August 5, 2025 • 48 mins
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Episode Transcript
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Speaker 1 (00:00):
Welcome everyone to the Firing the man podcast, a
show for anyone who wants to betheir own boss.
If you sit in a cubicle everyday and know you are capable of
more, then join us.
This show will help you build abusiness and grow your passive
income streams in just a fewshort hours per day.
And now your hosts, serialentrepreneurs David Shomer and
(00:22):
Ken Wilson.
Speaker 2 (00:24):
Welcome everyone to the Firing the man podcast, the
podcast for entrepreneurs andbusiness builders ready to grow
beyond the hustle and intoownership that truly scales.
I'm your host, and today'sguest is someone who challenges
the startup grind and championsa smarter path to wealth
creation.
His name Jeff Barnes.
(00:46):
Jeff is a seasoned entrepreneur,private equity expert and
founder of the MastermindInvestment Club.
He's also a key player atPatriot Growth Capital, where he
helps business-minded veteransand investors leap into the
iQuadrant by acquiring existingcash-flowing businesses.
With years of experience inmergers and acquisitions, deal
(01:09):
structuring and businessleadership, jeff teaches others
how to stop trading time formoney and instead start thinking
like owners and investors.
His approach isn't aboutbuilding from scratch.
It's about buying smart,operating lean and creating
legacy wealth.
In today's conversation, we'lldig into how everyday people can
(01:31):
transition into businessownership through acquisition,
the mindset shifts required tooperate like an investor, and
why now is the perfect time toexplore business buying as your
next move.
Get ready this episode willchallenge what you think and
know about entrepreneurship andwealth.
Jeff, welcome to the podcast.
Speaker 3 (01:52):
Thanks so much for having me here, david, I
appreciate it.
Speaker 2 (01:54):
Absolutely so.
To start things off, can youshare a little bit with our
audience about your backgroundand path in the business world?
Speaker 3 (02:00):
Yeah, absolutely so.
My path actually begins very,very early on, when my dad was
self-employed.
When I was a kid he owned ahardwood flooring business and
unfortunately, due to a lot ofreally unforeseen circumstances
in the late 80s, early 90s, andat some point we were actually
homeless, we didn't have a placeto live and that was my first
introduction to this world ofbusiness and I said there's no
(02:31):
way on God's green earth thatI'm ever going to run a business
, because I was watching what mydad was having to go through
and this is a guy that wasworking harder than anyone I've
ever seen 80 hour weeks, workingnights and weekends and missing
out on a lot of family timebecause he was just doing
everything he could to keep theroof over our head and, to his
credit, able to get back up onhis feet and move things forward
(02:51):
and start making a living againwith his business.
But it was ingrained in me Idon't want to be a business
owner.
That's not going to happen.
So I joined the Navy straightout of high school.
I went into the submarineprogram.
I was a nuclear power plantoperator on a submarine.
I was a scuba diver.
I was a quality by the end ofmy time in the Navy.
I was a quality assuranceofficer, I was in charge of the
(03:12):
machinery division, I wasrunning the nuclear power plant.
I was writing work back becauseI was doing all this stuff and
I realized along the way that,you know, my one of my core
values is personal freedom andautonomy.
And guess what you don't haveeither of when you're in the
Navy, especially on a submarineright?
Neither one of those right.
So while I was in, I wasstarting to read books like
Robert Kiyosaki's you know, richDad, poor Dad, cashflow
(03:33):
Quadrant, think and Be Real Rich.
I started doing all thepersonal development stuff that
hopefully everybody who'slistening is also doing or has
done.
And along the way I realized,okay, maybe business ownership
is what I need to do, but I haveno idea how to start that and
how to go down that path.
So I started going to seminarsabout real estate, investing and
learning about marketingeventually, back in 2006.
(03:54):
I ended up buying.
I actually bought my first home, no money down.
And when I was 21 years old,while I was in the Navy, and I
got hooked, I was like I want tokeep doing this and I didn't
have enough money to, of course,sustain myself when I got out
of the Navy.
So I took a job where I didn'thave to work in an office.
I didn't have to work innuclear power anymore and I
didn't have to, you know, worryabout the grind as much.
I worked from home.
(04:14):
So I've been working from homesince 2006.
You know so I'm one of theoriginal remote employees, if
you will, and in doing that jobI learned a lot, because what I?
I left the Navy as a nuclearpower plant operator and very
high level, and I actuallybecame a boiler inspector for
this large insurance company.
And the nice thing about thateven though I felt like my
(04:34):
skills were completelyunderutilized was that I got to
go to five to 10 differentlocations every single day and
that meant I was looking atbusinesses and getting behind
the scenes.
Look.
So you know I talk aboutfive-star hotels that people go
into and it looks amazing.
I got to see all the ugly stuffon the back end.
I got to go into power plantsand manufacturing facilities and
clean controlled atmospherefacilities and, you know,
(04:57):
growers, you name it.
I've literally been inside ofover 10,000 businesses.
Because I was doing that foryears.
I ended up running a departmentdoing that and along the way I
was doing all these side hustles.
David, I've started over 20companies in my career.
You can imagine how many ofthem actually succeeded, given
that I had to start 20, right?
So a lot of them were sidehustles, like constantly doing a
(05:19):
lot of what you're talkingabout, like how do I get out of
the nine to five grind?
And mine wasn't even a nine tofive grind because I worked
remotely, but I was traveling30,000 miles a year in a car.
Initially, by the end of mycareer in the corporate world, I
was doing 75,000 miles a yearin the air.
I was gone every single week, Iwas on airplanes constantly and
, as a result, I was just nothaving the quality of life I
(05:39):
wanted.
So, even though I had a reallynice, you know six figure salary
and I had my own department andI was doing really cool,
innovative things, I just wasn't.
I didn't have freedom andautonomy like I really wanted.
So my foray into businessownership actually started with
my ex-wife.
I was because I'd gotten my MBA.
I'd been going to theseseminars.
I was learning about marketinginside and out, really good with
(06:02):
technology, really good withunderstanding funnels and you
know all the automations andeverything that goes into, you
know, digital marketing.
When my my ex-wife was achiropractor, I said you need to
start your own practice, andbecause I've tried starting a
whole bunch of businesses upuntil that point most of them
failed Of course I was able tohelp her get hers going and
that's when I learned the mostimportant thing in business,
(06:24):
which is if you don't have aproduct that people want to buy,
then you don't have a business.
Luckily, as a chiropractor, wehad a business where people
wanted to buy what she had,especially since insurance was
paying for it.
That made it a lot easier.
So we actually took thatpractice from starting out in
January of 2016.
And by March of 2016, she had afull schedule.
By the end of 2016, she'dalready known over six figures
(06:47):
in revenue, which is pretty goodfor a chiropractor, to be quite
honest, and we also had hiredanother chiropractor massage
therapist.
By the time that we ended upgetting divorced, unfortunately,
we had about seven figures inincome as a really small
chiropractic and functionalmedicine practice.
So that was my first forayreally setting everything up and
(07:07):
succeeding.
I should say setting everythingup from the very beginning and
getting it going.
And along the way, I realizedthat man starting a business
sucks.
It's very hard, it's verychallenging, you've got to find
the money, you've got to do allthis sort of stuff.
But while I was in thecorporate world, I was doing
some of the same thing, right,but people were coming to us
because they wanted to get theirtechnologies or their business
(07:27):
into corporate America, and myjob was helping them find where
they'd fit in in the corporateworld, and then we would either
partner with them, invest inthem or acquire them, and so
that's what I ended up doing.
We did over a billion dollarsin transactions using that model
, and about that same time iswhen we finally got the
chiropractic practice going.
I was like, listen, I'mtraveling too much.
I got to leave, I got to bedone with this.
(07:48):
This is just way too muchstress on myself and my family
and oh, by the way, thesecompanies that are making tens
of millions of dollars becauseI'm making the introductions and
help them raise capital I'm notgetting any of that.
So it didn't really feel right.
So I left in 2018 and Iactually acquired Angel
Investors Network in 2018.
And AIN has been around since1997.
So that was my first actualacquisition, so I've started a
(08:08):
lot of companies.
Then I acquired a company thatwas already growing, already
running, already had customers,already had employees,
everything like that and Irealized this is probably the
better model of all of them.
But the irony is in thatbusiness, at AIN, what I was
still doing was teachingcompanies that were just getting
started how to raise money, soI was using both sides of the
aisle, if you will, and that wasmy foray into it.
(08:30):
Since then Since that was 2018,I've literally helped hundreds
of companies raise hundreds ofmillions of dollars, and we set
up systems for companies thatare raising capital and we put
on events for investors thatwant to look at deals, and we
get fed deals every single day.
So it's really just up to us tosay, okay, well, which ones do
we want to take on and whichones do we not want to?
And then, what are ourinvestors really looking for?
(08:52):
So that's kind of the long andshort of it.
Speaker 2 (08:54):
I love it.
I love it.
I really like that story, and Iam in a similar boat where, if
you look at the number of LLCsI've probably had over the years
, I'll bet it's approximating 15or 20, most of which did not go
well.
However, I would do them allagain because I learned, and I
think that's- Every time.
Yeah, and so one thing I wantto dig into is your firing
(09:18):
demand day, like the day thatyou had the aha moment.
I'm done, I've had it.
Can you share with me that day?
Speaker 3 (09:28):
So it's really ironic and it's not really a fun story
for me, honestly, because itwas at the stage of my life
where, yeah, I live in theSeattle Washington area and my
wife's family is from here andthat's how I ended up up in this
area.
But the company I worked forwas headquartered in Hartford,
connecticut, and our parentparent company was in Munich,
(09:52):
germany.
So I was in this organization55,000 people I was one of 15
people in the entire companythat was doing this job of
finding technologies that wewould invest in and do all of
that Right.
So 15 out of 55,000 people kindof did what I did, but I did it
with a very specific focus inone area in department
(10:13):
engineering and equipment andtechnology insurance and I was
the only person really doingthat in the United States.
So it was kind of cool to havethis job and be able to do what
it was that I did.
I was working with VCs andprivate equity groups and I was
working with companies all overthe world and doing some really
cool things.
So I actually had a really cooljob.
