[EP 059] Lessons from a serial startup entrepreneur on starting, building and selling businesses (Part 2)

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.

Welcome to the final half of our 2-part series with serial startup entrepreneur Paulo Lencioni.

In part 1, Paulo talked to us about his first start up with his wife Anne, and walked us through the challenges and lessons that they’ve learned along the way. Then we drilled further into their journey of starting other businesses, building them up and eventually selling them.

Today, 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.

So don’t go anywhere, and we’ll get started!

Joanna: Are there any elements that you have learned along the way from your own experiences of building these two businesses in the past and selling them and building your current businesses that you know you’ve come to over this time and that you’re then able to pass on to your clients to help them with their business?

Lesson 1: Focus on doing management and delegate everything else to other people

Paolo: Yeah definitely so the number one lesson comes back to like when I fitted out and did all the tiling and plumbing stuff. Don’t do that stuff. You’re better off in most cases doing what you do well. So like now currently our workers are you know as accounting and business advisor I admittedly what I earn now is much better than what I earn as a vet. It’s much easier to make that decision now.

If I have something to be done anything like be it plumbing or be it fixing the car. I mean I don’t wash my car. I don’t clean my own house. I don’t cook my own meals. I don’t clean my own swimming pool or anything like that. I’d rather spend that time in the office doing what I do and then delegate absolutely everything else out to other people who can do it for me.

It increases my ability to do what I do and keep my focus. So for me everything I can give out like that I give out. Now we actually deal with a lot of business owners who want to hang on to stuff like classically the bookkeeping.

For me, I’m an accountant. We don’t do the bookkeeping for our business. We have our bookkeepers do it for us because from that perspective you know you don’t want to be doing that kind of stuff when what you really should be doing is more important strategic planning staff engagement things so that kind of stuff is one of the most important lesson.

Joanna: Why do you think people hold on to you know let’s take bookkeeping as an example, why are they holding onto, why are these veterinary practices holding on to the bookkeeping when clearly that’s not their you know their expertise?

Paolo: I think it’s a prioritisation and control issue, so people feel that if they are doing that kind of stuff, they’re more in control of their business.

Joanna: Yeah.

Paolo: The reality is you’re probably better off doing something else for your business than that. There are other better ways of keeping control of your business. From our perspective like staff engagement is a number one, how you’re engaging your team or you’re running appraisals, or you do all those other important things that drive your team.

People I think confuse management with well they confuse management and administration. Administration isn’t something you should be doing management is something you should be doing, and for me bookkeeping is administrations. It’s a data entry person who sits there in front of a computer desk doing data entry, not the kind of person who goes out, drives sales in the business, motivates their team and leads their team. Two completely different people. It’s very rare that you get someone who is good at data entry that’s very good at the other stuff. So people confuse that. They say I’m doing management and I rostrum off a day a week to do management. What are you doing in that management? I’m doing bookkeeping.

Joanna: Implicit in what you’re saying is the requirement for business owners to have an understanding of what they can do that creates value in their business and an understanding of what else they’re doing in their business that can be delegated so this is the point right? Get rid of that other stuff that you can delegates.

Paolo: Yeah, for sure. So delegate all that stuff and do the high high high level stuff. Like for me in this business, I’m still very very engaged in sales as one of my primary functions here.

I’m not a salesperson. I don’t like doing sales, but I certainly am very effective at it and I definitely don’t do any administrative work as a result of it. So if I have a choice, I’ll say okay I’ll do sales role even though I’d like to bury myself in my office for some quiet time in front of a computer. I have to be customer facing and that sort of stuff.

Joanna: I think you’re clearly very focused as well. I mean it sounds like you’re very busy but you’re busy, you’ve been really strategic about the things that you’re busy on and you talk about all of this education you’re going through. You’re clearly setting you know you’ve set yourself up as a differentiator. It sounds like there’s a lot of strategy to it.

