Upsize Minnesota January/February 2022 by Upsize Minnesota

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EXPORT ASSISTANCE ALSO:

GETTING PREPPED FOR A VIBRANT M&A MARKET Advice from experts

Looking overseas, but don’t know where to start? Assistance abounds

“The thought of moving into a new market, especially when there is a language barrier, can be really overwhelming.” Stephanie Kent, president and CEO, Carbon Medical Technologies

A business law team that caters to the unique needs of small and mid-size business owners THE SCHINDEL SEGAL TEAM Jon Schindel

Leonard B. Segal

• Purchase and Sale of Businesses • Corporate Governance • Family Succession Planning • Estate Planning • Commercial Real Estate

• Compliance with Employment Laws • Non-Compete & Confidentiality Agreements • Anti-Harassment & Discrimination Policies • Employment Litigation

jschindel@schindelsegal.com

lsegal@schindelsegal.com

Kyle Moen

Sarah Porter

• Purchase and Sale of Businesses • Real Estate • Compliance and Risk Management • Corporate Governance • Succession Planning

• Corporate Governance • Mergers, Acquisitions, and Divestiture • Technology and Licensing Agreements • Residential and Commercial Real Estate

kmoen@schindelsegal.com CON TA C T U S A D D R E S S : SchindelSegal, PLLC 5901 Cedar Lake Road Minneapolis, MN 55416

sporter@schindelsegal.com P H O N E : 952-358-7400

EMAIL:

info@schindelsegal.com

Mike & Ashley celebrating the reopening of First Avenue

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From the pandemic to staffing, supply shortages, and funding issues, small businesses will face new challenges in the upcoming year. But they also face untold possibilities. At Crown Bank we can help identify those possibilities and make them a reality. To see how we are helping our customers success, search news at crown-bank.com. What can we make possible for your business? EDINA • 6600 FRANCE AVENUE S • 952-285-5800 | CROWN-BANK.COM MEMBER FDIC

EQUAL HOUSING LENDER

CONTENTS January • February 2022 • Vol. 21 No. 1 • www.upsizemag.com

PAGE 14

Cover story

There are a lot of opportunities for growth overseas, but small businesses don’t always have the resources to know how to get there. There exist private and public sector organizations ready to support those efforts from beginning to end. BY ANDREW TELLIJOHN Cover photograph by Tom Dunn PAGE 4

Founder’s Forum:

BUSINESS BUILDERS

Upsize Founding Editor Beth Ewen talks with PAGE 6 former journalist Robert Lillegard about the ups EXIT PLANNING and downs of running Duluth’s Best Bread with his Figure out if an internal ownership transition brother, Michael Lillegard. might be the answer for your business PAGE 4

Staff list: Who’s who at Upsize magazine and how to reach us. Upsize Minnesota (USPS 024-029) is published bi-monthly by Broad Axe Media, 2908 W 71 1/2 St., Richfield, MN 55423. Periodicals postage paid at St. Paul, MN and additional mailing offices. Postmaster: Send address changes to Upsize Minnesota, PO Box 23238, Richfield, MN 55423-0238

by Dyanne Ross-Hanson, Exit Planning Strategies

PAGE 8

FRANCHISING Get your company ready for growth through franchising in five steps

COLUMNS PAGE 18

FEATURE Make sure you’re doing everything you can to ensure you get the best deal for your company, whether buying or selling, in the hot 2022 market PAGE 22

CATCHING UP

HUMAN RESOURCES

Former Minimizer CEO Craig Kruckeberg has moved on to turning around Stinar Corp., a manufacturer of ground support equipment for the aviation industry acquired out of bankruptcy in 2017

Defeat the great resignation and become a place where people want to join rather than leave

PAGE 28

by Jessica Johansen, Larkin Hoffman

PAGE 10

by Chelsey Paulson, Keystone Group International

PAGE 12

MERGERS & ACQUISITIONS Employee retention, dealing with supply chain issues and explaining your COVID recovery top seller to-do lists in the pandemic era by Sam Thompson, Transitions In Business

BACK PAGE Hennepin County and the Minneapolis Regional Chamber of Commerce jointly created Elevate Business HC, a program designed to put business owners in touch with experts who can help them execute better in areas ranging from finance to marketing

Advice driven by advocacy.®

What’s helped us build our advocacydriven culture? As a registered investment advisor (RIA) we’re held to a fiduciary standard to act in our clients’ best interest. Combine that with a team who has shared values and is passionate about helping others achieve their goals, and you get the magic of JNBA.

Cärin Viertel

Director of Client Services JNBA Financial Advisors

A client-first and conflict-free philosophy: that’s how JNBA Financial Advisors has operated since our founding days over 40 years ago. And since we began tracking 20 years ago, we have been fortunate to maintain a client-retention rate of 97 percent. To learn more about how advice driven by advocacy® could help you and your family, begin a conversation with our team by calling us or visiting JNBA.com. MINNEAPOLIS: 952.844.0995 | DULUTH: 218.249.0044 | BONITA SPRINGS, FL: 800.675.4793 | JNBA.COM

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by JNBA Financial Advisors, LLC (“JNBA”)) or any non-investment related services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation or prove successful. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement. Please see important disclosure information at www.jnba.com/disclosure.

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So much easier in the box

FOUNDING PUBLISHER Wes Bergstrom

EDITOR AND PUBLISHER Andrew Tellijohn atellijohn@upsizemag.com

FOUNDING EDITOR Beth Ewen bewen@upsizemag.com

DESIGN DIRECTOR Jonathan Hankin jhankin@upsizemag.com

CHIEF FINANCIAL OFFICER Dan O’Connell dano@upsizemag.com

PHOTOGRAPHER

Tom Dunn tom@tomdunnphoto.com

HOW TO REACH US To subscribe visit www.upsizemag.com/subscribe With story ideas email Andrew Tellijohn, atellijohn@upsizemag.com To advertise email Andrew Tellijohn, atellijohn@upsizemag.com To order reprints email Jonathan Hankin, jhankin@upsizemag.com To order extra or back issues email Jonathan Hankin, jhankin@upsizemag.com To suggest Web resource links, links@upsizemag.com

BROAD AXE MEDIA P.O. Box 23238 Richfield, MN 55423

“I

t’s so weird going from writing about business to running one,” said Robert Lillegard, a former journalist and marketer who now operates Duluth’s Best Bread with his older brother, Michael Lillegard. “You’ve got all those pieces on the floor and only three fit together. It looks so much easier in the box.” I can relate, since I co-founded Upsize Minnesota in 2002 amid at the time a 20-year career as a business journalist. We made every mistake in the book while reporting on the best practices from the smartest entrepreneurs in town. It looks so much easier in an article. Lillegard is running a crowd fundraising campaign to purchase equipment to increase their bakery’s output, and to move into a much larger facility. “Here macaroons are our top seller. Our gal makes macaroons by hand. There’s a machine that will make the shells really fast, but it’s $30,000 and we already gave our profits to our staff,” he said. They also need a new oven that costs $55,000, “more than my first house. And I can’t live in an oven,” Lillegard says. “We did buy the oven, but we haven’t paid for it yet. The bank owns the oven.” Reached in early December, the Lillegards had raised $8,000 from the crowd, on their way to the $55,000 goal. The brothers’ titles are characteristically quirky. “We just say co-owner. You’ll laugh at this. We formed an LLC for the new property, and he’s the dean and I’m the royal vizier. ‘Royal vizier’ just seemed fitting somehow. ‘Dean’ is higher than me,” he says about Michael’s title. “He’s two-thirds, I’m onethird” in ownership. “Michael’s a little bit of a savant; he has a master’s in maths,” said Lillegard. “He picked this job because he thought this would be a great story for our grandkids someday.” The younger Lillegard agrees, most of the time. “I did want to change course, shortly

