27 Dec The New Guy’s Perspective
Matt Lockhart 00:05
Hi, everyone, welcome to the Shoot the Moon podcast. I’m your guest host, Matt Lockhart partner here at Revenue Rocket. Our regular host, President and CEO of Revenue Rocket, Mike Harvath is out today. So you know, as they say, when the cat’s away, the mice will play. As a reminder, revenue rocket is the premier M&A and growth strategy advisor for IT services companies worldwide. And we’re excited that we’ve done 70 of these podcast and we’re moving forward. So with me today is my partner Ryan Barnett. Ryan, how are you doing?
Ryan Barnett 00:48
Hey matt, I’m winning the day and win of the week. And it’s great to be on here with you and happy to sneak a podcast in when Mike’s away. And to that, you know, Mike, like, had some great ideas. But I think the one that we want to really go after is as Matt, you’re the newest member of the team here Revenue Rocket. So you joined in? Was it 2020 21?
Matt Lockhart 01:12
Well, it was super early in 2021. But time certainly flies, right?
Ryan Barnett 01:18
It does. I feel a week in the technology industry is worth a year or so maybe you’ve been here years by now. But before that you were really an operator in an IT services business. And I thought today, what a great opportunity to take a step back and understand what it’s like to be on the other side of the table in deal making. Compared to running your business, you’ve got some really insightful things that sellers or buyers just may want to learn from. So today, I’d love to pick your brain. And at the same time, you have this thing that that the old veterans is industry don’t have, which is what I like to call it beautiful navety, you are able to see things the lens that of just not knowing what can be, like bad. So you can overcome things that normally would be a huge challenge for others. And you have this new view on the world that has helped us grow as a company through that strategic operator lens. So today, you know, I’d love to know, Matt, why do you why do doing revenue rocket? And it tell me the tell me the overall kind of what makes you interested in m&a?
Matt Lockhart 02:33
Well, thanks, Ryan. And and I’ll tell you that naivety is going away quickly, right? It’s you say, a day and in the technology space and and combined in the m&a space is is like a year elsewhere. I think the growing amount of gray hairs on my head are testament to that, you know, I for those that don’t know, I was a customer of revenue rockets for years and years, when I was in my role in a custom application development firm, and you know, we did some great things with the Revenue Rocket team, some great growth strategy work as well as some M&A opportunities. And so I had that, you know, I really had a taste for it, and, enjoyed the opportunity to meet, you know, other companies and understand, you know, their goals and initiatives and, and see if there could be a strategic fit in and joining our, our old company and, then just, you know, the the knack for putting good things together is something that I’ve always been able to do. So I I think it was a really good fit and transition. And but to your point, yeah, a little bit of not knowing what I didn’t know. And so it’s been a great education, even though we, you know, I got I was able to get deals done when I was on the other side of the table. There’s a whole bunch more to it that I didn’t understand at that time.
Ryan Barnett 04:15
It’s interesting, I think one of the parts that has been a challenge in, in this business for others is that it has its own vernacular. And it has it’s a certain language that you really only understand when you’re in it. And M&A has a bit of its own vernacular as well. How has having a technology background help you look in a company that specializes in essentially IT services companies?
Matt Lockhart 04:52
Yeah, I think that’s a great point. Ryan, I you know, there’s a whole bunch kind of unpack there. Yeah. First and foremost, you know, technology is changing and evolving and has been at a super rapid pace, you know, really faster than, you know, anything that has occurred before in, in commerce and industry. And so being able to keep up with the evolving technologies and their applications to, you know, enterprise businesses, and is, is extremely important. And I think that, you know, not just for me, but you know, I know that you’ve had background in it, as well, Ryan, as well as Mike did. And so, you know, one of our strategic advantages is that we have been in those chairs in the past, now, mine was more recent than, then yours, but that allows us to, you know, sort of put ourselves in the shoes of both buyers as well as sellers in the marketplace, and really be able to understand and assess those first two fifths that we talked about, you know, the cultural fit, and the strategic fit. Having been in that seat before, I think it really gives me and, and gives all of us a leg up and finding those you know, right combinations, you know, where one plus one can equal three,
Ryan Barnett 06:37
I think you just nailed a critical component, it as an operator, you learn about what matters in the business. And if you’re finding coming from perhaps an investment banker in a financial position, and all that matters was the spreadsheet that and ultimately ended up driving some mathematical equations, you miss out on the nuances of what it is to detect on culture, and to to dig in on the strategic fit. And as a generalist, it would be very hard in this industry to, to not have the background and understanding of some very complex issues, it would be near impossible to jump in and understanding the language of cybersecurity today, and the 50 different categories that are within us, or to understand the nuances within custom application development firms and the shift to new technologies like cloud, or even understanding what Cloud means. If you had a generalist to try to explain cloud in a in a general way, you’re not going to find the right fit or right buyers or right sellers within that.
