Subscribe
Share
Share
Embed
Cash is only easy to come by when you don't really need it.
When things are going well, banks are happy to finance loans and lines of credit, and investors are easy to find when you're profitable and growing quickly. But we all know things aren’t always going well.
For service-based businesses, where our products aren’t widgets but more often the intangible value of our brains and experiences, we tend to think that outside funding just doesn’t apply to us and our business model.
But the truth is that you have more options than you think. And that’s what we’ll geek out about over the next few episodes, empowering you with the knowledge and tools to explore these alternative funding avenues.
To start, I’m talking to Eda Henries, founder and managing principal of Henries & Co., a capital advisory firm. We’re digging into the ins and outs of bringing equity investment into your business, including a behind-the-scenes look at how that process unfolded for Eda in her own business.
Listen to the full episode to hear:
When things are going well, banks are happy to finance loans and lines of credit, and investors are easy to find when you're profitable and growing quickly. But we all know things aren’t always going well.
For service-based businesses, where our products aren’t widgets but more often the intangible value of our brains and experiences, we tend to think that outside funding just doesn’t apply to us and our business model.
But the truth is that you have more options than you think. And that’s what we’ll geek out about over the next few episodes, empowering you with the knowledge and tools to explore these alternative funding avenues.
To start, I’m talking to Eda Henries, founder and managing principal of Henries & Co., a capital advisory firm. We’re digging into the ins and outs of bringing equity investment into your business, including a behind-the-scenes look at how that process unfolded for Eda in her own business.
Listen to the full episode to hear:
- How your long-term goals for your business inform which funding options might be suitable for you
- The different forms equity can take for a service-based business
- Why Eda says the first step to going from employee to partner is to get clear on how your goals and values align
- What projections and documents does your business need to have to seek investment
- A relatively unknown resource for small business funding
- Why you need to take the time to build relationships with the people or institutions investing in your business
- Considering acquisitions as part of growth and scale
Learn more about Eda Henries:
Learn more about me, Susan Boles:
We value your thoughts and feedback. Feel free to share them with Susan here. Your input is not only valuable but crucial in shaping future episodes.
Creators & Guests
What is Beyond Margins: Build a calmer business with comfortable margins?
Can you build a business based on… “calm?” On Beyond Margins, host Susan Boles looks beyond the usual metrics of success to help you build a business where calm is the new KPI. With over 15 years of experience as an entrepreneur, CFO, and COO, Susan shares the business strategies that lead to a business with comfortable margins—financial, emotional, energetic, and scheduling margins. Join her and her guests as they counter the prevailing “wisdom” about business growth, productivity, and success to provide a framework for making choices that align with your values and true goals. Episode by episode, you’ll get a look at the team management, operations, financials, product development, and marketing of a calmer business.
Cash is only easy to come by when you don't really need it. And I don't mean that in a woo woo, manifesti kind of way. I mean that in a very real way that the easiest time to get cash for your business is when you don't need it. When things are going well, banks are happy to finance loans and lines of credit. When you're profitable and growing quickly, it's pretty easy to find investors.
Susan Boles:But things aren't always like that. If you're in business long enough, you'll notice that there are seasons to this. Some years, the sales come easy, and sometimes, they're not so great. For a lot of consultants and agencies, this year has been a bit of a rougher season. Sales pipelines are quieter than normal, deals are taking longer to close, and the money isn't flowing quite as readily as it has in the last few years.
Susan Boles:Those layoffs in the tech industry are rolling downhill for a lot of folks. As a CFO, most of my discussions so far this year have been about actively managing cash flow, how to extend cash runways, and where to cut costs. So if you're feeling a bit of this too, know that it's not just you. I'm your host, Susan Boles, and and this is Beyond Margins, the show where, for the next few episodes, we're gonna geek out about accessing capital or funding for your business. Most of you listening to this have a service business of some sort, and most often, we tend to think about our businesses as something that sells us.
Susan Boles:We're selling the value of our brains or the value of providing a service that is frequently intangible. You're probably not selling a physical thing, or a widget, or a SaaS tool that investors can see. So thinking about getting outside funding in a service business tends not to be something we think actually applies to us and our business model. And it's true that most of us are never going to take VC funding, though I do know a few agencies who have, but it's not really their ideal business model. That doesn't mean we don't have options, though.
