The Lesson David Tobin Learned Running a 60-Person Firm He Couldn’t Scale: Manage for Profit

Anthony Codispoti (00:00)

Welcome to another edition of the Inspired Stories Podcast, where leaders share their experiences so we can learn from their successes and be inspired by how they've overcome adversity. As you listen today, let one idea shape what you do next. My name is Anthony Codusbodi, and today's guest sent more than a decade building a B2B direct marketing agency from scratch, only to find himself on the other side of a transaction he wasn't fully prepared for.

That experience selling his own company changed the direction of his career. He went on to found a second firm, spent five years inside that financial advisory practice, and eventually built the company he runs today. Each chapter added a layer that the next one needed. His name is David Tobin. He is the founder and managing partner of Tobin Left, an MA advisory and investment banking firm based in Pittsburgh.

That helps owners of marketing, technology, and professional services companies plan and execute their exits. Over 16 years, the firm has guided more than 250 clients through valuations, acquisitions, and sales to strategic buyers and private equity groups. David himself has completed four successful exits as an entrepreneur. But before we get into all that good stuff, today's episode is brought to you by my company, Adback Benefits Agency.

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All right, back to our guest today, managing partner of Tobin Lev, David Tobin. Thanks for making the time to share your story today.

David Tobin (02:31)

Anthony, thank you for having me.

Anthony Codispoti (02:34)

So let's go back early on. You founded Cindy Communications in nineteen eighty seven. This was a direct marketing firm in the early days of your career. What made you decide to start your own thing at that point rather than go getting a steady paycheck somewhere?

David Tobin (02:50)

That was my second business. The first being when I was in college, I founded a company that published coupon books. This is leading to why I started Sydney Communications. Sydney was my father's name and passed away when I was young. So that was in his memory, just to name it that. While trying to build the coupon publishing business in the 1980s, those of your listeners or viewers that remember that time period.

Telemarketing, business-to-business telemarketing was booming. It just was one of the tools that consumers did not like, that it was effective, center setting appointments with business owners or consumers. I was at a trade show trying to promote our coupon publishing business, and I put on the trade show sign, we offer telemarketing services, lead generation. And the interest for lead generation.

far exceeded what we were trying to do to promote the way a publishing or coupon business could help certain companies. So the interest was there. I had no idea how to do it. I picked up the phone and I called another telemarketing firm. It was in New York. I asked them questions about their pricing. I repeated that at the trade show booth and and we were off and running. Unfortunately we were

Anthony Codispoti (04:14)

So how did you actually get the

infrastructure of it set up if you didn't really know what you were doing? Like how how did you set up your first call center?

David Tobin (04:23)

Well, the first call center started in one room with three or four telephone marketing wraps. And then we tried to grow from there. It was an expensive, I call that my graduate school education, because it it was very labor intensive, as you can appreciate. It was there were many expenses as it relates to operating expenses. We also were trying to be all things to all people. We did consumer fundraising at night. We tried to set up appointments during the day.

We did not have a market specialty or market focus early on. What led to rebranding and then forming PT marketing, one, I brought on a partner to do it because I needed the capital. We also learned a lesson with my first firm. The lesson being that we had a segment, which you can appreciate coming from the benefits arena. We had a group of clients that were in the insurance and financial services industry.

They desired appointments with business owners. The second firm, when I was able to recapitalize it, we made the determination specialize in a sector, financial services, only offer business to business, as opposed to trying to be all things to all people. And it worked. We were able to charge premium rates. We could hone our craft and

developed lead generation programs. It made us more effective. It helped our clients get better returns because of that domain expertise. And then if I may, just briefly

Anthony Codispoti (05:57)

Because there's something different about

calling businesses to try to set up appointments than it is to call consumers, you know, when they're eating dinner trying to get them to donate money. And so you guys were able to really dial in on what it took to get people on the phone, get them to sign up for an appointment, et cetera.

David Tobin (06:09)

Two.

Yes, yes. And then the transition, the link, the connection to what I'm doing today, helping owners sell their companies or craft exit plans. If I go back to the telemarketing firm in the nineties, our clients being financial services companies and agencies, they had the need, the desire to put their advisors in front of business owners on a favorable basis. We came up

Developed came up with the idea that the best way to do that would be to position financial advisors as specialists in exit planning, business succession planning, business continuity planning. It worked. Your viewers, your listeners who are business owners, I I know they can appreciate those are topics that are on the minds of business owners at different stages of their journeys, their life, business life cycles.

So because that was our niche, our specialty, anything within reason I would find that talked about exit planning, succession planning, I gravitated to it. I, you know, I wanted to read about it. I'd grown up in a family business. So those subject matters were of great interest to me. So when when I sold my interest and had the exit plan for the telemarketing firm, I was away from that industry for a while.

That I would meet a business owner and I couldn't help myself. I'd say to them, Anthony, what's your exit plan? And they wanted to talk about it. So I I actually sold my interest in that firm in two thousand and four. And in two thousand and nine I started to consult with business owners around exit planning. So that was the link.

Anthony Codispoti (08:02)

Now, let me

yeah, let me pause and go back a little bit because I want to understand some of these links here. you say you came up with the idea to position your wealth management clients as, you know, exit planning advisors. What was the time frame for this? Because I to me, and maybe I've just been living under a rock, the term exit planner didn't really hit the mainstream until, I don't know, maybe the last ten, fifteen years.

