Lessons from A Successful Exit to a Billion Dollar Firm.

Inside perspectives on founding a company and being acquired.


Robert Morris

3 years ago | 10 min read

Insights from the front line.

Here’s a glimpse into this article — for those that want the SparkNotes™ version.

  • A Partnership vs. Other Structures — The benefits and the challenges.
  • Financing the Business — Early stage capital, burn rates and expectations.
  • The Market Opportunity — “Narrow is the path.”
  • Surviving Due Diligence — The process is expensive and daunting, but…
  • Post Acquisition — What’s next?
  • The End Result — Positive or Negative?

A Partnership vs. Other Structures

When we began the journey of building a management advisory for CMO’s focused on the complexity of business transformation in the digital age, each of the four co-founders brought a unique set of skills and experience to the equation.

The company, Trade or more formally (Trade NTE — Narrative, Technology and Economics), was born out of decades of leadership experience at the likes of The Coca-Cola Company, Publicis, Ogilvy, Critical Mass and iXL / Scient (Razorfish) among others. Senior leaders who had all “done their time” within large corporate America or within the global agency holding co’s. So, why did we begin the life of the company as a partnership?

1. Trade was established as a limited liability company for legal, finance and tax with a partnership management structure for governance. While the legal and financial implications clearly served as a foundational consideration, key elements of the decision included partner contribution, commitment, alignment and incentive.

2. The company was built to solve for what was identified as a “gap” in the market served by the large agency holding companies, global management consultancies and boutique consultancies. Specifically, Trade was built as a CMO advisory focused on disruption caused by the shift in customer behaviors attributable to digital channels. What was unique about the company is the how the partnership structure served not only the legal and financial objectives, but also the practice structure. Few companies can actually do extensive financial modeling in support of marketing and advertising spend. If you’re in the industry, you know this to be true. And for those like Accenture, Deloitte or McKinsey, they model enterprise software development investments, but rarely, if ever, model soft parameters such as engagement, Net Promoter Score (NPS), propensity, etc. The E in NTE was a unique, defining qualification. Keep this in mind when you get to the acquisition discussion. As for the N, Narrative — the approach was distinctive. One of our Principles, who was the former social and content lead for WPP’s Team Detroit, designed a highly valuable strategy. The offering strategy focused on dynamic personas using a ML framework and an open API for alignment of omni-channel engagement. This was designed to address the inefficiency in paid media, align earned and owned to maximize audience interactions and the value exchange and deliver higher conversion. The depth and breath of data sets would deliver the necessary insights to address organic SEO, delivering a reduction in paid engagement with a higher rate of return. And yes, this offering intersected to our technology solutions — The T in the formal name of the company.

A Partnership governance structure vs. other approaches guided:

a. Alignment of service delivery commitments — integrated offerings dependent on each practice lead and their teams to collectively deliver a holistic solution

b. Common financial metrics and consistent performance

c. Consistent equity distribution and a model for approval of equity grants as the company scaled hiring

d. A voting structure that supported commonality of overarching goals and allowed for simplicity of legal and financial decisions

Financing the Business — Early stage capital, burn rates and expectations

This is where a lesson looms large on the rest of the article. When we co-founded the company each Partner brought one of four items to the equation that were equally weighted. These included:

  • Existing client relationships
  • Current “assumable” contracts
  • IP
  • Specific acumen / experience

Before incorporating the business, the Partners assessed the market for access to financing. The reality was stark. To fund at the level that was necessary, too many angel investors were required from the Partner network. This is a direct correlation to each Partner’s relationships.

From past experience, doing an angel round in which there were 12 investors / groups, the competing interests of each funding source limited the capacity of the organization to scale. In particular, discussions with angel investors proved challenging as investing for future growth vs. the immediacy of competitive rates of return via other capital venues wasn’t a viable option for the business.

The second scenario of debt financing wasn’t a possibility as the collateral requirements were too significant and Partner alignment on willingness to risk existing collateral wasn’t possible in light of the level of backlog of client revenue to funding necessary to capitalize the business.

The third scenario of PE was off the table from the start. PE firms were not interested in a hybrid services / productized model. The disconnect for the Partners was effectively the goals of capital (PE) vs. the operating goal.

PE wanted too much equity from the start with control with a level of rigor and discipline by the PE that would have impacted the vision for the company and the ability to scale. This isn’t an indictment on PE, rather a reflection on the specifics of the scenario for Trade.

