#9: Four Tips That Could Save You Millions When Raising Capital To Grow Your Business
Play • 29 min

Learn More Earn More Business Growth Podcast

Host: Brian Webb

Guest: Julio Serna-Molina

Episode 9: Four Tips That Could Save You Millions When Raising Capital To Grow Your Business

__________________________________

SUBSCRIBE

Apple  |  Google PlaySpotify PandoraAmazon Music | Stitcher

________________________________

RESOURCES & HELPFUL LINKS

Whatbox Digital

Whatbox Digital Ideal Customer Avatar Tool

Diamond Client Consulting

Book A 30 Min. Call with Julio Serna-Molina

________________________________

PLAYBOOK PROMO: 

Whatbox Digital - Marketing Strategy Playbook Promotion 

Before we jump into today's episode, I want to quickly share a very special promotion we have going on here at Whatbox Digital. It's been said that the best time to plant a tree was 20 years ago. The second best time is today. Having an executing and effective marketing plan for growing your business is no different. Between now and June 30th, 2021, we're offering a $1,600 discount on our Marketing Strategy Playbook consultation.

Normally priced at $6,500, which is still well worth it. You can allow our team to help you stop wasting money on marketing that's not working and give you a new plan for growing your business for just $4,900. If you're catching this episode after June 30th, 2021, this is still a worthwhile investment that will generate a return for you and your business. I provide more details later in this episode.

I strongly urge you to stop waiting and start growing your business and revenue with proven marketing strategies that actually work.

________________________________

TRANSCRIPT: 

Brian Webb:

Hey there, everyone. Welcome to the Learn More, Earn More Business Growth podcast. I'm your host, Brian Webb. This podcast is your premier place to learn the frameworks, secrets, and growth hacks to grow and scale your business and revenue faster. Whether you're an aspiring entrepreneur or a thriving business owner, this podcast is designed and produced just for you so you can learn from the best industry experts in the world.

Brian Webb:

I'll bring you exclusive interviews with authors, thought leaders, and successful business titans who share their stories and business journeys so we can draw insights and learn from their successes and struggles together. As you're working on growing your business and pursuing your dreams, I'll be here to help you make better decisions and avoid costly pitfalls and expensive mistakes along the way, and we'll have some fun in the process. Let's go ahead and jump into today's episode.

Brian Webb:

We're going to jump in with our guest Julio Serna Molina in just a moment, but I want to tell you a little bit about him so that when you're hearing the things we'll be sharing with you today, the principles, that you give it the time and the attention it deserves. He's a Texas A&M graduate, MBA, worked with Kearney, which is a huge consulting firm.

Brian Webb:

Let me mention a few brands he's worked with. Maybe you've heard of them. Hershey, Kellogg. These are brands, huge. Other companies, he's worked with Fortune ... We're talking Fortune 1000 companies, Fortune 500 companies, and most recently was brought in to be the global strategic planning director for Dannon, Dannon Yogurt, you know that tiny little company, the largest yogurt company in the world.

Brian Webb:

We're going to jump in today and he's going to talk about what private equity firms are looking for before they invest in your business. If you're wanting to grow your business and raising capital is going to be necessary to do that, you're going to love today's episode, so we'll jump on in.

Brian Webb:

I know you're going to tell us today the four key components that a private equity firm is looking for before they will invest into a small or medium-sized company. And I know you've told me ahead of time these are companies' finances. You're looking at the management team, the opportunities to add value to the business, of course, and the exit strategy. Why don't you start talking to us today about specifically the finances or the financials of the company? What are you looking for that most business owners might not be aware of?

Julio Serna:

Sure. That is the first and perhaps the most obvious element that private equity is looking for. It's the financial health and the performance of your company. Business owners need to understand their private equity funds in particular tend to look for strong cash flows. They look at the track record of profitability and they look at underlying assets to cover the risks of investing in your business. This is because contrary to venture capital funds, they're mostly not looking for home runs. They're looking for good hits while avoiding any strikeouts.

Brian Webb:

When you say good hit without looking for any strikeouts, what do you mean specifically?

Julio Serna:

They want companies that they can add value and they can sell in the midterm, so five to seven years, and we'll talk a little bit about that later, and that they're not necessarily going to be that unicorn that is going to grow immensely and going to generate billions of dollars, but they will be steady companies generating good revenue.

Brian Webb:

Okay. Now, when you say that you're looking at the management team as also one of these key components or ingredients, I'm guessing you're looking at leadership. I would imagine you're looking at culture, but tell us what you mean when you say that the management team is one of those core components before investing into a small or medium-sized company.

