E157: Elizabeth Knopf, M&A Investor and Growth Expert Shares Strategies for Success

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Elizabeth Knopf and she is an M and a investor, growth expert. And I'm really looking forward to learning from you today. 

[00:00:08] Elizabeth Knopf: Thanks so much for having me really excited to be contributing and, learning from you as well.

[00:00:14] Ronald Skelton: So I'm sitting in the Redwood Forest of Northern California at the moment. Where are you located at? So people know.

[00:00:19] Elizabeth Knopf: I am out in the desert of Arizona. It's a little bit of the wild west here. 

[00:00:23] Ronald Skelton: Oh, wow. We're both kind of in a country setting, right? I'm really remote into the forest and you're remote into the desert.

[00:00:30] So let's start off with letting everybody kind of know who you are and, my running joke is, Hey, you were born and then you ended up on a show about mergers and acquisitions. Can you kind of fill in the gap between?

[00:00:39] Elizabeth Knopf: Let's see where to start. I actually started off, doing SMBs, during college. So started a number of companies, had the entrepreneurial bug, but quickly got into tech and have been in tech for 15 years now. Basically my whole career. Looking at it from a lot of different perspectives.

[00:00:54] So I started off in venture capital and hedge funds. So investing in tech companies, investing in tech startups and the company I worked at, the fund I worked at, we had a little bit different strategy for the time. Where we not only did growth equity investments, we were very disciplined.

[00:01:10] We look globally. And at that time that was very unique. But we also worked very actively with our portfolios. So as I sort of grew in my career, I got the entrepreneurial bug, once again, after having done a couple sort of SMB type startups. And then went out to the Bay area cause I was based up in Boston, to explore what that was all about.

[00:01:30] And, worked for a fintech company trading secondaries. We actually were creating a liquid private market for Facebook and Groupon prior to those IPOs. It was a very interesting time, and exposure to doing secondaries when those were not popular and very much an alternative edge case asset class.

[00:01:48] And then ended up starting a B2B e commerce software company, grew that. Shut that down. Had that fun experience. And then ended up actually moving down to Latin America, where I did a company called Rocket Internet, which basically they have a geo cloning strategy. Where they take business models that have functioned and worked in the United States from a tech standpoint and apply them internationally at different geographies.

[00:02:11] So that was quite, quite the experience because we were basically blitz scaling those different entities. And then, when I returned to the States, I worked at a public tech company. And we grew the company from nine figures over 11 figures in the matter of a couple of years. So that was also very interesting growth trajectory in the context of a public company. And exploring actually the other side of M and A.

[00:02:37] Where we were identifying acquisition targets, figuring out the revenue strategy. Buy versus build. And then I was involved in all of that, plus the integration of those acquisitions. So it was just a very interesting time seeing how the sausage is made across different life cycles of tech companies.

[00:02:54] And also coming from the perspective of having an investor lens. And then COVID hit and things changed. I started investigating different solutions for how to address covid in a certain respects and ended up actually coming across some very innovative technology that NASA had developed. And was like, why is this not all over the market?

[00:03:16] Why is this not being sold and promoted? So went off and left the public tech company to go basically do sort of a pseudo M& A slash JV deal where we would basically build that business out. So took an innovative product, that had some level of business cashflow and some substance to it and started bringing that to market.

[00:03:38] And then as we were going through that process, I said, how can we get distribution faster? And that's what really plunged me back into the M& A game. So having seen it from all those lenses, I was very aware of private equity, very aware of how to buy distribution, how to buy businesses, but not necessarily from sort of the SMB startup standpoint.

[00:03:57] So it was a unique take on what I had learned in venture capital, sort of mixed with the big company lens and then shrinking that all down to how do you do that and, take innovation with distribution channels, combine them together and actually create value. So that really brought me into this world.

[00:04:13] And as I've been doing it, I realized I really enjoy the deal side of things. I totally love the operational side and can do it and have cut my teeth enough. But I'm having a lot of fun looking at opportunities and deals to see how I can create leverage within myself so that I can actually do a lot of deals.

[00:04:30] And so have developed a number of strategies that I'm approaching. So in the process of doing some additional acquisitions at the moment. 

[00:04:38] Ronald Skelton: And those acquisitions and stuff, is that in the software side or what do you?

[00:04:42] Elizabeth Knopf: Yeah. So I actually started looking for opportunities in the software world.

[00:04:46] We can sort of go down that rabbit hole and what I've discovered and how to look at that very differently than, I would have historically. And this is actually a really interesting time within the market for M& A when it comes to SaaS for a number of different reasons, but there's some major, major challenges for M& A investors when it comes to SaaS, which we'll get into.

[00:05:05] So I am looking at SaaS, but very opportunistically. I think there's some really key risk factors and to find a really good opportunity and deal, you have to find a diamond in the rough. So I'm just being very patient and methodical about how to approach those. So while I'm doing that, I'm actually looking for, some other types of businesses where then software will be a play within those entities.

[00:05:27] Or secondarily looking at software where, just the economics work out, the math works out, and there's a motivated seller where I can actually get a decent deal. 

[00:05:38] Ronald Skelton: I've interviewed quite a few companies that buy SaaS. That's why I was asking. Most of them, I would say most, I'm trying to run through the numbers in my head of who all, I don't know any of them. 

