The Relational Side of Acquisitions: ‘How I Work’ EP30 with Joe Pergolizzi

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Joseph Pergolizzi is a business advisor and M&A broker with over 25 years of entrepreneurial experience. He has helped over 1,000 entrepreneurs successfully scale and exit their businesses throughout his career and has experience from small start-ups to some of the biggest household names today.

How I Work, Episode 30 with Joseph Pergolizzi

Joseph and Josh Becerra discussed leaning into the relational side of acquisitions in episode 30 of How I Work. He has advises buyers and sellers to set everybody up for a successful transaction. He also shares what he has learned about the different types of founders and entrepreneurs and what tends to push them to sell. Plus:

  • Helping a company prepare for a sale: Developing a “buyers language”
  • A buyer’s gold: BizDev -> Where is this company going?
  • Trends in the acquisition space: downward pressure and apprehension

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Transcription: How I Work, Episode 30 (Joseph Pergolizzi)

Josh Becerra: Hi, everybody. This is Josh Becerra, from Augurian. Welcome to another episode of How I Work. I’m joined by Joe Pergolizzi, business advisor and M&A broker. Thanks for being here, Joe.

Joe Pergolizzi: Hey, Josh. Thanks for having me.

Josh: Joe, for the past 25 years, you’ve been an entrepreneur. You started three businesses, all bootstrapped, but exited each of them. That’s really kudos to you. You’ve done brick and mortar, you’ve done eCom, like Amazon, to a 400 franchise business that spanned across five countries, done strategic work for Airbnb and Burton, worked with over a thousand entrepreneurs to start, scale, exit, and buy businesses. Your business advising and M&A brokering is coming in handy.

Then you were a first-timer, with Steve Jobs and his executive team, which is pretty cool. You also have a real estate portfolio, and you’re an investor. You got your hands in a lot of different things. Super excited to have this conversation.

Joe: Yes, thanks. Thanks.

Josh: I talked a little bit about your experience helping founders of companies, positioning themselves for acquisition. When we were prepping for this, you talked about how there’s different types of founders and entrepreneurs. Can you tell the audience a little bit about what are some of the key differences you see between these founders and entrepreneurs? Then how does that translate to the reasons why they decide to sell?

Joe: Yes, this is something I’ve tracked over my career, to put things into context, right? You have a founder, you have someone who’s starting a business and they have a vision. Typically, let’s just say that’s the creative side. I like to call those people, let’s say, a pioneer of an idea. Again, visionary, more creative. Maybe they have some strategic idea of how they want to execute their business. The second, let’s just say, stage or type of business is somebody who is actually more strategic.

They’re very in tune with systems and consistency. They’re very much more in line with scalability. Then you have this third type of entrepreneur, let’s just say is a mix of both, where they have the creativity, they have a really attuned, refined sense of what it’s going to take to scale. It’s almost interpersonal. The first one, maybe a little bit more personal. Second is a little bit more systematic. The third is a nice blend. It’s important, I think, for entrepreneurs to know that there’s no pinnacle, there’s no ladder to climb in any of this.

Some people are just naturally born scalers. Some people will always just be the idea guy. There’s nothing wrong with that. I think a lot of entrepreneurs will put a lot of pressure on themselves to either be more visionary, more creative, or they might be putting pressure on themselves to get out of startup phase and in something that’s scaling. There’s even some people who want to achieve the nice hybrid. There’s no one way for somebody– Some people are just born a certain way.

To the second part of your question, how does that translate into exiting– Some people will get frustrated. They can’t recreate their business. They can’t get to the next step. Some people don’t know how to ask for help. That feeds the frustration. Some people lose their lackluster of creativity. They’ve extended all the creative juice that they have. They just feel like it’s time to pass their baby on. I hear that quite often.

Josh: Yes, I believe it. I think we always hear about the crazy growth scale. It sets entrepreneurs up for thinking that is the one and only way to do entrepreneurship. We really don’t hear much about the relational side of acquisitions. I think there’s some nuance to– There’s, of course, the operational valuations, multiples, KPIs, and all those things. Then there’s the relational side of this. Do you have any advice on the relational side for founders?

Joe: Yes. I think it’s an extension of how they run their company, building loyalty, building trust, and allegiance, with their teams. I think it’s important, really, for a successful merger or acquisition, for that matter, is to take that same mindset where you’re looking at whoever is buying you. Is this a good suitor? Are they easy to work with? Are there any other opportunities that you could see down the road, that–

Hey, maybe this other company has a different division and they love you so much that they want to give you a seat, maybe they want you to run the company, or two years from now, they pick up the phone and they want you to be on the board. I really think one in the hand is two in the bush, as they say. If you have a good fit, where you’re getting along with people, the transaction’s going to go that much more smoothly.

It’s not easy, executing a transaction. There’s a lot of emotions. There’s a lot that goes into that process. If you have somebody that you like their character, it’s not worth the extra few dollars for the headache of going through a bad transaction. It just isn’t.

Josh: It’s probably akin to adoption or something. I’ve been building this, nurturing this baby along, and now I’ve got to hand it off to someone else. You want to trust that person with it. It can’t just always be about the dollars and cents. I like what you said about, also, you might go down a path and then that transaction might not end up panning out, but you don’t want to burn that bridge. You don’t want to create a situation where you might see that person five years down the road and you have a bad taste in your mouth.

Joe: There’s going to be some people that are just going to want their check and run, and then there’s going to be some people who really treat this as a lifelong profession. You’re building your network. Don’t forget that. Whether you pass on a buyer or you go with a specific buyer, there’s still around the corner, and you just never know. You want to protect your network, you want to protect your relationships, and acquisition is part of that.

