Tom (T): It’s important that we’re measuring a win the same way the seller is, which is ultimately a wire into their account, not an offer and not a contract, not meeting some interesting people, not a listing. What really matters in the way we measure a win is when we close a deal and we fund our sellers.
Lexi (L): That’s Tom Howard, who’s been working as a broker for the last decade, helping founders sell online businesses. Tom runs the Cornerstone team, Which operates as a franchise under Website Closers. I asked him a whole bunch of questions so that you can decide whether he’s the right broker for you. Here’s our conversation.
Can you give some examples of types of deals that really light you up, that you really love working on? Even if it’s a few that you’ve actually gone through that you’ve enjoyed brokering.
T: Yeah. There are some categories that I feel like we’re really successful in including supplements, home goods, pets, children, business services. We’ve done really well at all those. I think, for me, the deals that I’m really interested in and really light me up are where the founder has a great story. And I can understand not just their story of what’s happened in the business, why they started, and what their journeys look like, but also what they’re trying to accomplish through the exit.
Sometimes it may be a distress where they need to do something else or they need to relocate or there are some other life events. Oftentimes, it’s for financial security, which is great to be able to jump in and help with that. It’s humbling to be able to be a part of that.
Other times, it’s for retirement. There are situations where sellers have taken the business as far as they can and they recognize that and they want to hand it off. But whatever their situation is, their motivation and their story, that’s what really lights me up is really understanding and being able to come alongside them and help them to accomplish that.
I think particularly the financial security piece. We say sometimes our business is making millionaires not selling businesses. There’s nothing more satisfying than helping someone who’s put their blood, sweat, and tears for years into a business and built an asset to actually convert that equity into cash and diversify themselves oftentimes.
Especially the sellers we work with, which are generally founders. Oftentimes the vast majority of their net worth is wrapped up in the business. No matter how successful the business is, that can be kind of a scary place after a while. The bigger it gets, the more risk that you have. And it’s all in one, in one bucket. So helping them diversify and kind of take that next step is very gratifying and satisfying.
L: Yeah, I can see that. And that’s kind of how I think about what we do too. So it is really meaningful work on the individual level.
Can you share an example of a founder that you’ve worked with that has done something in their business? So that maybe you’ve helped them in some way, maximize the value ahead of the sale. Is there anything that we can learn from ways that you’ve helped founders?
T: Yeah. there’s lots of examples. One in particular, a recent one, is a lady that I helped sell a pet accessories business. I think the first thing that she did right was she picked a really specialty niche and she focused in on that. She sold harnesses, vests, and leashes specifically for service animals. So that differentiated her product. And what that means is they’re heavy duty. They’re quality products, but they also have the ability to affix a patch. So it says “Service dog” or “Don’t pet,” or whatever message. Those are interchangeable. Yeah. It was a really neat business.
As is often the case we started working together well in front of when she was ready to go to market and some of the things that we did were make sure that she was selling on multiple channels and we wanted to make sure we highlighted that and that we showed that the business was actually performing across Amazon, across her website and across Chewy, which is a wholesale account. She did a really good job of formalizing and cleaning up her standard operating procedures, which made transition much easier.
I think all of the things that she was doing and that we helped her refine ultimately reduced the risk for the buyer. And when we can reduce the risk for the buyer, then we create more value. There’s a definite relationship between the risk, the perceived risk of the deal and the value of the deal. So, a buyer is going to be willing to pay up for a deal that they see as more stable. Having multiple channels, having clean financials, having growth—all of those things are going to reduce the risk for the buy side.
L: Yeah. You mentioned that you worked with that founder a while in advance of the sale. Is that common? How often, how far in advance would you—if you had your dream world here—how far in advance would a seller get in touch with you to start thinking about a sale?
T: Yeah, it’s a great question and it varies greatly. There are definitely times where we meet a founder in the morning, sign an engagement in the afternoon, and go live a week later. It happens all the time and that can happen on any size business. There are other cases where I’ve worked with a founder two, three years in advance. A lot of times, what we’re doing is kind of backward engineering. In an ideal world, if we can connect a year in advance, six months in advance, I think that’s just about perfect.
I’m launching a very high profile deal on Monday. And we’ve been working for roughly six months. I think we initially spoke about a year ago and we’ve been working diligently over the last six months, getting everything ready and prepped and positioned properly. But yeah, it can vary a lot. And when I mentioned backward-engineering into it, sometimes we’ll meet with a founder and there’s a gap between what we see as market value and what their expectations are. And so there’s a lot of times there’s an exercise where we’ll back-engineer into their expectations. So: What would need to happen in the business? What metrics would we need to see? What would the growth trajectory look like and what would, how much time do we need to get it to where they want it to be, to be able to reach their expectations?
So those tend to be the longer sales processes, and I think that it’s something that makes us unique is that we’re willing to do that willing to come alongside founders and work with them strategically to make sure that they’re reaching what their expectations are and their needs for the business from the exit.
L: Can you tell us a little bit about your team?
T: Sure. The team is a franchise of Website Closers. Website Closers is a franchise system meaning that they provide us with administrative resources and support. But we operate very autonomously as a team. The team is made up of four of us. There’s three brokers and VA three brokers or myself.
Gwynne Sylvester, who has a very strong background as well. Gwynne was a lead buyer for one of the largest aggregators in the industry. She did that for several years. I think she participated in 70 plus transactions within the e-comm space.
Then Andrew Castaldi is the other team member. Andrew has managed a hedge fund for 10 plus years. He brings a lot of financial, a lot of deal making and banking experience.
L: Can you tell us a little bit about your background? Like, how did you get into this? How did you become a broker?
