The Real Cost of Selling Your Life’s Work | Jamison West

Episode Topics:

• Learn why working harder actually makes your business worth less when you sell it.
• Discover the emotional landmines that can destroy your deal at the last minute.
• Understand why sellers always overvalue their business and how to avoid that trap.
• Get insider perspective from someone who’s been both buyer and seller multiple times.
• Find out what the current security shift means for MSP exit strategies.

 

Rick Jordan  

What’s shakin’? Hey, I’m Rick Jordan, and today we’re going all in. Today is a real treat for me, because this dude I met at a bar at an industry event a little while back, we had an amazing time. Turns out that he has built a company just like mine that just went public a bit ago, and he sold it. And he’s also been the co-founder of three SaaS companies, and he just wrote a book, which is so true, called Emotional Side of Selling a small business. And if you’re starting out in any type of business, you never really think about the exit at first, but it’s something to keep in mind, and we’re going to talk about that today, because Jameson West, welcome to the show. My man. Appreciate it, dude. I’m excited for our conversation because, uh, as I alluded to just a little bit ago, you know, when I started my MSP, which was 11 years ago. Now, at this point, I never really had, like, an exit in mind. And now, when I’m starting to talk with a lot of potential acquisitions, because we’re the first MSP ever that’s gone public, and we’re acquiring all these and every acquisition that I have a conversation with, there’s always emotions that are brought into it. Man, always absolutely, absolutely. And now it’s like my intro calls are never really about even though they send the financials over, and that’s in our standard document request, the first call is never about that. For me, now it’s always about what, what’s, what’s your reasoning behind this? You know, where are you at? Tell me your life story. Well, you know, and you wrote a book about this too, which is amazing, dude. Tell me about this.

 

Jamison West  

Yeah. So it’s interesting, like you, I started my my consulting business, because I wouldn’t have called it an MSP right out of the gate. It’s a one man band kind of a lifestyle business, really trying to help small business owners figure out technology before many of them knew much about it. So in the 90s, mid 90s, it was, it was a minute ago, and it grew and became a support company and eventually a managed services company by the mid 2000s and started to scale, I started to see, like, wow, okay, this is no longer about just me consulting and helping a few business owners. We’re really able to do something different as we grew, I saw an opportunity, and really started in 2008 but 2010 when it when it really came to be pretty heavily, that I can grow much faster through acquisitions. So my first foray in this world was really doing four acquisitions over 22 months, all in the Seattle market, which is where my MSP was. And we went from about eight or nine folks to 40 folks fairly quickly. And that was, you know, that was great. We really were able to scale up and do some some nice things. My first acquisition was great. The same one was okay, the last one was really bad. So I call it the good, the bad and the ugly. But I learned a lot in that process, and I had a lot of help, a lot of peers. I was in a peer group called HCG back in those days. Now it’s called evolve. Got acquired by ConnectWise, and I was very, very focused on, what does it look like to build, to build an MSP and break through that glass ceiling that, like E Myth talks about like 10 people. Okay, you know, it’s a really difficult thing to do. And ultimately, we recovered from that last acquisition that almost broke us, and I realized that we kind of got to the point where my passion was more in the consulting side or building side, and that kind of it had become a more operationally mature operational service company, not that I’d lost my passion for helping, but it did. It was it. I’d been doing it for 21 years, and I was ready to look for a change and to mitigate my risk of losing it, because I’d almost lost it through that last acquisition, and so I ended up selling and and ultimately I found a great buyer. I talked to multiple potential buyers, but I found a great buyer. Sold in 2016 and what I realized is all of the some of what I witnessed as an acquiring person from the buyers, kind of like you were mentioned about from the sellers, some of what I was witnessing them going through as they were thinking through the process, combined with all of the challenges I went through when I did my sale, the process I had to go through, I was like, wow, there was a lot of, there was a lot of there’s a lot of prep work out there. A lot of books I could have read about valuation, finance, legal, due diligence, but there were, there wasn’t a book out there talking about, hey, you’re going to feel like the baby you raised is part of your identity, that you’re selling it, and there’s the you’re not going to be you’re going to be making different decisions in your business. Who can you tell about it before you’ve signed on the dotted? All these challenges. It, you know, was there some legal issue that stops it right in the 24th hour, all these things that were potential challenges for me that I was not well prepared for, and I didn’t really see a resource out there. So that’s what I decided to write about.