[00:05:47] Basically the number one rule for most of them is no cap tables. Meaning they're looking for SaaS companies that were grown friends, family, and other financing, but not venture backed because it just, it's too convoluted, it's too messy. I was curious because you have such a 360 degree view of this whole process.

[00:06:04] Are you kind of at the same stage right now as like, it would take something for me to get in there? Or you know enough about the inside of that game, could you?

[00:06:10] Elizabeth Knopf: Yeah, so I think what's happening right now. So one hesitation I've just had in general is, to start off his valuations like that is a really hard game to play because you either have folks who are just high on the valuations coming from venture capital and think those apply to them, even though they don't have 100 percent your growth.

[00:06:29] They don't have some kind of really unique tech that would differentiate and command that multiple or they're not large enough. So there's a lot of education that has to go on to bring them down off of that number of looking at A. R. R. Versus even just EBITDA. So first you have to go through that process.

[00:06:46] And then number two, it's really understanding, how you can actually sort of create more additional value within those opportunities, because if they have been sort of chugging along, you need to understand what the next potential is. And I think there's quite a few strategies you can play with that game.

[00:07:04] But I think valuations is sort of one of the key areas of risk that's been challenging. So as though the multiples have been crushed a little bit, even though they've now been inflated because the A. I. Trend and wave has sort of, permeated throughout the market that go ahead. Sorry. 

[00:07:21] Ronald Skelton: I was gonna say, everybody slides a little bit of AI in their stock now.

[00:07:24] Even if it's just a, an API to ChatGPT, and then they say we got AI. 

[00:07:28] Elizabeth Knopf: Right. And it's funny cause, A. I. Is actually disrupting a lot of the software tools out there as well, where many of them will, just the market's gonna get super crowded because it's now accessible to achieve the same ends of software, and it actually might totally disrupt the existing code base where you don't need to have the existing code base and just layering on A. I. Is not gonna make sense. 

[00:07:47] Versus, coming with from scratch and building an A. I. Tool might make more sense. So beyond that, though, even if you are trying to capture some of that A. I. Multiple, if you have investors on your cap table, it makes it hard to acquire from a PE from an M and a standpoint, because you have to figure out what to do with those investors. 

[00:08:09] Because usually what happens is that those companies will either just die. Or the investors will try to figure out how to capture that liquidation preference that they have. And if, depending upon the relationship you have with those investors, it can be very painful because they have something that's typically baked into those terms sheets called the right of first refusal. Where they can basically kill any deal or any potential secondary or any sort of investor trying to come in.

[00:08:34] So you have to be very crafty if you want to take the company that you want to continue on with the company. But the opportunity I think there is plenty of opportunity right now because a lot of those companies will just die. So if you're able to even provide a home for talent, which that would be an aqua hire, or, that's one, one angle on it.

[00:08:54] You want to actually get the tech, you can do an asset purchase. If the option is get zero or get something, you might be able to negotiate some opportunity there. So it's just still a matter of patience because I don't think we've seen a lot of those failures happening as of yet.

[00:09:13] But I think that's very possible. And then the other opportunity is mergers. Because there have been, there's just been so many clones out there that really shouldn't exist that are maybe going after similar markets and it's, they're all CRM software. They're all very similar types of products that could literally just be combined.

[00:09:31] So I think that's another sort of pocket of opportunity. But the big challenge with PE is really going back to that valuation and making the math pencil because in PE you are using debt and you don't have a lot of assets to leverage when you're using debt because you don't have a lot of assets. It's basically fairy dust deals, and you're buying some tech.

[00:09:50] You're basically leveraging the revenue, more than anything else. And if they don't have profitability, you don't have much to work with. So that's usually why you haven't seen a lot of PE deals being done. But I think you might see some creative folks figuring out how to utilize some of those assets that have been created in the market that are just gonna die otherwise.

[00:10:13] Ronald Skelton: And I see it too. What is your guess or a prediction? Put you on the spot here. What is your prediction? This death of some of these venture backed, not profitable yet SaaS company, software companies. What'd they call it? Unicorns? Like unicorn colts.

[00:10:31] They're not quite a unicorn yet, but they hope to grow up to be a unicorn someday. What are we looking at? 18 months ago, I'd have told you it was 18 months and now we're on that and we're still, they're still being fed. The VCs are still feeding them, giving them, infusions and they're still, they're keeping them.

[00:10:46] I'm wondering what the tolerance is and when are they going to start cutting off the feed supply here? 

[00:10:50] Elizabeth Knopf: Yeah. That's hard to say. I mean, what I have been hearing is VCs haven't been doing a ton of capital calls. So that's word on the street. I don't have the data to support that.

[00:10:58] That's just something I've overheard. So in that respect, they either have to be fine tuning and doing some financial engineering and, conservation with their existing companies where they actually are trying to drive towards profitability. And that's really tough to shift in that mindset going from high growth,spend at all costs, to how do I become profitable?

[00:11:18] Where do I actually consider this? You have to make those really hard tradeoffs and almost re engineer, reorganize the company. And so given we haven't really seen that discipline in over 10 years, it really hasn't been since after the last crash,that was in play. I think there have been some VC funds that maybe don't even understand the requirements around that.

[00:11:41] Some of the newer funds and newer guys that haven't gone through these cycles. So I don't have a good timeline. If I had magic ball I would be making a ton of money on, market timing here. 

[00:11:50] Ronald Skelton: I was over here, I'll get ready to take some notes. Okay. I think we have some similar stuff. I was looking at your acquisition thing or what you said you acquire on LinkedIn.

