Technology has proven to become a very important part of the business landscapes in the recent years. As such, it is vital that business owners learn how to leverage technology in disruptive and innovative ways for their own existing processes. Here to talk about all things business, especially in tech acquisition, is business consultant, Jim Barnish. Jim shares with us his experience in tech acquisition and the things he did in his own family business. He then gives some business tips and strategies when managing a small to big business. Let Jim teach you what you should think about your business as you start getting some traction and grow it further.
Tech Acquisition: Business Strategies To Scale With Jim Barnish
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My guest started doing M&A work back in high school and discovered his love for building things, businesses in particular. At first, he started small and eventually began helping business owners with acquisition strategies. This led to the world of technology where he now works with a group of investors to help founders grow companies. He credits his success to having discovered early in life what he calls the path to value. Using this idea, he builds his investment company around guiding entrepreneurs to go from discovery to scale. Readers, this is going to be a Matrix-like upload to anyone in business. Welcome, Jim Barnish, to the show.
It’s good to have you, Jim.
It’s great to be here, Mitch.
We’d love to know your story, Jim. Did you start doing M&A work in high school? Give us the whole picture.
It’s a mix of M&A work and process improvement. I started doing a lot of that strategic integration work early on where I fell in love with the idea of how companies grow, not only from the sense of how they grow from a path to value but the inner workings of that. The operational side, the cultural side, and most importantly, some of the strategic initiatives that ultimately drive something that we at Morgan Hill like to call operational engineering.Good business triumphs over good products all day long. The better the business, the better the returns. Click To Tweet
In high school, while I was playing in my band, smoking pot and trying to get laid, you are helping businesses scale. Come on, Jim. You’re embarrassing me.
That’s not to say that I wasn’t doing a little of that on the side. Luckily, I was put in a few situations where there was a strong need. Most of those were family business-oriented. I got a chance to have a crash course in learning as our business grew. We did a number of acquisitions over the course of the next fifteen years.
You mentioned family businesses. They are absolutely the greatest source of personal evolution. Some of you might think you’d be cursed if this were to happen to you, but if you’re lucky enough to be born into a family business and get a chance to participate, it’s a blessing. Most people, particularly young people, start at the low end and work their way up like their dad or granddad did when they started the business. That must’ve been an exciting adventure for you. What type of business was it?
It was a distribution and overall supplies, roofing distribution business. That’s since evolved into a number of different focus points, but the core of it is roofing distribution.
Roofing distribution means the distribution of the components necessary to either initiate a new roofing project or a repair or replacement project, would that be right?
Absolutely. Any of the supplies that one would use to build either a business or a residential home. You start with roofing, but we do a lot of work with the siding and other building materials as well.
How long has this business been around?
It’s been around way longer than myself. It’s been a real evolution for the business growing from about $30 million in revenue to over $500 million in revenue. We’ve seen some crazy growth over the last fifteen or so years. A lot of that growth stems from not only the M&A side of acquiring businesses and figuring out ways to leverage those new opportunities and shared services that you can leverage between those opportunities. Also, the cultural and strategic ways that you can take advantage of the one plus one equals three scenario in developing and building better businesses.
You mentioned culture and my first experience was after I sold my software company to Sage PLC out of the UK. All of a sudden, I had to merge the culture of my little company. We had about 100 people coming from Massachusetts and moving to Texas. In Massachusetts, we had an incident where an intern sued us for sexual harassment because one of my managers had a picture of a woman in a bikini pinned to his pinboard behind his desk. She felt like that was a violation and she brought suit against the company.
What was interesting is that when I moved to Texas, the woman who was responsible for HR turns out to have been an incredibly beautiful blonde wearing miniskirts, as short as the bikini picture was. When I told her that story, she left out and she goes, “You all will never see that around here.” I was happy to hear that because it had become an uptight situation, but at the same time, we go back to culture. I had emerged the social structure and the culture of these two groups of people. As we made more acquisitions, my job was to bring them together into the same organization and do that over and over again. Let’s talk a little bit about how you did that and what you did in your own family business.
