The Wise Exit

Greg Head - Episode 40 of the Cashing Out (M&A) podcast

00:00:01:03 - 00:00:15:11
Greg Head
All the buyers that you work with do this over and over. Right? And they've seen every playbook and they've seen how they're watching the tapes and they got all the best advisers in the world. And here you come and you don't know anything. It's just something you don't do very often. And it's very complicated and it's easy to get wrong.

00:00:15:11 - 00:00:32:01
Greg Head
And the DIY method can work in a boom time when somebody just makes a crazy offer that you can't refuse. But if you got to be more deliberate about it, getting great help for this thing, you're going to go through one so that, you know, stop working on. You're not become an M&A pro.

00:00:32:03 - 00:01:00:06
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we helped business owners create the exits they deserve. Today, my guest is Greg Head, a CRM and SaaS expert with exits as both an early employee at ACT! Software and as a co-founder of SalesLogix, which was sold to Sage for $300 million.

00:01:00:07 - 00:01:29:22
Todd Sullivan
Today, Greg spends his time mentoring SaaS founders on the value of bootstrapping their companies to retain equity, ownership and control of the business decisions. Greg not only explains how venture capital often imposes unrealistic growth requirements, but he also emphasizes how founders who retain their equity experience larger personal financial wins when it comes time to sell their businesses. I hope you enjoyed my conversation with Greg Head.

00:01:30:00 - 00:02:06:09
Todd Sullivan
Greg, thank you so much for being here. I'm really excited to talk to you. I think that you have some very unique experience, but also perspective on how founders should be growing their businesses and understanding their own ROI and getting to exit. Having gone through three really big exits yourself in an industry and taking on lots of venture capital, I think you’ve just seen a lot that our fellow founders are experiencing today and you are presenting kind of another way to look at growing funding a business, which I am an enormous fan of.

00:02:06:11 - 00:02:10:07
Todd Sullivan
So getting you on the show like big win for us, I immediately.

00:02:10:07 - 00:02:10:19
Greg Head
Was very nice.

00:02:10:23 - 00:02:17:12
Todd Sullivan
I immediately bumped Mark Cuban from this time slot when I knew you could take it. So thank you for being here.

00:02:17:14 - 00:02:37:07
Greg Head
Yeah, very nice. Great to be here, Todd. And I think you just called me old and experienced and certainly have done plenty in the software business where I spent my career and work with founders all over the world these days. And I did the VC funded exit growth public game for almost 30 years, and now I help founders.

00:02:37:09 - 00:02:59:11
Greg Head
Like I talked to five hundred founders a year and right on LinkedIn and podcast and have advice for founders all over the world who are staying off the VC funding. It's not it's not without funding, bootstrapped or lightly funded or whatever, but the software business has changed in the last five or six years and there's more ways for founders to be successful.

00:02:59:11 - 00:03:13:07
Greg Head
So I'm not out here selling funding. I'm out here helping founders achieve something meaningful for them and their employees and their customers in their markets, because we're still changing the world in solving problems but doing it through software businesses.

00:03:13:12 - 00:03:57:11
Todd Sullivan
You know, I feel an attachment to that kind of that mission, right? That is what we are doing. We're really trying to educate founders around a different way to exit a business and we think we've figured out a better way, certainly as the statistics are proving it. But I think that the beginning of that entrepreneurial journey that you talk about so much of how do you bootstrap is really, really important and meshes very, very well of what we see in founders today, some of them thinking about that entrepreneurial path more as a career as opposed to, you know, trying to hit that grand slam with one big swing, which is really the venture model.

00:03:57:12 - 00:04:18:09
Todd Sullivan
Look, we're going to get into this. And that's why I'm excited and I'm jumping the gun already. But could you for the audience, take us back to kind of the beginnings of your career in software, which was kind of rare, right, the way you started? And and take us through the kind of the three companies that you were part of in eventual exits.

00:04:18:11 - 00:04:40:00
Greg Head
Okay. Well, there's a few minutes right there, because it was I've been doing it a long time. I'm originally from Chicago, from the Midwest, and I started selling software at the first software retail store called Egghead Software. Back when software was in a box. This was late eighties. I went to University of Iowa as an honor student, Economics, Spanish and Business.

00:04:40:00 - 00:04:55:05
Greg Head
It came back. I didn't know I wanted to do, but people said, Hey, work with me at Egghead. So Todd, I was Greg head from Egghead with a suit and a tie and a nametag and confused people. But they sold half the software in North America. I fell in love with software. We had stood in front of a wall.

00:04:55:05 - 00:05:15:02
Greg Head
Software. You know how I had went? Public is one of the fastest growing companies. And this is back when software was. Most people didn't have computers. And if you use software, you were a geek and it was for hobbyists and the misfits. And so I was one of those misfits. I just fell in love with it. And everybody else who found their way into that, I joined a little software company.

00:05:15:02 - 00:05:36:23
Greg Head
It had ten employees for software that I've been selling and helping people with called ACT!, which was one of the first software products for salespeople in a box, worked on a PC, eventually for Windows and all of that. But it was this little magical software for off people on their using their computers to manage their contacts and follow ups and notes and history and all that stuff.