[00:12:00] I think the one overlap we have is I'm interested in B2B, media related, great content stuff, newsletters, some software maybe. If it's a tool or something that helps with maybe pod, I say podcast, but I wouldn't want anybody to show, but I want the pre production and post production type of stuff.

[00:12:18] But, I think we have some overlap. What are you bullish on? And let's start with that. What's out there? You're like, man, I want to get my hands in this. 

[00:12:25] Elizabeth Knopf: Yeah, it's related to my background. So I spent over five years working at a public safety tech company.

[00:12:32] So I have some exposure and understanding of government tech and how there's just massive opportunities to automate and digitize, so many different parts of the government. Whether we like it or not, at least hopefully we can put our tax dollars to work in a little bit more efficient manner and automate some of that. Create more transparency.

[00:12:49] And so I'm hunting around for some government tech deals and then ancillary services related to that. So that's one bucket I'm looking at. And then another bucket that's related to one of my previous deals is really environmental services. So I, I like looking at dirty businesses now. I know it's funny.

[00:13:05] Unsexy businesses have become sexy. But I do think that there's something to be said about, we're always going to need certain businesses. There's always going to be demand. So those having that inherent defensibility is great. Now applying software to those a little bit more challenging. And I have sort of a different thesis in that world.

[00:13:25] But on the gov tech side, it's definitely on the software heavy point of deal. 

[00:13:30] Ronald Skelton: What are you bearish on like ads, not getting into that anytime soon? 

[00:13:34] Elizabeth Knopf: I mean, I'm not a consumer gal. So I mean the platforms just change. Even just seeing some of the Aldo changes, it's not being dependent on that.

[00:13:40] And I think just with consumer spending, we're at consumer debt is just the highest it's ever been. So we're going to see a crunch. So you're just going to see a lot of pain in that market. So anyone sort of touching the consumer, unless you're just part of the, the spend that you can't get away from. I think that's going to be hit hard in the next, six months to a year, or so, if not.

[00:14:01] Ronald Skelton: You and I see eye to eye on a lot of things. I think the only part of consumers that's going to be safe for what I call passion projects. Pet supplies is going to be okay. You're always going to take care of your pet, right? Golf. I don't care if the economy is good or bad. If somebody's in to golf, they're going to buy their golf stuff. And for those rednecks that don't play golf, bass fishing.

[00:14:18] We're as fanatical about our fishing gear as they are about their, their golf. But there are some, but anything outside of those, I call them passion projects because people are more passionate about it than they are logic.Other than that, I think the same thing.

[00:14:30] Yeah. So, I kind of agree in that space is like consumer products. I think, there's some other stuff that's probably okay. There's certain cosmetic products that they're just, you're going to be passionate about. You're going to take care of. My wife is going to buy eyelashes whether or not we've got food on the table.

[00:14:45] There are certain products that I think the economy won't touch, but they're handpicked. So I agree with that.

[00:14:51] In the tech space, what makes a good company? You have a lot of experience. I was looking through your LinkedIn profile. Yeah, director, growth strategies,ops and revenue.

[00:15:01] You have been like the leader of like growth and revenue for a lot of these places. So what are indications that you could take something and okay, I can apply one of my skill in leveraging and growing and doing what I do, scaling things up. Let's talk about that. Let's just talk about growth in general for a while and let's see if we can't pull some nuggets out.

[00:15:21] If you're hunting for something, here's an indicator that it's growable. 

[00:15:25] Elizabeth Knopf: Absolutely. I heard this phrase early on, and this was in my invest, when I was investing. Looking for a company that does well despite itself. And how do you find those? And what does that mean and look like?

[00:15:37] That they could be having a disastrous organizational structure. They could have, maybe even not great sales and marketing, but the product is still selling. So looking for those opportunities are really tough. You can find that in the unit economics of a business. And I would say that's always a priority in understanding what are the gross margins you start with.

[00:15:55] I like high gross margin businesses. They don't play in the world of low gross margin. Cause that gives you a lot more flexibility to work with and testing things, testing new products channels, and otherwise. So beyond that, beyond looking at the financials that it's a profitable company, high gross margins, good acquisition economics, where you're not basically buying your revenue.

[00:16:16] Or you spend so much that it's either not repeatable or you're not making it up on the back end. So those are some things that I look for. Now, more specifically of how do you actually identify what value levers could be pulled on, creating a, an interesting growth strategy. There's a lot of different things that people don't consider.

[00:16:36] So if a company only has one acquisition channel, which I actually look for, because if company has five different ways that they're trying to acquire customers. They're probably at the earlier stage, which I'm looking at like 500 K EBITDA, maybe up to about 3 million EBITDA. At that stage, they really shouldn't have too many products, too many channels, like they should have some level of focus.

[00:16:59] And if they do, there might be some opportunity to get them more focused, to figure out what is the one that's actually really profitable. They may have not looked at that data and that's very common. Or understanding what are the economics behind those. Or bringing in and sort of focusing on a certain customer base because what you find in those earlier stages of company development is, or even if a company has been around for a while. They might be just taking money from wherever and not have a specific defined strategy of who their target market is. How they're thinking about them and just aligning the whole business towards that. There might be customer concentration you have to address.

[00:17:34] So there's a lot of different ways to approach how to grow something. So one, It's figuring out how can you actually focus in the company. Number two, once you focused it in and you have real predictability and that you can look at the numbers and understand, I'm going to put a dollar in, what am I going to get back?

