From Founder to CEO – Matt Sharrers

Matt Sharrers:
If you say you’re an investor, not an operator, then honor that slogan. Let the operator operate and work in concert with him or her, as opposed to try to manage them and use pattern recognition. Unless you’re Vista and all you do is buy software companies between x size, y size and you have the perfect Vista playbook and it’s all laid out. Most funds don’t have that, so you’re relying on a CEO and his or her management team and expertise. So understanding how to pick that team.

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.

Dana Robinson:
Known stories of entrepreneurship.

Dana Robinson:
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 at you again with an episode of the Exit Plan podcast and kind of excited to go on a journey with Matt Sharres today, talking about what he has learned with being involved with private equity transactions over 20 years. I like the brand. Second CEO Matt, is that your, is that kind of your thing or is. I haven’t heard the term used in terms of in the industry. Maybe we can talk about what second CEO is and how. Tell us just a little bit about yourself and that.

Matt Sharrers:
Happy to. And yeah, good being with you, Dana. I don’t know if it was my brand, definitely, I guess the idea of the book and the originality of that title, I guess it can be because probably 18 months ago, maybe two years ago, as I was considering what to do after I stepped out of the CEO job of SBI, which is a go to market consulting firm that I was CEO of, and I was first employee and one of the original partners with a few other guys who had exited out over a couple of liquidity events, I was considering what did I have to offer? And I was doing some board work and coaching work, which just kind of happened by accident, working with private equity backed companies and specifically being like the CEO coach on the board. And I was looking at sort of the methodology I was using with the CEO’s, how we would communicate with the private equity sponsor. And I thought, you know what? I think there’s something here. And specifically around going from a founder led business to taking over as a second CEO. And I did that. I took over for Greg Alexander, who was one of SBI’s co founders and the first CEO for a decade.

Matt Sharrers:
So I wasn’t just pontificating and using academia. I’d been in the seat, made a whole bunch of mistakes, got a couple things right, and I felt like there was an opportunity to come to the market with a point of view on something that seemed acute and nobody had written about it before. There was one book written around, you know, transitioning from a founder, but it really didn’t get into an operating plan. So I tried to come at it with very simple framework, simple language. I’m not overly intelligent, so it was easy to write a simple book. And here we are.

Dana Robinson:
I love it. So what, you know, then has applicability to someone who’s running a business and probably thinking, how do I work myself out of this job? I’m the first CEO, and I need a second CEO. And then certainly the change management issue comes up in any transaction, because when the first CEO sells their business, they’re typically going to need to be replaced. Even if they’ve got some Runway and they’re going to stick around after a PE shop buys that business, their days are a little bit numbered, and everybody ought to know that. And so the question becomes, how do we transition this to somebody who knows how to take it from whatever, you know, we bought a business that’s doing 20 million. We need to go to 100. We need somebody who’s going to be in that seat. So your expertise sounds like it’s good advice to someone running a business, as much as it’s also good advice to those of us in the, in the private equity world who need structure around.

Dana Robinson:
How do we create the second CEO?

Matt Sharrers:
Yeah, well, and think about it, Dan. I mean, you know this from, you know, having your own fund, private equity investors love to, in that segment in the lower middle market, depending on how you def one defines lower middle market. But if you think about the number of businesses, over 10 million in revenue there, I think it’s less than 0.4%. Ever get to that size in the United States, being first institutional capital, a founder who has, or a set of founders who have gone all in second mortgage. You know the kitchen table story, right?

Dana Robinson:
Yeah.

Matt Sharrers:
They now have a business that’s maybe got 5678. 9 million of EBITDA. It’s investable whether it’s a software business or it’s a professional services business. But you also have a founder who’s probably tired and people who start and get a business to a certain level, as the research shows in the book, and what the team and I learned, very different from the person who scales it. And one’s not better than the other. They’re just different. And I think my other lens, Dana, is because at SBI, I spent so much time in and around private equity, working with all of the marquee private equity firms and doing due diligence on companies, specifically around go to market, helping to underwrite for investment committee. What do we need to believe to be true? And then watching and being part of meetings where they would say, we love this business, love the space.

Matt Sharrers:
Da da da. Let’s talk about the team. Can this CEO get us to the promised land in five years? And very often the answer would be, we don’t think so. So watching succession happen in that fashion, I was like, man, between what I saw, what I did and experienced, and now what I’m coaching and doing, I might have a Venn diagram of something to offer. So, yeah, man.

