E99: CEO Of Axial Discusses Selling Private Companies And The Necessary Preparations - How2Exit

[00:00:00] Ron Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Peter Lehrman. He is the CEO of axial.com. It's the Internet's trusted platform for buying, selling, advising, and financing private companies. Thank you for being on the show today, Peter. 

[00:00:14] Peter Lehrman: Oh, that's great being here. Thanks for the invitation.

[00:00:16] Ron Skelton: Well, I always like to start off with the origin story. I kind of joke around all the time and say, Hey, you were born and then you ended up on a show about mergers and acquisitions. Can you fill out the gap in between? But let's talk about, there's a lot to cover. You guys do so much. Let's talk about kind of your background and how that led you to build Axial. 

[00:00:33] Peter Lehrman: The short answer to it is, right before starting Axial, which was in 2009. I was in graduate school in California. Northern California. And, got sort of stumbled, luckily into an opportunity to work part-time while I was in graduate school for a private equity firm that was in the business of buying small and medium sized American businesses. That company specifically was [00:01:00] focused on buying, mostly instrument businesses, testing and instrument businesses, measurement businesses. They had a really interesting niche. And, it showed to me how challenging the deal sourcing process was, particularly when you were looking for very specific types of businesses.

[00:01:15] And you were looking for very small businesses. Big businesses tend to have a lot of information on them. There's a lot of information on the internet if they're public. There's gobs and gobs of information, but small businesses tend to have very little information on them, that's freely or easily available. And so deal sourcing is very hard in the small business m and a category in a way that's unique. And instead of graduating from grad school and continuing on as a, an investor in businesses, I decided to start Axial and see if I could solve the problem for the market at large. So that's the short version of the story.

[00:01:48] The longer version of the story is that I had a one chapter prior career. I ended up starting my career after college working at a company that was started by my brother and one of his [00:02:00] co-founders. And that was a information business based in New York. That was focused on serving public market investors, so people who buy and sell stock and bonds in, in publicly traded companies. And the reason that is, I guess, a substantive part of the origin story is before any of my work investing in private companies, I had spent all of my sort of career. In and around the investment in public companies. And what you see when you go from public companies to private companies is how stark the contrast is in terms of how much information is available on the businesses. How well organized the businesses tend to be, the quality of the financials.

[00:02:41] There's just so much more about private companies, which is harder to discern. Harder to find them. Harder to get reliable information on them. And so it just created like a really fruitful area to think about trying to build, a new business. So I sort of put the two expert, sort of the two chapters together, with the start of Axial in 2009.[00:03:00] 

[00:03:00] Ron Skelton: You went to school in Northern California. Where was that at?

[00:03:03] Peter Lehrman: It was Stanford for a business school. Yeah.

[00:03:05] Ron Skelton: Awesome. That's cool. Used to live right down the street from, my wife's from Palo Alto. Yeah. Now I am about an hour and a half north of there in the redwood forests of Northern California. I love it here. Let's go into, you've built a pretty cool ecosystem that I see it. Cuz it's complete, it's not just from marketplace, like some of the competitors out there, biz buy, sell, it's almost just a listing. I just don't think it is nearly complete of what you guys built. You got something for the buyers, you got something for the sellers, and you built something for the advisors. Let's go kind of in a different order. Let's just talk about what's built there and what you did for the sellers and how you helped them. And then we'll kind of go from seller to buyer to the advisor broker if you want. And let's talk about Axial and what's, how it serves those three markets. 

[00:03:47] Peter Lehrman: Well, there's two primary things that Axial tries to help sellers with. The first and this is in no, no order necessarily, but there's two answers that we try to help a seller or someone who's thinking about selling their business.[00:04:00] Get the answer to or get some answers or some ideas around. One answer is to the question, who are good brokers or m and a advisors who might be well placed to represent me and my company when and if I decide to sell the company? So if you've decided as a business owner that you want help selling your business and you're not gonna DIY it, we want to be in a position at Axial to give you data and empirical information, that helps you narrow the funnel of potential brokers to interview. To compete, to represent you and your business.

[00:04:33] You don't want to pick a business broker just because they're the ones that are emailing you the most, or they're the ones that are cold calling you the hardest. You really want to go through that process with some good data. And so we have a lot of free data, on the productivity and the performance and the track records of brokers and m and a advisors. We make that available to business owners at no cost. The second, answer that is always on the minds [00:05:00] of sellers or people that are curious about or thinking about selling over the next, call it, 12 to 36 months. Sort of nearer term or intermediate term potential sellers is, who would be interested in buying my business?

[00:05:13] How many potential buyers are there out there? What do they look like? What are their names? Where are they based? Why would they be interested in a business like mine? And that's an answer that we, are well suited to, to provide some really, really good feedback, again, to sellers on. So when you upload a confidential profile on the Axial, as a seller, you get essentially immediate access to a subset of all the buyers on Axial that are most potentially relevant to you. And you can see a bunch of data on who they are, the kinds of transactions that they have done. Why they're interested in businesses like yours.

[00:05:50] And the answers to why they're interested could vary, right? If you run a software business, there may be a bunch of investors who only buy software companies and they have a [00:06:00] list of other software acquisitions that they've done. And so you can look at that buyer and say, okay, this is a really specialized buyer. They're very specialized in the software category. But you may also see buyers there that are interested in buying software businesses, but they also buy other kinds of businesses. They buy software businesses, they buy services companies. And so you can kind of see whether or not the buyer is hyper specialized or is a little bit more generalist in nature.

[00:06:22] But, broadly speaking, there's two questions that, business owners think a lot about when they're thinking about selling their business. Or maybe three. One is, how much is my business worth? Two, who should help me represent, myself in the sale of the business? And three, who's the ideal set of ultimate buyers that I should be talking to? And we try and help with two of those three.