Lesson 2: Have someone whom you can bounce ideas off

Paolo: There is a lot of strategy to it. I guess again this is where I’m really lucky with my wife Anne, because she is more like the sensible one. I have a lot of ideas. My brain doesn’t stop ticking, but a lot of them are not good ideas. I have someone to say that’s a dumb idea, that’s a dumb idea, that’s a dumb idea. Then one out of every 10 she’ll says that’s probably a good idea. It’s always good I guess the other thing I’d advice is like I’m lucky in that I haven’t had to do this on my own.

Joanna: Yeah.

Paolo: So if you have to, have that support of someone close that you can bounce ideas off is very important I think to anyone who’s doing this kind of stuff.

Joanna: I think a lot of us entrepreneurs need an Anne, don’t we?

Paolo: Yeah, It can come in the form of a business adviser for example, you know someone you can pick up and say what do you think of this idea? It can come in the form of a friend who is very good at business, it could come in different shapes and forms. For me it’s lucky it’s in the form of Anne and Anne will probably say the same thing of me like we can bounce ideas off each other. We have a different approach to things in many ways but we can at least tell each other when it’s a dumb idea or a good one.

Joanna: I guess number two here in your tips are make sure you have an Anne in the business.

Paolo: Someone to bounce your ideas off. I think that support, I think a lot of entrepreneurs find themselves on their own and I think that it can be in the form of an entrepreneur support group. You get these entrepreneur’s groups where people can get together once a week and they can start ideas off each other and make friends and then support each other and I think that’s very.

I have a friend who works in the software and in fact is my partner in the software business and he also has another software business on the side and he bounces his ideas off me. He uses me for that. So I think it’s important to have someone there that you can bounce ideas off. You sometimes don’t have the clarity to step back when you’re in the business itself, just step back and say hey maybe I should look at this from a distance and see where this is going to get me long term.

Joanna: Yeah, I think you’re absolutely right. You’re absolutely right. Sometimes I think it’s in that communication piece as well. In talking out your ideas to someone else, it really helps to form in your mind what those ideas are as well so I completely agree with that. Are there any other elements that you feel you’ve learned along the way that are really pivotal to success in a business?

Lesson 3: Know when to take on professional advice

Paolo: Knowing when to take on professional advice.

Joanna: Yeah. Well we’d agree with that one wouldn’t we.

Paolo: We see a lot of mistakes being made when that doesn’t happen, both in our business and from our own experiences in the past where we haven’t. So from that perspective you know like if you do have a high value thing going on be it a valuation or sale of a business to sell part of a business or a joint venture, get the right legal and get the right accounting advice make sure you structure properly.

People feel like I feel stupid that I don’t know about this and I feel embarrassed to approach an adviser. Get over that. Like if you’ve got what you’ve got with your own businesses and bought your own business and you get the point of selling them, you definitely not going to be looked upon as a stupid person or if any adviser looks at you as a silly person, go find another one because you’re not expected to know that stuff. We don’t even expect to know, like we’re accountants, and the international tax issues and stuff that were created by previous sale. We didn’t even know that stuff because we don’t deal with it. So they just get someone to do that stuff.

Joanna: And it’s interesting that you say that. Do you believe that business owners sometimes have a fear that they’ll be seen as silly if they don’t know how to deal with some of these areas that they’ve never dealt with before? Isn’t that fascinating? That might be a revelation to a lot of people listening here.

Paolo: That’s the feedback we get from our veterinary customers is they feel comfortable speaking to us because we were veterinarians and they don’t feel stupid asking us questions. So like if I have to ask a question how many business owners actually do understand a balance sheet they don’t. But most of them won’t admit it. The point of that is you actually don’t have to fully understand it to operate a business properly.

The information that comes out of it can be aggregated by your accountant on quarterly or a monthly basis. So you don’t have to be expected to know that stuff. You can’t know everything. Run your business, be a veterinarian, be a doctor, be a dentist, do all that stuff, deal with your customers, do the sales and then understand all the fundamental principles of accounting and law and all that stuff. You can’t.

Lesson 4: Pay someone else to do the things you don’t know

Paolo: The stuff you don’t know, you just pay for someone to do it, which is point number three. Point number three is going to be just pay for it, like pay for it. So this is the other issue is his business and his penny pinching saying oh look there’s this little bit of software and it’s costing. Example the other day when a bookkeeper and the current boss she is working for makes her delete everything in the accounting file and put another company in so they don’t have to pay for 2 Xero licences.

