5 Steps from Startup to Exit. A CEO's Transformation

The Business Transformation Podcast Episode-006-Steven-Pivnik

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5 Steps from Startup to Exit. A CEO's Transformation

In today’s episode, we are joined by pioneer Steven Pivnik who runs AIP Advisory, Acresis, and the Inc. CEO Project. He is a business-focused professional driven by his passion for helping other leaders to find success in their respective companies. He takes pride in his strategic planning and remarkable execution to assist his fellow CEOs in scaling their business to the next level.

Get ready to start your engines because, in this session, we will navigate how he started his own company and dabbled his way to advising business leaders. He also walks us through his process of engaging with starting CEOs and gives us practical steps that we can utilize in our own business.

“Surround yourself with the right partners.”

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Transcript

Heath: Welcome to the Business Transformation Podcast and in this episode, we’re talking to one of those industry experts. We are speaking to Steven Pivnik. Steven has a unique experience of building and running a fast-growing international IT software and services business from a founder’s perspective. This experience covers large licensing deals with IBM, Google, Microsoft as well as partial and later full exits. Currently, Steven holds many titles, which is not uncommon in the marketplace today. Steven holds the CEO Advisory Board Member at Inc. CEO Project. He is also the founder and CEO of AIP Advisory LLC, operating partner at Acresis LLC, also been in there for some time. And the one that’s a lot of experience in enterprise or powering enterprise transformations at Binary Tree for 27 years as both the founder and CEO and then moved into executive chairman. And prior to that, CIO of NeedToMeet and many other roles. So we’re looking way back here going into the late end of last century. Lots of experience in both startup and also in transformations. So, we got a vast range of topics we can cover here. So, Steven, let’s start from the beginning. How did you get into what you’re into now? You now advise the CEOs.

Steven: So, I went through a pretty interesting journey in starting my own company and growing it internationally to about 200 employees across 12 countries. I’m servicing the vast majority of the Fortune 5000 clients that are out there. So I can talk about all the transformation projects that we’ve worked on. But what I’m doing right now currently in my next chapter is taking the experience I went through and taking other fellow entrepreneurs and other founders through a similar journey, because there’s a lot of, you know, headaches and a lot of challenges involved in growing any company and then later successfully exiting it. So I’m finding it — and it’s been 16 months since my last exit, so I find it very rewarding in helping other entrepreneurs navigate this incredible journey.

Heath: Okay, fantastic. So you come from — people talk or refer to me as, you know, people who write books about what they do and they’re more an academic and then you get people who are practitioners, who do what they say. And so you are one of those guys that have done — you are not only talking the talk but you have walked the walk.

Steven: I think so, thank you.

Heath: Yeah, yeah, no, fantastic. So you had a really firsthand experience and that’s invaluable for even guys like me who have their own startup and now you’re advising them from a perspective of you’ve been there before, you know what it’s like. So do you have a particular process that you follow when you go and engage with the CEO or you go and engage a client for the transformation?

Steven: Yeah, there’s a couple of different starting points. It all depends on how far along the journey a company is and how mature they are. So, for instance, with Acresis where I’m an operating partner, we typically specialize in companies that are doing north of 5 million USD in annual sales, between 5 and 100 million, you know, is our sweet spot, and we typically start off with an executive team assessment and evaluation and we wanna make sure that the CEO is surrounded with folks that have been there, done that. In my mind, there’s nothing more important for a leadership team. People that don’t have the experience that is necessary at the company’s current size or at the size they need to be at aren’t going to be as effective as people that have been there, done that. So, an executive team evaluation and assessment and potential upgrading of talent is super important at stage 1.

Heath: You see, I talk about teamwork makes a dream work and so it sounds like you’re big on team.

Steven: Oh, 100 percent and the teamwork needs to be there and the expertise and the talent on that team needs to be top graded in order for the growth and the eventual exit to be successful.

Heath: You did two things with that assessment, you did the current state assessment of where the company is at that point in time and then you did more like a transformation delivery speak, does say the Target Operating Model or the Future Operating Model. What does that look like? And then you’re looking at it going, do you currently have the capability for where you want to go with the current staff you’ve got? Or if you don’t have it, then you’re saying we hire or you go looking for, fill the gaps maybe?

Steven: Yeah, 100 percent, that’s well said. And another really important part is like most CEOs, founders, they’ll say, great, you know, that’s a great process. I agree. But then we also turn the people back to him or her and say, “Are you the right CEO for the rest of this journey?” And that’s a really, really tough pill for many to swallow, and in most cases the answer is yes, which is totally great and then, you know, we proceed. In my case, when I asked myself that question with the help of my Acresis friends, because I actually utilize them as an advisory company for my own corporate growth, I said, “No. You know what, I’ve taken this company as far as I possibly can and I’m happy to hand over the reins to a professional CEO that have been there, done that and has experienced at this size company and greater.” And, at the same time, I gave myself a promotion to executive chairman.

Heath: So you get the golden parachute then?

Steven: Yeah, yeah, exactly. People think if they relinquish the CEO title, they’re relinquishing control of their organization and that’s definitely not true. So, there’s definitely an opportunity to maintain control. Obviously, it’s not on the day-to-day operational level but, obviously, you’re still hopefully a majority shareholder of the organization, the CEO reports to you or to the board or to the greater board. So still have the control that you’re afraid of losing while at the same time handing over the reins to an experienced executive for the day-to-day stuff.

Heath: Fantastic. Okay, there’s a little tip there for budding founders, that if they were looking at an exit and they’re thinking, “Oh, no, an exit means me giving away the reins of directorship,” they may take up a role on the board, possibly as the chairman, and then still retain control.

Steven: Right, exactly.