Dana Robinson:
Well, let’s, let’s start with somebody that’s got a business, and if you, if you’re the first CEO, something got you there. I’ll share that. Our main platform business has operators that have got great jobs and they’ve got a person like you that’s sort of a CEO coach, to be sure that everybody sees the bigger vision and can carry the torch beyond what they already know. But she dragged us into a quarterly business review and made us, as the four gps of the fund, since we’re kind of, we’re assets to the business as well. We each have some operational expertise, since we show up not just as capital partners. She made us do submit our discs, which we all had, and then also made us do a values assessment so that she could like, remarkably, that the four of us, or I think the three of the four of us, very similar, you know, Di on the disc, strong on the D and interesting values that are not valuable to growing a business from 30 or 40 million to a couple hundred million. Mine was values were freedom, autonomy, innovation, creativity. These are entrepreneurial things, and they wear out pretty fast.

Dana Robinson:
They get a company off the ground that’s not CEO material, to be honest. Right. That’s. I have to be honest with myself that I’m not process oriented. I don’t value order and organization. So someone’s listening to this, they’re like, yeah, I’m a Dana. I got this thing off the ground, but everyone keeps telling me work my way out of a job. Work on the business, not in the business.

Dana Robinson:
I’ve read Emythe. What are the tools or maybe even ways for the business operator who’s in that seat to start thinking about replacing themselves.

Matt Sharrers:
Yeah. Well, Dana, you just exhibited the number one thing I talk about in that section of the book where we talk about the DNA of the founder and what it takes, you exhibited high self awareness and a level of humility to go, I know what I’m good at, but I know what I’m not good at. Instead of nobody can do it the way I do it, nobody can run it the way I run it. So what I would tell your listeners to do is just play back the 90 seconds where you articulated who you are and try to do that and get some outside support. And this is not me, whether you call Dana, you called me, you called three of your friends on your, quote, board of advisors. Right. Getting to, as Dana said, the $30 to $200 million journey is very different from zero to 30. And, Dana, I would tell you zero to ten, right, relative to that innovator and that spark and those values you describe.

Matt Sharrers:
Freedom, creativity, autonomy. Don’t like order. That was my former partner, Greg. Incredible idea person. Could just see it. Let’s go. Fast framer. Off we went.

Matt Sharrers:
But as we started to get bigger and running the business, it was. It was. It was a drag for him. And now, that’s not an indictment, he would tell you it just wasn’t what he liked to do. He wants to start new things. Right, versus putting process in place. So one is self awareness, two is designing a scorecard. And I talk about this in the book, which I got from Jeff Smart and Randy street, who built Ghsmart, which I believe is one of the best, if not the preeminent leadership advisory firm when it comes to executive placements and CEO’s.

Matt Sharrers:
And they were both guys close friends to SBI, but both just close personal friends, and specifically Randy, who took over for Jeff. And what they really work on is building a scorecard for the role for the company, as opposed to Dana is the founder, and he’s also the CEO. Dana likes to do these things versus looking at the business and going, what would the CEO of a $10 million business with two and a half million dollars of EBITDA trying to go to 39, what would that CEO do? What would they look like? Where would they spend their time? What’s the team around them? Which is the third component, is recognizing what got you in that first tranche, mister or misses founder. The team around the CEO is probably going to be 75% to 100% different than the team that got to the first threshold. And you can’t have nostalgia. You have to look at it like an investor, not an emotional founder who typically looks at a business like a child.

Dana Robinson:
Right. Right. So I’ll use real world examples in my experience, and I’m sure you can probably flesh this out because you’ve seen it a lot more times. The founder, who’s my personality, also has good people skills, good soft skills, and creates gravity and belief. So you end up with a team of people who believe in that founder and that vision and rally around that person and do whatever is necessary because that person is creating and innovating. So they’re creating a big mess in their wake, and they have a team of people that know how to scramble around and make it happen. So as you say that the CEO at a $30 million company ain’t me. It’s someone totally different, process oriented, thrives on organization and order, is great at delegation, understands what it takes to run that kind of business, whereas someone like me never gets it there.

Dana Robinson:
The team that’s around them. Is that a key piece of the. Because you talk about your transitioning that second CEO, if the entire team’s different, how do you orchestrate that? Is that something you can consult through with CEO while they’re still in that seat and say, look, this team has got to. We’re going to build the work chart to be what a $30 million company looks like. Let’s figure out if any of these people belong on there. If they don’t, then we have to figure out if they fit somewhere that’s within what they do. Right. You’re going to move Dana to a thing that Dana’s good at.