[00:06:41] Ron Skelton: I was looking at all your, your resources you have on your website too, and you have in-depth resources for all three. A lot of buyers probably would have, or sellers, sorry, would even some buyers would ha ve, of the acquisition of entrepreneurial level would have a difficult time getting their hands around the [00:07:00] discounted cash flows model. You have one heck of a spreadsheet that just makes it pretty plug and play. If you can identify certain financial information and plug it into the spreadsheet, it'll build it up for you pretty straightforward. Now I'm a nerd, it looks straightforward to me. But you also, like I said, on that same resources page you have, I just downloaded a, your list of, analyzed brokers and was kind of going through that and like it's pretty thorough. You've got some great information about, Why this company brokerage and not, and what you're looking for in it. Yeah. I can see that there, you guys have put some work into doing that. We were talking about before the show, and you and I were talking about, or I brought up the thing that in most states, in a lot of states, there's just not a high bar of entry to become a broker. So having information that you guys prevent and having information that's peer reviewed that comes from your customer base, comes from your experience with them, is critical.

[00:07:50] Because like a lot of states, there's no licensing requirements. Where if the licensing requirements is there, it's insufficient. 

[00:07:58] Peter Lehrman: I agree. [00:08:00] If you try and think about, big decisions that you make in your life, right? If you have a big medical procedure, you think carefully. Ideally you're in a position to think carefully about, who is the doctor? You probably get a second opinion. You're certainly well advised to get a second opinion, right? If you're selling your house or you're buying a house, again, big decision. Thinking about the transaction, the cost, how to finance it, how to structure it. What is the house worth? Same thing if you're selling your house. There's real expertise in these bigger decisions. When you're selling a business, usually with almost no exceptions. Every business owner who I've ever really spoken to, their business is always the biggest, form of net worth in their life.

[00:08:46] So making good decisions about who you're going to hire to help you sell the business, is a really, really important decision. And in a market, as you say, that doesn't have, like, it's not [00:09:00] like you have to go to four years of medical school to be a business broker, right? And then go and do a residency and an internship. So you're right, there isn't this like, these like significant academic or other barriers to entry to being a broker. But that doesn't mean that it needs to be. A fool's guess. There's a lot of data that you can ask for from brokers. You can obviously use tools like Axial if you're thinking, about selling your company and you want some access to some free data.

[00:09:25] In the normal course of connecting with, with brokers or m and a advisors, you can just ask them some basic common sense questions, right? How many transactions have you closed? Tell me some stories. What are the last few transactions you've closed? Can you introduce me to a couple of CEOs, or business owners that you've advised? It's common sense, blocking and tackling around the decision. And you don't wanna skip those steps. You really wanna make sure you do that work. And so that kind of gets a little bit into, I guess the timeline for business owners when they're thinking about selling your company. You can't just wake up one day all of a sudden decide you [00:10:00] wanna sell your company and successfully sort of race into the end zone. You've gotta have the time to sort of, do the prep work. And so planning ahead is pretty important concept as well for successful exits.

[00:10:13] Ron Skelton: I think that's one of the biggest wake up calls most people have is they're like, okay, I'm burned out on this. I don't wanna sell, or I've got this medical issue I gotta sell, or whatever reason. And they think they're sell their business in the next six months. And if they want true full valuation and they haven't been planning and doing their financials as something that's built to sell as opposed to something to minimize taxes, which most business owners try to do. Then they've got a two to three year process of systemizing changing accounting practices, getting some history behind the new accounting and all that.

[00:10:47] So yeah. We talked about the timeline. Let's talk about a seller decides he wants to sell. He stumbles across the Axial and, what's the process for them to work with the marketplace you [00:11:00] guys built? I keep calling it a marketplace. What do you guys call it? 

[00:11:04] Peter Lehrman: That's a perfectly reasonable term for it. I mean, marketplace sometimes makes people think like there's this open public bidding dynamic between buyers and sellers and none of that occurs on Axial. The whole thing is private. It's all confidential. The business owner is behind closed doors and gets to decide who they wanna have conversations with. So we've never really used the term marketplace cause we don't want people to think it's this open public square where you go and talk about selling your company. It's a very sensitive topic. And so we designed Axial more as like a confidential platform than as like an open marketplace like Craigslist. 

[00:11:39] The metaphor is still accurate in many ways. I mean, again, the sellers can come to Axial. There's a lot of data on our, if you just go to the Axial website, you can see a lot of data, a lot of downloadable lists, a lot of resources. If you're actually looking to connect with advisors or potential acquirers, that's when you go through the process [00:12:00] of uploading a confidential profile. And it's when you upload your confidential profile that you begin to get specific recommended matches, for you and for your business and the transaction objective that you have. So there's lots that you can browse and research and read and download without creating any profile, but if you actually want to get specific matches and specific recommendations made for you, we need more data on who you are and what you're trying to accomplish. And you do that by uploading a confidential profile within the platform itself and just set up a username and password to do that.

[00:12:30] Ron Skelton: Now, would you recommend a business owner find a competent, broker and have them do that profile that before they upload anything to you? Starting to seeing what the buyer's out there? Do you think that they should be working with somebody to make sure that looks the best it can look?

[00:12:47] Peter Lehrman: Sorry, is the question, do I think that the sellers should be partnering with an advisor or do you, or what was there question?

[00:12:53] Ron Skelton: Yeah, like in the timeline of what they do, they come there, they download the information and before they decide, they wanna [00:13:00] see like, a list of who's out there to buy them. There's a confidential information packet. A list of stuff they need to tell you. A lot of the stuff on there I have to imagine, is financial data and some other stuff that they'd either be guessing that or cuz they don't know the ad. There's a lot of stuff they don't know. If you're running a small business, there's a lot of, and I've only interviewed, I've only sat down with.

[00:13:26] 250, 300, maybe a little over 300 businesses. Out of 'em only I can count on probably my fingers without needing any toes, how many of 'em really had their financial act together. Like really had it together that, if they came to a site like you and you start asking, financial information such as seller's, discretionary earnings, I dunno what you asked for EBITDA or anything that you would ask for. They know about add backs and all the other stuff. They could put a decent picture forward. As opposed to most of these guys, need to get a fractional CFO or somebody or an advisor of some sort to help 'em [00:14:00] understand what that really looks like. 

