During COVID-19, many small businesses are exploring exit options, especially family-owned companies. However, according to today’s guest, Livia Jenvey, an Operations Excellence Expert at Jenvey Consulting, the reality is that nearly 80% of entrepreneurs and founder-owned companies will never be able to sell for the price they feel their business is worth. Join Christine and Livia as they discuss how to prepare for the sale of your business and level the playing field at the negotiation table. Be clear on how you operate, get organized, and be prepared!
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Your Exit Strategy Matters to Today’s Deals with Livia Jenvey
Welcome back everyone on the show, where we are dedicated to helping you, the small business owners level up your negotiation and change the nature of your negotiation. We are here to help you level your playing fields and find solutions to challenging and interesting conversations that you may be having with, whether it’s with your customers, your suppliers, your investors, or even your employees. Actually to be honest, a lot of times it’s even with yourself. Welcome and I’m so glad to have you spending your time with us. As I am always excited about my guests, because I love learning from my guests. It’s one of the highlights of doing this show.
We have Livia Jenvey with us. Livia has more than twenty years of experience in operational excellence. She has done work across the board for corporations, small businesses, founders, and working with C-Suite executives, the whole gamut. She has her own firm, Jenvey Consulting. One of the reasons why I wanted to bring her on the show is because she’s seeing an interesting trend in her work around a lot of businesses, especially in part, because of what we’re experiencing with COVID-19, is around exit planning.
As some of you and many of you who have been reading before, I often talk about what our exit strategies are. Those things influence our negotiation strategy. If you’re going to pass your company onto your family or somebody in your family, that drives a certain type of behavior that you want in your contracting and your negotiation. If you’re going to sell it to a larger organization, that drives a different type of behavior and different types of things that you want in your contract, etc. Livia, thank you so much for being here. I’m excited to have you here.
Thank you, Christine. I’m so honored to be here to do this episode with you.
Tell us a little bit about your journey. How did you get to where you’re at and tell us more about what you’re doing?
I was part of the early dot-com world back in the day, so working in companies doing a lot of the nuts and bolts, doing all that type of stuff. When you were in the dot-com, you wore many hats. I moved into working into the world of consulting and then working with clients, a lot of big public firms, Fortune 500, Fortune 100 companies, helping them with their operations to figure out what issues they were having operational-wise that were causing them to lose a lot of money. It would be either in organizations, departments, even across the board, throughout the whole company as well. I moved and started working with companies that were more in the private sector.
It was a different dichotomy to see based on how the public companies operate and the private companies operate, and how that there were certain things that the private companies that were doing that were impacting how they operated successfully. It was reducing how they were making money to their bottom line. That was a huge problem when owners and these privately held companies were looking to exit. They didn’t realize that there’s a lot of how you operate, which will affect the end result of the type of exits that you decide to have and also how much money you end up getting out of the exit as well.
One of the things that I’ve do a lot of work in, and it was interesting before COVID, didn’t talk a lot about exit planning. We had to negotiate the way we verbiage that and talking about that in the work that I do and the services in my company. Now post-COVID, we see a lot of clients coming to us directly to look into how to exit, because what I’ve found is that within the private sector, either they’re a family-owned business, or they’re a small group of entrepreneurs. They’ve been running it for a while. They’re very enmeshed in how it operates day-to-day. It’s trying to figure out how to shift on how you operate, how to be able to give yourself operational excellence that’s unique to your business that increases the value of the company, and gives you options for your exit. That’s where I found with a lot of companies is that their operations are stopping them to have various negotiations that are more in their favor or when they decide to finally exit a company.
Can you tell us a little bit more about that? Give us an example confidentially. I’d love to learn more about that.
One example was a client I worked with. They were three owners. They owned the company for many years. They were ready to exit the company. They were not going to be giving it to family. They decided that they wanted to sell it to a third party. They went out to the third party and presented the company saying, “We’ve been making all this money. We’ve got great products.” From an outside point of view, they looked like a good potential buyer for this third party. The thing is that when the third party comes in, they started doing their due diligence on how does the business operates. What they found is that the way the business operated was bleeding money compared to what they were making in revenue. The third party said, “We are willing to buy your company. However, we need you to fix how you’re operating.” Also, they weren’t going to give them the highest value of the dollar amount that they originally wanted. They lost in that negotiation to sell that company to that third party.