Julio Serna:

Yeah. They look at both those things, right? The leadership of the team, the culture of the company, and the reason why they do this is that private equity firms actually want to work with the companies they invest in. They do it in either of two ways typically. They either ask for a seat in the board of directors and then they have a site where what's happening with the business, for example, the strategy of the business, or sometimes depending on the private equity, they're more hands-on. That means that they're actually going to want to manage the company with you. This is actually a great opportunity for small businesses because they bring a lot of experience and a lot of expertise and they know a lot of companies that they can benchmark yours to. But in any case, they actually want to work with your team. For them, it's really important to know the people that they're going to work with and make sure that they have a strong management team.

Brian Webb:

Okay. Okay. And when you talk about opportunities to add value to the business, obviously anytime an investor is putting money anywhere, they're looking to create the biggest possible return that they can. I'm guessing you're going to share some things, but I would imagine what you're looking for is one plus one doesn't equal two, but one plus one, meaning the business as is plus the capital put into that business, equals three or five or 10, but what do you specifically look for to determine if you can go in and add value to that business?

Julio Serna:

I think private equity funds look at the state of the company. There's different areas where they can potentially add value. One of them would be just the way that the company is being run. You might be a small business that has been existing for a while, but maybe you need some help with just some management practices, some practices around the governance of your business, i.e. how you make decisions, or around performance management. You need someone to help you bring some of those best practices around setting KPIs for the year, tracking those KPIs and making sure that you basically achieve your targets for the year. That's an area where private equities can bring in, again, the expertise that they have in just managing different companies and add value by basically working on the way that you operate your business.

Julio Serna:

Another one that's actually interesting is private equity firms have a portfolio of companies typically, so they can look for opportunities for synergies, right? Maybe it is something around, and I'm going to make this up, but around the procurement function. Maybe they look at your company, they look at the raw materials that you buy, and they have another company in their portfolio that buys similar materials. By joining the two [inaudible 00:07:25] together, they can potentially negotiate better prices and it's going to be a win-win situation for both of the companies and for the private equity because as we mentioned before, they're looking to increase the profitability of the company so that they in the midterm can sell their position in your company.

Brian Webb:

I read a great book seven, eight, nine years ago ... I don't remember exactly how long it's been ... called Built to Sell. And one of the things that I learned that when someone is potentially coming in to buy your business outright, one of the things that they don't want to see, they don't want to go interview your top 30% of your clients or your customer base, ask them why you're working with this business, they don't want the answer to be, "Well, we love the owner. We think he or she is great." I realized sometimes you're investing into businesses as a partial equity situation or sometimes you might be buying it outright, but I'm curious to hear when you talk about the exit strategy and what you're looking for, how do you look at that from a private equity standpoint?

Julio Serna:

Yeah. The exit strategy is something clearly important. I think in what you mentioned, there's a couple of elements that I find really interesting. One thing that is important for small business owners to understand is that private equities are not banks. They don't just give you money. They actually want to, like I said, work with you. They will take an equity position. For the most part, they will take at least a majority stake in your company because that allows them to do the necessary changes that they deem necessary, I would say. And that in the end, you agree with them, in order to achieve those improvements that we discussed in the previous point, right? Typically, they do take that majority stake in your company.

Julio Serna:

Now, about the exit strategy, there are several exit strategies that they look into. And if you know what your potential exit strategy could be in advance, that's going to add a lot of value to the private equity and therefore to the negotiations with their private equity fund. I'll give you a couple of examples of exit strategies.

Julio Serna:

One could be selling off your company to the management team. For example, if you think that you have a very solid team below you as an owner, right, and they're very entrepreneurial and they might take over the business themselves, there are ways, for example, through deferred compensation, that they can eventually own the business without necessarily having to have all of the capital out front, right? That's something that private equities structure.

Julio Serna:

And then the other one that's probably another very common one and people might have guessed it, is you can sell the business to another competitor. If you know that in your industry, there are some larger competitors and you have already identified them, private equities basically work with you to make your company look better to these competitors and eventually sell them to them.

Julio Serna:

The other point that I found really interesting in your comment was about the owner and the fact that investors don't want to invest just because there's the owner. That's very important because that's very true. Private equities, there's an intrinsic value in the company beyond just the person that is the-

Brian Webb:

Yeah, the principal.

Julio Serna:

Yeah, exactly. And this is a reason why I think that small businesses, they need to work on some of these fundamentals of the business, so the governance, the performance management systems and documenting some of these things, because what I've found with small businesses is that they're a little bit lax with these things because they're very worried about growth and they don't invest the necessary time in their business. They invest a lot of time in growing the business, but not in managing, and while we call it institutionalizing the business, and that is something that private equities definitely look at.

