Podcasts about ebidta

  This week's guest on The Unbeatable Mind is a true, living, breathing example of how success can only come through hard work. Coming from truly humble beginnings, Tommy Mello talks to Mark Divine this week about how he's turned the seemingly innocuous garage door industry into a powerhouse currently set to surpass $100 million EBIDTA.    Tommy shares how he built and scaled his business from the ground up. From mowing lawns as a teenager in Michigan, to hiring top talent and building a world-class team, Tommy reveals the strategies that got him to the position he finds himself in today. He and Mark discuss leveraging equity incentive programs, fostering a culture in which staff can thrive, and Tommy's “build to sell” philosophy.    They also get personal, discussing the ups and downs that come with rapid financial success, learning the art of delegation, and the toll of “the grind.” Tommy gives his candid take on money, legacy, and health routines, and dives into the future of blue-collar work in an AI driven world. All in all, Tommy's insights are valuable for leaders, business owners, or anyone with the drive to build something big.      Key Takeaways:  Building To Sell: Tommy shares his philosophy on structuring business to make them sellable and scalable. His approach to acquisitions, greenfields, and organic growth aim to maximise value for future exits.  The Art of Recruiting: Discover how hiring is about far more than just what's on the resume. Tommy shares why he cares far more about passion and drive than technical skills, and how he can spot “unicorn” talent by paying attention to the little details.  The Power of Delegation: Listen as Tommy dishes on his personal journey of learning to let go. Grinding one hundred percent of the time is unsustainable, so he's learned to build checklists, hire smarter people, and invest in his own growth through coaches and consultants.  Marketing & Growth: Recognize how marketing for both customers and recruiting is the most valuable skill for company leadership.   As an entrepreneur, Tommy Mello has navigated the trenches, initially donning multiple hats – from sales and marketing to accounting and recruitment. However, he realized that sustainable success doesn't demand sacrificing family and friendships with relentless 14-hour shifts; it requires strategic intelligence and building invaluable connections.   So, he embarked on a journey of working smarter, not harder, focusing on cultivating the right networks. In a bid to pay it forward and support fellow home service industry entrepreneurs, he established a vibrant Facebook group. Here, he freely shares his insights and experiences while fostering a community where luminaries like Ken Goodrich, Joe Crisara, Al Levi, and other industry experts contribute their invaluable wisdom spanning branding, social media, and finance.     Tommy's Links:  Website: https://homeserviceexpert.com/  LinkedIn: https://www.linkedin.com/in/tommymello/   Instagram:https://www.instagram.com/officialtommymello/?hl=en   Youtube: https://www.youtube.com/channel/UCHZz8wAvo7GEvDw04C9DDWQ  X: https://x.com/realtommymello?lang=en    Sponsors and Promotions:   Momentous: If you're interested in making a true investment in your health, why not join the best in human performance and be part of the change in raising the bar on supplements. Just go to livemomentous.com and use code DIVINE for 20% off your new routine today.

Analysts Don Kellogg and Roger Entner discuss Q1 earnings from the major players in telecom and cable, as well as when impacts from tariffs may start to appear.00:23 Economic headwinds affect Q1 overall 03:16 Verizon Q1 overview 04:32 Free lines are affecting the numbers 06:40 Prepaid growth should not be ignored 07:34 Verizon adjusts reporting on SafeLink and insurance metrics 09:38 T-Mobile shakes up prices 10:39 AT&T Q1 overview 13:32 T-Mobile Q1 overview 15:06 Cable Q1 overview 16:59 Tariffs won't be felt just yet 17:53 Episode wrap-upTags: telecom, telecommunications, wireless, prepaid, postpaid, cellular phone, Don Kellogg, Roger Entner, earnings, Q1, Verizon, AT&T, T-Mobile, net adds, SafeLink, Lifeline, insurance, device protection, FirstNet, fiber, FWA, EBIDTA, convergence, legacy services, T-Priority, cable, Comcast, Charter, NPS, tariffs

Ken has been the President and CEO of America's Thrift Stores since November of 2013 when he stepped off of the board to assume this role. He spent his first 4 years building the team (21 of ATS's Top 25 leaders came from outside) putting in scalable systems and processes (Net Suite, Dundas BI tool, Day Force HCMS, Speed Rail Processing system), improving operations and cleaning up the balance sheet. All to prepare for accelerating growth.  Today, America's Thrift Stores (ATS) is America's premier thrift retailer in the Southeast, with 24 stores on track to deliver over $80 million in revenue and $10 million of sustaining EBIDTA in 2021 at a 66% gross margin and $12 million EBITDA run rate.  In the last 24 months, during the pandemic, ATS has added 7 new stores to its base of 17. Prior to the onset of the pandemic in March 2020, ATS's business was already incredibly healthy, growing total topline sales for 12 straight quarters and same-store sales for 11 straight quarters.  Reopening in June 2020, ATS emerged equally strong, with 4 back-to-back quarters of comp store sales growth, including a historic Q1 where both comp-store sales and Total Sales hit record-breaking levels. Sustaining EBITDA is expected to be over $14 million in 2022 and will more than double over the next 5 years as the company continues to grow comp store sales, opens 3-5 new stores annually, and enters the rapidly accelerating online thrift space.  Prior to joining America's Thrift Stores, Ken was a mentor, advisor, and coach to small and mid-size company CEOs as an Operating Partner with Alpine Investors LLC stretching across industries from Online Education to Online Retail Lighting & Design to Retail Furniture to Used Cars to Retail Thrift.  In this role, he coached CEOs and their leadership teams on helping them build and drive their growth strategies and sales & marketing execution. He also stepped into interim leadership roles and helped with sourcing and due diligence on potential new acquisition candidates.  Ken Sobaski has been a visionary, strategic President & CEO with a history of significantly accelerating growth and inspiring teamwork on businesses across multiple different industries: consumer food, online e-commerce, recreational products, and giftware. He has over 30 years of experience at blue chip marketing-driven companies like Kraft, General Mills, Pillsbury, Polaris, and Capella Education Company, where he grew brands like Orville Redenbacher, Green Giant, Wheaties, Kraft Macaroni & Cheese, and Polaris.  Ken's distinction is his ability to lead his teams to achieve significant levels of growth not reached before. Here are a few examples: At Pillsbury, he took a $600mm refrigerated baked goods business that was flat or declining for 5 years and added $120mm in revenue in year 1, and built a pipeline of new products that grew $270mm of incremental revenue over 3 years At Green Giant he successfully launched Create-a-Meal, a $150mm new frozen vegetable meal starter business, achieving record shares in frozen vegetables, moving to #1 position in the category in 12 months On Orville Redenbacher, he reversed 49-months of declines with 12 months of double-digit volume gains. At Polaris, he grew revenue +34% in just over 3 years by focusing/improving marketing execution and upgrading the dealer network At Capella Education Company (an online consumer education company) he took growth from +15% per year to +25% per year, adding $120mm in revenue in under 3 years Ken has served on the boards of The Minnesota Diabetes Association, The Twin Cities United Way, and The Council on Aging – Orange County.  Ken holds a BA in Economics & Urban Studies from St. Olaf College and an MBA in Marketing & Strategy from the Kellogg School of Management at Northwestern University 

Welcome back, digital disruptors! In this explosive episode of the Digi-Tools in Accrual World podcast, we take AI models head-to-head to see which one might best for accountants in practice ChatGPT Deepseek Claude Perplexity We've also got the latest App News and exclusive inside gossip and insights from the recent Finance Takes the Piste ski trip!   00:00 Coming Up 02:27 Hello! 05:18 Finance Takes The Piste Recap 06:47 Agent AI   App News ~~~~~~~~~~~ 08:35 AI Models for Accounting Firms 12:44 Sage CoPilot Misfire 14:21 Vertice Raise $50m 17:24 AI Line Item Extraction From Briefcase 19:00 iplicit secure £25m 21:05 Xero App Store Updates 23:44 Hedgeflows secures expanded FCA approval   25:42 Accurise on Delivering Outsourced Finance for Mid-Tier Businesses   Piste Artists ~~~~~~~~~~~ 33:36 Paul Barnes - The right EBIDTA… for your practice 34:43 Fraser Campbell - The right EBIDTA… for PE 36:24 Paul Barnes - Timesheets, yes or no? 37:28 Pete Everett - Skills of the 'firm of tomorrow' 41:57 Graeme Tennick - Finding the skills we already have 44:40 Jonathan Gaunt - Rockstars vs Superstars   47:24 Like and Subscribe!

With M&A transactions getting louder, it can only mean one thing…protein bar brands are starting to party like it's 2019 again! In my April 2024 content, I stated for that "party to restart" the protein bar market needed increased deal announcements. And maybe not so surprisingly…it only took less than four months before a deal announcement included a protein bar brand that was included on my list. That's because in early-August, international private equity firm Cinven announced that it had reached an agreement to become the lead investor in Vitamin Well Group, valuing the brand portfolio that includes Barebell protein bars at around $2.2 billion. But what sparked the inspiration for this content…was that about two weeks ago, another deal announcement included a protein bar brand from that list of attractive potential M&A targets. This time it was 1440 Foods acquiring FITCRUNCH, a protein bar brand that was co-founded a dozen years ago by celebrity chef Robert Irvine (and the contract manufacturer Bakery Barn). And the acquisition of FITCRUNCH by 1440 Foods makes perfect logical sense especially if your deep domain expertise includes the protein bar market. And that's because you'd understand that the protein bar market (like the entire supplement industry) has mostly a “sea of sameness” composition. But where the protein bar (or functional foods space in general) varies is that differentiation can be derived from having a unique form factor. Furthermore, if that unique form factor proves popular…a competitive advantage can be created through defensibility if you own/created that manufacturing process. This is the story of FITCRUNCH…because if you remember what I said earlier, it was co-founded by the contract manufacturer Bakery Barn. So, as you likely realize…not only did 1440 Foods acquire FUTCRUNCH, but also vertical integration assets with Bakery Barn. This is super helpful across a number of strategic areas from financial to operational…as the core FITCRUNCH product being a multilayered baked process is much more complex than the typical extrusion or slab bars on the market. Additionally, while the financial details of this transaction were private…Bakery Barn customer concentration likely kept the EBIDTA multiple lower than typical contract manufacturing deals in the protein bar space. But beyond extracting value from the product complexity (uniqueness) and Bakery Barn vertical integration aspect, 1440 Foods acquired FITCRUNCH because its highly complementary to the existing brand portfolio of Pure Protein, MET-Rx, and Body Fortress. Additionally, this deepens the 1440 Foods concentration into the active nutrition sub-segment of convenient nutrition bars that has shown strong growth of late compared to the general grocery category. But my latest first principles thinking content will examine the near-term outlook 1440 Foods…and if the convenient nutrition brand portfolio is pointed towards an eventual IPO. FOLLOW ME ON MY SOCIAL MEDIA ACCOUNTS ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LINKEDIN⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YOUTUBE⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TWITTER⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠INSTAGRAM⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠FACEBOOK⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ --- Support this podcast: https://podcasters.spotify.com/pod/show/joshua-schall/support

Analysts Don Kellogg and Roger Entner discuss Verizon's strategy as per their recent Q3 earnings call and sell-side analyst meeting.00:25 Verizon's Q3 breakdown 01:20 The metrics that truly matter03:23 Investor Day fiber discussion 05:33 Investor Day FWA discussion 09:18 What's behind bundling? 10:38 Verizon's strategy vs. AT&T and T-Mobile15:13 Episode wrap-upTags: telecom, telecommunications, wireless, prepaid, postpaid, cellular phone, Don Kellogg, Roger Entner, Verizon, earnings, churn, EBIDTA, net adds, Frontier, FiOS, broadband, FWA, rural, BEAD, bundling, satisfaction, AT&T, T-Mobile, cable, capital-light

Ahmed Abdelazim joins us to discuss why he focuses his analysis on small and mid-cap stocks and what metrics he uses (1:15). Heavy debt and why Peloton is a stock to avoid (4:05). Bullish on Confluent (7:00). Clover Health - a solid company with extremely good margins (10:30). When to sell a stock, when to buy more (15:25). Semiconductor space good for small and mid-cap stocks (16:20). Bullish on space sector and companies like AST SpaceMobile (18:20).Episode transcriptsShow Notes:Peloton: A Fragile Resurgence Built On Unsustainable FactorsConfluent: New Revenue Model & Flink Platform Are Game Changers For GrowthClover Health: A Profitable Future Ahead Fueled By AI And Star Rating SuccessAffirm: More Room To Grow In A Favorable BNPL LandscapeFor full access to analyst ratings, stock quant scores and dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions

Let's regroup short questions that are still relevant but can't make an entire episode. From thoughts on multiple stocks to different metrics, GICs, yield, and dividend growth, you'll find many answers to questions you didn't know you had! Download the free Stock Checklist. Make sure to check out the complete show notes. Twitter: @TheDividendGuy FB: http://bit.ly/2Z7Q5gF YouTube: http://bit.ly/2Zs6r1r DividendStocksRock.com

Welcome to Top of the Morning by Mint, your weekday newscast that brings you five major stories from the world of business. It's Thursday, June 27, 2024. My name is Nelson John. Let's get started: The equity markets rose on Wednesday. Nifty was up by 0.62 percent, while Sensex edged up by 0.80 percent.  It's been seven years since the central government imposed the Goods and Services Tax, commonly known as GST, on India. The aim was to create a common market where sellers and buyers didn't have to worry about a myriad of state and municipal taxes. However, the current slab structure has introduced a lot of complexities into the tax structure. The largest friction point has been over the funds that the states receive from the centre. How India Lives . com analyses these claims, and tries and figures out if the distribution of collected taxes is equitable for all the states. Central banks in the UK and Canada have cut their interest rates. The US Federal Reserve, which directly and indirectly controls the world economy to a large extent, has been mulling a rate cut for months as well. India's mutual fund industry is anticipating such a move from the Reserve Bank of India as well. If that happens, funds want to cash in. They're doing this via duration funds — a portfolio of bonds. Bond yields change according to current interest rates. As Anil Poste explains, a declining interest rate would provide higher returns via longer duration bonds. Mutual fund experts are bullish considering India's inflation and the relatively stable economic environment. Even just a 50 bonus point cut — that's half a percent over the next 12 months— would greatly improve the yields of this bond, Anil writes. Ask any lay person for categories of four-wheelers, and they would probably list out hatchbacks, sedans, and SUVs. But ask any sector expert, and they'd tell you CV and PV: commercial and passenger vehicles, respectively. Commercial vehicles are a category of vehicles that you wouldn't really buy: this includes trucks, buses, vans, and tempos. Tata Motors has now decided to split its two businesses in order to focus better on these respective segments. The combined entity had CVs as the cash cow, but was bankrolling Tata's PVs. Nehal Chaliawala writes that now that the PV segment has turned profitable on its own, Tata Motors' split between the two will help CVs power through on the back of its own revenue. Meanwhile PVs, which include the new successful upstart electric vehicles as well, will hope to achieve an Ebidta margin of 10%. Every year, the government boasts of lifting millions of people out of poverty. However, as N Madhavan writes, the way it goes about it isn't the most reliable. Poverty is measured by arriving at a poverty line. Those who fall under this line are considered poor by definition. The current achievements have been touted because we're still using the poverty line set in 2012. Experts are now calling for a new line that takes into account the inflation and living conditions. If you're looking to build a new factory, you might want to wait for just a bit more. In a bid to encourage India's lagging manufacturing sector, the government had put a 15 percent tax rate for new manufacturing facilities. This started in 2019, and led to over 23,000 factories opening in FY20. However, covid-induced lockdowns stalled progress. This scheme's validity expired on 31 March this year. Gireesh Chandra Prasad reports that the government is likely to restore this concessional rate in their next Budget. A lower tax rate is a great incentive for India's manufacturing sector to take off, and the new government is counting on it.  We'd love to hear your feedback on this podcast. Let us know by writing to us at feedback@livemint.com. You may send us feedback, tips or anything that you feel we should be covering from your vantage point in the world of business and finance. Show notes: Seven years on, GST still sparks Centre-state frictionWhy the mutual fund industry is betting on duration funds Tata Motors says demerger will allow all businesses to unlock potential Why India must count its poor accurately Building a new factory? Budget may extend concessional tax rate for a year

Chris, Paul & Jordan wax philosophical this week as we break down "The Fleshy Part of the Thigh". This episode sees Tony recovering from his trauma amidst the backdrop of a fascinating Eastern vs Western philosophical battle. Has Tony changed? Can Tony change? Is everything connected? Or are we "each and every one of us alone in the ring fighting for our lives?". These are the questions at the heart of this hour. Plus! Paulie has a crisis of identity, and Bobby finds a unique way to earn some extra money. All this and so much more, right after we find out what our EBIDTA is...   WE HAVE A PATREON NOW! Please check us out and support us so we can keep dishing out some audio Sunday dinner for you at www.patreon.com/thesopranospodcast   TheSopranosPodcast@Gmail.com @TheSopranosPodcast - Facebook & Instagram @SopranosPodcast - X (Formerly Twitter)

On this episode of Healthcare Market Matrix, host John Farkas is joined by Trish Rivard, CEO of Eliciting Insights, a healthcare technology market research and strategy company, and Ben Reigle, CEO of Tarpon Health, a community of providers that are building their own internal automation.  Trish is an accomplished ROI-driven leader and consultant specializing in healthcare technology companies, and boasts an impressive fifteen year record of success. Her expertise lies in steering EBIDTA improvement and fostering market share growth within the healthcare and payment industries. Trish is widely trusted for her exceptional consultative skills, which she employs to prioritize IT projects, enforce ROI accountability, and streamline resource allocation to meet ambitious timelines. Drawing upon her extensive experience as a Healthcare Revenue Cycle Executive, Trish excels in helping companies position themselves for growth, and at guiding them through the process of clarifying their vision, validating market receptiveness for their goals, charting a strategic roadmap, and optimizing resources for optimal outcomes in the ever-evolving healthcare marketplace. Additionally, Ben has dedicated the majority of his career to the healthcare sector, with a significant focus on revenue cycle management over the last decade. Observing that the revenue cycle had remained unchanged for years, he embarked on a mission to challenge the conventional approach by initiating two groundbreaking projects. In November 2017, Ben launched the RCM Leaders Forum, an exclusive event designed to gather leaders in healthcare revenue cycle management for focused discussions without distractions. Furthermore, Ben has fostered a sense of community through his video podcast “My Good Friends,” which features interviews with event participants and professionals from various fields. Throughout the episode, Ben and Trish expand on the recent Change Healthcare cyber data breach, how the implications of the breach will impact the industry, and how the healthcare ecosystem as a whole will need to proceed going forward.   Show Notes (0:41) Introducing Trish Rivard and Ben Reigle (5:34) Analyzing the Recent Cyber Breach (16:18) About Change Healthcare (24:59) Impacts of the Cyber Breach (34:41) What Healthcare Marketers Need to Know about Data (38:43) Revenue Implications of the Cyber Breach (43:54) Closing Thoughts  

n un documento di ricerca di marzo 2024, il CNDCEC si è occupato delle nozioni di Ebitda e PFN ai fini valutativi e negoziali. Cosa sono e a cosa servono? L'approfondimento di Mario Ravaccia

This week, we welcome back Keith Grossman. Keith has been a leader in the medical technology industry for more than 35 years. He is currently the Chairman of the Board of Nevro Corporation (NVRO), where he was previously President and CEO from 2019 through April 2023. Prior to Nevro, he was named President and CEO of Thoratec Corp. (THOR) for the second time in 2014. He led the company's return to growth, a 2.5x increase in company value, and its $3.4 billion acquisition by St. Jude Medical in 2015. He previously served as the CEO, President, and Director of Conceptus, Inc. (CPTS) from 2011 to 2013, where he took the company from negative sales growth to over 20% growth, tripled EBIDTA, and led the company's sale to Bayer Healthcare for over $1.1 billion, a 3x increase in the company's value before his arrival. Prior to Conceptus, Keith served as managing director of TPG (Texas Pacific Group), a private equity firm, as a member of its healthcare investment team. Prior to TPG, Mr. Grossman served as Thoratec's President, Chief Executive Officer, and director for the first ten years of its growth as a commercial company. Prior to Thoratec, he held a number of commercial and general management roles with companies, including SulzerMedica and American Hospital Supply Corp. He currently also serves as Vice Chairman of Alcon, Inc., and is on the board of Outset Medical, Inc. and previously served as a member of the Board of directors of Intuitive Surgical, Inc., Kyphon, Inc., ViewRay, Inc., Zeltiq, Inc, and a number of privately held medical device companies. Keith received a B.S. in life sciences from The Ohio State University and an M.B.A. from Pepperdine University.

BananaBro is a chain of banana leaf restaurants founded in 2018 by Tony Lim, who isn't a stranger to the F&B space. He previously started Boat Noodle back in 2013 and before that set up a Chatime franchise in Cambodia in 2011.In 5 years, BananaBro has grown to over 30 outlets nationwide and made RM70 million in revenue in 2023, with EBIDTA margins around the 15%-20% range. The business is still actively expanding and is looking to take their store count to 60 by 2026. At present, Tony sees potential revenue for the Malaysian market hitting between RM150 million to RM200 million in time. From bubble tea to thai boat noodles and now Indian banana leaf, in this edition of Open For Business we explore the business rationale and promise for building a banana leaf restaurant chain, how Tony's past experiences have helped with the starting and scaling of this venture, and much more.

With the rise of DSOs and the increasing number of practices being bought and sold, you've heard the term EBIDTA. What is it? How is it calculated? And most importantly, what discrepancies can alter the formula at the time of a sale? On this Dentist Money Show, Ryan and David Haynes, of Menlo Dental Transitions, talk about why EBIDTA serves as only a starting point for a practice sale. Book a free consultation with a CFP® advisor who only works with dentists. Get an objective financial assessment and learn how Dentist Advisors can help you live your rich life.

Trust Stamp Chief Financial Officer Alex Valdes joined Steve Darling from Proactive to share some exciting news about the company's financial performance. The announcement pertained to Trust Stamp's financial results for the third quarter, which concluded on September 30, 2023. It was a turning point for the company, marking significant progress and growth. A key driver of this success has been Trust Stamp's Software as a Service (SaaS) product, known as the orchestration layer. Introduced in the third quarter of the previous year, this product has rapidly evolved into a central component of the company's strategic vision. Since its launch, it has attracted more than 38 new enterprise clients, underscoring its value and appeal in the industry. Additionally, revenue generated from the orchestration layer's flagship customer has seen an impressive growth rate of over 200%. Valdes also emphasized the pivotal role of cost reduction initiatives implemented by Trust Stamp in 2022. These initiatives played a crucial role in enhancing various performance metrics across the company. The positive outcomes of these efforts are evident throughout the company's financial reports. Notably, the direct costs associated with customer implementations decreased by a substantial 58%, even as Trust Stamp continued to onboard dozens of new customers. Operating costs from the previous year also saw a significant reduction of 31%. This disciplined approach to cost management allowed Trust Stamp to achieve a significant milestone—the booking of positive Earnings Before Interest, Depreciation, Taxes, and Amortization (EBIDTA)—for the first time in the company's history. In summary, Trust Stamp's recent financial results underscore its impressive growth trajectory. With a substantial increase in net revenue, the success of its orchestration layer product, and effective cost reduction strategies, Trust Stamp is poised for a bright and prosperous future in the ever-evolving technology and security landscape. #proactiveinvestors #truststamp #nasdaq #idai #Q3Results #CFOInterview #FinancialNews #SaaS #Innovation #RevenueGrowth #BusinessTransformation #CostReduction #EnterpriseClients #Patents #HighMarginModel #FinancialSuccess #EconomicOutlook #FutureGrowth #TechInnovation #GovernmentVertical #BusinessStrategy #MarketTrends #FinancialMetrics #Efficiency #Investments #SustainableGrowth #MarketInsights #EconomicResilience#invest #investing #investment #investor #stockmarket #stocks #stock #stockmarketnews

You just got an offer for your dental office…and it looks great! But do you know if the numbers on the page match your EBIDTA? If you don't know what EBITDA is, or your practice EBITDA, then you could be leaving hundreds of thousands or even millions of dollars on the table. So join me today as I share what you need to know about this all-important number if you want to get the most value out of your dental practice.

You know that little feeling in the back of your throat that makes you feel emotions towards someone else?  Yeah— it's called empathy, and True Classic's CEO, Ryan Bartlett, is here to explain why it's the one thing that will distinguish your D2C brand from the rest of the crowd.  Nik and Moiz talk to Ryan about the importance of empathy in company culture, how he fosters that mindset daily within the walls of True Classic Tees, and why hiring emotionally intelligent people is critical to negating workplace toxicity.  Ryan also unveils his playbook for hiring powerhouse players— and spoiler alert— it doesn't involve recruiters or running ads. So, lay off the LinkedIn for a bit, bucko, because, according to him, the best employees probably aren't even looking for jobs. Time to go poach some Grade A eggs! Plus, find out why growth and valuation are simply a high-stakes game of EBIDTA and retention, and what True Classic is doing to perfect their model.   0:00 Guess That Business 12:00 True Classic & Ben 19:52 Creating a Great Culture 33:30 Becoming More Creative 40:15 Going Viral 42:00 The Hiring Process 53:00 Mr. Sharma's Hiring Process 1:00:00 Growth and Valuation 1:10:31 Mobile App Metrics Check Out True Classic Tees:  Website: https://www.trueclassictees.com Instagram: https://www.instagram.com/trueclassic/ TikTok: https://www.tiktok.com/@trueclassic Follow Ryan:  LinkedIn: https://www.linkedin.com/in/rbtct/ Follow Nik: Twitter: twitter.com/mrsharma Follow Moiz: Twitter: twitter.com/moizali This episode was brought to you by Tapcart: Mobile Apps for Shopify. If you are looking to improve your store's mobile revenue performance, then check out Tapcart and get your first 2 months free at https://tapcart.com/limited Check out the Nik's DTC newsletter: https://bit.ly/3mOUJMJ

Opioid withdrawal symptoms can be horrific including nausea and vomiting, anxiety, insomnia, muscle pain, hot and cold flashes, just to name a few. They are so debilitating that some people return to drug use just to alleviate the physical pain. Vaughn Bell of Speranza Therapeutics tells us about a new device called the S.T. Genesis that helps with these symptoms. The S.T. Genesis is an FDA-cleared Percutaneous Nerve Field Stimulator (PNFS) that supports the reduction of opioid withdrawal symptoms by targeting the areas of the brain responsible for pain and anxiety. The lightweight device is applied to the outer ear and administers treatment for 120 hours (5 days) helping the patient during the most critical time as they reduce or stop opioid use.Vaughn Bell, MDiv, has been dedicated to the addiction and mental health industry for all of her 35 years in the behavioral health industry. Following her graduation from Samford University with a degree in Psychology she completed her Masters of Divinity in Pastoral Counseling from Southern Baptist Theological Seminary. While working on her Master's degree, Ms. Bell worked in inpatient treatment settings with Adolescent substance abuse patients and found her passion in helping others find help from addiction, trauma, and mental health issues. After receiving certifications in alcohol and drug counseling and marriage and family therapy Ms. Bell worked in a number of psychiatric hospitals within the National Medical Enterprise and Charter Behavioral Health System working directly with clients in counseling and ultimately overseeing the hospital admissions functions, outpatient services, and ultimately marketing and business development. She spent the next 10 years overseeing marketing in sales over multiple hospitals across the country, growing to an oversight of 25 facilities while at Charter Behavioral Health across the Southeast and Midwest.As her career expanded over the next 20 years, Ms. Bell has overseen the marketing and business development functions at multiple companies including Behavioral healthcare corporation, Springstone, Elements Behavioral Health, Odyssey Behavioral Health, Landmark Recovery, and Pinnacle Treatment Centers. Her national footprint across the country gives her an extensive network and knowledge of the Treatment field and she is well-versed in census management and has led multiple sales teams to achieve and surpass census and EBIDTA goals year after year while assuring clinically sound care is delivered to all patients. Ms. Bell's healthcare experience also encompasses several years in the health insurance industry working in Operations as the Account Service Director at Humana, as well as a stint as the Chief Marketing Officer of InnovaTel Telepsychiatry. Ms. Bell's broad experience across the healthcare spectrum makes her uniquely qualified to lead business development and sales efforts in her role as SVP of Growth Strategy with Speranza. Ms. Bell was immediately drawn to the innovative treatment approach afforded to opioid patients with the S.T.Genesis and is able to use her extensive clinical knowledge and national network to bring a new and exciting detox device to help relieve the pain and suffering of those she has worked for 30 years to help find recovery. She brings a knowledge of both treatment and successful recovery to her passion for the patients and families we serve.

edição de 13 Abril 2023

You just got an offer for your dental office…and it looks great! But do you know if the numbers on the page match your EBIDTA? If you don't know what EBITDA is, or your practice EBITDA, then you could be leaving hundreds of thousands or even millions of dollars on the table. So join me today as I share what you need to know about this all-important number if you want to get the most value out of your dental practice.

Today, I am talking to Mohammad Saif, Partner-Power & Utilities at EY. Saif is a seasoned expert with more than 16 years of Industry and Power Sector consulting experience with Big 4 Consulting. He is currently a part of EY's Power & Utilities team in the Africa, India and Middle East (AIM) region. He is also the practice Lead for Energy Efficiency, Decarbonization and Emerging Technology (renewables, E-mobility, Storage, Hydrogen etc.) segments and the traditional value chain covering electricity Generation, Transmission and Distribution across Business Strategy, Transition Planning, innovative business models, transition pathways, EBIDTA improvement etc. As a Practice Lead, Saif is responsible for managing and growing the P&L with a team of more than 35 people working across the South Asia region. In addition to India, Saif has successfully led engagements with Governments, Regulators, Utilities and Multi National Companies in Africa, Europe, Middle East and other South Asian countries. Today, he breaks down the components of why energy efficiency is critical for a country's clean energy transition strategy and what the journey looks like, with a live example of what's happening in India's energy space and the recently worked on Energy Conservation Bill.Support the showThanks for listening! Follow me on LinkedIn and our page for more insights from industry experts, seasoned practitioners and academicians

Today's podcast guest is Jim Johnsen, a managing director at the out of home investment banking firm Johnsen Fretty talks about out of home valuations and the out of home debt and equity markets. Here are the highlights. A healthy out of home transactions market. The market is healthy with lots of buyers and sellers at the moment.  On a scale of 1 to 10 it's somewhere between an 8.5 and a 9. Jim Johnsen, Managing Director, Johnsen Fretty Where are billboard cashflow multiples Somewhere between 10-13 times is where we are seeing things go off... An active pool of buyers The pool of buyers is better than I've ever seen it.  For example JCDecaux stepped up for its first acquisition in the US...They were in a joint venture with Interstate and Interstate put their half on the market and they ran it through a process and I heard it was a very close competition...Clear Channel has been active as of late.  They've been on a long hiatus...it's good to see them back in the market.  OUTFRONT has been selectively buying and of course Lamar has always been the perennial acquirer...And beyond that you've got guys like New Tradition with their purchase of Regency and some follow-on transactions that they did with us recently.  We closed a deal with Vector recently.  Branded Cities is buying.  Trailhead, MH, Keystone, McWhorter, Big Outdoor, Link, Adams, Lindmark, Las Vegas Billboards, Orange Barrel, Azalea, Tier One, Creative and a whole host of others. Private equity is interested in out of home but has trouble scaling I can't count a week that we don't get 3-4 calls from private equity firms saying "hey, we've done a white paper on the out of home business...or we bought some Lamar stock and that worked out well so how do we get in in a deeper way."  So the interest is really, really, strong.  The dilemma for the private equity business is how do they get scale.  Getting scale in the out of home business is hard...there's only so many Adams out there...The size of companies drops off pretty quickly.  Most of the private equity firms want to write a $50 million check, a $100 million check and upwards...They need a pretty sizable company...We have seen several groups come down market.  Instead of requiring $10 million of EBIDTA they are doing $1-2 million of EBIDTA. Lamar I believe Ross Reilly is being groomed to be the next CEO of Lamar.  My interactions with him have all been super favorable.  He's a business friendly guy.  He likes to think outside the box.  Smart, affable, well liked... OUTFRONT I love them.  From a forward thinking sales and marketing organization I think they get it...they are not selling space...they are selling a product with lots of sex appeal...The MTA product looks phenomenal.  I'm in New York city riding subways often...one thing they do right is station domination.  Generally they're trying to sell the entire environment to one advertiser at a time and making a gigantic splash... Clear Channel Outdoor They are the Tiffany collection of assets...the asset is good.  They've had so many challenges for so long...their capital constraints have been deleterious...when they spun off certain markets in 2018 when you talk to Jim at Ashby Street or some of the Lamar guys who bought the assets they were in shock with how good the assets were and how much lift there was on the assets by applying some more capital and hard work. What about Clear Channel Europe? I'd sell it at whatever the clearing price was, but I'm sure the lenders have something to say about that...my sense is that out of home advertising in other parts of the world is different...it's more agency than asset...it's lower margin...if you're trying to run an out of home company in Europe like you're trying to run an out of home company in the US it's a bit of a mistake... Link Media They're being selective as to what they go after...Scott Lafoy has done a dynamite job...

When you forecast business growth, it's often in terms of P&L, EBIDTA, MRR, and other top-line metrics. And, while many brands sleep on NPS and CSAT, you chose to listen to this episode—and that means you know that these customer perception metrics play a critical piece to longterm business growth.The contact center is a central part of a CSAT or NPS evaluation. But there are dozens of factors that go into these metrics, right? Sure, that may be true. But we're about to see how your contact center can be the human-powered rudder that steers your NPS toward a brighter tomorrow.Still hungry?Let us know what you think on Linkedin or by emailing snack@getmindful.com.Hear more at getmindful.com/podcasts/

Ankit Kedia is the Founding Partner of Capital-A. He is a second generation entrepreneur who has held senior leadership positions at Manjushree Technopack Ltd. (MTL), India's largest rigid plastic packaging company. With a penchant for institutional marketing and a credit of designing the Key Account Management program, Ankit has been instrumental in the 5x growth of revenues and EBIDTA at Manjushree, where he devoted 15 strong years. He was also instrumental in raising private equity capital from Kedaara Capital and helped in the acquisition of two rival companies, before divesting controlling stake to Advent International in 2018. In this episode we will cover:1. What does Ankit really love about venture capital? (3:10)2. Ankit's perspective on India's macro economic climate (6:30)3. Market fluctuations in the early stages of investing (8:50)4. Founder-market fit and how it influences a fund manager's investment decisions (14:48)5. Learnings from investing in Indian startups (17:56)6. How to identify the best startups (22:24)7. The most difficult thing for a fund manager of a micro VC fund (34:40)8. Ankit's perspective on the Indian early-stage venture landscape (36:53)9. Why did Ankit choose to invest in tech startups rather than traditional manufacturing businesses in which his family had had a lot of success? (41:10)10. What has Ankit the LP learned about Indian VC that he can use as a fund manager today? (44:15)11. What would Ankit advise his younger self? (46:51)12. Advice for entrepreneurs and fund managers (48:55)​

No episódio 134 do JKCast, José Kobori respondeu as dúvidas dos ouvintes sobre Swing trade é estratégia de investimento? Exportar commodities é bom para o Brasil? Ebitda e IR.

In today's episode of Industry Matters Boone Lockard, Director of VGM Respiratory talks with Chief Commercial Officer for Trace Medical, Elliot Campbell about Trace Medical's history and growth to the ventilator rental company in the U.S., how they navigated COVID-19, and why you should be looking to Trace Medical to help optimize inventory, take advantage of asset flexibility, and increase EBIDTA margins.

Jakub Dwernicki to prezes H88 SA oraz CEO i Founder R22 – dynamicznie rosnącej grupy, wspierającej biznesy w obecności w internecie, automatyzacji komunikacji, marketingu, sprzedaży. cyber_Folks, ProfitRoom, Vercom, MailerLite, ZenBox to kilka firm z portfela grupy, która w 2021 r. wygenerowała prawie 300 mln zł przychodu i 77 mln EBIDTA. W rozmowie m.in. o podejściu do inwestowania, biznesie w stylu poznańskim, idealnej obsłudze klienta i mierzeniu NPS, czy można robić biznes na 80%, a weekend zająć się domem, jak Jakub wyłączył internet w Allegro. ---SUBSKRYBUJ ten kanał i bądź na bieżąco!

If there was one theme in the startup ecosystem that dominated 2021, it was unicorns! After all, 2021 saw the rise and rise of India's start-ups with the unicorn-base doubling. Out of India's 90 unicorns at the beginning of 2022, about 46 had emerged in 2021 itself. “The unicorn wave in India is still going strong: one unicorn has been added every five days within the first two months of 2022, and India is expected to have 100+ new unicorns in 2022” - HDFC Securities report   And, in various quarters, the optimism has also carried on into 2022. According to an HDFC Securities report, accelerated funding activity is expected to create over 100 new unicorns in India in 2022. In fact, according to a report, from the beginning of 2022 till April-end, India saw the rise of 14 new unicorns. These are Fractal, LEAD, Darwinbox, DealShare, ElasticRun, Livspace, Xpressbees, Uniphore, Hasura, CredAvenue, Amagi, Oxyzo, Games24x7 and Open. All of this, has papered over some of the early indications in the ecosystem -- from corporate governance concerns to the sobering performance of some start-up IPOs. And, dark clouds could be around the corner. A number of venture capitalists recently told Business Standard that the pace at which unicorns will emerge in India might get a bit slower in 2022. One of the major reasons for this slowdown could be the challenges within the ‘soonicorn' ecosystem. In fact, only a handful of soonicorns have been able to raise funds in the first quarter of CY22.   “The pace will reduce in the second half of the year due to global macro risks affecting liquidity. But net-net, we may still end up with a number close to that of 2021” - Anand Prasanna, Managing Partner, Iron Pillar Fund Iron Pillar Fund Managing Partner Anand Prasanna told Business Standard that the pace at which unicorns emerge would reduce in the second half of the year owing to the effect of global macro risks on liquidity. According to Prasanna, increasing customer acquisition costs, poor performance by some consumer tech unicorns that went for IPO recently, and India's macro-economic challenges could affect the pace of unicorn creation in 2022. Some other reasons for the slowdown are a spike in the US interest rates, the Russia-Ukraine conflict and of course the rising inflation. Another major reason for a slowdown in unicorn creation could be that   After a frenzied investment activity in 2021, the market is likely to be cautious this year and investors much more choosy. This could be another reason for a slowdown in unicorn creation, and not necessarily a bad thing. There might be a need to slow things down and look at the sustainability of these unicorns. Let's start with valuations. Consider the funding lifecycle of a start-up. First comes the seed round. Then comes Series A, Series B, Series C, and pre-IPO series rounds, all of which usually culminate in an IPO. Now, as one news agency pointed out, there are doubts that the valuations, which multiply with every funding round, are based in a large part on opaque formulas. Metrics that are the gold-standard for traditional companies, from profit after tax to EBIDTA, are not generally useful when it comes to companies that continue to run in losses. Instead, cost of goods sold, GMV and active user counts are the valuation metrics that have to be used. This might not be a matter of great concern as long as it is the venture capitalists alone who are shelling out cash based on these valuations. But, it becomes unsettling when retail investors get involved through an IPO. Then there are matters of ethics and corporate governance. Amid reports of data fraud and tax evasion at Indian start-ups, the Commerce and Industry Minister Piyush Goyal recently said that new-age companies must strengthen ethical and corporate governance standards, otherwise, start-ups would earn a bad name. While Goyal didn't mention the name of the startups, his statement comes after

“What is my company worth?” That's a big question with a lot of answers.    In today's episode, host Roland Frasier walks us through a few different ways to value your company. Last time he checked, there were 432 different ways to do this. Don't worry. He's only going to share a handful—and he'll tell you which one he thinks is easiest (and he uses most often). It can be overwhelming when you consider book value, market value, intangible assets, goodwill, and acronyms like IRR, SDE, EBITDA, and ROI. Thankfully, Roland is really great at breaking down difficult concepts in ways anyone can understand.   Listen in as Roland shares a helpful overview of valuation in the M&A world.   IN THIS EPISODE YOU'LL LEARN: What IRR, SDE, and EBIDTA mean and why they matter How to factor in goodwill and intangible assets when pricing your company How to use a comparable analysis when selling/buying a business The single easiest way to figure out what your company is worth    OUR PARTNERS: https://scalable.co/7-levels-assessment/?utm_source=business-lunch&utm_medium=podcast&utm_campaign=lead-gen (7 Steps to Scalable workbook) Get a free proposal from https://conversionfanatics.com/ (Conversion Fanatics) Get 3% cash back on your ad spend with https://www.funneldash.com/adcard (AdCard) https://yourzerodownbook.com/ (Get my book, Zero Down, FREE)   Thanks so much for joining us this week. Want to subscribe to Business Lunch? Have some feedback you'd like to share? Connect with us on https://itunes.apple.com/us/podcast/perpetual-traffic-by-digital/id1022441491?mt=2 (iTunes) and leave us a review!

“What is my company worth?” That's a big question with a lot of answers.    In today's episode, host Roland Frasier walks us through a few different ways to value your company. Last time he checked, there were 432 different ways to do this. Don't worry. He's only going to share a handful—and he'll tell you which one he thinks is easiest (and he uses most often). It can be overwhelming when you consider book value, market value, intangible assets, goodwill, and acronyms like IRR, SDE, EBITDA, and ROI. Thankfully, Roland is really great at breaking down difficult concepts in ways anyone can understand.   Listen in as Roland shares a helpful overview of valuation in the M&A world.   IN THIS EPISODE YOU'LL LEARN: What IRR, SDE, and EBIDTA mean and why they matter How to factor in goodwill and intangible assets when pricing your company How to use a comparable analysis when selling/buying a business The single easiest way to figure out what your company is worth    OUR PARTNERS: 7 Steps to Scalable workbook Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get my book, Zero Down, FREE   Thanks so much for joining us this week. Want to subscribe to Business Lunch? Have some feedback you'd like to share? Connect with us on iTunes and leave us a review!

For over 17 years, Lucas Root led numerous teams on Wall Street. After establishing a consistent track record of success, Lucas started his own consulting business. Lucas works with strong brands with a well-funded great idea, who doesn't quite know how to execute. Since early 2019, Lucas has had the wonderful opportunity to speak to numerous audiences in North America, Australia, and Europe, as well as partner with both businesses and VCs for mentoring. Listen in!

Business owners tend to be so focused on putting out fires in their day-to-day operations that it can seem impossible to plan for growth, never mind an exit from the business. However, this myopia holds business owners back. Pete Martin has dedicated his career to helping business owners break free of this mindset. Pete Martin is the Founder and CEO of AskMyBoard, a company focused on helping business owners unleash their business's highest potential value to grow faster and more profitably to put you in a position to exit at the highest price or confidently detach from the business. As a serial entrepreneur, Pete has started, scaled, and successfully exited four previous companies, including his last to KPMG for 12 times EBIDTA and no earn-out. Today, Pete joins the podcast to discuss the ways in which business owners can improve their operations to unleash their highest potential and catapult towards an optimal exit. FULL SHOW NOTES CONNECT WITH US Twitter LinkedIn

Ken has been the President and CEO of America's Thrift Stores since November of 2013 when he stepped off of the board to assume this role. He spent his first 4 years building the team (21 of ATS's Top 25 leaders came from outside) putting in scalable systems and processes (Net Suite, Dundas BI tool, Day Force HCMS, Speed Rail Processing system), improving operations and cleaning up the balance sheet. All to prepare for accelerating growth.  Today, America's Thrift Stores (ATS) is America's premier thrift retailer in the Southeast, with 24 stores on track to deliver over $80 million in revenue and $10 million of sustaining EBIDTA in 2021 at a 66% gross margin and $12 million EBITDA run rate.  In the last 24 months, during the pandemic, ATS has added 7 new stores to its base of 17. Prior to the onset of the pandemic in March 2020, ATS's business was already incredibly healthy, growing total topline sales for 12 straight quarters and same store sales for 11 straight quarters.  Reopening in June 2020, ATS emerged equally strong, with 4 back-to-back quarters of comp store sales growth, including an historic Q1 where both comp store sales and Total Sales hit record-breaking levels. Sustaining EBITDA is expected to be over $14 million in 2022 and will more than double over next 5 years as the company continues to grow comp store sales, opens 3-5 new stores annually and enters the rapidly accelerating on-line thrift space.  Prior to joining America's Thrift Stores, Ken a mentor, advisor and coach to small and mid-size company CEO's as an Operating Partner with Alpine Investors LLC stretching across industries from Online Education to Online Retail Lighting & Design to Retail Furniture to Used Cars to Retail Thrift.  In this role he coached CEO's and their leadership teams on helping them build and drive their growth strategies and sales & marketing execution. He also stepped into interim leadership roles and helped with sourcing and due diligence on potential new acquisition candidates.  Ken Sobaski has been a visionary, strategic President & CEO with a history of significantly accelerating growth and inspiring teamwork on businesses across multiple different industries: consumer food, online e-commerce, recreational products and giftware. He has over 30 years of experience at blue chip marketing driven companies like Kraft, General Mills, Pillsbury, Polaris and Capella Education Company, where he grew brands like Orville Redenbacher, Green Giant, Wheaties, Kraft Macaroni & Cheese and Polaris.  Ken's distinction is his ability to lead his teams to achieve significant levels of growth not reached before. Here are a few examples: At Pillsbury he took a $600mm refrigerated baked goods business that was flat or declining for 5 years and added $120mm in revenue in year 1 and built a pipeline of new products that grew $270mm of incremental revenue over 3 years At Green Giant he successfully launched Create-a-Meal, a $150mm new frozen vegetable meal starter business, achieving record shares in frozen vegetables, moving to #1 position in category in 12 months On Orville Redenbacher he reversed 49-months of declines with 12 months of double-digit volume gains. At Polaris he grew revenue +34% in just over 3 years by focusing/improving marketing execution and upgrading the dealer network At Capella Education Company (online consumer education company) he took growth from +15% per year to +25% per year, adding $120mm in revenue in under 3 years Ken has served on the boards of The Minnesota Diabetes Association, The Twin Cities United Way and The Council on Aging – Orange County.  Ken holds a BA in Economics & Urban Studies from St. Olaf College and an MBA in Marketing & Strategy from the Kellogg School of Management at Northwestern University   

FansUnite Entertainment $FANS $FUNFF is a global sports and entertainment company, focusing on technology for online gambling. Specifically, they have produced a one-of-a-kind complete iGaming platform, with a sports and esports focus geared for the next generation of online bettors and casino players. The platform operates multiple B2C brands and B2B software for the online gambling industry. More than just talk FANS has: 300,000+ registered members $CDN 350,000,000 in betting volume over the last 3 years Gambling licenses in the highly coveted U.K. and Malta A successful $25,000,000 raise earlier this year to arm the company for acquisitions. Today they announced a $USD 58,000,000 acquisition that can best be described by CEO Scott Burton in this powerful quote: "The acquisition of American Affiliate represents the most significant milestone for FansUnite to date," said Scott Burton, CEO of FansUnite Entertainment. "This transformative transaction will provide us further access to the lucrative U.S. regulated sports betting and online gambling market while generating accretive, high-margin revenue, expanding our leadership team, and accelerating the growth of our company's footprint in the global gambling market." Some of the highlights of this acquisition are as follows: Revenue and EBITDA Growth: American Affiliate has produced trailing 12 months unaudited revenue and EBITDA of US$13.1 million and US$6.0 million respectively. High-Value Customer Base: American Affiliate's assets have generated over 150,000 new depositing customers for legal U.S. online betting operators. Partnerships with Tier-One Sportsbooks: Partnerships with leading sportsbooks and casinos including BetMGM, DraftKings, FanDuel, PointsBet, Underdog Fantasy, WynnBet, and more. Strong Alignment with Existing Management and Shareholders: Consideration shares to be issued at a 42% premium to market price with share restrictions over a three-year period World-Class Executive Team: Tier-one executive and management team with a history of success and scale in the U.S. gaming market Leading Intellectual Property Portfolio: Category-leading portfolio of proprietary technology. Watch this great interview with CEO Scott Burton.