Dana Robinson:
Let’s put him in something that’s innovative, where he can have some autonomy. But what do you do with the rest of this team that’s been very loyal and built the business to where it is?

Matt Sharrers:
And they know all of the cultural nuances. They know all the stories, they believe the business. So it isn’t that I’ve got to get rid of all of them. It’s recognizing, hey, with a new CEO. Now that the founder is either in a chairman role or has exited out and taken some money off the table, just sitting on the board, whatever that looks like, it’s record. That CEO who comes in, whether they’re promoted up or they come in from the outside saying, okay, there’s a scorecard for my role relative to what the business needs from its chief executive. What are the key processes and organizational structure? We need to get to our north star, which is three to five years away. Far enough out that there’s some aspiration, but it’s not the 20 year bhag where you’re like, oh, my good.

Matt Sharrers:
I can’t even see that. You know, that’s what I hope one day. And so that same process of looking at the structure, and if you cut, you land on the fact, hey, I need a head of sales, chief revenue officer, and I need a head of product, and whatever your four or five functional leaders then, once again, build those scorecards and don’t do it in the sense of, oh, Dana can run sales. Cause he’s always good at that. It’s like, what does our CRO need to do to take us from 15 million to 30 over the next three years? What would a CRO look like? Pipeline forecast. Good demand gen motives, really good. Coach can hire middle management, whatever those things are. And it’s almost taking, like a.

Matt Sharrers:
Like a researcher lens to it, Dana. And taking all of the popularity and nostalgia. Oh, and once again, I went through that, you know, changing things around at SBI, putting partners and co founders who were here. You know, I was the first employee I joined three founders and had to make some moves, even with guys that were here before me. And it was about the good of the business. Now, the good news for me was with Aaron and Mike. These guys were so committed to SBI and the cause. There was no ego.

Matt Sharrers:
And it was like, hey, what do you need me to do? What’s right for the business? And, you know, we were able to transact fairly quickly again after Greg left. It was three years. Right?

Dana Robinson:
So ego is key to this. So if you’re a founder, owner, operator, listening to this, the ego has come up a few times. What about the. Again, to the team, you get someone who’s that person, they’re on board. They set aside their ego. They’re like, I get it. I get it. I’m not the guy.

Dana Robinson:
I’m not the person. And then the team is always saying, well, we’ve always done it this way. We’ve always done it that way. And so they’re not ego driven, mostly for the sort of nostalgia, safe in nostalgia. Is that just a function of good leadership that’s able to lead that team through the challenges of holding on to the days past?

Matt Sharrers:
Yeah, I think so, Dana. And you, more so than most, know this because you’re a GP in your own fund. When people also recognize that scaling a business. Right, the most overused term next to transformation, right. Right now, hey, we have to scale. That means like so many things to so many people. But you and I are using examples of lower middle market businesses. So I’ll stay on that example.

Matt Sharrers:
A $10 million services firm going to 30, that’s a, there’s a set of things you have to put in place and process. How do we deliver engagements? How do we manage utilization, when do we start hiring new people? The kind of time, the demand coming in. How do we do business development? We can’t just have one person who’s a mega rainmaker, like, you got to put systems in place instead of everybody going, you know, if I equate it to football terms, it’s just like we’re in the huddle and everybody go deep. Right. You just can’t do that. So, and I think the other component is also laying out for those leaders what the value creation looks like for them personally, because I think a lot of people don’t know beyond a founder exit and how the pie is cut up, what it really means to go on a private equity journey and the participation in the management pool, the ability to roll your own cash at the same, you know, Perry Passau with the private equity sponsor and start to recognize, man, I can create some real wealth for my family. Right. So some of that comes from folks like you explaining to people who are great operators, but they don’t really understand how to put their own, quote, personal wealth to work.

Dana Robinson:
Right, right. So seeing the incentive for the founder who is making that transition certainly buffers the ego. If you see the math, like, you know, if you could peek at the financial model that we use, you know, and you’re the seller, you’d see that your rolled equity, if you’re participating in the profits, interest, all of those things you’re participating in that incrementally might make you millions of dollars that you wouldn’t make if you just took an exit and walked, give you a pretty big incentive besides the fact that it’s your baby and you really want it to thrive in most cases, as long as it’s not so tied to your ego that you can’t have it thrive without you.

