Any article on the essential characteristics of successful entrepreneurs will list attributes such as creative, passionate, resilient, optimistic, adventurous, decisive, and resourceful. Middle market business owners are known for their ability to get things done and figure stuff out, which is exactly what allows them to build what they do. But what about when they shouldn’t do it alone? How do you know when it is better to ask for help? On today’s episode we will talk about how to get the most out of working with your advisors – when and why to use an advisor, what to look for, and how to find the right advisors for your business.
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Any article on the essential characteristics of successful entrepreneurs, will list attributes such as creative, passionate, resilient, adventurous, decisive and resourceful. Middle market business owners are known for their ability to get things done and figure stuff out, which is exactly what allows them to build what they do. But what about when they shouldn't do it alone? How do you know when it is better to ask for help? On today's episode, we will talk about how to get the most out of working with your advisors, when and why to use an advisor, what to look for, and how to find the right advisors for your business. Welcome to Right in the Middle Market, a podcast about pragmatic perspectives on running, growing and selling your business. We talk about the challenges decisions, and most importantly, the actions business owners can take to create long term value in their companies. Welcome to Right in the Middle Market, I'm Stephanie Chambliss Gaffin, and I'm here with my co host, Mark Gaffin. Over the past several episodes, actually, I say that too much, but in many of our episodes there, there's a different phrase, we talk about using advisors. And it came to our attention that we talk a lot about using advisors, but we haven't really talked about using advisors. So that's what we want to talk about today. Any business owner is going to by definition, be limited in how many things they can know, be expert, you can't be an expert at everything. And that's really where advisors come in, is to be able to bring in specific types of expertise. And there's some other reasons that you use advisors, but that's really what we want to talk about today, is using an advisor, why do you use an advisor? How do you use an advisor? How do you find one? And how do you make sure that then when you bring somebody in, that you're using them effectively? So Mark, I think a good place to start is let's make sure that we're again, always looking to level set, make sure that everybody's on the same page, when we talk about an advisor, what do you think of when you think about an advisor to a business?Mark Gaffin:
So I just think that in the broadest sense of the term, it's it's someone typically external to the company, that brings in a set of domain expertise, a certain perspective, that maybe you don't have full time on staff. And I would argue that that's, irrespective of the size of the organization is in my former life as a strategy consultant. For a global firm, we worked with fortune 50 companies that brought in external people to help on all kinds of fronts, from HR issues, to M&A issues, to tax issues, you know, all those things. And you're going to see that even with the smallest companies, most of them are probably already engaging an advisor in some capacity, an external advisor in some capacity.Stephanie Chambliss Gaffin:
Right. If you think about, again, most small businesses are going to have an accountant, or somebody who helps them with tax planning or with filing their taxes, they probably have an attorney. So even just starting there, they may have an advisory board or Board of Directors, right? So all of those are advisors. And then also when you start to think about as you were speaking of, you think about consultants, you think about an investment banker, right? You think about all of those different categories. So when we say advisor, that's what I mean, it sounds like Mark, you think of it in in a pretty similar fashion.Mark Gaffin:
Yeah. And I think that if you just keep it simple, where people probably have some experience in this, even smaller companies, which are obviously our key listening group is the tax, right? So there's tax laws, change tax codes, change your approach to doing that efficiently, is going to change over time. But for you to have that kind of expertise, full time on staff is extraordinarily expensive. It is probably better to have a good CFO and a good accounting function internally, but then you're going to tap into that expertise over time. And that's going to be employment taxation, it could be things that change during the COVID environment with the with the deferral of some of the tax payments there. Things like that, you need to have someone that that's what they do all day, every day is keep current, keep deep in those those topic areas. And then you tap into it as you need it.Stephanie Chambliss Gaffin:
Let's talk about, and we're going to really hone in on three things during our discussion today. The first we want to talk about, why do you use an advisor and when, what are some of the times that you should think of using an advisor. The second thing we want to talk about then is what to look for when you're evaluating a potential advisor that you're going to bring into your company. And then finally, how do you find an advisor. So starting with, why would you use an advisor? And, Mark, I'm going to let you start and then you know, I have some thoughts on this.Mark Gaffin:
