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The Power of Reputation: How to Build a Business that Lasts with Thomas Smale

The Power of Reputation: How to Build a Business that Lasts with Thomas Smale

Your business’s reputation is vital to its long-term success. And Thomas Smale is an expert in growing a brand from an idea to a multi-million dollar company. 

Thomas, founder and CEO of FE International, is a serial business entrepreneur and M&A expert. 

He’s found that reputation is what makes businesses sink or swim. So what can you do to bring your business to peak performance? 

In this episode, Thomas shares his tips for building the right reputation, such as the importance of analyzing every transaction, how to build the right workplace culture, and why it’s important to do the right thing.

Show Topics

  • Build a good reputation
  • Strive for perfection
  • Pick the right clients
  • Do your due diligence 
  • Invest back into your industry 
  • Don’t depend on trends
  • Be intentional with workplace culture
  • Let people go
  • Do the right thing
  • Focus on one goal

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Key Takeaways

7:33 – Build a good reputation

A business’s reputation is vital to its long-term success. Make sure as you build your business, you’re also building up your business’s reputation.

“I became CEO a couple of years ago. But in all of that time, we’ve always focused on building a good reputation because we’ve spent all of our time making sure that we never, at least not intentionally, never over-promise things we can’t deliver on. The nature of M&A as well is most advisory firms like us primarily get paid on success. So there’s almost never a scenario where someone is paying you and they don’t feel like they’ve got good value because they’ve only paid you on success. It’s not like if you run an agency, like a web design agency, you could pay them a hundred thousand dollars to design your new website and you can hate the new website, but they don’t really care because they’ve still got their hundred thousand dollars.”

17:53 – Strive for perfection

Your business could always be better. After every failure (or success), do a post-mortem on the sale. What happened? What went wrong? Where can your company improve?

“In my mind, the perfect M&A firm would have a 100% success rate of deals it takes on to close. While ours is well over 90%, there’s still, in my mind, some efficiencies to be found there. So every time a deal doesn’t sell or does sell, we’ll do a postmortem analysis of, what happened? What went wrong? Was it an evaluation issue? Was it a client issue? Was it a distribution? All sorts of things that could go wrong for a deal not to happen, but we are constantly self-analyzing and assessing what happened and what we can improve for future because, obviously, a successful deal is you get the compounding effect of word of mouth, but you probably also get the same thing if you don’t successfully sell a business. Although, like I said at the start, we do only get paid on success. So there’s never a scenario where someone feels like they’ve been ripped off because we’re not charging them anything, but it’s still in the pursuit of, I guess, excellence. We always want to make sure we’re doing a good job and continuously improving that.”

20:25 – Pick the right clients

When sales fall through, it’s usually because the buyer or seller changes their mind and backs out. So be mindful of who you choose to represent in a sale.

“It’s almost always the buyer or seller changing their mind, getting cold feet, moving the goalposts, changing their expectations, which one of the biggest challenges of running an M&A firm in general, we don’t have any clause in our contract with a seller that forces them to sell. So if we say ‘David, your business is worth $10 million,’ we go out and we run a process and we get you $10 million cash offer. It’s the perfect deal. It’s a great buyer. Technically you can still say no and say, ‘No, I want $15 million.’ Even though we didn’t agree that upfront. The way our agreement works is you only pay us if you are happy to sell and go ahead and sell. So, fortunately, that does not happen that often, and part of the reason I like being a primarily referral-based business is if people are referred to you, they’re more likely to behave well. If they have no idea who you are and you have no mutual connections then they’re more likely to mess around. But yeah, the most common reason for any deal falling through is always one of the parties changing their mind or moving the goalposts.”

22:00 – Do your due diligence 

A lot of sales fall through due to misrepresentation, so make sure your company does its due diligence to check out buyers and sellers before a sale.

“We have a very comprehensive pre-listing due diligence process we follow, which is essentially a full financial audit and various other elements of due diligence. So while we can’t technically guarantee it and buyers still have to do their own due diligence, we are at least confident that we’ve done our due diligence and we’re taking one variable out the equation, which is: deal does not fall apart because the seller has misrepresented something. Because we’ve always already picked up on that upfront and either dropped them or changed the expectations. So there is a little bit of a difference to that answer. If you ask me, our reason is buyers and sellers change their minds for various reasons in the process. Privately, always misrepresentation. The way I always think about it, if you are an honest person yourself, I think it’s quite hard to believe how dishonest and untrustworthy a lot of people can be. I definitely learned the hard way getting into the industry 12 years ago, being quite naive, assuming people will pay you when they say they’re going to pay you and all of that, but that’s not really the reality.”

33:04 – Invest back into your industry 

When you have extra capital to invest, where do you put it? Thomas chooses to put most of his capital back into his company’s industry.

