DS_EP_Todd Taskey_ Full Interview
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[00:00:00] Todd Taskey: *The question, the buyer is going to ask, **[is] **what do I get when I buy this?*
[00:00:04] Todd Taskey: *And assuming that the employees are going to stay. Are they happy here? Are your *[00:00:10] *customers happy? *
[00:00:10] Todd Taskey: Most of the folks we serve, they want to go faster, bigger, do something more interesting.
[00:00:16] Todd Taskey: ~So if, ~if you find a narrow niche that you can be [00:00:20] excellent in, that ~probably makes your, it ~certainly makes the path a little bit easier towards selling a story and identifying: W*ho are you? What do you do? And why do clients love you?*
[00:00:27] Todd Taskey: It's nerve wracking. It's [00:00:30] stressful. It's exhilarating. It's all of those things. And I know that when we do a transaction for a client, they'll remember it for the rest of their [00:00:40] life. [00:00:50]
[00:00:53] Corey Quinn: I'm excited to welcome Todd Taskey to the podcast today. Todd is an investment banker with over 20 years of [00:01:00] experience who specializes in advising agency founders and CEOs on how to maximize their value ~and ~And achieve successful [00:01:10] valuation and transactions.
[00:01:11] Corey Quinn: He's the CEO of Potomac business capital. And he's also the host of the second bite podcast.
[00:01:18] Todd Taskey: All those things are true, [00:01:20] Corey. Thank you for having me.
[00:01:22] Corey Quinn: Super excited for you to be here. As I mentioned, right before we hit record ~this, uh, ~the work that you do is. Super relevant, I think for our audience, [00:01:30] many of which are going to be agency founders and owners and CEOs who are eventually either in the short term or in the longer term moving towards a transaction.
[00:01:39] Corey Quinn: And so you [00:01:40] are. One of the, you know, the brand name experts in the agency space. You've been through a lot of major transactions. ~You've been, ~you've been helping the, you know, those business owners through that. And so [00:01:50] I'm super excited to have you here and to share your wisdom with the audience. So can you just introduce yourself a little bit more and just tell us about your business, Potomac, ~uh, ~business
[00:01:59] Todd Taskey: Yeah, [00:02:00] thanks Corey. I mean, I think you've covered it pretty well. So a couple of important things to mention, ~um, ~as you described, we do M& A transactions, we help [00:02:10] founders that want to do a transaction, ~uh, ~with their business. ~We~ only represent sellers, so we never work for the buyer. ~We, ~our clients are ~in ~[00:02:20] typically in a 1 million to 5 million of EBITDA range.
[00:02:24] Todd Taskey: And our clients are more focused on accelerating the growths of their [00:02:30] business with a transaction than with selling to retire. So ~their hope is that they will get, and, and, you know, and you, you see some of these trophies behind me, ~their hope is that they will get a chunk of cash at close [00:02:40] and a chunk of equity upside ~in the, in the mothership, ~in the larger company, the acquirer.
[00:02:44] Todd Taskey: ~Uh, ~in addition to perhaps ~a, uh, ~a short burnout and that's what we help people do and design.[00:02:50]
[00:02:50] Corey Quinn: that's beautiful. And I know ~That ~that's related to the name of your podcast, the second bike podcast. Is that correct?
[00:02:57] Todd Taskey: That is correct. So ~when you, ~when you sell and you get cashed at the [00:03:00] beginning, that's your first bite. And then when the larger company sells, that becomes the second bite of the apple.
[00:03:07] Corey Quinn: Yeah, I think ~you also, ~you coined it as ~a, uh, ~an evolutionary [00:03:10] transaction where ~I think ~many business owners, specifically agency owners ~are, you ~consider this transaction as sort of selling the business and leaving, right. ~Locking away and ~walking [00:03:20] away. ~Um, can you more, you know, ~can you explain more about ~that, that trend, ~that transaction ~where, You know, like ~what is the benefit of selling ~not, you know, just ~to a larger agency ~with, ~with an idea of having a second transaction down the road?
[00:03:28] Corey Quinn: ~Like what, why, ~why take that approach?
[00:03:29] Todd Taskey: [00:03:30] So a great question. One, you know, there's two things that people, ~uh, ~tend to, ~um, ~conflate together that it makes a little bit inaccurate. A lot of people [00:03:40] think about doing transactions and they call it a roll up, right? ~So ~if you're in the SEO business and I buy another SEO company and another one and another one and I'm a bigger SEO company, [00:03:50] the whole thing will be worth more because the EBITDA is larger.
[00:03:54] Todd Taskey: And that may be true ~the last. Decade where client, ~where, buyers have created real value [00:04:00] is in creating what they would call an arc of services, where if you are an SEO shop, you'll acquire maybe a [00:04:10] paid, maybe a social, maybe email, maybe content, and stitch these together in a full offering so that you can provide [00:04:20] greater service, more wallet share to, uh, Yeah, to a client.