The company offerings were not aligned to the goals of VC, despite the ML based repeatable persona engine, so VC was never in consideration.

When assessing the operating model and capital structure, it’s important to recognize that the capital structure can become the operating model. Conversely, the operating model can be separate from capital structure.

So, the decision by the Partners was to invest the organic cashflow back into the business as the source of operating capital. This meant sacrifice on the part of the Partners through deferred compensation and a percentage reallocation of funding from deferred compensation to expenses as the business built reserves and expanded from Atlanta to Chicago, New York and Colorado.

With each expansion, the requirements for compliance, legal, finance and operations increased. Funding was predicated on effective strategies for growth, high value offerings and management of organic cashfow. In the end, this approach had a significant impact on the growth of the business and yet the company grew organically year over year by 300+% in the second and third year of existence.

The Market Opportunity — “Narrow is the path.”

With the intersection of Narrative, Technology and Economics, the uniqueness of the offering for large organizations facing business challenges caused by digital disruption and for business a means of disrupting, meant rapid growth with blue chip clients. Among these — GE Capital, Bank of America and Anthem, to name a few.

Adobe, Salesforce, Ensighten, Lattice Engines, NetBase, Meltwater, etc. were SAS platform partners helping to solve for what was defined as digital direct response (DDR).

So, how did we determine DDR to be the right opportunity with a high-value demand? Look to the past to see the future. The DDR architecture, which included DMP’s, Editorial Management and Publishing, Campaign Management, Lead Scoring, Analytics, etc. facilitated the development of StoryEngine®. StoryEngine was originally architected to deliver “at scale” contextually relevant editorial content across paid, earned and owned channels.

Built as a ML platform, the performance data informed the SEO approach to content types, channel engagement, CTA’s, etc., while the data aligned spend by channel. CMOs accountable for lead generation, lead scoring and conversion were the buyers of Trade’s service offerings.

In order to deliver StoryEngine, the shift for organizations was transformative. From traditional CMS delivery to a StoryEngine editorial platform, the shift resembled the analogy of a static roadside billboard for messaging to a newsroom with “always on” data driven publishing.

So, explain the narrow road. The narrow road entails three decisions. 1. Focus on a single business issue. In this case, lower funnel lead generation via DDR using solutions such as Dynamic Persona Engine and StoryEngine.

The objective was to avoid the holding company trap of attempting to do all things to the sacrifice of innovation, quality, and achievement of KPIs. 2. Deliver the strategic “solve” while building a collaborative network of “best in class” partners to deliver the development, integration, testing, etc.

This was a challenge based on the complexity and the rapid go-to-market needs of Trade’s large clients. 3. Hire highly skilled colleagues that could deliver at an exceptional level vs. industry expectations. Finding this talent was critical to the success of the business.

Surviving Due Diligence — The process is expensive and daunting, but…

From the founding of Trade in June of 2012 to the acquisition of the company by a global management consultancy in November of 2016, many lessons were learned. The most important are highlighted below:

  • There are tipping points in the growth lifecycle that require changes to funding sources. At 300+% growth, new hires are being on-boarded, offices are being built out, new functions are required within general and administrative (G&A). The timing of placement of credit facilities, external capital and the “cost” associated with funding is critical — too early and the dilution is too high, too late and growth is constrained making access to external funding more difficult and, with that, challenge more costly.
  • Ensure capital reserves in a high-growth business include a minimum of twelve months of liquidity.
  • Risk mitigate over-reliance of revenue streams on individual clients. This seams straight forward, but in practice is difficult as it requires significant discipline. Trade was “bought” not sold as a strategic partner. Clients who understood their challenges and knew the complexity of what they were attempting to solve recognized Trade’s unique capabilities. With this in mind, a wide go-to-market sales strategy was not effective, which created an imbalance in overweighting of Fortune 100 clients.
  • If a company has a unique offering that solves a significant challenge with limited market competitors, a larger organization will look to potentially “bolt-on” the solution through an investment / partnership or acquisition.
  • In the case of Trade, a $1B+ publicly traded global management consultancy represented the acquiring company. Based on Trade’s experience, the acquiring company wanted the leadership experience to help solve for organizational challenges with existing offerings and wanted the IP and client relationships. So, what is the lesson here? First, the cost of an acquisition is expensive. For large publicly traded companies, the process is effectively the same whether spending $1M or $400M. The regulations that guide an acquisition and the associated due diligence is substantial. In this instance, 27 people were represented by the acquiring company’s due diligence team. The process took nearly 6 months and served as a significant distraction with large, by percentage, investments in external counsel, audit and advisory firms, etc. which ultimately impacted the final quarter of financial performance and the acquisition terms. Understand that large corporations have legions of employees and consultants that don’t exist in smaller organizations, and the methodology itself can be used to effectively elongate the process impacting valuation.
  • The implications of upfront payout vs. post-acquisition performance based earn out. The reality of the percentage of risk taken in the sale of a company is predicated on the ability of the acquired company to achieve higher value in a post-combination scenario where access to capital, human capital, processes and technologies provide a significant enough multiplier effect to assume risk with a lower up-front payout.

