The $50M Exit Playbook Most Founders Don't Know - Chris Van Dusen

26:44We were hemp-derived CBD. So we could ship all 50 states to all that. What we ended up finding was our most loyal and best customer who would subscribe and save and tell people were in the middle of America. And who they listened to were, this isn't a political comment, but Sean Hannity and Rush Limbaugh and those influencers of the day. So as we had them read more, more people would get comfortable with it. That was their influencer. It wasn't the people on Instagram saying you should try this, right? And what we found was that flywheel started because we would invest in that acquisition and they would stay with us longer, be more loyal than the millennials who, if you look at that cohort as an actual consumer, they are not loyal traditionally unless there's a movement behind it.

27:30So we had that, uh, unless there's a movement. So think Tom's shoes, for example, right? Absolutely. But outside of that, it became very much trial. They want to try local. They want to try regional. They want to try the hip new brand. They want to try this. And that's a very hard flywheel. It breaks it automatically. And so that was a really good way of understanding, okay, who is our customer? Where are they? And how do we get them? How do we keep them not only loyal, but enjoying the product? I think it goes back to the idea of where's a watering hole and what language are they using? Like if I was going to create a dating website for 25-year-old women, it would have very specific conversations about spontaneity and adventurous and travel.

28:07if I was going to create one for 35 year old women, it would talk about stability and family and you know, all of that. So it's a totally different thing. So if you don't know your audience's language, you don't know the watering hole that they're going to, in your case, it was those two gentlemen, you have to, you really have to know that. So when you're going in and you're analyzing these deals and you're looking at their systems and you're looking at their flywheels, what are the other things that you're looking at? Well, so we took, we took really a marketing lens, right? So now it's a distribution lens, right?

28:33Is this something that can be sold online how is it going to be sold online right i realize that's still back in marketing but it's really a distribution it's a sales channel yeah then i'm looking going okay who's selling competitive products today right what are your inroads there or do you not have any right because there's i call the the old the old uh biggest secret in a lot of products is traditionally there are things already baked the success stories of new up-and-comers are there 100 but like in cpg a lot of times you see this brand comes out of nowhere okay it's because they're seeded by one of the larger companies already and traditionally will get an unfair share of shelf time and other things because of it and so how are you going to compete against the incumbents right uh back when i had my distillery uh you'd start doing success like successful in a market and then the big guys would be like oh no no thank you we're gonna run a sale on everything and just drown you out happens more than you would know correct yes right so like How are you what I'll call SWAT proof at that point, right?

29:35It absolutely happens. To anything. Any industry I've ever been in, that SWAT comes in. And I don't know if there's a way, and maybe you know of one, I don't know of a way to avoid that. When it comes in on that high of a level, like when I sold my IT company, we were crushing it. And then we were$5 to$8 million. We were doing okay. We were doing okay. And then someone else came in there,$150 million. I'm like, guess what you own now? I'm like, shit. I'm not going to purport that I have all this data that shows this specifically, but I would contend that a lot of companies that are uber successful, if you were to look at their cap table, they have industry players involved to help.

30:11Yes. I'll leave it there. Number two. Very politically correct. Well done. Yes. Number two, we used to call it in the liquor industry, like you just need to get to AAA. Mm-hmm. Right? You need to climb your way up the minor league ranks enough where you are getting swatted enough that you're starting to become a nuisance. Right. and as a nuisance is when you get bogged. Yes. And that was the strategy that I used to get exit out. I just need to annoy them long enough. And they're just going to either, they're either going to destroy me, which is a little hard to do, or they're just going to buy me out because it's easier.

30:42And the second company I sold literally was that. They walked in there like, you're annoying. I'm like, okay. They're like, we're just going to buy you. I'm like, okay. And that's how the deal completely happened. And I think it's a question I wanted to bring to you. There's a lot of people who are like, okay, I might not be an entrepreneur, but I had this experience. I want to go buy something. I want to go into it and please don't tell me to go business by sell um do you ever recommend that path and a straight buy a straight buy or if you don't have an experience as an entrepreneur or do you just say hey I'm going to invest in a fund I'm going to find someone like what you guys do yeah I'm just going to give you guys a bunch of money and then I'm going to go study shore erosion on a beach because watch it go in and out versus actually going in and doing it because it's a very different skill set being an employee versus an entrepreneur as you said earlier yeah I think it's a yes and right so and what I mean by that is you can take and I'm not a financial planner but you You can say, oh, I like these deals.