[00:04:24] Todd Taskey: And so from that perspective, clients that want to grow their business, most of your [00:04:30] listeners, one way to do that is to expand their offering. And the notion that they're going to be as good in a secondary or tertiary offering as they are in their core offering, [00:04:40] most folks are intimidated by that. So what they look to do is to put together capability sets.
[00:04:49] Todd Taskey: So that [00:04:50] they can become that kind of full service offering, if you will, or what we've seen more recently is, and I know you've had [00:05:00] some of them on your podcast, people that are focused in a vertical and they provide marketing services in a vertical. And so we did [00:05:10] a transaction with a guest you've had on Mike Perez and I lawyer marketing and was sold to, ~uh, ~ever service.
[00:05:18] Todd Taskey: Which is owned by [00:05:20] Sunstone Partners, and they're a large and successful private equity group. And their thesis is that they wanted to be in home services. They want to be in, ~uh, ~[00:05:30] legal services and they want to be in medical services, elective medical. So they bought a company called blue Corona. They bought some smaller companies to go along with that.
[00:05:39] Todd Taskey: They [00:05:40] acquired, ~uh, ~iLawyer marketing and they'll acquire others to doubt that, that offering, ~um, ~and be a sizable business and will likely do a [00:05:50] transaction if I were to guess in the next year or two. ~Okay. ~So how you're going to go about doing that is you're either going to keep [00:06:00] your net worth at risk for a long period of time and compete against very well funded [00:06:10] private equity groups.
[00:06:12] Todd Taskey: Or you're going to become a part of one of those and play an important and significant role in the future success of that business. ~And we help people do the second.~
[00:06:19] Corey Quinn: [00:06:20] Super interesting. And I've got a thousand questions spinning around my head. I'm thinking in the role of the seller. Is one of the more basic [00:06:30] benefits of doing this is that they'll get ~a total, ~a greater total sort of payout or, ~you know, Um, ~you know, benefit at the end of the day as a result of taking ~this, ~this sort [00:06:40] of more of an evolutionary transaction, ~the second ~versus, if they just tried to find an acquirer who was looking to buy them out and they walk away, or does that even exist?
[00:06:48] Todd Taskey: It doesn't exist where they just [00:06:50] walk away in a service business. You should expect you're going to get a year or two years of an earn out. And most of the folks ~that are,~ that, that you know, that you have on your [00:07:00] show are not interested in being an employee. And that's not really what our focus is.
[00:07:06] Todd Taskey: Most of the folks we serve, they want to go [00:07:10] faster, be bigger, do something more interesting. Now that they've gotten to a certain level of success. ~And, ~and so, you know, that's what we help them do is [00:07:20] find ~those, you know, ~those opportunities, ~you know, ~we've got a company here, ~uh, ~that used to be called social SEO and we did a transaction for them [00:07:30] in 2019.
[00:07:31] Todd Taskey: Thanksgiving week of 2019. And they were ~90, let me see. There were two, ~about 2 million of EBITDA at that time. They were acquired by a great private [00:07:40] equity group called ~ever, uh, ever called, um, Geez, man, don't, don't be embarrassed if I get that wrong. I'm confusing them with Everservice. That's why, yeah, it wasn't Everservice, it was ~Everlane Capital.
[00:07:42] Todd Taskey: Very good private equity group in Boston. Those guys finished last year, I think around 16 million of EBITDA. [00:07:50] So they went from two to 16 in about five years.
[00:07:58] Corey Quinn: And what do you attribute that to? [00:08:00]
[00:08:00] Todd Taskey: Well, first of all, they acquired three or four businesses in there. ~Uh, and, and so here's a perfect example. ~They were ~in the ~largely in the SEO space.
[00:08:09] Todd Taskey: They acquired a [00:08:10] paid agency. They acquired a social agency. They acquired an Amazon agency. They had much more money to invest in sales and marketing efforts ~and, ~and just everything that comes [00:08:20] along ~with a, you know, ~with a successful business. ~I think my guys, ~and they got a good chunk of cash at close.
[00:08:26] Todd Taskey: Their role forward is probably going to be. [00:08:30] Worth four or five times as much as the cash they got at close. And they've been having a great time growing [00:08:40] a business of the size that I mentioned. ~Right?~
[00:08:43] Corey Quinn: ~Beautiful.~ I think that makes a lot of sense. I know that, ~um, ~there can be some artificial ceilings for agencies that have gotten to that two to three, maybe one [00:08:50] to two EBITDA and that by taking this type of transaction, it can give them access to, ~uh, ~a lot more capital, different types of people, ~uh, ~and whatnot.