It just so happened that I livedon the West Coast and the
(10:36):
headquarters were the East Coastor Europe, and given that we
had a chiropractic practice, wehad two young kids, it's like I
can't pick up and move, probablywould have if I wasn't, you
know, in a situation where Icouldn't leave because the
opportunities were there and Irealized with the company they
wanted to promote me, theywanted to put me in other
(10:57):
leadership roles, but not if Iwasn't going to come to where
the company was.
And that was a real challengefor me because, you know, here I
was working remote, I wastraveling all over the world,
you know, working for them anddoing all these things, but I
couldn't get up to the nextlevel.
I mean, I had my own department, I was two layers below the CEO
, but I couldn't get up to whereI really wanted to be, which is
(11:17):
running a much largerorganization, if I stayed with
the company.
And so for me it was likehustling and staying in that
grind for long enough, to thepoint where the side hustle my
wife's business could finallytake over.
There were some health issueswe had to deal with, so I had to
stick in that job a little bitlonger than I wanted to, for the
insurance purposes and whatnot,and then finally, when the
(11:40):
health issues all went away.
It was like, okay, cool, I canfinally leave.
And so I had to tell my boss.
I was like, listen, I've just Igot to take care of my family.
I love what I do here, I loveworking with you guys, I love
everything, but it's just notfor me, and I really appreciate
all the time and energy andeducation they poured into me,
which they did.
They did a great job with that.
I just had to.
You know, it's one of thosesituations.
(12:01):
It wasn't like I was reallyfiring the man.
I actually felt bad becausethese guys had given me all this
opportunity and, granted, Iearned it.
I worked my butt off to getthere.
I'm not saying it was a handout, but I felt bad because these
people trusted me and believedin me.
But I eventually had to say no,I got to take care of my family
, and so that was in October of2018.
(12:21):
I finally left.
I'd already taken on, you know,worked out kind of well for a
couple months.
The problem was I didn't knowthis, you know, shame on me is
that my, my wife said hey,listen, we're done.
You know we can't continue thispath, and so we ended up
(12:43):
getting a divorce in 2019.
So it was January of 2019, wedecided so.
I left in October of 2018, inJanuary of 2019.
So, again, looking back, it'slike did I really want to quit
the job?
Not really, cause it was agreat paying job.
I actually did some really coolthings.
I was able to do my side hustleI was consulting on the side at
the time, um, but I ended uphaving to leave and, you know,
shut that whole thing down.
(13:04):
So wasn't really your typical.
I can't wait to get out of here.
Screw this company, I'm, I'mgone.
It was like, yeah, it's kind ofsome mixed feelings there and
if my ex had told me we want toget a divorce before I left the
company, I probably would havestayed with him a little bit
longer and seen where it went,because we were standing up our
own innovation centers andventure capital arm and
everything like that, and I wasentrenched in all of that.
Speaker 2 (13:26):
Very nice, very nice.
And I've heard a number offiring man stories on here.
And you know, I've heard anumber of firing man stories on
here and I often find thatpeople that are a little bummed
out when they're leaving asopposed to the person who wants
to give everyone the middlefinger on the way out just means
that they use discretion whenthey were selecting a job and
(13:47):
they had a good one, and that'sgreat, and so you have a wealth
of experience with raisingcapital, and I'd like to dig
into that a little bit.
I think when people think aboutI'm firing the man, I'm going
into business for myself, oftenthe path that they're thinking
about is bootstrapping andgrowing from the ground up, and
(14:10):
prior to my working in thecorporate world, I always felt
like capital raising wasreserved for Silicon Valley and
people on Wall Street.
And so what are some?
Just some general, like let'stalk through generally, how does
capital raising go and whatdoes that look like for the
borrower?
Speaker 3 (14:30):
So there's so many different ways that you can, you
know, paint this canvas when itcomes to raising capital.
There's the traditional youknow what everybody thinks about
which is we call it yourfriend's family and fools round.
You know, very first, money inyou should actually be the first
money.
And if you don't put your ownmoney into doing something which
generally means I'm buying theequipment or I'm paying for the
(14:52):
marketing or I'm paying to dothe setups, like you have to put
your own money in first.
Then you have the triple Fround, as I call it the friends,
family and fools.
Your friends will give youmoney, your family will give you
money if they believe in it,they like it, and then the fools
will give you money justbecause they're like yeah, you
know, it sounds like I'm talkinganywhere from 5,000 to, if
(15:13):
you're lucky, upwards of$100,000.
These are your close innercircle of people.
And this is if you've neverraised money before, if you've
never been successful inbusiness before.
You know, elon Musk goes outthere and says I'm going to
start a new business.
He doesn't have to ask forraising money.
People just write him a check,right?
So if you're doing it for thevery first time you have to
(15:39):
realize that, regardless of howgreat you were in your last
business, how awesome you werein your career, how much what
your pedigree looks like, youreducation, doesn't matter.
Everyone sees you in the rolethat you had, not the role that
you are creating, and so theydon't believe that you they're
not going to tell you this, ofcourse they don't believe you're
going to succeed in this newrole because I'll use myself as
an example.
When I was in the Navy, I ran adepartment very, very well.
(16:01):
When I was in corporate America, ran a department very, very
well 25, 30, 40 employeesunderneath me and everything
went great.
But that's because I had anecosystem I had.
It wasn't me by myself tryingto figure everything out.
And people realize that theythink about that, even if it's
just subconsciously.
So they're not just going tolike throw money at you just
because you say, hey, I'mquitting my job, I'm going to
(16:22):
start a business.
That's not the way it works andsome people seem to think it is
or that they deserve the moneyjust because they're taking the
risk and starting up a company.
You know there's no worse waythan to raise money by being
desperate right, being desperateand feeling like you need the
money or you deserve the money.
That's the worst way to raisecapital.
(16:42):
So what happens with thefriends and families?
They give you a little bit ofmoney to get started, if they
can.
My grandma said no to me.
My grandma was the only onewith money in my family at the
time.
My grandma said no to me.
My grandma was the only onewith money in my family at the
time and she said no to me.
She's like sorry, no chance.
So all right, fair enough.
So I had to go out there andlearn the hard way.
The next round is your angelround.
These are the people that don'tknow you but are high net worth
(17:04):
individuals.
They can maybe write a $5,000to $50,000 or even $250,000
check.
And the 250,000 guys and galsthey're definitely on the higher
end of the spectrum and they'reonly going to do that if they
have a lot of liquidity and theyreally like your deal.
And what that comes down to isreally making people believe in
you and your vision.
If people don't believe in youand your vision, then they're
(17:28):
not gonna invest your angelround.
You're generally raising amillion to maybe upwards of $5
million.
You're generally raising a lotlower chunks of capital
initially and you're giving awaymore of the company.
You're giving away straightequity.
Most of the time it's eitherthrough a convertible note or a
safe note, or sometimes peoplejust do straight equity
financing.
Which means, let's just say I'mgoing to raise $100,000 and,
(17:50):
david, you're going to give me100 grand and I'm going to give
you 10% of my company.
Great.
Now I've just valued my companyat a million dollars and you
own 10% of it today.
The next time I go raise money,hopefully the value of the
company's increased because I'vetaken your $100,000 and I've
deployed that into smart thingslike marketing and sales.
Literally almost nothing elsematters, unless you're doing
(18:11):
software or tech and you'redoing development because you
need to do that, and now mycompany might be worth $5
million.
Well, if I go raise anothermillion dollars at 5 million,
I've given away another 20% ofthe company.
Right, and so that's kind ofthe way that we look at this.
And then, once you get to theseseries A plus rounds then
you're going after venturecapitalists, you're going after
family offices, you're goingafter private equity firms,
(18:34):
corporations, things like that,and they write checks starting
at $10 million, 10 million on up.
What we've ended up doing ishelping companies that are what
we call in the capital gap.
They're past the angel round,like their company valuation is
maybe 15, 20, $50 million, buttheir revenue and their profits
aren't really there to justifygetting a VC involved.
(18:57):
But it's too rich for theangels, and so that's really
where I help companies.
They're already successful,they're already growing, but
they still need more money toget to that next level.
But there's a lot more to itthan that.
That's just a brief overview.
Speaker 2 (19:08):
No, that's really helpful.
And I would like to continuethis conversation into kind of
communicating to the newbie, theperson that's never bought a
company before and may not havethe rich uncle or person in
their network that would be ableto help them out in that
friend's family and fools whichI really like that, by the way
(19:30):
the three Fs family and foolswhich I really like that, by the
way the three Fs.
So let's use an example of a $5million company.
You had mentioned that theentrepreneur needs to have skin
in the game, which that makescomplete sense to me.
On a $5 million deal, whatwould just the general
expectation be of this is whatyou're bringing to the table.
Speaker 3 (19:53):
Yeah.
So when you say a $5 milliondeal, I'm going to assume maybe
it's a million dollar EBITDA anda 5X multiple, so the company's
worth $5 million.
Here's what a lot of peoplewill generally do when they get
going is they'll go to the bankand they'll tell the bank that I
want to get a loan and if it'sa $5 million deal, it's an SBA
loan, right Like you can qualify.
(20:14):
And I will tell you, out of allthe deals I've done, I haven't
done a single one where a bankfinances it.
Not one I've tried.
But banks are, in my opinion,the worst.
They are the most risk averse,and I used to work in financial
service.
Well, I've been in thefinancial service industry for
over 20 years now.
Banks are the most risk averseorganizations on the planet.
(20:38):
They are not in the business ofrisking money at all, and so
they have an underwritingdepartment that is.
I don't care what bank you goto.
Their underwriting is the moststringent, strict thing you'll
ever go through and it's a realpain.
And to me that's just not worththe headache, because there's
so much more money in the worldavailable to us than what's
inside the banks and, as aresult, I tend to go with
(21:00):
private investors.
I, you know you can call themangel investors, but they're
just private individuals andpeople that have money in their
IRA, their 401k, you know theirbank account.
They might have money in stocks, bonds, mutual funds, whatever,
and they have cash that theycan invest.
Well, I have a $5 million deal.
We're going to say we want toget debt and equity.
And what do I mean by that?
(21:20):
Well, debt is I'm going to goget a loan from somebody or some
institution.