Heath: Probably like Rupert Murdoch does with News Limited. He’s no longer the CEO but he’s the chairman. And so the starting point is the guy —

Steven: Yeah, so the guy at the top and the team that he or she is surrounding themselves with. I mean, that’s incredibly important. That’s where it starts. The next step is really around corporate governance and making sure that the organization has all of its ducks in a row. You know, one of my statements is like ABC. ABC stands for always be closing from a sales perspective which I still do, but I like to refer to always be closing as referring to the company’s books. Always be closing your books. All your business processes align in such a way, especially your financial processes, that allows you to close the books as soon as the month ends. You know, our process used to take 15 days, sometimes longer. With the help of a professional CFO, again, back to the topic of upgrading some talent, we got our process down to 3 days. And, again, it took a while, it took a good 6 months in order to refine our processes from invoicing to billing to collections to every single other accounting action that needs said transpire. So, getting your organization in a way, getting it to close quickly so that you have something to present, because you’re going to need to present your financials in a variety of different instances, whether you’re looking for a new partner, you’re looking for new banking relationship, you’re looking for a loan, you’re looking for an equity investor. There’s always going to be a need to present. And back to the topic of corporate governance, it’s just not financials, it’s everything else. You’d be surprised how many entrepreneurs just don’t have all of the standard documentation available when needed. You know, your incorporation papers, your stock option plan, your employee list with their compensation plans, the sales compensation plans, et cetera, et cetera, et cetera, et cetera. There’s a myriad of documentation that’s required and for that — when that’s organized properly and you’re asked to present it, you’re actually building better credibility when you’re presented it professionally versus giving organizations data that they’ve requested piecemeal.

Heath: Okay, all right, so you want to package it up so it’s more of you’ve done a lot of proactive activity beforehand knowing that that request may come and so, one, you’re looking good, but also looking good as a result of having good processes.

Steven: Right, exactly. So, the next one is strategic planning and execution. And this is a step that typically branches off into many different areas throughout the length of an engagement. Again, amazing how many companies don’t have a strategic plan in place in what they’re looking to accomplish. They’re kind of, you know, most organizations are one by the seat of the pants and they’re just reacting to various market changes and market shifts and then they pivot in one direction, pivot in another, people are just in love with, “Oh, we just pivoted.” Well, those probably weren’t necessary if you have properly planned for that. That’s not to say surprises won’t happen, for sure, but you need to be executing against a strategic plan that you’ve set for yourself 1, 2, 3, maybe 5 years.

Heath: Okay, so with that strategic plan, which I think that’s probably an overlooked thing, something that is probably, let’s say, mixed up or a bit confused between a vision, what they want to achieve, and the mission, they say, “What is our purpose?” and then sort of the vision would be, “This is our number one — and transformation would say this is a number one requirement, and then we’ve got some strategies, we’ve got people process, technology, and data that we can pull or leverage, so go, “What are we gonna do with our people? What’s our people element of our strategy to implement this vision? What’s our process? What’s our technology? What’s our data?” Do you look at that as well when you’re having this conversation with the CEO and say, “Okay, where are you going? What’s your true north look like? What’s the vision?”

Steven: 100 percent, those conversations are definitely a necessity. And what I found, which is really helpful, is to get others’ opinions on a variety of topics. Another organization that I’ve worked with part of is called Inc. CEO Project and that’s basically a high-level summary is a CEO peer advisory group. So, it’s really interesting when you present business challenges and planning and desired outcomes to a diverse set of CEOs of similarly sized companies. It’s one thing to continue to get advice from peer groups within your own industry but it’s probably gonna sound the same. So when you present, when a technology company goes to a manufacturing company and presents a challenge, you’d be surprised at how interesting the response is and how it’s implemented and get fantastic results. So advisory boards, you know, other executives across industries, which I was part of for many years, you know, super useful in those cases.

Heath: So that’s sort of like — what do they call it? Homogeneous and heterogeneous groups where you’ve got the mixing, it’s almost like the complementary, you get such a diverse group of people together, who has something in common, some common thing about them, but because they’ve got different mindsets, they bring this unique perspective to the group. And you find that like it’s almost like a brainstorming session with guys that come — as you said, same size but different industries. Is this the whole concept of the Inc. CEO Project organization?

Steven: Yeah, exactly. So it’s advisor led so for each group, there’s an advisor. There’s members, like I said, across various industries, you know, plus or minus 20 percent in revenue. The group really meets almost as an unofficial board of directors. There’s a quarterly meeting where individuals, you know, present their financials and present their financials against forecasts so it starts to build some discipline where you’re actually either meeting, you’re forecasting your financials for the next meeting and then you’re being held accountable to those financials. And then you’re also presenting a business challenge and you basically go around the room and you’re getting advice on that business challenge from other team members and then everybody else does the same. So, the quarterly meetings typically last two days and there’s just a wealth of knowledge that’s exchanged and garnered.

Heath: Okay, you see the interesting thing there about discipline, that’s — I’m helping a client at the moment and what I’m trying to describe to them about managing the processes and said managing this processes requires discipline, discipline in your process management. Successful projects don’t run because it’s ad hoc, it’s run because it’s highly disciplined. And so if you want to be successful, you need to apply some discipline. And it’s gonna require some, in this case, it’s gonna be a cultural change, because they like this autonomy. Yeah. So how do you find that when the CEOs, I’d imagine, they’re used to needing to provide some form of discipline? So the learning curve or the cultural change for them probably is not that big.

Steven: Yeah, I mean, it all varies. With an organization that has some semblance of a board, whether it’s an advisory board or a true board of directors, or if they have, you know, other shareholders involved so there’s already some level of discipline, but it’s never the level of discipline that’s ideal or that you see in a public company. For the most part, it’s relatively, you know, sub-$100 million companies, there’s some level loosey-gooseyness that occurs and, you know, tightening those screws is always beneficial for everybody involved.

