Robert Koenig of Woodbridge International: 5 Things You Need to Know if You Want To Build, Scale and Prepare Your Business for a Lucrative Exit

As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit, I had the pleasure of interviewing Robert Koenig, Founder & CEO, Woodbridge International.

Robert Koenig founded Woodbridge in 1993 after having grown Koenig Corporation, an art supply retail distribution and manufacturing company, from $5 million to $100 million in sales. While president of Koenig Corporation, Robert completed 30 add-on acquisitions and drove organic growth to capture 10% of the U.S. art supply market by the time the company was sold to a strategic buyer.

Since leading Woodbridge international, Robert has continued to push the boundaries of what M&A can do. He has pioneered the use of video marketing into its sell-side process creating highly successful presentations that have benefited clients worldwide. He has developed a unique process that confidentially casts the widest net in the industry. And he’s built a proprietary database of 300,000 strategic companies and 4,500 private equity groups that quickly identifies the greatest number of buyers.

Robert’s innovative, marketing-driven approach to M&A and his time-line driven auction have elevated Woodbridge to a well-respected, sell-side middle market force to be reckoned with around the globe.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

When I first started the business, it was after 13 years wearing a suit every day to work for big companies. I started out of my house, and I was still wearing a suit while working from home! I was concerned about goofing off in the house, not being as productive. I wanted to be in work mode. I very soon learned that I was self-motivated, wasn’t going to goof off. So, suit and tie at home lasted for just a bit more than a week, then it was shorts and a T-shirt and I was as productive as ever.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Not everything is as good as it seems and not everything is as bad as it seems.” This mantra was very helpful for me during the 2008 financial crisis. An economy that was record-setting suddenly crashed and we had to figure out what that meant for our business, our clients and staff. We first started using video conferencing in 2009 — instead of flying to meet prospective clients, or the clients flying to meet us, we could directly patch in and introduce 5–6 people from our team! This reduced expenses, saved time and we showed that we were a bigger, experienced firm, rather than flying out and having clients meet just me. We started with videoconferencing to the point that even pre-pandemic, when everyone else began “Zooming”, rather than meeting live, approximately 50% of our clients hired us without a face-to-face meeting!

Thank you for all of that. Let’s now shift to the main part of our discussion. Can you tell us a story about how you were able to build your business from scratch and, scale it? (differentiators)

When I first started my own business, I needed clients. So I did what most financial services companies do: I began networking with lawyers and accountants. My closest referral source was a lawyer I had used for my prior business, and he was terrific, very helpful in referring people to me. He gave me terrific advice: “This is all nice and exciting. I’m referring you business, you’re getting them as clients and closing their deals. But if you really want to grow this business, you need to figure out how you can get leads and referrals 24–7 without being dependent on me, other lawyers or accountants or anyone other than yourself.”

That stuck with me, so I started investing in Direct Marketing which has really transformed our company. Once we began generating our own leads, we then devised a system and process to screen the lead, pitch them and follow up. After tweaking and modifying this system, we know with 99% accuracy, which type of people we need to put in place for different functions. Again, the key is that we’re not dependent on personal relationships or key employees for revenue generation — we have a system that we’ve vetted and fine-tuned over the years, which is our biggest differentiator from other financial services firms.

Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”?

• Institutionalize your revenue generation; get away from revenue generation dependent on personal relationships or key employees.

We’ve sold several companies who had minority owners as key salespeople; the founder/majority owner did not include them in our sales process and when it came time to sign on the dotted line the minority owner wanted their pound of flesh! Without that key salesperson on board, there was no sale. Sometimes this derailed the deal and if it closed, it was very precarious, and the owner had to come out-of-pocket for more money from the sale. Plus, now the buyer’s spooked as they’re wondering how committed the salesperson will be going forward. So in addition to institutionalizing your revenue generation, the other crucial trait is to be transparent with your employees!

• Set up processes and procedures for all aspects of your company: revenue generation, servicing customers, shipping, delivery, production, sourcing of materials and labor. The business should be dependent on processes and procedures, not personalities or individuals; each employee needs to be replaceable.

We were selling a distributor who had the exclusive North American rights to a desired high end consumer product. There was no contract in place with the European manufacturer of the product and the relationship was dependent on the two founders of the respective companies. Our client saw the light and did put a contract in place; the ultimate buyer modified the contract a bit, but more importantly had to get comfortable with the fact that the Founders employees, on both sides, were comfortable interacting and doing business with each other, versus just Founder to Founder.

• Pick your spots, then take your shot!

Meaning don’t try to be all things to all people. If you do, then you’ll get diluted and offer nothing special, and won’t have any competitive advantage. Once you’ve figured out your competitive advantage, deploy resources! Start small and increase resources as you see it bearing fruit. There are too many companies I’ve spoken with over the many years I’ve been managing mergers & acquisitions that have thought of angles they could pursue but never experimented or tried any of them., i.e., “It’s hard to find good people” or “I just don’t think it makes sense.” Meanwhile their performance over 5–10 years is flat or declining. There’s a reason why: You need to try new methods and experiment so you can learn from your mistakes and grow. Don’t beat yourself up if things don’t work out initially. Embracing your mistakes is the only proven way to learn. The mantra of “No risk, no reward” is truly on target here.

