Todd Muffley - Lessons Learned From a Sale to Key Employees
This week Ed has the opportunity to visit with his friend Todd Muffley. What prompted this conversation was that Ed saw an article Todd posted on LinkedIn titled Be Still. The tone of this article he has written was that the sale was not necessarily what he thought it was, and being friends with Todd for a number of years, this got Ed curious. So, Ed reached out to Todd. And Todd had been so candid with his advice and thoughts on what he would have done differently.
Tune in and enjoy this valuable conversation with Todd.
1:49 – Todd Muffley and His Journey Into, Out Of, And Then Back Into Business
4:46 – Reason for Exiting
7:05 – How the Exit Conversation Was Like?
8:32 – Are Our Employees Our Friends?
11:11 – Todd’s Exit Strategy
12:43 – What Made Your Risk Tolerance Change?
14:47 – Be Still
22:06 – What Are the Lessons You Learned?
25:52 – Did You Ever Think About The Value of the Company?
27:24 – Did You Know That You Were The Business?
28:35 – What Was Your Next Venture?
32:36 – Piece of Advice That Has The Most Business Impact
33:40 – Connect With Todd Muffley
Todd Muffley and His Journey Into, Out Of, And Then Back Into Business
Todd Muffley started his marketing agency, Creative Indoor Advertising, in 1999. Through that journey, he built up a list of clientele. Then he sold part of it off in 2005 to go more into the digital space and Plan B Marketing was born. From 2005 to 2017 they focused on paid online advertising, inbound marketing, social media, created websites and strategies for businesses mostly in the B2B space and mostly outside of Indiana.
When Todd sold the business, they had 20 employees. Selling the business, Todd wanted to get some employees involved in the business and so he offered them to buy into it at a small percentage. He started at 10%, but a year later he realized that 10% didn’t really get them too involved and so Todd sold another 35%, then the next year he sold the whole thing.
When asked what precipitated the offering of equity, Todd candidly answered that he lost 6 retainer clients in the first half of 2014. From credit cards to bank accounts, he put everything on the line for his business. Todd has been in the marketing ownership journey by himself for so long and he felt that he wanted somebody else to share that instead of doing it again. Todd and his wife actually took and put the first 10% right back to the company not only to keep it solid but to grow it because Todd just knew that they are on the precipice of something really great as far as getting a lot of new business which we were so that turned out well.
Reason for Exiting
Money, first off. Todd’s business was doing great in its last two years (2015 and 2016). His P&L showed 2015 and 2016 as was very healthy. But if you look at the previous umpteen years before that, Todd created a lot of jobs for so many employees. Marketing agencies are difficult to run. It has a high turnover of clients, a high turnover of staff, and so while he made a good living, he didn’t really have a good business that has a steady return on investment until the last two years.
Having employees that intimately know the clients and intimately know the trend, what Todd sold was very helpful. Looking back, Todd thinks the hard part of it was people didn’t really understand what he did in the business and so they thought it would be easy to do it without him.
Todd was left with 38-ish% ownership of the business. The business was doing great, but he was working 60+ hours a week. He was done. He was spent. Then somebody approached him from another company who wanted to buy the whole thing, so he informed his existing partner that he is entertaining talking to the buyer. And he got lucky.
How the Exit Conversation Was Like
While Todd thinks that what he did was a blind squirrel mentality, Ed thinks that the way Todd had it structured did two things; one – it kept his employees from being poached, two – it was a segue into a total exit.
Todd’s buyers were very receptive. They wanted to own the business. They are both in their mid-thirties with a couple of young children. Todd had worked with them since 2004 so not only Todd felt that they are like friends but they also had a long-standing business relationship. Todd really thinks that they wanted to do things a little bit differently and put their mark in the business and do it their way. It was a very easy conversation. It was just crossing T’s and dotting I’s and spending 3-4 months with the accountants and lawyers to get it all squared away.
Are Our Employees Our Friends?
When Ed asked Todd if he is still friends with his previous employee/buyer, Todd thinks that as business owners, we tell ourselves lies that our employees are our friends. He thought they were friends but then they never called and asked for advice. So he thinks they are not friends now, but then he will have to ask himself if they were really friends before.
People don’t understand what it means to be All In in your business. Todd said that while he was not actually doing the work, he is managing the account, getting new business, doing HR for the company, managing the strategies for the clients. Sometimes, people look at that and don’t think it’s “real work”. Sometimes, people have this notion that they can do things better than the other person. And so, they step up and said they wanted to take it. And they did.
Todd’s Exit Strategy
Todd is thankful that his kids did not want to take the business. He doesn’t think that they could have done the business on their own. He realized that he did NOT have an exit strategy. The exit strategy actually was sort of snowball rolling down the hill that turned into a giant snowball in the end. It was just started by a series of misfortunate events but in the end, it turned out really good. And as much as Todd wants to say that he had a strategy to divest the business, unfortunately, he really didn’t have.
