, I, I’m fine with whatever the increase in price is for this business. If you have a real banker that knows the business that’s doing their job. Again, like not kind of scuttling deals over their own ego or beating their chest. You know, I worked at investment bank for a couple years, series 79.

Dana Robinson:
And you know, the, the guys that ran that shop were just like kind of ball busters. They’d hang up the phone on people and, you know, it’s kind of like I’m trying to get a deal done. What you’re, you’re flexing because you think you’re going to get more money out of them. Like it’s that you get a buyer that likes the deal. That’s a precious thing. Like, let’s, let’s get more of them so that we can get one closed. Speaking of which, one of the things that I’d written down to talk to you about was like, deals, you probably see more deals that unravel than a lot of people, you know, any, any themes, what goes wrong or an example of a story. Because again, the sellers of businesses are usually on their first first rodeo and maybe their last when they sell their business and they need us, the people that have seen a bunch of deals to, to give them visibility into what.

Dana Robinson:
What might go wrong. Any commentary around deals that are falling apart or fell apart? Why?

Dustin Williamson:
Well, the number one deal killer is pride. Pride will kill a deal every time. And the second one is not looking at your business from the buyer’s perspective way earlier. And the two people that are going to tell you your baby is ugly are the fractional CFO or your CFO or the investment banker. And the attorney is not going to tell you they’re ugly. Attorney loves it.

Dana Robinson:
Yeah.

Dustin Williamson:
If you, if you get in a fight in the middle of a deal. Oh, they’re just, they’re just like the meter is running. Yeah.

Dana Robinson:
Well. And I, I hate telling someone the value of their business for the first time because no matter what the number is, I’m the first one to, to judge their legacy, to say something about something that they care about and have worked hard for in raw numbers, you know, and that’s that. That makes deal making really hard. Again, to the point of like when you’re talking directly to a seller, a good intermediary will have already told them the baby’s a little ugly. And here’s what we’re going to do to help. And here’s what you can expect if you’re not ready for this, let’s do the three. Three to five year plan with Dustin and, and, and turn the business around. But.

Dana Robinson:
Okay, so, so pride. Pride. Is it the, the. Is it the pride in being wrong? What, what’s the personality thing that you say? Pride is the.

Dustin Williamson:
It happens on the buyer and seller side. But you know, he who. What’s the golden rule? He who. Who has all the gold makes all the rules.

Dana Robinson:
Yeah.

Dustin Williamson:
And so, and the great thing about Having an investment banker involved is that they kind of are kind of in between the buyer and the seller.

Dana Robinson:
Yeah.

Dustin Williamson:
And so the buyer could yell over the fence, your baby’s ugly. And the other one says, no, it’s not. And so, like, if somebody tells you it’s kind of like the reaction if somebody actually does tell you your baby’s ugly. You know, there’s. You have some pride in your baby, and all of a sudden you’re offended, you know.

Dana Robinson:
Yeah. Yeah.

Dustin Williamson:
You gotta, like. And that’s. That’s where it starts. You know, you’re offended that they might have the gall to say something bad about your company, your baby, you know, and so just to guard against that and to. To really, instead of getting worked up about what. What they just said, start looking at where the common grounds are and how do you get around it? And so obviously. And not only that, but sometimes calling your baby ugly might be part of a negotiation strategy to see if you’ll. What you’ll do.

Dustin Williamson:
And so. And maybe that answer might be lower in the price. And that’s what they want. And so there’s. There’s a lot of negotiation strategies, and the investment banker knows them, and they knows. They know what your intrinsic value is. And so with. So would the fractional cfo.

Dana Robinson:
Yeah.

Dustin Williamson:
So they’ll help you guard against that. And like, it’s kind of like that. It gives you the ability to be the good cop and the bad cop and have a lot more control over your deal when you have somebody there that can soften the blow before it gets to you and be able to. To. To foment the. Like to. To put the counter to what goes back to the other side together. That makes a lot of sense and helps you find common ground.

Dustin Williamson:
And so that’s how pride, like, ruins deals. But it’s a little bit more complicated than that because, like, for example, if I ran into a situation when I was on the buy side and I knew the guy was just really arrogant and he had to sell, though. I mean, I would work him. I would crawl up under his skin and work him over. I’d make him lose his temper. And it was. It was more of just like, you know, if. If you lose your temper, you’re going to make a mistake, Right.

Dustin Williamson:
And it’s going to be a big one. And so you got to be able to calm your nerves. And. And I think that Sun Tzu even would talk a lot about, you know, when to. When to do nothing and when to. When to, you know, go back at Them, and that’s certainly worth reading into is the Sun Tzu book. Whenever you’re in Art of the deal or negotiations.