00:05:37:01 - 00:05:57:13
Greg Head
And most salespeople didn't have computers. Most salespeople who sold computers didn't have computers to use in their business. So it was the early, early days. It's a little misfit company here in Dallas. We grew it up. It sold to Symantec. It became the top software used by salespeople in the 94 million users, top 20 software product, and I became product manager.

00:05:57:13 - 00:06:18:22
Greg Head
And when the founder, Pat Sullivan, sold it to Symantec in 1993, a week after I got married, he said, I'm going, but I'm not going. Here you go. Greg Right. So I was in the middle of everything, but then I get to go run the business inside Symantec. So I ripped my new wife out of Texas and brought her to Silicon Valley and, you know, installed back there.

00:06:18:22 - 00:06:42:21
Greg Head
And we grew that even more. And with Pat and myself, we and three others, we started sales logix when sales teams were starting to get software in the mid nineties from so from kitchen table to $100 million business including buying act back from Symantec. We were the one of the first sales automation products and CRM. We went public in five years, 500 employees and kept on growing and we sold that to Sage.

00:06:43:02 - 00:07:06:07
Greg Head
And then I got to run the ACT! business of $50 million buy at that time, and I was in charge of it. I was selling Act on the shelf at Egghead with a name tag on and ten years, 12 years later I was running the business and installing it. I do think $50 million business. I'm not superhuman. I just love the game and played it hard and, you know, in those days it wasn't really even about the money like it is today.

00:07:06:07 - 00:07:23:17
Greg Head
There's big money involved and it's people think about the money. We were changing lives and, you know, changing the world. It was pretty amazing, the crazy misfits that did it. And so both the 2001 and 1993 acquisitions, I was the one who they handed off to and said, Go, Greg, go install it in that business and grow it up.

00:07:23:19 - 00:07:40:01
Greg Head
So I got to see the start up the growth and saw it in a company and be part of a bigger company. Two different ways to do that and but I've been through that and then go off and do it again and play that cycle and it a whole bunch of things for a few years started something and helped a lot of founders.

00:07:40:01 - 00:08:13:08
Greg Head
But I became chief marketing officer of Infusionsoft in Phoenix and we grew that from 1500 million of VC capital that didn't exit. So that's another version of the story. But it was really exciting. So Todd, I did CRM three times Contact management, sales automation, and then for Infusionsoft was sales and marketing automation for small business. So in three different areas, so the box, the client server and the SaaS eras and I just love the game and I help founders these days it, you know, grow the businesses that make sense for them with, without funding that.

00:08:13:13 - 00:08:30:15
Greg Head
So funding people have enough help. It's it's the you know this larger crowd ironically of serious founders building valuable software companies that don't have VC funding help and don't throw around equity to get advisors and VP's and that need a lot of help and they're doing great. Thanks.

00:08:30:20 - 00:08:43:21
Todd Sullivan
Thank you for all that background. Let me let me back up a little bit because I'm really interested in the acquisition of ACT!. When you're at SalesLogix, right? And it was that before or after SalesLogix went public.

00:08:43:23 - 00:08:47:06
Greg Head
It was literally at the same time Nice.

00:08:47:06 - 00:08:50:07
Todd Sullivan
Okay. So it's part of going public. Were you.

00:08:50:07 - 00:09:15:05
Greg Head
Yeah, well, we were going to go public anyway, but it just added to the story and there was a timing thing. People are old enough. Remember Symantec and everything in a yellow box and it was Norton Utilities and PC anywhere and ACT! and it was this conglomerate, if you will of the in the package software business. But then in 2000 a new CEO came in John Thompson from IBM and said, no, it's about security Internet security stupid.

00:09:15:05 - 00:09:39:15
Greg Head
And he got rid of all the stuff that wasn't that including ACT!. So at the literally that month there was a you know we said, well, we'll take it and we'll buy it. We'll use some of the funding from going public. And so within a month and a half, we were public and doubled the size of our business and I ended up running half of that business running the whole ACT! business, which I reconstituted now out of Symantec and into another entity that was already public.

00:09:39:15 - 00:10:06:16
Todd Sullivan
So I'm wondering, a lot of founders, right? They're thinking about what the exit could be someday and going public. Sure. That could be someone's goal and not the majority of companies go public. So going public, is there anything that it through that experience that you might share that would shed some light on a founder that might be considering, hey, should I be exiting before I get to that size or no going public really should be the goal.

00:10:06:18 - 00:10:27:02
Greg Head
Well, it's hard to make going public the goal, especially these days. Almost no tech companies are going public in the last 18 months. Right. And so it's pretty rare. So it's a little different time. This was the late nineties and the dotcom boom and then the bust. And so we've lived through that both as a public company. Regulation was a lot lighter.

00:10:27:02 - 00:10:59:06
Greg Head
It's much heavier to be a public company now and there was a boom time so we could be public a little bit like the boom time of 2021. And everybody came out and, you know, then got the overhang and so forth. I think most founders should be looking at a funding event, raising money or even private equity, selling a majority or minority or something like that along the way, or a public company selling a piece of your company as funding events that have a little marketing appeal.