Now, when I say dealing withbanks, I'm talking about, like
SBA, commercial banks, thosekinds of things.
They're really challenging towork with.
There's plenty of othercommercial lenders.
There's other types of banksout there.
There's private banks that willdo loans, but they're only
going to lend maybe up to 70, atbest, 80% of the value of the
(21:44):
company or the purchase price.
So if it's a $5 million deal,let's just say they're going to
be really generous and they'regoing to give you 4 million
bucks for this, okay, and that'safter you have proven beyond
the shadow of a doubt that it'sa good deal, and then it's going
to continue to be a good dealeven after you buy it, and
that's.
That's a hard.
That's a big hurdle.
Most people, you know, glazeover that fact and I've been
(22:07):
through enough due diligence andcompliance reviews to know that
that's not easy to go through.
So but let's just say you passall that and they're like okay,
cool, they're going to issuewhat's called a term sheet.
They're going to say, here arethe terms of our offering and we
will give you $4 million andit'll be a three-year term.
You're going to pay maybeinterest only in the first year
(22:27):
and principal interest on thesecond and third year and you
have to repay us with a balloonpayment on month 36.
And they're going to outlinewhat all those terms look like.
And then it's your job to saytake that back to your CFO.
Or, if you're doing thefinancial analysis, say, ok,
well, can I make these numberswork with this deal?
Hopefully you still can and youmight accept the term sheet.
Once you accept the term sheet,they go into underwriting and
(22:50):
they start taking everythingover to their compliance team to
start reviewing everything.
They're looking under the hoodof everything In the meantime,
because this can take anywherefrom, at the short end, 30 to 45
days.
Generally three to six monthsis what we see taking time when
you're getting a lender likethat.
Now you have to go into theprocess of raising the other
(23:11):
million dollars.
And I'm just going to assumeit's an all cash deal.
Seller won't take any sellercarry, they're not going to do
any rollover, they are expectingall cash at closing.
So now you got to go find theother million dollars.
Well, this is where moneypartners or private investors
come in.
And I'll also assume maybe thisperson only has $100,000 at
most to throw at a deal.
(23:32):
So now you have to raiseanother 900 grand.
Well, what do you do in thiscase?
This is where we say thecompany is worth $5 million
right now and this person isgoing to be an owner-operator.
They're going to continue togrow the company.
Hopefully they're going to turnit from 5 million into 10
million in the next, let's justsay, five years.
Yeah, we'll be really generoushere.
(23:52):
Well, I would go to my warmnetwork, my friends, my family.
I'd ask for recommendations,I'd ask for referrals, I'd tell
them what I'm doing, I'd createa pitch, I'd create a
presentation.
I actually found this amazingcompany.
I've already got the bank andthis is key.
I've got the bank to tell methey're willing to lend on it,
which means I only need to comeup with whatever's left right,
(24:15):
in this case $900,000.
The reason that's important isbecause it's a lot harder for
someone who's never raised moneybefore to go out there and
raise the full $5 million fromprivate individuals, unless they
happen to know a lot of greatpeople at the country club, the
golf course or whatever, orsomebody that just had an exit
that wants to back them.
Generally doesn't happen,especially the first time around
(24:36):
.
So going to the bank first orgoing to find somebody who's
going to give you the debt for70 to 80% of the purchase price
really solves a big problem forthe rest of the investors,
because now you can come to themand say yeah, well, I'm looking
for nine people to put in$100,000 each Out of that and I
can't do all of the math in myhead right now but for each,
(24:57):
let's just say $100,000, that's.
You know, I guess I could tryand figure that out.
$100,000 divided by 5 million,that's 2%, right?
So for every 100K you get 2% ofthe company, right?
We're just doing really basicmath here.
So now I'm raising $900,000.
(25:17):
Well, that's 18% of the company.
So I'm willing to give up 18%of the company for 900 grand,
all right.
So you know.
If somebody put this on aspreadsheet, it's pretty
straightforward.
I put it in my own 100 grandPlus I'm giving up 18% for
another $900,000.
That equals a million.
Now I've got my million.
The bank comes in with a 4million.
That's my capital stack, right.
So it's a little bit of my ownequity, right.
(25:37):
I'm putting in more equity fromother partners.
Those people are nowshareholders in your company.
They're not legitimate, notfull-on partners unless one
person put in the whole, youknow, 900 grand or whatever.
They're minority shareholdersand that's how you avoid giving
up a lot of the company, right?
And the debt covers the vastmajority of the purchase price.
(25:58):
So hopefully that was helpfuland people could follow.
Speaker 2 (26:01):
Absolutely.
And one follow-up questionthere.
So the debt portion of itthere's going to be like what is
expected.
Well, there's going to be someprincipal and interest payments
up the road On the equity sideof things and sticking with this
example, 2% for 100,000, whenat sale they would be making
(26:23):
money.
But what does that 2% entitleyou to?
Does it entitle you to 2% ofnet income?
What does that do for theequity investor?
Speaker 3 (26:37):
Yeah, it's a great question.
You can structure it in so manydifferent ways, right?
Somebody who comes in and putsin $100,000 to help this company
get go, or help you with theacquisition.
They may ask for a job.
They may say, yeah, I have thehundred thousand, but I want to
be an advisor, I want to be yourCFO, I want to be whatever?
Okay, great, now you canactually say okay, we'll give
(26:58):
you a salary position inaddition to this.
Right, that's one piece.
The other thing that people willwant is they're going to want
dividends.
Well, the challenge with payingout dividends, and especially
when you're doing yourprojections, is that your
dividends are paid out aftereverything else is done.
Right.
So now there's net profits.
(27:19):
So we have EBITDA and everybodyunderstands EBITDA earning
before interest, taxes,depreciation and amortization.
But then you have this othersubset of all this other stuff.
Now I have to pay interest, nowI have to pay taxes, now we
have our depreciation andamortization expenses.
Plus we want to have retainedearnings, meaning we want to
keep cash in the bank tocontinue growing the company.
And then, after all of that,now we have our net profits and
(27:42):
let's just say, this companythat we said is doing a million
dollars in EBITDA really onlyhas, at the end of the day,
$200,000 in net profits.
Well, 2% of $200,000 is notmuch right.
So you're getting four grand ayear give or take for these
people that just put in the$100,000.
So they put in $100,000, theyget, you know, 2% of this.
(28:05):
So they're getting $4,000.
So they're getting a 4% rate ofreturn effectively.
Okay, and that's if you'repaying dividends out.
A lot of people will opt forwe're not going to pay dividends
out.
We're actually going to keeprolling everything back in.
We're going to increase ourmarketing and our advertising
expense so we can keep growingthe company.
That's the smartest thing a lotof people can do if they have a
(28:27):
good sales and marketing system.
If they don't, it's not a greatidea.
But you want to continuegrowing the value of the company
because, really, where thesepeople are going to make their
money is on an exit.
Okay.
Now, if your folks are familiarwith real estate transactions
and whatnot, then they mightgive this and this is one thing
that people can do.
It's not very typical but it ispossible.
(28:48):
Let's just say you go fiveyears in operations in this
business.
The business is not worth $10million, but you don't actually
want to sell it, but you do needto take out that.
That bank, let's just you knowI know I said 36 months earlier,
but let's just say it was afive-year loan you want to take
out that financing, but now thecompany's worth 10 million.
Well, to keep the number simple, I owe $4 million to the
(29:15):
initial bank and I owe $900,000to my other investors.
Well, I could maybe go get afive or a $6 million loan.
I could pay the bank loan offand I can pay my investors back
all of their money and they cancontinue to retain equity in the
company if we want to do that.
There's no hard and fast ruleabout how you are required to
pay all of your investors back,but there is one rule that's
(29:36):
absolutely pertinent, which isyou should pay your investors
back.
Right, it's just how you do itand when you do it and all of
that.
That's all up for negotiation,right?
You can structure it as a safenote.
Hey, I'm going to go raise amillion dollars, but we're not
setting a valuation on thecompany right now.
We'll set the valuation later,and so, instead of it being a
million dollars, gets you 20% ofmy $5 million company, I'll say
(29:58):
no.
I'm going to set the valuationcap at $10 million because we're
going to try and grow thiscompany.
So now your million dollars areworth only 10% of the company,
assuming I get to that level andI do another financing round.
So there's no hard and fastrule.
It really comes down to howcreative can you be and what's
the best opportunity and offeryou can make to your investors.
Speaker 2 (30:18):
Got it, got it.
No, that makes a lot of sense.
That makes a lot of sense.
There are probably some peoplelistening right now saying I
don't have a rich uncle, I don'thave a ton of money in savings,
so buying a business, anexisting business, is not in my
cards.
What would be your response tothat group of people?
Speaker 3 (30:41):
That's the most short-sighted thing that you can
think.
But I would tell them I waslike no, you shouldn't buy a
business, because if that's yourthinking, then you will not be
able to run a business, plainand simple.
Um, buying or starting anybusiness and growing anything of
your own and and beingsuccessful at it, requires a
growth mindset.
It requires you to breakthrough any barrier and any wall
(31:02):
and any impediment in front ofyou to make sure you succeed.
Right, so if the very firstroadblock that comes up, you say
, oh, nevermind, let's turn thecar around and go home, we're
not going to do this.
You shouldn't own a business,because I don't know of a single
person ever who has beensuccessful their first time
around without any challenges,problems or heartache.
(31:22):
Most of the time they say youknow, they did a study a long
time ago and they said what wasthe average number of attempts
it took for you to become amillionaire?
And the average number and thisis you know, back in the
nineties, the average number ofattempts for these really rich
people to finally break througha million dollars was 11 times
11 failures before they finallysucceeded.
Okay, so anyone who is gettinggoing and saying, oh well, I
(31:44):
don't know anybody with anymoney, so I guess I can't do
this.
You're probably right, becauseif you have that mindset, you're
not going to succeed.
On the other hand, somebody says, oh, I don't know anybody who
has any money, but I want tomake this happen.
How do I do that?
That's a different conversation.
That is, it's about buildingyour network.
You have to expand your network.
You can do that online.
You can do it through Facebookgroups and LinkedIn communities
(32:06):
and groups.
You can do it by going tonetworking events in your local
neighborhood.
I know people that have gottenmoney by going to church.
