About Neil Schaffer:
Prior to founding Carlton Advisors in 2024, Neil Schaffer was a senior executive or co-founder of innovative, high-growth companies in manufacturing, distribution, financial services, media, and software. Neil has led 10+ M&A transactions, including several successful exits, and 20+ financing transactions, including IPO, secondary public offerings, and private equity and debt offerings. Neil also served as CFO of two technology joint ventures, sponsored by global advertising holding companies and by broadcasting & cable TV giants, that developed and licensed technologies which today are core components powering connected and streaming TV advertising. Carlton Advisors is a strategy-led CEO advisory focused on driving faster growth, improved performance, and bigger exits for B2B companies. Carlton works in concert with business leaders who may not have the time or capacity to focus on growth strategy or the corporate development experience to confidently conduct acquisition or exit transactions.
Megan Quick: Hello and welcome back to The Creative Stack, a show about the intersection of creativity and technology. I'm your host, Megan Quick, and I am joined by Georg Dauterman, the president of Valiant Technology and my co-host. How are you doing today, Georg?
Georg Dauterman: I'm doing great. A little warm here in New York, but otherwise can't complain.
Megan Quick: It's a little wet and warm in New York City.
Georg Dauterman: That's how it is though, it's part of August, you gotta accept it if you live here.
Megan Quick: Very true, just take the proper precautions, that's a PSA to the whole city. Georg, we're joined today by a guest we've been so excited about having on. It's Neil Schaffer, CEO and founder of Carlton Advisors. Neil, hello, how are you today?
Neil Schaffer: Fantastic. Thanks, Megan, Georg, for having me.
Georg Dauterman: Our pleasure, so excited to have you. I met Neil a couple of years ago, we've become really good friends, and I thought he has such good insight, such a great view of how businesses operate, so different from how so many people I know approach it. Neil, I'd love to hear your origin story, how'd you get to where you are, how'd you get started? I kind of want your Spider-Man origin story here, if you can imagine.
Neil Schaffer: It's a long career, so I'll keep it brief. I have a low tolerance for boredom, bullshit, and bad actors. In other words, I value growth, integrity, and good intentions. As a result, I've moved around a lot in my career. I've founded or co-founded six companies, scaled seven others, mostly as chief financial officer. I've done one IPO along the way, a bunch of secondary offerings in that company, raised a bunch of debt, raised a bunch of private capital, sold four businesses, two of them pretty successfully. And I also lost three businesses in calamities. I lost a business on 9/11, I lost a business in 2008 with the financial meltdown, and I lost another business following COVID. So a fair amount of success, a couple of pretty bad outcomes on businesses that external events just crushed.
Georg Dauterman: I can attest to that myself, I've started and failed a couple myself, or been part of ones that failed, where you have to make that hard decision that this isn't working, which is one of the hardest decisions you ever make, sunk cost, your ego tied into it. I can't really imagine, especially the ones that are outside of your control.
Neil Schaffer: Yeah, in all three cases they were largely out of my control. No one expected 2008's financial meltdown to take as many businesses down as it did.
Georg Dauterman: It was a really ugly time. And 9/11 was one of those black swan events, completely out of the blue. This is the twenty-fifth anniversary this year, but it was one of those beautiful September days, and then, kapow. It's very hard.
Neil Schaffer: Literally out of the blue. So I left corporate America in 2024 and wanted to continue being a problem seeker and a problem solver. I stood up Carlton as a strategy-led CEO advisory. I like the challenge, the intellectual stimulation, and the satisfaction of helping good people achieve their dreams. Faster growth to a bigger exit tends to be the focus of most of the practice.
Georg Dauterman: That's really interesting. So as a small business owner or operator, you get stuck in the day to day, you're just in survival mode so often. How do you get people to start having that strategic thinking, especially on the financial side, which I think is usually one of the weakest parts of small businesses?
Neil Schaffer: I agree that a lot of small and mid-sized companies get caught up in the daily grind, they just focus on daily operations. I consider inertia and status quo to be every business's largest competitor. Most companies just don't invest enough time and energy into corporate strategy. I want to define a term for a moment. I've got a very particular definition of strategy, I've adopted it from Roger Martin, who I think is the best strategic thinker in the world today. A strategy is an integrated set of choices that compels desired customer action. I draw a hard line between strategy and planning, and I've pretty much stopped using the term "strategic planning," because I look at them as two different things. Planning is what you do with, or intend to do with, your resources, where you own the checkbook. I'm going to buy this, hire that, build a factory. Planning is what I intend to do.