00:10:59:08 - 00:11:15:20
Greg Head
Because people clap when you do that and they see you and the rest. But other than that, it's not an end in itself. There's a lot of ego attached to raising money and being public and ringing the bell. But if you do it for the ego of it, it's not going to end well. It's a funding event and you got to get back to business and then you have more weight.

00:11:15:22 - 00:11:38:00
Greg Head
So the challenge to run the business, more VCs that analyze your moves or public being a public company, it's harder to grow as a public company. And there are some good reasons to go public, but 1% of 1% of funded companies go public. So like, why are people saying that like you? Just because you love football doesn't mean you're going to be a Hall of Fame quarterback and bet your life on it.

00:11:38:00 - 00:11:56:08
Greg Head
So it's one of the possibilities and it's certainly doing, you know, certainly possible. Yeah, sure. Shoot, if I could be part of it. It's certainly possible. So, you know, but I wouldn't make it the first one. And for practical founders, who are we could just talk about the math. I just talked to a bootstrap founder 25 minutes ago.

00:11:56:13 - 00:12:01:00
Greg Head
Yeah. To $17 million before raising any outside funding.

00:12:01:02 - 00:12:02:08
Todd Sullivan
Revenue, $17 million.

00:12:02:08 - 00:12:31:05
Greg Head
Revenue. So recurring annual recurring revenues ARR, you know, not like other business to offer business. These are recurring revenue businesses. Yeah the thing is growing 75% a year profitably. There is a lot of super leverage in this business. I know his space. I know his competitors personally and that company is worth $200 million and he's got a few founders and they could split it between in order for a founder to go public..

00:12:31:05 - 00:12:52:14
Greg Head
Series A, Series B, Series C pretty venture funding and then go public and sell more of it again to end up with $200 million between them, you actually have to sell it for like for public for like three or 4 billion and be one of the few hundred that have ever done that. Yeah. Or you know so the odds are just against you.

00:12:52:14 - 00:13:01:03
Greg Head
There's all kinds of ways to do it. I'm not saying VC funding is bad or going public spat, but it's just way more rare and way more risky than people see.

00:13:01:05 - 00:13:22:09
Todd Sullivan
Thank you for all of that, because I think it plays really well into how we educate founders around this idea that this myth of going public should be the goal. There are very few companies that do it. There are fewer companies that do it really successfully. And when we take a look and give advice to founders, it's more about the founders personal ROI.

00:13:22:10 - 00:13:46:15
Todd Sullivan
So you just went through that return on their investment. So it is their time, the capital that they've infused into the business to get it started and founders, just like the math you explained, could very well be far better off selling into the private market to private investors. A portion of the business or control to private equity, because that that playbook on its own can be very lucrative.

00:13:46:19 - 00:14:04:23
Todd Sullivan
POST-SALE So I really like you saying, you know, not only is it kind of the anomaly, but it shouldn't be the goal because it's not the end game, right? Think about it as a funding event. I think those are those are great pieces of advice. But for most businesses, right, that is just not going to be realistic, nor is it the best ROI.

00:14:05:01 - 00:14:15:16
Todd Sullivan
Could we talk about your experience with venture capital that has kind of shaped your opinion and on how founders should grow and maximize their ROI?

00:14:15:18 - 00:14:34:23
Greg Head
Yeah, ACT! was started in the early nineties, with a little friends and family, some doctor that had money far away that somebody do, and a bunch of really scrappy young people just selling like crazy to get into market. There was just before money came into the software business right so we got to you know the company to a million and then a 2 million in revenue.

00:14:34:23 - 00:14:56:11
Greg Head
And then I think a little institutional money came in before Symantec bought it. But it was we would literally go to a trade show and put a number on our board and say, we got to sell 350 copies of the software. And I would have the microphone at the beginning, you know, at the front of the crowd. And somebody had the credit card thing in the back and we were hitting our goal.

00:14:56:11 - 00:15:15:16
Greg Head
So, you know, that was the early days of scrappy selling. Money has come in to the business, sells logics. We raised money. We raised $7 million to start it, another $8 million to grow it, and then went public after that was $27 million of funding. And we were able to grow fast and go public in five years. So that worked.

00:15:15:18 - 00:15:37:02
Greg Head
In other we made all the funds for a fund maker for everybody who invested in us. And isn't it interesting, by the way, that they were able to sell at these crazy year 2000 dot com boom valuations? Yeah, like hundreds of millions. And then a year later when everything kind of fell over is when the employees got to sell it.

00:15:37:02 - 00:15:54:23
Greg Head
So VCs the house kind of always wins. And I always had good relations with VCs. I was an executive, you know, I wasn't the founder, but I was an executive leader. Out of all those discussions. And with Infusionsoft, I was part, you know, I bet on Sandhill Road like months of my life raising big money from VCs there.

00:15:55:01 - 00:16:22:04
Greg Head
But Infusionsoft didn't sell. We raised $100 million there, grew fast. But that promise of we raised this money grow fast and keep growing. We were a step or two behind HubSpot. HubSpot is now we're 25 billion and Infusionsoft not and all the stock options and excitement and clapping that happened didn't materialize for founders. So by the way, you raised big funding from VCs, was not winning for founders.