UPSIZE JANUARY • FEBRUARY 2022

before this expansion. When we were thinking about it, I started to get cold feet,” he said. “It’s been a wild enough ride. I think you gradually start to get to know the people who work for you and realize … it matters to them” and also to customers. “We’re the only people that do quite what we do. There would be a hole if we’re gone.” Since starting in 2014 “from a card table at farmers’ markets, today we’re at 11 employees. About 100 people stop by in a given day and get about $17, $18 worth of stuff on average,” he said. “It’s French and German, so it’s crusty sourdough bread. It’s croissants and big fat German pretzels. Those are fun. We have a ridiculous logo, a big fat German guy.” The Lillegards have recently begun operating using the “Great Game of Business” approach, an open-book management philosophy forged 30 years ago by workers trying to save their jobs when International Harvester was going down the tubes. “So, we’re really open with the numbers. We tell our staff every month what our numbers are, what we spent, and what we made.” So far it seems promising, but then everything looks so much easier in a book. —Beth Ewen founding editor bewen@upsizemag.com

www.upsizemag.com

HOW TO REACH THOUSANDS OF BUSINESS OWNERS TOO BUSY TO TAKE YOUR CALLS It’s tough getting in touch with business owners, especially when they’re hands-on managers of growing companies. That’s exactly who Upsize readers are. They run small, growing companies. They look to the how-to format for products, services and growth ideas, and they look to the ads for the means to achieve them. When you advertise in UPSIZE MINNESOTA, you’ll reach business owners and managers who are busy seeking the goods and services your firm can provide. For more information, email Andrew Tellijohn at atellijohn@upsizemag.com or call 612.827.5290

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exit planning

BUSINESS BUILDERS

Selling when price isn’t the main factor by Dyanne Ross-Hanson

TIPS 1.

Internal ownership transitions may give existing employees a chance to carry the founder’s culture on into the future, but such a strategy is unlikely to bring about the maximum financial return on the sale. To determine the best transition strategy, follow a defined process that starts with identifying what the owner requires, from a financial standpoint, to enjoy financial independence. Despite the likelihood internal buyer or buyers may lack capital for a traditional exit, there exist several formulas under which such transactions can happen. Consult advisers to help determine your best plan. An outside calculation of business value is essential for planning and will indicate if value enhancement steps are necessary or if the owner could retire now. Internal successor candidates may not be on board. Present a workable plan and hope they are but have a Plan B in case they aren’t.

Reality is that at some point, every business owner will experience an ownership transition. Demographics alone contributed to the wave of business transitions prior to the onset of COVID-19. On the pandemic’s heels, baby boomers continue to retire and transition ownership of their companies in record numbers. The pandemic only accelerated the trend as entrepreneurs take stock and pursue new life directions. For some, this newly gained perspective reinforces a commitment to pursue an “internal” ownership transition strategy — one that allows key employees, family members, coowners or a combination thereof to step into ownership, to experience the “American Dream” more fully. This is despite the perception that most owner’s ultimate dream is to sell for top dollar, for a 100-percent-cash deal, on their own timetable! In the exit planning field, we define this as a “pipe dream,” not a real “plan.” Those sorts of exits rarely occur. So why do business owners decide to put the “pipe dream” aside and turn their attention toward identifying an internal transition strategy? There are three primary situations, not inclusive, that tactically lend themselves to an owner pursuing an internal transition strategy. First, they have already determined and reached financial independence without need for any proceeds from the sale of their business. Statistics indicate only 16 percent of owners find themselves in this enviable position. Secondly, these owners have af-

UPSIZE JANUARY • FEBRUARY 2022

forded themselves the advantage of time. Time to explore, design and finally implement their exit strategy, important because internal transitions typically take five to 10 years to complete. During this time, the owner can stay active or not, while always retaining control of the company. And finally, internal transitions are often the result of owners recognizing that alternative strategies, i.e., an outside sale, are not feasible, either due to the size of their company, market demand and/or company readiness. Educating owners on the difference between a “lifestyle” and “transferable” business typically ensues. See article in Oct-Nov 2014 Upsize Magazine. Aside from the tactical reasons for choosing an internal transition strategy, there exist numerous emotional reasons that owners pursue this path. Owners often want to give their key performers the same shot at financial security that they have enjoyed. They want to reward key performers for helping them grow and build the business or are interested in motivating their team to help them build enterprise value. They may even be honoring a vague promise uttered along the way that “someday this will all be yours.” Or owners sometimes believe the only way to maintain a company culture is to transition ownership to individuals already working in the business — those who understand the values, customers, vendors, operating processes, etc., and that helped establish the business’s success. Whatever the reason, tactical, emotional or a com-

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bination, internal transitions have one major challenge to overcome … lack of capital. While recognizing, even accepting, that selling for maximum price is unlikely with an internal ownership transition strategy, short of giving it away, how can owners accomplish their objectives and still gain economic advantage for their life’s work? The most common internal exit strategies include the following: • Stock Bonus: Outright, restricted or deferred • Installment sale • Management buy-out/recapitalization • Two-phase transfer • Employee Stock Ownership Plan (ESOP) • Old company / New company (Oldco/Newco) While space limits an extensive review of each, suffice it to say that they all carry advantages, disadvantages and situational fits. The goal is to educate owners on their options, help them evaluate which best meet their unique objectives and risk tolerance and to formulate an intentional plan, in writing, directed by an action checklist. Where is an owner to start? In my experience following a defined process proves most advantageous and increases the likelihood of ownership transition success. Start with identifying what the owner requires, from a financial standpoint, to enjoy financial independence. This will be unique to each owner yet will drive the decisions made toward developing their exit plan. Next, identify whether a “gap” exists between financial resources, including the value of the company, and targeted financial need. An outside calculation of business value becomes

essential to begin planning efforts and will indicate if value enhancement is necessary or if the owner could retire now. Not that most will, but affirming financial independence proves extremely empowering to owners’ psyches. It may no longer be the case that they “have” to keep pushing, rather that they “choose” to keep pushing. Big difference! If value enhancing measures prove necessary to meet an owner’s retirement goals, multiple strategies exist. They will require time and investment. The next step is addressing the challenge of an internal buyer’s lack of capital or access to it. Devising a strategy that makes a purchase affordable while minimizing Uncle Sam’s mandatory share becomes essential. It can be done. It can be successful. Having a back-up plan in the event a triggering event causes ownership to change hands also is critical. The last thing most owners want is finding themselves in business with a deceased partner’s spouse, their offspring or legal representatives, particularly if they have little experience operating the company. Lastly, even with the best laid plans, internal successor candidates may not share the owner’s enthusiasm for assuming ownership in the company. The only way to confirm their commitment and risk tolerance is to present, in writing, a workable plan and hope that they are on board. In the event they politely “pass,” then it may be time to pivot to Plan B. Open the flood gates. Go for maximum price, negotiate the best deal and ride off into the sunset. Because for well-run and well-positioned companies there exists unprecedented investment dollars waiting for deployment within the mergers and acquisitions marketplace. The market can be described as “frothy.”

“ Start with identifying what the owner requires, from a financial standpoint, to enjoy financial independence. This will be unique to each owner yet will drive the decisions made toward developing their exit plan.” Dyanne Ross-Hanson Exit Planning Strategies

Dyanne Ross-Hanson is president of Exit Planning Strategies: 651.426.0848; drh@exitplanstrategies.com; www.exitplanmstrategies.com; https://www.linkedin.com/in/dyannerosshanson

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JANUARY • FEBRUARY 2022 UPSIZE

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franchising

BUSINESS BUILDERS

Readying your business for franchising by Jessica Johansen

TIPS 1.

Protect your name by having a legal adviser run a trademark search to determine the status of your name. If the search uncovers no conflicts, apply for registration with the U.S. Patent and Trademark Office. Systemize your operations and put those standards and procedures in writing so your franchisees can use them to assist their operations. Determine whether your vendors can service franchisees across the country. If yes, lock them into long-term contracts. If not, determine how your franchisees in other markets will be serviced. Figure out how you intend to raise the money necessary to assist multiple franchise owners open their versions of your business in markets countrywide. Make sure you are complying with federal disclosure laws and other legal requirements franchisors must adhere to in order to register as a franchise and make deals with franchisees.