Georg Dauterman: Right, it's an activity, it's the action of the thing.
Neil Schaffer: But the key is that I'm in control of the checkbook, I decide to spend my resources in a specific way. Strategy is what we do to compel other people to take action. The reason it's hard is because you don't control customers and you don't control your competitors' reactions. We don't live in a static world, as soon as you do something, there will be a reaction to it.
Georg Dauterman: Correct. And you factor in outside influences beyond anyone's control, your employees, regulation, a thousand things, the world is infinite. The strategy has to be strong enough to survive those unintended inputs and still be valid.
Neil Schaffer: Totally, because it's about sustainability. There are risks of creating a new strategy and having people copy it, there's intended and unintended actions from outsiders. But the key is that you're trying to use your approach to doing business to cause customers to take the action you intend them to take. Every company has a strategy, because every company is the result of all their prior decisions. You arrive at a strategy whether it's written, formal, intentional, or accidental. It just may not be codified.
Georg Dauterman: Right, and the other piece of that coin is that taking no action is actually a decision too.
Neil Schaffer: Correct. You decided to do nothing.
Georg Dauterman: And unfortunately most people don't see it as an action or a decision, don't see that they're still in control, but you can always do something, whatever that may be. I think a big piece of it is that people don't step out and think about it, when you start working with clients, are they even stepped out of the day-to-day grind to think about these questions?
Neil Schaffer: That's a great point, that's part of the value add I tell people I bring, I come in with no operating responsibility. I don't have to worry about products being shipped, the operational issues in the business aren't actually mine. My only focus is on revenue growth, earnings growth, valuation growth. That's it.
Georg Dauterman: Right, it's more pure. It sounds very pure, I love it.
Neil Schaffer: It's basically what CEOs should actually spend all their time thinking about and doing. But in small and mid-sized companies, CEOs frequently have to wear a lot of hats, some they shouldn't wear, and they spend a lot of time in the business, not working on the business. So very often an outsider who's been in over a dozen companies, maybe in your industry, maybe not, it almost doesn't matter in a lot of cases, comes in to help them find signal within the noise and uncertainty. That transfers across any business: where are we, why are we doing what we're doing, what's the intention, where are we going to play, how do we win, what do we need to do to support it?
Georg Dauterman: I wonder, when you ask people those questions even casually, do they get uncomfortable really fast because they don't actually have the answers?
Neil Schaffer: That's totally fine, there's nothing wrong with that. The discovery process with new clients or prospects is designed to uncover where they are in their journey, how they spend their time, what they're trying to accomplish, what their big goal is, and whether they're actually going to spend the time and energy to accomplish what they claim they want to accomplish. And it's totally okay if I haven't spent time with this and don't know the answer, I welcome wanting to know the answer.
Georg Dauterman: I think that's an interesting way of looking at it. If you don't have the answer, that's okay. It's when you lie to yourself, or tell other people what they want to hear, that's the bigger issue, and much scarier if investors are looking for an exit or something like that.
Neil Schaffer: Totally. So let me come back to the question you started with, how do you introduce strategy. I use a tool, again I'll credit Roger Martin, he developed a framework called the Strategy Choice Cascade. It's a fairly simple, straightforward framework that focuses on five things: why do you do what you do, where do you play, what industry, sector, or geography, how do you win, how are you better, what are your key capabilities that support where to play and how to win, and what management systems do you have in place to make sure your strategy can actually be operationalized and executed. They're all interrelated, you have to answer all five questions at the same time, they cascade down. But using that framework, people are able to articulate it, literally down to one page. There may be a binder this thick behind it, but it's basically one page: why are we, where are we, and how are we.
Georg Dauterman: Interesting. That's actually even deeper than I thought, it makes me wonder, does our staff even know this? Do the prospects we want to work with know that we're thinking about these things?
Neil Schaffer: That's why the biggest challenge for a lot of companies is alignment. Alignment usually starts with, does everybody know the purpose, is everyone on board with the why, does everyone understand how they contribute to the goals. There's a whole process that comes from being clear, transparent, and intentional about why we do what we do, where we're going to do it, and how we do it better than anybody else. If you do those things, you find yourself in a virtuous circle: pricing power, pricing authority, which drives bigger gross margins, bigger earnings, which creates internal cash flow to invest in marketing, R&D, innovation, which strengthens your go-to-market, which drives more sustainable growth. It starts with engagement and clarity, being transparent with your strategy with your team is enormously important.
