Episode 411: Think Like a Buyer Not an Owner

Corey KupferDavid Horwich is the founder of Horwich Strategic Advisors, HSA. He is a seasoned expert who specializes in maximizing the value of privately held businesses. Drawing on a four decade career in investment banking and growth consulting, David brings a unique think like a buyer, not an owner, perspective to every engagement. David, welcome to the podcast.

David HorwichCorey, thank you so much for having me. I really appreciate it.

Corey KupferWell listen, I'm excited to have you on. Even though you're a rookie with only four decades into this thing, you probably have something to offer. It's funny, I'm the same thing. So we're about the same time in this business. But before we get into all of that, joking aside, decades of experience and moving from the investment banking side to more of the consulting side of things, I wanna take you back to when you were a little kid growing up, maybe eight, ten, twelve years old. 'Cause I'm assuming an investment banker, a consultant, somebody who works for people that maximize value and figure out how to sell, was not it back then, but you tell me. What did you want to be?

David HorwichWell, no, it wasn't it. My dad was an attorney, and I was convinced that the law business was gonna be my future. And I wound up at school at UC San Diego down south. And while I was there, I majored in economics and that turned my head. As soon as I understood how micro and macro economics worked, I was like, no, I'm not doing the law thing. I'm gonna go into business in some fashion.

And the rest, as they say, is history. I finished up at UCSD with my degree, wound up working for a commercial bank for about 15 minutes, decided that was definitely not what I wanted to do, and applied to and was accepted to business school at Berkeley, and went there, had a great two years there, was vice president of my class, and really enjoyed learning about what was going on in business and strategy and how to make businesses better.

Sadly, I was not cut out for investment banking when I started. So I wound up at a transportation equipment leasing business in San Francisco. And I was there for five years. I was the chairman of the board's bag carrier. I did all of his analyst work, helped him prepare board minutes. And then also while I was there, I started up two different businesses at the company. The firm was great. It was this money raising machine. This is now we're really dating ourselves. This is pre-TEFRA, when passive losses were still a thing. So this firm was able to raise a hundred, hundred and fifty million dollars at a clip. And back in the mid 80s, that was real money. And then leverage that money three to five to one and then go out and buy transportation equipment.

And we were gonna use that same money raising machine to start up these two businesses. The first was an alternative energy facility that was gonna be located up in beautiful downtown Hardin, Montana, and was going to utilize what we termed waste coal. I actually went to Washington, D.C. and I had Max Baucus, who was the Senator from Montana at the time, do a colloquy that waste coal was going to be considered an alternative fuel. And we got it done. We're now in drawing board stage and we've got the financial projections put together and we're getting ready to go. And at the time, the Montana Power Company was required to buy the power under a law called PURPA, the Public Utility Regulatory Powers Act. I think it was 1970.

And they were required by law to buy any alternative power that was generated. So we're starting to look pretty real here. We're starting to get out there and talk to construction financiers to put the construction money in. And the Montana Power Company came to me and said, we don't need the power. In fact, we really don't need the power. In fact, we don't need the power so badly that we will buy that contract from you. And they did. So for doing a lot of hand waving and a lot of motion, the firm made a whole big pile of money for looking like we were going to build this power facility. Didn't happen.

Yeah, crazy story. The second thing I did there was I started up two international leasing funds. One was going to be in Canada and one was going to be in Italy. And we were getting ready to go out and do the financing for those. At the time, the firm had gone public with Raymond James and Dain Bosworth, and then had done two junk bond deals through the old Drexel Burnham Lambert. And that's when the investment banking hat came back. And I went to one of the bankers at Drexel and I said, Charlie, I think you're having a lot more fun than I am. And he said, well, don't come here. Mike is under investigation and it may not end well. We're all thinking about what else we're gonna be doing.