 

Rick Jordan  

That’s awesome, man, I’m excited because I’ve already ordered mine, you know. And there’s a reason, because I just had another person on the show who wrote a book too. I have a lot of authors on and they’re like, did you read the book? I’m like, No, and that’s intentional, because otherwise I tend to be a little bit more commandeering in my conversation, and I might just talk more than you, which is not what I want you know, because I want to spotlight you. But I’m excited to read it because it’ll help me dive into the psyche of everybody personally that I’m acquiring, you know, because it’s, I don’t do that from a position of, you know, I want to be able to go through the process easier. I want to understand, really, where they’re coming from, so that it can be a fair scenario, you know, so that we can really meet, because it would really bum me out, dude, you know, coming from the position of a buyer, and you’ve been in this position too, when you’ve acquired it would really bum me out if we went through sale, closed, no problems, and that individual didn’t really achieve what they wanted to achieve out of that. You know, that’s not what I’m in this for. I’m in this to for a win, win, and even more of a win on the seller side than I am. For me.

 

Jamison West  

Yeah, it’s interesting. The challenge is, is that a lot of folks are going through this and selling, you know, they’re coming to grips with the fact that, you know, there’s probably, you know, companies you’re acquiring that have owners, have maybe done this for a very long time. Our industry is pretty fraught with people who’ve been doing this for 20 or maybe even 30 years, like I own mine for 21 years, and they may believe it’s more valuable than it is, but it’s always good to check and know and is it enough to retire. So there’s all these kind of things this, these realizations that they go through in the process, and they need to be very, very careful, to be super clear around what’s the outcome that they need to be happy with the situation when it’s all done themselves through, you know, negative paces. So no, it’s great that you’re thinking that way. And it’s necessary to find the right buyer. Right for sure. You know, from a selling perspective, and finding the right buyer was really important. I had to find one with integrity. And I was fortunate, because I, you know, I really wanted to make sure that the folks I was selling to, we’re gonna, you know, live up to their word with me, do the best. Think, I mean, you can’t promise your employees are gonna stay, but do the best for the ones that were the right fit and and take care of the clients and all that good stuff. So that was really critical.

 

Rick Jordan  

Yeah, you mentioned one, one thing in what you were just saying that, you know, where the the buyer all or the sorry the seller always feels that they’re worth more. You know, you said it in, in not so many words, that it was, uh, typically speaking, there’s a lot of emotion that drives that too. Do you touch on that in your book?

 

Jamison West  

Yeah, absolutely. I mean, I think that you so a couple of things come to mind. First of all, a seller thinks that working really, really, really hard drives value in the business, but what drives value in the business is revenue and EBITDA and process and maturity and client contracts, and if they’re having to work 100 hours a week, that actually devalues the business. And it’s something that I coach my clients is like, how do you make a sustainable, scalable business that if you’re requiring you to do three jobs, that an acquiring party is going to have to hire three people to do your job like you’ve got to so you’ve got to kind of get to that. You’ve got to create some operational maturity and have some intent there. So I think one thing is that people mistake hard work for value, and it’s not. The second thing is, I think that a lot of you know, I find that a lot of sellers really believe that they can look at a couple statistics and say, This is what my business is worth, but values in the eye of the beholder, right? You I can’t determine what somebody’s gonna pay. I can’t say, buy this coffee cup for $50 you’re like, I’ll give you five, yeah. And I’m like, you’re like, what’s worth five? So guess what it’s worth? It’s worth five because you got it tell you what it’s worth. You get to tell me what it’s worth. And, and so there is, there, you know, there’s some emotion in psychology behind that, and it means that you’ve got to, you know, you’ve got to really be super clear around, you know, what your expectations are, what you’re what you what you’re willing to accept and be super clear about that before you enter a negotiation or have these conversations. 