[00:14:02] Peter Lehrman: Yeah I agree. There's definitely a gradient of preparedness. The confidential profile that they create with an Axial is not, they're not putting their hand on the Bible and saying, Hey, this is my revenue and this is my pre-tax earnings. They can punch in an estimate. They can punch in actuals from, last year's financial. The goal is to get them is to have them create a profile that narrows the strike zone of potential partners. There's a really big difference between having, a business with 10 million of EBITDA versus a business with a million of EBITDA.

[00:14:35] And you can compete for very different types of acquirers and very different types of advisors depending on, the size of your business. And so you really want to be, you want to just be narrowing the strike zone with this initial data upload. Of course, ultimately when you go to market, and you're in the market talking with acquirers, you wanna be pretty precise [00:15:00] about your financials because, any wobbliness there is gonna create anxiety and doubt in the mind of buyers about, just your preparedness and your financial, acumen. And that only serves to hurt you, in the sale process. But at this point, as a seller, just sort of experimentally beginning to upload and create a confidential profile. If you've got a business with a million of discretionary earnings, if you put in $900,000 or you put in $1.1 million, it doesn't like radically change the, the data results.

[00:15:33] And so what you're really doing by creating this profile is, some revenue, some either EBITDA or seller discretionary earnings. You can choose the industries in which your business operates, the types of, industry and markets that you serve. Do you sell to consumers? Do you sell to businesses? Do you sell to the government? You can, incorporate some keywords that are quite specific to your business. So there's a variety of things that you can select like that geography to the extent that's a preference. There are certain [00:16:00] advisors that are focused on certain geographies.

[00:16:02] There are certain buyers that are only buying businesses in California, or they're only buying businesses in the Southwest. So you sort of go through this process, but you're not handing over, this just boatload of hyper detailed information. It's really more getting this strike zone narrow enough to the point where you can say, okay, here's a set of ideas for who you might want to be talking to, and here's why we're recommending these acquirers and here's why we're recommending these m and a advisors or business brokers. 

[00:16:32] Ron Skelton: Part of that output show that these, cuz I know, and some business owners probably know that different buyers actually pay different amounts. Right. A strategic buyer might pay more than, just somebody that's wanting to be the operator. Private equity has a certain model they pay. Inside of the data you put out, you could do, you show them that here's the three types of buyers that'd be interested. Here's kind of, do you give 'em any of that? Like this one, this group typically pays three x to four x multiple, [00:17:00] or do you not do that yet? 

[00:17:01] Peter Lehrman: That's a good question. And the answer is, we don't do that. We don't do that for a couple of reasons. One reason is we frankly don't always know the answer. And, it would be great for us to have that data. If we had that data, I think we would be interested in sharing that data, although we would probably need to anonymize some of that data to protect the interest of the buyer. The Axial has a platform needs to like, maintain a certain amount of neutrality and not disadvantage sellers or buyers inappropriately from one another. But that would be great data for us to have. We will delineate between strategic buyers and financial buyers and operators and search funds and holding companies.

[00:17:39] So you do get a sense for like, the spectrum of buyers that are out there and the different sort of, categories and classes that they fit into. But we don't speculate about, like, this one's gonna pay you a lot and, this one's only gonna pay you a little. That's really hard to, that would be tough speculation for us. And I think it might set up the business [00:18:00] owner for, a disappointment or mismanaged expectations, et cetera. For a number of reasons, we don't do that. We do give them data on how many times, we will give them data on how many transactions have different buyers closed, how many transactions have they closed through Axial.

[00:18:14] We will give them data on how responsive they are. So we will give them, a growing amount of data. Over the course of, the evolution of the platform. We've sort of put more and more data in there, but the buyer's willingness to pay and how much they pay for different kinds of businesses is not something that we put out there.

[00:18:30] Ron Skelton: So, out of all the people I've interviewed and I'm playing in a field just under the radar of probably your majority of your customers in my mind anyway. There's a few main concerns of the seller, right? There is a certain group of seller who they built it to sell. They're trying to maximize what they get out of it. And that's what they're concerned about is who's gonna pay the most. I think that's in the minority. Most of the business owners have built something. They love their employees, like their family, and they have a legacy in their name. They're more [00:19:00] concerned, if they're gonna sell, they need the money to retire.

[00:19:01] They need, it's part of their, the biggest asset they have. So they, the money's important. But one of the things I did in this discovery, and like I've said, I've interviewed over a hundred people at this point. One of the discoveries I did at the beginning is, who do these businesses actually sell to? And it surprised me that it's not the highest and best offer at all times. It's often it's who's the best, safest pair of hands for what I've created at a fair, reasonable price. They're not gonna take a low wall offer. That's, an awesome dude with an awesome story that's gonna, take care of the company.

[00:19:35] They're gonna get their money. And usually, when you really dig down to it, there wasn't that much difference between the two or three offers. Could be six figures, could be seven. Some of these deals, seven figures. I would say probably 60, 70% of the time when I ask people, who ends up being the buyer? It's not the highest offer. It's who the, who that person had the most rapport with and had the most trust in. My concern is like, there's two models, right? [00:20:00] Or like, maybe even a third one. Finding the right buyer for the right fit. Do you guys do some of that, what I refer to as the eHarmony magic, where you guys figure out what you're looking for in a seller and then give them some advice as, okay, this is the type of buyer that would match what you're looking for?

[00:20:14] Peter Lehrman: Yeah. First of all, you're absolutely right. The highest bidder does not win, these transactions. It's just not, I mean, it happens of course, but very often does not happen. I don't think that sellers are willing to take huge discounts in order to work with somebody who they prefer. But I think if a seller has a preference for a specific buyer, as long as that buyer is, pretty competitive with the highest bid, they have a really good shot of winning the deal, without being the highest bidder. And as you said, the reason for that, I think is unlike your house, which is like an inanimate object, it's like whoever buys this, whoever pays me the highest price, or whoever's the all [00:21:00] cash buyer, like that's who I want to sell my house to. With your business, you're leaving behind people.