Franchising is not for everyone. It requires time, thoughtful decision-making, money and commitment to your franchisees. Assuming you are prepared to franchise your business, here are five keys to readying your business for franchising. 1. Protect your name. Retain a trademark attorney to run a trademark search to determine if there are other users of your business’ name, and if there are, whether they have senior rights that will prevent you from expanding under that name. If the search uncovers no conflicts, apply for registration of your trademark with the United States Patent and Trademark Office. You can offer franchises before the trademark has achieved registration, but you should begin the process immediately because it can take 15 months or more to obtain the registration. 2. Start creating manuals for your business. You need to systematize your operations, but you also need to put your standards and procedures in writing. The manual is the “coloring book” that you will provide to your franchisees to assist them in operating their businesses. Your franchi-

UPSIZE JANUARY • FEBRUARY 2022

“ You need to systematize your operations, but you also need to put your standards and procedures in writing. The manual is the ‘coloring book’ that you will provide to your franchisees to assist them in the operation of their businesses.” Jessica Johansen Larkin Hoffman sees should be successful as long as they “color within the lines,” but you need to draw the lines for them and hold them accountable to staying within those lines. 3. Solidify your relationships with vendors. You likely have unique relationships with vendors, whether they are

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product vendors for retail stores, ingredient vendors for a food-related business or equipment vendors. Can these vendors service multiple franchisees in multiple markets? If not, think about how franchisees in other markets will obtain the benefits that you purport to offer them. If your vendors can handle this additional business, lock down your sources of supply with long-term contracts. 4. Raise money. It takes less capital to help 50 people open 50 businesses than it does to open 50 businesses yourself. However, it still takes significant capital to train and assist 50 franchisees. It also takes time and money to structure your franchise offering and

to sell franchises. Funding these initial costs from your current cash flow can be difficult and may put you in arrears with your suppliers and vendors. 5. Comply with franchise laws. Federal law requires you to prepare and deliver to prospective franchisees an extensive disclosure document before they pay you any money or sign any agreements with you. Minnesota and a dozen other states have laws requiring you to register that document before offering franchises. If you even advertise the availability of franchises before complying with these laws, you may have trouble registering when

you are ready to do so. If you fail to comply with these laws, your franchisees may also have rights against you if they decide they no longer want to be part of your franchise system. Thus, before taking the next step, consult with an attorney well versed in franchise law. Franchising is not right for every business. And the road to success in franchising is filled with potholes. However, if you plan ahead, understand what you are embarking upon, and have knowledgeable people assisting you, you could be the next success story in franchising.

Jessica Johansen, attorney at Larkin Hoffman: 952.896.3241; jjohansen@larkinhoffman.com; www.larkinhoffman.com.

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JANUARY • FEBRUARY 2022 UPSIZE

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human resources

BUSINESS BUILDERS

Defeating the ‘Great Resignation’ By Chelsey Paulson

TIPS 1.

Be curious. Dip into peoples’ psychology and figure out what makes them tick to design an authentic, healthy workplace. Employees want to be part of something that matters. Communicate the company’s purpose clearly and consistently and tell employees how they impact the purpose. Make sure your human resources efforts are a team effort. Have managers source their networks in search of the right people and help them expand what a qualified candidate looks like. Examine your culture. High turnover indicates you culture is lacking. Examine your culture and take immediate action on things hurting your work environment. Get involved with your employees in a deeper way. Work should feel like a valuable part of life that provides fulfillment beyond income.

The war on talent is real and it doesn’t look to be getting better any time soon. This workforce challenge has been a significant pain point for many business leaders. The answer to this issue is not simple or easy, and it’s certainly not found in the way we’ve always been doing things. The solution is multi-faceted and requires a people-centric approach with a healthy dose of curiosity and creativity. The facts According to a report published by McKinsey & Company in September 2021 more than 19 million people have quit their jobs since April 2021. Among the employees in their survey, 36 percent who quit in the past six months did so without having a new job in hand. Additionally, of those who were somewhat likely to leave in three to six months, nearly two-thirds would leave without a new job lined up. Now is a really good time to get curious. Why would a person leave a steady paycheck in the middle of a very seemingly volatile, uncertain, complex and ambiguous world? McKinsey & Company cited three top drivers for leaving:

UPSIZE JANUARY • FEBRUARY 2022

1. Not feeling valued by their organizations (54 percent) 2. Not feeling valued by their managers (52 percent) 3. Employees did not feel a sense of belonging at work (51 percent) Unfortunately, these reasons don’t appear to be where most companies are putting their efforts to retain and attract employees. Conversations around business tables and across industries are focused on pay and sign-on bonuses, continuing to favor years of experience and ability to work nights and weekends and preferences for primarily in-person work. Leaders are feeling desperate but not ready or always willing to adjust their expectations. What to do about it Curiosity is a requirement for today’s leadership. Curiosity is a superpower that helps us better understand the perspectives of others while opening our creativity to find new ways of doing things. Leaders need to show curiosity by dipping into the psychology of people and design an authentic and healthy workplace. Lead with purpose. Employees want to be part of something that

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matters, to feel they are adding value and contributing to bigger purpose. Leaders must first understand the purpose, or the why, behind the company. Then, leaders need to communicate the company’s purpose clearly and consistently to their teams and how each employee impacts the purpose. Human resources is a team effort. Managers must be involved in sourcing and recruiting because they know the work and the workers the best. Ask leaders to source their networks and support the company’s social media posts. Reach into the employee base and ask the same, help them be successful by giving them communication/position information to share. Help leaders expand their definition on what a qualified candidate can look like. When you start to look at the work differently you may find more qualified workers could be retirees, disabled, students, or those only interested in temporary hours. Capture your culture. If you have high turnover, it’s likely culture is lacking. Evaluate your culture to gain a realistic baseline and take immediate action on those things that are hurting the work environment. You can benefit from holding focus groups that include employees and leaders to gather the honest feedback you need. Ask powerful questions that give the insights you need, such as: • Where are we strong in our culture? What are the top opportunities for improvement? • Do you believe we have the right people in the right roles?

• Do you believe your manager values your work and contributions? • Do you feel a sense of belonging in your team? Within our company? • How can we improve our sense of community and belonging? Approach this evaluation with a beginner’s mindset and sense of curiosity, use empathy and be humble. Remember to strengthen and celebrate the elements that are going well as well as the opportunity areas. Build and strengthen relationships. To get your employees invested at a deeper level, you must get involved with them at a deeper level. Work should feel like a beneficial part of life that provides fulfillment beyond income. Think about relationship in three levels: employee, team, and organization. Put deliberate effort into building the essential skills of emotional intelligence at each level. Provide opportunities for employees to get to know one another on a personal basis (this helps build community as well). Encourage team leaders from across the organization to get together on a regular basis to boost departmental collaboration. Invest in mentoring programs that give exposure to the big picture functions that make the entire organization run. Are you ready to become a peoplefocused organization? It’s the future of work and it starts today.

“ If you have high turnover, it’s likely culture is lacking. Evaluate your culture to gain a realistic baseline and take immediate action on those things that are hurting the work environment.” Chelsey Paulson Keystone Group International

Chelsey Paulson is chief strategy officer at Keystone Group International: 952.666.2531; info@keystonegroupintl.com; www.keystonegroupintl.com.

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JANUARY • FEBRUARY 2022 UPSIZE

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mergers & acquisitions

BUSINESS BUILDERS

Navigating a business sale during COVID by Sam Thompson

TIPS 1.

The presence of an offer doesn’t mean a deal is done. Put the “pedal to the metal” upon receiving an offer so business results don’t slip, costing you a deal. Employee retention is among the most important issues involved in sales today. Buyers often request to meet key employees. If you agree to this, have them sign confidentiality agreements. Stay bonuses paid over time can also incent them to remain with the new owner. Supply chain issues are pushing current owners to increase their buys to ensure there are no shortages that would deter a potential buyer from following through. Watch product pricing closely to ensure inflation isn’t shrinking product margins. Buyers won’t want to see erosion as they enter a deal. Be prepared to discuss your recovery from 2020. Are you back to 2019 sales? Exceeding them? Are the increases sustainable? Being able to explain the sustainability of your recovery will help your case.

