The Snag Of Selling To Private Equity

November 8, 2019 |  

About this episode


Starting from humble beginnings, Sherry Deutschmann built LetterLogic into a $40 million juggernaut which she sold recently for more than seven times EBITDA.

To read a transcript of this episode, click here.

Sherry Deutschmann got the money to start LetterLogic Inc. – a company that printed and mailed patient statements for hospitals – by having a yard sale. She made her first desk out of an old door.

From these humble beginnings Deutschmann built LetterLogic into a $40 million juggernaut which she recently sold for more than seven times Earnings Before Interest Taxes Depreciation and Amortization (EBITDA).

Deutschmann credits her success to the culture she built based on empathy, transparency and a juicy profit-sharing plan which is why she was so surprised when her acquirer decided to shut it down.

In this episode, you’ll discover:

  • The downside of selling to a private equity group
  • How to create a positive cash flow cycle using your customer’s money
  • Why Deutschmann paid her profit-sharing plan monthly
  • The definition of “Major in the majors” and why Deutschmann credits this philosophy for helping her sell
  • How your Trailing Twelve Months (TTM) financials impact your value

Deutschmann cracked into the statement printing business by offering to verify the contact information of a patient before they sent the statement – something her competitors were unwilling to do. This point of differentiation became the marketing pillar on which Deutschmann built her company. We’ll help you create your own Monopoly Control in module six of The Value Builder System – get started by completing module one for free.

About Our Guest

Sherry Deutschmann is a serial entrepreneur, author, and passionate advocate for entrepreneurship. In 2019, Sherry founded BrainTrust, a company dedicated to helping women entrepreneurs grow their businesses to $1Million in annual revenue…and beyond. Prior to founding BrainTrust, Sherry was also founder and CEO of LetterLogic, Inc., a company she grew to $40 Million and sold in 2016. LetterLogic was named an INC 5000 company (fastest growing privately held businesses in the US) for eleven consecutive years.


John Warrillow:                My next guest, Sherry Deutschmann, started from relatively humble beginnings. She had a yard sale, as she’ll describe, to get the money to start her business, which she ultimately built to $40 million in revenue. She recently sold it for more than seven times EBIDTA. There are so many great lessons in this episode. I want you to listen to her approach to culture, in particular how she decided to pay her profit sharing plan and how she decided to pay a percentage of the proceeds to the people that helped her get there. Have a listen also for the buyer, how they approached the business that they acquired. Some of the mistakes they made and some of the dangers, frankly, of selling to the wrong person. Also listen to how Sherry financed the beginning of her company. If you’re ever wondering how to create a positive cashflow cycle, she tells you the story of how she did that in this case. Also listen to how she started the business and basically differentiated the company very early on against some very big time competitors. Here to tell you all this and more is Sherry Deutschmann. Sherry Deutschmann, welcome to Built to Sell Radio.

Sherry Deutschmann:      Thank you. I’m happy to be with you.

John Warrillow:                LetterLogic. I must confess, I was reading the press release beforehand. I’m like I still don’t know what the hell they do. What do you guys do? What is it that LetterLogic does, or did?

Sherry Deutschmann:      We printed and mailed patient statements for hospitals. The data came to us electronically. We did a lot of magic behind the IT curtain and did some data processing and some calculations, and then printed and mailed hospital bills. We just-

John Warrillow:                Why wouldn’t a hospital do this themselves?

Sherry Deutschmann:      … It was just so much cheaper for them to outsource it. We got great discounts from the post office, so dramatically less expensive for them to outsource. And most hospitals do.

John Warrillow:                Okay, so because you’re doing many hospitals-

Sherry Deutschmann:      Right.

John Warrillow:                … you were able to get bulk discounts from the post office and so forth. Do people get paper statements for their medical bills? I would assume it was all electronic these days. Was that happening in your industry?

Sherry Deutschmann:      The healthcare industry was very slow to adopt electronic billing and payment options. Hospitals clamored for those options, but once they bought them they didn’t use them and the patients didn’t utilize them. At the time when I sold LetterLogic three years ago, still about 75% of the patient statements were on paper.

John Warrillow:                Wow.

