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Allan Klassen Contact Information

Linkedin: https://www.linkedin.com/in/allan-klassen-03b151a/

Email: ak@allanklassen.com

Elizabeth Shea (00:45)

Hello and thank you for joining us at Branching Out. We are a podcast that's dedicated to talking to CEOs of businesses that they’ve sold recently or exited from. We're very excited to have Allan Klassen in our studio. Hello, Allan!

AK (01:00)

Hey Elizabeth, how are you? Thank you for having me today.

Elizabeth Shea (01:03)

Oh, I'm doing great. Thanks for joining me on this lovely Friday. Allan joins us from Albi Homes; he worked there for many years as a CEO and a minority partner. We'll have him tell us a story about that. Then he exited in 2015. So why don't we start from the very beginning then, Allan? Just tell us a little bit about your background, how you got into this crazy community.

AK (01:26)

Yeah, really, really crazy story. I started in the home building business in 1990 from the ground up. And I joined a former roommate of mine who had started a company called Albi Homes, a luxury home builder in Calgary, Alberta, Canada. He started the company back in 1982 and I started off on the sales side. I was going through a life transition, and he asked me to join him.

I started in the ranks there and eventually worked my way through. Fast forward another 20 years of lots of other stories that could go along with that. I became the CEO and president of Albi in the early 2000s and then Tom Moro, who is my partner, asked if I would be interested in acquiring portions of the business.

He was exiting from a day-to-day perspective in 2000. So, I started to acquire portions of the business and became a managing partner of the company. That would have been about 2003, 2004, 2005. Company was growing exponentially. We were selling anywhere between about 150 to 240 luxury homes in the Calgary market at that time at a high-end revenue of about 240 million on a per annum basis. We employed anywhere between 80 and 120 staff depending on the market conditions and all that kind of good stuff. And we built solely in Calgary. Tom had a couple of young sons who I was mentoring. However, in 2012 on the 16th hole of the Masters Championship, Tom and I were sitting watching the golf — Tom's 10 years older than I am — and he made a statement or asked me a question if I would be interested in acquiring the remainder of Albi. At that point, I said no.

We had made a decision that the best thing for the organization and for the family was to look for a third party or to make ourselves available to a third party. At the same time as we were having this conversation, I was attending Harvard in the owner president management executive MBA program and got exposed to tremendous conversations of family transitions, merges, acquisitions and the things you need to do to be able to position your company for sale. That day in 2012, we made a conscious decision that we wanted to become and be the premier luxury home builder in all of Canada because we wanted to make ourselves attractive. We didn't want to put a for sale sign up, but we wanted to make ourselves attractive over the next number of years.

We didn't know if it was going to be two years, ten years or whatever, but we really focused on our DNA as a customer-centric, culture-driven organization that was focused on luxury home building. That was kind of our sandbox. And we thought that if we did that really, really well, that there would be a suitor for us down the road. The landscape in Canada and in Alberta and Calgary was changing in terms of the capital requirements that it was taking to play. Also, the maturing of the various owners of the organizations were also aging up, so we knew that there was going to be some shift in the landscape.

In July of 2014, we were approached by one of our core developer partners who we bought land from — Brookfield Residential — which is a subsidiary of Brookfield Asset Management, one of the largest asset management companies in the world. Brookfield asked us if we would be interested in starting to talk about selling. And we went through that journey with them. That's where it started.

Elizabeth Shea (05:56)

Okay, so you didn't drive a process to create competitive bids. You talked to the book, filled you knew that and you decided to exit. You went to the alter with them.

AK (06:12)

Well, we didn't know what this was going to look like. What I think what we did well was we put ourselves in a niche of one. We created value that one would argue could not be matched. We also found the perfect date. Brookfield was aligned with us in terms of their values. We knew their people.