Georg Dauterman: I assume many times when you start working with people, that's not the case.
Neil Schaffer: Very often it's not. Part of onboarding clients is wandering around and asking everyone the very basic questions: what's the company's purpose, what's the strategy, what do you understand about the big-picture goals of this organization. Because you can't answer how does the cog fit into the machine, what am I doing that's valuable, if you don't understand what the organization is trying to do. You get five different answers from four different people about what the strategy of the company is. And all of that's fabulous, because you unearth it, and it's really easy to unearth quickly, all you've got to do is wander around and ask.
Georg Dauterman: And I think that's one of the biggest challenges, people inside the company don't even ask the question in the day to day, because they're so stuck.
Neil Schaffer: Right, and it filters through to being customer-centric too, it filters through to sales people, customer service people, account people, product people: go out and talk to your clients, not your prospects, your clients, the people who already trust you, like you, buy things from you, and find out what else you can do for them. You'll also find out the things they're unhappy with, because it's a great way to get feedback without actually asking for it. If they're going to fire you, you might as well know about it.
Georg Dauterman: That's true, it shouldn't ever be a surprise, it's almost like staff and that sort of thing. This is very cool stuff, and it gets into theoreticals, but what have you witnessed firsthand, beyond alignment, that you see are true principles?
Neil Schaffer: The alignment principles have a lot to do with creating and maintaining alignment throughout the organization. I've seen good and bad alignment from the board of directors down to the leadership team, sometimes there's clarity and good alignment where the board understands and supports what the management team wants to do, sometimes there's disagreement. So alignment within the team, alignment up and down the organization, it's mostly based on transparency, being clear with people about what you're doing, why you're doing it, why they're important to the mission, and why we're all going to benefit as a cohesive group. That brings you to shared values and positive culture, which in my opinion is the key to recruitment and retention. We hear a lot of people complaining about difficulty recruiting, and more often, difficulty keeping people engaged and on board. It's frequently not a compensation matter.
Georg Dauterman: Interesting.
Neil Schaffer: Compensation is a piece, but more often it's much more about purpose and shared values than it is about shared money.
Georg Dauterman: That correlates to the idea that people don't quit companies, they quit managers, because the manager isn't clear on what has to be done, and that manager may not be clear from leadership about what needs to get done. So no one really knows what's going on, or it's living in one person's head in some kind of fantasy. I think that's an interesting thing about shared values and transparency, shared values that are transparent, which I think is really the key here.
Neil Schaffer: I think it is. I do get pushback sometimes, well, if I tell everyone what my strategy is and someone leaves or has loose lips, could my strategy be adversely affected? The general answer is, even if people know what you intend to do, they generally won't know how you do it. That's where having unique capabilities, unique management systems, and a unique approach to the way you do business matters, by definition your strategy is designed to be creative. Here we are on The Creative Stack, it's designed to be unique. If you're simply going to use best practices and copy your competitors, by definition you'll have a mediocre strategy, because there's nothing unique about what you're doing or how you're doing it.
Georg Dauterman: Right, and I think that's lost on a lot of folks. A lot of business coaching funnels you toward a best practice without the thought of why you're unique, why your company is better suited for a problem that needs to be solved, which is really what we're trying to do at all times.
Neil Schaffer: Sure, and best practices certainly have their place in operating a business, there are certainly best practices to employ for effectiveness and efficiency, but best practices don't have anything to do with the way you go to market.
Georg Dauterman: Right, how you describe your value, how you actually help your customers, how you treat your staff, that's part of it, it all ties in.
Neil Schaffer: And it's very hard for a disgruntled employee to take that knowledge and go somewhere and actually use it. It's very, very tough to steal someone's strategy.
Georg Dauterman: We always say, I could tell you exactly how we do everything, you'd probably have a really hard time doing any of it, because it's twenty-plus years of thinking, and unique combinations of it all. It's complicated.
Neil Schaffer: That's exactly right, you totally get that point. I think there's one other thing that's really important: companies often mistake net income for cash flow. That's another really important principle from a financial lens. A lot of folks chase earnings, EBITDA, pre-tax income, whatever the metric, and they miss the fact that growth requires cash. Every sale consumes some working capital, it'll ultimately come back, but in the meantime you're using up inventory, sitting on receivables, so accessing financial capital is usually a challenge for a lot of companies. Cash flow is more important than earnings in a lot of companies, and people forget that.
Georg Dauterman: I've heard it described as, you can't eat earnings, whereas cash flow feeds you and keeps you alive.
