Build Series EP.1: Sarah Rowell on Utilizing Your Board – EP.240

Hood & Strong LLP – One of the nation’s premier full-service public accounting firms, Hood & Strong LLP provides buy- and sell-side quality of earnings, due diligence, assurance and tax services to search funds, private equity firms, and business owners and investors. The H&S Advisory team helps expedite a smooth, cost-effective transaction process that maximizes value and minimizes tax impacts for both buyers and sellers. To learn more about how Hood & Strong can support your M&A objectives, please contact Transaction Advisory Group Partner Jerry Zhou at [email protected].

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [email protected].

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(00:00:00) – Intro

(00:05:00) – Sarah’s experience acquiring a company

(00:07:13) – Building the infrastructure for a company board

(00:15:10) – Building chemistry with investors

(00:20:34) – Establishing a board

(00:24:42) – What do you hope for the future of this acquisition?

(00:29:16) – Involving investors and the board in the business

(00:39:47) – Building out Sales and Marketing

(00:48:51) – Board meeting structures

(00:58:17) – Emotionally connecting with Board members

(01:02:47) – Closing advice

Alex Bridgeman: Sarah, thank you for coming on the podcast. I’m really excited to chat with you about all things board and working with your investors. Can you talk through the business you acquired and search that led up to that? I would love to hear more. 

Sara Rowell: Thanks for having me. So we acquired a business at the end of 2018 or toward the beginning of the first quarter of 2018. We acquired a business called Kantola. It’s a harassment prevention and diversity, equity, and inclusion e-learning business that serves really private sector businesses of really any size, all the way from really large enterprises down to kind of really small mom and pop shops. So that adds its own complexity. We acquired that after about a year and a half of searching. We searched out of Washington, D.C. area. I’m in a search partnership with my husband, so that’s kind of common now, I think, but at the time was pretty rare. So that was unusual as we were going through raising our search and going through that process. We were pretty open geographically about where we wanted to end up and so instead kind of really focused on industries. And I think probably one of the things that was a little more unique about our search phase at the time was we had a number of macro factors that we were really interested in and allowed that to help us filter some sub-industries that we were going after. And one of those macro factors was the changing demographics of the workplace and the fact that the next generation that was coming in was more diverse and had very different expectations of what work meant to them. And we had an increasing rise of two income families, not with a primary and a secondary job, but with two primary jobs and trying to juggle all of that. And so there was a whole suite of things that we felt were services that businesses would need to help with that, kind of help with that transition, really help get the most out of their workforces. And so that was one of the factors that led us into this kind of niche industry and led us to Kantola. 

Alex Bridgeman: And so, what were the- we’re going to talk all about the board and investor group, but in looking at that industry and then finding Kantola and moving through that deal process, what was your planning like on the board side of things? Like what sorts of questions and foundational infrastructure for the board were you starting to think about as you went along the industry and then found Kantola and then closed the business? 