We couldn't have picked a better partner on the surface. I'm still talking about the dating part of the relationship. I'm not talking about the marriage part of the relationship yet, but from a dating perspective, they sounded and felt like the perfect date and they were awesome. They're just super, super massive. There's a finance company and driven by a bunch of very, very brilliant accountants.

And here we were, you know, we were very down to earth, organic, family run business. So, there was a big gap in terms of where our expectations were, and that's where the fun started to happen.

Elizabeth Shea (07:24)

Okay, so tell me about some of that fun. You exited in 2015 and then you . . .

AK (07:29)

Well, the journey to get there, I think, is an important one. You know, I had never been through this process. My partner had never been through this process. This company was my partner's baby. So, it was very much tied to probably both of our identities in many, many ways — Tom's more so since Albi is named after the little town in Italy that he was born in. So, it was very, very personal.

So . . . understanding what it would look like to come to a deal there. We were an ocean apart when we started. Some of the skills that I had learned while at school was you always want to go to the table with the best alternative to a non-negotiated agreement, a BATNA. And Tom and I figured that out. We figured out what our motivators were. We knew it was important to us. We knew what we were prepared to give up on.

Anytime you go into a negotiation with a massive asset management company like this, who's got a powerhouse, they can walk away anytime you want. By the way, the market was starting to tank in 2015. So, we had a motivated buyer, we had a starting point where we felt comfortable, but we still were very, very much apart. And that process of bringing it together almost fell off the cliff probably a half a dozen times for all sorts of different reasons.

The reality of the situation was that for their COO and myself, the deal was off. And I said, “let's get together. Let's have a glass of wine. Let's figure this out.” And we literally sat down in a local restaurant, and we both put in our non-negotiables and what were the most important factors. That conversation, which was this far from the deal falling apart, created the alignment for us to be able to come together and finally bring a deal together.

Because we gave up on some things, they gave up on some things, we got what we needed in terms of our priorities, and they got what they needed. And I think that's an important factor particularly when you're selling what we believe to be a strategic sale. It wasn't just the transaction. It wasn't a transactional sale. It was a strategic sale, but it was to a transactional business. So, there's a lot of little nuances at least from my experience. We finally did come to an agreement and finalized it in November of 2015.

Elizabeth Shea (10:01)

And of those non-negotiables, was money a big part of that number?

AK (10:23)

Yeah, money was a big part of it. The timing of payout was a bigger part of it. For Tom and his family, it was important for them. And again, they had been kind of exited from day-to-day operations for about 15 years at that time. The motivation was to be able to get them completely out. I was going to be part of the package regardless. So, my payout was not tied to any future profits. It was assured, but I had to stay behind to run their operation in Alberta, which is the province that Calgary is located in. I had a commitment to run that for three years. So, it was about the timing. They're an asset management company, so they wanted to buy hard assets. Their idea of value of brand was really negligible. Here we were very much brand centric, so we had to get our egos out of out of the way and really figure out what that looked like. That all related to money. We thought we had a certain value on the street and we did, but they didn't want to recognize it. So, we had to find a way between all parties how do we negotiate that, and we ended up finding something that we thought was equitable.

Elizabeth Shea (11:53)

Did you feel like you were educating yourself on this process or did you have a lot of guidance, or you said it's for somebody who's never done it, which is typically the case.

AK (12:02)

Yeah, for sure. I still spin my head that we actually got this thing done. You know, I'm not necessarily the sharpest knife in the drawer, but I learned pretty quick. But we had we had really great people around us, from a legal perspective — our folks, the folks at Deloitte, who are our partners in this entire process — were fantastic in helping us put together our deck and helping us pitch this in an appropriate way.

So, we had some really bright people around us. Still, I felt at times it was David and Goliath. We were up against the guys that do this on a daily basis. Again, thank God we were at the altar with some people that we did trust. We trusted them. We knew that they were not going to try and take us for granted or misused. It was very, very much a level of respect that was felt throughout the entire process.

