Mike Finger - Coaching Business Owners to a Successful Exit
Today on the show, Ed gets to talk shop with Mike Finger, a multiple times over successful business owner and founder of www.exitoasis.com. Over the last 25 years, Mike has bought and sold multiple businesses and learned the hard way exactly what makes a business sellable. Mike focuses on small businesses and includes operations that have only a few employees—something that many small business services don’t. Mike is committed to building a community based on accurate and easy to understand education from a variety of points of view from within the industry. His biggest challenge is reaching people early enough to make meaningful changes to their business and getting owners on board with the fact that a successful business isn’t necessarily a sellable one. Mike comes to business exit education and coaching by way of hard-earned experience. Owning his first business was gratifying in itself, but what really captivated him was the process and outcome of selling that business. Mike says “Selling that business was a miracle in my life. It changed everything— but it almost didn’t happen. I was ten years in with 50 employees when I found out that the business was unsalable—but we moved forward. What we did with the business made the sale possible and transformed my life.”
[02:00] About Mike
[02:49] Welcome to Mike
[04:40] What unsellable means for a small business
[07:21] Are business owners prepared?
[11:18] Preparing Business owners
[11:38] Tsunami of Sales
[16:03] Mike’s prediction about the Tsunami
[19:19] The difference between the seller and buyer reality
[21:04] Exit Oasis Services
[22:05] Will I be able to sell my small business e-course
[24:28] Assumptions about value
[28:01] Reaching the market before they are ready to sell
[34:04] Where is value created? Employees or the owner?
[35:21] The one thing that creates a business that can sell
[39:23] Salable vs. Unsalable
Learn More From This Podcast
The genesis of Exit Oasis was Mike’s personal experience selling his business. When he was ready to sell the first business he ever built, he says he found the process and brokerage space completely “terrifying.” The process revealed that the majority of help was for businesses much larger in scale and that there was very little support for the little guys. He says that the $20M “small business” that was the target audience for education about exiting didn’t resonate for the truly small business he had. Building Exit Oasis was an answer for other people in the same position and Mike envisioned it as a safe space for small business owners.
What Makes a Business Unsalable?
While every situation is unique, Mike shares what made his own business unsalable and points out several patterns that are common among small businesses. The business was doing about $5M in revenue and had 50 employees. Mike dug into the research and talked with his competitors and businesses in similar industry. The three main problems with his business were:
1. Too owner dependent
2. Not enough cash flow
3. Systems not mature enough.
These three elements are commonly seen in businesses who want to sell but haven’t done the preparation to become salable. A major misconception that makes owners think selling will be a breeze is the huge difference between a salable business and a business that can maintain itself. Even some successful lifestyle businesses that provide good returns for owners and employees might not have their house in order enough to appeal to an outside buyer. While there are trends toward business owners taking more ownership of making their businesses salable, Mike says there are challenges with transparency in an industry that relies heavily on paying lip service to the idea that a business is sellable—even if it’s not. In reality—the most optimistic numbers that Mike has found to date is that only 20% of business actually sell.
Reality vs. Optimism
Even though creating a salable business for exit planning is arguably one of the most critical financial components of ownership, Mike says a lot of business owners aren’t prepared for the realities they face in order to sell. Part of the responsibility of a broker is to educate owners as much as it is to close deals, but that’s not necessarily what happens in the real world. Making sure business owners understand the reality of how their business functions from potential buyer’s points of view is part of the work Mike does at Exit Oasis. Unfortunately, this kind of examination raises challenging questions for business owners’, and they are all too often derailed by unsubstantiated optimism on the part of competing brokers eager for a deal.
A Tsunami…of Disappointment?