The business selling process can be a roller coaster of highs and lows that oftentimes finds business owners questioning their decision to part with their “baby.” They will have days when business is strong and they wonder why they are selling. Other days they can’t maintain employees and they are thankful to be moving on. I’ve found once an offer is made, usually with a non-binding letter of intent, sellers sometimes let up. They see the goal line and they don’t work their business as hard. Plus, the selling process pulls the owner away from running their business. History has shown that 50 percent of the transactions with offers actually close. There are many reasons why a deal doesn’t go through, one of which is the business numbers drop. Business owners need to put the pedal to the metal once an offer is made. The seller should anticipate anywhere from 45 to 90 days to close on a business once an offer is made and they commit to a buyer. This is the time when you need to make sure your employees are fully intact, inventory is healthy and your financials are trending up. Buyers will demand this. COVID-19 has added an extra element of difficulty to the challenging M&A closing process. Here are a few added obstacles selling owners are facing during the pandemic: Labor It used to be the first question buy-

UPSIZE JANUARY • FEBRUARY 2022

ers would ask is “why is the owner selling?” During COVID, the first question now is “how many key employees are there and will they be staying?” Employees are such an important part of the acquisition. Buyers are scrutinizing not only how important the key employees are to the business but also how difficult it will be to replace them should they leave. Oftentimes the selling business owner will try to maintain confidentiality by keeping the sale quiet from the entire staff, including key employees. With today’s labor market, buyers are insisting on meeting the key employees prior to the sale. If the seller agrees to this, they will want to have the key employees sign a non-disclosure agreement to maintain confidentiality. Stay bonuses used to come up on occasion pre-COVID. Now they seem to be a common discussion. Such a bonus is paid over time, as the key employee stays on with the new owner, and can be paid by the seller, buyer or both. If the selling business owner has done a good job managing their key employees while providing them the opportunity to actively participate in the growth of business, then there is a good chance they will embrace new ownership if they agree with the buyer’s business philosophy and if they feel growth opportunities exist. Inventory Every day we hear about the supply chain mess. Sellers are doing their

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best to maintain the inventory they’ve communicated to the buyer that they normally keep on hand. Buyers want to make sure when they take over that they have sufficient inventory to generate the revenue the seller has indicated the business can achieve. In the current environment sellers are increasing their inventory orders and spending more to make sure the inventory is in place for the buyers. If the business owner normally orders for three to four months of inventory, they now may need to up the order to five to six months. Inflation When a buyer analyzes a business, they pay special attention to the gross margins. They want to make sure the seller historically has been controlling costs and increasing prices as needed to maintain margins. Inflation is the highest it’s been since 1982. The consumer price index climbed by 6.8 percent in the year through November, as stated by the Star Tribune in December 2021. Selling business owners need to watch their margins closely. I had one owner tell me they normally review their product pricing every five years. In today’s COVID world five years needs to be five months or even sooner! Buyers don’t want to buy sliding margins. Valuations The value of a business typically includes a historical review of the previous three to five years. Including 2020, when many businesses were forced to shut down for weeks without any revenue can skew what is considered business as normal. Buyers understand that any business that was deeply affected by the 2020 shutdowns should not have as much weight put on the value of that challenging year. The key is to determine how well the business

has rebounded in 2021. If the business can achieve pre-COVID levels, then it should be valued at pre-COVID values. Now, if the business has navigated through COVID well, and actually is showing stronger numbers than preCOVID, the buyer needs to determine if such growth will continue post-COVID. We recently sold a home design manufacturing business and we had such a discussion. The question was “will the need for home offices stay strong into the future?” Finding opportunity COVID has created positive opportunities for many businesses. Those businesses that have been able to pivot and adjust their model have been able to attract buyers. We are working with a wholesale stationery business. Their retail customers dried up during COVID, so they put more energy into their online direct-to-consumer market. The company more than doubled its online sales and now that retail is back up and running, they have built a much more valuable company during a very difficult time. Another business operating as a retreat center on 76 acres found their business completely shut down during COVID. They never did re-open as a retreat center But after a nearly two-year search, a home developer emerged as an excellent alternative buyer. The selling process is normally a challenging time for business owners. The emotional uncertainty combined with the added obstacles created by COVID can put the stress meter off the charts. Yet business owners wallow in risk and always seem to get through it.

“ COVID has created positive opportunities for many businesses. Those businesses that have been able to pivot and adjust their model have been able to attract buyers.” Sam Thompson Transitions In Business

Sam Thompson is president of Transitions in Business and an M&A adviser and business broker: 952.405.8470; sthompson@transitionsib.com; www.transitionsib.com, samthompsoncbi on LinkedIn.

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JANUARY • FEBRUARY 2022 UPSIZE

OVERSEAS

EXPANSION Ample assistance available for exploring exporting

he human body doesn’t recognize items coated in carbon as foreign bodies. So, medical treatments that use such products often respond better to treatments because patients have fewer allergic reactions. The technology has been around since the 1970s, but St. Paul-based Carbon Medical Technologies has developed a line of products expanding said carbon coding into different areas, such as tissue markets used in breast biopsies. During company meetings a couple years back, the company began exploring whether there might be an opportunity to diversify by expanding through selling those products overseas. But while the company had done some sales previously in Europe, none of its 25 employees was an expert on how to make a more focused move into exporting. “I knew that those sales (existing) were still pretty minor and that there was an opportunity to grow into more markets internationally,” says Stephanie Kent, president and CEO. “I wasn’t sure where to start.”

Foot in the door

and decided to focus on a list of 10 countries, ultimately choosing Japan and Singapore as its first choices due to their advanced healthcare systems and prevalence of people who pass away from cancer. “That was just the start of the story,” Kent says. After picking her potential markets, she says her commercial services officer reached out to contacts at the U.S. embassies there. The embassy contacts set up meetings in those countries and facilitated research on those markets to see about competition and whether similar products exist there, and then helps pre-screen for legitimate distribution partners. “They come back with very transparent feedback on whether or not they think you have an opportunity there,” Kent says. “They won’t hesitate to tell you ‘This is a really loaded market and I’m not sure you’re going to find a niche.’ This is really helpful feedback to get when you’re unsure what is in that market.” “I don’t think I ever would have known that was an option for small businesses,” she says. “It’s been incredibly helpful. It’s so hard to know where to go and what to do and, the thought of moving into a new market, especially when there is a language barrier, can be really overwhelming.”

She got a referral from a contact she met through Medical Alley Association who suggested the U.S. Commercial Service. When Kent followed through, she was assigned a commercial officer and completed a questionnaire about the company’s plans. The office ran a report on the markets where Carbon Medical might have the strongest potential to succeed, investigated trade and Stephanie Kent, president tariff data and provided information about and CEO at Carbon Medical the healthcare market in several countries. Technologies Kent and her team took that information

Big benefit for small business

Through the process, Carbon Medical identified a potential distribution partner in Singapore. Company officials are in the process of negotiating a distribution agreement while, simultaneously, embarking on the six to 12 month process of registering its products, an area where its new partner can help.

by Andrew Tellijohn photographs by Tom Dunn

UPSIZE JANUARY • FEBRUARY 2022

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Carbon Medical Technologies has exported a few products to Europe but until recently had not poured many resources into international business

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COVER STORY A similar potential partnership in Japan fell through, so the company is still working on that market. But Kent is tremendously appreciative of the support she received in getting started with overseas growth. “It’s such a huge benefit to small companies who cannot afford huge headhunter types, organizations to go out and figure out who are potential partners for you,” Kent says. “Large companies can afford to go out and hire private organizations to help with these processes. I think they really, genuinely enjoy supporting the growth of small businesses that might not otherwise have any idea how to do this.” Erik Hinkie, chief information officer at Holmes Corp., went through this same process several years ago and he still utilizes the various resources available through the U.S. Export Assistance Centers, which is a federal agency under the umbrella of the U.S. Department of Commerce. Holmes Corp. designs, develops and distributes educational projects people use to prepare for professional certifications in several fields. It offers its services to both businesses and consumers and through distributors, which domestically would include colleges and universities. Internationally, Holmes Corp. uses a network of international education distributors, typically consisting of companies offering certification preparation classes, in several markets. It also partners with affiliates of other partner professional associations. The company began exporting to Canada in the early 1990s and overseas to markets like the Middle East starting in the late 2000s. It started with the opportunity to partner with a company based in Beirut, Lebanon. Hinkie says he prepared for a meeting with representatives by working with the government to get background checks to determine its legitimacy. “That was a critical step,” he says. “Here we are in the Minneapolis-St. Paul area and we don’t have any business currently in the Middle East. And we’ve got this company that could be a big