But he made some introductions and one of the guys he introduced me to was a guy named Bruce Emeluth. And Bruce was brand new, had just started up an investment banking group after 20 years at a firm in LA and 15 years at Prudential Capital. He started up an investment banking group for a firm based, of all things, out of San Francisco, running it in L.A. And so I was Bruce's first hire and the firm was Van Kasper and Company and Bruce was an absolute genius. He built this banking group from him, to him and me, to him and me and 65 bankers up and down the West Coast. And we were doing more capital markets, sell-side M&A, buy-side M&A than pretty much all the other regional firms on a combined basis. I also chaired the Fairness Opinion Committee to approve fairness opinion work.

And that lasted for 13 years. Bruce and I were together for 13 years. We sold the business in 1999 to a bank out of Salt Lake City through a long, circuitous set of circumstances. That bank was acquired by Wells Fargo and we became the first incarnation of Wells Fargo Securities. But that was the fall of 2000. And it was not a good time to become anybody's brand new investment banking firm. And so over the next several years, people started leaving. And I hung in there for a while and I left in '03. I wound up at a couple of smaller firms doing sell-side M&A and some private capital raising.

And then in 2010, I retired. I retired from banking. I didn't want to bank anymore. It was living and dying by getting deals done. And I was getting of an age where I just didn't want to live that life anymore. And with another guy who had left another investment banking firm, we started the precursor to what I'm doing today. And so he and I were together for four years. I wound up at a great local accounting firm called Green Hasson Janks, now GHJ, and I was there for nearly nine years and I spun my practice out about a year ago.

Corey KupferWow. What a journey. And it's so funny because there's so many parallels, in addition to the fact that I will call this very experienced as opposed to old. Back in the eighties, I was at a law firm that was one of the law firms that worked with Drexel. We didn't do any of their junk bond stuff. We did their equity stuff, their IPOs and secondary equity offerings. But similarly, I was working at a firm that was doing a lot of Drexel work, and I got a heads up. So we were doing that and we were doing GECC leveraged buyout work, representing GECC.

And again, it's so funny, so many things you said. So I remember we did the Dot Drug leveraged buyout with GECC, and that was a hundred fifty million dollar leveraged buyout, and that was a huge deal back then. There weren't deals in the billions back then. And then also I got a heads up that there's some stuff going down with Drexel and it'll affect the firm. And fortunately there were two young partners there who on the side gave me the heads up 'cause they didn't want to see me get hurt. And I actually left the firm before things, so the partner who had GECC left and then Drexel, so two of the big clients. And I had gotten out before they ended up, like a year later, laying off a bunch of associates. So I got ahead of it because of these two young partners who cared enough about me to give me a little heads up. So yeah, I remember those times well. Obviously I remember 1999, 2000. So it's interesting you sold at that time and the whole internet boom and bust. And then you mentioned you're keeping these dates, 2010. There's so many of these dates that can coincide with major interesting economic times.

David HorwichYeah, I know, that's exactly right. Yeah, when the dot-com bubble burst, boy, we were all looking around. And we were doing nothing but making money in the investment business at that time. And then we were doing nothing but losing money. And that just came to a screeching halt.

Corey KupferYeah, no, I get it. So my second question, and I only have my first two questions and my last one, everything else is not scripted, but what is the first deal you did of any type? I mean, you mentioned some early deals, but what was the first thing you would consider a deal? Was it one of those or was there something before that that you did?

David HorwichSo one of the deals I worked on at VK, Van Kasper and Company, first really memorable deal. You may or may not remember a fruit juice business called Odwalla. Yeah, Odwalla was started up in Half Moon Bay by a couple of guys, Steven and... gosh, I'm blanking out on the other guy's name. The whole idea was they were gonna make fresh juice and sell it door to door in the Half Moon Bay area because they believed that pasteurized juice was unhealthy and wasn't the same thing and it didn't have the same taste. It was Greg, Steven and Greg. When Greg had started the business, he was literally driving a van around Santa Cruz and dropping off juice every day. And Steven, who was an investor in San Francisco, saw the business and he loved it and he put some money in and he came on as co-CEO and these guys took this and really built something up.