31:28I want to, if I'm a credit investor, I want to invest in them. But let's say you're the COO or CEO, right, of an established company, lifestyle business, it's going great. And you're like, you know, I've worked here for five years. I've helped make the owners a ton of money. I know everything that happens in this business, right? And you have a non-compete that expires or you don't have one. Hopefully for you, you don't. Or it's not enforceable in your state. And you go, look, there's three of our competitors who alone aren't very good. But if I could roll them up, to use that term before, right, I can now compete against this company, right?

32:11I'd say that might be unfair baseball, the fact that, you know, you have all this embedded trade secrets. But the idea would be at that point, you've already shown you can run the company. Right. Now you're just balancing the debt that you took to buy the company and you're running it the same way and rolling it up and building teams and doing everything you did. But you actually are at that level of proven operator. And so I'd say that's a safer way to go. If you wanted to go from a career CEO to saying now I want to be an entrepreneur. You're still a CEO. And now you have a baked business. I think where individuals get in trouble is they go, I'm a whatever level in the business and I know more.

32:54So I'm going to go. I'm going to go start. Right. And I think the problem is you don't know what you don't know. Correct. Right. I look at my own kind of trajectory and career. And if I were to go back in time, a couple of the businesses that I started, if I had the knowledge that I have right now, I would have never started. Your bank account will look a lot different. Yeah. And so there's this level of like, okay, I'm glad I did. It brings in this amazing experience and what I'll call battle scars to as I'm helping other entrepreneurs today and what I'm evaluating when I'm looking at investing.

33:31But it's hard. And I don't think that's fully appreciated as we were talking about earlier. So you say, oh, I can do that better. Or I have an idea for optimizing it. Well, that's great. Optimizing when you don't have any customers is real easy. Yes. And so now you've got to sit with a blank piece of paper, and I'm not even saying write a business plan, say, how am I going to start this? How am I going to build it? What do I need to do? And I think that the best engineers, whether or not it's coding and tech or actually building a physical product, can do those really well. But as a founder, now it's your responsibility to do every single thing else.

34:10from filing your LLCs to doing your taxes to, remember, we don't have all the money yet, right? Marketing. Doing the marketing. Fulfillment, customer service. And I think there's a conversation I heard read on. Sushi chefs are great, but don't make your sushi chef be your plumber. Yes. Totally different things. You might have built a wonderful restaurant, don't go try and be a plumber. Stay in your lane, inch wide, mile deep. And what's interesting is now you go, okay, well, I'm going to need co-founders. Well, how many co-founders are you going to have? Five, six, and every disability is going to be And then what are you going to do?

34:38Yeah. And then does everyone share in the vision? Yes. Because I would contend that a lot of companies don't hit their maximum success or just quite frankly fail because of dissent between the co-founders. Yes. And also dissent lower down the chain. Correct. If you're in a situation where, again, you can't go to anyone in your office and say, what is your vision? If they don't spit out within reason, it's kind of the same thing. You've got problems. 100%. And that's where the culture comes in. That's where the next thing I was going to talk about, where there are companies that come to organizations like yours and they come in this, okay, I want to do this.

35:15I want to sell. I'm done. I'm exit. I'm exhausted. And because of your guys' expertise, you'll come in and say, okay, great. That's nice. But if you can hold your breath a little bit longer, we can do this, this, and this. Instead of walking away with 5 million, you're going to walk away with 50. When that happens, because that's a different ballgame than most people are used to. Most people are like, okay, I'm going to systematize this. I'm going to get to a certain level and then I'm going to exit. and a lot of the ones that you've seen and i've been blessed enough to see we're like no you just did the appetizer just hold on we can help you get to this next one and then have a massive multiplier what are the things that you've gone through as you go through it and someone comes to you in that situation like hey you know i got this from my father i got it from my grandfather i got it from my grandmother i got it from my mother whatever it is i built this org this org and i think i can get goofy numbers five million dollars for it which is adorable and you guys come and say, that's cute.