Heath: Okay, well, thanks. So we started from the CEO, we’ve got our team together, questioned the team whether the right people are in place, even questioned whether the founder themselves is the right guy. Now you’ve put some corporate governance mostly around financials. However, the financials are so far the result of all the processes. So, that would mean some looking at the processes itself, like I’m a big advocate of when you’re making changes in the organization, where do you make the changes? You make the changes where the work is done. Where’s the work done? In the processes. And the processes, I think, is overlooked. People go, “Well, we just do this,” or, “We just do that.” And I said, “Well, when do you do it?” “We do it all the time.” So it’s overwhelming them. It’s overwhelming because you don’t understand what you’re doing. You need to have it documented down in some format. And then this is the criticism of consultants where they create cottage industries of process mapping and they need, you know, they get caught up in it and all they’re working on is creating beautiful presentations for clients but not about transforming. So, how do you go about with that part of — going into that part about the processes? You help them with — what? Streamlining their processes and clean them up in some way?

Steven: Well, it’s always great force for an outsider to take a look at how processes run because, you know, a statement, like when you’re in the forest, you can barely see the trees —

Heath: Oh, yes. That’s a good one, yeah.

Steven: — outsider whether it’s an advisor, you know, like myself or maybe a peer group advisory firm, when they see something, they always say, “Why are you doing it that way?” And then the typical answer is, “That’s because we’ve always done it that way.” And I hate it, you know, that answer, like my own company, I asked, “Why do we do it that way?” So, it’s really refreshing when the light bulb goes off and then the person says, “Well, you know what, I never thought of it from that perspective or in that context and we’ll change that.” And slowly but surely, things start improving.

Heath: Okay, so you’d like to — you have, in your mind, probably, what the outcome should look like but you lead the client, the CEO, in that case, and possibly the team, to their own conclusions, which you already had preconceived already so they own that solution.

Steven: 100 percent. I mean, it’s a lot easier to sell somebody their own solution versus telling them what to go. So, you go down that path and then their light bulb goes off and it’s —

Heath: From your perspective, that must require a lot of discipline itself, because you’d just like to give them the answer.

Steven: Sometimes the answer is readily available, sometimes it really does take a certain amount of discovery and due diligence to get to that answer. But it’s there. The answer is there.

Heath: Okay. All right. So we’ve got that then. So now you’ve gone through that strategy, planning, and education. Now, what’s the next step?

Steven: So the next step, and this is often overlooked by a lot of entrepreneurs, is actually strategic planning around the exit itself. Most folks are running 100 miles an hour building, building, building, building, and then, all of a sudden, they find themselves with a potential exit event. That’s basically like an inbound inquiry, you know, somebody’s knocking on the door and there’s an interest, whether it be from a private equity firm, a financial buyer, or a strategic. We found that it’s really, really important to start the exit planning process probably 12 to sometimes 24 months before you anticipate one. And that involves a myriad of things. It involves surrounding yourself with the right partners that are necessary for the proper exit, necessary financial firm, you know, the accounting firm you may be using today may be great, you know what, but they’re not gonna present your financials as professionally as a bigger firm in an exit because the acquiring company is gonna want your audited financial statements from a very, very reputable firm. So you may not have that in place today and you may need it today, but be ready to pull the trigger on one. Same exact thing applies to your legal firm. You may be super happy with the legal representation you currently have, but at the time of an exit, it’s probably going to be one of the most important business events in your life, you wanna be representative by a firm that on does this all day, every day —

Heath: All day, their bread and butter.

Steven: Yeah, yeah, exactly. And then the next one is an investment banking firm. There’s no better outcome for an exit event to be represented by an investment banking firm who’s really, really skilled at creating some sort of auction with your company. You know, getting an offer is hectic and it’s every entrepreneur’s dream, but imagine if there was a little bidding war happening for your company and there was multiple bidders, either financial, strategic, or a combination of both.

Heath: Yeah, yeah.

Steven: So, people — entrepreneurs often don’t like the fees associated with investment banking firms because, from a pure number’s perspective, they seem pretty high, but you’re probably going to get 5X their fee on to the purchase price that you’re envisioning for your organization because they’ll do that for you so they’re worth their weight in gold.

Heath: So I think the common theme there so far is about team, it’s the team, that these partners are an extended part of your team. I don’t know if you’d call them that but, yeah, they’re the subject matter experts in their given discipline, accounting, legal, and then the corporate finance, banking firm. All right. And so there must be some part of marketing involved in there, I’m sure. Or not?

Steven: Marketing the firm for sale or marketing it for just ongoing business?

Heath: Both.

Steven: Both? So, yeah, so I’m a huge, huge proponent of really, really good marketing and we’re super, super fortunate to have, when we went through this process, you know, the upgrading of talent, we got an incredible marketing executive and our marketing activities just literally went through the roof. I mean, the brand image that was created and the amount of marketing created leads that came into the organization, all increased substantially. So, if you have the right marketing executive who he or her also brings a marketing team with them, will also bring all the necessary tools because the tools are evolving at such a fast pace these days in terms of automated marketing so every team member, if they have the skill sets and the necessary tools and the processes, is really going to make a humongous difference in inbound inquiries to your organization. So, I’m a huge fan of proper marketing.

Heath: Okay. So you said a few interesting things here. So, back at the first and second step there about forming the team or assessing the senior guys that are support with an assessment of today that they are guys that would take you to the future and, of course, the current, the target audience or the target client right now is in 5 to 100 million pounds, 100 million US dollars in revenue so they’re already at a size where they’re hiring at that point in time is gonna be quite senior, at a VP level. Like I did a recent HR transformation for an existing organization, I think 14 years they’ve been together, amalgamation of three, and when they looked at transforming the HR division, they already had their senior level people in place but what they didn’t have is they didn’t have a lot of support under those teams, under those divisions. So they weren’t hiring senior guys, they just knew that they had a lack of capability, a lack of people. So but your case is probably both.

Steven: Yeah, 100 percent. I mean, it’s about the processes and the people and there needs to be a marriage between the two, and the right people I have found will bring the necessary processes and the tools with them. Because the way they’ve gotten to where they are is because they utilized best-of-breed technologies and capabilities and processes so they have that skill set and that comes with the package, if you will.