Elizabeth Shea (13:12)

That's very important. Of the other non-negotiables, what did those have to do with? Was it client mix or employee treatment, benefits, or anything like that?

AK (13:22)

Yeah, most of it was dollars and cents — the value and the timing of the payout. There was a tremendous amount of conversation around employee retainment. That was one that couldn't be guaranteed. Obviously, we were cultural centric and cared tremendously about our people. And so did they, about their people. But we didn't know at the time because we were merging two housing companies with very different skill sets. We didn't know where everybody would fit or how they would fit.

And that was probably one of the things that I would have dug into a little bit more had I had a crystal ball. If you ever say to your team that nothing's going to change when you get acquired, you're really fooling yourself, and we made that mistake. We made that mistake by making that comment when we got sold that “there's not going to be a lot of change here, you're just going to have more of an opportunity” but there was tremendous change and that was very difficult to deal with personally for me. Very emotional.

Elizabeth Shea (14:49)

Sure, sure. I mean, it is a big change, and it is hard to say that when you really don't know. You do go in sort of with your eyes wide open thinking it's just going to be fine. What are some of the other changes that you experienced when you got on the other side of the transaction?

AK (15:05)

Well, even though from a values perspective there was tremendous alignment, we were two very different companies. They were a very strong finance company and not that we weren't, but that wasn't our forte. So, I went from being unconsciously competent in my mind where I could run Albi —not with my eyes closed, but I had an amazing team of people that were running the day to day. I felt comfortable with what we were doing in terms of our strategy. I was very aligned with our people. I was very engaged. And we were very entrepreneurial in terms of how we kind of went about our business.

Whereby, the company that bought us was very financial driven. They were very much around looking at Excel spreadsheets. They were very much looking at continuity. That made my skin crawl. So, that was a massive change for me. We were a luxury builder that was bought by their building company with a production builder and very much focused on cost efficiencies. So, there was a lot of clashing that went on with our two cultures and our people. We lost a lot of our people because decisions were made — rightly or wrongly — decisions were made to change the way that we did business strictly because of the dollar and of price. And that created a lot of animosity and a lot of collateral damage within the organization.

Elizabeth Shea (16:42)

Hmm. So, if you look back, what would you tell your former self? If you look back pre-deal, you've already touched on a couple of points, but what would you have done differently that our listeners can potentially learn from?

AK (16:56)

I think dig a little bit deeper, ask more questions about what it looks like three years down the road. What do we feel? What's our North Star with this? To this day, we're 10 years in, my right hand is running their housing operation. So, the guy that was my senior VP is their senior VP running their core business as are a number of my key staff, which I'm really proud of and very grateful for. However, I would have really dug into a little bit more, but what's the strategy? What's the long-term strategy of this transition? How is this going to impact our people?

The things that I personally went through, I don't know that I could have prevented it because I was part of the deal whether I liked it or not. Even though it was incredibly hard on me for all sorts of personal reasons. I literally had to get some support from a great psychologist to kind of help me work my way through this thing because it was very uncomfortable for me. I was a square peg in a round hole and that I didn't foresee.

And I think you need to figure out emotionally — particularly if you're going to be part of the transaction — how is this transaction going to impact you emotionally? How is it going to impact you from the way that you approach your business? For me, it was incredibly difficult. It worked out in the end because after I went and got my help, I got clarity on what really motivated me.

I transitioned into a larger role amongst Brookfield. I became the Chief Experience Officer because I did not want to be on the operations side in that kind of an organization. It wasn't for me. I wanted to influence change. I wanted to have more of an entrepreneurial feel. I wanted to be able to have more autonomy. And they created a role for me as CXO — Chief Experience Officer — for the entire platform across North America, which was a real compliment and a real opportunity. It allowed me to be able to do some pretty cool things over another, I guess it was about another six-year period and see transformation. And that's exciting to me.