Susan Boles:There are tons of options for outside funding for your service business, and that's what we're going to geek out about for the next few episodes here: what kinds of funding you might consider, when each type of funding is a good choice, and the trials and tribulations that come with each type of funding. We're gonna talk equity investments, including bringing on employees as potential partners. We'll talk crowdfunding, how you might use debt strategically, and what it might look like to use grants. So if you're thinking you might need some outside cash for your business, this is the perfect series for you. Today, I'm talking to Ida Henries.
Susan Boles:She's the founder and managing principal of Henries and Company, which is a capital advisory firm. That means that she helps growth stage companies navigate the process of finding the right kinds of capital and investors. Ida is a fellow finance nerd. She might actually be nerdier than I am when it comes to finance, and she takes pride in demystifying the idea of capital and helping folks access institutional capital. We're talking primarily about taking equity investment in your business, meaning that you're bringing on a partner or investor into your business and giving them some percentage of ownership in that business.
Susan Boles:Not only is Ida an
Susan Boles:expert when it comes to scenes details So let's talk, you know, funding. That's that's why we're here. Can you kind of give me an overview of some of the options that folks who own service businesses should be thinking about when they start considering pursuing outside capital for their business. A lot of the times in the b to b space or in the service business space, we don't really think that any of that is an option for us. And so I'd love it if you could kind of give an overview of the options that you think we should be considering.
Eda Henries:Yeah. I think the the options always start with your vision. Right? They always start with where do you wanna go. Where are you?
Eda Henries:Yes. But, really, where you wanna go? Right? What size company do you wanna have? What do you, want to do with this company ultimately?
Eda Henries:What your plans are for the next 2 years, 5 years, 10 years. Right? Do you wanna remain in the company? Do you not? So kinda your vision for the business itself and the scale of the business as well as kinda your own, you know, sort of personal path within the business drives everything.
Eda Henries:And that's usually where I will start. If your aspirations are, you know, I've got a business today that's doing maybe a few $100, 000 or a few $1, 000, 000, and my goal is to be, you know, a much larger enterprise. Right? The path that you're gonna take is gonna be a bit different than, the path perhaps for somebody who wants who's running a great business and it's it's in a great spot. They don't have a ton of, need or desire to be a large enterprise, that's gonna be different.
Eda Henries:So I think the first thing I always say is really you wanna look at where you're headed and what you really wanna do. Right? Now if I were to go into the examples. Right? So if you are a business that's looking to scale, like, you know, get to be larger, let's say, you wanna be greater than 5, 10, 15, 20, 30, $100, 000, 000 of revenue.
Eda Henries:Right? Then the question then comes to, you know, at what pace. Right? So if this is something that's gonna happen within the next, let's say, 5 years, right, minimum, 5 to 7 years, then you probably need outside capital to do that just because the pace of growth usually will be much faster, right, than, the the capacity of the business to internally generate revenue. Right?
Eda Henries:I always tell people the first form of financing is revenue. So and so that's really where it starts. Right? But if you're growing and you need to hire people, you need to invest in marketing, you need those things, right, whether they're on people cost or infrastructure or security. I I my business is a financial services business.
Eda Henries:Right? We are regulated by the SEC. We have a nice thick rule book of all the things we gotta have to keep, you know, everybody safe in the system. Right? That requires investment.
Eda Henries:Right? And so for some of it, you really have to look at, you know, the pace of growth that you're pursuing. And if it's gonna be aggressive, then you're gonna need outside capital. Now the question there is gonna be what form of outside capital. Right?
Eda Henries:And what determines whether it's gonna be, let's say, equity capital or debt or debt light capital. It's really gonna be on how profitable the business is and how profitable is it gonna be as it's ramping. Right? Usually, we'll need equity capital
Susan Boles:if your
Eda Henries:business is ramping. And I'm in New York City, so I'm kinda a little background noise. But, if your business is ramping at a pace where you're gonna have some losses in the beginning, right, those losses are funded by equity. Right? That's the role of equity.
Eda Henries:Equity is meant to absorb losses. Right. As a business is scaling and to provide that kind of breathing room and cushion. So for businesses that are smaller, you really need to look at, okay, how long am I gonna need equity? Right?