Dana Robinson:
Art of War.

Dustin Williamson:
Yeah.

Dana Robinson:
Art of the Art of War is the original book.

Dustin Williamson:
Yeah.

Dana Robinson:
So, yeah, Sun Tzu. Cool. Did I interrupt you, though? So just to pause here as we hit up the top of the hour.

Dustin Williamson:
No, I mean, other things that kill deals are like, and this is one thing that, that we do a lot of our, what do they call it? It’s not premature. It’s, it’s do. We’ll do earning studies like quality of earnings studies. Before you’re at the very end of the deal, we’ll do a, I forget the term. It’s, there’s, there’s a term about you’re doing a preemptive.

Dana Robinson:
You’re, you’re, you’re doing, you’re doing a seller’s quality of earnings so that you have a defensible thesis for your value versus waiting for the quality of earnings from the buyer side to argue about whether they’re, they’re right or not.

Dustin Williamson:
So going in and doing that ahead of time is like, let’s say it might cost you, you know, I don’t know, small company, it’s probably going to be in the 20, 50 million revenue range. You go ahead and do that and you start figuring out where, where you’re going to have problems in the due diligence process. You don’t have to give it to the seller. I mean, if it’s, if it, if they come back with something like so detrimental that you say, oh, well, we’ve done our own. Here it is, you could do that, but you need to have in your back pocket about what you’re going to have to address up front. For example, if you’re taking deposits on contracts and you see this in the software space, but you also see it in construction and custom manufacturing, and you take deposits and it takes, and you’re not done by year end, you’ve got deferred revenue sitting out there. And if you book it as revenue, this is like, I see this a lot. And it’s like they’re surprised, like shocked that, you know, they got the money in.

Dustin Williamson:
What do you mean? It’s not revenue, but you haven’t delivered the product, so there’s still a liability there for you to deliver that product.

Dana Robinson:
Yeah.

Dustin Williamson:
And so that’s, things like that is what that would identify. And the other, other types of, you know, things that blow things up are overestimation of revenues and your projections where you have A hockey stick and it’s up and to the right. And then you have underestimation of expenses.

Dana Robinson:
Yeah.

Dustin Williamson:
And so those are the general categories that I can think of off the top of my head that blow things up. And it’s those, there’s all the latter ones. The front, the front one is a front end when you can fix, because you can fix your pride. The latter ones are ones that you need to be working on ahead of time.

Dana Robinson:
Yeah.

Dustin Williamson:
And you gotta know them, you gotta know about them before you walk into that negotiating room.

Dana Robinson:
Well, we could keep talking for hours, but I try not to push more than an hour of podcast episodes on my, on my listeners. Dustin, I guess what’s. What, what’s a good way for people to connect with you? Email LinkedIn. What’s your, what’s your forum?

Dustin Williamson:
So my email address is dwilliamson@vcfo.com LinkedIn. It’s just Dustin Williamson all crammed together. No numbers, just Dustin Williamson. And then vcfo.com is our website.

Dana Robinson:
Awesome. I, you know, for purposes of, of kind of being sure that you don’t have the wrong people calling, you have sort of a, an avatar, a size range and industry. What’s. If someone’s listening, they like you. They go, I need a new cfo. I mean is, is VCFO agnostic and you can hook them up with somebody that’s going to be proper for where they’re at in size and, and industry.

Dustin Williamson:
Typically we’re in the 10 to 150 million range and revenues and 10 to 150 employees below that, we can still do that, but it’s usually funded private equity or venture capital deals. If it’s below that and we aren’t a fit, I can help you find who’s a fit. Like it’s, it’s and it’s, it’s really, we’ll be quick to tell you. And we’re industry agnostic or system agnostic. There’s not much we haven’t seen. So we more than happy to have a conversation with anybody that is out there listening and has a question.

Dana Robinson:
Awesome. Well, I appreciate you coming on and teaching us a bit about what you know and I know you know a lot more. Everybody is listening. Feel free to reach out and make a LinkedIn connection with Dustin Williamson and always email me questions. Comments. Hello@danarobinson.com Dustin, thanks for coming on the Exit Plan podcast.

Dustin Williamson:
Thank you, Dana. I really appreciate you having me.

Dana Robinson:
My pleasure.

Dana Robinson:
Thanks for joining me on this episode of the Exit Plan podcast. I’d love to hear from you. Feel free to hit me up with questions or comments by emailing me at hello@danarobinson.com or leave comments and questions by calling 858-252-7785. Call 858-252-7785 and leave a message.