Talking to people at church,you know.
Talk to your CPA, talk to yourfinancial advisors you name it,
you know.
Just because you don't knowsomebody or you don't think you
know, like there's a book calledthe Millionaire Next Door.
I can't remember the name ofthe author right now, but
(32:29):
there's more millionaires in theUnited States and around the
world than there ever has been,and you can throw a stone and
hit somebody with a millionbucks somewhere.
Does it mean that it's allliquid?
No, but they're worth it andthere's a way to get their money
out.
One of the things and I'll giveyour folks.
This kind of strategy is thatyou may not know people with a
(32:49):
lot of money, but I bet not toofar from where you live, there's
people out there that have alot of equity in their home and
equity in a home is the mostuseless thing out there until
you pull it out right, becauseequity, you know and I'm
assuming everybody understandsthis.
But we'll give a really simpleexample.
Housing market out here hasdoubled in the last five years,
(33:11):
like literally a hundred percentincrease in five years in
houses.
So somebody that bought theirhouse, let's just say 15 years
ago for $500,000, let's just saythe mortgage is now 400 grand,
maybe a little bit less, buttheir house is now worth a
million dollars.
That means there's $600,000 ofequity.
That's just sitting there doingnothing.
So could you go to somebody thatyou know that has a really nice
(33:34):
home that they've been livingin for a long time, that has a
lot of equity, and say, listen,I would love to show you a way
that you can actually arbitragethe term, the equity in your
home.
So what if you went and you gota $500,000 loan on your home,
you paid off the 400 grand, youhave an extra 100 grand in there
.
It's not much more than youalready owned on your home.
You still have a lot of equityleft.
(33:55):
If you took that $100,000 andyou invested with me and I paid
you 10% and you only have to paythe bank 6%, you're making 4%
per year by doing practicallynothing right, that's an example
.
It's an oversimplified example,but it's an example of how
people can get creative byfinding somebody that might have
the ability and the means toinvest.
Speaker 2 (34:14):
I like it.
I like it.
That makes a lot of sense andit sounds like, yeah, you just
need to be gritty on and reallygo for it on the fundraising
side of things.
Speaker 3 (34:23):
So yeah, it's not about having your resources,
it's about being resourceful.
If you're not resourceful, youshouldn't do it.
Speaker 2 (34:29):
Yeah, I think that's a really, really good
perspective.
So I one thing you hadmentioned at the beginning of
this episode was that you've hadthe opportunity to be in and
out of 10,000 businesses, and Iwould imagine over that period
of time, you've you've made someobservations on what makes a
(34:49):
great company and probably onthe flip side, what does a
company look like if it'sfailing, or what are some
telltale signs that things arenot going well?
And so let's start with thepositives.
What are some characteristicsof a really healthy company that
is suited for growth?
Speaker 3 (35:11):
So, David, I'm going to start by giving you a little
bit of context here.
When I left the Navy, I was ona submarine.
I was a scuba diver, I was incharge of the quality assurance
program and if anything broke onthe boat it could potentially
be life or death situation fornot just yourself but over a
hundred other people right andthe military.
(35:36):
When you first get on asubmarine, they actually play
you a recording of the USSThresher that went down in the
60s and they have the recordingof what it sounds like when a
submarine implodes.
They were doing sea trials,they were testing something out
and the boat literally sank andyou can hear the hull imploding.
Okay, so the gravity of properoperations on a nuclear powered
(36:00):
submarine is ingrained in youfrom day one and you carry that
discipline and that mentalitythroughout your entire life when
you're an operator like that.
When I started inspectingbusinesses, I was blown away by
how terribly most of them wererun.
I mean, equipment was dirtythat they needed to use on a
(36:22):
daily basis.
Equipment would break down.
I'll give you one example areally, really, really large
food distribution company thateverybody would know I won't
throw them under the bus here InCalifornia ended up having a
situation where their entire 1million square foot warehouse of
food a big chunk of it had tobe thrown out because the food
(36:44):
spoiled, because their airconditioning went out, because
there was a blackout in thesystem and they failed to
maintain their backup generators.
Right, and this is a billiondollar plus.
Company Failed to do one sillylittle thing cost them hundreds
of millions of dollars.
Ridiculous, Absolutelyridiculous.
It's stuff like that.
You're like I'm blown away thatpeople aren't doing these
things, and it could be anythingfrom improper marketing,
(37:07):
improper operations, you know,not telling each other what
you're working on.
I'll start with what I think.
For small businesses anyway,the number one biggest
impediment to growth is when youlook at the entire business
like a hub and spoke model andthe CEO is the hub and
everything needs to connect tothe CEO.
(37:27):
Right, the CEO or the owner.
That is the biggest impedimentto growth.
If you are a CEO, if you're afounder, if you're the owner and
everybody relies on you forevery decision inside the
business, you will not grow,right?
That is one of the biggestchallenges.
So the flip side of that whatis it that makes companies
really successful?
It's systems, of course.
(37:48):
You want people to manage thesystems and the systems to run
the business, but there's threeinterlocking systems I look at.
So, if you think about a Venndiagram and you have three
circles, the best businesses arein the center of where sales,
marketing and operations all fitperfectly together.
In other words, your salespeopleneed to have a good, good
(38:10):
product to sell.
If they don't have a solidproduct to sell with a great
offer, they're going to suck.
And it could be a sales system,it could be a sales funnel, it
could be a video sales letter,it could be your e-commerce
store.
You got to have a good productto sell, which means your
salespeople need to understandthe product inside and out the
benefits, the features, theopportunities, the competition.
(38:30):
The salespeople really need tounderstand the product.
Ok, then, your marketing needsto set your salespeople up for
success.
Because somebody that's comingin that doesn't know anything
about your product, your service, your opportunity, you're
wasting your salesperson's time.
Your marketing needs to be makeselling superfluous, as Peter
Drucker says.
So your marketing needs to setyour salespeople up for success
(38:51):
and your operations team andthis is 80 to 90% of the
business people, the folks inthe business your operations
need to support your sales andmarketing, not the other way
around.
And this is the big challenge Isee in bigger companies is that
, because the operational peoplemake up 80% of the human
capital, they feel like salesand marketing should kowtow to
(39:12):
them.
But it's the other way around,because your sales and marketing
should be going after thecustomers and figuring out what
the customers want and whatthey're willing to buy, and then
your product team, your devteam, your operational people,
should help to make that happen.
Right?
So you can look up case studyafter case study of all these
different people who said, ohwell, we built this product
(39:34):
because we wanted to do this andwe wanted to do this for these
people, and then, all of asudden, after a year or so of
selling it, they're like thesepeople are not buying it.
What the heck's going on?
Turns out this person's buyingit, using it for a completely
different reason, right?
Turns out, this person isbuying it, using it for a
completely different reason,right?
Your sales and marketing needsto shift and focus on that, and
your operations team needs tofall in line and stop, you know,
worrying about this otherproduct that they wanted to sell
.
So that Venn diagram, if youcould just sum up how businesses
(39:58):
run successfully.
It's your sales marketingoperations team all running like
a fine-tuned machine.
Speaker 2 (40:03):
I really like that.
Speaker 3 (40:29):
And the Venn diagram is a good visual because
obviously all three of those aregoing to be existing at a
company and the point you madeabout generally 80% is
operations and sometimes thatthey get their way instead of
the sales and marketing.
That is something I have notthought about, but that makes
complete sense and I could seewhere that would be a recipe for
disaster.
Cousin was a car executive andhe thought Homer had these great
ideas.
Homer, I want you to design ournext car.
And Homer starts designing thecar because he's the guy.
(40:51):
He's like the productdevelopment guy.
Oh, I have all these ideas.
We're going to put a horn here,a horn here, a horn here.
I need this cup, roll this cup.
He makes this absolutelyatrocious vehicle that no one
ends up buying, right.
On the other hand, if you startwith, you know the lean startup
kind of methodology and you'rethinking about how this whole
process works, you're solvingproblems for real people and
(41:12):
that's your sales and marketingteam needs to relay that back to
the people who are designingthe product, who are doing the
service, all of that, and yoursales team should be the one
that's relaying information backto let them know hey, this is
what they really, why theybought Not because you put this
cool little widget in here.
They bought it because of thisthing over here that no one's
talking about, and that's howyou actually continue to grow a
(41:34):
company.
Speaker 2 (41:35):
I like it.
I like it Well, before we getto the fire round, I would like
to talk about Patriot GrowthCapital and what you guys have
going on over there.
Can you discuss that a littlebit?
Speaker 3 (41:47):
Yeah, absolutely so.
Patriot Growth Capital is aveteran-owned and operated
private equity firm with thesole focus of buying small
mid-sized businesses to thenhire veterans to graduate to a
CEO role and eventually sell thebusiness to veterans.
So what we're doing is we'reimpacting veterans and their
families through businessownership.
That's really what our focus is.
(42:07):
Our mission is to impact 1million veteran families over
the next 10 years and showveterans how they can become
business owners, because a lotof them are going to be like me,
where they have this amazingskill and experience and
training and discipline whilethey're in the military, but the
rest of the world has no ideawhat to do with them when they
get out.
And so, as a result, you end upgetting a job at a company that
(42:30):
will hire you because, let'sface it, you don't retire rich
from the military.
I don't care how long you werein, and yet you don't feel like
your skills are being used, andfor me, it's also giving them a
purpose after the uniform.
You know when you're in themilitary and this is something
that a lot of people don't talkabout I was on a submarine and I
had 130 other guys you knowwe're brothers essentially
(42:52):
working together and we had noidea what the mission was that
we were doing most of the time,because a lot of it was really
top secret.
You get to find out some of thestuff you're doing, you're
patrolling but you all felt thispride because you were part of
something much bigger thanyourself.
And when all of a sudden youget out of the military, you not
only take away that you knowbeing part of something bigger
(43:13):
than yourself, but you also takeaway all the people who are in
the shit with you, right?
So we all, you know, say miseryloves company, and that's you
know.
They say a bitching sailor is ahappy sailor, and there's a lot
of truth to that, right.
So what happens is you take allof that away from them and then
you put these people into a rolethat they're overqualified for
or it's so mundane and boringand they don't see how they fit
(43:34):
into the big picture and theydon't really see how they're
actually making a difference.