We were brought in to do their IPO and we co-managed that deal with, I'm sure you may remember, the old Hambrecht & Quist. They had a small deal investment banking firm that they called RVR, RVR for risk versus reward. And RVR and Van Kasper and Company managed this deal. And it was just terrific. I mean, it was just a great deal. I remember sitting around the conference room drafting up the prospectus, and we did it in the company's offices, and they had these smoothies and juice bottles in refrigerators around the conference room, and everybody put on weight while we were drafting this prospectus because these things were... it was all natural sugar, but it was still sugar. And anyway, it was a great deal. We went out at eight bucks a share, the stock ran up, did really well.

It graduated up to H&Q, and then H&Q and VK, we did a follow-on offering for them, I don't know, three, four years later. Then the company hit a real speed bump. They started shipping juice over the Rocky Mountains to Denver. Very sadly, one shipment wasn't well refrigerated and some of the bottles developed E. coli within, and a little seven or eight year old girl was killed.

She died from having drunk the juice, and boy, Greg and Stephen, they were just devastated because they had started this business to make everybody healthy. And so they wound up going back to flash pasteurizing and ultimately sold the business to Coca-Cola.

But that was the life cycle of companies in this lower middle market. They grow and then they sell. And they almost never become big Fortune 500 companies. And so the investment banking business around that was really a farm to label kind of a practice. You'd start out early and you'd finish late.

Corey KupferYeah. It's so interesting. I haven't been involved in many of these, but I've observed, and I'm sure there's a thousand brands that went nowhere, or more. But there's been some interesting stuff in the beverage space over the years. Snapple, most recently Poppi. They had a billion dollar exit. This company that most of the folks on Shark Tank laughed about, this alternative soda company. So the space has been interesting because the big players tend to not innovate in that space. They tend to acquire new brands that get some traction, and then obviously get the distribution and the marketing around them, and sometimes ruin them and sometimes make a huge amount of money on them.

David HorwichYeah, Coca-Cola really took Odwalla and ran with it. They were able to open up distribution all over the country. And with their branding muscle and shelf muscle, they were really able to make it go. And right, the beverage industry, it's interesting. It comes and it goes and it comes and it goes in waves. So Olipop and the other ones that are in vogue these days, we'll see where they go.

Corey KupferYeah, yeah, exactly. Fascinating. One of the things that I love about doing deals is learning about these different businesses, these different spaces. Entrepreneurship is fascinating for me. I love the stories where these companies come up from these founders who have this vision to make a difference. And I don't know about you, but that's one of the things that excites me about what I do. Sure, protecting clients and doing the legal work and helping them strategize. In general, I like the work, but one of the things I love is just learning about these different industries.

David HorwichYeah. The banking business back when I started, when I grew up in it, was a generalist practice. So every day we would do transactions with different kinds of industries and companies. So over the course of my career, I worked with tech businesses, I worked with fruit juice businesses, I worked with biotech and other healthcare businesses. The practice during the late 90s and early 2000s really changed and went to industry specialty. And today, the really successful investment banking firms are the ones that have specialized and in some cases micro specialized in certain industry niches and verticals. And they know all the buyers, they know all the players, they know what's really going on in the business. Fortunately for me, I left the practice in '10 and never wound up being a specialist. And so today, I'm really lucky. I get to see companies in all kinds of shapes and sizes of businesses and industries.

I've seen businesses in industries that you can think of and businesses in industries that you can't think of because you have no idea. I have a client that is a... they design, fabricate and assemble very large lighting fixtures that are used in a specific type of hospitality industry. And you walk into this place and you look up and you see this big gigantic lighting fixture. And you realize, well, somebody had to have actually made that, right? And the only way they made it was by making a profit while making it. And that goes back to my economics, which was, this is so interesting. How do these people do this? They find a need and they fill it. And along the way, hopefully they create some wealth for themselves while doing so.