There are three methods to maximize the value you get when you choose to sell your company. The first goal is to maximize your multiple. What I refer to is that there are multiples that differ for each Businesses and we'll be able to discuss what that might look like. Watch this video on Youtube: https://youtu.be/-Sb5SuC1VXk As an example I had a business that came to me to sell and it's name was excavation. It began out as an excavation company, But in the past two decades, the company has transformed into a construction firm however, 80percent of its revenue were from construction. The company is now proving that Multiples refer to this size of business , and also multiples, which means the amount of times earnings the company? If your multiple was two plus your profits were $1 million your business is worth 2 million or more. whatever your capital assets. The excavation company's multiple was approximately two-to-two and a half. However, if it was an engineering company that it was, it would be between four and five, which is why it changed the brand name of of the of the. We altered the position of the company. We were able discern it from the construction multiples, but not on the excavating multiples. Second, you need to change your financials. Now , you must pay taxes and are owed an EBIDTA as well. Your EBIT is intended to be minimized. The way we work is to create pivot tables, and then translate it into the seller's cash flow discretionary. This accurately reflect all cash and the value that your business and the value your business creates. This is why you should consider bringing back your board meetings from Hawaii as well as your memberships to health clubs and your cars, Et cetera, Et Cetera, et.c., you are able to capture all the value. Therefore, recasting your financials is crucial. The third element is maximizing your intangibles. What I refer to is the moment a customer who wants to know more about your business, They'll be asking questions. If we get answers to those questions in advance and they tell us that they're able to answer them, then how does the business function? And he replied "Well, it's A B, C and D." We will send you the operations guide after this conversation and contact us with any queries. This kind of approach will help provide more answers and is likely to generate an environment that is more conducive to learning. Let's say the multiple range was from three to five times earning, that is, in the case of one million dollars in earnings, or 3 to five million, once you have your intangibles it's going to be a great way to climb to the top. And then get a net that is over four five, four and an hour and get a net over five, four and a half. If everything is in chaos If everything is in disarray, you'll be at the lower end of the spectrum. Therefore, getting your intangibles right is crucial. Keep in mind that when you're trying to market your business It's a team game. What is the value of my business? One of the most frequent questions we are asked the most frequently is: what's my business worth? For those who are like me then entrepreneurs are so keen on increasing their businesses. business , and what it's worth isn't something that comes up very often. I am always focused on increasing sales and think that when I increase sales and manage it effectively, The business will grow and improve, and it's likely to appreciate more. That's the general rule. But it's still not answering the question of how much it's worth. Many entrepreneurs say, okay how do I get started? When I consider what to start with I consider earnings. Most people talk about EBITDA which refers to taxes. and it can be adapted in the cash flow of the seller's discretionary. You must figure out the value of your business worth based on the amount it makes. The value of a product is determined by its earnings, and this varies. There are a variety of variables that determine your worth, such as what field you are been in for, and how long Have you had it in the past? Do you have a problem with concentration? That means that do you receive 80percent of your sales from Walmart, Do you receive less than 20 percent of each customer? There are many intangibles involved. If you run small-sized business we'll call it million dollars in earnings. It's generally about 3 to 5 times the earnings. This is incredibly rough, and provides you with an image that you could make use of. We could answer the question in more specific detail When we consider it when we look at it, what that actually implies is that you're dealing with a customer problem with concentration Let's say that you've got something to do with it, If you've got some, or have competitors who are taking your business away with a vengeance, and you're likely end up on the lower side of the spectrum. In the meantime, if you've got any intellectual property that's legally protected or you've been around for a long time, or you're able to sustain your investment, competitive advantage. The way I consider it is the size of the moat surrounding your business , or how large is the moat that protects you? You'll be on the upper end of the aforementioned. There's always a spectrum that the intangibles can take you from one end to the other of the range. One of the biggest fears that many entrepreneurs are afraid of is What happens if I underestimate the value of my business when I decide to sell it, and what if this is my biggest asset? Many people, that the house is the biggest purchase you'll ever make. Now, if you're an entrepreneur like me. It's not true. Your business is purchasing your business and then selling it, You're trying to think specifically, How can I avoid leaving money in the sand. In the opposite, you do not want to price it too high and lose people who aren't interested. To get to a good market value is vital. It's basically, how do you get the right team together and ensure that you're pricing your business correctly? It is based on the market it in accordance with market. There are many intangibles that occur. For instance, let's say the tax system is going to alter. It's possible that we'll get an entirely new president this year, or perhaps we'll see an overhaul of tax law that will impact capital gains over the long term. This could make you want to close your account before the close of the year. In the event that there are artificial structures ceilings or floors that really impact the timing of our markets. Therefore, we should stay very focused on that. In general, I believe that appraisers are the best choice and appraisers can be really useful for estate sales. for those things that aren't run by anyone else. it. The issue with appraisal value, particularly for small-sized businesses, is there's no willingness to accept a payment for it. If an appraiser states your business, which is worth one million dollars will be worth five million and no one is willing to issue an appropriate check, It's not going to bring you any good. For me I purchase and sell businesses all the time. This is all I do. I would be adamant about an all-time business broker All they focus on is similar sales over the last six months, with companies that are similar to yours. Then I would focus on market data since almost no other area is more crucial than for small businesses. The role that a broker plays is crucial in this scenario because you're selling your home and suppose you're in the market for a broker. the most reputable broker in your local area in comparison to a standard broker. Perhaps he'll be able to negotiate 5 or 10% more. The reality is that the appraiser will be in, and they'll for you to determine an appraisal price, but it won't be capable of selling it at a higher price. This means that in some ways the real estate market is greater is a commodity, but for companies, for instance could change the value of EBITDA to cash flow. When you've got a variety that is similar to We used to use between three and five times the earnings. If you are able to find an broker who takes you out of three, and instead gets you to Five and your company earns $1 million, you've just earned a million and a half more thanks to an the tax rate of 23% effective. This is awesome. This is $1 million more money you can put into your wallet. Or , for instance, occasionally I've dealt with businesses which were not in the correct category and began their journey there. However, they may have changed in the course of your business's growth over the past five or ten years to an entirely different classification for your industry. Then it's going to the market, creating the pieces together, and increasing the potential of your business. These are the aspects that matter when it comes to selling your property. I hope this helps in determining the value. If you'd like to contact us for a chat at Freedom Factory or if we are able to help in any way at all, we'd love the opportunity to assist you. Contact Freedom Factory At Freedom Factory®, we have experienced and witnessed the explosive results of entrepreneurs aligning passion and purpose to create extraordinary value. However, most entrepreneurs have no idea how to maximize the value of their business and move on to the next chapter of their lives. That's where we can help. Freedom Factory® has radically disrupted the way high-growth, lifestyle companies are bought and sold, which historically was a horribly inefficient market. When I sold my first company in the 1990s, I went to several investment banks and sold my business to one of less than five companies they called. Looking back, I see exactly how much money I left on the table and knew that there had to be a better way. The bottom line is that entrepreneurs don't speak banker, and bankers sure don't speak entrepreneur. https://tylertysdal.academia.edu/ Contact Tyler Tysdal at Freedom Factory Freedom Factory 5500 Greenwood Plaza Blvd., Ste 230 Greenwood Village, CO 80111 Phone: 844-MAX-VALUE (844-629-8258) https://www.freedomfactory.com/ Freedom Factory Managing Partners Tyler Tysdal https://www.linkedin.com/in/tyler-tysdal Robert Hirsch https://freedomfactory.com/about-robert-hirsch Who is Tyler Tysdal? Tyler Tysdal is a lifelong entrepreneur who first discovered the joys and challenges of self-employment at the age of 14. Tyler Tysdal was a collector and trader of baseball cards and his budding entrepreneurial spirit spurred him to create Triple T's Sports Collectibles, a national mail-order trading card and memorabilia business that found a wide audience through ads in trade magazines. While market inefficiencies were numerous in this pre-internet era, a young Tyler Tysdal experienced his first big business win with $14,000 a month of profit result. A lot of money for 14. It hit him during a ride with his mom to the post office to mail dozens of card shipments: He would likely be an entrepreneur and investor the rest of his career. Additional Websites to Follow Tyler Tysdal https://www.youtube.com/channel/UCIlOFFMqyOo1CjtA0Uwp4qw https://soundcloud.com/tylertysdal https://twitter.com/tysdaltyler https://www.instagram.com/tyler_tysdal/ https://sites.google.com/view/tylertysdal Watch Podcasts on Instagram Additional News Sources: Colorado Businessman Tyler Tysdal Promotes Business With Instagram Channel - Digital Journal Denver Business Broker - Sell Your Colorado Business (tylertysdal.org)  

Watch This Video on Youtube https://youtu.be/9T_LxOKsh_4 Simple Business Valuation Calculator Let's discuss a small problem we face within our organization that is a business valuation calculator. People are looking at tools and real estate such as Zillow or take a look at Kelly blue book of cars and think "Why don't we have an online business valuation calculator?" We've seen you doing it for a long time and, in reality, we'd like to. The problem is that it's difficult. There are a few excellent baselines, for example earnings and revenue, and we can discuss guidelines and what they look like. What makes it difficult to achieve is that you can have two businesses with the same revenue, same earnings, but with hugely different amounts. In reality, two, three X one another, and almost not even far apart. This is due to intangibles. There are a lot of things that go into the business of a company such as intellectual property and defensibility software and more that create an extremely complex issue rather than simply, Hey, what's your income and are you worth five times the amount you're imagining. We're now working on this issue. It's probably too late to discuss the issue, but we're currently working with an incredible business to address this issue and will come up with a solution shortly. In the meantime If you have any concerns regarding how to improve the potential of your company or how much your company is worth, then why don't you contact us by calling Freedom Factory. We're looking forward to talking with you shortly. How can I prepare my company to be able to sell? Entrepreneurs are often confused about how to prepare their businesses to sell. If you've made the decision that you'd like to sell your business. What do you do now? First, what you'll need to take care of is get your home ready for your business for selling. Therefore, you should obtain three or two years of tax or tax-related documents. Also, financials and put them together. Take them to your accountant and have the documents ready for. In the second, if you've never made an operational manual, now is the perfect moment to start. You're aware of how your business is run, and you know how different departments work however, when you decide to decide to sell the business you'll would like ensure that it is as effortless as possible for the transition to the new owner. This value is likely to be taken into consideration in the price of sale. So , get your operations manual and job descriptions together , and make sure your home is in order. The third step is to discover, well, the right team. Find a reputable appraiser and broker. Determine the value of your business. Create a story and then figure out how we going to get the business to market? When will we introduce it to the market? It's all about the current tax climate. What can I alter my financials? What do I say by that is straightforward. We're going to use the information from your EBIDTA or your accountant's ability to do similar things and then translate it into the seller's discretionary cash flow. That is. A fancy way of describing all the money business earns during the process of filing tax returns. It's all about minimization you think? Tax evasion is a crime. Tax avoidance is a smart strategy. It's why you're seeking to be as tax-efficient and pay as low a tax as possible. We have to translate that it's from the non-cash costs you incur such as depreciation certain discretionary expenses and then add it back to increase the value. Highlight the value your company creates which will have a major impact. Also, do you know which industry you planning to enter? How do we maximize your multiple? And there are methods to achieve this. Think about the field you're working in. Determine, you're aware all your financials. Make an operational manual to help make the transition as simple as is possible. All of this will be can be a huge help in forming the best team together. Find the most qualified appraisers, locate the right brokers to assist you in preparing your company for selling If you require assistance with this get in touch with us right here, by calling Freedom Factory. Is it the right moment to sell my company? This is a crucial issue and when is the best time to sell your company? This is a little more of an art than science. It's basically an assessment of the things you've learned. We're outside. This is my backyard. mountain home and is a part of my favorite place. The first thing I'm going recommend to you is some fresh air. Leave the workplace. Escape the daily grind or with your family or out. Find a area where you can go, no matter if you like to fish, ski or visit the mountains or visit the beach or whatever else you like, go to a place and change your destination and find a place where you are comfortable. Then think on your own business. When I think about it, and then consider it in three ways. The first is, am I here and am I in the right place? Are I actually in my business? Are I doing my best to serve my company or is my business serving me? In my opinion, it's too short to live in a place where you are serving your business. Your company is your personal road for more freedom and prosperity. What I mean by freedom is quite straightforward - it's about doing whatever you like, whenever you desire, and as often as you'd like and with whom you'd like. And if you're enjoying the work you're doing and consider, God, this is amazing and I'm there and I'm in the right place and doing exactly what I'm supposed and that's how I think about selling my businesses to other entrepreneurs This is awesome. The time is not right to sell your company. If you're unsure about this, I'd consider a bit more and then I'd take a deep breath and ask, Do I possess the correct idea? Have I got a crystal clear idea of where I am going? I'm planning to expand my business over the next three, perhaps up to five? What can I accomplish to overcome it , and also feel fantastic and feel that I've achieved what I've done? If your company is growing by 40% per an year, or 50 percent per year, then you've probably got an enlightened view. It's likely that you're doing a great job and are probably that you're in the flow. However it's possible that you've grown at 5% over the past five years, then it's slightly more challenging and you can find someone who does it better than you. When my business is expanding at five percent, I'm planning to sell. I'm thinking, okay, I'm in need of an operator. My style is more of a strategist. How do we concentrate on creating something that's incredible, and you're right on target and focused However, the rate of growth is a good indicator of the fact that. The last thing to remember is that you've accomplished what you were born to accomplish if, when you started your company, when I began my business brokerage business, i was aware that I wanted to alter the way entrepreneurs purchase and sell their businesses. I've founded three of the biggest brokerages. I've either hired the third one, bought them to attract the right people, and I've created a effective market. This is the thing I wanted to accomplish when I arrived to this place. However, if you quit your current company and thought about this for a while and then decide to leave, would you feel happy or would you feel as if you weren't able to finish what you were there to complete. Then I re-read the situation and thought I'm okay does my company serve me. Are I focused and clear each day? Do I have any remaining tasks to do and do I have fresh ideas for implementing that idea? These are the questions that will guide you through it. It's a little bit of an unreliable science, but all in all, it's an exercise in gut-check. Which are your thoughts? Do you think it's the right time to sell your company? If I'm thinking about selling my business the item, it's usually six months too to be. If you have other questions regarding this, or something else that you need help with, it's our pleasure to assist you us here in the Freedom Factory. We're waiting for you to give us a call. Contact Freedom Factory At Freedom Factory®, we have experienced and witnessed the explosive results of entrepreneurs aligning passion and purpose to create extraordinary value. However, most entrepreneurs have no idea how to maximize the value of their business and move on to the next chapter of their lives. That's where we can help. Freedom Factory® has radically disrupted the way high-growth, lifestyle companies are bought and sold, which historically was a horribly inefficient market. When I sold my first company in the 1990s, I went to several investment banks and sold my business to one of less than five companies they called. Looking back, I see exactly how much money I left on the table and knew that there had to be a better way. The bottom line is that entrepreneurs don't speak banker, and bankers sure don't speak entrepreneur. https://tylertysdal.academia.edu/ Contact Tyler Tysdal at Freedom Factory Freedom Factory 5500 Greenwood Plaza Blvd., Ste 230 Greenwood Village, CO 80111 Phone: 844-MAX-VALUE (844-629-8258) https://www.freedomfactory.com/ Freedom Factory Managing Partners Tyler Tysdal https://www.linkedin.com/in/tyler-tysdal Robert Hirsch https://freedomfactory.com/about-robert-hirsch Who is Tyler Tysdal? Tyler Tysdal is a lifelong entrepreneur who first discovered the joys and challenges of self-employment at the age of 14. Tyler Tysdal was a collector and trader of baseball cards and his budding entrepreneurial spirit spurred him to create Triple T's Sports Collectibles, a national mail-order trading card and memorabilia business that found a wide audience through ads in trade magazines. While market inefficiencies were numerous in this pre-internet era, a young Tyler Tysdal experienced his first big business win with $14,000 a month of profit result. A lot of money for 14. It hit him during a ride with his mom to the post office to mail dozens of card shipments: He would likely be an entrepreneur and investor the rest of his career. Additional Websites to Follow Tyler Tysdal https://soundcloud.com/tylertysdal https://twitter.com/tysdaltyler https://www.instagram.com/tyler_tysdal/ https://tylertysdal.com/ https://sites.google.com/view/tylertysdal Watch Podcasts on Instagram Additional News Sources: Colorado Businessman Tyler Tysdal Promotes Business With Instagram Channel - Digital Journal Denver Business Broker - Sell Your Colorado Business (tylertysdal.org)  

A Little About Pete Martin:Pete Martin is the Founder and CEO of AskMyBoard, a company focused on helping business owners unleash their business's highest potential value to grow faster and more profitably to put you in a position to exit at the highest price or confidently detach from the business.As a serial entrepreneur, Pete has started, scaled, and successfully exited four previous companies, including his last to KPMG for 12 times EBIDTA and no earn-out.Pete is also the author of the upcoming book, “Pillars of Power – the foundation for explosive growth and sustainable scale”.He is the creator of the Catapult Method™, which helps companies work strategically on every part of their business-enhancing all eight drivers of business value simultaneously.He has personally facilitated $1 billion in software, services, and technology sales to companies worldwide.Pete's reach is over 6,500, and he would be happy to let his network know to listen inIn this episode of The Millionaire's Lawyer, JP and Pete Martin discuss:Work ethic in America is very, very diligent and must not be healthy for the long termThere are Universal Trues, no matter the industry:Customers are neededTeam is essentialCapital is requiredStrategic Execution - do not be the owner that gets trapped in the business since you are the businessIt is a great thing to grow your business without external capitalSince COVID has happened, people are now preferring the online option to do things. They notice that the travel time and parking aren't needed to accomplish the same thing.COVID has also made people a lot more aware of the chance of mortality and time, this has caused people to ensure that they will have an exit strategyThe success of a business is all grounded on the team that you have in place!Connect with Pete Martin:WebsiteLinkedInTwitterConnect with your host, JP:TwitterInstagramFacebookWebsiteShow:LinkedInEmail:  jpmcavoy@conductlaw.comPhone:  1-833-890-8878THANK YOU TO OUR SPONSOR:Conduct LawWebsite

Social Chain (a pioneer in the creation, development and scaling of social media brands) Acquired His Marketing Agency.I invited Daniel Graham, the Founder & CEO of Mint Performance Marketing to Talk All About the Acquisition & More.In this interview we cover a ton of interesting ground on agency acquisitions, which are a very popular and great way to scale your agency.When you buy an agency, you're often acquiring EBIDTA, talent, and clients.Daniel talks about how long the process took, what he would've done differently, what services he things have legs, and so much more.More about Daniel's Agency and make sure to follow Daniel on Twitter:Mint Performance Marketing (https://www.mint-performancemarketing) is a full-service performance marketing agency. we help disruptive dtc/ecommerce brands accelerate growth with cutting edge strategies across creative, influencers, paid media, email & sms.You can follow Daniel on Twitter here: https://twitter.com/foodog85

Welcome to another episode of 20/20 Money! My guest on today's show is Michael Pote.   Michael has been on the show before (you can check out those conversations by clicking here for Part I and here for Part II) to talk about selling your practice to private equity and I wanted to have him back on the show for a couple of reasons as I've found myself personally having more conversations and doing more planning with clients that are soon to be or in the midst of selling to a private equity firm. Michael's had a storied career in the optometry profession and has spent the last 4+ years helping ODs understand and navigate the process of selling to a private equity firm, notably not being tied to any one firm but rather helping the OD find the best deal for their practice.   In this conversation we talk about what ODs get right and wrong about their financials prior to the sale of their practice, a current “state of the market” as it relates to PE deals and his best guess as to the state of the private equity cycle, the range of adjusted EBIDTA multiples he's seen in recent deals (hint: it's gone up), and the importance of ensuring you not only have a business plan, but a personal plan for how you'll exit from your practice.   As a reminder, you can get all the information discussed in today's conversation by visiting our website at integratedpwm.com and clicking on the Learning Center. While there, you can also set up a 20-30min Triage conversation to learn a little bit more about how we help ODs around the country reduce their tax bill, manage cash flow, and make proactive money decisions or check out any number of additional free resources like our eBooks and on-demand webinars.   And with that introduction, I hope you enjoy my conversation with Michael Pote.   The Growth Co-op Consolidation eBook Getting the Most Out of Your Practice Sale eBook 20/20 Money #55: Contemplating a PE Exit—The Story of Dr. Ken Krivacic, OD ————————————————————————————— Please rate and subscribe to 20/20 Money on these platforms Apple Podcasts Spotify Google Podcasts Stitcher  ————————————————————————————— For past episodes of 20/20 Money with full companion show notes, please check out our episode archive here!

Today's podcast guest is Jay Johnson, CFO of Lamar Advertising.     Here's what Jay said about out of home's resilience, managing through covid, sustainable leverage, cyber risk and the acquisitions market. What was your biggest surprise about out of home coming into the industry? The resilience of the out of home industry and billboards in particular.  You look at this past year it is simply shocking as you look at the rebound that has occurred in out of home…really a testament to the product that we provide…Having spent the last decade at lodging REITs you can imagine how that side is going right now…you just don't see the same resiliency in other REIT asset classes as you've seen in out of home… Jay Johnson, CFO, Lamar Advertising Responding to Covid.  ...Lamar already had an existing playbook.  We had gone through the global financial crisis and we had a lot of operating leverage to pull and so we began to draw on that experience during 08-09…It was all hands on deck.  Everyone chipped in.  We made some difficult decisions.  One of the things that I'm proud of is that none of the named executives took a cash bonus last year.  And I look at some of my counterparts in the lodging industry and I'm somewhat shocked at some of the retention bonuses and things that were paid so I think, you know, it really was a testament to the steady hand of the Reilly family as well.  We're in it for the long haul. Sustainable leverage for an out of home company. When you think about out of home we are closely tied to GDP and how the economy operates.  And that leads to a little more of potentially volatility in our earnings.  And so it would be very prudent to run lower leverage.  From our perspective our target is between 3.5 to 4 times.  We kicked above that for a moment in time during the pandemic.  We finished Q1 right at 4 times.  And really with a full year of covid 19 EBIDTA in our LTM calculation now that should begin to trend down for the balance of the year and we should finish the year handily below 4.  So I think, I think, you know that we feel that operating below 4 times is optimal.  It allows us to go through the cycle to do a number of things (1) to not have to issue equity which we did not have to do during the covid 19 pandemic, (2) to sustain out dividend which we were able to do, right, we did cut it but we sustained our dividend, and then (3) hopefully play a little offense when those times of disruption come about so we're fans of lower leverage. Jay, what risks are you thinking about right now? Obviously financial risk, right.  For me it's about protecting the balance sheet.  And I think we've done that....But aside from financial risk, we're thinking about cyber.  Right.  That should be at the top of every management team and board's mind with the things that are going on.  We've all seen what's happened with Colonial Pipeline in the last week.  So we're starting to think about, think very seriously about cyber and what that means and really what that means for our digital network.  If there's one that keeps me up at night...its cyber but we are doing our best and we're mobilizing to take it head on. On the acquisitions market and the lack of distressed sellers ...The pipeline is accelerating.  Q1 was light.  In the last several weeks we are starting to see more opportunities.  But you hit something that's really critical here.  You look at our margins and you look at where Lamar operates.  At the onset of covid 19 everyone thought that there would be distress amongst the middle market independent out of home operators.  And quite frankly, they have done OK.  They've done just as well as we have.  You think about, if they are in our markets.  And so you're right, there is no distress, there is no gun to anyone's head.  And so I think a lot of potential sellers are taking the view I'll wait until I get back to 2019 levels before I test the waters around potentially disposing of a...

Today's podcast guest is Jay Johnson, CFO of Lamar Advertising.     Here's what Jay said about out of home's resilience, managing through covid, sustainable leverage, cyber risk and the acquisitions market. What was your biggest surprise about out of home coming into the industry? The resilience of the out of home industry and billboards in particular.  You look at this past year it is simply shocking as you look at the rebound that has occurred in out of home…really a testament to the product that we provide…Having spent the last decade at lodging REITs you can imagine how that side is going right now…you just don't see the same resiliency in other REIT asset classes as you've seen in out of home… Jay Johnson, CFO, Lamar Advertising Responding to Covid.  ...Lamar already had an existing playbook.  We had gone through the global financial crisis and we had a lot of operating leverage to pull and so we began to draw on that experience during 08-09…It was all hands on deck.  Everyone chipped in.  We made some difficult decisions.  One of the things that I'm proud of is that none of the named executives took a cash bonus last year.  And I look at some of my counterparts in the lodging industry and I'm somewhat shocked at some of the retention bonuses and things that were paid so I think, you know, it really was a testament to the steady hand of the Reilly family as well.  We're in it for the long haul. Sustainable leverage for an out of home company. When you think about out of home we are closely tied to GDP and how the economy operates.  And that leads to a little more of potentially volatility in our earnings.  And so it would be very prudent to run lower leverage.  From our perspective our target is between 3.5 to 4 times.  We kicked above that for a moment in time during the pandemic.  We finished Q1 right at 4 times.  And really with a full year of covid 19 EBIDTA in our LTM calculation now that should begin to trend down for the balance of the year and we should finish the year handily below 4.  So I think, I think, you know that we feel that operating below 4 times is optimal.  It allows us to go through the cycle to do a number of things (1) to not have to issue equity which we did not have to do during the covid 19 pandemic, (2) to sustain out dividend which we were able to do, right, we did cut it but we sustained our dividend, and then (3) hopefully play a little offense when those times of disruption come about so we're fans of lower leverage. Jay, what risks are you thinking about right now? Obviously financial risk, right.  For me it's about protecting the balance sheet.  And I think we've done that....But aside from financial risk, we're thinking about cyber.  Right.  That should be at the top of every management team and board's mind with the things that are going on.  We've all seen what's happened with Colonial Pipeline in the last week.  So we're starting to think about, think very seriously about cyber and what that means and really what that means for our digital network.  If there's one that keeps me up at night...its cyber but we are doing our best and we're mobilizing to take it head on. On the acquisitions market and the lack of distressed sellers ...The pipeline is accelerating.  Q1 was light.  In the last several weeks we are starting to see more opportunities.  But you hit something that's really critical here.  You look at our margins and you look at where Lamar operates.  At the onset of covid 19 everyone thought that there would be distress amongst the middle market independent out of home operators.  And quite frankly, they have done OK.  They've done just as well as we have.  You think about, if they are in our markets.  And so you're right, there is no distress, there is no gun to anyone's head.  And so I think a lot of potential sellers are taking the view I'll wait until I get back to 2019 levels before I test the waters around potentially disposing of a...

Conversations with the MarketPlace presents a panel discussion with key professionals in bond and debt financings for non-profit hospitals (institutional investors, bond counsel, and a trustee bank), as well as work-out/bankruptcy legal counsel. The panel discussion will focus on the significant negative impacts of a financial crisis like COVID-19 or other financial downturns experienced by many hospitals' in 2020, or possibly coming in 2021, and the process, key factors, and key decisions involved in directly addressing and successfully resolving a rate or other bond covenant technical or actual default. The purpose of the webinar is to help hospital leadership learn how to navigate these difficult and tricky waters best, should they be encountered. Panelists will provide their expert perspectives on the key issues, including transparency, communications, likely result, timing, and process. Formulating, presenting, and clarifying the “hospital story” will be an important component of the discussion. The interactive dialogue will allow participants to react to different scenarios and adjust their thoughts and internal and external plans accordingly. The event is facilitated by: Jim Gravel, Sr. CFO Warbird Consulting Partners (formerly from Catholic Health Partners of Cincinnati – Now Mercy Health System) – Emcee Ron Long, Sr. CFO Warbird Consulting Partners (formerly the CFO of Texas Health Resources in Dallas) – Q&A Mgmt. Our panel includes: Gordon Gendler – UMB Bank Ian Hammel – Mintz Levin David J. Kates - Chapman and Cutler Marcy Lash – T. Rowe Price Rob Yolland – Franklin Templeton This presentation is a unique event with perspectives from a panel of experts rarely seen in a group setting. It will provide much-needed advice and counsel to hospitals who might be struggling to avoid a technical or real default or cope with the lower net margin and EBIDTA, debt covenants, and other restrictions. The conversation is also designed to be a learning experience for both veteran and newer hospital financial leadership to deal with a financial crisis. If you have questions, please contact us at jbehn@warbirdcp.com.

Alphonse describes how private equity firms look for investment opportunities and how they help companies succeed.PEOPLEGuest: Philip Alphonse, Senior Partner and Cofounder at VistriaHost: Anil Hemrajani, Founder of Startup SidekickTAKEAWAYSFit: There are various flavors of PE firms out there (e.g. $2-5mm EBITDA versus $5mm+). Get to know the type of PE firm you’re talking to and their parameters (e.g. profitability, company stage, industry). Interview the PE firms to understand the “box” the firm plays in.References: Make your calls and do your reference checks, just like you would hiring someone important. You’re essentially getting married by forming this new partnership, so you want as much clarity on your partner. Talk to our CEOs and operating partners to understand the qualitative aspects.Learn: Always keep learning. We love learning from the different approaches our CEOs take.TIMELINE01:15 – Overview of Vistria. Private Equity firm, typically looking for business with $10-50mm EBITDA. Focused on three primary verticals: education, financial services and healthcare. We aspire to take a more strategic and partnership approach in how we invest; we get excited about investments where our network is uniquely suited to upgrade and support the business. How we can move the dial operationally, resource partners in the space (e.g. Blue Cross).03:15 – What is a PE Firm? It’s largely called “alternatives” — it’s a universe of investors looking to generate higher ROI, using vehicles such as PE, VCs, Hedge funds, etc. What we do differently is we invest in later stages of a company — we are not early stage through growth capital (e.g. seed through series B-D). Once a company is more seasoned/mature, then it has a different set of buyers. 04:45 – When should a “mature startup” consider a PE firm (versus VC)? It’s determined by the stage of the company; typically earlier stage companies aren’t profitable. We pull certain levers that require companies to have a positive EBIDTA and cash flow; hence we have different tools & drivers from VCs. Another driver is a matter of control; typically companies look to PE firms for partial/full liquidity events versus with VCs, it’s a minority investment. 06:40 – How active do you get in the operations? We’re fairly active but it’s a balancing act since we have to support the operating team and system but also give the CEO and management team space, especially if most things are working. Some businesses need a lot more of a lift (e.g. CEO change, improve sales productivity) but when we jump in, it’s in alignment with the management team. 08:15 – Can you share a story of how you worked with a company? As an investor, you look for tailwinds. One of these is in education, around workforce training and development since there’s a massive market (pre-pandemic) of working adults that need skills training. We looked at employees-to-opportunities matching or straight up skills training. We invested in a company called Penn Foster; it was a largely B2C play but we felt B2B would make for a powerful enterprise channel. We were helpful in supporting that business and getting them into several channels (e.g. hospitality), built relationships with staffing companies and helped upgrade their technology infrastructure. We bought a venture backed system and brought that in, which worked quite well — we doubled the EBITDA and had a great exit.13:58 – Are you always networking for talent? There’s a perception out there that PE firm employees only network all the time. When we identify a space, we spend a lot of time getting to know all the CEOs and relevant compa

We weren't the only ones watching AOC on Twitch yesterday - the NY congresswoman clocked up over 400k views on Twitch, making her video the 3rd most streamed event in Twitch's history The stream peaked at 439,000 views, making it the third-highest-viewed single stream in Twitch history. The all-time record is Ninja's, when he teamed up with Drake and Travis Scott in a game of Fortnite. Viewership ranged from 300,000 to 400,000 for most of the stream.In sad news, parenting forum Essential Baby is being shut down after twenty yearsI find this really sad - so many of my friends are people i made on forums in the early oughts the fact that 20 years of advice could disappear at the end of the week is really troubling. ASX debuts for ecom companies Adore Beauty and MyDeal listing on ASX today and tomorrow. 18 months ago ecommerce companies were valued at EBIDTA - now these businesses are being valued at a multiple of revenue Pour one out for Quibi, the video platform you never heard ofA team of writers at the Wall Street Journal are reporting "Quibi Holdings LLC is shutting down, according to people familiar with the matter, a crash landing for a once-highflying entertainment startup that attracted some of the biggest names in Hollywood and had looked to revolutionise how people consume entertainment.What the hell was Quibi? Besides the terrible name, it was a short clip video service. The technology "break through" was how the video played in both landscape and vertical...because of this, it touted itself as the first "true mobile first" video experience, which seemed laughable, as tiktok and youtube and instagram were pretty damn mobile alreadyJeffrey Katzenberg and Meg Whitman have confirmed the news in a medium postAnd yet, Quibi is not succeeding. Likely for one of two reasons: because the idea itself wasn't strong enough to justify a standalone streaming service or because of our timing.Unfortunately, we will never know but we suspect it's been a combination of the two. The circumstances of launching during a pandemic is something we could have never imagined but other businesses have faced these unprecedented challenges and have found their way through it. We were not able to do so. See acast.com/privacy for privacy and opt-out information.

When was the last time you asked yourself: What do I really want? Perhaps you’ve been so busy taking care of responsibilities and serving others that you haven’t stopped to check in with yourself. But when you pause and ask that question without fear or judgment, your answer will guide you towards your true north star. And when you lead with purpose and passion, you have the power to change the world. In this episode, serial entrepreneur and investor Sarah Dusek, shares how asking this question shaped her journey and helped her leverage the power of business to impact our world for good.   Highlights: [02:26] Sarah’s story [04:30] Recovering from failure [08:00] Seeing the opportunity in crisis [10:00] Two biggest challenges facing today’s world [12:54] Taking risks to achieve your dreams [17:45] Lessons learned [19:51] Turning a dream into reality [22:25] 3 things to showing up as an entrepreneur [25:11] Preparing to approach a venture capitalist [29:25] Bigger business, bigger impact [36:09] How can you help to make an impact [39:14] How to become a lifelong learner [41:33] The importance of networks [44:38] Staying grounded   Quotes: “Crises are moments of opportunity because they are absolutely transformative in terms of the direction with which we move forward.” – Sarah Dusek  “The real essence of entrepreneurship and growing as a human being is the ability to tackle very challenging circumstances and leverage them to move us forward and propel us into what's next.” - Sarah Dusek “When you start to ask yourself what it would take to achieve your goals, that’s when you start to find the pathway to making it happen.” – Sarah Dusek  “When you build a bigger business, you have a potential to have a much bigger platform to make a difference.” – Sarah Dusek  “If we want to change the world we live in, if we want the world to be a better place, we have to stop waiting for someone else to make that happen.” – Sarah Dusek  “Coaching is an incredibly powerful tool for helping women see what they can't see.” – Sarah Dusek “Voracious learning, openness, listening, and being prepared for different ways of thinking is going to be enormously valuable for our journey ahead.” – Sarah Dusek “Understanding that uncertainty is the certainty and that the only way to navigate that is to live with a higher sense of purpose and mission and belief that we all have a calling and that we have the possibility of making the world better.” – Sarah Dusek   About Sarah Dusek: In 2019 Sarah Dusek launched Enygma Ventures, a Venture Capital fund focused on investing in women-led businesses in Southern Africa. Sarah is passionate about empowering women to reach their full potential and enabling them to grow in grow scalable, sustainable businesses that have the power to transform communities, cities and nations. A entrepreneur in her own right, Sarah Co-Founded Under Canvas; the US’s leading adventure-hospitality company offering luxurious glamping accommodations just minutes from America’s most popular and iconic national parks. Sarah sold Under Canvas in 2018 for over $100m achieving a record breaking EBIDTA multiple. In 2017, under Sarah’s leadership, Under Canvas received a spot on the coveted Inc. 5000 list and Sarah was named to the EY Entrepreneurial Winning Women list from Ernst & Young.   Links: Website: https://www.enygmaventures.com/ LinkedIn: https://www.linkedin.com/in/sarah-dusek-0b630ab/ Facebook: https://www.facebook.com/enygmaventuresfund Twitter: https://twitter.com/EnygmaVentures  

My guest this week is Michael Mauboussin, the head of consilient research at Counterpoint Global. Michael is an all-time favorite guest here on the show, and this is his fourth appearance. We discuss one of the biggest topics in the world of investing: the shift from public to private markets that has taken place over the last several decades. We explore the reasons for this shift, the biggest overall changes in capital markets, and what the future may hold. Along the way we explore other fascinating topics like the rise of intangible asset investments, employee-based compensation as a form of financing, and more. If you enjoy this conversation I urge you to read Michael’s paper on the topic which will be linked in the shownotes. Please enjoy this conversation with Michael Mauboussin.   This episode of Invest Like The Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis.  If you’re a professional equity investor and haven’t talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalyst.com/Patrick.     For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Show Notes (2:27) – (First question) – Motivation for writing the book from public to private equity             (2:28) – Public to Private Equity in the US: A Long-Term Look             (3:02) – The Incredible Shrinking Universe of Stocks (4:48) – Size of the public vs private markets (7:20) – History and changes in the public to private markets (12:00) – Public market vs venture capital returns (16:48) – Persistence of returns (20:01) – Role of price and EBIDTA on the returns of a buyout (23:31) – How buyout forms are sourcing the debt (29:31) – Transition to businesses relying on intangibles             (29:42) – Capitalism without Capital: The Rise of the Intangible Economy             (30:13) – Endogenous Technological Change             (30:36) – Should Intangible Investments Be Reported Separately or Commingled with Operating Expenses? New Evidence             (34:18) – Explaining the Recent Failure of Value Investing (36:21) – Superstar firms and increasing returns (42:38) – Role on monopolies in creating network effects (4:52) – The allocators perspective in these investments (49:16) – How does this all impact public market active management (51:54) – Advice to young people getting into the investment industry             (52:30) – Jeremy Grantham Podcast Episode (53:30) – Other areas he is researching/looking into (55:44) – How investment work and Santa Fe research influence eachother (56:54) – Investors to learn from             (57:15) – John Collison Podcast Episode  Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

Is an acquisition in your agency's future but you're not sure how to find a potential buyer? Does your agency have incredible strategic partnerships? Sometimes, the best merger and acquisition deals come out of existing relationships with partners and businesses that offer complementary services. The key is to structure a beneficial and fair deal for both parties while avoiding the biggest acquisition pitfall. In today's episode, we'll cover: Why agencies need to lead with data. Agency acquisition mistake to avoid. How to structure an agency owner's buyout. Today I sat down for a discussion with Tim Curtis, President, and CEO of CohereOne, a direct-to-consumer marketing agency. Tim recently sold his agency to a strategic partner and took a little different approach. He's here to discuss what he did and why this option was the best choice for his agency. Why Agencies Need to Lead with Data We all have biases. It's human nature. So, of course, you think your agency provides the best solutions and services.  But while it's great to take pride in your work, when you are trying to sell (whether it's to a client or another agency), you want to put the data first. As a data-driven agency, Tim knows the value of numbers. Numbers don't lie. So, if you want to sell the value of your service or communicate the results your agency can achieve, let the numbers do the talking. Once you provide the data, then you can explain why you're the best. Tim says, if you want to take advantage of opportunities, you have to understand the data, and then the context. In that order. #1 Mistake in an Agency Acquisition One mistake many agency owners make when there's a merger or acquisition deal on the table is letting their foot off the gas. They focus on the value of the sale instead of keeping the agency profitable.  Of course, it's more fun to think about the dollar signs, what you want to buy, and how much money you are going to make from a buyout. When this happens, people tend to relax, put in a little less effort, and look at the acquisition as a done deal. This is a mistake. Regardless of your role in the agency, everyone needs to be all in until the deal is in ink. Continue to hustle, bring on new clients, and build new income. What happens when you start to take the foot off the gas? Best case scenario, you sour the relationship between you and the buyer. Worst case scenario, you lose the deal. How to Structure an Agency Owner's Buyout There are many ways to structure an acquisition. You can have more cash upfront and less earnout. Or you can have less cash, but retain a big piece of equity. Tim says, when it came to structuring his acquisition, he went with a hybrid approach. Generally, when we consider earnout, we look at EBIDTA. Often, this is where sellers get the best deal. But Tim says, instead of EBIDTA, his earnout is based on gross sales. In addition, they've also agreed to guaranteed payments based on this amount. With this approach, there's more incentive for everyone to focus on the growth of the business, rather than bleed it for profits. This way, the agency continues to grow momentum. Tim says, the industry as a whole is beginning to see more of a shift towards smaller percentages upfront. As such, it's important to look for the best way to get the most out of your deal. Whether making a deal with a strategic partner or putting out feelers to merge with another agency, it all comes down to your approach. When you focus on what makes you valuable and keep your foot on the gas, you won't have to work as hard for a buyer to recognize your agency's value. Looking for a Payroll and HR Solution for your Agency? Payroll and benefits are hard. Especially when you’re a small business. Gusto is making payroll, benefits and HR easy for small businesses. You no longer have to be a big company to get great technology, great benefits and great service to take care of your team. For a limited time, Gusto is offering a deal to Smart Agency Master Class listeners. Check out Gusto.com/agency for 3-months FREE once you run your first payroll with them.

On this episode of Quiet Light, David Newell talks about when a SaaS business earns a revenue-based multiplier. David is one of our colleagues who just wrote a guide outlining everything he knows about SaaS valuations. Tune in to hear his thoughts on how SaaS businesses have unique needs, the ideal scenario for revenue growth, and which valuation metrics to use when scaling.   Topics: Revenue-based multipliers. What happens when SaaS businesses scale. The ideal scenario for revenue growth. SaaS valuation metrics. Why there is a bias towards monthly plan revenue. Comparing scaling a business to dating. Takeaways from David's guide. Transcription: Joe: I understand you spoke with our colleague David Newell about when a SaaS business becomes a listed at a multiple of revenue instead of multiple of discretion earnings, how'd that go? Mark: Well, there's an interesting dynamic when it comes to SaaS businesses, right? E-commerce is pretty straightforward. We have some pretty good metrics that just show that vast majority of e-commerce businesses will be measured as a multiple of their SDE but SaaS businesses, especially on larger levels, we see transactions happen as a multiple of revenue even in some cases when you have a business that is not turning a profit or is currently EBIDTA zero or close to it. And so there's a big question out there, what are the criteria that allow you to apply a revenue multiplier versus an SDE multiplier to a SaaS business? Obviously, this makes a huge difference, right? I mean, if you're multiplying your revenue by five, that's going to be a much bigger number than multiply SDE by five, or four, or three, or whatever. So SaaS valuations can accelerate incredibly rapidly. I mean, it's breakneck sort of whiplash valuations that happen. So I talked to David; I sat down with David. He had just finished writing a 15,000-word guide that really picks apart everything he knows in SaaS valuations and that's a lot that he knows. And he goes into how do we first make this determination between a revenue-based multiplier versus an SDE multiplier? And then the second question, which is again equally sort of murky if you haven't been doing this as long as David has, is where do you then find the multiplier because the ranges are a bit broader than we see in other sectors. And so he goes over the approach he takes for it and then we started talking about some of the individual metrics as well, which are going to apply to all SaaS companies whether it be revenue based multiplier or SDE multiplier. If you are a geek when it comes to valuation talking this is the podcast for you. It's definitely meaty. We get into it pretty in-depth on this. But if you really enjoy this, take a look check out the guide that he wrote. It's now published. It's going to be available on our website. It's also available for PDF download. Share it. Discuss it. Reach out to David. Chris Guthrie would be another great person on our team to discuss these items with. He knows SaaS extremely well. And frankly, anybody on the team, we've all worked in this space ourselves but really, when it comes to our resident expert, we look to David first and foremost and part of it is because of the guide that he put together here. Joe: Let's go to it. Mark: Hey, David, thanks for coming on the podcast. I know you've done a couple of these before, right? David: I have, yeah. Mark: Well, cool. I'm glad to have you back on and I'm excited to have you on this week because you finally finished, and I shouldn't say finally because it wasn't even expected of you but you put together a very comprehensive guide on valuing a SaaS company. How long is it? David: It's a jargon. I think it's about 15,000 words. We shouldn't say that just in case that thwarts people from reading it. I think we're going to do a distilled down version of it. Mark: It's kind of like a mystery novel, how to value a SaaS guide. You know I wrote the ultimate guide to website value years ago when that was what we were really talking about is valuing websites and I think that was a 25,000-word guide. I started out thinking this should be something I can hammer out in a week and it turned out to not be a week. It was much longer than that. It took a while to put that together. And I know this took me a while to put together but the stuff in here is really an authoritative guide on the valuation principles behind a SaaS company. David: Yeah, it's a strange terrain this SaaS valuation conversation because unlike other business models that everybody's familiar with is not purely an earnings-driven model. It's not all about seller's discretionary earnings. And you see that so much in kind of public markets, they speak about SaaS businesses based on revenue multiples and then obviously in our kind of business brokerage landscape, you see it more around SDE multiples and so there's this kind of big confusion in this cross terrain between both buyers and sellers about what is my SaaS business worth and on the other side of the table is how much should I pay for it. And so there's a surprising amount of similarities in the valuation logic between both but what I wanted to point out was the crucial distinctions between them and why they're there to really help people understand that both buying and selling. Mark: Yeah, and I think this is an interesting conversation because we talk so much about valuations at Quiet Light Brokerage. And I've said in the course I put together on how to sell an online business for six, seven, or eight-figures I spent a lot of time on the valuation side and trying to dispel the myth that the valuation formula creates the value of the company as opposed to the valuation approaches and formulas and methodologies are really a predictive exercise more than anything else. And that really, when you boil it down into kind of a philosophical standpoint, it's really a measurement of expected return on investment for the buyer discounted by risk or mitigated by risk. And so you can have other valuation approaches that are completely valid. I know in the web hosting space, which is where I cut my teeth in the brokerage world, that was a revenue-based multiplier as well, because you had a lot of strategic sort of sales going on. It was typically 10 to 16 months of revenue was the average range that we were seeing so I'm interested to get into this. Because I know when I talked generally to people about valuations, I always have this asterisk of but SaaS companies are different and it's kind of a mystery box. So let's talk a little bit about that right there. We'll start with the revenue-based multipliers. Why are we using revenue with SaaS companies and are all SaaS companies going to be valued on their revenues as opposed to SDE? David: Yeah, that's a great question. You hit the nail on the head with what you said there which is that it comes all down to expected return on the asset. And I think the way to think about it is actually kind of in the life cycle of starting a SaaS business. If you imagine starting as many you do people SaaS businesses out of their bedroom; a lot of entrepreneurs see a problem, decide they didn't like it, wants to code a solution to it, put in their own money into it, then they might bring in a developer to start helping them out and they start putting their own money into start scaling it. They get friends as customers and sooner or later they are 10,000 in MRR or so forth and then they start to scale a little bit beyond that. And so initially you're in this period of scaling often with your own capital. And this is kind of a lot of the businesses that we see in the very early stages; kind of like homemades, bootstraps, sub million dollars in ARR businesses. They can remain focused for a large part on earnings and that's why they get they tend to craft some seller's discretionary earnings-based valuations. A lot of these SaaS businesses, for example, one doing 300,000 ARR might have about a hundred thousand in seller discretionary, slightly more multiple of that. Now, what happens? Typically a SaaS businesses look to scale particularly as they kind of arrive more towards a million in ARR and above is that typically what's the case is quite a lot more infrastructure is needed to be brought in to solve the biggest challenges of SaaS businesses which is churn. And that infrastructure is a lot of sort of customer success, it's a lot of additional development in terms of creating better onboarding, and it's putting a lot more sort of infrastructure around the business to really mature and allow it to scale from a small business into a much, much, much larger one, which can happen very quickly, arguably faster than any other business model. And so what happens it seems to me has been the case is that it has become acceptable and standard within the SaaS establishment to at this kind of sub million and arriving at a million in ARR level be able to say we're going to sacrifice our earnings in the near-term, in the short term in order to now chase absolute scalability in the business. And this is acceptable, more so in SaaS than any other kind of business, largely because we have a recurring revenue model with unit economics that are stable once you have churn in place that allow you to do that race up and scale and then cut back on that expense and immediately just be accruing very, very, very significant profitability in the business. And so the quid pro quo for you, reducing profitability of what was a relatively profitable small SaaS business to a now significantly unprofitable or flat profit business is that you'd have to start chasing revenue growth significantly. And so to your point, Mark, about having this kind of expected rate of return, buyers basically say we'll let you run to EBITDA or EBIDTA 5% margins in order that you're going to start sharing consistently 40% to 50% to 60% year over year growth or higher while still going between a million in ARR to five million in ARR, to 10 million in ARR, and 20 million in ARR and beyond. And so that is really the thinking behind why you get to a revenue-based multiple with businesses because the expectation is that eventually a SaaS business will mature and become extremely profitable. A great example of that is something like Salesforce which is now striking off enormous amounts of cash but for a long period of time before it wasn't. And so a lot of the businesses that you see come to market eventually even IPO still have this same kind of fundamentals and eventually, their hope is that they do become very profitable businesses. So it all kind of descends really back from that and I think that some of the question marks around valuation methodology is where is in this kind of hundred thousand in ARR to three million in ARR level which is, of course, where we do a lot of business and where a lot of other market participants are; people listening to this looking to buy and to sell often are is figuring out where are you in a lifecycle, the life journey of the SaaS business, like what is your aim and what are you trying to achieve? And that really informs what the valuation method is for the business. Mark: So as you said there, and there's a lot in there to unpack but the tradeoff or the requirement if you're going to be running at a low EBIDTA or a low profitability or even zero profitability, and I have seen this, by the way, we get these messages from private equity all the time saying we are actively seeking out X, Y, and Z with these characteristics. And I've talked to private equity that is looking for SaaS companies where they said we are not concerned about the EBITDA, we're not concerned about the profitability, but the expectation there is revenue growth at that. I would imagine, though, that there's got to be some other elements in there as well that; let me back up a little bit, we have the revenue growth, but I'd mentioned the expense structure needs to also look at this as being a growth-driven company where the expenses are being driven mainly towards growth. I can't imagine a scenario where you wouldn't necessarily see that but what happens if the growth is minor? So you have a company who is maybe a 500k ARR and they're growing and they're trying. So they're investing heavily in advertising, but their cost of acquisition has skyrocketed. Or they've invested in a large sales team to do onboarding, but they just have not figured that out yet. At what point can we start to say it's not working or is that a solution or somebody just needs to wait in order to sell the company, how do we start to make that discernment in that kind of squishy middle territory where we don't have the clear revenue growth, but we still have the low EBITA? David: 100%. That's what we call the struggle and there's a lot of SaaS businesses in that exact pocket. And the decision for the management team really is what do we do to grow or do we park this and move on to something else? And the former can involve all kinds of different decisions. Obviously making pivots within the business, like changing terms of software products, customer base, also looking to kind of raised capital, the venture capital or angel just to try and get into different channels or find capital to source it from there. And you more or less, Mark, have to push towards that fabled grace, because that's the only available kind of exit option to you from there. Or you go the other way, which is; and you see there is a lot of businesses we're promising and then they haven't reached the cap in the market or a competitor outcompetes them or management loses interest or whatever, and they start to trail off, go flat, and you end up with what's called zombie SaaS which is a not particularly affectionate side while it's probably still a lovely business. And then the option there is more or less you have to cut back all of that operating expenditure in the business in order to restore some earnings and try and exit at typically a much lower multiple of revenue still, but considerably lower that looks more like a normal of an EBITDA type sale and just cut your strings basically and move on to the next thing. And so many businesses, of course, we all know how hard it is to grow and scale any kind of business are in that struggle and trying to figure out that option. Mark: Yeah, I love going through with people the basic framework that we created of the four pillars of value. You want to mitigate your risk, you want to have good growth, make it easily transferable, and have great documentation. Well, that's second pillar of growth is so easy for us to say, right? You want to have great growth and everyone's thinking, well, yeah, of course, I do. It's a lot harder to do. Let's talk about the ideal scenario here. You have a company that is growing strongly and let's say that you're in that one to three million ARR range and we're seeing that ARR grow rapidly so we can apply a multiple to the revenue here. I know what people are thinking, what sort of multiples can we apply to them? David: Yeah, so this is when we flip into a slightly different structure but with very similar dynamics to how we think about business value at Quiet Light and the way we model multiples but the difference, the departure is the starting point. So whereas we in the private buyer side particularly the earnings businesses, we draw upon the several hundred previous transactions we have. We know where the average multiples are for businesses with certain characteristics in nature and we can call on that data set. To start with the revenue multiples side of things you have to again go find the data set and the data set to pull on is generally the public market. And so the best thing to do to start with is actually go look at like an index of cloud companies; SaaS companies that are publicly traded on Nasdaq and so forth, and use that as the benchmark for that kind of revenue multiple that normal publicly traded SaaS businesses are trading at. And that could be something like 10 times, 11 times forward multiple around probably what it is right now. And then, of course, naturally, that's a multiple that's appropriate for a large publicly listed company so already you're saying like, well, that's not really relevant to my smaller private business. So the first thing you have to do is make a public to private discount on that and so there are varying schools of thoughts around what that kind of discount is. It can be somewhat arbitrary. There's a lot of private equity companies out there that speak about what they do, and they have portfolios of private companies that they pour. The received wisdom is it's anywhere between 25% to 30% immediate haircut for being a private company. So you can come down off that 11 to something like eight, for example, and you have what feels like a large private company SaaS business should be trading at. And then we get more into the territory of what we do Quiet Light and what you're just talking about, Mark, in terms of the different four pillars of the business and you start to adjust based upon where this business is aware of the SaaS business we're talking about is relatively strong or weak compared to businesses of its size and businesses of its nature. So three million in ARR is a great example, you'd actually expect on average businesses at that level and this kind of valuation exercise to be growing probably at something like 50% to 60% year over year because it gets harder and harder to grow faster and faster, obviously, with scale. And so if it was much larger, say like a hundred million, you'd actually reduce it and say the average business at a hundred million ARR would be growing at about 30% year over year. And so already you need to compare what's the revenue growth rate of this business versus the paired average for other similar-sized businesses. And it's again a case of going through all of these different classic criteria that we normally do; revenue growth, churn, lifetime value, diversification, all of this classic operational metrics that go back in kind of normal business logic land and just comparing where does it look like versus businesses of its size and businesses in its same kind of customer segment of category and that begins the adjustment process down until you get to a multiple and that starts to make sense. Mark: Yeah, so I want to touch real quick on just the size of a business in general because I know we experience this across the board with all different types of businesses. And yeah, my alarm bells went off, and let's just start with the publicly traded companies. Because I can hear all of my e-commerce clients saying, well, fantastic; I don't know what Amazon is trading at right now as a multiple of revenue, but I'm sure it's a ridiculous number. David: Yes. Mark: But Amazon is also the largest company in America at this point. Actually, I don't know that for sure. I'm sure they're up there, though. They're top five. So sort of with the publicly traded markets is a starting point but there's a lot of discussions that are going to happen in place. So if we're looking at a publicly-traded company like a Salesforce, as we scale down in terms of revenue down into the seven-figure territory from the nine-figure, eight-figure, seven-figure, the discounts do come in pretty rapidly. Why is it that larger companies earn a higher multiple of either revenue or earnings, in your opinion? David: Well, there's a perception of greater stability with greater size. Additionally, just generally speaking if you were to say a business growing 30% year over year at a hundred million in ARR versus one at 10 million in ARR it's more oppressive to be doing a more valuable; you're creating more value at a hundred million than you are at 10 million and therefore, it's commensurate with so the business is worth a greater multiple. It's much, much, much harder to do so. And you see that very, very clearly if you just go and look at a size-adjusted scale in public markets, at businesses at scale that are growing very quickly, they're the ones that are trading at the highest value and that's why Amazon's ballistic valuation. But it's because it's delivering unbelievable revenue growth for business scale. It's already absolutely huge in size so it is very, very, very impressive. But you're right, you need to start discounting down quite significantly. But it's tempting to be like we're starting so kind of pie in the sky with these public numbers and public multiples like wipe off of there. They are the heartbeat of overall like macro SaaS macro sentiment and like it or not, that is where a lot of sentiment; investment sentiment, think about it like kind of customer confidence. It's kind of like investor confidence really does benchmark from public market tech valuations. Mark: I mean, it makes sense, right? Everything that we're talking about here, any sort of valuation is really a market-based valuation. Anytime we're valuing any asset, whether it be a business or apples, it's based off of market dynamics here. So that part makes sense. I want to dig into the business metrics though that we start to get into in more. The regular as we are characterizing it, the regular valuation metrics that we look at. Within the SaaS world, these are going to be somewhat different anyway from, say, an e-commerce business, right? On an e-commerce business, we're going to be looking at gross profit margins, we're looking at growth, we're taking a look at some qualitative aspects of the products that they're selling such as the intellectual property protections and everything else. What sort of business metrics are we going to look at for a SaaS company, regardless of whether we're looking at it from an SDE valuation viewpoint or a revenue multiplier viewpoint; what are some of the other metrics we want to look at? David: Yeah, it's a great question because it's both actually identical and this is where the commonalities between the two methods are huge which is that it's all very well talking about in a revenue growth way of SaaS businesses but you have to look at what's the quality of that growth. And the key barometer of quality of revenue growth in any SaaS business is churn, average revenue per user, lifetime value, a monthly versus annual plan split, and the gross margins on there. So clearly if you just take the first one, because churn is such a focal point for everybody, if you have a business with an outsized level of churn versus its size and category, then that's a major red flag in terms of the business. You see that quite a lot in terms of Shopify or Amazon plugin type add-ons, where largely because of the type of end-user which on Amazon can turn over quite quickly buyers and sellers come and go there. Those tools can kind of have quite high churn rates. And so it's an interesting one because they often have very fast growth rates in general, like a very sharp revenue growth rate because Amazon is an absolutely enormous space to be in. There's tons of new sellers turning up, signing up for new tools that they're churning away after three to four months. So you have to immediately look at can I appraise this tool that's going 100% year over year growth versus the 15% monthly churn? Because if it stops growing even just a little bit within 12 months, it's going to churn out almost the entire customer base and cut off all the growth. And so you have to look at those two. They're absolutely symbiotic. And it's the same with seller's discretionary earnings type businesses because ultimately that impacts the bottom line as it is with revenue multiple. And then the interesting one is looking at monthly versus annual plan split. Naturally, most SaaS businesses are an amalgamation of both and it's definitely favored and preferred that there's a much stronger bias towards monthly planned revenue if that makes up sort of 85% plus of your overall business. That's perceived as a very good thing. If annual is a bigger proportion of that, that's something of a concern. And that's really just because what you want in SaaS is predictability. That's what everybody loves with recurring revenue. Monthly plan revenue is more predictable than annual planned revenue, which seems psychologically counterintuitive, but it's not when you consider that every single month customers have the opportunity to churn away, whereas with annual planned revenue that only happens once every 12 months. So you have no idea what's going to happen in 12 months' time to a large cohort of any bias. Their whole lives could have changed quite a lot so the data set there is less rich and so it makes it more opaque for bias. And so they actually value that pop business generally lower than monthly occurring revenue. So they are just a few of a couple of the kind of revenue quality metrics that should be really important for both buyers and sellers. Mark: I want to talk about ARP but before that, I'm going to talk about churn and a concept of it. I don't know if you would take this into account an evaluation of an Amazon SaaS business, for example, that is supporting sellers. As you know, David, I have an interest in a dating website online and there's a concept in dating world called the good churn. It's somebody canceling their account because they met somebody. And within the dating world, you want to have good churn even though it does impede growth. I know with the site that I have interest in, the business I'm interested in, we have monthly turnover on 23%, which is massively huge and it does impede growth, but we want to have 23% be made up as much of good churn as possible because when people meet somebody they then talk to each other. So within the Amazon space, do we take that into account or with any sort of support service where you're getting somebody off the ground and they outgrow your product because it served its need, right? That's really the dynamic here. If your SaaS business serves a need that your users no longer need it that would be good churn. Would that be taken into account with that churn number very much or are we really looking more just the throttling on growth and the fact that you're chasing ever-increasing growth numbers with high churn? David: Yeah, it's hardly the latter, because if you think about it, I mean, SaaS valuations, in general, are higher than any other business model. And the reason for that is because for every single unit of revenue you're bringing in you can predict how long it's going to stay with you for and you can't with any other business. And so helping people out for a shorter period of time, even if they're then canceling for good reasons while still brilliant from a customer success standpoint, isn't something that a buyer would attach a higher multiple to. So you kind of want to help people for the longest amount of time to create the most amount of value and that's why I like businesses with very high lifetime values and their churn are generally speaking, the most valuable type of SaaS businesses. So, yeah, you've got yourself a beautiful paradox there Mark with your site. I think in that situation, you just have to turn into a massive marketing spend then. You need to post those numbers all over your website and say people are gleefully canceling because of what we do. Mark: Well, you know it bleeds out into the other metrics, I think. And I wish I could say our 23% was good churn. It's not but it bleeds into be other numbers, right? Because if you have good churn where it trickles into is your cost of acquisition becomes effectively lower. So the more good churn you have, the lower your effective cost of acquisition compared to people that don't have as good of churn because you have more social proof. Now, it may not be a very clear or strong relation, it's more murky but let's talk about ARPU and also a lifetime value of a user. When we're looking at these metrics, how much does taking look at cohorts in terms of time play into that? Because I know Chuck sold a business a while ago, it wasn't directly SaaS. It was sort of SaaS-y in its makeup, which it was pretty much awash for the first 24 months in terms of lifetime value and cost of acquisition. But after that 24 month period, everything was profit on top of that. And I look at that and say that's fantastic. That's great. I get it. But from a buyer's standpoint, the cash requirements for a business like that, especially if you're growing rapidly, becomes a constraint to growth. You have to be able to fund a business with a 24 month period lead time. How much does a cohort analysis play into a valuation? And I would assume kind of the logical conclusion here is the shorter period of time to be able to get from your cost of acquisition to your revenue is more desirable. But is that something that you look at closely? David: Yeah, I mean, from the challenges with LTV in many monthly recurring revenue businesses, is it's moving around so much. I just sold a business just recently where the LTV posted up and profit well is going everywhere from 2,800 to $7,000 month to month. So try marketing a business with that level of variance. So to your point, Mark, you do have to look at cohort analysis, I think to go back and be like, what's the kind of longer-term trend in the business here? Like what's actually evolving because that business is a great example, the same phenomena you're talking about which for two years, more or less, didn't really make any money and then started to hockey stick. Not so much because the revenue growth was absolutely phenomenal it's just because the cost base no longer needed to go up anymore to substantiate it. They kind of refined the products enough, spent enough on development, finally figured out the marketing channels, stopped spending really a lot of both and then it just started to fly. And that is the case in point for so many SaaS businesses, which is that it's kind of like swimming into the dock a bit for an indefinite period of time until you do hear those unique economics that makes sense. And it just flies from that point in many cases, anyway. Mark: I think that the whole world of trying to value SaaS companies, especially in this murky range, is a fascinating exercise. When we do an e-commerce valuation, so much of it is cut and dry and I think part of that is just due to the volume that's out there. It's also the nature of these e-commerce businesses as you buy an asset and you turn it around and you're selling it so your profit becomes kind of immediate as opposed to the longer periods of baking and growth with the SaaS company for the long term, which makes it more of a complex exercise. So let's talk a little bit about the guide. 15,000 words, you talked a lot about this idea of moving over to the revenue-based multiplier. I would imagine that there are some examples. And we joked about this before we started recording, I haven't seen the guide yet and reviewed it so I'm going to be speaking a little bit and guessing. I'm assuming that you have some examples in here and other information. Tell us a little bit about what's in the guide and what people could take away from it. David: Yeah, so the guide really breaks down how to do the traditional SDE approach valuation and the revenue approach valuation, and most importantly, how to discern the difference between case studies where you should do one or the other. And I kind of put a four-part test in there which is really the size test. Is it or around or above the million dollars in ARR level? The next thing we look at is where's the revenue growth trending towards, is it showing these kind of fundamentals we're talking about 40% plus year over year growth? The next thing is looking at is this still a business that's kind of a single owner-operator in a relatively thin personnel business, or is it starting to staff up with customer success, starting to wrap around some significant infrastructure to enable it to start going from one to 10 million dollars? That's a really important kind of qualitative factor. And then the last one, of course, is churn, because in reality smaller apps, generally speaking, have higher churn rates. So you'd expect to be seeing kind of an over tuned 4% to 9% in monthly churn in immature let's say, and to the immature SaaS apps. And as you start to get up to this million in ARR level you'd like to see that really dropped below 4% monthly churn. That's the big thing, because churn, as every SaaS business more or less in the world will tell you is the hardest problem to solve for because it is the ultimate barometer of whether people think you're creating enough value to not want to churn out and cancel. And so the more value you're creating, the more helpful you are to people, the less they're going to churn. And that's ultimately what anybody wants to pay for in any business. And so it being the most difficult problem to solve for makes it the most valuable one for a buyer to want to buy. So the lower the churn, generally speaking, the higher the value of the business all else being the same. So those are some of the key distinction points. And then, of course, I'm aware that there's both sellers and buyers looking at it. It's really useful information for both sides to see. Buyers are looking to buy to grow up and scale, sellers are looking to increase the multiples, everybody wants to increase value so I put in a bunch of additional kind of growth value; what I call value-centric growth levers. And what I meant by that is like what essentially the top three things that you can do that will most dramatically impact the most part of the business right away beyond just getting more growth which, of course, always helps. But like specifically one of the things that we've seen over the years in Quiet Light selling businesses, one of the things that we know dramatically increase the multiples of businesses. So I shared some of those in the guide as well for both buyers and sellers to look at. Mark: So if we want to just be trite, we can say if you want to get a great valuation, grow your business or reduce the churn, right? David: Yeah. Mark: All right, the guide is going to be available on the website. We will include links, obviously, in the podcast. You're going to be seeing some emails from us about the guide. We'll also have a PDF downloadable version of the guide. And of course, if anybody has questions about the valuation of your SaaS company and where you fall or questions, I'm sure David would be more than happy to answer any questions about this as well. David: Absolutely. Mark: David@quietlightbrokerage.com. David, thanks for coming on and enlightening me a little bit on this. And it's a complex topic, its super interesting, though. You know, I've been doing this for 14 years now, and it's sort of refreshing to look at different types of companies, different approaches to the same problem, and seeing where we can get some variation. So this is absolutely fascinating to talk about it and I'm looking forward to reading it, which I should have access to it. I'll be reading it here soon. David: My pleasure. Mark: Thanks David.   Resources: David's Article About SaaS Valuation Quiet Light Podcast@quietlightbrokerage.com