T: Yeah, I’ve done it. I’ll start with what’s most relevant. So the most relevant part of my background is I started some small businesses, grew them, and exited them. Most of those, the three key businesses were in either technology or financial or some combination of technology and financial services.
The first couple of deals I did myself. I represented by owner. In the last company that I sold, which was a company my wife and I founded, I hired a broker and it, one, made a huge difference. It was just much easier for me to focus on running the business and let the broker focus on the transaction.
But, secondly, it got me very interested in brokering. I think I realized somewhere along the way that I really enjoyed the dealmaking, the financial analysis. I actually even enjoy the negotiation piece of it. I realized there was a time in my career where I liked to start up. I’ve moved past that now. I don’t want to do a startup. I really enjoyed the exit and the whole process around exiting. Not a big fan of the in-between, the managing the day-to-day and managing employees. So when we sold the last business, I had some runway and some bandwidth and thought I would give it a try. And here we are, I’m nine years into this. $400 million in closed transactions, roughly 130 plus deals. And yeah, I just never looked back.
L: Is there any advice that you find yourself giving to founders again and again, people who want to sell, like advice that you would give them if they’re thinking about selling?
T: Yeah, there is. There’s a lot of things that come to mind, but the two that probably stand out the most would be books, clean financial records. And so this is not a priority for a lot of founders. I get that. They’re growing a business and they’re pouring themselves into sales and everything else in operations, but it is an important piece of the puzzle and we can help.
But I think investing in a good bookkeeper or as you grow into a CFO or interim CFO, and a CPA, and having good books is a key. If you haven’t done that, I think it’s fine. We can backtrack and we can fix it and we can bring in the right people. But it is something that is needed.
The other thing that I think would stand out would be focus. One of the first conversations I have is with the seller and a founder is: I want you to focus on the business. Let me focus on the transaction. Let me do the heavy lifting. Don’t check out of the business. Don’t make decisions that are short-sighted. I need you invested in the business and continue to operate and perform. I even want you invested in your buyer’s success. The things that you need to do for the buyer and for the business are one and the same. So, usually that’s something that I always cover.
The last thing I would just say is make sure that you’re working with a broker that understands your goals, understands what you’re trying to accomplish, and isn’t just transactional—has been there, has the deal experience to navigate so that you don’t have to, and you’re freed up to to continue to run the business and make sure the business is performing.
L: Yeah, that’s, that’s actually a really good, important point because whenever we interview founders who have sold, we ask them what the most challenging part of selling the business was. I’d say probably 75 percent of folks say running the business, continuing to run the business and making sure that it does well while selling the business. They’re both two big jobs.
T: Yeah, absolutely. It is. Honestly, that’s a big part of how I became a business broker. The first or the second sale that I did, I represented myself, I sold to a public company.
L: Oh, wow.
T: It just took an enormous amount of time. I was working with a whole team of accountants and attorneys, and my offer was pegged to a multiple of earnings. During the six month process that we were trying to get the business sold we lost considerable value because I wasn’t making any new sales. I wasn’t paying attention to the business. I kind of let things slip. So it’s just something that’s always stuck with me and I always coach my sellers very carefully to make sure that they continue to run them.
L: Can you talk a little bit about how you find buyers?
T: Sure. Yeah. I mean we’ve done this for a long time.
We’ve completed thousands of transactions. So we have a very good network of buyers. Each of us—including myself—we have VIP buyers that we work with either that are pre-vetted and very active, or that are proven buyers that have bought multiple units in the past and are building a portfolio. So, that’s usually where we start.
From there, we advertise on dozens of online channels, websites, and marketplaces. I would say the bulk of the activity comes from us posting on our website and through our email list. So we have an email list that’s active of over a million buyers globally. Those are all active buyers seeking in this category.
L: I guess that’s the benefit of being part of the franchise.
T: Correct. Yeah, it’s a large network. And when we push out to that size of an audience that’s where we’ll get 80-85 percent of the inquiries. And most of the buyers that convert into actually closing are going to come through that resource.
L: Do you do strategic outreach as well?
T: We do. We have a business that either needs it or it’ll be advantageous. Absolutely.
I will say, though, cause I get asked that question a lot: We believe strategic outreach is one avenue, but our general approach is broad-based demand. One of the things our firm is really good at is creating demand. We don’t ever really limit ourselves to just strategic outreach. What we want is to create as much demand for the business as possible. It’s surprising sometimes where buyers come from and close.
The theory behind that is that more demand drives up the value. I never want to be in a situation where I’m negotiating on behalf of a seller with an audience of one. I want to have multiple offers and I want to be positioned to help the seller identify the best buyer for the business. I would define that as the most likely to close and most likely to succeed and maybe easy to work with. Then I want to try to help them negotiate the best deal. That’s only going to be possible if we have more than one buyer. And the only way we’re going to have multiple buyers is to create broad-based demand.
L: Is there anything else that you think is important for someone who’s considering you and wondering if you’re the right broker for them to work with?
T: Yeah. There’s a lot of things. I would say the best thing is just to have a consultative discovery call. We welcome those types of calls. The calls are casual. They’re not a hard sell. They’re not an obligatory situation. What we typically do is we talk about the business. We try to understand the story, the timeline. We understand what the exit goals are, what the motivations are, and we just give feedback. That’s always the starting point.
L: If someone wants to reach you, what’s the best way for them to do that?
T: Sure. Email is usually best. That is thoward@websiteclosures.com. I’m also very active on LinkedIn. Just search “Tom Howard Website Closers”.
L: Awesome. Well, thanks for doing this. I appreciate it.
T: Thank you so much, Alexis. Appreciate it.
