Ep437: Simon Bedard – Make Your Contracts as Airtight as Possible

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community. We know that to win in investing, you must take risk but to win big, you've got to reduce it. To join our community go to my worst investment ever.com and receive the following five three benefits. First, you get the risk reduction checklists I've created from the lessons I've learned from all of my guests. Second, you get my weekly email to help you increase your investment return. In fact, the last one I did, I reviewed a fund out there that owns 9000 companies. Third, you get a 25% discount on all a Stotz Academy courses. Fourth, you get access to our Facebook community to get to know guests and fellow listeners. And finally, you get my curated lists of the top 10 episodes. Fellow risk takers, this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests. Simon Bedard, Simon, are you ready to rock? Absolutely. Let's get into it. Well, Simon Bedard is the CEO of exit Advisory Group, a boutique, m&a firm that also provides a range of advisory services focused on exit strategies and how to maximize company value. Simon's experience spans over 20 years in the finance, investment, energy and technology sectors. As an entrepreneur, Simon has started, bought and exited his own companies. He has also worked for one of Australia's largest banks as an investment advisor to high net worth clients and private companies. Ladies and gentlemen, Simon's passion, is helping business owners understand where they want to be, then building a business that can get them there, Simon taking the infilling, for the tidbits about your life.

Simon Bedard 01:56
Thanks, Andrew. Yeah, look, I guess, I like many people have been around business for a while now. And I guess, you know, probably where I find myself today is the basis of seeing so many things out there that just don't turn out so many, I guess, in justices that I just find to be somewhat frustrating. And on the other end of the scale, just completely outrageous. You know, I'm one of these people who believes that business owners and entrepreneurs are the ones who actually change the world. They're the ones who see issues in society and problems that need fixing, and then actually do something about it. And they don't just talk about doing it, they're usually out there, mobilizing their capital, their people, their time, all those valuable things for themselves to go and fix problems. And, you know, take a lot of risk doing that. And so, you know, I guess, where I find myself, and what we do today is, is because we've seen so many business owners and entrepreneurs take those risks, trying to do good in the world, run that marathon, get to the last 100 meters trip over and then don't get the rewards they deserve. So, you know, being invited on your podcast is, is was really interesting, because it's very much sort of aligned with some of the issues we see out there. And obviously, a desire to help people minimize that risk and get the kind of outcomes they want.

Andrew Stotz 03:25
I really love that story or the way of framing it, you know, because entrepreneurs, first of all, entrepreneurs are freaking crazy. Because we know the odds are stacked against us. And anybody can tell you the statistics, you know, 10% of businesses make after three years, or whatever those statistics are. And I would say that most of those statistics actually aren't even that great, because one of the things that you could say is that, you know, even if you survive five years, the question is, are you paying a serious dividend to yourself and other shareholders while also paying a serious salary and compensation to yourself and your management team. So even the survivors aren't really thriving. So maybe the odds are one and 100, that five years later, you have a real cash machine. And yet every entrepreneur believes they're going to be that one. Otherwise, never put their time and money behind it. So it is the madness of the entrepreneur that actually does as you say, bring the world forward, bring out those new ideas, because they really, truly are. So now I was thinking about the marathon and falling down. Just before the finish line. We've all seen those kinds of videos on, you know, the YouTube and basically, I was thinking about an entrepreneur, I've been thinking about you and I'm imagining an entrepreneur, army behind you, and you're leading that army to get across the damn finish line. Let's go help support each other. So Really, really love that, what you're doing. So that's great. And I think for the listeners out there, if you feel like, you know, you're worried that you're not going to make it across that finish line, you know, Simon's a guide to talk to and for the listeners out there that you know, want to get in touch with you what's the best way to do that?

Simon Bedard 05:18
Probably the best way is to reach out to me on LinkedIn, you know, and if they actually mentioned that they heard of me on this podcast, you know, put a little message in a connection request, I'd be very happy to connect with people. So LinkedIn, certainly, or of course, go to exit advisory.com.au. And you can check out their website.