Sara Rowell: Yeah, it’s a great question. Of course, one of the unique things about searching is that you raise your search fund before you know the business. So you’re kind of in a way, and at least majority of your board is going to be made up of your investors. They’re going to want to protect that investment and that’s what’s going to get them excited about putting their money in, knowing that they have known quantities kind of help guide that process. You’re a relatively inexperienced CEO and they need to provide that guidance, but yet you don’t know what the business might need and you don’t really know what you need at that point where you’re raising your search funds. So, one of the principles or two of the principles that we employed at that point was to spread the net a little wider just because we knew we didn’t know. So if you know you don’t know, then you might need just a bit more degrees of freedom to play with. And I think the other thing was we understood it was difficult to persuade people to take on a board seat and that they needed to have a certain amount of investment before they would do that. And so we asked very clearly, what’s your ideal investment level of each investor and then tried to match the number of units in our fund with what we thought was a likely acquisition size so that then the ticket amount that they would be putting into the business might match with what their ideal ticket size was and therefore would be more likely to be able to provide us with a board seat. It’s a little bit puzzling because you don’t know how big is the company you’re going to buy. So that maths is a little fuzzy, but we’re trying to balance those factors just from a structural perspective. I think that was kind of step one of trying to do that. But then to your point, well, then you get close within a specific business and you have them under LOI, and you’re like, well, what do I do? Like how do I get the board that I want? And I think you have some roles that you’re looking for in a board, and you want to make sure there’s somebody who understands operations and has kind of a more relatively recent view on that because things change quite quickly about whatever it is, sales and marketing techniques, they evolve pretty fast. And so you want to get that perspective. We were also looking for pattern recognition, so people who’d been industry veterans and kind of seen a lot of businesses and what made them work, but also had been able to kind of see the ups and downs and how to smooth those out. I think we wanted to have somebody who had expertise in that PE side of things, the financial side, the structuring side of things. How do you squeeze the most out of the investment by being smart with your capital structuring, how to go to market at the end to maximize value. So, we were trying to juggle all these different things, and we knew that we didn’t need a single person for each of those roles, but we did know that different configurations would come. So what did we do while searching to figure that out? A lot of it is about there’s a two-way street going on while you’re searching. They’re evaluating how are you searching, what’s your process like, are you a person who digs in, are you a person who can be decisive as well because I think it’s that balance. Some people fit in analysis paralysis and other people fit in being too rash. So, how do you balance those things? But at the same time, you’re evaluating them. How useful are they? What is your fit and vibe with them like? And what are their fit and vibe with each other like? Because you want to be able to really connect with your board, but you want them to connect with each other as well. And so existing relationships there, be they good or bad, are ones that you want to take into account. So, for example, we were evaluating Kantola, and we were in that moment where we’re like, is this a good business? Is this not a good business? Because from the outside, there was some recurring revenue, there was some repeat business, but we couldn’t tell, could it be converted fully into a recurring revenue business or not? And that’s obviously a really important driver of value creation. And one of our investors came to where we were working and sat down with us and whiteboarded and then kind of helped us structure a cohort analysis in a way that was going to be feasible with the data that we had, but robust to give us the answer we wanted. And just seeing that kind of practical way of working together and the fact that he got us up the curve more quickly. We would have maybe got there, but I think we would have, it would have taken us longer to kind of structure it in the right way. And that was just really helpful. And I was like, okay, that’s a really great, helpful situation. We had other board members who were able to quickly say, hey, your LOI is structured like this, but you might have a problem with raising debt. Have you got this structured the right way? Can you think about doing it better? So you have all these board members that you see quite quickly are able to draw on this pattern recognition but then convert it into something valuable for you and do it in a way that you can absorb the feedback, and it’s kind of positive and productive versus difficult or combative. And so that was kind of important for us. I think the final thing, though, about boards is aside from all these practical things that you think you need, it kind of starts to feel a little paint by numbers, chemistry is really important and people caring about the why of your business and caring about you as an individual is really important. And we had a couple of examples of this, but I think there’s one that really stands out. While we were raising our search fund, we had the misfortune of our now eldest child – he’s fine and he’s going into high school at the end of this week – but he got hit by a car and it was kind of bad. And it was really bad actually. And we were supposed to have a meeting with an investor the following day. And so my husband from the emergency room was calling him to let him know that we aren’t going to make the meeting. And he was- you know that kind of flustered moment where you’re prioritizing the wrong things? And this investor was like, okay, okay, take a breath. I’m not the person you should be talking to right now. You need to go and deal with this. That’s fine. You’re not going to be at the meeting tomorrow. Once this is all over, get back to us. And we actually had to stay in the area while he was recovering. And anyway, the whole thing, we ended up meeting up with them and we brought our kids with us because we didn’t want to leave them away from us. They sat in the corner of the room and they had their iPads and their massive headphones and they were playing around. They were toddlers at the time. It was just so cool that this investor was like, hey, I can work around all these things. That’s part of life. But I’m going to be able to kind of help you through this and walk you through it in a really calm way. And I thought, oh, my goodness, there is no crisis that this person isn’t going to be able to like psychologically help me get through, which is good because a year into our search journey, COVID hit. So we kind of needed some support like that. So I think things like that are really important to pay attention to and I think are often overlooked. People think they’re like, oh, I’ve created the best board and they didn’t really think about personal chemistry. They didn’t think about how other people deal with each other. All the people you could have on your board are probably very smart and probably have loads of relevant experience. The question is, can you create the secret sauce where the board comes together and can create what you really need. 

Alex Bridgeman: How much time did you spend getting to know your investors before raising your search? I would imagine some of that kind of chemistry, what is this person like and who are they, some of that takes a lot of time to understand. Perhaps more perceptive people could do it faster, but I personally know I need a lot more time. How much time did you have with each investor? And then were there questions you were asking yourself in your head, like if my son gets hit by a car, what’s their reaction to, what’s their reaction to me missing a meeting because of that? Like, what kind of things were you asking to figure out who is this investor and what are they going to be like working with them? 

Sara Rowell: Yeah, yeah, yeah. I mean, yes, of course, that question was on my grid of questions, like who wouldn’t say, what’s my investor going to do if my kid gets hit by a car? No, it’s a really good point. It’s a really good point. I do think you kind of only have a limited amount of time with each investor. We would have had maybe- so at the time, we were living in Uganda. So we’re kind of unique in that we were like miles across the world living in East Africa and we were trying to come back and do something unusual. And so doing it from afar can be a little bit difficult. So, we had phone calls from Uganda to start that process. And then we kind of did what I would call like a big road show where we came up to the US and kind of moved around, hence the reason we had our kids with us. And it was all a little chaotic. And so, really, before we raised, we probably had talked to each of our investors maybe three substantial times. There were probably lots of back and forths, but it would have been a Zoom call. Actually, at the time, I think it was Skype. I’m just aging myself. Then we would have had an in-person, we had another follow-up meeting or something like that. But so that is a limited amount of time. I think, therefore, it is really important to have a series of questions, some of which are practical. So, I already shared one, which was we wanted to make sure that we understood what’s your ideal ticket size, like talk to me about what your ideal investments are like, talk to me about the things that you don’t invest in. We really just kind of wanted to match how that might work, talked a bit about boards and said, who do you have on your roster to sit on boards? How many boards can you collectively sit on? How many open searches do you have right now? And trying to get a sense of how constrained was it because we’d heard there were board capacity constraints. And one of the biggest challenges sometimes to getting a deal done was could you get a board together? They’d be like, yeah, I’d put some money in, but I’m not going to sit on the board. So we kind of understood that we needed to ask things like that. I think our situation really helped us get closer faster. So, I would liken it, you go backpacking with somebody, and you kind of have to wait for the bus and the bus doesn’t come and then blah, blah, blah. And after a week of backpacking with somebody, you get to know them really well because you’ve seen them in stress situations. You’re like, how was that person when they lost their bag or when, whatever, the train didn’t come? Did they freak out or did it pull us together? I think our unusual circumstances kind of helped us. We were very far away. It helped us gauge what people were really like as humans. They were very accommodating, very cool about, hey, you’re in a different circumstance. No, we can work around this. You want to- you’re over there, that’s fine. And just seeing people’s reaction to where we were in our life stage, kind of moving, the fact that I needed to, I’m now a US citizen, but I wasn’t at the time, so I needed to get a green card, and that was not straightforward either, the fact that we were coming over and people were very flexible about, well, if you’re going to come and do this, how do we fit you in? Then we had our big hiccup in the middle of our trip. How do people deal with that? I think it got us to see people’s true characters really quickly. And it was really obvious to us, the people who were in this for the right reasons. And obviously, it’s a business transaction and they want to make sure that you’re a kind of professional person. So our side of the deal had to go with that, but they were also willing to see us as whole authentic people. And actually, the business that we ended up acquiring is that to its core, which is can you bring your whole authentic self to work or do you have to leave parts of it behind? And in our case, we really didn’t feel like we needed to be anyone other than who we are. Businesspeople, parents, world travelers, hard workers, slightly chaotic. 