Matt Sharrers:
Really. Well said.

Dana Robinson:
I mean, but just sort of non sequitur. But you mentioned the sales I’ve seen in recent, a couple of recent business experiences of mine that, as you said, the one big rainmaker biz dev means, oh, this person. And you can grow pretty big with, with that model. And I was part of a little PE meetup that we have here that was sponsored by a group that. That does sales training for PE back companies. So they basically realize there’s a gap there, and they consult for a pretty reasonable price, set up a custom sales process. It seems like that from a driving revenue standpoint, you already sort of. You build this chart, you know, that you’re going to have the old CEO.

Dana Robinson:
CEO one help segue CEO two, is sales driving the sort of, like, next big piece of change management that comes with. With this? I mean, where you. You’re almost always going to have either the founder driving sales or a key sales driver that doesn’t have a sales team, doesn’t follow sales process, doesn’t track lead set to conversions. Doesn’t track what. You know what? Whatever your. Your KPI’s are. Doesn’t even like the word KPI’s.

Matt Sharrers:
Yes. Oh, man, I’m laughing because, like, dude, you’re so spot on. It’s not even. It’s not even funny. Where do I start? I mean, I guess short answer is. Is yes. I’m always a believer, and not just because we built the go to market business. I mean, top line revenue solves most problems in a business, but it’s a very hard thing to do.

Matt Sharrers:
And that was one of the reasons why we started SBI back in 2006, was trying to bring science and rigor and be a real proponent around organic growth and what it does as a value driver. Turns out the hunch was right. And that speaks to Greg and Aaron’s genius on kind of taking a bet, because 18 years ago, you know, the world of go to market effectiveness was not as any. It wasn’t even an industry per se. And now you look around, there’s a lot of companies that do that. To your point, relative to those types of people. Yeah, there is always risk, especially at that size, especially in professional services. And even if you go into professional services firms north of a billion dollars, a disproportionate amount of revenue still gets generated by a very small number of people who have that gift.

Matt Sharrers:
And those people need to be retained and incented and managed properly in quotation marks, in the sense of let them be free spirits and do what they do. You know? No, you can’t let them bastardize the company ethics and the values, but also, you know, don’t put baby in the corner. I think was the line in dirty dancing. So then maybe that’s dating. That’s dating my age.

Dana Robinson:
Don’t put baby in the corner. Yeah. In the blue collar industries, they are referred to as monsters. And it’s a compliment, but it also speaks to the kind of person that can sell a lot of things is a bull in a china shop. And it’s very difficult to not have them, but also to become reliant on them. And once you professionalize and build a business, you need to dilute them. Is that, do you find that a lot of the month, the baby that can’t be put in the corner, do they leave when you finish? Or do they just realize that their life is better off with systems and processes and boxes? They’ve got to check. Dana Robinson here.

Dana Robinson:
Quick plug for my book, the King’s Flyswatter. You can see it here behind me.

Dana Robinson:
If you’re watching this, I’ve got it in my hand. It’s a beautiful hardcover book, printed to make it giftable, something that you can share with a family member buy as a gift.

Dana Robinson:
So this latest book, it’s a fable.

Dana Robinson:
About a person who has a really crappy job.

Dana Robinson:
Let’s just start there. This is a book that most people can relate to because we’ve all had crappy jobs.

Dana Robinson:
This is the story of Ubar, a.

Dana Robinson:
Servant in the court of a babylonian king who masters his boring, monotonous job and then learns to listen to the king, hearing him rule the kingdom while quietly swatting flies behind the cane. Eventually, Hubar becomes the wisest and most.

Dana Robinson:
Successful man in the kingdom.

Dana Robinson:
The story is fun, and it’s easy to read, but it’s not mythology. It’s my story. And as I shared the idea with colleagues and friends, I learned that it was their story. And guess what? It’s your story. If you’re at a job of any kind, one that you love, one that you hate, one that’s just enough to get by. This little book gives fresh perspective on how to leverage that job to get you something greater than a paycheck. The lessons in this parable are entrepreneurial lessons, but not what you might think from the current entrepreneurial zeitgeist. If you or someone you know are looking for a real pathway to entrepreneurship, here’s the secret.

Dana Robinson:
Your job is the way out of your job. It’s counterintuitive, but once you see how it works, you can’t unsee it. Learn the way of the fly swatter from the parable of Ubar and from the stories I share. The from my 30 year business journey. You can get a free copy of.

