Please excuse any typos in this hasty transcript.
Matt Register: Hey, guys. Welcome back to the show, Texas Business Radio. Texasbusinessradio.com is the website. 844-814-8144 is our 24 hour call in line. That means get your calls in now, get them in later, get them in at 3 o’clock in the morning. I really don’t care. We’re going to get the experts on here to get those questions answered. A couple of other ways, you can go to Twitter. We monitor hashtag tbr, or go to the website, texasbusinessradio.com, get you question in that way.
I’m your host, Matt Register. Jay Curry, he left for a second. He’ll be back, hopefully, a little later. In the meantime, we are at that point in our show that we have a national advisor showcase. If you’ve listened to this show for any length of time, you know that there are national level speakers that come in that have a wealth of information for CEOs as they’re growing their business. We love to have them in here, pick their brain a little bit on how you can grow your business, and this segment is one of them. David Braun is a CEO of Capstone Strategic, Inc. out of the Washington, DC area. David, welcome to the show.
David Braun: Thank you very much. Delighted to be here with you, Matt.
Matt Register: So, Capstone Strategic. What do you do? Who do you do it to?
David Braun: Well, we … I started the company back in ’95, 1995, really, with one concept in mind, and that’s to help companies to grow …
Matt Register: Right.
David Braun: … primarily through external means, acquisitions, joint ventures, strategic alliances, minority investments, kind of that whole host of things that aren’t around looking at the internal things, but really focused in on the external things, and …
Matt Register: Sure.
David Braun: … most of the people that we work with are solid companies that are, I like to characterize them as being stuck. They got strong balance sheets, but some of them are five billion dollar publicly traded companies, and some of them are five million dollar family businesses, but they’re usually trying to figure out how to get to that next level, and they …
Matt Register: They plateaued.
David Braun: They’ve kind of plateaued, and they don’t … And, frequently they don’t see a lot of market opportunity. They think that there’s a lot of maturity in their markets, and they can hire five more salespeople, it doesn’t mean it’s going to move the needle for them, so they got to do something a little different.
Matt Register: Sure. And, what that may mean is going and buying another product that goes into a different market, going and buying another core competency. What generally is it that gets them off of that plateau and gets them back into growth?
David Braun: I’ll tell you one of the key concepts that we focus in on to start with is to getting them off of that plateau of only thinking about their business as it is today because most of them are so inwardly focused that they’re all about fighting fires and getting things, getting, making sure the trains run on time, but what they typically don’t do is take a step back and say, where’s the demand? Where are the customers that I want? I don’t care whether I have them today or not. First of all, who do I want? Where’s the demand headed? And, for a lot of people, they don’t really spend much time on that. I like to refer to Henry Ford. He said, if I’d asked my customers what they wanted, they would have said a faster horse.
Matt Register: Yeah.
David Braun: So, for a lot of companies, it’s not that they don’t have good customers, they just aren’t necessarily taking time to help think kind of the next step for who that customer or what that customer’s going to need and how they’re going to be better positioned to provide that down the road.
Matt Register: Sure, and I’ll tell you what, as somebody that’s in the mergers and acquisitions space as well, typically on the other side from you, right? Typically on the sales side, you were being on the buy side. Buying companies and integrating them and having success buying companies is not as easy as it sounds, right? How do companies typically screw this up?
David Braun: You know, one of the biggest ways they screw it up, and I know it’s going to sound really simple, they buy the wrong company. I hear this all the time. It’s all about overpaying. You can go Google it, and you’ll find out that one of the top reasons is people overpaid. I have a very different philosophy based upon my experience, and that is you can overpay for the right company and recover. It’s just going to take you longer, but you can underpay for the wrong company, and you might never recover. Just talk to some people who’ve bought the wrong companies, and it’s usually because they tend to focus in on very, what I call reactive for-sale deals, people that are right on their radar screen, they know them, come knock on their door, but they don’t really take a step back and say, what is it that I want?
Matt Register: Yeah, what do we want to be when we grow up, right?
David Braun: Yeah. What’s the vision? What’s that painted picture of how do I want my company to be? I’ll give you an analogy. When I think about it is, I think about the architect, so you got this house, and we’ve all had these houses, hopefully, I’m not offending anybody, it’s their house, and you got this house, and on the left hand side, they needed to add a garage because they didn’t have a garage, so they got a two-car garage that’s a different color brick, and on the back side they expanded the kitchen, and over top of the other side of the house, they added on a mother-in-law’s room. One’s in red brick, one’s in white brick, and the other’s in clapboard wood. Does it work? Yeah.
Matt Register: Sure.
David Braun: But does it really look like the way you wanted to build that house?
Matt Register: Sure.
David Braun: I don’t think so, and that’s how a lot of these acquisitions kind of get cobbled together because we think about well, we can fix that. We can make that work, and it’s not usually very strategic. It’s much more about fixing things as opposed to what is it that I want and going after those companies that are not for sale.