[00:08:59] Corey Quinn: ~So I, I think there's a lot of value in that. Um, ~[00:09:00] I've heard you say that ~there are, um, The, the, ~a successful transaction is really solving two problems. One is money and the other is a quote fill in the blank problem. ~Uh, ~when you consider ~like ~[00:09:10] the agency owner, what are some of the typical fill in the blank problems that they may be facing when, you know, and looking to solve?
[00:09:17] Todd Taskey: Yeah. So that's ~a gr a ~a good question, and everybody [00:09:20] listening to this right now knows what that fill in the blank is for. But I'll give you a couple of examples and ones that ~are, ~are most current. We did a transaction a [00:09:30] couple of years ago, a company called SproutWord. And SproutWord is a,~ a, ~an agency, but they have a great direct to consumer [00:09:40] data platform.
[00:09:41] Todd Taskey: ~And ~Kevin Biondi, and if you want to listen to him, he was on our podcast at secondbikepodcast. com. If you want to listen to him, he'll [00:09:50] tell you when we did that transaction, which was a couple of years ago, he said, we have maybe one of the best data [00:10:00] platforms in the market. And it allows large DTC brands to ingest their own first party data and to buy media more effective.[00:10:10]
[00:10:11] Todd Taskey: So let's say we have the best that's out there next year, man, it's going to be pretty good. And the year after that, it's going to be [00:10:20] the same thing. Everybody else, unless we pump a lot of money in there to keep it current, to add features and blah, that is expensive. You know, it [00:10:30] makes it really expensive using my money to do that.
[00:10:34] Todd Taskey: That's that brutal. they did a transaction, we sold them, they got a [00:10:40] bunch of cash, there's three founders there, one of them is the second to the CEO, one of them's driving their private [00:10:50] equity business and Kevin's doing his thing, so that's been a great success. We did a transaction last year, we sold a company called Andra [00:11:00] to Power Digital.
[00:11:01] Todd Taskey: Power Digital's been a huge success story, great business. My guy, Ned McPherson, [00:11:10] he does conversion rate optimization. As he told me, every time I get in front of somebody, every time [00:11:20] we close that deal, I mean, they're really good at CRO. It just takes me forever to get in front of somebody.
[00:11:27] Todd Taskey: You know why? I don't have a relationship. I don't have a [00:11:30] sales team. And I'm a sub 10 million agency in Miami, Florida. ~Um, ~PowerDigital has [00:11:40] 200 e commerce clients. They have a sales team of seven or eight people that did not. We'll make sales, they have existing [00:11:50] relationships. ~We're strolling into, ~I talked to Ned maybe a month ago, we're strolling into these calls ~and, ~and people are like, geez, that's fantastic.
[00:11:57] Todd Taskey: How do we get started? And we're just knocking [00:12:00] them over. I mean, it's unbelievable. So for a lot of guys, the fill in the blank is sales, or [00:12:10] I need more of a balance sheet. Or~ I can't, and everybody listening knows this. ~I can't get my utilization, right? Because we hire a guy and my EBITDA goes down and I'm not using [00:12:20] anything.
[00:12:20] Todd Taskey: We bring in a couple of new clients and now my team is stressed. And that's hard when you're small, right? So from that perspective, [00:12:30] that's what the solve is. And so when you take an entrepreneur and you say, here's a bunch of cash, here's a big chunk of equity. So [00:12:40] you're, and it's the same equity. Everybody else has the private equity guy at the founders.
[00:12:43] Todd Taskey: Everybody has the same equity you have. ~And. ~You plug into our finance, you plug into our HR, you plug into our [00:12:50] sales team, whatever it is, you can find that kind of shit. People ~are, ~are motivated to do a transaction and it creates a [00:13:00] much better outcome for everybody involved.
[00:13:02] Corey Quinn: Yeah. I think of ~the, uh, the, ~the theory of constraints where, ~You know, if, ~if, You have an amazing product and you have the ability to provide a lot of value in the [00:13:10] marketplace, but you just don't have the capacity or ~the you know, ~the skill set to build a sales team ~or to you just don't have that ~Going this direction I think makes a lot of sense
[00:13:17] Todd Taskey: You know, I had a call with a guy, this is, I don't know, a [00:13:20] couple of months ago. This is a guy that I've known for a long time. He's like, ~I just, ~how ~did, ~is your economy growing so rapid? I mean, how do you do that? I said, I'll tell you exactly [00:13:30] how, no, he's got two, there's two of them. They're making their D but it was about 2 million a year.
[00:13:35] Todd Taskey: I said, you got to take a half a million of that and apply it to a [00:13:40] sales organization over the next year and hope it works.