Eda Henries:Like, how long am I gonna have these losses, and how much will they be? So the math is relatively simple. Right? It's I'm gonna look at year 1, year 2. I usually will say up to year 5 of your plans and just see what is the profit and loss.
Eda Henries:Right? And what it, what are gonna be the investments that don't show up on my profit and loss. So for all the finance nerds, the the investments that are gonna be required. So what's gonna be the profit and loss as the operating expenses that you you'll need to cover. And then if you have to invest in things like, you know, maybe equipment or, you know, in our case, we had to invest in security and we had to invest in the big old website and stuff like that.
Eda Henries:Right? So those investments will determine basically the size of the amount of capital that you will need. So the first thing is to kinda determine how much you're gonna have in losses. And then beyond that, if the business is going to be profitable because an equity holder is really just looking to see, okay, at at what point is this thing not losing money? And I started getting my money back.
Eda Henries:Right? Right? Right. So that's really where when you sort of adopt the discipline of looking forward, right, what the vision is gonna be year on, year out, that'll help you to understand the amount of capital you need and sort of what form of capital you will need. Now debt, if you're gonna grow via debt, which you can, right, which is how most businesses, especially service based businesses, grow, It's about profitability.
Eda Henries:Right? So then usually with debt, you're gonna go a little slower. Right? Because the business has to be profitable and service the debt each year. Right?
Eda Henries:The SBA or a bank or a non bank lender, they're gonna most give you, like, 6 months. Right? And then they want to start seeing those payments. Right? And so you got to have to lay out, you know, month by month, kind of what is this thing going to look like and will I be in a position to be able to to pursue debt capital?
Eda Henries:But I would say broadly speaking, the options are, you know, equity on 1 side where you're taking on a partner, you're taking on, you know, patient ish type capital where while you ramp up. And then debt is really when you're looking at a business that has that is either already profitable or has the ability to quickly become profitable so that it can actually service the debt. And then there's all there's everything in between. Right? This is finance.
Eda Henries:So you can have mezzanine, which kinda looks like equity, kinda looks like debt. So there's all these creative structures in between, but just, you know, to sort of simplify it, you're really looking at what form of capital is appropriate for the profile of my business as it's growing.
Susan Boles:And as you are thinking about or evaluating options, either for yourself or for your clients, how do you think about the decision between choosing to pursue equity investment or choosing debt? Is it just a matter of access, or is there some kind of cost benefit that you generally think about?
Eda Henries:It's a whole bunch of stuff. Right? Great question. Right? 1, there's sort of access.
Eda Henries:Right? What's available? Right? The last few years, at sort of the end of the big venture capital cycle, right, where everything was kinda getting venture capital. Venture capital typically was reserved for extremely high growth technology companies.
Eda Henries:Right? Where they're gonna go from 10 customers to a 1000000000 customers. Right? Or have that sort of, like, hockey stick, potential. Right?
Eda Henries:So venture capital, that's really what it's suited for. So this is for very high growth, you know, kinda high risk, high reward type opportunities. Right? And so with that, I think it created a bit of confusion in the marketplace around what's, you know, what sort of financing is available for small companies as they're starting out. Right?
Eda Henries:And so, typically, if you're small companies, if you're technology or technology based venture capital, that's where you hear all the seed investors and angels and all of that. But all of that is part all those sort of investors types of investors are part of, you know, I would say, a broader venture capital system. Right? Beyond that, when you get to service based businesses that are typically not hockey stick in terms of their growth profile, You know, when you when you look and say, okay. What avails me to equity?
Eda Henries:It's gonna likely be folks within your network who wanna just support the business. Right? It tends to be more friends and family where they're willing to, you know, put a little money in the business, and, hopefully, you'll be able to realize, they'll be able to realize some sort of return on payment. But that form usually takes debt. So I would say largely speaking, there's very limited equity.
Eda Henries:Right? Institutional equity for very small service based businesses. Now when you get to be a little bit bigger, let's say you're above $5, 000, 000 of revenue. Right? Then you start climbing that ladder.
Eda Henries:At that point, you start attracting private equity effectively. Right? Their private equity companies, or investors now who are saying, okay. You've got this great marketing agency or you've got this great, you know, accounting service business that has repeat customers. It has contracts.
