Tzakhi (00:00.822)
Hi, Bruce.
Bruce Eckfeldt (00:02.422)
Hey, how are you?
Tzakhi (00:03.948)
Awesome. Thanks so much for being here. We're at the Meet .Capitol Startup Podcast with Bruce Eckfeld, who is a strategic coach. You've led a company from start to being a Inc 500 company several years in a row, and you've been doing a lot of coaching and strategic advisory for companies since then. And you also have a podcast, which is new
Bruce Eckfeldt (00:05.878)
Yeah, my pleasure.
Yeah.
Tzakhi (00:32.608)
very interesting and relevant to our talk, which is Angel to Exit, right? Brilliant. So I think we should talk about that. Maybe, wait, sorry, just maybe give us a few words about yourself beyond what I've said.
Bruce Eckfeldt (00:36.566)
Mm -hmm, yeah.
Sure. Yeah, let's talk about it. Yeah?
Yeah. Yeah. I'll give you a little background. So, yeah, as you mentioned, I was a founder. it was a little interesting in that I started life as an architect, and got into software and kind of became a founder somewhat accidentally, you know, ended up with a series of projects that we turned into a company. We grew that company. We put it on the 500 list a couple of times. were a lean agile software development company. So we did coaching, training, product development. originally we were extreme programming was one of the early kind of lean agile.
methodologies who are doing test -driven development, continuous integration work, really around products, how to do accelerated product development. And so we scaled that, put it the economy list several times, sold it in 13. And since then, I've been focused on advising coaching growth companies around strategy, building out leadership capacity. And over the last several years have worked with several companies on exits, both strategic and financial in terms of finding kind of next phases for them.
so, I do a lot of work with, you know, what, does it take to have a successful exit both from evaluation point of view, like, what do need to do to drive valuation? what do we need to do to kind of make the company sellable, or at least make the sales process itself, the transaction process itself easier. and then actually working with the founder or founders, to help, her or him with the process that they're going to go through as owners, right? That's it can be,
Bruce Eckfeldt (02:15.696)
well, it can be dramatic. can be traumatic. It can be amazing. All depending on how you frame it and kind of the work that you do. So, I've been really involved in that the last several years and, we've done several podcasts. this is my fourth podcast, called from angel to exit and we're covering the, stories around the exit process and anything from. You know, tens of millions of dollars to hundreds of millions of dollars of valuation. and just kind of talking about what that process looks like and what it feels like and what you can do to hopefully make it a little better.
and a little easier.
Tzakhi (02:47.468)
This is a topic that I personally am very much interested in and I have a lot of questions, but I think most of our audience here at the capital podcast are early stage founders or people that invest in early stage startups. So, you know, in my mind are two main approaches to how to look at the exit when you're just getting started. One approach would say, don't worry about it. Just build a business because
you don't know how it's going to turn out. And the other approach is think about it right from the start and do certain things to make yourself ready for an exit when it comes. So the first question is, what is your
Bruce Eckfeldt (03:31.778)
Both. mean, you know, I think it is, I mean, I'm a big kind of dialectical thinking kind of philosopher kind of guy. And I think in the end you need to keep both in mind. Right. And, know, in given situations, you may have to prioritize one over the other. Right. Like I always say that the challenge of business is that you need to make money now and in the future. And if you focus too much on one at the expense of the other, you're going to run into problems. And so you need to balance these things. But there are, think
not too complicated things that you can do early in the process that will help you when you get to evaluation in an exit period that are not necessarily going to take away or make it harder. But if you're making decisions, you can make some of these decisions earlier and avoid some pain and potentially increase some valuation later. So, you know, one of my kind of jokes is, you know, the best time to think about an exit is when you start a company.
The second best time to think about an exit is now. you know, wherever you are in the process, it's kind of a reasonable time to start asking some of these
Tzakhi (04:39.032)
So what are the questions? What should he be thinking about?
Bruce Eckfeldt (04:40.606)
Yeah, it's a couple of things I find for very early stage startups that I like to have them keep in mind when it comes to things that are going to drive valuation. But first is strategy is really figuring out what your niche is. And I think a lot of early stage startups, know, chase revenues, right? They're just looking for some way to make money, which is fine. I mean, you need to make money, but the more that you can really figure out your niche in a market.
that's going to help you early, but it's also going to be really important from a valuation point of view. Anyone that's going to buy a company wants to see that there is some kind of differentiated position in the market and that we're not just a commodity business. So developing a niche is going to help with valuation. It's going to take you from the kind of industry standards, five to seven time X to, you know, 10, 12, 15 time X is where you really have a differentiated niche.
that's going to drive valuation there. So would say that's kind of the first thing that I'm always looking for in companies is how well are they creating a strategic niche.