I see that stuff happen all the time. As you and I have talked before, I’ve worked in the mergers and acquisitions and divestitures space a lot. I started my career in that world. It is exacerbating to see companies who appear to be good company and got these great revenue deals and sometimes they’re not very well-contracted, which impacts your ability to get a higher selling price if you don’t have solid contracts, especially to your key customers. What ends up happening is a lot of smaller businesses get so enamored with the revenue number that they completely failed to observe that their profitability is taking a hit.
Business owners have an idea of where they want to take the company, but they don’t have a clear definition of how to plan that out. Share on XI know that’s one of the things that I focus a lot on whenever I’m negotiating. It’s like, “We’re not talking revenue, we’re talking profit. If you’re losing profit on a customer, you need a different customer. You need to find different places that you’re better off not having that revenue at all than taking that revenue at a loss.” When you’re in that situation, because the other part is, small businesses, that’s their baby. They’ve put their blood, sweat, tears, some people have lost marriages, lost homes. It is an all-in thing. How do you negotiate with your clients in that situation when they have an exit plan or they’ve come up with one and it’s not unfolding the way that they envision it?
Often what I find is that with the clients I work with, their exit plan is more or less in their head as opposed to it as a realistic plan. Also, what I tend to find as well is that there’s so much in how they’re operating that is so passionate-based that they tend to forget that there are certain ways that they need to take some of that passion out and focus more on the structure of how things are operating. What I find very often is a lot of work that we do is that a lot of companies don’t have time to do any documentation of what they do because it’s hard. You’re an entrepreneur.
You’re running a business for many years. You don’t have time to sit around and document what you do every day. “I got to fight fires. I got to deal with payroll. I got to deal with getting a new customer. I got to negotiate this. I got to do it with my suppliers.” Those are things that when they look at exiting, whoever’s taking over a company. It doesn’t have to be a third party. It could be the management team taking over. It could be the family members taking over. It needs to be transferable and it needs to be done in a way that’s simple and easy for whoever’s taking over to learn how to operate it day-to-day without any hiccups.
What tends to happen, what I’ve found in my experience, is that there’s an idea of where the owners want to take the company, but they don’t have a clear definition of how to plan that out and how long they plan to be there. They don’t have a clear understanding, especially when they’re transferring it to a management team or their kids. A clear example of understanding if they’re the right people even to take over the role and be able to manage it. Also, there’s the negotiation between those who are taking it over.
Are they going to be performing it and doing it the same way that you’ve been doing it? Are you okay if they change things around? What I find is that it’s how you operate day-to-day. If you’re used to doing it every single day, it’s easy to do, but can you teach others to do the same? Can they easily pick up and get it going to do it? That’s where the biggest challenges that I see that I find with a lot of the clients I work with. Some of them have a plan. As soon as we go through the details, they realize that plan is not realistic. We have to then negotiate with them about what’s a plan that’s going to make your end goal realistic based on what you’re looking to do.
What drives the lack of realism do you think is in that plan?
One of the biggest things I find is the biggest difference with a lot of businesses that are not focused on IPO-ing.
For those who don’t know what that is, that’s an Initial Public Offering. Somebody is going to do an IPO, they’re going to the stock market. We have a wide variety of readers, and I always want to explain the acronyms to people. Everybody who didn’t know, now, you know what an IPO is.
If you’re a company that is a private company and your goal is to become the next Facebook on go and make uber billions of dollars on the stock market, you have to plan an exit strategy at the start. You’re getting involved with investors. You’re getting involved with folks who are going to be like, “We’re going to invest some money in your company, but I want to know how long it’s going to be until I get my money back and my interest.” What I found is that with privately held companies who have no intention of doing that, they don’t have a clear exit strategy when they first start. Often what happens is that owners who are considering some succession plan, it isn’t until they’re exhausted.
That’s not a good indicator. If you’re exhausted, then you’re emotionally afraid. One of the things that I talk about a lot, especially in negotiations, whoever’s the most emotional or proverbial negotiation table is the one who walks away with the least. He gets the least of what they want because emotion, even though negotiation is inherently emotional and we are emotional creatures, the reality is the person who control the emotion at the table. If you’re exhausted on a level, then your ability to do that is significantly impacted. It will be easy for somebody to take advantage of you in that situation if you’re not aware.