Corey KupferA hundred percent. Yeah, it's funny. I've had that experience. Even before I got into doing what I'm doing and got the experience of seeing all these different businesses, I remember the first similar realization I had was I was in college, and this girl I knew wanted to become a medical illustrator. And I remember thinking, what is that? Well, somebody who draws... again, technology was not anywhere near, and we're going back to the seventies. There would be somebody who would actually draw the pictures in these medical textbooks or papers, to show the anatomy. And it was my first time where I was really like, I guess somebody has to do that. I've seen those, right? I never thought about it, but of course. It doesn't just appear out of the air. We didn't have AI or even Photoshop or any of that stuff. It was just somebody who actually drew it back then. And yeah, that's been my experience with finding people in different industries that do different stuff, and it's always fascinating to me.

David HorwichI find the business of business just so interesting. And there was a point at which I kind of called myself the physicist of business, because there's a science to it and there's also an art. There's a real art to it. And the art is figuring out what the customer wants and designing the product for what it is they're looking for. Steve Jobs had it the other way around. I'm going to design the product and then I'm going to tell the customer what he wants. They don't know what they need. But most businesses don't operate that way. Most founders are not Steve Jobs.

Corey KupferThat's right. That's right. I love that. It's interesting for me because you talk about thinking like a buyer, not an owner. And one of the things that I love about what I do is that you have these great entrepreneurs that have these brilliant ideas, and maybe they're even great at executing and marketing and things like that. And unless they're one of these rare companies that just forms as an acquisition company, the focus is almost always on organic growth. You create a product, you do sales and marketing, you provide great products and services, you build a team.

But there's also that same kind of science and creativity and art in the deal making side of it, whether that's M&A, whether that's licensing, whether that's joint ventures or strategic alliances. And for me, I've always related it that way. In fact, there's a talk that I give called There's a Deal for That, like there's an app for that.

And the concept is any business frustration, challenge or issue you're having, there's a deal for that. Doesn't mean you should do it, but it should be another tool in your toolbox. You're having trouble hiring, you can go through recruiters and post on the sites or give your employees bonuses or whatever you do organically, but you could also do an acquisition or an acquihire, for example. You want to get into a new territory, you can start organically or you can buy into it, or you can do a joint venture. There's all these ways. So it's another tool in the toolbox that a lot of entrepreneurs don't have. And I love that creativity of it.

And the reason why I do the talk the way I do is because objectively somebody may not be really interested in learning about deals. But they are looking to solve their hiring problem or their geographic expansion problem, or they want to broaden the scope of the services that they can provide or products they can provide, because a competitor maybe has a more comprehensive solution, and they need to do that, and maybe there's a better way than trying to build it on your own. So when you address it from the problem point of view or the frustration point of view, they're listening. So for me, I love everything you said about entrepreneurs and creativity on the organic growth and startup side. I think it applies to what you and I do as well.

David HorwichWe're not young chickens anymore. We've been around, we've seen a bunch of stuff. I think I've probably been exposed to somewhere between 5,000 and 5,500 companies in my career. And that's a lot of companies. And really, ultimately, that's proprietary knowledge that I have of having seen all this and seen what works and seen what doesn't work. And a lot of business owners do come to me and say words to the effect of, I've gotten it this far and I'm not sure why it's not going any further and I really am stuck and I need perspective. I need somebody to help me look at this business in a different way. And having seen all those companies that I have seen, there's not really that many business models out there. There's the SaaS model, there's the manufacturing model, there's the distribution model, there's this model, there's that model. But ultimately, most businesses are going to wind up fitting into one model.

I just have to do enough digging to figure out which one it is. Then once I'm able to do that, then I can spot where the issues are that the owner has no ability to see because he's up every morning. Most owners I know, I'm sure the same for you, they get up every morning and they're street fighting all day long. How do I generate that next dollar of revenue or that next million dollars of revenue? And sometimes they're not thinking about, well, what does that actually mean? If I generate that next million dollars of revenue, is it good revenue? Is it bad revenue? Not all revenue is created equal. Some revenue is better than others, it just is. Repeatable revenue is better than one-off revenue. Higher margin revenue is better than lower margin revenue.