36:06I'm pretty sure we can get you 50 in two years. When someone comes into that, first off, for most people, they don't understand that. When you come into that situation, what are the things that you do and you look at and you help them kind of step by step to elevate into that environment? Yeah, so there's certainly a few things. One is, and I like saying this just from the get, right? Pigs get fat, hogs get slaughtered. So if you have an operator that in your example is saying, white flag, I need out. What I'm doing first. Yeah. Right? Which is, all right, we're going to figure out how you take a little break, and we're going to get some proven operators in there to pressure test whether or not we can get it there over the next two years.

36:47Right. Because you've already told me you can't. Right. Right? That's really important. That's not a bad person. No. You just take it over there. It won't get you there. It's not that common. It's the Tarzan theory. Yeah. If I go from vine to vine, I have to let go of one of them to keep the momentum. But if I hold on to what? it's over. So there's a lot of time where it's founders and I've run into that situation where I was like, I'm out. I'm empty. My sponge is full. I'm out. Having the ability to step away and have that go off and do something else is important. So the next thing we look at is to go, okay, how realistic is it?

37:19And why I say that is if we just wanted to sell that$5 million business today, I don't care who you are. That is six plus months. And by the way, that's not shoring up anything yet. That's just the process takes that long. It does. And that's with a buyer at the table, right? To do diligence, to do everything. So you're going, okay, I have all the regular investment banking things I have to do. I have to build a virtual data room. I have to get everything optimized in the company if I haven't already. But that optimization could change that$5 million in EBITDA company. So, hey, well, all we're ready now.

37:52We've done it. Now, what does that mean? This where you hear all of the bad terms for people in venture and private equity because a couple minutes ago, we talked about throwing FTEs at problems. And traditionally, most businesses have done that. Therefore, if I'm looking and saying, we want to maximize the amount of money you get for this business, then we are scrutinizing everything within the business today, which also means human capital. And if that's the biggest line on your P &L, right is the amount of people my question would always be is that needed or not i don't know the answer it could be right and i was understanding the culture because you know i when i sold mine my i paid more per tech than anyone else in the industry because i knew my clients would be exceptionally happy and the ltv just discovered we never had a client leave so when someone came in like i want to buy your org your your salary's too high i'm like nope you're done you get to go away now.

38:55It's over. So you go through there and you figure out those things. When you have an owner who is completely fried and they're exhausted, which I love that people think that they're not going to get there. You guys are cute. When that person gets there, is there a way to continue to scale and have them involved? Or do you just kind of say, hey guys, go to Tahiti. I'll talk to you in six months. It is fully dependent on the human. They can be a great asset and knowledge transfer partner, sometimes they can be an absolute cancer within the organization because they're not in control. And that is human dependent, just to be transparent about it.

39:31You'd love to have them there. They have this unbelievable knowledge set from being there from the beginning or being second generation was there as a kid. They've watched how their dad do it. There's certain parts of the culture that - The connections they have. All of it, right? And that is also a thing that a lot of people in private equity don't think about is we buy this thing but what you didn't realize is every deal inside of that company for the past 70 years was done in a handshake from family to family and the kid you know the the new ceo is the second generation and oh yeah same with the client side right and they've known each other since diapers and the minute you remove that you remove all of the so how do you prevent that how do you when you're walking in and looking at deals because i authentically don't know this sensor.

40:13When you're, when you go to deals and you have, you know, Billy grew up with Bubba their entire lives and Bubba senior grew up with Billy senior and you had all that. How do you vet that out? Ask a lot of questions. God bless your job, dude. I'm just not doing that. Well, no, I mean, so we'll like, if you're looking at a standard kind of process, right. Whether or not it's through an investment bank and we typically bring it, we do some investment bank, but we'll bring in investment bankers as well. Right. Because we're generalists, as I mentioned, right. We invest in all different industries.

40:44But that also means we're not sitting there as a specialized investment bank. So if you're selling a consumer product, you're going to bring in the best investment bankers, by the way, of all the connections on the other side, right, to help you sell that business or roll ups or do whatever you're doing. But that's where you're going to go and say, okay, I'm going to look at what liabilities there could be inside of the business. And so you're going to get a list of their top customers, your list of all their customers, really, right and then you look at is there customer concentration issues right meaning you have 20 large customers that make up 80 but really two of them are the majority of that 80 you go okay that's interesting because if it's bubba and the other guy yeah and they leave you've just you've totally destroyed the company so that's the first one you know customer concentration risk then you're going to actually call them right and what questions do you ask them again depends on right But a lot of it is, you know, how is this, like, what does the relationship look like?