Hel help me out here. Put together the timeline for me.

David Tobin (08:34)

No, I I agree

with you because over the that time period you referenced, a number of national firms were created that provided consultation to financial advisors or lawyers, benefit specialists around exit planning. So it almost became a craft, a cottage industry. again, ten over the last ten to fifteen years.

When we came up with these ideas in the mid-90s, we were maybe a little ahead of the time, but those those subject there were still articles published that I was able to find around succession planning, exit planning, family business planning. It just wasn't that well known. And that also helped our cause, because us calling a business owner and saying we'd like to

possibly set up an appointment for you to meet with Mr. Wright, who specializes in helping owners, appreciate their exit options, craft exit plans. Now that wasn't the exact terminology years ago, but that was the those were the core messages.

Anthony Codispoti (09:48)

And so what's really interesting to me as we follow the progression of your story is, you know, our brains want to put people into a box, right? And I I look at David and I hear the early part of your story, and I'm like, this guy's a marketer, right? You know, he's doing the telemarketing, he had the coupon books going. and so but people are are many things, right? We can evolve, we can, you know, take from past experiences and add them to our new experiences. So

Let's continue your story, your lineage here, and explain how you got to be interested in exit planning, not just as a way to, you know, get clients, wealth management clients appointments, but as a career path that you were going to follow.

David Tobin (10:34)

Yeah, no, I I appreciate you trying to clarify the connection between those two. When when I got started with what today is we position ourselves as an exit planning and investment banking or an exit planning and MA advisory firm, when I got started in 2009 and 2010, I had a comfort level around the overall concept of exit planning. I was intimidated at the time about

Doing transactions, what it would be like to be the intermediary and actually get a deal done. So early on, we would refer those if our client's exit plan called for a sale, we would refer that to another MA group or a business brokerage, and we would participate from the sidelines just to observe what was happening. What I came to appreciate is selling a company, there's certain

what most advisors would say best practices, but it's a pretty straightforward process. It's not rocket science. You just have to do it well. You have to understand your client's value proposition. You have to know who to target, who might be likely buyers. There's certain steps along the way that need expertise around working capital and so forth. So it

I just started to appreciate that we can do that. And so we started doing smaller transactions and tried to move up the quote food chain and just evolved from there. Now I did surround myself, like our firm is fifteen people. What's interesting if three of my other partners also own marketing communications agencies, they didn't come from an investment banking world, but they could appreciate what business owners

go through. And we rounded out the team with who we believe are really experts around investment banking. So we try to bring the technical expertise. But at the end of the day, at the heart of it would be advisors being there every step of the way with business owners who just have good common business sense and can help plan and

Qualify buyers and walk your clients off the ledge when they get deal fatigue and

Anthony Codispoti (13:07)

So it's interesting that not only you, but you're saying three other partners either currently own or have owned marketing agencies in the past, you've surrounded yourself with, you know, the really smart, you know, financial people that you need, you know, to be able to provide those services. But I'm curious, given that strength of the marketing background that your firm has, is this a differentiator for you when it comes time to go to promote the business and

you know, find interested buyers because ultimately that's what you want as you're marching towards a sale is can we get multiple people who are interested? Cause that helps to, you know, drive up that valuation.

David Tobin (13:47)

completely, completely. I mean, in our case, we promote, we have domain expertise with professional services companies, marketing services, technology services. Our clients structure, their service offerings are very different than manufacturing, heavy industrial, high-tech, you know, SaaS. And it like anything else, you just you you better appreciate

how to craft and promote their value proposition. You know who the likely types of buyers are. And you know, for example, when I had said three of my partners owned marketing agency, it was because we crafted their exit plans. We were with them. I really got to know these owners by helping them through their exits. And I knew they still had, quote, gas in the tank and they wanted something new. And I

They were nervous skeptical saying, How do I move from owning a marketing communications agency to becoming an investment banker?

Anthony Codispoti (14:53)

Which is what everybody listening right now is wondering too.

David Tobin (14:57)

Yeah, and this may sound that I'm I'm bragging, so forgive me, but I said to all three of these partners on this front

Trust us, trust me that because of your good business sense, the stripes that you've earned owning and building a business, you, I'm talking to my partners now, you're gonna be great at being an MA professional. And they were guarded, but today I'm s I admire the work that they're able to do to shepherd owners through the process. They lived through it. Back to my point, it's not rocket science. And

These owners of marketing firms who are now very productive doing exit planning, they know when to team up with our technical experts. And it was it's been great career next chapters for them and for me. Because it it's a really rewarding time to help an owner monetize what they've built. I mean, it it's one of the most

important monumental business decisions an owner will make, when to sell, who to select to help them as the intermediary. Those are big time decisions. And and it's a great time to be with these owners at that phase of their business journeys.

Anthony Codispoti (16:25)

So we called out in the intro that you've had four of your own exits, right? When you're the owner. What do you remember from the first one? What maybe surprised you the most about it?