Dana Robinson:
The King’s Fly Swatter by going to danarobinson.com yeah, I think if you, you.

Matt Sharrers:
Know, we could sort of compare software companies versus professional services firms. You know, rainmakers in a professional service business are, they’re seller doers. They don’t love delivering the work as much. They love scoping, shaping and bringing it in. You put the right support around them, let them fly at the altitude of going over the hill, taking the offerings. It’s going to go great. Right. Software company, they got to play by the rules.

Matt Sharrers:
They got to sell it effectively. But, you know, put them in the right territory, allow them to thrive, give them the right sales engineer. Right. Because they’re driving an immense amount of value and the very things that allow them to be those people you don’t want to, you know, squelch. I think the last thing is also the conversation with those people around highest and best use. Sometimes there’s this thing more in software companies and b, two b, businesses where people want to, quote, get promoted. Getting promoted to management doesn’t mean you’re, a, going to make more money and b, play your strengths. So set up the right environment where if you’re really good, if you are top 10% at driving revenue and you enjoy it, fills you and it brings you joy, have an environment where people can do that.

Matt Sharrers:
And, you know, I spent a lot of time in my SBI days, right, shaping and building organizations for private equity backed companies. And, I mean, one thing I always loved about PE deal guys is they’re like, listen, the best people who sell a lot, we will pay them whatever, within reason, whatever we need to pay them because they are driving top line and, and we need that. So let’s not get hung up over a little extra commission payment. It’s all good, right?

Dana Robinson:
I worked for an h vac and plumbing business that was led by a genius in the field. And he, when he talked about, he would go speak to events where he’d have small h vac and plumbing businesses, and of course, there’s like a million of them in the US, and they’re all trying to figure out how to break of those barriers. How do I get above $5 million in revenue? How do I get my eBITda above 15%, whatever those are? He said, get a sales system. It doesn’t matter whose it is, but get a sales system. And I think it was really sage advice, and I’ve echoed that whenever I’ve had people come to me for advice, they probably should ask him for. But I convey what I’ve learned, and that was a lesson that think is really important and I guess from your standpoint, whether it’s pre, you know, for someone who’s trying to figure out how to exit their business, maybe, or they exit so they want to create some value, replace themselves before a transaction. Do you embrace that? And if so, what does that look like? Because that business has one sales driver, $5 million. Your business has got an owner who helps sales and a main sales driver.

Dana Robinson:
And no systems, no processes, no training. If they’re listening to this, where do they start? How do they think about it? And where do they go to get that?

Matt Sharrers:
Yeah, no, it’s a good question, Dana, you are right, 100% right relative, to pick a methodology, even if it’s custom built and you put it on three slides. Hey, here’s our prospecting methodology. This is what I do. I use Instagram. Here’s how I dm people. Step two, you know, initial scoping call, I asked this. I do this right? Step three, document that. Or if you’re a larger business and you go and implement, you know, one of the many well known commercial systems that are out there, what I would say, if you’re in a services business, if you’re that five, eight, you know, $10 million top line size, it’s hard to be investable without a system.

Matt Sharrers:
So you have a term that my partners and I used to use is you become a hostage in a prison that you built where you’ve got good cash flow, right? You’re taking good trips, you’re going crazy in Cabo. It’s all good. You’re running everything through the business under employee engagement, all the stuff you do when you got a k one, but then you can’t get out because the business is you. So you have, and you were talking about this on one of your shows just last week. You have to make that decision. Am I willing to take a little bit less right now, manage my lifestyle, maybe not buy another boat or a third home, and instead go, how do I, over time, build something that allows me to own, not run or own and sell and invest, even if I believe in the business, but I don’t want to be the owner? So it’s a mindset shift, and I’ve lived it myself, but also now working with others, trying to help them get to that sense of probably purpose of time as opposed to purpose of money, and just focused on the monthly cash flow.

Dana Robinson:
Yeah. Yeah. That’s great advice. The mindset has to be there. The system. I like that you start with the simplest. So anyone who’s listening, if you have a way in which you convert a client, you can document that and then continue to document it and then experiment. I talked to one of my guests who had this business experience where they didn’t delegate anything.