Joanna: Oh my goodness! You’re kidding!

Paolo: That’s like 40 bucks a month. We see this stuff all the time. It’s just 40 bucks a month. What is that costing you in staff time right?

I actually assess everything not in terms of dollar value, but in terms of time. So for example we have something like 8 to 10% of our revenue goes towards software licenses. But we can run our team probably about 30 to 40% leaner in this business because of the automation and efficiencies. So everything I look at. It might cost ten thousand dollars a month. I don’t care, because that saved me ten thousand dollars a month in time or more. That’s the way I look at everything, not by dollar but by minute.

So if that’s going to cost me ten dollars, but it’s going to save me an hour a week. That’s a no brainer. So that sort of stuff is spent for whatever it does to automate your team, make your teams life easy, automate the processes in your business, just throw your money at that because that’s where most businesses fall over. Their wages get too high because their team is just struggling through all these stuff.

Joanna: That’s a really good point. I love it. I love it. Okay good. So we’ve got some three top tips here. And now I want to maybe understand a little bit more about how your previous experiences now also have driven your feelings about what you’re doing with your current business. Is this a business you’re building to sell, or do you have now a clear strategy or is it just building it and one day you know you feel you might get approached again?

Bonus Lesson: Always have an exit strategy at the back of your mind

Paolo: Look from this perspective this current business we’ve got now is we’re very comfortable in it I must admit. I’m certainly never got to the point of where I’m saying I’m bored, I’m not enthused because as soon as you start feeling unenthusiastic about it, it’s probably also a good time to look at you know checking out.

For me it’s definitely, this particular thing we’re doing now is something I intend to stick with now for easily the next 10 to 15 years. I think I’d be stupid not to think about an exit strategy. We do have plans in place for an exit strategy in terms of my ideal exit strategy would be to introduce other partners into the business, younger ones obviously younger than me hopefully so that eventually.

You have to always have that at the back of your mind, what happens if I check out and what happens if I get sick. From us, our business in my view, our current business is at high risk for that because the two key individuals are myself and my wife and, in that scenario, now if either of us gets sick it’s high risk because the other one might not be able to work. From a risk management perspective, I’ve got to start thinking about bringing more advisory brains into the business where the business can run itself more freely of myself and Anne. So that’s going to be one of my focuses now and that will eventually lead to succession strategy.

So yes that now is probably one of our top priorities at this point in time because we are acutely aware of this. That’s a risk management for us also. We have no sentimentality about oh this is my business it’s my baby. We have an obligation to keep our current team employed if something else goes wrong with us and the business can sustain itself if something goes wrong with either of us. From that perspective, as I said every business owner has to think about succession plan. You can’t not be thinking about that and assume that you’re going to be happy and healthy for the next 15 years.

Joanna: I think that is such a mean that’s such a good point and it’s something that we talk about quite a bit on this podcast but I just think you know having someone who is building their own business and living this in their own business is such a you know it is such a brilliant example of why this is so important.

Paolo: I mean just to interject that I mean I have this deep thing and I want to cling onto my asset. I often feel like that. It’s mine and I want to keep it. But I’ve got to put that feeling aside because I know that I’ve got to think of the 15-year game plan here and where I’m going to be in 15 years or might be in 15 years in terms of health. These things are always like you have to. A lot of businesses will cling to their asset and say oh it’s mine and I’ll hang on to it right up until the last minute.

It doesn’t work out, but you know you’re not going to get sick and find a perfect buyer in the same month. You’ll get sick and then you will linger and struggle along to find the perfect buyer and all that time your business will degrade and then your staff will lose their job security. The bigger business gets the more obligations you’ve got, the more people depend on you so from that perspective you’ve got to think of succession.

Joanna: And here I think you’re talking about bringing other people into the ownership of equity of the business which sounds like it’s not something that you’ve done before. I think for many business owners that is a really challenging concept and number one as you say was my baby. It’s my asset. I don’t want to let go of it and I don’t necessarily know that I’ll agree with all of the points of view that someone else coming on board might have.

