Armando (0:00 – 1:14)
You’ve built your business over decades, and now it’s time to think about that once-in-a-lifetime exit. You’ve come to the right place. Here, you will hear business exit professionals talk about what you should know before exit.
Hi, I’m Armando Roman, Family CFO at Axiom Founders Family Office, a wealth management firm in Scottsdale for founders’ families. Here at Axiom, we know you want to be financially confident and secure. And the problem is, there’s so much noise and just plain bad information out there to make informed choices for your family, especially when you own a valuable business.
And that can make you feel confused and frustrated, which is why the FBI asked me to train 400 FBI special agents, all of them CPAs, to train them in their own personal financial planning. So call my office today to schedule your 30-minute Founders Strategy call at 480-367-9000. There’s no cost, no obligation.
You have nothing to lose. Enjoy this episode of the Founders Guidepost. Hello, Armando Roman here with Governor Doug Ducey.
Doug, how are you?
Gov. Ducey (1:15 – 1:16)
Good. How are you, Armando?
Armando (1:16 – 2:15)
Good, good. Doug, you built a phenomenal company with Cold Stone Creamery, and it is truly an Arizona success story. And we’re going to focus this conversation today on the exit.
You built a phenomenal company. People know about it. Many, if not everyone, has had your ice cream and love it.
And you went through an exit. Our listeners are people who built a company over 10, 20, 30 years. They’ve built great companies, great Arizona success stories.
And now it’s time for them to think about exit. They’ve never gone through an exit before. You certainly have.
You had a phenomenal exit and built a phenomenal company. So in the conversation today, let’s talk about and focus on when it was time to exit, what that looked like, the thought process, and what lessons you would share with the founders who want to emulate your success.
Gov. Ducey (2:16 – 2:17)
Sounds good. Looking forward to it.
Armando (2:17 – 2:31)
Great. Fantastic. So let me ask you a couple of questions here.
If you could talk about the origin story of Cold Stone Creamery, where it was, where it grew to, and give us that short synopsis, if that’s okay.
Gov. Ducey (2:31 – 3:45)
So I joined the founder of Cold Stone Creamery, Don Sutherland, who opened the first store on the southwest corner of Southern and McClintock. I put up some money for the first franchise. Don and I became 50-50 partners, and we grew 1,440 ice cream stores over the next 10 years in all 50 states.
And today it operates in 31 countries around the world. There’s a lot more to that story, but that is basically the background. I was with Procter & Gamble when I started my career, came out of Arizona State University with a finance degree, but it worked for Hensley & Company and really had more of an embrace of the sales and marketing side of the business.
And good luck and good timing collided, and I was able to use all those experiences along with a great product in Cold Stone Creamery to help blossom that brand. It really helped me that I worked on the Folgers brand with Procter & Gamble and was able to see what Starbucks was doing to coffee and thought that same kind of opportunity existed in a super premium category of ice cream.
Armando (3:46 – 3:53)
Okay, it sounds like the experience you had with those big companies helped you grow your own company into a global presence.
Gov. Ducey (3:55 – 5:00)
I think there’s a lot of truth to that. Actually, Procter & Gamble is a great company. There’s also a lot of arrogance that happens inside a big company, and I remember one of my boss’s boss’s boss or something ran into me at Cold Stone at the pinnacle of our success, and I was proud of what we were accomplishing.
And he asked me what our revenues were, and I can’t recall what they were at the time. He said, oh, that’s just about the size of one of our smaller divisions. So here we had had this entrepreneurial success, but the folks in the corporate office looked at it as less than what they were doing.
But those are some of the obstacles I think you also have to overcome if you do come from a corporate background. And I think for people that are listening or watching, you learn so much by working for others, by reading about others’ success and failures. And I certainly took a lot of incredible lessons from Anheuser-Busch and Procter & Gamble that I was able to apply to Cold Stone Creamery.
Armando (5:00 – 5:24)
Fantastic. So let’s fast forward. You built this company, life is good, and something, what was the impetus or the trigger or the moment?
What was it where it was time for you to have that conversation and begin thinking about exit? At what point did that exit thought process and exit exercise begin in your mind?