[00:13:47] Corey Quinn: Right hope
[00:13:48] Todd Taskey: He's like, I'm not going to [00:13:50] do that. I said, obviously you haven't done it in the seven years, eight years you've been in business. That's the difference between somebody growing at 20 or 30 percent or somebody not.[00:14:00]
[00:14:00] Todd Taskey: You don't want to hear all the time from entrepreneurs. Next year, we're gonna hire a sales guy. In the history of private equity, they've never said that [00:14:10] private equity builds a sales function. That's three salespeople and a manager. That's what that is. That's a half a million bucks. [00:14:20] And I know out of those three salespeople, probably one's gonna stay on board.
[00:14:25] Todd Taskey: ~And then I'm gonna have to go hire two more, probably three more, and have another one stick. ~And then gradually I'll have a sales and then we'll just [00:14:30] go from there.
[00:14:31] Corey Quinn: ~Most ~most founders, ~uh, ~even if they have a half a million dollars. Yeah, you know Plugged away. They're probably not thinking about ~how ~how quickly they could spend it on a sales team. ~So~
[00:14:39] Todd Taskey: My [00:14:40] God, it's coming out of my own pocket. I mean, ~that's, ~that's hard to do private equity. It's not coming out of their pocket. ~Right. ~It's just ~what, ~how we grow businesses, [00:14:50] but ~that's why, ~that's why it works so well for them.
[00:14:53] Corey Quinn: I think it is ironic a little bit that, ~um, ~these are the same businesses, ~uh, ~that are asking their clients to spend money to [00:15:00] advertise their own money.
[00:15:02] Todd Taskey: And by the way, just so you know, if you're doing a million, 2 million of EBITDA and you're growing at [00:15:10] 15 percent a year, you are a winner at the game of life. ~Right. You don't have to do any, you just keep doing that. ~You've got, you've employed 50 or 70 people. You've got great clients. [00:15:20] I know something could be better, something could always be better, but just because we're talking about this doesn't mean it's the right way to do it.
[00:15:27] Todd Taskey: It's just another way. But [00:15:30] one thing I hear all the time, Corey, is I didn't know you could do this. I thought if I sold my business, I had to do a two year earn on then I leave you, [00:15:40] right?
[00:15:42] Corey Quinn: Exactly. So ~in, ~in the terms of, ~in~ the mindset of preparing for a transaction, you talk about The importance of [00:15:50] running a good business and what are some important metrics that an agency should be doing in preparation for this type of transaction?
[00:15:59] Todd Taskey: The [00:16:00] metrics that you're going to be judged on are retention and the percentage of your revenue that's recurring. Right. And your growth rate to ~a certain, ~[00:16:10] a lesser degree, but if your retention is, is, is a key factor. And if your retention is in that 90%, [00:16:20] 88 percent range, you're doing great ~employee. ~You know, one thing we don't put in any of our decks when ~a deck is, when you, you, you, ~you put a PowerPoint together and you talk about the [00:16:30] company.
[00:16:30] Todd Taskey: We never have a page on culture because everybody blabbers about cultures, this, that, and the other thing. We put. The executive [00:16:40] team and how long they'd been here. That's culture, right? ~If, and ~if your executive team of six or five or eight people had been with you for an [00:16:50] average of one or two years, that tells me a lot about culture.
[00:16:53] Todd Taskey: If they'd been there seven or eight or 10 years, that tells me a lot about culture, right? The [00:17:00] two biggest ones are going to be your retention and how much of your revenue is recurring.
[00:17:05] Corey Quinn: You mentioned executive retention. What about just overall employee retention? Is that [00:17:10] ever ~a, ~a determining factor or is that just ~a, ~an additive data point?
[00:17:13] Todd Taskey: ~You know, it's, ~it's interesting. ~Um, ~it goes to culture. ~So for that, for, ~for that reason, it's important, in the digital [00:17:20] marketing space, a lot of times you'll hire younger people and younger people are trying to figure out their way in the world. ~So, ~so somebody will pay them a little bit more and they'll go somewhere else.
[00:17:28] Todd Taskey: ~And, you know, it, it's, uh, So I would say to a lesser degree, but if, ~if the [00:17:30] employee turnover is high or your glass door rating is low, people will pick up on that and they'll want an intelligent answer for why that is.
[00:17:38] Corey Quinn: I imagine a lot of the [00:17:40] people who inquire with you are not quite ready for a transaction. What are some of the key indicators or milestones that agency owners should look at to determine if [00:17:50] they're truly ready for a transaction?
[00:17:53] Todd Taskey: Geez, that's a good question. So if you are, I would say this, if you're over a million dollars of EBITDA, [00:18:00] I think the opportunity is available to you. ~And, and ~the question becomes, you know, what's the value of the business and what's the potential fit and the rest. You know, it's [00:18:10] interesting because I did a transaction a couple of years ago with a company called Worth E commerce and they do email marketing [00:18:20] for e commerce customers only, and they were right about a million, actually a little bit under a million of EBITDA, but they were like this nice, neat little box.