CONTACT: SANTIAGO DÁVILA is commercial officer with the Minnesota U.S. Export Assistance Center and U.S. Commercial Service Minnesota: 612.348.1639; Santiago.davila@trade.gov; www.trade.com/minnesota-mineapolis; LinkedIn ERIC HINKIE is chief information officer at Holmes Corp: 651.905.2606; erikh@holmescorp.com; www.holmescorp.com. STEPHANIE KENT is president and CEO of Carbon Medical Technologies: 651.653.8512; info@carbonmed.com; www.carbonmed.com; Carbon Medical Technologies; Linked In MICHEL LOCQUEGNIES is president of Mark-Tech International LLC: 612.836.3566; michel@mark-tech-intl.com; www.mark-tech-intl.com 16

UPSIZE JANUARY • FEBRUARY 2022

partner for us. Obviously, we were wanting to make sure that this is an upstanding business.” Exporting has become the source of about 35 percent of the company’s revenue and, as such, it has gotten better at leveraging its own resources, including established relationships with international partners, to do some due diligence. But Hinkie also calls on folks at the Commercial Service, an agency of the Export Assistance Center, and the U.S. embassies in its export markets.

Due diligence and use of resources

Exporting, Hinkie acknowledges, is not without significant challenges. Regulatory requirements differ in every country. Documentation issues in many markets, such as India, are becoming increasingly rigorous. Some markets, including the European Union, have tax collection requirements. Companies looking to do business overseas need to study what those requirements will mean to them before proceeding. But it’s also important to note that 95 percent of the world’s consumers are outside the United States and international business can provide huge growth opportunities. “It does require some due diligence, but there are great resources to get there,” he says, adding that it has been a great move for Holmes Corp. “We just realized there’s a big opportunity for us to broaden our reach and diversity of revenue,” he says. “The U.S. market may be on a downturn, but we still have significant revenue coming in from international markets. So, it’s been a great way for us to diversify our revenue and insulate us from ups and downs in local markets.” Santiago Dávila, commercial officer with the Minnesota U.S. Export Assistance Center, says his organization’s focus is on helping small- and medium-sized businesses succeed overseas. “That’s where I enjoy my job the most is when we can take a small company that has a good product or good service and we can expand their international market presence,” he says. “We are kind of a knowledge broker, an information broker, and most of the time what we’re doing is we’re redirecting small businesses to information they need in what we call the ‘export journey.’” A successful approach starts with being proactive. If approached by someone about an overseas opportunity, he says, look at organizations like the Minnesota Department of Employment and Economic Development (DEED), which offers grant programs and other financial and technical assistance to qualifying businesses that want to work in foreign markets. Conduct a self-assessment. Ask if your business is ready. Do you have the capacity? Is your web presence right? “A web presence is actually very important because if you have a good website, as a small business, just doing a few improvements or tweaks to it, you might be able to start processing credit payments overseas or you might be able to translate key pages into other languages to further your reach,” Dávila says.

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After that, they should start developing a network of local resources that can help. That should include the U.S. Export Assistance Center, which can provide information about financial programs, connect small business owners with potential partners abroad that can help navigate rules and the sales process abroad and, in the case of embassies, provide background checks. Businesses also could consider attending international trade shows to market their product or service and find potential customers or partners, Dávila adds. Build up a rolodex, he says, of partners who know your desired international markets and can make sure you are proceeding in a legitimate manner. “The export process is extremely complicated,” Dávila says. “But if you follow the different steps, you should be safe. … We kind of act like a little bit like an information and knowledge broker and we always say to think of the Export Assistance Center as one tool in your toolbox.”

Private sector partner

Another option if you’d prefer to largely hand off your international market work, would be finding a private sector partner who would consider signing on as your agent. Michel Locquegnies, president and owner of Mark-Tech International LLC, says anyone in business can export, though not everyone should. It takes an innovative product and some moxie. “It has a lot to do with the ambition and the drive of the owner, but also the product itself,” he says. “I think that this country is pretty good at coming up with innovative, creative products, whether they’re brand new or just a better mousetrap.” He’s used the Export Assistance Center many times himself over several decades. But after 30 years of working for specific companies, he started his own business about six years ago with the specific aim of helping small companies expand their sales, both domestically and internationally. He does so by offering up

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Several sources have helped Carbon Medical Technologies navigate international exporting rules as the company attempts to expand utilization of its carbon-based implant products around the world

his own services in a hands-on way, often when it’s too early for those businesses to hire someone full-time. He works on setting up the right sales channels, building relationships and helping determine plans. He’ll attend and work the sales floor during trade shows. “We do very individualized services for clients,” he says. “I might not have their specific industry experience, but I know where to look for things and how to do things. I can do that sort of thing for a client, just do the research for them. I can also do it where I’ve done trade shows for clients in places like Europe or Japan and other places. Part of my service is to actually become the person or part of the sales team.” Exporting, he says, typically starts with a single inquiry. The company might be able to figure out how to handle a single order, but as additional orders come in, they need to formalize the process. “You’ve got 95 percent of the rest of the world that could be a potential customer for you,” Locquegnies says. There have been times where he’s warned companies off of becoming an exporter. But if there is some creativity to their product line and some willingness to put the time and effort in to doing it well, there are more opportunities than ever. “The world,” he says, “has shrunk significantly in the last, say, 10 to 15 years compared to the way it was.”

JANUARY • FEBRUARY 2022 UPSIZE

PREPPING FOR A DEAL After a COVID lull, M&A activity burning into 2022

ormally with a lot of snowbirds vacationing in Florida after the holidays and into the early months of a new year, activity related to mergers and acquisitions doesn’t start picking up in Minnesota for Lingate Financial until they return. But already at the tail end of 2021 and trickling into 2022, the company has helped close on two sales, has another business that will be taken to market in late January or early February and another three internal transitions on which it is helping with valuation and deal structure. “We’re already seeing companies going to market that started the third and fourth quarter last year and are now executing,” says Greg Loeschke, managing principal, adding that a lot of the companies that are starting to move have been held onto by owners who could have

sold and retired or moved on several years ago but for various market reasons held onto ownership and have now survived and recovered through the COVID-19 pandemic. “We’ll probably see a period here the next two or three years that will see companies going to market that took different timelines to get to the same point.”

Pandemic, supply at play

The market is starting to feel a little like it did coming out of the recession in 2009 and 2010, he says. Just like now with COVID, some companies thrived during the recession and others took some time to recover before getting ready to move. So, given the time it takes to prepare to go to sale, observers say that indicates activity could be strong for the next couple years. “We’re already seeing companies going to market that

by Andrew Tellijohn

UPSIZE JANUARY • FEBRUARY 2022

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FEATURE “If you are an owner-operator, if you’ve got a good management team in place, values are higher because the buyer isn’t beholden to the owner-operator.”

— Jon Schindel, SchindelSegal

started the process in the third and fourth quarters of last year and now we’re executing,” he says. “And already we’re getting initial inquiries, starting to have conversations with business owners that want some idea of value and what the market is like.” While the process, once started, typically takes six to nine months, Loeschke has been seeing some acceleration due to the pandemic and uncertainty around interest rate stability. “Because of the number of companies that were negatively impacted by COVID, there’s a lot fewer companies in the market,” he says, adding that there are a lot of buyers of all types chasing the smaller count of available businesses. “I think there’s some interest in buying groups where if they are interested in making an acquisition, to try and move as quickly as possible.”