Eda Henries:Right? This is something I can get behind, and maybe we can put some cash in it and grow it to a certain size and sell it or, you know, you buy it back from us, whatever have you. Right? So in service based businesses, usually, if you're sub 5, 000, 000, it's pretty tough to get outside equity capital beyond, call it, friends and family just because the institutional capital that's available for service based businesses starts at a certain size. They usually even like them $10, 000, 000 of revenue and $2, 000, 000 a week.
Eda Henries:So they start pretty high, right? And so access is really, in terms of size, determined. Right? What will usually happen? A determinant.
Eda Henries:Right? So even if you take friends or family money or you take somebody who's like, I really love this business. I wanna support. Right? I wanna put something in.
Eda Henries:Let's see what it becomes. Then it's really you have to determine now, do I wanna partner in this business? Right? Do I want somebody now that I effectively report to? Right?
Eda Henries:Because once you take somebody's dollar, you got their dollar. Right? Like, so at that point, you're in cahoots. Right? And so you have to share with them the reporting.
Eda Henries:They gotta be sometimes on board with the decision making. Oftentimes, when they're much smaller, they may not be as you know, they kinda trust you and, you know, hope things are gonna go well. But you do open yourself up to having an actual partner in the business if you take equity, right, from somebody. And sometimes I'm a believer, especially with service based businesses. Right?
Eda Henries:It's really another form of equity is, let's say, you have team members, and this is oftentimes what happens in small service based businesses. Right? You have hires. You have employees, right, who come into the business, who are doing really well, who can help you drive value in the business, help you, you know, execute, gain clients. Right?
Eda Henries:And sometimes that's the trade off. Right? It's like, okay. I can either pay you, you know, market or above, or you can have a piece of the, of the pie. Right?
Eda Henries:And so that's oftentimes a way that you will see investment happen in a smaller or in the service based business of a certain size. Right? You you find that the employees. Right? And that, I think, obviously, creates incredible alignment.
Eda Henries:Right? So I've got my first hire in my business. He's an amazing he's a he's a shareholder. Right? And I think it's great because we're we're we're very much we're very aligned in terms of how things are going and, you know, what our priorities are.
Eda Henries:And so that's something also, as you think about how to get investment and get folks into the business, that's, that's another option that is also available. Right? People who are gonna roll up their sleeves and be involved. Even if it's not day to day, perhaps they may be involved in another way that creates real value.
Susan Boles:Yeah. I'd love to kind of hear more about how you navigated that process, transitioning the employee to shareholder or employee to kind of partner. How did you how did that process work inside your own business?
Eda Henries:When we first started, I mean, I I knew him through he had worked for my cousin at at a really large financial institution for many years. My cousin basically trained first out of college. Right? And he was really good, strong. You know?
Eda Henries:Like, we complement each other really well. Our skills are different, but, you know, we're very values aligned. So it all started 1 with this is somebody I would want as a partner. Right? And I think that is number 1.
Eda Henries:Right? It's got it can't be because they want it. It can't be because that's, you know, that's not it. It's not just because they want it. Right?
Eda Henries:It's gonna be that this is somebody that is going to be in it with me. Right? And so that's really, for me, the alignment in terms of values, vision, and what we wanted out of our careers. Right? I think that was the starting point writ large.
Eda Henries:Right? Because, again, it is a marriage. Right? And so then beyond that, then it was like, let's look at things like compensation and what we want this to ultimately be and how do we wanna eat? What sort of reward do I want from my experience here?
Eda Henries:Right? And then that began the negotiation, if you will, around what was meaningful to him and what was meaningful to me. Right? I think it's really important to just take the time to get to know each other. Right?
Eda Henries:The thing when we first started, my vision of how much equity he would have in the business was almost, like, negligible. Right? But over time, I think I realized and he realized, like, I wanna go deeper in. Right? When you think about bringing in especially if they're gonna have a significant stake in the business.
Eda Henries:Right? Anything greater than 5%, I think you really gotta take the time to really get on the same page and understand what their objectives are, what their goals are, what where do they want to be in 5, 10 years? Do your time horizons align all of these things. And so for us, we started with the alignment and getting really aligned in terms of just working together. And then we went through that process of figuring out what what was economically, comfortable for both of us, what the economics would be.
Eda Henries:And then we went to the lawyer and the accountants. Right? Yep. And sometimes folks will go and put the cart before the horse, spend a whole bunch of money on legal fees and tax accountants and all that. I don't recommend that.