Alex Bridgeman: Yeah, absolutely. And also, congratulations on becoming a US citizen. That’s very exciting. 

Sara Rowell: Thank you. 

Alex Bridgeman: Big update. 

Sara Rowell: There was no ticker parade. I was very disappointed. I thought there’d be a big ceremony, but there wasn’t. It was COVID. We had to stand six feet apart with masks on. I got given a certificate and then shoved out of the room, but I still got it. And they gave me a flag. 

Alex Bridgeman: That’s kind of anticlimactic. You would have thought there’d be something.  

Sara Rowell: A little bit. Yeah, I heard the Oakland Coliseum and marching bands, but no. 

Alex Bridgeman: Well, maybe in the future they can improve that process a little bit, make it more exciting. So, once you figured out that you were very likely going to close on Kantola, how did you go about actually selecting- So you’ve done all this prep work to find and size investors to kind of what you expect to acquire. And now it’s actually time to put a board together. How did you start that process? And did you have- I imagine through the process, through the search, you maybe identified a couple of investors who would likely be great board members if they had availability, but it all has to kind of come together once the company’s acquired that they are available and willing and they’re going to be a great value add to your board. Just talk through like how you started to construct the board once you had very high confidence that Kantola was going to close. 

Sara Rowell: Yeah, it’s actually a really- it’s a good question. You know when you have a longer period of time and a good process, how the outcome just kind of falls into place? I don’t know if you’ve ever kind of gone through that process of, I’m sure you have, of selecting something, like selecting a partner, selecting a vendor, or anything like that. You have this process and you kind of lay out what you’re looking for, and then it kind of falls into place. The actual act of putting together the Kantola board itself was quite organic, and it kind of fell into place. I think it was investors who’ve been excited about the deal and helped us get over the hurdles in our investment thesis. There’s always two ways to see any business. No business is going to be perfect. And so, you see, does it have the basic fundamentals, and are the gaps ones that I can fill and that’s actually where I’m going to add my value? Or are there some fatal flaws that are going to be really challenging and an uphill struggle for me to get through? The ones who leaned in on that with us, helped through, started to become obvious board partners. And so the actual Kantola board itself started to become probably fairly obvious at that point. It was all the work that had happened beforehand. And I think that’s what I would definitely share with others who are kind of on that journey is it’s the work that you do when you’re raising your search fund. And it’s the work that you do when you’re in your first year or year and a half of your searching that lead you to the board that’s going to be right for you. And it’s a combination of people are silently putting their hand up a little bit through their interest in the business. So, if you’re close enough to your investors and you’re going to them, we used to talk quite a lot with our investors and share what’s on the table right now, what are we working at. You could see the ones that piqued people’s interest and they leaned in and actually started poking holes a little bit. When people poke holes, obviously those are signals, buying signals, that they’re interested enough to dig in. And so, the ones who were kind of leaning in on that and trying to help us square away was it this one, the one that had good fundamentals but had gaps, or was it this one, the one that had fatal flaws, puzzling through that together was kind of what led us to the right board for us. And having the mix of those types or roles that we’re talking about in terms of the operational expertise, the pattern recognition, the private equity stuff, and the passion for the business and general fit. 

Alex Bridgeman: Yeah, no business is perfect. And that discussion is one I’m really curious to hear how you involved your investors and board. You touched on it a little bit, but especially you mentioned recurring revenue specifically, like this company doesn’t have it today, but in the future it could potentially have some recurring revenue or transition to fully recurring revenue. And I think about that when looking at businesses, like there’s a state that it is in today, but in a year or five years, is it possible to add some other element to it or change it in this way or that way? Or is it impossible? Is this change never going to happen? It’s never going to work with this customer base or this product or what have you. Can you touch on how you try to evaluate like what could this company become and involving your board and investors or future board members in that process? 

Sara Rowell: Yeah, I mean, to get really specific on that particular topic, I think that was probably the biggest hurdle that we needed to overcome; the business was growing quite well, but it didn’t have- it had this kind of legacy DVD business and then it had this go forward e-learning piece of the business. And that was the piece that we were underwriting, was the e-learning piece. And how quickly would the DVD part shrink and how fast was the e-learning part growing and how robust was the growth behind it and how much of that could be converted into what I would describe as true recurring revenue. 

Alex Bridgeman: It sounds like Netflix. 

