Rachel Murphy:
Absolutely, my pleasure, A.J. thank you for having me.

A.J. Lawrence:
We’ve had a chat already and you’re soon moving to one of my favorite places, the Costa del Sol in Spain. What I really liked was sort of your background in getting to helping businesses. You had your own entrepreneurial journey now to kind of get to the graft or where you’re helping other people. But I liked how you, even before then you were in this sort of, and it’s a little bit different in the uk, how the structure. I won’t say a bureaucratic structure, but can you kind of bring that like this government background you have and how it kind of came into your entrepreneurial journey or how it led to your entrepreneurial journey?

Rachel Murphy:
Yeah, of course. My background really is a cross section of working in public and private sector. And for many years I worked the public sector, so central government and a little bit in local government. So you’re right, A.J., slightly different approach to the US but I suspect more similarities than differences in so much as relatively bureaucratic, not particularly rapid in way of making decisions and/or making changes to how they operate. And so for a number of years I worked doing turnaround and transformation work across those large scale departments. And I built a bit of a niche for myself. So if there was a problem from a people, process or technology perspective, I often went in to fix it. By definition, I ran the IT for Department for Education, so the Education Department in the UK. And then I actually led the patient facing transformation of the National Health Service, which was as large as it sounds. It wasn’t as grand as it sounds, A.J., but it was as large as it sounds. And it’s an interesting approach. I think my kind of entrepreneurial journey started early 20s and then I went into large scale organizations. I guess you could say I did a lot of learning on other people’s dime because they were paying me to fix some of their problems. And then I went back, I knew that running a business was absolutely where I wanted to be and what I wanted to do.

A.J. Lawrence:
So what was that transition like? You were helping businesses, these turnarounds from the government supporting business you had then run. I mean, the National Health Service for anyone who’s not familiar with the British is sort of like the backbone that, and the Queen, well, sorry, the King now, whoops, sort of the backbone of what it means to be a UK citizen. It’s like the national health system and the royalty. It’s like that’s kind of as British as you get.

Rachel Murphy:
I wholeheartedly agree. And how that came about was I was running a business transformation of the health regulator, so we have two regulators, one for doctors, one for nurses. And I’d led the business transformation of the nursing regulator and I got as close to healthcare as I ever had done before. And I just knew it wasn’t close enough and I absolutely had to get in. Have a play with a, I guess quite an archaic organization but also one that does so much good. I was kind of desperate to put my mark on it and help try and transform an area that was desperately in need. And you know the NHS piece for me was going back seven, eight years now, and at that point every other industry had started to digitize and yet we couldn’t access our medical records, we couldn’t book an appointment online, we couldn’t do so many of these services digitally. And for me, that was the pull really in getting in because the role I went in to do was actually transforming how the NHS operated from a digital perspective and building a digital front door to consume primary and secondary services.

A.J. Lawrence:
So as you transitioned out of that, was that when you then went into your own business?

Rachel Murphy:
Yeah, I think what happened really A.J. was I saw lots of consultancies while I was sitting the other side of the fence. And I really struggled to understand what the USPs were with these businesses. There was lots of talk about how they were different, how they had deep domain knowledge in the health service, but I couldn’t feel and see it from a buyer perspective. And I felt that with a number of years of experience and a wide network that I could build something that would compete with what was out there at the minute.

A.J. Lawrence:
And what was that? And then I know you exited that not that long ago so you want to maybe talk a little bit about it.

Rachel Murphy:
Yeah, of course. So that was a business called Different and what we did was we actually designed and built services for the National Health Service, but also for central government. And we put user centered design at the heart of designing those services and the users being patients, the public and clinicians. And we put that at the heart of whatever we were building. And we then went through a process of building the services out and deploying them. Some examples of services we built the home testing for COVID 19 for the UK. We also built the NHS app and did work on nhs.uk so there was a lot of patient facing services. And we also built NHS jobs and varying services for government departments for prisoners 13 weeks before they came out of prison to allow them to apply for benefits, apply for housing, so they didn’t come out, reoffend and go straight back in. We built lots of these large scale national services. But I knew A.J. that I wanted to go in and out over a five year period. So I wanted to build a company, I wanted to delight the clients that we were working with. But I also knew that exit was going to be part of my journey.