[00:21:05] You're leaving behind, your business' reputation. You're leaving behind, your own reputation, in terms of who you sell it to. And so there's just way more ramifications for who you sell your business to than who you sell your house to. And I think that's why, you can outcompete the highest bidder in the purchase and sale of businesses in a way that it's very hard to outcompete the highest bidder in real estate. I think, again, Axial is really, really good. I think the one thing that we're really good at is matching business owners, m and a, advisors and acquirers based upon understandable, straightforward criteria, financial criteria, reasons for exiting geography, EBITDA, revenue. Industries.

[00:21:56] We're not like, personality matchmakers. [00:22:00] That's a really hard thing for us to do well on behalf of all of these different, members that we serve. And it would be, again, it would be a very speculative thing for us to try and enter into. The truth is when buyers meet sellers and sellers meet buyers like, there's chemistry. They know right away whether or not like this is someone who they might be interested in doing a deal with or not. And it's just part of the process that a business owner needs to be ready to go through is. At some point they need to be, ready to meet with these prospective advisors or meet with these prospective acquirers and figure out, whether they have the right feeling about it.

[00:22:37] It's just not, it's very, very hard for anybody else to sort of step in and make that kind of judgment call for a business owner. It's so personal. So we try and create good data on the buyers and in the advisors on like, understandable metrics that are easy to understand. But when it comes to, things like chemistry and personality and, other things like that, [00:23:00] it's tough for us to speculate.

[00:23:02] Ron Skelton: So you guys collect data. Let me share a little bit of informa more than more times than I probably gonna guess at here. Over the last few years, I've lost the seller's interest cuz they see that I build myself as an acquisition entrepreneur and they ask me what my plan is with their company. Right. And it's to, usually it's gonna be to grow it and sell it. I'm buying these to grow, combine with other stuff and sell. And the guys that are looking for a safe pair of hands don't want to hear that in the next five years. It's gonna change hands again. Right. I'll be 51 in three weeks here.

[00:23:39] I don't see myself running anything for another 20 or 30 years. And so that's what some of these guys are looking for. So do you guys track any of that data? It sounds like, I think you said earlier you started working on this in 2009, is that right? 

[00:23:49] Peter Lehrman: Yeah. 

[00:23:50] Ron Skelton: So started working on it, 2000. Do you have data like they held onto it? These transactions happen and they still own 'em, or do you have any data on longevity of some of these deals or? 

[00:23:59] Peter Lehrman: We do [00:24:00] have data on portfolio companies. So buyers and acquirers on Axial can contributed in their portfolio companies and when they acquired them and, when they decided to exit them, or if they still hold them as current holdings. And so you can get visibility into the status of acquirers transactions and whether or not they still hold those businesses or whether they have bought those businesses. And since then have sold those businesses. One of the other nice things about the way the m and a market sort of stratifies on the buyer side is, and it's not per, it doesn't hold perfectly, but for the most part the different sort of general categories of buyer gives a seller a good sense for, whether or not the acquirer is like a whole, a buy to hold, a hold to own acquirer, or whether the acquirer is going to buy it and fix it up and then sell it at some point.

[00:24:57] So it's very unusual for private equity [00:25:00] firms to buy businesses and hold them forever. Because private equity firms raise money from endowments and foundations and wealthy people. And they say, give us your money. We will invest in some businesses. We will aim to improve those businesses. And once we've improved those businesses up to a certain point, we will aim to then sell those businesses and we will then return the money that you gave us and hopefully we will return far more than you gave us. Right? And it's very hard for them to say to those endowments and foundations, Hey, give us your money and we're just gonna sort of hold onto it indefinitely and try and grow it.

[00:25:34] A lot of those investors, they need a time horizon on which they're gonna get their money back. So it's unusual for a private equity firm to hold a business for much more than, three to seven years. Whereas holding companies, the most famous of which is Berkshire Hathaway. But there are many, many, many holding companies out there. All kinds, holding companies tend to hold businesses forever. They buy businesses and they tend to hold them. And the [00:26:00] idea behind holding companies is very, very good tax efficiency, but doesn't provide the same kind of liquidity that a private equity model has.

[00:26:08] Usually holding companies will not dispose of an asset. They bought it because they wanna hold it forever. Search funds typically, represent business, essentially someone who wants to buy and become the CEO of a business. Developed the business for a while. Most search funds raise outside capital. And so at some point they probably need to sell that business again. So as you go through the different categories of buyers, you have strategic buyer, right? If you sell your company to Google, or you sell your company to 3M or to ExxonMobil, or to some, large privately held business. Again, strategic buyers, they don't buy businesses and then sell them.

[00:26:46] They bought your business because they thought it was strategic to, where they were developing their own company too. You may lose, they may hire, fire some of your back office staff, or they may change around where you do manufacturing, or they may [00:27:00] plug you into their sales and customer relationships in ways that you don't like. But they're probably as a strategic buyer. Not planning on buying your business and then selling it for profit. Three to 10 years later. They're planning on buying and holding it for, indefinitely. So you can kind of tell who you're dealing with as a seller based upon sort of how they self-titled.

[00:27:18] Ron Skelton: Awesome. Now we covered the selling side of it, and we're starting to talk about buying. Let's talk about what's the in Axial for buyers? A buyer comes to your platform. I'll quit using the word marketplace. Buyer comes to the platform, and they're starting to look for x, y, z type of companies. What's the process and what did you build for the buyer side? 

[00:27:40] Peter Lehrman: What we built for the buyer side is an origination platform. It's a way for a buyer of small businesses to develop a pipeline of acquisition targets that is specific and precise and matched to the areas of interest and the types of businesses and the sizes [00:28:00] of businesses, that are of interest to them. And what we did was build it in a very specific way where the buyers, need to articulate their interests in advance and then credentialize their interests through their profile. So, as I was saying earlier, sellers create confidential profiles. Buyers typically create visible profiles. And those visible profiles are then made available to sellers as well as to advisors who are representing sellers.

