- Lessons from selling our first start-up business
- Moving to Australia and running two business together
- Niching our accounting practice
- Commercializing our software product and selling it
- Importance of getting a specialist involved in your business sale
- Figuring out the right time to sell
- Setting up our second software product
Joanna: Hi, it’s Joanna Oakey here and welcome back to the Deal Room podcast, a podcast brought to you by our commercial legal practice, Aspect Legal.
Paolo has a very interesting story – having kicked off his career as a vet, and then establishing a veterinary business or practice. But he then sold that practice, and became an accountant! (not the usual career progression of a vet im guessing).
Together Paolo and I talk about the lessons he has picked up from his experience in starting, building and selling multiple businesses. These insights are valuable to business owners who are thinking of starting a new business, growing their current business or gearing up to sell their business into the future.
We also have some fabulous tips for accountants and accounting practices who are looking at differentiating themselves in the market. But this advice is equally relevant and applicable to our M&A professionals as well.
So keep on listening. Here we go!
Joanna: Hi Paolo, fabulous to have you on the on the show today. Thanks for coming along.
Paolo: Oh pleasure. Thanks for having me on the show. I’m always pretty excited to do something like this. It sounded interesting, so I couldn’t say no.
Joanna: That’s what I like to hear. That’s what I like to hear. Look on this show. I love to have business owners who are at the coalface talking about how they have built their businesses and sold their business so when we were talking the other day you know as you recall I launched then into oh my goodness stop. This will be fabulous discussion. You must come on my podcast, so I just want to say thank you so much for being so kind as to come on the show to talk to us.
Joanna: I think you know I love the stories. I think our listeners really love the stories as well of hearing from business owners rather than just us advisors talking about the best things to do with selling and buying businesses. It’s great to hear real stories and how business owners are feeling as they’re doing it.
So to give a little bit of a context I think you describe yourself as a serial startup entrepreneur I guess you’d call it.
Joanna: And you know out of that process you bought and sold a couple of businesses and you’re right in the process of building another couple of businesses at the moment. But let’s maybe, maybe you can give us a little bit of a history, a story, a little bit of a rundown of the background of the businesses that you bought and sold. Then we’ll start talking about things that you’ve done along the way that might be interesting to our listeners.
Lessons from selling our first start-up business
Paolo: Okay. Well I guess I’ll just started the beginning and then just work through the whole story and then you can just ask any questions.
First of all like I’ve always done everything with my wife because we’ve got the same mindset about things. I’m really really lucky that I never have to do it alone. We always, well we eventually agree on what we’re going to do. We can always support each other through the whole process. I think that makes things easier because you’ve always got that other person you know with pot luck other traditional business partnerships can be quite difficult. For us, it works really really well. I know a lot of people wouldn’t work with their spouse but for us it’s just worked really well so that’s made it easy for me.
My wife and I, so Anne and I, graduated our first degree was veterinary surgeons. We graduated as veterinary surgeons in South Africa and funnily enough our first passion was wildlife conservation and that’s what we did our elective studies in. It makes you no money, hard jobs are hard to find.
We knew nothing about business and I think it’s very common for people who’ve come out of university often don’t have the financial smarts. In fact, people who’ve started working straight out of school often more financially smart than people who come out with degrees. We exited university with a lot of enthusiasm and very starry eyed about being vets and absolutely no clue how to run a business, didn’t even know what a balance sheet was or profit loss statement was, didn’t even know what an invoice was.
Joanna: You launched straight into a business straight out of uni?
Paolo: Not straight away, not that quickly. Two days after graduating we went on a working holiday to the UK, from South Africa to the UK. We both worked for another veterinary practice for people for about three years. Then after that, we thought okay we can actually do this ourselves so we started up a new veterinary practice and that was probably one of the most challenging things because at that point we weren’t very savvy at anything.
We struggled a lot to get planning, commission and consent to actually establish a veterinary practice and all we could find in the area we wanted to set up was a sort of dilapidated shops that were owned by the council, south of Birmingham. And we did all the wrong things.
So what we did was we refurbish them ourselves rather than getting people in to do it. We did a lot of the punishing kind of fixing up of the place dilapidated shop ourselves which retrospectively why do you do that. I should have paid someone to do it. Lesson number one learned – pay other people to do shit for you.
Joanna: Yeah, yeah.
Paolo: I should have just carried on working as a vet for someone else and had someone else without the shops. I don’t know why I didn’t do it. Just a nab of intelligence to do it I guess at that point in time. So we did that. People said we were crazy opening up the business where we were. They said we’d never make a go of it. It wasn’t a particularly high-income area, things like that. But we were fortunate.