Neil Schaffer: That's exactly right. Very large companies are different, they live off their one-year and three-year plans and forecasts, they have to meet expectations, they're very serious about planning, budgeting, and resource allocation, because they live off their forecast, not off their treasury, their treasury is bountiful.
Georg Dauterman: Right, and they have a lot more options and availability for borrowing.
Neil Schaffer: Of course, they can raise capital in a lot of different ways as long as the business is reasonably successful. But good CFOs raise capital when they don't need it, in any company.
Georg Dauterman: Correct, it's the insurance policy for the rainy day that may come, maybe even deeper than that, it's part of the process of what you have to do as a CFO.
Neil Schaffer: I've had this conversation over and over, when it's available, raise more money than you think you need. If someone's willing to give you money, don't worry about the dilution, that's a fiction, take the money.
Georg Dauterman: So, what are some of the biggest common mistakes you've seen? You're working with so many different companies and industries, what are the things you say, man, I've got to warn them about this?
Neil Schaffer: It's a bit the opposite of the principles we've talked about: not having access to capital, paying attention to the wrong metrics, being secretive about your strategy, even if you've written it down, keeping it in a black binder behind the CEO's desk and not telling anybody about it. These are classic bad behaviors that companies do for all the wrong reasons. I don't want to sell more stock because of dilution, I want to own a bigger piece of the company. If your goal is growth and you're taking on outside capital, you're doing it to reduce your risk, enhance your growth profile, to have investors who are hopefully good partners helping shepherd the business. Very often they're introductions to suppliers, customers, talent, there's a whole host of things good investors do for you.
Georg Dauterman: A good investor, it's a mutually beneficial relationship where everyone's trying to, and going back to the strategy component, the strategy is how you actually define and find that good investor partner who gets it, and you get it, and everyone's working toward it, which is very different from the adversarial relationship we hear a lot about in the media, but I think it happens all the time.
Neil Schaffer: I think that's right. One of the reasons it takes so long to raise capital, for almost any company except a very large public company with ready access, is the need to choose your investors carefully, you have to do as much diligence on them as they do on you.
Georg Dauterman: It's definitely a lot of dating before you get married. You want to be sure this is the right person, because in a small business it can be very hard to extract a partner or investor, almost impossible at times, it could ruin the business.
Neil Schaffer: I agree, it's a deep, long-life partnership, and ideally it produces good results for everybody, but we've all heard the horror stories about bad partners.
Georg Dauterman: A hundred percent, we've seen it coming and going. Many people I talk to, the bad partner situation is actually a fairly common theme in small businesses. So what do we do to avoid it? A lot of it's transparency and due diligence, that's a huge piece of avoiding common mistakes. What other good activities can people do?
Neil Schaffer: I think it's addressing problems head on, no sugarcoating, no self-delusions. Transparency and honesty with yourself, your partners, your team, avoids a lot of those issues, not being delusional about how your company is performing, believing things are better, or more difficult, than they actually are. Doing business is hard enough without people lying to themselves or to others.
Georg Dauterman: That's a good way of putting it. People take the hopium approach, well, I hope this is going to work out great, versus, let me tell you what I think is actually going to happen based on experience. That's pretty common.
Neil Schaffer: It's one of the words I keep out of my vocabulary most of the time, the word "hope."
Georg Dauterman: Especially for people who aren't very financially savvy, I'm sure when you're trying to explain what's happening, they get really defensive fast. So you have to help them through that. One of the things you mentioned earlier was raising capital and taking on partners, and I know talking to you that mergers and acquisitions, M&A as everyone calls it, is a big topic too. What are some of the things people can do to make that process smoother, or better prepare for it?
Neil Schaffer: M&A is obviously a big topic.
Georg Dauterman: It's all over, everyone talks about it constantly now, which feels different than twenty years ago when people talked about it but not nearly to the same degree.
Neil Schaffer: I think that's partially the nature of where U.S. business, especially small and mid-sized business, is sitting right now. There are literally millions of companies owned by Boomers and Gen X that are probably going to be transitioned, or attempt to transition, in the next decade. A lot of business owners anywhere from forty-five to a hundred and five are thinking about next steps, transitions, how to monetize the assets they've built, retirement planning. I hear it all the time because I'm focused in that area, but it's in the news constantly too.
Georg Dauterman: I hear it constantly too, in our space and the technology space, but also in plumbing and HVAC, it's monstrous, it's huge.