• Make sure you have timely, accurate, accrual based financial statements.

Accurate financial statements are crucial to obtaining financing and selling your business. As an example, we were selling a machine shop in New England for $12 million. There were significant delays in due diligence as our client didn’t have the ability to produce timely, accurate, financial statements. While gathering and confirming the financial records, the business had setbacks, losing 60% of revenue, so accordingly, the business value declined significantly. We ultimately got a deal done where the seller will eventually see upside down the road, however just a 6-week delay getting the crucial financial information in order cost him 90% of his liquidity from the sale.

• Work yourself out of a job.

When you start a business, it’s all on you! The ideal scenario to successfully grow and scale your business is to hire people to replace all of your functions and get to the point where you’re the final say on capital outlays, strategic direction, mergers and acquisitions. This is the hardest leap for entrepreneurs to make. Customarily when Founders sell, they want to move on as soon as possible to their “next thing.” Our clients that have worked themselves out of a job have transitioned out over 3–6 months after the sale and those that haven’t have longer transition periods, typically 18–24 months. Plus, the ones that have worked themselves out of a job will see more cash at closing versus others.

In your experience, is there a difference in approach for building a service-based business versus a product-based business when you have the intent to eventually sell the business? Can you explain?

By virtue of its nature, a product-based business is more scalable versus a service-based business; the more people dependent the business, the more complicated it is to scale. Scaling and growing any business is best accomplished by setting up processes and procedures — the simpler, the better! The more dependent any business is on processes and procedures, versus personalities or individuals, the more transferable it is to a buyer.

How does one go about the process of finding a buyer?

You are the expert in your field. To be most efficient, and most successful in selling your business, it’s highly recommended to hire an M&A firm to run a disciplined process. (And yes, I realize this insight is coming from the CEO of an M & A firm — but with 30 years of successful business deals made, I truly believe this is best for companies with $1 — $15 million EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization.)

An experienced M&A firm will present your company in the best possible light, while being transparent and highlighting growth opportunities. The initial marketing is blind, so that the buyers don’t know who the company is, however they have enough of a sense to understand what the company is and can decide if they’d like to pursue it.

After buyers are approved and bound by a confidentiality agreement, they receive a presentation on the company along with financial results, annual reports, marketing materials, etc. enough information to submit a bid in an “auction process.” Competition drives price, terms, value and structure, people want what they can’t have!

After the bids are submitted the M&A firm needs to vet the bids to categorize the buyers. An A+ buyer is a publicly held company or Private Equity Group that has a clear, strategic angle, ample liquidity and experience to close the deal and strong fit… plus they’re chasing it and are motivated. A C- buyer is someone that sounds O.K., they have some experience, but they don’t have any of their own money. The more robust the auction, the greater amount of bids, the better, highest quality buyers. But keep in mind that it only takes one!

From start to finish the entire process is anywhere from 5–9 months and is intense……you’ll learn a lot about yourself, your business and the M&A firm!

One last note on this topic: Even if you’ve already had conversations with potential buyers, it’s not too late to get an M&A firm involved. At Woodbridge, about 35% of our clients are already speaking with buyers prior to hiring us and some even at the point that they have offers from buyers! As soon as we’re engaged and run our process, about 65% of these buyers drop out, as they understand they’ll now have to pay fair market and they don’t want to pay fair market! The 35% of potential buyers that stay in, we always move their bids up even higher than initially proposed.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?

Big picture, as you are building your business with the goal of a successful exit, you’ll make it a more appealing company overall — to exit, for the long term or to go public. Attributes that get buyers excited are growth, scalability, differentiated products or services, and a strong management team. Even if it’s just to hold it for the long term and derive residual income, you need to keep reinvesting in the business to keep it competitive — otherwise you won’t have residual income!

Can you share a few ways that are used to determine a good selling price for the business?

The only way to understand the market value of your business is to run a comprehensive global auction, without a listing price. Prior to that, in order to understand realistic value ranges it makes sense to speak with M&A firms who have sold businesses similar or related to yours, in the same size range and share the attributes of your company with them, along with historical and projected financial statements. The M&A firm will then convey to you a sense of realistic value ranges for your company, typically buyers express their idea of value as a multiple of adjusted EBITDA, or profits.

If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I’m passionate about this: A two-year mandatory national service program for kids immediately upon graduating high school would do wonders — for the kids directly and for society. If they don’t graduate high school, then when they reach the age of 18. Intentionally mix them in by socioeconomic backgrounds. Long term, this would tie us together more closely as a country, kids would mature quicker and be more focused on future ambitions while giving something back to their country. Businesses would also be bringing in more mature, more worldly individuals who may have developed their own passions during their time of social service.

What is the best way for our readers to continue to follow your work online?

Our website has a number of blogs and videos where readers can learn more about the most effective means to sell their business. You can find us at www.woodbridgegrp.com.

Thank you so much for joining us. This was very inspirational.