Think Like a Buyer Not an Owner with David Horwich

In the late 1990s, staffing companies across California ran into an impossible problem. Workers compensation insurance was unavailable at any price. Forget what it cost. You simply could not get coverage. One client of David Horwich's investment banking firm at the time, Van Kasper & Company, had dozens of California locations and was starting to panic. David and his team did not panic. They thought out of the box. If you cannot buy the insurance, why not help the client capitalize a captive insurance company they can own and manage themselves? They went out with Lehman Brothers, raised $100 million, and that workers comp captive still operates today.

That kind of thinking is what happens when you have spent four decades watching deals come together from every angle. David Horwich is the founder of Horwich Strategic Advisors (HSA), and he brings something genuinely different to the growth and exit planning conversation. He spent 13 years at Van Kasper & Company before its eventual integration into Wells Fargo Securities, and has been exposed to somewhere between 5,000 and 5,500 companies across his career. After retiring from banking in 2010, he spent nearly nine years at GHJ leading their growth planning practice before spinning out his own firm about a year ago. Whether you are a business owner trying to figure out what your company is actually worth, an entrepreneur wrestling with whether to buy or build, or someone heading toward a transition you are not sure how to navigate, this conversation pulls from a level of deal experience that is increasingly rare.

A Four Decade Generalist in a Specialist Industry

David and I both came up in deal making during the same era. He was at Van Kasper. I was at a New York law firm doing IPO and equity offering work for Drexel clients. We both watched the industry change in real time during the late 1990s and early 2000s. Investment banking when David started was a generalist practice. Every day involved transactions across different industries. Over his career he worked with tech businesses, fruit juice companies, biotech, healthcare, and almost everything in between. The practice shifted to industry specialization during the late 90s and early zeros, and the most successful firms today have micro specialized in specific niches.

David got lucky, in his words. He left active banking in 2010 before becoming pigeonholed into a single vertical. That means he gets to see companies in all kinds of shapes and sizes today. He told me about a current client that designs, fabricates, and assembles very large lighting fixtures for a specific type of hospitality industry. Most people walk into a venue, look up, and never think about who actually made the giant lighting installation overhead. Somebody did, and they made a profit doing it. That curiosity about how every kind of business actually works is what makes the generalist perspective valuable when you are trying to spot what is broken in someone else's company.

The Alternative Energy Deal That Almost Got Built

Before he landed at Van Kasper, David spent five years at a transportation equipment leasing business in San Francisco. He calls himself the chairman's bag carrier during that period, but he was also doing analyst work and launching new ventures inside the firm. One of those ventures was an alternative energy facility planned for Hardin, Montana, that would use what they called waste coal as a fuel source. David went to Washington, D.C. and got Senator Max Baucus of Montana to put a colloquy on the record establishing waste coal as an alternative fuel. The financial projections were built. Construction financing was being lined up. Under the Public Utility Regulatory Powers Act, Montana Power Company was legally required to buy any alternative power generated.

Then Montana Power came to David and said something he did not expect. We do not need the power. In fact, we do not need it so badly that we will buy the contract from you. They bought it out. The firm made a substantial profit for what amounted to a lot of motion and hand waving. The facility was never built. What stuck with me is that creative deal structuring opens doors that owners running their own businesses rarely think to try.

The Odwalla Life Cycle Story

When David moved to Van Kasper, one of his early memorable deals was the IPO of Odwalla, the fresh juice company that Greg started in Half Moon Bay by driving a van around Santa Cruz and dropping off juice every day. Stephen came in as co-CEO investor, and they built the company together. Van Kasper co-managed the IPO with Hambrecht & Quest's small deal group RVR, which stood for risk versus reward. The deal priced at $8 a share. David remembers the drafting sessions in the company's offices with smoothies and juice bottles in every refrigerator. Everyone gained weight working on the prospectus. Natural sugar is still sugar.