A lot of it stems from the evolution of leveraging technology. As we started to move from being a sole distribution business to a business that thought about technology in a disruptive and innovative way to leverage some of our own existing processes. Whether those were around supply chain or other technologies, we started to see not only the increase in revenue and efficiency but also the value that was equated from that. Value can be attributed on a scale in a number of different ways with strategic being the first and foremost value driver. Lowest level of values table stakes where that’s equating from financial value or EBITDA.
As we started to see more of that strategic value on the highest level, a lot of that came from leveraging technology but also being smart about the acquisitions that were made. That’s what catapulted me into thinking about doing this in a world of technology, software, hardware and tech-enabled services. Seeing the value that was derived from all of the work done on the technology side and how that wasn’t just one-for-one with revenue. There was a ton of strategic value that was exhibited in some of those decisions. I’d made my way into some other businesses doing similar work around M&A and the value kept growing.
When you think about what is valuable inside a business, some things come to mind. Certainly, people products, services and service teams, but there’s also technology. If one company has built a superior technology platform and is complementary to the company that is acquiring them, that might alone be the reason to make the acquisition. Not often, but potentially it could be. What did you find as you began the process of looking for acquisitions for your family business?
The most objective value I found at the base of the value pyramid is the higher level is, the more subjective and personal types of value that it contains. At the bottom of that period, table stakes value like acceptable price, regulatory compliance and ethical standards. As you work up that value, you start to see more economic value, performance, improved top-line numbers and things like that revenue. As you start to move up the pyramid, the ease of doing business becomes even more important, increasing a customer’s productivity, time-savings, reduced effort, access and relationships.The best way to maximize ROI is to infuse capital along with experience. Consider exceptional experience to be really the hidden X factor. Click To Tweet
When you move up that pyramid even farther, you start to see elements that connect to individual value, reduced anxiety, appealing design and aesthetics and things that drive either user experience, marketability or things that are connected to the leadership or team. You start to see that inspirational value or strategic value at the top, which is a great example of what the value would come to Microsoft when they forget what the amount times revenue was for LinkedIn. Something like 92 times revenue for a platform that had a lot of strategic value to their business.
We focused on what added that strategic value or inspirational value and that started to become especially true as I look at. It is the work that I did later in life at the Tribridge and other technology companies where we did a lot of heavy acquisition. That type of value in the way that when you fill an opportunity gap that you have in your matrix of value to the customer and to the market, it adds a significant amount of value to the business.
This is a great perspective. I’ve never heard anyone speak of this the way you do and the way you describe it makes it fairly straight forward. I can even understand it, which is terrific. You could tell us a story about an example of spotting value in another company that would not have been seen by someone else or by a competitor and then making an acquisition of that company. Do you have a story like that you could share with us?
Yes. One example was my co-founder. I was working at a cloud migration company a couple of years ago. As we were evaluating the market landscape, we noticed a lot of key trends that connected back towards the overall market around trends and technologies. Once they hit a 20% adoption rate, you’ll see an exponential increase in overall adoption, x86 servers and conversion to DVDs are good examples. Cloud migration was starting to see that same trend in 20% adoption across the organizations. As we were looking at a mass enterprise cloud migration provider to add strategic value to our business, we were looking to fill some of the gaps that our technology could not solve for. It was specific individual BI or Business Intelligence workloads, specific things that were connected to some of the large cloud providers out there.
Everyone knows Amazon Web Services or AWS, Microsoft Azure and Google, but there are others right behind where there’s been significant value and oftentimes have been around like IBM Cloud. We started to take a look at some of the things that had worked but started to fall off the map and find ways that we could buy some underleveraged assets or buy a few potential companies that would add a lot of eventual strategic or inspirational value to the business. It was something that we were focused on. One of those businesses was a DevOps business that was focused around BI.