Heath: Okay. So this process of finding those people, to start with, and so how does that work? How do you get there? Where do you start with it? Is it LinkedIn? Is it another — headhunting other companies of similar size and go, “Okay, you did a good job,” 3 or 5 years down the track, that someone’s probably looking forward to leave now —

Steven: Yeah. Headhunting is definitely an approach. That works. I mean, very, very expensive but, you know, sometimes very worth the money because you get an — if they do their job right and you’ve shared in gory detail exactly what you’re looking for and they go out and find that right person, then, again, it’s a hefty fee. I hated that fee, whatever I needed to do with it, but, most of the time, it resulted in a really good quality hire. Another way is just networking. That’s why I’m a huge fan of this, you know, peer group advisory services as well as advisory services from other executives that have been serial entrepreneurs and that have sold multiple companies. Their network is pretty extensive. So, like if you go into their network and say, “Hey, I’m looking for a new chief marketing officer,” or a new head of HR or a new CFO, odds are that their Rolodex is big enough where you’ve got a couple of candidates. They may not be available but, hey, if you’re excited in the company, then it’s your job to sell them.

Heath: Yeah, okay, all right. So, when you want to incentivize them, what is, you know, of course, you know, you’re a 5 million a year revenue company, you’re probably not the first 6 months of starting, you’re probably 1 or 2 years down the track and so you’re pitching someone to come and join your company, probably has come from maybe a similar one or a little bit older, what sort of incentive do you have to dangle in front of them? Is it equity? Is it good package? Or is it that, “Oh, yeah, sweat equity is gonna do it for me, I’m all in, you don’t have to pay me because I know you’re gonna IPO shortly and so we’re all gonna be happy soon.”

Steven: I mean, there’s obviously, you know, the standard components, you know, base pay needs to be average in the industry, average or above. Above obviously is always better if you can afford it and that’s a great recruiting tool if you can pay above industry rates. I mean, bonus packages are also very attractive to folks. A lot of people don’t believe in bonus packages, I found, because they have a really, really bad — bonus packages in general have a bad reputation because they rarely get paid. They’re so complex and there’s so many different formulas and so many dependencies that in the end, even if you had a great quarter or a great year and still might not get any bonus. So, bonus plans need to be structured in a way which are very, very clear so that everybody can understand whether they’re gonna make it or not. Like we over communicated how well we’re performing against plan so that people understood throughout the quarter and throughout the year on how much they can potentially expect.

Heath: Yeah.

Steven: Now, we never guarantee it and there were some cases where there was like a really bad month at the end and it got impacted negatively. There were other cases where, you know, the final month was extraordinary and then it got impacted positively. And there was like one quarter, we paid a double bonus and everybody was like ecstatic. So, a very carefully structured and clear bonus plan is important. And, obviously, equity, equity compensation —

Heath: Yeah, I was gonna say.

Steven: And some people say, you know, similar to my comments on the bonus plan, some people don’t believe any paper that they get from a stock option plan is worth the paper that it’s printed on just because in the past, you know, in previous employers, that equity never turned into anything.

Heath: Yeah, yeah.

Steven: So if you have the right type of strategic plan and you have the right type of advisors on your board or on your executives, it really helps build credibility that this piece of paper that I’m giving you is going to be worth something because they’ve done it before multiple times.

Heath: Yeah, yeah, okay. So, I’m assuming there is, say, equity for an advisor, if even advisors got equity, depending on, you know, maybe there’s three levels of advisor, someone who is — what do you call them? Like a marquee, like a soccer player who’s like the, you know, looks like a celebrity but doesn’t do anything. So, the marquee —

Steven: A spokesperson.

Heath: Yeah, yeah, and then you get someone who might actually get on the phone, and then maybe another, if it’s a third level, someone who will actually do some recruiting, and then go, “Okay, so for you, down the end, because you just kinda turn up to meetings and just give us your feedback, we’ll offer you 1 percent, or maybe it’s half a percent or a quarter of a percent of one share, 1 percent, at that valuation at that point in time and then if you’re gonna be on the phones, maybe it’s a half percent and if you’re gonna be doing recruiting, then you’re gonna get 1%.” So, is there sort of structure out there invested over a period of time so you have to leave and not an unhappy leaver?

Steven: Yeah, 100 percent. So, what I found to be more successful is basically a success fee. So, it doesn’t actually come in the form of equity but it’s equity like. If you give somebody equity or options, then you’re basically adding them onto your cap table, and nobody wants a table that’s messier than it needs to be, especially if the advisory firm has multiple individuals, you don’t wanna add three more people to your cap table. So what I found works best is a success fee based on increase in valuation. So, for example, you’re a $5 million company, if you give somebody 2 percent of that, then you’ve basically given them credit for all the hard work you’ve done to get to $5 million, whereas I find what works best, give them credit from 5 million to above. So, let’s say simple math, if the company grows from 5 million to 15 million, now they’re getting credit for, you know, $45 million in growth and not the entire 50. Well, maybe in that case, it’s different, but you get my point —

Heath: Yeah, yeah.

Steven: If you give an advisor 30 and the advisor helps get you to 40 in the sale, that advisor is only getting 1, 2, 3 whatever percentage points on that incremental value, and I found that works really well.

Heath: Okay, awesome. Awesome. I’m frantically writing notes, that’s why my head is down, I’m writing notes.

Steven: You can watch this podcast later.

Heath: Yeah, yeah, but I’m one of those learners, I have to engage as many senses as I can, the eyes, the touch, feel when I’m studying, you know, I have the essence in the background, the smelling essence, the yin-yang to try to encourage everything. So, I find that — there’s almost an art to taking notes too, though, because sometimes you go back to your notes, you go, “What the hell was that?” Yeah, no, so there’s a bit of an art for the shorthand. Yeah, no, so fantastic. So, there’s one thing then, what they say about leaders are born, not made or leaders are made, not born. What’s your perspective? And then in this scenario at the end, if they’re not born and you need to make them, how do you make them?