Sherry Deutschmann:      I think that’s changed.

John Warrillow:                I understand there’s kind of an interesting story around the start of LetterLogic, because this was … Well, you tell the story. How did you get started?

Sherry Deutschmann:      Well, I worked for a company that printed and mailed patient statements. I was VP of sales. I was responsible for 100% of the revenue. And we had tons of problems. We constantly screwed things up for our clients. It occurred to me that the problems that we were having, everything was simple human error and the human error was caused by the fact that the employees didn’t care. They didn’t care because nobody cared about them. So, I went to my employer with that epiphany and wanted to talk with him about how we could change the culture and create an atmosphere that would make the other employees care more. He patted my hand and told me I didn’t know anything about business.

John Warrillow:                I’ll show you.

Sherry Deutschmann:      Well, he was right. At that time, I had never even read a business plan. I don’t have a college education, I have only high school education. But, I went and bought a bunch of books about writing business plans. I wrote a business plan and I left him and started a company competing with him.

John Warrillow:                How did you finance that?

Sherry Deutschmann:      I went to the local bank, thinking that they knew what I had been able to do for this other company, which by that time was about $15 million in revenue, most of which I brought in. I assumed that the bank would just say yes, here’s your money to start. They didn’t. So I went to several different entities in Nashville that knew me and knew what I had been able to do for that company, and all five said yes to funding the company for me but none of them would allow me the freedom to run the company the way I thought a company should be run. So, I said no to all of them. Cashed in my 401k. Had a week long yard sale, sold everything I owned. Went to Goodwill and bought a few old file cabinets to serve as the base for a desk, and my desk was an old door.

John Warrillow:                Love it.

Sherry Deutschmann:      I got a white board and set up shop in my basement, competing with the giants. At that time, it was WebMD or Emdeon, now Change Healthcare, that ruled the planet in patient statement service and I was competing with them right next to my washer and dryer.

John Warrillow:                How did you convince these hospitals, when they had options to go to any one of these major companies, to use you, this independent person, totally self-financed?

Sherry Deutschmann:      Well, at first I went to a couple of guys in town that would help you with your business plan and maybe invest if they saw any hope, and they told me that I had nothing. You cannot start this business, unless you can think of some brilliant thing that would differentiate you from everybody else in the market. So, I didn’t sleep for 72 hours. Just thought about what I could do. I came up with the one thing that I thought would put me on the map. I called a few hospitals and said if I did this, would you give me your business? And they started saying yes. In fact, the first hospital I called was the big healthcare system in Memphis and the CFO said that’s the quintessential no-brainer. If you can do that, you’ve got my business.

John Warrillow:                What was the one thing?

Sherry Deutschmann:      Well, hospitals had about 15% return mail. So, if they mailed out 10,000 statements, 1,500 of them came back. They didn’t have a way to track down the patients so they would just turn those patients over to bad debt, to collection agencies, and that created all kinds of problems for them. So, I determined that I would find a good address before I printed and mailed the statement and that any statement that came back to the hospital undeliverable, I would give them a full refund.

John Warrillow:                Wow.

Sherry Deutschmann:      So, it would guarantee delivery or your money back. And that put us on the map.

John Warrillow:                Fantastic. I’ve got so many questions. How did you finance this? Because this is all on your own dime. The CFO from the big healthcare company says yeah, okay, you’ve got the business. Presumably, you have to … I mean, where did you get the money to go take the next step of actually fulfilling against this promise?

Sherry Deutschmann:      Well, I asked the hospitals all to give me a deposit that was worth two months postage usage, and that’s how we funded the company.

John Warrillow:                Fantastic. Love it. Love it. So, you got the business off the ground with this first customer. I have to ask, when you left your role as VP sales, did you have a noncompete? How did you stickhandle around being able to call on the CFO of the big healthcare network or whatever?

Sherry Deutschmann:      Well, of course, they sued me for violation of my noncompete. I countersued for money that they owed me. We settled out of court and I just agreed not to go after those clients that had been mine prior.

John Warrillow:                Okay, got it.

Sherry Deutschmann:      And to start fresh.