Revenue that has no working capital associated with it to deliver the product is better than revenue that has working capital associated with it to deliver the product. Knowing where that fits in the scheme of things allows the perspective that I can offer my clients, the ability to say, why are you doing it that way? And being able to cut through some of the issues and be able to get them on a pathway to growth.

I had a conversation with a client yesterday afternoon and we were talking about the growth story and how we're going to assemble a growth story. And these guys have been selling the same thing year in, year out. They're just selling different versions of it, but they're selling it through the same distribution channel they've always been selling it through. And what we talked about was there's really three ways of growing your business. Number one is you sell the stuff you got to more customers or you sell more stuff to the same customers. That's number one. So maybe that's distribution channel expansion. Maybe it's finding another outlet to sell your stuff, whatever. That's number one. Number two is sell new stuff to existing customers.

Now, I contend that's the easiest because the customers, they're already buying from you. They've already gone across the Rubicon and they've said, okay, I trust this guy. He's going to deliver the product that he says he's going to deliver and I'm going to keep buying from him. So now if he offers something else to me and it fits, generally speaking, within the broader rubric of what I'm doing, I'm going to buy it from him. And it's lower sales costs, lower marketing cost, it's lower everything. So these guys are selling one product and we started talking about what else can we sell to those distribution channels you have. We came up with a few that are not too far afield, that are things they can do that, by the way, their customers are asking them about.

So let's go design it and let's go sell it. The third way of growing the business is you sell new stuff to new customers. I try to tell my clients, don't ever do that. Or if you're gonna do that, go start a new company. It's too far afield, it's really a lot of brain damage and you're likely to not be successful at it.

Corey KupferIt's really funny you say that, because if you look at these buzzwords in the industry, if you watch a Shark Tank episode or you read stuff from these online people, they're always talking about CAC and ROAS, the customer acquisition cost and the return on ad spend. And really those metrics are much more related to getting new customers. Now, some of it is getting new customers and selling them the same stuff you're selling, but it also could be with new stuff. And I think if anything is under focused on, it's that conversation of selling additional stuff to your existing customers, 'cause exactly what you said. And it's funny, I was thinking as you were talking, and then you said it, very often the customers are telling you exactly what else they want you to sell them.

It's not like you gotta do all this market research. A lot of times you hear your customers' pain points or the challenges, or they're specifically saying, hey, can you do this as well? And I've seen a lot of companies be successful in moving into a related product or a complementary product because it was requested by a big customer or two, and it's a phenomenal opportunity. But fewer of them are reaching out to their customers saying, hey, what else do you need? Where are your pain points? What else could we also provide you? And once you have that trusted relationship, it's so much easier to leverage that. And I know we're talking about an organic growth conversation here, but obviously, first of all, the more you do that, the more enterprise value you're worth if you sell. But also, there are deal-related ways. If the customer says, hey, I would love X, yeah, you could build X, but you could also potentially buy a company or do a strategic alliance or joint venture with a company that already does that stuff, or be just a distributor or whatever it is. There's a million types of licensing. There's a million types of deals you could do to fill that need for that customer.

David HorwichWell, that's right. Every growth decision comes down to buy or build. And what are the factors that surround the decision? The factors that surround the decision are, if you build it yourself, you will probably keep your capital spend down. You will probably know where the customers are and understand them. But it will take longer. And so there's a time value of money to the profitability that you might wind up generating out of that. And so buying, depending on what your customers are clamoring for or what your time frame is, buying might be the best way to go. But then you have to go find the company to buy, and then you've got to go value it, and then you've got to go negotiate it. And that can also equally be a very painful activity and experience.

Corey KupferNot to mention integrating it after you buy it.