Matt Lockhart 07:47
A bsolutely Ryan, I mean, you look at at surveys done across boardrooms, in terms of, you know, their rating the success or failure of acquisitions, and, and the amount of, you know, failures are really quite high. And, you know, and in almost all of those cases, the spreadsheet would have said that success was all but inevitable. But, you know, that’s why, you know, business and business isn’t done from behind the spreadsheet, you know, a ensuring that the strategic plan can be achieved, through the acquisition is, is critical. And so often overlooked, is the cultural fit, you know, because at the end of the day, especially within IT services companies, it really is all about the people, and everybody being, you know, on on the bus and and running together.
Ryan Barnett 08:58
Right, right. Not to transition a tiny bit, if you’ve been in that, that role of which you had some transactions that you helped acquire companies, but you also helped sell the company that you were at. And I’d love to understand, you know, what’s it like to run a business while selling it? And what advice can you give to potential sellers if they’re going down this path?
Matt Lockhart 09:26
Yeah, there’s a couple of pieces there. And you know, I’ll give people smarter than I some credit, you know, where you run your business every day as though you are never going to sell it. And that’s one important aspect. Even if you know that in the back of your mind, you’re setting up to sell or you’re interested in and closing a chapter and starting a new one. You just gotta be diligent about continuing to run the business and make decisions as though you’re going to continue to build and grow your business, regardless of where you’re at. I think that’s super important. You know, we see so many times where, you know, sellers are, they, they’ve sort of gotten to that point they’ve gotten over that hump of yeah, now is the time, and they start to not pay attention. And, and the business, you know, starts to show some cracks. Because of that, you know, execution is extremely hard. Execution is a day by day, minute by minute exercise. And when you take your eye off the ball, you know, that’s challenging. And so, you know, I think that, you know, building upon that, when you are focused on continuing to build value within your business as an operator, well, you’re, you’re really putting yourself in the best light for a potential acquirer. Because you are demonstrating the things that you do very well, how you serve customers, uniquely, you know, how the service capabilities are extremely competitive, how your ability to serve customers at a, you know, higher level of success is demonstrated, all of those things are, are, you know, critical for just running a great business. Well, they’re also critical, you know, for demonstrating your attractiveness when you’re going to sell the business.
Ryan Barnett 11:51
And it seems like you’ve got to always be the consummate salesman, whether it’s a deal of your, for your own products or a deal of selling your company. Do you find is there is there a market difference in selling a product and a service and or service and selling a company?
Matt Lockhart 12:12
Well, it’s certainly, yeah, there’s differences, right? I mean, it’s, it’s a, I guess, it’s maybe a higher level game in selling your business, because there’s so many components to it, right? You know, one similarity, though, is, is you’re, you’re selling the value of what’s going to happen in the future, you know, when, when you are out selling technology solutions, in the highest value way, you’re selling the benefit of the outcome, that is going to be derived by obtaining the service, and, or the, you know, the technology solution. Similarly, you know, when you’re selling your business to an acquire, you are selling the the future value, the ability for, you know, a force multiplication and groped the ability for a faster expansion of capabilities, be it product capabilities, or service capabilities, you’re selling the future vision of how your team is going to, you know, fit well within an acquiring company. And, and, and, and add to the, you know, the value that cultural value, the, the capabilities value, the strategic value of that acquiring company. So, the similarity is, is that you’re selling outcomes, or the potential for outcomes that can be achieved. Now, yeah, and the, sometimes it’s, it’s easier to sell, you know, commodity products than it is to sell, you know, really transformational services. In the same way, it’s, you know, sometimes easier to, you know, sell sell capabilities than it is to sell a company.
Ryan Barnett 14:12
I think that one of the things we’ve learned is that an acquisition can be one of the most unnatural acts of business and a combination is just as overall difficult. And if you can be that salesperson, and being able to execute and putting together a deal, it’s, it’s, it’s like a large enterprise transaction, it takes a lot of sheets, shareholders, and it takes a lot of stakeholders and a lot of coordinating everything to get the right deal to the table. Not easy.
Matt Lockhart 14:43
Now, it’s a it’s a great point, Ryan. That was one thing that I think has been I wish I would have known then what I know now in the sense that this is really hard. You know, some of the things that I’ve I’ve immediately gained is that You got to be transparent. If you’re a buyer or a seller, right, you just got to be transparent. Here’s who we are, here’s what we do, here’s what we do really well, here’s where we have gaps, right? The greater the level of the transparency, the the easier it is to find those right Phipps and to, to lay out the, you know, the plans that are going to create future success. You know, I don’t think it’s a mystery to anybody that, you know, there’s there can be a lot of, there can be a lot of characters, you know, out there. And that comes through really, really quickly, you know, once you’ve seen a number of these situations, it’s easy to call BS on people. And there’s a lot of it out there, right. And so, you know, if your intention is to find, you know, future value and success, boy, be transparent. I mean, I just can’t enforce that enough. In nine short months, it has really come true time and time again.