So, I think my message from that is — as an executive or as an owner that is part of a transaction, know what makes you tick, know what motivates you. Be very aware of what pisses you off, pardon my language. Be very aware of the kind of culture you want to be involved in and what kind of influence you have. I think that those kinds of softer components of what our DNA is — that self-awareness is incredibly important.

Elizabeth Shea (20:12)

That is such a great point. What a wonderful takeaway. So, you were able to turn a situation from where you were frustrated potentially with some personal challenges and move that into a way where you could actually find a way to be happy. You're a little bit atypical, I think, since most people don't last this long. So, you were there a good eight, nine years. Hats off to you.

AK (20:28)

Yeah, I was there nine years and six of those years I thought I was on my last leg. I knew in January of 2018, I had nine months left in my agreement. I knew that one day I would be doing what I'm doing right now, which is really focusing on helping others grow their businesses, grow themselves, and have the best life possible.

That CXO, that Chief Experience Officer role, allowed me to do that in a very small way. It allowed me to practice. I had to get my ego out of the way because I was no longer the boss. But I was very lucky. I was given a tremendous amount of autonomy again to do some pretty cool things.

Elizabeth Shea (21:10)

I think that's just such a great story. Then hence your Clarity Quest consultancy was born and that's what you're doing now, correct?

AK (21:31)

Yeah, now I am my own — well, my wife’s my boss. But I get to have a lot of fun helping others. And I will only work with organizations and people that are strategic and that are relationship based. I will not work with transactional organizations. So, I would not work for a public company, and that's not a bad thing. It's just their DNA is— they're about the 90-day windows. I'm about the three- and five-year windows and I'm about the culture and about building relationships. I'm having a lot of fun and I'm learning a ton.

Elizabeth Shea (22:11)

That's excellent. Well, let me just go back to a couple of things that you said, just because I think they were really interesting.

You said that you and your partner decided to look at how to build up your brand so that you were basically in the market of one. What kind of things did you do and how did you know that that was important? And do you think it really helped to create additional value for your brand?

AK (22:31)

Well, I'm going to say, yeah, it did help. An example is we tried to diversify our product offering in 2005-2006 to offer a lower price product because we thought we were too much in a square peg. And we did okay when the market was thriving and it was hot. But when the market started to collapse, we realized that wasn't who we were. We could not be something we weren't. You know, Jim Collins’ Good to Great, the hedgehog concept. We went through that process of deciding what marketplace could we be the very best in the world at. So, we got rid of — and it cost us millions of dollars— some of the offerings that were distracting us from being the best in the world of being a great luxury premium builder.

And we focused in on hiring people based on our core value, higher character trained cash register. We knew in order for us to deliver a great client experience, we had to have an amazing employee experience. We felt that if we did these things, we would be successful, regardless of whether somebody came and knocked on our door. But we just focused in on delivering a great experience.

We were a two-time winner of the Builder of the Year across the nation. We were a multi-time Customer Satisfaction Award winner. We were one of the best managed companies in Canada. And those are just accolades. We were really focused in on a strategy to really, we knew who we wanted to be. We knew what we were striving for.

I had this real belief that if we did this really, really well and we got rid of a lot of the noise that somebody is going to look at us and say, “Hey, that's a pretty special, cool company.” And if they didn't, we knew that we would be okay. We knew that we would still be, you know, there'd be some headwinds. We got lucky. It took us a couple of years. If it was going take us five years or ten years or whatever, we would be okay. But it worked in the short term.

Elizabeth Shea (24:57)

That's great. So, if I can ask one more question about your communication to your team. At what point did you decide to tell your team? Did your leadership know? How did that process look?

AK (25:08)

Yeah, that was probably very hard because we had an NDA. We had a very small circle of our CFO, our executive leadership team, that were in the know for the journey of, I'll call it nine months. We had a partner in a renovation company that was not part of the deal, but it was under our brand that we couldn't tell until the day it was signed, until it was announced. That was really, really awkward. That's a relationship that unfortunately went sideways. We didn't get to tell our team until the day the sale was actually firm. There was a lot of tears.