John Warrillow:                Got it, okay. So, you build this company up. How big did you get it? How many employees? How much revenue? Any proxy for size.

Sherry Deutschmann:      We grew to $40 million in revenue with-

John Warrillow:                Fantastic.

Sherry Deutschmann:      … 50 employees. There was a time, a dark period, where we ballooned up to 64, 65 employees unnecessarily. When I sold the company, there were 51 of us at $40 million in revenue.

John Warrillow:                Why do you say dark period? What was it that caused you to balloon up to 65?

Sherry Deutschmann:      It was me chasing a shiny object. We had become the market leaders in printing and mailing the statements, but I had a lot of pressure from clients and from my sales team to start to send the statements electronically.

John Warrillow:                Of course, yeah.

Sherry Deutschmann:      And to receive the payments on behalf of our clients electronically. Prior to me losing my mind, we had just partnered with really good third parties to provide that service. We had a revenue share, and that worked great. But, I think I just got too big for my britches and decided I was going to build out the technology to make us compete with the big boys in that arena. I spent literally millions of dollars trying to build technology, hiring people that I didn’t even have room for, that we didn’t even have time to train because we were growing so quickly. We were on the Inc. 5000 list for 11 straight years.

John Warrillow:                Wow.

Sherry Deutschmann:      So, there was lots of growth. I was trying to rebuild the ship at sea and really got in over my head.

John Warrillow:                I want to go back to something that you mentioned in the previous role that you had, where you felt that he wasn’t creating a culture, not treating people like they should be treated. How did you change that in your company? You built a $40 million business, 50 employees or so. That’s a significant size business. How did you treat people and what was your approach to people?

Sherry Deutschmann:      Right before I left my previous employer, I had read the book Nuts!, about Herb Kelleher and how he had built Southwest Airlines with the belief that if the flight attendants were happy the passengers would be happy and that everything would work out great. Well, look how that turned out. That was really smart. That’s really what got me to thinking about how bad our culture was and that that was the problem. When I started LetterLogic, I determined that I was going to have a really healthy culture that listened to the employees. That heard them, that made them feel valued, and where they were totally vested in the company.

John Warrillow:                How did you make them feel vested?

Sherry Deutschmann:      The best way I knew to do that was literally to give them a piece of the pie. From day one, we gave 10% of the profit to the employees monthly. And, importantly, split evenly so that the CFO got exactly the same dollar amount that the custodian got. So that everybody knew that their job was just as important as every other job and no less important than anybody else’s job in getting out a quality product.

John Warrillow:                What was the thinking behind doing monthly payments?

Sherry Deutschmann:      I wanted people to be able to draw a direct line between their actions and the results. So, every month, we brought the entire company together and showed them the financials, the P&L, from the previous month.

John Warrillow:                How did you handle it when you had a employee who worked really, really hard in a month and for whatever reason something out of her or his control the company didn’t make money, or didn’t make as much money, and therefore that person’s energy was for naught?

Sherry Deutschmann:      … It didn’t happen that way. Every month when we had this company meeting, we brought everybody together. We showed them the P&L. We showed them the top line and the bottom line, and then we discussed why the results were the way they were. If it was a month where the profit was not as much as what we had hoped for, we all knew exactly why and we could talk about the big screw up for this healthcare system and how that cost us dearly. They could literally draw a line between their behavior and the end result. The profit share checks at first were very small. $7 and $17, and then $170. Toward the end, they started getting bigger. $500, $700, and $1,000 a month-

John Warrillow:                Wow.

Sherry Deutschmann:      … for each employee. That really did change behavior. It changed the way people thought. It changed the fact that they didn’t milk the clock. They just worked together, synchronized, and absolutely vested in providing the greatest value for our customers, which caused great customer loyalty, and in the end a pretty great return for the investors.

John Warrillow:                Yeah, it sounds like it. So, you’re cutting these checks. I mean, one criticism. I’m not sure I share it, but I’d be curious to know your thinking around it, of having equal payment from the VP, big mucky muck, down to the custodian is that while that’s great for the custodian, on a percentage of their total comp, it ends up being quite small for your very senior people. Therefore, when it’s flat across the board, it can act as almost a disincentive for very senior people who make a lot of money already. Did you think through that? What was your calculus around that?