David Tobin (16:37)

That somebody valued my coupon business the way they did. Because it was really myself and my brother helped. We didn't have any infrastructure. We just we had made arrangements with colleges to distribute the coupon books when students came back. And at the time it was really a nice exit that somebody paid me for that. Because we weren't all we were selling was relationships with these schools and

You know, we we had good results that advertisers achieved through these books. And that business, interesting enough, after I sold that one in nineteen eighty seven, it was still going on thirty years later. It was all through the schools of Phil. And that's so that I was pretty proud of. And I almost bought it back a few years later. So that that was a great exit.

Anthony Codispoti (17:29)

A few years ago or a few years after you originally said? Okay. Yeah.

David Tobin (17:31)

Few years after I sold, when I realized

how hard the telemarketing business was.

Anthony Codispoti (17:38)

Grass is always greener, right? So

you launched Tobin Lef in two thousand nine, which as people will remember, was right in the middle of the financial crisis. What was the state of the MA market when you started?

David Tobin (17:55)

I didn't I don't know exactly at the time because we got started doing exit planning consulting. So certainly had a feel. I mean, people coming out of the you know the eight crash, it was but owners I mean, as your viewers know, there's this tide of baby boomers that were reaching an age where they wanted to retire or move on. So the marketplace was huge. There were not

A lot of people that truly understood exit planning, in my opinion at the time. A lot of people said they did. Well, what's interesting, Anthony? I'm this is I'm digressing, but if I was in a room then or now and I said to a you know an audience of business owners, how many people feel an exit plan is important? Almost everyone's hands will go up. And then if my follow-up question was, how many people know what an exit plan is?

It would be like they're looking right at me. And so you know, going back to your question, people just wanted to talk about it, whether the market economy was booming or it was down, whether they wanted to learn more for a future liquidity event, or they were f fearful about what was happening in the current market, they wanted to get out. It's just the more owners within reason know about.

how to prepare their companies, what their options are, how to value their company. I mean, only good can come out of that if they're not too distracted from running their businesses.

Anthony Codispoti (19:37)

And when did you start to layer on the and A work that you do?

David Tobin (19:42)

Two thousand and twelve, two thousand and thirteen. So it was like three or four years just helping craft exit plans.

Anthony Codispoti (19:51)

So package it up for us now, David. Present day. Tell us about Tobin Left, the work that you do, and who is the ideal client for your firm.

David Tobin (20:02)

Well, I appreciate the opportunity to share that. So we're mission driven. Our mission is to help owners monetize what they've built, monetize their life's work. We don't put a disclaimer on that saying providing Eureba does more than $3 million or $5 million. So we're, I mean, our our fee structure kind of qualifies some, but we're we're really focused on helping those owners monetize. We

have different partners and specialists that help clients that might have larger enterprises that could be selling to private equity groups as a platform investment. So that that's a certain type of knowledge when you're dealing at that level. In turn we have a number of clients, their EBITDAs are lower, they have to position themselves for a s a sale to a strategic buyer. And I could talk about the nuances

Then we also developed a craft, we've probably helped 30 to 40 owners with internal transactions, internal transition plans, management buyout plans. So, you know, we have a specialist that lives in that arena. So it it's really trying work to work hard to have resources and expertise to help owners monetize.

You know, turn business value into family wealth. And clients come to us for the most part at two stages. I mean, certainly there's some prospective clients, we're in their pitching, they're ready to go. They don't need us to try to package their business or maybe help them enhance value. Their their value prop is good, their margins are good, they've been growing, and they're interviewing investment banking or MA advisor.

So, in those examples, if we're selected, you know, we we take them through the process to sell their companies. Others will come to us, we'll perform what we call a market value analysis from our experience, give them insights to what we believe their company's worth, how their balance sheet will factor into the equation. And analysis

Usually one of three things happens. Either they we confirm what that owner thought his or her business was worth and they want to sell it and hopefully, you know, if we're in the mix or someone else. The the second scenario is they're they're they're almost there. You know, maybe if they spend the next year to tighten up their margins, clean up a few things.

get their client contracts in order, then they'll be ready to go to the MA marketplace. And the third is it's harsh reality. I mean we're you know, they don't have to accept exactly what we're saying. They most likely will get others, but people come to the realization that they're better off holding the company because they can't sell it for enough to justify giving up that income stream.

So it's truly people on on that journey. Sometimes people just want a sense of what is my company worth. And then if they at least could zero in on the the key strategic moves, we call them the winning moves, three or four that if they focused on them over the next few years.

Would impact their net worth when it's time to sell.

Anthony Codispoti (23:48)

What are those key strategic moves, David?

David Tobin (23:51)

Yeah, I'm going to answer that in 30 seconds. I just want to highlight them the value. So your listeners know most companies are going to be valued on a multiple of EBITDA. The measure of pre-tax cash flow after a fair market compensation package for the owner or owners. That's most likely going to be the scorecard. So certainly owners getting very clear on what is my EBITDA, what is my adjusted EBITDA is one part to the equation.

The second is when it's time to sell, how will the marketplace value that company? What multiple will they assign? 3x, 4x, 11x, 12x? I mean, huge spectrum depending upon. So here's where leverage really comes into play. So I use those few examples. And owners almost there, and let's just say they're, I'm just picking around number. They're even just $2 million and

They could trade at 6x. I'm again, I'm just to make my point. So you have an estimated value of 12 million dollars. Every owner, every week with their team or month, or daily, they're thinking about how do I increase my net income? How am I going to increase my EBITDA? They don't need a guy like me or a consulting firm saying, Anthony, increase your net income. That's a given.