Matt Register: Well, the strategic thinking company steps back, and what are they trying to figure out? What skills are we lacking to get to where we want?
David Braun: Yeah.
Matt Register: What markets do we not have an introduction to? What skills that somebody else has developed over 30 years that we don’t have to wait 30 years to develop those skills, we just buy it, right?
David Braun: Right. Exactly. Not only that, you even take a step back even further, and say, what skills do we have that we don’t need? Maybe we’ve got to actually divest some things and kind of clear the deck just a bit because maybe we’re doing things that we shouldn’t be doing, and then let’s start thinking about what is it that we need, not just based upon our thinking, but really on where the demand is headed. So, it could be because of location. It could be brand. It could be product. It could be capabilities. It could be a whole variety of things. There’s no one answer that satisfies all those, but part of it is asking the right questions to say what is, where are the customers headed and how do I better position myself to be able to provide that demand, a service to that demand?
Matt Register: Yeah, no doubt about that. Now talk to me about size because we deal with middle market companies that are in the process of putting in systems and outgrowing the small business mentality and getting into a lot more of that corporate structure. At what size do you have to be, because if you haven’t made that transition yet, acquisition doesn’t help you. It puts you square in having a problem, right?
David Braun: Yeah, yeah. And I generally think about it this way. It’s not always size that matters. It’s the willingness to take on risk and to be flexible, so we’ve worked with companies as small as five million dollars a year in revenue, but they had a very aggressive owner that was willing to take on risk, had a strategy, and was willing to implement that strategy. I’ve worked with billion dollar companies that weren’t willing to take on any risk, and they won’t make any moves, so sometimes it’s not size as much as it is kind of an awareness that you need to be thinking maybe differently, and that you’re not going to get where you want to go just through organic growth, that there’s a piece of that future that you’re going to have to get through some type of external growth.
Matt Register: No, it makes sense.
David Braun: And it doesn’t mean, by the way, do not interrupt, but it doesn’t mean that you just have to buy a company, either. You could take a minority investor into the company. You can do a strategic alliance, joint venture, I mean, there’s a whole lot of ways to be able to think about having relationships with other companies. It isn’t just about man, I got to slam a deal together and go buy 100 percent of a company.
Matt Register: Well, I’ll tell you what, we preach every day because I guaran-, 90 percent of our clients that walk in the door think that they’re option is to sell or not to sell, and it works the same way on the buy side, right? There are 85 flavors of in-between there, right, that you can have. Talk to me about your book, Successful Acquisitions.
David Braun: So, I wrote that book really out of kind of frustration in the marketplace because when you think about mergers and acquisitions, most of the books that are written come in one of two flavors. Either they are financial books, big tomes around discounted cash flows and weight average costs of capital and …
Matt Register: Just great beach reading, by the way, right?
David Braun: Exactly, and if that didn’t work for you, then you can get the legal ones.
Matt Register: Right.
David Braun: And they’re even a little bit thicker, and they can tell you all in great detail about asset purchases versus stock purchases, and reps and warranties, but there really wasn’t a book that talked about it from a CEO’s perspective, so a CEO is saying, hey, I want to do something different. I recognize that I need to grow differently than how I have been, or in addition to how I’m currently doing, and so I really decided to kind of put it all in the book in terms of how we do it, and it’s really written for the CEO to think about how is it that I’m going to go about doing this because from my experience, the way to be successful at this, you have to have a process, and that’s one of the things that I’ve written in my book is really a process, all the way from the beginning of thinking about vision and risk tolerance and strategy, all the way through to identifying markets, the right companies, how do you approach them.
I talk about how do you approach that privately held, not for sale owner, how do you meet with them, what do you do when you’re starting to move it forward, how do you value it, deal structure it, integration, what part of …
Matt Register: And the most important part, how do you figure out they are the company that solves your problem, right? How do figure out that those skills are going to add to the value proposition you offer your clients, right?
David Braun: Right. Exactly, and how do you know that you’ve got what it is that, and how do you know when you’ve got what you want?
Matt Register: Sure.
David Braun: Because the other part of it is, then being able to say, okay, now it’s time to execute. Now it’s time to actually pull the trigger because many times people get right to the end, and they get cold feet. How do you give people the confidence and conviction that this is the right one to move forward with? So, I put a lot of tools in there that help people to do that as well.
Matt Register: Interesting. How do you find the book?
David Braun: So, successfulacquisitions.net, and also it’s on Amazon. You can buy it on Amazon. The first print is out of, it’s sold out, so it’s now available in paperback.
Matt Register: Awesome. We will also have that on our essential reading list there at texasbusinessradio.com. David Braun, CEO, Capstone Strategic. Thank you very much for joining us.
David Braun: My pleasure. Thank you.
Matt Register: Unfortunately, we’re completely out of time. We got to go pay some of our own bills. We’ll be back right on the other side of the break with a whole lot more Texas Business Radio. Don’t go anywhere.
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In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.