Sherry Deutschmann:      Well, as you’ve said, the senior people made a lot of money already. There was a pretty big chasm between the pay for the CFO and the pay for the custodian. But, if you don’t think the custodian is important, think about the last time you visited a business where things were dirty and unkempt and how it affected how you thought about that brand. Or think about meeting a surly receptionist or somebody that’s having a personal conversation the whole time you’re at a counter with them, trying to buy a product from them. I thought that every person was equally important. And I don’t think that the people at the top ever resented the people on the lower end of the totem pole as far as pay. I don’t think there was ever any resentment. It really made them work together and appreciate each other.

John Warrillow:                What else did you do to make this culture so unique? The payments, the monthly profit sharing, the open book management. Anything else that you did that really defined your culture?

Sherry Deutschmann:      Yeah. I wanted to make it so that when the employee was at work they could totally concentrate on taking care of the customer. That they weren’t worried about paying their bills, they weren’t worried about anything else except taking care of the customer. So, we paid for 100% of everybody’s medical, dental, disability, and life insurance. We did that from day one. Way before Obamacare. We helped the employees buy their first home with a gift for the down payment of their first home.

John Warrillow:                Wow. How much was the gift? That’s incredible.

Sherry Deutschmann:      It ranged from $1,000 to $10,000, just depending on individual and their needs.

John Warrillow:                Can I come work for you?

Sherry Deutschmann:      It’s a little late for that now.

John Warrillow:                This is awesome. Yeah, this is awesome.

Sherry Deutschmann:      We also really paid a fair living wage. The way we determined what a fair living wage was, and you’ve got to keep in mind that we were a factory. We had big machines that printed, folded, and stuffed bills. Not a very sexy business. Where we could’ve gotten away with paying people $10 or $12 an hour, our starting pay was $16 an hour because we looked at what happened if the two lowest paid employees in our company started dating and got married, on their joint salaries when that happens. On their joint salaries, where would they afford to live? Could they afford to save any money? Could they afford to have children? That’s where we set our minimum starting wage at $16 an hour.

John Warrillow:                I mean, this all sounds amazing, but at the end of the day this has got to be cutting into your profits.

Sherry Deutschmann:      No. Absolutely not. It absolutely is the reason we were profitable. It’s a very thin margin business. It made us more profitable because it made those 50 people work much harder than they would’ve worked otherwise, and work in sync so that we maximized profits. We weren’t profitable and successful in spite of our benefits, we were successful because of the benefits.

John Warrillow:                When you say thin margin, I mean, what would a typical company in this space be netting in the bottom line before tax-

Sherry Deutschmann:      5%.

John Warrillow:                … on a percentage basis?

Sherry Deutschmann:      5%.

John Warrillow:                5%? And, what did you guys do? Did you do better than that?

Sherry Deutschmann:      Yes. Closer to 10%.

John Warrillow:                So, you were really doubling the industry average in terms of what was possible.

Sherry Deutschmann:      Yes, and we were able to do that, John, because we were the most expensive in the industry. We were probably 10% higher than the next highest competitor, and yet we were still able to grow because we had such a great reputation. Our net promoter score was 97, which is-

John Warrillow:                Wow. Really?

Sherry Deutschmann:      … pretty hard. Yes. The loyalty-

John Warrillow:                Wow, that’s unbelievable.

Sherry Deutschmann:      … with our clients … When I had to give them a price increase, I called them myself and said this is what we’re doing and this is why. And, even after big price increases, customers did not leave us because they were used to the high quality service that we provided. They were very loyal and stayed with us to the end.

John Warrillow:                Speaking of the end, what was it that triggered you to want to sell?

Sherry Deutschmann:      Two things. Remember me talking about me chasing the shiny object and how that was affecting us?

John Warrillow:                Yeah, for sure.