Where they may be able to appreciate guidance is what can you do to increase your multiple? This is coming back to your question because play my example out. A company with two million of EBITDA trading at 6x, 12 million, they're going to work over the next few years to increase their net income from 2 million to 3 million or what whatever they believe their growth.

If at the same time they can take steps, so as opposed to commanding 6x, they can command 7x. So now they get their EBITDA to 3 million times 7 is 21 million. It's those two parts to the equation. Increase your earnings slash EBITDA and go to work at the value drivers that will really make a difference when it's time to sell. So to your question, what are the value drivers?

In most situations, buyers are assessing: is this company growing? Is it scalable? Growth is huge. I mean, that's why people will pay a high multiple with after-tax dollars if they believe with the buyers' resources or cross-selling synergies, there's going to be growth. So the growth story, and I'll come back to that in a minute, is is huge. Transferability.

Owners are gonna be, buyers are gonna be assessing, if I buy that company, what's gonna happen post close? And with service firms, the sector I live in, many times the selling company is overly dependent on the seller, the founder or founders.

Anthony Codispoti (27:03)

They've got all the key relationships.

David Tobin (27:05)

The key relationships, they're the ones that have to come in and close the deal, or they're the rainmakers. And if that's the case, a buyer still might play a res pay a respectable multiple, but they'll protect their investment through deal terms. Instead of paying 70%, 80% of cash at close, they might only pay 50% and they'll safeguard their investment through an earnout.

Your listeners hate earnouts. Every owner has heard stories. But if you have a company that's overly dependent on individuals, or they have customer or client concentration risk, buyers are going to protect through deal structure. There's just no getting around that. So coming back to what you can do, focusing on growth, certainly focusing on margins, because

Margins and growth go hand in hand. And when I say margin, I'm talking about either net income or EBITDA as a percentage of revenue.

Anthony Codispoti (28:09)

Sure.

Right. The the new buyer, they want to make sure that this company is on the right path. They don't want to see something that's been flat for a while. They want that momentum. Right.

David Tobin (28:20)

They want

momentum. They want to make sure there's good profit margins. Because if they're going to take on debt as part of the purchase price, they need enough profit as a percentage of the top line to pay off their debt, have money to reinvest. So when companies again, these are service firms, because service firms

Anthony Codispoti (28:42)

And what kind of services are

we talking about? T tell us w you know where you specialize before we come back to these key strategic moves, these value drivers.

David Tobin (28:49)

Yeah,

I mean marketing agencies, digital marketing agencies, PR integrated. Then there could be tech enabled service, architects engineering. In our world, it's more it's knowledge based value. It's it's about the people, the teams. And and in those examples, the multiples and the valuations are very different than a true technology company that's a SaaS company or a heavy industrial.

Because if if somebody owns a service firm, the buyer will pay strong multiples if they see good margins, growth opportunities. So coming back to your key question, our experience, the key drivers are growth, margins, a vision for reducing the dependency. And then the new business, the sales engine, becomes so important.

It you know really demonstrating where the new business opportunities come from, the lead engines, the sales team, the performance of the sales team, energy. And the nice thing is if somebody's focused on those value drivers leading up to a sale, it's only going to help their ongoing operations. It yeah, they're they're gonna be hopefully.

Anthony Codispoti (30:13)

Yeah, if for some reason a deal doesn't happen, then the business has just been fine

tuned anyways.

David Tobin (30:19)

Yes, yeah. And then culture, culture does I mean culture is secondary and everybody says, we have a great culture. Well, y y buyers assess that. What's your turnover rate? They'll look at your social media, postings in your glass door. It's like any company. You have to stay on top of what the world is saying about you. Because that stuff comes around when it's time to sell. So reputation management is important.

The other thing that's really important is customer satisfaction, client satisfaction measured through repeat business. When we have a prospective buyer, they've signed a non-disclosure agreement, they've received the quote book, the industry calls it a confidential information memorandum. After assessing margins and EBITDA, the very next request is: show me your customer list, your client list per year for the last five years.

Now you can anonymize the names because people are sensitive. I'm not giving up my client names. You can just call them client ABC. What buyers are looking for is those customers' clients from 2003. How many are still doing work today from in 2006? What's the churn rate? And that that becomes a really important value driver. So it's

Anthony Codispoti (31:44)

Because it speaks

volumes to the quality of the work that they've been delivering.

David Tobin (31:48)

Exactly. And because buyers want a company that's transferable, sustainable, and scalable. And the more you can show that this company is not dependent on the sellers, there's systems in place to land customers' clients, and we keep them, those are the kind of discussions your sellers are going to have to either present with enthusiasm or defend when it's time to sell.

Anthony Codispoti (32:18)

There's a couple of things you said earlier, David, that I want to go back to. you've helped about 30 clients with an internal selling, you know, selling to management team or the employees. Maybe maybe some of those are ESOPs, I don't know. I'm curious, do you stay in touch with those folks that go through that kind of transition? And here's the reason I'm asking is I'm curious how many of those businesses.

David Tobin (32:27)

Yes.

Anthony Codispoti (32:46)

continue to be successful because there's not an entrepreneur in that that driver's seat anymore.