 

Rick Jordan  

Yeah, right on what’s a good way to navigate that? And I’m actually going to use a story here, because I’m curious. I know how I am navigating this one right now, but in an example, because you mentioned that gap, and I see this a lot in our industry, too, because with MSP. Specifically, you know, it’s really cool that you have both sides of the coin where you’ve been an MSP and you’ve been in SAS, right, yeah, and at one point in time, valuations are what an MSP is worth. Was looked at very similarly to SAS before, you know, and those types of multiples and multiples are way higher for SaaS than they are for for MSPs. And, yeah, I’ve seen this to where it’s like that, that ideology still exists in the mind of some of the sellers. So I’ve looked at one the other day, and it was like, it was like 2 million in revenue, right? And it was like, Cool. So if I’m looking at your EBITDA, if I’m looking at your seller discretionary earnings. You’re worth about 1x your revenue, which is fine, which that was like, maybe between four and 5x the EBITDA of the MSP, which was perfect. You know, that’s that’s where you typically see where these things are at these days. And he’s like, yeah, no problem. He’s like, You know what? But I need four Time out. Time out, yeah, yeah, exactly. Yeah, right on. And to your point, with the coffee cup, I’m like, Dude, how do we bridge that gap? He’s like, Well, I’ve been talking to private equity companies. I was like, oh, okay, you know, because what’s your experience there? You know, with those? Because I’m sure you had these being a seller too, right?

 

Jamison West  

Yeah. You know, it’s interesting. The multiples do feel a little higher, right? Now, it’s hard to get into value. So again, it depends, it depends on, depends on exactly what you do, because the makeup of every MSP is there. If you’re super heavy on product and TNM and project revenue, your multiples likely a little lower than if it’s recurring revenue. How strong are your contract? There’s all these. Another big part of it is, what’s your revenue and what’s your EBITDA? Not so, yeah, four to 5x EBITDA. Great. But that, you know, I did that’s been kind of three to five has been there for a long time. That number goes up as the revenue and the EBITDA percentage go higher. So if you can run a more profitable company, and if you can run it on more revenue, that multiple gets higher, right? So private equity companies are not looking at $2 million revenue in the speeds, yeah, most of them have a $5 million revenue minimum, private you know, for, you know, and then you kind of become a platform company at 10 or 20 million and then you’re EBITDA. You’re even, then your multiple goes up even higher, but it’s usually based on multiple of EBITDA, not revenue. So it’s been really, really interesting. You know, in our coaching at connect strat, I mean, this is what we help owners figure out, like, what, what does it look like everybody’s going to exit their business right one way or another some point? Like, how do we get really intentional about what that needs to look like for you? How do you want to do it? Do your employees buy? Is it selling to VC firm or somebody else? Is it, you know, is it are you giving it to your kids? Are they inheriting the business? Like, what does it look like? When are you gonna leave? What does it look like? What does it need to be worth? How are you gonna structure the deal? And, you know, people come into eyes wide open, that’s great right now, what we find there was a lot of folks, and what I kind of write about in the book a little bit, is a lot of folks are just kind of seeing another massive pivot in the industry with new risks and security and all these things that are happening, and they maybe don’t have the energy or technical prowess to navigate this new change. So they’re looking either being more opportunistic than intentional, like they haven’t spent the last five years building a sellable company. They’re like, Wow, maybe, maybe this is something I should be considering, right? Yes, the industry is changing.

 

Rick Jordan  

For sure, it’s a good out, and then that happens across industries too. But that’s how would you describe that? Because that’s a that’s almost like an awareness, right, which I guess, is generated by an emotion as well. What drives that? Because there’s some that I feel that have blinders on, right? Some sellers, no matter what industry in you’re in, they have blinders on as far as what’s going on in their own industry and where the shifts might

 