Sherry Deutschmann:      For years, I’d been giving out profit share checks and we had been profitable for years. Suddenly, the profits started dwindling and our profit share checks were lower each month. And then two months back to back losses. It was a big wake up call for me, that something was definitely wrong. I kind of knew what it was, but I couldn’t face it so I hired an outside consultant, an interim COO. He was with me for about two weeks and said you know what to do. You’ve tried to become something that you weren’t and to make this company something that it isn’t. You’ve gotten away from what made you so good. You’ve got to get back there or you’re going to go under. He’s the one that convinced me to just keep with my original plan, which is to be the very best paper based vendor in the nation, and let other people worry about the technology. And to drop my ambitions of becoming a tech company. He said Sherry, you’ve been chasing this and trying to be something you’re not and you were already the best at this. Go back to that. So, I did.

John Warrillow:                But, presumably, there was a reason you were chasing the electronic digitization of these patient records and receipts, because that’s the way the industry was going, or is going.

Sherry Deutschmann:      Right.

John Warrillow:                How did you reconcile that in your mind?

Sherry Deutschmann:      Because there were still so many options. There were companies who had built all the technology platform that didn’t have customers, that were dying for partnerships with companies like mine that could deliver those customers. It was just a shortcut, really, to providing the hospitals exactly what they needed and providing a great transition for them.

John Warrillow:                Back up. You bring in this COO, who tells you what you already know, which is you got to get out of these new business models that you’re exploring. But that doesn’t answer the question how did you decide to sell? What actually triggered that?

Sherry Deutschmann:      After I took his advice and got us back on track to what he calls majoring the majors and just remembering what our core business was. Got back to focusing just on that. In 18 months, we quadrupled EBIDTA. So, if you have ever thought about selling the company, that trailing 12 months, the financial results of the last 12 months, is what buyers look at. For 18 months, our bottom line was outgrowing our top line for the first time in our company’s history.

John Warrillow:                On a percentage basis, obviously.

Sherry Deutschmann:      Yeah.

John Warrillow:                That’s nice.

Sherry Deutschmann:      It was textbook time to sell. At the same time, my teenage granddaughter came to live with me. She was 13, and I felt like she really needed me to be more available to her. So, it was just the right time to sell.

John Warrillow:                What did you do?

Sherry Deutschmann:      I called a broker in North Carolina, Mike Nolan of Empire Business Brokers, and started with getting a company valuation. And then, for a year and a half, had mini valuations every Monday and every Thursday with my executive team. You think that a company’s value wouldn’t change much from a Thursday to a Monday, but it can. If you sign a great new customer, that can really affect the valuation.

John Warrillow:                How was your company valued? What was the methodology that you were using to value the company?

Sherry Deutschmann:      It was a multiple of EBIDTA.

John Warrillow:                Got it. How did you discover that multiple? What were you using as a benchmark?

Sherry Deutschmann:      Our broker had just had his finger on the pulse of that kind of sales nationwide, so kind of knew a good range.

John Warrillow:                Got it, okay. So, you’ve got a broker involved. You’re measuring your EBIDTA on a regular basis, and you figure it’s some sort of multiple. What did you think was a decent range of EBIDTA multiple? What kind of range were you thinking it would be in? X to Y?

Sherry Deutschmann:      It had been five to six in our industry for the last several sales. We were eight-

John Warrillow:                Five to six times EBIDTA?

Sherry Deutschmann:      … Mm-hmm (affirmative). We were able to get seven and a half.

John Warrillow:                Wow. How did you do that? How did you do so much better than the industry average?

Sherry Deutschmann:      I think there was just a lot of interest in the company. A lot of strategic buyers and private equity that were really interested in LetterLogic. In fact, I think for the past five or six years, the previous five or six years before I sold the company, there had been a lot of interest with a lot of buyers. So, it was competitive.

John Warrillow:                Take us through the actual transaction itself. You’ve got Mike on board. He’s out there marketing the company. What was the next step? I mean, did you have an offer date, where you said look, bring your offers in by this date? How did you go from there?

Sherry Deutschmann:      Yes, I think that’s exactly how Mike approached it. We contacted all the people who had been pursuing us, and then he went to several others who he thought would be good strategic buyers. We had lots of interest and we set a deadline for receiving offers and having visits and the whole dog and pony show, which was actually a lot of fun.