Because really, what are wedoing?
We're increasing shareholdervalue or making other people
rich, right?
That's kind of the way peoplefeel about it.
And so, by showing them how tobecome the shareholder, become
the owner and step in this placewhere now they have a team of
people underneath them again.
They're supporting other people, they're supporting their
families and their employees'families.
(43:54):
It gives them another sense ofpurpose and it gives them
something bigger than themselvesagain to work towards and it
allows them to continue movingon in the trajectory.
That's positive, as opposed tofeeling lost and alone out there
in the corporate world.
Speaker 2 (44:14):
I love that business model.
I love what you guys are doingwith veterans.
I'm going to post a link tothat in the show notes and to
everybody listening.
Go check it out, whether youhave a business for sale or
you're interested in investing.
It's just a really coolorganization and a different
type of private equity that hasa great social purpose, and I
love that.
So, jeff, this has been anawesome interview.
Before we wrap up, I would liketo do the fire round.
(44:37):
This is four questions we askevery guest at the end of the
interview.
Are you ready?
Let's do it All right.
What is your favorite book?
Speaker 3 (44:49):
let's do it All right .
What is your favorite book?
I have two, um man's search formeaning and unbroken, and
they're both about you know thehuman spirit and how it can
endure, and in spite ofoverwhelming odds.
Speaker 2 (44:57):
Very nice.
What are your hobbies?
Speaker 3 (45:01):
I have two boys so they play baseball a lot so I'm
out there coaching little league, helping them out.
Uh, we like going shooting.
My wife and I love goingshooting and, um, you know I
hate to use the word playingwith guns, but it's kind of like
playing with guns going out inthe woods and shooting all sorts
of fun stuff.
Speaker 2 (45:15):
Very nice, very nice.
What is one thing that you donot miss about working for the
man?
Speaker 3 (45:22):
Uh, I, I love my freedom of autonomy, I love to
be able to set my own schedule.
And I I never liked it when Iwas told like I had to fly the
night after the Seahawks lostthe Superbowl.
I had to take a red eye flightin a snowstorm with a bunch of
people that were on the sameplane from China, and it was
really terrible.
Like how to do stuff like thatjust to appease somebody else's
(45:44):
schedule.
I don't miss that at all.
Speaker 2 (45:47):
Yeah, yeah, I agree with that.
And final question what do youthink sets apart successful
e-commerce entrepreneurs fromthose who give up, fail or never
get started?
Speaker 3 (45:58):
Oh man, we didn't even get into my e-commerce back
when we took one business fromzero to 17 million in about
eight months.
And the number one thing that Ithink is going to eight months
and the number one thing that Ithink is going to cause any
e-commerce business owner tofail is not tracking everything
tracking the data, tracking yournumbers, knowing where your
customers are coming from what,knowing everything about that
(46:21):
customer journey and having thedata.
The more data you have, themore informed decision you can
make, and if you're not tracking, then you don't have a way to
make a good decision.
Speaker 2 (46:31):
I like it.
I like it.
All right, Jeff, if people areinterested in getting in touch
with you, what is the best way?
Speaker 3 (46:38):
Yeah, well, you already talked about Patriot
Growth Capital, so put that inthe show notes.
And then my personal website isjeffbarnesceo, so you can learn
a little bit more about methere.
Outstanding.
Speaker 2 (46:47):
Jeff, thank you so much for your time today, and
looking forward to staying intouch Sounds good.
Thanks, david.
Welcome everyone to the Firing the man podcast, a
show for anyone who wants to betheir own boss.
If you sit in a cubicle everyday and know you are capable of
more, then join us.
This show will help you build abusiness and grow your passive
income streams in just a fewshort hours per day.
And now your hosts, serialentrepreneurs David Shomer and
(00:22):
Ken Wilson.
Speaker 2 (00:24):
Welcome everyone to the Firing the man podcast, the
podcast for entrepreneurs andbusiness builders ready to grow
beyond the hustle and intoownership that truly scales.
I'm your host, and today'sguest is someone who challenges
the startup grind and championsa smarter path to wealth
creation.
His name Jeff Barnes.
(00:46):
Jeff is a seasoned entrepreneur,private equity expert and
founder of the MastermindInvestment Club.
He's also a key player atPatriot Growth Capital, where he
helps business-minded veteransand investors leap into the
iQuadrant by acquiring existingcash-flowing businesses.
With years of experience inmergers and acquisitions, deal
(01:09):
structuring and businessleadership, jeff teaches others
how to stop trading time formoney and instead start thinking
like owners and investors.
His approach isn't aboutbuilding from scratch.
It's about buying smart,operating lean and creating
legacy wealth.
In today's conversation, we'lldig into how everyday people can
(01:31):
transition into businessownership through acquisition,
the mindset shifts required tooperate like an investor, and
why now is the perfect time toexplore business buying as your
next move.
Get ready this episode willchallenge what you think and
know about entrepreneurship andwealth.
Jeff, welcome to the podcast.
Speaker 3 (01:52):
Thanks so much for having me here, david, I
appreciate it.
Speaker 2 (01:54):
Absolutely so.
To start things off, can youshare a little bit with our
audience about your backgroundand path in the business world?
Speaker 3 (02:00):
Yeah, absolutely so.
My path actually begins very,very early on, when my dad was
self-employed.
When I was a kid he owned ahardwood flooring business and
unfortunately, due to a lot ofreally unforeseen circumstances
in the late 80s, early 90s, andat some point we were actually
homeless, we didn't have a placeto live and that was my first
introduction to this world ofbusiness and I said there's no
(02:31):
way on God's green earth thatI'm ever going to run a business
, because I was watching what mydad was having to go through
and this is a guy that wasworking harder than anyone I've
ever seen 80 hour weeks, workingnights and weekends and missing
out on a lot of family timebecause he was just doing
everything he could to keep theroof over our head and, to his
credit, able to get back up onhis feet and move things forward
(02:51):
and start making a living againwith his business.
But it was ingrained in me Idon't want to be a business
owner.
That's not going to happen.
So I joined the Navy straightout of high school.
I went into the submarineprogram.
I was a nuclear power plantoperator on a submarine.
I was a scuba diver.
I was a quality by the end ofmy time in the Navy.
I was a quality assuranceofficer, I was in charge of the
(03:12):
machinery division, I wasrunning the nuclear power plant.
I was writing work back becauseI was doing all this stuff and
I realized along the way that,you know, my one of my core
values is personal freedom andautonomy.
And guess what you don't haveeither of when you're in the
Navy, especially on a submarineright?
Neither one of those right.
So while I was in, I wasstarting to read books like
Robert Kiyosaki's you know, richDad, poor Dad, cashflow
(03:33):
Quadrant, think and Be Real Rich.
I started doing all thepersonal development stuff that
hopefully everybody who'slistening is also doing or has
done.
And along the way I realized,okay, maybe business ownership
is what I need to do, but I haveno idea how to start that and
how to go down that path.
So I started going to seminarsabout real estate, investing and
learning about marketingeventually, back in 2006.
(03:54):
I ended up buying.
I actually bought my first home, no money down.
And when I was 21 years old,while I was in the Navy, and I
got hooked, I was like I want tokeep doing this and I didn't
have enough money to, of course,sustain myself when I got out
of the Navy.
So I took a job where I didn'thave to work in an office.
I didn't have to work innuclear power anymore and I
didn't have to, you know, worryabout the grind as much.
I worked from home.
(04:14):
So I've been working from homesince 2006.
You know so I'm one of theoriginal remote employees, if
you will, and in doing that jobI learned a lot, because what I?
I left the Navy as a nuclearpower plant operator and very
high level, and I actuallybecame a boiler inspector for
this large insurance company.
And the nice thing about thateven though I felt like my
(04:34):
skills were completelyunderutilized was that I got to
go to five to 10 differentlocations every single day and
that meant I was looking atbusinesses and getting behind
the scenes.
Look.
So you know I talk aboutfive-star hotels that people go
into and it looks amazing.
I got to see all the ugly stuffon the back end.
I got to go into power plantsand manufacturing facilities and
clean controlled atmospherefacilities and, you know,
(04:57):
growers, you name it.
I've literally been inside ofover 10,000 businesses.
Because I was doing that foryears.
I ended up running a departmentdoing that and along the way I
was doing all these side hustles.
David, I've started over 20companies in my career.
You can imagine how many ofthem actually succeeded, given
that I had to start 20, right?
So a lot of them were sidehustles, like constantly doing a
(05:19):
lot of what you're talkingabout, like how do I get out of
the nine to five grind?
And mine wasn't even a nine tofive grind because I worked
remotely, but I was traveling30,000 miles a year in a car.
Initially, by the end of mycareer in the corporate world, I
was doing 75,000 miles a yearin the air.
I was gone every single week, Iwas on airplanes constantly and
, as a result, I was just nothaving the quality of life I
(05:39):
wanted.
So, even though I had a reallynice, you know six figure salary
and I had my own department andI was doing really cool,
innovative things, I just wasn't.
I didn't have freedom andautonomy like I really wanted.
So my foray into businessownership actually started with
my ex-wife.
I was because I'd gotten my MBA.
I'd been going to theseseminars.
I was learning about marketinginside and out, really good with
(06:02):
technology, really good withunderstanding funnels and you
know all the automations andeverything that goes into, you
know, digital marketing.
When my my ex-wife was achiropractor, I said you need to
start your own practice, andbecause I've tried starting a
whole bunch of businesses upuntil that point most of them
failed Of course I was able tohelp her get hers going and
that's when I learned the mostimportant thing in business,
(06:24):
which is if you don't have aproduct that people want to buy,
then you don't have a business.
Luckily, as a chiropractor, wehad a business where people
wanted to buy what she had,especially since insurance was
paying for it.
That made it a lot easier.
So we actually took thatpractice from starting out in
January of 2016.
And by March of 2016, she had afull schedule.
By the end of 2016, she'dalready known over six figures
(06:47):
in revenue, which is pretty goodfor a chiropractor, to be quite
honest, and we also had hiredanother chiropractor massage
therapist.
By the time that we ended upgetting divorced, unfortunately,
we had about seven figures inincome as a really small
chiropractic and functionalmedicine practice.