Sara Rowell: Interestingly, so we actually got quite a bit of support from one of our investors who had an intern who did a lot of digging on the market. I think that was the first piece that really helped us gain confidence, which was there was this trend. So Me Too was really kicking in around about when we were looking at the business, which was good and bad. Our thesis had been developed from before the Me Too movement, and the Me Too movement was giving a lot of fuel to some of the macro factors that we were already looking at, which was good. Of course, it meant potentially there was kind of a frothiness around it, and would an owner want to sell when this was kind of happening and emerging? I think the other thing is, well, is this a bit flash in the pan, or is there actual kind of teeth behind this? And I think that was where we got some comfort was there were very structural changes happening in businesses and businesses’ concept of their own risk and in regulations around training that we’re going to have a more sustainable approach. And through that, we start to understand the pattern of how people’s needs for this was changing from being somewhat discretionary and therefore, as a result, somewhat periodic into saying, no, this is kind of an ongoing SaaS-like need that is going to happen kind of each year. Someone needs a partner to deliver an ongoing service and an ongoing improving service. And so, we kind of got comfortable around that with it. I think an interesting thing to note is that myself and Scott, as I call him, my business partner and lucky husband, he’s lucky enough to be my husband, we are a little more on the conservative end of the spectrum. And that’s part of we had this East Africa experience and we learned from that, that sometimes things are great on paper, but there’s still all these eddies or whorls that are going on underneath the surface that make things harder than they look. And so, I think we’re naturally a little conservative, and we had to kind of be helped off the diving board. And I think what was great was our investors, or certainly the ones who ended up on our board, but I think all our investors understood you want to be a counterbalance to what you’ve got. And I think a lot of searchers are selling their idea. And so the investors need to be sort of a break and just really making sure, are you digging deep? Do you understand this? Is this really the business that you want to go for, or should you just keep looking and find the right next business? We were more likely to be the like, oh dear, things are missing. And they were really good about encouraging us to get off the diving board and see, no, there is a lot of robustness around this. And you can, through mechanics like contracts and the way that you manage your sales process and how you emphasize parts of the business and downplay these less recurring parts, you can convert this into a business that’s going to look like a recurring revenue business that would be more familiar to all of us out there. And so that was a really fun process, but it did require some psychology of our investors with us, and it required some like hard digging and research and analysis. So when you put those together, that was how we started to create the thesis. And the thesis is not something you’re putting together to raise money. The thesis is what you’re putting together to try and figure out what you’re going to do for the next five, six, seven, eight years. So you want it to be good. 

Alex Bridgeman: Yeah, certainly. Certainly, you want it to be good. And that process of getting input from investors and developing that rapport with your board is only starting once you have the company and you’re now running it. So, in those early couple of months, what were some ways that you continued involving investors and your board on a daily, weekly, monthly basis, whatever was working well for you, what were some techniques and ways that you got folks involved? 

Sara Rowell: Yeah, that’s a really good question. Part of this will be kind of a lesson of what, sort of what not to do, sort of what to do, a little bit of both, learning by doing. I think one of- there’s a real balance that you need to create as a newly minted CEO with a brand new board. The upside if you’ve done a good job is the board was with you during due diligence and they understand a bit about the business and they understand a little bit about you and how you work. The other upside is good chemistry between the people already. So in our case, we were lucky, most of the board members knew each other, were various configurations, knew each other, and already kind of had a bit of that rapport. The thing that is a challenge is you want to instill, like you want the board to have confidence in you that you’re good. And I’m not going to lie, that is important. At the same time, you need to be vulnerable enough to be able to, and transparent enough, to be able to get help where you really need it most. And balancing those two things can be hard, especially when you layer on top that there’s actually an education component to it. Your board really can’t be that helpful to you until they’re more educated about your business. And so, the natural instinct of a searcher is to educate the board and to wow them with your competence for the first three or four board meetings, which means you’re not getting a lot of what you need for yourself during that time period. And it’s easy to justify that to yourself. It’s easy to say, well, I’ve got to get their confidence and I’ve got to educate them and then they’ll start- I’ll start reaping the rewards of that. But you need to kind of think about how do you get, give and get right from the get-go. And I think it’s really important to- everyone is saying, the vulnerability part of things, the being openness to feedback, the sharing where you don’t have confidence in yourself is important, but you can’t do that across everything. If you do, you look like a mess. Let’s be clear. All your board members are going to say, oh, they’re not vulnerable and transparent. Instead, they’re a mess and chaotic. And so, it’s important to just be self-aware. And it’s helpful if you’re a partnership because you can verbalize. But even if you’re an individual, you can do this through self-awareness. Sort of figuring out what are the two or three areas where they are very important and I have the least amount of confidence. And how can I almost one by one bring those to the board? And then all these other things show them that I’ve got a good grip on what’s going on. And I think also the process of how you share your vulnerability is important. If you share it in a framework and you share it with confidence that like this is where I’m missing this and this is what I need from you, people love that because they’re like, great, I see where I can add value. And this is not chaos. This is like a person who’s aware of what they’re missing and where they need the extra help and support and who they go to. And I think that’s the other thing as well is picking your moments and saying, can I just go to one board member about this rather than everyone? Like, what do I need to do on a phone call? What needs help this week? And then what’s something that’s a bigger question that’s better for a board meeting where everyone can weigh in and it’s not so urgent? So I think it’s all of those things. Just to kind of, yeah, get to that point. At some point, you then have the confidence of the board and everything opens up a little bit more. Because they’re like, I know what you’re good at, I know what your areas for development are. And then you can just kind of be more, like you’ve kind of got to that point. It’s the question of how do you get to that point from the beginning, from your first board meeting. That part, I think, if I were to go back and do it again, I might do less education and less impressing jazz handsing and a little bit more of what I would have done in the middle and end. But hey. 

Alex Bridgeman: I love the phrase jazz handsing. That’s awesome. Is there an example that comes to mind for a topic that you had to be more thoughtful about how will I be vulnerable about this topic or get feedback or input? Are there maybe one or two examples that come to mind? 