John Warrillow:                How would you describe the dog and pony show of those management meetings, management visits, where you’re visiting with a potential acquire? For someone who has never gone through that experience, how would you describe that to them?

Sherry Deutschmann:      It was just like the best sales pitch you’ve ever made for selling whatever your company sells. We were making a sales pitch. Mike had prepped the entire team. In fact, he worked with us tirelessly to have mock presentations, where he would throw questions at us that a potential buyer might ask. He taught us how to answer those questions honestly, but providing just the right answer and not going overboard with giving too much information.

John Warrillow:                What were the zingers you were preparing for?

Sherry Deutschmann:      Wow, I’ve never thought about that.

John Warrillow:                I’m assuming one of them was the digitization of these statements. We’re not going to be printing statements in 50 years. This business is going to be going in the direction of the checks. Why am I buying a business that’s on the decline, would be, I’m assuming, one of the questions Mike prepared you to answer.

Sherry Deutschmann:      No, I think everybody that was interested in buying us was interested in buying us because we were the undisputed best at the paper. It still had to have that paper components. They didn’t question us on that. They were more interested in how we’ve continued to grow with just such a small sales force. We only had two sales people.

John Warrillow:                Really? Wow.

Sherry Deutschmann:      And how we were able to get some of the most prestigious healthcare entities to sign with us when we were a small Nashville based company. They were superficially interested in our culture, which was very curious them.

John Warrillow:                Why do you say superficially?

Sherry Deutschmann:      Because in the end, the buyer that bought LetterLogic just did not … I mean, the very first day they owned the company, they did away with the profit share.

John Warrillow:                I want to get into that segment. Before we get to that though, how many of these companies that you visited with that had expressed interest actually provided you with a letter of intent? An offer of some sort?

Sherry Deutschmann:      I think there was seven.

John Warrillow:                Seven offers. Give me the range, if you could. On a percentage basis, were they all kind of around the seven times EBIDTA or were they wildly different?

Sherry Deutschmann:      They were mostly in the same range, although one really interested party, who I wish I’d sold to now, said we know that you’re going to get higher offers, but we really want your company for this reason.

John Warrillow:                What was that?

Sherry Deutschmann:      And I wish that I’d paid a little more … Because they loved the culture and they-

John Warrillow:                Was that a strategic or a financial buyer that was liking the culture?

Sherry Deutschmann:      … A strategic buyer.

John Warrillow:                Okay, so let’s get into it. You had seven offers. Why did you choose the one you did?

Sherry Deutschmann:      One, because it’s the highest offer. The private equity firm that bought us merged us with some other companies in our industry that they’d already acquired. I knew those companies. I liked them. I liked the leadership teams there. I’d known them through the associations of that industry. And it felt like a good fit. It felt like we were aligned when it came to culture.

John Warrillow:                That offer-

Sherry Deutschmann:      I felt like-

John Warrillow:                … I’m sorry, keep going.

Sherry Deutschmann:      … I felt like they were the most likely to maintain the culture and to take care of the people the way I was used to taking care of them.

John Warrillow:                The offer is seven and change times EBIDTA. Is it all cash or are they saying you’ve got to carry some over? How did they structure that?

Sherry Deutschmann:      It was all cash.

John Warrillow:                All cash?

Sherry Deutschmann:      Mm-hmm (affirmative).

John Warrillow:                Okay. So, a big offer. All cash. What was the expectation that you would have after the sale? I mean, were they saying hit the beach kind of thing or did they want you to stick around for a while, or what?

Sherry Deutschmann:      They asked me to stick around. They asked me if I would invest in the new entity, which I did. And they asked me to-

John Warrillow:                But it wasn’t a requirement.

Sherry Deutschmann:      … It was not a requirement. And they asked that I stay on the board. So, I did that. Post sale, I invested a couple million dollars and I stayed on the board for about six months.

John Warrillow:                To be clear, what are you investing in? Was it the private equity company WestView or was it the entity that you had sold rolled up with this other [crosstalk 00:30:38]

Sherry Deutschmann:      The entity that I had sold, mm-hmm (affirmative).