Bruce Eckfeldt (05:44.146)
the second thing I look at is culture. and I look at it for two reasons. One is I like to see a pretty clear culture inside the company that's going to help them make decisions and kind of define the way they do things. But also I'd like to see a strong culture because it has to do a talent acquisition. a good, well defined culture is going to make it easier for you to acquire talent at reasonable rates at reasonable prices.
if you don't have a particularly unique or interesting culture, you're basically going to be commodity on the talent side, right? You're to have to pay market rates or better than market rates to get the people that you need. Whereas if you've created a really interesting culture, that's drawing people in, it means that you are going to have either better choices. You're going to have more options in terms of higher people. and my company, because we had a really strong culture around agile early in that process, we are probably paying
20 to 30 % under market rate. Like we could pay less to get really good quality people. Cause we were one of the few places that those folks could really find the culture and the approach that they were looking for. So if you can create that culture that will give you an advantage from a talent point of view. And if you can maintain that, that that's going to really be helpful for a potential buyer. Like they want to see that you've got a unique offering on the talent side as well. The third thing that
And this is a little bit of a balance that I look for is some kind of sense of the core processes and SOPs. Like what, what are the, the critical processes inside the company that drive value and how well have we defined them? And it's not so much that I'm looking to lock them down. Like I want to have rigorous bureaucracy around this stuff. I'm a big systems thinker and in order to improve a process, you have to have it defined. I
iterate, can't run continuous improvement. can't do process design against a process that's not defined, right? If I do it differently every time or it's in someone's head, there's no ability to say, okay, what's working, what's not. So I want to see a reasonably well documented and defined process. So we can say, right, where do, where did it go is wrong? Where do we need to change something where we need to increase quality? How can we speed this up? Why do we move waste? So I want to see it not only for system is sort of systemizing things, but really making it so we
Bruce Eckfeldt (08:06.85)
process improved, like continuous improvement is a big, I think a really critical thing, cultural value process that a company has in place. So processes are big. I do a lot of work with senior leadership teams and building out leadership teams. And I would say as a founder or CEO, really making sure that you're surrounding yourself with the right people, high quality leaders that are going to get yourself to the next phase. Again, there's a balance. I can't overpay for these people. I don't want to hire somebody that I'm going to need in five years now, because they're going
be bored, not stay, but I do want to be thinking a little bit ahead. And what do I, what am I going to need in six, 12, 18, 24 months? And how do I make sure I'm hiring people that are in grow well into those positions and not someone who's great right now, but in six months, I'm going to outstrip them and I don't know, I'm going to replace them. So a little bit around talent, talent strategy. and particularly with an individual founder is understanding their unique kind of capabilities, limitations, style. And how do I create.
a team that's going to support me is going to create a reasonable amount of diversity, skill sets, experience, capabilities, right? That is a real art of putting together a leadership team, but that starts early. unfortunately, I've been in lot of situations where we're having to unwind a lot of those things. Like we get a year or two into the company, we've got a couple of people on the leadership team, we may even have a couple of people on the cap table, and it's not the right people. And it's painful and hard to undo those things.
Sometimes they make existential crises inside companies. But choosing those things well and having a model for that is helpful. And then I'd say the last thing, it's a little not that fun, but I would say the financial is having the financial setup right. And having a very clear financial model, having controls around that so you know how you're monitoring those things.
There's a lot of moving pieces in early stage startup, you're dealing with capital, you're dealing with a lot of kind of potential investment opportunities and how to track that, making sure you're putting those spot. Also, I'd say there is making sure that you're setting up your financials to actually give you insights around the business. It's easy to set up financials from kind of an accounting and tax point of view. But setting up financials around that will actually show you how the business is doing can be really powerful like data.
Bruce Eckfeldt (10:27.654)
The financial data can be really insightful in terms of profitability of different segments, everything from labor efficiency ratios to profitability on clients to acquisition costs. Those will be really important to make good business decisions. And if you haven't set up the financials in a way, in a reasonable way, it might be really hard to get that data out. And that's a real missed opportunity. So I do look at the financials early in the process and make sure that that is, we've got a good model that's going to help us
Tzakhi (10:58.348)
where the places where you think there's the most tension when building a business between thinking about the long term or the exit and between the shorter term need to to make money or to make the next quarter.