Eda Henries:I think it's important that you spend the time committing and understanding what you guys wanna do. Then it makes sense to spend the money on on all of those documents and formalizing the relationship. But then, you know, there are other technical things that come along. If you're gonna give somebody equity, you probably need to do a 4 9 a valuation. Like, you need to there are other technical things that come on the tail end of just doing this properly, getting it documented really well.
Eda Henries:Right? Because all is good, 1 is good, but you you really wanna have those hard conversations. Right? Have your lawyer knock it up and down and all of that. And all of that, if you've got great legal and, you know, sort of tax accounting counsel, all of those things can be sorted out and, you know, kinda put into our program.
Eda Henries:But it all starts with the alignment and, you know, you all getting a sense as to what what economically what the economics, will be that you're both very comfortable with.
Susan Boles:So kind of walk me through what a typical process of taking on an equity investment might look like? What are the steps that you see kind of as part of that process?
Eda Henries:It always starts with how much do you need. Always. Right? There's no getting around the account, projections, and budgeting. Debt taxes, and budgeting.
Eda Henries:And so you can never get away from it. So the first thing is it starts with right? It's really where do we wanna go next 5 years? Really being diligent about what you want that vision to be. And then going and making a set of projections as to what you think it takes to get there.
Eda Henries:Right? Put it in black and white. Put it in numbers. Right? And that will dictate revenue less expenses plus investments is the money you will need.
Eda Henries:It's as simple as that. Right? And if you're not a finance person, right, and you've got an accountant who supports you, this is something that they can do. It's a little project. Try and get it done in a cost effective manner.
Eda Henries:But you wanna do, like I would say do about 5 year projections. Right? And in doing that, it'll also help you flesh out what your, you know, what your priorities are. Right? Whether you are a business that does a 100 k of revenue or you are a business that does a $100, 000, 000, 000 of revenue.
Eda Henries:It is the same process. Right? It is the absolute same process. Then now it's the who do I get it from? And this again, 100 ks, 100, 000, 000, 000 same process.
Eda Henries:Right. So then you start looking to see for whom is this attractive. Right? If you're a smaller company, you start start right at home. And I'm always a believer, even today, where we have clients that we raise 1, 000, 000 and 1, 000, 000 of dollars from.
Eda Henries:I always start with, who do you know wants to invest in you? Right? And and for our clients, it tends to be institutions. They're like, well, you know, this, fund contacted me 1 time, but I didn't really you know? So okay.
Eda Henries:Well, let's take that call and let's kinda hear and get feedback. Right? So when you're pitching, you're essentially telling people what the business is gonna be. Right? Where you are?
Eda Henries:Where's the business gonna be? Getting their feedback. They like it. They don't like it. Who do they think could be helpful?
Eda Henries:Same process. 100 k, 100000000000, 000, same process. Right? So you basically are are going through the process of seeing who is interested, and that's really what I do daily. Right?
Susan Boles:And, you know, you'll get a bunch of no's, but you'll get some yeses, or you'll get people
Eda Henries:who will say, not for me, but this person I know could be interested. Right? And so that's usually the process. And adjacent to that is you wanna have your when you whenever you're going out for investment or even a loan or whatever have you, right, you need to have your books together. Right?
Eda Henries:So you wanna make sure your financials are put together. So invest the time in gathering up your historical information. Make sure all your corporate documents, you've got them in a nice little Google Drive or OneDrive or whatever. Create some folders. Just have your little file cabinet of all of the documents that are sort of relevant.
Eda Henries:Right? If you've got major contracts. Right? I mean, in in the investment banking world, they call it a data room. You wanna come prepare, you know, a set of folders that kinda have all of your documents and all of, you know, things that will be relevant.
Eda Henries:If you were looking to invest in a business, what would you wanna know? Right? Have all of those things organized so that it can be easily accessible if somebody comes and says, I'm interested. Now I'm always a big fan of having folks sign a a very simple nondisclosure agreement. Right?
Eda Henries:And for that, you can there are forms available online. Maybe you've got an attorney or you have 1 in house already. And that's not a huge, big endeavor. Keep it simple. Right?
Eda Henries:But that allows you to speak freely. Right? And and knowing that you at least covered, they're covered. But I think getting your documents in order, super important. Get an NDA in place, get your projections, and then start looking to see, okay, who for whom could this be interesting?
