Ep. 4 - How PE Firms Can Build SaaS Exit Value Earlier

Guest: Tony Rock, Founder of Lever 6 Capital

In this episode, we explore why creating exit value starts years before a company ever goes to market—and what private equity operating partners can do today to maximize future outcomes.

Building enterprise value isn't just about growing revenue or hitting EBITDA targets. Tony Rock, Founder of Lever 6 Capital, joins us to discuss the operational, strategic, and cultural decisions that make companies more attractive to buyers long before an exit process begins.

Drawing on decades of experience as a founder, operator, investor, PE principal, and advisor, Tony shares why so many otherwise successful businesses struggle through the transaction process, how operating partners can identify value creation opportunities earlier, and why benchmarking, pricing, culture, and leadership alignment all play critical roles in creating a premium asset.

Whether you're an operating partner, private equity investor, or founder preparing for an eventual exit, this conversation offers practical frameworks for building a stronger company—not just a more profitable one.

Key takeaways:

• Why exit planning should begin years before a sale process starts.
• The Six Cs framework for evaluating long-term enterprise value.
• How benchmarking against peers uncovers hidden opportunities.
• Why pricing and packaging deserve more attention from PE-backed companies.
• The cultural and leadership factors that influence successful transactions.
• How operating partners can position portfolio companies for stronger exits.

Additional resources from Lever 6 Capital:

For more context on recurring revenue market trends, explore Tony’s Compounding: Q2 2026 Recurring Revenue Market Report.

You can also download Exit Conversations, a practical guide to understanding buyer behavior, protecting value, and navigating the risks that determine your final outcome.

Transcript

Welcome And Guest Intro

SPEAKER_01 0:06

Welcome to Propellant, the podcast about how operating partners help companies grow inside private equity and venture capital portfolios. In each episode, we explore how experienced operators support founders, drive execution, and help companies scale. And now, here's your host, Ken Limpet.

SPEAKER_02 0:26

Welcome to Propellant, the podcast for private equity operating partners and the founders and CEOs they back. Today's guest is Tony Rock, founder of Lever6 Capital. Tony spent more than 30 years as a founder, operator, and investor, including times of PE principal and diffractional COO and CFO. He served over 100 companies and worked nearly $2 billion in deals. Today we're talking about how to build exit value long before the exit and what this means for operating partners and leadership teams. Tony, welcome to the

Tony Rock Background

SPEAKER_02 1:02

podcast.

SPEAKER_00 1:03

Thank you very much, Ken, and thanks to you and Austin Lawrence group for allowing me to come on and talk about a topic that is very near and dear to me. One of the unique things in my background is I actually used to teach private equity and venture capital finance at the university level. Actually, I do have students somewhere in the marketplace that are hopefully taking some of the first principles that we're going to discuss here today. So thank you very much. So to continue from my side, I started lever six about three years ago. And really, my last real job was I ran a business unit for a publicly traded SaaS company called Workiva. I ran our integrated risk unit. My career has spanned management consulting. I've worked as a partner in a boutique investment banking firm. I worked in private equity, but also I've been fortunate to act as an operator for a number of companies, both privately held and again at the public level. And what I wanted to do was take my experience and basically say, hey, I want to get back to working with founders, business owners, early stage, lower middle market, and really take my expertise, but also create an advisory and investing model that basically combines a lot of different disciplines. So if you think about my background, being an operator, being an investor, or operating within a fund, I'm taking bits and pieces of all these items and putting them together.

Why Lever 6 Exists

SPEAKER_00 2:38

The core problem that I'm trying to solve within lever six is that if you look at the mathematics, roughly for every 100 companies that are what I call it exitable or transferable or can transact, either going to private equity or a strategic buyer, or even just transferring hands to an internal management team, only about, I would say, one in 10 or maybe one in five actually will get that done and/or will be happy with the process. So if you do that math, right, that's roughly 15, 20, 25%. It doesn't matter. That's a low number, if you think about it. You would think that the satisfaction and success rate would be substantially higher. So that is really the void that we are looking to fill. We do serve founders and business owners. We work with private equity firms. We work with family offices in various shapes or form. And we can talk about some of those particular opportunities as we go forward. But ultimately, at the end of the day, that's what we're here about is basically finding companies, finding founder owners, finding the right investors, and moving them to their next stage of growth or development.

SPEAKER_02 3:50

That's awesome. And I think what a resource for founders who it's very likely that they've never sold a company before and have no idea what that process might look like. So having an advisor with that kind of depth of experience makes a lot of sense.