The first 18 months were really tough. Our start up business that’s got no customers ran at a loss for the first 18 months. I had to go and work for a pharmaceutical company to make ends meet.
But after two years it started ticking over and then after four years it was doing pretty well and then we were employing a third vet. Anne was working there full time. I was working there full time and we were employing a third vet. And then once a third vet had been working for us for a couple of years it came to like he was interested in buying the place and we were actually interested in emigrating to Australia because we had ended up being 12 years in the UK. It was a long working holiday.
We never thought of selling. We never wanted to settle there. He wanted to buy. We were keen to emigrate somewhere where lifestyle was a bit better and we liked Australia so we set to get funds, so we sold him the business.
In that instance that was a first business we built, the first business we sold. It didn’t make heaps money. But it was good like we came to Australia with some money, which was pretty nice.
When we got here, well the part I left out is whilst we owned the veterinary business, we became acutely aware of the fact that we didn’t know anything financial so Anne enrolled in a MBA and I enrolled in actually initially enrolled in an I.T. computer programming course and we completed our qualifications in those. We found the financial component of those courses quite interesting so then we both enrolled in accounting, a university degree in accounting by correspondence because we’re still running the practice.
Joanna: Wow! This is full on. Okay so let me just rehash here. You’ve both studied and become vets. You’ve worked for someone for a couple of years. You’ve started a business. It’s been hard, so you’ve gone back and worked for a company at the same time as building the business up to the point that you could actually sustain the two of you. You built it up to the point that you then have an employee who buys you out, which is a great strategy, fabulous strategy and then you go and study, study again.
Paolo: Well, we didn’t actually. Before we actually sold the practice, so whilst we were practicing as veterinarians, we did all our studies by correspondence. So we carried on working as veterinarians and studied and by the time we actually sold the practice, we were pretty much qualified as accountants.
Joanna: Right. Wow! That’s pretty full on. I think they’d be fairly few people out there who would have two major degrees like that right? Veterinary Science, is that the name of the?
Paolo: Yeah, Veterinary Science, Bachelor’s Degree in Veterinary Science.
Joanna: And then accounting as well. Okay, so what happened next?
I guess firstly, let’s just go back to this first sale. Do you recall at the time your thoughts about the process? Did you know what to do when you decided you wanted to sell it? Did you appoint advisers to help?
Paolo: Well, we did know what to do because at that point in time we had our accounts degrees. But we didn’t have much experience at it.
Did we employ advisors? Again, possibly mistake number two. No, we didn’t. We did it ourselves. We valued our own business and probably got a bit more for it if we had had some professional assistance doing it. So from that perspective I probably didn’t optimize as much as I could have out of selling that first business.
But then again, I’m not the kind of guy who and so is Anne, we don’t have sentimentality about stuff like that. I really really like the guy who is purchasing it. His wife had actually been my, our head nurse for like 4 or 5 years. We knew them really really well and one of the things we do like to see is someone else pick up where we left off and actually run with that really well. I think that’s more important for me.
For me optimizing the sale to the last cent is not a big deal. It’s more the reward I get out of having done it and then very very important for me is that it continues to run successfully afterwards because from that perspective that’s why we do it because of our passion. I know a lot of people sell businesses and actually prefer to set you bad once they exit because they say oh it really needed me and maybe it’s an ego boost.
But for me, it’s quite the opposite. For me the ego boost is to actually have built something that then continues to run forever without us there and actually currently that veterinary practice is big. They’ve extended the premises. They’ve employed 2 further vets and it’s actually one of biggest veterinary practices in the area now.
Joanna: Oh that’s amazing! And look, did they do the extension themselves?
Paolo: Yeah, they did it. They did it. I actually stay in touch with them.
Joanna: Well they did the building themselves like you?
Paolo: No. They actually got builders in.
Joanna: Okay. All right, so they learned from your lesson there right?
Paolo: I hope so. So that was that first business.
Joanna: Great. Okay, so then where did you move to next? Well you moved to Australia.
Moving to Australia and running two business together
Paolo: We sold the business, which is keeping us, that was what was keeping us in the UK. We moved to Australia and then we came to crossroads of do we do another veterinary practice here or do we do something different and because we both had accounting degrees and went to work in public accounting practice for a couple of years, and I worked in accounting software just to get a feel for the accounting industry and after doing that for a few years we were like okay well we can probably do this ourselves.