A.J. Lawrence:
Okay, you knew this. What did you do as you were starting the company? You were in the government, you were seeing all these consulting firms that weren’t really delivering as much as you knew you could so you start this company to actually do the delivery that you thought was possible, which is how a lot of us kind of get in. Like oh, those people over there don’t really do a good job. I know I can. You get in, you have this concept, this is going to be five years, this five year journey. How soon did you start that planning? Right from the beginning? And what did that change for you, your approach?

Rachel Murphy:
I think what it meant was, well, put it this way, if I’d known that five years was a ridiculously short period of time to build a scale and sell, I may have slowed down a bit. But I think sometimes naivety or ambition, I’m often confused as to which it is, it drives you. And so for me, it was hard and fast. It was five years and from the day I started the business, I knew that we would be exiting within that period of time. And the strategy was built in such a way that we had very clear targets we were going after. And a couple of years out from the period that we wanted to sell the business, we started talking to the market. It just so happened but that was 2019. And if you’re running a healthcare consultancy and you’re in a pandemic, in some ways, it doesn’t get any better. It’s an awful thing to say, but the reality is we were doing 70% of our number in healthcare and we built a really good reputation. We’ve been asked to commission some of the national services during the pandemic. So we were on a wave.

A.J. Lawrence:
Okay, so you’re on your way and you knew you were coming to your five year. How did you go about the exit as you were getting close? Let’s talk about that and then let’s talk about what The Grafter is, because I think it would be cool to know like what specifically you did along the way that people who are running their own businesses could start copying. But let’s first talk about your exit because that’s always fun.

Rachel Murphy:
So from the outset we were clear that was the strategy. And to enable that to become a reality, we were very clear around the markers for EBITDA and what those multipliers look like in way of our sector and our market. But we also made it known probably two, two and a half years in, that we were starting to explore opportunities around a potential sale. And a lot of the legwork had been done. So the pitch date, the data room, all of this stuff had been built alongside the business being built. And it was very deliberate because exit was part of the strategy from the outset. And so there was a, I guess there was always a work stream running where we were looking at competitors, potential buyers. We collaborated far and wide across sectors and network to work a lot of the time with our competitors in a way that plenty of other agencies didn’t. And the reality, of course, was we were likely to be bought by a larger consultancy. That’s exactly what happened. And so by having those relationships and that network and doing the legwork around a framework for pitch deck for the cell pack for the data room, we were fully armed. We were ready to have conversations when people sort of knocked on the door.

A.J. Lawrence:
So it was as you were approaching your five year, it did sort of just lead to. You were just in a position that companies were coming to you. You didn’t run, you didn’t hire an external to sell you. Earlier in these relationships with the larger companies, did you kind of like oh, yeah, you know, one day when we sell. Did they know you were looking to sell at some point? Just because I think that’s the curious piece.

Rachel Murphy:
We had worked with two of the companies that ended up making offers. Once we had one, it was very easy to start to signal that we were in the market. But we, I probably wasn’t shy, A.J. about the fact that we were ultimately looking for an exit. And my management team were equally aware of that and knew that coming. Knew that coming in.

A.J. Lawrence:
Cool. So that was good. I know from my own experience, it was funny. I mean, we didn’t end up selling to the larger agencies but we had done a lot of work with larger, you know, some of the global advertising firms and they were the first ones to be serious about us. But that did bring other people to the plate. That kind of helped. But I like that you were prepared because I just completely was not prepared and I made every mistake possible in the thing.

Rachel Murphy:
We may have been prepared, A.J. But I suspect we still made some mistakes along the way. But yes, we had a reasonable house in order.