00:16:22:04 - 00:16:50:05
Greg Head
Like literally walk away with nothing is 50% of the time. So it's rare when you keep upping the bets. And it worked. By the way, no VC would argue with me on that. They know they're playing the, quote, power law game, of course, and they're not arguing. But most founders don't know that. A lot of times big VC funding will increase your risk of winning your prize and getting to the impact you want at the universe and all the right.

00:16:50:05 - 00:17:14:13
Greg Head
It is always just about the money in the prize you. It's about creating an impact and doing achieving your vision and all of that kind of thing. So what's happened in the last, I don't know, ten years or 2023. So funds started getting bigger and bigger VC funds. They used to have a fund of $200 million and then I would put five or 10 million to work in a half dozen companies.

00:17:14:13 - 00:17:36:22
Greg Head
Something like that also knows billion dollar funds and they got to put big checks. We have to write checks of $20 or $30 million and IT Series ABC. So all of a sudden to pay everybody back at their expectations and have money left over for founders the investors with these bigger checks coming and all of a sudden it has to hit like two or $3 Billion for everybody get paid back, right?

00:17:36:22 - 00:17:58:20
Greg Head
So the bar kept going up, the funds got bigger and the bar kept going up and the risk kept going. Meanwhile, the same time, it's easier, faster to create software right, and go to market if you know what you're doing. There's a lot of leverage in the software business. This almost $20 million software bootstrap company I just mentioned is five years old.

00:17:58:22 - 00:18:00:03
Todd Sullivan
It's incredible. Yeah.

00:18:00:05 - 00:18:23:09
Greg Head
Yeah. So it's, you know, totally possible. There's many ways to do it and it's not like VC funding is bad and bootstrap is the right way and I religious about it practical call and practical founders who can do it. But there's just a lot of naivete about the VC funding game. I call them drug pushers and it's a little bit of an opioid crisis, meaning you take the drug, you can't get off it.

00:18:23:11 - 00:18:49:03
Greg Head
It generally doesn't end well when you take big funding drugs. And there's a lot of drug pushers out there saying this is what you should do and take the pill and funding isn’t bad is just overprescribed and misunderstood. So I'm not against VC funding. I talked to half a dozen VC funders a week and a lot of them appreciate what I write about on LinkedIn and the Practical Founders podcast and the rest where I'm talking about it just being more reasonable for founders.

00:18:49:03 - 00:19:00:04
Greg Head
I'm not selling anything to founders, so I think there's a funding industrial complex that has said, Hey, you got to take my big funding drugs and go public or you aren't cool. And it's really about what they're selling.

00:19:00:06 - 00:19:31:10
Todd Sullivan
Yeah, I think what I really appreciate about the education that you're giving is it's not so much judgmental about whether you should take venture or not, but you're educating founders around what are the questions you should be asked? What game are you playing? Know the game that you're going into, Right. So, yeah, very much appreciate that. I'm also seeing a lot of founders, these kind of newer generations, look at their entrepreneurial career really as a career path.

00:19:31:12 - 00:20:05:08
Todd Sullivan
Right? And so they're going to be building multiple companies and they're really enjoying the journey. And so I love it when somebody gets to the point in five years, $17 million of ARR with profitability and a growth rate of 75% year over year. I mean, that's the magic that's the trifecta for hitting an enormous valuation. And so when you advise a client like that, do we say, Hey, is it time to take chips off the table because this is got to be the majority of your net worth and these are the ways that you could possibly do it?

00:20:05:08 - 00:20:21:11
Todd Sullivan
Or do we say, no, we're going to keep this same growth rate, we're going to hit $25 million of ARR because there is an enormous step up at 25 of an EBITDA multiple. Right. So do you think through that game with your founders?

00:20:21:13 - 00:20:40:00
Greg Head
Well, that's actually the game to talk it through. So you've got people selling growth equity funding or private equity, take money off the table and get a second bite of the apple. You got VCs saying keep raising big funding and go, go, go and go public someday. That's their goal. That's why we hear about this, because it's their goal.

00:20:40:01 - 00:20:57:18
Greg Head
There's maybe one of the other founders or somebody says, Man, we could just run this ourselves and have a great life and run it for 20 years. And this is the most fun we've ever had. Why would we want to screw it up? Right? By the way, that's another possibility, is run it for a long time and run it profitably.

00:20:57:20 - 00:21:24:03
Greg Head
I didn't see that in the old days, but these are the happiest founders I know with the happiest employees and happiest customers is they're just doing it for the right reasons. And they found the leverage. And, you know, it's it's good. So that's a question. And one of the reasons I advocate procrastinating big funding is once you have said I'm taking VC funding or I'm public or I'm doing it, you've kind of gone through a door and you can't go back, right.

00:21:24:03 - 00:21:42:15
Greg Head
If you Yes, yes. If you're bootstrapped in lightly funded with friends and family and they're like, just go do what you want to do for practical funding, you have optionality. You could do what you want, and a lot of founders change their mind. Some people get to the exit door and say, Wait a minute, this is my identity.