Transcription:Terry Shaw 0:03There are many times that I would want to go back and deal with the issues that I'm comfortable with when what I really needed to be doing is making sure that I was working on communications and organization and thoughtful planning for the future of our organization. There was a time period where I just told the team, I'm out of the firefight. I'm taking four people and we're going to spend two weeks doing exactly what I said. So that's what we did.Gary Bisbee 0:30That was Terry Shaw, President and CEO AdventHealth, discussing the necessity for a CEO to focus on the right things, rather than those with which they might be most comfortable. I'm Gary Bisbee, and this is Fireside Chat. Terry outlined AdventHealth's 2030 aspirations document and spoke about how the experience with COVID accelerates the consumer plan from five to two and a half years and how they decided to harden their telehealth services into a business. Let's listen to Terry respond to a question about whether it will become a new core competency of health systems to flex up and down in the face of a crisis.Terry Shaw 1:07For this crisis specifically, that means you have to have an inventory of not only people but equipment and supplies that you can move across your system. As you turn PC us into IC us and med surge into PC us as COVID ramps up. What I never want to have done in the future is a complete shutdown. We need to be able to flex up and down with the outbreak that happened across the country in the markets that we're in and not disturb the other markets that we're in. While we're providing normal routine care to everybody.Gary Bisbee 1:43Our conversation includes Terry's view of how consolidation among provider health systems will play out over the next three years. What steps CMS should take to make care more efficient and consumer focus, how he expects AdventHealth to lose from $400 to $600 million in 2020, what were his first thoughts when he realized that the covert crisis is going to envelop AdventHealth, and what personal and professional learnings he took away from the crisis. I'm delighted to welcome Terry Shaw to the microphone. Well, good afternoon, Terry, and welcome.Terry Shaw 2:18Hey, good afternoon. Thank you, Gary.Gary Bisbee 2:20Pleased to have you back to this microphone. You were the first guest in our very first episode, and you're the first guest who will succumb to our interviews again. So well done.Terry Shaw 2:30Well, thank you. I've enjoyed listening to your podcast with other members. It's been a great learning for me. So thank you.Gary Bisbee 2:37Well, terrific. Thank you. In your first episode, we lead with the observation that you made that CEOs make the same three mistakes. Do you remember what you said?Terry Shaw 2:46I do. CEOs generally don't address HR issues quickly enough. Sometimes we allow the inertia of an organization to push back on our plan and we give up and sometimes we find ourselves focusing on what we're comfortable with as opposed to what we really ought to be doing. I think it kind of sums those three things up.Gary Bisbee 3:07Yeah, that was perfect. And the follow-up question, of course, did the COVID crisis cause you to lean into these three challenges even more than you had been?Terry Shaw 3:15Absolutely. Without a doubt. Times of stress amplify both weaknesses and strengths. And when you're in the middle of a three-month crisis, you have to, as a CEO, lean into that. I don't want to go into any details. But yes, from an HR perspective, I had to modify some things in the middle of the crisis because things just weren't getting done. There was a lot of inertia if you can imagine in 50 markets on how things ought to work. And we actually pulled a CEO from one of our facilities to run the command center, so that we were getting the voice of everybody into the process. And at that juncture, we pushed back on the inertia pretty hard and ran this as a company. And there are many times that I would want to go back and deal with the issues that I'm comfortable with when what I really needed to be doing is making sure that I was working on communications and organization and thoughtful planning for the future of our organization. There was a time period where I just told the team, I'm out of the firefight. I'm taking four people and we're going to spend two weeks doing exactly what I said. So that's what we did.Gary Bisbee 4:29We'll cover COVID more in a moment. But why don't we review AdventHealth? Could you do that for us now?Terry Shaw 4:35Sure. In brief, AdventHealth had a great year last year with $12 billion in revenue. We have two-thirds of our operations in Florida. We're in eight other states. We have multiple partnerships with large progressive organizations for which were most thankful. The first two months of 2020 had been exceptionally normal, middle of March was exceptionally normal, and then like everybody else, all hell broke loose. So we're coming out of that, and we're trying to go back into normal, we've all got to manage COVID like it's a product line, and not let the engine stop the next time around. We have a spike.Gary Bisbee 5:10You put together your 2030 aspirations document, which was very substantial. Could you describe that for us, Terry?Terry Shaw 5:17We spent a year working on our 2030 aspirations and taking a good hard look at our organization. We had the thought of the consumer, the thought of our board members, the thinking from our physicians. And then last but not least, I had 10 industry experts come in and give us their thoughts on what AdventHealth may be missing in our thinking. And Gary, we were just about to roll that out for our company when COVID hit and what that's done is allowed me to go back and take a look at that and actually nudge some things along differently than we originally thought. I'll give you an example. Virtual care is something we've played with but not hardened and turned into a business. Risk care capability is something we're playing with. And when you think about those three coming together, in order to have AdventHealth be anywhere we want to put it. We're calling it AdventHealth everywhere. Those three business lines are items we're bringing up and getting very serious about here in the next 18 to 24 months. We've accelerated our consumer work we've had a rich two and a half years of leaning into consumerism, but our five-year consumer plan and our 2030 aspirations have been shortened to three years and we're working on multiple four-month sprints and a command center like focus to get done much quicker than we thought we were going to get done what we needed to do. Last but not least in this process. I gotta tell you the way we think about distribution and supply chain is been turned on, it's ears and we don't have a lot of final things on that, But I can tell you a year from now, Advent Health will think a lot differently about where they play in the supply chain and distribution process for needed product to take care of its employees, our team members, and our communities.Gary Bisbee 7:15On that point, the supply chain point, I think we all agree it needs to be more reliable. There's also the thought that certain of these PPE really should be produced domestically, or at least much have been produced domestically. How do you think about that, Terry?Terry Shaw 7:31We don't let other countries build our fighter jets, nor do we let them build our battleships. I think in healthcare, we're going to have to go to a methodology of thinking about what are the things that we really need to have for our country for the 330 million people that live here? And are we really going to let other people manufacture and control that process? Or a we kind of come to the conclusion as a country that just like we do for other things, that's just something we're going to do in the states to protect the people that we have to protect.Gary Bisbee 8:07Makes good sense. I know that you and other health systems have taken steps to make that happen right away. So well done there. On the virtual care issue. I'm sure that telemedicine telehealth kinds of visits exploded at Advent health like they did in most of the other health systems. Can you describe that a bit for us, Terry?Terry Shaw 8:29Telehealth was about 2% of our business before COVID. And through COVID, for our physician practices, it went to over 70% of our business, and we had to harden our business quickly. And it's only been there in the past as a benefit to our employees. And as an offering, we can put in an article for a doctor to reach the patient. And as we've watched the business grow and as we've watched our capabilities in the business grow With it, we're clear we can turn that into an actual business and make it available to our Docs. But then also run a business so that we can actually reach people anywhere.Gary Bisbee 9:11To follow up on the hospital at home thought. That seems to be one of those thoughts that hey, it's easy to think about that. But when you actually do it sounds like it's very complicated a number of ways. Am I right on that? Or am I missing that point?Terry Shaw 9:27No, it is. And when you think about it as a standalone issue, it doesn't make a lot of sense. But if you're gonna turn virtual care into a business, and you're gonna have physicians and nurses, let's say they're distributed or in a bunker, and you add to that specific risk-based clinics that need outside office hour care that you could also run out of that bunker. And then you add to that, the ability to do hospital care at home for a certain set of diagnoses all sudden all of them the synergies across them make enormous sense. It is a way to get into markets that you're not in today and do it from a capital-light perspective.Gary Bisbee 10:10Okay, in our discussion six months ago, talking now about your executive team, you indicated you're going to add four executives, Chief Digital Officer, Chief Consumer Officer, Chief Brand Officer, Chief Risk Officer. Have you been able to do that? Or did COVID get in the way of hiring those people?Terry Shaw 10:28Believe it or not, we did that all before COVID hit and we were very thankful to have each one of those during this time period especially. We stood up a 1-800 virus HQ call center process very quickly. We've reached people all over the globe. It's amazing digitally how people can find you. Our Chief Digital Officer in this space has been invaluable. And then our Chief Brand Officer and Chief Risk Officer were obviously involved in this. Our Chief Risk Officer is just getting going to be honest with you about what our plans are. But we have it's called Project silver, and how we're going to bring up risk-based clinics across our current network and other networks that I believe will drive the same operating income that the rest of our organization drive to our enterprise at this juncture.Gary Bisbee 11:24I know you're looking into building a unique Medicare Advantage product, is that in the purview of the Chief Risk Officer?Terry Shaw 11:32It is. Yep, sure is.Gary Bisbee 11:34Moving on to COVID. One thing that's been interesting to me is that we've seen acceleration and discovery such as vaccines and medicines. And I'm wondering if that will flow through to accelerating on the delivery cycles. Do you have any thoughts, Terry about that?Terry Shaw 11:51It's interesting. I was on a G100 call and the CEO of Johnson and Johnson was talking and he was talking about the vaccines that are being worked on. Whether it's going to be one vaccine or a series of vaccines, he paused and he goes to list to really talk through this, making the vaccine viable is one thing, producing the vaccines another distributing a vaccine to 7 billion people. And either one doses or two doses is yet a third. And I believe there's going to be an amazing amount of energy that is going to have to be deployed not only in America but across the globe to get the vaccine to people once it's available. And I think it is a huge distribution problem. Yeah, for sure.Gary Bisbee 12:35Thinking about health system decision making. I think all of you executives of health systems really stepped up in the last several months through COVID. Do you think that that's a trend? Will decision making increase or the pace of decision making increase on the part of the health system executives now?Terry Shaw 12:56I sure hope so. We actually sat down and did a post mortem on why it was. So many things were able to develop so quickly during the last three months, and a couple of takeaways. One, we didn't put things on agendas to get to in two months or two weeks, we had rapid touchpoints every day. Number two, we put a person in a swim lane. And as opposed to helping them swim, we let them swim. And those two things coming together, has really taught me a lot about our own company, about how to use design thinking and command center structures to push things forward in a way that may take you an enormous amount of time to do that you ought to be able to get done quickly. Thus, for us trying to take our five-year consumer journey down into two and a half to three years. How do you compress, organize, distribute, and make things happen in a way that you didn't think we're possible before you went through this?Gary Bisbee 13:58Yeah, that's a great example. Just moving to capacity, it seems like there's an agreement that health systems are going to need to develop the competency to quickly scale up and quickly scaled down in a case of something like this COVID crisis. How do you think about that, Terry?Terry Shaw 14:16I agree. So for this crisis specifically, that means you have to have an inventory of not only people, but equipment and supplies that you can move across your system. As you turn, PC use and ICU and med surge into PC use as COVID ramps up. What I never want to have done in the future is a complete shut down. We need to be able to flex up and down with the outbreaks that happen across the country in the markets that we're in and not disturb the other markets that we're in while we're providing normal routine care to everybody. So this concept of having healthcare shut down. We've just got to not do that.Gary Bisbee 14:58Yeah, that didn't work. But building a capacity question comes to consolidation. And the question there is, do you think that the COVID crisis will cause further consolidation among health systems?Terry Shaw 15:12I think it's very possible when I look at the last crisis, which was really a financial crisis in '08-'09. If you look at 2011 and 2012, coming out of that there was an enormous amount of m&a activity that took place. My guess is, is when the dust settles in the middle of '21 into '22 and '23. There will be another round of consolidation in the healthcare structure in the country seems likely for sure.Gary Bisbee 15:42You've been very articulate about new provider models involving physicians, as I recall, you maybe even had five different levels. How's that going? Is the COVID crisis changed? Your thinking there at all?Terry Shaw 15:54No only thing that COVID crisis has done for me is make me realize that the path we were On to have consumers be able to access physicians the way they want to access them. It's even more important now than it's ever been before. And if anything, it's just accelerated our thinking of providing those opportunities and choices for people, and then figuring out a way to help them access data so they're not left on their own to understand how to get it to it. We're complicated enough as it is, we need to make it simple and then have people understand how to get access to it.Gary Bisbee 16:30Thinking about facility planning, social distancing, ambulatory care, waiting rooms and so on. Seems like there's gonna have to be a rethinking of your facilities. How are you thinking about that?Terry Shaw 16:42What a great question. So everything that we generally do has had to change. We've got nice big round stickers on the floor that say stand here and then there's one six feet in front of it. Masks are going on everybody that walked in the door, we've had to change small waiting areas to no waiting areas. From a digital footprint, we tap people through a text that say, okay, you can come in now. For your appointment, please wait in your car. We're going through an enormous change in how people wait visit and access services so that they feel safe and so that we're providing the right kind of care for them, while at the same time making sure that the underlying diseases in your community to still have a chance to be cared for what was crazy. In the last three months, we've had an enormous number of people in this country, not get the appropriate heart care, etc. Because they were afraid to get the care. We just can't let that happen. Again, we have got to create a digital and a waiting room environment for people to plan their lives so that we can still care for them, which means we as providers have got to do a better job organizing our own care processes around thatGary Bisbee 17:59Right. Thinking about reimbursement. The government's role as a payer. You're, of course, former CFO and Adventist and so you've got a good command of this. But there are signals that CMS will pay for televisits, which would be a good thing. What other changes in payment? would you suggest for Medicare and Medicaid coming out of the COVID crisis?Terry Shaw 18:21There's been several waivers that have come through and the whole care delivery process so telehealth is one, the waiver of licensures another. So coming out of this in one person's opinion, we did take a big picture, look at health care, telehealth needs to work, and get paid for it. Number one. Number two, licensure has got to start moving across state lines, not only for doctors but for nurses etc. Number three, we've got to land the plan on where we're going to start. It's gotten a lot of noise, but still no action. And number four, I think risk-based models are gone. To have to continue to be implemented thought through and brought up in the industry. Or we're never going to move to a situation where we've got the majority of governmental payers in an environment where you're incentivized to take care of them no matter what's going on.Gary Bisbee 19:19I mean, those are all really good points. I worry that sometimes our health system executives aren't active enough in Washington or the state capitals, in urging our educators to learn more about this. How do you think about that?Terry Shaw 19:35I don't disagree with you. Although I will tell you the healthcare industry is such you know how it is, um, you have how many members that the CEO council 5075 and what I've learned is, is you can spend quite a bit of your own shoe leather or you can move into spaces and be a part of something bigger than yourself and it works really well. The Health Leadership Council In Washington that Mary Greeley runs, is a multi Industry Council, the HMA, your organization has done some really good work pulling things together. The American Hospital Association lately especially has done some really good things that I appreciate. And I think we all need to be a little more active and thoughtful. And we all need to lend a little bit of political support to helping some larger organizations have the right voice. So they're representing a broader swath, as opposed to just representing a small organization like admin health.Gary Bisbee 20:41Yeah, here here. That's well said. Moving to something that's not such a pretty picture is the economics of all of our health systems. How did the COVID-19 crisis affect Advent Health's finances for '20?Terry Shaw 20:54So, January and February were great. We were ahead of budget and April, May, and June we're 400 million behind budget. So I'll just put that in perspective. Our January to June budget for Ebidta is 800 million. And we're going to be about 400 million behind through the end of June. Now look, I know it's not the end of June right now, but I'm looking at our volumes, we're back up running 95% of where we were before COVID. And every week that goes by it continues to go up. Logically, when you take a step back from this, from a hospital perspective, unless we've cured some underlying disease, we got to go back to the census we had plus COVID. So on an $800 million budget for the first six months of the year, we're going to make 400 million will be 400 million off-budget. we're forecasting right now what July through December looks like it's another $800 million budget. So on a $1.6 billion budget is not gonna surprise me Gary, if we're not Four to 600 million off of that budget by the end of the year.Gary Bisbee 22:03So as that kind of effect tap backs, not only this year, but next year.Terry Shaw 22:07It does. So we spent 75 cents of every dollar on capital. So in this budget by 500 million, there's 75% of that we're not going to spend on capital.Gary Bisbee 22:19$400 million. It's gonna be tough to make that up, at least. What are you thinking about? '21? There's really no way to know, we don't know if COVID is coming back or not. But right now, how do you think about that?Terry Shaw 22:32I personally don't believe COVID will be cured in '21. I think testing will get better from both in terms of how the test is done, and the quantities of tests that we have available to us in the market. I think our supply chain will get better. I think the ventilator supply will go up. I think people will learn to flex. And I think by 21 there will be outbreaks in cities and areas that people have to deal with. From a healthcare perspective, but healthcare will stay open. And we'll be back to treating what we use to treat plus COVID. And so I'm at this juncture other than this, we're running 17% unemployment. And unless that gets fixed, there's no way the industry is going to have the same payer mix in 21, then we have today. So as we think through that calculus, I don't think we'll produce a much as much profit in 21, as we're used to producing but I think the payer mix issue, not a demand issue.Gary Bisbee 23:32I agree with that as well. One other thought, then let's turn to leadership in a crisis, but it seems evident to public health as part of the national security now in a way that we didn't think about it that way before. What steps should we be taking as a nation, Terry to deal with that issue?Terry Shaw 23:52You know, Gary, it's just different than it used to be. When I was a kid. Public health was very active. I remember school you start the year and then line up and some lady dressed in a white uniform would get the whole class a shot. It's like I hated those days. But anyway, today we're the healthcare system that we've got is the public health care system. And if we're going to keep it that way, the facts are I'm fine with that. But I'd go back to my earlier conversation, we need to be less dependent on countries outside of the United States. We need to move back to domestic manufacturing of the critical things that we think we need to protect the American people, even if that means they're going to cost a little bit more to produce. And somebody smarter than me can sit down and figure out what that is and how we're going to approach it. But you can't let one province in China be disrupted and not allow yourself to take care of your people without going to brokers for supplies. It's just a crazy world and we need to solve it.Gary Bisbee 24:58Yeah, we've got to be smarter. There's no question about that. That actually is a nice lead into leadership when you first became aware of the COVID crisis. What was your first thought?Terry Shaw 25:11I hate to say this, but I went back to being the chief financial officer. And in February, I call Paul after watching the news one night and said, borrow a billion two. He goes, like, he goes, what are we doing that for? And I said, trust me, if COVID comes in, it's a mess. We're not going to be able to borrow money this summer, borrow it now. So we borrowed money. The second decision we made was to ramp up our sourcing for personal protective equipment and ventilators in a way that I didn't dream was possible, and it got done. And then the last thing we will likely have done is we've studied best practices in China and in Italy and in New York. So that when our COVID case was started building here, in our ICUs. We had the best thinking that we knew to find at that juncture to help people live through the process. So those are the three tracks I'd tell you, we went on as a company.Gary Bisbee 26:12What are the most important characteristics of a leader during a crisis of this magnitude? Terry, just generally speaking?Terry Shaw 26:19It's a good question and put it in this order, staying calm. If you're calm, everybody else will be calm to being determined. The ability to communicate I'd say is on that list, putting the right people in the right swim lanes and then letting them lead. And then I tell you this concept of daily input and processing for fast decision making whatever that is in your company, figuring that out on the front end and then following it.Gary Bisbee 26:49Did the COVID experience change you as a leader at all or as a family member, community member?Terry Shaw 27:01It did. I gotta tell you, I think everybody's grown a lot in the last three months, me included. We did things that I didn't know we could do. And we were responsible for things that I was clear, we wouldn't know exactly how it's gonna work out. It tested everybody and I got to learn a lot about myself and my team. some good, some not so good. And we all have learnings from this that we need to apply to not only our personal lives, but our professional lives that I think will benefit us on a go-forward basis. Personally, let me go back to personally, we're also busy so my kids are in medical school in California. My wife used to be going somewhere and every week, and we've lived this cool life and now all of a sudden, I'm at home all the time. And so, I don't know what it's done for everybody else, but it's made my wife and I go back to really figuring out why we got together in the first place, enjoying our time together and you is been a really interesting three months of discovery on a personal side.Gary Bisbee 27:56Thanks for sharing that with us. By the way. This has been another terrific interview. Let me ask one final question if I could, Terry, and that is there's general agreement that we're moving toward a new normal. you've outlined Advent health plans in that regard. What changes and financing and delivery Would you like to see as part of the new normal going forward?Terry Shaw 28:28I'd like AdventHealth to be a lot less dependent on it surgical department and its emergency department for its economic welfare. So people ask me, does that mean you're not going to buy or build new hospitals? And the answer's no, I didn't say that at all. We plan on growing as an organization in that regard, that having so much revenue, that is profitable run through those two mechanisms is something that over the next several years, we've got to move away from and we'll be doing that,Gary Bisbee 28:57Terry, this has been a great conversation with you I appreciate your willingness to tee it up again here many Thanks.Terry Shaw 29:03No problem Gary.Gary Bisbee 29:05This episode of Fireside Chat is produced by Strafire. Please subscribe to Fireside Chat on Apple Podcasts or wherever you're listening right now. Be sure to rate and review fireside chat so we can continue to explore key issues with innovative and dynamic healthcare leaders. In addition to subscribing and rating, we have found that podcasts are known through word of mouth. We appreciate your spreading the word to friends or those who might be interested. Fireside Chat is brought to you from our nation's capital in Washington DC, where we explore the intersection of healthcare politics, financing and delivery. For additional perspectives on health policy and leadership. Read my weekly blog Bisbee's Brief. For questions and suggestions about Fireside Chat, contact me through our website, firesidechatpodcast.com, or gary@hmacademy.com. Thanks for listening.

We all know that evolution is a constant process and usually, the ones that don’t evolve, stay behind. Our today’s guest started working picking walnuts as a young kid, and that was the first time he knew something bigger was coming up for him. From having nothing to 75 million dollars of net worth, Brandon Dawson is constantly reinventing himself and his mission is to empower business owners to take control of their destiny, by creating substantive value in a personal, professional and financial way.  In this Income Hacker episode, we will talk with Brandon Dawson, a real estate investor with over 600,000 square feet of storage units who has become a specialist raising capital and negotiating purchase agreements. Over the past years, Brandon has acquired over 130 independently-owned businesses and franchised to over 1000 locations. He bypassed Wall Street by raising capital through his own means and sold his company for over 77 times its EBIDTA value. Currently partnered with Grant Cardone, Brandon is all about empowering small businesses and help them raising money through crowdfunding to increase their revenue.  Brandon shares the key to making money: it is all about solving other people’s problems… you just have to be creative. Through his core values, inspiration, transparency, discipline, accountability, alignment and results, Brandon is convinced that doing what you’re best at and surrounding yourself by people who are experts, you can get the wheel turning into amazing things. Stay with us while Brandon tells us his story, the importance of building a skillset, how to go from getting “NO’s” to only “Yes”, and always having a clear vision for the big picture above all "Real money doesn't flow to people with big degrees, real money doesn't flow to great salespeople…  real money flows to problem solvers and to the extent you use your education and you use your people skills to solve bigger problems, people will follow you." - Brandon Dawson    Podcast summary: 02:25 - How he created his own equity structure and sold his business for 200 million dollars on a 500K investment over 12 years, without borrowing any money or getting into debt. 05:47 - His current partnership with Grant Cardone and the power of crowdfunding, partnering with an expert, and dodging Wall Street.  10:23 - Why problems to handle cash flow can cripple the growth of independent business owners and cause them to either surrender value in exchange of capital or have their business move backward and retreat.  14:16 - How picking walnuts paid his school and taught him the power of scaling and teamwork. 18:25 - Why the key to start a business is not the money, but rather the ability to solve problems.  20:53 - ‘Talk to them when they don’t need you, build a relationship, get out in the community, solve problems, don’t sell.’ 23:40 - Are you a transactional, transitional or transformative person?  27:53 - How to keep pushing on in the face of rejection and what keeps you from breaking through. 32:40 - Brandon Dawson’s biggest mistake: missing opportunities while being caught up in failures and focusing too much on making deals. 36:38 - Why every dollar counts and the same principles apply over small or big gains.   Connect with Brandon The B Dawson Show Insta - @BrandonMDawson   Episode Resources Cardone U Three Feet From Gold by Sharon L. Lechter Beyond Positive Thinking by Robert Anthony The Richest Man in Babylon Good to Great, Great by Choice and How The Mighty Fall by Jim Collins 21 Irrefutable Laws of Leadership by Dr John Maxwell The 10X Rule and Sell or be Sold by Grant Cardone

One of the misconceptions people often have about Quiet Light Brokerage is that most of our transactions are e-commerce based. In reality, we have got quite a sizeable number of SaaS deals in our portfolio as well. Today, the Saas CFO Blog founder Ben Murray is here talking about his career, the blog, and his passion for sharing the metrics founders need for better planning and forecasting. Through his blog, Ben shares his passion for organizing the numbers, implementing SaaS metrics, and forecasting. Ben's advice is all about getting the lumps out of the profit and loss. Anyone looking to learn more about the topic both from the acquisition and the ownership side, this is the guy to know and this is the episode to listen to. Episode Highlights: The value in forecasting. Why do it in the first place. Things that proper forecasting might protect your business from. Software recommendations for businesses looking to get started with inputting the financial data. Types of metrics that are important for the owner and potential buyer to dial in on. The Rose Metric. Numbers a potential buyer should be looking for in a healthy acquisition prospect. How deep should the buyer look into the metrics? Warning signs to look for in a business evaluation. The why behind the data. Healthy levels of sustainability in the balance between recurring revenue and sales/marketing expenses. How Ben became so interested in the SaaS arena and why he feels compelled to share his knowledge with his readers. The cash runway forecast model. How to get started in forecasting. Transcription: Joe: Mark one of the misconceptions about Quiet Light Brokerage is that some people think we do; the vast majority of our transactions are e-commerce related when in fact we've got quite a sizeable SaaS component as well. And I understand you had Ben Murray from SaaS CFO on the podcast recently. Mark: Yeah I just recently became familiar with Ben. I was going out and taking a look at some of the people that are writing in this space and just kind of doing some research trying to expand our network in this area and I happened upon Ben's blog and I was absolutely blown away. So Ben is a CFO obviously and specializes in the SaaS arena and talks a lot about the metrics that we want to be able to track in the SaaS world for better forecasting and better planning on the part of SaaS founders. So naturally, I thought I had to have this guy on the podcast. We also sponsored a little ad in his newsletter as well to promote David's webinar. David Newell for those of you that don't know recently did a webinar on how to solve a SaaS business for 6, 7, or 8 figures. We're going to include those in the show notes we'll also make sure that we advertise that in our weekly newsletter if you don't get that; a really, really well received. We've had hundreds of people attend and have had great response from that webinar. We partnered with Ben to help promote that webinar as well. And as I told you Joe just before this call he knows more about SaaS than you and I will ever really know because he lives and breathes this on a day in day out basis. And so we talked a lot about some of the metrics to look at, how to think about some of the metrics, how to calculate some of the metrics in a way that makes sense because we know that we're supposed to be tracking some things like lifetime value, churn, and everything else but how do you actually construct these calculations in a way that makes sense for your business and then forecasting as well. So the topic; I'll be honest, I got a little wide-ranging with my questions because I wanted to ask him every question at once. And it was difficult to stay focused because I wanted to ask every question at once but there's just some really cool nuggets in this podcast including one that you and I talk about all the time and that's cash versus accrual accounting. Joe: Yeah, most people think about it only in terms of e-commerce but SaaS and content they've got to do it as well just to get the lumps out of the P&L. Mark: Yeah I mean look it just comes down to this basic concept accounting; double-entry accounting system has been around for a long time and it's been around for a long time because it works. And so we should be making sure that we're actually paying attention to our books in the proper way and understanding what sort of insights we can pull out of this. Ben talks a lot about the need for forecasting which is something that I'm increasingly growing aware of as being an important tool for business owners. And we talked a little bit about how to do that in the SaaS world in this podcast as well so it's super interesting. And I think for anyone that's interested in SaaS both from an acquisition or an ownership standpoint, Ben is a guy to know, this is a podcast definitely to listen to. Joe: I'm looking forward to listening to it myself. Let's get to it. Mark: All right I have Ben Murray from the SaaSCFO.com, Ben thank you so much for taking the time for a conversation here on SaaS businesses, CFO and everything metric heavy. I'm really excited for this conversation. Ben: Thanks Mark, it's great to be here. Mark: So let's start out pretty simple and give just a quick background on yourself; what you do, and also a little bit about the blog. I found you through your blog the SaaSCFO.com but a little background on yourself so that our listeners know who I'm speaking with. Ben: Sure yeah. My name is Ben Murray and I've been in finance and accounting for the past 20 plus years and my background has been airlines and software specifically SaaS. And so I've been a SaaS CFO for about the last 8 plus years or so. And about 3½ years ago I started blogging at the SaaSCFO.com where I just wanted to share my metrics, models, templates that I've been using and creating over the years and hoping that others will have; they could use those and implement the models and metrics in their businesses right away. Mark: Yeah and look there's a lot of people that write on this material, right? I've come across a lot of different blogs that kind of become this intersection of marketing and metrics and company structure and everything else. Yours is really focused on metrics and metrics from a kind of financial outlook perspective and probably a deeper dive than I found in most other places. So I can definitely really, really appreciate what you're doing here on the blog and some of the information that you share. I want to start off with just kind of a big question, your website title is Ben's post on SaaS metrics and forecast; pretty simple. I want to talk about that second half there and the forecasting side of it. I know a lot of business owners and even buyers who are looking at acquiring a business look at forecasts with a bit of a skeptical eye and wonder well what's the real value on them? Now I think people that are growing businesses at a higher level tend to see the forecasts and see the value in them. But I'd love to pick your brain a little bit about the value in forecasting and creating a good forecasting model and maybe what the foundations are for that. So why don't we start with that first question as why forecast in the first place? I mean isn't it really more wishful thinking or is there a real science behind this. Ben: Yeah there's definitely a science behind it because it really leverages your operational understanding of your business and I really feel you can't forecast until you know where you've been. So really understanding your historical financials, all the metrics around that, and then once you have that then you can put a very good forecast together. But if you don't understand your current financial state it's going to be really hard to create a forecast and obviously, the number one thing is cash, right? Cash is king. So if cash is tight or you think it might be tight you definitely need that forecast to balance resource requests versus cash balances. So that's number one. After that say if you have decent margins then again it's really understanding where your revenue is trending; your margins are trending. And as you scale so you don't get in trouble down the road; if you hire too fast, invest too fast. So forecasts it's definitely I'd say part of science part of intuition but it's really critical I think in any business as you scale and of course just understanding your cash and then the metrics that are coming out of your forecast. Mark: Yeah, what are some common areas that you see people running into with a lack of forecasting; just kind of sticking their finger up in the air and feeling where the wind blowing today as they're growing maybe a rapidly growing business. You already mentioned one, hiring too fast and bringing on too much support staff maybe anticipating more growth in the future. What are some other things that proper forecasting might be able to protect you from? Ben: I think when you create that first financial forecast and you have been forecasting it really exposes areas in your business that are kind of weak data-wise. The number one thing is like booking; tracking your monthly bookings whether that's MRR or ARR basis you need to know when new lows are coming in or new customers are coming in any expansion business churn downgrades. So that sometimes exposes that tracking. You're going to be kind of revenue forecast together. It all starts with your booking patterns. So that's one thing. And then it's just basic stuff. What's your current MRR? What are your current customer accounts? How many paying customers do you have so you can put again that revenue forecast together and then it's just understanding where you spend. You know one big thing that I see with SaaS firms is that they're coding all their expenses to one big bucket. And I think once you reach say a million or two ARR you really have to have more sophistication in your financial forecast than you're coding expenses to buy an apartment because without that you really can't create any SAAS metrics from that. So you really need clarity around your expenses as well to see that quite a bit. Mark: Yeah and so much of this when I give presentations at a conference and I get to the part where I'm talking about keeping good clean accurate verifiable books I get the sense sometimes that it gets glossed over. And I talked to a lot of entrepreneurs who say yeah I know my books are important but then when you find out are they actually managing them well we found out that they aren't and because it becomes sort of an afterthought to it. But what you said there at the end I think is so clear. Once you start having good numbers brought in to the business and you're starting to analyze these numbers it brings clarity to the business as well and being able to identify maybe the risks that are actually present in your company that you aren't seeing because you're not looking at the data. A lot of what you're saying here about forecasting, of course, requires keeping track of the numbers in the right way and you need to start somewhere. For somebody that's maybe at the smaller end of the spectrum in a SaaS operation, say sub one million dollars in revenue what sort of recommendations do you have to make sure that the data that they're getting is A. getting input correctly and categorized correctly and B. do you have any recommended software any recommended systems that you would start out with? Ben: Yeah I wrote a post because that was a question I was getting a lot on what SaaS accounting software can you recommend. And of course, when I speak with founders 9 out of 10 times their financials are in QuickBooks . So that's kind of a ubiquitous accounting system out there. And I've seen all sorts P&Ls but really it's good organization to your expense categories. Not having too many. Sometimes you see a QuickBooks P&L and it's 50 expense categories and you've got $5 posted in February and 10 the next month; just too much detail on that where a SaaS company is really 70 to 80% employee wages, benefits, taxes, etcetera. So that's the big thing is getting to know your wages classify them correctly; encoded by department. Then it comes down to travel, rent, commissions, so they're big expense categories that are common within SaaS, advertising, that you want to see those coded and classified correctly and kept track of each month so you're not getting behind and have very lumpy financials. So that would be the big thing is just to clearly categorize P&L by expense category and then obviously the other one is just not applying proper reverec which you can't blame SaaS founders that saved some 1 million but they're not playing proper reverec to their revenue. But eventually, you will need that in order to calculate again good metrics, good gross margin and so forth. Mark: Can you explain that last part a little bit more? Ben: Yeah, about the reverec? Mark: Yes. Ben: So often rates with an MRR business it's not as pronounced where you invoice monthly and recognize monthly but with annual contracts say quarterly, semiannual, annual, multi-year contracts you see a lot of SaaS companies posting that revenue right to their P&L. So, for example, a $12,000 annual contract that should be advertised and recognized over twelve months. They're posting twelve thousand in just one month. You'll see very lumpy revenue that it could be 50 or 100,000 in one month and it's $1,000 a month the next month and I've even seen negative in some months. And with that, you really cannot manage your SaaS business without a proper reverec and that could be finding a SaaS accounter bookkeeper who is familiar with the SaaS business model. But without that, you don't know your gross margins at all. You really don't know what's going on with your business kind of on a good steady run-rate basis. So again under a million, I get it. A million and two and scaling you definitely have to get to that point. Mark: Yeah. And so in our world again we've talked about this a lot on this podcast and pretty much every chance I get. And it's that simple difference between accrual and cash basis counting, right? Instead of saying oh I just got $12,000 in on an annual contract saying well I have an annual contract which means I need to service this client for the full 12 months and that equates out to $1,000 a month which I'm earning as I go along with this contract. It's kind of a foreign concept to a lot of people. But again the importance here is not treating the P&L like a statement of cash flows only and treat it again as a profit and loss statement. I would imagine Ben, this is something I didn't see on your site but I'm sure you've covered because your site is extremely comprehensive, it would make sense at that point to look at your financial statements and understand the balance sheet is going to be important in here as well. What role do you see and let me see if I can back up; I'm kind of all over the place right now but I'll ask this in a very basic way. I know a lot of people are kind of scared or mystified by the balance sheet. How much emphasis do you think people should put on actually getting familiar with the statement like that or do you think it's more important to look at some of the other metrics instead and focus on those? Ben: Yeah I think say as a founder-owner you do need to understand the balance sheet to some extent because the SaaS balance sheet is a little different than others. One obviously is deferred revenue, so in the example, we talked about when you invoice that 12k it's actually posted at the balance sheet as deferred revenue; as a liability, because you have an obligation now to say perform or to service that customer. The second thing with the new reverec standards you now have to capitalize the contract costs that arise when signing contracts with customers, for example, enabling commissions now that becomes an asset on your balance sheet. So that's the second area that's different with SaaS and that's actually new and then, of course, capitalizing software development. You can also capitalize software development once it reaches technological feasibility. And again that's another asset on your balance sheet. Other than that SaaS balance sheets are pretty straightforward but if you're applying the proper accounting you probably will see; you definitely should see deferred revenue and probably capitalized commissions. Mark: Yeah I can kind of hear the collective groan from people listening thinking well I thought we're going to be talking about SaaS metrics here and here we are back in the old accounting stuff but this stuff plays together, right? I mean when we go into some of the other more advanced metrics that you're talking about it depends on having those books done correctly so that you can pull out the right metrics and the right ratios that you're looking for. But let's get into some of those other metrics and just kind of a very basic question here, what do you consider especially forward for companies that 1 million maybe 5 million 10 million and then above as we kind of work up the strata here, what sort of metrics would you generally say are really important for an owner or potentially an acquirer to really dial in on a SaaS business? Ben: Yeah I think once you're past that early stage where you really have to manage your cash flow I mean it's going to be your go-to-market, sales, and marketing efficiency metrics and that's something I'm constantly looking at. So it's really all; it becomes a lot about the go-to-market efficiency. One are your inbound or outbound sales engine and marketing engines and then one metric that's a favorite of mine is cost of ARR, cost of MRR where you're looking at your ARR and MRR bookings and comparing that against your sales and marketing expense to see how much it costs you to acquire one that new dollar or ARR or MRR; that's a big one. And there's a great survey out there, a SaaS survey put out by KeyBank each year that provides those private company metrics so you can compare how you're doing against other SaaS companies who put data into that survey. So it's a great benchmarking tool. But again there are a lot of sales and marketing efficiency metrics that yeah as you're scaling, how efficient are you, how much cash is going to be required to hit your booking plan, and then really just that balance; it comes down to that balance between bookings and sales marketing. Mark: Yeah that's great. Let's talk employees it seems to be one of the costs that seems to kind of spiral out of control with SaaS companies on occasion right? The cost of supporting the clients can be higher and higher. You have something on the blog which I'd just kind of chanced upon which you came up with called the Rose Metric. Can you explain that a little bit? Ben: Yes sure. Again it kind of gets back to the concept that really a SaaS company or any software company is all about the staff; the employees because that's the major expense or as I call merits that investment in the business around your staff. And you see that revenue graph that you metric out there is kind of a general gauge around efficiency which I think is just too high level; too generic. So I want to look at really it's so important that your investing employees, that employees are happy because they are creating that software company; they're creating the product. And really comparing how efficient are we in headcount wages versus the bookings coming in. So it gets you kind of a balance of as we scale what resources do we need to support our bookings plan or rounding plan and just see how efficient we are in acquiring new MRR or ARR against our kind of employee headcount or employee wages. Mark: Yeah it's an interesting piece and again I'd recommend people take a look at the blog and kind of dig into some of these employee metrics. It's one that we don't see as much in our world and I think it's an interesting one to take a look at. From a merger and acquisition standpoint if you're a buyer coming into a business and trying to evaluate it where are you going to begin looking at a company's books? What sort of numbers are you going to be looking at in trying to calculate within that first day as you're trying to see is this a good opportunity and a healthy company? Ben: Yeah obviously the first thing you're going to look at is just are they good books are you inaudible[00:19:12.5] accounting so they're good financial statements. And then after that, it's really understanding the health of the recurring revenue because a lot of valuations are based on almost full of ARR or MRR and then also EBIDTA. So really when I look at it you know it's really looking into that recurring revenue; so the bookings data, what's your gross dollar retention, net revenue retention, how many logos are you losing per month, how many dollars are you losing per month, and churn and dock rates. And then of course if you've got multiple products it's understanding all of those metrics by the product lines. Because that's what you're really buying is the recurring revenue stream and of course any profitability or lack of profitability that goes along with that recurring revenue stream in the form of EBIDTA. So those are the same first things that I dive into is really understanding the revenue streams and then really the business model; what does it take to support that recurring revenue stream? Do you have tech support? Do you have CSMs? What's needed support that revenue? And then, of course, another big thing is to go to market engine; understanding sales and marketing, how they're acquiring customers, how efficient they are, and then of course looking into GNA, RND, the product roadmap etcetera. Mark: Sure absolutely. As far as dealing with a company with weak books like of we're evaluating a company that maybe has this lumpy revenue because they're recording everything on a cash basis. Are there ways that you can suggest that would not involve a whole deconstruction of books but maybe to be able to evaluate a business that has weaker books or weaker data tracking practices? Ben: Yeah if you really can rely on the financials for the revenue stream then you have to really build a backup through their bookings data or their invoicing data. So getting say a couple years of invoicing history of their subscriptions; so dollar amounts, start and end dates, it helps if you knew is this a new logo expansion etcetera so that you can reconstruct what the revenue stream should look like and then get back into you know what kind of expansion are you seeing, churn are they seeing so you can build out that revenue stream if it's not; if they're not [inaudible 00:21:30.3] to the financial statements. Mark: Sure. What would be some warning signs that you would look for an acquisition? Obviously, you said you would really look at the health of the recurring revenue. How trustworthy is it? Also the go-to-market cost as well. What are some things that would be just kind of a deal-breaker for you if you were evaluating a business? Ben: I mean a couple of things would be looking at again I think it's going to be around churn and payback periods. So payback periods are extremely important. So how fast are you paying back those upfront customer acquisition costs. So one looking at their cash balance, of course, are they trying to [inaudible 00:22:10.5] fund working capital through lines of credit or debt that their business model isn't quite working for some reason or the payback period is too long or they have just too much cash tied up in check. And then, of course, new logo acquisition, do they have the go-to-market model proofed out or product-market fit and then again just is churn under control, can they acquire customers but then can they retain them over time. So again those are some of the things that if you see warning flags; you might see some warning flags there that the metrics just as a whole don't add up together. Mark: Right. You mentioned payback periods. This is something that I've ran into a number of times where I see somebody pretty plainly put out there hey my LTV is this my CSC is this so look I'm going to acquire the customer for 80 bucks the lifetime value is $400 and you're going to make a great return on your investment on that. But when you dig into it a little bit deeper you find out that if you take like an 80% cohort, if you're taking a look at the majority of customers the lifetime value is much lower. There are a couple of unicorns in there that are pulling in this really high value. What are some ways that you can recommend dissecting this when you get this kind of flat up numbers of my lifetime value is X and my cost of acquisition is Y so, therefore, you're going to make that killing on this business. How can you sort of dissect that and actually get some better insights there? Ben: Yeah especially with LTV because that can be so sensitive to the denominator or what churn number you're using as the dominator. So you really have to understand what inputs they're putting themselves because that lifetime value can be all over the place. So again you mentioned cohort analysis, are they taking the cohorts, are they using aggregate churn or are you looking at really with check and payback periods you should be looking at it's really a point in time like the cohort analysis that what's the most recent cohorts coming in and the paybacks on those and also lifetime churn from the cohorts say from the past 12 months. So you really have to I think look at the details on the numbers that are building up into those formulas to really prove out what they're saying that they can really claim great numbers. Mark: Yeah, it's one of the reasons that LTV to me I'm not a big fan of that metric on its own I mean it's interesting but I think it's just kind of a live number way. It doesn't color a whole lot when you're looking at it by itself, right? It can really take you to a lot of different factors. Ben: Yeah and I definitely calculate LTV it's interesting because I think SaaS metrics in isolation don't mean much. You kind of have to look at the big picture obviously it's LTV to check but also looking at cost of ARR payback periods. So maybe it's one data point but it's not telling the whole story. So I do look at LTV but again I think say cost of ARR or the payback on that is a much easier way to understand. And LTV I still think is kind of a ballpark because it's always changing and it's such a sensitive calculation that it's not the number to just look at alone. Mark: Yeah. A question I get all the time from people and it's really basic in your world so I apologize for even asking this but people ask me all the time well how am I supposed to calculate my lifetime value, how am I supposed to calculate my churn when I have people that are still; that have been with me from day one? And these numbers sometimes can be difficult to calculate because of that or even people that are dropping off but then coming back on and then dropping off again and then coming back on. Ben: Yeah. I hear that a lot too. Yeah especially if you're a couple of years in you really don't know your lifetime value yet. Again it's just a formula; it's a calculation so it's a ballpark but you don't really know true LTV yet if you've just been around a couple of months or a couple of years. And then the whole dropping off dropping on back on that's where it just becomes almost company-specific that you really just have to define internally what does a new customer mean, when does it really mean that they churn so that everyone within the company understands that. And if you're in any sort of M&A then that's clearly; that you're transparent with how you're actually tracking those stats. Mark: Yeah. And I think that part right there that point is probably the key that I think is so important especially from an acquisition standpoint. If you're looking to acquire a SaaS company and you're just looking at the metrics on the surface how does that seller define those metrics within their own company and why did they set up those rules because with multi churn you can look at that in a number of different ways. You can calculate that number using different approaches the same way with LTV numbers you can use different approaches and get different results. So why did you choose a certain method; why did you choose a certain approach to this? And that's the color I think from an acquisition standpoint that starts to get really important when you're looking at any of these metrics is understanding the why behind what data is being presented and then the rules and applying a sanity test to it. Are these people just giving numbers because that's what they're supposed to pick or are they actually looking at these and using these metrics within their company, yeah just a really good point on your side as far as understanding the metrics and where they're coming from? Moving beyond that cost of acquisition, moving beyond the lifetime value numbers and you've mentioned a few times the going to market costs as well, what are some health levels for the sustainability of ARR or MRR on a SaaS business. Ben: You mean as kind of as far as the balance between recurring revenue and sales marketing expense? Mark: Yes. Ben: Yeah, so healthy levels, the things that I look at and this is probably more mid-market enterprise but usually if you can acquire bookings for $1 of a new ARR for a dollar of sales market expense that's pretty good. So again there are some surveys out there that kind of give you some benchmarks and that's kind of you can say in whole new logo and expansions of course expansion in ourselves should be a lot cheaper than acquisition, maybe that's 30 to 50 cents of sales and marketing expense acquire one net new dollar of ARR. So certainly it's just that you look in and if it's higher you just need to understand from that business why it's taking longer and what's the story behind go to market. Is that a longer sales cycle that's impacting the [inaudible 00:28:48.6] so just different things to really understand their business model. Mark: That's great. I'm going to just take a quick break from some of that heavy metric discussion here because we're throwing around a lot of acronyms right now. How did you get your start in this rollout? You said that you had experience in the airplane industry and then also in the software industry. How did you get to be so passionate about this and kind of digging in as deep as you do? Ben: Yeah well I guess one that you really loved forecasting and financial forecasting though in Excel models and you kind of build-up that tool kit over time and just really enjoy it really understanding the economics of businesses and especially software is so interesting and yeah I did start in the airlines which is also kind of metric intensive and very financially disciplined and I kind of applied that to the SaaS areas. So I just noticed out there a lot of resources on SaaS but it didn't quite I felt go far enough or really just give you the whole story and the template that they were using it kind explained it but then you might have to go do an hour or two of work to recreate what that person did. And so I said; I thought you could be a little different by just providing the exact models, the templates that I'm using and hopefully the bits and pieces of those would be applicable to some people in SaaS that they could incorporate into their business and I received great feedback from readers, subscribers downloading templates that it's helped them out a lot, founders that are trying to do their first forecast. So I just wanted that kind of transparent value exchange out there and it's just really from my kind of on the job experience as a SaaS CFO and just things I encounter every day that are pain points for me that could be pain points for others and just help them out with maybe something with a template that I've used to solve some of those problems. Mark: Yeah you have all these comments on the site from people who have written into about the resources and I love the one here that says great resources that save a lot of time and brain damage to replicate. It's very true. Again there's a really good stuff on here. You brought up forecasting again so I'm going to start to bring this full circle here back to forecasting because we talked about that and it's a topic that I'm personally very interested in as well right now. You have a whole page here on the cash runway model. Can you explain that at a high level and maybe we can get into it a little bit? Ben: Yeah definitely because I have my financial plan out there that I live in Excel every day that I kind of take it for granted that other people can also open up Excel or just dive right in and for a lot of people it's still a little too advanced so with kind of that you could say advanced side of financial planning model. So I tried to create something very basic and it is really inspired by a founder I talked to who said that he got some funding just with a super basic cash forecast. So I thought well how could I take that and just make it super simple say for founders and non-excel people to just start inputting even it really gets to their cash invoicing. So they really could forecast their cash balance and how long that balance is going to last. If they funded it and then they're looking for investments that they could say hey here's my cash invoicing coming up, here's my headcount, here are some other metrics; that major expenses and then just forecast their cash balance in one tab. So that was the genesis of it just trying to really boil down to really something basic that founders and again non-excel people could hopefully use right away. Mark: Yeah. And you have this template available on the site. And you didn't actually answer it's kind of the question I was going to lead into and that is how does somebody get started with forecasting if they don't have the resources for a CFO like yourself what are some basic models that they can put together to start forecasting their cash flow? Ben: Yeah, definitely. I think really it's understanding their invoicing patterns; so what is your cash coming in whether that's funding or just the invoices you're sending out to your customers or their credit card payments they're making online line through your site. So that's really the first step. It's just that cash in. And then it's going to be headcount. Again headcounts the majority of expense for SaaS company so really and I'm quite informal as to how do we easily calculate and forecast that expense. So whether you've got one person 850 cut that into model, forecast that expense out. So the second thing again is headcount. And then any other major expenses, maybe it's rent, maybe it's tradeshow, advertisements, so it's kind of that 80-20 rule start with those big expenses; start with the big invoices as a place to start to put together kind of a basic forecast. Mark: Right then as with all things you can refine that as you go along and improve it and make it more accurate and you can look back to see how accurate was our forecasting and get the insights that you need from there and be able to really plan out what's going on or if you're looking for funding obviously very useful for that as well. This has been really interesting and maybe a little bit of a scattered conversation because I want to talk about everything at once. That's my downfall. I've never really claimed to be the greatest podcast host in the world but there is just so much here to be able to discuss. We are up against the clock at this point though and so I want to give you the chance to kind of round it out and with what you do you obviously have a passion for a lot of this in you being able to help out a lot of people. What are some of the common problems or common questions that you get at the blog and what would you say to SaaS founders currently operating a business right now or those that might be looking to get into this through acquisition? Ben: Yeah I mean the kind of questions or problems that I see really one is just how do you calculate this stuff, how do you calculate these metrics, what are the inputs? And that really comes back to just a nice clean P&L that you take the time; make that investment through your bookkeeper or accountant to really set up a well-organized P&L because that's where all the metrics emanate from. And if you don't have that it's going to be really hard to calculate the metrics and really have that financial transparency to manage your business. So really again it starts with what's your SaaS P&L and I try post on there on my site kind of walking through from bookings down to income; what the major components of the SaaS P&L are and again it's getting good organization and good fundamentals there and then you can build upon it then you can start forecasting then you can calculate metrics. So again it starts with I think a nicely organized SaaS P&L. Mark: You know I had Babak Azad who was with Beach Body; he grew that company into a billion-dollar company and he was talking a lot about the metrics that they use there and I asked him a similar question about how do you get started; how can you start tracking this and his response was just what yours is and that is just start; you just have to start with it right. And your advice to start with a P&L and having that set up correctly. It's what we've been preaching here at Quiet Light Brokerage for a very, very long time. Get those books in order. You want to have those books in order. It doesn't matter if you want to sell or not. As a business owner having good financial records it's irreplaceable. Once you get it you will be so happy that you've had it. But it starts with how you're inputting it. I've run into bookkeepers; maybe you have as well but I run into bookkeepers especially when somebody hires them remotely who kind of don't want to do an accrual basis books because they consider it to be more difficult but it's the proper way to do it and as you said all the metrics derive from there. Alright, one last time Ben where can people find you? What's the best way to contact you? Ben: Sure you can contact me through my site. It's the SaaSCFO.com and then actually later this month I'm launching the SaaS Academy.com. It's an online digital course for SaaS metrics and more so that's coming out soon as well. But definitely my blog you can contact me through to the site. Mark: That's fantastic. Thanks so much for coming on. I hope to have you on in the future. In the future, I'll choose one topic and I'll stick on that for the entire topic but thank you so much for this really good overview episode. I really appreciate it. Ben: Alright thanks, Mark. Thanks for having me.     Links and Resources: Ben's Blog The SaaS CFO Ben's Blog post: The ROSE Metric Ben's Software Recommendations David Newell SaaS Webinar