Which to that point, that’s why the statistics out there are scary where a majority of owners about, I want to say 70% to 80% who tried to sell their company, ended up making not anywhere close to what they want to and not end up selling. Only about 20% make a successful transition, and if they’re selling a company, got what they’re looking for.
Is that in part? Part of that, as we’re talking about is out of this lack of foresight in terms of what a succession plan or an exit is going to look like. How is that going to unfold and doing the things they need to do to prepare for it. As a private company, if you’re selling to another private company, you still need to be able to produce audited financials. You’ve got to have processes. Depending on the size of the company, you may have to have a level of risk management that’s in place. There are a lot of operating controls that you have to have in place.
I was talking to somebody else who I interviewed. I won’t say who it was, but this person acquired a company. It was operating in multiple states. What they bought was not what they thought they were getting. They were on the flip side. They’ve had the business for a while now, but they felt duped by that business. It probably was one of the 20% that was able to get the value that they wanted because they had a buyer that wasn’t an informed buyer. If you don’t have all the things in place and you might be able to do that, but for the majority that doesn’t work. In addition, over 70% of acquisitions flop anyway.
For an owner who’s at the end of their ropes, they’ve been working 40 hours a day it feels like in a business for many years, some for decades. They don’t have a strategy in place. It’s forcing them to have a strategy in place. The thing is that within a company, you have a high likelihood of it going out of business because of either a disability, a death, a divorce, a disagreement, or any of these big things that can happen to us every single day. Your company has a 50% chance of being negatively impacted by those things every single day. Getting back to that question you were asking about like, “Why do owners not think about it?”
When I work with privately held companies, they started this business because it was something they were very passionate about, either a particular type or product that they enjoyed and saw the need and saw the desire of folks to purchase it. They love and enjoy what they do. They tend to more or less focus on the impact of what they’re sharing with the world. When it comes to working on them on the operational plan that’s related to how they’re looking to succeed and exit out of a business, it gets into that emotional state of like, “You’re not going to be doing this thing. You’ve been super excited and passionate about it for all these years.”
Usually, what I do in a lot of the work I do is base it on the risk because that’s the most fundamental thing that I’m looking to resolve very quickly in how a business operates. Not only if they’re looking at how to shift things around now because they’re looking to work with new partners, but also there’s a very high risk in how you operate if you don’t have a clear succession plan in place. It’s not a plan you need to engage in right away, but it is something to help remove that risk out of the company and it also helps you negotiate how you exit. That’s where I find is that, taking the time to create that operational plan that’s related to how you would succeed the business gives owners so much more power in how they negotiate.
I’ve seen owners who have a plan who were like, “I was thinking of selling the company, maybe ten years. I still got another ten years to go. It’s totally good.” We help them create their plan and they’re like, “I can do it in five years if I want.” They didn’t realize they had that ability. When they start to negotiate with whoever they’re thinking of taking over the company, they have stronger negotiation leverage. They can say like, “I decide to sell the company in five years.” I said, “Maybe I want to stay on as a consultant for a couple of years.” They have that ability to do that. The thing is I find is that, when you don’t have that in place, your ability to go to the negotiation table, you give the power to the other person.
We talk a lot about that in our training programs. I’m a huge believer in the need to have clarity before you go into the negotiation, clarity in what it is that you want and how important are those things to you, because those become the nexus of your entire negotiation position. Knowing all of the possibilities related to those things is equally important, because it’s the possibilities that a buyer, that your counterpart is trying to buy into. You want to know what’s important or what’s impossible for their counterpart so you can figure out what your trade-offs are. I love that you said that because it’s very easy for people to wrap their head around, “I want clarity on this little thing, this product that I’m buying. I want this product to work. I know exactly what kind of customer service I want.” When you start extrapolating that into this much bigger thing, in terms of buying companies, a lot of people have a harder time wrapping their heads.