00:21:42:15 - 00:22:10:16
Greg Head
And I don't want to go create another business. And so they pull back. Or by the way, on my podcast, the Practical Founders podcast, I've talked to 30 founders who sold their business and they're so addicted to the game of creating companies, changing the world and, you know, building like I am that they sell their companies and it's the happiest day of their life when the check hits the bank, then two days later, when they don't have a team or an identity or a place to go or mission, and it's the worst day of their life and they then they do it again.

00:22:10:20 - 00:22:31:16
Greg Head
So there's all kinds of ways to do it. And thinking through without, like usually the advisors are selling something and so they're waving their hands saying, Pick me, pick me, pick my way to do it, and there's all kinds of ways to do it. So the my podcast is about saying, here's another way to do it. And it worked for them and they tried some, it didn't work.

00:22:31:16 - 00:22:55:20
Greg Head
And there's a lesson. And so here's that and there's all kinds of ways to do it. So and thinking through that. So I've gone from helping founders more operationally and strategically, and they're growing their business because I've been in the nitty gritty for years and years from at every level, top to bottom, to getting founders together to talk about what they think their game is that works for them.

00:22:55:22 - 00:23:17:12
Greg Head
What's their why, what's their market, what's the timing? You know, some founders have a number that say, if I get this number, I'll sell it. Yeah. And you know, and then they change their mind or, you know, otherwise. And it's all different sometimes that changes. Health issue comes up. I got to sell it or you know market change so I'm getting need by competitor It's time.

00:23:17:14 - 00:23:45:14
Todd Sullivan
So you know I like the comment you said advisors they're all selling something you're in the unique position of you don't have to work right You could go build another company and fund it yourself, but you've chosen to help founders, right? So you're coming from this place of real authenticity and we think of ourselves very, very similarly. We don't have to do this, but we have learned so much about M&A and we know that that is the black box for for many, many founders.

00:23:45:14 - 00:24:10:05
Todd Sullivan
So if we can get them a little bit smarter about these decisions, we know we're giving back. And yes, it does benefit us as a company when we help a founder actually execute on an M&A transaction. Yeah, Yeah. What was far more interesting is the conversation that you're in to say to those founders, Hey, this is what we know about M&A today, right?

00:24:10:06 - 00:24:36:06
Todd Sullivan
It changes every year. It's a little bit different. But today, the value of what you have in the market and I would say to your founders, you you have the trifecta. Most of these companies that are have a growth rate like that and are pouring ARR out have not focused on profitability. And today in today's M&A market, profitability is really, really valuable and the multiples are higher for profitable companies.

00:24:36:08 - 00:25:02:15
Todd Sullivan
And if you think that you're in the fourth or fifth inning of your game, this may be the time to maximize your ROI. Or we say, you know what, you're at $17 or $20 million of air is the magic number and your multiple jumps from 10 to 15. So that is an enormous difference in enterprise value. And I'm kind of making up those numbers because it's different for every industry, right?

00:25:02:15 - 00:25:10:10
Todd Sullivan
It's not software is not just software, right? We've got fintech and property tech and recycling tech marketplaces.

00:25:10:15 - 00:25:12:22
Greg Head
Yeah, that's right. It's not all B2B SaaS, right?

00:25:13:02 - 00:25:33:22
Todd Sullivan
Absolutely. So we love having that discussion because it's first about, hey, let's get wise, right? Let's get wise about M&A and what are your goals? And if you love, love, love running this business and your team loves it and people you know outside your investors are saying we want an exit, well, you got to do what's right for you.

00:25:34:00 - 00:25:53:00
Todd Sullivan
Most investors are not saying, hey, we want an exit now like that. In my experience, tends to be the minority. The majority is when you're thinking about exiting and you have, you know, a sophisticated investor. They want to dump more money into their big winners, right? So they want to see if they can create the grand slam for the fund.

00:25:53:00 - 00:26:10:18
Todd Sullivan
Yes. And like you've mentioned right now, the hurdle is higher. You got to have the billion dollar valuation to get paid. The same for the founders. Right. It is a it is a very tricky, tricky slope and you've been through it. So I love the fact that you're kind of giving this advice today. But, you know, on your podcast, which is fantastic.

00:26:10:20 - 00:26:31:06
Greg Head
And what's interesting to me is these founders there, you know, may they may be first time SaaS founders, software founders and they're very smart people. They're very earnest. They see problems in the world, they're builders, they're doing abnormal things. They're doing two jobs. They're grown in this job to get this thing going. They're really hard workers. They're very savvy, super smart, all this kind of stuff.

00:26:31:08 - 00:26:54:06
Greg Head
And they say, I think I need funding. And I asked him why, and they don't know what the VC funding game is, and they haven't really declared what sport they want to play to pick up the right tools for that sport. And and so I back it up and say, well, let's talk about this. So VCs are very educated about this, like super sophisticated and they got the leverage in the game and everything.

00:26:54:12 - 00:27:25:02
Greg Head
So they knew kind of naive founders with big, you know, ego, you know, worries or whatever emotional gut of a vulnerable, you might say, ah, you know, getting kind of sold these things and they're just naive about it. But once you get savvy about it, you can choose, choose your sport wisely. And I think the same thing is going to be said about M&A, like it's your life's work and your investment and your money and your worth and all the buyers that you work with.