Then the company hit a tragedy. One shipment to Denver was not properly refrigerated, some bottles developed E. coli, and a seven or eight year old girl died after drinking the juice. Greg and Stephen were devastated because they had built the business to make people healthy. The company shifted to flash pasteurization and ultimately sold to Coca-Cola. David made a broader observation about the lower middle market that has stuck with me. Companies in this space grow and then they sell. They almost never become Fortune 500 companies. The investment banking business around them is what David calls a farm to label practice. You start out early and you finish late.

The Three Ways to Grow a Business

This is where David's framework becomes useful for any business leader. Every growth strategy reduces to one of three approaches. First, sell the stuff you already have to more customers. That might mean distribution channel expansion or finding new outlets. Second, sell new stuff to existing customers. Third, sell new stuff to new customers. David contends the second approach is by far the easiest, and he is emphatic that you should almost never attempt the third. If you absolutely must sell new stuff to new customers, his advice is to start a new company instead.

The reason the second approach works so well is that your existing customers have already crossed the Rubicon with you. They trust you to deliver. They have already gone through the buying decision once. If you offer something else that fits within the broader rubric of what you already do, they will buy from you. Lower sales cost. Lower marketing cost. Lower everything. David shared a recent conversation with a client where they sat down and identified products in the second category that their existing customers were already asking about. They are going to design them and sell them. The pattern keeps repeating. Customers are often telling you exactly what else they want from you, and very few companies are systematically asking.

Not All Revenue Is Created Equal

One of the simplest and most overlooked ideas David shared is that revenue itself has different qualities. Repeatable revenue is better than one-off revenue. Higher margin revenue is better than lower margin revenue. Revenue that requires no working capital to deliver the product is better than revenue that ties up working capital. Most owners are getting up every morning street fighting all day long, focused on generating the next million dollars of revenue without thinking about whether it is good revenue or bad revenue.

The buyer perspective changes everything here. When you start looking at your business through the eyes of someone who might acquire it or invest in it, you stop counting revenue and start grading it. Every investor and buyer wants the data broken down. Revenue and margin by SKU. By service. By distribution channel. By category. By customer. By geography. The owners who never asked these questions are leaving real value on the table. My conversation with Pete Mohr on getting your business exit ready touched on this same theme, that most owners do not even know what their business is actually worth, let alone what is driving or destroying that value.

The Market Check Process

When a new client comes to David, the first thing he does is run what he calls a market check. He learns enough about the company from financial statements and key metrics to develop an investment thesis. Then he goes out to roughly five investment banking firms and five private equity groups on a no names basis. He asks them four questions. Would you sell this or would you buy this? What range of value would you put on a business like this? What issues will we need to think about as we prepare this company for a transaction? Where is the value in this company so we can maximize it?

Talking to between five and ten people about the same business produces a range of multiples that cluster around a meaningful number. David then goes back to his client and reports what each banker and private equity group said by name, with full transparency. The no names basis on the banker side protects the client from getting unwanted weekly phone calls. From there David can tell the owner where the market would value the business today. If there is a gap between that number and what their investment advisor says they need to retire comfortably, David outlines the high level growth strategies that could close the gap. John Martinka and I covered similar territory when he talked about exiting with style, grace, and more money. The number you actually get when you sell is not just about growth. It is about whether you have prepared the right things in the right order.

Building the Strategic Growth Plan

Once a client engages David to execute on closing the gap, he goes deeper. He sits down with every member of the leadership team on a one-on-one basis. He wants to understand two things. What is the good, the bad, and the ugly of the business from each person's perspective? And is each person really on the team? After those interviews, the group sits down and starts a strategic growth plan that begins very qualitatively. Every idea goes up on a whiteboard. Then the group whittles down to what David calls two or three growth story chapters.

His point about focus is worth pausing on. No business leadership team can run more than two or three serious initiatives at the same time. The qualitative work then gets reduced to a three statement financial forecast covering profit and loss, balance sheet, and cash flow. They run scenarios with different variables across a three to five year window, then bring the projections back to today and ask what needs to happen now, in three months, in six months, and in a year to bring the plan to life. The exercise is also a team building exercise. If the leadership team has all agreed on the two or three things they are focused on, every member is invested in the plan and takes ownership of it.