Gov. Ducey (5:25 – 7:07)
Well, it really was a combination of several things. First, we had built 1,440 ice cream stores. We had 840 in the pipeline for the domestic market.
That’s about the size of the market. Most of the growth after that was going to happen internationally. And I love the international side of the business, but it’s very time consuming.
And you don’t come home for dinner on these international trips that are two or three weeks away. They’re fascinating. But that was part of it.
The other part of it was just some of the realities of a fast-growing business. I was younger in my career. My kids were younger.
My partner was a little bit older, and his daughters were growing a desire to take more money off the table. And going on that journey of how do we take some money off the table, possibly capitalizing, recapitalizing the business, and then realizing the worth of the business at the time we began to look in 2006 and 2007. And like in politics, when someone makes a decision to exit, timing matters.
And when we went to market, we were selling the company if we thought we were going to get the offer. It was not a matter of that we needed money. There were some desires personally among the senior team.
So our timing was good, and it turned out to be a very good decision and positive exit.
Armando (7:08 – 7:28)
And so when I would ask the question, how did you know it was the right time to sell? It sounds like what you were doing is kind of testing the market. You knew it had grown to a certain size, certain revenues, etc.
And you were going not because you needed to sell, but to see what might we get if we did market the company. Is that how that went?
Gov. Ducey (7:29 – 8:13)
You know, I’m in an organization called Young Presidents Organization, and they have a product called Forum. I’m sure many of the listeners are familiar with it, but it’s eight to 10 other individuals. It’s confidentiality, nobody, nothing, nowhere, forever.
I’m allowed to talk about what I presented on, but I can’t talk about what others presented on. I basically went to my forum and I said, I’m a little embarrassed about this. But I am in a situation where we want to take more money off the table.
It hasn’t been an issue for the last decade. And I’m not sure exactly how to pursue it. And one of my four mates said, you should sit down with an investment banker.
I said, what’s that?
Armando (8:13 – 8:13)
Yeah.
Gov. Ducey (8:14 – 8:43)
You know, when I was in school, they were leveraged buyout guys. That’s how we studied them. And we had called the office all the time and never returned the phone call.
But he knew several in town. He said, you should sit down with them and get an idea what your business is worth. And I did that the next week.
And I had a fiduciary responsibility to call my partner after I found out. And he said, I’d like to sell. I’d like to take all that value off the table.
Armando (8:44 – 9:07)
Yeah. And I want to just make a point that you just made there. You said, you know, what’s that when someone said investment banker?
And that is such a good point to drill home to the listener that had someone not said to you, hey, this is what this guy does. This is how he can help you. You might not have known or might have taken you a longer path to find out who can help me go through this exit process.
Gov. Ducey (9:08 – 9:23)
Yeah, there’s no doubt about it. I think whether it’s the building of your company, the founding of your company, or the exit, the people you surround yourself with will make such a difference on how you maximize and leverage these different options.
Armando (9:24 – 9:28)
And just to be clear, you had not gone through an exit before, correct?
Gov. Ducey (9:28 – 9:53)
No. No, it was probably the one thing that best prepared me for entering public life, because I don’t know that anyone that hasn’t been through an exit can understand the emotional and personal ups and downs as well as dealing with the organization that you’ve spent so much of your life nourishing and developing and building.
Armando (9:53 – 10:33)
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Offload that responsibility to professionals who do this for a living. Start by scheduling your founder strategy call at axiomcorp.com. Yeah, yeah.
So excellent. I’m glad you brought up the investment banker. So were you and your partner both in agreement?
You were both at a place in your life and career-wise that it was the right time? Or was there a little bit of having to get to that same place, the two of you?
Gov. Ducey (10:34 – 10:49)
I would say there was some discernment along the way, but we really did have a good relationship. Like I said, we were 50-50 partners, every attorney in the world advised against that. But for us, it worked out well.
Armando (10:50 – 11:21)
Right, right. And I can see the attorneys advising against that because then how do you make decisions if you’re in a deadlock? Yes.
Makes it very difficult. Okay. And next question, you touched on this.
You did hire and actually, did you hire the investment banker? And if so, how did you know which investment banker or banking firm would be the right one for your company and where you were at that time?