Bringing outside perspectives and experiences to our business and podcast episodes adds another perspective to our expertise. This episode brings in someone with a lot of experience in a particular niche, in this case, the exit strategy/buyout arena. Quiet Light's own Walker Diebel is here today talking to our guest all about exit planning. BEI Institute founder John Brown started working as a lawyer in estate planning in the late 70s. John walks us through his journey managing business owner's assets and becoming aware that no one was helping them plan successful exits from their companies when the time came. Without being educated, he asked himself how these business owners would plan a strategic exit from their businesses and move successfully into their post-business lives. John's company, BEI is now is the leader in the exit planning industry. Episode Highlights: John explains exit planning. The first thing that someone who potentially wants to sell their business should do. The value drivers that are important to pay attention when building your business. The role of the business owner in the process. Business risks that are not avoidable or hard to foresee. The biggest deal killers. John walks us through the four exit paths. The Karl case study – an exit strategy lesson. Transcription: Mark: Joe I don't know if you know this or not but one of the advisers here at Quiet Light Brokerage; Walker, he's kind of a big deal. Joe: He is kind of a big deal. Let's do this; let's make a pact. This is the last intro and the last time that we will say did you know Walker Deibel wrote a book and a best-selling book, Forbes and Amazon, all this other stuff because you know Chuck and I did talk about it the last episode as well. We need to stop making fun of Walker. The truth is he's brilliant and we're jealous. That's the bottom line. Mark: That is why we make fun of him, right? I mean we kind of wish that we had that book to our name and he is brilliant. And he's well for a reason. Joe: And he's being asked to be a featured speaker all over the country to entrepreneurial groups. And he just had somebody named John H. Brown, founder of BEI on the podcast. I'm looking down because I'm looking at the book here; a brilliant guy. The wisdom that John brought in terms of exit planning and what entrepreneurs should do in terms of goal setting and looking out to the future and how to adjust their business as necessary to achieve their financial goals and their personal goals; it was brilliant. A great deal of wisdom that John brought to this podcast that Walker hosted instead of you, right? Mark: That's right. You guys get a break from us this week which is fantastic for you. I love bringing in outside opinions. We've brought in some people in the past who are also in our industry that do things that are similar to what we do at Quiet Light Brokerage but they come with a different perspective than we do. I love doing this because I think sometimes with what we do we can kind of get set in our ways and our perspectives and bringing somebody else in who has a lot of experience in this space and seeing how they look at it, it tends to stretch you a little bit and structure your viewpoints a bit to maybe look at things that you haven't looked at before. So this is going to be a fascinating interview that Walker did with John to see what he has to say about exit planning. Joe: I agree. I've listened to it twice. Let's go to it for our studio audience. Walker: Hi everybody it's Walker Deibel with Quiet Light Brokerage. Today I have John Brown who is the CEO of Business Enterprise Institute; the oldest and largest provider of exit planning education in North America and the author of the best-selling exit planning book of all time. And most recently John wrote Exit Planning The Definitive Guide To Sell Your Business When You Want For The Money You Need To The Person You Choose. John, welcome to the podcast. John: Thank you, Walker. It's nice to be here. Walker: Now here at Quiet Light we have a tradition of having our guests introduce themselves because we believe that you're going to be able to do a better job than we ever could. And what I might do is throw a curveball at you and say… John: There was never a good curveball if you will know. Walker: Maybe if you can tell us about your journey of being an attorney and then how you evolved to ultimately start BEI and writing all these books on exit planning. John: Sure. So I was the son of two business owners in Michigan. So I've always had some I guess passion for business owners because they ended up selling their business and it didn't turn out well. It was an absolute bust. And this was when I was probably in law school at the University of Wisconsin. I wasn't in a position to do anything because I didn't know what to do. Walker: Well let me interject a question little fast, when you say an absolute bust selling a business what does that mean? John: Well they sold the business to the management team for a promissory note. They retired because they're from Michigan. They retired at Florida like all the people from Michigan and within a year the business had gone under. And they received very little of the proceeds from the sale of their business. So that was just a bust. It really affected their retirement dramatically. Walker: I got it. John: And at the time I was just a young and stupid law student. I really didn't know how I could have helped them. And it was long enough ago that the word; the term exit planning hadn't even been coined. I think we probably coined the term back in the 1980s. So that always stuck with me. So when I started to practice law in Denver I really had a desire to work with business owners. So the law firm developed along the lines of representing closely-held business owners. And we had about 20 attorneys and all we did was represent closely-held business owners. It was a different type of law firm back then at least. Walker: Were you a transaction attorney or no? John: Half the firm was transactional, an M&A firm buying and selling businesses. But the other half was a planning firm and I headed that side. It was then evolved into explaining; how to design and implement a plan to allow the owner to leave on his or her terms. And then often would end up being a third party sale and so the M&A firm was active in that. But even more frequently it ended up being transferred to family members or to management. And so we just developed an exit planning process about that in the law firm with hundreds of clients and then I'm never having a passion for being a lawyer. I transitioned out of that. I exited my law firm and started BEI. Walker: Are you still a recovering attorney or have you had a chance to move on from that? John: I think my former partners would say I had recovered from being an attorney while I was still at the law firm. Walker: John what is exit planning? I mean what is the goal of exit planning? What is it; I mean what is this thing? John: So every owner is going to leave the business at some point. I think we can agree on that. Walker: If they don't? John: They may die. They may go bankrupt. Or hopefully something in between where they develop value that's transferable to another owner and they create a plan as part of that to exit the business when they want; is it three years, five years to whenever for the money they want or need and to the person they choose; the person of their choice. That's, in essence, is exit planning and a raptor into that then is an exit planning process that owners can use and BEI does not represent business owners. We train lawyers and CPAs and financial planners and so on to actually do the exit planning for business owners. Walker: And brokers? John: And brokers; and the good brokers I should say, Walker. Only the good brokers. Walker: Only the good ones. John: Only the good ones. And so that's what BEI does today. We train and support other advisors throughout North America. Walker: So I have to ask you as coming from the buy-side of the deal hearing about something called exit planning it almost seems to me like the goal from a buyer perspective might be perceived as the goal being to maximize the value, potentially some end gaming going on, or for lack of better description is exit planning just kind of putting lipstick on a pig in preparation of taking it to market or it' more…? John: Putting lipstick on a pig is the broker's job. Walker: Packaging it up; I got it. John: We're trying to convert the pig into a beautiful stallion. Walker: Right. So in other words what you're trying to do is address the sort of levers that drive value and build a lot more muscle into a company for an exit. John: Exactly. A better term for us instead of exit planning would probably have been pre-exit planning because almost all the planning and implementation work must take place and be completed before you transfer the business to a third party, before you go to market, or before you substantially transfer ownership to the kids or to an insider. So that planning needs to be done now for most owners because 80% of all owners according to our last summer survey want to leave their business within 10 years. I was about to say 10 days and it's true for some but it's 10 years to be a little more accurate. Walker: Every month I have calls with both ends of that spectrum. John: Yeah. Walker: Okay, so how should a seller plan strategically about their exit? Like what are the things that they need? Or let's start at the beginning, what is the first thing that someone who potentially wants to sell their business should be doing or thinking about? John: The first thing that would be really the first phase of explaining which consists of understanding what they want growth both in money, when they want to leave the business, who they want to transfer to, do they want to maintain the culture or legacy of their company, do they want to benefit the employees, do they want to keep the business in the community. Those are all goals that owners need to think about and then they need to create with some specificity. A quick example is most owners would say if I ask them when do you want to leave, they would say oh I'd like to leave in five years. If I were to come back in a year and I'd say hey when do I leave, they'd say oh I want to leave in five years. Well, that lacks clarity and specificity. So we would say okay, you want to leave in five years; you want to leave on August 8, 2024. Now we can start to plan towards that. So that's the goal side and the other side is knowing what the resources are. So in third party sale in your world the potential clients you talk to have an idea of the value of their company and that value is always quite a bit higher. It's almost always quite a bit higher than reality. So they should be coming to the transaction advisors. And this is what BEI members do, they have transaction advisors they work with all the time and if a client says I'd like to leave my business in five years and I think it's worth 10 million dollars so I think we can get started. The first thing one of our trained advisors is going to do is to say okay let's go talk to an experienced M&A advisor; you, an investment banker, a cayenne business broker and let's have them tell or give us a range of likely sales value. Hey that comes back at four million dollars or maybe something in between. We don't know as exit planners what it's going to be worth but we can't do any planning that suggests owners can't do any planning if they don't know what the heck they have and what in the heck they want to do. And that's the first phase of exit planning. And then it determines; the final part of that is is there a gap between the resources they have today and the resources they're going to need? We've determined all that using financial planners, maybe business valuation people if it's going to be a transfer to management, or an M&A business broker, or an investment banker if it's a third-party sale. What we know is where the owner stands and so does the owner before they make decisions on what they're going to do. Usually that decision is going to be I've got to grow value in the company and it may take me years to do so but not always. Walker: So it sounds like number one is to set the goals; apply what is the number we're trying to hit and what is the timeline in which we're trying to hit it. John: Right. Walker: Number two seems to be working with someone like a broker to get a valuation on the business today so that you know where you are and where you're trying to build to. Is that accurate? John: Well yeah we would say the first step is goal setting, the second step is resource determination. But to do it accurately like you just said. And then the third step in our exit planning process is to grow value, grow cash flow, minimize; do some tax planning. There's not so much tax planning most owners can do that they don't; they're totally unaware of because their attorneys and their CPAs have never suggested tax planning to them. I mean there are ways where you can sell the stock of your corporation; a C Corporation and not pick up a gains tax if it's been structured properly from the inception. Walker: Amazing. John: And few owners know about that. Walker: When we talk to our potential sellers at Quiet Light I mean if we really were to boil it all down there's probably seven different things that I kind of look at. And this isn't about Quiet Light, it's about you and the process that you've built. My question to you is what are the levers that drive value in a business? John: So we have a whole part of explaining in this third step called value drivers. And so we look at what are the value drivers in most businesses. And how do we get this idea; the value driver concepts? It's not from being a lawyer. It's from talking to the M&A community. What do they look for especially private equity in acquiring businesses? And then those value drivers or levers work equally well in selling the business to insiders. So two things, one is we focus on creating what we call transferable value. For smaller businesses where the owner is in charge of almost everything, it may have a million dollars of EBIDTA a year but that's probably not transferable because the owner sells the business, the owner goes away, and maybe the customers go away, maybe the employees go away. So a buyer is not going to be interested in a company where the owner is too important in the operation of the business. So to us, transferable value means the owner could leave the business today with minimal interruption to the company's cash flow. So part one; does the company have that? If not we need to work on that. And the value drivers then are what we work on which is the second part. The three biggest value drivers we see today, and you can probably comment on this better than I can Walker, is one having a top-notch best in class management team. That's what most buyers like to look for because most buyers don't have that management team to put in place in the company they acquire. And it also means there can be transferable value because the management team can continue the business without the owner. The second thing is diversity of the customer base or maybe the vendor base to make sure that the company is not dependent on any small group of customers or clients because again those customers and clients might leave when the owner does because they're loyal to the owner. So that's a risk that buyers don't want to have. And the third thing I hear today that I didn't hear a few years ago is the quality of the operating systems within the company. I'm hearing from a lot of the PE firms hey we don't want to spend hundreds of thousands of dollars if not more to go; to rip out the old operating system that's eight years old and put in a new operating [inaudible 00:16:50.8] operating system. They want to see that in the companies they're requiring; at least those worth millions of dollars. I mean a smaller company maybe they wouldn't expect that; I really don't know but maybe you want to comment on that. Walker: Hey, it's a really great point. I think that a lot of the sellers at Quiet Light Brokerage are online businesses, right? And as you know I've bought over half a dozen companies in my life and I sold a couple. And I've done everything from manufacturing and distribution to online. As a broker, I really only work in online businesses. But part of the reason for that is a lot of the reasons you're talking about because a management team is almost eliminated. I mean we can sell a company for five million dollars say and that's just one person and they've got a bunch of virtual assistants. So the most important person in the company might just be the hired gun that's running paid ads or something like that. So making sure that that management team can transfer is key. I want to come back to something you said around transferable value and I want to kind of dive into that just a little bit; a little surgical here and the question is it seems to me like what you're saying is that the owner can't be the craftsman in the business whether that be I'm out hustling doing one on one sales or I've got some key relationships or an industry of like in math analogy I'm the one making the pots. Is that accurate? I mean does that sort of core business need to be transferred to a different person that is going to transfer with the business even if it means a reduction in earnings because you're paying for a new person on staff? John: Yeah I think that for most buyers that would be critical. Now in the world you're in, the owner may not be that important. It might be the technology itself that's important then the owner is not; the owner maybe developed it and created it. Well he may no longer be important in the whole process. Walker: It does depend. But yes, go ahead. John: Yeah. So that would be in your world more than my world. In my world which isn't; I mean all worlds now have developed technology involved that seems like. Even farmers have a lot of technology. But that would be more towards an operating system. They're not developing the technology they're just using it. So I'm not sure I can answer your question I just don't have enough experience in that. But I would say if I were buying a company for its technology and it was created by the owner I would sure as heck want the owner to stay with the company because he or she probably has other ideas in their brain and I may want to capture some more of that. That might just be a situational issue more than anything else. Walker: You know I think it's one of these things where I was recently talking to; it was about…well, I shouldn't date it for confidentiality reasons. Months ago I was talking with a potential seller who wanted to exit and he owned a SaaS business; a Software As A Service business. And it turned out through the sort of valuation call I was having with him that he was the actual developer on the whole system which to me was like this is an unsellable business which is kind of what I'm getting at. So sometimes you get the; where the owner is the craftsman and that doesn't transfer and what we talk to our sellers about is the person who's likely to buy your business is an entrepreneur. It's a business person it's not a software developer it's not even necessarily a paid ads expert. So I'm glad to see that you agree with that transferability is all. I mean trying to outsource that craftsmanship and skill set to other team members makes the business sellable, to begin with. It sounds like that's really one of your first steps. John: That would be one of the things but then tied into that that's clearly the case is the owner before the sale. Let's say there are two craftsmen in the business that are really key to the growth and the continuation or stability of the business. We would want to tie those two key people, incent them to stay with the business through cash; maybe stock bonuses or stock options, have them really have a reason to continue on with new ownership because they're going to benefit from it themselves if they stay. If you don't do that in advance of making efforts to sell the business then the owner can be held hostage in effect by the craftsman because they can say you know owner if I leave your business sale is going to go out of the window and I know you've been talking about 10 million dollars and I think I'm probably responsible for at least 20% of that value so I need two million dollars. I've seen that happen not in high tech but I've seen it happen in traditional businesses all the time. Walker: Right. John: And so you've got to protect the trade secrets which is the value of the business. You've got to prevent somebody from going out and taking something. You've got to prevent your key people from going out and just joining a competitive firm. All that can be done in almost all states; California is an exception to this unless they have ownership which is something to look at. But you still can do some things and certainly motivate; incent them with deferred compensation, stock, stock bonus points. Those are all things your listeners should be aware of. They should be talking to attorneys and M&A advisers about how to protect themselves against that risk that is right there next door to them. Walker: John, I want to ask you this question is every business risk addressable? I mean in other words it sounds like a lot of what you talk about and help people navigate through is essentially eliminating the sort of risks that are going to; that a buyer is going to see when they come to the table to buy it, right? But is there anything that is just not addressable? John: Well I would say the thing that's not addressable is general business risk. Now let's say you guys one of your would-be buyers has just this great software for the quick print industry 10 years ago. Well that industry goes away. Now where does that work? So there's that element of business risk. Again you can take measures to try to be aware of that but some of this is hard to foresee. But most other things within the business you can do something about; maybe not everything you'd like to do at maybe a pure loss to the company. Walker: Yeah. And I just; where my brain is kind of going is more like in an offline business probably the number one problem that I see is maybe customer concentration issues, right? In the online world that usually is not a problem. Sometimes in SaaS businesses, you get one customer that's a bit of a behemoth but it tends to look more like supplier power if you will. Like maybe you've got one supplier that supplies all of your product and you're kind of a reseller for that. I mean I think that it's probably easier to address if it's supplier power because you can diversify your suppliers. I guess I'm just… John: That doesn't mean your owners are going to do that, right? Inaudible[00:24:25.6] has a good point. And you just have to figure out how can you mitigate your risk by diversifying it could be vendors, it could be suppliers, it could be customers; direct customers, it can be all kinds of different things. And advisers are not necessarily the best person or the best route to figure that out. Usually, the owner alone can figure that out through some good questioning by advisors. They may know what those business risks better than let's say a lawyer in your case you probably know all that because you're in this space yourself. So I think you would be a very valuable asset. Walker: John what are the biggest deal killers? John: The biggest deal killers; the first one is the owners doesn't understand if they sell the business what they're going to get and how they're going to get it. They go into the marketplace, they hire a transaction intermediary like yourself, they don't really know how much money they're going to need as a result of that sale. One if they want to retire after that, how much do they need for the rest of lives? Or secondly, if they're just going to flip companies, how much money do they really need to go to the next level and make sure that they have a reasonable chance of doing that before they even start the sales process. So we have investment bankers who are members of BEI and one of the main reasons they're members is that they've gone through that. They go to market, they get some good offers; lots of money, but the owner then looks at what he or she is living on now and the proceeds from that will not support that lifestyle even though it's a lot of money and they drop out of the market. They tainted the marketplace. It's difficult to reenter down the road and the broker and investment banker spend a lot of time and effort with nothing. Walker: Can you unpack that for me if you wouldn't mind? Can you kind of give me an example of what that might actually look like? John: An example would be a dealing with one of our members who is an investment banker in Texas and he had a client who went to market and a cash offer for 16 million dollars for his company. So the broker and the investment bank was pretty hands-on with that. It was at the top percentile of what he thought he could get when he sold the business. And at that time for the first time with a firm offer on the table the owner looks at how much money he needed; money after taxes, transaction fees, paying off debt, etcetera in order to support his lifestyle and it wasn't enough money. Walker: It was a surprise. John: It was a surprise and so he dropped out. So that's a real risk of doing it. And then along with that is another closely related risk; probably new world as well, is the owners have an overinflated concept or idea of what their business will sell for. And so again they either don't take steps to grow value, they don't take steps to protect the value and they just decide they're going to go to market. They talk to you and they learn that business is worth a third of what it really is and they've wasted years that they could have been working to put in the value drivers and other factors that would lead to greater value. Walker: There's a couple of times where I try to buy companies by going directly to the seller before the company was on the market so to speak and every single time they wanted 20 times EBIDTA. I mean just some [inaudible[00:28:05.1] with what the value of a company was. So I learned pretty quickly to find the sellers that are already working with advisers because they've already gone through the hard learning process of what the market actually is, right? You can want what you want but the market tells the truth. John: That's right. Working with an adviser there's going to be better information available as well. They're going to have a deal book. They're going to have vetted some of the owner's beliefs. Walker: Tell us about the four different exit paths and kind of like a brief synopsis on sort of the pluses and minuses of each. John: Gosh Walker you have read part of my books if you'd known about that. Walker: I take it pretty well. John: Did you just look at the chapters and figured out from there in the introduction? I get that; I mean I'm going to rip those Table of Contents off from now on. The four types of; the four exit paths starting with the least used to the most used. The least used is an ESOP, an Employee Stock Ownership Plan. It's a great concept. It's a great tool. About 1% of the exit plans or members do use that path. Walker: And this is where the buyer of the company is the employees of the business. John: Well the buyer of the company is a retirement plan; a trust in which all of the employees are beneficiaries. And there are some great tax advantages in doing that but they're relatively complicated. You need a business that has probably 5 million dollars of value or more in good cash flow and a strong management team to do that. That can be great especially for owners who might say well I really want to keep my business and my community or I want to benefit my employees; I want the legacy of my company continue. In ESOP it's good because it's going to be indirectly owned by the employees and so the legacy etcetera will continue. The next used is sort of a tie; it's between transferring the business to kids. About a quarter of all business; all exit plans are members prepared with an exit plan are transfers to family. About 29% are transfers to third parties. So those are the second and third least used. And then the exit path most commonly used is transfer to management; surprisingly transfer to management. And the reason for both the transfer to management and transfer with the kids is that with the planning they can do really through our BEI members they can start to transfer the business sooner rather than later. They keep control over the business however until they get all of the money and achieve all of the other objectives they want to achieve. So that might be a 3, 5, 8, 10-year process of transferring ownership, getting the excess cash flow, getting some money for the transfer of new ownership, and then having a liquidity event at the end in which the buyout occurs. So that's kind of the general design of both transfers to family members and transfers to management. A transfer to a third party is used about 30% of the time and that's your world. And for a lot of owners they would like to maximize the dollars they'd like to exit; if their business is prepared they'd like to exit sooner rather than later. They don't have family members involved. Their management doesn't want to buy the business. So a lot of reasons for an outside third party sale. And so from an exit planning standpoint; in our world, that's the owners choice. The owner tells us the path they want to go down and then we just talk about the pluses and minuses of everything. But then our goal is to make sure that that owner is able to use that exit path and achieve this financial time-driven goals. Walker: Well, just knowing that you have options and the fact that you can outline it so clearly is a great roadmap just to start with. So your parents selling their business and kind of getting it all screwed up is a perfect example of what happens when you don't do exit planning. John: Right. Walker: Do have a story from your past that you can share that kind of shows the benefit of exit planning for an entrepreneur wanting to exit their company? John: Yeah there's a story that we often use in our training; we call it the Carl story. So actually Karl was a real client of mine. I started working with Carl while I was still practicing law. He came to me. He wanted to sell his business sooner rather than later. He wanted roughly five million dollars for his business. He wanted the business to become a world-class company; that was a soft goal. So I looked to his business. His business was worth maybe a million dollars. Carl was the business. He didn't really have a management team. It was actually a manufacturing type of company; plastic injection molding type of company. So I said Carl that your biggest; if you want to grow the value you want to maybe leave five or six years and you realized you couldn't leave right away, you're going to have to develop a management team. That's the number one weakness in small businesses; they don't have a management team. And Carl said I get it. He's actually really a bright guy. I get it. I know just the person to hire. And I thought oh no this is going in the wrong direction now. It's probably his son who is a bicycle mechanic. He said there's this guy in the Netherlands who is the young executive of the world in my industry niche and I'm going to go and this; my client was like in the eastern plains of Colorado which was hundreds of miles away from civilization. He said that I'm going to go over to the Netherlands. He's in Amsterdam; a world-class company and I'm going to hire him. He's going to come over and grow my business. I said go for it but you're not going to be able to do that because you can't afford to give him enough money. So we talked about how the new guy coming in to buy part of the company from Carl. And so that's what happened. We designed an exit strategy to enable that to happen where the new guy coming in; call him Wilhelm, was able to buy a portion of the company every year if the company get performance standards which were tied into the cash flow. And we knew if we hit those standards in general over a six or seven-year period Carl could sell the balance of the business to a third party or to Wilhelm and he will have financial security. That's exactly what happened. Wilhelm came in; knocked the lights out. It's a fascinating story how we did that. We can talk about it another time but at the end of seven years the business sold for 38 million dollars cash. Walker: Oh my God. John: Yeah. So for a long time I thought well Carl was just lucky because he happened to hit upon this boom; this technology at a certain point but then I realized he was lucky, yes, but he never would have accomplished that if he hadn't gone out and sold 49% of the company over time to this person who did all of the growth and who by the way got half of the 38 million dollars. Walker: Amazing. That's amazing. John: So that can happen but it was in accordance with the plan that we developed. It just happened to work out extremely well. And I think it shows the value of world-class management even in a small company. Walker: John, I'm thrilled that you decided to spend time with us. Thank you so much. How can our listeners learn more about why they should be exit planning or how to do it? John: Well there's a number of ways; they can always go to our website ExitPlanning.com but we just released a new video podcast series called Why We Plan. It's on iTunes. It's on Spotify. Really we've just released it this week. It's that new. So I encourage people do that. The CEO of my company and myself have recorded 20 podcasts so far; mostly case studies like the Carl Case Study. What went right, what went wrong, what might you do as an advisor in that situation or as an owner in that situation. So I encourage them to listen to that. Walker: John, thanks so much. John: Thank you, Walker.   Links and Resources: John's Business Website John's Bestselling Book John's Latest Book Why We Plan Podcast

When it comes to buying and selling a business, one of the first questions we typically get is how long it takes to complete the deal. These businesses are complex and looking beyond the multiple to see the potential value and return opportunities for return is key. Today's guest experienced a longer deal closing than expected but he is being rewarded for his patience. Some mistakes take longer to clean up than others but this is the story of how much the seller wanted to sell to this particular buyer despite the snags in the process. A born entrepreneur right out of high school, Karl spent over 10 years building a handyman business on his own. Right around the time he heard about Amazon and a local kid making a million dollars on the platform, Karl started to dabble and found his way in. After a few false starts, Karl became experienced in the Amazon marketplace. Today he walks us through his business buying process and his plans for doubling discretionary earnings in a very short time. Episode Highlights: The background on the business Karl purchased and how he knew it was the right fit for him. What happened with the SBA loan process and how that affected the deal. How Karl maintained the rapport with the buyer throughout the process. Why a price increase occurred during the process. The importance of keeping on top of the lender throughout. Karl's plan for doubling his margins and how he's implementing it. The importance of an in-face meeting with your Chinese manufacturer and how often to have one. Karl's advice to anyone planning a purchase. Transcription: Mark: Alright guys welcome to another episode of the Quiet Light Podcast. Real quick before I talk to Joe; if anybody out there hasn't left a rating on the Quiet Light Podcast, do me a favor go to iTunes or Stitcher or wherever you listen to us, leave a rating, we certainly appreciate it. Makes us feel good. Makes us feel like we're doing a decent job at this whole podcasting thing. So thanks in advance to everybody that has done that. Okay, so Joe, when we're talking to a potential seller or even talking to a potential buyer one of the topics that come up often, is how long does it take to complete the deal, right? And we have people wondering am I going to get this done in three months and what have you. The fact is these businesses are complex. On the upfront summaries what we see usually is pretty plain and simple. You see revenue, you see earnings, you see a multiple, and you kind of think well this should be nice and capsid and quick. And sometimes it is. But other times you have to look a little bit deeper. And you and I have talked about this before, right? For buyers to make sure you're looking beyond the multiple and the multiple is one point of data. And for sellers and buyers alike to also have patience with the process and understand that you're selling a complex asset. I know you had Carl on the podcast who is a recent buyer of one of our properties. And it was one of those situations where the deal took longer than expected and the numbers weren't as necessarily straightforward as maybe you would think when you just look at this. But the net result for him as a buyer and for a client were phenomenal by being patient and looking a little bit deeper. Joe: Yes, no question. This particular deal took I want to say from letter of intent to closing seven and a half months which is probably the longest I've ever had. There's really specific reasons for it. And Carl is partly to blame for it because he made a mistake on his application to the SBA lender. So we had to do the process essentially twice. The seller Kevin hung in there with Carl because Carl was a nice guy. It made a difference. And at one point when the deal fell apart, we had to go back. Well, my advice was to go back out to market for an awful lot more money because the business has grown a lot; probably worth $400,000 more. Carl and Kevin got along so well that Kevin said no I don't want to do that to Carl. Let's just bump the price thousand $160,000; crazy. Most buyers would walk away. They'd be like no. Yesterday it was this price today you want $160,000 more. Carl didn't do that and he's being rewarded greatly for it right away instant equity, in my opinion, a quarter of a million dollars in the business. And then some things that he's doing on his end immediately once that first container load comes in doubling the discretionary earnings because of a focus on reducing COGS. It's just fantastic what he's doing. And it's a great lesson for buyers and sellers to be patient, to be focused on helping each other, and not looking just at that multiple. Mark: You know I love this sort of story because I get it right from a buying standpoint you're looking at a lot of deal flow you need to evaluate businesses quickly. So the temptation is often to look at just the high-level metrics and to eliminate something based on that. But so many of these businesses and if I could just say you know maybe even a plug for Quiet Light you know when we bring a business to the market we usually believe in that company pretty strongly as being a good value play for buyers. And so taking the time to kind of dissect it and to understand more than the top-level metrics and what's going on underneath and look for those opportunities for that immediate win and again looking beyond that multiple. So this is a really good story of somebody doing just that and seeing a really quick reward on that. I want to listen to this. I want to hear all the dynamics. This is one of those more complex deals and I think a really good example of what happens when the deal isn't straightforward but still works out in the end. Joe: Yeah. Hey, one other thing. I had a really strange interruption everybody in the audience I want you to get 10, 15 minutes in. Chris, our producer asked me about a particular person. I'm trying to find out who this is. If you could just get that far listen in and shoot me a note. I want to try to track that person down. Thanks, Ben. I appreciate it. Let's go to the podcast. Joe: Hey folks Joe Valley here from Quiet Light Brokerage. Today I've got Carl Sally on the podcast. Carl recently bought a business from me and it was a long, long process. I think we; I'm going to throw a quick data to Carl, we originally went under LOI in October of 2018 and didn't close until June of ‘19 and we want to share the story of why with the buyers and sellers and talk about what happened during that period, how the business grew out, how we fell out of LOI, got back under LOI and eventually closed to the point where both you and the seller are thrilled and some of the things that you're going to do with the business going forward. Before we go over all of that why don't you give a little bit of background on yourself so the folks listening know who you are Carl? Carl: Sure yeah so right out of high school I basically started out a little handyman company; very artificial, just a smelting yard and painting walls for a long time, offered a few contractors to work for free until I got enough knowledge to do plumbing and electrical and basically do the house from the ground up. I did that for 10 years. So in my late 20's that's when I learned about Amazon and I always had podcasts and things trickling in my ears, self-help books and what have you while I was tiling bathrooms or roofing on a house. And I heard the 4-hour workweek and kind of the same time I heard about The 4 Hour Work Week I heard about this kid, he was making a million dollars a year on Amazon. And so I said man if she can do it there's gotta be a way I can figure this thing out. And I did some free work for him at his warehouse. And he taught me a lot and just basically pointed me in the direction of YouTube. I learned everything I could. I had a few failures in my first project; my first product on Amazon. I think me and my partner lost maybe 10 grand on our first product and that was all credit card money. And then the very next product that we launched we did it the right way and we're able to actually start a business on that foundation and eventually grew that to five, six million dollars in gross sales. Joe: That's amazing. Now let's just come back to this kid that was making a million bucks on Amazon. You didn't hear it online. It was somebody local in the area that you live in? Carl: Yeah, it was just some random kid from the community. Joe: And you tracked him down and said look man I'm here for free I just want to learn? Carl: I was great at electrical work and I knew he needed some electrical workers for his house so I just thought he could do a little trade with me. Joe: Fantastic. Carl: He was thrilled. It was nothing to him. Joe: That's beautiful. That's the way to do it. I remember hearing a story a long time ago doing the same; self-help books and everything like that where somebody was trying to develop a project, a real estate development but he didn't have enough money. So he brought in people with all of the expertise and gave him a piece of the pie and all that sort of stuff. Where there's a will there's a way. I mean that's exactly what you've shown here. And now you've bought a business that's quite sizable and you're running a business that's even much larger. So cool, good for you. That's a great story. Let's give a little background. Again just a review. We just closed the transaction. Today we're recording on June 26. I think we closed on the 12th of June but we went under LOI a long time ago. You and I've been talking for I guess it would be eight or nine months now. This is the first time we're on video folks as well. You might want to jump over to the YouTube channel and see what's going on there. The first time we've seen each other. We'd like to do a lot more video in the initial buyer-seller conference calls now. But this is our first shot together. So that's great. Carl: Yeah. Joe: But it's been a long time. We initially; a little bit of background on this particular listing folks; it's a listing that I had listed for sale I think it was in late ‘17. And the growth rate on it had slowed. The owner of the business had some competition and he reduced prices. And his sales went up, his total volume of orders went up I guess I should say. His revenue did as well but the margin shrunk because he cut costs. So growth had slowed to 1 or 2% and it concerned buyers. So for owners out there, sellers think about that aspect of it. It concerned buyers. Growth has slowed. He slashed prices. He had some great growth opportunities in the package but just hadn't implemented them out of fear. He didn't want to make a whole lot of changes before listing the business for sale which generally is right. But in this case, the combination of that slowed growth because of cutting prices to fend off competition turned buyers away. And we didn't sell the business. We had it listed for three or four months. And Kevin decided look I'm going to go ahead and implement these growth opportunities and come back at this in the future. And he did. He came back. He implemented those growth opportunities. He fixed what was broken and came back and the growth was phenomenal. Nine months later, 10 months later we saw a 25% year over year improvement in total revenues and discretionary earnings. We listed the business for sale. And probably within a couple of weeks, I think Carl you got the winning bid. We put that under offer at full price. You knew what you could do with the business which is fascinating because this one is it's in the home sector, right? You can do installation yourself and things of that nature. I didn't know there was a connection before with your background, how you grew up in that first 10-year high school. That's awesome. So it makes more sense now. But why don't we talk about it? This is we went under LOI and it was going to be an SBA loan and it fell apart. We were almost there and then we lost it because we didn't get a commitment letter. Can you talk a little bit about your process in terms of first maybe why you liked this one and then what the SBA loan process was like for you and then we'll get into how it fell apart? Carl: Yeah sure. So the business itself I really liked because well one the numbers were right, it had a very; like you said a strong year over year growth which I found attractive. All the products; it had a small amount of products for the amount of revenue so that that ratio of low amount of SKUs to high revenue was very attractive to me. So it's less management and I could handle it myself. Also, the review ratings were really high. It had a great historical keyword ranking for most of the SKUs and all of those things kind of checked all the boxes for me. And then next I wanted to talk seller because a lot of it has to do with the seller as well. I knew this would be a long process with an SBA loan and I wanted to work with somebody who was honest. So as soon as I got on the phone with them I realized this guy's a straight shooter. And I've dealt over the last 15 years with a lot of shady characters and I just don't like doing business with those kind of people anymore. So it checked every box at that point and I said okay I should definitely; I don't want to screw around. I want to give him a good offer. I felt that it was a good price for the amount of growth that it had left to do. So I made that full offer. And then we started to kind of get into my first SBA loan experience. Joe: I definitely want to talk about that. Let me talk about price. We're not going to give away the price here folks but we went with an aggressive multiple on the low side. I'd say we were at about 2.8 times even with that growth. But it's because we have listed it prior and it didn't sell. So we were able to list it for more than we did the prior time but at a multiple, that was relatively conservative at 2.8 times. And it's important to note that because of what we're going to get to at the end. So okay, back to the SBA process. Carl: Sure. So we started the process and of course, I think I approached two different lenders and they had said each one of them had said oh yeah we'll get this done for you in 30 to 60 days. And I'm like oh man that is faster than I thought. That's great. Let's do it. Joe: Yeah. Carl: So we got it going. And I think about three or four months into the process that's when we realized that I had actually screwed something up in the paperwork. There was a personal financial statement for those who haven't done SBA loans yet, you have to declare everything that you have as an asset on this paper. And so in good faith, I didn't want to commit a federal fraud. So I declared everything that I thought was an asset including two properties that I have been receiving rental on for the last three years not thinking anything out. And then they went to go do a title search on them and realized that my name's not on the deed. It's not on the loan. And to me, those have always been performing assets. But in reality, since I didn't technically own them and I just had kind of handshake agreements; paper agreements on the side with the other partners in those properties, they didn't check out. And it's almost like I was in danger of performing fraud even though I came from a place of honesty. I put assets there that I technically don't really own. So anyway the bank at that point couldn't lend to me. I was untouchable. And we had just wasted four months of time. And of course, the seller was furious. I was furious. And the lender was furious. Everybody is just mad because I screwed up. I still wanted the business. The business was growing hand over fist every month. And I realized there was no way at this point even if the seller decides to keep me on that I'm going to be able to pay the same price for it. So I reapproached Joe and the seller just to see if we can still make a deal happen. There was literally just this one little thing in the paperwork that I screwed up so I knew I had this other stack of 100 documents that I could just drop in the next lender and hopefully accelerate that process. And I think probably Joe knows better. You know better. But I think that the seller saw that I had been moving extremely quickly the entire time even though when the lender had been dragging their heels. It was probably par for the course. I see now. And so he knew that I would perform very quickly for the next lender and that there was no way that he was going to get another SBA buyer that would move faster than me. And we had also established a pretty good rapport over the over those four months. He's kind of like I am in that he likes to move fast. So I think we just kind of hit it off and he still was able to sell it to me even though we did raise the price which I thought was an extremely fair raise. I thought he really took care of me on that which I'm grateful for. We were able to make the deal. Joe: Yeah let me pipe in there because I have to; people are like what you raised the pricing? You kept going and you bought the business? First I want to touch on a couple of things there. When an SBA lender says yeah we can do this in 30, 45 days; definitely get that done. And you think yeah that's great, that's fast. You have to talk about from what starting point. Lenders have a different definition of closing, of starting; they're really talking about from the commitment letter; 30 to 40 days. And they're right. Sure. But we always want to talk that one language and that's from a letter of intent, right? We signed the Letter of Intent I think with the initial one was October 14. It's going to take anywhere from 60 to 90 days to close that deal. And by closing, we mean what? We clearly define that as money changing hands, asset changing hands, you taking control of the business, Kevin the seller getting funds; all of that is closing. So when anyone is ever talking to an SBA lender talk from the point of the Letter of Intent. Understand that there's going to be a time when you got to put that whole package together, submit it to them, it's going to go to underwriting, then you're going to get a commitment letter. That in itself can take 45 days. And then you're another 30 to 45 days to closing. So that's where we get that 90 days from the SBA side. It can happen quickly. We've got; I think Chuck did one in 45, 42 days something like that. But if it's a sizable deal and more towards the end of the year guess what they want to do it faster because they're trying to hit certain numbers. Yes, they could do it faster all the time right Carl? Carl: Of course. Joe: The other thing I just want to touch on. I'm on a podcast right now with a guy named Carl and I tried to talk my seller out of selling the business to Carl. It is pretty laughable, right? Carl: I don't blame you. Joe: Because when the deal fell through the first time I'm like look, Kevin, your business has exploded. It's worth a lot more now. We need to really jack the price. If we go back out based upon what's happening year to date and this is now, this was March 2019 at this point something. I gave a high number; a much bigger number, that the business is worth probably $350,000 more than we were under LOI with you. And you know what? He's like you know what Joe I really like Carl. We get along really well. I like him. All the paperwork is done. If we can just get it submitted the right way with another lender we could still fast track it. And you know what let's see if we can find a fair price that's going to work for Carl and me. So we did. We went back to you and we did jack the price. You ended up paying, and I'm not telling the list price, but you ended up paying about $160,000 more for the business. Carl: Right. Joe: Oddly enough the multiple still went down. Carl: Yeah, that's how good it was doing. Joe: Yeah. That's how good it was doing. You went from a 2.8 multiple to a 2.55 multiple. Yet you were paying $160,000 more. Now I'm talking about multiples here a little bit. Folks, one of the lessons I want you to get from this, Carl is looking at this business with an eye of what he can do with it, what he can accomplish, and how he can grow it. We're going to talk about that in a few minutes. Not the multiple. The multiple wasn't his main focus. It was wow it's doing this in discretionary earnings based upon things within the business I can correct, fix, shift and even with the same revenue, I'm going to jack up the discretionary earnings and have some instant equity. Speaking of instant equity we talked about it, I think that you have probably a quarter of a million dollars in instant equity in the business because I think it's worth at least that much more right now than what you paid for it based upon the growth. Okay, so there's my little two cents I wanted to go ahead…hold on a sec, my producer is poking his head in. What's up, Chris? This is odd. Okay, he gave me a piece of paper. He's asking me Carl have you ever heard of a guy named Andy Youderian? Carl: I did not. Joe: Okay Chris, no idea. Okay. Hey anybody in the audience listening, if you guys have any idea who Andy Youderian; sounds like somebody from Star Wars, have any idea who the guy is, reach out to me find him, let him know that our producer is looking for him. Alright, I'm sorry for that tangent guys. Back on track. Okay so we went out to another lender and it worked. Just touch on that in terms of how long that process was because you had to resubmit an entire package again. Carl: Right. I mean they want; as soon as they said they wanted to work with me I dropped a document stack on them about 50 pages long; no 50 documents, some of those documents were 20 pages long. Joe: Wow. Carl: I mean it was just a huge stack of paper and in my mind, I'm thinking now we can get this bank down in three weeks. But of course they; when you get legal involved I realize that that's the real linchpin is the lawyers. It just takes so so long to review and get stuff back to you. They would expect to document for me in a week. I hand it to them in 24 hours. They needed it by close of business. They'd have it in five minutes. So I never ever ever want to be the person who's holding the ball. I think with SBA loans you got to just keep the ball in the lender's court over and over and over again. And sometimes it would be even though I'd get it to them so quickly I would be waiting for seven days for a response. Joe: Yeah. Carl: And this just; that time compounds. Joe: You got to keep pushing. Carl: And I would push and I was always squeaky; always squeaky with the lender. Joe: Squeaky but nice folks. You can't put them off. Carl: Squeaky but nice. Yeah, you don't want to put them off because I still do want to do repeat business with these people. So it's a fine line you walk. But I think in the end we really did close that super-fast. It wasn't like maybe even within that two months that they normally promise. Joe: I think it was. It helped; we fast-tracked the package to underwriting which sometimes again takes 30 to 45 days. But because you had it we were able to get there fairly quickly. The other lender, by the way, helped out with that. He gave a lot of the package right over and helped out as well. Alright, so we did close it. Let's jump to the fun stuff so people can learn about what you're doing with this business. We closed June 12th; yeah 11th or 12th, then you and I had a conversation. And you basically told me that you're going to double the discretionary earnings. Can you talk about that a little bit and how you're doing it and what other folks should look at when they're looking at businesses instead of just looking at the top-line number in terms of the meat and bones of the business itself, what you looked at and how you're approaching it so that you know you can increase the bottom line number and the total margins? Carl: Sure. Well, oddly enough I didn't even realize this until maybe three days before closing. But I was really excited to close finally and I put the deal in front of my partner for my existing business who does most of the logistics for us. And he said hey this product is really similar to some of the stuff we sell, why don't we run it past our existing supplier and just get a price out of them before shopping it around to other people in China. And so we did and I think the main item that the seller of the business I was purchasing was paying for; I think he was paying 16.50 for an item that this new manufacturer was willing to make for us equal quality for $8.05. Joe: Wow. Carl: And so I said holy crap this can't be real. So we just got the samples in yesterday and it's pretty similar. I mean probably with another dollar tweak to $9.05 it'll probably be damn near the same product. And at that point—. Joe: How many units is that selling? Carl: I think that's about like 20 a day, 600 a month; 6 to 900 a month. But what that did to the EBIDTA bottom line is I think it increases it by between 80 and 90%. That's incredible. Carl: Yeah. Joe: We get a quarter million equity going in by— Carl: It was a huge windfall. I mean completely unexpected honestly. Joe: When it comes to relationships with your Chinese manufacturers, I understand your business partner from your other business spends a lot of time on that aspect of it. Do you find that it's important to get over there and meet with them face to face and spend a little time with them? Carl: Oh absolutely; 100% yeah. To be able to press the flesh with the Chinese manufacturer is night and day difference. I mean that big of a difference; completely night and day. You're just a number overseas even if you have big order amounts. They like the green but they also like the in face meeting a lot. It's part of their culture. They call it Guanxi over there where it's business relationships; a special word for a business relationship that you develop. And the more Guanxi you can develop with your manufacturer, the more seriously they'll take you even if you have smaller order sizes, even if you're ordering less frequently, they give you the benefit of the doubt many times if you screw something up they'll pick up the slack for you. And some manufacturers will negotiate on their terms as well which is something that for most people who buy from China they know that they're very inflexible on that. But if you meet them enough and bring gifts and you offer respect and just have a good time; just go out, have some cigars and some drinks with them, the more often you do that the more a friend you are they really blur the line between friend and business over there. And the more that you can step into that gray area the more freely the favors flow and the more freely they'll give you really good terms which is even better than in my opinion getting a better price. Terms is everything because your cash flow is helped out so so hugely. So I think it's hugely underrated I think everybody should see their manufacturer. Joe: For those that haven't traveled to China before, how complicated is it? Is it safe? Should you plan on spending three days there or five days, a couple of weeks and see multiple manufacturers? What would you recommend to people that haven't done it before? Carl: Personally, I think at least a week is good. And I think starting their relationship with your manufacturer. Don't just go in blind. Have at least a few months of history with your manufacturer where they see that you do pay and you're a real buyer, you're not just a maybe then they'll already respect you enough to want to extend…roll out the red carpet for you. And just saying that you're going to be there for seven days. They will take care of you. They're extremely honored to have an American guest come to their homeland and care enough to see the things that they like and care enough to see their manufacturing facility that they've spent so much time developing. So yeah they'll take you on tours. They'll pay for your hotels. I mean I've never had it where at least it wasn't at least offered to pay for most of my expenses. They bought my family gifts. I mean I didn't; these were things I was uncomfortable receiving. But I felt like I needed to receive them in order to develop that relationship and not become one-sided. Joe: I've heard that time and time again. I think one of the key things for buyers to take away from that is that if they've never been it's safe to go and people are honored to have you there. Carl: Oh yeah. I felt very safe. Joe: Business relations; Guanxi you call it, is that right? Carl: Yeah, that's what they call it. Right. Joe: So buyers that are looking at businesses one of the ways that if the seller of the business has never gotten on a plane, spend some time with the manufacturers in China. There's probably a good growth opportunity in terms of bottom-line maybe terms and do that. How often do you feel it's necessary to go over? Carl: Maybe once a year if that, if not once every couple of years even. The first meeting is the best. If you can spend a good week there. It makes a huge difference. Joe: You say [inaudible 00:28:42.4] every day or are they taking you beyond the manufacturing facility and recommending other things that you can see in China as a tour? Carl: So we had two manufacturers. Actually the first time we went to we sort of split our time three days with this one three days with that one. And we saw them every day while we were there. We didn't know anything about anything. And we totally explained to them look if you have a business to take care of we can take care of ourselves we'll walk around town and just entertain ourselves with the new sights. But they were pretty adamant about wanting to be with us every day. So that's just how it shook out. Joe: Terrific, that's fantastic. Okay, so a little bit of a tangent there folks but a great recommendation in terms of being a buyer and how to improve the bottom line numbers. Carl: Sure. Joe: Alright, so you're going to improve the discretionary earnings on this business that you already have a quarter-million dollars in terms of equity when you bought it by another 80 to 90%. How long is it going to take that to happen in terms of buying the product and getting it in? Carl: Probably two months. So in two months, we'll start to see those savings in two months. We already have about three or four months of inventory on hand so it's plenty of pad to get the new inventory up and running. But that's probably what's going to happen. And then it'll take another year to log that. A year afterward to log that in as actual recorded earnings. Joe: Right. You're thinking in terms of a resale of the business, total discretionary earnings on the trailing twelve. Carl: Days to log in the equity; right. Joe: The equity itself. Yeah, we have in the past when the cost of goods sold has been dramatically reduced then ordered hit FBA and sales occurred. We have been able to do an add back. And for folks that haven't already heard the podcast on the sale, I did with Mike Jackness on Colorit, Google Quiet Light Podcast Mike Jackness ColorIt or even eComcrew. Mike did a series and honestly, he's a fantastic podcaster if you haven't heard it. I think it's episode 247, 257. Just Google Quiet Light ColorIt eComcrew podcast and learn. Because you actually learn from somebody that's sold a business. And some of the trials and tribulations we went through when you've got four brands in one seller account under one LLC and you're only actually selling one of them. So sellers out there doing that please listen and learn because it's a major challenge. But we got through it. What other things Carl would you recommend to people that are buying a business when they're looking at things like you have and approaching it? You've done something I think really really impressive here; hanging in here for seven and a half months to get the deal closed. Building and maintaining a good relationship with the guy selling the business so he trusted you. We talk about the four pillars here at Quiet Light, well that's the fifth one right there. It's being a good guy, being likable, building good relationships with either your buyer or your seller. What other things do you think are critical when you're buying a business? As people are looking all the time they're looking at lots of things before they find the right fit. What would you recommend they do? Carl: The first thing that comes to mind is anything sold at 5 million we're really looking at SBA funds. I think what I said earlier about just being forefront on pushing the ball into the lender's court; that is so important. If you're lagging on documents then it can damage the entire transaction and the relationship with the buyer. They see that you're lagging. So I mean that is underrated. I've always been a punctual person but I never realized how much that really plays in the business on different levels. I think one of the things that helped me was having built an Amazon business before so I really was comfortable with all of the key metrics and some of the red flags on the account didn't bother me at all because I knew that those specific things were common given the circumstances. So I think it really helps to either have that background or start small. I would never have jumped into this with both feet at this dollar amount with no prior experience. I think I would have rather pick something maybe 10 times less or maybe five times smaller and just gone in with an attitude of this is my intuition and I'm going to learn here. The mistakes I'm going to make, at least I'll probably break even. It's going to be cheaper than college and more lucrative. I think going into a smaller deal is still a good idea even if you can't put up big numbers to show off to your friends. It's not what it's about, right? Get that experience under your belt and then you can make really good decisions down the road. So buying small is good, starting out from scratch I think is a great experience as well. It takes time but you're better off putting in time than losing tons of money I think. Joe: What about finding a mentor? You clearly did that. That's one of the things you mentioned. The kid in the neighborhood that was doing a million on Amazon. Carl: Yeah. To be fair he really just pointed me in the direction of YouTube. That was his biggest recommendation. And I mean you can learn a ton just by listening to people. A lot of my mentors don't know me. I get them in books. I get them in podcasts like this one. I get them in blogs. So there's a lot of free information out there I never took a course and I feel like I've done pretty well. Joe: Well, obviously you've done pretty well. I got to tell you just the YouTube thing I've got a 17-year-old and anything he needs to learn it's on YouTube. Carl: Yeah. Joe: I'm 63 so anybody my age, learn from Carl and those younger; anything you want it's on— Carl: It's crazy. It's information at your fingertips. Joe: At your fingertips and it's free; that's right. Alright, then this is great. We're just about out of time. I appreciate the last nine or 10 months. And I'm looking forward to working with you in the future on some other transaction as well. Carl: Oh definitely. That is not the end. Joe: Alright, thanks for all your time. I appreciate it, your patience and congrats on such a great business that you've got here. Carl: Thank you, Joe. I appreciate it. Links and Resources: Mike Jackness Episode