[00:18:29] Todd Taskey: And it [00:18:30] was an easy story to tell. ~And, ~and we got a great transaction for them. We sold them a company called SmartBug a couple of years ago. And I had another company out West. There [00:18:40] are like two and a half million of EBITDA, then they do SEO work. ~And ~I was like, geez, guys, you're right in the middle of fairway for us.
[00:18:48] Todd Taskey: It's right down the road. No problem. We'll get [00:18:50] it. And it was hard, very hard to find a transaction for them. And what I learned was, cause it surprised me. A lot of the [00:19:00] buyers said, you know, it's a, what do they do? They do SEO. Well, we do SEO. ~I will. ~How big are they? Eh, they're about 2. 4 million, man. [00:19:10] I mean, it kind of doesn't move the needle a lot.
[00:19:12] Todd Taskey: And you know, ~if, ~if I'm going to pay six times for that, it's what, 15 ish million bucks, and I don't get anything new for that. I [00:19:20] don't get you right there. I mean, they have some great clients and blah, blah, blah. We eventually, you know, when ~you, ~You start to form your targets, ~right? ~There's the bullseye.
[00:19:28] Todd Taskey: And then you get [00:19:30] tangential circles outside of that. So we found like on the third circle, it was ~a, um, ~a translation business, a data translation business. And [00:19:40] so they felt like they wanted to be able to offer some marketing services to their customers. ~And, and so, um, ~so that's how that thing came about.
[00:19:46] Todd Taskey: ~So from, from, ~so I guess that's how I would, ~you know, ~kind of answer that if [00:19:50] that's helpful.
[00:19:51] Corey Quinn: Yeah, absolutely. [00:20:00] [00:20:10] [00:20:20] [00:20:30] ~ So, ~ ~um, having, ~having a specific skillset that maybe is, ~is a ~more unique and, ~uh, ~you could [00:20:40] potentially attract buyers more quickly than if you are just a typical SEO agency.
[00:20:45] Todd Taskey: Well, I think otherwise you just need to be larger. Right. ~And, and so there, there, ~and *this goes to *[00:20:50] *part of the store. Hey, who are you? What do you do? And why do clients love you? *~*And, *~*and it feels like more and more, the question is who are the people that love you? *~Right. ~We [00:21:00] sold two businesses last year that were both in the legal vertical.
[00:21:04] Todd Taskey: We have a client under LOI now that's in the elective medical vertical. We have one that's [00:21:10] in the home services vertical. ~Well, ~we have ~an an ~another client ~that is in the, ~that is in the Amazon ecosystem, and they provide marketing services on the Amazon platform. [00:21:20] All of those, it used to be. Geez, this is a digital marketing agency, right?
[00:21:25] Todd Taskey: You got to go back five or six years for that. ~And so now, again, as people create this arc of service. ~Like PowerDigital, who's [00:21:30] great in a whole bunch of things, didn't feel like they were good in that niche of CRO, which is the reason why ~they, you know, ~they were interested in, ~in, um, ~NREL. ~So if, ~if you find a [00:21:40] narrow niche that you can be excellent in, that probably makes your, it certainly makes the path a little bit easier towards selling a story and identifying somebody that wants that [00:21:50] narrow capability set.
[00:21:52] Todd Taskey: Probably makes it easier to tell your story to future customers as well.
[00:21:56] Corey Quinn: if you had two agencies where they [00:22:00] had, ~let's say, ~let's say they both had 2 million of EBITDA. ~Um, ~they both, ~um, ~provided similar types of services ~for, uh, ~for businesses. One was more of a generalist ~small, they would say ~they targeted small, medium sized [00:22:10] businesses and the other one targeted just one vertical market.
[00:22:15] Corey Quinn: They had similar EBITDA, as I said, similar retention, similar, ~You know, uh, ~[00:22:20] tenure from executives, all else being equal. Is one going to be valued more generally speaking in the market than the other because they're either a generalist or they [00:22:30] are a vertical specialist?
[00:22:32] Todd Taskey: You know, ~that's a, ~it's a great question ~there. ~If this ~were, ~were at the beginning of 2025, ~right. ~There would be a market for both of those for sure. [00:22:40] It would be, ~um, ~a little bit more of a direct market for the singular, for the one ~that's in the vert ~that has a vertical specialist, as opposed to, let's say [00:22:50] an SMB.
[00:22:51] Todd Taskey: But you just approach the market a little bit differently. in that specific example, there's a bunch of folks that do SMB marketing. [00:23:00] So it'd be a little, it'd be a little bit harder to get the valuation that I would like. Whereas let's just take legal [00:23:10] since, ~um, ~you've had people ~on, ~on your podcast and we've sold a couple of them.