Neil Schaffer: That's exactly right. Businesses like HVAC and plumbing have become targets of private equity funds very interested in platform companies in that world, and building out data centers is exacerbating and accelerating that trend, because someone has to physically build the thing called a data center that has the chips, the photons, the optics, there's actual concrete being poured right now in a lot of places.
Georg Dauterman: I've worked in and out of data centers over the years, I don't think people really understand what they entail. It's not what you think it is, honestly.
Neil Schaffer: No, even in the small, forgetting about the giant gigawatt plants that are hundreds of football fields, even small co-location facilities, if you go back far enough into the telecom bubble, when Global Crossing was buying up and leasing as much real estate in West Manhattan as they could, people trying to be on the OC-48 in Virginia and New York City.
Georg Dauterman: Trying to get that sub-millisecond ping time so a trading app would work as fast as humanly possible, that microsecond advantage really matters.
Neil Schaffer: Exactly, but even just taking a floor in a building and laying in racks and cabling, that was complicated even twenty years ago.
Georg Dauterman: Megan's heard me say this many times, not to bring it back to 9/11, but the company I worked for back then, after 9/11, moved all our assets out of Manhattan because we had people all over the country relying on it, out to a co-location facility in New Jersey. It was the first really robustly built, secure facility. There's sort of a negative stigma around data centers today because people don't really understand what they are, but there's a ton of work around them, managing the electrical system inside a data center is a massive undertaking.
Neil Schaffer: A hundred percent. And that was before cooling, really hot clusters of chips inside big boxes, thinking about liquid cooling of silicon chips is in and of itself a mind-blowing concept.
Georg Dauterman: Hot aisle, cold aisle. The engineering is staggering. At a different business I used to work closely with a data center out in New Jersey, and just the management of their fuel, the power generation on site for emergencies, because they were doing E911 and had medical center backups, very sophisticated, because they had life-safety components in their facility, so they took it really seriously, some serious heavy engineering involved. Anyway, I tangented there, sorry, Neil.
Neil Schaffer: I'll bet. Let me go back and do a quick rundown on M&A so the audience gets a handle on this from my perspective. A company can either be a buyer or a seller, you have to think about M&A as both sides of a transaction. Large companies frequently do both, they're busy buying and divesting assets regularly and become very skilled at it. Private equity funds too. One of the challenges for smaller companies without a lot of M&A experience is you're going up against people who know most of the tricks.
Georg Dauterman: Right, fiduciary duty and all that.
Neil Schaffer: So one of the rules is to put a good team around you who really understand the transaction lifecycle. If you're going up against a very big law firm with your brother-in-law the real estate guy, you're making a mistake. Having the right experts in the room is enormously important, because it's a process the buyers frequently understand much better than the seller does.
Georg Dauterman: Like the first time I bought a car, I had no idea what I was doing, I went for a ride and wasn't driving myself. I think it's a similar thing for many people. How many transactions has the average business owner done compared to a private equity firm?
Neil Schaffer: Most business owners have never sold their business, never bought a business, most will do that transaction, if they're lucky, once, and hopefully do it successfully.
Georg Dauterman: Right, it's sort of a one-way trip in many ways for many people.
Neil Schaffer: Some businesses are active in trading assets and buying and selling businesses, but the vast majority, the plumber, the HVAC guy, are running the business and growing it organically, and ultimately may try to sell it. But if a company wants to expand quickly as a buyer and has access to capital, buying another business accelerates growth, sometimes by double digits, sometimes by a hundred percent or more, often the fastest way, granted it has risks and unfamiliar issues to deal with. But if you're serious about double or triple digit growth, it's very hard to accomplish any other way than buying assets, which very often means buying competitors. One of the things I like about this marketplace, with so many companies starting to consider selling their assets, is that it's very much a buyer's market right now. If you identify competitors with capabilities you'd like, geographic presence, whatever it may be, a lot of those companies are likely to be for sale, whether they know it or not, whether they're actively marketing or not. If you can approach them early in the life cycle, before they go to market and start auctioning the company, there's a lot of opportunity to pitch an opportunity before the RFP.
Georg Dauterman: Right, you could even help define the RFP for the person to some degree, an off-market deal could be better for everyone involved, faster, smoother, tighter cultural integration because you might know each other already, a thousand reasons why it could be a better fit, especially if people want to work together for the longer haul. So much of it comes back to strategic alignment. If you're a buyer going to a potential seller, you want them to really know why you're doing all this. There's negotiation, sure, but at the end of the day you should both come out thinking, this is going to be a net gain for both of us.