As we looked at acquiring this business, we started to take a look at helping them productize some of their solutions as a partner of ours. We gradually started to move that partnership towards an acquisition conversation where we had already built up the trust. We had already helped them to become a leader in their own market and we’re able to take a look at what that conversation looked like as a potential acquisition.
Are you saying that you help them scale their business before you made an offer to buy them?
Yes. In this particular scenario, we did just do the partnership that we had in place. That’s not the optimal underleveraged asset conversation, but was a broader strategic conversation, which helped set us up with various particular special spot in their trust circle. Only we were in that circle and only we were able to put in a bid offer. In a lot of ways, it still helped a lot in terms of the conversation.
What you’re describing is brilliant. I was making fun of you for a second there, but what you did is you established the trust way before you even came close to making an offer. Put yourself in a position to be the only person to even put an offer on the table. Overall, that’s an incredible strategy. It’s one that would be a little dangerous for a beginner to implement, but still educational nonetheless. You made that acquisition and it was acquisitive to your business. Did you add their technology once it was fully developed to your service offerings or did you keep them separate and have them with their own product lines and brand?
It ended up being a little mix of both. Some of our technology aided in improving their tech-enabled services. Some of the combined technology helped to increase, not only the overall close rate in terms of providing a holistic solution but helped to add a lot of additional value to the customer.
Readers, Jim Barnish is a specialist in tech acquisition. He’s built a venture firm around his abilities and the abilities of his partners called Morgan Hill. I’m impressed so far with everything you said, Jim. Let’s get down to a much lower level in terms of a small business, one that’s starting or one that is just now coming up to speed. What do you recommend for people who are in the process of starting a company and are now getting some traction? What should they do or how should they think about their company or business that would be different than they normally would?
It starts with the fact that good business triumphs over good products all day long. The better the business, the better the returns. However, good business is super complex and arguably the single most sizeable hurdle to conquer for any company and also for those that invest in them. At Morgan Hill, we truly believe that the best way to maximize ROI, in general, is to infuse capital along with experience. We consider the exceptional experience to be the hidden X factor and high performers these days are a rarefied commodity.
What that means is that there’s truly a science and an art, but also a talent and aspect behind building a better business. Good business requires balancing nonlinear relationships between necessary business functions, whether that’s sales, marketing or operations. It also requires the idea of reaching a pinnacle when a confluence of circumstances is achieved, which causes the sum of each of those disciplines to become greater than the value of any individual part.
Jim, could you give us an example of that?The best way to maximize ROI is to infuse capital along with experience. Consider exceptional experience to be really the hidden X factor. Click To Tweet
No two opportunities are the same. However, oftentimes trends or configurations that are a part of building a better business. At Morgan Hill, what we’ve tried to do is segment how a company’s growth can be broken into stages. There’s your early discovery stage where you’re figuring out who you are, what your product is and who your customers are. There’s your validation stage where you’re turning those customers into recurring customers. There’s your efficiency stage where you’re starting to build some additional process to drive the business forward and scale where you’re starting to see exponential growth. The differentiator is when you take a look at those ideas around stages, discovery, validation, efficiency and scale, those aren’t stages that we’ve made up. Those are common stages in a company’s evolution.
When you combine those with the alignment of every area of a business and what you should be doing at what stage, you start to get a playbook of how to build a better business stage by stage and do so without getting in trouble or failing in a lot of the areas where people tend to. This is why some quote 97% of businesses fail and that is extremely true of tech businesses. My advice is to take a look at what you want to be when you grow up at that scale stage or even if you want to get to that scale stage and form a path to value based on building a better business by stage and by area of a company. In order to do that, you need help. You need the right talents and you need the right process. Without either one, you’re a little bit on your own. Getting good advice and getting good execution help is a big part of the journey.
I help clients do that every single day. At the same time, it’s rare to find a company that has figured this part out. I’ve done it on a far smaller scale than you have but having done it, one of the things that I wanted to say and I resonated a lot with what you described, is this idea of finding value in each stage of the business. For example, when a company starts value at the beginning stages, it might be much different than 1 or 2 years later after the company has grown. At that point, there needs to be a broadening of or shift to a higher level of value if you want to keep those customers. Is that something you’d agree with?