Post Acquisition — What’s next?

The most challenging part in any acquisition is the post-integration. From experience, both as a consultant solving for the challenges and as a Partner in an acquired company, this is where fusion or friction determines the success or failure of an acquisition.

Key Insights:

  • In large corporations, misalignment of goals and objectives are often overlooked in the acquisition process, but quickly become evident for both the acquired and acquiring.
  • Forward earn-outs are either highly valued for the positive impact that can be made on the acquiring company’s behalf or serve as a negative vehicle to devalue the total cost of the acquisition. A key component is an effective due diligence process on the acquiring company for achievement of previous acquisition earn out achievement. This is a telltale sign of management’s motivations and future behavior.
  • A transition team must be in place to accept clients, IP, methodologies, work-in-process, employees, etc. Unfortunately, this is typically the among the weakest links in a large corporation. The due diligence process is exhaustive, but once the transaction is complete, the team that spent 6+ months quickly disappears as they move on to their next target. Without a formalized transition team and associated process, the opportunity to achieve target objectives for maximizing future earn-out rapidly declines. A formal review of all negotiated terms with a sign-off by the leadership team within a holding company or a multi-division organization is critical. A lesson learned is that the goals, objectives and desired outcomes of the due diligence team may not align with those responsible for integrating the acquisition. This also means to ensure everyone agrees in writing to the terms as outlined in the purchase agreement. If there are any discrepancies within the acquiring company, it is the responsibility of the due diligence team to ensure alignment and commitment, not the acquired as the terms would have been previously finalized in the purchase agreement.
  • Culture alignment — A culture of never fail a client, every client is a reference is difficult to build. While we all know this, few achieve this level of client satisfaction. A cultural assessment is critical in order to understand whether clients will be supported at a consistent level of service, strategic capabilities align to client expectations and methodologies and processes exist that will ensure an effective transition to the acquiring company. Again, due diligence is critical. If the acquiring company has a very low NPS score, expect previously satisfied clients to express their frustration, ultimately resulting in losses of business and implications to the value of the future earn out.
  • Prepare for a rough road. Simply put, the best plans go off the rails. The question is whether the acquirer or the acquired wants to collaborate to solve for the issues. Ethics, motivations, vision, etc. all contribute to success or failure. The one key element in the equation is the necessity to remain focused on what your company did well and continue to do so. If the acquiring company elects to deconstruct the value, the implication to the company may be a write down.
  • Lastly — pay close attention to the acquired colleagues. Effective leaders ensure their teams that created the value in the first place leading to the acquisition are treated well and financially remunerated for their role in creating the value. Time and again, post-acquisition cuts to career roles, changes to reporting functions, etc. occur diminishing the value of the acquisition. It’s the responsibility of the leadership of the acquired company to represent their colleagues as valued individuals and critical assets.

The End Result — Positive of Negative?

You’ve read the article. You can do a small amount of research and you can make a judgement call on perspectives. I leave that for you to determine. Would I do it differently? Yes, why? Well, that’s for another article.

If you’re thinking about starting a company, financing or selling a company feel free to reach out with questions. If you’ve built and sold a company, share your thoughts or tell your story.

I hope this has been interesting and maybe it inspired a few thoughts on your part. Feel free to share them with the me — Bob Morris, or on


Created by

Robert Morris

Partner, CEO Bravery Group; Co-Founder, Trade (Exit to ICF Next). 25+ year digital practice lead w/ global agencies (Razorfish, Critical Mass, Blast Radius and Ogilvy).







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