Sara Rowell: Yeah, that’s a really good question. I mean, I think, I don’t know if it’s exactly answering your question, but I’ll share it and you can probe. You can probe at it, if you will. I think during our course of tenure at Kantola, we did kind of two waves of investment. And really, investments in Kantola were typically investment in team, although with that came obviously some other investments. And the second wave of investment where we expanded the team, and we were kind of going to- taking it the next step change up. We kind of had a speed wobble with it. It wasn’t really going the way that we wanted it to. And it wasn’t- it was something where we, I think we were like, sometimes our instinct is, okay, let’s get our hands around this and then we’ll bring it to the board. And then we’re like, actually, you know what, no, let’s involve the board right away with our concerns. Because the sooner we share the concerns that the revenue growth is going to be a little slower than we thought it was going to be and so we’ve made this investment, and we’re not going to get to a cash crunch or anything, but it’s going to be something where we kind of want to- it wouldn’t be exactly per plan. And we kind of wanted to steer sooner because the sooner you make changes, then the sooner you’ll get yourself back on track. And so, we kind of went against type, I guess, because rather than trying to put it all in a neat box and say we’ve got all the questions, we said, this is what we’re seeing. We don’t have all the questions yet. We don’t have the framework yet. But we’ve got some ideas, and we want to get your steers so that we can then go and do some crunching and do some analysis and try and figure out these root causes. And that was really, really helpful because we did it over the course of two board meetings where actually, and probably an interim board call as well, where we kind of just shared our concerns, shared some initial thinking, we got some feedback on how we might want to think about getting more comforts around it. And ultimately it came out that it wasn’t a market issue, it really was a team and execution issue. We needed to make some changes in the team. We needed to make some changes in our processes. And we got there way faster, I think, than we would have if we’d done it what type was, which was I’m going to go and come back with a framework and then get their feedback. It was do it earlier. And I think that instinct was one that was paid back in dividends. And I think that was part of this learning from the beginning where we were doing maybe more jazz handsing. And now we were partway through the investment and had a little bit more confidence. We had more confidence that the board had confidence in us. And so therefore we could go with an unsolved problem or even an unstructured problem and get something helpful out of it. 

Alex Bridgeman: I’m curious, that speed wobble concept is really interesting. What ended up being the issue? Was there just a communication delay between certain folks, or what was going on? 

Sara Rowell: We didn’t have some of- we had probably the- we brought in someone in the team to lead an important part of the initiative who probably wasn’t the right person. And then we kind of realized we had all the things we needed. I always use this, I don’t know, it’s a June Jordan quote, we are the ones we have been waiting for. We actually realized that we were the ones we’ve been waiting for. We had all the stuff that we needed, but we just hadn’t trusted it and tried to kind of do it a different way. And so, we needed to make some team changes. We made some structure changes. We focused a lot more on process. This is particularly in the sales and the new business department was we just weren’t seeing the consistency. The frameworks that we laid out weren’t being consistently applied. I don’t think there was enough commitment around some of the work that we’d done in the sales strategy and tactics. So, we use the high-performing sales organization structure or HP Go, and that was really good and I think opened our eyes to how we could do this restructuring. It got messy. We had existing clients, new clients conjoined, and it took us ages to take the plunge and separate them. And when we did separate them, I don’t think we had the right leadership in place. And so, we needed to fix that. And then we just actually needed to take the work that we had done and trust it and then just make sure it was actually being applied consistently across the front lines of the team. And when we took on that higher supervisory model and made a few tweaks on what we were doing in terms of the tactics and moved a step in the sales process around and had faith in that, it then started to yield the results that we had been looking for. We realized there was nothing wrong with the strategy and there was nothing wrong with the market, it was just we weren’t executing on it properly. And I got a bit more involved. I think I had been trying to give people space to like find their way. And maybe they just needed a bit more time with me and some questions, like are we applying it this way? Are we applying it consistently this way? That’s interesting because that call tells me that we’re not. 

Alex Bridgeman: Yeah, being able to bring data and actually measure results, that’s huge. It makes it really a much more straightforward conversation too. What are some other examples where you leaned more heavily on your board for advice than any other key problems or key issues you had in the business? 

Sara Rowell: Yeah, yeah. Okay, so we’ve slightly touched on this, but I think it’s worth making its own point out of it is building out the sales and marketing machinery. 

Alex Bridgeman: As a salesperson, I’m very excited about that. I love sales. 