00:27:25:02 - 00:27:40:02
Greg Head
Do this over and over. Right? And they've seen every playbook and they've seen that watching the tapes that they got all the best advisors in the world. And here you come and you don't know anything. Founders tell me over and over again on my podcast, I try to sell at once. I try to do it myself. It was a real mess.

00:27:40:04 - 00:27:57:01
Greg Head
Maybe they did it and they said, I won't do that again. And the second time they get better help and for all the right reasons, it's just something you don't do very often. And it's very complicated and it's easy to get wrong. And you know, the DIY method can work in a boom time when somebody just makes a crazy offer that you can't refuse.

00:27:57:01 - 00:28:07:05
Greg Head
But if you got to be more deliberate about it, getting great help for this thing, you're going to go through once that you know, stop working on, you're not become an M&A pro.

00:28:07:06 - 00:28:33:21
Todd Sullivan
Yeah, I mean, that that is you know, literally our talk track is you are great at building a business to this point. If somebody is multiple people are seeing value in it to potentially acquire it. What you've never done and you shouldn't be an expert in is selling that business and the true, true professionals and not only risk spending the next six months to find the right buyer, the right fit and maximize the outcome.

00:28:33:23 - 00:28:58:17
Todd Sullivan
But I think one thing that gets overlooked is having that expert team, Somebody that's really in your industry knows your buyers, gives a ton of confidence to the buyers that are real transaction is going to get done that there's real conviction to do a deal. Things are going to be reasonable, they're going to be certainly negotiated and we are those investment bankers are going to be fighting for every dollar for you.

00:28:58:22 - 00:29:16:08
Todd Sullivan
But it isn't a joke. It isn't something that is going to fall apart because of a lack of experience. And I also say that to founders, we can get you the best possible teams in the world, but you got to know who your buyer is. Buyers who are unsophisticated can cause just as many problems. So there are a lot of.

00:29:16:10 - 00:29:37:05
Greg Head
This is news to some founders, by the way. Like, yeah, absolutely. Money is smart money. Even if they got a fund and everything, they may be playing a simple playbook and being naive themselves, right? So there are savvy VCs. Yes. Who are wise about the game. And there was a lot of newcomers who were just prescribing drugs without that much.

00:29:37:07 - 00:29:38:00
Greg Head
And you know, and you don't.

00:29:38:00 - 00:29:58:10
Todd Sullivan
Know and you don't know who you're getting in bed with, Right? Somebody has got to know. And so if you have the right representation, who already has a relationship, knows how those buyers behave, know not just post-transaction, but during a transaction, are they going to re-trade? How do they think about working capital? What do they bring to the management team?

00:29:58:12 - 00:30:20:09
Todd Sullivan
There's so many components of it that at the core of the founder of the business should not have to be an M&A expert. Leaning on experts is going to benefit you is over and over and over in so many different aspects. So I appreciate you saying that right. It's our mantra. I don't want this to be an Exitwise commercial here, but it's just just just so important.

00:30:20:11 - 00:30:46:13
Greg Head
Where in that game, the whole thing is about specialists. So, yeah, I've got actually quite a huge following on LinkedIn about what I'm talking about. And I talk to founders all the time because just like this founder call I had earlier, I met specialists here. I don't know about restaurants and I don't know about marketplace software. I do know B2B SaaS literally we had a conversation and I asked him four things about his metrics and I could tell that he was profitable.

00:30:46:13 - 00:31:05:08
Greg Head
I knew what his growth rate was. And, you know, we talking about funding, I could tell the math. And we were I was right there with him. I knew his biggest competitor. I helped her start the company. Yeah, right. So it was like it's not often you run into people that know where you are and are helping in a good way.

00:31:05:10 - 00:31:06:01
Greg Head
And it's.

00:31:06:02 - 00:31:06:20
Todd Sullivan
Absolutely.

00:31:06:20 - 00:31:22:08
Greg Head
Is a lot of general advice that's not very useful for software founders. Start ups are now cool. They were not sexy in the early nineties. People asked me, When are you going to get a real job? And I was doing all these software things that till my company went public, did people say, Oh, I guess there's a software thing here right?

00:31:22:10 - 00:31:43:04
Greg Head
But software start ups are cool, it's over. There's a lot of hype around it. People think, I just need to do it. I need to be public, I want to be one of the cool kids. But so there's a lot of naive general information out there. But getting specialist help, especially for the important stuff for somebody really knows your industry and knows what you do and your phase of growth and all of that, it's very important.

00:31:43:06 - 00:32:03:04
Todd Sullivan
You know, you touched on one other thing which was the happiest day is the day that you sell. And then the next day or the day after is the saddest day. And, you know, I've been through it four times personally. And what I found after the first one, there was dissatisfaction because I literally had no idea what I'm going to do now.

00:32:03:06 - 00:32:28:09
Todd Sullivan
And what's what's fun today is right. You'll you'll see my background. I'm in a client's office and we are selling this business and we have a management meeting going on, which is buyers have flown from out of town from Los Angeles and driven in from Chicago to go through this business and and really go through the details. So they're expressing real interest and that's what why management meetings exist.