Andrew Stotz 05:35
From now on when I see you and see and hear from you, Simon, I imagine an army of entrepreneurs behind you, and you're leading the charge to the end of the finish line. So I really appreciate that. Yeah, that's my image. Now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to and then tell us your story.

Simon Bedard 06:00
Yeah, great. Thanks, Andrew. So, you know, I guess when I thought about what my worst investment ever was, I had to sort of take a step back and think about, you know, all the different things that I've been involved in that have gone horribly wrong, right. And so I guess, you know, for the, for the interest of the story, I've gone for the thing, that was probably the biggest financial impact. And it wasn't a type of investment where I've gone and put in, you know, a chunk of money into something, and then it's gone bad. I've had plenty of those, by the way, as well. But probably the worst investment in terms of outcomes is really, really an episode with our business, you know, it was investing in a client. You know, we are a boutique firm, we're not, you know, one of the big global accounting or consultancy firms where we have a team of 10 people, we are not a volume based business, we take on clients who, you know, we believe in their story, we believe in what they're doing, and we believe we can help. And so you have limited scope and resource to be able to take on clients, you know, so we are quite selective around that and, and it's not always sighs it's more about the people and having belief in what they're doing. So look, we had a client, we took them on, we worked with them for almost two years, you know, we work with them gave them a lot of advice on how to build their business, how to extract the most value when they did sell. And so, you know, for those who have heard, obviously boutique m&a, right, we're helping people buy and sell companies a lot. And we do a lot of advisory work on helping them how to grow value and get to the goals they have. So we had a client, we agreed to take them on, we did a lot of work. And clearly in m&a, you know, a big part of our remuneration is the success phase. It's getting a deal done and getting the outcomes they want and getting remunerated and, and hopefully remunerated Well, for that. And so yeah, look, I guess we we had these clients, we negotiated a contract, we had a standard fee that we put in there, which based on the valuation we did would have meant, you know, a solid six to early seven figures, some for our company, which, frankly, given the amount of resource we're throwing at it was was was reasonable. What was interesting, though, was the client came back and actually renegotiated the contract, they wanted to change our fee. They wanted a sliding scale, they said, We want to motivate you so that you push for higher valuations. So you know, we're over certain thresholds, we're going to give you a bigger chunk. And the funny thing was, I actually said to them, Look, that's not necessary, you know, we're actually motivated we, if we didn't want to do the best possible work we could do for you, we wouldn't do the work. That's who we are and how we work so. So it Look, it was, on one hand, a little surprising. On the other hand, it was Look, I get the thinking, and look, hey, you know, if there's some great upside, it works for everybody so fabulous. So we agreed, and we actually agreed to their recommended percentages. And what it really meant was, you know, I guess we were looking at their valuation and looking where they're going, we thought, Okay, well, if there's a 10 to 20% upswing in the valuation, or we can negotiate a better deal for them, then that's wonderful. And probably what they didn't either expect or foresee. Certainly, we didn't understand it from looking at what they'd already told us about their part was that their business grew a lot more in the next 12 months than then I think, what they expected. And so by the time it came to getting the deal done, the valuation was probably 50% higher than what we actually thought it would be originally. And so, you know, our fee went from, you know, high sort of six figure, possibly low seven figure to over $2 million. And I think there was some, not just rhetoric Since I think you know, they've had their own circles, I think by the time it comes for people to actually make payments on things, you know, there's buyer's remorse. There's people in the area saying, I can't believe you're doing this. And regardless of the fact that, you know, you've done the work, you've gone the distance you've spent the time. And so, in the end, what happened? Was the client fundamentally fabricated in a whole bunch of things to get out of paying us, they slung a whole bunch of monitors, which was just absolute drivel. And this was this was a week before closing. So you know, you can imagine the sheer frustration after this amount of time, and you don't want to use Android, like, the disappointing part of it all. was not that the fee, I mean, it's disappointing if somebody tries to renegotiate your fee. The disappointing part wasn't that they came to us and said, Guys, you know, we know a deal's a deal, but Geez, you know, like, nobody expected this, like, you know, just from a sense of being reasonable guys, would you be willing to sit down and take another look at this, because this fee has blown out massively, and none of us anticipated it? And we feel like it's a little bit unreasonable. Now, if that come to us and said that, you know, we're wrong. I'm a reasonable guy, I think most people are would have said, you know, you're right, this has blown out and I'm willing to make a concession here and but instead, they went down the path of just blatantly making up lies, and and actually put all the money aside, Andrew, like, all the money aside, like, it's, it wasn't that I put that money in, it was an opportunity cost, right? It was just that we didn't get paid for all the effort and time and all the things that we did. So it's not like financially, it would break me. But it was it actually what hurt the most out of all of that was the personal slide. It was the slinging mud at the Android and trying to make it look like we've done something wrong. Or you know, which is pretty hard to excuse when you're a week away from signing the best deal of your life. So yeah, look, you know, so So, you know, you think about what, what, 2 million bucks that will can do for your planning and where you go with it, and how it helps you business and how it helps your family and it hurts. Yeah. Yeah, not quite as much as it hurts your ego and your personal sense of values and judgment and things like that. So