John Warrillow:                What was the liquidity on that investment? You had invested a couple million dollars. In that, did you have the ability to sell your shares? Because it was still a private company, I’m assuming.

Sherry Deutschmann:      Yes. I did, and actually six months into it, it was just too painful for me to watch the changes with my company and I just asked them out. So, I got my money back and a nice return on my investment for those six months that I was in it, and just got to start my new life.

John Warrillow:                Let’s get into what happened then. Private equity company bought the business. What were the changes that they made?

Sherry Deutschmann:      Well, as I said, the first thing they did was get rid of the profit share.

John Warrillow:                What did you do at that point, when they said they were going to get rid of the profit sharing?

Sherry Deutschmann:      Cry. It was really painful for them to change, and it was so frustrating because they didn’t understand how that profit share drove our profitability and how it made everybody work together so closely to make us as profitable as we were. They had paid lip service to us during the dog and pony show that they understood and they loved that idea, but they did away with it. So, there were a lot of anguish and tears. And the net results were that a lot of the employees left them. I think today of the 51 employees that we had at that time 12 still work for that company.

John Warrillow:                That’s tough. I mean, there were other elements to the culture beyond just the profit sharing that you had created. There were the gifts for first time home buyers. There was the healthcare. There was the health insurance. Did those stay or were they also eliminated?

Sherry Deutschmann:      Most of those left, but they had a better 401k plan, I think, than we did. They were a much larger company. They might have had some better base pay. But, what they didn’t have was empathy, and I believed that an empathetic leadership was at the heart of what made us great. And that we hired employees who had empathy. The benefits that we provided created a lot of success for us, but it was really more the culture of empathy and caring and kindness. I think there were three key things that really made us successful and one was just listening to the employees and giving them the opportunity to be heard. And I did that both formally and informally. On Wednesdays, I wasn’t Sherry the CEO, I was Lucy, a coworker. Any employee could sign up to have lunch with me. They would choose the restaurant. They would choose who else would be at the table with us. Sometimes it was a parent or a spouse, or somebody they were dating they wanted me to check out. Sometimes it was the entire department gaining up on me for a policy change or for something they wanted. But, those Wednesday lunches were dedicated to just me listening to the employees. Through that, I learned about their hopes and dreams. And, believe it or not, not a single one of them, in their teenage years, dreamed about working for a patient statement company.

John Warrillow:                Imagine that.

Sherry Deutschmann:      Imagine that. I heard about what made them tick, and then what unique challenges they faced every morning before they came into work. I got to know them. They told me, and I listened, what they thought I was doing right and wrong in leading the company. They told me when we needed new equipment, or when we didn’t, or when we were spending money frivolously. It became the most important time that I spent with my employees every week.

John Warrillow:                I mean, there’s a chain of command in a company though, right? I mean, aren’t you undermining the managers that they report to by having all these lunches?

Sherry Deutschmann:      No. I believe that the management team was really grateful for what I heard and what I learned about the employees. We didn’t have much hierarchy. Everybody, because of the flat profit share plan, we were all considered equal. We were equal.

John Warrillow:                You mentioned there were three things that made you guys successful, empathy being one. What were the other two?

Sherry Deutschmann:      Transparency. That started with us opening the books and sharing with the employees exactly how much money we were making and how. We also had someone, a scribe, attend our leadership meetings and we’d publish the minutes to the leadership meetings so that the whole staff could see what we were talking about. That’s a way they knew that they were heard. If they kept talking about a machine malfunction that was causing them headaches, they could see from the minutes that we were talking about that and that we were making moves to buy new equipment or to refurbish equipment. They felt heard in that way. Having just the transparency in everything that we did. My door was open for anybody to come and talk to me anytime. The third part was really the profit share plan, which I believe is the smartest business move I ever made.

John Warrillow:                How did you share in the rewards of the sale of the company? Did you share anything with the employees? How did you think about that?

Sherry Deutschmann:      Where I had been gifting 10% of the profit to the employees all along, I announced on Monday that the company had been sold and the following Monday was my last day with the company. In that last week, I called in the employees one by one and, I’m going to cry, and thanked them for what they had done to build our company. And then, I was able to hand each of them a check. I gave 15% of the sale of the company to the employees. This time, it wasn’t split evenly. It was tenure based. It had to be, because some people had been with me for 14 years and some people had been with us just a few months.