Gov. Ducey (11:22 – 12:01)
We did hire an investment banker. You go through a beauty contest, just like they’re going to put your company through. And part of that was me reaching out to my own network through young presidents organization, entrepreneurs organization, trying to find points of relationship that other friends and respected folks had.
And that’s quite a journey. I mean, you have a full-time job in the running of your business, and this is another full-time job in the selling of your business.
Armando (12:02 – 12:23)
And Doug, as you went through that beauty contest and spoke with banker after banker after banker, end result, you did select a banker. What was it about? How did you choose that banker?
What were the criteria if you recall what those were that you felt that was the right firm to help you with this exit?
Gov. Ducey (12:24 – 13:04)
So it was some time ago, but from what I recall is we wanted to find somebody that had our best interest at heart, saw the uniqueness of the Coldstone brand and could present it that way in different situations. Of course, we wanted to maximize our position as well. So the terms of the deal mattered.
And then for me, I always love to make connections of who or where someone else worked, and references are incredibly important, whether I’m bringing somebody into the organization internally, or it’s going to be an external vendor.
Armando (13:05 – 13:59)
Okay. And so as you went through that interview and selection process, you must have seen many, many bankers along the way, and some discounted very quickly. But something about that banker, they’re maybe where they’d been before prior career paths or work experience, or maybe they help other similar companies, somewhat similar to yours, go through an exit, but something about them resonated and you knew they were the right firm.
Yes. Okay. And those criteria might be different for different companies, obviously, based on what the company is.
Any thoughts as you look back on that? And I realized that was going back quite a while now. But any thoughts if you were looking back at that differently, now that you have experience of having gone through that, would you maybe have thought differently of the banker or looked at different criteria?
Gov. Ducey (14:00 – 14:49)
With all respect to the bankers that are out there, I think this is a decision like having a good accountant, a good attorney, a good consultant. It’s just not someone that you’re going to work side by side with the entire time in the building of your business. They’re a professional that can add incredible value at the right time.
We were fortunate in many ways to sell in that 07, 08 timeframe before the crash when the multiples were historic highs, was, like I said, a result of good fortune. I would like to think a very good company, but also good timing and good luck.
Armando (14:50 – 14:57)
Yep. And you made a good point there. It was right before the 08 crash.
You sold them in 2007, correct?
Gov. Ducey (14:58 – 14:58)
Yes.
Armando (14:58 – 15:03)
And sometimes we get lucky, sometimes we plan really well, and sometimes they come together.
Gov. Ducey (15:04 – 16:32)
Well, we had weathered a recessionary time beforehand. We used to have a saying at Anheuser-Busch, when the economy is good, the beer business is good. When the economy is bad, the beer business is better.
There was some truth to that in Ice Cream as well. If you remember around 9-11, there was a dramatic slowing in the economy because of the assault and terrorism and much of the fear. But people did want to go out for ice cream with loved ones.
And that was a very pleasant surprise. It gave us a real sense of purpose at Cold Stone in serving the customer and comforting fears and connecting with folks and people that were being disrupted in the economy, teachers, firefighters, et cetera, were opening Cold Stones and investing in franchising. That was not true in the 08-09 time frame.
People had less money in their pockets. They were not stopping eating ice cream, but they were trading down from Cold Stone to Baskin-Robbins to Dairy Queen to the grocery store. So we did experience a real slowdown in the same store sales.
And in many ways, I think you can look at super premium ice cream sales as a leading indicator of either a growing economy or decline because it is something that people can find options around.
Armando (16:32 – 17:14)
Oh, interesting. Very interesting. I never thought of ice cream as a leading indicator, but I can see exactly your point about sentiment, the public feeling.
So a question for you, Doug, you hear about a professional exit team being, say, the investment banker, the tax strategist and that. Did you feel that you had that right team or did you have to build it all of a sudden as you were going through exit? Do you recall, and I realize going back a while here, of course, but that exit team that you had on board, how important was that as you surrounded yourself with the right people at that time when you’re going through exit for your company?
Gov. Ducey (17:14 – 18:01)
Oh, it’s critical. It’s critical. We had the right in-house attorney.
We had the right out-of-house attorney. I worked with David Rao from Snell and Wilmer and Steve Pidgeon, who I think has done every big and successful deal west, certainly in Arizona over the last two decades. And then we were working with Deloitte as our tax advisors.
