Generally, I think it’s a bad idea to build a business with the goal to sell. As a young entrepreneur, having a successful exit was my dream. Popular tech blogs, entrepreneurial books and magazines all share the fantastical stories of entrepreneurial giants that build successful companies and sell them for hundreds of millions or even billions of dollars. Everywhere I turn, I hear about overnight success stories. But when the goal of the founder and CEO is to have a quick exit, all decisions become short-term. Strategies and goals focus on driving revenue and acquiring customers as quickly as possible. Hiring decisions are made around talent that can impact the company today. Product improvements and customer experience are placed on the backburner because they usually take too long to build. Most of these decisions are happening subconsciously. No CEO would ever admit (or desire) to build the type of company I just described. However, the drive to show scaling revenues and early success (so you look attractive to potential buyers) can become all consuming. Unfortunately, if the dream of selling doesn’t happen, all of the short-term decisions eventually catch up to you. You lack foundational processes, scalable products and customer satisfaction. You never want to wake up one day and realize you have built an organization by plugging holes and juggling balls.
I had the pleasure of interviewing Brock Blake, CEO and founder of Lendio. Brock believes that access to capital should be simpler and quicker for entrepreneurs so they can do what they do best: innovate and grow. He’s built the largest business lending marketplace in the U.S. as a solution to this problem. To-date, Lendio has facilitated over $1 billion in funding, which has generated over $3.8 billion in gross economic output.
Thank you so much for doing this with us! Can you tell us a story about what brought you to this specific career path?
While studying at Brigham Young University, I found out about an entrepreneurial competition similar to the TV show The Apprentice (minus the cameras, drama and celebrity host). The competition, called Junto, challenged young, wannabe entrepreneurs to compete to win $50,000 to start a company. In lieu of a traditional pitch-a-business-plan competition, Junto was comprised of an 8-week bootcamp and competition. There were 100 applicants, 20 were selected to compete, and ultimately 5 winners were chosen. Fortunately, I was one of the 5!
With $50,000 in hand, I had the freedom to start any business venture I wanted. After considering a number of different business ideas, I kept coming back to a common pain point for entrepreneurs: access to capital. Every business owner I talked to needed capital to grow and expand their business, and it wasn’t easy to come by.
Can you share with our readers the “6 Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit.” Please give a story or example for each.
- Embrace Failure as a Catalyst for Learning
Before Lendio, my co-founder Trent Miskin and I launched a company in 2006 called FundingUtah. Our model was simple: connect Utah business owners looking for capital with Utah VCs and angel investors. We did well in Utah and decided to move beyond its borders, officially becoming FundingUniverse (horrible name, I know!). Within a few years we had reached $10 million in annual revenue.
The problem was, the FundingUniverse business model wasn’t scalable beyond that point. The business revolved around employees behind the scenes writing business plans and creating financial models for our customers; we had very little technology. We had also discovered that only a small portion of the startups that came to us looking for cash were ever going to raise capital from an investor (most of the companies were Main Street businesses and didn’t need $500K+ in capital to grow). When we did find an investor match, those VCs and angels were very unpredictable. Their decision to fund was based on their own investment portfolios, which fluctuate daily.
We could have continued down that path, knowing it was a dead end, but we made the tough call to reinvent ourselves and start over.
Over the years working with investors, we had become intrigued by banks and their rigid lending guidelines; there was something very attractive about the disciplined formulas lenders use: A+B always equalled C, and we decided to build that same process into new technology. We started designing the framework and began connecting with alternative lenders. In January 2011, we shut down FundingUniverse — going from $10 million in revenue to zero overnight, and Lendio was born.
2. Make Pressure Your Ally
When we first started, revenues were increasing but they hadn’t caught up with expenses yet. Just two weeks before Christmas, we ran out of gas and had no cash in the bank to make payroll. On the day our team was expecting paychecks, I had to break the news to our team of eight that they wouldn’t be getting paid. We were a tight group, and I knew everyone had families to support, not to mention the added expenses of the holidays.
I had let my team down and I couldn’t stand the thought of it. I was literally curled up in a ball with tears in my eyes and my mind racing to come up with a solution. I had a great mentor at the time who forced me to think outside the box and come up with a gameplan. The problem was, the plan would require buy-in from a team I couldn’t pay. I presented my vision for the future of the company to the team and gave them the weekend to think about it. I also told them if they didn’t show up for work on Monday, I would understand. All eight team members showed up Monday morning ready to work. The immense pressure of those circumstances created a more tight-knit team with a renewed and vested interest in making our startup succeed.