In the interim, because I was a little bit bored and sort of in between selling the practice and moving to Australia I’d started programming. I had a hobby programming job where I’d developed one of the first cloud base practice management systems as a hobby.
Paolo: And whilst I was doing that and working an accounting software, I wasn’t working very long hours anyway. I used to just flex my hours. We found ourselves there with about 30 or 40 veterinary practices using it and it became too big to be a hobby also.
At the same time as opening the accounting business, we decided to commercialize the software business. So we did the two together. So we opened up. Well we looked at purchasing an existing accounting firm, didn’t like it, didn’t like the way it was run. It had too much legacy issues with staff and the kind of customers they’ve had and stuff. So we thought okay well we’ll just open up our own accounting firm. We have the money, we actually purchased a commercial premise which was going quite nicely for a good price in our area and we put the office in that.
Joanna: And this time didn’t do the reno yourself obviously.
Paolo: No, this time we brought someone in to do everything which was the smart move, much much better.
Niching our accounting practice
Paolo: So we’re just a normal accounting and we’re going to see everyone and do their accounting and tax for everyone. We took on some advice from a guy I knew quite well, a guy called Chris Newton who’s actually you know pulled in quite well actually and we’d met in veterinary circles and he said you know you guys should just be specialist accountants to the veterinary industry only. Oh, that’s quite a risk and it’s quite a small market.
Within a couple of months of opening up, we did that. We just marketed ourselves to a veterinary industry and niched ourselves very tightly into that as an accounting and business advisory firm to the veterinary industry. Best decision we ever made, and probably one of the best bits of advice I’d ever been given because that really really established a point of difference in our business.
There’s a lot of positive stuff being said these days about niching and if anyone out there get about niching, I mean I don’t think you can be niched more than us. As a normal accountant, you’ve probably got access to more than 10,000 businesses in Australia. As a special veterinary accountant, probably about 30 or 40,000 businesses, as niched to the veterinary industry throughout the whole of Australia we target 2000 businesses that’s it.
There’s no more than that. That’s how many veterinary practices there are in Australia. It’s just been the best thing we’ve ever done. We continue to grow now. We still get more more more on board like, eventually we’ll have most of that so that was really really good.
Commercialising our software product and selling it
Paolo: Then it came to a point where I had to commercialize the software product. We had an accounting firm running, that was going quite well. Software product wasn’t doing that well. Software is notoriously difficult to run at a profit. You sink so much in RND so I employed a couple of developers to commercialize it, pushed it a bit harder on the sale side and funnily enough. So there’s other things like hobby jobby versus commercialising stuff, you put people on because they can do the work better than you can.
Within two years of commercialising it, we were getting a good market share in Australia. We were starting to move into the United States and the UK and a listed American company made an offer to purchase the software from us and that was for a very good price. So we, well we said yes to that.
From our perspective, it was turning into quite a lot of hard work from the perspective of support and I wanted to focus on the accounting firm at that point. So we said yes to that offer, but this time we took on advice in terms of the sale even though we were established accountants and a whole lot more experience in this.
We knew how to value maybe a dentist or a vet or someone like that. But valuing a software company is completely different. So we actually spent a lot of money and got a big accounting firm to help us with the valuation around that this time and I think that worked out quite well for us too.
Joanna: Brilliant, and that was going to be my question. Did you find that using specialists really assisted in the process? Obviously you’d identified the reason why it might help, but what was your feeling when everything was all said and done about that decision?
Importance of getting a specialist involved in your business sale
Paolo: I think I’m glad we used a specialist. Even from like we do a lot of tax work and stuff, but even from a tax perspective on that kind of sale which involves international money transfers and all that sort of stuff and movement of intellectual property versus customers. There were a whole lot of legals that could actually make the whole sale a lot more tax efficient for us which we haven’t thought of because we don’t as accountants don’t work in that space. So yeah, I would do it again.
The bill for it was in excess of thirty thousand dollars. All that, just one sale and all the legals around that sale and people would say that’s a lot but for us it was worth it because in terms of tax and sort of the way the sale went it actually worked better. We actually more than made that money back. So that would be you know that was definitely a smart decision on our part to get someone else on it.
Joanna: Yep yep yep. Great work. And so that’s it. Business number 2 you sold. So in both of these sales it seems to me that you’re in a situation where you didn’t need to go and hunt for a buyer. Is that right?
Figuring out the right time to sell
Paolo: No, you find what’s there. I knew I was going to sell that product. So you start looking and if you start looking, you find and you put the fillers out and someone will come. My feeling is you’ve got to check out of a business at some point. Either you’re going to sell it or you’re going to check out in a coffin, but you’re going to check out of it.