Eda Henries:And that's true whether it's equity or debt. Right? And a lot of service based businesses will grow on the back of debt. That that's really what's usually available because guess what? Our businesses tend to be profitable, stable.
Eda Henries:Right? And so those are attractive attributes for banks or non banks. I'm a big fan of community development financial institutions in this market when banks have pulled back from small businesses. Some of these guys, they have 100 of 1, 000, 000 of dollars to lend or to invest into businesses, and nobody comes knocking to no 1 knows they exist. Right?
Eda Henries:Right. So so I'm a big fan of some of those institutions, and they're usually within your state or your city guarantee. If you Google CDFI in Detroit or Washington or, you know, Portland, you'll find. Right? Their mandate is to work with small companies, and they tend to have a ton of relationships, right, for companies of a certain size.
Eda Henries:And so it's the same process whether it's equity or debt. Get your documents together. Get your projections together, and then you start knocking on doors to see, you know, who for whom is this interesting?
Susan Boles:So in terms of kind of timeline, as people are thinking about this process, most of this isn't on demand. You know, the, the ironic part with, you know, debt and that sort of thing is people are happy to give you money when you don't need it, when you actually need it. It gets really hard, particularly if there's a short timeline. So what's the expected timeline, or if you were setting expectations for folks heading down this path, what should they expect in terms of a timeline?
Eda Henries:If you're raising equity in this environment, even under the best circumstances, you're looking at 6 to 12 months. Right? Gone are the days of somebody I mean, unless you got AI on the back of your business name. Right?
Susan Boles:Whatever AI. Knitting AI. Right? So unless you've got AI on the back
Eda Henries:of your business, people are not you know, especially if you're looking for equity on the equity side, it tends to be much more people are a lot more reserved. Investors are a lot more reserved. Folks are largely risk off. Right? They're willing to be aggressive for very attractive opportunities.
Eda Henries:Right? So I always tell folks, if you're raising money, give yourself 6 to 12 months because that gives you also the time to find who you want. Right? And even in an environment like we were in at the end of the last cycle, right, where money was free. Right?
Eda Henries:0% interest rates and all of that happening. And there was, like, this rush to get things done. Right? Some of those some of our clients today, they raise tens of $1, 000, 000 of dollars, but probably from people they should not have raised that money from. Right?
Eda Henries:Because when the when the going got tough, it got really tough. Right? When the market fell out, then now they're in this position where they're in this bad marriage. It also takes time to find really find who's gonna do it. It takes time to find who do you want to do it.
Eda Henries:Right? And build those relationships. So, again, alignment. Right? Because if you're taking equity into the business, alignment is fundamental because it is a marriage.
Eda Henries:You have their dollar. Right.
Susan Boles:For sure. Yeah.
Eda Henries:Give yourself a 6 to 12 months. You can go online, and we'll fund you in 3 days or 2 days and charge you 900%. Right? So the merchant cash advance business is really been it was built on this need for speed. Right?
Eda Henries:It was either you go get an SBA loan that takes 6 months or 10 months. Right? Or you get something that's overnight. Right? And so the trade off in that is that you have very sort of aggressive and sometimes very predatory lending that's happening to small businesses, especially service based businesses where you may have accounts receivables that's out there, and you need the cash today.
Eda Henries:Right? So I would say start preparing, and the best time to start looking for money is when you don't need it. Right? Always. It's always when you don't need it.
Eda Henries:So if you think you don't need it today, start today. Yep. Because anybody you take money from, you really wanna get to know a little bit. Right? And that's true for institutions.
Eda Henries:They're institutions that you need to understand how they behave. Right? You need to understand who has power in those institutions, who makes the decisions, how their committees work. Right? Anytime you're somebody lends to you, if it's algorithm based, the algorithm has decided.
Eda Henries:If it's a human being behind it, there is a committee that decides whether they're gonna lend to you or gonna invest in you. Right? Or if it's an individual, then obviously it's an individual. But what I would say is that you really want to spend the time building the relationships, finding out who does. It is a natural kind of bonus to doing so is that you're building relationships.
Eda Henries:And financing and getting funding is all about relationships. Somebody is saying, yes. I trust you. That's that's fundamentally what it is. Right?