00:32:28:11 - 00:32:50:17
Todd Sullivan
And so I'm here helping kind of facilitating a But on our ride home over, I picked up our client at the airport because his business is not in his home state. And what we talked about is, yes, how this this transaction is going to happen, but what is he going to do next? And I kid, what was exciting is the wheels were really turning.

00:32:50:22 - 00:33:15:22
Todd Sullivan
This is a business that doesn't require his expertise beyond maybe a three month kind of pass off period. Some share, some intellectual property. And so it was really exciting to hear about all the ideas that he had. And for me, my next three exits, I always knew what the next thing was going to be, and that just had me really motivated to get to the finish line, take a breather.

00:33:16:00 - 00:33:36:12
Todd Sullivan
But I have a plan, right? I know the check is there and that's nice, but what am I going to do with my life? And does it more align with my values that I've refined over time? And this is what I'm seeing this founder do is just super exciting to watch. So I appreciate you bringing up that can often be, you know, real dissatisfaction after a transaction.

00:33:36:12 - 00:33:44:10
Todd Sullivan
And I would just urge founders to really understand what their life could be like, should be like and will be afterwards in planet.

00:33:44:12 - 00:34:11:04
Greg Head
Where it's very common in the software business where we can create company companies with recurring revenue and it doesn't take a lot of funding. You could code something yourself, forget your first customers and zig zag up to 5 million and get it without funding. But we have recurring revenues and high growth rates and low, you know, high margins, right in the software business and multiples of revenue on exits.

00:34:11:06 - 00:34:33:03
Greg Head
Right. And strategic exits like five times, ten times or more even in the post boom times right now it creates and I've been there, which is you're all in on this thing. You're changing the world and moving industries and growing companies fast. And there's really big prizes it's, you know, so a lot of people go and it's a lot of fun.

00:34:33:03 - 00:34:54:15
Greg Head
It's an amazing game. A lot of founders go all in on it. And I was certainly one of those did. And it was very difficult to not do that, not be a workaholic, not to be the king of the hill, not to be changing the world, not to have, you know, a team climbing Everest with you every quarter, it seems like.

00:34:54:15 - 00:35:18:21
Greg Head
So there's some therapy. Just the modern SaaS business is more steady than the old software business, and it's still more exciting, but there's degrees of intensity that founders put into it and the amount of therapy it takes to get them over the hump. Some founders are pretty good, meaning I'm taking money out of my software business, I'm having a great life, and if I sold it, I'd just continue that.

00:35:18:23 - 00:35:26:22
Greg Head
So there's there's a continuum of possibilities there, but there's generally some therapy. That's part of the whole process that I'm sure you provide.

00:35:27:00 - 00:35:54:00
Todd Sullivan
You know, a one step back just a second, because our listeners have told us they really appreciate when we define things and we've said ARR a couple of times, right? So the annual recurring revenue in software businesses, the value of companies is a multiple of ARR, that recurring annual revenue as opposed to a lot other businesses that are valued on EBITDA, which is more like profitability, right?

00:35:54:00 - 00:36:16:15
Todd Sullivan
So you might have a big, big, big topline revenue number, but your profitability is low and the multiple is against that profitability numbers. So software is very, very special in that way. And what we what we see is once you reach $2 million of ARR, a lot of hands start to raise on the buyer. Yes, that's interesting. That is good talk to those founders.

00:36:16:15 - 00:36:17:22
Greg Head
They're getting those calls right.

00:36:18:00 - 00:36:37:22
Todd Sullivan
And and yeah, so so you may be getting those calls and maybe you're not profitable yet, but they're seeing kind of the trajectory and I say this on a lot of podcasts, but on our plan, a lot of our episodes that buyers are buying your future cash flows. So when you're the more you're creating certainty on that continued growth and that growing.

00:36:37:23 - 00:36:58:12
Todd Sullivan
ARR the stickiness of that. ARR It's incredibly valuable. So when you start to get those calls, you really want to understand, you know, who who is calling. It's really like a needle in the haystack that you're actually going to sell to that person that called you. But it might be the wake up call to say, Huh, I wonder what my business really is worth.

00:36:58:12 - 00:37:25:22
Todd Sullivan
And talking to somebody like you who's mentoring founders in that position, I'm sure you have a kind of a good sense. We can certainly be helpful by finding you the perfect kind of investment banker in that industry to give you valuation. What we see is if you can get valuation range from three industry specific investment bankers, then you have a really good sense of where you would trade today, but more importantly, where could you be?

00:37:26:04 - 00:38:02:13
Todd Sullivan
How much more should you grow to really, really maximize? Those are the really kind of fun conversations and then you can affect that valuation operation, really, right? We're going to spend effort going in this direction because this is what drives their personal ROI. And it sounds like that's what I love. That's what I take out of what you're doing today is educating founders around making those right decisions, around funding the business and growing the business and really enjoying the ride, but at the same time making sure that they understand their personal ROI at any given point.