Jamison West  

Yeah, so you’re talking about, like, the kind of shift in model, and what’s happening right now. I feel like, you know, so if I go back into my I started my business, I said early 90s, and first or mid 90s, first big shift for me was, I didn’t start as an MSP, it was more consulting material, right? And then our first big shift was like creating a recurring revenue model for our managed services, which happened in mid 2000s for us, everybody different timelines, we were kind of on the earlier edge, not scary early, but early. And then the next big pivot for us was, Wow, we don’t need servers and workstations anymore. It’s all cloud services. So for us, we were way earlier on that than most, because a lot of MSPs still aren’t there. But we did that, and call it, you know, the mid teens. You have 2013, 1415, we were really in the midst of that cloud services bit. Now it’s security, so it’s just it. For me, I was very, very in tune with managed services and cloud services. I was aggressively ahead of the curve doing my, you know, a lot of value in the business. Yeah, if I were in the MSP services business today, I would, if I had the right revenue in EBITDA and I, and I’d planned, Well, personally, it was just me personally not staying for any other MSP owner. I’m not as adept or well versed in what’s happening in security and threat landscape as a lot of folks out there that come from a more technical background, so risks still higher to me. Clients have had their insurance rates triple this year, like my MSP clients been it’s a it’s cybersecurity is the thing, right? So, so it’s been interesting for me that that would have been a trigger for me to potentially look at mitigating the risk of this business, yeah, and others. It’s not mitigating risk. It’s a massive opportunity because they’re well versed in it and excited about tackling the problem. So it all depends on your skill set and confidence.

 

Rick Jordan  

For sure, it is very similar, from what I can see, when there was the big on premise, the cloud shift A while back, you know, and there was a lot in our industry that were very hesitant, you know, it to move to something that was cloud based, and it wasn’t the deep rooted fear, man. Wasn’t that the cloud was not safe. The deep rooted fear was just the fact that the industry was changing.

 

Jamison West  

Yeah, how do you deliver? I mean, for a lot of folks, like something as simple as their pricing model, I’m charging clients per server now there are no servers, and they’re moving to the cloud, and it’s like, I don’t know how to price that. I’m not a deliberate value. We used to show up at somebody’s site with screwdrivers and wrenches, and now all of a sudden, we’re selling office 365 and tell them, I don’t know, I’ll put it in a ticket with Microsoft. Like, where’s the value in that? Yeah. So the mentality, or the shift towards, what are you delivering? There’s a big pivot for a lot of folks who weren’t already delivering some higher consultative value, because that sticks no matter what. Yeah, really move towards just a support system, and a lot of those needs have changed, yeah, significantly.

 

Rick Jordan  

For sure, man, for sure. When you went to sell back in 2016 or you probably decided before then, you know, but actually, that’s a good place to start. How long were you thinking about your exit before you actually did?

 

Jamison West  

So I, you know, I had started, it’s really, I had started to think about building something I could sell in probably 2008 like, how could I build something that’s sellable? And I hadn’t made significant progress towards those acquisitions were definitely which was 2010 to 2012 Those are definitely engineered to create revenue and EBITDA that would support a more interesting profile to a potential inquiry. And I believe that most of the decisions that we make to increase the value of our organization. Are the right decisions for the business, not all of them, not all of them every day, but most of them right, like you could also, you could also really destroy a business by being too aggressive and cost cutting and all those things. But by and large, as long as I have longevity and scalability. In mind, those decisions I make to increase the value of my business is the right decision. So that was a mindset shift for me just start building a scalable, profitable business and figure out how to grow and grow and grow. And I just added acquisition to organic growth to my strategy.

 

Rick Jordan  

That’s cool. That’s really cool. I like how you hone in on this. And you know, to pack it in a couple words, it’s almost like, almost any decision you make is going to be a good decision for your business, when you look at it that way, because it’s going to generate either revenue and or profit, right? Either one of that is going to be a good decision. You’re right. There’s a couple bad ones that you might be able to make if you have certain cost cutting measures, but anything that’s focused on growth, and as we were looking at the last two years too, it was, I saw it as a lovely time. Man, because so many were pulling back and going into what you’re you’re describing as these cost cutting measures, as a time to double down and focusing on growth. Man, that’s the way to go, anytime.

 

Jamison West  

Yeah, COVID was COVID created some interesting opportunity. I think a lot of people, there was a lot of fear in early 2020, right? And people were like, what’s going to happen to our industry? And really, we were fortunate, right? The technology industry was impacted positively, not negatively at the same time. And other people did have a temporary negative impact, because clients, especially if they were in certain verticals, were hit in the early part of 2020 but as they recovered, and most at the vast majority of MSPs, didn’t get it too bad, they also potentially got some PPP money and some other things that really helped bolster their business and the smart ones really they didn’t hoard it. They invested it. It, and it’s been an interesting I’ve seen some significant growth out of some MSPs over the last 18 months. It’s been pretty interesting to watch how they’ve kind of leveraged this all as an opportunity to shift their model, do more virtual work, hire people who weren’t in their local region. It’s been interesting.