And so where are you at in that process? And do you have any recommendations for business owners and obviously you’ve talked about well it’s important to think about what could happen and the importance of getting yourself lined up for that event. But are there any other tips that you think that you know maybe that are related to their own processes that you’ve been thinking through in relation to this?

Paolo: So without saying anything I shouldn’t really say online in terms of confidentiality and things, so in terms of succession we have isolated individuals who we would introduce into the business already. I can think of all three people already that we’re targeting and we’re waiting for their current scenario to change or be favourable so that they can move in and start working here.

So just like when we sold the first software business we have to start looking. If you’re not looking you’re not going to find. It’s not going to just fall in your lap. So there’s three individuals who’ve already. We can already target for that particular purpose and then we have another option where we could potentially look at merging or doing a joint venture or basically a merger with another bigger advisory firm so that we could bring all their advisors and their board in with us so that we’d run as one and so there’s more people.

There’s those options we’ve got, and we keep on looking and seeing which one materializes first and if it’s viable at that time. But we’re looking now for what we know we need in 10 to 15 years’ time. And again, if someone came out of the blue and made an offer and I thought they were the right person. If they did that tomorrow, they say when’s the right time to check out a business, when the offer’s right and the person who approaches me is right. It could be tomorrow. But if that happened in the interim, I would also be very open to that.

I’m not the kind of person who goes I’m not ready to sell just yet. I’ll wait another 10 years. If I’m not ready to quit working, which I’m not, I want to do this for another 15 years. I’ll do it with someone else here and I’ll carry on working. So I don’t have to buy it outright but you know that I’m looking out all the time, actively looking all the time.

Joanna: I love it. I love it. Look thank you so much for your time today. This has been such an interesting journey through I guess hearing your progression through each of these businesses and it’s really clear in talking how each of your experiences have really sort of molded and shaped you for each of the next experiences that you’ve gone onto.

It’s a fascinating story and I think a lot in there for us as advisors as well you know certainly the point that you make about perhaps some of our clients you know the business owners not wanting to ask questions that they think is silly and I’m just thinking of myself actually you know we have a number of transactions at the moment where some responses from different parties has been a little bit gruff and a little bit hard to understand and I’m now looking at it through a new light based on what you’ve just said. I think maybe we’re dealing with people who perhaps don’t quite understand the area fully and don’t want to say it so that’s important for us as business advisors I think to key really key in our minds.

Well look, thank you so much for your time. Is there anything that you want to promote on our podcast? Should any of our clients or any of our listeners have vets you know maybe they might want to chat to you about your software and veterinary accounting perspectives?

Paolo: Yeah sure. I mean our software is at the website. I’ll say it profitdiagnostix.com that’s our website. That’s as much as I’ll say. That’s a promotion. It’s just fun doing this.

Joanna: Well it’s so fun having you.

Paolo: Thanks so much for having me.

Joanna: Thank you for coming onto our show. We’ll put a link through to you in our show notes and your website there just in case anyone wants to chat about that fabulous software and your services that you’re talking about. I really appreciate your time. It’s been great talking to you.

Paolo: Thanks Joanna.

Joanna: That ends our 2-part series with serial start-up entrepreneur Paolo Lencioni. As a quick recap, the four important lessons that Paolo talked about were:

• Have an understanding of what you can do as a business owner that creates value in your business and delegate everything else
• Have someone to bounce ideas off. This can come in the form of a mentor, a business adviser, a friend, or even your spouse
• Know when to take on professional advice. Don’t be afraid or embarrassed to admit what you don’t know and don’t understand, and go find someone who is an expert in this area to help you with it
• Automate what you can, or pay someone else to do the things you don’t know. This will save you precious time, which can reap in more dollar value to your business

Well that’s it for today. Ihope you enjoyed this discussion just as much as I did. I really do love talking about real stories from business owners who have been out there building and selling businesses. In fact, I’m always on the lookout for those sorts of stories, so if you know anyone

Once again, 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 whenever a new episode 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.