A lot of buyers come to us and ask about the risk of buying an Amazon business. Likewise, when setting an Amazon business up to sell, what are some things to consider? Buying up businesses and creating a profitable portfolio is something that some very savvy buyers are going all-in on. Today we are talking about Amazon FBA with someone who has been doing just that. If Amazon is the past, present, and future of e-commerce and all the others are just playing catch where do YOU want to put your money as an online business owner? Carlos Cashman, CEO and entrepreneur, has started over a dozen companies as well purchased, sold, and taken public many others. He is now CEO of Thrasio, an FBA business acquisition company. Thrasio has a wealth of experience purchasing businesses from all over the world. At Thrasio, the team guides the seller to a deal in record time backed by expert law, due diligence, and financial teams. Episode Highlights: Carlos' take on the Amazon consolidation model. The importance of sku concentration, consolidation, and product stability. How many Amazon deals Carlos has made. Whether he places weight on secondary metrics such as email marketing. Where the efficiencies are in Thrasio's portfolio. Navigating a bad purchase and when to cut losses. Cross-collateral investing and how Thrasio sets that up. Why Amazon? Some statistics that cannot bely the retail ecosystem that is Amazon. If and how any business can compete, in the long term, with Amazon. Product creation and innovation best practices to follow. The importance of having representation when selling your business. Transcription: Joe: Mark, I have a lot of people that come to me and talk to me as either buyers and they say, Joe, what's the risk of buying an Amazon business? And I talk—5, 6 years ago everyone thought the risk was really high but today there are people that are a lot smarter than you and me and you and me combined and maybe all of our team that have raised 10, 20, 30 million dollars to buy up Amazon businesses and build a portfolio. And I understand you had Carlos from Thras on the podcast talking about just that. Mark: Thras.io; he's very careful to approach to actually correct me on that at the beginning of the podcast and he tells me the meaning behind their name which is really cool. I'm going to save it for the podcast so people can listen to that. But yeah what I wanted to know so many buyers look at Amazon only businesses and they discount them for channel risk because they're like do you really want to be on this one platform or competition and products could be sort of ubiquitous, competition can be really tough and your subject in mercy to the whims of Amazon. And so here we have Carlos putting together a fund and buying up a lot of these Amazon Asense and the question is you're a smart guy, you've done a lot of business in the past and we've talked about how he had grown multiple businesses and sold them, so why is he going all-in on this platform and also why are people giving him money to go all-in on this platform; what's the reasoning here to say this is where the future of e-commerce is. And so we talked a lot of statistics on this. We talked a lot about what is the future of Amazon. And here's a spoiler alert Amazon's going all-in on FBA. It's one of their 3 biggest platforms, it's one of the 3 legs to their stool that they have with their aid of US being one and their sellers—their 3rd party services being one of the largest profit centers that they have. In addition, when you take a look at where do they stand in the marketplace, it's staggering. Everybody knows that they're huge. They're 49% of online e-commerce sales. When you look at this in terms of total retail sales; total retail sales make up about roughly 10% of all—e-commerce makes up about 10% of all retail sales. Amazon makes up about half of that. So what do we do here? What are we going to do? Okay, online sales is only 10% which means it's going to grow. Amazon is already half of that online marketplace. What's the future here? Well, the future is Amazon is trying to become the e-commerce internet. They're trying to become the de facto way of ordering products online and everybody else is playing catch up right now. And so they are betting and saying we get it. We know that Amazon growth is going to continue. We know it's going to continue at a rapid pace for a long time; there's lots of room to grow, and yeah there are competitors and we talked about this. We talked about; Shopify just announced recently that they're investing one billion dollars in their Shopify fulfillment network which is great news and he was ecstatic to hear that. He's like competition like this is good. But the fact is Shopify is playing catch up, Target is playing catch up, Walmart is playing catch up, and they're not there yet at all. They're more difficult to work with than Amazon. They don't have the same draw. And so it made me rethink this if we're looking at where do you want to put your money as a business owner. Joe: That's it right there the multiples are going up on Amazon businesses tomorrow guys; that's it. Mark: It's more sure of investment than maybe we've thought about in the past. It was; you know what? We talked to some of these guys that are doing this professionally that are on the Amazon space only; fascinating conversation. I enjoyed it thoroughly to talk to somebody who's doing this and sees things from maybe a different angle than what most buyers think about. Joe: Well I think it's great because probably half the audience here is made up of buyers as well and they ask that question all the time; should I buy an Amazon business? And we know that I say we're going to raise the multiple on Amazon businesses, we actually don't as we always say determine the multiple. The buyers do because we do our best based upon historic numbers and then we get the feedback from the buyers. If we're wrong they let us know by driving the multiple down or driving it up in some cases. Year to date; this is end of June that we're recording this year to date I've seen the multiples on Amazon businesses at levels that I had never seen it in the past. So I think that the buyer pool is getting much more confidence in the Amazon channel. I think that that one channel risk is if you're focused on adding new Asense in growing the business worldwide on other Amazon platforms in countries the risk is diminished a little bit. Historically we've seen multichannel businesses sell for 10 to 20% more than single-channel Amazon businesses but I do think that's creeping up a little bit and catching up a little bit. So it will be really interesting to hear what Carlos has to say. He's a super nice guy. One quick aside I had Amazon businesses that I had for sale and Carlos had to call them, the guy loved him and they both happened to be traveling to Singapore at separate times. They actually got together and had coffee and dinner with their families just because they had met on a phone call. So Carlos is a super nice guy, very, very good at what he does, and obviously an expert on the Amazon site. So I'm looking forward to listening to this one myself. Carlos: Oh that was all good stuff. Mark: Yeah it was all the good stuff you see that's the thing, we always record the good stuff before I hit record. And I'm actually going to enter with that. Carlos, thank you for coming on the show. Carlos: Cool. I'm glad to be here man. Mark: Yeah so tell us who you are. I know who you are but tell everybody else who you are. Carlos: Yeah everybody come look at LinkedIn, they usually do. But I'm a serial entrepreneur. I've started—it depends on how you count them size or whatever but you know over a dozen companies. I was thinking about this in a way because people are like wow, tell us about that. I started I think it's about 6 to 8 I got to figure out better multi-million dollar companies. I've taken company public, I sold them, I bought them, I've sold several for 9 figures, dealt with some amazing people along the way and it's always been tech-related. So software, advertising, some services related to that stuff and e-commerce stuff. So I've got a lot of miles on the road that way. Mark: Yeah no it sounds like the profile for any of our brokers. So if this whole Thras.io thing doesn't work out for you let me know. So you're the CEO of Thras.io. Carlos: I know we have the worst name in the world but let's just make it clear for everybody; Thras.io. Mark: Thras.io, I'm sorry. It's good that I know that now because I've been saying Thras.io; so Thras.io, okay. Carlos: So it's based on the review of your site, it's based on the greek word thrasos which means boldness or confidence but it was actually an Amazon warrior queen hence the kind of Amazon connection. Mark: That's pretty cool. See I learned something. This is awesome. I love this. I love the name now. Carlos: Josh came up with the name in just a second and I'm co-CEO and co-founder with my partner Josh Silberstein. And yeah he just came up with it and yeah I don't like to spend too much time naming companies even though I've done that professionally before so we just went with it. Mark: So it was an Amazon goddess, is that what you said? Carlos: It was an Amazon queen. So we actually had a whole lot of sub-companies for our Amazon warrior queen. I mean like things that do different parts of what we do in the ecosystem. It's got to stay with that theme or words. Mark: I got to ask now I mean is Josh like some Amazon queen ruler aficionado and connoisseur? Carlos: We're both aficionados of mythology and things like that but it just made sense getting into Amazon that we would do something like that. Mark: I like it. I mean I like names of businesses that have secondary and deeper meanings and now I've got something if I'm really bored I'm going to go out and procrastinate by researching Amazon queens. Carlos: There are a lot of them and their names can be very difficult to spell which is kind of a mess when we're trying to do with legal documentation and stuff but it's fun. Mark: That's really cool. Alright, so I had a few companies that I would say is in a similar vein to what Thras.io does and that is this idea of consolidating multiple Amazon businesses under one roof. That said everybody's got a little bit of a different twist on it. So I would love to get your twist on this Amazon consolidation that you guys are doing in trying to acquire companies and anything that you're able to share as well. Like I mean how many acquisitions have you done and how long have you guys been in business so far doing this would be really interesting and if there's something that—alright I'm not going to tell everybody this then don't worry we'll just say it and only the 3 people that listen to the podcast will know. Carlos: Alright so I hope you're calculating right—I've been listening to this for a while now. So I hope you're keeping track of these questions because I'm not taking notes. You just asked me about four questions right there so let me try to take them in any order that I kind of remember them. In terms of do, we have a particular twist on the market; now I don't think we do necessarily. I mean I heard Richard when you had him on here with 101 Commerce I mean that's—the idea is fairly simple. I think people get it. In terms of—I think what they see in this Mark is you know when you mention other people like there's someone who has built a great home goods business and now they want to expand and so looking for other home goods products to roll into that, right? We are really kind of vertical agnostics. So we're only looking on that from that point of view. We would just believe in the ecosystem overall, we believe in the fundamental transformation that Amazon has brought on the way we do commerce and particularly e-commerce, and we just see an overall appearance. We're looking for just great business. I mean look we want great products and now some people have top ranking, great ratings, and good number of reviews; all that stuff. That's really what we're looking for but as far as what it is, it could be all over the board really. Again the most important thing is that they've built a quality product. And it really comes down to the Asense; the Amazon listing itself; the product, the SKU, whatever you want to call that. So that's really what we're most focused on is we look at our business as a portfolio of those. So any business may have a handful of them and I know a lot of people in this marketplace some of the acquires in this place market space or tend to be still I mean you've probably seen a lot, you know, people looking for a single business, right? So yeah with the executive leaving some big company taking an SBA loan whatever we could talk through all that stuff later but for that person they're concerned with customs to concentration and rightfully so. It's going to be their one business wonders and they take out a big loan for it. It's actually kind of the opposite for us. So as far as our interest we are interested in the more concentrated your SKU's are the better because it's less for us to take on and manage the whole thing. And we're not concerned about the individual performance of that one because we've got hundreds and hundreds and hundreds of others. But I mean we are concerned about in terms of how it does but it's not going to sink us or make us by the performance of anyone SKU we acquired in one time. So that's kind of how we—that kind of answers how we look at the business and again we're not looking for fad products either just something clear to say. So if you got fidget spinners we're not interested in that. Those are hot for a year. My son has a dozen of them sitting all over his room and he's never going to spin them again. So we don't want things like that. And so we want stuff that is really stable in terms of its demand. Mark: Yeah, I'm just going to put a note to everybody that's given up fidget spinners for swag, thank you for making my room, my kid's rooms just filled with stuff that's lying around because you're absolutely right and you know I will disagree with you on something here. You said that you guys really—you're not sure if you really having any expend but this idea that you guys have of looking at Amazon businesses not so much in terms of the business side of it but you're looking more at the Asense and trying to evaluate individual Asense and the strengths of those relative to everything else that's really what you're looking at. That is a unique way of approaching the marketplace and it allows you to look at something that has SKU concentration or a unicorn product and we do see that from a lot of buyers with a business that has a unicorn product kind of thinking I don't know if I want to bet 2 million dollars on this is unicorn product here and you guys are saying well no we've got a lot of products like that so that's a twist. Carlos: Oh that's good to know. I mean alright so we do have a slight twist on it. Mark: So how many deals if you're able to share even broadly how many deals do you think you guys have done so far? Carlos: I'm going to be a little cooler here about some of these things. But we've done dozens of deals so not high but we're moving quickly and that number is increasing over time. Mark: Yeah. Carlos: So it's been exciting for us and then going back to the ego of the SKU concentration question, I just wanted to add something. You guys are talking about like because there's a lot of interesting; Amazon sellers [inaudible 00:13:56.7] you get this real business straight where they've used these products out there, viral launch or fellows got a [inaudible 00:14:02.6] and they found four different holes in the market so they're selling pot holders and humidifiers and some sort of potted plant for the fruit product you know great different [inaudible 00:14:13.5] and I got 4 of them. And you know to somebody external coming in looking at that would go sheesh they're all over the place. They're not just sporting goods and that's crazy. But we get it. We get that that's how Amazon works and what matters is the listing and it's position relative to its competitors in the keyword space, right? And that's what we look at and we care about. So it's usually like in that sense also that business is attractive to us because it's again concentrated even if it's in strange different products. We don't have to have like this suite of products around like I said one vertical where you're building a brand into it. Again that's an interesting point to discuss is the position of brand in the Amazon marketplace because let's face it were all talking about FBA businesses here and frankly most people who buy these things; I see a product in the wild all the time and I love it. You go to a friend's house and they've got one of your products sitting there. Like oh, it's great but where did you get it? Well, do they say the little brand that we happen to buy? No, they say Amazon, right? They got it on Amazon. They got it from Amazon, if they had a problem they would drive it to Amazon. We're at a place right now where we're still; we're all sitting on the coattails of Amazon; the brand halo that Amazon provides. So we recognize that and we're going to be very clear about that and how we look at the products and the ecosystem. Mark: So do guys place much weight at all on a business building a brand or even building customers outside of Amazon such as email list and being able to drive that to products and new products or is that kind of a secondary metric that you look at? Carlos: It's a secondary metric. I won't say we don't look at it, we certainly do and there is some value there but it is dwarfed by the value presented by the Amazon ecosystem. And so we care 1st and foremost about how you are positioned on Amazon. But of course it's nice to have someone that you know the e-mails and people that love your product or you know if you do because what happens now is oftentimes we will have or we'll acquire a product that is in the same space but we have 5 more. And so that becomes what we start to now as a business uniquely perhaps accrue some value from things like that. Because if you have that email list of 40,000 chefs or something; people who love cooking and I have 4 other cooking products now I can cross-promote our stuff right through there. So it does start to have some value the longer we go out there. I think that value will increase the more we do this but right now we're still pulling stuff in all sorts of different spaces. They don't always overlap and it's something we look at but it certainly is a secondary metric. Mark: When I look at companies like yours not just specifically within the Amazon space and I want to talk about that in little bit here but when I look at companies like yours that are consolidating businesses and millions of them the portfolio the approach is typically to find efficiencies in combining things together. So if you're looking at a content network of websites so completely divorced from the Amazon world what you have usually is a staple of writers, editors, and an editorial process that can turn out new content to be able to build up a network that way. So bringing a new content site isn't as labor-intensive you have this natural efficiency. E-commerce stores in the past what I've seen have been logistic efficiencies. You're able to have maybe the same warehouse staff fulfill more products. When you guys are doing what you're doing and again I think it blends itself maybe to this Asense approach I think from my evaluation; I'd love to get your comments on this, it seems like you're doing this for 2 reasons. One I would imagine efficiencies which I'd love to know where those are but also a portfolio sort of approach to things and that you're spreading out over lots of different Asense niche vertical agnostic as you say but it's more of let's not bid on one winner let's bet on a lot of winners potentially. But I'd love to get into 1st of all have you confirm that and then get into are you doing this also for efficiencies within your company that you can run these businesses may be more efficiently and if so where are those? Carlos: So that's a great point and something worth to think about. So I've done your traditional rollups before. We sold the company in the late ‘90s to a company called US Web; a lot of people may—you probably remember a national brand of webshops doing person websites and stuff. But you know the traditional kind of rollup looks more for the—like those efficiencies are more important there because it's all about pulling costs down, right? If you go acquire a 100 30 person companies and each one of those 30 person companies has inside person finance team or a 3 person finance team whatever and 3 salespeople I am sure you don't need all those, right? You need 3 finance people for all 100 of them or maybe 6 but still not a linear scale. So that kind of efficiency is certainly more important in a traditional rollup. Like you said rolling up content on websites that would be important there also because you have editors and writers and HTML people and designers and that can be where there can be leverage across more stuff certainly if you template size that. It's less of a big deal in this Amazon ecosystem. And what some reasoning about what Amazon has down here in creating all these millions of solopreneurs is they've taken not just Amazon also it's all the supply chain companies, it's the manufacturers. They've simplified this interaction so much that you can get a single person running a 5 million dollar business which is unheard of in history. It's incredible. So it's taken out a lot of the complexity. Now, most of the time when you get to that scale you've got a couple of assistants; part-time assistants, VA's, someone like that so it could be drive efficiencies there. Yeah, we certainly can if they're good but it's more about being able to improve the performance than it is a simple efficiency. So [inaudible 00:19:54.9] a lot of these, we meet a lot of great sellers who I just love them. Like classic entrepreneurs that dropped out of college or I just got out of college and started selling on Amazon and I travel the world and living the life and they built great products and they just hustle. And they're smart. That's great but when it comes to global sourcing and your supply chain I mean from all over the world and getting into different places in Amazon you're not going to be as good at it as the team that I have here. I've got a leader here who ran a 2 billion dollar supply chain in 140 countries for one of the largest shipping companies in the world. And we have a whole team of people under this on the side doing this work. And so we can do it better and more efficiently. We can negotiate better. We can do both on the shipping side and the manufacturing side with volume discounts. So we can do that better and we, therefore, carve out more profit from these products. I mean I'd look at it from creative; we're doing stuff across hundreds of products in all sorts of different areas. We know things that are working that are very likely work what the impact is and what is it and we are—I can afford to have photographers on staff if I want to because I don't have to try a different outsource for all this stuff all the time. Let's say advertising and marketing that's another key place where it's not necessarily about the efficiency of having less people doing it for more things. It's really about the knowledge. I've come from a performance marketing background. I sold 2 companies with our Google performance marketing company and a Facebook performance marketing company that were top of the line but we did. I've got a team here that is 2nd to none in understanding performance marketing and driving traffic from all these various sources. And Amazon is just another PPC marketplace so should we be able to do better than the individual seller who did a good job with their business? Yeah, we should. So I see it as efficiency in deploying new resources for new revenue; resources to improve the performance of the products where they are. It's not like a cost efficiency, right? Mark: Sure. Now that makes complete sense. I want to ask; you know one of the problems I have seen companies run into when they're consolidating either businesses or in your case Asense but I would still consider them businesses to some extent but be the consummate of Peter robbing Paul. You buy a dog and it starts draining the resources of the companies. What have you guys done to protect yourself against that? When you do multiple acquisitions you're going to buy a bad one at some point. It's just going to happen. So what have you guys done to help protect yourself against draining the resources of the company? When do you pull the plug? Carlos: You know it's not even so that you buy a bad one in this ecosystem; it's that you bought one that has bad competitors; but screw with that, right? I mean Amazon sellers know what I'm talking about very well. I mean the wrong complaint even if it's fake even if it's not correct put into Amazon can shut you down or slow you down or cause problems. So yeah look I mean we have to know the difference between a problem like that that we're going to fix versus someone like you said just a bad egg or we're going to pull the plug. I think we've done this a lot. My partner Josh and I both started a bit part of a number of startups, started companies ourselves. He's one of the most creative and experienced financial dealmakers I've ever seen. He's done more debt deals and equity deals than anybody. I think we look at those dispassionately with—I mean I think that's the key, think about capital allocation which is really what we're doing and you can go listen to a podcast about that all day, there's some great ones. You've got to know when to cut your losses and do it fast. That's the key. And we don't get emotional about it. That's hard to the seller who builds their family of 20 products and each one is kind of—this business is their baby and each one of those is another baby of theirs and they may be getting chilled on the [inaudible 00:23:47.8] or something or letter openers but they love it and they think they can get back to it and they're going to hold on to it longer than they should. We don't have that. We have no baggage on it. If the letter opener just sucks then we'll cut it off. So quite often if we buy a business that has a lot of SKU without the SKU concentration we like, we'll look at it and we'll cut the losers day one. I mean we're not even going to pay for them if we're not making money on it. In some cases we will actually—sometimes it's underperforming ones and the seller may want to keep them and keep working at them. We have actually—we'll buy individuals SKUs or separate SKUs from somebody so our Asense—I think everybody knows [inaudible 00:24:21.5] Asense it but more people have SKUs and SKUs are so. I think it's just a question. You just have to be dispassionate about it and have a financial mindset towards it. And you know look sometimes it's worth setting because you know you can get back but sometimes you cant. Mark: I mean you may not have emotions related to some of these products but you do have investors within your company, right? I mean how much has that play into it as far as not wanting to pick that losing SKU or an SKU with bad competitors as you put it? Carlos: It doesn't. I mean we have great investors but they're not that involved in the business for the looking at individual deals we're doing. We cross call there early on a decision we made that was really—I think really important. And that was the only way we're going to do it was we cross collateralize investors across everything we do. So there are some people who look to this market by saying hey I'm going to do an SPV and acquire this— Mark: What is SPV? Carlos: Social Partners Vehicle. So you can raise money in a single; it's almost like separate companies and then they're all related in some point in the future [inaudible 00:25:22.7] together and rationalize based on revenue and EBIDTA or whatever it is. But then we have a different set of investors and that ends up; that's a really bad idea because then you have your intent and what you want to do can be across purposes, right? At this group of investors over here their product is going down and I shouldn't focus on it anymore but this group over here the product is doing great and if I put more effort there I'm going to make a lot more money. The right thing for me and for the business is the focus where I need to and approve there but if you've done your financing that way then you're kind of shackled. That's what we did not do. We were not going to do that. It just doesn't make any sense. So it was important to talk about cross collateralizing across everything and say look everyone we buy that was into this and you all are part of this. So that allows us to have that broader focus. Mark: Why Amazon? I mean there's a lot of different rollup place within the online space and you've got a really remarkable resume with tech companies. You could have gone for ad networks, you could have gone for content sites, you could've done any number of things as in the video— Carlos: The advertising space. Mark: Alright so maybe not that; bad example. But why choose Amazon? Carlos: It's funny. This started actually as an e-commerce rollup. So you go back to it because maybe I [inaudible 00:26:39.0] why Amazon is probably one of the reasons you said why we were kind of coy about talking about what we're doing for a while and now we are talking about it. We discovered this and it looks super easy. It's not as easy as we thought but it never is. So we originally were going to do e-commerce like my Facebook Advertising company Orion CKB, we were all performance marketing which is not [inaudible 00:26:59.0] you know change names again but a fantastic group but we were very, very good at performance marketing on Facebook and so all of our customers were either e-commerce or lead gen but people who made money from what we did. And so we started looking at that and saying hey e-commerce companies are getting smaller and smaller and they're able to produce more value and this whole supply chain kind of thing is figured out maybe there's an opportunity to go out and rollup the small ones and take what we know how to do which is all the performance marketing which ultimately was adding value to these businesses more so than the other piece of it and we could create additional value by putting them together. So we were doing and looking at e-commerce and when you do that you start to look at Amazon as a channel obviously. So we thought Amazon would be a channel for our e-commerce play. I just started looking into it and started meeting people in the ecosystem and at the same time my e-commerce customers at my Facebook advertising agency were asking us like you guys are good at Facebook can you run our Amazon ads for us because we're not doing well there. So we started really looking into that. Once we looked into the Amazon ecosystem it was really—it was amazing. I mean to me to see the leverage that you've got. We all pay for it certainly to Amazon but like it's the green traffic; that's a sure thing. You're paying for it but anyone who is looking for product that you've got to build [inaudible 00:28:13.6] you'll get it. Or you can have great product and you don't have the right team driving traffic to you on Facebook and Google and no one is going to know about it. You're not going to get it. You're not going to get it to [inaudible 00:28:22.8]. So we just started to see that the Amazon ecosystem was really, really much more powerful and we think the deals were better and the opportunity to move here was quicker and to find these companies and then I think we—I would rather be lucky than good any day Mark but I think we just hit the right time when we sort of started looking at this and there were more and more businesses. We really just kind of went out to sites like yours and looked around to see what was on the internet available and we started to see these Amazon businesses and we said let's give it a try. Let's nab a couple of these. Then we really all started to gel from that. Mark: So many Amazon sellers look at Amazon obviously with big eyes of opportunity but also wary eyes of distrust for what Amazon is going to do. And frankly for some people that have been selling on Amazon; let's talk about Amazon vendor central you know maybe that's been justified. Amazon as of the time we're recording this podcast well it was about a month ago they sent basically non-renewal just to so many vendors that saying we're not going to be buying any more products from you and poof those businesses are basically gone; not entirely but very, very damaged. How do you get over the suspicion of Amazon bad or evil I don't trust them but I'll make money from them? Carlos: We get asked this a lot and I've dealt with these behemoths. That's all I've done for the last like 10 plus years 12 years. So Google I thought; I have an SEO company I've been doing SEO for a long time there we did Google PPC the company we grew here before we sold to the post companies like Facebook and Facebook Advertising company. I've dealt with these you know the fangs whatever these giant companies that seem kind of harmless in a move without caring and you can try to read the [inaudible 00:30:07.7] in what they're doing but I think the most important thing—I have longevity in all those places by doing a couple of simple things. Like by following the rules, being a good actor in the ecosystem, and understanding what they're looking for. And frankly this vendor central change; it's tough for a lot of those guys and you can go back to 2002 and start reading Jeff Bezos' shareholder letters and these telegraph—not telegraph I mean just really writing down in words this is what we're going to do, this is where we are. People asked if he was a competitor of Barnes and Noble back in ‘99 and 2000 and he said no. He's always had a vision for building a platform and a marketplace. He said they sell books. We're a marketplace. They needed to be the 1st party seller to be the whole vendor central platform to get it to the scale and size that they want to be. He's been writing about the marketplace since then and there are some great quotes about—he talks about the businesses they get married to that are great. They try a lot of stuff. And third party seller marketplace is one of them. It's that, AWS, and product. Those are the 3 pillars of their business. So think if you think about that, they're not going to destroy one of the pillars of their business. And then if you get into their numbers outsized portion of their profits is driven by—actually all of their profit is driven by these 3 businesses. And we all know that AWS provides an enormous part of profit for them and the marketplace they don't want it all breaking out independently. You can kind of read between the lines there and see its producing profit; a lot. And that's where these decisions are gotten from. And again profit is not always his goal that's why he's moved so much inventory and product over the years. But again I think it's been telegraphed there. So I really think that Amazon's positioning in this space is to be the marketplace to do what they've done. They say they have 500 million things or items for sale on Amazon. They didn't get there by having a sourcing team like Walmart does you know going out and sourcing individual products. You got to have a 20 million person sourcing team. They have 6 million person—there's 6 million accounts on seller central. We all know that a lot of people have double ones whatever the Chinese companies do different things but there was probably a couple of million sellers there for real make any kind of money. And they are doing all of that for them. So I just think if you look at the business it's clear what Amazon is all about and where they're going and from that standpoint [inaudible 00:32:28.5] after the ecosystem and you'd be in good shape. Mark: Yeah I've quoted the actual number here and I don't do show prep but I actually prepped a little bit for this here and looked at some Amazon statistics 229 billion dollars in 3rd party services and then in 2018, 1 million new sellers joined their reseller services. About 3,000 people per day. Now again probably some duplicate accounts and there's probably some even 3rd or 4th accounts in there. Carlos: 6 accounts yeah. There's a lot of real; I mean they've released the numbers. There's 200,000 sellers that make 6 figures and up, 100,000 a year and up US dollars. I mean there's 2 million who have made any money I think as the states or you know the 50,000 might be a lot of money to somebody I'm just saying in a year, right? So I think there are 50,000 sellers that do half a million a year and up someone like that. So that's a city man. Mark: Yeah, I know absolutely, in fact, one of these statistics was if Amazon was a country they would be 140th largest country in the world something like that in terms of gross domestic product; absolutely amazing statistics. I tend to agree with you in the past I've been pretty publicly bearish on Amazon because I felt like it was a gold rush. However, seeing where they're going and you are ahead of the curve on this reading what Bezos was saying that they wanted to be a marketplace and they want to be that de facto ecosystem of the internet where people buy stuff. Alright, they want—when you think I'm going to buy something online, they don't want to think about any other solution other than I'm going to buy it through Alexa or through the Internet or through my app or whatever because that just works and that's where all the products are. So I agree I think they're going all-in on that. I don't think it's much of a mystery and so because of that, I think 3rd party sellers are actually really well positioned especially right now because it's still relatively immature but I have to ask you about competitors. Shopify recently announced that they are going to spend over a billion dollars on the Shopify fulfillment network which is going to be able to power all of their sellers with customized packaging and full-on fulfillment services. Obviously, Target and Walmart are offering free today shipping without having the Amazon Prime subscription. You said you don't want to read the tea leaves but I'm going to ask you to read the tea leaves. Let's talk a little bit about the future here with some of these competitors. Do they even stand a chance and are we going to see a consolidation of the marketplace or do companies like Thas.io—I'm going to get this right, need to have more of a multi-channel approach? Carlos: I think that Shopify announcement was awesome. I love that. I think it's a brilliant idea and I hope it works. I mean we would love to have more channels. And we sell in other channels I mean in small amounts. It's really for us it's a question of focus; I've started a lot of companies and you know the platitudes and stuff about it you've got to focus strategy and saying no. If we have lived through that a bunch of times you don't really get it. It's like you don't always have to feel if the oven is hot to understand that we can have someone tell us. But it really is about having that—the focus is about saying hey look this is what we do, we do really well right now, let's perfect this and then let's worry about other things. If that thing is big enough and takes enough of your time that's worth doing so there's a lot of complexity in the Amazon ecosystem alone with some of it like I expected it's been more than I thought I expected it's been crazier and surprising but there's just some stuff in there that's even surprised me. The competition is quite [inaudible 00:36:11.1] stuff on there. But we fully intend to look at other channels and well I mean we are exploring. As I said we have some small alternate channel sales already. We're looking at retail. I mean let's face it as large as Amazon gets that I think retail is over 10 trillion [inaudible 00:36:26.7] or something like that and 90% of it is still transacted offline. I mean people are still buying a lot of stuff in stores so you'd be crazy not to be looking at that as a channel. So it's really a question time for us of when. So where we've been at this less than a year really, around a year, so that's a lot to do in a year where we're both acquiring all these products but then having to operate them and having to worry about improving them at the same time we're building the company. We're building the teams and the systems that allow us to do this and the processes and procedures. So it's really just a question of looking at that way and that's kind of just traditional kind of start-up thinking and how you go about this stuff. But I do think that whether they succeed enormously or not; Shopify, they have a good chance of succeeding with this. It's always just a question of what portion of revenue it accounts for. I mean we looked at a lot of these businesses that say they're going to start to sell on Walmart and stuff. We've seen people that are selling on Walmart and have been doing it for a while and it's 5% of their sales on Amazon, 10% of their sales and I'm like Amazon is so dominant when you talk about sort of pruning like how do we deal—what do we do the bad product. Well to an extent like if I can focus on that 90% of revenue that's on Amazon and do better with it I'm going to make more than my trying this hack out a little bit more on Walmart which is a more difficult to work with ecosystem right now. So I think those guys are going to have to up their game. I mean for everything I hear they're not as easy to work with and let's forget all the other channels beyond that. Shopify I imagine will do a good job of that. I mean they understand user interface. They understand simplicity as well better than anybody. So I'm excited to see what they do. But let's face it so I've been throwing around the statistics, some like 50%, 56% of product searches start on Amazon now. From all the products ranks and more than all the search engines combined including Google. But I just saw a new figure that among millennials and below it's like 76% chronic searches are starting on Amazon. Come on it is [inaudible 00:38:26.8] great when you're looking for something and you want to toothbrush you just pull up Amazon now and you go and you get it. It shows up at your door anywhere from 2 hours depending on where you are to 2 days, right? Or even 3 whatever but you don't have to think about it anymore. So I think that dynamic is just going to continue to play itself out. I don't think of Amazon as this company so to speak anymore really. It's a commerce internet. And so you're telling me you have channel risk, it's like telling me I have channel risk because I'm on the internet. People told me that and you probably too like 15 years ago [inaudible 00:38:58.1] problem that you're only selling yourself on the internet. I was like, okay, next [inaudible 00:39:02.6] person, right? And so from that perspective, I hope these other things are successful. I hope Shopify makes a go of it. We will certainly be in all these channels over time but right now Amazon is a great place to focus your efforts to drive value. Mark: Yeah to your point about 90% of all retail sales are still happening offline and validated by the statistical research I was doing before this that Amazon accounts for 5% of all retail sales. So what does that mean? That means that the 5% of this highly fragmented online sales happening and that's been fragmented by Walmart, Target, and other big box stores that have gone online but then also the millions of onesie twosie sort of sellers online that are playing in 100 to $500,000 of revenue per year and there's a lot of those little businesses out there doing just that. So I think your point is right. Right now in the marketplace where we're at Amazon is dominant. Amazon is the new Google as for just e-commerce transactions online. So then that leads us to the question of how do you compete on Amazon? What are the most and this is going to round out our conversation, we're almost coming to the time here but how do you compete in the long term? The one criticism I hear about Amazon is look it's a marketplace so products tend to be somewhat ubiquitous and you kind of get into a race on the bottom because the only way to differentiate yourself in many ways is on price. You don't have better customer service because that's been equalized by Amazon. So you can differentiate on product or on price and where do you see the best way to set up a defensible long term position? Carlos: So 1st I would say that I slightly disagree in a way customer service is handled by the companies themselves. Like how quickly you respond to queries, what you do if something has a problem, grand Amazon is kind of front line there but there's a lot you can do in that space. Yeah I mean look overall people don't always buy the cheapest product. Heck I know I don't. Maybe it's dumb but I'm the guy who goes to the page and I'm looking for a 2 grand [inaudible 00:41:15.4]. I don't just buy the cheapest one on the page. Some people do but I got to look for someone and someone I got to go researching, I look for quality. I mean it really comes back to what I was saying earlier like about playing with these giants these ecosystems is being a good actor in the ecosystem. Now people used to ask me about Google SEO like how do you guys do this? I've been running SEO properties for 10 plus years now through every Google change with penguin, panda, whatever animal name you want to bring up. They change multiple times a month and people will say what's your secret, how do you keep doing that? And my secret was I said those pages on Google, those site where they explain to you what to do for SEO. And that's what we do. We follow their rules. There's a lot of rules and we follow them all and we do a good job of that. Amazon says here's how to play, here's what to do, have a great product and make sure you're treating customers well and you're responding well. If your ratings are going down is it a problem with your product or how you deal with that right. So I mean I may sound silly hear [inaudible 00:42:18.2] but like the reality is make a great product, service the customer—where you can do customer service do a good job of it and be a good actor in this ecosystem. With that being said there is an element of Amazon that is cheap [inaudible 00:42:33.2] race to the bottom and you've got to think about how you differentiate yourself. I mean look if your supply chain is more efficient and you're better off than going to the bottom you'll win that battle and you'll sell a lot. I think you're going to start to see some branding differentiation over time. Right now as I said earlier we kind of discount that because everyone feels like they're buying from Amazon and this is just the evolution of marketplace as I think a little bit. But if you're in a category where you know tennis shoes or something someone is going to buy a Nike or Adidas or whatever they like. You got to think about some categories that will matter some it won't. I mean if you're buying a letter opener you don't really care if it's a Nike letter opener. Not really, right? So you have to be able to play by the other things I'm saying. Just be a good actor, have a great product, and make sure your supply chain is tight. I think for individual sellers looking at this marketplace, certainly new ones, I mean it's just tough to get into now. I mean that certainly is an issue because it's really just blown up in the last 5 years; 4, 5 years. And so there's people in almost every space crowding it out. But I don't want to—again it's a price differentiation already. We've actually seen products, deals, and you may have heard some of these said once or kind of funny like where they raised the price every week for like 6 months and kept selling more. There's counterintuitive examples of all these stuff and there's reasons people do things when they're buying and shopping and you don't necessarily know all of them but it's not necessarily just one [inaudible 00:44:13.2] press. Mark: Yeah, I agree I mean I obviously look at a lot of Amazon businesses and more and more I'm seeing the ones that are consistently growing over the years are the ones that never really actually compete on price, to begin with. They've looked at a product or maybe even in a crowded category and said how can we innovate on this and create something just different enough that nobody else is really going to want to compete against us but we're going to create something that's super useful and then magically; of course it's not really magical like you said it's being a good actor and doing what Amazon wants and creating a good product that people like. It works for the long term and it's more sustainable. So I'm happy to hear you say that because of the broad experience with different Asense that you guys at your group have just kind of validates that. Now the last question I'm going to ask you it revolves around this idea of product creation. I am going to ask you for more of a general rule maybe it's not the right way to go because I do think that there are multiple ways to compete on Amazon but I want to see if we can get to a generic sort of here is maybe the best practice and how to be a good actor in the community. Where would you recommend sellers put most of their effort or break up their efforts and I'll put it into product creation and innovation and quality versus the Amazon-specific metrics of making sure that you have high ratings and maybe even going out and gaining those if you have to or being aggressive of as ways get those versus the PPC side I'm going to try and get as much sales velocity as possible whether that be on Amazon or setting off Amazon traffic as well to Amazon to get that most sales velocity. So kind of 3 groups here, right? You have the sales metrics that kind of influence things, the customer service and ratings, and then the product quality. Where do you think people need to really be giving up their time and again you might come back to say Mark you're thinking about this completely wrong. That's cool if that's what you think. Carlos: No, but I would just say you just kind of summed up how do I be good Amazon business. It's all of these things. Like I don't think there's anyone magic bullet. PPC works for some parts, it works great. It doesn't work for all of them. I mean it's like—the thing I love about Amazon, to begin with, it is that there are certain products you can sell stuff on there you could never sell directly in another channel unless you somehow had magical viral take off or something. But like when we were on Facebook for instance; Facebook advertising, it's going to cost you 30 bucks an hour give or take something to acquire customer leads for a consumer kind of drive by product. Which means [inaudible 00:46:49.8] for 70, 75 bucks at least to make any money back after your COGS and all these kind of stuff in advertising cost. It's expensive so you can't sell a $10 item. Can you sell $10 items on Amazon? All-day, right? Because they're bringing to the people they are taking so much stuff out of the equation. But then you just have to play in the Amazon ecosystem well whether that product may not make sense to advertise to be paying to acquire customers on that one. It's tricky. I mean I think for individual sellers a product launch and new products are important. That's not something we sort focus on and particularly care about again because now you're talking about having more Asense and we're interested in having less. Lots of sellers that we've talked to it's actually they have—now you've learned all this and they know how they can launch something and they know how to do the quality of the stuff and how to get the initial purchases, they need capital. Again we don't focus on that [inaudible 00:47:48.4] one capital to do and so we will buy in like the top-performing Asense from them and they take that cash and put it back into these things they want to do and test out advertising and purchasing new product and stuff like that. I think the most important thing is just that there's more stuff now there, it's the quality question. It's the number of reviews and quality reviews. I would not—going back to what I said earlier, I would not suggest being aggressive with that or—being aggressive with following Amazon's rule is great and so whatever they say you could do. You can't ask for 4-star reviews or good reviews hence I wouldn't break in [inaudible 00:48:24.8] because my experience going back to 10 years with Google is you get away with it for a while but they catch you. They ultimately catch you and they'll burn you for it. I mean Amazon is coding reviews every month and their system is going through that probably every day but I mean they're going through it doing cleanups. And if you're doing something that's a bad actor thing in that space you're going to get busted for it. So I say do that but there are things you can do that are legit. Now if you've seen your ratings are going down because you've got some product quality issue then go fix that and send out free versions to all those customers whatever it is. Be a good actor in the system, have a voice, respond to queries, the question, and FAQs as quickly as you can and let people know you're on top of it and if that takes an external site that's informational where you talk to people about where you are who you are what your product is then do that too. I think that's an important to focus but it's hard for people to get a tall hold here now if you're not already in the ecosystem and with a product. Mark: This has been fantastic. Carlos thank you so much for coming on. Do you have any last thing that you would want to share with the audience here or maybe a question I didn't ask that you think would be useful? Just something general Amazon or what you guys are doing over at Thras.io. Carlos: No not really. I mean it's an exciting time to be in the space and it's a good time too for people to be selling their business and we're happy to do that help them—I'll buy them. I think you guys are an excellent brokerage. I've really enjoyed working with you guys. And I'd put a little plug there for you would. Getting someone on your side that understands what they're doing and how to represent your business and how to talk about it and help you understand what you should get and what you shouldn't; that's very important. And not all brokers are created equal, not all business people help you sell your business or equal and you guys have all done it and I've really appreciated that work with you guys. Mark: Yeah, we've always appreciated working with your group as well. You guys have been fantastic to work with. I really appreciate you coming on here and sharing as much as you have. I mean I know what you guys are doing is pretty innovative. Not a lot of people are doing it. There are some doing it but it's great to get the insights from a company that is working with so many diverse different Asense because it just brings a different perspective to everything. I've greatly enjoyed this conversation so thank you so much. I know that the Amazon queens of the past are smiling down on your company and will continue to do so. So thank you for sharing that with me as well. And there you go. One moment do you sell that on Amazon; just curious? Carlos: We don't sell those. [inaudible 00:51:03.8] I bought them on Amazon. It's great. Mark: [inaudible 00:51:08.1] on Amazon. Alright, awesome. Carlos thank you so much for joining me. Carlos: Cool. It was great talking to you, Mark.   Links and Resources: Thrasio Company Profile

On this week's Billboard Insider podcast Lamar CEO Sean Reilly talks about the search for a new OAAA CEO, Lamar's corporate culture, sustainability, programmatic out of home, Landmark Infrastructure, tariffs and what keeps him awake nights. You head the OAAA committee which is searching for a replacement for Nancy Fletcher.  How's the search going? Sean Reilly, CEO, Lamar Advertising Let's start with the fact that you can't replace Nancy Fletcher.  She is an incredibly effective face of and voice for the industry for almost three decades.  So tough act to follow…I'm really pleased with the way the search has gone and we have settled on a candidate that I believe will rock the industry…We had a great committee.  We interviewed a half dozen excellent candidates…The candidate we now have on board is something special…We should have an announcement in the next several weeks. Lamar's regional managers have been with the company for an average of 33 years.  We have senior leadership that's incredibly well tenured…for most of them, their very first job they ever got was as an account executive with Lamar.  And beyond the regional tier of leadership if you look at our 200 general managers around the country, their average tenure is over 15 years with the company.  So how does that happen?  It starts with a great corporate culture…Number one is the golden rule.  Treat other people like you'd like to be treated…Another thing is we should leave it better than we've found it.  By this I mean the communities we operate in.  We are part and parcel of the communities we operate in.  It's a privilege of us to be part of…that landscape.  We need to give back.  We do that daily, whether it's volunteering or whether it's putting up public service copy…Lamar does almost $150 million/year in public service copy…That leads be people wanting to be part of a company that they know cares…One other thing we do is we rigorously promote from within.  When a position comes open in Lamarland it's going to be filled by somebody within Lamarland…. Lamar's cashflow margin is 10-20% higher then the other public out of home companies.  There's several things to talk about…first, we run a tight ship, year in and year out our expense growth is kept at or below 2%.  We're well known for that.  So if you have expense growth that you keep below GDP and you grow your top line slightly better than GDP you're going to get margin expansion…We think our margins after everything…corporate EBIDTA...should be approaching 45%... We compensate our GM's slightly differently than the other companies.  They are treated as complete business people.  They hire, they fire, they turn on the lights, they turn off the lights, they have complete control of their P&L…That philosophy of being flat, decentralized business units…makes a huge difference. Now we do have some structural advantages.  We have lower ground lease expense because of our middle market focus.  Our ground lease expense runs give or take 20%...That the difference in running outdoor companies in places like Little Rock, Arkansas...versus places like Manhattan. And then we have an advantage in our mix of businesses.  We are more traditional out of home and less transit and airports and those have lower margins to begin with… On creating a lean company structure The business school books call it flat, decentralized organization chart.  I like to call it respecting the business judgement that is in the field and creating a corporate infrastructure that services the field…when I walk around our place here in Baton Rouge I constantly remind our corporate folks that at the end of the day if we're not servicing folks in the field – our GM's, our account executives, our production managers, our folks that are hanging vinyl – if we're not helping them get better at their jobs then we don't have a reason to exist…We're not command and control.  When we pick up the phone,

On this week's Billboard Insider podcast Lamar CEO Sean Reilly talks about the search for a new OAAA CEO, Lamar's corporate culture, sustainability, programmatic out of home, Landmark Infrastructure, tariffs and what keeps him awake nights. You head the OAAA committee which is searching for a replacement for Nancy Fletcher.  How's the search going? Sean Reilly, CEO, Lamar Advertising Let's start with the fact that you can't replace Nancy Fletcher.  She is an incredibly effective face of and voice for the industry for almost three decades.  So tough act to follow…I'm really pleased with the way the search has gone and we have settled on a candidate that I believe will rock the industry…We had a great committee.  We interviewed a half dozen excellent candidates…The candidate we now have on board is something special…We should have an announcement in the next several weeks. Lamar's regional managers have been with the company for an average of 33 years.  We have senior leadership that's incredibly well tenured…for most of them, their very first job they ever got was as an account executive with Lamar.  And beyond the regional tier of leadership if you look at our 200 general managers around the country, their average tenure is over 15 years with the company.  So how does that happen?  It starts with a great corporate culture…Number one is the golden rule.  Treat other people like you'd like to be treated…Another thing is we should leave it better than we've found it.  By this I mean the communities we operate in.  We are part and parcel of the communities we operate in.  It's a privilege of us to be part of…that landscape.  We need to give back.  We do that daily, whether it's volunteering or whether it's putting up public service copy…Lamar does almost $150 million/year in public service copy…That leads be people wanting to be part of a company that they know cares…One other thing we do is we rigorously promote from within.  When a position comes open in Lamarland it's going to be filled by somebody within Lamarland…. Lamar's cashflow margin is 10-20% higher then the other public out of home companies.  There's several things to talk about…first, we run a tight ship, year in and year out our expense growth is kept at or below 2%.  We're well known for that.  So if you have expense growth that you keep below GDP and you grow your top line slightly better than GDP you're going to get margin expansion…We think our margins after everything…corporate EBIDTA...should be approaching 45%... We compensate our GM's slightly differently than the other companies.  They are treated as complete business people.  They hire, they fire, they turn on the lights, they turn off the lights, they have complete control of their P&L…That philosophy of being flat, decentralized business units…makes a huge difference. Now we do have some structural advantages.  We have lower ground lease expense because of our middle market focus.  Our ground lease expense runs give or take 20%...That the difference in running outdoor companies in places like Little Rock, Arkansas...versus places like Manhattan. And then we have an advantage in our mix of businesses.  We are more traditional out of home and less transit and airports and those have lower margins to begin with… On creating a lean company structure The business school books call it flat, decentralized organization chart.  I like to call it respecting the business judgement that is in the field and creating a corporate infrastructure that services the field…when I walk around our place here in Baton Rouge I constantly remind our corporate folks that at the end of the day if we're not servicing folks in the field – our GM's, our account executives, our production managers, our folks that are hanging vinyl – if we're not helping them get better at their jobs then we don't have a reason to exist…We're not command and control.  When we pick up the phone,

A Thriver asks, what are healthy profit margins for a business and what is a healthy amount of debt to carry with your small business and what is EBIDTA??

This week's Billboard Insider podcast features Paul Wright, the top out of home valuation expert in the United States.  Paul's firm SignValue.com appraises billboards, billboard leases and billboard easements.  Paul talks about out of home values, a tax case that could hurt values, Landmark Infrastructure and what he thinks of Clear Channel, Outfront, Lamar and Link Media Outdoor. Here are some excerpts from the 29 minute interview. Paul Wright, Co-Founder, Signvalue.com On the current M&A market There's a lot of optimism about the industry.  We're seeing a lot of interest from new groups that are in ancillary media.  Newspaper, radio, television – that are thinking…out of home is the place we want to be.  And so they're moving dollars there.  Making more investments. On out of home values The market is increasing in terms of values.  We're seeing values rise…There's really strong revenue growth…We're watching to see if the strong revenue growth is continuing and I think that's likely because of the number two item which is a shift in ad spend.  We've always kind of suspected that advertisers were moving dollars from other media.  But I think this is the first sign that those dollars are coming from radio and television and newspaper…There are a couple of things that may slow down value growth.  One of those things is taxation issues…There was a recent case in Pennsylvania that concluded that the value of billboard lease income to the landowner can be considered in assessing the value of that property owners land…The other think is a recession looming.  I think that everyone knows that's likely to happen in the next couple years. Am I right that multiples are 10-12 times cashflow (EBIDTA)? You are right…Our average is 10.5 or 11 and in term of revenue multiples I think we're in the 5 to 5.5 times range…During the last recession we saw a spike in multiples.  We were looking at lower revenues and lower cashflows and buyers were anticipating that to be a temporary thing. Drivers of an out of home company's value One of the original staples of analysis when looking at valuation is lease costs.  And that's still one of the primary drivers that we look at…We want to know how much of that revenue is going to landowners…We're also looking at market size and whether you're in a major market… Is a wood plant worth less than a steel monopole plant? It is not the driving factor that a lot of people feel it is.  Now if you're comparing apples to apples - you've got a wood plant in the same market on the same streets with the same roads you might see a half to a quarter point discount on a revenue multiple.  You might see a half point to three-quarters point discount on a cashflow multiple. Please enable JavaScript in your browser to complete this form.Never miss a Billboard Insider article. Join 3,240 subscribers who receive our daily stories for free by sending us your name and email using the form below. *FirstLastEmail *Submit Paid Advertisement  

This week's Billboard Insider podcast features Paul Wright, the top out of home valuation expert in the United States.  Paul's firm SignValue.com appraises billboards, billboard leases and billboard easements.  Paul talks about out of home values, a tax case that could hurt values, Landmark Infrastructure and what he thinks of Clear Channel, Outfront, Lamar and Link Media Outdoor. Here are some excerpts from the 29 minute interview. Paul Wright, Co-Founder, Signvalue.com On the current M&A market There's a lot of optimism about the industry.  We're seeing a lot of interest from new groups that are in ancillary media.  Newspaper, radio, television – that are thinking…out of home is the place we want to be.  And so they're moving dollars there.  Making more investments. On out of home values The market is increasing in terms of values.  We're seeing values rise…There's really strong revenue growth…We're watching to see if the strong revenue growth is continuing and I think that's likely because of the number two item which is a shift in ad spend.  We've always kind of suspected that advertisers were moving dollars from other media.  But I think this is the first sign that those dollars are coming from radio and television and newspaper…There are a couple of things that may slow down value growth.  One of those things is taxation issues…There was a recent case in Pennsylvania that concluded that the value of billboard lease income to the landowner can be considered in assessing the value of that property owners land…The other think is a recession looming.  I think that everyone knows that's likely to happen in the next couple years. Am I right that multiples are 10-12 times cashflow (EBIDTA)? You are right…Our average is 10.5 or 11 and in term of revenue multiples I think we're in the 5 to 5.5 times range…During the last recession we saw a spike in multiples.  We were looking at lower revenues and lower cashflows and buyers were anticipating that to be a temporary thing. Drivers of an out of home company's value One of the original staples of analysis when looking at valuation is lease costs.  And that's still one of the primary drivers that we look at…We want to know how much of that revenue is going to landowners…We're also looking at market size and whether you're in a major market… Is a wood plant worth less than a steel monopole plant? It is not the driving factor that a lot of people feel it is.  Now if you're comparing apples to apples - you've got a wood plant in the same market on the same streets with the same roads you might see a half to a quarter point discount on a revenue multiple.  You might see a half point to three-quarters point discount on a cashflow multiple. Please enable JavaScript in your browser to complete this form.Never miss a Billboard Insider article. Join 3,116 subscribers who receive our daily stories for free by sending us your name and email using the form below. *FirstLastEmail *Submit Paid Advertisement  