Neil Schaffer: Correct. And everyone needs to understand the duration of the seller's involvement and what a transition looks like for the people coming into another company. Usually the buyer will be five to twenty times larger than the seller, and you're usually being inhaled into a larger company. What does that mean for the folks who are staying, for the people you're buying the business for in large part because of, the customer relationships, the IP, the brand, their success in their marketplace. You don't want those people leaving, that's actually a big part of the value.
Georg Dauterman: Right, you want the right people in the right seats because they're already there, versus trying to replace them all, which is very painful.
Neil Schaffer: In the best case, I've done this a couple of times, where the VP of sales at the company we bought was more capable and talented than the VP of sales already at my company, so we changed some roles and titles because that's the guy we actually want running sales for the bigger business, because they're just a better executive. Very often, acquiring businesses is a great way to acquire top talent without trying to find them one at a time.
Georg Dauterman: Right, a ready-made team that hits the ground running. Sorry, go ahead, Neil.
Neil Schaffer: So in terms of selling a business, when investors or owners want to monetize their asset and transition, either way M&A tends to follow a well-worn, repeatable path: strategy and planning, search and communication with prospects, qualify candidates, deal forming, capital and valuation, integration planning, close, and then post-merger integration. It's a very linear process, each step takes a fair amount of time and effort. One of the big challenges for business owners, whether raising capital or doing a transaction, is that it's very hard to spend forty hours a week running your company and then forty more hours trying to raise capital or sell your business. It's demanding.
Georg Dauterman: I've heard that from many people, knowing folks who've done it across different industries, it can definitely eat your soul for a couple of years if you're not careful.
Neil Schaffer: It's a lot of work, like a second job on top of your already busy job, and you have to figure out what in your existing job has to be delegated or deleted, because you can't do everything. That's part of the preparation cycle, understanding what you're getting yourself into while preparing the business, which is also a big part of preparing yourself for the transaction as a business owner.
Georg Dauterman: It sounds like one of those things you only really know after having navigated M&A, sort of like being a parent, I suppose.
Neil Schaffer: A little bit, going into the unknown. I think it was Mike Tyson who said everyone has a plan until they get punched in the face, you learn a lot from being on the field. There are a couple of things I work hard on with people. One is preparing yourself for the sale, carving out time and energy, delegating things you probably should have delegated years ago. You need to decide what you want to do after the deal is done.
Georg Dauterman: It's funny you say that, I've heard that's one of the biggest problems for many people.
Neil Schaffer: So much of your identity and social network is tied up with your company, the people you work with, your customers, your suppliers, your world and your business are really hard to separate, especially as an executive or owner. A lot of people don't really succeed in selling their company and just retiring into the sunset. It's a very hard transition. Unfortunately a lot of companies are running away, I'm done, I'm tired, I want to get rid of this thing I've been carrying, monetize it and retire, and I ask, okay, what do you want to do, what do you value, where do you want to go, where do you want to live, how do you want to spend your time? You're not going to have all these people you've been working with for years in your life anymore, because they're going to be working and busy. It's all going to be different, your life is going to be very different.
Georg Dauterman: You can't have that call in the middle of the afternoon anymore, hey, want to grab a cup of coffee and chat? No, I've got stuff to do, man, I gotta go.
Neil Schaffer: That's exactly it. So in addition to preparing your business, you have to prepare yourself. Preparing the business, the steps are fairly straightforward. The things I've learned to accelerate a deal, reduce risk, and increase valuation: documenting playbooks and SOPs, it sounds so boring, but you have to write down what's between your ears and get to a place where you can pass that knowledge to a buyer in a way that lets them buy the business and know how to operate it the way you do. You have to write this stuff down. If you don't, you'll start getting valuation dings during diligence. If you don't have organization charts, make one, even if it's not perfectly representative of the true organization. Having documented playbooks, rule books, SOPs, employee handbooks, a really good data room, every permanent file, financial statement, contract, relationship, thoroughly documented. I tend to get into that practice, usually working with outside counsel, I'll try to get clients to create a data room at the very beginning of an engagement. Let's look at those contracts, are you allowed to assign them without the customer's consent?
Georg Dauterman: Right, severability and assignability clauses.
Neil Schaffer: Do you have to ask permission before you can assign this in a transaction? If you identify those issues early, you can go back to your customers with a modification, negotiate to replace a clause with a new version that allows transition in a change of control.
Georg Dauterman: It's so interesting, so many people, when they're starting the business and their first attorney drafts that contract, they're probably not even thinking about that, they're trying to protect you from liability, terms and conditions on pricing, not thinking about severability.