“We often have capital to invest, and I don’t really know maybe this is a good or a bad thing, I don’t really know about other industries. So I’m like, well, what am I going to do with our money? Do I invest in real estate? Do I invest in stocks? Yes, a little bit, but really it makes sense to invest back into the industry. And also as an advisor, again, I think there’s different philosophical views on this, I think it’s very difficult to run an advisory business where you essentially tell business owners what to do, whether they’re buying or selling, if you haven’t actually done it yourself, And I think I’d be a bit of a hypocrite running an industry-leading M&A firm if I didn’t at least invest some of my own cash into the industry as well. So we keep it separate. Yes, we still buy businesses, generally only one or two a year. We’re not really doing many deals ourselves, but we generally, similar to FE, each year we buy a bigger and bigger business.”

34:41 – Don’t depend on trends

Trends are bound to change, so you shouldn’t chase every trend that comes along. Wait to see which trends have the most staying power.

“Trends in general change every year. You could ask me this question, and there’d be a new hot business model. We tend to intentionally not chase trends. So if there is a trend, we are probably not on top of it because we generally like to see how it plays out before we put any resource into learning that space. So I think businesses are always popular and have been, so maybe this isn’t answering your question, but I’m intentionally not answering it. Businesses that are always popular and always trendy are growing revenue, profitable — and this is particularly important in weak economic cycles like we’re going into now. It’s not that people are going to stop buying businesses or anything like that, or multiples are going to go down. It’s really just that good businesses will continue to sell and bad businesses, which are losing money that now can’t get venture capital, are not going to sell.”

42:32 – Be intentional with workplace culture

Make sure that the workplace culture you set in place reflects your own values. Otherwise, you’ll frustrate yourself and end up with unhappy employees.

“If you want to work a hundred hours a week and you want to be in an office, that’s great. But you probably shouldn’t then be building out a remote team with flexible work and unlimited vacation time, all those kind of things, because you’re just not going to jive on culture. People are going to quit and you’re not going to have very happy employees and you’re not going to be very happy yourself. So you have to decide for yourself what you want and then build your business plan and what you’re doing, your strategy, around what you’re trying to achieve. And a big part of that is what culture you want to create internally. And at least initially, say the first 20 people you hire, culture is very much going to be driven by you: your personality, your work ethic, your philosophy on life, political, economic, whatever views it will be. You’re most likely to attract people similar to you when you start out. As time goes on, that becomes a little bit different.”

47:38 – Let people go

The needs of your business change as the company grows, and sometimes that means letting go of employees who no longer fit. 

“Your goals can change. I think, particularly, as you’re building a small team, this isn’t really the case for us now, over 130 people, but the first 20 you hire, chances are the people you need to get you from zero to one, or maybe that’s zero to 1 million, zero to 10 million. They’re probably not the right people to get you from 10 million to a hundred million or 10 million to 50 million. So I think the tough thing is being honest with yourself and your team, what you need at each of the different stages of your business. And it’s not necessarily a bad thing if people are no longer a fit. I think the bad thing is if you don’t tell them that and you’re unhappy to let people go. I’ve had to let people go over time, not necessarily because they were bad at their job, but because the job they were doing was just not what we needed anymore for the direction we were going. And I think as a business owner, or a CEO, founder, whatever you’re going to be, if you speak to every founder, almost all the difficult things they’ve had to do are people-related.”

49:41 – Do the right thing

It’s important to maintain business integrity, which means sometimes you have to make decisions that are right for your client, even if they aren’t right for you. 

“Doing the right thing is always the right thing. And what that means is that sometimes you have to make decisions which are right for the client, but not necessarily right for you. So that might be, I don’t know, a really cool business that comes along to us, and I would love to represent and sell it, but actually we’re not the right fit. Maybe they have different expectations. Maybe they want us to change our process. Or, to a point about the team, maybe there’s someone in your team who you don’t think you can progress any further in their career, so it actually makes sense to let them go. At the time, they’ll probably hate you and say, ‘Thomas is terrible. Let’s leave him a bad review. He sucks.’ But in future they’ll realize that that was actually the right thing. So I think that’s one of my philosophies is doing the right thing is always the right thing even if at the time it doesn’t feel like to you or the other person, it necessarily is.”

52:26 – Focus on one goal

Building a successful business requires focus. If you’re spread too thin, you won’t be able to invest your best self into any project.

“If you want to build a successful business, I don’t know if there’s a dollar amount, but almost any business can get to a substantial size where you probably, and probably your family, never have to work again just doing one thing really well. For us, it’s sell side M&A. We’re choosing to launch more services and offer more, but if I really wanted, we really have an eight-figure business, if I wanted to keep growing it beyond there just doing one thing we really could. So I think focusing is really important. I think, particularly, for a lot of young entrepreneurs, we see a lot of people who are like, ‘Oh, I’m CEO of seven businesses at age 23.’ Yeah, that seems cool, and it might be a great badge of honor, and maybe you can do it for a while, but you won’t properly be focused. You should figure out which one you should be doing. Hire a CEO for the others or sell them.”

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David Khim

David is co-founder and CEO of Omniscient Digital. He previously served as head of growth at and Fishtown Analytics, and before that was growth product manager at HubSpot where he worked on new user acquisition initiatives to scale the product-led go-to-market.