A.J. Lawrence:
That’s the thing. I think we all make mistakes during the process. I think having an understanding and a plan for something, it allows you to adapt faster. Like, I think having gone through different things, I know if I have a plan for growth for just different parts of business, it’s the idea that, oh, wait, this didn’t happen. So here are the things that could change versus what the f, you know. And then you sit there for a long period of time trying to actually guess. When I started off, I used to make my plans with like X factors. I would just randomly put things like, this will go wrong. I have no idea what will go wrong, but here’s a block of time that I know things will go wrong. The end result was we fit the thing because random things went wrong. But okay, let’s talk about The Grafter, and then let’s bring in how firms that are in that like okay, as I kind of say, when you’re in your early sevens, when you hit seven figures, all of a sudden you move from like rubbing sticks together really quickly to see if something can work to like building that fire and consistently feeding it and starting to build the systems that allow you to scale. And all of a sudden it’s like oh, instead of being crazy to make sure we survive, I’m going crazy because there’s so many more moving parts and I’m going to drop them. You start The Grafter because you had this experience where wow, it went so much better for you because you did plan. Were there other entrepreneurs who were going hey, why are you doing it this way? That’s so cool. What kind of led from that external piece to kind of move to then helping others?

Rachel Murphy:
I think the honest answer is after the sale of Different, I went through a period of loss, which I think is quite common for entrepreneurs when they sell their business. A huge association, it’s your baby. There’s lots of blood, sweat and tears. And as a cathartic process, I wanted to blog about the concept to sale of the business. So I wrote what I thought may be a book. It hasn’t become one yet, but who knows? And at the end of that period, I then thought, it shouldn’t be this hard for entrepreneurs to go through that journey. And I have a really strong belief that we have lots of services in the UK to support entrepreneurs right at the outset. Accelerators and other bits and pieces. And it’s remarkably easy to set up a limited company but I don’t believe that there is a playbook or a how to guide on how do you go through that exit readiness? How do you start to think about a data room, a cell package, realistic valuation of your company and how do you mitigate about things like roadblocks and fundamental showstoppers and start to think about who your buyer is going to be and what that transaction could look like. And so that’s what prompted me really to see, I think there’s an element of being slightly masochistic, A.J. I wanted to go back and build a service and take it to market and see was it going to be a benefit to others. So that was the real motivation and I believed it would have been helpful for me. So I assumed it may be useful for others and that was what prompted really the building of The Grafter. At that point, it was purely focused around exit and how do we help businesses exit. And subsequently we’ve started helping businesses to grow and scale as well.

A.J. Lawrence:
All right, so let’s kind of talk about that process and let’s use the example of like, I’ve hit some market fit, product market fit. I am building the business. I have team, seven, I’m growing. You’re in that million dollar range, that seven figure range. Where’s this kind of the first pain point, you think? And yes, I do want to sell as an entrepreneur, maybe not at five years, but I think a lot of entrepreneurs are more like we want to sell, we don’t put a mark in the sand. And I think that is an issue. Where should the first thought go when someone starts thinking, okay, we do want to get there, we do want to sell, what should they start thinking about?

Rachel Murphy:
I think they should start thinking T minus 36 months out and start to put some markers in place, understand the valuation of the business, understand the business that they’re actually running. Where is the IP? Where is the value? How do the contracts align? What does the forward plan of the business look like? And raise their head a little from the day to day running in the business to look at it really objectively. And that I think gets you to start to think about the potential sale of value, potential purchaser of the business. So for me, it’s 36 months out and it’s starting then to align some goals around making sure that you’re hitting varying points, be those financial, to head in the right direction.

A.J. Lawrence:
Okay, so generally in your understanding, it’s financial sort of revenue growth and profitability that are the main sort of.

Rachel Murphy:
I would say for the sale of my business. Last time it was those, but it was also we got part of our multiplier predicated on brand because we had such a strong brand and such a strong brand presence and promise, which is unusual for a business of our size. I think that the market is changing and I think that IP, especially when we think about things like AI, is going to be impacting valuations in a way that I’m not sure we fully understand at the minute. I spent a couple of hours with an IP lawyer debating this yesterday and it’s a can of worms. You know, every business thinks or wants to head into AI and we don’t know yet what we’re managing, how we’d manage and structure the IP around that. There’s so many unknowns but I think that is going to have a direct impact in valuations.