[00:28:31] And so a lot of the alternative sort of, structures for, business for sale marketplaces and the like on the internet create an interface for the buyer where the buyer can just essentially browse around and search for deals. And we don't like that construct for a bunch of reasons, because we think that when buyers are forced to explain the types of businesses that are interesting to them, and they're forced to then credentialize and explain why those are the types of businesses that are interesting to [00:29:00] them. We can create better matches, more interesting matches.

[00:29:04] That are more credible to the sell side. So for example, in your case, Ron, like you said, you're interested in buying media, businesses, content sites, right? And you have a point of view on that category. You understand it, you come from that field. You may have been active there historically. And so if you were to use Axial to look for those types of businesses, you would create a profile that reflects that interest in that specific area. And you can only be matched with business owners who are looking to sell their business on axial based upon the criteria that you set up. You can't just sort of like hunt around and browse around and then, tell someone that you're interested in their business. We think there's a difference.

[00:29:46] You get a higher signal to noise ratio if you ask the buyers to declare their areas of interest upfront, and then run the matching based upon that. So that's how it's structured from a buyer's perspective. And at this point [00:30:00] there's, on a trailing 12 month basis, just to give you like a sense for the scale. There's, over the last sort of 12 months or about 1800 different investment bankers, business brokers or business owners in total who are using Axial to sell businesses.

[00:30:18] And so the biggest advantage for a buyer, who's looking to source small business acquisitions that we hope to confer on them is just very, very easy and turnkey access to all of the distribution of sellers, that are using the Axial platform. And frankly, if you were to connect with all 1700 sellers and all 9,900 transactions, that would be a horrible fire hose of an experience for you. And so what we try to do is build a lot of distribution, through the tools that we offer to advisors and to business owners, and then create this matchmaking system which tries to sort of parse through and filter out the sort of signal from the noise. So for you, you're interested in buying [00:31:00] small content sites.

[00:31:02] Another person who uses Axial is interested in buying plumbing companies and plumbing companies only in the Southeast. Another person is interested in buying landscaping businesses, commercial landscaping businesses in the Arizona area. We have other buyers who are looking to make, SaaS, software acquisitions, and looking to do that, all across the country. And so the buyers are able to define these strike zones. The strike zones on the buy side need to match with the strike zones that are built confidentially on the sell side. The matching engine then works backwards from, having established those profiles on the sell side and the buy side, and then returns a list of, potential acquisition opportunities to the buyer.

[00:31:44] Your alternatives as a buyer are doing a lot of traveling, a lot of networking, a lot of outbound cold emailing, a lot of outbound cold calling, purchasing lists, purchasing subscription databases. Those are other really [00:32:00] viable ways of sourcing deals. And they're not bad ways at all. I don't like think those are bad ways. I think those are very good ways, but, a lot of our customers on the buy side use axial cause it just saves them a lot of time and it makes it easy for them to find acquisition targets that are a good fit for them to explore. And a lot of our clients on the buy side say, I'd rather spend my time evaluating real live acquisition targets, then spend my time trying to find them in the first place.

[00:32:26] Which kind of gets back to the experience that I was having when I was working at this private equity firm. I was spending the great majority of my time hunting for targets and very little of my time actually. evaluating them and assessing them. And I think a lot of people in private equity and the world of acquisition prefer to spend their time studying and evaluating businesses as opposed to all of the grunt work associated with hunting for them in the first place.

[00:32:51] Ron Skelton: Yeah, I get it. I come from a background of, sourcing deals, right? I've come from the real estate world. So direct mail and, outreach and cold calling and all that stuff is just how [00:33:00] we did both, real estate on the multi-family level and the, residential. So I carried that into this space. It's not only time consuming, it's a little cost, costly too. It can, you can spend a lot of money not a lot in the grand scheme of things, but you can spend considerable amount of money mailing letters and buying lists and, not getting the results you want. A lot of people think, well, I sent 500 letters.

[00:33:23] I was like, yeah, but did you send 3000 ? Because, if you're good, if you're not, even if you're not Dan Kennedy, if you're not like a rockstar copywriter, the average return on direct mail is less than 2%. So that, that means you're your average, you're normal. If you've never written direct mail and you've never, like, especially in this space, you're gonna do one of two things. You're not gonna get much of a response and you're probably gonna tick a lot of people off because people are pretty touchy about you sending a postcard saying, I'd like to buy your business. Cuz everybody that touches through there wants to know why the owner's wanting to sell. And he may not want to sell. He may know, like he has no idea why he's getting this [00:34:00] postcard in the beginning. 

[00:34:00] Peter Lehrman: That's right. Yeah. I think one of the other things that also is challenging for a lot of acquirers is, they, their appetite to find acquisitions ebbs and flows over the course of a year or multi-year period. So there are some periods where they are really, really looking for a lot of opportunities and are looking to build a lot of pipeline and then all of a sudden, they find a couple of really interesting opportunities. And so now they wanna spend a, some significant portion of their time assessing those opportunities that are interesting.

[00:34:40] And that takes a lot of time. You have to go and get on a plane or a train or get in your car and go meet the business owner and go spend time with the business owner and get familiar with the business. And that's time well spent if you're in the business of making acquisitions. But now you're spending an increasing share of your time evaluating a business in [00:35:00] depth, and you're losing the, that time that historically were spending on trying to hunt for acquisitions. And then if that deal falls through or you decide you don't want to go through it, then you kind of have to like restart your whole pipeline and rebuild your whole pipeline because for the last, one or two months you were spending the disproportionate of your time evaluating a deal, submitting an offer.