I’ve done a lot of acquisitions and divestiture work. My largest deal was $2.4 billion. The thing is that, the process, the importance of having that operational plan, knowing what that exit is going to look like. If you’re doing transition services agreements, which are very common in acquisition situations, within an existing company where they’re going to bring the company, they’re buying underneath their operating umbrella, they have a transition services agreement. I’ve seen so many of those negotiated so poorly that it leaves unexpected costs, either with the seller if they didn’t plan that right, or with the buyer if they didn’t negotiate effectively. Have you done very much work in the transition services and that component of things?
I like to joke around and say that it’s like, “You are now a new family with new stepkids.” It’s like The Brady Bunch. It was getting the Brady’s all together to work simply and on how they operate, I see that a lot. I’ve seen companies I worked with where they bought another company because they were a mini competitor. They had some good products that they brought them on in, but the operations for that other company was baffling. The way that it could meld into the current company wasn’t possible. It was figuring out how to see what would meld in together, see how to shift around. What I find is that because owners are busy in the weeds of the day-to-day operation, it’s very difficult to step away and see what’s going on around you.
When you’re in the midst of negotiating with buying another company, there’s certain due diligence that needs to be a little bit extra done in the other company’s operation but some companies don’t necessarily look into it. Partially, they don’t have clear of how their operations are set up and how to match those two together or figure out ways how they can shift things around on both sides so they can mesh together. There tend to be more focused on like, “That product is great. That product is exactly what I need.” If they’re producing that product the way they’re producing it, it’s going to be easy for you to take on.
My last company also had been a client and then I started working for them. It was a fascinating situation because it was a carve-out from a large technology company. It was a product line wired oddly by a private equity firm. No operations went with this product line at all. We had to stand up everything from CRM to manufacturing and distribution and all of the no-contracts came over. We had to renegotiate all the contracts. That was my role. That’s what I did there is I renegotiated the major customer and suppliers, some of the distribution agreements and stuff. It was insane. The transition services agreement was horrible. It pains me. What was especially painful was when the private equity guys, one of them in particular, thinks he’s the greatest negotiators since sliced bread. I’m like, “Dude, no.” I kept looking at this damn agreement and I’m going, “This is a nightmare.” They spent so much more money than they ever needed to because they had not planned that appropriately. It was not an effective deal for them.
Whoever's the most emotional on the proverbial negotiation table is the one who walks away with the least. Share on XI would say contract agreements with other companies need to be very vetted before you’re looking to buy another product for that company. That is the biggest area that I find is where there’s the hugest risk when you’re doing that. For example, if you’re buying another product in the company and they have certain contracts with other distributors or warehouses, that may be only for them. They could be loyal to them. When you buy them on, they then become your competitor. I’ve seen that happen as well, because that’s where I find that there needs to be more of a shift in companies to not only think of in the private sector just revenue-focused.
It needs to be bottom-line revenue-focused. When it’s bottom line revenue-focused, that includes everything from your day-to-day operations to the type of contracts you have, the type of supply chain, suppliers you’re working with, the warehouses, and what kind of technology. I’ve seen where they’ve bought companies and the technology for the old one was super new. Their current one was not at all. There was no way to mesh those two together. They had tried to figure out ways to duct tape things. That was causing a huge risk because they were losing a lot of money because things weren’t being tracked correctly, operation from end-to-end.
That’s something that I get frustrated with people and that is the right term. Especially in small businesses, this is one of the reasons why I love the work that I do. Smaller companies will often abdicate their contracts to their lawyers. A lot of times, lawyers are not knowledgeable about the core business. There are some industries like the entertainment industry. I have to say that entertainment attorneys, define the business. They know the business. You do get specialists in every industry. This is not a blanket statement. A lot of small companies use more generalized attorneys to do their business.
Those lawyers are not steeped in the different risks related to operating that business from an operational perspective. I had this conversation one day, things around distribution. Many attorneys and attorneys that I’ve worked within companies, they’ll go, “We covered distribution risk. We’ll deal with a rep and a warranty and we’ll do the return rate. How does inventory get held? When does inventory get shipped? Is it freight on board? Who owns it while it’s in the transit process? Who has to do what at customs?” All these little things are operational.
