Broker interviews

An Interview with Max Friar, Co-Founder of Small Business Deal Advisors

March 31, 2021

We sat down with Max Friar to hear about his journey into business brokering, how he’s introduced technology into a “relationships” business, and what makes a business broker great.

Will: I know you’ve managed to spend a bit of time in the tech world in tandem with your time in the m&a world. Would you mind sharing a little bit about your personal journey?

Max: Sure, I got involved in mergers and acquisitions back in 2005. At that time, a lot of business brokers still listed their business for sale advertisements in the newspaper.

At this first firm, I was hired specifically for marketing. The open question was “how come the newspaper ads aren’t getting our phones to ring anymore?” While I wasn’t tasked with digital marketing at that point, I started to dig into the options online anyway.

That’s where I found sites like BizBuySell. So I started to list our opportunities on the internet. Suddenly, our phones and our email started to light up.

Around this time, I became really interested in SEO. Back then, it was quite easy to manipulate Google’s algorithm to get your website onto the front page. I don’t know why - maybe rule breaking is in my personality profile - but I was very intrigued with the ability to use HTML, tags, descriptions, etc to completely alter what showed up in Google.

That work led me to cofounding a web marketing and web development agency in 2010. I still continue to own a minority share of that business. They’ve actually really helped us at Small Business Deal Advisors with our marketing online.

I think generally, web marketing and software automation has kind of always fascinated me.

Will: When you think of the trajectory from business brokering in the 90s when it was mostly offline to today when there’s a lot of digital advertising, it’s interesting that the commission structure hasn’t really changed.

It seems that some sellers find it hard to rationalize a 10% commission for a main street business. Do you think that will come down over time? Or are there ways brokers can reinvest their time now that digital advertising can help automate a lot of the outreach to buyers?

Max: I think it largely comes down to the individual broker or firm that the seller is working with.

“Introducers,” for lack of a better word, are fairly prevalent in our industry. What I mean by that is the business broker who takes on a listing but neglects to do a lot of discovery, to talk with the prospects to understand their goals, etc. They’ll simply give them an engagement contract or listing agreement. When they take the listing on from the seller, they take on the financials without a lot of diligence. They put an ad on BizBuySell that’s poorly written and is missing a photo. Then they hope that their phone rings and they can make an introduction.

In those instances, I don’t think a 10% commission is justified.

Will: Right.

Max: Now, in terms of how we try to operate, it looks quite different.

We do an evaluation up front so that the client knows what to expect. Expectation setting is the name of the game. If you’re selling your business, you want to know what to expect in terms of valuation, deal structure, timeline to sell, how the broker is going to find buyers, etc.

In terms of the marketing efforts, I believe a broker has a fiduciary responsibility to the seller to show their business to the market.

You cannot show them to the market if you’re flipping through your rolodex or putting a single ad on BizBuySell.

We take the listing to market by using all of the MLS sites, publishing the listing to a database of 70,000 buyers and professional advisors, and going through our networks to find the best buyers possible.

Will: That’s much different from the list, rinse, repeat of some brokers.

Max: It is. The other thing that brokers can do to stand out is to take a more consultative approach. Most business owners sell a business one time. It’s an emotional process, and there’s attachment involved.

Owners want somebody who they can call, who’s not going to bill by the hour and who’s been through this process before. I think brokers who can play this role are not only very helpful but can also increase the chances of a sale.

With the internet front and center now, brokers should think about taking the time savings from digital marketing and reinvesting them into thoughtful, consultative work.

With the internet front and center now, brokers should think about taking the time savings from digital marketing and reinvesting them into thoughtful, consultative work.

I know some decide, “Well it’s easy to get buyers interested on BizBuySell, so I’m going to get as many listings as possible.” We call this the Spaghetti Model internally. Throw listings at the wall and see which ones stick. This approach probably explains the low closing rates in the industry.

Will: I imagine with that approach, there’s minimal upfront diligence in the individual businesses.

Max: Exactly. On a related note, I do think that’s why the annual exclusive agreement is prevalent in our industry as well. It’s a way to tie up the seller.

We take a contrarian approach at Small Business Deal Advisors. We go month-to-month, and we have a non-exclusive contract. If a business owner finds a buyer elsewhere, he or she doesn’t have to pay.

Although we believe this is fair and efficient, our model is not very common at all. We also have an 8% commission, instead of a 10% commission.