And each of these individuals added incredible value during the process, as well as keeping it on track in what was a pretty healthy negotiation along the way. Like I said, we weren’t eager to sell. They were eager to buy.
And we wanted to realize that in the final agreement.
Armando (18:02 – 18:20)
Right. And I’ll make a point I’ll make a point to the listener here that you just said you were in the driver’s seat. You did not have to sell.
So it was up to the buyers to come to you, and they had to really make it make sense for you. Otherwise, why would you go through it?
Gov. Ducey (18:22 – 19:19)
Yeah, I think you really have to understand what position you’re in, what your needs are as an owner, the different pressures. I was fortunate, as I said, I had one partner, and we were 50-50, and it was a very positive relationship. Oftentimes, people are managing a cap table, or maybe hostile board members, etc., etc., etc. I mean, these are all pieces on the table as you move forward to exit. And also know that more often than not, at least done properly, exit is an option. And there are other options as well.
And you should really have explored each one of the different alternatives that you have and done your own pro and con and what’s the best thing for yourself and for the company and the organization.
Armando (19:19 – 19:53)
Yeah, absolutely. And I’m so glad you brought that up, Doug, because it makes me wonder, could you have brought on a president, CEO to take over your responsibility and have those people run the company for you without you being the day-to-day, being the two weeks in Asia, getting new markets opened up? That certainly would have been a possibility, an option that you could have looked at.
You didn’t do that. But you just said the owner needs to look at all the possibilities. And for them, for that owner, what is the best thing for them at that time?
Gov. Ducey (19:54 – 19:55)
Yes, that’s right.
Armando (19:55 – 20:06)
Yep. How long, Doug, how long you sold in 2007? How long before sale did you begin getting ready for that sale?
Gov. Ducey (20:07 – 20:25)
Things moved quickly. So I would say we started the discussions in late 06, early 07. And sale was completed in, I think, September of 2007 was the closing date, September or October.
Armando (20:25 – 21:03)
Okay. Okay. And that sounds like a shorter window than I might have expected.
But I think what that touches on is that you had a company that operated and efficiently, you had processes, you had procedures, and your franchise model would kind of dictate some of that. So you probably had a lot of the pieces already organized in that functioning business. So that allowed you to have a shorter exit window timeframe on it than maybe many other operators.
Gov. Ducey (21:04 – 21:56)
I don’t know, Armando, because I’ve only exited once. I will say, I think the corporate background and the professionalism we brought to the business, the fact that we had in-house general counsel, you know, an excellent chief financial officer, that our books were in order, that the numbers aligned, that Deloitte was our auditor, that Snell was our attorney. All of this gave great comfort to folks that were looking at the business.
And then there is something about being a consumer brand that people have had experience with before they came to look at it as a business potential to purchase. I mean, your reputation precedes you in that setting. And our presence, both nationally and internationally, was just taking off.
Armando (21:57 – 22:16)
Wow, fantastic. So another question for you, Doug. Coldstone, you started that as a franchise model.
Do you think that being a franchise helped make that sale of the company easier or more difficult? Any thoughts on that?
Gov. Ducey (22:16 – 22:47)
Yes, both. You know, on that, I would say, speaking more to entrepreneurs on making the decision between a franchise model and the corporate model is in the best possible operations because that’s how you grow the brand. And I think once the franchisees and area developers got their head around that, they were able to embrace that.
They began to take down the best locations, open, operate, and franchise them. And our growth model really took off.
Armando (22:47 – 23:11)
Okay, great. Another question for you, Doug. You chose a franchise model, and you did that very, very early on when you had that one location in Tempe, and you decided to expand using the franchise model.
Why was it that the franchise model made sense to you at that time?
Gov. Ducey (23:12 – 25:20)
Well, I would say it was the inverse, Armando. The franchise model chose us. We didn’t have any money.
I mean, even to get the first stores open, you know, took everything of our savings to get those open and operating. And then we had people walking inside the stores saying, is this available for franchise? You know, I spent the last decade in public office promoting the state, but I can do that with ease because I really saw it as a franchisor.