A.J. Lawrence:
Yeah. And without taking this too far off, but just as a quick side, I fully agree with that because it’s like in one sense, not quite yet. Even though it’s getting better with each iteration of each large language model, almost everything is going to be doable at a faster, quicker, better pace. So where everyone is the same, yes, there’s going to be a drive down but like how are you going to determine? And that is around the brand. It’s the companies that can best understand what aspects of that deliverable are influenced by their ability to add value to the large language models. I think is going to be interesting because it’s not just like oh well I understand everything, I’m in expert in X. It’s like, well X can be done to 95% through a large language. It’s like it’s my ability to translate, it’s my ability to feel the currents of the wind. Whatever you know, but you know, whatever the humanness you can bring to it I think is that interesting part to that. All right, so what are some of the things that best help a company align? Because usually what I, you know, when I talk to folks who are saying oh yeah, I’m interested in selling, it’s the books are out of order. Sales process is very ad hoc. Workflow is all internalized with sort of like that lovely up to about 20 people. It just like everyone sort of knows what to do past 20. Oh yeah, I’m chasing things a little bit. And then you start getting that like, well can you juggle three balls? Can you juggle four? Oh, how about a chainsaw? You know, is, you know, when you start hitting 30, 40 people, where do you start working into that process?

Rachel Murphy:
One of the things that we’ve developed A.J. as part of The Grafter is a tool that allows us to do a diagnostic of a business for exactly that reason. And what it allows us to do is look at every aspect of a business and give it in conjunction with a founder, a maturity level rating. And what we won’t do is hear our strategies are 10 and go thank you for that, off we go. But it’s really dig into it and understand how does that show up, how does that, if the strategy is attempt, then by definition everybody’s objectives are aligned behind the strategy. Everyone knows exactly how they’re contributing. And so we really get under the surface to understand the maturity. But as a general rule having a clear view of their finances, of the P&L of the contract base, how you do things is so important. And you know, the repeatable aspect, the playbook, a lot of consultancies, IP is sitting in that but they don’t fully understand that nor have they documented it. I mean AI is a great one. We can effectively have a consultancy in our pocket these days if we leverage that in the right way. But I think getting some structure and being clear about how the business operates, the future potential, and making sure that you’ve got those component parts wrapped up in a compelling story and that you can tell where you’ve been from, what the key milestones are, perhaps most importantly, where you’re going, and the one thing I always encourage founders to do is be honest about what’s working and what isn’t in their business. So many people will go into those negotiations, paint in such a colorful, fantastic picture, but buyers are very savvy and no business is perfect. And I think by being upfront about that, you’re going to have to negotiate on value and cost and transaction. But I think going into it in that kind of in that way really pays dividends. So for me, starting to approach it in that way and if you imagine running your business with some of the component parts of a data room, you’re not going to go far wrong because by definition, you’ve built the governance around something that ultimately you’re going to have to serve up and report on.

A.J. Lawrence:
When a business comes to you, when an entrepreneur comes to you with their business from that sort of ad hoc structure, what I always call building the car while driving 90km an hour, aha, Americans. That’s just talking European there for a second, but driving down the road and building at the same time, how long do you feel it takes to kind of restructure and move towards that being ready? I know there’s never a perfect sense since we’re all human and businesses are never perfect, but how long do you usually feel it takes?