David HorwichAnd then, it's funny, you could almost write the email. I just wrote to our mutual friend earlier this morning about a customer that he's got that is thinking about buying something, and they want an investor. And I'm like, well, that's great. But here's what the investor is going to want to know. And these are not like off the shelf answers. These are answers that you've got to really think through, so that when you do go to the investor markets, the investors are going to get it. They're going to look at it, they're going to say, okay, that does make sense to me, I really get that. And so the planning is really important.

Corey KupferDavid, I wanna dig into this, because obviously listeners have a feel for your background and all your time as a banker, and they're getting a feel for some of the type of consulting and advice that you provide. But what do you specifically do now? Because you're not an investment banker. We talked about in the bio that you maximize the value of privately held companies, and we talked about a couple of examples. But let's talk about the full scope of services that you provide and then who are the ideal clients for that.

David HorwichSo the broader rubric is creating value in every client. And so where do you start? So again, I'll give you a good example. A company I talked to yesterday, owned by a husband and wife team. He is 10 years older than she is and he has had a couple of bouts of serious illness. They're probably in their mid-late 50s, mid-late 60s kind of neighborhood. Maybe he's in his early 70s, maybe she's in her early 60s. And they're not sure what to do.

And the one thing that came very clear out of the conversation was if he goes first, she does not want to own the company. She just simply doesn't want to do that. And so they're looking for alternatives. So another way of saying create value in the business is creating enough optionality for the business owner to then make a decision. So this particular couple doesn't know what to do. So the first place to start here is, well, what do you need? And understanding that. And so I've asked them to go spend some time with their investment advisor and really sit down and understand what their financial goals are. They have thoughts about foundations and doing good work.

They have thoughts about their kids and how much do they want to give the kids and how much do they want to motivate the kids instead of giving it to them. They have thoughts about their own personal retirement and what kind of lifestyle they want to lead. So the first thing I will do with them, and literally just before we got on this call, I'm typing up a scope of work for them. And the scope of work for this couple is going to be what I call a market check. The first thing I'm going to do is what I call a market check.

And the market check is a real world value of the business. If you go hire a valuation firm to look at a company, they're doing it for a purpose. And the purpose generally is to minimize taxes. There might be some other reasons you do it. There might be a valuation for an ESOP. There might be a valuation for a buyout. But all of those are not necessarily market driven valuation activities. And so what I'm gonna do is I'm gonna learn enough about the company. I've asked them for financial statements, I've asked them for some metrics behind the financial statements. I wanna know, because every investor and buyer wants to know, revenue and margin by SKU, revenue and margin by service, revenue and margin by distribution channel, revenue and margin by category, revenue and margin by customer, revenue and margin by geography. There may be other metrics to look at, and until I dive in a little bit I'm not going to know what they are, but we'll figure it out.

I'll then sit down with the couple for a couple or three hours and I will pick their brain, if you will, about the business. I'll really understand from a buyer's and an investor's perspective what this is all about, and what are the opportunities, where are the risks that any buyer is going to be staring at. And I'll develop an investment thesis that I think is a good description of the business, and one that I can then take, and I'll go talk to five investment banking firms and five private equity groups. And I will ask them the following questions. Number one, would you sell this or would you buy this? Number two, what range of value would you put on a business that looks like this? Number three, what issues are we gonna have to think about as we prepare this company for a transaction? And number four, I might have been able to see it, but just tell me anyway, where's the value in this company?

And so we can then maximize it. If I talk to between five and 10 people about a business like this, I'm gonna get a range of multiple from each of them that is going to cluster around a certain neighborhood. And I will then go back to my client and I will say, here's what XYZ Investment Bank said, here's what ABC Investment Bank said, here's what DEF Private Equity Group said, here's what GHI Private Equity Group said. Name by name, so it's completely transparent with my client. I've talked to the bankers and the buyers on a no names basis, because the last thing the client wants is to get phone calls every week from the bankers and the buyers, who are just doing their job. There's no value judgment on that. They're doing what they're supposed to do. But the client doesn't want to hear from all of these guys.