I'll never forget that day, so help me God, that was a very emotional day. Even though we being given a tremendous opportunity — we had way more opportunity under this transaction than if we would have been under our current regime of our solo ownership because we had access to capital, we had access to land, we would not have to worry about financing anymore.

It was going to provide the team with a tremendous runway of opportunity in a very difficult time. In Alberta between 2015 and COVID, it was a recession. But still, those tears were warranted because no doubt about it, our culture changed. Even though everybody was good people, it's just different when you go into a large organization and you start to merge. If you're employee and customer centric, it's a very, very big transition, at least it was for us. And it was very incredibly hard. We lost a lot of people that did not want to be part of this large organization.

Elizabeth Shea (27:15)

And do you think that you could have done it differently? Was the NDA just a non-negotiable so you needed to sign it?

AK (27:30)

I would think so Elizabeth at the end. Yeah, the NDA was a non-negotiable just because I worked for them now for the last number of years. I've had more NDAs than you can shake a stick at, but that’s just the way that Brookfield rolls. And it was probably the right decision as well, just because Calgary is a small town.

You know, loose lips sink ships. There would have been some risk taken had we had that leaked out. The fact that we didn't get it leaked out to anybody, and we were in negotiations for like — from the time that we got approached to the time that we sold —was about a 15-16 month period. And to have that not leak out is an amazing feat. So, I don't think the NDA was a negotiable part of the deal.

Elizabeth Shea (28:01)

Right, right. Well, we've heard from different people on this podcast about varying levels of visibility. And sometimes if you went through a deal and it did fall through, then the team already knows about it.

AK (28:42)

I think that the other big one — and we were a B2C business, right? So, the other big one that we didn't project was the impact it had on our customers.

Both on our current customers who we were either servicing in customer care and a warranty or that we were building for. We had probably about 140 to 150 homes under construction at that time with clients on it. And their contracts are right away changed to Brookfield Residential. Not right away, but within in a period of time. Because of the unknown, that that caused a lot of anxiety.

And then more difficult was as we kept the Albi banner for two years, three years, where there's all sorts of different speculation and when you're in a luxury marketplace and you're selling to a specific buyer, it's very discerning. And all of a sudden, this large production builder comes and picks you up. There's a worry of — are we going to get a watered-down product or a watered-down experience? I think if I would look back at that, I would have micromanaged that. Because that had a real big impact on our customers as well.

Elizabeth Shea (30:12)

Yeah, yes, exactly. Well, the communications effort is always important. Well, so we're just about out of time, but I think this has been a fascinating conversation. I really truly appreciate your appearance, Alan. And if you can leave us with one last piece of advice, any last piece of advice or counsel you can give our listeners?

AK (30:17)

Elizabeth, thank you, first of all, for having me. I think, knowing what you're prepared to give up on and what your non-negotiables are and realizing that in a negotiation, everybody needs to win. I think that's incredibly important. And then secondly, the importance, you cannot communicate enough with your stakeholders and the importance of being as honest as you can be at the right time, as available as you can be, walking around. If you're, like I was, an executive that was part of the agreement, being visible and being available is incredibly important if you care about your company, care about your people, which I do to this day.

Elizabeth Shea (31:26)

Yeah. Great.

AK (31:29)

That would be, those would be a couple.

Elizabeth Shea (31:32)

Well, thank you so much. So how can people find you? What's the URL to come visit your new business?

AK (31:37)

Yeah, come visit me at alanklassen.com. You can hook me up on LinkedIn, Allan Klassen my email, ak.alanclassen.com is out there. I'd love to be able to help anybody that's going through the same process. if you're looking for a great leadership advisor, hook me up.

Elizabeth Shea (31:58)

That's perfect. Love it. Okay, thank you!