Sara Rowell: Yeah, well, me too. I enjoy it. And I like sales and I love sales process and I’m kind of a big convert. But I think, I kind of started that story at the end of the story, but the beginning of the story was a classic search fund tale. A long, long time ago, there was a company that had great product market fit and a few excellent clients that loved their services and nothing else. And so we kind of needed… Now, I’m being- There was, but there wasn’t a sales infrastructure. There wasn’t a marketing team. We didn’t have a multi-pronged marketing approach. And so being able to do a really good funnel analysis, figure out where were the leaking steps, where were the bits that we really needed to focus in on, and then having a framework that had been tested and brought loads of people together who were doing the same thing across different industries and seeing, yeah, same process, same frameworks, very different application, but it kind of gives you ideas on how to do this and cross-pollinate ideas. That was so vital because that’s probably one of the most important steps to turning a search fund, I’m going to say business in inverted commas, into a fully-fledged company that’s self-sufficient and has all of the things needed versus being kind of an entrepreneur-led, pull the entrepreneur out and what are you left with? A kind of jelly wobble, amorphous thing. It’s not really a self-sustained company that can kind of grow beyond that. So that was a really important piece of it. And that was so fun. I really enjoyed going to the workshops and I really enjoyed hearing other people’s stories who were further on with their sales build out. I also really enjoyed hearing people who were earlier in the journey and seeing things that they had done and how they got impact faster, so I could beat myself up about it and say, we should have done that. But it always gives you ideas. That was a really important thing. And then having our board be able to be there, kind of know what we were doing and be able to dialogue with that as we were going down the journey. And we were all kind of speaking the same language. That was really good. We leaned on our board, obviously, for things like capital structure questions. Like, when should we refinance? Is now a good time to refinance? Who should we refinance with? What are the questions we should be asking them? What are the kind of terms we can demand and where are the ones that we’re just not, we can ask but we’re just not going to get them? Kind of just improving the speed of that because you don’t have- I mean, Scott technically was our CFO and did all of those functions, but he also did a lot of other things too. And so, you’re trying to kind of handle these things as a smaller company, where if you were a larger company, you might have a more dedicated resource. And so, a board’s really important to that because they can help you kind of shortcut some of these things and have already pre-vetted and say these are three friendly lenders who understand who we are and what we’re doing. You’ve kind of got over the hurdle. I think in so many of those, you’re just cutting out steps. If you’re trying to do it by yourself, it would be, I don’t know, I feel like your odds of being able to do some of these things would be much lower and they’d certainly take an awful lot more time. But things like when and how to exit. Like, I’m a bit of a cheapskate. I’ll be honest, I am a bit of a cheapskate. I’m like, oh, do we need an investment banker when it comes time to exiting? And the board are like, yes, you do. I was like, okay, great. Tell me why. And it was very persuasive. And having gone through that process, it’s like, yeah, not just, you don’t just need an investment banker, you need a really good one if you’re going to optimize your value, someone who can really make the process work for you. And so those are good things because I’d be like, oh, we could do it ourselves and save all that money. It’s got lots of zeros at the back. I don’t like that. And they’re like, no, but it’s money well spent. And it’s true. So, things like that are really good because they kind of stop you from making what you think seem like logical decisions, but they’re short term versus taking the bigger picture. In our specific case, but it might be true for others, I think helping us calibrate around the pace of change and the pace of investment, when to push, when to hold. I think for us trying to understand coming out of COVID, when was going to be the right time for us to invest again. I know a lot of tech companies just invested all the way through COVID. We care a lot about our team. We care a lot about protection of the asset that we have. So, we kind of paused, optimized within what we had, protected everyone’s jobs, protected our current clients, just kind of went into that mode. We used that time to like build out our strategy of what are we going to do next. And so then the question became like, when are we ready to start investing out of that curve? And so that was really helpful. As an entrepreneur, sometimes you might break your company because you try and go too fast. That might be some people. Some people are cautious because they understand how difficult it is to do when your team is one stage halfway through. Our team was only 26 people or something. I mean, it’s bigger by the time we sold it, but like how much can 26 people handle? And so, the board can be good about that because you can be either over-sympathizing with the difficulty of that, or you can be about to break everyone, so they can kind of calibrate you. I probably sat on the latter side of things and needed sometimes the occasional, no, it’s fine, you can just get moving. It’s like, okay. 

Alex Bridgeman: Yeah, how did you find that right pace? Because I’m probably on that side of things as well. So, I’m curious how you approached that pace of growth within the team and bringing that on. Where was your happy medium? Where did it end up? 

Sara Rowell: I don’t know. I mean, if I’m giving you a really honest answer, I feel like our listeners can’t see my face, but I was doing rubber face, like kind of face. I don’t know. I’m not sure. I think it’s actually, to be honest, it’s probably about prioritization and being able to get people to drop the things that are important to them, but maybe not be the most important thing and say, no, I want all of your extra time. Yeah, keep the lights on, keep your day job going, and any extra time that you have, only focus it on this. That’s probably the real thing that gives you pace. Because it’s only so fast stuff can happen in a company. I remember one of our investors, he wasn’t one of our board members but was very helpful during due diligence. In the early stages, I would have regular calls with him. It’s like you’re going to have a million ideas, and there are too many ideas. You have to get to two in order for you to have a chance of doing anything with them. And you need to get- it’s not whether you have two ideas, it’s does the whole team understand what those two ideas are? And are they bought in enough to only focus on those two ideas? Or are you getting people with their own kind of agenda? And I think that’s probably what then gives you the pace. I think sometimes it’s just about getting people to get comfortable with you’re never going to know. So it’s not necessarily about coming and making decisions for other people, because I think that’s a bad idea. I think you just build a culture where it becomes- you stay in the old mode of where the business maybe was where it’s kind of more top down. And you need to make sure that the team is sustainable and can make good decisions. So you don’t want to make the decisions for people, but maybe you need to tell them that they have to make decisions. They have to make the decision based on the information that they have today and make their best decision and then from there iterate and make it better. So you’re not going to get it perfectly, but you might get it on track and directionally right. So I think it’s probably those two things, rather than focusing so much on the pace, the pace will fall out of those. But I still go back to I’m not sure that I really have an answer for you. So, take that with the wishy-washy grain of salt that it’s given. 

Alex Bridgeman: Well, it also definitely applies to the board meetings themselves. There’s so many things you could talk about in any given board meeting, and maybe there’s two or three that are the most important. Can you talk about the flow of a board meeting and balancing between updates and then key pressing issues, and then also prioritization, the few topics that matter that determine 80% of the outcome? Can you talk through that? 