[00:17:50] That's when you can start looking at scaling. Before that, it's like you need to build that foundation. Otherwise you're just going to be burning through a ton of money as you grow. Or think about different opportunities. So once you've built that foundation, it's then understanding, okay, do I have the systems in place to support this? Whether this is on the people side of things, whether it's on, the different channel side of things, because then things get a little bit more complicated. And if you're not able to fulfill on the promises, you're also going to fail, it's a very much a balancing act. There's no perfect order of operations on that front, because on the one hand, you want to find the customer base and find the opportunity before you sell and before you invest.

[00:18:29] But on the other hand, you want to make sure it's a good experience. So there's a bit of a balancing act. So one easier way to approach that is actually looking at your existing customer base and saying, what can I put through that existing distribution channel? And I would say the earlier stages of a company, it's actually best to continue focusing on one customer base and building a deep distribution channel. Versus trying to find five different types of customers.

[00:18:54] It's better to maximize the lifetime customer value of one type of customer, before you go on to try to find a new customer. People might argue that in different approaches and strategy. But for me, I've seen companies focus on one type of customer built billion dollar companies. So it's like, why not maximize that channel? And then layer in new types of products through that mechanism.

[00:19:17] Ronald Skelton: I guess, like once you really learn what your customer needs and who they are, you can always play the game of what else did they purchase, right? In order to use our products, they have to buy anything else. You start there. In order to, randomly guess something, but in order to use our CRM software, they have to get leads somewhere.

[00:19:34] Where are they getting leads from it? Or, in order to use our CRM software maybe they don't have the drip marketing and all the other stuff that's built into, they're going to want to do email. Maybe there's a software company out there that can just plug right into theirs.

[00:19:49] Now we've got a full functioning drip campaign. I can get that. I'm not totally sold on the whole cross selling, upselling of diversified companies when they're too far apart.I see companies, they buy a heat and air company like on the brick and mortar side, they'll buy a heat and air company and electrical company. And then I got to go, okay, I'm going to send my electrician work over there.

[00:20:10] It's two different cultures and you get that right. Like the people who want to resonate withculture A may or may not resonate with culture B. And the same way with the customers, right? I see a lot of that going on and I think it's oversold. In all these courses you see, we take. You buy this and this and this, and then they just cross sell and upsell it.

[00:20:28] It all works like magic. Like, yeah, not all the time.

[00:20:31] Elizabeth Knopf: Yeah, no, absolutely. And I think it has to be a very clear like customer journey. What do you do right before the sale? What do you do right after the sale? And it's not necessarily that you're, yeah, if you need an HVAC system that you also need plumbing. Even though it's the same customer, again, that's very different needs in a different customer journey.

[00:20:48] Ronald Skelton: Right. And different timing, right? Even if you're building like new builds and stuff, there's different, there's different stages in which stuff goes in. Go back to the growth here. Let's talk about what is a great way to, I always like to say, I see these guys, they acquire something and they bought it like, okay, now what?

[00:21:08] What are some of the first stages once you've made an acquisition? If you've invested in something, you've got one thesis. You kind of got this story that was created when it was sold to you. When you did your due diligence, but once you get in there, start looking around, I say it's a little bit of Mr., Mrs. Potato head going on. 

[00:21:23] There's some things will move around. There's some stuff. Some of it's painful. Some of it's not. What is your onboarding process before you start pulling growth levers? How long does it take you to really get a feel for, is what I bought, what I was sold.

[00:21:37] Elizabeth Knopf: Yeah, I think that might vary slightly for every company because every deal and, maybe the level of due diligence of what you're able to uncover. And then when you get into the sausage factory, what I like to call, because every company is a sausage factory. So once, once you get in there, if it's close to what you thought you were buying, I would say, you want to start building out some level of systems and predictability because once you start adding on growth, things will break.

[00:21:59] That's just the nature of the game. So you want to be able to sort of tighten the screws where you can. So you want to make sure that you have the proper people in place. You have documentation of the existing process in the existing business before you add on anything new. So that could be anywhere from 3 to 6 months.

[00:22:16] Again, it just, it depends on the business and what the actual thesis is. And then once you've sort of defined that, okay, this is working, how much am I needed in this functioning part of the business? Is there someone that if I step away and go on vacation, things are going to break? Think about it from that point of view. 

[00:22:32] Then you can go on and start laying or, layering things in because the other pieces like you have to, adopt the culture and you have to get people to trust you. You can't come in and just change a bunch of things and that's just going to erode the trust. So you have to build that foundation with people because I have changed so many things and implemented new and grown so many things that like people don't like change at all.

[00:22:53] So you have to define and build that foundation. And that's just crucial. Otherwise, if you just come in and say, I'm shaking everything up and I'm gonna start growing the heck out of this. Like people are uncomfortable. You're gonna have, people problems up the wazoo. It's not going to actually play out the way you think.

[00:23:09] So I, I don't want to under emphasize that because it's super important. It is one of the most foundational things because it can break the business you just bought and you don't want a broken business. From there, again, every business might have a slightly different thesis, but can you put more money or capital into what's already working?

[00:23:26] So don't necessarily add new. Let's see if you can fix what's there. I love automation, but at the same time, I'm not going to force automation. I'm not going to force, growth in a way that is, doesn't make sense at a specific time if I haven't maximized what I already have. So go in and say, Okay, I have the sales process.