Bruce Eckfeldt (11:12.276)
Yeah. Well, I think a lot of teams end up making a lot of tension there. I think well done. doesn't have to be a lot of tension, right? Like a good short -term decision should lean into or align with or have a line of sight to clear longer -term decisions. I kind of use this model of climbing a mountain. I'm a big outdoor mountain climber kind of guy. So I like using these kinds of sports or outdoor analogies in
You know, we're going to pick a summit, right? Like we're going to get to the top of K2, right? Like we're very clear on what the goal is. And we have a plan. Like we think we're going to go up the Western face and we're going to, this is how we're going to navigate. We're going to set up base camps here, here, here. You get up there and things may change, right? Like I may be in a situation where weather or the train isn't what I thought. I may have to go around the backside of the mountain to be able to get up the front side of the mountain. Like we're going to have diversions at times, but they should
still they should be aligned to what we're trying to achieve and help us through a very clear obstacle that we're trying to work around. I think what happens is when we're just kind of, we see something shiny, right? And we're tearing off to the left because, this looks like a great path, but we don't realize, okay, well, that's a thousand foot cliff on that side. It's not going to get us anywhere. Right? So we have to have enough sense
what the consequences of some of these decisions are going to be. And yeah, we need to make short -term decisions to kind of navigate and survive in situations. Generally, I find there's enough options there. We can still choose things that are going to help us move towards the target better than others. that kind of, yes, we need to do it with a short term, but we need to understand how the long -term impact and the long -term kind of directory is going to be is key to good decision -making early.
Tzakhi (13:05.324)
Yeah, what are the kind of positioning or strategic decisions that companies need to make when thinking about a future exit in terms of defining their niche in the market, which is something that you talked about earlier? Can you say something about that?
Bruce Eckfeldt (13:25.366)
Yeah. So in terms of a niche, the two things I'm always looking at in terms of niches, do I have a very clear core customer or ideal customer? Right. Do I know who that is, where they are, what they want, what their priorities are, how they make buying decision, the other factors that go into that process. And I want a pretty strong niche. Like I don't want to, you know, have, you know, all, you know, it's not all homeowners, right? Like I want to have homeowners that.
have bought in a certain period of time that have a certain value of a house that is in a certain kind of geography, right? Like I want to really kind of tighten it up. So making sure that I've got a very clear, valuable core customer is kind of part one of that. And then part two is knowing your competitive landscape. And I think most companies struggle with both of those things, but I think if you can really understand what are the options that my core customer has to solve this problem.
both direct and indirect. it's not just your direct competitors, but other ways they can solve it that effectively you're competing with from a dollar point of view. Having a pretty good understanding of that is going to then help you understand where that white space opportunity is. Like where do we have the ability to position ourselves in a unique and valuable way that's not, it's going to keep us from being a commodity. And if we haven't done that, then we're essentially the only who we can compete on in price. And that's a very painful way to try to grow a business. So I would say
is kind of the core of strategy for me is making those decisions. Longer term, the benefit of that is it's going to both maximize. I talk about several types of exits. have distress exits, we have financial exits and strategic exits. Ideally, we want to avoid distress exits, but financial exit exits, it's going to help those because it's going to allow a buyer to see
Okay, yes, I'm confident that we can continue to generate revenue and profits the way that you've been generating. And if I capitalize this business significantly, I can see growth. Like I see a very clear line of sight of, right, we're at $10 million. You know, we can easily get to $50 million by continuing to mine the segment and compete with these people. that's, that's a clear path. If we're talking about a strategic exit.
Bruce Eckfeldt (15:43.138)
The nice thing there is that we're, starting to really create unique and valuable assets and capabilities inside of the company that are going to be very interesting to a strategic buyer, right? They can come in and say, like, I love your product. I actually have a whole different segment that I want to pivot into using your product, but that's where we get the 10, 15, 20 X multiples rather than five to seven, because it's not just a financial I'm going to continue to make money here. It's like, I've got a whole new way to deploy these things.
Or I've got a whole bunch of products or services that I can apply to your customer base and immediately start making lots of money because you've got relationships, unique relationships with them. having good strategy creates lots of opportunities in both of those situations.
Tzakhi (16:26.988)
how and also when do you start being intentional about setting yourself up for a certain kind of exit? Meaning, when do you start thinking about potential buyers, about potential competitors, and actually navigating towards a position where it would be worthwhile to be sold or there are other types of exits, of course, but let's talk about that one at least.
Bruce Eckfeldt (16:50.144)
Yeah. So I look at internal versus external factors. So they're going to be internal factors that drive this. It could be my ability to raise capital. It could be internal leadership issues. It could be, you know, all sorts of things that internally drive us to consider thinking about some kind of exit transaction merger being acquired, right? Like there's various things that happen internally.
Unfortunately, a lot of those are driven by kind of interpersonal reasons or personal reasons from leadership and ownership that necessitate these things. A lot of what we try to do early is create good operating agreements, good processes, good diversity in term leadership, in terms of ownership so that we can minimize that stuff. If an individual is in a situation where they need to exit, we can easily do that without making a lot of drama within the company.