There is a lot of conjecture about the coming “Tsunami of Sales” based on demographic data. Currently, however, anecdotal evidence doesn’t seem to support this concept. Mike and Ed both recognize that the wave is likely coming—but speculate that many business owners are hanging on while things are good and will be looking to get out in the next downturn. Mike’s real deal prediction about the huge surge in sales is that it will end up being a tsunami of disappointment. Even if there is a major surge in interested sellers, there need to be buyers and many business owners will likely be disappointed by how difficult it is to exit their business. In addition to the shortage of qualified and eager buyers, the ones that are shopping are doing so shrewdly and expecting a return on their investment. Unfortunately, many business owners are failing to meet even the minimum standards required to transfer a business successfully. The reality from an owners’ point of view is far different from that of a buyer. The personal investment and belief in a business’s potential often make it difficult for business owners to look at the value of their business objectively. Ultimately, Mike says that he and his team are constantly driving home the point that business owners must to get their business up to minimum standards in order to sell. If it’s not there, the business has to do the work and change before it can sell.
A large part of Exit Oasis’ work is providing education. The company’s educational newsletter is a primary touchstone of their service and offers comprehensive, regular and highly specific content curated from around the web. Mike is completely agnostic about where the content comes from and will share many different points of view as long as they are well done. The result is a balanced mix of opinions with more objectivity than some other sources. Another component of the site is the recently launched, back to basics course titled Will I be able to sell My Small Business? The intent of the course is to answer that question definitively, even for businesses with only a handful of employees. Stripping down what a business looks like that will actually sell seems like a basic concept but is one that a huge number of business owners have no clue about. Exit Oasis also offers coaching on a monthly basis. Unlike consulting, this service is periodic and helps small businesses break down goals into achievable steps and checks in over a set period of time until they are ready to sell.
Why Focus on the Little Guys
Mike has no qualms with lower middle market businesses looking at an exit payday in the millions of dollars but says he wants to focus on helping the business owners that have their entire life wrapped into the business. The heartbreaking reality that a business just isn’t going to pay out to an owner who has all of their eggs in that basket is something that Mike wants to help minimize. In his opinion, making choices based on assumptions is at the heart of that tragedy, which is why education is central to the Exit Oasis mission. Mikes’ priority is to help people build their understanding of informed choices. Watching someone stay in a business not because they want to but because they have no other choice is devastating.
The biggest challenge that Mike and his team continue to face is reaching people long before they are ready to sell. His own business needed four years of work to get it to a place in which it was ready to sell and not knowing that earlier made those four years far more painful than they could have been. He points out that he was still lucky—he wasn’t backed into a corner and had the capacity to stick it out for the time it needed. Other people—people who have to sell for one reason or another—aren’t so lucky and can end up in a very bad position.
Exit planning as lead generation
It’s easy for business owners to get tunnel vision when it comes to their business and it can be hard to convince them to be objective. This is made more difficult by lead generation and sales practices that prospect through direct mail claiming to have qualified buyers for a business. While it feels like a chase to the business owner, brokers are casting a wide net knowing full well that only 10% of leads will be equipped to sell.
Where does value come from?
Mike’s take on value creation is unique and he sees it as being symbiotic between owners, employees and the business entity. Ultimately though, “the owner creates the business the business creates the value.” The transferable entity separate from the owner is where the value lies, but Mike says that he’s a firm believer in the impacts of an owners responsibility and actions. The one thing that creates a business that you can sell, according to Mike is “A business owner with the intent to create a business that they can sell.”
Lifestyle vs. Investment Businesses and the Wall of Salability
There are lifestyle businesses and then there are investment businesses. Commonly, it is difficult for people living a good lifestyle from the profits of their business to route money away for the purposes of investment. Unfortunately, many lifestyle businesses are unsellable and that, Mike says, is the important point. Whichever kind of business a person has, making sure that it is functioning in a way that allows it to be sellable is more important than building it into a different kind of business. Put simply, small businesses need to get over the wall of salability in order to be relevant. From personal experience, Mike says that when the time comes to sell, it’s better to make a phone call to a broker than spend years reconfiguring your business.
Mike’s last piece of Advice
Mikes one piece of advice for business owners is to be serious about spending 30 minutes a month paying attention to the topic of salability. Even if you just read an article, consciously engaging with the topic before you want to sell is critical.
If you want to know more about Exit Oasis or you want to sign up for their newsletter you can do so at www.exitoasis.com