Neil Schaffer: That's right, and that's just one example of things inside your contracts where you think you have a valuable long-term agreement with a client and you may not. The best time to find that out is years before you're going into diligence, because then you have a chance to fix the existing contracts, and a chance to fix every new one you enter into.
Georg Dauterman: Yeah, you want to go deep into it early. You don't want to compound it by making it worse.
Neil Schaffer: Correct. Those are some of the key examples. Preparing yourself for the stress, because it's an emotional roller coaster, seller challenges are probably more common than buyer. Validating and negotiating valuation is huge, making the case for why your business is worth what you think it is, you can't just make it up, you have to support it with numbers, even if the numbers aren't really what people are buying, there has to be comparable valuation metrics or you'll lose the argument. Being on stage the whole time, constantly pitching, being very responsive to the deal schedule, it takes over your personal schedule, there's deal mode, you're on deal time. When you're getting toward closing, it's really like you don't have a life, you're just going to close, those last few months are really demanding. Dealing with people who believe a contract is an agreement to continue negotiating, love those people. People who show up at closing, very often professional service providers, accountants and lawyers, with big, outrageous, unsubstantiated bills, just because there's money on the table, they'll go after it if they're lacking some integrity. Some of it you can stop, some you can address, some you just have to be ready for, you're going to get whipsawed along the way.
Georg Dauterman: It's going to be a process, for lack of a better word.
Neil Schaffer: And it's very emotional, if you're doing a good deal with a serious payday at the end of the rainbow, it's super emotional when you feel like the deal's not going to happen, because you're already starting to count on it.
Georg Dauterman: You don't want to count your chickens before they're hatched, but it happens a lot.
Neil Schaffer: It's really hard not to, you start shopping for boats and cars, even if only in your head, even if you're not actually doing it.
Georg Dauterman: I can imagine, because you've been working on it so long. Alright, one more question for you, and then I'll let you go, because I could keep talking to you for hours, you're one of the most interesting people to talk to. Is there something you're really proud of, where you changed someone's trajectory, or really helped them grow, almost like it was magic, obviously not magic, but it felt like such a big change or outcome?
Neil Schaffer: There have been a few. Some with companies I was employed with, some with clients. But the first thing I'm going to modify is it's not I, it's we, there's no I, this is very much a team sport. One that was really exceptional was a technology company I was involved with, basically one of my first clients at Carlton. They were developing text-to-video and moving-image animation applications using AI, this was just a couple of years ago when they formed the business. They knew their end game when they started, which was super important, I always ask people why they're in business and what their end game is, that Stephen Covey notion of starting with the end in mind. These guys were very serious, we're doing something pretty high-tech, the big players were paying attention to text-to-image, still image, not moving image yet, Sora didn't exist, Veo didn't exist, those came a year and a half, two years later. They knew from the beginning, this company's not going to last forever as an independent thing, we're going to build this, get to a level of adoption and revenue recognition that says, this is real, people like it, they'll pay for it, there's a use case, particularly for making good quality advertising and marketing material a lot less expensively, helping companies that typically could only do billboard-type advertising actually do moving image. We know people in and around the television advertising space, one of the heads of product at this company came from there. Part of the exercise from the start was, we intend to sell the business in thirty-six months or less, because otherwise we're going to go out of business, because we think OpenAI, or Google, or someone like them is going to come into the space, theoretically we should sell to them, but in all likelihood they're too big to buy us, we're not big enough. So we identified a number of companies, including Adobe, Dropbox, Getty Images, and developed commercial relationships with all of them. Dropbox became a big investor, probably the biggest investor in the company. Ultimately the plan came to fruition, the big players came into the space, our investors closed their wallets, said, you guys need to sell the company, but we don't want to put more money in, so hurry up, take pay cuts in the meantime. We scrambled very quickly because everything was already in place, the data room, all the diligence material, the pitch decks, everything was already built. So when we started looking like a melting ice cube, we were ready to execute the plan straight away. We went to the usual suspects we'd hoped would buy the business, they all passed, which happens, bad timing, too small, a thousand reasons or excuses, but it wasn't meant to be. We identified a PE-backed advertising technology company that had recently hired a new CEO we knew, who liked to do bolt-on acquisitions. We went to him, he said, I like this, I like you, I like the tech, I like the use case, I want to buy the business, and we got it done in about ninety days.
Georg Dauterman: Which is very speedy, especially for a technology-heavy company, that's very complicated.