[00:23:43] I have the sales engine that's maybe working. I can maybe predict some of it. But is there anything I can tweak and optimize? Because people often just leave a lot of money on the table and they have a leaky bucket where if you start pouring in more water, you'll see either where the holes are, or you're just going to lose a lot more water.

[00:24:00] So figure out how to fix what is already there and what's maybe working. And then you can go there, go and start experimenting. And doing small experiments where you're not going to blow out the bank. So allocate some capital, make sure that the financials work out, or you have enough capital to maintain the business.

[00:24:19] And then you have that extra wiggle room and then just be very disciplined in how you intentionally do experiments on a, maybe it's a monthly basis or a quarterly basis, depending upon the initiative. So I would say those are some easy things, but oftentimes there's just low hanging fruit that you can fix in these businesses.

[00:24:34] Like I've seen ones that don't even have websites. That's some simple stuff. We're adding, I've added the e commerce in a B2B setting, and that has unlocked the sales team from doing and selling things that are, $30 when they have a $2 million quota. So those are really levers that you can look at to say, where can I just take some low hanging fruit to the existing sales process? 

[00:24:55] Where is there friction? Where is the conversion process? Not working or optimize. And you just have to look at the numbers and data. And usually in a lot of these businesses, you don't have that data. So you have to go and collect and define that data and actually understand what you're going to be trying to do. Because again, if you don't have that foundation and you don't have that visibility, you don't know if it's working or not or how well.

[00:25:18] Ronald Skelton: It's interesting one of the things that, through these interviews of everybody, it came up and I thought it was a brilliant idea. One of the guys who's bought, I think he's up seven or eight companies now. He said after the second one what I realize is, if a company is more than 10 or 15 years old, there are people there that have been wanting to, when you get there there's they're expecting change. 

[00:25:35] They want change. So he goes, when I'm doing my due diligence, I usually have a, like a SWOT analysis. I know what I need to change and I have some ideas, but the first thing he does is he goes with all the leadership first. And even some of the line workers. They said, if you had more money or resources, what would you fix?

[00:25:51] And he prioritizes the things he's found based off of, because a lot of times they line up pretty close with what you already found. What you know. And you start with those projects is those are the ones that people will be enrolled in and believe in and think that the idea came from them and you, when you maybe may or may not have already seen it.

[00:26:09] So I think that's a good catalyst for changes. Is like just working with the people there and go, what's not been fixed in a while that you really think needs to be fixed? The other side of that is, understanding what people are passionate about.

[00:26:23] We're going to switch gears here a little bit. I've found often that, not all businesses have the right butts in the right seats. And one of the fastest way to find that out is just ask people, what are you doing today? What does your job look like? And if you could redefine your job in any way you wanted to, what does the company need, that you would be great at?

[00:26:43] And, I'll give an example. I had a young lady who, I stole her. I met her at a, like a Foot Locker. This horrible customer was just tearing into this young lady and, she was really good under pressure. So I asked her when she was done, I pulled her aside, I said, what are you doing here?

[00:27:01] She said, what do you mean? I'm working. I got a kid to feed. I'm like, cool. What are you doing here? And, at a Foot Locker in Silicon Valley, right? She goes, I said, what do you want to do? I want to learn how to write software. What are you good at? 

[00:27:14] Besides other, besides defusing, confusing situation. I'm really well organized. I really did this. And then she showed me her area, how she had it all. I said, you want a better job? I wrote down the address of where I worked and said, meet me there Monday. I need another assistant and I'll have my team start working on teaching you how to code. 

[00:27:30] You won't be a coder right away. But we'll get you there. And I brought her on as one of my executive assistants for a company. I had 187 employees underneath me and I needed a second assistant. Within a year, she was coding like, I won't say the company or her name, cause I didn't get permission to do so. 

[00:27:44] But understanding she was extremely talented, but I just, and I just happened to be in the mode where I was looking for somebody and it caught my eyes. Like, wait a second. I work in tech. I have primadonna's that like to blow up on people. The high end Oracle DBAs, the high end networking guys, they think that they're knives. They're cold knife cuts, hot butter.

[00:28:03] They just think they can get through anything, get away with anything. My other assistant would cry on occasionally. They were just mean. I needed somebody thick skinned enough to put them back in their place, but get them what they needed.

[00:28:15] And she had that trait. I am not organized. She had that trait. So how do you walk into a place and look around and go, great people? But not all the right butts are in the right seats. Some people have to go. Some people need to be brought in. That's always saying, but a lot of times it's just, there needs to be some musical chairs that happen too. What's your process for that?

[00:28:34] I mean, how do you take a look at people and evaluate. We'll hit a second tape. You do states who do so much better if they were just doing X, Y and Z instead of what they're doing right now. 

[00:28:42] Elizabeth Knopf: Yeah. I mean, I think you covered us some really important questions to ask. And I think in those initial days, it's sort of observing, asking and observing and then seeing the outcomes and results.

[00:28:52] So even if it's like you go in, and you ask folks,what they're working on, what they would improve, and then maybe ask them to maybe make a slight change and see what happens. Just to see, are they able and competent to actually step up when you give them the room to do so. Because sometimes it's even just giving people the room to make decisions or to step into that or permission to step into those roles.