Dana Robinson:
And the next business she got into decided she was going to hire even part time people from the very beginning just start filling roles so that she didn’t become the, the obstacle, the logjam in this business. And a lot of that is like just very simple fleshing out of the thing that you do and having someone else try and run that process and then detailing it more. You mentioned the sales programs that are available nationwide. I’ll just say that in every business I’ve been in, and a lot of business owners don’t take advantage of this, there is a trade and industry show or conference for your business. There’s probably a lot, but let’s just call it there’s nothing in the, in the death care business, there’s a trade show. In the, in the parking garage management business, there’s a trade show. The in the wide format printing business, there’s a trade show. And when you go to those trade shows, you get, you discover something that a lot of people, if you’re listening to this, listen up, don’t realize that they don’t know how much they don’t know until they get around that environment.

Dana Robinson:
And you realize there’s best practice groups to join. There are coaches like you that are there with a niche that’s, here’s the thing. My little niche is this piece. There’s a bunch of that and there’s almost always somebody slinging a sales system. And to the point that I made about Ken Goodrich saying it doesn’t matter. Certainly it would help if they know your industry right. The sales methodologies might be agnostic at some level, but if you want to implement the system out of the box, your industry probably has one people. So find that sales system and implement it.

Dana Robinson:
Let me ask on the post acquisition where you do a lot of your work, do you end up like you’ve got this kind of CEO specialty of yours, but what, you know, like what are some of the tools that you bring to that? Like, is implementing a management system. You mentioned sales system. You know, what are some of the other like things that if you’re talking to sponsors, and I’m increasingly friends with sponsors and in the lower middle market and independent sponsors who are trying to put deals together that are probably thinking, what do I do? Once I get the capital together to buy this business, they’re going to have to go through the same thing as any private equity transaction?

Matt Sharrers:
It’s a great question, Dana. I am a believer that habits and people determine your trajectory. I’m a habit freak. It goes back to my athlete days after school. I’m 51. I still get up at 04:00 and I’m at the gym at five every day during the week. But I’m also doing it with some other people. That sense of community.

Matt Sharrers:
Right. So if you translate that into business, you know, do you have a weekly staff meeting that’s got an agenda, starts at the same time it ends on time. Right. Number one, do you have an operating rhythm where you review monthly financials, monthly stocks, a quarterly system. Right. So I’m a big fan. I talk about this in the book. I’m a big fan.

Matt Sharrers:
Whether it’s John Doar’s okrs, whether it’s eos, whether it’s scaling up to Dana’s earlier comment about a sales system, just pick one of those management systems and implement it. I don’t have a dog in the fight over which three. I’d use two of the three. They’re fantastic. There’s different things stage appropriate for size, but man, are they good. So that’s number two. And then I would tell you the people management system, Dana, around performance management and having a performance based culture and what that really means and the rigor behind that. I’m a big, big fan of that.

Matt Sharrers:
The weekly coaching one on one, the kind of quarterly, hey, let’s talk about how you’re progressing. How are you feeling? A little more of a dreaming call. So putting systems in place. And in the book, we talk a lot about once the CEO has defined what culture should look like and define strategy, process is the next thing. And so things I’m describing right now are the core processes you want to think about in your business that makes it investable and sellable as opposed to I got a great revenue stream, but it revolves around, you know, me and my name on the side.

Dana Robinson:
I love it because everything we’re talking about are things that you get hired to do by a professional investor, and they’re all things that somebody can do before they sell to a professional investor and gain more value from that exercise. So this is, you know, it’s like private equity, you know, operator 101. You’ve got to do these things and they’re going to happen. And if you’re listening to this, you want to sell the private equity, you have an opportunity to step back and say, wait a minute, can I do, you know, maybe you don’t have the wherewithal to do all of it. And some of it is the freedom of capital that private equity brings that they’ll spend money that’s outside the scope of the operating income to come in and take care of change management culture initiatives, getting everybody onboarded in a management system. You know, performance management, sales systems, all those other things. The. What else do you think that.

Dana Robinson:
Let me, let’s talk to the private equity people out there. Your primary customer is private equity. They buy a business or they buy a bunch of businesses and then they go, oh, hey, this looked really good on spreadsheets and it usually does, but now we need someone to run this thing. And most of these guys that are, you know, God bless them, they’re out of Wharton and, you know, went straight into investment banking and don’t actually know what to do at the operational level. You come in at that point and you go, all right, I gotta, I gotta transition this business. What can we learn from what you need to do? Is it always we need to hire Matt? Is there other strategies that private equity. What are the mistakes private equity make that you’ve got to come in and fix? Let’s talk to our independent and small funds sponsor side.