Since 2013 Quiet Light's average transaction size has grown up to ten times. Back in those days, there were no private equity firms poking around the e-commerce space for these listings. Today it is a completely different story and more often than not we're seeing private equity firms come into the buyer spectrum. In fact, once a business reaches a certain size, it is more likely than not that a seller's potential buyer is going to be in the private equity space of the buyer pool. Today we are going to dissect the PE process a bit further. We'll delve into the process, the advantages and disadvantages, and give a general education on the subject for those who are curious about it how it works. Today's guest, Brian Rassel, is Vice President of Private Equity with Huron Capital. He's responsible for sourcing, evaluating, and analyzing investments made by his firm. Brian delves into ways he finds that e-commerce has entered into almost sector of investment that his group is involved in these days. Prior to joining Huron Capital, Brian was an Associate at Prophet, a global growth strategy consulting firm. Prior to Prophet, Brian was a consultant with New England Consulting Group where he led project management in their private equity practice for buy-side clients. Brian is sharing his wealth of private equity experience and how PE is entering more and more into the e-commerce space. Episode Highlights: How Brian defines private equity. How PE funds traditionally start up and get solidified. The difference between small, medium and large equity funds. The holding periods that private equity funds usually need to secure capital. Is PE all about acquiring to grow and sell or is there a category for buy and hold? Do evergreen funds exist? The difference between platform and bolt-on investments. Three things funds do to generate deal flow and types of business spaces they favor. The behind-the-scenes processes of putting a deal together. How many people are involved in the deal on the PE side. The backend investors committee and if that hinders the deal for the seller. Why time commitment is actually a good thing. How many deals Brian's PE firm evaluates per year. The defined process that gets them through the numbers. The growth potential for e-commerce – multiple appreciations and the role of private equity. Brian frames an ideal acquisition structure based on the general private equity model. Why the buyer/seller fit really matters. How private equity can work for sellers who want to get their business to the next stage. Transcription: Joe: Back in 2013 Mark I closed 23 transactions. It was a busy year for me. Do you have any idea what the average transaction size was? Mark: I … what do I guess? Well, it's you so I'm going to say like seven million dollars. Joe: I love putting you on the spot because you do it to me all the time. The average transaction size— Mark: You got to be like 250. Joe: It was 125. Mark: Holy cow. Joe: 125; very small. Mark: Okay. Joe: And at that time there were no Private Equity Firms poking around the e-commerce space for these smaller listings. Today it's a completely different story and my average transaction size was 10 times that last year. And a lot of buyers or a lot of sellers, the question I get asked all the time are who are your buyers? And it's a mix of everyone but more often than not now we're seeing Private Equity Firms come into this space. And I understand you had an expert in that area on the podcast. Mark: Yeah private equity is a topic that's coming up more and more frequently with sellers especially on the higher end of that revenue spectrum that we really work with. And it makes sense because once you get to a certain size of business your buyer is more likely than not going to be at least somewhat in the private equity place … area of the buyer pool. In addition, we've talked before … I had Ryan Tansom on and we talked about selling to a strategic buyer versus a marketplace buyer. And obviously, people always look at this especially at the higher ends and say I kind of want to have a strategic buyer. Well, one thing to keep in mind here is that this is kind of a spectrum right? It's not binary; you're either strategic or marketplace. But when you get into that private equity world, private equity is almost always going to be something of a strategic play. So I thought … look this private equity world is something that people keep asking about let's actually start to dissect it a little bit. So Brian and I talked and we spent probably about half of this interview just kind of going over what is private equity. How does that work? What is the definition of this? What are the sizes of it? And really just trying to ask some of those silly questions that maybe you kind of wonder about but don't want to ask because you don't want to sound like you don't know what you're talking about. And so we went over a bunch of those questions but then we also went over what does the process looked like. What does it look like to sell to a private equity firm? What are the drawbacks to it and what are the benefits of it as well? And really it's kind of a general education podcast but I think also … and maybe more importantly for those of you out there who are thinking about selling down the road and you're looking and trying to peg the different values that you want to get from an exit and maybe you think well I want a 10 million dollar exit or a 15 million dollar exit, if you get to that point what's it going to look like to sell to a private equity and what do you need to do to really make yourself appealing for a Private Equity Firm? And how does the deal change when you're signed to private equity as well. So we really covered a lot of ground in about 30 minutes. Brian is super knowledgeable obviously. He works in this space. And I really appreciated him coming on the podcast because … again I just downloaded a ton of information. Joe: Well let's get right to it. Mark: All right Brian thanks for joining me on the podcast. I really appreciate you coming on. Brian: Yeah I know. It's great to be here. Thanks for hosting. Mark: All right so I don't expect people to listen … my guests to have listened to the podcast in advance and I know … I don't know if Joe's been doing this, he records like 9 out of 10 episodes and I don't know if he's continued on the tradition but we like to have our guests introduce themselves mainly because you know your story better than I know your story and I figure it's a little bit easier. So why don't you give just kind of a quick 30 second to one minute rundown on who you are? Brian: Yeah I'm Brian Rassel. I'm a vice president with Huron Capital Partners which is a middle market private equity firm based at Detroit Michigan. The firm is 20 years old and has invested in … we're typically enthralled buyout investors where we'll buy a majority of a business and have done that through five successive fawns starting back in 1999. And the industries that we play in are business services, consumer, and specialty manufacturing. You know it'd kind of be interesting how I got to know you Mark for those listening is that believe it or not all of those basins are being affected by e-commerce or different kind of SaaS business models that are internet based. And I'm taking it upon myself to maybe be the person of the firm who is trying to understand those influences on all of our companies and make sure that we're in a position to incorporate those changes that are going on out and new coming at large number and being done by a lot of people who probably listen to your podcast and make sure that we're bringing more of the [inaudible 00:05:51.4] in the businesses we own so that they can be successful today and be well into the 21st century. Mark: All right, well I got a lot of questions for you because this world of private equity is encroaching or coming into the internet business acquisition world more and more. And whether it's because at Quiet Light our deal value is moving up or private equity is starting to look at different price ranges and maybe this convergence of these worlds and also private equity looking more in the online space is just becoming an increasing topic that we're seeing more and more of. We're also seeing individuals that have started up on their own raising funds to do large acquisitions or to string acquisitions together. Brian: Yeah. Mark: So what I'd like to do and I already kind of told you this in our conversation before I hit record, I'd like to go over some of the basics here of the private equity world and how it looks in the Internet space as well. And then know a little bit more about your fund and some of the things that you guys are doing over there and all that. So a quick shout out to Chris from Centurica and Rhodium I know that we've talked about him so much that it's almost as if he's a sponsor. He's not. But this is again how we got introduced. You spoke at the Rhodium and then you and I had a chance to speak after that and a good conversation. So thanks Chris for the introduction again. So let's start out really really basic here. How do you define private equity? Brian: Private equity is capital … private capital being put to work in private businesses. And so I like to name [inaudible 00:07:22.6] for folks who really don't know much about it a little quick stat just kind of on the US economy. There are half as many publicly listed companies as there were in 1996 or 1994 something like that. So even if the value of the public markets is larger the amount of places you can park that capital in the public markets is small in the total number of listed names. Private equity is a big part of either big institutionally managed money. Whether that's from insurance companies, [inaudible 00:07:52.4], pension funds, universities, those kinds of things. This is their way to go participate in the forces of economy that are still private companies that they can't get access to otherwise unless folks like me help them get access to it. It also includes folks that can kind of go into different flavors of private equity but depending on the size from the bing capitals of the world down to very very small funds that are more entrepreneurial. There's sort of every flavor under design in certain family offices and other things like that. That would be private equity, pooled private capital going into private businesses. Mark: Well how did these funds start-up traditionally? And I imagine that there's a lot of ways that they can start up. You've listed a number of sources of money and I think sometimes we forget just how much money there is in some of these places. So yeah [crosstalk 00:08:46.6]. Brian: For sure I mean there's just [crosstalk 00:08:49.4] I'm going to get this off, I'll be wrong by a hundred billion dollars. But I think something like 600 billion dollars flowed into private equity firms last year. So these … and the source of a fund or the way a fund works is that a fund manager like the folks I work for here where I'm a part of, they go out and they make their pitch about how talented their professionals are and what their track record is and the fact that they can get access to great deal flow and great opportunities, places to put private capital where it will go earn a reasonable return. And they raise this money from these other institutional or independent investors. It could be high in net worth individuals or anybody like that but … so they get started that way. They'll hold this farm estate back to the 1960s and there are new ones being created all the time. And frankly, as hedge funds have declined I believe in a large way in popularity just because of the efficiency of public markets there's been more and more money directed towards these private pools of capital and the private equity market. And when I say private equity I mean both kind of traditional buy-out funds for more mature businesses that have healthy positive cash flows on the one hand and on the other hand I mean venture capital is the son segment of private equity. And that might be for really really high growth businesses like the next dewberry of the world or whatever it might be. Mark: Right, absolutely. Okay, that makes a lot of sense. And as far as the breakdown as to sizes what would you consider to be a small private equity firm and what are we talking about in terms of their capitalization rates when they start up? What would be the difference between the small, medium, large type of firms? We can get an idea for how much money we're actually dealing with? Brian: So I would say just kind of from my understanding again all this caviada being dead this is sort of Brian Rassell's take on private equity and my interpretation and may not really be the opinions of United Capital, I can only speak for myself as an individual but they have a dedicated fund. And when I say dedicated fund these are groups of people that other folks, other investors have made a promise and a pledge that is legally binding and written their name at the bottom that that dedicated fund, the small one might be 50 million dollars. That'd be very small. Folks who are trying to invest less than that, generally speaking, have something more akin to a pledge fund. They have a number of people that they can pass the hat with to raise money in a deal by deal basis versus having committed capital to go invest in five, six, 10, 12 companies in that particular fawn. So just kind of … back at the envelope type map that you can think of is every firm should have plus or minus roughly 10 investments that have enough diversification in it. So a 50 million dollar fund is looking to put five million dollars to work in the 10 different companies. And that would be the equity capital going to those companies. There's oftentimes a mix of equity and debt coming into those companies and we could talk about that later. And then a midsize fund might be three or four hundred million up and pawn up to the 2KR's of the world or Apollo or the very big managers who are doing 15 billion dollar funds and so all different world. Mark: Very. Brian: They're taking hotels private or something like that. Mark: I was going to say they're buying something completely different than your Amazon business. Brian: Yeah that's right. It's a whole different world. Mark: All right you talked about you have successive funds. In my understanding again is that we go through these rounds of investment that coming up. We had Andy Jones from PrivateEquityInfo.com on and he talked a lot about the holding periods that private equity looks for. Can you just again quickly touch on that? We're kind of doing private equity 101 here. Brian: Yeah. I didn't hear Andy's remarks but just as it relates to a whole period I would think of it just to be linear about it that a private equity firm once our capital is raised [inaudible 00:13:01.9] the time that it takes to raise that money they committed capital or even the past they had capital they're going to take that money and let's just use this fictional 50 million dollar fund. And they'll take something like four years to deploy the first 80% of it. And the goal would be you take 20% of that money and get it into a new platform company. Companies they had no money in before. In the first year or the next year next 20%, next year next 20%, next year next 20% thus 80%. The point at that point you can't do necessarily new investments you're reserving that last 20% for either a company that's struggling that you need to give more money to to keep it going or to do an add on investment to buy something else and add it on to something that's in the portfolio. That might take four or five years to really deploy the majority of it and then another four to five … you know an investment from year one that you only … you're exiting that investment three to seven years later and let's just use five as kind of a round middle of the road number there. So an investment from year one is maybe gone in year six so it's being harvested. It could be sooner, it could be later. And the investment that was your last platform investment from year four might be heading out the door in year eight or nine. So fund life is something like eight to ten years. It can be longer. And a traditional as you kind of draw it up on the whiteboard like I have behind me here is sort of a five year hold. Now there's … I've seen many that are much much shorter and many that are much much longer but those are the fat parts of the [inaudible 00:14:36.2] if you want. Mark: Sure. So is private equity … is the goal of all private equity companies to grow and sell? So acquire, grow, sell, or are there other strategies? Buy it and hold for long periods of time? Brian: There are certainly evergreen funds out there. They're much more … when I say evergreen they have the ability to hold and recycle the capital. They may be designed to have heard of a number that has committed capital from particularly family offices that never want to do the tax consequences of becoming liquid in an investment and actually realizing the gains so they're structured to reinvest the money that they make. Or if they sell something to quickly find someone else new for it to go into. Now that would be a more unique situation. And then certainly family offices there's a number out there that looks for longer hold periods and there are certain funds that are designed for a longer hold period. Mark: All right so this is going to be again another basic question but I want to make sure our terms are all well-defined here. We hear these terms of platform versus bolt on or add on investments. Just real quick the difference between a platform investment versus a bolt on. Brian: Yeah I'll just keep it simple. I'll say anything that is a brand new business, new industry for that firm to go into. They don't currently own something in that space. Whether that's a tiny initial acquisition or a big one that would be the platform investment. So let's just say with a … I don't know Internet broker pencils, I'm just making this up, all right? And they don't have any other investments in the internet broker pencils space and they invest in a company in that space that would be the platform [inaudible 00:16:17.1] that. And maybe there are 10 companies that make … that do internet broker pencils and they buy two other ones of their competitors and they make it bigger or somebody [inaudible 00:16:25.3] and now they're putting it all together those might be add-ons to that original entity that they purchased or recapitalized. That's what we mean. It doesn't necessarily have anything to do with size which can be confusing. Sometimes you start with something small and you get the opportunity and do an add-on that's much bigger than the original investment. So it's more just where is the starting point in you can do a space or an industry. Mark: And if we think about the terms it makes sense right? Brian: Yeah. Mark: You build on top of the platform and you add-on top of the platform. So it makes … that makes complete sense. Brian: Or bolt-on, yup that's where the nomenclature comes from. Mark: Or bolt-on, absolutely. It's amazing when you dig in to definitions it's like the terms actually have a meaning and it makes sense. Brian: They do. Generally, they come from somewhere. Mark: They come from somewhere. There's logic to this stuff. I love it. All right so now I'll get into questions that I'm starting to be genuinely interested in and that is how does a fund develop a thesis or an entire direction to go after a particular platform investment? I mean if you're selling blue widgets and also if somebody comes and says no you don't need widgets what you really need are sprockets, if you don't do anything with sprockets at all how does that enter into a fund's psyche at all? Brian: There's really three things that we're doing here to generate the sort of deal flow and the ideas and spaces we want to go into. So here I'll speak more from Huron Capital. There are other firms who follow a similar philosophy potentially. So the first is businesses we didn't know about but are being represented by a broker or an investment banker like yourself Mark who … those are opportunities that are coming to us. They are being listed. They're being actively shopped around. We may have never thought of the sprocket industry before or we didn't know too much about it or we read materials on it and we say it has a lot of characteristics and things we like; great cash flow, seems very resilient, seems countercyclical, if the economy goes down it'll still do well, it's a leader on its space, any of those kinds of things. Those are opportunities that come to us and that is more of a passive thing. And then we get active once we realize that it fits a lot of criteria and we believe we could be successful with it. And that sets into motion a whole chain of things where we kind of prove out of the pieces that we might like this business and we try to get educated. The second that we spend a lot of time on is networking with executives from a broad, broad variety of industries. Those people know where there are spaces that are changing. And generally speaking, change creates opportunities. Change creates winners on one side and losers on the other side. And less be to the losers but you need that kind of disruption to create any sort of sort interesting investment outcome. The study ID is probably the market's sufficient enough that the study ID is not going to return the greatest returns. So we've spent a lot of time with executives unless I knew them about spaces that could be interesting and trying to listen to areas they know about and start to build some [inaudible 00:19:37.4]. And then even more proactively than that there's a lot of opportunities where we meet the executive who has a view of one particular thing they want to do here at Huron it's got a registered trademark or the like of the firm. We call that an exact factor investment where we will actually flip the process and say we really believe in the sprocket industry. We met Phil who is going to be our perspective CEO in the space and he has this vision that is going to totally turn the industry [inaudible 00:20:11.5]. To do that we need to go find the platform, we call that like getting fuel behind the wheel. We need to find a car to fulfill the drive. We believe he's the best driver in that industry. And we will do all the work, we'll go write a hundred page white paper on it to prove to our investment committee why it's such a fabulous opportunity and Phil is the greatest operator in this space. And then we will commit dollars into going and finding businesses in that space and find Phil the car he can drive and we'll get off to the races that way. So it starts with a commitment from our farms for a certain amount of money behind Phil to go do an acquisition more and more in this space. So it … I guess ranges from that passive we find things and then we get educated too. We educate ourselves as much as possible and align ourselves with an executive who can execute and work the process the other way. Mark: Cool. All right that [inaudible 00:21:04.07]. So let's talk a little bit about the process that goes on behind the scenes when you are evaluating an opportunity. And I think for a lot of potential sellers this sort of conversation is going to be really insightful. So let's say we have somebody that they have an e-com business, 30 million in revenue, eight, nine million in earnings on an annual basis and they've got a couple of private equity firms looking at their business. Where does that start and what is the process going through? And you can talk about maybe Huron's process and then if there are variations that you know as well. The number of people that are going to look and touch that deal as it goes through the steps. Brian: Yeah. Mark: What are some of those behind the scenes looks? Brian: Yeah so once you've got that moment where there's a couple of firms interested there's going to be an incredible amount of information about the business across insurance, benefits, compliance with laws and regulatory statutes, information about the market; anything the business can possibly produce about itself, fairly every file that's off the shelf that they have, every non-disclosure agreement they have with somebody that they on boarded or employment agreement, every contract they have with a customer, or maybe it's an industry where you don't have a lot of contracts with customers but you have a lot of contracts with suppliers. All that information needs to be made available for these perspective buyers to digest. And the more they can be made available, the more that that's organized into different pockets of legal, employee, insurance, benefits, all of that, the better. It's going to save the company a lot of time from serving requests versus being proactive by getting that stuff out there. And you know well everything here all the buyers be under a non-disclosure agreement and that's just a very kind of well-oiled machine around making that information available to give your last few buyers down to the one you would like to choose and have them under a Letter of Intent. And that starts to be an exclusive relationship where the buyer is going to spend a lot of money in due diligence and in exchange for spending that money, they would like the exclusive right to [inaudible 00:23:19.3] business for a period of time. 60 days … 90 days where they engage and here is where it starts to get to be a lot more kind of in your trousers and really analyzing your business but they're going to engage in quality of earnings earned to go and understand did you actually produce the amount of revenue, if you put it in the right time periods, if you really counted for every cost etcetera. They're going to engage legal professionals who are going first to sort of just again a full work up of registration, compliance, [inaudible 00:23:51.9] and then those folks are going to work on the actual transaction documents as well as a host of other advisors. And that would be like again a 60 to 90 day process. It could be 30 days on the short end. There are firms who can do it in that time particularly if you're a smaller business and an add-on to a much larger or a very simple business. Mark: So how many people are we talking about there that are going to be involved in the process? Outside of the consultants like a Q of E … a quality of earnings report that's going to be an outside accounting firm right? Brian: Yeah. Mark: So we're not going to— Brian: Okay so from the acquiring firm? Mark: Mm-hmm. And we can start at the beginning. We can start at your interns that are digesting deals. That's going to be part one. Brian: Sure call it four and they're going to be answering to the remainder of their firm particularly their investment committee. Ideally, it's a tighter team and there's four and if it's an add-on expect more. So you'll have the management team of that kind of platform investment as well. So four to eight and then when you get to the advisor well now you're talking 20 something more. Mark: Right, getting all those outside advisers. Now one of the things I know people get worried about during this process is you start out again with that guy who's that in deals up front and he sees some he passes it on to the team and they end up liking it so now you're dealing with a handful of people that are asking the questions digging deep in that due diligence right? Pages and pages of collecting information possibly even submitting an offer because on the surface things look okay. Brian: Yup. Mark: There seems to be these back end investors committee as well which can also kind of wash the deal far in the process. What would you say to people that get kind of frustrated when they hear that and they think do I really want to work with private equity because there are so many people that could potentially disrupt this deal? Brian: So I would think about the time investment to it. So the private equity firm is in no way interested in wasting any of their time. Huron looks at something like little over a thousand deals a year. That takes a lot of time and we're very thoughtful about moving things to the funnel and connecting our firm's resources to evaluating an opportunity. So if somebody is spending the time I would tell the listeners that they are encouraged. If everything checks out the way I told to them so far or they've written so far about that business then there are absolutely no issues. The firm, an organized and real firm is going to be thoughtful and time is kind of their most valuable resource and they're set up to be able to make a number of staged gates kind of we're interested and we're not interested. We're interested subject to confirm affirmation I want two and three. And you can have a very quick conversation like you and I are having now to say is this the case is this not the case? Here's a big concern we have, should we be worried? And they will both take your answer and that gives them that kind of gumption to proceed. And they'll probably have to go validate that as well later. And that validation just has to support what's been told to them. But they are also making a big commitment with their time in the same way that the seller is and I would take it as genuine on their part that they're not looking for it to fall apart. It's just things do. Certain deals fall apart because new information becomes available. I've seen that happen a number of times where the seller learns things about their business or thinks about their business in a way they hadn't before and can agree that that's a genuine risk and may be something they want to work out within a course of another year and then they might be back to market. Mark: Yeah, that happens often. We see that all the time even in the amount of work that we put a seller through upfront it pales in comparison to what you guys are going to be doing in your actual dig deep due diligence. And the number of times that we have people come back and tell us that was a lot of work but that was really useful. Brian: Yeah. Mark: I have learned a lot about my own business, right? Brian: Yeah a great advisor like somebody like you and using a broker who's been through and understands the questions that are going to be asked is going to save a tremendous amount of time. And we call folks like you Mark a river guide we're using on our side and we love them. Sellers use them too because they're that much more prepared for the process. Mark: Yeah. And I can tell you like the one thing that … I'm going to play both sides here, I would say the one thing that can be difficult with working with private equity is because there are so many people that can come in with a dissenting viewpoint. You're not trying to … convince is a bad word but show the opportunity to one person and have them agree to it; you're having to show a number of people. But the great thing and I love working with private equity on is that it's completely unemotional throughout the process. Brian: Yeah. Mark: I mean it really is does this check the boxes we needed to check and if it doesn't we're going to find out as quick as we can. You said something, I was going to ask this question, you guys evaluate you said about a thousand deals per year? Brian: Yeah the pipeline you think about now it's working its way down at the top of the funnel and so we're a thousand and then that's working its way down to 250 that real solid time is being spent on and then 75 that we're spending real tons of resources and traveling around to visit them … maybe 80. Now I'll get these numbers wrong this is kind of directional and then down to the 30 or so that are getting a Letter Of Intention and we'll close 22 transactions a year. Mark: Yeah so that's an amazing amount of data to be pulling in. And you guys have criteria at every stage I assume that you're looking for up front? Brian: That's right. Mark: Okay. All right that makes sense. Do you publish those criteria? I know we get a lot of just the very broad stuff sent to us. Brian: We don't only because it's just so bespoke for every company. There are so many things that really are as you just said that are check the box and we're highly confident that we will go confirm later. We're highly confident that's not an issue and we are trying to get to it very, very quickly. The three or four things we want to make sure are the reasons we're most excited and confirm that that is factual and that was going to continue. Whatever that might be; on the customer relationship or the recurring purchasing or … whatever it might be. And then at the same time the three or four things that are kind of we're concerned that could be deal killers. We believe we're spending the time because we think that's going to turn out to be true or we need to get to a yes no about is this a real problem very, very quickly. And so you know it's just they're different for every business. Mark: Yeah I know a lot of people listening right now you guys are buyers that are out there looking to acquire. So technically Brian you guys are somewhat of competitors although I think that you operate at a range that a lot of our buyers wouldn't. But I think one thing interesting that they should hear is this idea of having this defined process number one and then number two the amount of deal flow that you have to look at. I've talked to buyers that been out there looking for a year, year and a half but then you find out the number of deals that they're actually looking at doesn't really … this is a numbers game. I mean it's purely a numbers game. Brian: It is and one thing I want to say on that numbers game for us and it may be different for some of your buyers or not is that we're looking for situations that are great for us and we're also looking for situations where the seller in some ways choosing us. Now I don't want to overstate that but I do want to say that there has to be a great fit in every piece and why we're a better owner than someone else for that business. Some angle that we have, some affinity we have for what they do, or some prior experience or something. Otherwise and it could be a little different for particularly small businesses. Maybe it's a little bit less like that and it doesn't need as much of the chemistry but that's a big part of what we're looking for, for sure. Mark: And we talk about that a lot on these pockets. I know you guys are probably tired of hearing Joe and I talk about the need for a buyer being a good fit. And we talked a lot about this general concept of being likable because sellers do eventually choose and for most of these sellers they do have a choice. I mean right now it's a seller's market. They do have a choice of who they're going to work with. I want to talk about the exciting stuff. Let's talk about the actual deals; the money. Brian: Sure. Mark: Why is selling to a private equity something that people should be excited about? Brian: I think I spoke a little bit about this at Rhodium but I just … I see then the difference in multiples that are paid for businesses that are exclusively e-commerce or SaaS based businesses. Those multiples are so much lower than what private equity firms are paying for more traditional businesses out in the economy. And I believe that those worlds will come together. And I believe that businesses that are a hybrid of both or have excellence in both and are flipping both worlds are going to be extremely, extremely valuable. Because on the one hand, they have the relevance for the future, it's coming from kind of the types of businesses that you represent. And also they have that anchor of the traditional business that makes them more under writable and it makes them more predictable because it's a less dynamic place that they're out in. And so that's where I think private equity firms in the coming two, three, four, five years are number one going to become much more comfortable with standalone e-commerce business models that are exclusive that and there are going to be people participating from the much more kind of like formal private equity world participating in your markets. And then I think there's going to be a convergence where a lot of more traditional business models are going to look for the influence and the DNA as well as the revenue and the profits but the influence and the DNA and the growth that comes from the types of businesses you work with Joe. And I think that means that the market that you're playing in, the multiples will rise there. For every dollar of earnings they'll be more valuable in the future and I believe that's for now in a very significant way in 2018. Mark: Yeah and we talked about this this idea of multiple appreciation that we see. And a lot of it reaches over to the fact that this is where private equity starts to play right? So we often talk if your EBIDTA is less than a million dollars per year the … just again for the sake of a multiple, it's going to vary for each business but maybe 3 … maybe 3.5 would be the multiple on that EBIDTA depending on the type of business that you have. But once you start getting up into two, three, four million dollars of EBIDTA now we start seeing the multiples jump up in the different ranges. And the reason for this again is that we're no longer playing as much with an individual investor who really has a much higher risk profile because they don't necessarily have the entire team behind them or a portfolio behind them to be able to take some of that risk but also get the staff in the background and all the resources in private equity. Brian: Yeah. Mark: So let's talk … I am not going to pin you down because it would be a really bad idea for you to say hey we generally paid 25x on earnings which I know you don't. What does a deal structure often look like? Because I know these deals structures do change as well when we're talking about a private equity acquiring a small company. What does an ideal acquisition look like for you in terms of its structure of cash that the owner is going to be getting, maybe equity or debt that you would hope that they stay around and I'd also like to address the idea that a lot of private equity likes to have or prefers to have an owner stay on board with the new company and why that's a good thing also for that owner to think about that. So that's a lot; the general structure, the ideals for a structure. Brian: Okay so let's keep this out of your space and let's just talk about the general PE model. When deals were cheaper a couple of years ago you might get a higher ratio of debt than equity in a deal but for this sake, I'm just going to make it 50-50. I think that more reflects the market today in terms of underwriting. But let's take a deal where a private equity firm is paying at least eight times. That's still a relatively rich multiple. I could have said six but let's use eight times. So we're paying four times the earnings in their own cash that they're talking and they are going and putting the company on the hook or raising four times and they do it. Private equity firm does it but on behalf of the company of debt for the business to take on. So let's say it's a business with 10 million dollars of EBIDTA. So it's an 80 million dollar transaction and a firm like Huron is putting 40 million of equity and raising 40 million of debt in that transaction. And that 40 million of equity can come either from Huron or some portion of it could be rolled over from the seller. If that seller has no debt on the business today, no capital leases or anything else that could be thought of as indebtedness over the normal trade payables. And in your day to day you've got cash coming in and cash going out; that thing that keeps the shop running. And they have no debt on the business theoretically on the day of closing they're getting a check for 80 million dollars. If they choose to roll over some of that … let's just say 10% of the purchase price, eight million of it I would argue that a private equity firm or somebody like me would take that as them stating a high degree of confidence in the future of the business that they want to continue participating and have a relatively [inaudible 00:37:34.7] portion of their net worth tied up in that outcome. Or that they see the opportunity to turn that eight million into 16 or whatever it might be that there is a great opportunity to continue driving growth and equity value in that business. They'll … I start there that the rollover investments are very useful because if you're saying you want to do no roll over whatsoever and you just want to walk away from the business it's not conveying a lot of confidence in the future of the business. There are certainly reasons to do that but it's not conveying a lot of confidence in the future of the business. And where somebody might have been agreeing to pay you eight if you were rolling over and giving that kind of tacit support for the business going over, they might kind of say this is we're not so sure. It makes them a little more nervous and it might be a seven times deal. So you may actually be shooting yourself in the foot in terms of the total proceeds you perceive. Again so it's an 80 million dollar deal, 40 million of debt, the seller is choosing to roll over. They got their 80 million dollar check, it doesn't work like this you're actually [inaudible 00:28:28.9] but they got their 80 million dollar check and maybe we wrote one back for eight and so Huron holds 32 million of the equity and that seller holds eight million of it. So Huron owns 80% of the business and they own 20% and we've got some obligations to pay. That would be kind of the middle of the road structure. There's certainly a lot more that happens as it relates to creating incentives for management teams and that's a very, very big part of what we do to make sure that if we do well they do well and vice versa so that we're all talking in terms of growing the underlying equity value of the business. And that can often be very different for a business that didn't have that before. And it was just solely kind of the founder driving it or minding the growth of equity value. We believe in creating a broad base of ownership so that we're all on the same page. Mark: Yeah. Brian: Our management team is on incentives exclusively through their salary or bonus or both. Mark: Right so one of the things that I've talked a lot in the past especially on like the main street sort of deals is this almost dichotomy and it really shouldn't be set up as a dichotomy of a marketplace based sale where you only have an investor looking to acquire business in a strategic sale where you have a company that it would effectively be like an add-on acquisition in your world right? They already have the sort of strategic advantage to acquiring that company. Within your world, it seems like so much of what you do is going to be the strategy based type of acquisition anyways. Brian: Right. Mark: So it's like you're not going to do an acquisition unless you think that you have a strategic advantage. And when we … you and I talked out in Las Vegas back last October one thing that you talked about quite a bit was we want to pour gasoline on the fire that's already existing. So whatever that might be and so as a seller who's out there thinking about this and saying man I've been growing my business like crazy but I'm investing all this cash back into acquiring more inventory and expanding the product line and I'd like to take money off the table and then keep growing it. This is that perfect sort of handoff to a private equity because you can say you know what you [inaudible 00:40:54.0] your income statement rich in cash flow pour. Brian: Yup. Mark: We got cash. We'll help you out there. You're going to get some cash on the table and then let's grow this from a 30 million dollar business to a hundred million dollar business. Brian: Right. Mark: And so there's an incentive there for that owner to double dip that [inaudible 00:41:11.7]. Brian: Absolutely. Particularly in situations … we see this all the time where additional capital is going to be an accelerant to growth. So capital is what we have and we're trying to find a smart place to put it work and if that means we can buy a business and continue and support that business with more dollars and we believe in the strategy and what's going on in the way it's being operated there's nothing … that's the easiest dollar for us to put out versus the whole re-under writing process of a new investment. And then for that seller to have all their eggs in one basket … I don't care what their life situation is they could be in their 30's and just want to diversify or they could be somebody who's looking at kids who are about to go to college and it just doesn't make sense to have 100% of their net worth or close to it tied up in their business. And if they could diversify a little bit or generate a little bit of cash but their vision hasn't changed at all that's a great situation to bring on a strategic partner like a private equity firm. And that's where that [inaudible 00:42:11.9] fit it really matters and the chemistry between the seller. For the most part, you're not going to sell it to a private equity firm, they don't want to be in the business or definitely not in the business of operating these companies. So round the business and investing in them helping to bring the right resources to it and bring the right capital solutions or capital availability all that. Helping them set strategy and all the other things but the actual day to day operations. So it's not going to be for your sellers or for buyers [inaudible 00:42:45.1] sellers who are looking to exit the business and hand it off somebody else private equity is not going to be the right solution. But for those companies that they either want to go to be a division of something larger and they think they can be a great cross selling opportunity or the way they've built their mousetrap if just they had more to sell in the same way, and I'll say like let's say you're the number one muffler seller online and you also want to do transmissions and drive cams and stuff but you don't have the capital and you don't have the ability to go source and expand that way, going and selling to a larger entity and being that e-commerce division is a very powerful idea. Or just continue and do your own business and double down … accelerate the organic growth, private equity firm could be a great partner. Mark: Yeah, we're just about out of time in fact we've gone a bit long but one thing I wanted to emphasize here, you said that capital obviously is the resource you guys have and are able to invest and I know a lot of people that I talk to say look I don't really need money from this, the business is making money and I feel good about this. But what I find when I actually start to dig in with these guys is I say well what would it take to move to that next level. Oh well, I would have to hire out this other division or create this other division and you know okay but what's the obstacle to that? I don't want to invest in it. It often comes up. Okay, that's the area where a firm like yours can also come in and say well look we have the capital to be able to invest in this. You know what you need; do you want to invest in it to get to that next stage? And even if that means bringing in someone and you can help with that let's do it. Exactly we can do that and we could— Brian: Not to mention that I think we find that often business owners are willing to do one out of their five ideas that are like that and were willing to do all five knowing that three won't work but two should work out beautifully and we're willing to go [inaudible 00:44:39.4] the bodies of the business and the capital and have the appetite to take two steps backward to take four forward and understand that they're not going to all work. And where maybe an independent owner would do those sequentially, try idea one it wasn't really working, didn't feel pleased with making that investment and losing that cash flow, fired that new sales person who was supposed to do something else. We're willing to go do things faster and make sure that that doesn't hover around in the business and the core of what we're interested in the first place. And so we'll work through that with the business owner by giving them that support and the dollars needed to make that happen. Mark: Brian, I really appreciate you taking the time here [inaudible 00:45:19.8] some of the small questions I had but really good to get those things— Brian: No it's my pleasure. It's fine. Mark: So thanks again and maybe we'll have you back again in the future at some point. Brian: That sounds great. Yeah, I enjoyed it. Thanks, Mark.   Links and Resources: https://www.huroncapital.com/member/brian-rassel/ https://www.linkedin.com/in/brianrassel  

In MACROECONOMICS:THE FED in the body of JEROME POWELL says the Financial System is safer than before the great recession because of countermeasures instituted during the crisis. Are they to be believed?In BUSINESSES:KRAFT HEINZ drives off a cliff in 1st gear, writing down the value of Kraft & Oscar Mayer by $15B, disclosing an SEC investigation into accounting fraud & slashed its dividend. It became clear that the 20th century hot dog slathering titan was distorting EBIDTA growth by savaging costs in unsustainable fashion.As a matter of investor relations, does this actually show wisdom on the part of management to expose the dumpster fire all at once?Separately, are we finally prepared to throw out the orthodoxy that consolidation is the answer to secular declines in antiquated companies?The tech unicorn IPO filing bonanza reaches a fever pitch as PINTEREST and LYFT join the fray, joining SLACK and UBER as the angels of new equity in 2019.What is a PINTEREST and why is it valued at $12B when LYFT is a mere $15B?And broadly speaking, is ride-sharing a long investment or the long con?THIS WEEK'S DEGENERATE CHAMPION: ROBERT KRAFTIn a normal week, this would be an effortless pick. But this was no normal week. It was revealed that KEVIN PLANK, the CEO of Under Armour, was harnessing company assets to carry on an open affair with Stephanie Ruhle, an MSNBC anchor, under the banner of "corporate advisory."Not to be outdone, however, ROBERT KRAFT was charged with solicitation of prostitution after being video taped at a strip mall massage parlor in Palm Beach County.On ROBERT'S DEGENERATE STOCK TIP CORNER, Robert maintains his undefeated status, going 3-0 on P&G, CISCO & AURORA Cannibas.

There's only one metric that really matters! Net Profit or EBIDTA is the magic formula for growth. Profit allows you to reinvest in your sales, marketing, and people to add rocket fuel to your business. On this episode, Wayne Johnson, joins us in the studio to talk about some practical steps you can take to begin managing for the bottom line. Website - https://www.spinstak.com/ Podcast - https://www.spinstak.com/takeover/ Blog - https://blog.spinstak.com

Another one of the top 10 guests of 2018 is returning today to review the SBA process for both buyers and sellers. We'll discuss what's changed and things buyers and sellers need to look out for in 2019. Stephen Speer of ECommerce Lending, based in Florida, is a specialist in eCommerce acquisition deals. He offers a superior financing experience to buyers and sellers. Stephen urges sellers reach out to him to get their game plan ready and advises buyers to get pre-approved in order to get the ball rolling in the right playing field. Episode Highlights: What Stephen looks for in a business when prepping SBA on the seller side. Why co-mingling of multiple business can be problematic for a seller. His recommendations for cleaning up and consolidating financials when preparing to sell. What the the “debt service coverage ratio” (DSCR), also known as “debt coverage ratio” (DCR), is all about. Where the add backs come from and where Stephen's team looks for them. He advises companies to use an external bookkeeping outfit – for a great ROI! How Steve and his group think outside the box when it comes to SBA lending and refinancing in order to make the purchases happen. What he looks for in an SBA financing candidate. Just because you can write a check doesn't mean you don't have to be likeable. Situations or factors that can stop an SBA loan. The importance of reaching out to Stephen before starting to shop for the business that falls into your price range. Stephen reveals his lending sweet spots – the floor, the ceiling, and his averages. All the financing details – down payment, terms, and interest rate. Why sellers and buyers both need to go through the vetting process. Transcription: Mark: Joe last week we aired the episode with Shakil Prasla and we started out the episode with me basically having you fess up to the fact that I have the number one most downloaded and listened to episode. Joe: You're amazing Mark. Let's just say it right now you're incredible. Mark: But you're [inaudible 00:01:07.9] with Stephen Speer and at the risk of becoming a rethread podcast where all we do is bring back our top guests. We are having back one of our top guests this week again. Joe: Stephen Speer that's right. He's an SBA lender which is interesting in that the top two podcasts that we had had been about buying online businesses and we're brokers that sell online businesses. But hey … look you are amazing and you started this company 11 years ago and your focus was education and helping buyers understand the process and helping them as much as the sellers. So it's worked. And the fact that our top two podcasts are about buying online businesses has proven out that theory. We had Stephen back because last year there were a lot of changes in the SBA policies and guidelines. The dollar amounts came down a little bit, seller financing wasn't required on certain deals, and we recapped some of that and we reviewed the process both for if you're a seller what you need to do to get yourself in good shape to be SBA pre-qualified. And if you're a buyer out there looking to build that portfolio of businesses or buy your first one what you need to do in order to connect with someone like Stephen and get yourself in a position that you best be able to act quickly when that perfect business comes along. Mark: So yeah these rules do update on a yearly basis but fortunately this year it doesn't sound like there's a ton of new changes. With that said there's a lot of good information in this podcast because we get these questions over and over and over again about what does it take to qualify. And I think one thing that … I know we talked to Stephen the other day as a company. We had him and a couple of other SBA lenders come into the company and just— Joe: Yup. Bruce from [inaudible 00:02:47.2] bank, yup. Mark: Yup. Bruce from [inaudible 00:02:48.8] bank. You know I think it's important for people to understand that there is SBA guidelines. Yeah, that's one thing, but then outside of the SBA guidelines, there are some individual bank guidelines as well. And to understand that even though these rules and these guidelines that we're going to cover in this episode might be out there they're not hard and fast when it comes to finding an individual lender. Did you cover any of those guidelines from Stephen's group with the podcast? Joe: Yeah, we went over some specific things that he looks for and his firm looks for. He's with Bank One now … or I'm sorry First Home Bank but some of the topics that we touched on on the podcast and even when we talked to him separately and that you and I talked about is why is it important to pre-qualify your business for an SBA loan? Sellers may be thinking well it doesn't matter why should I do that. And the answer is because it casts a broader net and not a broader net of buyers. There are definitely some buyers out there that only want to use SBA funds because that's … they only have 10 or 15% to put down. And then there's another pool of buyers that could stroke a check for one, two, three million dollars but they're building that portfolio like Shakil and using SBA money so they're only putting 10 or 15% down each time. So it's really important from a seller's standpoint to understand the value of clean financials and getting prepared so you're pre-qualified for an SBA loan. And from a buyer's standpoint, it's a great way to go if you're comfortable with that option. Mark: Absolutely. All right let's get into the episode, let's find out what's changed in 2019 and then also recap some of the rules and some of the things that both sellers and buyers should know about SBA loans. Joe: Let's go to it. Joe: Hey, folks, it's Joe from Quiet Light Brokerage, today I have one of our top 10 guests back for 2019 Mr. Stephen Speer. Welcome back Stephen how are you? Stephen: I'm doing great. Thanks for having me Joe I appreciate it. Joe: Awesome. Man, well listen I want to go through all of the SBA lending practices, what it takes to qualify for a business, what buyer's should be looking for, and I also want to get an update on you and your team. I think you made some changes in 2019 … I'm sorry '18 I want to cover those as well. But for those that have not listened to you in the podcast in the past can you give us a little summary, a little background on yourself? Stephen: So I have an e-commerce lending team at First Home Bank. The bank happens to be located in St. Petersburg, Florida. Our team are lending throughout the country. As a matter of fact very few of our loans are actually in Florida but I made a transition months ago with the privilege of being able to grow my e-commerce team and we provide a level of support as we go into the new year. So I'm pretty excited about that. Joe: Yeah, it's exciting and I know that we've done a number of deals together and you've done a lot of work with Quiet Light and some of the other website brokerage firms. How big is your team going to get to? Where are you at now and how big are you going to be compared to where you were before? Stephen: So my team comprises of four people. Myself, a gentleman named Bill [inaudible 00:05:55.9] who is kind of my right hand man along with my underwriter and closing team. So I'm pretty excited about that. I plan to add an additional person in Q1 and another person who I have identified for Q2. So I plan to have three people do what I do. In other words, myself and two more and then stick with my underwriter as well as the closing team. Joe: That's huge. I always worried about you getting hit by a bus. Now you can get hit by a bus and we'll be fine. Stephen: Well yeah, my wife would love to hear that so. Joe: We don't want her listening to the podcast [inaudible 00:06:32.5] buy a bus and start driving around looking for you. That's great man, that's great. One of the things that I want people listening to this to understand is that we've dealt with a lot of SBA lenders over the years and you're a … you're not a banker. You don't come across as a banker. You don't have certain boxes that you must absolutely check every time when you speak our language. And you hang out with e-commerce entrepreneurs which is great. Let's talk a little bit about what it takes to qualify for an SBA loan from the sell side of the business. What do you look for from a business? When I send you a listing and say “Hey Stephen will this qualify?” what things are you looking for? Stephen: Well, first I'd like to … I would say I'd request financials. So first what I look for is what type of business is it? Is it FBA driven, is it 3PL, or do they provide their own fulfillment? So I look at that. If it's a product based business I look at the number of SKU's, type of product. I really do dive into that because one thing I try to avoid is having … trying to finance a single type business that's [inaudible 00:07:45.1]. So that's one thing I look at. So once I get past that I really kind of dive in to the financials. When I mean financials, the holy grail of financials are the tax returns. So for example now that we've entered 2019 I look for tax returns for 2017, maybe 2016 [inaudible 00:08:05.5] year, solid tax return for 2017, and solid year ending financials for 2018, and as we continue down the path of Q1 obviously 2018 tax returns. So basically back to your question a wrap up of … in 2016 of the business, solid year of 2017, and a strong trailing 12 month or strong and the word strong – Joe: Lots of people listening that are on their business will say “Hey that's not a problem. I got tax returns. Everybody files tax returns.” and then they give you a tax return and it's co-mingled with four other businesses that they're selling and they're only selling one … I'm sorry four other businesses that they run and they're only selling one. That's a problem isn't it, the co-mingling of multiple businesses under one tax return? Stephen: That is a problem and unfortunately, it's a problem that seems not to go away despite your best effort and your team's best effort as well as my team's best effort. They just seem not to follow that advice so that is a challenge. Now I do … with that coming up so often I do have a set of things I'm able to put in place, for example, I direct this seller back to his or her accountant and be able to income streams and expenses done in a professional manner. It can't just be Quick Books and I've been able to still get financing for businesses that do have co-mingling within a tax return. Joe: Does it just take a little bit longer to get those worked out and closed? Stephen: It does take longer. Generally, it adds roughly two months to the entire process. Joe: Woah. Stephen: It does take time depending on the responsiveness of the accountant. Especially as we enter Q1 and then start working on returns and start getting buried because [inaudible 00:09:52.5] season. It does take a little bit of time but it's not something that's not doable. The biggest recommendation I have either if you're thinking about selling a portion of your business now is to get on that and have your accountant provide or put together what I call consolidated financials. And basically what we do is we take the tax return and compare it to the consolidated financial which show a delineation of the different businesses and we're able to perform. Joe: Okay so for the sellers out there listening to that and going well I don't have to have an SBA buyer I can just sell to a cash buyer. You're absolutely right, there's a ridiculous amount of money out there in the landscape for people buying online businesses. The reality is though that you want to cast this broad of a net as possible for potential buyers. And we see this over and over again somebody that's from another country that is selling a business if it's a multi-million dollar business but you're not US based, not filing US tax returns. It is more difficult to sell because the buyer pool is not as large. There are buyers out there that I know personally that have the ability to stroke a check for five million dollars but they're smart and they don't want to. They want to keep as much money as they have … as they can and buy multiple businesses and maybe use someone like Stephen and SBA lending and only put down 10 or 15%. So you do cast a broader net if you can do the consolidated financials. If you're just starting off in business your best approach is to have one LOC for that line of product that eventually you may sell. We had Syed Balkhi on the podcast as well and Syed has a number of different businesses and every time he says “okay I'm done with this one” we're able to list it and sell it very, very easily. And the last one I think we did cash … actually, I think we did two SBA loans and it was very easy because he files separate tax returns for each business. That's the ideal situation. How do you feel Stephen about someone selling a business and they're coming to you with Excel spreadsheets for their profit and losses versus Quick Books? You don't really care about that you're looking at the tax returns and a P&L anyway that's in excel format right? Stephen: Primarily if we're talking just a single business, single return, single P&L's yeah that is fine. So that's not a problem at all. Obviously, the more … accounting is all about substance over form, it's kind of an accounting term. That is true but it can't be hand written or something very unprofessional I mean because ultimately underwriters look at that. If that's just kind of run together and it doesn't make much sense it's not done by someone who knows how to do a P&L or a [inaudible 00:12:47.0] but as long as it looks presentable that's fine. Joe: Well, you and your team are betting on the future success of the business. So first you want to see that the business is run properly. And if somebody is not using Quick Books or Xero or some form of accounting software it's an indication that it's not being run in as professional a manner as possible right? So that … okay, and the buyers look at that that way as well. And I could tell you from a brokering standpoint when you're using Excel spreadsheets for your financials and co-mingling it's much more difficult to get maximum value for it because no matter what things are missed. I had a call this morning where there was several thousand dollars that was buried inside of a marketing budget that was actually a personal thing. We had to dig very, very deep to find it. And that times three adds nine, ten thousand dollars up to the value of the business. So ultimately your view is you want to make it a safe investment in financing this loan and make sure there's a success down the road for the future. Is there a … some sort of multiple barrier that is a ceiling for you? Is it … how do you … it's … I can guess you call it debt to income ratios right? Stephen: Debt service coverage. So let's say … okay, so debt service coverage is primarily what we look at. We really don't look at EBIDTA multiple. I mean we do and we don't. The valuation piece definitely we look at that but primarily we look at a debt service coverage. So for example, if the overall loan is the obligation, annual obligation for a loan is $100,000 let's say, the bottom line number on the tax returns needs to reflect at least $115,000. Giving us a debt service coverage of 1.15. Now a lot of sellers run their similar personal expenses through the tax returns. I'm able to add those back so you can't just take a tax return and say okay it's a bottom line of 115,000. You got to take whatever the bottom line number is and then their add backs. Standard add backs would be interest, [inaudible 00:15:02.7], depreciation, amortization, those are primarily some of the add backs. Some of the seller discretionary add backs might be … especially if it's an FBA setup type business where there's run expense, well, the new owner probably will just run it as a home based business, some people add that back. Some people tend to run their car expenses through even though it's a home based business. I'm able to add that back. And any one time expenses, the revamping of a website or other ancillary things or a one time they could add those back. And I take that number and determine the means and debt service coverage. Joe: Do you pull those from our spreadsheets because we have add backs and do you look at those or do you dig into the tax returns for the add backs? Wouldn't it be hard to find them in tax returns? Stephen: Yeah so both, I look at what you provide in terms of your spreadsheet but some of those I'm not able to add back like typically insurance would be really hard. It'd be hard fought to have an underwriter add back insurance expense for example. Joe: It shouldn't be added back. I agree. If it's an expense that's going to carry forward it shouldn't be an add back. Stephen: Yeah and really those … so of your add backs, the ones you reflect typically on your spreadsheet I'm able to add most of those back and those … I use that spreadsheet as a roadmap. But I do go into the tax returns and make sure that the numbers are aligned. And then I'm able to really dig into a tax return and see if there's any other type of add backs that I'm able to find. Joe: Okay, so from a seller's perspective they want to do the best they can not to co-mingle multiple businesses under one tax return. Obviously, have tax returns and a good financial so we can dig into the add backs and make sure that debt to income ratio is going to work, anything else that they should be considering? I think you said obviously you don't want a business that's balanced on just one SKU doing 90% of the revenue. Ultimately the bottom line is you want to make sure that the bank is going to get paid from the person buying the business and it's going to be a success right? Stephen: Yeah and another thing we look at if there's any sort of declining revenue or a blip where … for example I had a client last year that completely lift Chinese new year and didn't have inventory to sell. So there was a blip but I was able to explain that to an underwriter. And obviously with the new buyer who felt that this business [inaudible 00:17:38.3] little bit higher. He was able to avoid any blips in the coming [inaudible 00:17:42.9] for example. So it's also an explanation there. The key for sellers is even if you're not considering selling your business now get these things in place so when you go to sell you're going to get the most amount [inaudible 00:17:58.5] of your business. I had a lot of sellers come to me and it's kind of like they want to list now and their financials are a disaster now. So I recommended that buyers kind of get on the ball. Maybe it's a new year's resolution to fire your current accountant and hire a good one and to really get the financials in place and put certain financial things in place now or pay dividends in the future. Joe: Yeah, I'd refer people to certain e-commerce bookkeepers, two or three of them on a regular basis and have them go back … they'll go back in this case to 2019 and import all the bank statements and vendor invoices and everything and get things updated and accurate. And Quick Books actually helps the CPA do their job better. On a go forward basis, it's the best thing in my experience for a decent sized business to use somebody else. Let them focus on the bookkeeping and you focus on running the business and doing … driving revenue and maximizing profit. I think that's really going to work. Stephen: Oh absolutely. And the return on that investment Joe, I mean you had a podcast recently that— Joe: I'm touched. Stephen: The return on that investment is enormous. Joe: And it's incredible. I've seen it happen firsthand where we've had P&L's in Excel spreadsheets and the deal fell through three or four times and then the guy took the same information, hired a bookkeeper, they put it into Quick Books and we sold the business for 50,000 more of that … I think we had again three or four LOI's and it sold quickly which is fascinating; a fascinating study. Let's talk a little bit Stephen about you. About e-commerce lending and your group and how you think outside the box. Because I want to talk about this a little bit. Not all lenders are created equal. You and I have a transaction going on right now where you had to really think outside the box. And I'm going to summarize it and I want you to then just talk about what your thought process was and how you approached it. We have a buyer at Quiet Light Brokerage that again has the money to stroke a check but he is in a situation where he's building a portfolio of businesses and he's using the SBA lending process. Buyers can take up to what … five million dollars in money right? Stephen: Primarily. Joe: So somebody could buy five … I guess that would be one million dollars I'd then be putting in loans right? They're liable for up to five million. So he's buying multiple businesses— Stephen: One loan or 10 loans it doesn't matter. Joe: Okay perfect. So he has two under a letter of intent with Quiet Light Brokerage now and mine is in the process first. And he's got the wherewithal but I think he had some pretty sizable loans that threw off his overall debt to income ratio. How did you work that out? Stephen: So … and that definitely took a lot of out of the box thinking in the sense that he had … he has an Amazon loan and I can't divulge too much personal information but the monthly payment on the Amazon loan was staggering. It was five figures on a monthly basis. I looked at debt service coverage and throw in a very large five figure monthly payment through all the numbers ROI. Joe: And this is on a separate business that he owns. Stephen: Separate business that he owns. Joe: Right, okay. Stephen: Because it does affect what's called global debt service coverage. So on a separate business that he owns which happens to be an online business. Joe: Right. Stephen: He has very large payment and then he purchased a bunch of inventory and financed it through Amazon. So it threw all the numbers off. So you kind of have to dig deep and say okay how about we refinance at that, take that monkey off his … that large knot off his back and be able to incorporate, be able to reduce that monthly payment and still get the new purchase done. And that's what I'm in the process of doing. His new purchase, his loan on his new business acquisition was just approved and I'm going to process at refinancing his Amazon loan. Joe: Now the Amazon lending loan is very prevalent these days with Amazon based businesses. And you and I have done just for the record content site, SaaS business, all sorts of [inaudible 00:22:00.5] certainly not just Amazon. But in this situation, this particular individual had several hundred thousand dollars in loans and the money gets withdrawn out of their Amazon deposits. Do you recall what the interest rate was then? What his payments were? What the interest rate was and compare it to what you're going to be able to do for him? I just want to emphasize you thinking outside the box and how much money you're going to save this guy on a monthly basis. Because he's thrilled right now I got to tell you he's thrilled. Stephen: So his monthly knot with Amazon was 48,700 and something. Joe: Holy cow, okay. Stephen: It's going to be a couple of grand. Joe: No way 48,000 down to $2,000 … that's amazing. Thank you for thinking outside the box. You're helping him and you're helping a couple of the sellers of the businesses that were doing deals on now. That's fantastic. Stephen: Yeah, and you touched on something really important now. I do have a fair amount of buyers out there, actually, currently 347 buyers out there looking for businesses to buy. And quite a few of them can easily [inaudible 00:23:03.5] for a two three million dollar business but they're building a portfolio. So back to your comment about portfolios a lot of buyers out there right now are building portfolios. They want to buy two, three, four different businesses … online businesses for the course of the next two or three years. And they don't want to use up all their cash. And the fact remains is that when you're trying to scale a business cash is king. You need cash to scale a business. You need to buy additional inventory. You need to grow it. And if you're cash strapped it's really hard to grow an online business. So I'm helping several of those buyers accomplish that. So an SBA loan is not just for the person who needs a little bit lower barrier to entry. An SBA loan is also for the person that could easily pay cash but chooses not to, to stay in line with his or her business goals Joe: Absolutely. Well, let's talk about the buyers a little bit and what you look for in a buyer? You and I have never had a situation where we brought a buyer and you said yes and then it turned out they weren't qualified. But I had a situation a few years ago where I had a couple of Harvard MBA graduates. They literally just graduated a month before from Harvard. They got their Master's in business and they decided to partner on an investment in an online business. And they had some funds. One of the graduates had some funds from a parent. It went through the process. They're pre-approved from a different lender and then underwriting said these guys have absolutely no real world experience we're not betting … I think the deal was two million dollars. We're not betting two million dollars on these guys. Yeah, their pedigree is good, their education fantastic but no and the deal fell apart. What do you look for? Are you looking for real world experience? Is there a certain asset value that they need to have? How do you handle it when somebody comes to you? What do you look for? Stephen: So first I look at … I try to determine and I do interview my buyers. So once you refer them to me I do interview them as you know and one of the first things I really touch on is experience; so first determining if they have direct experience or indirect experience. And then as I mentioned in a previous podcast it's almost like going for a job interview, even if you don't have direct experience you need to make the person real comfortable with hiring you. The same goes with a loan is that even if you don't have direct experience what business … what skill sets do you have that's transferrable and also who's going to fill the void of having direct … let's say SEO experience or direct experience in the space? So those two things I look at. So if the person has direct experience, pretty much a no brainer. A person that doesn't have direct experience it's putting together the narrative like paying underwriter even though here she doesn't have direct experience but indirect experience in these categories. And additionally, they're going to have support via an employee or a contracted employee that that fill a void. Joe: I got you. Stephen: So I'm able to … I've never … honestly, I've never had a deal where an underwriter has said gosh that's great they went to Harvard but they have no direct experience. Joe: We had a situation … I'm going to name a name here but I'm only going to use their first name; a guy named Rocky. Rocky was I think he was in his 60's. He retired and ran a General Manager for some car dealership something … somewhere in the country. I loved the guy. I thought he was amazing. Just as a broker, as a lender you just … you connect with somebody like I want to help this guy. I want to find him the ideal business. Although let me say I told him he's crazy. He didn't need to buy a business. He was retired. What for? You have plenty of money I'm like you're crazy just go play golf or something. But he ended up buying something from us and he didn't have any direct online experience. He was a GM for dealerships that yeah they had websites but he didn't run them himself. I find there are a lot of people in the corporate world that are putting in 60 hours a week that look at the e-commerce entrepreneurs that are selling a business when they're working 20 hours a week and they're making more money and they want to live that life. They want to spend more time with their family, with their kids, travel. Are a lot of the folks that come to you these types of people, and is that in direct experience still okay? Stephen: Yeah so to answer your question yes a lot are. Be it Rocky or any other, they don't have direct experience. So the thing about Rocky is that … first, off he is incredibly likable, incredibly well spoken, and have a very strong resume. The guy was successful in his professional career. Joe: Yeah. Stephen: And then unlike somebody working at a low skill job the guy ran the car dealerships which he was 60 hours. Or he was probably working 90 hours a week now but with a transferable skill set. And also he filled that void of not having direct experience in running an online business but was able to fill that void by bringing somebody in. So we felt very comfortable with that and he ultimately was approved. And the last time I talked to him he's doing very well. Joe: Yeah, I think he bought a business from Amanda. I didn't have one for him at the time but Quiet Light, in general, had one. And I think Amanda loved working with him as much as you did. So the likability factor that Rocky had, when buyers come to you is that important? Do you have to like them to do business or? Stephen: Well not like … I think— Joe: Make a difference with human right? Does it make it a better—? Stephen: They are human. So an underwriter is human and if they have a good dialogue with the buyer, for example, Nathan was incredible as well. Joe: Yeah. Stephen: One of the reasons Nathan's loan sailed through is because he was very well spoken and had the incredible background to be successful. So yeah it does. Joe: Okay so we're going to just touch on that thing that everybody knows but they don't talk about and that is if somebody comes to me, if somebody comes to you and they want to buy a business we want to sell you a business. But if you are 10 times more difficult than the next person and they also want to buy a business, my client … my seller is going to say okay well I've got an offer from each which one do you like more Joe, talk about the plus and minuses. And we've got to do that. And in your case you just said you've got something like 354 buyers on your list. They're looking for a business, they're not buying it from you, they're buying it from the likes of Quiet Light Brokerage. Stephen: Right. Joe: But you still have to work with them on a regular basis and you still have to go through the process with them and be likable. Simple thing guys, everybody listening just be likable. Just because you've got the ability to stroke a check doesn't mean that you can push a guy like Stephen around. There's lots of people that are trying to buy a business, lots of people that are trying to sell businesses and being likable is so-so key because this is an online world. We're not sitting across the table from each other and it makes a huge difference being likeable in the process. Stephen: We've kind of touched on that. I was recently … I have a buyer who's been looking for a year and a half. Not to scare new buyers out there but sometimes it does take a while. But he's not likable. Joe: Okay. Stephen: And he was on a phone call … I was on it as well with the seller and he was beating up the seller on the phone in front of me like I wasn't on the call. I don't know but … and the seller chose another buyer. Joe: It's not hard. I'll talk from personal experience. When I sold my business I remember being on one of these buyer conference calls. I had three or four. Jason Yellowitz here at Quiet Light sold my business way back in 2010. And I had three or four calls with potential buyers before it went under contract and sold it. But I remember sitting … I was in the car on a call and I'm sitting in a parking lot and I've got this guy just belittling my business and talking about all the negative things and I'm just to all I can do to end the call. It's you know … to not end the call and to be polite and it was really hard. And even if he made me a full price offer … all cash, full price offer I have to take into account, sellers have to take into account how difficult that particular type of buyer is going to be in due diligence and in the training and transition period. There's a cording, a relationship it's … it ends at a certain period but you're going to be in a relationship with that person and you want to make that as pleasant and as enjoyable as possible. So being likable is critical without a doubt. Stephen: Absolutely. Joe: What are the top two or three qualities that you look for aside from good financials from the buyer? Like, do they have to have a certain debt to income ratio? Do they have to have certain assets in order to buy a business? Stephen: As I would say assets it's more present driven unlike buying a house. I think we definitely look at what's called post-closing liquidity. For example, when all the dust settles is it broke after closing or still has a fair amount of cushion. So we definitely look at that. Is there outside income? Does [inaudible 00:32:09.5] have a … what I call a day job to … for outside income? That's another thing we look at. So those are two very important variables. Credit score is important but it's not like buying a home where you get to really perfect your lending terms. It's pretty much either get a loan or you don't get a loan in the SBA world. A recent issue … if the person is being down with a ton of personal debt that's something that we look at. Generally, that's a character … it's the ones living beyond their means that's generally not liked. So those are just some of the variables. And also what I look at is does this person have the skill set to be able to scale a business or is the business going to go stagnant as it transitions over to him or her. So that's another thing we look at but [inaudible 00:33:00.5] just some of the variables. Joe: So when someone comes to you and says I want to buy a business part of what you do is you look at their financials. You look at all those variables and you say okay great you qualify to buy a business up to a certain amount. Is that the process? Do you say okay … do you give him a guide as in terms of you can buy something up to a million or two million [inaudible 00:33:19.8] like that? Stephen: Yes and a lot of the determining factor is based on their … is it direct, do they have direct experience or indirect experience? So that is going to move— Joe: Noted. Okay. Stephen: Secondly, post-closing liquidity that's really what I focus on. If the person is trying to buy a million dollar business he has to inject or put down a hundred grand and he has 110,000 in the bank that's not going to work. So we kind of have to move the needle down. Joe: And in that situation, they wouldn't … it's not that they don't qualify to buy a business but in that situation, they wouldn't qualify for a million dollar business maybe a half a million dollar business. Stephen: Right, it would move the target price down a little bit. Joe: Okay so just let me clarify that so that somebody has a $110,000 and they want to buy an SBA business and put 10% down, for those listening that's generally the number 10 to 15% down, 110,000 you're going to be left with 10 grand; not going to work. So you got to look at a half a million dollar business. Stephen: Or 800, 750 something like that. Joe: Yeah and then you look at their debt, what they have, what they need to live off of and that smaller business is not going to cash flow as high especially after the debt service from your loan. So you look at all of that and help them with what they're capable of buying first and foremost right? Stephen: Yeah, most of my buyers have what I call a day job so most of their … in most cases their day job covers their personal debt so that's rarely a real factor. Now I do have an individual recently who didn't have a day job and had tons of personal debts so that kind of blew her out of the water. But generally we do look at that. So again back to post-closing liquidity what I do is … so for all of you out there once Joe refers a client to me for pre-qualification I'm able to have an interview with that person on a scheduled call and ask some questions and also they provide me what's called a financial statement. And then I'm able to in most cases issue a pre-qualification and give them a target amount. In the case … in the example that was well over 800,000 for example. And then that person goes back to Joe and says okay I'm pre-qualified with Stephen, he told me to look at businesses around 800,000 let's go. Joe: And then they have a path which is the most important thing. Somebody that doesn't know what they're looking for, doesn't know what they're buying capabilities are is less qualified from our view. So one of the things we want you to do folks if you're out there as a buyer reach out to someone like Stephen and get pre-qualified so that it will help you narrow your focus. And then the next step is to look at as many listings as possible from the online world and figure out what you like and don't like about the business. When you find the right one if it's a great business you want to be in a position where you're already prequalified to act quickly. Because if it's a great business guess what other people are going to be looking at it and making offers as well, really important there. Stephen: Absolutely especially since there are a lot of buyers out there and if you snooze you're going to lose. So you need to kind of get your house in order before looking. Joe: Absolutely, I agree 1000%. So let's talk quickly about the qualifications of the buyer. Do they have to be a US citizen? Stephen: They could be either a green card holder or a US citizen living in the United States. Joe: That green card holder or US citizen living in the United States, the business itself does it have to be a US citizen or a green card holder filing US tax returns? Stephen: In most cases yes depending on the structure of the business. Joe: Okay, there's always a sort of gray area in the situation. Stephen: Yes, it depends on the structure, you kind of different components as in the past few company on the foreign entity— Joe: Right. Stephen: Things that does affect that answer. Joe: Right. Okay and then your business and the size of loans that you guys generally do, are we're looking at you're looking for a half a million and up two, three million, where is your sweet spot in terms of lending? Stephen: So generally my personal loan floor let's call it is half a million dollars. But obviously, if it's a client I've been working with and happens to just look at $800,000 businesses I would grant one for 400,000 on that person. My average loan amount is about a one and a half million dollar range. So … and you know looking at my 2018 numbers that's close to 60 million, 40 transactions, that's about that number. Joe: I got you. I think we have 38 of them that were directed at me I think right? No, I'm kidding. Stephen: 41. Joe: So you're loaning on the value of the business. And what about if it's an inventory based business are you loaning for the value of the inventory as well? And then working capital … does somebody, do you always loan … give working capital money so that they— Stephen: Always. So a very good topic here so obviously I'm going to finance the business itself. I'm also … if the purchase price of the business does not include inventory I finance the inventory, the on-hand inventory. And what I do is I work with you Joe in determining what that number is going to be at closing. So I finance that. I also include working capital. And that working capital I generally work it into a loan in a sense that I'm able to include it in your market … not directly your market, so okay of that 100,000 working capital 50 is going to be for additional inventory above and beyond what's being purchased with the business. And the other 50 is going to be marketing campaign or advertising campaign, it could be for hiring support staff. Joe: Okay and then lastly I want to talk about the term of the loans. We're talking five years, 10 years, 30 years, what are we looking at? Stephen: It's a 10 year loan and of all those components, by the way, it ends up being all in one loan. It's not where you have separate loans for each. So it's all incorporated into a 10 year SBA loan. Joe: Okay and 5, 6%interest rate somewhere in that range; five to seven? Stephen: Base prime plus two and three quarters, right now it's 8.25. Joe: Prime plus two and three quarters. Okay so for those that want to run their own numbers 10% down, 10 year note, prime plus two and three quarters, do the math on that. Stephen: Yeah. Joe: The seller note in 2017 and prior to that in most of the transactions that we did or did together you required some sort of seller note. And that changed in 2018 so for … got a business that's a million and a half and somebody wants to put down 15% are you requiring a seller note on a deal of that size or are you not anymore? Stephen: So up to 2017 a seller note was required by the SBA and not by the invidual lender. Joe: Okay. Stephen: So typically it was 10% down payment let's call it from the buyer, 15 from the seller or vice versa in terms of the seller note for a total of 25% down payment rejection. Joe: Okay. Stephen: In '18 the barrier to entry was lower. The overall requirement paying on a deal is the minimum 10%. In terms of what lenders require, some lenders require a seller note. We do not. Sometimes I incorporate a seller note to strengthen the loan especially if the buyer does not have direct online experience. So it gives kind of the underwriter warm fuzzies in the sense that the transition will most likely go smoother. The seller has a little bit of skin on the game. So there are situations where I do incorporate a seller note for approval purposes. Joe: So for buyers, sellers, even other brokers listening to this, this is you know you're hearing Stephen say I incorporate this or I incorporate that to help the underwriter feel better about the loan and make sure it goes through. What I do personally is when I have a deal that's pre-qualified by Stephen or someone like Stephen when I get an offer on the business A) I want to know if Stephen knows who they are and if they're working with him and how they look qualification wise. But B) I really like to send the deal structure to you Stephen and say this is the deal structure is this going to float with your underwriters? And I think that's critical to the ultimate success of the loan and the transaction process. Because the last thing that we want … it's happened once or twice and I don't recall if it was with you or not but … where you've … actually no it was with you where the underwriter looked at something and they had to tweak it just a little bit, had to increase the seller note by 5% or something like that. That's not what we want to do so now I run everything by you prior to having a letter of intent signed. I recommend everybody to do that if they're going to do an SBA loan through Stephen and e-commerce lending. Stephen: Absolutely, so that's a very good point as we continue down the path of e-commerce lending I am constantly tweaking the way I do things. And that's one thing I do is I bet really hard upfront so there aren't changes on the backend. Fortunately some of my buyers don't [inaudible 00:42:26.4] the businesses that they're looking at prior to signing a letter of intent. It's kind of an after they do that they come to me and say hey I just bought this business and here's the deal structure I want you [inaudible 00:42:38.3] well that's not going to work. Joe: Yup they don't do that with Quiet Light they have to [crosstalk 00:42:41.7] so the whole process we require that conference call. Because we … it's not, we don't want people to go under a letter of intent just to tie it up and then make a decision. We want them to make the decision, go under letter of intent, and close and go through that process. It just saves everybody a lot of time and hassle. Stephen: It really does. Joe: Okay, any last thoughts about … you want to share with the buyers or sellers that are listening to the podcast today? Stephen: Yeah in terms of sellers even if you're not selling a business now please reach out to me in general and have us put together a game plan for future sale. It's really, really important and again it will be dividends on the backend. And then for you buyers out there reach out to me. I'm more than happy to pre-qualify you for a business. You can reach me at stephen@ecommercelending.com and the first name is spelled ph or call me at 813-766-4524. Joe: Thanks. I will put that on the show notes as well. The last thing I want to say is just to reiterate what you're talking about there with the sellers and it's called choose your pain. Go through the pain of getting your financials in good shape now and having a great transaction and a sale or don't do it and you're choosing your pain later because it's going to be difficult. You're going to be … you're bank account is going to be in pain because you're not going to get as much value for your business. So make the choice and hopefully you'll choose that first one. It's not fun, it's not exciting but it's the right thing to do. Do some valuation exit planning, reach out to Stephen; reach out to anybody at Quiet Light. Go to inquiries@quietlightbrokerage.com myself, Mark, anybody on the team is happy to help you even if you're not planning to sell your business for another two, three, four years. That's what we're here for. Stephen, you're awesome as always. Thanks so much for your time. I look forward to a great 2019 with you. Stephen: Absolutely, Joe. Thanks for having me. I'm looking forward to it as well. Joe: All right man, talk to you soon.   Links and Resources: ECommerce Lending Email Stephen Call Stephen 1-813-766-4524  