Rachel Murphy:
I think that’s a great question, and you’re right, it’s how long is a piece of string? Founders for me fall into two camps. Those who are lowballing where they think the value of the business is for varying reasons, and those that are on fantasy island and very rarely do we see them in the middle ground. So holding up the mirror and having a sensible conversation about value today and what the value could be with some tweaks and changes over a period of time is part of that process. Every single client we’ve worked with, we’ve had to go back and have a look at the strategy without exception and actually set some goals around the business as usual and likely increasing revenue as part of that piece of work. So I think realistically you’d be looking at a, well, the clients we’ve been working with, there’s probably nine months worth of work in way of understanding the business being clear and lots of these businesses, A.J., have left money on the table. So helping them be a bit savvier around that loads of pre-sale stuff going out the door that should be being charged for and again, all of that starts to contribute to the bottom line. So we would tend to do six to nine months worth of work in way of consultancy to help from a revenue and in some cases scaling perspective and then move into the exit process. But equally, you know, I mean, just an example, I had a phone call a couple of months ago with a business that, I mean, their numbers were probably 20 grand a month in way of turnover and they genuinely thought they were selling for 3 million and yet they’ve got a stack of debt. And it’s like, you know, and having that frank conversation straight away, that was a 20 minute conversation. I can’t help you sell this for 20 mil because I’m not a magician. And that’s not me trying to be disrespectful, but we are very open and honest about what we can and what we can’t do. I had a conversation the other day and was asked, could we help IPO? I said, we have no experience. There’s loads of companies that can do that, but not us. So where we’re brilliant is in businesses that are 2 to 40 million professional services, SaaS based businesses. And that really is our niche at the minute.

A.J. Lawrence:
Those are good ones because while slightly different markets between a professional service and SaaS, a lot of the thought process and the sales process, which I found very interesting, is very similar. Especially now where buyer behavior used to for these types of enterprise or business services used to be so much discovery by sales. It’s over the past 10 years has changed predominantly to self discovery. Most businesses are now doing the research on their own. Where it used to be, they were kind of being driven by sales. All right, so someone goes through this thing and yes, not the $20,000. I always love those. It’s like oh, that’s so cute. To someone who’s more like okay, there is a business, as I like to say, it’s like you’re losing sleep because of all the moving parts. You’re not losing sleep because of actually keeping the business open for another week. It’s that like fine line when you move across that. I remember when I kind of crossed through last business I sold, it was sort of like, I’m still losing sleep but it’s more because I have like 50 things I haven’t done yet. It was like wait, I can do payroll, I’m not worried. It’s a weird transition. But all right, let’s kind of talk about then not just this six to nine month process. People go through this, as you’re saying, it’s a three year type of planning window. So they go through this. Let’s first talk about like what changes in the business and where they then should start focusing. So they’ve gone through this process, what has changed in the business? At least from the operating oint of view.

Rachel Murphy:
The majority A.J. would be getting some clarity around the strategy and setting some goals. I think lots of businesses tend to be onto something. Start writing a number and continue doing it without looking at the market, at their services, at their products. So it is looking from a fresh lens at how they operate and what are they doing with a view to then, you know, is there space to bring additional services or products? Do we look at some additional sectors? Parallel sectors. Great example, if you’re selling into healthcare, could you look at private? Could you look at pharma? Could you look at life sciences? And it’s really easy for us at The Grafter to be objective because we’re not emotionally in it in the way you’ve just described. We’re not losing sleep over running that business day in, day out. And so for us, it’s a fresh pair of eyes that help provide that steer. Without exception, the business owner is the domain expert. But I do think all of us fall into the trap of being head down on the business and not being objective. That’s really what we bring. But we also bring the accountability and the challenge and plenty of entrepreneurs, myself included. There’s a reason I work for myself and that challenge, that steer, critical friend. It’s powerful in way of holding people to account.

A.J. Lawrence:
All right, so they’re now being held accountable, in a sense. I remember going through the process and one of the few things I did do right was work with a business coach ahead of these talks or during these talks and saying, okay, let’s put together a plan. As if I was already reporting to a board corporate overlord as sometimes would have some very interesting phrases I was using but like externalizing the drive. What do you think really determines then in this period you’ve gotten your place in order? You start having some frank over not oversight, that’s the wrong term, but like this extra voice to help you stay on track. What do you think is then the drive of getting to a sale?

Rachel Murphy:
I think that you’ve painted a picture for the founder and you’ve shown them you’re here today. If you make these moves, then you can be here. And here is objectively different for everybody. You’ve got plenty of founders that want to sail off into the sunset and you have plenty of us that seem incapable of staying away from work for longer than five minutes and plenty in between. So I think what it allows is a sounding board. It allows experience of having been through this a couple of times before and being able to talk about the mental health side, the emotional impact. You can’t pick up the phone A.J. to a friend. Well, I couldn’t. My friends are from every conceivable walk of life. And me picking up the phone saying oh, you know, I don’t know how I feel emotionally about having millions in the bank, having sold my company. Most of them would have put the phone down on me. So it’s about providing the ability for some of those conversations and thinking through with a founder, the emotional impact, creating space, creating time. Most of us go straight from transaction into an earn out as well. So we’re then working for somebody else. I personally found that the hardest bit of the whole transaction. So I think being able to support through that and create that space environment to have those conversations and give perspective, and I think that’s probably that’s the key bit.