Andrew Stotz 12:23
So how would you describe the lessons that you learn from this?

Simon Bedard 12:28
painful beta? I'm not gonna lie, I still feel a, I still get a very bitter taste in my mouth when I think about it. But look, I'm working on that. Look, what are the lessons? I mean, you know, there were so many. You know, there's lessons in, in how you structure your contracts, there's lessons in, you know, even thinking about whether a deal could blow out and end up being too good to be true. And thinking about where does this put a client in a position if, what if the unexpected happened, but very much on the upside, does that actually have ramifications. So it really made me think about how we structured deals. It also really made me think about how I structured contracts going forward in terms of things I'm willing to accept or things I'm not willing to accept? You know, there were certainly elements of that contract that, you know, they were able to exploit and they very much did exploit because the contract wasn't as tight as it could be in certain areas, or maybe certain definitions weren't defined as well as they should be. So there's, I think there's contract issues. I think there are very much a lot of people issues in terms of understanding how people think and how people engage and, and and doing that basic scenario analysis, right, like, high end outcomes, poor end outcome somewhere in the middle, how will clients likely react to certain things? And let's make sure we don't put people in positions to where they might feel like they're overpaying. Although one would argue that they've done those things in those sums in their head. I mean, they're pretty smart guys. So yeah, so look, lots and lots of lessons. Yeah, indeed.

Andrew Stotz 14:09
Maybe I'll summarize a couple of things that I take away, um, you remind me of a story of one of my good friends in Thailand. He came to Thailand, he went to a broker in Thailand, back in probably 1990. And he said, You know, I can bring you institutional clients, you know, fund managers from around the world to execute through you. Let's set up an institutional client division, and I'll run it, I'll hire the staff. I could probably double your revenue just by getting five or 10 big institutional clients. Well, they loved it. And in particular, everybody loved it because the company was planning on doing an IPO. So he said, and he was smart enough to say I want you know, a share of that as part of the compensation because we're building a really well rounded business. So he worked his butt off, did a great job brought in a lot of money in when the time came to do The IPO they didn't want to deliver him the shares. And he said that they said something. They said, if we can, because it turned out that, you know, the share price was super high, when it went into the market, market was booming. And they said, if we knew the share price would be this high, we wouldn't have given you this deal. And he said, and that's the whole reason why I signed the deal, because I knew the share price could get high. I had more faith in it than you did. Exactly. And the whole point is that I'm contracts. And this is I think, a big lesson I took away from that, and I take away from your story is that contracts only matter at the point of conflict. Yeah. And it is at that point of conflict that you've got to, you know, make sure you're protected for that. And he, the way he did it in Thailand, is he went to his highest connections that he had explained the story. And he used those political and business and other connections, to put pressure on these guys to, to, to honor the agreement. And eventually they did. He got paid out. He went took that and started Vietnam's first investment bank and made a ton of money out of it. So it was