I had a conversation when I was working with one of my clients. We were negotiating with a large telecommunication company. They had 3 or 4 pages of language around, “How do you do background checks? How do you do drug testing?” It was applicable that the way the contract language was worded, “Is that anything that you were obligated to do,” every one of your suppliers was obligated to do. I sat down with the head of HR and I said, “What kind of testing do we do?” “We don’t do any.” “Do we do these things in background checks?” “Why do you need to know that? This isn’t a contract.” “What do you mean this isn’t a contract?”
I said, “This is in every major corporation’s contract. This language is very common. It’s very standard.” In her over twenty years of working in the tech space in HR, nobody had ever told her that there were operational implications to her HR department based on the contract language for various customers. I imagine you see that all the time because the operational risk is huge in a lot of these contracts. Many business owners and smaller businesses abdicate that to the attorney, and the attorney won’t even know that operational risk exists and the business won’t have paid attention to it.
In regards to that, one of the biggest things I’ve seen is that when it comes to operational, having the right forms, right type of signature, right types of insurances, safeguards, and contracts in place, that is where I find that operational-wise, a lot of private, small businesses are lacking, even if they’ve in business for over 30 years. They have issues where I find that certain companies that want to do deals with a bigger public company end up losing those deals because they don’t have those operational contracts in place. The good and bad I find with small business owners is that they have a higher tolerance of risk.
It’s why they decided to become business owners themselves instead of working for someone else. They were like, “I’m okay with this high level of risk. I’m going to start my company and move that forward.” That could be good within the first five years where you’re getting out there, trying to develop things, but you need to quickly, even very beginning, get in the right type of contracts negotiated right in place. On an ongoing basis as your company grows, expands, shifts and change, or whatever new products, distributors, connections, or partners that you have, you need to have more contracts in place to protect your business.
When it comes to small businesses, they don’t have an in-house counsel, which is one of the biggest challenges. If they had an in-house counsel, they might be able to have someone more dedicated on how to operate day-to-day, what to meet, look out for some of these contracts. Also at the same time, it’s also being aware of how to prevent yourself from having higher risks with these things that you’re going to start to have negotiations with. That is where I find that I have to do the negotiation and working with the owners I work with. First and foremost, I’m helping them reduce the risk in their company. If that means that we need to get in someone like yourself, Christine, to help do these negotiated contracts that are better for the company, we need to do this ASAP because this is what is causing your bottom line revenue to be way lower than your actual revenue value is.
That’s one of the biggest things when I start working with a client, is helping to understand the difference between the top line and the bottom line revenue. They’re focused on the top-line revenue, which is great. If your bottom line revenue is not a good one, it is due to how your operations are running. It’s usually because there’s some high risk in how your operation is running that needs to figure out how to solve those problems and how to be able to negotiate with those involved, to make sure that you remove that risk as soon as possible.
One of the things that I see a lot and this frustrates, especially when I’m negotiating. I like David and Goliath’s negotiations. I enjoy helping smaller organizations level the playing field a little bit more with respect to large company negotiations. I worked for years with procurement departments in big companies, and I frustrate them now. One of my things is I won’t talk price right away. A big company has lots. It’s another telco. It’s not in the United States. I was negotiating a contract with them, hundreds of pages long. To be honest, this contract took over three years to negotiate. It was massive. They had an entire operating manual that was upended to the contract. It became part of the contract.
Whatever was in it, you were contractually obligated to perform. They don’t look at those things and they don’t see all the costs. Everything from, the box has to be this size, the label has to be put in this corner, the barcode has to be on top, the address has to be this way, you have to have this much tape on it, it has to be taped here. It gets crazy, the operational implications of this, and smaller companies don’t have the capacity to adhere to some of those things. In the desire they got to get revenue, they’ll take those deals and not acknowledge how expensive those people are, those customers are to service. It creates a huge problem for them.
From your gross margin perspective, or if you’re using a top or bottom-line revenue, you squeeze yourself. Your ability to recover from that is limited once you get into that cycle because a big company can eat you alive if you are not prepared. Getting a big account by luck, even if it’s not luck because you’ve worked your butt off to get it. If you’re not prepared, if you don’t have the processes and the systems in place to service that account, you’re going to be behind the eight ball all the time. You will never be able to catch up because they will continue to demand more and more. For most of us, their switching costs are pretty low. Their ability to find a replacement for you as a supplier is pretty easy.