A.J. Lawrence:
You know, one of the things that I found through my own and then surprisingly I found in talking with others is that that very piece of like, you really can’t go to someone who hasn’t been through this or hasn’t like, God, I just got paid, if mid seven figures or I will have mid seven figures over this period of time. But I didn’t do as well as I planned on. The amount of entrepreneurs I know who like, will sit there and say, yeah, they get it. This is privilege. Hey, this is kind of that like you open the, you know, you’re lucky motherfvcker. There’s your picture. Excuse the language. This is now an explicit podcast. But it is this idea that we all probably hope and planned and see the possibility of having this bigger opportunity. And then when it comes down to it because we didn’t plan correctly, we didn’t do this, we didn’t get quite the number yet. At the same time, we’re better off than 99%. You know, it’s that weird kind of transition. How do you guide entrepreneurs in trying to define what success could be and not focus on that number? And it’s so hard because it is the number, but it really isn’t the number.

Rachel Murphy:
I think that’s a great question, A.J., and a hard one to answer, but let me give it a go. I think that entrepreneurs are by definition, very driven by that number and in their head somewhere, whether they like to admit it or not, there’s normally a number. But the reality is, for me personally, it was about creating freedom. Now what I then choose to do with freedom is fill it up with another business. So that’s a separate challenge but I think it’s about having an authentic conversation and it’s about understanding the person as a human, not as an entrepreneur. We are all motivated and very, very driven for building businesses in loads of different ways. And I think tapping into that and talking about it and sharing and creating the environment is super, super important. There’s plenty of entrepreneurs who are post selling the business. I went and I did a psychedelic retreat, I ended up in a war zone helping out and raising money. We really need to feel that we’re contributing. Plenty of us do. And so it throws us out of sorts quite a lot. But I think by having those conversations, creating that space, the reality is we all get to choose, don’t we, every day of the week, how happy we want to be. But I think once we learn how to do that, I think that’s the real skill and the real key. One of the things we do very well, actually, A.J., is we have something called the Founders Program, which is a dedicated program all about the softer side. And it’s about emotional intelligence, and it’s about mental health, and it’s about resilience, and it’s about understanding what really drives you as an individual. And that program is a program that was built between myself and my coach. And we built it in the year after I sold the last business. And I think he built it almost real time. Bart’s trying to support me in the process.

A.J. Lawrence:
Very cool. Well, if an entrepreneur wants to learn more about what you’re doing, more about The Grafter, about just your own journey, where should they go?

Rachel Murphy:
Thegrafter.com is probably best port of call. I spend most of my life on LinkedIn, A.J., so they will definitely find me on LinkedIn. I spend less time on Twitter or X these days, but I am genuinely very keen to talk to other entrepreneurs. And I also run a LinkedIn live once a month where we just invite entrepreneurs to come in and ask whatever they fancy. So the next generation of entrepreneurs coming up have some free support around them while they’re struggling with some of these questions.

A.J. Lawrence:
Well, very cool. We’ll make sure we have all that in the show notes when this episode comes out, all the links, how you can get in touch with Rachel and obviously in the newsletter when this episode gets released. Rachel, thank you so much for coming on the show today. I really do appreciate it.

Rachel Murphy:
Absolutely. My pleasure. Thank you for having me.

A.J. Lawrence:
All right, everyone, thank you so much for listening to today’s episode. Please go leave us a review at your favorite podcast listening platform of choice. It helps us better improve the show and also helps other people who may be interested in growing their own entrepreneurial journey to find out about us. So please leave us a review and thank you so much. Talk to you soon. Bye-bye.