Brian Webb:

We'll get back to the show in just a moment, but first, a quick word from our sponsor, Whatbox Digital.

Brian Webb:

Do you want to grow and scale your business better and faster, make fewer mistakes and stop wasting money on marketing that does not work? I already know that you do. Like so many others, you're tired of relying on a failed hope marketing system. Hope marketing is when we spend valuable time and money on marketing and we hope that it works. You've worked so hard to get where you are, and like most business owners and leaders, you're frustrated with wasting money on marketing that doesn't work. You've thrown tons of money towards marketing mistakes and failures and you wish you could get all of that money back, but you can't.

Brian Webb:

By failing to take ownership of your marketing problems and pivot to proven marketing systems that actually work, you're going to lose potentially hundreds or thousands of customers and millions of dollars to your competitors. When you don't have a reliable system for generating leads and acquiring new customers, then you're doomed to suffer from industry downturns, lumpy cash flow, and ultimately higher stress. It pains me to watch business owners and entrepreneurs suffer from relying on hope and bad advice that simply doesn't work.

Brian Webb:

I've had the privilege of owning and leading a successful marketing agency here in the greater Houston metroplex for over 17 years. And having worked in over 60 industry verticals, I've led my team and clients to achieve business growth and collectively tens of millions of dollars in new revenue opportunities time and time again. And that's exactly what I want to do for you.

Brian Webb:

Our Marketing Strategy Playbook Consultation allows us to do just that. Typically in just four weeks or less, we'll take you through our three-step process that will open your eyes to the readily available growth opportunities you need, want and deserve. First, we'll schedule a discovery meeting where we will ask you a series of questions about the current state of your business and your revenue growth goals for the next 12 to 36 months.

Brian Webb:

Second, our team goes away and does the necessary research on where the best places are to hyper-target your ideal customers so that you don't unnecessarily waste money on marketing or advertising in the wrong places. And last, we schedule a strategy meeting with you and your team. This is where we'll present you with a customized marketing strategy playbook to help you grow your business. We'll present the data from our research and guide you to make better marketing decisions moving forward.

Brian Webb:

And here's the special offer. Our Digital Marketing Strategy Playbook typically sells for $6,500, which is a great deal because it's worth every penny. But if you get started between now and the end of June 2021, we'll discount this fee by $1,600, bringing the price down to just $4,900. That's a huge savings. And I promise this consultation will help you to know you're making smarter marketing decisions that will actually work and help you grow your business.

Brian Webb:

Again, the $1,600 discount is only valid between now and the end of June 2021. To work with us, simply go to whatboxplaybook.com and give us your information. A friendly rep from our office will reach out to you to answer your questions and help you get started. It's that easy. Again, just go to whatboxplaybook.com and give us your info or you can text the word playbook to 832-324-2432 and you'll be on the way to making better and smarter marketing decisions that will actually help you grow your business more effectively.

Brian Webb:

Imagine a life where you'll never have to worry about generating leads and acquiring new customers ever again. Don't waste another day or another dollar on failing hope marketing strategies that don't work. Go to whatboxplaybook.com or text the word playbook to 832-324-2432 to take advantage of this promotional offer. It will save you $1,600 on the consultation and it will save you a fortune on the money you're likely wasting right now on marketing that's doing nothing to grow your business. If you want to grow and scale your business better and faster and with fewer mistakes, you're in the right place. Let's get started today, right now.

Brian Webb:

One of the things that you and I have already talked about, Julio, is whenever business owners are unaware of this, the sting it can really mean when it comes to raising capital, because as opposed to perhaps getting them a higher multiple, they might get a lower multiple. Talk to that a little bit, as far as why this is so important, why business owners really need to understand how important this is and really care about it and take it seriously.

Julio Serna:

I mean, you just said it, right? I think you're going to be able to get a higher multiple, basically. That means that you're going to be able to get a higher value for your company. And you've worked hard in that company. You want to get the most out of all of those years that you put into it. And the thing is, private equities will go through a due diligence process and it's going to vary in the amount of depth, but they're going to look at your business. They're going to ask questions.

Julio Serna:

And if you don't have the answers to some of the questions that they will answer, they'll ask, sorry, they're just going to think you're a little bit less attractive. And when they give you an offer, they're going to just basically low ball you, if you will, and they're going to have some reasons why they're giving you that offer because for example, we worked with a private equity fund and we did due diligence in one of their target companies and we found some issues with their expense control. We looked at the SGNA. That's a percentage of their sales and the way it had been moving throughout the recent years. It was just not good.