[00:29:17] So I think that's number one. It does take a little bit of time for me to just kind of get to know someone because even in an interviewing process, you don't know until you actually see them work. People can fool you pretty easily. I've interviewed hundreds of thousands of people, not hundreds of thousands, but hundreds of people.

[00:29:33] So maybe a thousand at this point, for various roles. And what you think you're getting, sometimes it's there and then sometimes it's just not. They can talk a good game. And that's always a hard thing with salespeople too. So.

[00:29:44] Ronald Skelton: I agree with you that on that one, I'm laughing because that's one of my, the HR things that people would know me would do.

[00:29:51] You can fool me in an interview and you can fool me for five or six days. You might be able to fool me for 30 days, but within a hundred days I know who you are. And at any company, I don't know what you're going to do. So I used to walk people in the HR all the time and they like, okay, why is John here today?

[00:30:06] John or I just look at the HR rep and go, John interviewed really well. And then I walk out and she knows what she had to do. That's the way that company works. We weren't allowed to do it ourselves, but they knew when I walked somebody to HR and that's all I had to do. She interviewed really well and I just turned on a walk.

[00:30:18] That's all I would have to say to them. Cause they, they knew.

[00:30:21] Elizabeth Knopf: Absolutely. And I think it's, it's a mix of understanding sort of that future visioning and creating a career path and incentive. So you have that inherent motivation, understand what you think that, give them that opportunity to share that. So that you understand what's driving them.

[00:30:34] And then next it's okay, defining a path to improve their current role. That would maybe align with that and defining what those actions are very specifically and then breaking it down into what's actionable within the next week or two. And starting really small,because I think you don't want to also give someone a massive project to work on when they've been doing a small role.

[00:30:56] So start giving them bite sized pieces and then build from there and then starting to give them more autonomy as they either show that. Or if they don't perform, don't also assume that it's just not because of, they don't want to. It could be a skill gap issue. And again, it could be someone who's, doing administrative work that really should be customer facing or vice versa.

[00:31:17] And so I have reorganize a lot of people from, back end roles are very like analytical type stuff into doing sales roles and they've, it's been a world of difference. So aligning what they actually want to do, what they think they're good at, and then what you actually see.

[00:31:33] And also making sure that they have the energy and motivation behind that. And the energy and motivation I think shows up pretty, pretty obviously. And, you don't need to have everyone necessarily wanting to crush it every single day. You might just have people that have their butt in the seat to accomplish a job, but just know that that's what you're getting.

[00:31:48] And sometimes you do need those people. But if it's people that you really need to help drive and take things to the next level, it's really observing those different, those different behaviors. And then also creating that carrot while understanding what their inherent motivation is and what that why is, and then painting a potential vision and pathway to get there.

[00:32:06] Ronald Skelton: I'm reading the notes you sent me. You said you had a different way of preparing companies for exit or making them exit ready. I think we ought to switch gears and talk about, what does it look like to build something with the view that you are going to exit it at some point? 

[00:32:22] Elizabeth Knopf: Yeah. So I think number one that goes back to a lot of businesses are not businesses that are sellable.

[00:32:30] You've probably get exposed to this quite a bit. So when I come across an opportunity that it might be an interesting company, but it's just not an acquisition fit or they're just not ready to sell today, all then go into helping them to get exit ready for when they actually want to sell, if that's a path they want to go down.

[00:32:47] And usually the number one thing that starts with is getting them off the org chart. Is getting them above the business, as people like to say. So,when you're working in the business, you're an employee doing tactical things. When you're working on the business, you're thinking more strategically and getting above the businesses.

[00:33:00] You can go on vacation and everything is fine. You don't have to answer emails. And you're sort of thinking more like an investor. At that point in time, and you have someone that's basically running a lot of the operation in the business. And so how do you go through the different levels to get them to that point?

[00:33:17] That is number one. And it doesn't all happen overnight. And there are plenty of things that happen to get them there. But that is the vision you want to create and paint. And if they're in the business, you definitely want to quickly get them to at least working on the business. And then when they're working on the business, that's when you start layering in some of the strategic components. Identifying where the managerial gaps are that they might need to bring in some outside folks. And then start sort of building the foundations that you need to be exit ready.

[00:33:44] And I would break it down into maybe. three or four buckets of how people need to consider what they need to clean up. Because again, every business is a little bit different. You have to sort of tailor the prescription of what needs to happen differently, and some have different strengths than others.

[00:33:58] So number one, it's people and people process. So do you have the right butts in the right seats? Do you have the right management team that can again, perform without you? And what does that path look like? And some of this is a little bit simultaneous this again, because everything is intertwined in a business.

[00:34:14] So having that vision, knowing and creating what that plan looks like is to get them out. What are the processes to support that? What's the documentation that needs to happen? Now you don't want to also over document if you're going to be changing things in the next week, but at least it's good to have something on paper to know where you stand, know what's working, identify where the gaps, where the holes are.

[00:34:34] So once you sort of understand the people, the process, and the systems associated with those people and people management. And also you have to put in some management cadences and right management structures, which most of these companies, I shouldn't say most, but a lot of companies don't have, or they don't have sort of best practices that they can up level themselves as well, to really enable people to perform.

[00:34:53] Then it's looking at the different possibilities for growth. So again, it's sort of going back to what we mentioned previously around what is their existing strategy? Are they selling to everybody? Are they selling to one specific individual type of customer? What are the sales channels that are most profitable for customer acquisition?