Eda Henries:And so giving it the time it needs is really important. So I always say, if you don't think you need money today, start absolutely today. Even if you don't want financing, make sure people know how well your business is doing. It creates opportunities so that the day something comes across your path, guess what? You've got several friends already.
Susan Boles:They'll be like, Guys, guess what's available, you know, and you want to
Eda Henries:be in that position. And that's true whether it's a bank. That's true whether it's a nonbank lender. That's true whether it's an equity investor. Right?
Eda Henries:You wanna always be in a position. You say they say don't, you know, stay ready so you don't have to get ready. That is the rule in in seeking funding.
Susan Boles:So where do you see folks kind of getting tripped up in this process, or what ends up being harder than they expect about the, kind of pursuit of capital here?
Eda Henries:It's an emotional roller coaster. I'm impenetrable to nose now because I've been doing this for so long. Right? Like you say, no, I'm like, okay. That means not now usually.
Eda Henries:Right.
Susan Boles:Or that means you're not the right 1. And I just keep on moving to the next 1. Right.
Eda Henries:And so it's I learned through, like, our clients because I watched them. I'm like, why are you, like, why
Susan Boles:are you frustrated about, you know, talking to yet another investor? I'm like, this is not, we're getting 1 step closer each day. Right.
Eda Henries:And so I think it's an emotional, ride. And I think a lot of people aren't, They don't realize that it is right. So it's not like the first frog you kiss is going to turn into a prince. It's just not right. And so you you have to just mentally accept that.
Eda Henries:And it's true for everybody. Right? And I know we hear these stories of, I just had 1 coffee, and they said yes. That is not that is not the norm. Not even close.
Eda Henries:Not even close. Right? Their deals I'm doing 2 deals with a single institution that told the client no a year and a half ago. Now they're chasing us with with every product they have. Right?
Eda Henries:And so that is a testament to the relationship that we allow to build even with a note because the note, when they gave that note, we asked why. And they said, well, the business is not yet profitable. And we want it at a certain size. Okay, no problem. The 1 thing I love about women owned businesses, we study to the test,
Susan Boles:Right. We know how to study to the test. So if you tell us no, because of this, we're like, okay, I'm coming back. Don't worry. I'll be back.
Eda Henries:Right? And so I think using that time and and just reframing what no means, I think is something that's a challenge. Sometimes I see for business owners, and they're surprised by how many no's it takes to get to a yes. But I'm a fan of just leaning into as many no's as possible, just so that you can quickly get to the yes. And and what you get is I mean, in in in my, you know, in my line of business investment banking, we call them market feedback.
Eda Henries:Right? So it's market feedback. It's price discovery. Right? And so having that frame is something I think is core, and I see I do see it as a challenge, but I think once people realize it that look.
Eda Henries:You'll start to hear some of the same stuff. So that's market feedback that tells you where your industry is. That that's stuff. That's really powerful information that you can then use to study to the test.
Susan Boles:Oh, I love that. 1 thing I think that, you know, is sort of related to funding, but I don't think it's talked about or discussed enough. And it's something I think that's not on most people's radar is acquisitions. So where do you see this kind of sitting in the growth trajectory of a service business?
Eda Henries:I think service businesses are actually quite honestly some of the best businesses when it comes to acquisitions and mergers and acquisitions. Right? Why? Because you will know your business really well. Right?
Eda Henries:Just like any other business. They tend to be very contract based. Right? And they usually have the ability to scale just by adding more contracts and customers. It is a more linear path to scale than figuring out how to go from 1 Facebook customer to 1, 000, 000, 000 Facebook customers.
Eda Henries:Right? It's actually more linear. Right? So then it becomes a question of, you know, what do I wanna be? Right?
Eda Henries:So coming back to the beginning of our conversation, what kind of enterprise are you building? Right? You can grow organically, which is, you know, year on year, we'll just keep, you know, kind of adding customers organically, or you can grow through acquisition, or you can do a little bit of both. Right? And the acquisition allows you to achieve scale a bit faster.
Eda Henries:Right? But acquisitions are also tricky because you gotta you may be acquiring people. Right? You may be acquiring systems. You may be acquiring the habits.
Eda Henries:You may be acquiring happy or unhappy customers. Right? And so that's where I think a lot of women owned businesses will shine. Right? We real we get to know our beast.