Readying your company

Loeschke says buyers will want several years of financial statements. He suggested getting them audited or, if not, at least prepared by an outside accounting firm. Businesses should also be keeping an eye on their cost of goods sold and administrative expenses and getting their record-keeping in order. And they’ll need all their advisers assembled and on board ready to help. “The best advice I can give … ahead of you starting the identification process as far as prospects, would be to make sure that they’ve got their team put together that is going to help them,” Loeschke says. Jon Schindel, a partner and attorney at SchindelSegal, says there is a lot of money from all sorts of different buyers out there waiting to be spent on acquisitions. He worked with an investment banker throughout 2021 who was looking to sell. Early conversations had a likely deal in the low-to-mid $30 million range, but when they finally closed with a different buyer in October, the price

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reached $38 million. “Buyers are paying high from what I’ve seen,” Schindel says. “There’s lots of money out there in the [private equity] sector and not a lot of places to deploy it. Private equity firms looking to buy are having to overpay a little bit and they are doing so.” That mirrors what observers say the national market has looked like over the last year and change. To date, the market has acted favorably for sellers. Takeover targets in 2021 went for a median price of 16.2 times their earnings before interest, taxes, depreciation and amortization, according to Bloomberg Businessweek. That was in a market where U.S. companies were involved in $2.5 trillion worth of takeovers, well surpassing the previous record set in 2015 of $1.96 trillion. The total deal count was two-thirds higher than in that year and, according to the publication. With that in mind, local observers say, a lot of companies that came through COVID in sufficiently good shape with owners who are considering their succession plans are starting to move quickly. So, how can you take advantage and maximize your sale price? Schindel echoed Loeschke’s plea for business owners to get and keep their financial statements in strong working order. Two more big steps sellers can take to improve their chances of a strong sale are signing big customers to long-term contracts to ensure they stay after a deal is completed and minimizing their own importance to the business by ensuring the company has a great management team in place. And that takes time. “You’re not going to hire a good management team overnight,” Schindel says. “Your financials are not going to change overnight. … If you are an owner-operator, if you’ve got a good management team in place, values are higher because the buyer isn’t beholden to the owneroperator. They’re not relying on that. The more you can

JANUARY • FEBRUARY 2022 UPSIZE

FEATURE “Valuations are up. Buyer activity is up. Interest rates are down. Banks are lending. The SBA had some great programs in place last year to help buyers. So, it was just kind of a perfect storm.”

— Peggy DeMuse,

Sunbelt Business Advisors

do to convince a buyer that the business isn’t relying on one single person for its success, the better.” He also suggests owners be able to explain any blips on financial statements -- positive or negative -- associated with COVID. If revenue jumps, as they did for a dock manufacturer and installer he worked with that enjoyed a good 2020 when COVID drove families to the lake, the company must be able to explain why the increase is sustainable and not a blip. “If you are a seller, I think you have to have a strategic plan to maintain, whether that’s broadening services you offer or having a price increase,” he says. “Show you have something in place, that it’s not just luck.”

Explain interruptions, build talent around owner

Ben Hangge, a vice president and commercial banker with Highland Bank, is optimistic, though also a bit more cautious about the M&A market due to uncertainty around currently existing macroeconomic factors such as the omicron variant of the COVID-19 pandemic and ongoing supply chain interruptions. But he, too, thinks this should be a strong year for deals. He works primarily with buyers and he reiterates the availability of capital. “We certainly saw the purchase price multiples go up in 2021, which can be good or bad depending on what side of the transaction you are on,” he says. There had been the potential for buyers to get some deals on companies up for sale due at some level to fiCONTACT: nancial statement disruptions, such as supply issues or labor shortages. Sell-side advisers have done a great job PEGGY DEMUSE is a business broker with Sunbelt lately, he says, of explaining those situations, thus leading Business Advisors: 651.288.1627; to fewer discounts. pdemuse@sunbeltmidwest.com; He says buyers will see some opportunities to acquire www.sunbeltmidwest.com businesses that were doing well where owners had minimized their involvement in daily activities until the panBEN HANGGE is a vice president and commercial demic made that more difficult. “It’s made many sellers banker with Highland Bank: 952.858.4741; reprioritize and we have seen more businesses come on ben.hangge@highland.bank; www.highland.bank. the market because of it,” Hangge says. There also will be opportunities for buyers to look for GREG LOESCHKE is managing principal at Lingate businesses where there is low-hanging fruit for improveFinancial Group: 763.546.8201; ment. gloeschke@lingate.com; www.lingate.com. “Target businesses with clear areas for improvement, such as businesses with no marketing plan or no sales JON SCHINDEL is an attorney and partner at team or businesses that could benefit from [enterprise reSchindelSegal PLLC: 952.358.7400; source planning] implementation,” he says. jschindel@schindelsegal.com; www.schindelsegal.com. For sellers looking to maximize the price of their sale, they can focus on reducing customer concentrations, en20

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FEATURE “I just hope there’s not any negative macroeconomic event that happens. That’s the only thing that could hold 2022 back.”

— Ben Hangge HIghland Bank

sure that businesses can operate at full capacity without the seller and explain and document add backs or adjustments to EBITDA. An EBITDA north of $3 million will get private equity firms interested in the business, Hangge adds, creating a larger pool of buyers. “Typically the price gets bid up a bit through that process,” he says. “I just hope there’s not any negative macroeconomic event that happens. That’s the only thing that could hold 2022 back.”

Start early, plan what’s next

Peggy DeMuse, a business broker with Sunbelt Business Advisors, says the M&A market was fired up even before COVID hit. While the pandemic will still create uncertainty, she says the youngest of the baby boomers are now reaching 65 and some of that uncertainty will likely start pushing more people toward being done with business ownership. “I think there were definitely people that had been thinking ‘You know what, it’s been good, now it’s probably time for me to go out and move along,’” she says. “Valuations are up. Buyer activity is up. Interest rates are down. Banks are lending. The SBA had some great programs in place last year to help buyers. So, it was just kind of a perfect storm.” Potential buyers, DeMuse says, should spend some time figuring out what type of business they might enjoy running. It’s common to look at many before making a move. They also should get financing in order. A typical loan with the U.S. Small Business Administration will require a 10 percent to 15 percent down payment. Arrange for a cushion so you’ve got money to operate the business, she adds.

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“Every once in a while we get a call from someone who says they have $10,000,” she says. “You just can’t buy a business for $10,000.” On the sell-side, those with an inkling that their workdays may be coming to a close, she suggests getting started with planning early. Sit down with advisers who can help determine the company’s value and talk about any changes that could be made to drive more. “Often people are surprised,” she says. “The better prepared you are by having some initial understanding of how a business like yours is valued is important. And if you are ready to go and understand the value and are happy with that, there is a whole process.” Finally, DeMuse adds, if you’re going to sell your business take some time to figure out what the rest of your life looks like. Too many don’t and it can make for a difficult transition. “It’s a very important part of the process,” she says. “It’s something sometimes people don’t think about, and it is definitely something you should. Ideally, you have a plan in place. You’ve been working on this, you’ve been saving your entire life, you’ve been building your business all your life. What is your plan for when you don’t want to work anymore? What is it you want to do? Having a plan in place is important.”

JANUARY • FEBRUARY 2022 UPSIZE

catching up by Andrew Tellijohn

Kruckeberg still busy despite maximizing Minimizer sale

raig Kruckeberg’s father was a truck driver and his own post-high school schooling consisted of nine months in culinary school. When they were running Spray Control Systems Inc., known better as Minimizer, together, each would celebrate successes with “Not bad for a truck driver” and “Not bad for a cook.” Turns out, their backgrounds were perfect for teaming up on a fast-growing truck accessories company. Craig’s father founded Spray Control Systems Inc. in 2004 looking to minimize spray from big rigs on the highway. Kruckeberg took over and by 2013 was the Upsize Business Builder of the Year for his efforts leading the company through fast growth in a disciplined manner. By then, the company’s marketing budget alone was $1.6 million and its 2015 sales goal approached $60 million. Throughout the early 2000s, the company was growing more than 25 percent annually. They were so successful, in fact, that by a few years later, Kruckeberg entered the Upsize Growth Challenge in 22

“because they bought a brand,” he says of the company’s new owners. “It was a brand and a distribution model. They didn’t buy a manufacturing company.” That brand was built through marketing, one lesson he learned with Spray Control Systems. “If you cut through your budget, marketing is the last thing you cut,” he says. “Advertising is the last budget you cut. That’s the first thing everybody wants to attack.” What now? So, why sell? He’s not 100 percent sure himself. “I walked in to my CFO’s office for no particular reason and asked what he thought we could get for the company,” he says. “He Craig Kruckeberg, CEO and owner of gave me a number. I said ‘I could Stinar Corp., was Upsize Business Builder make that work.’ ... I just at that moof the Year in 2013. ment said ‘let’s sell it.’ He looked at me and said ‘You want to talk about search of advice on managing growth it?’ and I said ‘We just did.’” — he thought it was out of control So, what is keeping Kruckeberg and he described himself as “scared busy now? Just as he was selling to death.” He added a CFO following Minimizer, he was the debtor-inthe contest who restored order. possession running Stinar Corp. out In September 2018, Kruckeberg of bankruptcy. Or, as he puts it, “We sold Minimizer in an eight-figure deal make the presidential stairs Biden he says exceeded expert expectations falls up.”