David Tobin (32:58)

It it's a great question. And and I say that because it we have discussions periodically with owners. They would say, I have a great number two, or I have a fabulous management team. And they'll say, My first choice is to sell to them for w w what you know, many reasons. They want to give their employees the opportunity. And to your point, we

We really challenge them. We would say, you know, Anthony, for example, if it was you were selling your benefits firm and you said you wanted to transition to key employees, one of the first questions, set of questions would be, without you, what happens to the top line? What percentage of your new business is originated from you and closed by you? Can your leadership team or the is this company going to grow without you?

And if those questions, if they're concerned or the answers are no, they cannot do an internal transition. Because either the employees will get a bank loan, they'll be straddled with debt, and they won't be able to support the debt service. Or if you were willing to finance the transaction through a seller note, huge risk. Because it it just so the key, and that goes back to what I just touched on.

Whether somebody's selling internally or externally, you've got to demonstrate that the company's gonna sustain and grow when that seller backs away.

Anthony Codispoti (34:32)

You know, and there's another part of this that occurs to me, David. I I think you're spot on with, you know, who's going to drive the new sales, right? Is it the the existing owner that needs to come in and make the rain and close the deal? But it's also sort of the day to day problem solving. You know, any entrepreneur that you talk to, one of their titles is firemen, right? They're always like figuring out how to put out a fire. And th they just we're wired that way.

You know, and if you don't have somebody in that new seat who's wired in that same way, another area where things can start to fall apart.

David Tobin (35:10)

For sure. And one of the biggest challenges, owners of service based companies, would be to how to find a quote salesman. It it's really challenging. And I hear story after story where they hired a business development person, you know, a year later they invested X and and it did not play out. So it it's not an easy fix. You can't just say I'm gonna buy a go out and hire a sales team. It

A lot of energy has to go into how to have a true business development quote engine process.

Anthony Codispoti (35:50)

You also mentioned that there were nuances to selling specifically to strategic buyers. Can you talk through that?

David Tobin (35:58)

for sure, for sure. So strategic buyers in most cases, they're gonna want to buy a company for quote strategic reasons. You you know, I mean certainly that that that's a given. So when it's time to sell, if you have the right intermediary, whether they're in an MA firm or an investment banking, combined with the seller, a lot of time and energy has to go into

Who would we truly add strategic value to? What types of buyers? What types of companies? Where will the synergies be? The cross-selling opportunities? And many times with our strategic clients, it's a very targeted, tailored outreach campaign with a thesis around how that selling company in the hands of the right strategic buyer will thrive or will help the buyer.

I mean, you know, there's some obvious ones, you know, companies that can create content and a reputation management might ri might really be needed by a digital firm that's doing lead generation to combine those services. I mean there there there's certain strategic reasons. You don't want to just go out on a real shotgun approach. I mean, buyers are inundated. You you need to go, in our opinion, with

The reason I'm reaching out to you, Mr. Anthony Bayer, it's, you know, our client companies can help, we believe, or we want to explore if we could help you with these synergies and these growth opportunities. So it's looking for the right strategic buyers. And and that takes prep leading up to that. We also, if a client's a few years away from the time they think they're going to sell, we encourage them.

Get out to all the industry trade shows within well within Reason. Talk to your competitors. Get to know your competitors. Start doing joint strategic alliances. Because many of those likely buyers will be companies that know of them in the future, where they're doing joint work with. Develop relationships with those prospective partners or buyers. Only good can come out of that.

Anthony Codispoti (38:17)

Say more about that. It's interesting because you know, having been a business owner for thirty years or so, I've seen that play out. But when you first hear go get to know your competitors and form alliances with them, it's sort of for some people it can be like a little bristly, like what are you talking about? Ca can you give an example of where you've seen that play out?

David Tobin (38:38)

Well, my part about the alliance was potentially with competitors, but I was also referring to companies that are really complementary. Like in your case, I don't know your business well enough, but you know, I I heard how you help owners save on their benefit plans. You you might be doing joint projects with a large pension plan administrator, or you know, companies that are serving around

Benefits. So just getting they getting to know you. And it's really envisioning, you know, for example, if you might think you might want to sell in a few years. Today, brainstorming, who would be the what types of companies would be the likely buyers? And if you send out content pieces, make sure they're on your distribution list so they start seeing your firm name on a consistent basis. That kind of stuff will help.

Cut through all the clutter when it's time to sell. Now that's easier said than done, but that comes back to that bucket of owners that are a few years away and they want to do what they can to increase the enterprise value.

Anthony Codispoti (39:55)

David, earlier I heard you use the word shepherd at least once, maybe multiple times. And I'd like to hear you talk more about how you take sellers through the mental, the emotional part of the exit process.

David Tobin (40:17)

So important that well, it starts even before they engage us. I touched on what we call a market value analysis. It's really first spending time with those prospective clients to make sure that everyone's in agreement on the likely market value. And hopefully they're excited about it and and whoever the investment banking group is feel con they feel confident they can.

achieve those objectives, but it really does start early on with education. In a decent percentage of those conversations, people's expectations are different. You know, they have a friend that sold their company for 10x. Well, their friend's company is very different than companies that trade at 5x. Now, today's a little different because now everyone's an expert because of Claude. You know, so

Any owner is going to type into multiple search engines. What is my employee benefit for most likely valued out? So they're going to at least come with a information in a perspective. So it really starts on the front end. It starts preparing that for the process on the front end, i.e., all the requests for information through due diligence. Get that done up front.