But so there's this bucket of internal issues externally. It's going to be like, where are we in terms of a market? So if we're in an early market that is, you know, lots of different companies that are scrambling for market share and, you know, it's an early market and there's a lot of turn as things start to consolidate, right. That's going to, there's going to be external pressure to be in an acquisition mode, right? Like I, a company may not be able
make it the next two or three years without a certain amount of capital or being a situation to be able to grow at a rate that other companies are. So you end up in this either I'm going to be a leader and I'm going to do the acquiring and I'm going to be the consolidating platform, or I'm going to be one of the key consolidating elements, right? I can be a key jewel in that plan that I could create a very high valuation, but I'm going to be in a, I'm going to get acquired, be part of that platform.
Unfortunately, the third one is going to be, I meet, if I'm lucky, I kind of get rolled up to buy some clients and things like that. Probably not at a great valuation. And the worst scenario would be, I just get left behind, right? Like the, the consolidation happens around me. I lose it's musical chairs, right? Like there's nowhere for me to sit and money runs out and I'm, you know, I'm kind of dead on the water. So the lot of that is going to depend on where we are in those market cycles. And if there's still a lot of runway and things are not consolidating, we may be able to go another couple of years.
Bruce Eckfeldt (19:15.06)
of continuing to grow on our path. If we started to see the consolidation, either I want to be the platform play. Like I want to be the company that's going to acquire everything, or I need to figure out how to create, how to be the jewel, right? How to be some piece that I'm going to fit into someone else's play. And so we will continue to monitor those things and look at the, you know, look at the market and the situation to figure out where we're going to play.
Tzakhi (19:37.417)
Awesome, yeah, there's so much nuance to every company situation around this.
Bruce Eckfeldt (19:43.904)
Yeah. Well, and I would, I would say. Luck. There's a certain amount of situational luck and luck is luck favors people who are prepared. All right. And I've thought about it and have opportunities. So another reason to have, you know, the strategy and the planning and these things in place is you can move quickly, right? When you start to see some of this stuff happening in the market, you know, you're not just like, what do we do? It's like, no, we know exactly what we're going to do. We're now in a new phase.
Our plan was to do this. We're going to highlight these things. We're going to divest from this stuff. Right. Like that's a good reason to have strategy and planning and rhythms inside a company to do this stuff is to be able to respond to those changes.
Tzakhi (20:24.406)
Yeah. Okay, Bruce, I think I'd really love to have your five startup tips before we go. But I just want to say thanks so much for the conversation so far. Can you give us like a summary of maybe five tips or pieces of advice that you have for startups that are early on and what they should do to think about the exit that will come later
Bruce Eckfeldt (20:50.784)
Yeah. I mean, it's the things that I mentioned, I'll just quickly go through them. I mean, just think about niche, right? Like think about niche as early as possible. that culture thing is really important. I would say, I think there's a lot of, it's easier to do when you're early. and if you start making good choices early, that will really be help you trying to correct culture later as hard. So I think about that fast, think process, right? Like I hate to say it and I know it can be a little, dry for some people, but thinking
What are the processes and how do we create things that we can actually improve? Talent, right? Making sure you've got the right leaders around you. I would say, you know, as a founder, it's one of the most critical decisions you make early in the process is how you surround yourself with the right leaders and who you need to surround yourself by may be quite different from someone else. So don't just try to copy what someone else is doing. And then the financials, right? Getting that stuff in place again, a little bit dry, but it's...
You know, it can make a big difference. It's easy to do early and it's hard to fix later.
Tzakhi (21:52.138)
Yeah, think, yeah, great, because these are things that make everything smoother. mean, it makes building a business smoother and it also makes the exit come at the right time. Bruce, thanks so much. Before we say goodbye, who should reach out to you and how?
Bruce Eckfeldt (22:10.806)
Yeah. So I work with growth companies. So I generally it's the range from a couple million to a couple hundred million in revenue. I primarily focus on strategy, helping companies figure out their strategy, how to model that, how to develop that over time, and then building out leadership teams. So I do a lot of work with leaders around what do they need now? What do they need in the future? How do we set those things up for success based on what we're trying to execute? Yeah, happy to, you can reach out to me at ecfeld .com is my website and happy
I do a lot of writing for Inc. I have all these podcasts. There's a lot of stuff on there that you can check
Tzakhi (22:43.466)
Awesome, we'll include the link in the show notes. Bruce, thanks so much.
Bruce Eckfeldt (22:48.214)
Thank you so much. I appreciate