I see it a lot. I see a company very often, see a big client, a big public company, and they’re like, “We will bend over backward to get this account. To have this brand name company as one of our top clients.” In the end, the smaller company is eating. They’re not making any revenue out of it. They’re eating it. They’re paying that company to use their logo for advertisement. It’s what it comes down to.
To be honest, that’s very rare. Most large companies, most Fortune 500s will not let you use their logo. They guard that because that’s their intellectual property. It’s their goodwill on their balance sheet. They protect that very carefully. If you are fortunate enough to get the coveted right to put their logo, a big company logo, on your website, that’s great. You better be able to track how much additional revenue you’re getting as a result of that logo so that you can directly say that this client is generating gross margin and net profit for me, or it’s not. If it’s not, loosen and move on. Figure out how to fill that revenue with higher-profit clients.
Unfortunately, I see they don’t do that. Some of them, that’s their whole presumption. They go after that client. They’re going to be able to get that IP. They don’t realize that’s not part of the negotiation process. In the end, it’s a total loss for them. They’re not able to say, “This is a client, they’re eating all the costs and they’re producing all this work.” You bring up a good point about the operational agreement. That is one thing that I often help clients document a lot of the time. I’ve worked with clients who are like, we haven’t had time to document and come through with how our whole business operates day-to-day. We had some of it documented, but we’ve grown, we’ve shifted. Sometimes part of that is they should be measuring X to this, or they should be doing this to this. They’re no longer doing that anymore because it wasn’t producing or wasn’t as productive doing it the old way. That’s not been shifted and changed and added into their documentation.
When they’re looking to sell to a company and they give them what they have, it’s a different way of operating than what’s provided to someone else. When that happens, the person you’re trying to sell to, they have higher negotiation power now because they’re going in to do due diligence and notice what you give them is not aligned to it. They have the ability to be like, “We’re going to give you a lower deal because you’re not doing what you provided me what you’re doing.” They can negotiate more to what they want to do. It’s a lot with the smaller owners having clarity of how you operate. Clear, precise clarity on how you operate is what is needed with a lot of small businesses. Having it set up documented, having people follow through with it, having the training, and having the talks and negotiations with all of the partners, suppliers, all those contracts to make sure that you’re doing that, that shift is the narrative. It allows business owners to have so much more power at the negotiation table when they’re thinking of exiting a business.
One of the things I’m curious to get your thoughts on this because I’ve seen a lot of small business owners fit. They live in a fantasy land of how they think things are done versus the reality of how things are getting done. How have you seen that unfold in the work that you do and how do you get business owners to connect with the reality of what their business is versus what they think people should be doing?
I see it a lot more than I would like to admit. It’s a natural way of things when you’ve been running a company as an owner for a while and you’ve been doing more of the day-to-day. As you build, the folks underneath you might see different ways to do things in the company that are benefited more. As an owner, because you’re hired dealing with more things, fighting fires, dealing with more other stuff, you may not get into some of the weeds of certain things. A lot of the work I do is when trying to provide operational excellence within a company itself, is to bring all parties together, to have them understand exactly why certain things are being done and what the benefit of those things are. Sometimes in those conversations with both parties involved, we end up finding that this new way of doing it is better than it’s providing more operational efficiency for the company. We find the opposite where it’s like, “No, this is causing more drag. Let’s shift it and do this other way.” We start to have more of an understanding of how we can shift it forward and how to be better growing across, because there are certain things that a company wants to do.
If an owner is deciding he wants to exit in about five years and also too potential, he’s looking at acquiring some assets to create a higher value within his company. If there’s no clear idea of how his company is operating and his team is operating in a different way, and they decide to buy this other company to bring in, to add a higher value into the company so that when he exits in 5 to maybe 10 years, that company increases the value. There’s going to be a huge problem and determining if that company is the right one to bring in. Maybe how they’re operating goes completely polar against how you’re operating, but you’d have no clue because your team has shifted things around.