[00:23:13] Todd Taskey: That's a vertical that people really like. The elective medical business. Those guys were a [00:23:20] scratch over a million of EBITDA. It took me a month to find three offers for that business and we got a great buyer for them and they're in due diligence that'll close [00:23:30] next month. So anything ~that, ~that is really verticalized and there's not a lot of others that are either available at the [00:23:40] time or in that space is nice.
[00:23:44] Corey Quinn: Why do you think that is?
[00:23:46] Todd Taskey: Just because it's something I can get and understand. For [00:23:50] example, that buyer is private equity back, focused on dentistry and elective medical. My guy does, ~uh, they do a lot, ~the majority in plastics. And then a little bit in LASIK, [00:24:00] and they're like, Oh, geez, man, LASIK. We're not doing that. That would be great for our book because ~we're going to, ~we plan on selling next year in 26.
[00:24:08] Todd Taskey: Right. So it's just [00:24:10] a matter of when you find the right fit, then you can lean into getting the type of valuation that you're looking for.
[00:24:19] Corey Quinn: I've heard you [00:24:20] say when you work with a client, you want to, in some respects, discount their vision. Can you explain why you take this approach and what should a business owner [00:24:30] expect as they go through this process or more specifically, What is the value of the process? ~Even if a transaction doesn't occur for.~
[00:24:36] Corey Quinn: ~them, ~
[00:24:36] Todd Taskey: Great question. You know, it's interesting because we had a [00:24:40] client who's coming on. We're going to record a podcast next week. And he said, this was the greatest experience I've had. I understand my business so much better. Here's how we're growing it. All the stuff [00:24:50] he learned from going through the process.
[00:24:54] Todd Taskey: So this is what I tell people when you go through a process, you're going to talk to a bunch of [00:25:00] very smart people that know your space, know this industry, and do not care about your feeling. And the only reason you won't do a [00:25:10] transaction is because of value. If you don't get the value you want, ~you will hear and ~you'll hear it over and over and over again.
[00:25:18] Todd Taskey: ~The reason why. ~Now say, Corey, listen, [00:25:20] man, you just, you do too much of this for us. ~And, and, ~and you don't do enough of that. ~And then there's the other thing that we don't want, right? It's this, that, and the other thing. ~And then what happens is, ~so ~you look in the mirror and you're like, I have a [00:25:30] specific diagnosis to what makes my company more valuable.
[00:25:34] Todd Taskey: And now for the next two years, I'm going to work on this, that, and the other thing, because the market has told me [00:25:40] this will create more value. ~Or, ~or you look at yourself or you talk to your partner and you realize this, that, and the other thing. Do you have [00:25:50] any idea how difficult that is to get that right?
[00:25:52] Todd Taskey: And so when you get such clarity by going through the process that it is like a [00:26:00] masterclass in how to run your specific business that ~you, ~you can't get. It's like the greatest consulting you could get.
[00:26:08] Corey Quinn: ~it's, ~it brings, it makes it all [00:26:10] very real, right? You get.
[00:26:11] Corey Quinn: to understand ~what the, ~what the market really is and what, ~what~
[00:26:13] Todd Taskey: Well, I have one client today, we started the process 18 months ago. He didn't get what he wanted [00:26:20] and ~he, he, ~what he learned was I need to have a sales function. ~He went, ~he's got four salespeople today and ~a man, ~a sales manager. Their revenue is up. His [00:26:30] EBITDA went from like a million eight ish. They're about three now in two years.
[00:26:34] Todd Taskey: ~And, ~and it's just humming along and we'll go back ~to, ~to a process in the [00:26:40] spring of this year. And he'll get much more than he thought when she became so convicted about spending money [00:26:50] on marketing because he had heard it over and over and over. ~We, ~we interviewed and we got offers from four different private equity groups and they were all going to do the same thing.
[00:26:58] Todd Taskey: Very simple, [00:27:00] not easy, but simple.
[00:27:03] Corey Quinn: So you mentioned, ~uh, ~obviously company financials are really important. They have to be rock solid for a deal to actually [00:27:10] go through. What are some typical or common financial mistakes you see agency owners make that actually can jeopardize a transaction? [00:27:20]
[00:27:20] Todd Taskey: Yeah, so we don't do it anymore. When somebody comes on as a client, we bring in a CFO and go through their financials in the way that a private equity group [00:27:30] will. Has to be accrued for properly, you have to be on accrual, not cash. Doesn't mean you have to change anything about your business or the way you file taxes, but you have to be [00:27:40] GAP compliant, which means you have to be accrued for properly.
