I read an article about the professional employer organization businesses in the New York Times and it really intrigued me. I approached John and after a bit of discussion we decided to quit our jobs and go into the PEO business.
I have to say in retrospect, it was one heck of a leap of faith. We really did not know what we were doing and what we were getting into. We founded the company with $95,000 in 1997. We worked really hard, figured a lot of things out and I think we were very lucky. Right place at the right time. We were fortunate that we grew very rapidly very quickly.
From the beginning we focused on high-end, white-collar companies, particularly venture backed technology companies.
Later in our life cycle we built a huge practice around financial services, private equity firms, venture capital firms and hedge funds.
What that focus allowed us to do was to really deeply understand the needs of our client base and put in an incredible amount of effort to tailoring our service offering and our service platform to the needs of those types of companies.
Strategically that was our inside advantage and I think was the reason for our success.
We came to the conclusion that leadership’s responsibility was to put an incredible amount of energy and focus on our internal workforce, on our employees. Our responsibility was to build an awesome culture for our employees. Our responsibility was to get every single employee to the top of Professor Maslow’s pyramid.
To get them self-actualizing. To get them out on the court playing the best possible game they could play each and every day.
When you do that, then your employees will deliver an unbelievably awesome experience to your customers. So that was our formula for delivering a wow experience. For us, as leaders, the plan was to put all of our energy into our players and let our players deliver a great experience to the fans and the customers.
We knew if we did that, when the time came to sell, we would have choices. Now what happened to us, which I think happens to a lot of entrepreneurs, we were in business 15-16 years and we had built up a very nice company. Our EBITDA was approaching $20 million per year and what happened to me, which I know happens to a lot of other entrepreneurs, you do start getting very nervous that substantially all of your personal net worth is tied up in a small or mid-market company. You don’t want to lose that. A bird in the hand is worth two in the bush.
We were getting a lot of phone calls from the private equity community. We were getting a lot of phone calls from bankers and we were getting a lot of calls from our competitors.
The valuations were high. We felt that for our industry valuations were at a very nice place and our business was performing the best it had ever performed and we felt that the convergence of those factors, the desire to take some of our equity, in this case all of our equity, off the table, and the fact that our industry was very attractive and multiples were the highest they’d ever been and our business was performing very well. We thought that it was just a great convergence and a great time to sell.
So we did not go through a formal auction process, although we did speak to a number of potential purchasers. So I would say it was a very abbreviated auction process.
Honestly, in retrospect, I am not certain whether that was the right decision. I sometimes think that we probably would have benefitted by hiring a banker and going to a full auction process.
I’m not just saying that, James, because I’m here today speaking to you. It’s something I’ve spent a lot of time thinking about.
I was lucky. I raised that with General Atlantic and Tri-Net and they were totally cool with that, but coming to that conclusion pre-sale was emotionally really, really difficult.
Then we sell the company and we announce it to everybody and I get my wire transfer and you’re feeling pretty awesome about that and then I’m packing up my desk and hugging people and crying and leaving. Very emotional.
Then you go home and you’re like – what do I do now?
I’m busy all the time.
It’s just amazing how you’re just a Type A entrepreneur. That doesn’t change. Trust me. You will find things to do. Your phone starts to ring. In this day and age if you have a nice transaction, you were a success in your industry, your phone rings.
Also because of my book, I’m spending more time than ever on the speaking circuit, which I really enjoy doing. I’m a guest lecturer at Rutgers Business School, at Tufts University, at Harvard Online Extension. . .
I’m speaking at a tech conference in Gdansk, Poland in May. I’m spending a lot of time working with a private equity firm flying around the country helping them assess leadership teams andcompanies.
I’m also doing some leadership coaching of a few mid-market companies. Working with leadership teams on a quarterly basis helping them set goals and build a highly functional corporate culture. This is all a lot of fun.
You can’t ignore it. You have to think about it and emotionally work through it.
So based on my experience, I have two pieces of advice.
One is I think you have to do a very frank assessment of your company. Is your company ready to be sold? Is it a high functioning, highly performing company that’s at the top of its game or is it something less than that.
You really have to, I think, assess objectively your company and where it is in its life cycle because that is gonna have a big impact on the valuation you’re going to get for that company.
I’m seeing right now when I’m flying around the country with my private equity firm, I’m seeing a big disconnect between where these companies are and where the entrepreneurs think these companies are and their valuation expectations.
That can be very sobering for a lot of entrepreneurs. They’re not objective about where their company really is in its life cycle, and their valuation expectations are out of whack.
If you’re going to take off a significant number of chips, you have to be emotionally and intellectually prepared to step back and let go.