Matt Sharrers:
Yeah, I think, Dana, on that score, I would say one is if you say you’re an investor, not an operator, then honor that slogan and let the operator operate and work in concert with him or her as opposed to try to manage them and use pattern recognition. Unless your Vista and all you do is buy software companies between x size, y size and you have the perfect Vista playbook and it’s all laid out right. Most funds don’t have that. So you’re relying on a CEO and his or her management team and expertise. So understanding how to pick that team, the senior team, not just the CEO, the senior team, and getting the support you need. Whether you call Ghsmart, right, and have them support you or other firms that do that. I think that’s one. And sponsors are usually pretty good about that at the CEO level and the CFO level around the other C suites sort of hit and miss.

Matt Sharrers:
I think that’s one. Two is I talk about building the board, you know, the independent board of directors, even if you only have two independents, excuse me, on your board, that conduit that the CEO can go to that isn’t a financial investor to go, hey, I’m stuck with the following thing. This happened. That happened. And they’ve got somebody who’s truly vested in the business in them that they can just have that open conversation with and get advice because that person has seen it, done it, experienced it, and they have real operational dexterity to that scenario that they’re going to run into. And then three, I would say it’s not about you. And what I mean by that is continuing to get on the management team for more data, more reporting, more and more, more, more. Just understand that if your LP’s overwhelmed you as a sponsor, you wouldn’t like it.

Matt Sharrers:
So have some grace with your management team. Let’s have good rigor, good discipline, monthly financials, quarterly board meeting, document the minutes. But be a partner who works in concert with your team. So that would be my three things.

Dana Robinson:
Love it. Thanks. Do you think that sponsors make the mistake of thinking they can always find an operator? You know, that sort of hired gun approach. If I find the right deal that looks great on paper, then whether I use a recruiting firm or look to the industry, I’m going to find all I need to do is hire the talent. And is that, have you seen that succeed? I know it’s a big upmarket playbook. I’m not sure it works in our bottom of the lower middle market. We haven’t tried, but yeah.

Matt Sharrers:
My opinion, Dana, I spent the lion’s share of my consulting career, middle and large enterprise, in terms of private equity. And there are certain things you can do and mistakes you can make in larger businesses that you can’t make in lower middle market, core middle market businesses relative to the people you pick in a role. It’s just the fact, I mean, if you’re in the right segment with the right, you know, market tailwinds and whatnot, you still may be able to generate a 2.8 to 3.5 times return on invested capital because you’re in the right market. Which is why really good private equity guys up market, they spend a lot of time, they call Bain and Mackenzie to do market studies because they look at the market and they want to de risk dependency on human heroics. When you’re in the lower middle market and you have brands who don’t have a household name and you are running and gunning, trying to get business, trying to move up market, that’s a different look and feel. So the ethos of the private equity firm needs to mirror the ethos of the companies you are buying. My opinion and recognize that that congruence matters. And the operators that are going to run a 15 or 20 million EBITDA business and what you need out of them is very different than when you got 300 million in EBITDA in your way up market, and you got thousands of people.

Dana Robinson:
And I mean, to what extent can you, can you talk about the difference in that, in that executive?

Matt Sharrers:
Yeah, I mean, decisions on personnel and when it’s time to make a move, you make a move on a senior sales leader or senior executive in a small business, that has a ripple effect. Does it have a change up market? Sure. But can you go and rent an interim CFO, stick it into a Toma Bravo silver Lake Bang capital billion dollar software company, who’s like, oh, yeah, I got this. Right, and you got a ton of equity to offer, so you can almost throw money to get a superstar athlete to get you to the line.

Dana Robinson:
Right.

Matt Sharrers:
It’s different down market. That’s one. Bets you make on product or a service line are different in the lower middle market because you can’t afford to test too many things. You got to test quickly and you got to get out. So having that advice and recognizing, hey, we probably don’t want to verticalize too soon. We probably like, there’s just certain things you can’t do in the lower middle market that you can do upmarket. And then the third thing is the recognition around opening doors and helping to drive demand as a private equity firm and connections the management team, it’s the number one thing that the management team wants. So when private equity sponsors are always like, hey, let me know what you need.

Matt Sharrers:
I’m like, dude, I’m going to give you the answers to the test. You might not like it, but here’s how you show your management team you’re in the boat. Be an advocate, right? You’re talking to people all the time. Advocate for your portfolio.