I grew up in Toledo, Ohio, and it’s a great place to grow up. But had we opened the first store in Toledo, we might be at store number three. For us opening the first store in Tempe, Arizona, we had people coming here every winter to play golf, to go to the Phoenix Open, to see spring training from all over the country.
And it was in many ways like dropping seeds all over the Western United States, the Midwest and the East Coast for people that would be our future customers and franchisees. So we did choose the franchise model, but we didn’t have any option at the time that we knew about. We could have likely gone to private equity or an investment banker, but that really would have changed everything.
We were able to grow the company at the pace we wanted to grow it, that the market would absorb, and it did have many fits and send where they had it. But that is something that has been applied to so many other industries and lines of business, and it’s still available today. The federal government has been somewhat hostile to franchising, certainly under the Obama and Biden administrations.
Now with the recent change in Washington, D.C., we won’t have that. But I wish that those folks, more of them came from the private sector and understood the franchise model because it allows someone to go in business for themselves, but they’re not by themselves. And it’s created a lot of wealth and prosperity in this nation.
Armando (25:21 – 25:40)
It certainly has. It certainly has. Doug, before you sold, did you consider accepting private equity to keep growing the business yourselves?
And if so, did you think about private equity and why did you not do that? What was the thought process, if that was part of your thought process at all?
Gov. Ducey (25:40 – 25:49)
So I met with a number of folks under the private equity and investment banker umbrella, and I just really didn’t like the terms of the deal.
Armando (25:54 – 26:10)
Well, good. And that’s exactly right. They’ll give you money, but there’s always strings attached.
And it’s important to understand that fine print and what those strings are so that you feel good about what you’re doing and you can grow the business the way you want to grow that company.
Gov. Ducey (26:11 – 27:04)
Well, the only person I really had to sit down with was Dan Sutherland over the course of those 10 years, of course, is his wife, Susan. And oftentimes there were new ideas at the table and different ideas, but we were able to settle on a direction. And for the next 90, 120 days, move in that direction.
And as I sat with these folks that did have money to invest, I just had the sense that we were not going to be able to do that. I think we were very smart to stay out of that. But timing and relationship and who your partner is matters.
We were just in a position where the franchises that were coming on, along with the royalties, growth in the same store sales, average unit volume and marketing dollars allowed us to propel our growth.
Armando (27:04 – 27:13)
Wow. Fantastic. Fantastic.
What factors did you consider as you began your search for a buyer?
Gov. Ducey (27:16 – 28:12)
We wanted someone who would be a good strategic fit. It so turned out that we had a local firm here in Arizona that owned regional brands. They were very eager to have a national and international brand.
So it really did turn out to be a good fit. You had a firm that not only was here in Scottsdale, which is where we were at the time as well, but the company remains right here at Via De Ventura and the freeway. I think it’s traded several times since 2008, two or three times.
I’m told each time it’s traded up and they don’t post number of outlets anymore publicly on the web. That’s their choice. We wanted to share our numbers with the public as a private company, but I’m told that they have more units operating and they certainly are operating in more countries than they were on the day of sale.
Armando (28:13 – 28:25)
Oh, that’s so funny. So your Arizona success story sold to another Arizona success story. Yes.
Does it get any better than that?
Gov. Ducey (28:27 – 28:41)
Well, I think that we’ve seen the valley and the state change quite a bit over the last 20 years. I guess that’s one other indicator that this is a great place to live and work, play and build a business.
Armando (28:41 – 28:56)
It is. I just love that we have such an entrepreneurial spirit here in Arizona and that it’s flourishing. I’m just so happy to see and what you have done to help make that happen and foster that.
It’s just been amazing. So thank you for that.
Gov. Ducey (28:57 – 29:24)
Well, I appreciate that. I mean, I did my small part at Coldstone. I think beyond that, what we’ve been able to do with the transformation of the economy, the fact that we have high tech and advanced manufacturing here, places like Taiwan, Semiconductor, Lucid, Nikola, all that private sector background is what allowed me to be so successful in that role as Arizona’s chief salesperson and spokesperson.
Armando (29:25 – 29:40)
Right. Chief salesperson. So another question for you, Doug, given what you learned in the exit process, what advice would you have for the founder who is just now getting started in that exit process?