Sara Rowell: I love that. I love that question because it’s so true. I think one of the things that I learned, that we learned along the way was your board members will follow the flow of things that you give them. Now, they won’t always. Sometimes they’re great. And I actually had a real lesson one time. I think we had a pretty okay flow and structure for the meeting. I think it was pretty okay, but I wouldn’t give it like an A plus or anything. And one of our board members came with like three or four important things, important points. And all of them related to things that were on the agenda. It wasn’t like they came with ideas that were outside the agenda, but they came with these three or four things. And I remember writing them all down and then they kind of got numbers in my notebook. I’m a bit old school, I always have a notebook. And I looked at them afterwards, and I was like, wow, these are four things that are going to really be important. If I can nail these four things, that will be really good next quarter and maybe even kind of next six months. And so helpful that it’s four things and not ten things. And maybe it’s three things, I don’t know. It was three or four things relating to a couple of major metrics and dimensions of the business. And I kind of thought then afterwards, myself and Scott were digesting them, and we were like, yeah, these are really good ideas. And then we thought maybe we should restructure our board next time, board meeting next time, to make sure that we are maximizing our chances of getting three or four comments on the things that are most important to us. And so we did then, because it’s easy to get bogged down in like, hey, what happened since last time? What worked or what didn’t work? And all these things. And these are great, but you don’t need to spend board time on them. You can either have a side call, you can send an email, or you can put it in pre-reading, but then you don’t have to spend all your minutes on it in your board. And so, after that, we started to kind of really change and have two or three objectives that we really wanted to focus on. And just very simply, just put them up at the top. Like, it’s really not rocket science. It’s like you’re going to spend 50% of your board meeting on the first 25 to 30% of your agenda. So if that’s always going to happen because it’s human nature, put the most important things in. It’s like that jar thing, with the jar and you’ve got the rocks and the pebbles and the sand. And if you put the sand in first, you’ll never get the rocks in. But if you put rocks in first, you’re going to get it all in. It’s really straightforward. I mean, it’s not like I shouldn’t have known this, but I do feel like that was kind of a good aha moment for us fairly early on, that we were like, okay, let’s plan this so that we’re getting the feedback that we need on the most important things because we know what the most important things are. 

Alex Bridgeman: How would you- Let me back up. What was helpful in identifying what those three to four most important things were? Because if you have a- even getting from ten to four would be, that feels like a big challenge. Getting from 100 to 50 seems like, okay, you could probably get there. But the narrowing down to just three or four, what was the difference between idea three versus idea seven? 

Sara Rowell: I think it’s always a good idea to stop and think of if I were to sell this business in a year, even if you’re not planning on it, even if you say, no, I want to hold this business for a long time, but if I were to sell it in a year or two years, what would the business need to look like for me to optimize its value? And where am I going to get the big bang for buck? Okay, it’s about improving my net retention. My new business is fine. It’s about improving my net retention. My new business is fine. It’s about improving my net retention. Our product is good. We’re not having any existential issues, and we can continue down micro innovation rather than needing wholesale macro. It’s like my net retention, I want it to be three points higher than it is right now. And if I could do that, then I think my business is going to, the story I can tell about my business is very robust. So, it’s starting at that point saying, okay, what would be the story I need to tell other people to convince them that my business is the place they want to put their money? That helps focus the mind. And then you say, okay, this is a net revenue retention thing. So, all right, there you’ve got it. What are my initiatives around improving net revenue retention? And do I actually believe they’re going to get there? And so that’s what I then need to focus my half of my board meeting on, versus if I go area by area, and I think about some of the challenges that we have in each department and some of the things that we’re working on or looking to do, we’ll just spread all that time out, versus saying no. And there’s a very big difference between being the leader of the business where you’ve got a team, everything that everybody does is critical. It’s all mission critical. You’re far too small a business not to be mission critical. And you can kind of link everything everybody does to new business growth and net revenue retention in a way. So that can be helpful. But you also need to make sure that everybody understands that they are critical to making this happen, even if they don’t need to change what they’re doing, they just need to continue doing it really, really well. That’s very different than your board because your board is going to be more focused on what you need to do differently. And that might only be a subsection of the company. So you have to shift from being the leader for everybody, knowing that all the parts need to keep dancing in the right way, and everyone needs to be motivated and everyone needs to understand what they’re contributing, to the board mindset. And often, you don’t do that because you’re so in the weeds, you’re kind of thinking like it’s all the same. And then you’re like, no, no, no. And who are the board? Okay, the board are the people who are going to say, try this, have you got this? Is your playbook right for this, or does it still need tweaking and moving? So I think that’s kind of the key thing. The other thing while I’m on this topic, which is totally a tangent, sorry, but it’s also really easy to forget that your board can also, just like your team, be motivated by your why, like your reason for being, your existential reason for being. And so frequently you’ve got these business problems that you want to bring to the board and it’s going to be talking about capital restructuring or it’s going to be whatever it is. And you want to share the metrics and the metric trends and how the business is maturing and where you are and your forecast organization chart or all these things. But those are all the same things that they’re doing across all their portfolio companies. But what’s unique about you is your why. The why is why, what makes that important to your customers. The why is what makes that important to your team. The very same thing is true for the board, but the board often doesn’t get that insight. And so I think it’s really important to remember to share some of that with the board too. And I think it helps the board, first, to be excited about participating, which is important for everybody. I think it also gives a slight tone and flavor that help them think about your business problem slightly differently if they really understand your why and your reason for existence. I observed this one recently, by the way, in a non-Kantola sense of a friend of mine who sits on a board who was talking to the CEO of that company, and they had felt that they’d lost a little bit of the why, and they were just talking in metrics. That CEO started to introduce a bit of their impact stories of how their impact, how their service is impacting the customers in quite profound ways and put this in every email, put this in, shared a story every board member, every board meeting, shared a story on board calls, just an example of feedback that he’d heard that were very personal stories, very moving stories in some cases, like proper tear-jerking moving stories. And everyone without really knowing it just all commented on that and the CEO could really feel a different level of attention and focus. So I think it’s important to remember that you do this every day, they don’t. And so, they might lose connection to that. 