I will then be able to tell them where I think today the market is going to value their business. And to the extent there's a gap between what the market says and what their investment advisor tells them they need, I will outline high level growth strategies or value creation strategies that they can use to bridge the gap.

Most of my clients, when there is a gap, will then engage me to help really build out the plan. So to build out that plan, I've already done some of the legwork. I've gotten to know the financial statements pretty well. But where I really wanna go now is I wanna talk to all of the members of the leadership team on a one-on-one basis and find out from them two things. What's the good, the bad, and the ugly of the business if they see it? And number two, is this person really on the team? And really get a good sense of them. After that, we'll then sit down and the group will create a strategic growth plan. And the strategic growth plan will start very qualitatively. We will go around the room and everybody will throw every idea they've got up on a whiteboard and then we'll start whittling away at it. And we'll come up with what we think are the best two or three growth story chapters, if you will, that we can then focus on.

I don't think that any business leadership team can focus on more than two or three really serious initiatives at a time. And so we're going to focus on the ones that are going to create the value, that can be executed well, and don't stray too far away from the core of the business. We start out with questions like, what's a good customer? What's a bad customer? Nobody ever asks themselves that question. And we're trying to build a box. In the box are the customers you're chasing after, and outside the box, you're not spending your time or your resources, unless there's some strategic reason that you want to do so. Like maybe it's a marquee customer name, for example.

We'll then take all that qualitative information and we will reduce it to a financial forecast. And we will run that forecast with a lot of variables so we can then run scenarios around, well, what if we invest more in our marketing and sales for products X, Y, and Z? Or what if we build a new facility over in Texas or wherever to add some capacity? So it'll ultimately be a three statement financial forecast, P&L, balance sheet and cash flow. And we'll look out the next three to five years and we'll then bring it back to today and say, okay, here's the goal, here's the plan that we've all agreed is what we're gonna do. What do we need to do today, three months from now, six months from now, a year from now, in order to bring this plan that we've all created together to life?

That whole exercise is a real team building exercise, because if the leadership team all agrees on the two or three things that we're going to be focused on, now they're all invested in it and it's theirs and they're going to take ownership of it and they're going to run with it and make it happen.

Most growth plans usually require two things. Number one is improved leadership and number two is capital. And when you have the capital discussion, that's where the rubber is gonna hit the road, because not all capital is created equally. There's debt capital, there's junior capital, there's equity capital. And there's only so much leverage you can put on a business safely and comfortably, or what the bank will lend you. And if you need more than that, now you're starting to talk about equity. And a lot of business owners, when you start talking about equity, are like, no, you mean I have to take a partner on? And when you have that conversation, then it becomes obvious to the owner what the trade-off is. You can take the partner on and you can hopefully achieve the goals of the plan, or you can not take the partner on, and now we're going to have to dial the goals of the plan back because you're going to run out of capital somewhere along the line, and you don't want to do that.

So most clients then hire me to come in on a monthly or quarterly basis and review the execution and keep those metrics up to date and make sure that everybody's got a dashboard in front of them and they know where the signals are. If I do my job well and my client does their job well, we're going to be able to see changes in the environment long before they happen. And if we can see them long before they happen, we can proact instead of react. And that's the ultimate goal of the plan.

At that point, then the client has some decisions to make. They're gonna go run off and start executing and I'm gonna go run off and start monitoring, if you will, how they're doing. In the example I was giving, the particular couple I'm talking to, they don't know what to do. And so what I'm then going to do, once we've now got this plan put together, is I'm going to outline the alternatives for them. You can keep it. You can sell it. You can recapitalize it. You can gift some of it, but not all of it. There are probably combinations of those as well that you can consider doing. There's only so many options, there's only so many alternatives for companies' owners to execute on. And the tool kit's not big, but it requires analytics, and that's what we do really well.