Ryan Barnett 16:23
Absolutely, it’s a the, if you have works, they will come out. And so it’s oftentimes better to address them. At the same time, you’ve got to be quick to understand what your value is in the transaction and what you can bring someone else. So there’s a there is a bit of putting your best foot forward and being the best that you can to the other party, that is there.
Matt Lockhart 16:52
Yeah, bi directionally. If you’re a buyer and or a seller, you’re putting your best foot forward without a doubt. Right, but you’re not, you’re not making stuff up.
Ryan Barnett 17:01
Right, exactly. And your advisor shouldn’t be making stuff up for you either. That’s one thing that’s been interesting. Now, what’s what’s been the biggest surprise, coming into to this deal making world?
Matt Lockhart 17:20
you know, I think that maybe a bit of a surprise, and again, it’s, uh, you know, I wish I knew, then what I did is, is, you’ve just got to be really consistent, I mean, and I just say it in a negative light, but just, ya know, sometimes you got to kiss a few frogs, right? Before you, you find the right fit for your business. And that’s not to say that, you know, there’s a whole bunch of frogs out there, it’s just that they’re not the right fit for your business. So you’ve just got to stay consistent, it takes a little bit more time than I think anybody would wish for. Because, you know, it’s a super competitive environment, it’s very crowded, you know, sellers, or potential sellers are literally getting a call or an email inquiry, almost every day, if not multiple times a day. And so, you know, that just, that creates a hard environment to wade through all of that, and, and find those, those great opportunities. And so, you know, I think that’s probably one of the bigger surprises is that it just takes a level of consistency on both sides, both selling the business as well as in in if you’re in acquisition mode. And, and so just prepare, be prepared for that, it’s not going to be easy. It’s not going to be a hey, I’m hanging a shingle and you know, the next day, I’m going to have five people, you know, offering to buy my business or, or on the on the flip side, hey, I’m coming with a big check. So you know, it should be easy to go buy a bunch of companies, it’s just it that doesn’t work that way. Right. And so I think that’s been one of the bigger eye openers, right?
Ryan Barnett 19:29
It’s really interesting to hear. And taking that in light. Coming from that strategic operator level. Is there any advice that you could give to an M&A advisor or an investment banker? Based on your experience in the roles that you had?
Matt Lockhart 19:51
Yeah, well, you know, it’d be it’d be nice to say, hey, go become an operator for a period of time so you can you know, walk in the shoes of your clients that that’s probably not real realistic. I do think that, you know, we do, I think a really good job and we we work really hard to understand our clients businesses, and you know, what makes them tick? What makes them unique? You know, where if they weren’t gonna, you know, if they weren’t gonna sell their company? You know, what are their plans for growth? Where are areas and opportunities for improvement? On the flip side, you know, when we’re working with our by side customers, how are they doing organically on their growth plans? And and how might acquisition targets, you know, further their, you know, organic growth opportunities, you know, creating that creative value, I think, you know, understanding our customers at a deeper level, you know, allows us to, again, you know, increase the odds of finding the best fits, and so, you know, that’d just be Yeah, I think it’s just common sense, right. But, you know, easier said, than done, because, you know, on the advisors need to be managing a lot of different, you know, customers and a lot of different scenarios. So it can be hard to, to dig in at a deeper level. But, you know, the more that we do, and the more that we can, the more successful that, that I know we are.
Ryan Barnett 21:43
Absolutely. And Matt’s had a it’s been a really good talking to today. And it’s been great having you on the team. It’s always nice to hear what has been working recently. And, well, we work with firms every day, that third party perspective, it’s something that’s very valuable that we have, but it’s everyday you work away from it, you lose a bit of what it was to operate in this current environment. So your your insight and, and your attitude working here has been fantastic.
Matt Lockhart 22:15
Well, thank you, Ryan, I, you know, I’ll just, I’ll just say that it’s been great nine months, we got a lot of work to do. I mean, you know, we’ve been celebrating some success, I think that we’re gonna have, we’re gonna have, we’re having a great time working with great customers. We’ve had a whole bunch of great deals happen this year. And I know that in our forecasting, you know, we’re going to be achieving new heights next year and, and our team is growing. So I’m not going to be the new guy anymore. And so it’s it’s super fun to to be part of this growing team and in what is wallet challenging. That’s super exciting space.
Ryan Barnett 23:03
Yeah, I agree. I agree. Man, I’ll turn it over to you. Any follow ups, your last thoughts, other thoughts? I’ll let you do it.
Matt Lockhart 23:11
Well, no, Thanks, Ryan. It’s been great spending a little time thank you to everybody who tuned in to the shoot the moon podcast today. You know, we have a whole bunch of fun doing these. We hope that you get a tidbit of value out of these every week that we’re doing it. I think we’ll tie a knot on it as our as our fearless founder says and we look forward to seeing you all next week.