Alex Bridgeman: Yeah, that makes a lot of sense. And I’ve heard of other CEOs with a similar idea behind pulling stories from the business and sharing with the board or even just company-wide, like this person did a phenomenal, like above and beyond job for a customer or this customer used our product to save this much money or this many lives or dollars or whatever. That point around your board isn’t working day to day in the business, so it’s easy to lose that connection if it’s not repeated and reconnected frequently. I love the story example. That’s phenomenal. What were some other ways that helped board members emotionally connect with you as the operator of this business where it’s your everyday, but it’s not necessarily theirs? 

Sara Rowell: I mean, slightly different than the everyday thing, some of it comes back to the point we’re making about vulnerability, transparency, and allowing people in. When you ask people for their help, they like giving it and it makes you more connected to each other. I mean, that’s kind of psychology. I think we all kind of know that a friend who never asks you for anything is not a friend that you’re as connected to. Actually, it’s when people ask you for help. Obviously, the ones who ask you for help all the time and it’s a give, give, give are not great. At the same time, I like to give things to my friends, and if they say, hey, Sarah, here’s something you can help me with, I love that because I’m like, yay, I can help with something. I think board members are kind of the same, and so, we were pretty open with them about a lot of things including our own personal financial situation, and I think this is something that a lot of searchers will be familiar with. Around about four years in, you start to become more risk averse if you’re doing well. And that’s actually, it’s the double-edged sword. So, you’re like, oh, everyone says I’ve created all this value. On book, my business is worth this. But that could all disappear if I mess this up. All of that value, I could see it got to here, and it could go crashing down. And I haven’t kind of- I’ve got all my eggs in this basket. And so, sharing that, and like I say, it’s not like we’re unique in that, everybody has this feeling. What’s unique is your own personal situation, your family structure, your age, where you live, all these things are kind of different. And so, sharing that and our board kind of leaned into that and understood that was the beginning of when incentives were kind of moving apart a little bit and so helped us to sell a small amount of shares to like move some stuff out and helped us buy a house. And it was just some practical things that allowed us to be completely re-energized and then take a clear mind. So when we did end up selling the business, we felt we did so with a clear mind, not a distorted picture. And our board was so great during that process. It was everything from people whipped into gear and they’re like, you want to do this, okay, we’re going to make this happen. And they kind of figured it out and then were so curious around what house did we want to buy? And when we bought it, were we happy with it? And we’re sharing pictures of it. And we have this great deck, and so I spent a lot of time taking pictures of myself on the deck. And they were so excited about that. And that kind of made the journey personal too, because if you’re a board member, there’s like multiple things. You’re betting on these, I don’t feel that young, I’m probably not that young in the whole scheme of things, but these, I’ll put it in inverted commas, young entrepreneurs, and it’s this exciting journey, it’s a roller coaster, and they’re supporting you through that, and they want you to be successful and they want you to enjoy this and it be the story that you were hoping it was going to be. But then they also want to see the business flourish and they want to care about the why of the business and they want the team members to care about it too. And so allowing them the returns that are not the financial returns but the emotional returns, giving them access to those emotional returns is I think a really important part of the psychology of the board. And I didn’t do it to like- it may sound kind of almost calculating. I didn’t do it that way. It’s just who I am. But I could see how they were getting non-monetary returns from participating in the whole process. And I was like, yeah, I get it. That’s a fun way to spend your career is learning about these things, helping these companies flourish, seeing it’s creating jobs, seeing that services are having a really big impact on clients and beyond, seeing what this is from a learning and a wealth creation for these entrepreneurs. I think that’s fun. 

Alex Bridgeman: Yeah. I’m sure that’s the goal for the investors is to see you grow a great company and be fulfilled in your career in all these different ways. In closing, any last pieces of advice that you would offer folks working with their board, assembling a new one? Anything come to mind that you feel like has been a helpful piece of advice that you’ve learned or have heard from others? 

Sara Rowell: That is a good question. I think I would- it’s probably bits that I have already touched on, but I think I can’t underscore enough that to create that goal where you feel comfortable that you can be transparent and vulnerable and self-aware about yourself and your business needs, that you can really get what you need from your board. And allow yourself to get out of the way, your desire to seem competent, your desire to, whatever, seem in control, or even just being in control. You can allow, kind of take yourself out of that and then get what you need. It’s difficult and it goes against type for people who are more predisposed going down this journey. The reason they do it is they’re very self-motivated people, self-starters. They have a vision, they want to accomplish the vision. They know they’ve got to be the ones that ultimately their neck is on the line doing this. They’ve taken loads of other people’s money, and they need to make it work. That doesn’t jive necessarily that well psychologically with being able to step out of, get out of your own way and let your board give you good feedback and then being receptive to hearing the feedback and being able to do something with it, which is a balance, by the way, of not always taking all feedback exactly as how it’s given, but thinking about it, taking the spirit of it, and then being decisive afterwards and being able to do something with it or put it in its right context. I really think that’s, I don’t know, maybe that’s probably very revealing of who I am as a person. But I think that was my biggest challenge and therefore is the thing that I would say. The journey is never complete. You just keep going on this one, keep improving. And so, I would not say that I am good at this, but I would say I am better at this now than I was. 

Alex Bridgeman: That’s phenomenal. Sarah, thank you so much for coming on the podcast. This has been super, super fun. I loved hearing all about the different ways you’ve worked with your board and done such a phenomenal job. So, thank you for sharing a little bit more. I appreciate it. 

Sara Rowell: Thanks for having me.