41:42How long have you guys been in business? What are your intentions moving forward? A lot of it's based on, before we ever ask those questions, how are the contracts written, right? Is this a multi-year? Is this expiring in six months? Then I'm probably going to negate it from value, right? You're looking at a whole bunch of different things. And this is also what your investment bank's going to do for you as well. Well, I think this is why people, and not to step on anybody's toes, I think they choose investment banks incorrectly. They choose them by geographic location versus the talent that's in them.

42:12Because I authentically don't care if it's the investment bank down the street. I want other people that are in there to vet it out, that they're going to have the experience. And I would prefer, and this is just me, someone who isn't local to me. I want to have someone who's coming in and has experience and are battle-hardened. This is conversations I had for a long time. You could have a Harvard-taught doctor or you could have a corpsman that served downrange. That individual went downrange is going to give me a much better result than the Harvard doctor who just hasn't done it. So just because they were in the club, I want someone with fresh eyes to be able to detach.

42:43Yeah. And you know, I think I'm going to talk in two ways with investment bankers, right? They're either going to be happy with what I say or I'm going to get some nice phone calls. Either way, you get what you pay for. And I think that entrepreneurs sometimes don't understand how to integrate the correct service providers to your point into what they're doing whether that's an m &a attorney an investment banker whatever it is you get what you pay for so if you're saying look this investment bankers only charged me x to sell my company versus y but you get the one that's very deep incumbent in the space knows all the players you're probably gonna have a better shot there but they might be twice as expensive now i'd also say if you have if you stand to make a large gain on this transaction make the transaction happen over here don't go cheap because you there's certain things that you can get kind of run afoul on i think it i think it goes back to what you said earlier when you're an entrepreneur you have to do everything and as entrepreneurs even as a successful one i had no idea about how to sell i had no idea about investment bankers so when i had investment come to me i was like i just walk out the room because i was just overwhelmed because I didn't know what I didn't know.

43:58And so being able to sit down and find someone you trust, where, again, I think that trust factor is more important than a location factor and making sure they have their experience. Well, and that's where, you know, going back to someone like us, right? If we're going to invest earlier, it's called seed through that B round, C, A, B, even the C, a lot of seed, C, of cruises. In that round, part of my role on your board is to introduce you to the best investment bankers. Because it's my job, if I'm really to look at it, to understand where deal flow is coming from, who else is in the space, why we're choosing you, who could actually buy you downstream.

44:32Like what's your exit strategy and when? Therefore, before I made that investment, I've started to contemplate this. Where you fit today, where you could go, who would eventually be your acquirer, right? I mean, unless you're going to build something that you're endeavoring to take public because you can get to that size and scale. But if you're building something that maybe is a couple hundred million dollars in revenue and profitable, probably not taking that public, especially in today's market. But then who's your strategic? Is it going to be a roll-up? Is there going to be some kind of strategic that just comes in and acquires you as a bolt-on?

45:04Where do you end up? And then it's my job to, as we're helping you fundraise, and why I say that helping you is we make the lead or do the lead, but there's going to be other investors. So now I'm going, okay, who else is strategic who has other investments in the space and other investment banks. So you're starting to weave this web of where you want to guide them to where they need to go to eventually get bought. Because at the end of the day, my job is to return money, right? In the form of a return to our investors and do the best for our founders. And that is not a seesaw. That is everyone is aligned.

45:42And so I'm starting to make introductions to investment banks and great M &A attorneys, good corporate attorneys, great CPAs who are entrepreneurial and have great connections today when you're worth$5 million. Right. And you're going to sell it at 50 to 100. And so I want to make sure that they're there guiding you along the way with the best. So when you guide them, what are the questions you start them out? If they're starting into this and they're like, crap, there's a ton I don't know about this, which at this point, however long we've been going at this, I'm sure a bunch of them are like, oh, crap.