Well, I think the Why is going kind of going back to what I was just saying, is that domain expertise, you're looking for someone that can answer a specific area, that's it'd be a tax, be a law, there's attorney involved, and there be different types of attorneys, right, you may have estate planning, you may have any kinds of partnership agreements, those kinds of things, you need someone episodically to come in and help you with a certain project. And then there's other people that you may have over time. And those are still people that you want to have as a sounding board. And that's when we talk about advisory boards, and even the boards of directors, typically, where you have the external advisors to be a sounding board, when we like I said, we've had this with even big, big, big companies that hire people to come in, say, Look, do I open in South America or not? You know, I want to ask that question. The CEOs coming up with that. And how do you approach that? So there's a bunch of reasons to bring people in. Because you don't want to have to have that kind of staff full time all the time.Stephanie Chambliss Gaffin:
Yeah, I always think of it as three reasons. The first one being expertise, which you just spoke about, and to me, it's always thinking about where is their expertise, that does not make sense for me to bring on as part of a full time employee, right? Either the expertise is so specialized that you need, that, it just, it just doesn't make sense for you to bring that person on, you don't need a full person worth, it may be that to get the true expertise that you need, you just simply couldn't afford that. Because that type of person would be so expensive, and you don't, again it ties back to what you said, if you don't really need them full time. And in the other reason that you mentioned is that it's it's episodic, right, it's, I'm going to need them for this project or for this period of time, but this is not something that I need as a core of my company. The second reason that I always think of for bringing in a consultant then is around bandwidth. So the first one was that there's expertise you don't have that is going to be an episodic or periodic need. The second one is that there's bandwidth that you don't have. And again, if it's long term bandwidth, then you probably want to hire that full time at a company. If it's short term, or it's something that you need to ramp up very, very quickly, then those may be good chances to use, you know, a very specific type of consultant really in that situation. So I always think about the second one as bandwidth. And then the third one, and this one, this one's a little bit tricky. But there is, I think, a legitimate need for bringing an advisor as a fresh set of eyes, as somebody who can be impartial. And you might bring in somebody who is going to help you make a tough decision, right? They're coming in with a fresh perspective, you hopefully are coupling this with specific expertise. So this one doesn't stand on its own. It may be somebody who can help you navigate a difficult situation, whether that's internal or external.Mark Gaffin:
Yeah, and I think the the part that's important about that last one, is that you still own, if you're the CEO, the owner of the company, you still own the decision, you can bring somebody in to help with a fact pattern help you with the analysis, you usually typically have a hypothesis about which direction you need to go. But you want to have someone come in and give you the complete, you know, to your point fresh perspective, data analysis on why do I have to do a certain thing. Let's just say it was spin off part of the business portfolio, you really want to make sure that you're doing the right thing? How would it look? How would you communicate? So those are all kinds of people that you might bring in, you figure, you might bring someone in to value the company run the process, you'd have a communications person. So you have people to come in for that. We haven't even touched on things like crisis management, where people do have to come in and help with communications along those lines as well.Stephanie Chambliss Gaffin:
You know, it's funny, I've been doing consulting for a long time. And there are situations I remember a situation years ago, and I would not name this as a best practice. But I always think about a hospital that I came into work with as a consultant. And there was a particular situation where they had one individual on the executive team who was pretty tough to deal with and they needed to try to get this person on board with some pretty tough changes that they knew needed to be made. And honestly, even the CEO, COO, the rest of the executive suite, it was going to be very difficult for them to push this person on that decision. And so part of the reason that they hired our firm was to come in and help navigate that situation, help to bring some of the outside perspective, outside research, outside data and impartial perspective, to then be able to help make that data driven decision to be able to make some changes in an environment that was very tough internally.Mark Gaffin:
Yeah, that's right. We are talking about this in our culture episode coming up. But you know, sometimes you have people that have a number of reasons, it may be inertia, it may be self interest, and maybe a couple different things that the current state is where they want to stay. And they're going to fight tooth, claw and nail to stay in the current state. Whereas most people realize that we have to evolve, we have to move to the future state. And you have to bring them along. And sometimes it's like, Look, we'll meet you halfway, we'll provide more of the data, more of the facts, more of the analysis and that bridge to the future. But, you know, you got to get there at some point.Stephanie Chambliss Gaffin:
Well, and this is part of the reason that we always say, the CEO is the loneliest job there is, because often, not always, again, even if they've surrounded themselves with a terrific team, if they're facing a difficult decision that is going to impact those people in one way or another, it can be difficult to have open dialogue, it can be challenging to sometimes feel like, Yes, I can fully explore that. And the people around me are going to give me fully unbiased opinions, not because they're not great people and really good at what they do, but they're personally invested. And so being able to have that outside perspective of somebody who can be totally unbiased, can be that sounding board, can help somebody think through, it doesn't mean that you ignore the impact on your team by any stretch. But to be able to think through what is the right decision, what is the right direction, taking that into account, along with all of the other strategic implications.Mark Gaffin:
Yeah, that's right. And I think that we'll use a real quickly, if you think of someone that's going from, maybe they're a smaller company, and they may be very state based or very small, regionally based, if they're actually going to go national, or take that next step and become International, there are certain things that you might want to take advantage of that other people have already learned from that experience, whether you're doing that through M&A or you're doing that through organic growth. If there's any way for you to not repeat mistakes people have made doing that in the past by bringing in an external advisor, why would you not do that? I mean, often, the cost of the advisor, winds up getting lost in the noise because of all the money you didn't have to spend.Stephanie Chambliss Gaffin:
Well, that's exactly right. And so you know, I think, to bring it back to what we said, we wanted to talk about in this section. If it's not just why, but what are some of the things that should trigger to a business owner, Gosh, maybe I should think about bringing in an advisor. You keep finding yourself saying, gosh, I know there's some specific expertise probably related to this, that just you don't have internally, it doesn't make sense for somebody internally to learn when you're facing a significant decision. Or, you know, as a significant milestone in the business. What are some of the other hallmarks that you think of Mark?Mark Gaffin:
Well, no, I think that covers a lot of what you're driving to, right? I think that if I use the CFO, for example, in a company, in a growing company that's coming from a small company to a larger company, they're learning about increased needs of the CFO role, right, it becomes more and more complex, as you start to think about different states and maintaining sales tax and all the different things and Use Tax across different states. So they're learning all the time, it's all the sudden you add M&A on top of that, you know, you maybe push those people too far. Same thing with HR, if you start to think about we've got a fully employed pool of people. Now we're moving to independent contractors and remote workers. How do we do that effectively? And there are probably there are people externally right now that are really working hard to think through those structures. How do we get the best out of remote workforce? How do we move people back? And our people, that's what they're doing 24/7 right now, so why not leverage that, right? That someone that's doing that and has experience of implementing this over 10s of scores of companies, why not use that that learning curve that they've gone through?Stephanie Chambliss Gaffin:
You mentioned M&A, and it may be worth taking just a moment on the role of the investment banker, it's one of the the types of an advisor that we mentioned at the beginning of the episode. And I think it is one that a lot of folks don't necessarily understand. So I think maybe, and this may be its own episode at some point and ties into some of the things we've talked about, about the process of selling your business. But if we think about when you would want to to bring in an investment banker, again, if you're thinking about selling your company, if you are thinking about raising capital, and investment bankers sometimes called an intermediary, because what they are really intended to do is to be someone who can help shepherd that process on your behalf.Mark Gaffin:
Right. I think that that's one of the things and you know, a little self serving that, we try to take a very consultative approach to that. Because you want to be thinking about some of this before you actually need to do it. And so, if you're thinking about doing M&A, if you're thinking about doing some large organic growth programs, and you're going to need additional capital to do that, that's something where you bring somebody in to say, Look, this is what I'm thinking of doing, how do we lay that out? How does that process layout with raising capital, to support it ahead of time, so that none of those, there's binding up the other side of things. So bringing the people in the that actually can sit down and be thoughtful about it. What I think is important with investment bankers, is you want to be wary about someone that that's just trying to do the transaction. You never want to push a transaction at all costs, there are times when we're not ready yet. And I can get you more money that the investment thesis is not put together yet. So it may be say, Look, I'm gonna be honest with you, the better part of valor right now is to pause, get the place in order, you know, more so for external capital or an external sale, that bit then could help the process go that much more smoothly, when people are doing M&A, due diligence, that can also help you then, with credibility, people believe believing that if I buy the company, it'll run on Monday morning when I take it over. So all those things can actually help. So if you bring someone in, that you can trust, and I know trust has to be built, even with an external advisor, but you bring someone in that you're like, I believe that they're trying to do the best for me. And I believe in their approach. That's why the work can be really important.Stephanie Chambliss Gaffin:
And I think that's a great bridge to the next big category that we wanted to cover today around what to look for in an advisor. And so let's continue with that point right after this word from our sponsors. Right in the Middle of Market is brought to you by The Gaffin Group, a full service business consulting firm, The Gaffin Group works closely with middle market companies tackling the big challenges of today's environment and capturing the value enhancing growth opportunities of tomorrow. Too often, dogma platitudes or wish ists get confused with strategy, then it's no small wonder that execution can be muddled. The Gaffin Group principles work closely with company boards, executives and their teams to seek pragmatic, tangible results. They provide comprehensive advisory services across strategic, financial, operational and merger and acquisition capabilities, all framed by the fundamental belief that real strategy drives real results. The Gaffin Group is focused on delivering robust practical insights and fact based pragmatic solutions. Their services are designed to support their clients profitable growth, and sustainable long term value creation. Go to Gaffingroup.com, to learn more about how The gaffin Group can help you and your company. Welcome back, you're listening to Right in the Middle Market. And today we're talking about how to most effectively use an advisor. So we just finished talking about why you would use an advisor, when in your company, what are some of the things that are common times in your company to be thinking about using an advisor. And Mark, I think some of the comments that you were just making, we're really getting to our next category of things we wanted to talk about, which is, so what do I look for? Right? I think- it's interesting, you know, recently, we had somebody ask us for some recommendations for an accountant. And I think part of that, you know, it's always the subtext is, I don't want to get taken advantage of. I don't want to pick the wrong advisor. And so we often have people ask us for, Gosh, Do you know anybody who does x? And I guess that's one of the things you were starting to talk about trust. What are some of the other things that business owners, business leaders should be looking for in selecting an advisor?Mark Gaffin:
Well I think the domain expertise is super important. I do think that most accounting firms, most law firms of a decent size are going to wind up having that. You don't want to ever take sides, it's just a perfect signal for domain expertise. But I think it's the domain expertise and then there's there's the fit. When I say fit, you got to kind of go with the CEO or whoever's taking that advice, and maybe the head of HR, because it's an advisor that they're using. But you want someone that, can you handle tough love? Some people have an ego that can handle that. And if someone looks across the table, and says, Don't do that and here's why, other people may need it done a little bit differently. So find someone that's got the domain expertise, but then kind of talks at your wavelength, so that you can get the best out of that, because there's the domain expertise and there's the communicating that domain expertise to the decision maker, which is still the person that's hired that advisor.Stephanie Chambliss Gaffin:
Earlier in my career, as I was talking about earlier, when I was working for a larger consulting firm, and we would have a team, it was interesting, we would actually try to shape within the team, and matching the particular person who would lead an engagement with the culture of that organization. Being a native Midwesterner, I would sometimes be brought to Midwestern clients, but it was just, you know, you and you would always kind of try to balance finding the expertise, right, the person who had the right expertise, but it also has to be somebody who can have that effective communication, because you can bring in the person who absolutely knows all of the right things. And if the audience can't hear that information in the way that it's being communicated, then it's falling on deaf ears. And so it's so much of bringing in an advisor is not just getting the advice, not getting the expertise, but being able to put it to use.Mark Gaffin:
of analysts in the early part of their year, they're dealing with a lot of analytics, right data, and you're transforming that into knowledge. And then you might have a manager on a consulting, engagement, taking that and synthesizing that across a number of different projects. Ultimately, you get a partner or someone at that higher level, that's taking all that information, and presenting it in such a way to the decision maker, we will use a CEO, for example, right now, in a way that they can communicate. Because they don't need a sea of data, they may want to see some of the backup in the appendix, but at the end of the day, they're like, no, no. Does this make sense? If I want to expand to South America? Does that make sense? If it does, what are the things I have to look out for? And can we get around those barriers? So you never have certainty, right? We're always making decisions with unknown information as a CEO. That's why it's such a tough job. But can you bring someone in that helps reduce the risk of those decisions. And then ultimately, you can have a good decision and a bad outcome- that happens, right? There are things that could happen, if you were launching a project on February 29th this year, it may have made all the sense in the world. But the wheels came off, and it was a good decision, bad outcome. But that's you know, you can only do what you can do to make good decisions. And I think that's where the advisor should be an input, they shouldn't make that decision, you should still own the decision, as the person in the company that hired that advisor.Stephanie Chambliss Gaffin:
But it's interesting, because I think there's also the flip side, which is you sometimes see people hire an advisor or select an advisor based purely on fit. And they haven't pushed hard enough on the domain expertise. And we see this in particular as, you know, you may have, I'll give an example, an attorney or an accountant who's been a really good partner for your business, but then you get into a specific project, a specific episode, it might be M&A, it might be a patent or intellectual property issue, but something where there's very specific expertise. And it can be challenging then to say, Well, I want to stay with this person, because they've been with me a long time I know them, I trust them. But in reality, they haven't gone back to think about that the domain expertise really does matter and may not be there in that situation.Mark Gaffin:
I think you have to look at it as there's no fortune 100 company, fortune 50 company that is maintained same advisor set over the entire length of their program. That's just a fact of the matter, right? So you do look at different folks and how it doesn't mean loyalty, loyalty is important, but it shouldn't be blind. And I think you have to say, look, there's a trade off of having someone around for a long period of time. And some people can grow with the company. But you know, if you're talking about a patent, you can bring somebody in for the patent and then move on with your life, but if you're starting to get to a point where your external advisors are actually holding you back, you know, that's, that's a challenge to you, you really have to address.Stephanie Chambliss Gaffin:
So, let's move to the third big thing that we wanted to talk about, which was, how do you find an advisor? So it might be that you are bringing in this type of an advisor for the first time or it may be as you said, Mark that, Well, I've outgrown my accountant, attorney, whatever. And I need to start to find somebody who has a different set of expertise for the way the company has evolved. How do you go about finding a good advisor?Mark Gaffin:
Yeah, so I think that we all work with different advisors on hundreds of different deals, right? So I don't know what my Rolodex, I'm dating myself because I have a Rolodex, but, you know, if you think about the number of attorneys, I think we just had a situation, what was it, last week where someone was looking for attorneys. And it's not that they didn't have a good attorney, but they were moving into more M&A, and this is actually capital raise. And their attorney does a good job doing contract law and things like that, but they needed someone that understood VC capital raises venture capital, capital raises, and they needed someone to help on international issues, and also how that fits with a capital raise. And so we were able to give them I don't know, four or five names right off the bat, people that we work for, we make an a policy for our firm, never to recommend anybody we give people and you can't help but be shaping your mind. But what does that person like? You know, I've got some hard edge people that are, you know, maybe it looks like your New York, New Jersey attorneys that are gonna be really good with a certain amount of people. And then you've got some other folks, they're like, I need somebody that can hold my hand, take me forward, educate me, which is perfectly fine. I love those people as well. That's big, big on my list of skills. So yeah, so I think that's how you do it is you look at your other advisors, and say, Hey, I'm thinking of, maybe, and I don't want to say upscaling, but I'm thinking of evaluating where I am with it, whether it's, you know, an M&A firm or a lawyer or an accountant, and just saying, am I getting the best? Or maybe it's not the time yet to move. But just taking that on, at least thinking about it is okay, no, I'm actually good with where I am right now. But maybe in a couple years. Or you may say, no, I really need to think about a broader set of services and expertise.Stephanie Chambliss Gaffin:
Right. And I think that's where if we go back to really the two core aspects of what to look for; domain expertise, and fit. And so part of this is saying, if you're talking to some of your other advisors, they will likely be able to help you find somebody who has the domain expertise to be able to say, look, here's four or five names, three or four names of people who have the domain expertise. Now, you should talk to them and find out who first of all, do your own due diligence, always. And secondly, to find out whether there is that fit. Is this somebody that you feel comfortable with? If you get on the phone, you know, for an introductory call, and it's just a tough conversation, always ask yourself, Is this somebody that I'm going to feel comfortable taking advice from?Mark Gaffin:
Well, I think one of the things we always talk about being the right size fish in the right size pond. And this doesn't matter whether you're talking about a commercial bank, a law firm, or anything, even in M&A if you're talking about a big M&A shop, right? Where are you in that? So if you go to a really, really big bank, as a small company, you're going to be, you know, a little tiny fish in a big, big pond. Now, they may have a business banking group, or middle market group, but you still have to ask yourself, how important am I to those people, and they may make it right. So there's, there's super regional banks, and there's regional banks that do a very, very good job at that. But you do have to make sure that you are getting the attention that you really deserve. And that's across, it should be bespoke or customized to your situation. So there's a balance, right? It's not always the biggest firm, that's the best. It's being people that I think that can help me now, and that can help me two or three years down the road with anything I'm contemplating doing, is who IStephanie Chambliss Gaffin:
Before we wrap up today, I want to want to be with. spend a little bit of time just talking about some of the common pitfalls. I know, Mark, you and I have both done consulting for a long time, we have seen and been part of a lot of consulting engagements that have gone really well. And I know you and I both seen some that were a little rockier. And so if we think about what are some of the common pitfalls, and what are the lessons that can be learned from them? I think I'll go ahead and start, I think one of the ones that I always think of is not getting the right balance between keeping the accountability, and therefore the ability to carry on whatever change it is that's made long term, within the organization, and putting too much on the external advisor. So to make this a little more tangible, what I mean is I've seen situations where somebody brings in an outside advisor, they you know, they are really busy with other things, and so they don't have a strong commitment internally, the consultant does all of the work. And then at the end of the project, the consultant leaves nobody internally then has really bought into what's been done. And the changes fall apart very quickly after the consultant departs.Mark Gaffin:
Yeah I think you hear that all the time. In the strategy world, people talk about great strategy engagement, and it sits on the shelf and gathers dust. And then the question is, whose fault is that, really? It could be either side, right, I think the fault is on both of them. Because clearly we didn't we didn't take that next step and get it so it was operational. We talked about in an earlier episode, What do I do on Monday morning? So what is it, a strategy that's 80% implementable, is better than one that's 100% that's not. So what we really try and do is figure out how do you take that last step? I think, to me, I think it's kind of related to that, to me, it's like, if you don't have the information, let's just say you're a CEO, if you don't have the information, but you've made your mind up, and all you want to see the external advisor to come in and say, whatever you say, then I think that that can be a rather be hypothesis driven to say, This is kind of what I think I need to do. This is where I'm leaning, convince me that I'm not right. But you got it, you got to be able to give the external advisor an opportunity to say, look, you know, valuation, if you just came back from the, from the country club and said, My buddy just sold his high tech sass company for, you know, absurd multiple in the teens, and you're a completely different company. If you're like, I needed someone to come in and tell me that my company is going to sell for, you know, 15 times EBITDA, someone somewhere in the United States will come forward say, Oh, yeah, I can tell you that, right to get the mandate. I would I'd rather have the advisor that said, This is why you may not have that experience, rather than just you know, tilting a windmill.Stephanie Chambliss Gaffin:
I think we'll take those as our two pragmatic tips for today. I'm Stephanie Chambliss Gaffin, and you've been listening to Right in the Middle Market, a podcast about running, growing and selling your middle market business. We'd love to hear your comments about today's episode or ideas for topics you'd most like to hear in the future. Send me a message on LinkedIn or drop me a line at firstname.lastname@example.org, and don't forget to subscribe to the podcast to hear more pragmatic tips. Until next time, be well and be collaborative.