Because we deal with a lot of business buys and sells ourselves within the veterinary industry, the worst case scenario is when people hang onto their business for too long and then check out as an emergency like a health problem and suddenly before they can sell it, it’s 12 months the business goes in decline because they’ve got health issues or personal issues that they can’t deal with it.
The reality is when the right buyer comes for the right price, that’s the right time to sell the business and if you’re sentimentally attached to that and you say no, you don’t know whether that opportunity is going to come back. So the right time is when the right buyer comes along. So for me that’s kind of my policy.
Again, it’s like you could hang onto it and I possibly could hang on to that particular business for a bit longer and maybe I could have made more money. But it’s actually worked out better for me that I sold it because we had more money then to put into the accounting firm and then release our second software product which I much prefer to my first software product.
Joanna: Wow, okay. And so tell us about your second software product? What are you in now?
Setting up our second software product
Paolo: Okay so where our first software product was very support intensive and it was hard work. I’ve done it as a hobby and I never thought of it as a business. The second one went to look at something that fitted more like what we had in our heads as now as accountants and business advisors that we could propagate to all our client base.
We actually developed a system that runs automated business health checks that aggregates all the information from their accounting software from their point of sale software and then starts to measure everything in their business from like how well each veterinarian is performing in terms of their invoicing habits, what services they are promoting and then we yeah.
So that’s our new software product and it connects to all the different dispatch practice management systems so effectively any veteran anywhere in the world can be a customer and recently we’ve had a lot of interest from the dental industry also, which again increases our capacity because there are a lot more dentists than vets. So that particular product we will release, well we are busy releasing into the dental industry now, so it’ll be worth a lot more than our first one actually.
Joanna: Wow. What an amazing product! It seems to me that not only are you providing insight obviously to your customers to be able to view their own figures in a more helpful way, but you’re also building some really incredible I would assume statistics and benchmarks yourselves to be able to then you know then feedback into advice for businesses. Is that how you view it? Is that how it works?
Paolo: There was such a good fit to what people were already doing physically as business advisors. Like as accountants of business advisors, one of your biggest challenges is getting information out of your customers because they don’t have the time to sort of pull out a thousand reports from their various weird systems whatever they are using in their business.
So if you have something that automatically gives you that data. I have real time feeds on all the performance of all our customers businesses now. I mean I can look right now and know how all my customers businesses have been doing in the last 24 hours. That gives us heaps of street cred as a business advisory, so our accounting and business advisory is growing off the back of that.
Plus I don’t have to sell two different products. I sell our business advisory, the product goes with us. I sell the product, our business advisory goes with it. Invariably if we sign up a customer to one of those products, they sign up to the other services too. It’s one sales pitch and I can sell to two separate things.
Joanna: And what a differentiator in the marketplace I guess like you know if I’m running a veterinary practice why wouldn’t I appoint someone who understands the benchmarks and can feed me back information of how I’m performing in comparison to the other veterinary practices. What a great story!
Joanna: That’s a wrap for Part 1 of our 2-part series with serial startup entrepreneur Paolo Lencioni.
As a quick recap, in this episode we talked about the importance of getting yourself educated. When Paolo and Anne started their first business, they had no idea what a balance sheet was and they were determined to learn more about the financial side to a business. Of course, we don’t mean to say that all business owners ought to go out and get accounting degrees like they did. But we’re simply saying that the best entrepreneurs and most successful business people are always looking for ways to expand their knowledge, improve their skills and keep up to date with any developments, both in their own industry and the broader environment.
We also talked about the benefits of niching your business, which Paolo described as the best business advice he was ever given. His accounting practice exclusively services veterinary practices only – and it’s working out pretty well.
Paolo then drilled into why business owners ought to always have an exit strategy at the back of their mind. As Paolo mentioned, the worst case scenario is when people hang onto their business for too long and then suffer an emergency issue that makes it hard to realise the true value of the business.
In part 2, we drill deeper into more practical tips for entrepreneurs who are thinking of starting a business, and for business owners who are in that growth phase and maybe gearing up for a sale into the future.
I hope you enjoyed what you heard today. If you did, please subscribe to the Deal Room podcast on iTunes or your favorite podcast player to get notifications straight to your phones when part 2 is out. We’d also like to hear your feedback so please leave us a review and rating if you’re already one of our subscribers.
Thanks again for listening in! This has been Joanna Oakey and the Deal Room Podcast, a podcast proudly brought to you by Aspect Legal.
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