[00:35:21] And, that was your number one priority. So you sort of like walked away from your, your deal funnel. So those are like really frustrating challenges for, if you're a big at scale private equity firm, you can have people just always out on the market hunting for deals. And so you can overcome a little bit of that sort of feast or famine sort of cycle. But if you're a smaller organization doing, one or two deals at a time, your pipeline, your ability to maintain an even pipeline of opportunities is very, very hard because, , your time is always getting competed away as you go down the funnel on the opportunities that are most interesting to you. That's a really hard thing [00:36:00] for acquisition entrepreneurs to fight back against. 

[00:36:03] Ron Skelton: So the other thing aside of that, for people that are thinking about like, I'm just gonna outsource my own deals to, not to discourage you, but there's, she's talking about the ebb and flow cycle, but there's actually a lag that happens every time you restart it, right? If you look at the grand scheme of things you, I'm gonna do the other hand, cuz it kind of looks right. You send out your mailers, your outreach and stuff like that. And the very beginning you get a high response rate. But it takes time to buy the list to figure out what's gonna work to send different letters out, and you're finally getting something that's starting to get responses.

[00:36:30] Now all of a sudden, you got, 1, 2, 4, 5, 10 calls. You have to make deals. You start to evaluate. You start throwing the, whoa, I don't want the phone to ring anymore. So you don't send anything off. That last mailer you just sent out, that last group of things that's working. You're going to get responses on that, that taper off over time. But if say you go through these five or six that you're evaluating and none of 'em are the right fit, you go kick that off. Now you got the whole lag time again. You gotta send the same letter. You think you know what works as far as the letter [00:37:00] works. But everybody thinks, well that wasn't the right exact fit, so I'm gonna change the letter and change the people I'm targeting to.

[00:37:06] And what they don't realize is they just started all over. So they have to figure that one out. That audience out that. And it happened to me in the real estate space all the time. We would get so busy that we just couldn't handle any more customers. We couldn't hire people fast enough. So I'd have to turn off all the millers and their stuff and then we would start to slow down. And we'd have, it'd take a week, two weeks, sometimes three weeks to get that ramp back up to be busy again, because it takes time for those mes to start working and, that response rate and stuff. So you'd have the, it's like you said, it's ebb and flow. You feaster famine, feaster famine.

[00:37:37] And, it's not a steady thing. Like you said, if you're a big company, you can have a whole team doing it. You can, vet deals, that's one thing. But, it's cool to actually have a place where I can just go to and put my criteria and things get delivered. And when I turn it off, because I've got what I'm looking at when I turn it back on, it's pretty instantaneous, right? It's not, I turn it back, I have to go figure it back [00:38:00] out. Tweak it, send out a bunch of stuff on, wait a week or two for the phone to start ringing again.

[00:38:05] Peter Lehrman: Yeah. Once you're active on axial, we notify any matching seller. That you have, you as a buyer are a potentially credentialed buyer for a particular transaction. And then the seller decides whether they want to invite you to the process. So I think that's one of the things that, makes a lot of sellers comfortable. As they're not just posting their deal on the internet like it's Craigslist. They get to decide which buyers they wanna reach out to and engage. And the buyers don't know that their business is for sale unless they decide to invite them to do that. And then we also allow them to do that with anonymity. That's pretty powerful as well. They can remain anonymous at the top of the dialogue, the top of the funnel. 

[00:38:46] Ron Skelton: I think you get a strategic advantage in that. If you think of how some of the competitors work, like Biz Buy Sell. Let's just pick the biggest dog in the park. Biz Buy Sell works great in LA and San Francisco and big cities if you've got, a [00:39:00] plumbing company cuz there's 15,000 plumbing companies within a 50 mile radius. They're not gonna figure out which one yours are when you put your semi anonymized, listing on Biz Buy Sell. I just moved from Tulsa, Oklahoma, and I own a couple small businesses that are, one of which is a small pest control company.

[00:39:17] If a pest control company lists itself on Tulsa, Oklahoma, and Biz Buy Sell, no matter how discreet they try to be, I can probably guess, who it is and call the owner. There's about 30 that I'm trying to buy. I'm looking to buy more of them just cuz I bought one too small. That said, I bought it cuz I bought it too, to do that. To help friend, friends and family and built it. But the point is there's like 30 that meets my criteria in a 30 or 40 mile radius. And if one of 'em pops up there, I kind of know who it is cuz I cold call 'em occasionally. I was like, Hey, you're interested in selling. That said, those guys don't list on that kind of site because they're, if you are in rural Oklahoma, like we were looking at a concrete plant, out there when I first was looking for [00:40:00] business to buy, it's the only business within 30 miles of that size.

[00:40:04] So if they listed and said, we're in, X, Y, Z, Oklahoma, and we do concrete, and our, revenue is this, you could pick a map out, go to Google Map, type that city in that, you know that even if you did just put it what county it was, you know who it is. So there's, they're not anonymous. And all the employees there, like if that was a major one we were looking at, that was a major job in that area. So if you didn't have, if you didn't work at that plant or one, or the, the stockyard basically where they buy and sell, cattle. If you didn't work at one of those two places, you're driving 30 miles to work.

[00:40:34] There just wasn't anything else out there. So those guys don't, I don't think they get listed. That one particularly wasn't en listed on any of those sites, and I don't see a lot of those because there's just no way for them to be anonymous. 

[00:40:47] Peter Lehrman: Yeah. The advisors who, who are in the business of helping sellers sell their businesses. We have seen how sensitive they can be to revealing geography because in certain cases, the geography [00:41:00] combined with the nature of the business, and then the size of the business is like enough data points to really triangulate on who's selling. And so in, in plenty of cases, the advisors who use Axial to sell a business will withhold the, they'll either use the region or if they're really skittish, they'll just select America. Because yeah, you can triangulate sometimes on enough data points and basically narrow down who the business is. And that can be a really big issue for the business owner. It can also be the kind of thing that will get an advisor fired, right? Like if a business owner has hired an advisor to confidentially represent the business owner, and then the way in which the advisor merchandises the opportunity gives away too much information.

