Frank Williamson of Oaklyn Consulting On Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit

A merger, acquisition or change of ownership is a pivotal moment in the life of a business.

As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit,” I had the pleasure of interviewing Frank Williamson.

Frank Williamson is the founder of Oaklyn Consulting, a different kind of investment banking firm for small- and medium-sized companies under private ownership. Oaklyn plans and executes its clients’ most complex transactions, including mergers, acquisitions, capital-raising, recapitalizations, and lender and investor relations. Oaklyn supports businesses, investment firms, nonprofits, co-ops and partnerships. By working as consultants, not brokers, Oaklyn helps in situations where traditional investment bankers typically cannot.

Thank you so much for joining us in this interview series! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

I love working with entrepreneurs and people who’ve built businesses, either by themselves or in partnership with their parents or grandparents. It’s very gratifying to help during the times of big change that affect people personally as well as within their businesses.

My career direction has been partly shaped by circumstance. Early in my career, I was lucky to land in an environment shaped by big business change, and later, I was lucky again when that led to working inside a family business going through a lot of change, as well as an angel- and venture-backed business that was growing fast and navigating its own challenges.

A merger, acquisition or change of ownership is a pivotal moment in the life of a business. I started my investment banking firm, Oaklyn Consulting, to help people going through those changes who aren’t well served by the investment banking industry, because their business is on the smaller side, or overly complicated for its size, or just needs more hand-holding than that industry typically provides.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

My early-career mistakes were mistakes of being naive, which are pretty typical of early mistakes. I was the young kid in a corporate setting, working alongside people in their late forties and fifties, and we collectively assumed that trust, rather than the old saying “trust but verify,” was an OK way to do business. I saw it modeled by people older than me, and I probably participated in some of it too: deciding we’d sketched out a deal well enough, that everyone was in agreement, and it was fine to move forward. What I didn’t do enough of, in my junior role, was remember that nothing is done until every last detail has been worked out. The big risk is thinking you have a deal when you really don’t, because it isn’t detailed enough and leaves things unresolved.

Another common early-career mistake is to overlearn that lesson and become annoyingly detail-oriented instead, which is its own kind of imbalance. You can get so focused on the fine print that you lose sight of the bigger principles. There’s a balance between “agree in principle” and “trust but verify” that comes down to judgment, the kind experienced businesspeople, lawyers and bankers develop over time. I certainly annoyed some experienced bankers and lawyers as a young person by asking too many detailed questions and having too many opinions about things that didn’t matter, when I would have been better off listening and watching how their judgment played out.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

In Tennessee, where I live, there’s a much-repeated phrase from our elder statesmen here: “The other guy just might be right.” That’s a big part of how I try to work. It’s a lesson that shows up often in the context of pushing for civil, respectful politics. In a world where capital providers and businesspeople are sometimes at odds with one another, it’s easy to get pulled into advocating for one side or the other. What matters is staying calm, keeping an open mind and giving people grace by assuming they probably want to do the right thing. Not everyone does, but most do, and either side of a disagreement could turn out to be right, so it’s worth listening all the way through. That’s something I hope I do well and am always trying to improve upon.

Ok super. Thank you for all of that. Let’s now shift to the main part of our discussion. What does the journey from founding to a successful acquisition actually look like — and where did having the right advisor make the biggest difference?

It’s helpful to think about it in the categories my friends at Collective 54 use: grow, scale and exit. Growing means getting the business together so it’s actually a business and not just some people and activities, proving there’s demand for what you do. Scaling means taking the thing you’ve built and repeating it as many times as possible, making it as big as you can. Exit means organizing the business so someone else could own it.

The arc that really makes a difference for businesses is going from an idea to an organized system for growth, getting to a place where you can be helped by outside capital, not just your own time and effort. Once you get sophisticated enough about the business, you can bring in silent partners, lenders or investors — outside capital that’s fuel for what you do next. Ultimately, you get to a point where you can swap out one provider of outside capital for another, and that’s really the exit.