 

Rick Jordan  

Yeah, it’s been really cool to watch, man, that fear, I think a lot of a I don’t know, because I haven’t read your book yet, but where were some of those key moments to where you’re like, Am I making the right decision in selling my business?

 

Jamison West  

Oh, yeah. So you kind of getting into the into the book a little bit, and I’ll describe a little bit about the book. It’s written as a fable. So the first two thirds of the book a kind of be myth type style Bob burger, or, you know, Patrick buncion, he writes in these fables, these fictional stories. And it’s loosely drawn off my story and several others, like lots of people I we talked to and interviewed, and we borrowed little nuggets from all them to make this fable of an individual going through the sale of a business, right? So that’s two thirds of the book. It’ll resonate with. And it doesn’t have to be, IT services or managers, it just happens to be, but any small business where it’s like, wow, you know, I’m it’s getting a little risky, or I’m getting a little tired, or all these things happen, right? And there are several components that you know that our Alex, the CEO of our company, the proprietor, runs into over the course of owning his business. That happens to be, you know, loosely based my boys and my sister and I use family members as character names. It. You know, runs into several components, like starting to be more closed door, a little less transparent with their people, because they have to hide what they’re doing if they’re going through the due diligence or loi process, not making investment decisions like not paying a bunch of money for marketing or internal infrastructure, things that don’t have direct revenue type, because ultimately, if the sale goes through, that’s just money out of the owner’s pocket the buyer may not even care about Yeah, but when the owner has always been super transparent, ready to invest in those things and just stops without telling anybody why. Everybody starts wondering, What the heck is going on. So that was a, that was a really, I just had another conversation with a friend about this. That’s a super, super common problem, like all of a sudden, behaviors, transparency, decision making, change dramatically out of the owner and he’s trying to hide, he or she’s trying to hide. Why? Not out of a lack of integrity, but because you just don’t go tell everybody in the business? Yeah, I’m kind of thinking about whatever. I’m kind of thinking about selling. It’s puts the fear of God in there, sure. Right? So, yeah. So those types of things are very, very tricky. The other other things that happen, you know, you can get whittled down you have a price in mind, but through conversations or due diligence, there’s these little things that start to nip at the nip at the amount that you had in mind, like, oh, the company was paying for my car in my home office and my all these things. So those things that can be pretty challenging as well. Yeah, so it’s, it becomes, it becomes quite interesting. We’re trying to figure out, like, how do we, how do we, like, mitigate all of these potential issues. Another one that came up for me was in the 24th hour. There was something kind of buried in the legal needs of the agreement, that there was a possibility might guarantee payments, because I had multiple components to my exit could actually go down if we didn’t meet certain thresholds, but I wasn’t going to be in the business and had no control. Wow. Okay, scared the Jesus out of me, right? So those types of things became very, very problematic.

 

Rick Jordan  

Kind of like an earn-out that you have zero influence over.

 

Jamison West  

Yeah, right, because, and it wasn’t a lack of integrity on the buyer side. It was just mitigating every in my case, it was mitigating some bank covenants and whatever we figured out a way around it was okay, but all of those things were potentially dangerous to me. And as a seller, I was emotionally invested in the outcome as soon as the conversation. So it is right in the fable. This is what I talk about. This our, you know, our guy starts thinking about it, and this is going, Wow, what would that do to my life? Oh, my God. How would that change? And now, oh, and all these decisions they start making in the business at home, and then just mentally, they’ve started to like it. Put themselves in a vulnerable position where they more or less committed to it before ink set paper, until he gets paper. It’s not done. It’s not done, right? We can talk about it and be hopeful that you can really. Yourself in a scary position if you if you aren’t careful, yeah, for sure. The last third of the book, I went to six people who I’m close friends with, who’ve been through this through sales of their businesses. And we have case settings, so it’s, it’s an you know, so the first third is the favorable last third is this non fictional account of six different folks who’ve sold their businesses, and all of them kind of describing some major emotional moment that may have or possibly did or nearly upset the apple cart in terms of their transaction, and suggestions on how they may have mitigated that, or what they did about them. So there’s a it’s really, really helpful for somebody thinking about a sale to go, wow, I can really prep myself in a way that puts myself in a strong position and prevents me from fully experiencing that emotional roller coaster.