Steven: I think you could definitely make a leader. I mean, it definitely helps if you’re born, that’s fantastic, your gift, but leaders can definitely be made if they’re open to new ideas and if they’re open to education. There’s a million books that are out there and there’s dozens that come out, you know, every single month on every single leadership and management topic that’s out there. There are some classics, you know, that have withstood the test of time. One of my recent favorites is Great CEOs Are Lazy, check it out —

Heath: Great CEOs Are Lazy.

Steven: Great CEOs Are Lazy and it’s applicable to any management level. But, again, if somebody is open to change, to learning, and to coaching, then they can definitely be made. If somebody, you know, brings in an advisor, you know, it’s — I’ve personally had this experience where I was working with entrepreneurs and they loved everything I had to say but did nothing.

Heath: Oh, yeah. Tell me about that pain. I have had that pain. Yeah, isn’t that annoying? I had a — it was actually a personal friend of mine and he’ll probably watch this and go, “You bastard, this is what happened.” Yeah, and this is what happened. I said to him at the start and I said, “Okay, mate,” you know, I said, “Look, I’d like to help you but I’m in the UK and you’re back in New Zealand.” And then he goes, “Well, I don’t trust anyone and I’d only do it with you.” And I was going, “Well, you know, I’m honored and flattered but, okay, let’s just have this conversation and see where it goes but I’ll ask you this question because I don’t wanna ask you again in 6 months’ time and you’re gonna change your mind.” I said, “Are you willing to change?” And he said yes. I said, “Careful what you say because we’re gonna put this together and then in 6 months’ time, I don’t want you to turn around and say no.” And, of course, 6 months later, that’s exactly what he turned around and said. He goes, “You’re changing the vision of the company. You’re changing this.” I said, you know, well, this was — it’s a supplement business, it was doing quite well in revenue. One man, he was pretty much doing everything himself, one-man band. Last man standing after 10 years, a lot of the time, a lot of founders, a lot of guys started their own supplement company 10 years ago and he’s the last man standing. And that was his claim to fame and I said, “Great, fantastic.” I said, “So. tell me, who started after you started then?” “Oh, just a couple guys. There’s a couple of small guys.” And so I looked them up. One of them sold for 30 million to milk producer and another one was 20 million to another type —who saw them, as will be classic, you know, a gap in their portfolio and so these guys could fill the gap in their portfolio. Instead of building it themselves, they just bought it. And he goes, “Yeah, that’s what I wanna do. I say, “The only way you’re gonna do that is if you look like you’re the gap in that portfolio. And at the moment, you don’t.” I said, “But if you do want to, then you need to working your way towards it.” And so the vision is there. And then we got to the end of the 6 months, had everything in place. I go, “Okay, this is now — you talked about the team, all the partners,” and it was, “You know what, I don’t wanna do it. I don’t wanna do it.” What do you mean you don’t wanna do it? I said, “We’ve had this conversation 6 months ago so we don’t have it again.” So we had a little bit of a falling out but we’re really good now. And then, so how’s business? He goes, “Oh, yeah, it’s pretty good now.” I said, “Why?” “Because I pretty much implemented everything you said.” At least I wasn’t talking to a hole on my backside, right? Yeah, so, okay. So I imagine it’s a major part of your delivery is the coaching space around CEOs to help not only transform their business, if it was reactive processes to streamline them to get to that 15 days procure to pay all that process, financial processes down, you know, from 15 days to 3 days is like remarkable. What’s that? Almost 80 percent improvement. So that’s transforming the business. What about transforming — even maybe the CEO is gonna, the founder is gonna stay the journey from inception, startup, launch, and then they go all the way to exit, is it the same — I’m assuming it’s the same person that goes all the way, there’s some sort of mindset, leadership shift that’s needed.

Steven: Sure. No, there’s a huge shift, as you know. I mean, again, unless somebody is a serial entrepreneur, obviously, then they personally have been there, done that so they know exactly what that journey is like. So your journey is gonna be very, very different from somebody who’s doing this for the very first time.

Heath: Yeah, yeah.

Steven: I’m sure, and I say this all the time and this applies to everything. Anytime you do something for the first time, you’re not gonna do it as well until the second time or the third time. This is your first time, this is your first baby, it just behooves you to obviously to continuously pivot your own capabilities and just to always be learning because, unless you are, the mistakes are guaranteed. I mean, I really have them.

Heath: Yeah.

Steven: Happy to share them and I’m happy to help others avoid them.

Heath: Okay. So I’ve mentioned then with some CEOs, like I’ve seen personally with people close to me, who will remain anonymous, that they don’t handle change well. Also don’t handle probably feedback well. They don’t like to fail. So they are scared of trying. And they’ll talk about what they want to do but don’t actually do it. And so time will pass and opportunities will get missed and then questions get asked, okay, what did you do? And there’s a lot of excuses coming.

Steven: Oh, yeah, absolutely. I mean, there’s a million and one sayings on this. If you sign up to any of the motivational channels on YouTube or LinkedIn, there’s a million and one posters of you miss every single shot you never take. There’s ten versions of that one alone. And the pyramid — I’m sorry, the iceberg where the tip is the success —

Heath: Yeah, success, yes.

Steven: So there’s a million and one of those, so, yeah, you just to believe in them and take action.

Heath: Yeah, okay. So, is there is any, for a particular founder, for example, you say your top three tips that you’d give these founders who are setting off for the first time, either they’re setting off, as you know, they’ve got the idea, or they’re now at the point where you engage with them at the 5 million mark, what’s the three top things that you go tell them, “Okay, this is what you really need to focus on. Forget everything else, just this”?