00:38:02:15 - 00:38:21:13
Greg Head
It's pretty magical. It's one of the things I've been after all these years. It's like, I don't want to say how many years I've been doing this. It's been a long time. It's has been the software business. The software business is pretty magical. And you you can actually have a life and profits and growth and multiples of revenue at the same time.

00:38:21:15 - 00:38:41:17
Greg Head
And it like these days it's pretty amazing people have worked harder in other industries for less for sure, right? So it's pretty crazy. And AI's coming in. One things I say about the software industry that's different, I mean, it's all digital, so we're making this up and there's almost no marginal cost to the next unit of a web based software, right?

00:38:41:17 - 00:39:06:20
Greg Head
It's, you know, the pennies it takes to deliver it to you or something like that. So it's really different. But in a software business, you can you can make something 20 times better than the alternative, 50 times better. In the hamburger business, it's hard to make a burger five times better than somebody else. MM Right. Or A water bottle ten times better, right?

00:39:06:20 - 00:39:23:18
Greg Head
What you maybe with you put Michael Jordan's name on or something like that, but like in software business, smart people can do that. And it's just an amazing business. I'm just very fortunate to be still at this. Software business is still going. It hasn't phased out like a lot of businesses and you know, it's going to change some things of the rest.

00:39:23:18 - 00:39:42:06
Greg Head
So it just opens up a lot more possibilities for founders. And that's the discussion we're having. You could sell, you could take money off the table, you could grow it. You can do it for profits. You could, you know, all kinds of ways to play this game and not just the big VC funding go public game.

00:39:42:07 - 00:40:03:05
Todd Sullivan
Greg, Let me clarify, because I believe I understand it when you said, you know, you can grow software businesses and still have a life, are you referring to the idea that once you've figured out product market fit, you figure out unit economics and you start selling those sales continue. It isn't kind of eat what you kill. I have to sell X, I get Yhave to sell X again?

00:40:03:05 - 00:40:04:18
Todd Sullivan
I get Y. Yeah, it's it's the.

00:40:04:18 - 00:40:26:06
Greg Head
Bootstrapping game is really hard like to go sell to go create a product and sell it and get into revenue and use your own money and run two companies at the same time so you could fund a new product and all of that kind of thing. But at some point the business kind of grows up and there's a little profit there and it's a recurring revenue business, which is a beautiful thing.

00:40:26:06 - 00:40:50:01
Greg Head
The software as a service thing, there's beautiful metrics to manage it and get better and better where you don't have to work 18 hours a day forever, and some founders work three days a week. And, you know, some founders requested that you don't. They want to dial it back and go kitesurfing for three months, you know, or start or.

00:40:50:01 - 00:40:50:16
Todd Sullivan
Start their next.

00:40:50:16 - 00:41:08:05
Greg Head
Business another way. Like, Oh my God. Jody So I didn't know you could do that. I'm from the Midwest. We don't think about it that exact way, but like the old days, but grow in a public company and five years, there was no time for anything other than my wife and my young kids and and the company and the old.

00:41:08:08 - 00:41:38:01
Greg Head
In the nineties, you traveled every single week, including internationally. So it's a little easier to talk to people all over the world these days. But like, you know, it was pretty all consuming. So it's kind of a new possibility that people could have once you get humans, you do the investment right to get the flywheel going, build a team and find a niche and keep expanding the the leverage that founders in their teams can they have a manageable life.

00:41:38:01 - 00:41:46:20
Greg Head
And, you know, a lot of companies with $3 million of recurring revenues, ARR and 12 employees and everybody's really happy.

00:41:46:22 - 00:42:02:17
Todd Sullivan
Yeah, well, Greg, this has been awesome. Is there anything else that you would like to kind of impart as as your words of wisdom and advice to our fellow founders? We've learned a ton here, but anything else that you want to kind of leave us with?

00:42:02:18 - 00:42:25:00
Greg Head
Well, I just reinforce the point and it's kind of the practical founder way that I talk about that there's all kinds of ways in the software business and many other businesses to play the game and the big money. You think about the price of the exit or the big money that funders show up and say, I want a piece of you, and I could multiply there.

00:42:25:01 - 00:42:48:00
Greg Head
It's just one of, you know, in some sense masks what the real game is for you and your life and your customers and the impact you want to create in the world. So I'd say it's all very exciting. But, you know, founders should be thinking about expanding the possibilities in the modern era of creating what they want to create in the world in their own way.

00:42:48:00 - 00:42:53:01
Greg Head
There's more ways to do it now than there ever were, and it's just amazing.

00:42:53:03 - 00:43:17:05
Todd Sullivan
Well, thank you. Look, this has been really good. I really appreciate you taking the time. I know your time is precious as as everyone's is. I would just really encourage people to take a listen to the Practical Founders podcast. I think the conversation that you're having, founders, SaaS founders in particular, is just it's very authentic. It's coming from a place of like, Hey, I've been there, any advice is really solid.

00:43:17:05 - 00:43:21:08
Todd Sullivan
So I appreciate you being here and sharing your words of wisdom.

00:43:21:10 - 00:43:25:02
Greg Head
Thanks to for all the work you do to help founders do the right thing.

00:43:25:04 - 00:43:49:12
Todd Sullivan
Thanks, Greg. Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember exercise dot com and the Cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.