Simon Bedard 16:12
an Andrew, you know, if I can interrupt you there for a second. I mean, I think the flip side story to that, as well as for anybody listening to this, the answer is don't is not to go out and make your contracts. So super tight and aggressive that you can never lose, because that's not commercial, you'll actually never get a deal signed either. Right? So it's, it's actually learning how to navigate this very, very different course. Because it's a different, it's a different course with every single buyer, right, different personalities, different deal different underpinnings to the agreement. So you've really got to learn where the line is, and learn where, you know, where are the real risks, you know, what are the things that are worth giving up? That won't necessarily cost you but maybe are important to the counterparty? Because if you can't find a way to make it commercial, you'll never actually do a deal.

Andrew Stotz 17:01
Yeah. And, you know, there's another story that comes to mind. And that is, I worked for a particular investment bank. And they basically said, we don't, we don't think we're going to need your position anymore. And I said, Well, I'm going to go across the street, and I'm going to set up my own business. And but there's a non compete clause that says, I can't do what I was doing at your business. But that's kind of the core of what I do. So. And then also, I needed to hire my right hand, man. And there was a non solicitation contract that said, in the contract, clauses said, You can't hire anybody for one year. But I walked across the street, and I started my business with the exact same technology and same idea. And with that guy, I did it legally. How did I do it? I talked to the CEO of the company, and I said, if you don't need me anymore, I know this is a contract. But I'm asking you, would you allow me to be out of these clauses? Because you're not going to use this, you've already said it. And we came to an agreement. And I left and left the contract. And then I started. And the lesson is, talk, talk, talk, talk, contract is just a thing. But it doesn't have to be everything. And like you said, you know, we can all things change, you know, and we can always talk and just talking can help resolve issues, and then more contracts can be modified. Yeah,

Simon Bedard 18:32
yeah, absolutely. I mean, when people dig their heels, you know, in issues, it's funny, they don't often come out and just openly tell you though, this is the actual real issue. I mean, often they're using a clause in a contract, to try to protect them against something that they don't really want to voice. So if you can get to the heart of what's actually really concerning people and where they see risks, often, you know, you can be completely at odds about what you were thinking about. Right. So. So yeah, as you say, talking through it, often is the only thing that will solve the problem.

Andrew Stotz 19:02
Yep. So based upon what you learned from this story, and what you continue to learn, what one action would you recommend our listeners take to avoid suffering the same fate?

Simon Bedard 19:12
Yeah, look, I think, you know, we've probably covered it really is to, to really look at each deal and look at the people look at the different sort of elements of any sort of investment you're going into whether it's an investment directly of money, or an investment of time, opportunity costs, all those sort of things like, make sure you spend the time to understand the variables, you know, because ultimately, if you don't understand all the information, then you're making decisions on flawed information, whether that's about the people themselves or the contract. You know, you've really just got to assess it all and understand where the risk really sits.

Andrew Stotz 19:45
Great. Great advice. Last question. What's your number one goal for the next 12 months?

Simon Bedard 19:52
Yeah, look at number one goal, other than, you know, some of the, I guess, more sort of financial metric goals of the business is just To continue growing our team, you know, we want to have a bigger impact on the world, we have a really strong why as to why we're in business. And you know, we're a small business, we've got about 10 people at the moment, but we can't cover the sort of areas and the number of people that we want to help. And, you know, I'm still trying to work out how to clone myself. So if you work out how to do that, please let me know. But yeah, look for good solid advisors and people who can come and join the team and help us have the kind of impact we want to have.

Andrew Stotz 20:31
Great. Well, listeners, there you have it, another story of loss to keep you winning. My number one goal for the next 12 months is to help you my listener, reduce risk and increase return in your life. To achieve this, I have created our community and my worst investment ever.com. And I would love to see you there. As we conclude, Simon, I want to thank you again for coming on the show. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Simon Bedard 21:07
Look behind. Do yourselves into the world. We need more kindness.

Andrew Stotz 21:13
Amen. And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. This is your worst podcast hose Andrew Stotz saying. I'll see you on the upside.