Julio Serna:

And when we started interviewing the potential target, there was no real explanation other than, "You know what? We haven't taken care of this. We were just too focused on growth," which is very common, but that answer, for private equities, basically what happened in this situation, they said, "That's fine. We're still going to invest in you because we believe in you and we like your business model, but we're going to put a KPI, and if you don't meet this KPI, then we're going to take more control of the company." And in the end, it's just a weaker negotiating position. I think the more you know, and the better you are prepared to answer some of these questions that are going to come your way, it's just going to be the most value that you're going to be able to garner from your company.

Brian Webb:

That all makes sense, Julio. Knowing that we're literally talking about potentially millions and millions of dollars potentially if they get a lower multiple because they don't have their ducks in a row. What can business owners do to better prepare for engaging with a private equity fund?

Julio Serna:

Yeah. I mean, the value there is massive. I strongly believe that they need to step back and take a look at their business with a very [inaudible 00:18:32] eye. They need to put themselves in the position of their potential investment partner and they need to ask some of those hard questions that sometimes we don't want to ask, about, "How well would someone from the outside perceived my company?" It's tough, but it's very worthwhile in my view.

Julio Serna:

Some questions to consider are, is there a compelling business plan for the next three to five years? Is there a credible business model that plans? Are there clear policies and procedures, accountability, and processes to make decisions and manage risks? What we were mentioning before around corporate governance basically. And is there a transparent performance management system? Also, we mentioned that before.

Julio Serna:

I think that if you don't have a strong answer to all of these questions, then you really need to work on them. If you do, you will be perceived as a very strong potential investment and I'm sure you'll be able to negotiate a better deal with the investor. By the way, this is super important not only if you're going to try to raise capital through private equity funds, but for any investor, including banks. I mean, banks also look at all of these things in order to determine how risky you are as a company.

Brian Webb:

As business owners, it's an obvious, well-known fact that we look at our businesses through an emotional lens. We've built it. We've sweat for it. We've died for it. We've bled for it. We've cried for it, whereas obviously when a bank or a private equity firm's coming in, they're looking at everything through a very objective lens. Obviously, to do all the things that you're talking about, it's a lot of work and I know it's going to be worth it, but explain to the audience why this is so necessary for small and medium-sized businesses. Are there values going just beyond the multiple they get?

Julio Serna:

Yeah. For me, I think there's two things why you need to do this. Firstly, this is what investors will look at. Whether you like it or not, this is the things that they're going to do. By preemptively doing this type of analysis, you're just better prepared to answer their questions.

Julio Serna:

There's one thing that people might not think about as well, which is if you really understand your company, then you can understand what the value of the potential different private equities can bring to the table because private equities are not all the same, right? Some of them are more specialized in a given industry. Some of them have a different portfolio than others. The investment strategy for private equity is different. By you knowing your company really well, I think that allows you to better gauge the value that private equity can bring to the table for you, for your business. I think that's important.

Julio Serna:

And then the second one, I think if you as a business owner look at all of this stuff, even if it's hard work, it's going to help you be a better company. It's going to help you achieve better results. I've had the opportunity to work with many companies, large, small, across the world, and the most successful ones, they have these business fundamentals in place.

Brian Webb:

Let me ask you this. Tell us a little more about what you do specifically at Diamond Client Consulting, and I bet, I hope what you're about to say is you do exactly what we're talking about here today is you help businesses or business leaders get ready for raising capital. But tell us a little bit about what you do at Diamond Client Consulting.

Julio Serna:

Sure. What we do at DCC is we are committed to partnering with our clients to help them improve their performance. We mostly work with SMEs or SMBs, so small and medium businesses and private equity funds or private investors on what we would call operational planning strategy. The type of engagements that we do are mid to long-term business planning, annual strategic planning, performance management, governance, operational due diligence. We've done some top-line as well, top-line assessment. And by top-line, I mean sales marketing and go-to-market from a company perspective.

Julio Serna:

That's the type of work that we do. We can definitely help some of the small businesses that want to sell or want to attract investors to create basically their pitch deck. You need to create a story which has to be aligned with your long-term plan. You need to have a business plan, and then your pitch stick has to be aligned with that.

Brian Webb:

That makes sense. Being a marketer, at Whatbox Digital, we're doing marketing all these years, the one thing I know is perhaps the one thing that's as pandemic as COVID is bad marketing. And I've worked with a lot of businesses that have created tremendous success, and I'm talking hundreds of millions of dollars in annual recurring revenue, and they've done it in spite of the fact that they're terrible at marketing.