So that was my first forayreally setting everything up and
(07:07):
succeeding.
I should say setting everythingup from the very beginning and
getting it going.
And along the way, I realizedthat man starting a business
sucks.
It's very hard, it's verychallenging, you've got to find
the money, you've got to do allthis sort of stuff.
But while I was in thecorporate world, I was doing
some of the same thing, right,but people were coming to us
because they wanted to get theirtechnologies or their business
(07:27):
into corporate America, and myjob was helping them find where
they'd fit in in the corporateworld, and then we would either
partner with them, invest inthem or acquire them, and so
that's what I ended up doing.
We did over a billion dollarsin transactions using that model
, and about that same time iswhen we finally got the
chiropractic practice going.
I was like, listen, I'mtraveling too much.
I got to leave, I got to bedone with this.
(07:48):
This is just way too muchstress on myself and my family
and oh, by the way, thesecompanies that are making tens
of millions of dollars becauseI'm making the introductions and
help them raise capital I'm notgetting any of that.
So it didn't really feel right.
So I left in 2018 and Iactually acquired Angel
Investors Network in 2018.
And AIN has been around since1997.
So that was my first actualacquisition, so I've started a
(08:08):
lot of companies.
Then I acquired a company thatwas already growing, already
running, already had customers,already had employees,
everything like that and Irealized this is probably the
better model of all of them.
But the irony is in thatbusiness, at AIN, what I was
still doing was teachingcompanies that were just getting
started how to raise money, soI was using both sides of the
aisle, if you will, and that wasmy foray into it.
(08:30):
Since then Since that was 2018,I've literally helped hundreds
of companies raise hundreds ofmillions of dollars, and we set
up systems for companies thatare raising capital and we put
on events for investors thatwant to look at deals, and we
get fed deals every single day.
So it's really just up to us tosay, okay, well, which ones do
we want to take on and whichones do we not want to?
And then, what are ourinvestors really looking for?
(08:52):
So that's kind of the long andshort of it.
Speaker 2 (08:54):
I love it.
I love it.
I really like that story, and Iam in a similar boat where, if
you look at the number of LLCsI've probably had over the years
, I'll bet it's approximating 15or 20, most of which did not go
well.
However, I would do them allagain because I learned, and I
think that's- Every time.
Yeah, and so one thing I wantto dig into is your firing
(09:18):
demand day, like the day thatyou had the aha moment.
I'm done, I've had it.
Can you share with me that day?
Speaker 3 (09:28):
So it's really ironic and it's not really a fun story
for me, honestly, because itwas at the stage of my life
where, yeah, I live in theSeattle Washington area and my
wife's family is from here andthat's how I ended up up in this
area.
But the company I worked forwas headquartered in Hartford,
connecticut, and our parentparent company was in Munich,
(09:52):
germany.
So I was in this organization55,000 people I was one of 15
people in the entire companythat was doing this job of
finding technologies that wewould invest in and do all of
that Right.
So 15 out of 55,000 people kindof did what I did, but I did it
with a very specific focus inone area in department
(10:13):
engineering and equipment andtechnology insurance and I was
the only person really doingthat in the United States.
So it was kind of cool to havethis job and be able to do what
it was that I did.
I was working with VCs andprivate equity groups and I was
working with companies all overthe world and doing some really
cool things.
So I actually had a really cooljob.
It just so happened that I livedon the West Coast and the
(10:36):
headquarters were the East Coastor Europe, and given that we
had a chiropractic practice, wehad two young kids, it's like I
can't pick up and move, probablywould have if I wasn't, you
know, in a situation where Icouldn't leave because the
opportunities were there and Irealized with the company they
wanted to promote me, theywanted to put me in other
(10:57):
leadership roles, but not if Iwasn't going to come to where
the company was.
And that was a real challengefor me because, you know, here I
was working remote, I wastraveling all over the world,
you know, working for them anddoing all these things, but I
couldn't get up to the nextlevel.
I mean, I had my own department, I was two layers below the CEO
, but I couldn't get up to whereI really wanted to be, which is
(11:17):
running a much largerorganization, if I stayed with
the company.
And so for me it was likehustling and staying in that
grind for long enough, to thepoint where the side hustle my
wife's business could finallytake over.
There were some health issueswe had to deal with, so I had to
stick in that job a little bitlonger than I wanted to, for the
insurance purposes and whatnot,and then finally, when the
(11:40):
health issues all went away.
It was like, okay, cool, I canfinally leave.
And so I had to tell my boss.
I was like, listen, I've just Igot to take care of my family.
I love what I do here, I loveworking with you guys, I love
everything, but it's just notfor me, and I really appreciate
all the time and energy andeducation they poured into me,
which they did.
They did a great job with that.
I just had to.
You know, it's one of thosesituations.
(12:01):
It wasn't like I was reallyfiring the man.
I actually felt bad becausethese guys had given me all this
opportunity and, granted, Iearned it.
I worked my butt off to getthere.
I'm not saying it was a handout, but I felt bad because these
people trusted me and believedin me.
But I eventually had to say no,I got to take care of my family
, and so that was in October of2018.
(12:21):
I finally left.
I'd already taken on, you know,worked out kind of well for a
couple months.
The problem was I didn't knowthis, you know, shame on me is
that my, my wife said hey,listen, we're done.
You know we can't continue thispath, and so we ended up
(12:43):
getting a divorce in 2019.
So it was January of 2019, wedecided so.
I left in October of 2018, inJanuary of 2019.
So, again, looking back, it'slike did I really want to quit
the job?
Not really, cause it was agreat paying job.
I actually did some really coolthings.
I was able to do my side hustleI was consulting on the side at
the time, um, but I ended uphaving to leave and, you know,
shut that whole thing down.
(13:04):
So wasn't really your typical.
I can't wait to get out of here.
Screw this company, I'm, I'mgone.
It was like, yeah, it's kind ofsome mixed feelings there and
if my ex had told me we want toget a divorce before I left the
company, I probably would havestayed with him a little bit
longer and seen where it went,because we were standing up our
own innovation centers andventure capital arm and
everything like that, and I wasentrenched in all of that.
Speaker 2 (13:26):
Very nice, very nice.
And I've heard a number offiring man stories on here.
And you know, I've heard anumber of firing man stories on
here and I often find thatpeople that are a little bummed
out when they're leaving asopposed to the person who wants
to give everyone the middlefinger on the way out just means
that they use discretion whenthey were selecting a job and
(13:47):
they had a good one, and that'sgreat, and so you have a wealth
of experience with raisingcapital, and I'd like to dig
into that a little bit.
I think when people think aboutI'm firing the man, I'm going
into business for myself, oftenthe path that they're thinking
about is bootstrapping andgrowing from the ground up, and
(14:10):
prior to my working in thecorporate world, I always felt
like capital raising wasreserved for Silicon Valley and
people on Wall Street.
And so what are some?
Just some general, like let'stalk through generally, how does
capital raising go and whatdoes that look like for the
borrower?
Speaker 3 (14:30):
So there's so many different ways that you can, you
know, paint this canvas when itcomes to raising capital.
There's the traditional youknow what everybody thinks about
which is we call it yourfriend's family and fools round.
You know, very first, money inyou should actually be the first
money.
And if you don't put your ownmoney into doing something which
generally means I'm buying theequipment or I'm paying for the
(14:52):
marketing or I'm paying to dothe setups, like you have to put
your own money in first.
Then you have the triple Fround, as I call it the friends,
family and fools.
Your friends will give youmoney, your family will give you
money if they believe in it,they like it, and then the fools
will give you money justbecause they're like yeah, you
know, it sounds like I'm talkinganywhere from 5,000 to, if
(15:13):
you're lucky, upwards of$100,000.
These are your close innercircle of people.
And this is if you've neverraised money before, if you've
never been successful inbusiness before.
You know, elon Musk goes outthere and says I'm going to
start a new business.
He doesn't have to ask forraising money.
People just write him a check,right?
So if you're doing it for thevery first time you have to
(15:39):
realize that, regardless of howgreat you were in your last
business, how awesome you werein your career, how much what
your pedigree looks like, youreducation, doesn't matter.
Everyone sees you in the rolethat you had, not the role that
you are creating, and so theydon't believe that you they're
not going to tell you this, ofcourse they don't believe you're
going to succeed in this newrole because I'll use myself as
an example.
When I was in the Navy, I ran adepartment very, very well.
(16:01):
When I was in corporate America, ran a department very, very
well 25, 30, 40 employeesunderneath me and everything
went great.
But that's because I had anecosystem I had.
It wasn't me by myself tryingto figure everything out.
And people realize that theythink about that, even if it's
just subconsciously.
So they're not just going tolike throw money at you just
because you say, hey, I'mquitting my job, I'm going to
(16:22):
start a business.
That's not the way it works andsome people seem to think it is
or that they deserve the moneyjust because they're taking the
risk and starting up a company.
You know there's no worse waythan to raise money by being
desperate right, being desperateand feeling like you need the
money or you deserve the money.
That's the worst way to raisecapital.
(16:42):
So what happens with thefriends and families?
They give you a little bit ofmoney to get started, if they
can.
My grandma said no to me.
My grandma was the only onewith money in my family at the
time.
My grandma said no to me.
My grandma was the only onewith money in my family at the
time and she said no to me.
She's like sorry, no chance.
So all right, fair enough.
So I had to go out there andlearn the hard way.
The next round is your angelround.
These are the people that don'tknow you but are high net worth
(17:04):
individuals.
They can maybe write a $5,000to $50,000 or even $250,000
check.
And the 250,000 guys and galsthey're definitely on the higher
end of the spectrum and they'reonly going to do that if they
have a lot of liquidity and theyreally like your deal.
And what that comes down to isreally making people believe in
you and your vision.
If people don't believe in youand your vision, then they're
(17:28):
not gonna invest your angelround.
You're generally raising amillion to maybe upwards of $5
million.
You're generally raising a lotlower chunks of capital
initially and you're giving awaymore of the company.
You're giving away straightequity.
Most of the time it's eitherthrough a convertible note or a
safe note, or sometimes peoplejust do straight equity
financing.