Don't have you know something that's going to slow down the process if you could get ahead of it. If there are any red flags or weaknesses, you've got to get in front of those. They all come out during due diligence. Better you're messaging that and addressing it that the prospective buyers hear it from you in the SIM or during the introductory meetings. Because if if you're on the defensive, it's it's a bad place to be. Defensive meaning the buyer brings it up.

Why are you losing fifty percent of your clients every year? I mean you just y you've got to get in front of all those. So we probably spend sixty to ninety days on average with clients before you actually even launch. You know, from setting expectations, prepping the company, loading the data room, making sure the messaging is right in the materials, and and then really just

Keeping clients informed at every step along the way. And the process, an MA process, at least for us, it typically takes an average of nine months. And it it is a process. And there deal fatigue is real. Deal fatigue is absolutely real.

Anthony Codispoti (43:02)

I heard another exit planner make the comment that a deal dies a thousand deaths before it actually closes. You know, and so it's easy to understand. That's probably a bit of an exaggeration, but it's easy to understand how that fatigue can set in. How often do you have sellers who are like, forget it, like I'm out? Like this is this is taking up too much of my time, I'm exhausted.

David Tobin (43:27)

They they usually are pretty committed and you know, even though sometimes the goalpost gets moved, they they can see that end in sight. So it's it's not often the seller will.

Or you're in the middle of due diligence and the seller's sales go down. And it may not have been the buyer's intention, but now they want to retrade on the terms. And and deals blow up because of that. Like during the selling process, one of the most important things that owner can do or management team, keep the pedal on the sales new business engine.

And this goes back to the responsibility of the MA group or investment banking. Handle as much as we can, they can, so that that owner and management team does not take their eye off the ball. Because it could be a huge distraction going through a selling process. And then it because it takes time, sales sometimes could turn take a turn. And then buyers get nervous or skeptical and

And and you're focused on the wrong things at that point. Because one thing just to add to that, during the selling process, interested parties, especially when you're signing exclusive and you're into due diligence, buyers are going to want to see financial updates every month. And they're going to compare it to the forecast the seller, their intermediary put forth in the SIM.

Anthony Codispoti (44:54)

You know go ahead, David.

David Tobin (45:16)

in the marketing materials. So you better be putting forth realistic projections that you can meet. And if you put real aggressive projections thinking it's gonna get you a higher multiple, it won't because if you can't deliver on those, you risk losing the deal.

Anthony Codispoti (45:36)

As business owners, we tend to have a lot of our identity wrapped up inside of our businesses and the roles that we play there. I'm curious if you've ever had sellers get close to or at the finish line and then get cold feet. Because it's sort of like the realization sets in that wait a minute, who am I going to be? What am I going to do after this deal is done?

David Tobin (46:03)

It it's it's such a good point because somebody has to be truly committed. And I go back to that analysis, really spending time, not just saying, you know, what's your business likely worth? We we carry it through, you know, take off the the expenses for the transition. They might be sharing a portion with their employees. We show the impact of capital gains.

And we really try to help them appreciate will this be something they celebrate if they sign a purchase agreement and then the wire transfer happens? And it's a huge decision. And many times if the deal terms won't be strong enough or the multiple high enough and the deal terms favorable, if there's a three or four or five year earnout,

Those owners will look at the deal and say, I'm better off keeping the business. And we agree with them, because the last thing we want to do is go through a nine month process and then the owner would just say, I just can't do it. It's a mess when that happens.

Anthony Codispoti (47:13)

Yeah, I can imagine. Can you think of just pull out one deal. I'm sure that you've had many. One deal that didn't go the way anyone planned. Maybe the deal fell apart, but not necessarily. Just something unexpected occurred and how your team and you had to adapt to it.

David Tobin (47:32)

Yeah, we're living through one now. So this was in two thousand and three and coming into two thousand and four. We brought together two client companies, two companies that wanted to sell. We spent time with the owners saying their synergies, they complement each other. We went to the market together, not as a roll up, but as a strategic you know, here's two companies offering. So one thing we learned is

One plus one doesn't always in the minds of buyers equal three. That it created a level of complexity. You know, buyers truly wanted to know: are these firms integrated? How are they working together? Prove it. So in the marketing materials, it looked great. One firm with four million of EBITDA, the next of three. Here's seven million. Let's go. And we packaged it. I mean, we spent a lot of time. But what we learned was.

Complexity, the more you can simplify an offering. So we go to market, we had to overcome those initial objections, and then right in the middle of the process, one of the two companies' earnings went south. They lost a major client, then it created skepticism. And in the letters of intent that were put forth backed out, or they wanted to change their terms.

And the owners said we're not doing it. So two lessons on that. One, be very careful if it's a roll-up. And owners would think, I'll get together with my buddy's firm, we'll go together. And now instead of a multiple of six, we'll command eight. Buyers are sophisticated. They they're gonna scrutinize and they have to line up the debt financing for both companies. So the lesson that I learned and it's reinforced is.

Simplicity really helps. Now there's complicated companies. That's not what I'm saying. We're marketing plenty of companies that there's a level of complexity that takes a lot to explain. But just be cautious thinking I can just team up. And then the second, it just that what I was reiterating or what I mentioned, you you've got to make sure you put forth forecasts that you can meet.