3. Learn to Iterate and Integrate
Inspired by our early failures and learnings, we’ve created an environment at Lendio where
constant refinement is not only accepted, but expected.
Helping business owners get access to capital is very challenging. Traditionally, an owner has to go to the bank, fill out a 30-page application and then wait for an underwriting decision. It may take up to 30 days for that process to play out, and even then there may be more questions with more delays. That’s just one bank. Imagine doing that over and over, bank to bank.
Lendio was built around a dynamic application that gathers all the information needed to submit to any of 75 different lenders. Every question a business owner answers narrows down the options in order to find the perfect fit. In doing so, Lendio cut the application process in half. Now we have a revenue model that is scalable with good economics, we have created a satisfying customer experience and a robust technology platform. But we’re never done iterating and integrating.
Iteration is a close relative to failing fast, in fact, it’s usually the direct result of failure. It’s hard to embrace failure as a catalyst for learning without iterating and integrating at the same time.
4. Aim for Profitability
Since Lendio started in 2011, we have taken on several rounds of funding. While I have not yet completed a successful lucrative exit, I have successfully rallied my team to achieve profitability.
In 2016, many high-profile companies in the online lending space faced significant challenges. At the heart of their struggles was a consistent trend: most companies had not figured out how to achieve profitable unit economics. I committed to follow a different path. I rallied my team to focus 100% of our efforts on getting Lendio’s unit economics in line.
The decision wasn’t easy; Lendio’s top line revenue growth (which was pacing at over 100% YoY growth) came to a screeching halt; it even declined over 2 quarters (Q4 2016 and Q1 2017). However, during those same quarters, margins dramatically improved. Finally, in Q2 of 2017, with unit economics in line, I recommended to the board that the company invest in top-line revenue growth again.
Since then, Lendio has grown top-line revenue by nearly 100% and, because the unit economics are profitable, the company has reduced the monthly burn rate to break-even.
5. Rein in Your Emotions
Stress, sadness, anger, happiness, joy and satisfaction: I’ve experienced the highest of highs and the lowest of lows with Lendio. One thing I’ve taken away from all of this is that instead of letting the fear of failure determine your outcome, there’s power in putting fear to work for you. Looking back, I can see my fear and anxiety were actually signs I was on the right track. For me, it’s been a matter of understanding what causes fear and then acting.
On the flip side of fear and anxiety, come the joys of success. Right now, Lendio is seeing growth of nearly 100 percent, year over year, with no signs of slowing down. What we are trying to guard against is allowing that success to breed complacency. As an entrepreneur, anytime you have the feeling of “I’ve made it!” there should be a blaring alarm telling you it’s time to iterate again. Use your view at the top to see new opportunities.
6. Build a Superior Company Culture
Recently, we were lucky enough to have Utah Senator-elect Mitt Romney come speak to the team here at Lendio. One of the most impactful lessons Mitt shared with our group was, “across any organization, the culture and how the team responds and reacts is a reflection of who’s at the top, the leader.” In other words, not only am I the CEO of the company, I’m the CCO, or Corporate Culture Officer.
Lendio was born out of my own obsession with fueling the American dream. But none of this would have come to fruition without a large group of people willing to buy in to and share my obsession, starting with the talented group of leaders that make up the executive team. The values we share trickle down through the entire organization and drive everything we do.
Of course we never want to create a culture where executives dictate every value, belief or principle. And oftentimes, the hard work isn’t in defining your culture, but in constantly evaluating it to ensure it’s evolving with the business while holding strong to core values. Just like it’s important to see your doctor for routine physicals, it’s important to give your give your company culture a regular checkup. Find out what’s healthy, what needs to be improved and what sort of major work might need to be done.
Can you give a few examples of things to avoid when trying to build a business to sell?
- Don’t miss a chance to expand and grow your business because you’re too busy celebrating your success. Conversely, embrace some of the lows that come with owning your own business and make sure you understand why you are feeling fearful, stressed, angry or sad, and then use it as a way to improve.