I’m thinking of you, readers, as I talk about this. From my perspective, if you’re starting a small business and you’re at that beginning stage where you’ve discovered what your own passion is, the idea would be to think about a way that will allow you to rise to the highest level. It might be helping others, supplying a product or a service or whatever that may be. I have a phrase that I made up a long time ago and I said, “The most important thing the CEO could ever do is to create and communicate.” Once the CEO drops below that level and start doing and getting involved in trying to work within the business, then that’s where inefficiencies kick in. For me, in the way I work with clients is I start looking immediately at the CEO. I look at their goals and their vision of what they want, and then I look at their activities and see if it’s supporting that. Most of the time, it isn’t. I would assume you have a similar process. Is that what you call discovery to scale?
That’s certainly a major element. Not only the leadership or the executive team and the roles and responsibilities that equates to that, but also what you should be doing and who you should be hiring to supplement and augment that CEO or that leadership team. To your point, hiring decisions, role and responsibility decisions, investment of where you focus on in the business and what level of effort you put your attention on in the business, it’s equating to the maturity and stage of a business.
If you are a small business and if you are reading this, Jim, where do you suggest someone start? Should they start with understanding what their passion is? Should they start with understanding what their customers might need?
It depends on the stage. If you’re early in your discovery stage where you don’t have many employees, concentrating on building and improving upon your product or service for your customers is number one. Is there a place in the market for this? Is someone willing to buy it? Are they going to be evangelists for your product? Any other stage of a business growth is concentrating on your internal or your employees and your overall talent is going to be number one because your talent and the team around you are going to concentrate on your customers for you. Your customers are going to feed your business. There’s this circular loop where if you always take care of and put your employees or your talent first, they’ll take care of your customers for you at that point.
This was a debate in the ‘80s and ‘90s and this started for me when I became a big fan of Tom Peters. He was a management guru at one point. He traveled the country and I traveled the country following him around like a groupie because it was such an important time in the history of my evolution. He seemed to have the answers to the things that I needed to understand better and one of those things was, “What is important and what comes first?” Here’s an example of what I mean. You set up your ladder of priority and you have three things: customers, company and employees.
Back then, what I remember Tom talking about was that the company is the most important because if there is no company, there can be no employees and no customers. That’s shifted. Now, what I have come to believe is that your employees come first and the reason I say that is because if you can keep employees not just happy but thrilled, then the rest of the business will take care of itself. Tell me where you fall out on that equation.
The only reason I separated that discovery stage from the rest of the growth in terms of product or you’re taking care of your customers first is that only the co-founders are the only people in the business at that point. I 100% agree that as soon as you have employees and as soon as you hire talent, they need to be the core focus. I truly believe they will take care of the customers for you.
When I build certification programs or I consult with companies on going on building virtual organizations, the biggest block to success is always the CEO. The reason I say it that way is because the CEO is used to managing the business a certain way. In either case, it requires that CEO abilities are enhanced significantly for the purpose of communication. When teams go virtual, when you start building certification groups of hundreds, if not thousands of people, if you as the CEO cannot communicate effectively to that group, the group falls apart. It’s as simple as that. It’s how the culture is transmitted from directly the CEO down to the troops. Without the ability to communicate, I have proof that teams will absolutely fall apart and begin the process of self-destruction. One of the key tenants of a great company is a CEO who continuously learns the craft and art of communication. Do you agree with that?