Reports And Market Intel

SPEAKER_02 4:07

And maybe this is a great time to talk about some of the research that you do, that you know, the reporting that you've provided us to look at as something that might be of interest.

SPEAKER_00 4:17

Yeah. So if you think about my world, so people think about this is probably the kind of my foray and thinking about AI. So how we operate is when I look at my background as an operator, and it's primarily been on the go-to-market side, all of like I said, I've been a COO and CFO. We're very partner ecosystem centric. So in other words, and I think from an operating partner model we'll think about that's the best way to go versus actually owning your own resources. You know, for example, right, if I need specific help on a go-to-market particular issue, do I use my own expertise or talent, or am I partnering up with somebody like an Austin Lawrence group as an example? But the couple areas that we've just launched, we started kind of a market intelligence report for recurring revenue companies. You can go to my website. It's called the Compounding Report. There is just a lot of wealth and data within publicly traded companies for recurring revenue companies, which are not just only SaaS, right? We look at recurring revenue as an operating philosophy, meaning that you don't have to be just software or technology to develop a recurring revenue company, right? So this is for us, it's a first principle and how you can create value around that discipline. Also, we just came out with our what we call our crucial conversations or exit conversations for founders. And this really gets into the nitty-gritty of why my company is going to sell for a certain range and why or why not? So it answers the question of am I ready? Which is for a founder or business owner, it's twofold. One is my company, the actual operating asset. Does it have the characteristics, the value creation characteristics that a buyer wants? And number two, am I personally ready? My spouse, my family, if those are part of the equation, the management team. Both of those items have to be addressed first and foremost. Otherwise, you run the risk of a transaction not being completed. Or as I said before, a transaction may complete, but that process may end up being very unsatisfactory for the founder, business owner.

SPEAKER_02 6:35

I mean, there's a lot tied up in these companies where people might have spent five, 10 years or more making them into something that they identify very closely with. So there's a lot to

Exit Planning Starts Early

SPEAKER_02 6:46

work through there. I think I'd love to dig into some of the topics we wanted to speak about today. And the first one was like right on the tail of this part of the convo. If exit planning should start years in advance, what can an advisor, an advisor or an operating partner be pushing a portfolio CEO to put in place now?

SPEAKER_00 7:06

Well, I'll start at that kind of the highest level. And so people ask, where does lever six come from? And this is from my you know high-level, you know, I'm big into frameworks. If you start in consulting, you know, et cetera, you get the whole framework and methodology kind of first and foremost pounded

The Six Cs Framework

SPEAKER_00 7:22

into your head. So lever six really looks at six different areas that I indirectly, when I'm looking at a company, kind of figure out where they fit. So here are the six C's. First and foremost, culture. Number two is collaboration. How does the company work together as teams, but also how they are able to work together as teams with their partner ecosystem, suppliers, customers? Number three, the customer themselves is the customer, the North Star. What are the what's the relationship between their processes and the customer? And then the last three are getting into what I call context, meaning that can the business operate around data? And ultimately, how do you make decisions around data or without data? Because ultimately you are going to have to make decisions without necessarily perfect data. The other one is controls, right? Every business has to have some level of controls. You can call it governance controls, et cetera. But the question is, does the organization have the right controls for their stage of development? Otherwise, it just becomes very bureaucratic and you just create a lot of overhead. And the last one is creativity. And this is what I call this is the proxy for creativity. Has this organization have the capability or historical track record to build new products or new services in the marketplace? If you really look at a company and that they are doing all those things well, for the most part, everything will take care of itself. Does that make sense? I mean, literally, who doesn't want a company that has great culture, collaboration internally and with their external system? Customers, the North Star, appropriate controls, can make decisions around data, and then certainly does have some processes or activities around innovation. I would think I would be a betting man over the long term. Those types of companies have the ability to create value. So when you think about from an operating partner perspective, and all these things, they're not independent. I mean, there are interdependencies between the six. Some of them may or may not be more important, depending over time. Also, every company is not going to score perfect. They're high in those areas. Those become the areas where you need to seek areas of improvement.

Culture And Customer Focus

SPEAKER_00 9:45

I am a big proponent of culture, will beat out strategy. When I started early in my career, the concept of the 90-day plan, 100-day plan, it's right up there with using the phrase synergy and all that stuff. It just kind of gets glossed over, right? And you do all these things and I want to optimize spend. And so you may want to look at in early on days, people would just start laying people off within the first 90 to 100 days without even thinking about it. These days, I look at we spend a lot of time on the culture side. Do I have the right people in the right seats and the bus? If you've read the book Good to Great by Jim Collins, it does work. So at the end of the day, you've got to get that culture thing nailed down. Number two is I would say alignment around the customer. Be a customer-led organization, and a lot of things will take care of itself.