Creating Optionality for Owners

David shared one current example that captures the heart of his work. A husband and wife own a business together. He is roughly ten years older, has had a couple of serious illnesses, and is in his early 70s. She is in her early 60s. If he goes first, she has been clear that she does not want to own the company. They are not sure what to do. Before David does anything else, he is sending them to their investment advisor with specific instructions. Sit down and figure out exactly what your financial goals are. They have thoughts about foundations, charitable giving, kids, motivation versus inheritance, personal retirement, and lifestyle. None of that is something David should be solving in isolation.

Once the financial picture is clear, David runs the market check and builds the strategic growth plan with them. From there, he outlines the alternatives. You can keep it. You can sell it. You can recapitalize it. You can gift some of it but not all of it. There are combinations of those options as well. The toolkit is not large, but choosing well requires analytics and clarity. That word optionality is the throughline of everything David does. Most owners get stuck because they have not built enough optionality into the business to make a real choice. They are reacting rather than choosing. Building optionality is what allows the choice to be a good one.

Why a Banker Belongs in Your Corner at the Right Moment

David is not in the business of selling companies anymore. When the time comes to actually transact, he helps his client find the best fit investment banking firm to advise them. Bankers, in his words, create markets for companies and for the capital those companies need. A good banker will get the best terms and conditions, maximize valuation, run a good process, and keep all the counterparties on their toes. Every good banker will pay for their fees many times over if they have done their job well.

The combination of having someone who has been on the banking side, who knows what buyers and capital sources actually look for, and who can prepare the business years in advance for the transaction is rare. The exit planning industry has grown significantly over the last decade, and that is genuinely a good thing. Most exit planning advisors do not have the banker's lens on what drives a multiple in a specific industry, or which firms are the right fit for which companies. That gap is exactly where David has built his practice. This is similar territory to what Sunny Vanderbeck and I discussed about long horizon value creation, where building the business the right way for years before the sale produces dramatically different outcomes than chasing the exit at the last possible moment.

What Freedom Looks Like After Four Decades

When I asked David my closing question about what freedom means to him, he pointed to the Bill of Rights. Life, liberty, and the pursuit of happiness. The pursuit of happiness is vaguely stated but widely defined. For David, it means being able to wake up in the morning, having his own business now, and tell his wife he is not going into the office today. Let's go have breakfast and enjoy ourselves. He also spoke about freedom in the context of education and his belief that it is one of the most important things this country needs to work on. That breadth of definition, freedom in business, freedom in daily life, and freedom in how we educate the next generation, is what you would expect from someone who has spent four decades thinking about how value gets created and destroyed.

Tune in to this episode to hear David Horwich share four decades of investment banking and consulting experience, the three ways to grow a business, why not all revenue is created equal, and how to think like a buyer rather than an owner so you can build genuine enterprise value and optionality. For more on preparing your business for sale, my conversation with Pete Mohr on getting exit ready is essential listening. For more on what actually happens in the deal room when you do go to sell, John Martinka's episode on exiting with style, grace, and more money pairs perfectly with this one.

Listen to the full episode of DealQuest Podcast with David Horwich: [Available on all major podcast platforms]

FOR MORE ON DAVID HORWICH LinkedIn: https://www.linkedin.com/in/david-horwich-9317b56/ Company: https://horwichadvisors.com/

FOR MORE ON COREY KUPFER https://www.linkedin.com/in/coreykupfer/ https://www.coreykupfer.com/

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

Get deal-ready with the DealQuest Podcast with Corey Kupfer, where like-minded entrepreneurs and business leaders converge, share insights and challenges, and success stories. Equip yourself with the tools, resources, and support necessary to navigate the complex yet rewarding world of dealmaking. Dive into the world of deal-driven growth today!