Steven: Top three things. Again, I’m probably gonna reiterate what I said but it’s definitely the team is huge, right? So you have to make sure that you’re surrounded with the right team. You have to make sure that you have the right strategy. It’s amazing — there’s examples of, you know, great products just having the wrong strategy. And so just a modification of strategy can definitely make a huge difference. And if I had to pick a third, and some companies are built around this to begin with, others are not, recurring revenue. A lot of companies are victims of their own success and they need to grow and continue to grow really, really well, double digit growth, but they don’t have recurring revenue. They may have reoccurring revenue, customers come back and stuff like that, but they don’t have true recurring revenue and that’s gonna have to be the single biggest difference in your valuation at the end of the day. If you’re a $50 million company with project-based revenue versus a $50 million company with recurring revenue, the difference is probably going to be, you know, 2X to 4X in your valuation. So, a high, high, high concentration of recurring revenue. If you have it, great, make it better. If you don’t have it, turn your stuff around to turn it into recurring revenue somehow, someway, or add recurring revenue to what you already have.

Heath: Okay, so that’s a good tip. So the first was what you said from the top of the hour with the teamwork, surround yourself with the right people. And some of the motivation books that I’ve read over the years, they talk about the five fives, and I tell a lot of people there’s, you know, rate your friends on how successful you think they are 1 to 5 and they say, “Well, what success?” and I said, well, that’s the good thing about success, right? It’s up to you. You determine what success means. Someone who’s got a job in a food court, they’re successful because they got a job, you know? If that’s your version of success, that’s success, you know? So you rate them 1 to 5 and then do it for the five who you spend the most time with and then whatever the average is, that’s you, and some people will say, I let them go through that little exercise first before I tell them their average, and then they go, “Oh, oh, oh, mine is a 2,” and I go, well, you know, hey, now you know what you are, like you said from the beginning is understand what you have, you know? Your team or the capability of the CEO, so understanding this, understand personal environment, understand your peers, your colleagues, the people you hang around with, and if it’s a 2, well, you got choices. You can either help the 2s becomes 5s or go find other 5s.

Steven: Exactly.

Heath: And that’s what you do there is you assess the board, assess the senior stakeholders, and then if they needed to be replaced, you replace them. So like go from the 2 to the 5, okay, we gotta go find them. Let’s go get them. And the other one is strategy. Number two is the strategy, is to make sure you’ve got a good strategy as opposed to, I don’t smoke but on the back of a fag packet, because this is our strategy, so, well, you might need a little bit more robust strategy than that one. And if it needs modification and then don’t be scared to change it, right?

Steven: Exactly. Exactly. And that’s a hard pill for somebody to swallow because, you know, to my earlier comment of they’re used to dominate a certain way and they’re afraid you’re changing is going to really upset the applecart and change — and we’ve gone through some serious change. I mean, we’ve gone through actually like enormous change within our organization from a restructuring and modify go to market perspective, which was scary to everybody, mostly for me because it was my company, but, you know, we implemented it and I got a perfect example of success. And I’m sure there’s plenty others out there that can benefit from a strategic change either to their organization, to their processes, to their structure, to their going to market, everything can be improved.

Heath: Yeah. This is — say a CEO or the founder knows they need to change but they might not know how to change.

Steven: Right.

Heath: And so might even not know where to look for help and they look to their current peers and go, you know, actually, and this is what I find the most in terms of transformation that the business knows or the leadership team know they need to change, they don’t know how to do the change, they see some consultants that, you know, they market themselves as change agents or transformation agents but they, from past experience, they know, “Well, if we get these guys in, we might just get a big bloody bill and no transformation.” So then they go, “You know, let’s have a crack at it ourselves.” And then, you know, they throw a lot of money at it and throw the people out with really no structure and then at the end of it, they go, “Shit, let’s just can that and bring in those consultants anyway.” So have you — is that the kind of situation in your market?

Steven: Yeah, yeah, 100 percent. I mean, it’s a lot easier for an executive to implement some sort of change when it’s being brought in from the outside. You know, a lot of people roll their eyes when they see — when a team of executives or leaders, they see a consultant come in to help, there’s the inevitable rolling of the eyes, you know, “What’s this guy about on all the stuff we don’t already know?” but it’s a really, really effective tool for a senior executive or the CEO or the founder to say, “Well, we brought this person in because they have experience here and we’re paying so, therefore, we’re going to listen and then we’re going to implement the recommendations.” So an outsider often is a very effective tool to an organization.

Heath: Yeah, okay. Yeah, I’m on board with you on that. When you’re definitely an outsider, I see some of the bigger organizations, when I think they could have developed this capability themselves to change their own business, it’s almost like a risk management strategy, where they decide to bring in consultants and if it all goes pear shaped, they’re gonna go, “Hey, it was those guys. It was them.” But whereas I think, I don’t know if it’s a good consultant but what consultants should be doing is they lead with, “We are gonna present you your options. It’s the decision that will be made by you. We’re not making the decision for you. This is your decision. We’ll give you the options based on the assessment, analysis, and discovery, like you mentioned earlier, and we’ll play them back to you and then it’s up to you to make the decision and then we’ll go and implement it.”

Steven: Yeah.

Heath: Yeah, okay. Awesome. So, definitely outside. Now, do you see any current — like is there any miss, like say even startup, there’s a message that likes trending right now, just go, I’m gonna be a CEO. I hear this all the time and I go, “You wanna be a CEO? I tell you how easy it is to be a CEO. This website, it’s called .gov.uk and you go to a place on there called Companies House and you register a company and, boom, you’re a CEO, just like that. Yeah, yeah. You are now a CEO. I think the question you want to ask, it was the wrong question, is a successful CEO.

Steven: Yeah. I mean, I think the myths that are out there, I think one of the biggest myths is like nobody else other than me can do this. You know, I think the company I founded, it was my idea, I’ve taken it to this level, you know, years and years of blood, sweat, and tears and nobody else can take this any further other than me, because of all my knowledge. I think that’s one of the biggest myths and, unfortunately, that’s in a lot of heads of a lot of founders. And it couldn’t be further from the truth that there isn’t somebody out there that can do it better that they can. I’m not saying it’s easy. For every example of a successful CEO hire, there’s probably five examples for bringing in another CEO who was a disaster, right? Apple, for example.