SPEAKER_02 10:39

Yeah, that's a very healthy approach to the private equity business. The business certainly has a mixed reputation. And it's great to hear you talk about things like culture and creativity as being a third of the important ingredients for the success of an organization.

Why Good Companies Don't Sell

SPEAKER_02 10:58

When a portfolio company is running well, but it wouldn't sell well, it sounds like they don't have all six of those Cs operating. So what is the first thing you'd have an operating partner do to try and fix that? Like how would they approach that kind of problem where they're making their numbers, but they're they just don't look saleable?

SPEAKER_00 11:19

This is an interesting dynamic, and we see this a lot. Once you just you look at the top level numbers and buyers, or you may have interested parties. So the question is what is it that makes it not as attractive per se? One of the areas that if somebody's looking at the company, the concept of comparable peers. So that that's probably one dynamic is okay, yes, the company is at a, I'll just pick a number, 10 or 15% EBITDA. But when best in class companies are at 20, 25, or 30%, maybe double the rate, then you got to answer the question, right? So that is a example of, oh, this is a company that does have reasonable EBITDA, does have cash flow is healthy, but it's not healthy in comparison to the peers, right? So the question is why? So it could be is it overstaffing? Is it depending on the company? It could be on the materials or the inputs to the business, which means maybe they are they're not pricing and packaging accordingly. So ultimately there's gonna be a, in that example, there's a margin issue that needs to be addressed. And then hopefully you're monitoring that you know ahead of time. But you know, it's easier said than done. If you think about where the shift in AI or just shifting companies in general, think about companies that used to do business to business or starting to transact over the internet as an example. That shift over time created margin compression for a lot of firms, which they just weren't able to adjust. So it comes down to is the business model in line with the market reality.

SPEAKER_02 13:03

So there's a lot of context setting, I think, that has to happen here, right? You described a situation where devoid of context, the company might look like it's doing okay financially and market performance, but once you benchmark it against its peers or a broader category, it's an SAS category or information services category, you might turn up things that need to be addressed.

SPEAKER_00 13:27

I would say in general, I've I think one company I used to work with, I'm not gonna name them, but you know, they had expectations of where they thought they would end up when they went to a secondary sale and just the market shifted on them and they couldn't get the product and growth rates. I mean, from a you know, from a rule of 40 metric just way off the charts. But again, for a lot of companies, if the value lever is growth and your relative growth rate is half of what comparable peers are, then right, then you've got to really lean into that and try to understand the why.

Pricing And Constraints

SPEAKER_02 14:05

Yeah, I also thought it was interesting you brought up pricing as an example in this situation. We've talked about pricing an awful lot in our business and on our other podcasts, SAS backwards. And my sense is that not enough, especially software companies, take a look at pricing on a regular basis. Do you see that same thing?

SPEAKER_00 14:23

I do. And so if you think about unless you've got the resources to hire Simon Kucher as an example, right? Who's doing as does a lot of pricing studies, it is definitely both art and science. When I was at Rakiva, we actually had a dedicated team that did nothing but pricing and packaging, which was great, just how important it is. So, but unless you actually have a dedicated team andor dedicated resources coming in at the private equity firm level, that's working with your firms. Yeah, it is one of those things that can be let, you know, there could be, yeah. It's underappreciated, I think.

SPEAKER_02 15:00

Yeah, one of the best things that ever happened to me when speaking with earlier, speaking with private equity guy, I asked him, how can we be more relevant to you as a private equity operating partner? And he said, Well, tell me something I don't know. Which, you know, is that's throwing the gauntlet down, I think. And hopefully, if he's listening to this episode of the podcast, he'll say, Oh, pricing, boy, we haven't been looking at that enough. So I just think it's a really important. It's sort of the stepchild of a lot of leadership teams planning cycles. It like seems to get pushed off. And I just think it's so important.