 

Rick Jordan  

Yeah, no kidding, man, it’s good to have an advocate on your side, too, for something like that, because I see in our industry a lot of MSPs, but I’m sure this is the case for a lot of small business owners who are looking to sell. Looking to sell. They have not engaged with the broker, and they don’t even have, even necessarily a corporate attorney that can work through the the purchase agreement with them. They’re just kind of soloing going in alone. 

 

Jamison West  

That’s a little, Yeah, I would, I’d be really nervous to do that. I you know, my sales and my acquisitions, I used a broker in my sale, the same broker I used in my acquisitions was on the other side of the table, so I worked the same broker through all five transactions. It just one time I was on the other side because they were only buy side. When I sold, I used my CPA, my attorney. I didn’t use a broker to sell. Yeah, there’s perfectly content with that. I didn’t I liked, I like that methodology. I knew kind of how, at that time, I knew who the players were, who were potential acquire targets. These days, if I had a certain amount of revenue, I would probably talk to if, you know, if I were exceeding the $5 million revenue mark, I’d probably talk to a broker, yeah, because the it’s less localized now, people are looking everywhere, and you kind of get to that size where you could be a target from anybody globally. So that it’s hard to find that as an individual,

 

Rick Jordan  

For sure. You also had a lot of experience with that going through the acquisitions yourself, too. So you had to, you had a good education around what the marketplace looks like, how the structure of a deal goes everything from from nuts to soup. You know, it’s just it was a good breadth of experience you had in those two years. So I would say for you, you weren’t walking into it blind when you were looking to sell. You had been through the process on the other side of the table already four times.

 

Jamison West  

Yeah, absolutely, yeah. It did help very, very much. So that’s absolutely.

 

Rick Jordan  

Yeah, that’s cool, man. You just sold another business too, didn’t you?

 

Jamison West  

I did. So, you know, after, after selling my MSP, I’ve been involved in three different SAS companies. One was team addicts. I spent a couple years with my co founder, and that I ultimately divested myself with that venture, and my co founder still running that he was in Seattle. It was a great project, and it’s still alive and pumping. But the other two that I was involved in, both of them were kind of co founded with Brad Benner. He actually owned the first MSP. I acquired, brilliant guy, all his ideas. So the first one was smile back. There are a series of mini projects after I acquired his MSP. And ultimately the one that stuck was a customer satisfaction survey type platform and reporting platform, which was rebranded as smile back about seven years ago. Wonderful growth. Great time building that company. I was a fractional CEO. I was kind of the only person in the United States. Our team was principally out of Berlin, and ultimately it was just the right time. We had great team assembled. The guy was running it was, you know, Brad wasn’t principally operating it in Berlin anymore. So we had a general manager who’s doing great work, and there’s just a great symbiotic relationship with ConnectWise. They were quite interested, and we announced the sale a month ago. That’s so cool. Yeah, ConnectWise acquired smile back, which was great. I now am also chairman of the board, and we have a couple of great go have a couple great co founders. There’s three of us that are founders. We have about nine or 10 additional staff at times us, and so we do scheduling for managed service providers on multiple PSA platforms and office 365, and kind of like this, similar to Microsoft bookings or calendar or something like that, but deeply, deeply integrated to the managed service provider experience, which none of those tools do well. So that’s, that’s our it’s, we’re really very, very focused on the workflow of an IT services. 

 

Rick Jordan  

I love it, man, and your unique insight too, because you, you. You had an MSP. You acquired four more during that process, too. You’ve been on both sides of the table now, at this point, from MSP and vendor, everyone who’s listening, whether you’re in it, whether you’re an MSP or just a small business, you need to buy Jameson’s book. The dude’s amazing and just has incredible insight. Dude. Jamesonwest.com, can we get your book there?

 

Jamison West  

Yeah, absolutely. That’s the best place to find me kind of points to times as an extract in my book. So so you can find all the stuff I’m doing right in my books.

 

Rick Jordan  

That’s cool. I love it, man. Thanks for being on. Dude. Really appreciate you.

 

Jamison West  

Absolutely. Thank you!