- Beware of early Venture Capital term sheets: no due diligence means no guarantee. Several years ago, I had an experience that changed my perception of the blissful term-sheet stage of fundraising. Lendio was growing fast and we felt like another round of capital would allow us to continue the growth trend. Around the same time, a growth equity venture capital fund reached out to see how things were going. I had an established relationship with most of the partners at the fund, and we had many personal connections. After a few days of discussion and negotiation, the venture fund submitted a term sheet.
After a couple trips to Silicon Valley — and a few weeks of office visits and due diligence — I had follow-on investors engaged and ready to sign the term sheet. That’s when I received a text message from the partner of the lead investor group, “Hey Brock, do you have a few minutes to chat?” The text message had come from out of the blue and I could tell the tone was different. Upon answering my call, the investor quickly broke the news: “Brock, our investment committee has decided to withdraw our term sheet.”
Although that phone call knocked the wind out of my sails, I walked away with valuable lessons that have shaped the way I approach fundraising conversations as an entrepreneur. One of the most significant realities I came to terms with is around reputation: no matter how well the investor group may be known, there are no guarantees.
You have to do your due diligence to make sure an investor has a track record of funding (nearly) every term sheet they put out. Ask them: “How many times have you submitted a term sheet without the deal going through?” The reality is they may not directly answer the question, but it’s up to you to push until you get a satisfactory response. Ask the investor whether they’ve done due diligence around your business and your track record. Most importantly, talk to other portfolio CEOs to find out if they’ve had a dropped term sheet with that venture fund.
What are some of the differences in approach for building a service based business versus a product based business with an intent of selling the business at a lucrative price?
If you are building a service-based business, your focus should be on the margins and cash flow. A future buyer will be looking to pay a multiple of your EBITDA to generate free-cash-flows. In the case of a product-based business, be sure to focus on recurring revenue and scalability. A future buyer in this case will look to pay a multiple of revenue to generate additional growth.
How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income or go public?
Generally, I think it’s a bad idea to build a business with the goal to sell. As a young entrepreneur, having a successful exit was my dream. Popular tech blogs, entrepreneurial books and magazines all share the fantastical stories of entrepreneurial giants that build successful companies and sell them for hundreds of millions or even billions of dollars. Everywhere I turn, I hear about overnight success stories.
But when the goal of the founder and CEO is to have a quick exit, all decisions become short-term. Strategies and goals focus on driving revenue and acquiring customers as quickly as possible. Hiring decisions are made around talent that can impact the company today. Product improvements and customer experience are placed on the backburner because they usually take too long to build. Most of these decisions are happening subconsciously. No CEO would ever admit (or desire) to build the type of company I just described. However, the drive to show scaling revenues and early success (so you look attractive to potential buyers) can become all consuming.
Unfortunately, if the dream of selling doesn’t happen, all of the short-term decisions eventually catch up to you. You lack foundational processes, scalable products and customer satisfaction. You never want to wake up one day and realize you have built an organization by plugging holes and juggling balls.
I remember the exact moment when my outlook on the business changed. I was looking to bring on a key employee, and he asked me a question I’ll never forget. “Brock, what’s your vision or exit strategy?” I responded then with the same response I would give today, “The vision of this company is bigger than Lendio. I am not building this for a quick exit; I want to solve a major problem in the market and help more business owners get loans. If we focus on that, everything else will take care of itself.”
If my focus was a quick flip and an early exit, Lendio wouldn’t attract that type of talent, we wouldn’t be as competitive in the marketplace, we wouldn’t have people pushing to innovate and I wouldn’t feel as good about what I do everyday.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
I’m super passionate about the mental, emotional and physical health benefits that come from living a well-balanced life. Some of the things that have helped me throughout my career are:
· 7 to 8 hours of sleep every night
· Regular exercise (3 to 4 times a week)
· Healthy eating, including low carbs and little sugar
· Regular dates with my wife
· Personal meditation
· Quality family time with my kids, especially family vacations
In a world that is wrought with anxiety and depression, I believe putting the phone down to enjoy some of the items above can make a significant impact on an individual’s emotional wellbeing.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
My grandpa was a personal hero of mine and would regularly say to my siblings and me: “Remember who you are … you’re a Blake!” This phrase stuck with me and still helps guide me through making important decisions. Grandpa taught us that being a Blake means being a hard-working and caring person of high integrity.
How can our readers follow you on social media?
Thank you so much for joining us. This was very inspirational.