Heath: Yeah, yeah.

Steven: And there’s probably a whole ton of even smaller examples. But, again, I think that’s just a huge myth and folks are fooling themselves —

Heath: Okay.

Steven: — that they can’t find somebody to do it better.

Heath: Yeah. That is probably the hardest part for a founder because it’s their baby, they started it, they’re more say emotionally attached. I think there’s probably a big thing of leadership is that there’s a lot of emotion in there. If you’re dealing with a lawyer and a case, he has the benefit of like stripping back emotion. He’s not in it for the emotion, he’s in it for the outcome. And so, yeah, so, yeah, that might be a — do you coach? Is part of the coaching for the CEOs is looking at their emotional intelligence?

Steven: Oh, yeah, 100 percent. I mean, I’m a huge, huge fan of EQ and having the proper EQ. Some people either have it or they don’t. And if you’re open to coaching in general, you’re open to coaching in a lot of areas, you know, EQ is huge. Yeah, so the assessment of you personally is really, really important if they’re open to it. And, again, it’s a really tricky topic, right? We kind of, you know, while we talk about it at the beginning of the engagement, we really ease into it, you know? We started with the recipe and then sometimes it comes — like, to me, it came to me about myself. When I looked around the table and said I’ve got this incredible team of executives, I’m gonna get an executive that’s better than them to lead this and I felt that I was ready for my promotion to executive chairman.

Heath: Yeah, awesome. So, I see a lot of guys and girls, people who start their companies, they wanna hire friends, right? And I think this is, you know, I trust these people so, therefore, I should do business with them. And then it gets to a point where they go, “Maybe it wasn’t a good idea that I hired my friend because he’s underperforming, but I don’t wanna fire him because I know it’s gonna now affect his wife and the kids,” you know? So, do you find that this is a situation that happens?

Steven: It’s the worst possible thing that you can do and, you know, over beer, I’ll share a ton of stories with those. I have a personal policy that no friends and family are allowed to work in my company. And I had, you know, plenty of relatives that needed jobs, you know, in the space. Even though I had opportunities, I just refused. And when speaking with other founders, and especially as part of the CEO roundtable that I used to be part of, in my group, you hear so many of these stories. “I’ve got an uncle working in accounting, I can get rid of him,” or, “I got my cousin as an equity holder and he’s a pain.” There are so many stories. So, if you can create the will not to do it and the discipline not to do it, you’ll benefit from it.

Heath: Discipline is coming in again, okay, yeah. Do not hire your family. I think I’ve got a shitload of — I’ve got a lot of quotes here. Do not family, end of. Friends or family, do not hire friends and family.

Steven: I mean, there’s a 10 percent chance of success. There are success stories out there. There’s great, you know, co-CEOs, there’s great relative relationships. But if I had to throw a percentage out there, I’d say there’s a 90 percent likelihood that it’s not going to work out long term.

Heath: Okay. So you wanna have almost like a fixed term contract so this is gonna be for 12 months. Sorry, but, you know, be transparent upfront, you know, if we maybe put some of that employee incentive plan, if we take it from 5 million to 50 million, then, okay, yeah, we’ll chuck a bit of equity or support, success fee, but there is an end to this. There’s an end state and it’s not going past this thing. Yeah.

Steven: I like that, that one with the end. One of my favorite statements is everything in life is easy to get into, hard to get out of, which is why I kind of back into parking spaces so I can easily get out of a parking space without any blind spots. Even has to do with, you know, employment relationships. It’s super easy to get into it, very, very hard to get out of it. So, if you have those parameters in place at the get go, getting out is gonna be super easy.

Heath: Yeah. Okay. So, you’ve got — I wanna ask one more question. So I wanna start from the beginning and summarize the process so far. You’re looking at the CEO, you’re looking at the team, you make some assessments of current state, future state, you make sure the vision and the strategy is all in place. You do some hiring where you need to. You definitely — there’s the strategy and execution, make sure that, one, you’ve got the strategy, and then if you sit there with the peer group there, you get to set the guys at a similar level, maybe level of business success or their time of revenue but different industries so this heterogeneous group, mastermind group to come and challenge each other. There was a bit of element there of forecasts versus actuals so you’re making them accountable that they’re coming around there for a talk fest and it’s actually two days so it’s probably two days off site so you got to take it serious. And then, a particular business challenge there that you’re presenting and then you’re planning from the start, from the very, very beginning, this is like Stephen Covey, The 7 Habits of Highly Effective People, you know, begin with the end in mind. You’ve already got the exit so that’s the end in mind and we’re gonna build everything to support that. So this is the transform the organization to that point, you’ve done it through setting the vision clear from the beginning, make sure the team was there, you put the strategy in place, you streamline the processes so you basically got a well-oiled machine at this point. So your presentation of any financials is looking good. You’ve got your team in place, your accountants, the legal team, you’ve got a corporate finance team, if then you need it. You might have to bite the bullet because it’s gonna cost you but that’s only short-term thinking. You have not hired any family members so you don’t have any of that problem. No husband and wife CEO, co-CEO arrangements. What else did we have there? You did focus on, when you’re doing the hiring, that good hiring is that you’ve got — if you’re lucky, they’re gonna bring their team but they’ve got the people, their process is well oiled so they’re gonna slide into your organization with a clear process with great tools, because this is what they’ve got to do. And then the part about the leadership is that leaders can be developed. They might not be born but they can be developed and so you work with them with that one. Your three takeaways were that the, number one was a team, surround yourself with the right people. Strategy, don’t be scared to modify it. And then the one to focus on, the third thing, the recurring revenue. And there’s a difference between you said product revenue which sounds like more one-off revenue and you have to repeat those sales and sales process but if you can get recurring revenue, because you’re looking at a good — what the impact is for the exit, the two to four plus potentially valuation. The outsider myths. What were you saying there? The outsider — oh, bring in outsiders. Definitely bring in outsiders, outsiders’ perspective, for a few reasons. I think what you’re talking about there was there has to be some pain. If the business themselves or the CEO say, “We’re bringing these guys in that’s costing us, it’s gonna cost us and it’s gonna hurt us in the hip and if it goes shit, it’s gonna hurt us in the hip even more. So we’ve done the due diligence, we’ve got the right guys in and so we need to listen, you know? We have exhausted our sphere of knowledge and expertise so we’re going to go bring in the expertise.” Yeah, okay. All right. So, given that, and there’s a few Mythbusters that you see, the Mythbusters, what did you say were the myths? No one can do it better than me. No one there. I think that’s a myth. My buddy in New Zealand is like — Actually, this is one thing he did say to me. He said, at that point of time, he said, “Bro, I don’t want any more business.” I said, “Dude, just imagine this. You’re the CEO and I’m the chairman and you just came to the chairman — I actually said these words, and I said, “I’m the chairman and you just came to me and said that you don’t want any more business. I’ll tell you what I’m doing. I’m firing your ass.” That’s the worst thing that the CEO could say to the chairman, that I don’t want any more business because I can’t handle any more business. That’s not the answer. The answer is how can you handle more business? Yeah, okay. So, now, in your own perspective as both former founder, currently founder, also advisor to other founders, knowing what you know now, what would you do differently?