What Made Your Risk Tolerance Change
When your business is doing well it attracts people’s attention. Before Todd sold his 10% off to his employees, he had some people contact him, signed NDA’s and went down the journey on 3 separate occasions; one was with another agency, and two were printing companies. What Todd found out was that the agency that wanted to buy his business wanted to buy it and make him an employee. And for Todd, that’s not going to work. The printing companies that wanted to buy the business know nothing about marketing. After seeing all the details, Todd thought it was a recipe for a nightmare. So, having that background along with the employees who were able to purchase the business and those who want to buy more, it really was just a culmination of a lot of things that came together perfectly.
Todd wrote the article, Be Still, just two years after he sold his business. The reason Todd wrote the article was that he was reflecting back on what happened. Todd didn’t have a mentor in business. He had an attorney and an accountant, but he never had anybody to sit down and look him in the eye and say “you really messed this one up, buddy” besides his wife. According to Todd, after you sell your business, it’s like one of those things where you’re climbing that mountain and then all of a sudden you’re at the top of the mountain and you’re like, “Oh my God! I made it to the top. The business is sold!” And nobody tells you that the journey down the mountain is just as strenuous. You sold your baby, something that you worked and lived and just put everything into, and that’s difficult to process. So try not to run into something else.
Todd said that the employees that he had when he sold the business, they’re not all there anymore. A lot of them are gone. It was a reflective period for Todd. He wanted to note that sometimes you should not only understand that your selling something has a consequence to it, but also that you should not run in and do something else right away. Like how they say that when you get a divorce you should not be getting financial positions for a year after your divorce or something like that. The same thing with selling your business. When you sell your business, somebody should advise you to go on a vacation to chill out and reflect on what your next step is. Todd did not have that next step. He just jumped into more things that he wished he had not done.
Todd got a beautiful 37-foot power catamaran. He had his life set. Then they moved to North Carolina, and some personal things came up that changed the dynamics that he had envisioned in his mind. Life threw him a curveball.
What Are the Lessons You Learned
Todd had a good lawyer and a good accountant who both worked with him and helped him, but he wished he had someone who is not a yes-man. He wished that while going through things, he had somebody that does the reality check. Even if you have to pay somebody to be that independent party that will whisper in your ear would have been valuable. And Todd didn’t have that person.
Luckily, things turned out good for Todd, but now he can see that it would have been good to have a person like that during the process. That person could be another attorney, a mentor, or somebody in business. When you sell a business you need to really make sure that you know who your lawyer represents. The same goes for your accountant. Having somebody on your team that makes decisions with your best interest at heart is valuable. Although Todd had his wife, someone who has more experience in the process could have been better.
Did You Ever Think About The Value of the Company
The last two years Todd know, after he sold the first 10%, that everybody had to work on getting a strong EBITDA. I took the last out of the company and kept more in it. He had to pay more taxes, but it’s that small business dilemma where you want to legitimately hide as much as you can from the IRS, but you don’t want to do that when you’re leading up to a sale unless someone can pull up the value of what that is, which surely someone can. Todd just wants to have it in there so that the P&L would come out really strong. And so he did think about the value of the company in the last 18 months of the business.
Did You Know That You Were The Business?
Todd definitely knew that he was the business, but he doesn’t think other people knew or thought that and so they are getting at how he can sell the company and do well selling it because some people think that they can do something better than you’re doing it. But Todd’s wife believes that it would not be that successful if Todd was not there.
What Was Your Next Venture?
When Todd the business he actually didn’t sell the stock of the business. He just sold the asset of the business. He kept the corporation – Plan B Marketing, he kept the veteran-owned clients that he had because of course, they cut the services because they don’t have the veteran credentials to do that.
Currently, Todd had contracts with the state of Indiana in multiple various ways. He is still doing marketing but he’s just doing it for independent contractors so that he doesn’t have any “employee liability” or overhead. He currently has 5 clients and got another client recently through word of mouth referral.
Todd is taking clients in the right situation. Right now his state clients are people who need a veteran on the RFP, including process. He accepts phone calls for those all the time. On the other side, it has to be a good sit with strategy as Todd does more consulting that execution.
He also started a venture with a couple of old employees from Fat Atom called Unboxd Marketing. It’s a sales enablement company because Todd really really loves helping salespeople close more sales faster using gifting.
Unboxd Marketing’s motto is “No one buys less because you care more.” Statistically, it’s proven that if you can stand out in the sales process by sending creative gifts to your prospect, it shows not only does your brain stand out but it also shows that you care. This is actually strategic gifting during the crucial time during the sales process.
Todd signed a non-solicit agreement that he won’t solicit past clients and employees without their written permission. So, for this venture, he had to get the permission of these employees before working with them.
Piece of Advice That Has The Most Business Impact
Todd’s advice would be to sit down and have a thought process around what your future of the business is. This doesn’t necessarily mean “hey, let’s have a strategic process to sell our business,” because maybe you never want to sell it. But it is good to step back on regular intervals – every year or couple of years – and just say “where we at”, “what’s our position”, “where’s our future”, maybe having about 5 questions that you ask yourself every year because if something changes and you do decide to sell, there are things that you need to start thinking about not the day you signed but years before you start to do it. Asking yourselves these questions regularly would be a good idea.
Connect With Todd Muffley
The best way to connect with Todd is through these channels:
Todd’s website: http://www.think-b.com/