Neil Schaffer: Getting the sale is very often just finding your way through the right door, not even the right company, the right door inside the company, try to sell something to Verizon, getting in the right door is where all the magic takes place, you can talk to a lot of people who even if they want to say yes, it's just not their job. So we got to the CEO, he liked it, got his team on board, we closed the deal in ninety days, and everyone who wanted to stay had a job, including the founders and the leadership, they all took roles inside a company doing multiple hundreds of millions a year in revenue, where they'd been doing a hundred grand a month in monthly recurring revenue. They got inhaled by a much bigger company, they didn't get the premium they might have hoped for, the sugar-plum-fairy dream of selling for a huge amount didn't manifest, but the return of all the investors' capital, plus a little for the founders, everyone made a little money, everyone kept their jobs and got better ones.
Georg Dauterman: They didn't get their boat money, but they did okay.
Neil Schaffer: And the technology's still alive and in market, being built and improved, and they now have more budget behind them to continue to extend and expand in the marketplace. It was close, it almost didn't happen, there was a very good chance before we identified this opportunity that they were just going to run out of money and fold.
Georg Dauterman: Which would have been a shame, because the technology was solid, it had value, it did something, and those people are valuable. Instead of them scattering, this other company got them, put them in place, and now they're going to generate a next-level return for both themselves and the company, which is amazing.
Neil Schaffer: Exactly, that's the goal. Sometimes maximizing exit value isn't necessarily about dollars and cents, sometimes it's exactly what you just described, keeping the technology in place, keeping the team together, letting it be embedded in something bigger where new use cases evolve and you have new opportunity with something valuable that didn't get scattered to the wind.
Georg Dauterman: Very powerful. Alright, Megan, take us home, because I could keep talking to Neil for another five hours, and I know no one wants to listen to us that long.
Megan Quick: This conversation was so good, and I think really informative, that a few people out there would be thinking, no, no, I need more of this. But Neil, then they should call you.
Neil Schaffer: We've touched on a lot of things, but obviously can't go as deep as I would with someone who's truly interested in doing a deep dive.
Megan Quick: This was so fascinating in so many ways. During our conversation I was typing some really great things you said, Neil, because you've got so much wisdom and insight. I love that you labeled yourself a problem seeker, there's a fearlessness to that. I don't want to say reckless, but you're willing to trust yourself through the process, like that last story, it sounds like it almost didn't happen, but it did. "Wander around and ask" was one of my favorite things you said, I was like, that's what business is, wandering around and asking.
Georg Dauterman: It's actually shocking how much you find out by just asking the dumbest question possible.
Megan Quick: And how many people aren't doing any of that at all, who aren't leaving their offices or talking to their team or their clients.
Neil Schaffer: It's one of the ongoing costs of COVID and hybrid and remote work, people aren't out actually seeing the inventory, wandering around the warehouse, seeing how things get made and moved around, whether physical goods or virtual goods. The other thing is taking that into the marketing and sales aspect of businesses, encouraging salespeople to go out and just ask, go ask your customers what's going on, how they're doing, what else you can do for them. If they like you, they'll tell you, and they'll ask you to do more for them. If they don't like you, they'll tell you that too, and it's up to you to act on that information. Knowledge is power, if you have it and choose to act on it, you'll turn someone who was potentially on the verge of leaving back into, why did you hire us in the first place.
Georg Dauterman: Sometimes that's how you build the most raving fan, the person who says, you guys suck, but here's why, and you don't need to. Let me tell you how. Sometimes you realize, I didn't even know that was happening, let me fix that, other times you realize, maybe you're not the right fit for us, and both of those are the right answer, that's the thing you have to remember.
Neil Schaffer: Exactly right. And the other thing Megan wrote down is that status quo is your biggest competitor, inertia is your biggest competitor. Doing nothing is a choice, and you pay a big price for not engaging with your team, and a big price for not engaging with your customers.
Megan Quick: I loved that, that was incredible. I really hope our audience is primed for this information. Neil, you've given us so much wisdom and so much to think about. If folks want to find you after listening to this podcast, where can they find you?
Neil Schaffer: CarltonAdvisorsLLC.com is the website, neil@carltonadvisorsllc.com is the email address.
Megan Quick: Great. I'm positive you piqued some interest here, thank you so much, Neil, this was so enriching, thank you for taking the time to join us today. This has been The Creative Stack, everyone, I hope you enjoyed it, we'll see you next time. Bye, everyone.
Neil Schaffer: Thank you, I'm happy to do it.
Georg Dauterman: Thank you so much.