[00:41:53] And it gets back to the business owner, that can spell the end of the engagement for the advisors. You do need to be careful about how [00:42:00] specific your information is. Particularly with respect to location, because as you said, in certain parts of the country, there's plenty of fish in the sea and there's no way to figure out who it is. But in some places, it becomes like two or three or four potential ideas is all you need in order to really figure it out. 

[00:42:16] Ron Skelton: Right. You brought up the advisor. That's the one thing we haven't touched yet. What does Axial provide to the advisor and what strategic advantage do they have by working with you guys?

[00:42:26] Peter Lehrman: The advisors that use Axial, have decided, effectively, they've decided that, that by using Axial, what they've basically said is the number of different buyers and the rate at which buyers arrive and enter this acquisition market. And the way in which their preferences change is beyond what I, as a single broker am capable of keeping track on with my own sort of homegrown database. It's not that [00:43:00] they're abandoning their database and their own expertise and their own relationships with buyers, but, any advisor who uses Axial is basically saying there are so many private equity buyers. So many corporate strategic buyers. So many, acquisition entrepreneurs out there. I don't have the time to build, high quality handmade relationships with each of these buyers.

[00:43:22] I can't remember all of the different things that all of these different buyers are looking for. So I'm going to use tools and data to help me in that process. And Axial represents, a tool set and a data set for those advisors. So whenever an advisor uses Axial, they actually have a really similar experience to a seller. They upload a confidential profile, but as opposed to the profile being about their business, it's about their client's business and their client is the seller. So they upload the confidential profile, they attach themselves to the profile as the authorized agent selling the business. And [00:44:00] then they begin to receive a, big stream of data on here are all the potential acquirers. Here are the different types of acquirers.

[00:44:08] Here's the track records, here's the histories, here's their level of responsiveness, here's how they've credentialized their interest. And then we automate all of the sort of email-based outreach, to those buyers. Including like the execution of NDAs and the ability to execute online signatures and distribute financial information. So all the like intense administrative burden associated with getting materials out the door, quickly to interested buyers. All of that is sort of integrated into the tools that we offer. So kinda like two or three things that the advisors like. One is the list of buyers is always evolving and growing on Axial. It's almost like they're outsourcing buyer database acquisition to us, right? And then they can reach all of those buyers on Axial so they don't have to like export all of the email addresses and then [00:45:00] create their own mailers and their own campaigns. Axials built all of that integrated email campaign capability in, into our product for them.

[00:45:08] And then, all of the annoying hassle and paperwork of NDAs and sending out information memorandums. All of that has been digitized and automated through Axial as well. And so those are sort of the three reasons why they start using Axial. But like I said, they're good brokers, good m and a advisors, they're constantly out in the market. They're constantly meeting buyers. They're constantly building their own, their own Rolodex of relationships that they think are strategic and they're valuable. They don't just hand all of that off to Axial. They use axial as like augmentation on top of what, they're sort of doing for their own account.

[00:45:45] Ron Skelton: So you guys help with the exchange of information. You help with the initial NDA. Where do you kind of stop and say, now it's on you guys. Do you actually help with, 

[00:45:57] Peter Lehrman: Yeah. It's discovery of the buyers. Like that's the biggest [00:46:00] value, right? Is like building the list of buyers. That's sort of like the most important thing that we do for advisors. And we do the same thing for sellers. Like, what is the top of funnel list of buyers that is likely to be interested in this? And then we help them with automation and outreach to all of those buyers and we help them figure out how to sort and sift and pass and decline on, on which ones.

[00:46:22] We then automate the NDA and SIM execution process. And once you're down to bids, you don't really need tools because, unless you're getting like a hundred bids on a business, I suppose if you're getting like tens and tens and tens of bids on a business, maybe you want like, some sort of tool to help organize and centralize all of those bids. But, usually small businesses, there's usually like a couple of offers. That, at the end of the day on a business, sometimes only one, sometimes, maybe enough that you could count them on one hand. So you don't really need like, high powered software to manage sort of three or [00:47:00] four bids.

[00:47:00] So that's kind of where, we bookend the process. Usually that's where phone calls and meetings in person are far more valuable than using like a platform like Axial anyway. So we haven't, we don't meddle in that part of the transaction. 

[00:47:14] Ron Skelton: It's good. I was curious as, we all have our own preferences of what our LOIs look like and our, purchase and sales agreements and we've had somebody ask me for a sample out of a, for a earnout. And I was like, okay, I'm gonna pull one, but you gotta understand this asset purchase agreement is 92 pages long as drawn up by an attorney, right? This little section I'm gonna pull out for you is part of a 92 page document.

[00:47:37] Are you sure you don't wanna see the rest of the document that it went with? ? I'll blank out all the pertinent information. And he is like, why is it so long? And I was like, well, when you hire an attorney to do it. It was a bigger company we we're looking at and I was like, when you hire an attorney to do it and there's a lot of liabilities, your reps and warranties section is huge. So that's a lot of the reps and warranties. This guy's pretty new and he 's like, should I have something that long? It [00:48:00] depends. What are you buying? What's the risk to you? 

[00:48:01] Peter Lehrman: I mean the one thing we do for buyers that get to the LOI stage, and again, it doesn't really have to do with like the deal funnel. But once a buyer is under LOI on a transaction that they source through Axial. We have a syndicate of lender partners, like Lending Partners that we, that they can access. So if they need debt financing for the transaction and they want to expand the pool of lenders who they are talking to, we have a syndicate of debt partners who partner with Axial and offer debt to Axial buyers who are using the axial platform and are looking for debt.

[00:48:39] And then, sometimes they don't need any debt, but they're raising a certain amount of equity. They're putting in some of their own equity, but they need to raise a certain amount of outside equity capital. And so we have an equity syndicate set of partners as well. Most of those are like family offices in America who are looking to invest in private companies, [00:49:00] but they don't wanna run, they don't wanna lead the deal. They just kind of want to be a passive investor and write a hundred thousand dollars to $1 million check or something like that. And then the third thing that we offer to the buy-side members that are under LOI is we have a couple of, partnerships with Q of E firms, that can do quality of earnings.