SPEAKER_00 15:32

Well, let me interject on that. And the reality is, you know, my second favorite book, or one of my favorite books, is The Goal by Eli Goldrat, right? Which forces you into the framework, a theory of constraints. At any point in time, a business is going to have constraints, right? You can have this perfect scenario. I want perfect pricing. I want the perfect product, which creates virality within the customer referrals. Is it you mean you can go through the whole laundry list of this is where you want to get, it's just not going to happen. So ultimately, you're going to have to pick your poison, right? Pricing and packaging, yes, is an opportunity. But at the same, there may be constraints or downstream effects you have to deal with. Right. So say, for example, oh, I, you know, I really want to go, you know, I serve the enterprise and pricing and packaging. I want to take my this current product and I want to go downstream with it. Well, okay. What are you going to do? Cannibalize your your enterprise business. I'm just, you know, pick up. Actually, that's a real scenario.

SPEAKER_02 16:36

Yeah, either going up to enterprise or down from definitely hazardous terms.

SPEAKER_00 16:40

Right. You just can't. Do you change the brand? Right? It's the same product. You can't take the same product and charge 100 grand and then charge 25 grand. And then people chart, right? They'll say, Why are you charging it's the same thing? You're charging a different price. It just doesn't, it's not that simple.

SPEAKER_02 16:56

Yeah, packaging is definitely part of that equation, but I think it's an interesting lever that doesn't get pulled

Why Deals Die

SPEAKER_02 17:02

enough. I want to step to a different but related topic, which is deals don't always get done, right? There's a possibility of a deal dying before it gets to the table. And are there things that you see repeatedly that operating partners should be looking for in their portfolio companies? Like what's the longitudinal contextual thing that you see repeatedly that might get in the way of getting a deal done?

SPEAKER_00 17:29

So, in the context of from an operating partner, as we said before, as we were prepping for this episode, there's two ways to look at it. One is the operating partner in a situation where they are trying to acquire a new company that they're going to use as a platform. Or is this a situation where they already have an existing company, you're the operating partner that needs to work with it to get it repositioned for an exit. So I'll try to address both of those, but let's go with the former, which, as we said before, sourcing and acquiring new opportunities for a private equity firm is a talent and skill that differentiates the best from the others. It is a lot harder than it looks. And the reason why is as a private equity firm, you're fundamentally selling a commodity, right? It's capital. What am I selling capital? So why, if I have a great company as a business owner, why am I going to quote unquote sell or transfer to you? Got a thousand people that can show up and do that. So let's think about in the situation where a deal may just may just die on the vine, so to speak. And one way to think about it is think about yourself as the buyer, the private equity firm. What is your goal? I mean, you want to buy the highest quality asset with the least amount of capital, right? You always hear the, hey, we really make our money on the buy side or the entry point. Or said another way, if you're going to pay a premium for a company, you've got to make sure that it's premium. And so you think about the issues where things kind of get murky because ultimately, since the private equity markets are so hot right now, what companies are paying to the relative quality is off. So in other words, you may have to be in a company that I want to say that has hair on it, but maybe has some attributes that are not as perfect as you would like. Maybe the customer concentration is a little bit higher than you would like. Maybe the profit concentration is a little bit different than you would like. Maybe there's some seasonality that you need to kind of work through. Or also same thing from a customer concentration. It's not just at the revenue level, but maybe really peeling back the onion that your highest revenue customers are not necessarily the ones that are generating the most revenue. And I that is actually a problem, right? When thinking about you could actually get be more profitable by being rid of revenue, which would which is kind of throw things off. The depth of the management team, the founder and business owner dynamic is a tough one to get through. Particularly the default is you want the founder and business owner to stay involved as long as possible because you just don't really know how much influence that business owner has with the customer andor the rest of the managers and key employees. Those are kind of the big ones that we see where things kind of really a deal is going to go waffly, and we try to uncover these things first and foremost up front.

Post-Close First Moves

SPEAKER_02 20:40

I want to kind of tilt the conversation a little bit and talk about post-close. So you get the deal done and you're having your first meetings with leadership as part of the portfolio. How do you suss out where the first moves should be? How do you get to the first levers of creating enterprise value in the new investment?

SPEAKER_00 21:06

I do have a case study where the transitioning owner, co-owner who ended up being the CEO for a private equity transition, ultimately, and I knew the CEO, and I would say, I'd be shocked if you lasted a year. Because and he lasted one month, meaning that there was just their operating styles were completely different. In fact, I we are an investor in a firm that does nothing but identify communication and personality style conflicts on how people are wired for risk and decision making. So this comes down to early on is do we really understand the marriage, the partnership, the governance, and culture for the rest of the organization? So it if you don't get that down early, it it really just shortened the investment horizon of how much value you're going to be able to create. You're just going to be it's Just gonna be an uphill battle. So that's first and foremost is the culture, alignment of values, mission, vision, purpose. Whether you use scale up or EOS or whatever framework, I'm completely agnostic, use them all. But you've you really need to go through that exercise and get that down pat with the if the founder, business owner is gonna stay post-close working with the operating partner and the private equity firm, that stuff has got to get done.