Eda Henries:Right? And we really are often, you know, very relational, so we understand what's happening. Right? So even if we're a smaller business within a sector, which we tend to be, I'm a smaller business within my sector. Right?
Eda Henries:We understand how that sector works. We know who's there. Right? You know what I mean? And so with acquisitions, it is a really attractive way to grow that is financeable.
Eda Henries:It's actually financeable. If you are a company, I was, you know, at the Leap Bank conference a couple of months ago. Right. And there was a woman on business. I think she was she was a much larger like, a 100 something $1, 000, 000 of revenue.
Eda Henries:And she was looking at buying something that was bigger than her because she wanted to be of a certain size. And then there was another woman I met who was maybe at, like, 30 something million revenue, and then she wanted to buy something that was 8, 000, 000. Right? So acquisition can provide you the opportunity, 1, to become bigger within your field. Right?
Eda Henries:So you can occupy more space. Maybe you get, more favorable, contracting because you you hit a certain size. Right? But then it's also financeable because guess what? The folks who finance businesses understand acquisition.
Eda Henries:Right? They do understand acquisition. And quite frankly, that's what private equity
Susan Boles:is that's what private equity has done, you know, for the last 40 years or,
Eda Henries:I guess, almost 40 years. Right? And so it's bit it was built off the back of you looking at somebody and saying, this thing has revenue. It's profitable, or it has the ability to be profitable. If I put it with this, I add 1 plus 1.
Eda Henries:I can get to 3. Right? And the the cash that it generates can be used to actually finance the acquisition. That is what a that is what a leverage buyout is, guys. That's what an LBO is.
Eda Henries:You're taking the cash in the business to basically fund the debt service of the business. Now, sometimes they get a little too greedy and it goes bankrupt, but that's a whole different story for a whole different day. But the point I'm making is that the world of finance understands acquisition, and they like the play. They tend to like the play. They like it at a certain size usually, but even if it's below a certain size, you can still get somebody to lean in, especially if you're an operator.
Eda Henries:Our businesses tend to be very well run. They tend to be very experienced, right. So you coming in and you say, I run my business for 10, 12, 13 years. I know this industry front and back. I know that person is retiring and I would like their book, right?
Eda Henries:Or, you know, they've decided they want to ride off to the sunset and do something different. I have the ability to take that on. That is a story that could be told to a funder and somebody can get behind it. Right? So, it's a great it's a great opportunity to scale a business.
Eda Henries:And then you can also you know, if you reach a certain size, you decide that you wanna sell it, guess what? There is actually there's a way to there's a arbitrage, right, for buying smaller businesses, getting up to a certain size. Because once they get to a certain size, that's where a whole new set of investors come into play. Right? They won't touch something below a certain size, but they will pay.
Eda Henries:They start up here. So what does that mean? There's greater competition up here. So your price that you would get for exiting a business at a certain size is different. We live in the biggest and deepest and, you know, most broad capital markets in the world.
Eda Henries:There's nothing there's nowhere like America. Right? And so these are things that are available to us. So I I just love to see, you know, more more more of our businesses kinda lean in.
Susan Boles:Bringing on any kind of investor in your business can be kind of scary. You're giving up part of this thing that you probably built from the ground up. And when you're taking on a partner or an investor, you're actually getting business married. It's really that same level of commitment and business arrangement as actually deciding to spend your life with someone. So it's important to consider whether or not that's the direction you really want to take your business.
Susan Boles:It can be the right choice for some businesses, but it's not for everyone. It's just an an option to keep in mind as you're thinking about the path you see for the future. And when folks are thinking about outside capital for their business, bringing on investors or partners is absolutely 1 way to go. But it's not the only way. In the next episode, I'm going to talk to Lena West about crowdfunding as an alternative option.
Susan Boles:So if you think you might wanna have some sort of investment in your company, but you're not really sure that giving up equity is something you're interested in, crowdfunding can be a great way to go. Lina and I geek out about why you might wanna consider crowdfunding, what to think about if you're mulling this over as a potential funding path, and how to make sure you're really well prepared for a crowdfunding campaign if that's the direction you decide to head in. So make sure you're subscribed so you don't miss any of the other episodes in this series, And if you know other business owners who might be considering some outside funding for their business, I always appreciate it if you share this episode with them because it really helps me grow the show and get the information to people who need it.