Case Study #19: Happy to Take Your Call

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take your callIn 2003 Jill Nelson founded Ruby Receptionists to help small businesses provide a great first impression to new potential customers by providing an answering service.  

This could help the business who just needed one person to provide skeleton phone coverage or a growing firm that needed scalability over time.

She’s still in charge of the company today, after guiding the firm through a $38.8M acquisition by a venture capital firm.

The Subscription-based Model

Long before the Software-as-a-Service (SaAS) trend that we’re so used to these days, Jill was focused on growing a company in which the revenue was entirely subscription-based, and recurred monthly.  

In addition to a culture that fostered positivity (Ruby Receptionists are trained to always be positive-outcome-oriented with all incoming calls), Ruby had, from the start, focused on the technology side of the equation.

She made sure that they owned all their own infrastructure and even developed a mobile app which would allow their clients to track their incoming calls and messages and respond in real time.  

In fact, Ruby had proprietary technology that ensured a call never got missed and was always routed to a live person.

EBITDA vs Revenue

Believe it or not, Jill spent five years as a business broker herself before starting Ruby. Because of that experience, she was familiar with valuations and, while she wasn’t considering an exit in the near-term, she always assumed it would be on EBITDA, not revenue.

That changed when someone who wanted to represent Ruby in a potential sale came to her. They pitched the idea that Ruby could very well be a strategic acquisition, and hence be acquired for a revenue multiple, not an EBITDA one.

His argument made a lot of sense and echoes ideas that we’ve discussed here before. Not only did Ruby have all its clients on recurring contracts, but most of those thousands of clients were simply paying a few hundred dollars per month.  

Not only was it unlikely that a wave of them would quit simultaneously, but even normal churn could easily be made up by strong new sales. And since Ruby had developed such customer loyalty, churn was low anyway.

Maybe, maybe

Jill had taken the company to $11M in topline revenue and in the process had become somewhat of an absentee owner who was disengaged from the business.  

But the possibility of such a strong exit woke her up to at least exploring opportunities. She engaged with an investment bank to help Ruby through the process.

There was a fair amount of interest for what Jill had built, and over 100 NDAs led to 20 Letters of Interest, some of which offered as low as 30% of what Jill eventually got for the firm.  

Of those 20 she and her team selected six that were most aligned with Ruby’s values and vision and were in the uppermost range of offers.

They finally got to Letters of Intent with three of them before closing the deal with the firm that bought them.

Aftermath

As part of the terms of the sale, Shelley was originally constrained to stay on when the deal closed in 2014. But she’s still there today. During the process, she found that she fell back in love with Ruby and the work they were doing. 

In addition, she found that working with a venture capital firm could be a whole new professional challenge. She notes that the entire executive team the firm helped hire has taken the business and her performance to the next level.  

And what about one of the early believers in Shelley who made a small investment in the beginning just when she needed the capital? He got a 25,000% return on his faith in her.

Although Shelley had a business broker background, many business owners don’t, and even despite her expertise she didn’t choose to represent herself in the sale of her own firm. A broker can bring cool-headed objectivity to something that is often very emotional. Give us a call today to find out what kind of valuation might make sense for your type of business.

Is Your Business Overpriced?

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business overpricedHowever a business owner makes it to that critical moment when he or she decides to sell, it’s important to realize that this is the beginning of an entirely new process.  

Whatever amazing expertise he/she may possess in running a business, selling a business is something entirely separate.

More than anything, emotion can get in the way of one of the most critical elements of this process: appropriate pricing.  

There are many points to consider when coming to an appropriate price, but today we’re going to focus on three.

What’s Fair

Are your financials in order? Are you in good standing with the IRS? Anything other than a strong “YES” to both of these questions will point you in the direction of what you need to work on.  

You can’t truly have an idea of what your business is worth unless you know what your numbers are. And if you have buyers who will be seeking SBA funding, and your business will be priced over $350,000, you’re going to need an independent valuation. 

The first thing they will ask you for is audit-worthy financials. A valuation is a good starting point for figuring out a list price for your business.

What Will Sell

For buyers who aren’t looking for a strategic acquisition, the focus is going to be on the length of time for payback of the original purchase price of the business.  

If you take the amount of the business loan and account for some measure of reasonable growth against the financial benefits the owner of your business can accrue, you should have a sense of how long it will take your buyer to get into the black.  

Looking at comps (i.e. what other businesses in your category have sold for) will also be very helpful.

Market Conditions

This is something entirely out of either the buyer or seller’s hands, as there are things like interest rates or “confidence” that can’t be controlled. But it can dictate how quickly (or slowly) a business sells.

With the centuries of experience we have at Apex, we have a good sense not only of current market conditions but about appropriate pricing strategies to adapt to those conditions.

Remember that the ultimate goal of a seller is to sell a business. Apart from not having a business that is capable of taking on a new owner, a big reason that businesses don’t sell is that they price themselves unreasonably. Next, they get unflattering questions when prospective buyers ask why the business has been listed for so long.  

Be smart. Price your business appropriately to give you the best chance to walk away happy when the transaction is done.

Starting a Rotary Club from Scratch in Brookside/Waldo

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Waldo Brookside RotaryMany of our brokers are involved in giving back to our community. We will occasionally share some of those stories with you.

“It’s important to take care of where you live, not just your own street…but your neighborhood. You naturally want to improve it in every way.”

With an attitude like that, it’s easy to see why Steve Weaver simply saw starting a Rotary Club in the Waldo/Brookside area as something logical to do.  

For those who don’t know, Rotary Clubs are local chapters of Rotary International, a fraternal organization dedicated to positive community initiatives and worldwide change. (One of their recent worldwide initiatives was polio eradication. Due in large part to Rotary and the Bill and Melinda Gates Foundation, the disease has been isolated to Nigeria, Pakistan, and Afghanistan).

 There are quite a few clubs in the Kansas City area, but they were pretty “established” and in the mold of a breakfast or lunch meeting. By picking 5:30 pm on Wednesdays at Waldo Pizza as a meeting time, Steve and the other 52 charter members of the club were signaling that they were definitely onto something different.

After some time on the International Committee and as Sergeant-at-Arms, Steve currently serves as the assistant treasurer for this club. As part of the leadership team that helped to found the club in the first place, he had a chance to participate in a one-year program called Rotary Leadership Institute.  

While the program focuses on all aspects of Rotary and club management, Steve noted that he particularly enjoyed the classes on more effective messaging. Those classes helped people move towards action, as well as workshops on how to lead people with varying viewpoints.

While there’s currently some movement behind a project to build a park/community space in an area that formerly housed a school, the Club’s main community focus is their 7540 Project.  

The 7540 Project

Many people don’t know that, when someone is in foster care, the state takes care of a fair number of their needs. But at 18, they age out of the system and there’s no corresponding program to help in the transition.  

Unfortunately, this all too often leads to these young and vulnerable people becoming homeless, dropping out of school, and/or engaging in crime.

It’s always easy to complain about the lack of responsiveness of government. But rather than complain this club set up 14 apartments to provide housing and ongoing support to these members of the community.  

The members engage in mentoring, job training, and often come by for meals that they bring or help make. Far from just giving a handout, this initiative offers a “hand up”, and it’s already leading to some life-changing results.

To learn more about this Rotary Club and its initiatives, visit their website.