[00:49:20] And then we have a couple of insurance partners that are expert at, binding reps and warranties, insurance. Or reps and warranties insurance is like Little Brother, which is called T L P. Transaction Liability Protection. So those are ways that we try and help buyers after the matching has been done and they're further down the funnel. That doesn't happen through our platform. That just happens through sort of, like a support team that we have at Axial that, that works with those customers. 

[00:49:52] Ron Skelton: Now, do you guys automated any of that? So just say, I decide I want to finance part of the operation and it's a [00:50:00] bigger deal than, I'm just reaching out through an SBA lender. I pull up your list of here's investment banks, or here's banks that will help finance the transaction. Can you click on 'em and send them some type of buyer, buyer profile and the business profile. Like here I am as a buyer and here's the deal I'm looking at. Are you interested? Do you guys have anything that helps automate that or is it just, here's a list of phone numbers to call. 

[00:50:22] Peter Lehrman: For the debt and equity, syndication partners, we've built that into the platform. So you can say, I'm the buyer, I'm looking for financing. This is the deal. Please let me know if you're interested in discussing terms and submitting an offer. And then you can do the same thing on the equity side. For the Q of E and, reps and warranties insurance. We just make a, we just hand it off via an email introduction. 

[00:50:45] Ron Skelton: That's cool. That's actually really cool. Let's make sure everybody knows how to reach out to you. We're hitting kind of the top of the hour now. First before we do that, I've asked you a lot of questions and stuff. Did we miss anything? Is there something I should have asked you? 

[00:50:56] Peter Lehrman: I mean, there's so much to dive into in the world of [00:51:00] small business m and a. I mean, it's like a, as deep as the ocean if you really want it to be. I mean, it's been great to talk about these things. I think the most important thing for business owners is to really respect the process and really realize that they need to go through it in a deliberate way, otherwise they're really opening themselves up to a lot of risk, and a lot of heartache. I'd like to throw my hat in the ring and say that, go against the grain and say that I think there's some fantastic business brokers and m and a advisors out there. I think they get disparaged a lot. I think it's no different than any other industry.

[00:51:32] I think there's really good m and a advisors out there, and there's ones that don't do careful work. And you need to be able to distinguish between those two. And I'd say the same thing goes for private equity and, the acquirers. There's plenty of private equity firms out there that you probably would not, wanna sell your company to if you really knew what their plans were. And so your appropriate as a business owner, to be careful and to really think through this. But there's also some fantastic private equity investors out [00:52:00] there. They're not going to ruin your company after you give them the keys. They're interested in growing businesses. They're interested in, making businesses more valuable.

[00:52:07] I guess I just encourage anybody who's thinking about transacting to, to not rely on the stereotypes. And come to like, overly quick decisions, or to rely on what's being said on Twitter or, some blog somewhere. Just take your time, do the work, and, don't rush. I think those are like really important things, whether you're a buyer, seller, broker. You just do the work and things tend to work out a lot better. Maybe that's all for now, Ron. I mean, the rest of it would take us another, days and days and days to get through.

[00:52:39] Ron Skelton: You know what, I've had a few people on this show more than once. And you might be one of those, we might call you in six months and go, Hey, let's expand on what we're talking about. Before we get off here, let's make sure everybody knows, it's axial.com. So that's the main thing, right? The website. If somebody wants to work with you on something and ask you a question or whatever, what's the best way for people to reach out? Is that your LinkedIn or? 

[00:52:57] Peter Lehrman: Yeah. I'm active on LinkedIn and responsive [00:53:00] on LinkedIn. If you just punch in Peter Lehrman Axial into LinkedIn, you'll find me right away. And you can message me on LinkedIn. You can also get my email address from LinkedIn. I'm not the most entertaining of characters on Twitter, but I am on Twitter and I happily respond to dms on Twitter as well. My Twitter handle is Pete Lehrman. P E T E L E H R M A N. 

[00:53:22] Ron Skelton: I'll make sure those in the show notes for people that, can get a chance to download the show notes. If you're driving this, please don't do that. So we got a lot of guys that listen to the show on the drive or on their, commutes and stuff. I always try to warn people don't try to take notes when you're doing this. We, you can always, we do good show notes that are out there. Just pull the show notes up when you're done. You actually have a podcast too, right? You actually have a monthly one. 

[00:53:43] Peter Lehrman: That's right. 

[00:53:43] Ron Skelton: That's pretty cool. Tell us about that a little bit and we'll call that, we'll wrap it up with that. 

[00:53:46] Peter Lehrman: Yeah. Thanks a lot, appreciate you letting me give it a plug. It is called Masters in Small Business, M&A. And I am interviewing buyers, business [00:54:00] advisors, and business owners. All of whom are like practitioners who have had meaningful amount of transaction experience buying or selling small businesses. And, having a ton of fun with it. I try to push out more than one episode a month, but it tends to not be more than two.

[00:54:16] It's like a couple of episodes a month. Some of them are people who have used Axial, and that's how I built a relationship with them. Some of them are people who have never used Axial, but who I think really highly of and who I wanted to get onto the podcast. And, so yeah, feel free to take a look at that. It's called Masters in Small Business M&A. Thanks for the plug. Appreciate it. 

[00:54:33] Ron Skelton: It's actually really good. I always plug, other good shows. There's plenty of content out there. So thank you for being on the show today. Looking forward to seeing the other shows you do. I might, don't be surprised. If I find good shows, sometimes that's where I find my guests. So sometimes I'll like, man, this guy's really good. I got different questions for him. I'm gonna invite him. Yeah. So that'd be cool. And it's the same thing here. If you ever seen you being on my show like man, I'd really like to get that guy over here, reach out to me. I'll get him on there. But thank you for being here today. We'll call that a show and, that was cool. 

[00:54:57] Peter Lehrman: Thank you Ron. Appreciate the opportunity.[00:55:00]