Will: I know another unique aspect of your model is being technology-first. You’ve introduced technology into a relationships business, if you will.

When you think about industries like business brokering, or real estate brokering, what are the buckets of activities where technology can really help?

Max: I think the marketing side is where folks more naturally understand how technology is beneficial.

However, for us, a big part of technology has been through investment into administrative automation.

Whether it’s digital signatures for NDAs that buyers need to sign or the basic qualifying questions you want to ask buyers, we try to automate these processes wherever possible.

If the buyers don’t sign the NDA or don’t answer the questionnaire, they get a number of automatic reminder emails from our CRM. This allows us to have one person that works part time to be the gatekeeper for all NDAs and buyers coming into our ecosystem.

There are a number of advantages to this approach. One is that you have a central control point for quality control and follow up. Another is that you don’t bog down your advisors with emailing out NDAs, wondering whether they got the NDA back yet, filing the NDA. This prevents burn-out among advisors and allows them to invest more into the listings on hand.

Will: So if I’m a new business broker and I’m getting into the industry for the first time, your advice would be to prioritize admin automation? As this will allow me to spend more time consulting with business owners and speaking with buyers?

Max: I think so. For instance, we have one gentleman that we brought onto our team at Small Business Deal Advisors. He’s been our top closer for the past couple of years.

He used to work at another main street broker where nothing was automated. Everything was manual. He would end each of his days with 25 to 40 emails about NDAs that he simply didn’t have time to respond to.

I think that’s quite representative of most main street brokers.

Not only is that a burden for the broker, but it’s also a poor experience for the buyers. They often come to me bewildered that they don’t get responses from brokers. I think a big reason for that is the brokers are bogged down in administrative work.

Will: I was speaking with a lady yesterday who’s trying to buy a CPA firm. She reached out to a few business brokers in New Hampshire. Most of their responses were that she would only hear back if there’s an interested seller.

That doesn’t sound like the best user experience for one side of the transaction.

Max: I feel badly because buyers read some of the M&A resources online. These guides recommend taking brokers to coffee or catching up with them regularly. Frankly, I don’t think the brokers are interested.

Business brokers are overwhelmed by buyer inquiries on specific listings. They don’t have time for generic discussion.

Will: With that in mind, I’d love to hear where you think the industry is headed. It sounds like there is a group of brokers who are “introducers”. There’s another group who invest in their listings but are completely overwhelmed by administrative work. The industry writ large is quite old. What will it take to move things forward?

Max: I think that main street, in particular, tends to be dominated by a lot of the franchise business brokerages. I do think that they care about tech innovation, and they must in order to stay relevant.

They provide their franchisees with a website. They setup email hosting. They provide listing pages and a brand to convey authority.

But they’re a bit overextended beyond that. The franchisees aren’t getting any administrative or marketing automation. They’re not getting much backoffice assistance. That’s one thing that’s very, very difficult to get right. We’re into our eighth year now, and I would say we only took on more significant permanent infrastructure in terms of staff in year five or six.

Will: What made you comfortable with investing in permanent infrastructure for your back office?

Max: Well, I may be giving away a bit of a secret here, but the golden goose of our model has been the month-to-month engagement. It’s much easier to have a seller engage with you on that model. That allowed us to invest more in our infrastructure.

With a month-to-month arrangement, sellers are not trapped into working with us for a year. Moreover, most of them understand that even if they do sign an annual exclusive agreement, they’re not really going to get a year’s worth of consistent service.

They’re probably going to get a couple of months of energy and then they’re going to have a hard time getting their phone calls and emails answered because their broker has moved on.

By going month-to-month, we align incentives. We know that if we don’t work for them we have a high chance of being fired.

By having them pay a small monthly fee, we are able to get a wonderful binding effect in the opposite direction as well. We know that they’re serious and that they’re going to pay attention to us.

We want our sellers to be prompt because buyers will have information requests, buyers will want to do site visits, buyers will want to have conference calls and so on. The monthly fee allows them to have skin in the game.

We credit that fee towards the commission, so the business owners are not paying more than what they’d pay to any other broker, but we’re able to get everyone on the same page.

It works very well. In fact, most sellers try to sell their business themselves for a month or two first, whether that’s you know shopping the business to employees or family members. This model really fits in well with that. It’s inherently very flexible.

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