[00:27:43] Todd Taskey: So,~ So, yeah, we don't do it anymore. If you have that done, ~the number one reason why deals shift is because the buyer comes in and does quality of [00:27:50] earnings and quality of earnings is to make sure that they're reporting it right. ~And, ~and maybe it's a little bit of, maybe we can, ~you know, ~get the EBITDA down a little bit because of different things, right?[00:28:00]
[00:28:00] Todd Taskey: One example, we've done plenty of deals where ~client, ~our client has 30 or 50 people offshore in a low cost center, [00:28:10] but they're not employees. A private equity group has to make them employees because that's consistent with local law and U. S. law. That means there's got to be benefits paid. There's got to be other stuff that's going to [00:28:20] drive up the cost.
[00:28:21] Todd Taskey: We got, we've got one group with that right now and we're out in front of it. And we've told them, you got to make this adjustment in, then it was about 200 [00:28:30] grand out of a five ish million dollar email business. So we, you know, we. Hold them that up front. They're like, Oh, no, no, no, no. That's not a [00:28:40] problem for us.
[00:28:40] Todd Taskey: We understand blah, blah, blah. And I've had it in many cases where you get through due diligence and like, geez, man, there's a couple hundred extra. We didn't expect it. ~We got to, ~we got to adjust the EBITDA down by a couple [00:28:50] hundred. And that's completely factual and completely true. Sometimes you can mitigate that in advance when there's a real competition for the company.
[00:28:59] Todd Taskey: But if [00:29:00] you're surprised by, at the end, after you've signed an LOI, there's no way to recover. So you've got to have really good financials. Part of our engagement fee we spend [00:29:10] on, ~on, uh, ~a finance team to go through it and make sure that it's accurately reported.
[00:29:14] Corey Quinn: I could imagine because you probably have eyes and just ~your, ~your background, you and your team's [00:29:20] background can be able to help bring the agency owner along, see these things maybe in a way that's different than what they were expecting before they get into these
[00:29:28] Todd Taskey: We have ~a, ~a client right [00:29:30] now under LOI. and it was a special situation. He's like, listen, ~we're not prepared. ~We haven't prepared ~our, ~our books for a transaction. We would have run the business differently. So, okay, well, how [00:29:40] so? And we went through all of those components and we added them all back.
[00:29:45] Todd Taskey: most buyers at this size understand [00:29:50] they're not expecting your financials to be perfect. But we need to understand them well enough to describe those to a buyer. [00:30:00] So they understand, yeah, I did a transaction last year where my client is homeschooling their children. Teacher is an employee [00:30:10] of the company.
[00:30:10] Todd Taskey: Okay. Well, we're not going to do that after close. So we're adding it back and the car and the travel ~and the, and the, ~and all the stuff, right? [00:30:20] Buyers are fine with that. They understand the way the world works. we just want to make sure that we're. Reporting it all properly.
[00:30:26] Corey Quinn: You mentioned that this specific case, ~they would have run the, ~they would have run the business [00:30:30] differently. Is there any kind of universal truths that agencies should be aware of ~when ~as It relates to running the business to, ~to set them up, some ~set themselves up, ~excuse me, ~for, ~uh, ~not being surprised.
[00:30:39] Todd Taskey: It [00:30:40] is, I use the expression getting skinny for the wedding. Buyers have seen it, right? ~You, ~you went from five customer [00:30:50] success managers to three. How come they're overworked? Their utilization rate is through the rubber. I mean, it's stuff like this, private equity is like, well, or whoever the [00:31:00] buyer is, buyers are really smart people.
[00:31:02] Todd Taskey: And they're going to get literally into that level of granularity and due diligence. Last year in January, you had five [00:31:10] customer success people. You only have three today. How come? Because ~when, ~when I see your EBITDA is up, part of that's due to growth, but part of it is due, [00:31:20] even though you're growing ~your, ~your COGS, your, your SG& A is down, you used to have four salespeople.
[00:31:26] Todd Taskey: Now you have two. you're not going to fool anyone. So ~there, ~there is [00:31:30] no preparing for you say, here is a great company. We are doing great stuff for. Wonderful clients. That's what people value.
[00:31:39] Corey Quinn: [00:31:40] I noticed you mentioned at the beginning that you are seller, you represent the seller only why have you set your business up like that? Why is that important?
[00:31:47] Todd Taskey: you know, we, I enjoy working with sellers. people [00:31:50] always will question if you work for a seller and the buyer, are you ever skewed that maybe you're gonna, you know, you're friendly with this buyer or everything like that. [00:32:00] So, I don't, avoid that conversation. We always and only represent the seller and yeah, that's just our view of the world.