Brian Webb:

In other words, so for example, they've got a product, they've got a patent, or they just have an existing audience, especially in the oil and gas space, for example. If you just have the right relationships, you're in the game, if you're just in the circle, if you're in the club, so to speak, right? When you come in and you're looking at a business, what has your experience been, because this is an interesting lens to hear from you when it comes to looking at the business's marketing efforts?

Julio Serna:

Well, it varies. For me when I think about marketing or when we think about marketing a DCC, it's all about the consumer and it's all about how's your [inaudible 00:24:18] service meets the consumer's need. You've probably heard given that you're an expert in this area, the concept of design to value and the concept of creating the personas and looking at the consumer journeys, and then making sure that you're solving an issue.

Julio Serna:

Sometimes when people call these jobs to be done, so what is the job that you are doing to that person? And we found very different situations, basically, some people that actually have a very clear understanding of who their consumer is and what is it that they provide to their consumers and some businesses that it's more like what you were mentioning, right? They only grew their product out of someone's idea without thinking about who is going to engage with that product, or just have that right connection, and [crosstalk 00:25:15] but we strongly believe that you need to put the consumer at the center, look at all of these things, look at the brand, look at their product, look at the pricing, [inaudible 00:25:21] the market intelligence, the channels, if you think about go-to markets, then if you think about the sales, look at your sales force incentives, how you track, what are your consumers and clients and so on. I mean, it's a whole world, right? I think, again, you know this even better than me.

Brian Webb:

Wow. Well, one of the things that ... It's just part of our process, but one of the things that we do when we're working with clients is to have them figure out, and there's all different types of words to call it, buyer persona, or an ideal customer avatar ... We say ideal customer avatar. They're all the same things ... but we've actually put a tool on our website that, by the way, podcast listeners, you can go used anytime you want ... It's just whatboxdigital.com forward slash, or just slash rather avatar. But yeah, that's super important.

Brian Webb:

One of the things that's always fun ... This is just on a personal note ... I love coming into a client who has achieved success without marketing because when that happens, we just get to go to throw gasoline on the fire, basically, and just-

Julio Serna:

Imagine what they can do with it, right?

Brian Webb:

Yes, absolutely. How can someone reach out to you? What's the best place to reach out to you, Julio, if they want to know more about what you do or just get in touch with you?

Julio Serna:

You can reach us at our website. It's diamondclientconsulting.com. And also for all of your listeners, we're happy to give them a free consultation.

Brian Webb:

Wow.

Julio Serna:

They can schedule a call with me to discuss any questions they have about what we talked here today or any issues that their business are facing. And we are going to share a link with them and they just need to choose set a time that fits for them and then yeah, gets scheduled. I'm happy to engage with your listeners.

Brian Webb:

That's incredibly generous. That's diamondclientconsulting.com.

Julio Serna:

Right.

Brian Webb:

Thank you so much for being here today, Julio.

Julio Serna:

I appreciate you inviting me. I hope to continue working with you and engaging with you and your audience.

Brian Webb:

Thanks for joining me today and listening to this episode of the Learn More, Earn More Business Growth podcast. We can be found on all the major platforms like Apple Podcasts, Google Play, Spotify, Pandora, Stitcher, and even Amazon Music. I genuinely hope you enjoyed today's episode, and if you did, I'd be honored if you subscribe to the show and leave us a rating and an honest review.

Brian Webb:

I'd love to connect with you on Instagram. You can find me at @brianwebb and the show sponsor, Whatbox Digital, can be found at, as you might guess, @whatboxdigital. You can also find me and Whatbox Digital on Facebook and LinkedIn with the links in the show notes. This will allow you to stay up-to-date and never miss out on exciting new announcements, events, special offers, and opportunities, and you'll be in the know when we drop a new episode of the Learn More, Earn More Business Growth podcast. And if you'd like to send me a DM on Instagram to say hello or share your thoughts on how we can make this podcast even better for you, I'd love to hear from you. Again, thanks for listening. Let's go and grow together. I'll see you in the next episode.

________________________________

FIND & FOLLOW WHATBOX DIGITAL

Website | LinkedinFacebookInstagram

________________________________

CONNECT WITH  BRIAN WEBB

Linkedin | Facebook | Instagram

Email: brianw@whatboxdigital.com 

Clubhouse: @brianwebb __________________________________

CONNECT WITH  JULIO SERNA-MOLINA

Linkedin | Website

Email: info@diamondclientconsulting.com 

Book A 30 Min. Call

__________________________________

More episodes
Search
Clear search
Close search
Google apps
Main menu