Sherry Deutschmann:      It was so much fun to ask someone if I gave you $10,000 today, what would you do with it? And then after they told me, I would say well, here’s $35,000. Have fun. One guy jumped up and ran out of the room and said I’m going to buy that boat right now. The most heartwarming thing that came from giving money away to the employees was a young woman, 25 years old, who called me a few months after the sale. Took me to lunch to tell me what she had done with her money. Her parents were Serbian refugees and she had overheard them talking about how as soon as their house was paid off, which was still going to take years, they were going to send money back to Serbia to help relatives there. So, she went and paid off their mortgage. She said she never would have considered that if she hadn’t worked at a company like LetterLogic, where empathy was so key to our success. Sorry for crying on your show.

John Warrillow:                No, i’m so grateful for you sharing the story. We think of businesses all just dollars and cents and zeroes and ones, and of course there’s people behind all of the decisions that we make, for the good and the bad. Your story shows both sides, the amazing gift it is to be a business owner and the ability to just decide that you were going to share in the proceeds.

Sherry Deutschmann:      I believe it is a gift, an awesome privilege, and a responsibility for every employer. Every entrepreneur should be taking great care of their employees. We don’t have anything without them.

John Warrillow:                Sherry, how did you try to make the case to the private equity buyers that they were clearly missing the forest for the trees, cutting off the nose to spite their face. You can pick any number of cliches to describe what they were doing. Did you just quietly roll your eyes and walk away? Did you get up in their grill and say you’re making a mistake? The whole reason … How did you try to convince them to keep the profit sharing plan? Or did you?

Sherry Deutschmann:      It was too late. They just made the decision. But I was very loud and vocal at every board meeting, and I think I was just a giant pain in the butt to them. I think-

John Warrillow:                They’re like Sherry, you want your shares back? Get out of here.

Sherry Deutschmann:      … Yes, it was kind of like that. I think as soon as I said I want out of this, I think it’s probably the fastest check they ever wrote, getting rid of me.

John Warrillow:                Well, their loss, our gain. Tell us what you’re up to these days. What’s keeping you busy now?

Sherry Deutschmann:      Well, I do a lot of public speaking about the importance of empathy in leadership and I’ve written a book. It’s called Lunch with Lucy: Maximize Profits by Investing in Your People. It will be in book stores on March 10th. You can buy it today on Amazon, presale. Spending a lot of time doing that. I’ve also started another company. It’s called BrainTrust. Probably a lot of your audience members are members of EO or WPO, the Women’s Presidents’ Organization.

John Warrillow:                Yep.

Sherry Deutschmann:      I think EO and WPO both were pivotal to helping me become a better leader. There are 12 million women business owners in the US that don’t quality for EO or WPO because they don’t have enough revenue. You have to be at $1 million in revenue to join those organizations. So, I started BrainTrust for those 12 million women, to help them get to $1 million.

John Warrillow:                What do you guys do to do that?

Sherry Deutschmann:      Good question. It’s a peer to peer members, just like EO and WPO, where a group of seven women in a vault get together once a month to present their business challenges and from experience sharing learn how to overcome some of their business hurdles.

John Warrillow:                Fantastic. Well, best of luck with both of those initiatives. The book is called Lunch with Lucy.

Sherry Deutschmann:      Yes.

John Warrillow:                Named after your tradition in your own company. It comes out in March, but people can preorder it now if they want. And BrainTrust. Now, if there’s anybody who wants to reach out to you directly, I mean, are you on Twitter? Do you like LinkedIn? Is there a way to, if someone wanted to reach out and say hi, social or nonsocial, what would be the best way?

Sherry Deutschmann:      LinkedIn is a great way. Sherry Stewart Deutschmann.

John Warrillow:                Sherry Stewart Deutschmann. We will put that in the show notes as well. Well, Sherry, thank you so much for sharing this story. It’s an amazing journey. So glad you shared it with us.

Sherry Deutschmann:      Thank you.


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