When you are looking to do any negotiation, it’s being clear where you stand, first and foremost, is the most important aspect for owners in companies. For them to understand, “Where does my company operate? What contracts do I have? What ways that I am doing my day-to-day? Who are my distributors? How am I going to take my products from A to Z on a daily basis? How are people functioning day-to-day?” That’s where you, as an owner, taking the time to do your due diligence and how your business operates, is a way to give you way more leverage for whatever you’re looking to do with your company.
What I find is that there are so much assumptions that people have of like, “I assume this other company is going to be great, or I assume my son is going to be great taking over this company, or I assume that I can easily leave this company tomorrow and make several billions of dollars and go live on an island.” There are a lot of assumptions in place, but there’s no type of, “This is your assumption, but is the reality matching your assumption?” That’s what I find in operations. That’s where the gap often lies is, the assumption and the reality, there’s a huge cavern. Where I come in is helping go through that cavern to see what is down there. Is it on target to your assumption? If it’s not, it’s usually because there’s something that’s highly risky that is preventing it to go that way. Let’s figure out how to fix that as soon as possible so that when you are at the negotiation table, you know exactly what you need. You can be able to negotiate efficiently. This is where I find business owners who are trying to negotiate with bigger public companies often get bad deals.
Because owners are busy in the weeds of the day-to-day operation, they find it difficult to step away and see what's going on around them. Share on XBig companies do this too. Let’s make no mistake. This is not a small company phenomenon. It’s not exclusive to smaller organizations. I was negotiating with an oil and gas company. They had a piece of software that was a very expensive piece of software, $10,000 per concurrent license. A concurrent license proposes when more than one person can be accessing a license, but up to a certain limit, up to a number of licenses. They have 600 licenses. They had one week a year when they use more than 280 licenses. They were paying for 600 licenses. It was massively less expensive for them to pay the penalty for that one week of overage. They’d never done the homework. They’d made assumptions. They’d never asked, “Who is using the software and how are they using it? When are they using it?” They had never done that basic operational analysis to get clarity on what they were doing.
Whether you’re buying a company, whether you’re buying a product, or selling a product, I talk a lot about when you’re buying products, you need to know what your supplier’s costs are. You’ve got to know what your supplier’s costs and your cost are of using that product and everything. “How you use it, why you use it, when you use it,” all that. Otherwise, you go into all these things with assumptions. The person who has more knowledge about what the reality is, is the person who is going to be more successful in the negotiation and be able to capture more value. It also gives you the opportunity to find ways of creating additional value that you might not see if you’re looking at what’s right in front of you. I agree with you 100% on that.
I agree with you that bigger companies have these challenges, but they have the ability to absorb the risks.
That’s correct. That is the difference.
These smaller companies don’t have the ability. It can make the company go out of business very quickly. Coming from a world where I work with public companies and helping to figure out how to operate, I saw multimillion-dollars of losses a day just from small little things that they weren’t doing operational-wise. Every day, that one thing I worked on, it was a million dollars a day that they were losing because there was a certain risk that they weren’t fixing. The company was so big. They could absorb that for a certain amount of time and then fix it. That is something that for smaller companies could be detrimental for losing a million dollars a day. That’s one of the things that I find with smaller companies, they don’t realize how much money they’re leaving on the table and how they’re operating day-to-day. In fact, that is how they look to exit. What they do that endgame is that when working with them and helping them understand, “These are the risks that you have in your company right now of how you’re operating.”
I’ve worked with companies where we fixed this risk within a year. It took the value of the company and their profits and it doubled and tripled it just by removing that risk. That’s where the biggest thing is at. For a lot of companies, how you operate seems for granted sometimes because every day, you got to do it, got to get up, got to deal with the clients, got to put the stuff in. Even those things that are day-to-day and simple, you probably see it often in negotiations. It’s those simple, small negotiations. Those could be the ones that end up giving you the bigger value, the bigger income than you realize. You’re not looking at the nitty-gritty details on that.
That’s very consistent with my observation as well and what I see. You and I both do what we do because that’s something that we want to help smaller organizations change. A thing I love about you and me as well is that we’re very bottom-line focused. It’s like, what’s the bottom line? We appreciate the revenue. We appreciate the sales. It’s not the revenue that’s going to drive our business to longevity or growth. It’s the profit. Profit is going to drive us to be successful. That’s what we need to carry us forward. You and I have that common passion about profit. How do we make sure we’re doing something that’s profitable?