Which means, let's just say I'mgoing to raise $100,000 and,
(17:50):
david, you're going to give me100 grand and I'm going to give
you 10% of my company.
Great.
Now I've just valued my companyat a million dollars and you
own 10% of it today.
The next time I go raise money,hopefully the value of the
company's increased because I'vetaken your $100,000 and I've
deployed that into smart thingslike marketing and sales.
Literally almost nothing elsematters, unless you're doing
(18:11):
software or tech and you'redoing development because you
need to do that, and now mycompany might be worth $5
million.
Well, if I go raise anothermillion dollars at 5 million,
I've given away another 20% ofthe company.
Right, and so that's kind ofthe way that we look at this.
And then, once you get to theseseries A plus rounds then
you're going after venturecapitalists, you're going after
family offices, you're goingafter private equity firms,
(18:34):
corporations, things like that,and they write checks starting
at $10 million, 10 million on up.
What we've ended up doing ishelping companies that are what
we call in the capital gap.
They're past the angel round,like their company valuation is
maybe 15, 20, $50 million, buttheir revenue and their profits
aren't really there to justifygetting a VC involved.
(18:57):
But it's too rich for theangels, and so that's really
where I help companies.
They're already successful,they're already growing, but
they still need more money toget to that next level.
But there's a lot more to itthan that.
That's just a brief overview.
Speaker 2 (19:08):
No, that's really helpful.
And I would like to continuethis conversation into kind of
communicating to the newbie, theperson that's never bought a
company before and may not havethe rich uncle or person in
their network that would be ableto help them out in that
friend's family and fools whichI really like that, by the way
(19:30):
the three Fs family and foolswhich I really like that, by the
way the three Fs.
So let's use an example of a $5million company.
You had mentioned that theentrepreneur needs to have skin
in the game, which that makescomplete sense to me.
On a $5 million deal, whatwould just the general
expectation be of this is whatyou're bringing to the table.
Speaker 3 (19:53):
Yeah.
So when you say a $5 milliondeal, I'm going to assume maybe
it's a million dollar EBITDA anda 5X multiple, so the company's
worth $5 million.
Here's what a lot of peoplewill generally do when they get
going is they'll go to the bankand they'll tell the bank that I
want to get a loan and if it'sa $5 million deal, it's an SBA
loan, right Like you can qualify.
(20:14):
And I will tell you, out of allthe deals I've done, I haven't
done a single one where a bankfinances it.
Not one I've tried.
But banks are, in my opinion,the worst.
They are the most risk averse,and I used to work in financial
service.
Well, I've been in thefinancial service industry for
over 20 years now.
Banks are the most risk averseorganizations on the planet.
(20:38):
They are not in the business ofrisking money at all, and so
they have an underwritingdepartment that is.
I don't care what bank you goto.
Their underwriting is the moststringent, strict thing you'll
ever go through and it's a realpain.
And to me that's just not worththe headache, because there's
so much more money in the worldavailable to us than what's
inside the banks and, as aresult, I tend to go with
(21:00):
private investors.
I, you know you can call themangel investors, but they're
just private individuals andpeople that have money in their
IRA, their 401k, you know theirbank account.
They might have money in stocks, bonds, mutual funds, whatever,
and they have cash that theycan invest.
Well, I have a $5 million deal.
We're going to say we want toget debt and equity.
And what do I mean by that?
(21:20):
Well, debt is I'm going to goget a loan from somebody or some
institution.
Now, when I say dealing withbanks, I'm talking about, like
SBA, commercial banks, thosekinds of things.
They're really challenging towork with.
There's plenty of othercommercial lenders.
There's other types of banksout there.
There's private banks that willdo loans, but they're only
going to lend maybe up to 70, atbest, 80% of the value of the
(21:44):
company or the purchase price.
So if it's a $5 million deal,let's just say they're going to
be really generous and they'regoing to give you 4 million
bucks for this, okay, and that'safter you have proven beyond
the shadow of a doubt that it'sa good deal, and then it's going
to continue to be a good dealeven after you buy it, and
that's.
That's a hard.
That's a big hurdle.
Most people, you know, glazeover that fact and I've been
(22:07):
through enough due diligence andcompliance reviews to know that
that's not easy to go through.
So but let's just say you passall that and they're like okay,
cool, they're going to issuewhat's called a term sheet.
They're going to say, here arethe terms of our offering and we
will give you $4 million andit'll be a three-year term.
You're going to pay maybeinterest only in the first year
(22:27):
and principal interest on thesecond and third year and you
have to repay us with a balloonpayment on month 36.
And they're going to outlinewhat all those terms look like.
And then it's your job to saytake that back to your CFO.
Or, if you're doing thefinancial analysis, say, ok,
well, can I make these numberswork with this deal?
Hopefully you still can and youmight accept the term sheet.
Once you accept the term sheet,they go into underwriting and
(22:50):
they start taking everythingover to their compliance team to
start reviewing everything.
They're looking under the hoodof everything In the meantime,
because this can take anywherefrom, at the short end, 30 to 45
days.
Generally three to six monthsis what we see taking time when
you're getting a lender likethat.
Now you have to go into theprocess of raising the other
(23:11):
million dollars.
And I'm just going to assumeit's an all cash deal.
Seller won't take any sellercarry, they're not going to do
any rollover, they are expectingall cash at closing.
So now you got to go find theother million dollars.
Well, this is where moneypartners or private investors
come in.
And I'll also assume maybe thisperson only has $100,000 at
most to throw at a deal.
(23:32):
So now you have to raiseanother 900 grand.
Well, what do you do in thiscase?
This is where we say thecompany is worth $5 million
right now and this person isgoing to be an owner-operator.
They're going to continue togrow the company.
Hopefully they're going to turnit from 5 million into 10
million in the next, let's justsay, five years.
Yeah, we'll be really generoushere.
(23:52):
Well, I would go to my warmnetwork, my friends, my family.
I'd ask for recommendations,I'd ask for referrals, I'd tell
them what I'm doing, I'd createa pitch, I'd create a
presentation.
I actually found this amazingcompany.
I've already got the bank andthis is key.
I've got the bank to tell methey're willing to lend on it,
which means I only need to comeup with whatever's left right,
(24:15):
in this case $900,000.
The reason that's important isbecause it's a lot harder for
someone who's never raised moneybefore to go out there and
raise the full $5 million fromprivate individuals, unless they
happen to know a lot of greatpeople at the country club, the
golf course or whatever, orsomebody that just had an exit
that wants to back them.
Generally doesn't happen,especially the first time around
(24:36):
.
So going to the bank first orgoing to find somebody who's
going to give you the debt for70 to 80% of the purchase price
really solves a big problem forthe rest of the investors,
because now you can come to themand say yeah, well, I'm looking
for nine people to put in$100,000 each Out of that and I
can't do all of the math in myhead right now but for each,
(24:57):
let's just say $100,000, that's.
You know, I guess I could tryand figure that out.
$100,000 divided by 5 million,that's 2%, right?
So for every 100K you get 2% ofthe company, right?
We're just doing really basicmath here.
So now I'm raising $900,000.
(25:17):
Well, that's 18% of the company.
So I'm willing to give up 18%of the company for 900 grand,
all right.
So you know.
If somebody put this on aspreadsheet, it's pretty
straightforward.
I put it in my own 100 grandPlus I'm giving up 18% for
another $900,000.
That equals a million.
Now I've got my million.
The bank comes in with a 4million.
That's my capital stack, right.
So it's a little bit of my ownequity, right.
(25:37):
I'm putting in more equity fromother partners.
Those people are nowshareholders in your company.
They're not legitimate, notfull-on partners unless one
person put in the whole, youknow, 900 grand or whatever.
They're minority shareholdersand that's how you avoid giving
up a lot of the company, right?
And the debt covers the vastmajority of the purchase price.
(25:58):
So hopefully that was helpfuland people could follow.
Speaker 2 (26:01):
Absolutely.
And one follow-up questionthere.
So the debt portion of itthere's going to be like what is
expected.
Well, there's going to be someprincipal and interest payments
up the road On the equity sideof things and sticking with this
example, 2% for 100,000, whenat sale they would be making
(26:23):
money.
But what does that 2% entitleyou to?
Does it entitle you to 2% ofnet income?
What does that do for theequity investor?
Speaker 3 (26:37):
Yeah, it's a great question.
You can structure it in so manydifferent ways, right?
Somebody who comes in and putsin $100,000 to help this company
get go, or help you with theacquisition.
They may ask for a job.
They may say, yeah, I have thehundred thousand, but I want to
be an advisor, I want to be yourCFO, I want to be whatever?
Okay, great, now you canactually say okay, we'll give
(26:58):
you a salary position inaddition to this.
Right, that's one piece.
The other thing that people willwant is they're going to want
dividends.
Well, the challenge with payingout dividends, and especially
when you're doing yourprojections, is that your
dividends are paid out aftereverything else is done.
Right.
So now there's net profits.
(27:19):
So we have EBITDA and everybodyunderstands EBITDA earning
before interest, taxes,depreciation and amortization.
But then you have this othersubset of all this other stuff.
Now I have to pay interest, nowI have to pay taxes, now we
have our depreciation andamortization expenses.
Plus we want to have retainedearnings, meaning we want to
keep cash in the bank tocontinue growing the company.
And then, after all of that,now we have our net profits and
(27:42):
let's just say, this companythat we said is doing a million
dollars in EBITDA really onlyhas, at the end of the day,
$200,000 in net profits.
Well, 2% of $200,000 is notmuch right.
So you're getting four grand ayear give or take for these
people that just put in the$100,000.
So they put in $100,000, theyget, you know, 2% of this.
(28:05):
So they're getting $4,000.
So they're getting a 4% rate ofreturn effectively.
Okay, and that's if you'repaying dividends out.
A lot of people will opt forwe're not going to pay dividends
out.
We're actually going to keeprolling everything back in.
We're going to increase ourmarketing and our advertising
expense so we can keep growingthe company.
That's the smartest thing a lotof people can do if they have a
(28:27):
good sales and marketing system.
If they don't, it's not a greatidea.
But you want to continuegrowing the value of the company
because, really, where thesepeople are going to make their
money is on an exit.
Okay.
Now, if your folks are familiarwith real estate transactions
and whatnot, then they mightgive this and this is one thing
that people can do.