At Quiet Light, we recently sent out a survey to our buyers to get insight into what they really want to learn about the buying and selling process. Today the hosts of Quiet Light are sharing the number one thing that first-time buyers want to know about getting the inside track to a deal. How do they break into the industry if they lack the experience in acquiring? This episode is just Joe and Mark, guest free, talking about breaking into the business for the first, second, or even the tenth time. They are sharing five things to keep in mind when shopping. There are a whole host of things you should do as well as things you should not do. Joe and Mark have built, bought, and sold businesses and have helped countless deals come to light, so you can trust that they learned all of this from hands-on experience! Episode Highlights: Give really good feedback. Review as many listing as possible in detail. Put time into the process. Make it a job. Prepare your financials. Get out on the conference circuit. Make a checklist of wants. Act quickly. Be likable to the buyer and the broker. Tell us what else are you doing. Be willing to overpay for a great business. Transcription: Mark: As you know we recently put out a survey for our buyers. And by the time this airs we're already going to have closed on that survey … that poll and we should have some really good conclusions. Nobody at Quiet Light other than myself knows the results of the polls yet. And I've been maniacally hitting refresh seeing what people are saying both the good and the bad and sometimes the ugly of what's being said. But I'll share one thing with you, Joe, right now that has come through that we've heard from a number of buyers and that is wanting to know how to get the inside track on deals. Basically feeling like there is this completely competitive disadvantage if they're a first time buyer. And there's some truth to this right? I mean if I've got three buyers looking at one of my deals and I have one that we've done four deals with already I'm probably going to prefer that buyer just because I already know them. They're a known quantity. We're going to be able to go through due diligence with them. We know what to expect. We know that they're going to not get cold feet at the 11th hour and so it's a problem for new buyers. How do you break into this industry? How do you break into your first acquisition? How do you get the best deals when you're competing against some guys that maybe have done three or four deals with us already? So this episode is containing no guests. We don't have any guests. It's just Joe and me talking about how to get the inside track to deals. And Joe I gave you an exercise at what … like 7 o'clock this morning I texted you and I told you to write some things down. Joe: You did. But first I want to say that to those listening that are first time buyers I've been at this for seven years, Mark's been at it for more than a decade, and I can only think of one buyer that has bought three listings from us. Maybe two actually if I think Shakil and 101. So there's only a handful of people like that that have bought more than three and then maybe a few more that have bought more than two. So I think the competitive advantage is in preparation and instilling confidence. We've had new buyers that beat repeat buyers. So I don't want anyone listening to feel like they're second in line, there's no way to break in. And that's the purpose of this podcast correct? So yes you gave me a task this morning. Thank you. I did not sleep last night and I know I'm doing the podcast and then you send me a text that says “Come up with a list of five things buyers can do to get the inside track on our listings.” Thank you for that. Mark: You're welcome and I came up with a list a little late like 10 minutes ago of five things as well. And I had to think about it because five was just kind of an arbitrary number right? If we want to get really minute we could probably come up with 12. If we want to talk about the big points it's probably three or four. But I think that what you said is true. I hope people that are listening to this, especially first time buyers that maybe have been looking a while and feel like they don't have inside access to deals will end this episode knowing that there is more myth to that than reality. And you can be an established buyer by following some basic principles. We'll go over some of those today. So I think the reason I sent you that text Joe I thought it'd be kind of fun to compare lists to see if you and I would agree on what these five things are. And honestly, I made my list a little bit with the knowledge of what I thought you would be putting on your list. So I purposely tried to avoid things and also get a little bit more creative. Joe: I did the same. Oh my God, we're a match made in heaven. Mark: Well no doubt. Now we're not going to be hitting any of the key points because we're going to be avoiding the obvious. So if we missed the key points we'll include them at the end here. But I don't know how you want to go about this, do you want me to just go with my first and then you talk about your first? Joe: Yeah. Mark: All right the first is really simple. It's super simple. Give really good feedback. Like just give us some feedback on what you like and didn't like about a listing. It's really easy … if I'm talking to a buyer and you look at one of my listings and you don't like it, it doesn't fit, that's totally fine. Let me know. But in addition to letting me know maybe give me a call and say “Hey I really appreciate you showing this” now you don't have to say that but you can say “I took a look at it it's not a good fit. I was kind of looking for something more along these lines”. The more conversations you have like that with someone like myself or Joe our anybody at Quiet Light Brokerage, the more that sticks out in our minds. Not only does it A. give us really good feedback on our listing which we can use to help get that listing sold but it also helps establish a relationship between us. And when we're bringing a business to market oftentimes we think about well who's a good fit? Who are some people that I know? And obviously, we can go into our database and start to do some matching. But if there's somebody that we know and we know they're a good fit yeah they're going to get … we're going to think of them, they're going to become like top of mind. We actually had this recently with a discussion we had internally at Quiet Light. Often when somebody is taking on a new client and they want some feedback on maybe the valuation or their approach or any strategy we'll have an internal discussion about it. We have just a generic email address and we all talk about it. And one of the brokers, Bryan was talking about a client that he was kind of worried about whether or not he'd able to find a good match for it and he wanted some feedback. And what immediately came to mind was one of our buyers Matt and we said maybe you should talk to Matt and see what he thinks about it and you know this will give him a chance to have an advance look at the listing. And sure enough, Bryan came back and said I already talked to him. And you know why two of us thought of him? Because we talk to him on a regular basis and he reaches out to us and we consider him a friend of the company. So that's my first item, give good feedback. Don't just say not interested. You can say thank you, you don't have to say thank you. I had somebody say that recently and said “thanks not for us”. All right that's nice but that doesn't really help me that much. Tell me why. Explain to me why so that I can at least have that in my mind. Joe: And that's the building of the relationship. Whenever I get feedback … I ask for it every time, all of us do saying if it's not for you, let us know your thoughts on the listing. And the professional buyers … meaning they're just professional people, thoughtful people they send us that kind of email. And my response to them is “Understood. Thank you. We will find the right one for you eventually”. If I've written that 500 times, I've written it a million times. I'm not sure if that math makes sense but I write it all the time. And I mean it because I know that it is an arduous search trying to find the right listing and these people are trying really hard to find it, they're reviewing the listings and it's a long, long process. So that goes to my first list of things to do here and these are in no particular sequence. But the first thing I wrote down and I've said this at least a thousand times over the last few years, review as many listings as possible in detail. And I wrote in detail in capital letters; IN DETAIL that's the most important thing. The more listings that you look at … not just the teaser that's on our website or a competitor's website; you can't really learn anything from that other than well that seems interesting but you don't really know what it is. You dive in, you look at it, and you learn what it is that you like about these listings and what you don't like about these listings. You learn what excites you about it and what scares you about it. And you begin to develop a sense for the right fit when it comes along. And that's really important because when that right fit does come along you're going to want to be able to act quickly and you've already looked at 300 listings. So you need to look at them in detail, digest the financials, look at the history of the business, look at all the products and the SKUs that are offered, and everything that we've prepared in our packages and really digest it and make your decision. And you're going to look at a lot of them. It's not an easy process. It's not a quick process. It takes a long time. One of the things that I love when I'm talking to … I'll say a new buyer, someone that I haven't spoken to before and they tell me they've been looking for a year. To me, that's great because they've gone through a lot of this and they've worked really hard to find that right listing. When someone says they've been looking for a couple of weeks or a month to me I know that they've got a longer road ahead of them and this is one of the things that I advise more often than anything else. Mark: It actually fits in really well with the next point that I had in my list and a point on there will just kind of piggyback on what you said are two just kind of general philosophies when you're talking about this process. Obviously, what you're talking about Joe it takes a lot of time and everything else I think to complement the first point I had and your point here would be two things. One, when you're looking for a business and you want to get that inside track be intentional about what you're doing. Intentionality right? So it's taking that time like you said to actually digest what you're looking at and reviewing it. I can't tell you how many times I deal with buyers or I talk to buyers who summarily dismiss a listing based on something which is frankly not an accurate assessment. But because they've already made that conclusion and despite the best efforts to be able to explain otherwise that conclusion becomes gospel truth to them and this is … they're missing out on some really good opportunities because of that. Or maybe they're not missing out, maybe they would say no otherwise but they will say no for more appropriate reasons than what they're saying no to. So that would be the first thing, intentionality. The second thing is … to piggyback on what I was in before is this is a relationship based business right? At the end of the day finding that really good business for sale is going to require some level of relationship and you need to find that blend. I think as internet entrepreneurs we love our processes. We love automation. We love efficiency. I mean that's the hallmark of what makes internet businesses so great. But you have to find that blend between slowing down and taking the time being intentional and having a process because there are a lot of listings out there that you can get a lot of deal flow coming your way. I know RJ over at 101 talks about how many deals they have looked and the numbers stay green. I mean it's well in the hundreds so you do have to have a process. But processes should not take away that intentional spending of time. And that leads into the point- Joe: Let me jump in I just want to say something in terms of the relationship Mark and being intentional. We're talking about the five things to do in between each of those five there are a number of things that you should not do. And one of them is in that relationship building don't send an email that says “I think you've overpriced this business it's only worth a 2x multiple, it's not for me”. Because the 10 year old in me wants to send an email back to them saying “thanks for your feedback it's actually currently under LOI at this time at full price”. And I've been in that situation a dozen times where I get a semi rude email on a listing that … it's been out for a week or two and some folks have looked at it we've had some conference calls and somebody sends me an email that says essentially “Joe you're a fool, you've overpriced this business. It's not worth merely what you and your client is saying it's worth.” and then that very same day where just prior to that email it's under contract at full price. That little boy in me wants to reply to that person and say “thanks for your feedback it's actually under offer at full price”. I say “thanks for your feedback we'll find the right one for you eventually” because I'm not 10 anymore but I want to. And so it is the relationship thing … again in between each of these five things to do, there's probably a half a dozen things not to do and that's really one of them. Mark: I admire your restraint. You know an appropriate response there … because look when it comes to valuations I tend to get very philosophical on this sort of stuff mainly because I've been around for 11 years and I've seen multiples that have went up way higher and I've seen a market where people weren't willing to pay more than 2.5, 2.6x on anything at all. Rather than saying you overpriced this business you can just simply say the price is too rich for me it's not a good fit at the price that it's at. That's fair. Well, you've got a price that makes sense for you. We get it. Don't tell us though that it's overpriced for the market. We listen to what every individual buyer is saying and if every … if all the individual buyers say not for me then yeah you're right. So I think that's a good point to have. All right so my second point, you're talking about going in detail. We're talking about making sure that you're talking to the broker and giving us some information about who you are, what you're looking for, why you like that, why you didn't like this. You might be hearing all of this and thinking that sounds like a ton of work. Yes, it is so that's my second point; make it a job. If your goal … when we did the survey by the way this … I'll give you another insight when we did the survey I'll tell everyone listening who took the survey a little secret. We actually had two surveys. One was just open ended questions the other one was very quantifiable information. Those that filled out the ones … the survey with very quantifiable information we asked how many businesses have you bought and the vast majority of our buyers have not bought their first business and are seeking their first acquisition within the first year. Okay, if your goal is to find a business within the next 12 months make that your job. This is what you get up in the morning, this is what you think about when you go to bed at night; how are you going to go about finding that business? Deal flow is difficult. When we put out a listing … I put out a listing recently that was 8 figures and we had almost a hundred inquiries within a couple of days. Okay, that's a substantial amount of inquiries on a single listing and that's not even close to what we get on something that's going to be in a more accessible price range. It's a competitive field so you have to make this your job. You have to dedicate the time to it. Read up on it. Subscribe to the podcast if this is the first one you're listening to it subscribe to the podcast because we're going to tell you how to do these things better and hopefully give you some insights. But read up on these materials, learn just like you do with any other thing and apply yourself to this in a full time way. Set up those processes to be able to filter through all of the noise and to be able to really take a look at the information in depth. So that's my second point; make it a job. Joe: And along those lines, my second point is prepare your financial approach. You can't get to the end point if you don't know what it is. If you're a cash buyer it's a little bit easier to understand what you're capable of stroking a check for but you also have to figure out okay if I'm buying an ecommerce business I have to buy that inventory too right? Okay is there a seller no possibility maybe on much, much larger listings but I'm over listening certainly not for the most part but that goes back to well … to whatever other points coming up. You need to prepare your financial approach if you're … if you have a limited amount of cash and you're going to do an SBA loan I love to hear from folks that are doing that that they have been pre-qualified for an SBA loan up to X dollars. And then they tell me the name of the lender. If it's somebody I don't know I'll reach out to them so we can build a relationship. If it's somebody I do know it's great, fantastic. I feel good about that because it's people in the network that we know and that we trust and that we know work hard to get deals done for buyers and sellers. If you're going to do get something under LOI now where somebody is going to be rolling over their 401k … I think it's called the ROBS. Mark's written an article on it “Quiet Light Brokerage and ROBS” and you'll find that article in Google. But that's another way to source funds to buy a business but it also … you need to understand the timelines there and how long it takes to do that. Mark, can you do a ROB without having the asset chosen that you'll purchase yet? Do you recall; yes or no? Mark: I don't recall, no. It's been a few years since I wrote that article. Joe: If you can … well read the article everyone if you can, which I think you can and you know you going to buy a business; do it, roll it over. Are you going to incur some cost up front that you're … if you're committing to buying an online business and making it a job like Mark says then you'll be prepared to buy that business because going back to my point number one you got to look as many listings as possible in great detail so that you're going to know the right listing when it comes along. And then you're going to want to be able to act fast because other people are too. It's not like you're making a quick decision here because you've been doing this for six to 12 months and looked at a hundred listings and you're prepared to act fast and you've got your financial ducks in a row. Because I can assure you if it's a great listing other buyers are looking at it and they've done this; they've prepared. It doesn't matter if it's all cash. It doesn't matter if you're rolling something over into a ROB and it doesn't matter if you're doing an SBA loan as long as you're prepared and instilling confidence in the broker and the seller of the business that you're capable of going from letter of intent all the way through to closing that's the most important thing be prepared. Mark: And to answer a question no you do not need to have the asset chosen before you convert to a ROBS. But take a look at the article; consult an expert on it because it's definitely a trickier thing to do. It's not something to do on your own I should say. You definitely want to have a consultant. All right, cool. All right I'm going to diverge from some of the traditional advice with my third point that I'm bringing out there. And it's not too crazy and it's pretty simple and that's get out on the conference circuit. More importantly get out on the conference circuit where brokers are going to be and you can meet them in person. And this comes back to this basic principle that this is a relationship based business. If I see you in person, if I have dinner with you you're going to be far more memorable than somebody who sends me an email once every two weeks saying “Hey do you have anything in this sector with this sort of EBIDTA?” you know what? I get a lot of those emails and I don't have a face to go with that email. It's very impersonal. If I see you at a conference and we spend a little bit of time together I get to know what you're doing. I get to know what your background is. That's way more memorable and honestly, the conference circuit is a great place to just meet all sorts of different connections that can help you. I know Stephen Spear who we've talked about from an SBA lending standpoint he's gone to a lot of these conferences. And think about this you're now dealing with people that you've met in person. Maybe an attorney, Shawn Hussein who shows up at a lot of the conferences, Stephen Spear who might end up helping you get an SBA loan. And then any of us here at Quiet Light Brokerage, you've seen all of us, you've met all of us, we've all talked, we've all joked, we've all had drinks together and everything else. It just helps pop of the mind and get to know everybody a little bit more closely. So that's just a very simple way to get some of that inside track. Joe: Let me add to that. For those folks that are spending a full time job on top of a full time job and pinching pennies to be able to buy this business, if you cannot do what Mark is suggesting which is a very very wise suggestion because there's nothing like human contact; emails doesn't work as well. This podcast is a great example. Mark had written amazing content for 10 years and then we started the podcast and we've been at it for just over a year now and people call us and they say “I feel like I know you already, I just listened before to your podcast”. We never got that kind of call when someone said “I feel like I know you already, I just read four of your articles”; very different. So if you cannot go to the conferences and get that face to face contact, Scott Voelker from The Amazing Seller gave me a great great tip about a year ago. We were talking and he said he was trying to break through to an [inaudible 00:20:25.5]. He read the guy's book, he loved it and wanted to have him … I forgot if he wanted to have him on the podcast or just have a conversation with him and straight up email wasn't working and he didn't have a friend to introduce him. So Scott turned the camera on himself clicked record and said “Hey so and so this is Scott from the Amazing Seller I just want to tell you I've read your book. I loved it and it's fantastic. I'd love to chat with you for a few minutes because I've got some things that maybe we can help you with and I've got a very large audience yada, yada, yada” 30 second video inside of an email, hit send, he had a response within about 30 minutes. If you can't go to the conferences, that's a free option. If you're uncomfortable in front of a camera, that's okay. It puts a face to it. It's one of the things that we've started doing with our listings. As many of you know that are looking at our listings we now … for the most part on most of the listings we do a 15 to 20 minute recorded interview with video and audio of the client … our client, the person that's selling the business. We don't do that to convey a lot of detailed information. We do that so that you can get a feel for who they are. If you feel like they're a good person. If you feel like they're likable. If you feel like you could trust them, feel, feel, feel. If you can't get to the conferences that little video I think … shooting email to one of us or all of us with something like that. But I tell you what don't do a template email … a template video because that's the … again the thing not to do, I want to throw it in here between, don't send a template email to every broker in the industry because we'll know it's a template. And generally, those are unpersonal … impersonal and we don't pay much attention to them. Okay, why don't I go ahead and I want to jump to a different … it's my third one I guess right not my fourth one? Third one, create a checklist of your wants. Now, this isn't necessarily a thing that you could do to get the inside track to our listings because it's all of the other things that we're talking about. But for you, it will be conveyed to us that you are preparing, that you are really diligent about your approach. I was at eCommerce Fuel a few years ago and someone that we sold a business to got up on stage and talked about his processes and his experience. And he put a checklist up on the screen and it had a checklist of all of the things that he wanted to buy in a business; all of the features the business must have. Whether it's re-locatable, whether it's got virtual assistants, whether it stores its own inventory, whether it's a software as a service business, etcetera. And then on the right hand side, he had a checklist of the business that he bought from Quiet Light and all of the boxes down beside it. And not all of them were checked off and he still bought the business. So if you've got this list and Kevin Petersen was on the podcast Mark a while back and he's got a portfolio of SaaS businesses and this is what he does. It is a checklist of things that they know what they want and then they always, always, always, always use that checklist on a listing that they were viewing and see how many of the boxes and checking. They've developed a process to score it. They've made this a job like you talked about. But doing that gets you away from the emotional approach and more to sticking with the logical approach. Because this as a buyer you're going to put your life savings on the line it can get emotional. You can get frustrated, you can know that there is a deadline … a horizon to your job, to the bonus that you've taken and it's going to run out and you're going to feel pressure to buy a business. You want to avoid the emotional decision of buying a business and buy it with logic and reason and a checklist I think is a great way to go. Mark: Did you know Joe that I tried to start a podcast before we actually started this one? Joe: No, I didn't know that. Mark: Yeah I actually did like two episodes and I had four recorded and as anyone who's trying to start a podcast knows getting started is often the most difficult thing. Because you get the first few done and you're kind of excited about it and then you realize it's difficult to keep the momentum up. It's not easier when you have somebody else on the podcast, a co-host who records 70% of the episodes like you do Joe. I did and I think the second episode … I don't know but you can still find this this somewhere back in the industrial archives of QuietLightBrokerage.com. There was a blog post and a podcast on do you have an acquisition checklist. It was the exact same thing, right? How do you process these deals quickly and how do you keep it objective. And it was … I have a checklist that you're looking for and modify that checklist and understand that it needs to be this balance between being too broad and too narrow. And that you're not necessarily going to check off all the items in the box on the checklist but are you hitting the major points enough to warrant that deep dive, that deep investigation that somebody makes. So that's one of the good tips as well. I see a thing developing in these as well right? An overarching thing that you want to have this blend of having processes in place but also somewhat of an analog approach … a non-digital approach to this as well. So Joe is talking about … you're talking about recording a video of yourself, just a personalized introduction so that we can see your face; that's very personal in human relationship and somewhat analog in that sense or going to a conference and meeting there some person or calling and having a conversation but also making sure that you have a process and you know what you're looking for as well. And I'm going to pirate I think my last point … I'm going to flip them around and that is when you see something that you like act quickly. And I'm going to put a couple of sub points on this. One, speed … when you're in this space and you're trying to buy a business and you're talking to us and maybe you set up a call and all of a sudden that business is snapped up, it goes under LOI with somebody else, you might think that person must have had an advance notice or they have some sort of an inside track. Speed is really the product of solid preparation. It's executed by people who know what they want and are putting in the time to have the processes in place to be able to evaluate these deals quickly and get back to us in a timely manner. I've dealt with buyers who are looking at an opportunity or they inquire on an opportunity, I do my follow ups with everyone that inquires and then I hear back two weeks later “Oh I haven't had a chance to look at the listing yet”. Okay, well you know what … very good chance that you're not going to get this. It's just the nature of it is that there's a lot of people looking at it and those that look at it within the first 24 hours and get back to us are typically going to be ahead of “the inside track”. So the basic lesson here is pretty simple, learn to act quickly. That doesn't mean that you have to make rash decisions. It just means that when you receive the information if you like what you see send out an email and get on the calendar right away for that conference call. The buyers who are first in line often do get some level of preference when it comes to that offer time and there's nothing [inaudible 00:27:28.1] to doing that. So act quickly is my fifth point now I'll do my fourth point last. Joe: And there you go now on Mark's point he said review it and get in line to be on a conference call with a buyer. I don't allow conference calls and we'll do most of the brokers at Quiet Light allow conference calls between a buyer and seller unless or until I have spoken to the buyer. So this goes back to reaching out and connecting with us and getting that out of the way. If we've had a conversation we're not going to have to take an extra 15 minutes to schedule that before scheduling a call with the seller of the business. Okay, I actually have a few more points I'm going to blend two into one. One is be likeable and the other is be likable and squeaky, all right? We're repeating things a little bit here but that's very important. It's because we are trying to hone in on these because they're critical and they make a huge difference. So the be likable first one is actually be likable to the seller of the business. When you get to the point of being on a conference call with the seller of the business your objective is to ask the same questions we asked. See if they answered in the same way. Get to know them a little bit. Get a feel for them. Be on the video. Be on the client interview. Determine whether or not you can trust them and move on with an offer of the business. That's the upper level objective of the call. The hidden thing, the most important thing I think is to make sure that when the call is over that seller doesn't want that call to end or that they hang up that call and think god man I really like Mark I hope he's the buyer of my business. Because if it's a great business as Mark said you've got to act fast. There are going to be lots of people that are really prepared to buy a great business and it's going to move … what feels like fast? Fast maybe three or four days all right, you get 24 hours to review the package, you ask for a conference call, you have a conference call and 24 hours later you make an offer or shortly thereafter you make an offer. We don't let things go under contract one hour after they've been listed simply because there's no way for you the buyer to fully review the package. There's no way for you to get on a conference call with the seller all within one hour. It just doesn't happen. When someone presents an offer this is one of those don'ts in between the lines don't make an offer without having gone through the process of a call with the seller within an hour. Because we know you're just trying to tie the listing up under a lot of intent and then make a decision. We want you to make a decision about a business go under letter of intent and go all the way through the closing. Okay, so be likable. Make sure as a buyer that your seller likes you on that conference call. And then the be likable and squeaky is be likable to the brokers. We're human right? I didn't sleep very well last night. I had a bad day. When you call me and you're hard on me I'm going to remember that the next time you want to buy a business. I have a particular buyer that comes to mind right now where he did just that what I said a few minutes ago. He said “I love it I want to go ahead and put in an offer.” and I said great well let's have a … he and I have already spoken before. He'd given his LinkedIn profile. He was preparing. I said “Great. Well, let's schedule a call with the seller first. When are you available?” total silence 24 or 36 hours … total silence and then the listening goes under contract three or four days later because there were multiple buyers because it was a great listing. And he sends me an email on the next listing that launches and says “I really like this one Joe can we get on a call with the seller of the business?” I said “Yes we can. What happened last time? You're ready to make an offer and then you disappeared on me.” and he emailed me back and said “Well my wife had decided that it wasn't really the business for us. There were some things that she didn't like.” to me that that's fine, that's okay. You got to do your homework first before you say I want to go under contract but it also tells me his intention was to tie it up under a lot of intent and then make a decision to buy it. And that's a big no-no because this is a very emotional process for both the buyer and the seller. So be likable to broker and respect their trusts … our time, respect our time and build that positive relationship. Okay, so that's my fourth I think. Be likable and be likable and squeaky. Mark: So yeah … and I'll just say as far as being likable to the broker, we're not asking you to sit there and give us all sorts of praise and compliments. Unless you're talking to Jason in which case that'll probably get you somewhere but when it comes to the … it's just the basic manners, right? Joe: [inaudible 00:32:02.5] by the way Jason doesn't listen to the podcast. We need to stop making fun of Jason because he doesn't even listen to it. Mark: Well, who can we make fun of at Quiet Light? Joe: Oh, let's make fun of you. Mark: Well, I'm always game but I'd say we pick on the new guy and the best-selling author Walker. Joe: You know what … yes, Walker. Right and we're not making fun of him right now I want to pay him a compliment. Before Walker came on as a broker I had a listing and we had three conference calls with three separate buyers and one of them stood out. He didn't end up buying the business but he stood out to me and I'm going man oh man that guy is awesome. I hope I can find him a business. It turned out to be Walker. And so when you like two months later had a great listing and your seller said “Look I really don't want a million calls is there anybody that comes to mind that would be a great broker, a great fit for this business, a great buyer, a great fit for this business?” Walker came to mind and I introduced you and guess who bought the business? Walker did folks. And now he's, of course, an advisor broker at Quiet Light because he's fantastic. But it's that be likable [inaudible 00:33:06.7]. Mark: Here where I was about to pick on him and just kind of tease him but I'm going to pile on with the compliments because if you guys are listening to the podcast you've heard me say in the past the story where I had a buyer after his offer was accepted told my client at the end of the … you know hey we just got under offer let's plan due diligence, took the time just to say “thank you for agreeing to sell me your business”. Well, that was Walker and the impact that I had on that deal was so significant. I mean it was again such a simple little thing that you can do and just … it wasn't disingenuous it was a genuine hey look I get it it's your asset. It's what you built and you're agreeing to sell it to me. I really appreciate that. Take the time. Be intentional. We've said that before … be intentional and think about all sides of the transaction here. Everybody hopefully benefits from this transaction so we shouldn't be sitting there and thinking man I'm giving you a lot of money you should be grateful. You should also be thinking I'm also getting a great opportunity by buying this business and being respectful of that … of the person selling their business. For the person selling their businesses especially if it's their first time, this is probably the biggest revenue event they're going to have in their lives at least to date and so it's a very personal thing for a lot of people selling their business. Take that time be respectful. I think that helps when you're in a competitive situation and you have multiple buyers. Like you said Joe we have people get off the phone and say “I really hope I get to sell my business to this person” right? Now everything else needs to line up, the offer has to be there but you can definitely help your case with that. All right last point I have is … I'll just go over it quickly because I think we've covered it pretty well but tell us what you're doing. What other businesses are you part of? What are you really good at? Are you really good at CRO? Are you really good at SEO? Are you really good at SaaS businesses? Are you really interested in getting into something different? Are you really interested in certain niches? Don't just send us a blank email on can we get these all the time and if you're listening to this and thinking these guys just want us to cater everything that we're doing to their way. That's not the case. Look work whatever way you want to work but understand we get a lot of noise that comes in through our inboxes. The whole point of this podcast episode is how do you stand out from the noise? How do you distinguish yourself from other buyers? Well here's what other buyers are doing they send us a template email telling us what they want. That's what everybody else is doing. We do look at those. We do categorize those. We have a spreadsheet that we share internally with that data but it's a spreadsheet with a hundred other names on it and growing every single day. If you want to stand out do some things in different. And one of those things is when you do talk to us or have an opportunity to have a conversation with us tell us what you're doing and don't just talk to us about what you're doing in the monologue. Let's talk about your business a little bit. Let's get into it a little bit. Share some details with us. Not because we necessarily want to know but look we're entrepreneurs we like to talk about this stuff anyways. It's always fun. I was talking to a guy the other day who is not a client, probably won't be a client of ours but a fellow entrepreneur and we just spent probably 45 minutes talking about his business. It was a fascinating conversation. I gained some things from it hopefully he gained some insight from it. And you know what that's now in my mind and if he ever does come to the point of buying or if he ever does come to the point of selling one of his businesses that's something that's always going to stick out in my mind. So how do you cut yourself out? How do you stand above the rest of the noise? Again and have a conversation and let's get into some of the things that you're doing because it's a lot easier for you to be top of mind if I know that you're like a Shakil buying just a gazillion businesses or if you're looking for that first time acquisition. I can think of a buyer right now, I've met them for coffee in person here in the Twin Cities. A husband and wife team I know that they've been looking for a long long time and I have a general sense for what they want. And I'll tell you what because I had coffee with them, because they shared a couple of opportunities that they're looking at with me I know what they're looking for pretty well and hey I'd love to find something for them. So if you're listening to this know I'm still looking for something for you and it's still on my mind. So that's my fifth point, let us know what you're doing. Tell us a little bit. Let's get into the details not just the high level details. Joe: Yeah, back to the human part. When you have coffee with them you talk to them as entrepreneur … as a broker in this industry, you get excited. I want to find them that business. I want to see them succeed. I want them to be another Quiet Light success story and five years from now come back to us and sell the business worth five times the value. Or hear that they're traveling the world while running the business and just changing their lives completely because there's something that occurred over a cup of coffee. So I think that's fantastic. All right my last and final point may sound a bit crazy but if you listen to our podcasts and you've heard Ben Carpel on the podcast … Carpel we always pronounce your name wrong Ben I'm sorry. You're awesome though we love you. If you have listened to Ben and if you have listened to one that aired in early December of '18 RJ you would have heard two pretty, sophisticated, intelligent, likable, passionate buyers say the same thing and that is be willing to overpay for a great business period. There are lots of great businesses that come out and when they do they get sold quickly [inaudible 00:38:37.3]. Mark: Hold on Joe are you just saying this because you're a broker and you get paid on commission for the deals that you're doing? Joe: No. They said it not me. I'm quoting them. And it's true I mean … look it's true we had a listing that I put up in August right? We had 10 offers on it. It was squeaky clean. It had the four pillars. It had age, growth, transferability, documentation. Everything was perfect in it. It was just fantastic. I knew it when I looked at it. We priced it right to achieve the buyers and the sellers goals. We didn't over price it because it was perfectly priced at right still and we had 10 offers. And one … actually, several buyers were willing to overpay for it. One buyer got it because of all of the things we've talked about. He was really likable. He was going to be easy to work with in due diligence. He was going to be easy in transition and training and he paid a little bit of extra. And he was okay with that because this is a great asset. We've got an email from him since then about the crazy growth that they've had in the fourth quarter. And my thought is oh I should share this with seller and then my thought is no that might put him in a little bit of a bad mood. But he achieved his goals. He wanted to get out at a certain time in a certain price and we actually overachieved that. So if two people like RJ and Ben are saying it I think there's some validity to it. Because if it's a great asset, if it's a great business and others only were willing to pay a certain amount it's great for you. It's not going to be great for everyone; that's the thing. Be willing to overpay for a great asset that's great for you. If you're into hunting and fishing and it's a hunting and fishing ecommerce business that's doing amazing things it's something you're going to be a little bit more passionate about. And in my experience when you've got some passion for something it's going to help you overcome those hurdles and those tough times that will come to you as an entrepreneur. So if it's a little bit … if you pay a little bit more for it I think you're going to get that return investment quicker than if you buy a complete fixer upper that's going to take some time. Mark: Yeah so I'm going to … based on that go back to what you said earlier about people who email you and say “you're way overpriced like there's just no way that this is priced right. It's overpriced by a ton”. Valuations are relative. That is just the reality of it. In that survey that we put out we had people give us feedback that said I love you guys but I think that your listings recently are getting overpriced. And then I had other feedback come back that said we love you guys but the perception is that you kind of underprice your properties. So we have these two conflicting things where we have some people saying hey you're overpriced and other people saying no you're underpriced. Look when it comes down to it the price of these assets varies based on the economy at the time but also probably, more importantly, they're based on the individual ROI that you can get. And what you can get from a particular business is going to be different from what somebody else can get from a business based on your specific skill sets. And so if you find something that's a good match it comes down to return on investment. What can you do with this business? If you can make that thing work be willing to pay more than what the average person in the marketplace is willing to pay. You're still going to get a good deal. But with the competitive nature of thinking am I going to overpay for this you know crush your ability to get a deal done because somebody else will pay a little bit more. When we price a business one of the big mistakes I think happens in our industry is that people price a business for the marketplace average. That's a mistake as a broker. And for those that are on the buying side here, I'm sorry about this next point but it's just the case, we work for the seller. I'm not looking for the marketplace of buyers. I'm looking for a buyer within the marketplace which means I want to aim towards the top end of that average range or the marketplace range so that I can find that buyer. Be that buyer at the top of the range for the business that matches for you. Otherwise, you're going to be competing against the full marketplace of buyers. I don't know if that makes any sense or not but again the idea of finding that opportunity for you and standing out and making sure that when you find it move on it. Joe: Absolutely I'll just wrap up my side of it with the fact that we're all entrepreneurs as Mark said. And we love what we do. It's crazy but a lot of what we're doing is simply helping people. We're giving up our time and we're getting something in return for it. We are making a living but we love it and it's exciting to work with great buyers, great sellers who are achieving their financial and personal goals. It's a lot of fun and we want to help each and every one that comes through our email or over the phone or text or whatever it might be. Help you achieve your goals whether you're a buyer or a seller. And all of these things that we've talked about we've talked about it through direct experience. We built and bought and sold our own online businesses and now we get to see what thousands of people do both on the buy and sell side. And so it does come from experience. It comes from the school of hard knocks more than anything else. We've learned a lot of things that people shouldn't do and a lot more things that people do right that stand out in these five things that we've each talked about or all these things. Mark: Right. So, Joe, you know what I'm going to do right now? Joe: I have no idea. Mark: I'm going to end this podcast episode because I have an appointment with somebody who wants to buy a business and wants to spend some time talking on the phone with me. Good for this guy. He's doing the right thing. Guys if you're listening to this and you have ideas for an episode like this where you have a question … again that survey [inaudible 00:44:06.9] some great feedback from everybody. If you took it thank you, thank you, thank you. And I'm serious- [crosstalk 00:44:12.5]. Mark: Answer a question that we're trying to tackle in your quest for your first acquisition or your tenth acquisition. Yeah, send us an email … send me an email at mark@quietlightbrokerage or joe@quietlightbrokerage.com. We'll either find an expert to bring on the show to talk about it or Joe and I will jump on it on a show like this. And we'll cover the topic as best as we can. Joe: Perfect. Go and hunt that buyer. Mark: All right, sounds good.     Links and Resources: https://www.quietlightbrokerage.com/  

Today we're taking the Profit vs Growth head on in a lively debate between a marketer, a CPA and a growth minded property management entrepreneur. Should you focus on doors, dollars, EBIDTA? Check out this royal rumble with Alex Osenenko, Greg Crabtree and Brad Larsen on Profit versus Growth