Gov. Ducey (29:41 – 30:35)
I would say to make sure that you are talking to someone who is smart, has experience and has been through this before. It’s very important that you have the right attorney on your team. Very rarely are they the in-house attorney, even if you have an excellent in-house attorney, which I did have.
And I think that’s the place to start. There’s a checklist of things that you have to do in preparation to package your company for sale. And then you have to go to the marketplace.
So I always think it’s better. And again, with the humility of just having one exit and it being very successful, we were not in a rush. Our timeline was our own.
So we were able to check these boxes, do our diligence and be prepared.
Armando (30:36 – 31:44)
Yeah, excellent. And you made a point about having good legal counsel. And you also made the point you had good in-house general counsel.
Yes. But exit is a specialty. And having that attorney who understands exit as that specialty is really going to give you so much more of what you need for that once in a lifetime exit as most entrepreneurs go through that.
So you mentioned also building that team, having the right professional team around you so that you could navigate that well. And that all sounds amazing. The company Cold Stone Creamery, people know it now around the world.
And that’s thanks to the leadership you provided the company. Fantastic company you built. Of course, it gives Arizona bragging rights.
You and your team built such a great company that when I was watching DC recently visiting my son, and we went to a Cold Stone, it was like visiting a little piece of Arizona, even though we were in DC, because you started that here. And it felt really good just to be able to do that.
Gov. Ducey (31:44 – 31:47)
Well, I’m happy to hear that, Armando. I hope your service was good.
Armando (31:47 – 31:52)
Yeah, it was. And the ice cream was even better.
Gov. Ducey (31:52 – 31:53)
Excellent.
Armando (31:54 – 32:25)
So, Dec, thank you so much for this conversation. There are many entrepreneurs out there, founders out there who are, as you did, just working and working and working to build that great, successful company. They want to emulate the success you’ve had.
And by sharing the points that you did in this conversation, we’re hoping that they will learn and they’ll have a better exit for themselves, their family and their company. Any final thoughts that you might want to share with them about your exit and your experience building the company?
Gov. Ducey (32:25 – 33:16)
Well, I just say thanks for having me, Armando. I enjoyed it very much. I love talking about Cold Stone Creamery and the great product and people and franchisees that we had.
What I would say is the resources are out for you. There are talented people in these spaces that have been through what you’re about to go through. It’s important to surround yourself with them, to do your homework and to make the right decisions along the way.
And also, timing matters. Timing really does matter. In the food service arena, you rarely see very high multiples, but they do happen.
So, have an idea where the market is, what your goals are, what the board of directors’ goals and your other partners’ are, and then when opportunity strikes, you can seize it.
Armando (33:17 – 33:37)
Yeah. And looking back, is there anything you might have done differently? Again, for the founder who is thinking of their own exit, looking back, and of course, it’s been quite a while now, but anything that you might have thought about differently or maybe done differently as you think about that?
Gov. Ducey (33:37 – 33:55)
Well, I think the exit with Cold Stone was a pretty solid story. I imagine we could have timed it a week earlier or later, but there’s not much that I could complain about there.
Armando (33:57 – 34:23)
Well, Doug, thank you so much for this conversation. Again, it’s such a source of pride, I’d say, for our state, the Cold Stone Creamery story and the stores out there now all over the world. I’m just so excited that we have stories like yours and many others here and many, many more in the making because we have an environment in our state that allows for that and supports and nurtures that.
So, thank you.
Gov. Ducey (34:24 – 34:24)
Thank you, Armando.
Armando (34:24 – 35:15)
Appreciate it. Great. Enjoyed the conversation.
Thank you. You got it. Thanks, Armando.
Hope you enjoyed this episode of the Founder’s Guidepost. When you think about exiting your business, that’s often a once-in-a-lifetime event with no do-overs and the stakes can be very high for your family. Before making that leap, ask for your free copy of our Scottsdale Founder’s Forum white paper, packed full with information that first-time sellers should know before exit, and schedule your 30-minute Founder’s Strategy Call at axiomcorp.com.
Your exit can be amazing, everything you dreamed of, when you plan ahead and take all the appropriate and necessary steps. That’s what’s possible. Until next time, I’m your host, Armando Roman.
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