46:12Yeah. There's a whole different world here. I'm like, mm-hmm. What are some of the questions that right off the bat you ask them? You're like, hey, make sure you have this stuff answered before you call me, which you can call me as much as you want. It's adorable. We'll just put your cell phone up. What are some of the questions that you wish that they were like, hey, just get this locked in. Get this so it's sitting down and you know it to your core. So, again, I'm ripping off someone else. Culture, vision, capital raising are the three main focuses of a founder. That doesn't mean that you aren't in there, right?

46:46Doing the wrenches and doing the coding. But ultimately, this is your company. You need to own that. Which means you should be out telling the world about what you're doing. And in the process, you're going to meet a ton. Yes. And a ton of people are going to promise you the world and under deliver. I'm there to help you sift through what's possible and what's good and what's bad if I'm on your board. if it becomes more pragmatic about fundraising early stage actually have put together why you exist why i should care what the opportunity is don't just sit there with a 48 page deck showing me every speed and feed and i come back to that because i have sat through so many of those i'm so sorry it's okay and so there's this level of like if you truly understand what your company is doing that can be a very short deck if you see some of the best decks for the most amount of money ever raised for you know silicon valley traditional startups they're like nine ten pages long the sequoia decks exactly you look at those and you go but that answered everything i needed that's all that should be there so when someone goes okay i get that i get where i'm going here i know what i have to do for me the business owner because that's my job on this side with me the business owner i know what i have to do what should i be looking for on your side of the table what are the questions i should be at let's say for some reason you guys got eaten by a purple dragon yeah you disappear what are the questions they should be asking firms like yours so there is money and there is smart money and they are very different yes so let's say i only invested in health tech if you're coming to me with your apparel company why am i smart money i'm just money right and so one of the biggest pieces of of advice i would say actually just opinion because advice you have to actually own.

48:29This is the thing I learned in EO years ago. You don't give advice because you have to own that advice, right? No, thank you. My opinion would be truly understand when you're sitting across the table, like what I invest in. You can find this really available. You can see what boards I'm on. You can see which deals I originated at the firm. I like, you know, last one was AI. I've done CPG. I have a prop tech, right? Like there's certain things I like. There are certain things in biotech. I have no idea. I have other partners. And that's their job. That's their job. Understand how to, like, if we get intro'd, say, I know you don't, but I would love for you to see.

49:05And maybe if it sounds interesting, bring a joy in. Because now that means you've actually learned enough about my firm to say, I've done the homework. If not, then I'm just a piece of meat with a wallet. right and that's that's a little different it is and i think knowing the person's character is vitally important you know one of the things we were talking about before we recorded it's the type of character you have and what you do and the people you connect with and i'm going to be selfish here because it's my podcast and i can do whatever i want going in and one of the reasons i came out to skull candy and did this with you is because some of the stuff you do behind you know one of the things is you just you mentioned you just did this event and you get a bunch of ceos that come together and you're helping out a very specific group of the population to reintegrate back in.

49:47I think that conversation, I'd love to share what that is because that for me tells the type of person you are, which is why I got on a plane this morning at zero.com to do this was because of that. That was the reason I came here. So I think when you're researching, not only are you researching businesses on your job, on our side, where we're business owners researching the other way as well. So if you could tell a little bit of what I'm trying to be as vague as possible with, cause I don't want to see on your interview with them. Yeah, no worries. So, uh, How I met John Garcia back in 2017. I said earlier in the podcast, I'd met him, right?

50:19I met him in this group called Alder. A-L-D-E-R, like the tree. It's all around generational leadership, kind of living your legacy today. There's this great book by David Brooks, the political commentator. It's called A Road to Character. I know the book, I don't know the author. Yeah, yeah, yeah. The simple question is, which is more important to you? Your professional CV or what people say about you when you die? Right. And everyone goes, well, what people say about when I die? And I go, well, what are you doing about that today? And I go, shit. Yes. Right. Like that's literally, I can give you 30, 30 conversations like that, right?

50:55And so what this group does is it puts, there's about 200 of us across the country and, you know, in, in major markets, LA, Orange County, San Diego, uh, Dallas, right. Miami, DC, Nashville. And we get together and we have those conversations. and one part of it is what I'll call brain candy, listening to amazing humans tell stories. And the other part of it is impact. And one of our initiatives is to work with tier one special forces. And you go, what does that mean, right? On the military, there's a thing called a skill bridge. And so traditionally for the last four, six months of their time in the military, they will go off and they will work in the civilian sector in a company.