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Initially he was buying the company to integrate some of its equipment and people into his existing company, but when Minimizer sold as fast as it did, he found himself running Stinar shortly thereafter. “We really didn’t have time to think about it,” he quips. “This wasn’t the plan. I’m supposed to be on a beach right now partying with Charlie Sheen.” At the same time, he says it was probably good that he immediately had a new challenge. He acknowledges he’d probably be driving his family nuts, especially one son who owns a local print shop in Blooming Prairie where both live and work. “God knew I needed something to do. And my wife did,” Kruckeberg says. “We were fortunate because Stinar gave me something to do.” It has been a challenge. The company was two years behind in delivering past orders and was selling much of its product at a loss. Its systems were antiquated, and the company was having problems with one of its products that would react one way when inside a 60-degree building but another when it was subjected to below-zero temperatures. He wasn’t sure immediately if the company could be saved. But he went to work with his team www.upsizemag.com

and started solving problems. They found a new part that fixed the thermal expansion problem. Stinar spent a couple years catching up, honoring past deals while working to diversify a business base that at the time of acquisition was too reliant, he says, on government contracts. He also moved the company to Blooming Prairie when his old shop, which he still owned, became available. That also allowed him to work with some local suppliers he knew, replacing others from the metro area where he was struggling to make a connection. Kruckeberg acknowledges not being a traditional CEO. He’s not much for meetings, preferring to get his hands dirty on the manufacturing floor solving problems. “I’m tactical,” he says. “I love the plant floor, that’s where things happen, that’s where cool stuff happens. Once I hired a great management team for Minimizer, I got bored. I’m a plant floor guy and I was off the floor for a bunch of years.” And while he’d rather be crossing tasks off a checklist than sitting in his office, he also has a curiosity about business and ability to communicate with peers about challenges they face that helps him learn and solve problems.

Craig Kruckeberg, who bought Stinar Corp. out of bankruptcy, thinks a diversified customer base will help stabilize the manufacturer of ground support equipment for aviation

“I came from the plastics world,” he says. “I didn’t know about hydraulics and wiring and this and that. But business is business is business. I don’t care if you sell stairs, advertising, insurance. You all have HR, you all have payables, you all have balance sheets. It’s just a different widget. So, if you’ve done it once, you can do it again.” Other interests And after a couple tough years, he says the company is close to being straightened out and ready to start improving its financial situation. His “build book” is full and he’s taking orders, both from the government and private sector commercial aviation. He also owned the popular Minneapolis bar Lee’s Liquor Lounge for a few years before it closed. He continues to own Kruckeberg Industries, a holding company JANUARY • FEBRUARY 2022 UPSIZE

catching up

Craig Kruckeberg, owner and CEO of Stinar Corp., bought the struggling company out of bankruptcy. After a couple tough years, he thinks the comStapany is on the right track.

Stinar LLC Description: Manufacturer of ground support equipment to the airline industry Headquarters: Blooming Prairie, MN Founded: 1946 Owner & chief executive: Craig Kruckeberg Employees: 11 Website: www.stinar.com

started in 2013 several acquisitions (including Stinar), and he runs the Bandit Series of big rig truck races he started as a marketing effort while running Minimizer. He’s a founding member of Leo Augusta Children’s Academy, which supports

children in learning life skills. And he’s written a book covering some lessons learned over the years. He says you must make good hiring decisions, knowing when to start adding people, especially early. “The first employee is going to be the hardest employee to hire. You’re going to do so much due diligence before you hire them,” Kruckeberg says. He also preaches patience. Business owners need to be ready for a lot of grunt work before hitting it big. “If success comes overnight, you’re going to jail,” he says. “We have a few examples in Minnesota. It just doesn’t happen. You gotta grind it out, you gotta do your thing. Everybody looks at Bezos and Gates. Those are outliers.”

“ If success comes overnight, you’re going to jail. ... You gotta grind it out, you gotta do your thing. Everybody looks at [Jeff] Bezos and [Bill] Gates. Those are outliers.” — Craig Kruckeberg,

Stinar Corp.

Craig Kruckeberg is CEO and founder of Kruckeberg Industries and CEO of Stinar Corp.: 507.572.2031; craig@kruckebergindustries.com; www.kruckebergindustries.com 24

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At Crown Bank, we want to be partners in your possibilities. Because possibilities are what the future is made of. From something as personal as growing your savings, to something as big as growing your business, our bankers and staff have the expertise and energy to partner with you to make that happen.

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Through the Certified Exit Planning Advisor (CEPA) credential, the Exit Planning Institute provides professional advisors with the content, tools, and training needed to gain more access to business owners, strengthen relationships, and become the most valued advisor.

Winthrop & Weinstine is a business with a deliberate culture of enterprise and fresh thinking. Our clients have big ideas, and our lawyers help turn those ideas into successful businesses. We represent clients in the early stages of their business in matters such as entity formation, capital raising, employment matters, vendor and customer agreements, and others. We provide counseling as your business grows, and work closely with clients to smooth the path to success.

LEADERSHIP DEVELOPMENT Prouty Project 6385 Old Shady Oak Road, Suite 260 Eden Prairie, MN 55344 952.942.2922 | www.proutyproject.com Kari Baltzer | stretch@proutyproject.com Our leadership development engagements and cohort-based leadership programs – Prouty L3 and Prouty i•will – link behavior to team performance in your workplace through the lenses of Leading Self, Leading Others and Leading the Business. We focus on STRETCHing participants to lead business within internal and international divisions. Give us a call or stop by.

John Thwing The SBA Guy

Show Content • Best Practices to Grow Enterprise Value • Business Owners Share their Exit Stories • Learn what it takes to exit on your terms! • Guests share need-to-know advice for lucrative outcomes • Episodes are all under 30 minutes Subscribe on Apple, Spotify, Google, iHeart, Stitcher

Sponsorship Opportunities!

With over 30 years in the industry, John Thwing, SVP Head of Lending, locally known as the “The SBA Guy” is a recognized Twin Cities lender that entrepreneurs know and trust.

Specializing in: Owner-occupied Commercial Real Estate Business Acquisition Expansion Partner Buyout Franchise Construction Financing 612-505-9751 sbaguy@21stcb.com 43 Main St. SE Suite 144 Minneapolis, MN 55414

Download episodes and order the book! https://www.poisedforexit.com/ www.upsizemag.com

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JANUARY • FEBRUARY 2022 UPSIZE

UPSIZE RESOURCE DIRECTORY MERGERS & ACQUISITIONS Lingate Financial Group

SBA LENDER Highland Bank

SBA LENDER Sunrise Banks

7575 Golden Valley Road, Suite 100 Minneapolis, MN 55427 763-546-8201 www.Lingate.com Greg Loeschke — Managing Principal

Troy Rosenbrook, President | 952.858.4810 Kim Storey, SBA Lending Manager | 952.858.4590 952.858.4888 | www.highland.bank

David Reiling, CEO Phone: 651.265.5600 www.sunrisebanks.com Sunrise is headquartered in St. Paul, MN, and has four retail banking branches located in the urban core of Minneapolis and St. Paul. Its primary business lines include: Commercial Lending and Leasing, Relationship Banking, Treasury Management, Prepaid Cards, Fintech Partnerships, New Markets Tax Credits, and Small Business Administration Lending.