SPEAKER_02 22:29

Interesting that you mentioned EOS. Is that something or you know, similar methods that you really recommend these firms, if they don't have them in place, get going with?

SPEAKER_00 22:40

I I do. Again, it's just a framework. It's a tool. Like I said, you can pick one, but ultimately this process of does everybody understand who we are and what we're looking to accomplish? Just hardcore mission, vision, purpose, culture, values, those things do matter. They really do matter.

Freedom Number Alignment

SPEAKER_02 23:00

The last thing that we talked about in prep, and I think this is a fun one. You said that owners have what you described as a freedom number. And I'm wondering how you get that aligned with your target as an investor, you know, your return targets as an investor. You know, how do you get those CEOs who now work for you to stay aligned with the shared mission?

SPEAKER_00 23:23

You know, the freedom number, and again, this comes down to and it's all subjective, right? And it is really problematic initially for founders and business owners when they're on the initial sell side. I'm not going to get into that, but that's what we work on. But even for the existing companies and management team thinking about the wealth creation for the new CEO, which may be the business owner or maybe somebody that's being brought in from the outside to work with the business owner or when the business owner transfers, ultimately, there is a horizon that the private equity firm wants to operate. And then what is the CEO looking to accomplish? And getting those aligned in terms of the performance of the company and how value is going to transfer and getting allocated. There's no playbook for that. That is truly sitting down with people face to face and saying, okay, what are we trying to accomplish here? Do these set of incentives align with what you want to accomplish as a CEO within the timeframe we need to operate? We just worked on a transaction that closed a couple of weeks ago. The CEO was co-advisor, he's going to come in as CEO. His time frame is three years. The time frame for the private equity buyer is five, seven, or potentially can go into a quasi-permanent mode. So in his model, he's just there to help build the initial platform, get the companies integrated. But once they get up and going, he's going to be looking to find his successor. And that's completely different than somebody as a transferring second by the Apple or new CEO that's thinking that they're going to stay for the life of the investment, which could be five to seven years or longer.

SPEAKER_02 25:06

Very different.

Resources And Closing

SPEAKER_02 25:07

I want to just circle back for listeners that have gone this far. You mentioned that you have two reports. I think we'll distribute them with the show notes as well. But can you just describe what just high-level those two pieces of content so people know what to be looking for?

SPEAKER_00 25:23

Yeah. So if you've seen the it's for is what I call my market intelligence report, which is basically it will be a series of quarterly and interim reports, which is basically tracking the metrics and trends within recurring revenue companies at a public level, but also we're monitoring companies that we call quote unquote recurring revenue companies that are being are seed to series C as an example. Okay. We also have some unique proprietary things that we're going to put into those newsletters. We like actually, we have a big push on that. Actually, companies need to do a better job of describing what a recurring revenue company is at both the private and public level. So, what are the disclosures and reporting around what is a recurring revenue company because they are so valuable to both public investors and private investors? The other item is what we call our crucial conversations or exit conversations, which really gets down to both helping potential buyers and founders and business owners thinking about if what you need to do to really position yourself to transition your company or not.

SPEAKER_02 26:30

That's great. And if people want to learn more about your company, Lever Six Capital, how can they do that? And how can they get in touch with you?

SPEAKER_00 26:39

Sure. Find me on LinkedIn. Fairly easy to find. You can also go to my website, lever6.com, and find me that way.

SPEAKER_02 26:48

Awesome. And if people want to reach me, I'm on LinkedIn slash in slash KenLempit. My Substack is also really directed for the interest of private equity operating partners. You can find that on Substack. It's KenLempit.substack.com. And our advertising and strategy firm for SaaS companies, Austin Lawrence, is available at AustinLawrence.com. And if Tony Rock hasn't convinced you that Propellant is the podcast for private equity partners and the companies that would like to sell, I don't know what we have to do, but we'll try again next time. Tony Rock, thanks so much for being here on the Propellant Podcast.

SPEAKER_00 27:28

And again, thank you to you and Austin Lawrence group for having me on your podcast. I look forward to the next one.

SPEAKER_01 27:35

Thanks so much. Thanks for listening to the Propellant Podcast, where we explore how operating partners help companies grow inside venture capital and private equity portfolios. If you found the conversation valuable, please subscribe and share the episode with another operator, founder, or investor. And we'll see you on the next episode.