It’s hard to skip the middle step, but we see clients trying to do it all the time. They’ve built a business, kind of, and they’ve reached the end of the runway, and now they want to change ownership. But if you’re really going to do it, you need to build an actual business first, something that lets capital providers exchange their roles without disrupting the business.

The big lesson is: Get to a repeatable system as fast as you can, get into dialogue with capital providers as fast as you can, and create a way for capital providers to substitute for one another as fast as you can, and do all of that thoughtfully, with increasing levels of formality and structure. The professional community provides structure, banks, lawyers and knowledge of what a smooth-running business looks like. Use their wisdom as early as possible. You need a good working partnership with those professionals from the very beginning.

Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”? Please give a story or example for each.

1. Know whose problem you’re solving. It’s tempting to build something just because you know how to build it. It’s a lot more productive to start with a specific pain point and ask what it takes to solve it and make it better. You need to be completely clued in on what your customers’ pain points actually are, however niche or obscure they might be.

One of my favorite examples is Vets First Choice, a provider of online healthcare services for veterinarians. I worked there during a period of high growth. It started as a catalog-style community site in the early days of the internet. Buried inside that was the realization that veterinarians themselves were an underserved market. A big pain point for vets is that roughly a quarter of their revenue comes from prescription drug sales — mostly flea, tick and heartworm medication — and when pet owners get a prescription from the vet but fill it at a retail pharmacy or big-box store instead, that’s real revenue walking out the door. So this business decided to start marketing to veterinarians directly, to help them keep their clients’ loyalty by refilling prescriptions at the vet. So we set up better email marketing than most vets could do on their own, reminder emails that were more compelling and better packaged, and took a commission on what got bought through it, partnering with a pharmacy to handle mail order.

2. Know how big the opportunity actually is. Once you know the pain point, you have to ask how big it is, what’s the total addressable market and why people make the decision to buy.

3. Build something you can scale profitably. Back to Vets First Choice. The other player doing something similar in the market had built out a then-modern infrastructure (this was around 1999): servers in a closet, backup systems, a satellite dish on the roof. It was expensive to build. We came along a little later and used generation-one cloud-based e-commerce instead of building our own servers, so we could operate a lot more cheaply. Our competitor never became profitable; they couldn’t generate enough sales volume to justify the cost of their infrastructure. We could run at lower volume and still be profitable because Rackspace, the predecessor to AWS, was so much cheaper.

4. Build a resilient organization that can work with capital providers. As I mentioned before, the goal is to allow capital providers to substitute for one another without causing disruption to the business.

5. As you scale, know who wants to own what you have. This connects back to the first point: You need to understand the pain point of the people for whom owning your business, not just buying your product, would be the solution.

In Vets First Choice’s case, the answer turned out to be a Henry Schein, a major distributor of dental and veterinary products that didn’t have an effective way to do e-commerce for its distribution business. The distributor’s sales reps could sell in person, but they had no direct e-commerce capability. The founders and early investors knew the industry and the players well enough to know that owning the business they’d built would solve a real pain point for Henry Schein, and that Henry Schein had the resources to pay for it.

I was only with Vets First Choice during the time when they acquired the unprofitable competitor for almost nothing. That acquisition let us take on a batch of clients that had been unprofitable and move them onto our infrastructure, which made them profitable too.

In your experience, is there a difference in approach for building a service-based business versus a product-based business when you have the intent to eventually sell the business? Can you explain?

There’s no difference in the fundamental approach, though they differ in the tangibility of what you’re delivering. With products, you have to ship them, receive parts, assemble and send them out. With services, you have a staff to train and an experience to deliver.

Aside from the physical logistics of receiving, storing and shipping, it’s the same underlying process either way: You find a pain point a customer has, you set up a system to repeatedly solve that pain, you identify the people who have it, let them know you’ve solved their problem and repeat that for everyone who comes along, in a way that generates enough residual economics to fund its own ongoing growth. That doesn’t change whether it’s a service or a product. The nuts and bolts are different, but the general journey is roughly the same.