Not only did the one company lose some business, they put forth a really aggressive forecast that we mistakenly didn't well, we challenged it, but we should have really planted our feet and said, we can't go out with a forecast that would say your EBITDA is now X, and over the next 12 months it's gonna be forty percent higher than where it is today. Because buyers were excited. That sounds great. Three months later they said

Let me see those results. They matched it to what we published in the SIM, and and they didn't hit their mark.

Anthony Codispoti (50:37)

Yeah. So that skepticism grows further. That first situation that you talked about where two guys get together, we're gonna package our firms together because when you've got this higher, you know, total EBITDA you can command a higher multiple, and it falls apart, at least in part, because one of the firms lost a big client, right? The revenue dropped. If that hadn't happened, right, and things were kind of on the normal track, do you still think that's a complicated

David Tobin (50:38)

Mm.

Anthony Codispoti (51:07)

deal to close because is it the situation where they're not just coming up with funding for one total entity, but they've got to paper it for two separate ones because the funds are going to two separate entities. Is that kind of what you were talking about in terms of the complexities?

David Tobin (51:25)

Y yes, we so we did get offers before Company B's earnings went down. The the offers were disappointing though, because you know, the the marketplace, if you look at, for example, a company with four million dollars of EBA that they typically trade at a lower multiple than seven or eight. And what we found taking these two companies

The the offers were pretty good, but they weren't what they would have been if it was one company producing eight million dollars of EBITDA. The the buyers just said, you know, there's added risk, which played out because to sustain that higher level of earnings, it it was dependent on both of those companies. That would have been very different if we were just taking one client to market at that level that had grown.

On their own over the last three to five years.

Anthony Codispoti (52:28)

So maybe the smarter move would have been for those two firms to conjoin first, get a little operating history and then go to market.

David Tobin (52:33)

Yes.

Yes. Well, the irony is we're back now with one of the two, the one that's been strong. We just went out three weeks ago and the response in the market's been fabulous. It's a simplified story. Our teaser letter could show consistent growth, stability, strong margins. I mean we have like a hundred NDAs truly within three weeks sign. And even in today's market with

Anthony Codispoti (53:03)

Okay.

David Tobin (53:06)

You know, still a war going on, potentially in the Middle East. I mean, it's it's just a clean, compelling story. And there's plenty of buyers out there. I mean, a your listeners, the last thing they want is some an MA guy like me saying there's dry powder on the sidelines. They hear that all the time. But there is. There's a tremendous number of buyers sitting with capital, strategic or financial, that are looking for quality operating companies.

Anthony Codispoti (53:35)

So if you're in the owner's seat of a business right now, you're you're done, you know, you you've sort of you've reached the end of what you is you want to do, you're getting close to the end of your career. It's a good you're saying it's a good seller's market.

David Tobin (53:50)

No, it's it's not a great market. It's I think it shifted a little bit today to be more of a buyer's market. My message is if you have a good operating company, today the amount of competition looking for sponsors is tremendous, buyers, and due diligence takes a lot longer because the financing sources are scrutinizing.

So it's still a tough market today, but if somebody has a good quality story to tell, there's a ton of capital. So we have to go wider and deeper. Like I mentioned the hundred NDAs. Now that was a client we're going out to private equity groups. We had to go twice as wide as we would have two years ago. You know, to get that kind of response, we may have had to have gone out to a few hundred.

Perspective buyers, we have to go to three times that today because it's a tough market.

Anthony Codispoti (54:56)

Got it. What's one of the hardest things, David, that you personally have had to overcome? And what did it teach you?

David Tobin (55:06)

In my own businesses or representing others or both or either.

Anthony Codispoti (55:11)

D

yeah, just kind of look big picture at your life. Maybe it's something professional, maybe it's something personal. What's the hardest thing you've had to overcome?

David Tobin (55:20)

Well, since our topics have been around business, I'll I'll keep it on business. You you made my journey sound a little bit more rewarding than it has been. You said I had four successful exits. I had four exits, but they weren't all successful. So my my last firm where I made that transition from owning a marketing firm, you know, the exit planning knowledge, that was not

An exit for me to celebrate. That firm was complicated. We had at the time close to 60 employees. We weren't making a lot of money. I mean, I I was so focused for years on the top line. I did not appreciate, or I did not do a good enough job to manage for profitability. So when it was time to s to sell, there was a fair amount of debt.

I needed capital along the way, so I had partners. It we couldn't demonstrate how scalable it wasn't a real scalable business. It was a labor intensive business. So I mean my my exit wasn't one to celebrate. It was one to get out from under it. So I mean it my mother used to say experience is what you get when you don't get what you want. I got experience. And

Anthony Codispoti (56:47)

What's the worst?

David Tobin (56:47)

I I don't have

any regrets, but it just it wasn't a a big number.

Anthony Codispoti (56:52)

Was the worst part of that experience the ego hit or the fact that it wasn't financially rewarding?

David Tobin (57:00)

Both. I mean my children were young at the time, and you know, my wife and I wanted them to go to great schools. And I mean, I sold. I that transitioned before I was able to start the exit planning consulting. I I was selling life insurance because I didn't have enough from the sales proceeds to be able to invest in a larger or in a company that I might want to buy. And we had financial needs that were pretty strong. I

I'm not I don't have any regrets. You asked that question, what would I do differently? I'm thankful because that experience has helped so much in the firm I have today.

