cott Whitt needed to pivot.

He’d had a great career as a management consultant with Deloitte.

30 years of experience in the healthcare industry.

Made partner.

Had a great salary.

But he saw the ceiling in his corporate future. The likelihood of getting beyond his current level was slim, and it would require at least another decade.

More years of weekly plane travel.

More years of the threat of being put out to pasture.

So in 2011, he and his wife decided they would acquire a business.

“With my own business, there is nothing but upside.”

Owning their own business would keep Scott off the road.

It would be more fulfilling.

And it could be even more lucrative than management consulting.

As Scott saw it, “With my own business, there is nothing but upside.”

Multi-Year Search

Scott started his search in 2011 by signing up for listings on sites like BizBuySell.

When he saw an interesting business for sale, he’d reach out to the broker.

If that conversation went well, he’d talk to the seller.

“It was pretty haphazard, honestly. If I’d done a structured search, maybe something would have come along sooner.”

But Scott did have clear criteria.

“We did manage our lifestyle, but we had kids in college, and I had a BMW fetish at the time. (Gone now, by the way.)”

He wanted a business in healthcare to leverage his expertise, not to mention the ever-ballooning healthcare market in the U.S.

“When I started in healthcare 30 years ago, it was 8 percent of GDP. Now it’s 14. In another couple decades it’s going to be 22-23 percent of GDP.”

The business also had to be stable, with a multi-year track record.

It had to have good margins.

And it had to throw off a good amount of cash.

There would be financing costs, compliance costs (always high in healthcare), and the costs of inevitable mistakes upon taking over a business.

He also had a more expensive lifestyle than a scrappy twentysomething entrepreneur.

“We did manage our lifestyle, but we had kids in college, and I had a BMW fetish at the time. (Gone now, by the way.)”

As for price, Scott knew he and his wife could afford $2.5 million (using financing) without taking outside investors.

A Good Fit (Finally)

Eventually a clinical trials business in Greensboro, North Carolina, came up for sale.

Triad Clinical Trials was generating 70 percent margins on about $850,000 in annual revenue.

Running a clinical trial at Triad
Running a clinical trial at Triad

“I thought, with 70 percent I have some time to figure stuff out and make some mistakes.”

Great margins, yes, but there was plenty not to like about the business too.

A physician’s assistant had started it, and while she’d built a great brand and hired strong key staff, her frugality had handicapped the operation.

It couldn’t scale.

Payroll was done by hand.

No website.

There were quality issues with low-level staff because she hired cheaply.

But Scott wasn’t put off by these shortcomings.

On the contrary, they spelled opportunity.

As a consultant he’d seen many healthcare businesses that broke after scaling up – and he’d been the guy who fixed them.

He also liked the clinical trials niche, which in 2015 was strong and getting stronger. (And this was pre-COVID.)

So after a few years of searching, Scott and his wife went after Triad.

Moving Quickly

They offered about $2 million for the business, plus $500k for its building and equipment.

They cobbled together the $2.5m from their savings, cash from their IRA retirement fund, and an SBA loan.

The building acquired along with Triad
The building acquired along with Triad

They also had to personally guarantee the SBA loan and put a lien on the equity of their house and another lien on a million dollars of financial assets they still had.

So while they didn’t spend their last penny, they did put quite a bit at risk.

Their SBA lender put them in touch with a CPA called Monty Walker, a specialist in Rollovers as Business Startups, or ROBS.

ROBS is a process to withdraw money from an IRA to fund a business but without the tax penalty that comes with drawing down IRA funds early.

Doing a ROBS is tricky, but Monty Walker runs a tight ship.

To this day, Scott gets nasty calls (“very polite, but nasty”) from Walker if he suspects Scott isn’t complying to the letter.

“We slightly overpaid for speed and smoothness,” says Scott. “But that’s what won the day.”

Scott had competition to buy Triad, so he moved fast to line up financing.

He used the SBA lender that his broker referred, the same lender who had pre-vetted the business.

There were lenders offering better deals, but that would have cost another 3 months in due diligence.

“We slightly overpaid for speed and smoothness,” says Scott. “But that’s what won the day.”

“We were the first to have a check in their hand on the earnest deposit. We had solid financing ready to go.”

Scott’s industry experience and contacts also helped.

The seller of Triad cared about the future of the business, and wanted to place it in capable hands.

“Anything we need, I either know what to do, know who to call, or have enough experience to figure it out before it turns into a crisis.”

Like Your Wedding Day

Getting the deal done was euphoric.

“The day you close the deal is like your wedding day and the day you lose your virginity on the same day.”

Unfortunately, the bliss faded quickly.

Those lack of systems that had attracted Scott?

It meant that the previous owner didn’t have an accurate picture of her own business.

The situation was bad enough that Scott engaged an attorney to explore clawing back some of the purchase price from the previous owner.

Specifically, both pipeline and backlog were overstated.

During due diligence, Scott had estimated that Triad had $1.5m in backlog – booked business it was due to collect.

It ended up being about $500k.

A million-dollar miss.

If that weren’t bad enough, collection times were misrepresented.

Scott had been led to believe that payments for clinical trial services are collected in 45 days.

Turned out to be closer to 140.

The cash-flow squeeze was bad enough that Scott engaged an attorney to explore clawing back some of the purchase price from the previous owner.

They decided against that.

Instead, they negotiated to stop certain earn-out payments to the tune of about $250k.

Meanwhile, Scott hit the phones.

“If I didn’t have the willingness to keep on the phone until people called me back…that could have been a moment.”

In about six months he’d built the pipeline back to where they thought it was when they bought the business.

Sticking to the Plan

Crisis averted, Scott and his wife set about improving the business.

They put systems in place.

Hired better staff.

Hired a full-time recruiter to find clinical trial participants.

Triad Clinical Trials staff today
Triad Clinical Trials staff today

All these improvements allowed Triad to zero in on the types of clinical trials they’re good at – and charge premium prices.

“Based on the quality of my staff, based on our results, I just negotiate much more aggressively.”

Clinical trials are a necessary step for pharmaceutical companies to get new drugs to market, a process that takes years.

Completing a trial faster might enable a drug to go to market a year early, which translates to hundreds of millions of dollars.

“So to give me an extra $300,000 than they would have two years ago because I perform better, that’s a very sellable deal,” says Scott.

Since the 2015 acquisition, Triad’s revenues have grown almost fourfold, from $850k to a projected $3 million in 2021.

No More Prima Donnas

And Scott thinks they can double those annual revenues to $6 million or even $7 million.

At that point Triad would need to become more corporate.

“I love the autonomy.”

Which means more managers and layers – not something Scott is looking for.

“I don’t want to have to manage a bunch of obnoxious prima donnas like me.”

Meantime, he’s just focused on business development and negotiating trial deals for Triad.

“I’ve got a lot of time on my hands,” he says.

“I love the autonomy.”