Jim, we’re at the point of the interview where it’s time for us to get to know you a little bit better. The way we do that is by asking a couple of silly questions I love to ask all my guests. Regular readers have seen these questions a million times, but never the same answers, at least not in the same show. Who in all of space and time would you like to have one hour to enjoy a walk in the park, a quick lunch or an intense conversation with?Good business requires balancing nonlinear relationships between necessary business functions, whether that's sales or marketing operations. Click To Tweet
There are quite a few people that I’d be interested in doing that with, but it would come down to two. The second would be Joe Rogan. He’s an energetic guy and delivers a meaningful story every time I listened to him, but before him, I would say Warren Buffett. His viewpoints and strategies around overall value creation are second to none. A few of his tenants that fundamentally stand out and are positions that I tend to replicate in my own philosophy around not only investments but life. Invest and live in what you fundamentally understand, but also be a lifelong learner and always focus on increasing per-share value or per-hour value over top-line revenue.
You get a much better metric of what you’re driving towards increasing the value of your business by $1 million with 100 employees. It’s not quite as meaningful as increasing the value of your business by $500,000 with one employee. I’d love to spend time with him to discuss how he’s been able to drown out all the noise over the course of his life and maintain both of those philosophies which lead up to being fearful when others are greedy and greedy when others are fearful.
If you have $1 million or $2 million to spare, you could bid on lunch with Warren. I know he does that almost every year. Next time it comes up, I’ll shoot you a quick note to remind you to pull out your checkbook and start bidding. How’s that?
That sounds great.
The other thing I wanted to mention about Warren Buffett is that I love the steady hand that he is. I love how he sticks to his core philosophy that he’s built decades ago to this day. As markets are zipping up and zipping down, steady Eddie there, Mr. Warren Buffett is just holding ground and doing what he knows has been right all along. That leads me to understand that that’s not just the way he is with investments. If you’ve never read one of Warren Buffet’s letters to investors, it will fascinate you. You could google that. They’re all online, 40 years of letters to his investors. Every one of them is like a college education. They’re beautifully written and there’s so much simple wisdom in them all. It’s a great exercise and worth reading. Have you done that?
I find it fascinating. I tried to stick with one as long as I can, but they’re 60 pages long. I’m part of the iPhone generation where my attention does drop a bit these days, but I do find them enjoyable and I do love them. Jim, are you ready for the absolute grand finale, the change the world question?Invest and live in what you fundamentally understand. Click To Tweet
I think so.
What is it that you are doing or would like to do that truly has the potential to change the world?
A lot of it connects back to the reason that we started Morgan Hill Partners in the first place, which is that there is a major gap in the way that investors and companies, especially tech companies, view the world. Early on in a company’s evolution, as you’re going out to raise capital, many VC investors will invest in a hundred companies, so that a couple will win with the hope that they’ll hit it big like the Uber’s of the world. I’d love to change the way that this is done in the venture capital landscape by providing the data that says, “Dependent on your stage, when you do X, Y and Z at 1, 2 and 3 times, you are able to see the value transform in your business using these metrics, timelines and plays out of a playbook to drive success. Not only 5% or 10% of your bets hit but more like 20% or 30%, which drives not only the way that VC investing is done but the way that overall investing is done in the whole world of technology companies.”
I’m going to go one step further. For readers who are running a small business right now, don’t just go for the shiny stuff. Don’t jump at the next super idea that comes across your desk or is shown to you with an expiration date and email. Instead, find other people who have been successful for a long period of time and learn from them. Those are the people who have mastered the art of deflecting the junk and focusing on the true value and what builds a great company. I understand, Jim, that you have a special giveaway for my readers. Can you tell us a little bit about that?
If you go to www.MorganHillPartners.com and you download our one-pager, we’ll be willing to not only offer up a free assessment as part of your download but also give you some trade secrets on how you can build a better business.
Trade secrets, free consultation and a download filled with decades of wisdom. I can’t imagine someone turning that down. I would go grab that immediately. Take advantage of this generous offer that Jim Barnish has made and understand that when Jim offers you something like this, this comes from the combined decades of experience of his entire company. Jim, it’s been such a pleasure chatting with you. I learned a lot and I enjoyed our conversation. I can’t wait until we get a chance to talk again soon.
Resources Mentioned in This Episode:
- Virtual Entrepreneurs Association
- The Virtual Entrepreneur
- Jim Barnish
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