[00:35:12] How repeatable are those? How predictable are those? Are there different marketing things they could be doing? Could they acquire media to help support those efforts more effectively and efficiently? And so really understanding what those growth levers are. Now, you also have to be looking at somewhat simultaneously within your assets. What your product is, what is your I. P. If you have any.

[00:35:34] Is there sort of some differentiator that you could utilize? Could you acquire another product to pipe in to also drive that growth? So these are different things that you have to sort of look at a little bit simultaneously. And then you have to sort of wrap those together and then look at how is that going to affect then the org structure, the people in the process. What does that messiness look like?

[00:35:55] But I would say even, and I sort of missed a really key step here, is thinking about who your buyer is because people also don't think through who could I sell to. Until maybe it's also too late now. It is ultimately opportunistic, but you also, your strategy will be crafted slightly differently. If you're selling to PE firm versus if you're selling to strategic buyer versus sort of an individual searcher. For a PE firm, they're going to be looking at a lot of the financial engineering, they're going to be looking at the financials and the spreadsheets.

[00:36:27] Some of the innovative stuff you're doing is great. Legacy, maybe people, whether what their trajectory are, that might not be necessarily a priority. So you have to think what's important to you as you sort of craft your strategy and you build your business and help sort of prioritize that, towards what the exit could look like.

[00:36:44] If you're looking at a strategic, which I think if you are thinking about selling, that's a really good home. If you can find one, one, the multiples on those are typically higher. Two, there's usually some interesting upside. And then three, it's often a good home for a lot of your customers, your employees, the assets that you have. Now, a lot of those in history don't necessarily work out, but if you can do that acquisition and align yourself to fit really nicely into whatever that company is, it can be very beneficial for all parties. 

[00:37:14] And then for an individual buyer,it's sort of a mixed bag. We'll be looking at some components of, P. E. and some maybe more strategic. So that's a little bit more mixed. So as you're sort of thinking about crafting your strategy, you want to be thinking about ultimately where you want to end up with the company.

[00:37:29] Are you also going to sell a company where you're going to stay in for a little bit longer? So consider that and you might have some different considerations that you look at. So I would say those are sort ofthe three buckets. There's sort of that foundational end goal in mind and how you work backwards to cater, the org, the people process, the growth strategy and then the assets that you have.

[00:37:50] And then, of course, there's different things that come up along the way that you have to support in those respects. And then, of course, there's different value levers to help drive that, which we sort of touched on and happy dive more deeply in. 

[00:38:00] Ronald Skelton: So, inside of this process, I've heard various timelines and stuff.

[00:38:04] What is your, on the software industry and the industries, the environmental industries you've been working with. What is your experience to take somebody who's, they're in the business and actually get it to where it's exitable. What are we looking at? 18 months, 36 months or what kind of?

[00:38:21] Elizabeth Knopf: It's going to be a mix between 18 months to 36 months.

[00:38:23] That's a really good timeframe. I haven't seen it work shorter unless it's just a really solid operator, but, in that case, they probably have other resources that are just killing it. And they probably already have acquisition offers in hand. 18 months I think is very reasonable if they're dedicated and focused, and have at least some of their house in order.

[00:38:43] And then, three years is a really good timeframe to give you at least the optionality for, finding a good opportunity and a good offer. Because the worst time to sell as most people say is, or the worst time to thinking about selling is when you want to sell. And so the more time you have to take into consideration the different potential options, the better. 

[00:39:04] Ronald Skelton: And the beauty of it is a company other than some tax hit, a company that is designed and engineered to be ready to be sold, is also higher, usually higher performing, making more money, less of a stress for the owner to run. And maybe that whole reason you're thinking about selling it because you're getting burned out is gone.

[00:39:24] We talk about on the show quite a bit. It's that car trade in a scenario. Where you're about to trade your car until you go have it detailed and you, clean it all up and everything's, you get back in the car and you start driving around like, this isn't so bad.

[00:39:35] Why didn't I do this sooner? Got that new car smell and stuff because you had it detailed. And it runs fine, right? This is different because now it runs better than it did. It's growing. It takes less hours of your day. If you're doing it right, you've got highly intelligent people there that, you could be gone for a month or two and it come back and it's bigger and better than it was when you left. Why would you sell something like that other than needing the money for retirement or whatever?

[00:40:00] Elizabeth Knopf: Absolutely. I mean, I think that comes up a lot and it's also then you have to look at the economics of a deal and an opportunity. Like, do you want to just be clipping the coupons and making the cash flow versus, having an exit on a multiple that, how long is that going to sustain you?

[00:40:13] And I think it, this is just comes up with so many companies that it's really that, that first bucket of people. And if you can get yourself off the org chart, you probably won't want to sell necessarily, because things are running well. Why would you, unless again, a really good deal comes up, comes to the table.

[00:40:31] Ronald Skelton: Are you a big proponent of that growth through acquisition? Cause I'm aware a lot of your growth leverage comes. Like we get it up, we get it stable and we do bolt ons and, acquire strategic assets. 

[00:40:41] Elizabeth Knopf: Absolutely. I mean, the thing people also need to consider, it's not necessarily even buying large assets.

[00:40:46] So as you were saying, you like media. Media is a great game to be playing and people underutilize the acquisition of it. Like you're paying for ads, you're paying for, affiliates, you're paying for all these things. Why not own that asset? At some point, the numbers will make much better sense to own that channel or, or piece of media.