Steven: What would I do differently? I would drink my own Kool-Aid here and take my own advice a lot earlier in the company’s growth. I mean, I learned all this over a 27-year journey. Fortunately, I started super early and I’m still relatively young where I can do this again, probably a couple times if I wanted to. So I wish I would have done all this a lot earlier. First is the blood, sweat, and tears, that were necessary tears that occurred, you know, throughout the corporate journey. So that’s probably the biggest.

Heath: Okay. You would like to have, one, maybe started earlier, but, two, listened to your own advice.

Steven: Right, just the team, the strategy. My third one, recurring revenue. I mean, we were — the reason I bring this up is because we were a victim of our own success. We grew every single year for 27 years. There wasn’t one year where we didn’t have corporate growth. You know, some years were single digits, some years were double digit growth for 27 years in a row. But we started off every single year at zero. So we needed to sell all of last year’s business and then some to achieve growth. So, we were so, so busy and successful doing what we did that we didn’t focus on the recurring — it was project based, it was software and services but it was project-based software and services versus, you know, leave behind SaaS type, you know, recurring revenue services. So I’m not complaining, it was a great journey, you know, great exit, but it could have been better if we had —

Heath: Yeah. Okay, so for all those potential founders, I think maybe you’re in a unique position that you might have, in terms of maybe the EQ, the emotional intelligence, and even a natural, let’s just say, a deposition for maybe business or business strategy and how everything gets connected together, you gotta build a team, maybe normal founders don’t have that, they might just have a product idea and they go, “I’ve gotta build this product and I’m gonna somehow sell it or I need to think about how I’m gonna sell it,” but you maybe had the full picture to start with. Maybe not had the experience, but then had the full picture and you knew you had to go out and get it. And so for other founders who are in a similar situation, is I think, probably then, just like an agile approach, just try. Just start and then you’ll work it out as you go along.

Steven: Just start, yeah, exactly. There’s people that have already done this so get their advice. You can get expensive advisors, you can get free advice. I mean, everybody wants to give advice. So go out there and get it.

Heath: Okay, so that’s a good point because when people ask me about certain things, and I go, “This is gonna cost this much,” and they want it for free, I said, “I’ll tell you how much you’re gonna value the free advice. You’re not. And it’s gonna waste my time.” So anyone who’s gonna give out free advice is like, you know, maybe they’ll give it to you if you act on it.

Steven: Exactly.

Heath: Yeah, otherwise, no. Yeah. Steven, I wanna wrap it up there but I wanna keep you on because I wanna ask you something at the end here because there’s some great things that you said, if that’s okay.

Steven: Sure. One thing I can add, in terms of strategic planning, wealth management is also super, super important because once the event actually occurs and you get a really fat check, you have to have your ducks in a row in terms of what you’re doing with it because you can make a lot of mistakes with that as it’s a highly, highly, highly emotional time when that actually happens and it’s very anticlimactic because all of a sudden, you’ve been running 1,000 miles an hour, now you’re done and you have a check. Exploring all the options on what you can do with that is incredibly important and I can probably speak about that for an hour in and of itself.

Heath: We’ll do another one. We’ll do another one for that, for sure. Yeah. So, to recap there, the four takeaways, one was the team, make sure you surround yourself with the right people and then I think the part there is don’t be afraid to swap them out and definitely don’t hire your family. Don’t hire your friends and family, rule number one. Maybe there’s some principles that Steven’s got, there’s principles of CEO transformation and startup to exit transformation. Strategy, make sure it’s in place and then change it as and when you need it. Don’t be afraid to change it. Focus on recurring revenue. And the fourth one is wealth management.

Steven: And planning for it way ahead of the exit event.

Heath: Yeah, planning, yeah, for way ahead and you said 12 to 24 months an event that you know is gonna happen.

Steven: Exactly.

Heath: Because that’s the goal.

Steven: Exactly.

Heath: Okay, awesome. So, ladies and gentlemen, thank you very much. We’ve had Steven Pivnik on the call. I hope you found that enlightening. That was really the masterclass on how to transform founders to proper CEOs but also from startup to exit. Thank you very much, Steven.

Heath Gascoigne Business Transformator

Heath Gascoigne

Hi, I’m Heath, the founder of HOBA TECH and host of The Business Transformation Podcast. I help Business Transformation Consultants, Business Designers and Business Architects transform their and their clients’ business and join the 30% club that succeed. Join me on this journey.

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