Founded in 1945, Lingate Financial Group is a leading provider of lower middle market merger & acquisition advisory services, representing privately held businesses of all types with revenues of $5 – 50 million. Lingate helps business owners with market-based valuations, business sales, mergers, acquisitions, recapitalizations, and internal transitions among family members, partners and management. We get deals done.

Founded in 1943, Highland Bank is focused on small business lending and is an SBA “Preferred” Lender, making us uniquely qualified to help your business obtain the financing it needs expeditiously. Work directly with the decision-makers who will treat you like a business partner. Member FDIC.

Member FDIC

PUBLIC RELATIONS Bellmont Partners

SBA LENDER 21st Century Bank

STRATEGIC PLANNING Prouty Project

3300 Edinborough Way, Suite 700 Edina, MN 55435 Brian Bellmont, President 612-255-1111, info@bellmontpartners.com www.bellmontpartners.com

2335 Highway 36 W Suite 202 Roseville, MN 55113 612-372-2178 • www.21stcb.com

6385 Old Shady Oak Road, Suite 260 Eden Prairie, MN 55344 952.942.2922 | www.proutyproject.com Kari Baltzer | stretch@proutyproject.com

Bellmont Partners helps growth-focused Minnesota organizations solve complex challenges. Our experienced communications strategists generate results that build brands, drive engagement and support business objectives.

GROW OR DIE Move your business forward with investment capital generation, deep-level network connections and strategic refinement consultation from Brimacomb and Associates. We partner with emerging companies and professional services firms to offer unparalleled access to professional resources, executive suites and financing sources.

www.brimacomb.com 612.803.3169 • rick@brimacomb.com

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At 21st Century Bank, we know what it takes for businesses to survive, grow, and prosper in today’s market. For over 100 years, we have been your community partner. A family-owned bank, with expertise in all SBA and conventional lending programs covering all stages of your business. We tailor solutions that respond to your unique business and banking needs.

We start with a blank sheet of paper to elevate your clarity on vision and purpose, create alignment in your strategy to achieve your vision and gain commitment to execute. What are your “market, product/service, people, and financial” strategies over the next 1-5 years? Can you articulate your strategic plan on one page? Join us in our Creative Think Tank to stretch your thinking and ignite your creativity.

TIME TO SELL?

Year after year our closing record is 100% above the industry average Increase your odds of selling your business with Transitions In Business

Contact Sam Thompson, CBI, M&AMI 29 years as business owner and 9 years selling businesses sthompson@transitionsib.com • www.transitionsib.com 952-405-8470

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UPSIZE RESOURCE DIRECTORY TRANSITION PLANNING KeyeStrategies

WEALTH MANAGEMENT JNBA Financial Advisors

Minneapolis, MN Keyestrategies.com 763-350-5563 Julie Keyes, Founder/CEPA

8500 Normandale Lake Blvd., Suite 450 Minneapolis, MN 55437 952.844.0995 www.jnba.com Cärin Viertel, Director of Client Services

“KeyeStrategies LLC advises business owners in Transition and Exit Planning. Julie Keyes is both a Certified Exit Planning Adviser (CEPA) and Value Growth Adviser. She is also a faculty member for the Exit Planning Institute’s Global organization and President of its local Chapter.”

Being a small business we understand the needs of small business owners. And with 40+ years of experience in providing conflict-free advice, our proactive and integrated approach allows our multi-generational teams to put clients first when delivering customized financial life planning and investment strategies to help maximize their resources.

venture capital Brimacomb + Associates

WORKPLACE WELLBEING R3 Continuum

TCF Tower, Suite #1600, 121 South Eighth St., Minneapolis, MN 55402 612-803-3169 * www.brimacomb.com Rick Brimacomb, rick@brimacomb.com Chief Strategy and Relationship Officer

7825 Washington Ave. S., Suite 500 Bloomington, MN 55439 R3c.com 866-927-0184 toll free

Results-oriented advisory firm with unparalleled access to executive suites and financing sources. Emerging companies and established professional services firms rely on our depth of knowledge and deep-network connections to grow client lists, assemble project resources and secure new sources of funding.

R3 Continuum (R3c) is a global leader in workplace behavioral health, crisis, and security solutions. We help enhance workplace behavioral health and performance, speed recovery from disruption, and maintain safety and security on all levels, with our best-practice, human-centered, and technology-enabled continuum of solutions.

EXIT PLANNING: Directing the Process! Have you determined: When you want to leave your business? To whom you want to transfer your business? What your business is worth? How “Inside Buyers” are going to finance a purchase? Your “back up” plan should the unexpected happen?

e. drh@exitplanstrategies.com w. www.exitplanstrategies.com p. 651 426 0848

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Hennepin County looks to Elevate Business by Andrew Tellijohn

any Twin Cities businesses have disappeared the last two years, victims of the COVID-19 pandemic or destroyed by rioting in Minneapolis. Others have gotten help in recovering, some from a program created jointly by Hennepin County and the Minneapolis Regional Chamber of Commerce. Elevate Business HC launched in May 2020 with the goal of matching business owners with a collection of experts who can help them with issues ranging from financing to marketing. While born of difficult times, Elevate Business has grown into a program aimed to help diverse businesses grow well into the future. Patricia Fitzgerald, director of economic development at Hennepin County, visited with Upsize to discuss the program. Tellijohn: Please describe how Elevate Business helps small business owners? Fitzgerald: Elevate Business is a program that provides small businesses in Hennepin County an online one-stop shop where they can search for specific expertise and connect with any of over 20 business advisers for free consulting that meets their interests. Business advisers with diverse backgrounds include a range of specialized legal, financial, marketing and even IT professionals that provide culturally competent services in a variety of languages. The program was created to tackle challenges faced by small businesses stemming both from COVID 28

left: Patricia Fitzgerald, Hennepin County; this column: Florence Karp, Chef-Flo K Foods; right: Vanessa Drews, Cheesecake Funk

and racial injustice. So far, more than 700 businesses have accessed free services, and over 1,000 have registered. Tellijohn: Who is eligible for assistance through the program? Fitzgerald: Any business owner in Hennepin County with a commercial or home-based location can participate in Elevate Business. Additionally, residents of Hennepin County that need guidance on how to start a business in Hennepin County may also access no-cost business advising through Elevate Business. Tellijohn: This came about through COVID — what’s the future of the program once we emerge from the pandemic? Fitzgerald: While the program began with pandemic response centered services, those services have expanded and are centered around providing business

UPSIZE JANUARY • FEBRUARY 2022

support that will help businesses thrive long-term, beyond the pandemic. Accessing funding, finding affordable commercial space, and navigating licensing and permitting are common issues business owners seek to address through Elevate Business. Others are looking to up their online presence, seek support to launch new social media marketing efforts or mentoring support to talk thru new opportunities and options. Elevate is intended to survive past the impact of the pandemic as a long-term business support strategy. Tellijohn: How can people find out more about Elevate? Fitzgerald: Businesses can learn more about Elevate on our Hennepin County program page: https://www.hennepin. us/economic-development/programs/ Elevate-Business-HC Businesses can sign up for Elevate Business and browse services on our online portal: https://startupspace.app/hub/ ElevateBusiness To get the latest updates on the program, people can connect with Hennepin County on LinkedIn or sign up for our business support newsletter Contact: Patricia Fitzgerald is director of economic development at Hennepin County: economic.development@hennepin.us; www.hennepin.us/elevate; www.linkedin. com/showcase/hennepin-county-economicdevelopment

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This is a great time to list your business for sale It continues to be a seller’s market. If you’ve ever considered selling your business, now is a great time to better understand what your business is worth. Get a free, confidential value range analysis started today. Easy. Confidential. No obligation.

Contact this Sunbelt Business Advisor team today.

Peggy Demuse

Lisa Meyer

Business Broker

Cell: 612-730-8921 Direct number: 651-288-1627 email: pdemuse@sunbeltmidwest.com

Cell: 612-801-2299 Direct number: 612-361-4918 email: lmeyer@sunbeltmidwest.com

Minnesota’s Largest Seller of Companies Office Address: 1300 Godward St. NE, Suite 6000 | Minneapolis, MN 55413