Anthony Codispoti (57:40)

Just being able to have gone through a painful exit process puts you in like a better position to be able to help and support your clients. Is that what you mean?

David Tobin (57:51)

Both our clients and our firm. I mean, we're trying to do the best practices. I mean, in my firm we have fifteen people. I'm thankful I have there's seven partners. We're trying to run a solid company with twenty plus percent margins and growth and taking those lessons we've all learned and helping our clients on those journeys.

Anthony Codispoti (58:17)

When people are shopping around for an exit planning firm, an MA firm, why do they ultimately decide on Tobin left? What is it that you guys are able to help them do that they might not get somewhere else?

David Tobin (58:32)

Well, I there there's if domain expertise counts for so much. I mean if if an owner of a digital marketing or integrated marketing agency, we have a strong story to tell. I mean we we we would want to go up against our direct competitors. If a prospective client comes to us and they own a SaaS solution.

And we're competing against other investment banking groups that have a case studies of selling SaaS companies. We have no chance at landing that. They might like us, they might like our values. At the end of the day, rightfully so, they're gonna go with somebody that has experience with similar type companies. So, you know, certainly taking the time to find domain expertise. The second would be deals in their same size range.

We've a great story to tell in our quote sweet spots. If somebody came to me and they said, How many hundred million dollar companies have you sold? I'd have to say zero. They might think that they might love our process and everything else. We're not getting that engagement. We're just not. No, somebody said 50 million, we're in. Or or small. So it's

Domain expertise, deal size, and then really taking the time to get to know the the potential people. With our clients, we try as hard as we can to meet them in person. Even though Zooms are so important. I would so encourage your your listeners, before they commit to anyone, invite the investment banking, invite the MA advisory firm to come to see them, see which one's

get on a plane compared to the ones that would say, let's just meet via Zoom. We won an engagement recently. We just got on an airplane and flew to Kansas City to, you know, myself and a partner, just to spend have dinner with the owner. And I know that counted for a lot. It just so take the needed time, domain expertise, deal size. Those would be the three main the the good process

I I mean it that's almost table stakes, people who can run a good process. It's about value, culture, experience.

Anthony Codispoti (1:01:05)

You know, during COVID we all got used to this kind of digital interaction, the Zoom calls. And, you know, a lot of it stuck because it's just so efficient. But man, you hit on a great point. Like you just lose something by not having that actual face to face time, right? Getting to break bread with somebody, just sharing space with them over the

you know, the period of of several hours, you really get to know somebody and their energy and their personality a lot.

David Tobin (1:01:38)

Well, a a hundred percent. And going back to you picked up on when I use the term shepherding the deal, I mean, we're gonna we'll spend or not maybe five hundred to seven hundred hours my partners will put on an engagement from beginning to end. many of those hours are with our clients. You know, every meeting with a prospective buyer where they're Zoom or in person, you've gotta really like and respect.

the intermediary that they select. And I keep using the term in intermediary. There's gray lines between on one end are business brokers, and on the other end are investment bankers. And in the middle there's firms calling themselves MA advisory. There's no set criteria. I mean the the the lines blend. My message recommendation, regardless of how they're positioned, really spend time to say is that the right group

That you know, our values align. And the other part, be careful of valuations blowing smoke. You know, a lot of groups will try to get the quote listing, but just like a home listing. You know, p brokers will say, Your house is worth more, give me the listing. Maybe it is, maybe they're just trying to get the listing.

Anthony Codispoti (1:03:00)

David, I've just got one more question for you today. But before I ask it, I want to do three quick things for the audience. First of all, if you want to get in touch with David Tobin, go to their website, tobinleft.com. T-O-B-I-N-L-E-F-F dot com. Tobinleft.com. It'll be in the show notes, but it's very easy to spell T-O-B-I-N-L-E-F-F dot com. Tobinleft.com.

And if you're enjoying the show today, please take a moment to subscribe wherever you're listening. It also sends a signal that helps others discover our podcast. So thanks for taking a quick moment to do that right now. And as a reminder to all business advisors out there, your clients are bleeding money on health insurance. Do them a favor so big they'll tell their friends about it. Show them how to give their employees access to therapists, doctors, and prescription medications that.

counterintuitively increases the company's net profits, real gains that can change how a business is valued. Contact us today at adbackbenefits.com. So last question for you, David. As you think about the work that you're doing now with TobinLaugh, what is it that you most want to be remembered for?

David Tobin (1:04:17)

Doing what's right. Doesn't mean the client's right, it's just doing what's right. Because what we do, I go back, it's so impactful to help owners, whatever number of years they've put into building their company, to help them turn that into whatever's important to them. It it's meaningful and I'm just thankful that we stand behind that core value in everything we do.

Anthony Codispoti (1:04:46)

David Tobin from Tobin Left, I want to be the first to thank you for sharing both your time and your story with us today. I really appreciate you being here.

David Tobin (1:04:54)

Thanks for having me, Anthony.

Anthony Codispoti (1:04:56)

Folks, that's a wrap on another episode of the Inspired Stories podcast. Thanks for learning with us. And if one thing stood out, put that into action today.

Connect with David Tobin:

Website: tobinleff.com