[00:41:05] So why not do that? So I think those are like different ways of thinking about acquisition that people don't traditionally consider, is actually buying those types of assets. So that's, yeah, absolutely. So I think those are components of things you can buy. It doesn't always necessarily make sense on other parts of the business unless you want to drive more profitability.

[00:41:24] Like should you buy your manufacturer? Maybe, maybe not. That's a whole other business. So I think it really depends what your strategy is. I haven't done a roll up necessarily, so I won't talk to that game. But I think if you are looking to grow and buy, competitors, that makes a lot of sense to grow your market share and arbitrage the value of your exit.

[00:41:43] That's just, I don't want to say an easy game, but that's, a quick, quicker way to create value versus trying to build it yourself, and to compete. So I think those are some really interesting ways and just looking at different things to, to arbitrage, overall, where look at your cost centers. Look at if you need a team, should you go and try to find the talent. Burn through a bunch of capital to build out a team you need, or can go do an acquihire of some sort where you already have a team that will just get you there faster.

[00:42:09] So it's really a trade off of time versus money. 

[00:42:11] Ronald Skelton: Awesome. Awesome. I've asked a bunch of questions. Let's give you a shot. What have we missed? What is something that we, covered a lot of stuff so far, but, what are some of the things that we probably should cover before we wrap this up?

[00:42:22] Elizabeth Knopf: Yeah. So I think one area that people don't consider sort of going back to this whole software point of view. Even though buying a software company straight out as a platform acquisition. If people consider it in a couple different ways there, they might be able to leverage it to increase their overall value.

[00:42:42] So number 1, you could buy a different platform company where you utilize some of that cash flow to go and go buy a small software company that either enables it to perform a lot better because it's differentiated within its market. Or you basically can utilize it to then maybe sell more of that software because you've proven out with a certain customer base.

[00:43:07] So I think that, that's a slightly different take on it that might help create value in that initial platform company. Or again, you can help sort of a bolster whatever acquisition you did. So it's just a slightly different, nuance and approach to thinking about software acquisitions.

[00:43:22] And then thirdly, If you do want to utilize software, like just utilizing it as a tool within a company, again, you don't want to force tech where it doesn't make sense if the business is working well. Don't force technology. I love that game when you can. But even that can be a key differentiator within the market.

[00:43:40] And then finally, looking at development shops where, again, you would pay a much lower multiple, but maybe they've built out for other customers, something that you need or want. To utilize as a software play, that could be a way that's more attractive financially. There's still risk and still a lot of challenges there.

[00:43:58] But that, those are, I think, some ways that you can utilize software and think about software from an acquisition standpoint that people don't always go to, they just go for sort of the straight platform game, and buying a software company. So definitely take those into consideration.

[00:44:10] Ronald Skelton: Interesting. Interesting. What's a big goal you're trying to achieve? What's something with audience can help you, if somebody could put something in front of you or something that would help you out, what would that be? 

[00:44:20] Elizabeth Knopf: Yeah. So,actively looking for anything in government tech.

[00:44:23] Or related services and gov contracting. And then sort of the second bucket, which even though it seems totally separate is somewhat related to the government tech and contracting component, which is environmental services. So I'm looking at everything like, mold, remediation, restoration things related to, we have an interesting nanotechnology, product with, that helps with soil.

[00:44:45] So anything that might be interfacing with landscapers or, folks that just engage with farming and that industry. Those might be some interesting areas, but really focused more on sort of the mold, remediation and restoration side. 

[00:45:00] Ronald Skelton: I tried to get my hands in a, a very tech company that created, one organic enzymes that was, one of them would create what's called dirt creek.

[00:45:09] So if you're from a farm, what dirt creek is, is like when you want your barn floor to be harder for animals. You just basically wrote a till up the dirt floor in the barn floor, mixing concrete, and then, pack it down and spray it with water and it turns into concrete. So dirt creek. They have an organic enzyme that basically you just put in a thing, mix it with water, poured over the concrete and it binds the dirt together. And it's like a slab, it's hard like a slab, that'll last 15, 20 years. 

[00:45:36] I was working with them trying to help them do some lead gen and stuff and trying to get in on their good graces. But I was trying to get in cause I wanted to,I was trying to try it like, Hey, let me buy this and take it to the next level. You guys aren't really doing what you could do with it. 

[00:45:48] And come to find out when we started trying to have that conversation. I was trying to set up those meetings. They were already in discussions with some Chinese company, which I'm pretty sure bottom. So that went away.

[00:45:57] Elizabeth Knopf: And it's wise because what I found is that, a lot of this stuff is stuck in the labs and with scientists and there's so much out there that just hasn't been brought to market.

[00:46:07] Some of it for good reason, but a lot of there's a lot more than people give credit for. I think there's a lot of products that just have not great go to market strategies. So if you can have a figure out a distribution channel, there's products out there. 

[00:46:20] Ronald Skelton: So that's cool. How do people reach out to you? How do they get ahold of you? 

[00:46:24] Elizabeth Knopf: Yeah. LinkedIn is probably a great way to do so.

[00:46:26] I'm active on Twitter, X rather, as well. Leveraged upside is my handle or LinkedIn just search for me. Or you can go to my website, leveraged upside. com.

[00:46:35] Ronald Skelton: Okay. Well, I appreciate having you. We'll call that a show. 

[00:46:38] Elizabeth Knopf: All right. Thanks so much.