Dana Robinson:
Companies love it. That’s great advice. So, you know, to the, to the 30 to 100 million in revenue growth cycle, you need somebody who’s done that before. So they know what it’s like to go through those experiences. They’re going to act more quickly. For example, if you bring in a CEO that’s run a billion dollar company.

Matt Sharrers:
Yeah, they have no idea. Right. And not that they don’t have any idea, but it’s a Dana, you’ll get a kick out of this. It’s like when you interview somebody who says they started and ran the small division inside a large brand and took it from 10 million to 200 million. I’ll give you an example. And this is no insult for anybody who listens. I was interviewing for a key role at SBI, and I was talking to some ex Bain and McKenzie consultants who are like, I ran this practice at Bain. I took it from 10 million to 100.

Matt Sharrers:
I’m like, dude, you worked at Bain. You can get in the door anywhere. I’m a little firm called SBI. That’s as relevant as the government on the bottom of your shoe. Like, come on, man, give me a break. Like, you’re not scrappy enough. You’re used to people going, ah, bane, I’ll take the meeting. I need somebody who goes, I can sell a brand that nobody’s ever heard of, and I can bring relevance and credibility in an instant by my rate of speech, what I know, and my scrappiness, and my hunger to get on a flight on Sunday at six in the morning and go do what has to get done.

Matt Sharrers:
That’s the difference in that segment.

Dana Robinson:
Good advice. I’ve got a note from sort of prep show notes. It says, first year blueprint, the second CEO’s keys to success.

Matt Sharrers:
Yeah.

Dana Robinson:
That’s a prompt for you. It may be help you bring home kind of what you’re all about and kind of the thing that you know that the rest of us don’t.

Matt Sharrers:
Yeah, I think what I’m all about now in this stage of life is hopefully mistake prevention from those who are going down a path that I’ve been down and traveled, where you’re in a business and you’re either a founder saying, I like what I built. I’m proud of what I built, but I’m not the person to go to the next step. I got to replace myself. Who’s the second CEO? Or you’re somebody in a firm or getting recruited to take over for a founder CEO, and you’re like, how do I do that? Like, succession’s hard. Dana, you and I know that we talked about it. Taking over for a founder CEO is a unique tightrope that only one person will walk in the entire history of a company. And it’s a critical bridge position from founder to eventually that third CEO that hopefully takes the business to, you know, crazy Heights. And that’s why I wrote the book.

Matt Sharrers:
And that’s what I spend my time doing now. As you can tell from the energy and my voice, like, I love it. It is a blast.

Dana Robinson:
That’s fantastic. As we sort of wrap things up, did I miss anything that seems, like, important enough for you to, like, say, there’s this thing I know really well that we didn’t talk about?

Matt Sharrers:
No, man. You know, the thing I would tell your listeners is you’re real. Right? Like, I’ve been in the space for a long time. And I talked to a lot of people, even those who have their, have their own shows. And we had a podcast, still have a podcast at SBI, when you can be authentic and real with your listeners because you come from a place of a knowing it, but you’re genuine. Your advice is spot on. So I think you hit the, hit the sale, your topics, and I enjoyed it.

Dana Robinson:
Thanks, man. Well, I appreciate it. Thank you for the compliment. And as I usually say this not on the air, but I don’t make any money from this. And I do it because I like it. I do because I’m curious. I get to meet cool people and ask the questions that I would ask if I met you over a cocktail and hopefully bring something interesting to the world. I feel a little bit like David Hasselhoff.

Dana Robinson:
We used to make fun of him in the nineties, that he was like a famous singer, Germany or something like that. You know, like the, the show hit, like number one in Iceland for a day. And I’ve been like top ten in Ireland for entrepreneur podcasts a couple of times. So I’m keeping it real and reaching an audience. If you’re out there listening, appreciate it. Spread the word if they want to connect with you. Matt, what’s the easiest way for a listener to hit you up? Connect with you?

Matt Sharrers:
I would say just head to LinkedIn. I’m easy to track there. Or you could just go to my website, which is etjadvisory.com.

Dana Robinson:
Great.

Matt Sharrers:
E letter, t letter jadvisory.com.

Dana Robinson:
And if you’re listening, not watching, Matt Sharrers is spelled s h a r r e r s. So look up Matt and connect with him on LinkedIn. And as always, if you’ve got questions, comments, things you would like me to be asking or talking about, hello@danarobinson.com Matt, thanks for coming on the show today.

Matt Sharrers:
Thanks, Dana. I appreciate it, man.

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.