If it's then time to sell or bring capital in, then I will help my client find the best fit investment banking firm to advise them. Bankers are great. Bankers create markets for companies. They create markets for the capital for those companies. If they're good bankers, they will get the best terms and conditions for that capital or for that sale. They will maximize the valuation. If they've run a good process, it will keep all the counterparties on their toes. And that's what the banker's getting paid for. And every good banker out there will pay for their fees many, many, many, many times over if they've done their job well.

Corey KupferA hundred percent. A hundred percent. So David, the thing that I love is, it's funny, when we both started there was nothing like all of these exit planning firms. They didn't exist back in the day. Now there's an industry around helping companies prepare for exit and grow.

But I think one of the unique things you bring is you bring some similar things to what those other people do, but most of them don't have that investment banking background. I love when you say think like a buyer, not like an owner. And the fact that, as part of your process, you're not just looking at, okay, how do we increase revenue, maximize value, get better management in place, but you're actually, not only out of your experience but out of your relationships, going out to the folks who are the capital sources, who are the bankers, who are gonna be bringing the buyers to the table, and bringing that input in, to really understand not only what drives value in general, but what different types of buyers and bankers and capital sources are really looking for.

I think that's a phenomenal combination that provides a lot of value to folks out there in a way that a lot of folks don't. The exit planning industry's great and I'm glad it's there, and it helps a lot of folks, but I think there's other elements that you bring to the table. So I'm excited to have you on and for us building a relationship here, as we have over the last number of months. And I just think you're a great resource for folks in that middle market.

David HorwichI appreciate that. Thank you. I think I have a practice because this is kind of what we used to do when I was growing up in the investment banking business. We would help our owner clients think about what the future is going to look like. I'll give you a good example. There's a company up in the Pacific Northwest that had a staffing business. Back in the late 90s, you may or may not recall this, but in the state of California, you could not get workers' comp insurance at any price. Forget how much it cost. You just couldn't get it.

And this company had dozens of locations in the state of California and they were starting to panic about what to do here. And so what we did at the firm was we thought out of the box. We said, okay, well, if you can't buy the insurance, why don't we help you capitalize a captive that you can own and then manage yourselves? And that's in fact what we did. We went out with Lehman Brothers and we raised $100 million for this company to capitalize their workers' comp captive insurance company, which they still have to this day. So it's understanding what the problem really is, really asking a lot of questions at the front end.

I won't take on an engagement until I really understand what it is I'm trying to solve for. And so the couple I talked about, I'm helping them solve for making the best decision about what the alternative is. Another client may come to me and say, I want to sell my business and I just want to get ready, and that's what I want to do. Well, I cut through a lot of stuff to get to that.

Corey KupferDavid, if people want to find out more about you and everything you do, where do they go?

David HorwichThank you. So my website is HorwichAdvisors.com. You can reach me at David at DHHAdvisors.com. And if you want to ring me up, my phone number is 310-980-1484.

Corey KupferGreat, David. My final question on the podcast is always about my highest value in life, which is freedom. And for me that means everything from freedom around the world for people from oppression to why I've been an entrepreneur for decades and haven't had a boss. What does freedom mean to you and how does it impact your life and business?

David HorwichFreedom is the same thing for me. The Constitution or the Bill of Rights is very clear. We have the right to life, liberty and the pursuit of happiness. And it's the pursuit of happiness that is vaguely stated but widely defined.

And for me, being able to get up in the morning, I'm in my own business now, so being able to get up in the morning and say to my wife, you know what, I'm not going to the office today, let's go have breakfast and enjoy ourselves. Or being able to say to students in the school, I don't know that you're learning as much as you need to learn, and maybe you should find other ways of learning. I think education is probably the most important thing that we need to really work on in this country.

Corey KupferDavid Horwich, thanks for being such a great guest on the DealQuest Podcast.

David HorwichCorey, thank you very much for having me. I really appreciate the time.