Josh: For sure. I’m big on relationships. One of the things that I thought was cool when we were talking earlier is– You said that when you’re going about helping a company getting ready for sale, you approach it as if you were on their board of directors. You want to dig in, “If we’re going to sell this thing, I want to know all the dirt that’s in there.” Where’s the dirty laundry, but also, where’s the gold buried, so that you can represent this company well to any potential suitor.

You mentioned it helps you develop what you call buyer language. Can you talk to us a little bit about what you mean by buyer language?

Joe: Sure. when you talk to enough buyers, you could start to hear the trend in their questions and how they’re analyzing the business from the outside. A lot of them are looking for scalable opportunities. Circling back to the first question, what kind of entrepreneurs there are, people who are typically buying a business or thinking about scaling the business, or how does the business accentuate perhaps another division of their business?

The point I’m trying to make is, here with buyers, you can never predict why somebody is buying your business. It could be where they’re buying your culture. It could be they’re buying your staff. It could be because they want you and your leadership. When I’m working with a company, I’m digging for their BizDev. What are they working on, that is potentially very attractive? Even if it’s not developed.

I still want to know what other creative ideas, what else has made it to the meetings, that has been kicked around, because that is like hand sugar. That’s gold to a buyer, that is like, “Wow, they’re already thinking about the next level.” That’s a scaler, they’re thinking about the next level, and BizDev is exactly that.

Josh: I love that. At Augurian– Of course, we’re a service-based business, we’ve got clients, we’ve got a portfolio of clients. We have really solid financials, and all of those things that go along with that, but we also understand that what we’re doing right now is figuring out how to develop some software that will allow our team to be more efficient at their work. The goal there is to, obviously, improve our numbers, internally, and make it better, a better environment for our people.

Also, can we then turn that around and approach other agencies like us, and say, “Hey, do you want to be more efficient? We figured out a way,” and now all of a sudden, we’ve taken a service-based business and have– It’s not a pivot, but it’s like we have this new software as a service bolt-on, so yes, I get what you’re saying about, “What is the future? Where is this company thinking? Where are they going?”

Joe: That’s a great example of you guys solving a problem. After a certain number of buyers that I talk to, I’ll start hearing the void or the lack of that solution. That’s one of the things that we would, if we were representing you, we would be making sure, to perhaps another agency, like, “Hey, they’ve solved this problem.” That holds a lot of weight because I already know that that is a problem for most businesses in the agency space.

I’m always scanning, a good broker’s always scanning for where the weaknesses is, not only in businesses, but in the marketplace, so that when a client like you, let’s say, brings forth, “Hey, we have a SaaS product that solves an internal problem,” I’m definitely going to be touting that. That is going to go almost front and center. That gives a lot of validity and makes your business very attractive.

Josh: Cool. We’re not quite ready to go public and be out there, but we’re definitely working on things, and it’s exciting to have something else that’s definitely related, that no matter what, even if it didn’t turn into SaaS, it’s going to have value for us, internally, because it’s going to make our team’s life easier. Excited about that development. One question that I always ask my guests is just– Are there authors, podcasters, or individual thought leaders that you’re thinking about?

Maybe even for you, what trends are you seeing out there, in the brokerage acquisition space? Where do you think some of that’s going?

Joe: A couple of things. One is there’s a lot of downward pressure right now. The financial markets are really compressing and the price of money is increasing. There’s quite a few businesses that are really getting hurt financially. The PE money, or even the VC money, is drying up. There’s a lot of those family offices, even, that are scaling back. Maybe there was a business that was level last year, that would get acquired this year, they probably are getting passed up, because the risk might be there, or the apprehension.

There’s a lot of apprehension in the acquisition space, and I do, unfortunately, think it’s going to be here for a while. I think we’re looking at– I don’t want to even say it, because it negatively impacts my business, but we probably have two years or so, of this downward pressure and headwinds. That doesn’t mean that businesses aren’t going to get acquired. I think those that are attractive are going to look that much more attractive. The meat and potatoes of business right now.

To answer your second question, what kinds of things do I pay attention to, for trends, or maybe even inspiration? Josh, I’m a huge fan of Blue Ocean strategies. I was introduced to that early in my career. Where I go to, for inspiration in business– I actually look a lot to leaders in other spaces, not in business. I do like Simon Sinek. [crosstalk]

Josh: [unintelligible 00:14:46]

Joe: You know what? I like Phil Jackson. He was the coach of the Bulls. I like Toto Wolff, he’s the principal of F1 Mercedes. I like Pep Guardiola from Manchester City. I look at leaders, I look at people who are outside of my space, that are really distilling down to– I don’t like to be in a vacuum. I think that that’s a trap for entrepreneurs, to stay in the circles of what everyone else is talking about. I think it limits innovation and it limits out of the box thinking.

In terms of business, I like Simon, I think he’s got his hands on the pulse of the future. Then I look towards other thought leaders outside of business.

Josh: Yes, I really like that idea of looking outside of business, because I think you’re right. You’re an entrepreneur, you’re an agency owner, you talk to agency owners, you talk to entrepreneurs, you’re reading all the same books and listening to all the same people. It is those people who are leading and excelling on the edges, that sometimes, are where the biggest learnings are. That’s awesome. Joe, that’s probably all the time we have today. I’ve really appreciated this conversation.

I really love that you think so much about the relational side of acquisitions, not just so focused on valuations, multiples, and KPIs. I think we are going to have some of those downward pressures here, which is going to mean there’s a lot of money going to be sitting on the sidelines. When that comes back, it’s going to be roaring back. So hopefully, a lot of us can hold on, make it through the next couple of years, and get to that space. Well, really appreciate your time. Thanks again for being here.

Joe: Yes, thanks, Josh, for the time, as well.

Josh: All right, bye.

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