For me, I look at it as the value. I love working with the smaller companies because you brought up passion, their passion for what they’re doing. I love seeing good people make a lot of money. That’s my personal mission in life. I felt like I worked in a lot of big corporate companies and helped people, who are not necessarily the nicest, make a lot of money. When I started working with private companies, these are good people. They’re mom-and-pops. Some of them are first-generation immigrants, multigeneration immigrants. These are souls of the earth type of people. I love the folks that I work with and their passion for what they’re bringing into the world.
One of the things that is helping them understand is that your passion equates to a value that your customers are loving and excited to have. The problem is that you are devaluing yourself and your company by the way that you’re operating in this fashion. To your negotiation, it’s not a win-win and how you are doing business. Your customers are winning, but you are losing. Even when you’re thinking you’re getting a great revenue, the profits that you’re getting are not equal to what you’re giving out to the world. That’s where helping these smaller businesses and smaller companies and privately held companies increase the value that they get themselves, equates to making more revenue much easier. That is what they don’t realize. They’re so focused on that revenue. If you focus more on the value, the revenue will quadruple quickly.
When you think about all the things that we talked about, what are three things that you think that any business owner needs to know in order to move their business forward from a negotiation perspective, exit planning, operational efficiency perspective? What 2 or 3 of the big things that you think they need to know?
Number one is being very clear on how you operate. Getting into the weeds, getting clear, documenting it, and coming from a perspective of how you are operating. Knowing where you’re starting from is the number one thing owners require to do, especially if they’re thinking of doing some exit planning. No matter what time frame they’re looking at, that is the number one thing they should start to do. Number two is, once you have an understanding of how you operate, what are ways to remove the risk in your operations? These are probably the top two things business owners need to focus on. If they’re able to focus on how you operate and how to remove the risk, your ability to create a succession and exit plan that is going to benefit you ten times over after you exit the company and those assumptions that you want for exiting, that’s going to make that possible.
That’s what it comes down to for business owners is understand, get clear on how you are operating and remove the risk. Those are things that when you go to a negotiation table, that you know how you operate and you’ve got risks, and you can say and share like, “We do have these risks in these companies, and we are working on fixing these risks right away.” That does increase the value of how you look to a potential buyer of a company. It’s doing your homework as a business owner of like, “What’s going on in this business?” This is your baby. This is your passion. Check in with the baby and see how they’re doing.
That’s negotiation, know what you want, be clear on how you’re doing your business. That defines what you want once you have that clarity. Managing risks, that’s what a negotiation is all about. “Negotiation is nothing more than a conversation about a relationship and you can’t win a relationship.” You use negotiation as a way of managing that relationship, reducing risk, sharing in the risk, and evolving together. Thank you for that. How can people find you?
They can find me on my website, which is JenveyConsulting.com. Check in with me on all the services that my company offers. That’s a great way to connect with me. You can also find me on LinkedIn. Look me up it’s, Livia Jenvey on LinkedIn.
Thank you so much. It’s been an honor to have you here. To the audience, thank you for staying with us. It is always an honor to serve you and look forward to having you here with us next time.
Check out VennNegotiation.com for information about me, about what we do here to help you as small business owners elevate your negotiation. Get more of what you ask for and more of what you want. Thank you very much. Livia, thank you again.
Everyone have an awesome day. We’ll see you next time. Cheers.
Important links:
- Jenvey Consulting
- Livia Jenvey – Linkedin
About Livia Jenvey
Livia Jenvey is an Operations Excellence Expert with more than 20+ years of professional experience supporting business leaders in enhancing their organizational performance for increasing their business profits.
She helps Business Investors, Founders, C-Level Executives, Owners, and Management Teams determine the right small changes to make the most significant difference to their bottom line. All changes address how to increase operational performance to mitigate or reduce risk, manage the ever-changing dynamic workforce, cut costs, enhance productivity, improve leadership team skills, increase efficiency, and increase company value.
Helping business leaders implement smooth, measurable, and lasting process improvements for obtaining immediate results for gaining significant financial increases to your business bottom line today.
She holds a Bachelors Degree in Psychology and a Masters in Business.