How does one go about the process of finding a buyer?

There’s a high-minded academic way to think about it and a straightforward, feet-on-the-street way. The academic way pulls from corporate strategy, all the reasons two organizations might logically do better together than apart, drawing on industrial economics, organizational behavior and theory of the firm.

The feet-on-the-street way is just: How do you find a customer for your product? You have to know the pain point that owning your business solves for someone, and then go get in front of the people who have that pain point, let them know you can help. The easiest person to start with is someone who’s already come to you with a problem, or in the case of selling a business, someone who’s already expressed interest. If they say no, ask why, and then think about who else has that same problem. That’s really just sales, and sales works better when you know who your prospects are.

As an advisory firm, we try to hit the middle of those two approaches. We gather everything our clients know from the ground, who’s expressed interest in their business before, who’s called them, who they compete with, what else gets sold alongside their product or service. And we combine that with the frameworks that come out of academic work — which businesses logically belong together, which sources of capital are a good match for this kind of business economics — to build a prospect list that comes at it from both directions. There’s no one-size-fits-all approach. It always comes back to understanding whose problem is being solved.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?

The way to decide is to figure out what’s actually feasible, because it’s rare to truly have a clean choice between the two. Most business owners aren’t in a position where there are genuinely multiple good options.

The first question is practical: Can the business actually run itself without you? If it can, then it might be realistic to hold onto it as owner and take residual earnings. But your successor running it has to be good and solid, and likely to stick around for a long time, and that person’s successor has to be good and solid too, and the underlying economics of the business have to hold up over that same stretch. Pretty quickly, you’re stacking up a series of conditions that each have to hold, and the odds of all of them holding start to look pretty small.

Often, the big question is whether you can be sufficiently separated from something you built and stay passive for any meaningful length of time. If you don’t think you can, because being comfortable in a passive role would require the business to really run itself, then the next question is whether an active owner could combine your business into theirs, or take it over and run it actively. If the answer to that isn’t a clear yes either, then you’re left asking what you actually have besides a job that’s hopefully been personally rewarding.

We see a lot of this playing out right now with the transfer of businesses and wealth from baby boomers to the next generation. Some of those businesses can probably be passively owned and passed down. Some can be actively managed by a successor. But there will be plenty of businesses that genuinely can’t be transferred, because they’re really more of a job than a business, and a business that doesn’t run without its founder isn’t a solid asset on its own.

The summary answer is: Do the work early enough that you actually have more than one option, so you get to choose. If you haven’t done that work, you probably don’t have a good set of options, and the choice ends up being made for you.

Can you share a few ways that are used to determine a good selling price for the business?

There are really two ways. One is looking at comparable prices other buyers have paid for similarly situated companies. It’s not unlike real estate: If one property sells for a certain dollar amount per square foot, a comparable property might trade for something similar. It’s a surface-level comparison, but that’s the basis most people use to think about pricing. The other way is that the buyer calculates the return on investment they’d get from owning the business and how much they could afford to pay given those expected future results. Meanwhile, the seller calculates their own next-best alternative to selling. Even if they could keep the business, they’d have no way to run it, so its value is heading toward zero, and anything better than zero is a good price for them. In reality, that’s how most deals actually get negotiated. The seller’s next-best option is compared to the buyer’s next-best option, and the transaction price lands somewhere between the two.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger.

Inner peace and forgiveness, and someone already did a pretty good job with that one, about two thousand years ago in the Middle East.

How can our readers follow you on social media?

Oaklyn Consulting is on LinkedIn at https://www.linkedin.com/company/oaklyn-consulting/. I’m on there as well at https://www.linkedin.com/in/fwilliamson/.

Thank you so much for joining us. This was very inspirational.

Originally posted in Authority Magazine.