[00:32:09] Corey Quinn: *What would be your parting *[00:32:10] *advice, particularly for an agency owner who is Interested, let's say, in a three year time frame, what are the things they should be doing today to prepare for a *[00:32:20] *transaction, let's say, three years down the road? *~*What's the most important things they should focus on?*~* *
[00:32:22] Todd Taskey: *So I'll give *~*a, if it's okay, *~*a little bit of a plug. The best answer to that. Is listen to other agency owners that have been down that road. *[00:32:30] *And that's who we try to talk to on the second bite podcast. So you can go listen to some people there *~*at the end of the day, *~*the question, the buyer is going to *[00:32:40] *ask, *is *what do I get when I buy this?*
[00:32:43] Todd Taskey: *And I'm assuming that the employees are going to stay. Are they happy here? Are your *[00:32:50] *customers happy? What's your retention? What's the likelihood that they'll retain *~*and, *~*and is the revenue recurring? So those should be all the things that you should *[00:33:00] *focus on. And *~*the, *~*all of that is hard to do and do well, right?*
[00:33:04] Todd Taskey: *And I think it starts from having good people that are happy, good, happy employees, make good, *[00:33:10] *happy customers, and that makes a good, happy P& L and then a balance sheet and everything else. Always just grow a good business*. And that's the [00:33:20] best way to prepare yourself for some type of a transaction.
[00:33:23] Corey Quinn: Thank you. ~Okay,~ last question. What's your motivation?
[00:33:26] Todd Taskey: Mine personally, you know, [00:33:30] working with sellers, working with. Founders that have built something from nothing and help them [00:33:40] monetize that and get money in their pocket and everything else. That's great. Helping them fulfill a vision. it's a, a great superpower to have, if [00:33:50] you will. It is a ton of fun.
[00:33:53] Todd Taskey: It's nerve wracking. It's stressful. ~It's anxiety. ~It's exhilarating. It's all of [00:34:00] those things. And I know that when we do a transaction for a client, they'll remember it for the rest of their life. And to play a role in [00:34:10] that with an entrepreneur that has really built something is ~Is the, you know, ~you know, the greatest career fulfillment I could imagine.
[00:34:17] Todd Taskey: So ~I, I, ~I love the work.
[00:34:19] Corey Quinn: We didn't get a chance to [00:34:20] mention it previously, but I know that you're very relationship focused, and what you just shared reinforces that. It's not about the transaction, it's ultimately about the [00:34:30] relationship.
[00:34:31] Todd Taskey: ~Well, I mean, it is, it's about, ~well, I mean, ~here, ~transactions are ~so hard, ~so hard to get done and when you can get one accomplished and it starts from [00:34:40] way at the beginning, right? We don't get people retrading on our deals because they realize the buyers do, how difficult it was for them to be selected [00:34:50] as the buyer,
[00:34:50] Todd Taskey: And they know that either because they've gone through a process or we've got a process coming if they don't, that Amazon company I [00:35:00] mentioned to you. We're talking to three groups right now, and we're going to do a process in May. So we're going to run a full process and go to [00:35:10] market in May. Because of the relationship, I'm taking it to three groups that I know really want to be in Amazon.
[00:35:15] Todd Taskey: And I know those guys fit my client's objective ~really, ~really well, [00:35:20] because he wants to get some money, but ~he wants to, ~he wants to be. The president of Amazon for a bigger business. ~Right. ~And these three, the personalities fit their desires for growth, [00:35:30] fit the way they treat their customers, all that stuff fits.
[00:35:33] Todd Taskey: So if you make an offer and you shift on your offer, then we'll just go to market in May. ~I don't, ~
[00:35:39] Corey Quinn: [00:35:40] Yeah,
[00:35:40] Todd Taskey: right. We're not desperate to do a deal. ~I have brought this to you. ~Please don't F it up. Right.
[00:35:46] Corey Quinn: Not paying the wanting it tax, Right.
[00:35:47] Corey Quinn: No desperation, no commission
[00:35:49] Todd Taskey: Exactly. ~Correct.~
[00:35:49] Corey Quinn: [00:35:50] Beautiful. Thanks, Todd. So where can people reach out to you? In addition to listening to your second bite podcast, where can people find you? Reach out, connect
[00:35:58] Todd Taskey: Yeah. The easier, you know, you can [00:36:00] find me on LinkedIn. you can see my name here ~on the, ~on the video. T A S K E Y is my last name. You can go to second bite podcast. ~Uh, ~that is attached to our website. You can track me down [00:36:10] there. And if you really get stuck, you can reach out to Corey and say, Hey, how
[00:36:13] Todd Taskey: do I get Todd's email and I'm sure ~he'll, ~he'll give it to you, but it's Todd at Potomac business [00:36:20] capital.
[00:36:20] Todd Taskey: com
[00:36:20] Todd Taskey: Corey's a great conversation. Thanks for having me.
[00:36:25] Corey Quinn: Absolutely.
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