A private equity firm is in the business of buying, growing, and exiting companies, hopefully for more than they bought it for. For every industry there is a private equity firm out there. As private equity diversifies, what are the key trends changing the nature of the deal? Today we are discussing where private equity firms come into play in the buying and selling space. Today's guest, Andy Jones, is the founder and owner of PrivateEquityInfo, a private equity database that helps investment bankers and private equity firms close more deals by taking a look at the top trends to look out for when scouting an acquisition target. One major trend we discuss is the holding periods for private equity and how those can often reveal the direction of the overall economy. Studying these and other trends are useful for potential buyers to understand what to look out for in an acquisition deal. Episode Highlights: Andy's history with Private Equity Info. A look at a typical private equity deal. What sellers should know about the private equity industry. Buyers don't want the ugly marbles. Why buyers prefer asset deals over stock deals. What ebita sizes private equity firms are looking for and why the size requirements are in place. Smaller ebitas and add-on investment trends in the private equity arena. Why larger acquisitions still make more sense. Best ways to find the private equity for your business. We touch on the topic of microfunds; what they are and how they work. Typical deal structures that Andy comes across. Why business founders don't have the same appetite for risk as PE firms. The typical holding period before an exit. How long is it? Exuberance trends typically show up when those holding periods experience a decline. Andy shares his top ten trend list for 2018. Transcription: Joe: Mark, I understand you had a great conversation with Andy Jones from PrivateEquityInfo.com. Mark: Yeah private equity is one of these things that buyers and clients that we talk to and even … I'm sorry sellers and clients that we talk to and buyers as well often ask us about. Is private equity buying online businesses? Are they buying Amazon businesses? Are they buying SaaS businesses? Where do they start buying? When do they … what are the lines for it? How does it work? Andy Jones is somebody that I've known now for probably seven, eight years. He's always been very primed by complimenting me on the content we put out. So anyone that complements me is immediately somebody I like and so we talked about having him on the podcast- Joe: Hold on just a second, you're awesome Mark. You're a really good guy and I'm proud to be your partner. Mark: I thought you're stopping the podcast here. Joe: No, I'm just complementing you; that's all. Like you see I just wanted to be liked by you today. Mark: Okay well continuing … thank you, Joe. We will talk about increasing your equity stake in Quiet Light Brokerage after this call. Joe: Awesome. Mark: It's kind of easy guys, it's really that easy. And so Andy has PrivateEquityInfo.com. It's a fantastic database of private equity activity across the spectrum. So anything from manufacturing to the online world but something that they do at PrivateEquityInfo.com is they take a look at the trends and what is going on in the world of private equity and these can be leading economic indicators. And he gave me one trend in particular, I'm going to let him get into the details of it but it's the holding period for private equity. Because private equity, what they typically do for anyone that may not know that they're going to make a lot of investments with the goal of growing these businesses but then exiting these businesses as well or at least a portion of these businesses that they're building up. And the holding period, how long they hold them can really tell us a lot about the direction of the economy and what to anticipate next. And so they look at this holding period, the average number of years that a private equity is hanging on to business before they exit it. Right after the recession that holding period went up to like a number of I think it was like eight or nine because they bought at the peak and they had to wait for the economy to recover before they could exit. So I'm going to tease here and just say listen to the podcast to see what the average holding period is right now, what number we want to look out for to be able to understand okay maybe the economy is going to start to retract a little bit and use that for the decisions we want to make. Joe: This is going to be fascinating. I think we're going to learn about the future of the economy here as well. Hey before we move to the podcast I just want to give a shout out to Mike Nuñez from affiliate manager. Mike, you're probably out riding your bike right now listening to this podcast, I appreciate all the positive feedback you've given us in the last few months. Thank you very much. Let's go to the podcast with Andy Jones. Mark: Andy thanks for joining me. Andy: Thanks for having me. Mark: All right let's start off with a little bit of background on yourself and where you come from. I'll let you do that part. Andy: Yeah I'd be happy to. So my name is Andy Jones. I'm the founder and owner of Private Equity Info. We're an Austin, Texas based company. We own several websites but our flagship website is really PrivateEquityInfo.com and this is where we provide and emanate research database that helps investment bankers and private equity firms and even the corporates close more deals. So I have an engineering background and investment banking background that's kind of what lead me onto this journey of entrepreneurship 14 years ago. Mark: Yeah pretty cool and you are one of the people … I will confess you feed my ego whenever we send out messages by saying really great content Mark. I'm like hey, I like this Andy guy. Andy: Yeah yeah. Mark: Good stuff, I like that. Well cool. We're going to talk about private equity today because you have PrivateEquityInfo.com and really good information through that site. How long have you had that now? Andy: So yeah we launched 14 years ago, January of '05 so this year is our fourteenth. Mark: I remember when everybody's site is full. It was like three, four years old and somebody who had like an eight year old site it was like ancient. Andy: I know I'm that guy. Mark: You know you're that guy right? I own a 20 plus year old site and then Quiet Light Brokerage this is going to be our 11th anniversary coming up next month. Andy: Wow. Mark: Actually by the time this episode airs we've surpassed 11 years so … really really cool. So again private equity was what we're going to talk about today. We get this question all the time from buyers. People want to know things like who's buying online businesses and would private equity be interested? At what levels are private equity interested in and how do those deals sort of differ from other deals? And you've got a pulse in the industry more so than anybody else that I know so I thought hey let's talk about this. I think this is- Andy: Sounds good. Mark: -sort of thing to go into. So let's talk about just kind of the typical private equity deals from what you are seeing and from your experience. I mean what is a good intro for somebody who owns a business that might be thinking about selling and they think well maybe private equity would be interested? What should they know about this industry in general and the different PE firms out there? Andy: Okay. Well, that's a pretty broad question; let me see if I can tackle it from the few angles there. So I'm going to come at this from the assumption that there is some general knowledge of private equity but maybe some inexact knowledge and I'll just kind of ram a little bit and we can flesh it out. But essentially let me just start with the basics what a private equity firm is. A private equity firm, they're in the business of buying growing and exiting companies for hopefully more than they bought it for. And the way they do that is they typically raise a fund through their limited partners. And limited partners are typically institutional money, pensions and retirements, high net worth individuals, [inaudible 00:06:43.1] and such. They raise a fund that has a 7 to 10 year lifetime and the private equity firm then puts that money to work by buying companies. And their hope is to grow those companies, produce cash flow, and exit at a good return on investment for their limited partners and also for themselves. So that's kind of the mechanism of how they work. We can create … we can talk about how they create value later if you want to but you know is a private equity firm the right buyer for your company? Well now that depends on a lot of factors; primarily size but also industry. So by way of size, there's a huge range of private equity firms out there and they go from billions of dollars of interest in price value, company size down to single digit millions. And so there's a long tale of the firms out there. But at some point, the transactions get small enough that it's not really just logistically practical to make investments of small sizes for a platform investment. But I will also say that for add-on investments, you know private equity firms often have this model whereby they buy a platform investment and then we have add-on investments to it. Most private equity firms have size criteria for platforms but for add-ons, it can be more strategic interest rather than size. And so usually there's not a lower limit on the add-on acquisitions. Process size is one limitation, geography being another, and industry. If you have an industry there is a private equity firm interested in it. There's a lot of private equity firms out there. The trick is finding which ones are interested in your company and that's where we come in. Mark: Yeah so I want to talk a little bit about these different sizes because we … as a broker I get these emails all the time from private equity firms that are out there. They're reaching out to just these large databases of brokers and they typically are saying hey we're looking for investment opportunities in manufacturing with this, that, the other thing. A lot of times it just does not fit what we do at all. Obviously, there's no reason but they always list a minimum EBIDTA that they want to see. And typically what we're seeing from the ones that reach out to us would be EBIDTAs of a minimum of 10 million, 5 million, 2.5, and in some rare cases 1 million but almost never below that. Andy: That sounds about right. Mark: Yeah. So what do you see with that? I mean, first of all, I think we can ask the question why, [inaudible 00:08:58.2] the listeners of everything we're all … it's obvious but for those that may not be cashing out of that why do they have these size requirements in there? And then second of all if you comment on that breakdown I mean are private equities looking for these [inaudible 00:09:10.6] smaller in the world of bootstrapped entrepreneurs a million dollars EBIDTAS is a decent deal but for private equity firm that's tiny little bits of money there. How does that break down? Andy: Yeah let me answer those in reverse. So the spread you kind of set it right. Yeah most of them are 10, 25 million in EBIDTas that's for the bigger firms. In the upper middle market, firms are going to be and middle market firms is targeting down the 5 million down to 1 million in EBIDTA [inaudible 00:09:36.7]. But there are firms that will do it. And I think really the trick there is if you're operating in that size range, the trick is not to be considered a platform investment. You want to be considered an add-on investment. And the single best way to find the right private equity firm for your company if you're selling it and if you're down in that range … even half a million, a million dollars in EBIDTA it's getting pretty low. But it is to use a database like ours to keyword search based on keywords that describe your company the portfolio companies that are owned by private equity firms and we allow you to do this. You can search almost 80 … I guess a little over an 80,000 of them now and find those portfolio companies that are currently owned by private equity firms and that is … yeah, they look like your company. So that's the single best gauge to determine a private equity firm's fit or interest in your firm and your company is if they've already made a platform investment and you might be a likely add-on. So that's the process I would go about to discover the sort of rifle shot hits that you're looking for and you can use a tool like ours to find that. Why the size limitations? Well, they have a fund and they have to deploy that money. And if you have a hundred million dollar fund and you're deploying it at single digit millions at a time it is too much work. You'll never get it deployed. And that's really just driving your limitations there. Mark: Right. I think we have addressed this at the podcast topic a while ago on should you buy big or should you buy small. I've addressed this topic in a number of times as well where if you have the resources available to be able to run a larger enterprise from just making your dollars work; the larger acquisitions make so much more sense. The workload, the resources that go into a lot of internet companies doesn't really scale at the same rate as the revenues do. And so it makes sense to do that. So for a private equity firm to come in and try and buy out a company doing 250,000 in EBIDTA just doesn't make much sense. They're not going to reach the goals that they're looking for. And also the capitalization rights, I mean how large are these private equity firms when … how much capital are they trying to deploy through acquisitions? Andy: It really depends on the firm. You know if you wanted to … I don't know off the top of my head but I've done studies on this based on our data. And I've done some data size and probably shoot to our blog. So if people want to visit our blog you can read more about it but it's very typical to have fund sizes and it'd be hundreds of millions of dollars. Mark: Right. So let me take a little bit of a diversion real quick. I want to ask you a question that a trend that I've seen in our space here in the online acquisitions space, I call them micro funds because I don't really have another word for them. Andy: Okay. Mark: But these people that are raising 10 to 15 to 20 million dollars and they're doing it following that private equity sort of model of bringing in those investors. Their goal is to bring in a few companies, have some synergies between those companies, grow them, and hopefully sell them off. Are you guys tracking those at all at this point? Andy: So at that level what we typically see is a firm that has raised capital because they have an operating partner with very specific industry experience and they're looking to buy a company or two. In that case, they're likely not in our database and it's not because we don't know about them, it's just for fit reasons. Most of our customers that we serve are middle market investment bankers and because of that, we want to provide them a data set of firms that are likely going to close the deal. And if you're buying one or two companies the probability of you closing that deal is pretty small especially if you've already closed one. Mark: Right. Andy: So the firms in our database are only those firms that have committed capital that are closing deals in the marketplace. Or sometimes they're from a sponsor but they have to demonstrate that they're actually closing deals. Because at the end of the day investment bankers and firms like yours you want to close a deal so you want to make sure that the people that you're approaching from our database have some probability of making that happen. Mark: Yeah that makes complete sense. All right let's talk a little bit about … and again you've said this a couple of times so I'm going to reiterate it but talk in generalities when I'm asking you some of these questions. Every firm operates differently. Some like the sort of incubator method … you really it's going to be different from one from the next but I want to talk about typical deal structures. And let's say that we have somebody who … they built up a company and let's say that they're in that seven figure EBIDTA range or low eight figure EBIDTA range as well. I know I'm working with people on that low eight figure EBIDTA range, they're looking for an exit down the road and they're definitely in that private equity territory where that's what makes most sense. Andy: Okay. Mark: So when you're approaching private equity firms with a business … let's just focus mainly on the seven figure EBIDTA range, the one to five million, say that we have some people there, some PE firms there. What sort of deal structures do you typically see? Are they completely asset based acquisitions, are they stock, are they management buy-outs with the managers staying on and if there's no general rule that's fine too of course. Andy: There's no general rule but there are some factors as you know that sway the rules. Let me organize my thoughts on how to answer that. So asset deals versus equity deals, there's no all encompassing rule for that. Generally speaking, let me just sort of educate the audience a little bit and there's a good analogy for this. If you think about your company as a bag with a bunch of marbles in it and marbles are the assets, buyers like to come in and pick out the marbles they want. That's an asset deal. I want this marble, this marble, and this marble and that's what I want; that's an asset deal. You keep the corporate entity and all the other marbles I don't want. Whereas a start deal … equity deals says I will just buy the bag and all the marbles in it; good, bad and ugly. Well as a general rule, buyers prefer an asset deal and sellers prefer start deals because it's just [inaudible 00:15:21.8]. Buyers don't want the ugly marbles; the litigation, the potential liabilities … you know that stuff, so just for your audience though typically we find that the buyer wins because they're the ones with the money. So if you want a deal done you're going to do an asset deal. So there's not a hard and fast rule, the exception to that is often times when there's customer contracts in place that you don't want to have to renegotiate, you don't want to create a new corporate entity and then often times those become start deals just for just the core purposes. That's the other part of your question, you're looking at a seven figure in EBIDTA deal. Mark: So the basic structure of it. I know we've run into some cases where we've worked with private equity firms but they wanted to have a management team in place before. Andy: Right. Mark: Or the structure of the deal you know as a cash or as a cash financing and as a- Andy: All right, again it's going to be all over the place but generally speaking if the owner is retiring … owner-founder is retiring, the seller that's one case whereas if they're wanting to stay on and run it and grow it that's another case. If they're retiring it's going to be more … mostly a cash out kind of deal. But if there's a continuity there and they're selling the vast majority of their equity to a private equity firm retaining a small minority stake on the order of 10, 20% that's a different sort of deal. And that's probably the preference for most private equity firms. Again we're talking generalities. All firms operate differently. If you have a strong management team that wants to stay on the private equity firms are going to be interested in that. If they're interested in your company because of its industry, its size, its growth trajectory, and its promise to go on forward they want that management to stay on and they want them properly incentivize and aligned. So typically what we'll see it's not unusual at all to see a certain sort of enterprise value established at the exit of the majority of your stake. And then the private equity firm infusing that company with capital and all sorts of tools to create value. And then having a subsequent accurate equity exit whereby the original owner's second exit is as much as or more the first exit. It happens quite frequently. It doesn't mean it will happen obviously but it's not so unusual. Mark: Yeah and I think that falls in this territory of thinking outside the box of some of the regular deals that most people think of. I talk to a lot of sellers who they want that 100% exit, they got in love with the market but they moved on. But sometimes a really good deal is if you do find that good firm involved just getting that partial exit or that first exit and then that second exit later on can be like you said just as lucrative or if not more lucrative as you got this thing behind you. Let's talk a little bit about 2018 and some of the trends in the- Andy: Let me add … I'm going to add on to that a little bit before we move on. Mark: Yeah, please. Andy: So one of the things that people I guess wonder is how … why is it a private equity firm can come in buy a majority position the equity and create value where I couldn't? A lot of that stems from they're just … they don't have their entire net worth tied up in that company or a huge swath of it whereas an owner and founder does. So they can come in and infuse it with capital where an owner would go I don't know if I want to throw the rest of my [inaudible 00:18:29.6] that I got in the basket. The same basket is already all in. And so a private equity firm and can take greater risks because it's a small percentage of their portfolio in total. And you know and as a bootstrapped operation there's a mathematical limit to how much you can grow your company without outside capital. It has to do with your profit margins, there's a straight mathematical relationship. Your profit margins are X your growth can be Y and no more. So your opportunity for outside capital is debt or equity and founders oftentimes don't have the appetite for debt and this is where private equity can come in and infuse the company with capital at a risk for them that's much more acceptable than it is for the owner-founder and try some things that are maybe riskier and get that company to grow through multiple expansion and taking on your projects and what not. So that's kind of why they're able to do that whereas an owner sometimes isn't going to take that leap of faith. Mark: I think there's another aspect to that as well. I think … I'm glad you stopped me with that, we talk a lot on this podcast and conferences, just people that we talk to in general; entrepreneurs. These bootstrapped entrepreneurs or even the guys that have come in and maybe bought something smaller and that growing it. I put them in that same category of this bootstrapped entrepreneur who this is their livelihood and if it's not 100% of the livelihood it makes up a good part of it. A lot of people are not operating with an aim towards an exit. Maybe it's in the back of their mind so a few things here and there and they do this but a private equity firm has this holding period. They have this goal of we're growing this, we're going to get the cash flow from this, and in most cases … in a lot of cases, they're looking for that exit with that company as well where they could profit from it. Andy: That's right and it drives a huge sense of urgency day after day after day. And once you're owned by a private equity firm, it's hit the ground running. It really is because they're driving that growth because they need to grow the company and exit it before their fund timeframe runs out and so it's a bit of a race. With that comes a lot of operational efficiencies, they'll add to your institutionalizing the company in terms of process fees and measurement and systems in short governance and it's all the stuff that you should do as a company but sometimes that stuff falls and kind of cracks. Mark: I'm going to make a plug so Walker Diebel who works with Quiet Light Brokerage and how he's the executive producer of a number of documentaries and one of them is Print the Legend on Netflix. And it's about the 3D printing industry. There's a really cool part in there where you see [inaudible 00:20:58.0] go through this transition of bootstrapped you know the classic starting in the warehouse garage everybody is really agile doing what they have to do and then they take outside money and it becomes institutionalized. And one of them … I cannot remember what her name was but she said just like I call this part trying to put the skeleton into the jellyfish, trying to get it back on in a jellyfish. Andy: That's a great analogy. Mark: It is. It's a great movie by the way. Print the Legend, you can get on Netflix and again that's my genius plug for Walker. Andy: I love it. Mark: Yeah. So let's talk about 2018, let's talk about some of the trends that you're seeing in 2018. Actually no let's back up we're going to talk about that in a minute because we've just said that they buy these companies with a goal of exit. What is a typical timeframe? What is the holding period that most companies are … most of the private equity firms are looking to hold companies before doing that exit? Andy: We do a report about every six months to update the holding period and we say well of all the companies that have exited in 2018 how long were they held and we compare it to six months ago and 2017, 2016, going back in time. And I set you a graph of this beforehand and we can post that if you want to or whatever or make it or you can visit our blog and see that study. But generally speaking, I think most people would say look the general private equity holding period is 3 to 7 years. That's the right answer. It's fairly generic and that's kind of all-encompassing but I wrote down some stats here. The medium holding period right now as of a couple months ago is 4.8 years. So of all the companies that have exited in 2018, they were held just shy of five years. By way of comparison, we saw a max holding period of 5.6 years in 2014. Well, why was it so long then? Well if you think 2014 and you subtract out 5.6 years, if you're looking at companies [inaudible 00:22:48.7] and say you're looking at companies that were bought at a peak of evaluations right before the recession. So those are companies that are portfolio companies owned by private equity firms that got bought at the beginning of 2008, unfortunate timing, and then just hit the recession and they just had to hold a lot longer to either breakeven or realize any value. So that increased the hold rate. And we saw a minimum conversely in the year 2000 when we have a .com boom out of 3.0 years. And we saw another minimum in 2008 you know at the peak of that it bubbled there at 3 ½ years. So that leads me to think that if you start getting around … I'm going to say holding periods of 4 years or less it might … maybe it's an indicator of a little bit of exuberance in the market. And so right now we're at 4.8 years and it is declining. It is consistently going down every time we track. So we're aiming to the 4, we're not there yet. Mark: That's fascinating data. We've actually had that conversation internally quite a bit as far as the trends in the market and what we're thinking. And what we're seeing right now we're seeing one of the more aggressive markets in the 11 year history of Quiet Light. Now granted Quiet Light Brokerage when I first started it was 2007 and we were really just getting our feet wet and getting go-ins. So we didn't have a lot of data … real useful data then we hit a recession. So you take the first six, seven years it's pretty bearish. They [inaudible 00:24:13.3] are working with. Andy: Right. Mark: So comparatively like this is the time that we're in right now feels really good and strong and that [inaudible 00:24:19.9]. Andy: And we can talk about statistics because one of the great things about having a database is that it learns itself to this during data studies and slicing and dicing a data. It really pops out interesting trends. Right now valuations are high. No secret I think everyone in your industry knows valuations are high and I'll actually tell of you guys a little bit here or your world of investment banking and business brokerage. If you are a company owner and you are thinking about selling in the next 3 to 4 years and it's even on your horizon there may not be another time that is this good for valuations. It is as good as it gets. I mean there are a couple of economic factors there. There is sort of meta … macro-economic factors that are happening that are making this as sort of sustained seller market but that'll change. Those factors are just real quickly … money is cheap right now. Monetary policy has made interest rates low. It's cheap to borrow money. It's fueling a lot of growth. Companies are growing but consequently, those people with money are looking for where can they get a better return on my capital instead of CD's and treasuries and stuff like that. So they're looking at the alternative asset space. They're putting money into private equity which has created more private equity firms than ever before, larger funds than ever before, looking for the same deals as everybody else. So there's a huge … from a financial buyer perspective there's a huge demand. And then the other factor that plays with that is a social factor and that is you probably thought this as the eye. When the baby boomers were going to retire and then we had 60's we thought that there would be these huge influx businesses for sale as they start to retire and that largely didn't happen. They just kept working. The baby boomers just kept working and that only eventually come out a buy plan but right now because they've held their businesses longer they've built up a pent up demand because they're limiting the supply. So, on the one hand, you have money in trying to chase deals, on the other hand, you have fewer deals. That's what's creating this sustained seller's market where valuations are high. It will change. It will go back down and we're going to remain. You cannot … this is my opinion not data, but you cannot make money on the assumption that someone else is going to over pay in the future years like you did today. Mark: Right … no I think that's absolutely right that when … last year on this time I wrote one of the last blog post that I personally wrote. We started the podcast instead. Before we started recording here I was telling you that I like doing this [inaudible 00:26:49.6] Andy: Yeah, right. Mark: But I talked about the history of what we've seen over the years and during those recessionary years boy if you've got a 2.7 or 2.8 discretionary earnings for a business it was a really solid deal. And today people are looking that and saying why would I ever sell for that. Understanding multiples, they're relative to the time, they're relative to the supply and demand within the marketplace and what money out there and what other investment vehicles are out there as well. Even when you're thinking about when to exit when you're thinking about buying and growing and turning this around in the case of a private equity firm that's crucial data to really kind of hone in on and understand. What are you seeing trending this year? I know I was contacted by Buzz Feed a while ago about private equity firms starting to get into the Amazon space and really looking more towards e-commerce specifically within the Amazon Marketplace. What are you seeing as far as different trends in the private equity space or is there any industries that seem to be popping up right now? Andy: There are you know we studied the portfolio companies and what's changing over time. I sort of have a top 10 list for 2018 that I'll run down with you. On top of the list has always been and maybe always will be manufacturing. Mark: I see that all the time. Andy: Everyone likes a solid just basic manufacturing company, no frills just consistent cash flow, consistent growth; predictable money. With that said manufacturing as a percentage of the portfolio companies is way less than it used to be. So coming hot on its heels are … number two and three and four positions which number two is software. So far this year software deals are a big deal. At number three is technology. This kind of go together and it makes sense. Anything that you can scale like you can with a software and technology private equity firms are interested in the ability to find the concept that scales with very low capex which software and technology tend to do. And also have this component of recurring revenue also a big theme for the private equity firms. The others I'll run down … number four was health care. Interestingly enough number five was data businesses, information services which I'm on. Six would be oil and gas which is interesting because there for a while that went away. When it went down so cheap and thus nobody … everybody was losing money in all the oil and gas services companies and the PE firms just weren't doing that but it's coming back. Seventh is medical. Eighth, construction which has been interesting, traditionally we would not see much construction related private equity investments mostly because it tends to be very capex heavy. Number nine was transportation and logistics. And number ten was engineering so another kind of services company. Mark: Fascinating. The software I presume SaaS businesses with kind of all that- Andy: Well that's the preferred. Yeah, that's the preferred model. Not always but that's where everybody's going. Everyone's going to SaaS and everyone's going to the club. Mark: Right. What about consumer products? I mean that's obviously not in your top ten list. Andy: You know off the top of my head I don't know where it is. There are a number of private equity firms that specifically build consumer product brands and focus on that exclusively. Some well-known firms they have done really well. I know that for a while food and sort of ingredient businesses we're pretty hot. I don't know if that trend is still as hot as it used to be but consumer brands is definitely a hot industry it's just not on our top ten. I hear it all the time. Mark: Sure. But what are some of the things that private equity firms just love to see when they're looking for an acquisition target? Andy: Some of the things we already touched on recurring revenue. I mean it's all about stability of cash flow. So I would say stability of cash flow spur the quality of earnings kind of companies. Scalable businesses that have strong cash flow and a track record of growth. And those firms that are maybe a little more venture capital minded might say you know what's the opportunity here in terms of can this just blow up as a trend or is this software tool just meeting this huge demand in the cloud space that's going to be the next revolution of software so that sort of thing. But really it's all about cash flow stability or scalability. Mark: All right then what are some of the things … I mean people will probably come up with conclusions but what are some of the things that they'd want to avoid? Andy: Yeah so in addition to just like the opposite of those private equity firms it would be difficult to find firms that will do project based financing as opposed to just an outright purchase acquisition. They don't want to finance your projects. They typically will not do projects that require a lot of capex. With that said I did say construction was in the top 10 so I am not sure about that but traditionally it's just hard to scale companies when you have to put a lot of money on upfront for property client equipment. And then lastly at least for the firms that we track, we do not track those that are not in this particular data site those that invest in real estate. In a traditional buyout M&A private equity firms, we just need a longer time horizon than seven or 10 years to make sure that real estate pays off like it should. So what we do track in another data model institutional real estate investor, that's a different animal altogether and probably outside of this group but … out of this conversation but they typically are just not going to buy real estate. Mark: I've got a question for you on general multiples and let's talk software and tech and if you don't have this data right now I know I'm kind of … I'm springing this on you, I didn't prep you on this one. Andy: That's all right. Mark: But we talk often that there's a bit of a multiple shift when you get to certain levels in EBIDTA. Andy: Yeah that's right. Mark: This is something that companies don't typically get the strongest multiples as you move up we see these multiple shifts. What are some of the demarcation lines that you see for EBIDTA as one of these multiples that you start to inch up? Or is it just kind of a gradual scale where you're seeing that happen? Andy: You know I don't know if there is definite lines and I don't know if I'm going to know the answer to that question but just let me talk kind of about a hand waving principles around. Mark: Sure. Andy: I think it just kind of scales generally with size. Companies that are bigger tend to be more stable. And when you're more stable that's perceived to be less risk for a buyer and therefore more valuable and hence a higher multiple. And so that is why one of the methodologies that private equity firms use is this buy and build platform an add-on strategy. It is you buy the platform company, you take a smaller add-on investment, you buy it for … I'm just going to make up a number, 6X EBIDTA and suddenly you put it in, you fold it into a bigger company and that same sort of producing asset is now repaid X because it's part of a bigger company. So you got a 2X sort of free value out of that built on. And I can remember meeting with … I won't name the name, but a private equity firm we're meeting with one time we we're working on a deal back when we used to do deals and he was outlining that strategy for me. He's like yes it's really not just rocket science, that's what we do. It's pretty simple and you buy it for a five and you get seven automatically; free money. Mark: Right. I have these conversations with buyers over the years that their first footsteps into the space of buying … in our case online businesses start with maybe on Flippa and buy me [inaudible 00:33:51.5] out of $20,000 $30,000 sites and that was their appetite. The next thing you know they're doing an SBA loan and they're buying something bigger. Andy: Right. Mark: In variable … invariably once they have enough success that light bulb goes off in their head where they look at that and say wait a minute I can bolt on my company over here which is more valuable, a company that is less valuable here and if I can fill them in I'm getting this multiple jump and I'm adding value immediately. And in addition especially with the sizes that we're looking at I can buy something with EBIDTAs of 500,000 but if I buy four of these, combined them, now I'm not buying at a multiple of 2.8 or three. I'm buying at a multiple … I'm now able to sell it maybe at 3.3, 3.5 or whatever the case maybe for that industry. Andy: Right. Mark: It's this double whammy of the valuations that go up. And as that light bulb with them goes off for where then the next thing I know they're building their fund around to be able to do that. Andy: Now it's easy for us to say it's much harder to implement. So you can say you are just free money. Yeah, there's a lot of hoops you got to jump there to make that happen and integrations and all that. And it's hard work and that's why not everyone is doing it. But if it is kind of conceptually not that difficult to understand. Mark: Right, okay where can people find you if they want more information and if they want to start kind of exploring this world of private equity outside of the blog that'd be a great place to start but what if they're finding for more information? Andy: So you can go to our website PrivateEquityInfo.com at the bottom there's contact us, you'll see my phone number and my email. I'm happy to take calls. I'm happy to answer your emails. If you have questions about private equity, questions about your business and [inaudible 00:35:32.0]. Just pick my brain that's fine. We're happy to do that. We love to talk to customers and potential customers and help people. Mark: Very good. Hey, thanks so much for coming on. I can see you having [inaudible 00:35:42.3] 2019 rolls around and we get in to some of the trends there. Start paying attention to these holding periods that are happening I think that's a really cool stat to be able to be tracking here. And also just kind of see where the trends are with these top industries that are kind of popping up as time goes by here. Andy: Yeah well thanks for having me. It has been fun. Let's do it again. Mark: Yeah thanks, bye. Andy: All right bye-bye.   Links and Resources: Andy's LinkedIn Andy's Company PrivateEquityInfo blog  

For decades, Harvard's MBA program has been primarily focused on the traditional model of entrepreneurship. In the past 6 years an elective course on the acquisition of established businesses has been attracting as many as 30% of the program's candidates. We had the pleasure of sitting down with Royce Yudkoff, who teaches the course “Entrepreneurship For Acquisition” at Harvard Business School's MBA program. Here at Quiet Light we've also had the honor of collaborating on the course for the past 5 years. Today, we delve into the details of how Harvard is sending experienced professionals out into the business acquisition marketplace with hands-on experience that is invaluable to their success. The trend toward real-life marketplace experience as a replacement for textbooks has taken hold in Harvard's MBA program. These case-study and field guide learning modules are teaching candidates the key ways to enter and be successful in the acquisition arena. The course Royce teaches alongside Professor Richard Ruback is focused on how to screen potential acquisition targets, do the financing, negotiate the typical deal terms, and do due diligence when buying a small business. Episode Highlights: Harvard MBAs are on average 28-35 years old so all they come into the program with professional experience. The course works with real life companies and case studies so students learn about how companies succeed in buying existing businesses. The course follows the entire arc of buying a small business from the search, to the financing, through due diligence, and up to the transition of ownership. The participants are learning how weaving good business practices from the very start of the process leads to better chances of ROI and growth. Royce explains how the candidates are taught the best financial practices for buying for a business, whether through traditional bank or private equity investment. The course follows students through the program and beyond by performing surveys and gathering statistics on success rates for those who go on to acquire companies. Royce shares the single most common contributor to the success and non-success in the search and acquisition process and what he advises all buyers to look for in a potentially successful business. Transcription: Mark: Joe did you know that a dream of mine that has gone unfulfilled in my life was to attend the Harvard Business School? Joe: I didn't know that knowing that your nickname was slacker in college I would think that'd be the last dream you could ever have. Mark: Well, we technically changed my name my last year mainly because I had a t-shirt that said slacker on it. And it made a terrible first impression when you walked in the class the first day the professor sees that. You get targeted pretty quickly. Joe: You know we did a tour of Stanford last summer because I have teenage boys. We happen to be there, my kids probably won't get in; I understand 3% do. And when I graduated from college, I went to Northeastern University in Boston, when I was done I was done. I never wanted to go back to college. Touring a campus like Stanford or I imagine Harvard just at any age would make you want to go back. Mark: Yeah it's a fantastic school. I love their MBA Program there because they do things a little bit different. It's not textbook based, it's case study based. So a Harvard MBA student, when they attend that school first of all the school pretty much requires that you have real world experience. Not 100% but it's really hard to get in if you don't have any real world experience. They want people who have been out there in the field doing stuff. And the entire class structure itself is also based around case studies. So you end up with a group of people that you do these case studies with and you study real life, real business scenarios and go about how … figure out how to address those real world scenarios. It's a way of trying to replicate some of the things that they're going to actually experience when they leave Harvard Business School. So yeah a few years after I graduated college and had a job and I thought well it would be a lot of fun to attend that. I really liked the idea of it but life got in the way. Bad grades got in the way and it never was something that I actually was able to pursue. I went so far as taking a GMAT but I never actually applied. But I bring this up because for as you know for the past five years we've been working with Harvard at Quiet Light Brokerage. They have done what a lot of people that listen to this podcast know, they have really started to turn their focus towards entrepreneurship acquisition or acquisitions and entrepreneurship and the combination. And they have a whole course that they teach on it; how to build … sorry how to buy a small business and lead an entrepreneurial life through acquisitions. And for those five years, we've actually been working with them, they approached us to see if we could support their class with some supportive materials and me being the closet Harvard fan boy that I am was like absolutely that sounds really cool. Joe: Excellent, excellent. Well, I'm excited to listen to this podcast. I know that they did some studies that show the people that go through this course and the success rate that they have. And it's really more about buying versus building which is a little follow up from almost with the podcast with Walker that you had so I'm excited hear it. Mark: Yeah absolutely so there are some statistics in here, people ask us this all the time you know what percentage of buyers are successful. Well, Harvard is actually tracking that. They're taking a look at the kids who go through the courses … and I shouldn't say kids these guys are 30 years old with tons of experience. But they're looking at people who go through the courses doing acquisition and they're tracking to see how they're successful. Also in this episode, we talk about what they're teaching on the course, what they're guiding their students as far as how large of acquisitions they should be making, how to do the financing on these large acquisitions. So it's really a chock full of a lot of information that's been taught at the highest levels at one of the leading institutions in the world. Joe: And all of it hopefully and an awful lot of it can be applied to the businesses that we're listing. Because I'm going to just throw some numbers out there for those that haven't been to the website recently, we've got listings of really all shapes and sizes. But we've got a couple up there in that I think minus under LOI just under nine million dollars. Brian's got one at twice that amount. And then, of course, anything from a couple hundred thousand dollars up to that 80 million dollar range. So these larger listings that take more funding from Venture Cap money or from a larger SBA loan are really becoming more prevalent. So I think everything that these guys talk about and the book that they published as well can be very helpful to the audience here today. Mark: Absolutely let's get on to it. Mark: All right Royce, how are you? Royce: I'm great it's a pleasure to be with you today Mark. Thank you for organizing this. Mark: Oh my pleasure. I'm so glad to be able to actually finally talk to you and see you in person as well. We've been working together I guess sort of indirectly now for what four or five years? Royce: Exactly and you've been a big help to our course in Harvard Business School so we're very appreciative. I should start with a big thank you. Mark: Well it was always my dream when I was in college and then shortly after college to get my MBA at Harvard. I started looking at the GMAT and I took PEP courses for that and then life happened. And I never got around to actually doing it. I actually talked to a Harvard recruiter at one point, sat down with them and was going through that but then it never did happen. So the fact that I actually get to participate in you guys program is kind of like a dream of mine come true that I get to actually work with you guys at least indirectly if not directly as well now. All right so the Harvard Program, how long have you guys had this Entrepreneurship Through Acquisition Program? Royce: That program is now in its 6th year Mark, and for decades Harvard has had a large program teaching people about traditional entrepreneurship; what I refer to as rubbing two sticks together and make fire, meeting … going into startups. But about half a dozen years ago we started teaching about the idea of buying an established profitable company usually from a retiring founder and the idea has really created a lot of excitement at Harvard. About 30% of all of our MBA students take these courses to try if this is a potential career and learn about it; which makes us probably the largest elective course on campus. Mark: Wow, that's fantastic. Now you do this and one other professor Richard … is it Ruback? Royce: Yes Richard Ruback. So Rick and I created a course and we co-teach it and it's really become our … the center of our professional activity. Including following our students closely who go down this path. We stay very connected to them after they graduate from the program. Mark: Yeah I know that's great. So I want to make just one point about Harvard's MBA Program and again I know this because I looked at potentially participating in this program but you guys are a little bit different than other MBA programs in the way that you set up your courses right? That it's a lot of this case study sort of approach to everything is that right? Royce: I think the two differences in our programs from what most people think of as MBA is this first exactly what you said which is we do not lecture, we do not have textbooks. The whole two year program is set up around cases which are sort of short nonfiction business stories. And the discussion the faculty elicits about the decisions they require to be made. And the second difference is our students typically come to us at about age 28 and graduate at age 30. So they have six or seven years of mid-level, junior level, executive experience before coming into the classroom. So they're not kids; they're young professionals by the time they leave. Those are the two distinctions I highlight about HBS. Mark: Yeah and one of the things I love about that … so one of the knocks against university especially among the entrepreneurial community is that a lot of entrepreneurs see university degrees and MBA degrees as being almost wasted money right? Because a lot of them have become successful. But what I love about you guys program is the fact that you do require that experience is not textbook learning, its actual looking case studies. Delving in deep into these actual cases and amplifying a real world experience in the classroom setting. Royce: Yeah you're exactly right. That's the purpose of the case studies. In addition, the faculty is routinely engaged in a commercial world too and thus expecting to bring that into the classroom. And we also utilize experts like yourself Mark, and bring in work done by experts or even experts as guests into the classroom. So we try to stay very engaged with the practical commercial world. Mark: That's great. That's absolutely great. I absolutely love that. Now you guys have also … you and Rick have also put together a book. And for those watching at YouTube at … this is the book here, HBR Guide to Buying a Small Business. And you put this out two years ago is that right? Royce: Yes we'd put it out two years ago and it's been very satisfying. Our goal was to produce a very practical handbook that walks people through each step in buying a smaller firm and to try and reach beyond campus to the thousands of people who are thinking about it or wanting to do it and give them something that's just immensely practical and we've been very gratified. I think almost everyone who goes down this path ends up reading this book and we get lots of comments that it's been helpful. Mark: That's a really good book. I mean I've thumbed through it before and you know I've learned a lot in this industry by doing and that has its learning curve. Frankly, a book like this to start out would have been really really useful in shortening that learning curve. So it was a really good book and I assume that you can get this on the HBR website correct? Royce: The HBR website and even more conveniently on Amazon, so it's just an easy thing to buy and a kind of quick easy read as well. Mark: It is a quick easy read. There's large margins in there as well so that people can take notes alongside it; which is super super helpful. So all of you out there that are readers and soak up as much information add this one to your list; for sure it's definitely one to add. You're getting some good information here. All right so let's do this, let's get into some of the material that you guys actually teach in the Entrepreneurship Through Acquisition Course. What is the format and what is the structure or maybe what is the syllabus that you would look at for a typical is it on a semester basis or is it a full year? Royce: Yes it's a full year course and we start with an overview of the small firms market. Sort of what are some of the management issues in running a small firm, how do you buy small firms. And we let people sort of figure out whether this is of interest to them generally. And then the course gets really really practical. We kind of follow each step in a small firm acquisition beginning with how do you source opportunities, how do you evaluate them, how do you do due diligence, how do you finance them, and how do you negotiate the legal documents and then we move them to sort of a transition because almost always after a firm is sold the seller stays on for a while at least part time teaching the new owner the ropes. And that is somewhere between three months and 12 months part time for the seller but it's a key part of making these purchases successful. So that's how we [inaudible 00:11:59.1] we like to say we're following the arc of the small firm acquisition. Mark: Now the arc is something that our listeners are probably very familiar with. It's something that we have laid out on our site as well. I want to ask a broader question with the popularity of your course. When people think about Harvard Business School I think a lot of them think about graduates going into large financial firms you know working in Boston, working in New York, and really kind of working with a Fortune 500's out there. Do you see a lot of your students now pursuing this more entrepreneurial path? Royce: Yes I do and it's a great comment you made because I do think Harvard is viewed that way. And one of the reasons this program is important is it's highlighting the fact that the business school makes a difference in ways that help ordinary Americans. In other words we send our well trained, smart, energetic graduates into cities all across the country and they create jobs for regular people that make their lives better. I'll give you a quick example, one of our students … and this is very representative is a woman named Jennifer Rouse. She spent about five or six years as an engineer at a couple of leading manufacturing companies in the Midwest. Came to HBS to be trained as a general manager. Fell in love with the idea of running her own company. Instead of getting a job out of HBS she searched and bought a revenue cycle management company in the Pacific Northwest that essentially handles the billing for municipal ambulance services to insurance companies; very specialized complicated set of procedures. And she's grown the business from about 40 employees to 70 employees over the three years she's owned it. So it's been an enormously gratifying experience for her and profitable one. It allowed an entrepreneur who wanted to retire to get his just reward and take cash out of the company. But it's also created a lot of good paying jobs in that mid-sized city. So kind of all the way around it's exactly what our business school ought to be doing, we think. And that's what we're trying to do in this program. Mark: You know one thing I think that people don't understand about our industry and when I talk to them for the first time, they often ask “Who buys an online business?” And one thing I've found is the synergy that exists between the bootstrappers and the startups, these guys that are really really good at the hustle and they can create something amazing out of practically nothing. And then they grow up to a certain size where it now needs management and now needs … it kind of enters into that phase two and a lot of these entrepreneurs don't want to do that because they don't want to be managers. They don't want to do that additional growth step of now managing lots of people. Royce: Yeah and I think that's exactly right. These businesses reach transition point where once they needed someone who is not only energetic and smart but knew service they were providing incredibly well and 15 or 20 years later it's more about a trained manager who's got a certain managerial skills. I'll also add to your comment that there's a life cycle to entrepreneurship. You know the 60 year old entrepreneur who's made a lot of money in their smaller firm quite likely might not want to work as hard as they did when they're 30 years old. And that's a very sensible decision that the business may have a lot more potential in it in the hands of a 30 or 35 year old who's willing to put in those 60 and 70 hour weeks. And that's another transition that makes sense for everybody. Mark: Sure. I remember one client that I worked with. He had … he was selling … well just say durable goods, I won't go into exactly what he was selling, but he was sourcing all the inventory putting it in to a secondary garage and fulfilling all the orders on his own. I mean he was working 45 hours a week and have really maxed out and I asked him I said “Why are you selling them?” because business is growing, it's growing rapidly. Why not hire on some people and kind of expand to an actual warehouse. And his answer was probably the simplest most logical answer I've ever heard it was because I don't want to. Yeah, I don't want to manage people. I like doing this on my own but that's the obvious next step. Royce: Yes. Yeah, exactly and it's a very human thing and the right answer is to put the business in the hands of someone who's going maximize it. I think conversely from the perspective of a young entrepreneur through acquisition, I see this opportunity as so much lower risk than starting a company from scratch. Because you're buying an established proven profitable business with a business model that really works and an owner who will sort of do an orderly transition with you. So it's a way to express entrepreneurial desire without taking the enormous risks of a startup or having to have some idea. Mark: Right you're absolutely … and I think this is something we talked about in a recent podcast and that is the difference between buying versus building a business and how you can get that leg up and get that initial startup so much faster. There's much less friction in working with something that's already established like that. So let's do this, let's follow the arc of the deal that you had talked about a little bit earlier and let's give the listeners here and the few viewers just a little flavor as to what this arc looks like. And maybe some of the things that you guys teach in the course as well. Let's start with this how do you source your deals? This is a problem for so many buyers out there. I've talked to some buyers that are looking for a year and a half, two years for a good business. And the good ones frankly I know from experience when we put something out that's good we're going to get a lot of intent on that within four or five days and so it can be really tough. So what do you guys teach as far as sourcing deals and some of the tips that you would offer there? Royce: You're exactly right. You know sourcing is immensely difficult in a small firm space. First of all, there are two paths people go down. One, which we certainly recommend is dealing with the intermediary professionals in the small firm space. As you know there are hundreds and hundreds of these across North America. And you're required to just do an enormous amount of outreach because unlike say with real estate where there are multiple listing services, confidentiality is extremely important to these owners of smaller firms. And so you only get to see these firms by establishing relationships with reputable intermediaries. So it's a great deal of work to establish that kind of dialogue. And then on top of that, once you have done that, the majority of businesses that are for sale are not high quality businesses. They're average at best and a few of them are really good businesses. So it's an enormous outreach and sourcing process that frankly takes from the time someone starts sourcing to the time they close the average time is about 18 months to find a good quality business negotiate diligence it and close that. So … and that's 18 months of full time work. Probably the question I get asked most often by aspiring entrepreneurs through acquisition is “Is this something I can do part time?” because it would be so great to do it part time right? You could keep a full time job, earn income, and you imagine you might be able to do it next on weekends like rebuilding an old car or refinishing a basement. But the truth is I've never seen anyone do this part time. It is for everyone who goes down this road it is a demanding full time job to source, evaluate, diligence, negotiate and it takes an average of 18 months. So it's hard. Mark: What are some ways in your opinion that people can speed that up if they're really anxious to get going? Like their working a corporate job right now and they want to get out of that corporate job. Do you have any tips on how they can speed that up? Royce: Yes we see that a lot of people that have worked in a corporate job they just find it unsatisfying and they want the professional independence that comes with this kind of entrepreneurship. You know it's hard to make this go faster. I've seen people close quickly because we've seen scores and scores of people do this, I've seen people buy businesses in as little as five or six months. But I have to say my conclusion after years of doing this is that those are just flukes; that in the same way that the person struggles on for two years is a fluke. That you get some outliers but it's just really hard to make the process go faster. And one reason for that is out of those 18 months probably the last four months are spent in that deal you'll close on. You know doing that signing the LOI, diligence, financing, closing. So really you're talking about a little over a year of searching before you finally get to that deal that makes. I wish I could hurry up this process. But it's one of the reasons that I suppose this space hasn't been beat up or overcrowded is that someone has to really want this. Mark: Sure and I think that's really good advice. You're right there's some luck of the draw right? There's just some pure luck on the draw. I talked to one person years ago I was … when we first tried to do the podcast and it didn't really work, but I talked to one buyer who said that he was ready for that sort of 18 month time period and within two months something just spread across his desk and it was perfect. But he didn't have a financing lined up for it and so he had to let it go. But it was that luck of the draw. It came to him perfectly; right away if he was ready he would have been able to move on it. That actually leads well to my next question which is financing. What are you guys advising your students and what are you seeing them actually do in terms of financing some of these deals? Royce: Yeah so the typical acquisition is financed with about two thirds debt and one third equity. And let me deal with each of those. On the debt side in the small firms marketplace, it is almost universal for the sellers to take back some amount of seller paper usually 20 to 25% of the purchase price is taken back in what's on average at four, five year subordinated note. There are few exceptions to this but it's a very large percentage of the transactions. And about 45% on average of the transaction is funded by a senior bank loan. And this comes in two flavors; one, is just a regular way, a commercial bank loan will typically finance a little under half of the deal and it will be repaid over five to seven years usually from a local or regional bank. The first candidate being a bank the company has an existing relationship with. The second path is the Small Business Administration has a terrific program called the 7(a) Program. I'm sure you're familiar with this. It's administered through banks. Most of the banks that lend commercial loans also will do a 7(a) guaranteed loan. It is a wonderful loan product because they will lend against businesses that have no tangible assets; service businesses that just have cash flow. They lend up to 80% of the business. They lend over 10 years. There are no covenants. It's a very very attractive loan with a single exception that you are required to sign a personal guarantee on it. So it's something for very thoughtful consideration by the entrepreneur. But those are the two sources of debt. And as I said with the salary debt they cover the two thirds of the purchase price. One third is usually raised from friends and family. And most common is that these prospective entrepreneurs will go around and raise money in $100,000 here or $200,000 here from anywhere from six to 15 individuals and they will cut a deal to divide the prospective profits between their investor group and themselves. Because this typical small business that we see … when we talk about a small business we're talking about a company with one to two million dollars of EBITDA that might sell for five times EBITDA or 10 million dollars of which three million dollars might be equity. And so it's not that difficult to raise that amount of equity by passing the hat. Mark: I think one thing that a lot of our buyers that come into us feel is that they can't reach that level of a transaction right? They can't reach that 10 million dollar acquisition and so they start out a lot with these $200,000 or $300,000 businesses and then they find that they've effectively buying that job. So it seems like you guys are really pushing a lot of your students to think a little bit bigger than that and do … in buying a business as well. Royce: Yeah I think that's exactly right. You know I think they are … when you get to a very small business and you are the entrepreneur you're showing up every day to process out that day's work and that's that $200,000 EBIDTA business. You know when the business gets to be a million dollars you usually have some department heads who report up to you and you're coming in thinking about the week's objectives or maybe the month's objectives. And then when you get up to a business with say two million dollars in EBIDTA, you're really managing a little further it than that. So the jobs are very different along the way and so with that we tend to point our potential entrepreneurs towards the larger end of that spectrum. But entrepreneurship can surely be expressed anywhere along the spectrum. Mark: Yeah, I think a big phrase that we hear all the time in our space is work on your business rather than in your business. And it's a transition point for a lot of people. But it seems like you guys are really pushing people to start with a business that you would work on because some of that infrastructure is going to exist already. Royce: Yes I think that's right. That is our goal. We recognize that people have different resources including experience in managing and opportunity to access capital. Mark: Right. Do you have any tips for people that might be considering reaching out to friends and family? How do you get over some of the discomfort maybe with asking friends or family for investments? Royce: Yeah I get that question a lot so I do have some recommendations. I think the first recommendation is just a psychological one which is when you go to someone to ask them for an investment you really have to make yourself feel that you're not asking for a favor. It's not like you're asking for personal loan, your presenting an opportunity to that person. And it's one you believe in so sincerely that you're going to dedicate the next five or seven or eight years of your life to it. So it's very important to really be in that psychological headspace. My second recommendation is to actually start with the people who know you best. Because they're going to be really inclined if they respect you and like you to line up behind you and then it's going to make it easier to go to people who know you less well. My third recommendation is the time to approach people for investing is when you start your search; it's not when you find your company. Because what you want to do is collect a group of people who might be interested in investing and update them across the year or year and a half that you're searching. Because when you do this, it allows them to get to know you better. It shows them that you have lots of energy, it shows them your street smarts, you talk to them of that deals you looked at but ended up rejecting which gives them a sense of your high quality standards. So when you finally approach them with a deal in hand they've been expecting this and now you're making one sale, not two. You've sort of sold them on the idea that you're a hardworking and street smart entrepreneur who is being highly selective and now you're simply selling them on the merits of the business. So for that reason, it's tremendously important to approach them early and get them to follow you. It's also a much more comfortable discussion than showing up with a deal in hand because you're able to say look if you're sincerely interested in this I'll make the investment and inform you about my journey and you'll have plenty of time to decide. It takes a lot of pressure out of that discussion. When you approach the types of people I see are entrepreneurs approaching … and here you should think about people who are partners in law firms, entrepreneurs have their own small businesses, these people don't have … while they are wealthy people by normal standards they don't have the resources to invest in private equity funds. They can't just throw up a check for two million dollars or five million dollars that private equity fund would expect. So when you come to them with the opportunity to participate they would essentially as a private equity investment; it's very additive to them. It's not an opportunity they see every day to make the kind of returns you can make buying a private business. Mark: Yeah and I think … tons of really good information in there. You're right as far as that relationship is concerned when you're asking somebody for money, building that relationship over time makes that discussion a little bit easier and also gives you the flexibility. That example I brought up of the guy who started his search and didn't have his funding lined up in advance, he actually gave me that exact same point. He said had I been having these conversations with friends and family in advance I would have been able to do this deal very very quickly. But it was just way too much for him to try and call in together an investment group within a few weeks. These things don't happen in a week, they happen over months and even a year. Royce: Absolutely and as you know from your own professional experience in those last eight weeks before closing the entrepreneur is sort of fighting on multiple directions. He's dealing with a lender, he's dealing with lawyers on a purchase agreement, he's finishing his due diligence, he's dealing with investors; you just don't have time to sort of raise investment capital from scratch. Mark: That's great. All right let's talk a little bit about the transition stuff and then we're going to be rounding out as far as our time here is concerned. Now there's some stuff obviously that happens in between, we've talked about ways to search for a company and source those deals. It can take about 18 months on average depending on a little bit of the luck of the draw, talked a little bit about the finances and some of the vehicles there. So let's assume now that you find that business, you find a good opportunity, you've gone through negotiation. And I know there's a lot that we could talk about just through the negotiation stage but I want to talk a little bit about the transition period and plan. How important do you think it is to keep previous employees, previous key people, previous owners on staff and what other elements do you think are really really kind of you should almost always take these steps in a transition? Royce: The advice I give entrepreneurs through acquisition is twofold. First, the first and most important advice I give them is in your first six months don't make any important changes. You'll have lots and lots of decisions to make but if an important change is one that is expensive or hard to reverse hold off on that. Because you will be a different person at the end of six months than you are on the day you walk into that company. And if it's the kind of enduring profitable business we hope people will buy, it certainly can wait on these decisions. I also find that transition periods can be relatively short. Three to six months is usually all you need in a transition period with some occasional access to the seller after that. By the way, this is another reason why having a seller subordinated loan is important because you want the seller to be financially on side with you after the purchase. That that seller is going to introduce you to his or her important clients. They're going to make an endorsement of you as the person they're entrusting the business to. They're going to answer a lot of process and historical questions that in a small company aren't written down in any textbook. But for most of these businesses that transition can take place well over three to six months. And after all, you want to buy a business that is not so centered on the selling entrepreneur that transferring it isn't easy. In other words, if that transfer is really really really hard that might not be a business that you want to buy. So I think that's a consideration you want to have before you step in and commit to the business. But a three to six months transition I've seen works pretty well. By the way, it might be helpful as long as we're sort of at this point in the arc of buying a small business if I shared a little data we collected over the years of that success in this path. Mark: That was my next question, so perfect timing. Royce: Okay. Mark: Yes let's go there. Royce: Well we've had the chance to survey a fairly large number of entrepreneurs through acquisition and what we've found over that six years that we've been doing this is of the people who embark on a full time search to buy a company about 70 to 80% of them end up acquiring a company and closing on it and about 20 to 25% try it, give up, and go back and get jobs that are pretty much like the jobs that they had before they embarked on this path. Of course, they've spent a year or to a year and a half doing this and that hasn't been a profitable use of time except in terms of experience but they go back and get a job that tends to look like what they had three quarters of them end up closing on a company. And then we turn to the question of is this successful? It's harder to get that data because these are all private companies but over the years Rick and I have had the benefit of actually getting some very active investors in these type of small firms to share with us their financial history of all their investments. And we've collected about 60 different transactions made by a handful of professional investors and what we found is that approximately 80% of those are profitable and about 20% are unprofitable; which is a really high rate of investment success. I mean if you think of that investing in the stock market and do you get four out of five investments profitable, I mean that would be a tremendous bar of success to have. And of the investments that are made both winners and losers the average rate of return to the investors has been about 22% annually; which is also a very high return consistent with what you would expect in private equity investments. Very importantly these results don't tell any specific individual what their results are going to be. I mean you could find a company or not to find a company, you could be successful or not successful. But I think it suggests that the area is a reasonably fruitful area to try and achieve success in. That's what I take away from the data. Mark: That's really good and I get these questions all the time so I actually now have something to go back to people with. This is great. I am curious on the 20% that are not successful; do you guys have any data as to what's leaned to do at not being profitable? Royce: Yeah. Well, of course, there's always a huge element of chance as you and I have talked about earlier in this. But yes I think that there is a single most common contributor to success and non-success in the search. And that is when an entrepreneur through acquisition start searching on their very first day looking at their very first prospective deal they quite rightly set their standards unbelievably high. In other words, nothing would get them to buy the first company they see because they want to learn what's available in the market. And as they see more and more companies they gradually bring down their standards into what normal market is for a small company. In other words, they start to say okay I'm going to raise the price I offer into the range that companies transact that. I'm not going to require that this company be absolutely perfect. It's okay that it has some flaws like every company. And their quality standard gradually moves to market. How quickly they were able to learn what a small company really looks like determines how successful they're going to be. Some people never get there. Some people it takes a year to get there. Some people can do it in 60 to 90 days and they have a much better chance of buying a company in the time period. By the way Mark just as in the side the same thing is going on with sellers as I'm sure you'd recognize that person who owned a business for 30 years enters the market with a price expectation. It is well above market and as they get feedback from the market they're gradually bringing their expectations down to market or they're leaving the market. What you're looking for is the collision between those two forces entering the zone at the same time but that speed of learning is the difference between being highly likely to succeed entrepreneur through acquisition and not. Mark: A lot of the work that we do at Quiet Light Brokerage with sellers is that sphere of expectations in trying to bring them to that place. Or more importantly I guess advising them to only enter into the marketplace when their expectations have moved because it's got to happen, right? Royce: Exactly. And it's a delicate conversation as I'm sure you've experienced many times. Mark: It is you know we try to be very just blunt with people. My personal background is before I started Quiet Light Brokerage I got really good advice from an intermediary who told me to wait but then when I actually went to market with them they actually blew my expectations up higher and when I got those first offers and it's how people at the marketplace is brutally honest. You know I might be nice the marketplace isn't, they'd just be honest and blunt. And when I got those first few offers it was like a punch in the gut. Like wow okay I'm not even in the same neighborhood of what you guys are talking about. I want to leave with this question, if you were to be talking to a potential buyer and you were to give them one or two just solid pieces of advice and that's all you had time to be able give them because that's also all the time we have left, what would you tell them? Royce: I would tell them to look for an established, slow growing, slow changing company because for a first time entrepreneur having an enduringly profitable business is the most important thing. It will allow them to make the kind of mistakes a first time CEO makes and still be successful. Sometimes people are enamored by fast growth but fast growth means change, competition, new customers. So something that's established and slowing growing and proven is what they want to look for. And it's okay that it is in a quote boring type business, you'll find plenty of excitement as being a CEO. That would be my number one piece of advice to a potential buyer. Mark: Well I wish I had talked to you before I did my first acquisition. I think that would have been helpful. Royce: Yeah. Mark: Royce, thank you so much for coming on here. Again I've been completely enamored working with Harvard Business School over the past several years. I hope that we can continue to work with you guys and someday maybe if it works out for your guys you'd be able to come out there as well and I'll meet you guys in person so thank you so much. Royce: Thank you and we're very grateful for your participation. Links and Resources: Harvard MBA Program Entrepreneurship through Acquisition Course Royce's Book

Employers are beginning to move the needle on healthcare, and advisors have their ear. There is a lot of debris from old models that needs to be cleared, and on this episode we explore how that is happening and what is coming in its place. New and innovative models of care delivery and payment models are being incorporated into health plans. More importantly, many employers and employees are beginning to realize that they are the ones who are really in charge. You can find show notes and more information by clicking here: http://bit.ly/2lQP214 

Christian Geissendoerfer. He’s the CEO of Yoose, the leading expert in location-based advertising in Asia and Europe. He’s an entrepreneur passionate about building businesses and leading teams. He recently started something parallel to Yoose which is a German Accelerator in Southeast Asia that helps German startups expand into that region. He loves living in Singapore and Vietnam, traveling the world and learning languages. He’s fluent in German, English, French and Spanish. Famous Five: Favorite Book? – A Monk and the Riddle What CEO do you follow? – CEO Collaborative Group Favorite online tool? — Xero and Zapier How many hours of sleep do you get?— 5.5 If you could let your 20-year old self, know one thing, what would it be? – “Do it over again”   Time Stamped Show Notes: 01:50 – Nathan introduces Christian to the show 02:28 – Yoose is a location-based mobile advertising company 02:36 – Yoose helps brands to target people in specific geographic locations 03:28 – Yoose is aggregating inventory from different mobile networks 04:05 – Yoose is buying the inventory for the company and running campaigns on specific locations 04:25 – Yoose is selling a premium product 04:42 – Yoose charges per CPM 04:59 – There’s current request for CPC charges 05:23 – Yoose was launched in 2008, in Berlin, and moved to Singapore in 2010 06:00 – 2016 revenue is in the million dollar figure range 06:08 – Team size is 15 and the majority are based in Vietnam 06:16 – Yoose is a bootstrapped business 07:12 – Yoose is working on a different platform based on audience profiles and attribution 08:10 – Customers use Yoose over their competitors because of the full service they offer 08:49 – Yoose is also geographically focused 09:12 – Yoose is currently working with the major media agencies and secondary agencies 09:35 – There are 25-30 agencies in total 09:47 – Yoose has partnerships in different countries that they serve too 10:32 – Yoose and the partners both take a cut from the charges 10:45 – “We are transparent on costs on both sides” 11:00 – The EBIT (Earnings Before Interests and Taxes) margin in the space vary 11:14 – Yoose is in the middle of the margin, depending on the country 11:43 – At this stage, Christian is putting the capital back into the company 12:46 – Christian has put all his personal money into starting Yoose 13:08 – Christian has worked in France prior to Yoose 13:43 – Christian initially wanted to build something similar to Tinder 15:33 – German Accelerator works with the German government and has been in the US market for 5 years, they’re now expanding to Southeast Asia 16:05 – Christian gets his salary from the government 17:32 – The Famous Five   3 Key Points: Be transparent with your partners, so you’ll gain their trust. This will also lead to more partnerships. The corporate world can help shape and grow your skills but don’t regret taking another route to succeed. Create something that you want, yourself.   Resources Mentioned: Simplero – The easiest way to launch your own membership course like the big influencers do but at 1/10th the cost. The Top Inbox – The site Nathan uses to schedule emails to be sent later, set reminders in inbox, track opens, and follow-up with email sequences GetLatka - Database of all B2B SaaS companies who have been on my show including their revenue, CAC, churn, ARPU and more Klipfolio – Track your business performance across all departments for FREE Hotjar – Nathan uses Hotjar to track what you’re doing on this site. He gets a video of each user visit like where they clicked and scrolled to make the site a better experience Acuity Scheduling – Nathan uses Acuity to schedule his podcast interviews and appointments Host Gator– The site Nathan uses to buy his domain names and hosting for the cheapest price possible Audible– Nathan uses Audible when he’s driving from Austin to San Antonio (1.5-hour drive) to listen to audio books Show Notes provided by Mallard Creatives

We speak to a man who has been there and done it… from the business buyer to the eventual seller of his own company.  Jamison West overhaul his business model from the traditional IT, time and material (trading dollars for hours), to the new Managed IT Services monthly recurring model.  His new business gave him a 15%  jump in EBITDA, from the original 4%, so he was averaging to a healthy 17%! Jamison gained great insight into the whole sale/valuation process during his acquisitions of multiple Managed IT firms and then used this experience to consciously prepare everything in his business before he finally sold to a strategic buyer. This episode is a perfect example on how to maximize the value of your business while simultaneously achieving the day-to-day efficiency of your business and TRULY moving from the hub to the spoke. Why did he start acquiring businesses in the first place? There are certain benchmarks in the Managed Service Industry for recurring revenue and overall company size that are benchmarked by a Managed IT Service peer group called HTG.  This lead Jamison on a quest to grow organically, AND acquisition, in order to hit the numbers he thought he needed to achieve for a future buyer to pay top dollar. The first two acquisitions helped add staff and mass to his firm and allowed Jamison in make strides in the direction he wanted to go.  The third merger / acquisition proved to be a much bigger challenge due to culture and management, but the right intentions were there! Why did he change business models from time & material to recurring revenue? Jamison was charging more than a fair price for his time but quickly realized he was needed by multiple clients at once. Obviously he couldn’t be in more than one place at a time and his clients had a top stop on how much they were willing to pay.  Therefore, there was a problem that was ready to be solved! Not only was his time a limitation but the current situation came with serious highs and lows. In order to change the company's emphasis from the revenue ups and downs of project work, Jamison flipped his business model and expanded so he could provide fixed-fee services and thus improve his own potential scalability. Ultimately he realized that the clients were not just paying for the time he's working, they're also paying for peace of mind and immediate availability to any question that needed to be answered for the business’s technology. To do this he needed a lot of staff. Thanks to advice from his peer group of similar businesses, he decided to increase his price by 20%. He figured that if 20% of his clients left he'd only have 80% of the work to do with 100% of the revenue he had before. How did it affect his valuation? Like we said soon he had a business that was 17% EBIDTA rather than 4%! In terms of take home dollars, and the formula that his buyer used to acquire his company, it was worth a TON more.  Jamison knew if he had locked in contracts that a buyer who collected money the first of each month would pay WAY more than if he had to resell new agreements / time and material each month. Therefore, it was less risk for a buyer (especially a strategic competitor) to take Jamison’s company and their clients and bring them into their platform.  They had more time, energy and resources that they could apply to keep those customers.  With a contract in place it allowed them to prove their service, trustworthiness and ability to exceed the client’s expectations before the agreement came due. How did he structure the deal to sell? He used a specific industry broker that created a slightly different structure than the standart multiple of EBIDTA. It was actually a comp

We speak to a man who has been there and done it… from the business buyer to the eventual seller of his own company.  Jamison West overhaul his business model from the traditional IT, time and material (trading dollars for hours), to the new Managed IT Services monthly recurring model.  His new business gave him a 15%  jump in EBITDA, from the original 4%, so he was averaging to a healthy 17%! Jamison gained great insight into the whole sale/valuation process during his acquisitions of multiple Managed IT firms and then used this experience to consciously prepare everything in his business before he finally sold to a strategic buyer. This episode is a perfect example on how to maximize the value of your business while simultaneously achieving the day-to-day efficiency of your business and TRULY moving from the hub to the spoke. Why did he start acquiring businesses in the first place? There are certain benchmarks in the Managed Service Industry for recurring revenue and overall company size that are benchmarked by a Managed IT Service peer group called HTG.  This lead Jamison on a quest to grow organically, AND acquisition, in order to hit the numbers he thought he needed to achieve for a future buyer to pay top dollar. The first two acquisitions helped add staff and mass to his firm and allowed Jamison in make strides in the direction he wanted to go.  The third merger / acquisition proved to be a much bigger challenge due to culture and management, but the right intentions were there! Why did he change business models from time & material to recurring revenue? Jamison was charging more than a fair price for his time but quickly realized he was needed by multiple clients at once. Obviously he couldn’t be in more than one place at a time and his clients had a top stop on how much they were willing to pay.  Therefore, there was a problem that was ready to be solved! Not only was his time a limitation but the current situation came with serious highs and lows. In order to change the company’s emphasis from the revenue ups and downs of project work, Jamison flipped his business model and expanded so he could provide fixed-fee services and thus improve his own potential scalability. Ultimately he realized that the clients were not just paying for the time he’s working, they’re also paying for peace of mind and immediate availability to any question that needed to be answered for the business’s technology. To do this he needed a lot of staff. Thanks to advice from his peer group of similar businesses, he decided to increase his price by 20%. He figured that if 20% of his clients left he’d only have 80% of the work to do with 100% of the revenue he had before. How did it affect his valuation? Like we said soon he had a business that was 17% EBIDTA rather than 4%! In terms of take home dollars, and the formula that his buyer used to acquire his company, it was worth a TON more.  Jamison knew if he had locked in contracts that a buyer who collected money the first of each month would pay WAY more than if he had to resell new agreements / time and material each month. Therefore, it was less risk for a buyer (especially a strategic competitor) to take Jamison’s company and their clients and bring them into their platform.  They had more time, energy and resources that they could apply to keep those customers.  With a contract in place it allowed them to prove their service, trustworthiness and ability to exceed the client’s expectations before the agreement came due. How did he structure the deal to sell? He used a specific industry broker that created a slightly different structure than the standart multiple of EBIDTA. It was actually a comp

It will mainly be useful to you if you’re looking to sell your business in 2 to 5 years. It can also be something to think about if you’re just “toying” with the idea of selling your private practice. I got in touch with Paul Welk, an attorney over at Tucker and Arnesberg, on what private practice owners should start looking at if they want to exit. He shared with me the following 15 selling points 1. EBIDTA First thing to look at is your EBIDTA. This stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It’s really a fancy way for accountants to describe your profitability. How much profit does your practice make a year? There’s a lot of technical information out there on EBIDTA, and there’s no way to do the topic justice in this article. 2. Multiple The very next thing to think about is a multiple.The concept of a multiple is simple, you can think of it like this: Value of Business = EBIDTA (annual profit) x Multiple. This multiple varies across industries. However in private practice it’s determined by the size of your business. A smaller practice with an EBIDTA of $100,000 a year, may have a multiple of 3. 3. Willingness To Remain If you as an owner just wants to sell and leave, then this reduces the value of your business. Especially if you’re doing a lot of patient care. This is because you have intrinsic value to the business. So if you’re doing the bulk of patient care and you aren’t willing to remain, then you’re going to have difficulty justifying the value of your business. 4. Number of Locations 5. Desirability of Location 6. Diversity of Referral Sources This is something we talk a lot about here at Breakthrough PT Marketing. If you rely upon one orthopedic surgeon for referrals, then it isn’t good for the value of your business. If however physicians only make up a quarter of your referrals, and you have over 200 referral sources, then your business is of much more value to a buyer. 7. Accounts Receivable and Aging This is really about billing. If you have a lot of money owed to you, and it’s old, let’s say it was due 120 days ago, then this will harm the value of your practice. If however you are paid promptly and any money due is less than 30 days, then this will improve the value of your business. 8. Owner Reputation This is self explanatory. The higher your reputation, the more valuable your business. 9. Staff If you have a high staff turnover, and you’re hiring a new PT every 2 months, then it’s going to harm your value. Put yourself into the shoes of the buyer. Which would you rather have? A high turnover staff, or a stable staff who are good at their job, have integrity and are reliable? 10. Non-Competes. 11. Years in Business 12. Profitability and Trending. 13. Payer Mix. 14. Growth Opportunity 15. EMR Platform For the full description visit: http://breakthroughptmarketing.com/15-ways-to-increase-the-value-of-your-practice-in-2-to-5-years/

Eventually small business shareholders will need to be bought out.  The key question is the price to be paid when that time comes.  Learn about the various options, and the pros and cons of each.