51:36And so that's what I call one-to-one. meaning maybe they come here to Skullcandy and they're an unpaid intern for four to six months learning what it means to be out. And they've been in for 15 years or in for 20 years. Totally different world. It's a totally different world. And they're trying to figure out if they want to work here and Skullcandy, sorry, I'm not calling you out Skullcandy, just saying, want to figure out, well, is there a job for them? Do they have a skill set? It's a skill bridge program. When you look at these tier one individuals, they already have amazing skills or they wouldn't be doing what they're doing.

52:06There's some of the most cerebral and thoughtful and certainly have leadership and team building and soft skills galore. Everything we'd want to hire. But on a resume, it might say, Pier 1 Imports, JSOC, or Applebee's Seal Team 6. Yes. Right? Like, how is that running through an HR portal? It's not. And so a lot of them have these amazing skills that we'd all want to hire in our company, but no way to actually access that. And so what we built was kind of this really interesting skill bridge that they skill bridge inside of the group called Alder. So now they have access to 200 CEOs because it's really interesting.

52:43I've had so many conversations with these operators, these individuals, and they say, I'll go do the mission I'm tasked to do. And I'm not scared. I'm not worried. I go, I know what I need to do. But you asked me to sit down in front of you, Chris, I'm scared to death. Absolutely. And that is an interesting reframing of, oh, wait, they want to get reps. Yes. And reps means just like if they were going to do a mission and go to rehearsal. That's how they trained. They've learned it. Reps, they get to meet 200 CEOs, ask questions about what we do, and start saying, oh, that's interesting. So instead of going to one company and the company doesn't hire them and they're back to square one, there's no obligation to hire out of this skill bridge.

53:25But you get to meet 200 and learn what's possible. And if we really think about it, I don't know about you, but my entire career has been based on something my dad told me when I was a kid, which was your network is your net worth. Yes, it's your leverage. These individuals may have great networks, but probably not in the things that they're going to be doing now. We talked about before, when you go and you're looking for that banker, when you're looking for the firm that does this, hey, you're great in medical, but you know diddly poop about plumbing or whatever it is. So now they have 200 new CEOs in their network.

53:56their chances statistically of finding something they want to do as they transition out is much higher yeah also we've had the opportunity for the 200 of us who don't hang out with these individuals all the time to learn how they could be a valuable asset in our companies right and whether or not it's our 40 portfolio companies it's like our company itself or my network outside of the other community where I can go, you know, Joe, you'd be great meeting Stan over there. Right. And helping make those connections happen. And so, uh, we just got back from Montana. We launched the program, absolute success, raised some great capital.

54:36We have four individuals who will kind of come sequentially in line, uh, next. And the program is kicking off. We're going to be more excited. We just, uh, we'll celebrate July having our first fellow go through the program. Awesome. So for me, the reason I asked that was very tactical because what you're doing and the way you approach things are tactical. So that example of going through and saying, Hey, we're going to go through this. This is why we do it. This is a result we're going to get is everything I've known about you since I've known you is this is how you approach things. This is how your firm approaches things.

55:03And this is how you deliver information. Right on. Yep. There's a ton of stuff we went over and there's a ton more that people are going to want to get a hold of it. Cause there's a bunch of people who sat down and said, I don't know what that word mean that was FTE so there's a bunch of people just lost and they're just overwhelmed at this point if someone wants to track you down and they want to find out more information how do they do that easiest way LinkedIn Chris M as in Michael Van Dusen not the producer of Scandal not the children's illustrator the other one that's me my email quite simple C as in Chris Van Dusen at Celico Capital dot com and then also Instagram which I'm fairly active is Chris M Van Dusen same as LinkedIn and make it easy.

55:42Perfect. And I really appreciate you. Thanks so much. Thank you very much. While many entrepreneurs are still chasing funding with flashy pitch decks or building products nobody asked for, the proven operators demonstrated that understanding your flywheel, knowing your numbers, and building strategic relationships is the true path to exit. Stop throwing bodies at problems and start optimizing systems that drive real EBITDA and unlock multi-million dollar acquisitions.