It's not very typical but it ispossible.
(28:48):
Let's just say you go fiveyears in operations in this
business.
The business is not worth $10million, but you don't actually
want to sell it, but you do needto take out that.
That bank, let's just you knowI know I said 36 months earlier,
but let's just say it was afive-year loan you want to take
out that financing, but now thecompany's worth 10 million.
Well, to keep the number simple, I owe $4 million to the
(29:15):
initial bank and I owe $900,000to my other investors.
Well, I could maybe go get afive or a $6 million loan.
I could pay the bank loan offand I can pay my investors back
all of their money and they cancontinue to retain equity in the
company if we want to do that.
There's no hard and fast ruleabout how you are required to
pay all of your investors back,but there is one rule that's
(29:36):
absolutely pertinent, which isyou should pay your investors
back.
Right, it's just how you do itand when you do it and all of
that.
That's all up for negotiation,right?
You can structure it as a safenote.
Hey, I'm going to go raise amillion dollars, but we're not
setting a valuation on thecompany right now.
We'll set the valuation later,and so, instead of it being a
million dollars, gets you 20% ofmy $5 million company, I'll say
(29:58):
no.
I'm going to set the valuationcap at $10 million because we're
going to try and grow thiscompany.
So now your million dollars areworth only 10% of the company,
assuming I get to that level andI do another financing round.
So there's no hard and fastrule.
It really comes down to howcreative can you be and what's
the best opportunity and offeryou can make to your investors.
Speaker 2 (30:18):
Got it, got it.
No, that makes a lot of sense.
That makes a lot of sense.
There are probably some peoplelistening right now saying I
don't have a rich uncle, I don'thave a ton of money in savings,
so buying a business, anexisting business, is not in my
cards.
What would be your response tothat group of people?
Speaker 3 (30:41):
That's the most short-sighted thing that you can
think.
But I would tell them I waslike no, you shouldn't buy a
business, because if that's yourthinking, then you will not be
able to run a business, plainand simple.
Um, buying or starting anybusiness and growing anything of
your own and and beingsuccessful at it, requires a
growth mindset.
It requires you to breakthrough any barrier and any wall
(31:02):
and any impediment in front ofyou to make sure you succeed.
Right, so if the very firstroadblock that comes up, you say
, oh, nevermind, let's turn thecar around and go home, we're
not going to do this.
You shouldn't own a business,because I don't know of a single
person ever who has beensuccessful their first time
around without any challenges,problems or heartache.
(31:22):
Most of the time they say youknow, they did a study a long
time ago and they said what wasthe average number of attempts
it took for you to become amillionaire?
And the average number and thisis you know, back in the
nineties, the average number ofattempts for these really rich
people to finally break througha million dollars was 11 times
11 failures before they finallysucceeded.
Okay, so anyone who is gettinggoing and saying, oh well, I
(31:44):
don't know anybody with anymoney, so I guess I can't do
this.
You're probably right, becauseif you have that mindset, you're
not going to succeed.
On the other hand, somebody says, oh, I don't know anybody who
has any money, but I want tomake this happen.
How do I do that?
That's a different conversation.
That is, it's about buildingyour network.
You have to expand your network.
You can do that online.
You can do it through Facebookgroups and LinkedIn communities
(32:06):
and groups.
You can do it by going tonetworking events in your local
neighborhood.
I know people that have gottenmoney by going to church.
Talking to people at church,you know.
Talk to your CPA, talk to yourfinancial advisors you name it,
you know.
Just because you don't knowsomebody or you don't think you
know, like there's a book calledthe Millionaire Next Door.
I can't remember the name ofthe author right now, but
(32:29):
there's more millionaires in theUnited States and around the
world than there ever has been,and you can throw a stone and
hit somebody with a millionbucks somewhere.
Does it mean that it's allliquid?
No, but they're worth it andthere's a way to get their money
out.
One of the things and I'll giveyour folks.
This kind of strategy is thatyou may not know people with a
(32:49):
lot of money, but I bet not toofar from where you live, there's
people out there that have alot of equity in their home and
equity in a home is the mostuseless thing out there until
you pull it out right, becauseequity, you know and I'm
assuming everybody understandsthis.
But we'll give a really simpleexample.
Housing market out here hasdoubled in the last five years,
(33:11):
like literally a hundred percentincrease in five years in
houses.
So somebody that bought theirhouse, let's just say 15 years
ago for $500,000, let's just saythe mortgage is now 400 grand,
maybe a little bit less, buttheir house is now worth a
million dollars.
That means there's $600,000 ofequity.
That's just sitting there doingnothing.
So could you go to somebody thatyou know that has a really nice
(33:34):
home that they've been livingin for a long time, that has a
lot of equity, and say, listen,I would love to show you a way
that you can actually arbitragethe term, the equity in your
home.
So what if you went and you gota $500,000 loan on your home,
you paid off the 400 grand, youhave an extra 100 grand in there
.
It's not much more than youalready owned on your home.
You still have a lot of equityleft.
(33:55):
If you took that $100,000 andyou invested with me and I paid
you 10% and you only have to paythe bank 6%, you're making 4%
per year by doing practicallynothing right, that's an example
.
It's an oversimplified example,but it's an example of how
people can get creative byfinding somebody that might have
the ability and the means toinvest.
Speaker 2 (34:14):
I like it.
I like it.
That makes a lot of sense andit sounds like, yeah, you just
need to be gritty on and reallygo for it on the fundraising
side of things.
Speaker 3 (34:23):
So yeah, it's not about having your resources,
it's about being resourceful.
If you're not resourceful, youshouldn't do it.
Speaker 2 (34:29):
Yeah, I think that's a really, really good
perspective.
So I one thing you hadmentioned at the beginning of
this episode was that you've hadthe opportunity to be in and
out of 10,000 businesses, and Iwould imagine over that period
of time, you've you've made someobservations on what makes a
(34:49):
great company and probably onthe flip side, what does a
company look like if it'sfailing, or what are some
telltale signs that things arenot going well?
And so let's start with thepositives.
What are some characteristicsof a really healthy company that
is suited for growth?
Speaker 3 (35:11):
So, David, I'm going to start by giving you a little
bit of context here.
When I left the Navy, I was ona submarine.
I was a scuba diver, I was incharge of the quality assurance
program and if anything broke onthe boat it could potentially
be life or death situation fornot just yourself but over a
hundred other people right andthe military.
(35:36):
When you first get on asubmarine, they actually play
you a recording of the USSThresher that went down in the
60s and they have the recordingof what it sounds like when a
submarine implodes.
They were doing sea trials,they were testing something out
and the boat literally sank andyou can hear the hull imploding.
Okay, so the gravity of properoperations on a nuclear powered
(36:00):
submarine is ingrained in youfrom day one and you carry that
discipline and that mentalitythroughout your entire life when
you're an operator like that.
When I started inspectingbusinesses, I was blown away by
how terribly most of them wererun.
I mean, equipment was dirtythat they needed to use on a
(36:22):
daily basis.
Equipment would break down.
I'll give you one example areally, really, really large
food distribution company thateverybody would know I won't
throw them under the bus here InCalifornia ended up having a
situation where their entire 1million square foot warehouse of
food a big chunk of it had tobe thrown out because the food
(36:44):
spoiled, because their airconditioning went out, because
there was a blackout in thesystem and they failed to
maintain their backup generators.
Right, and this is a billiondollar plus.
Company Failed to do one sillylittle thing cost them hundreds
of millions of dollars.
Ridiculous, Absolutelyridiculous.
It's stuff like that.
You're like I'm blown away thatpeople aren't doing these
things, and it could be anythingfrom improper marketing,
(37:07):
improper operations, you know,not telling each other what
you're working on.
I'll start with what I think.
For small businesses anyway,the number one biggest
impediment to growth is when youlook at the entire business
like a hub and spoke model andthe CEO is the hub and
everything needs to connect tothe CEO.
(37:27):
Right, the CEO or the owner.
That is the biggest impedimentto growth.
If you are a CEO, if you're afounder, if you're the owner and
everybody relies on you forevery decision inside the
business, you will not grow,right?
That is one of the biggestchallenges.
So the flip side of that whatis it that makes companies
really successful?
It's systems, of course.
(37:48):
You want people to manage thesystems and the systems to run
the business, but there's threeinterlocking systems I look at.
So, if you think about a Venndiagram and you have three
circles, the best businesses arein the center of where sales,
marketing and operations all fitperfectly together.
In other words, your salespeopleneed to have a good, good
(38:10):
product to sell.
If they don't have a solidproduct to sell with a great
offer, they're going to suck.
And it could be a sales system,it could be a sales funnel, it
could be a video sales letter,it could be your e-commerce
store.
You got to have a good productto sell, which means your
salespeople need to understandthe product inside and out the
benefits, the features, theopportunities, the competition.
(38:30):
The salespeople really need tounderstand the product.
Ok, then, your marketing needsto set your salespeople up for
success.
Because somebody that's comingin that doesn't know anything
about your product, your service, your opportunity, you're
wasting your salesperson's time.
Your marketing needs to be makeselling superfluous, as Peter
Drucker says.
So your marketing needs to setyour salespeople up for success
(38:51):
and your operations team andthis is 80 to 90% of the
business people, the folks inthe business your operations
need to support your sales andmarketing, not the other way
around.
And this is the big challenge Isee in bigger companies is that
, because the operational peoplemake up 80% of the human
capital, they feel like salesand marketing should kowtow to
(39:12):
them.
But it's the other way around,because your sales and marketing
should be going after thecustomers and figuring out what
the customers want and whatthey're willing to buy, and then
your product team, your devteam, your operational people,
should help to make that happen.
Right?
So you can look up case studyafter case study of all these
different people who said, ohwell, we built this product
(39:34):
because we wanted to do this andwe wanted to do this for these
people, and then, all of asudden, after a year or so of
selling it, they're like thesepeople are not buying it.
What the heck's going on?
Turns out this person's buyingit, using it for a completely
different reason, right?
Turns out, this person isbuying it, using it for a
completely different reason,right?
Your sales and marketing needsto shift and focus on that, and
your operations team needs tofall in line and stop, you know,
worrying about this otherproduct that they wanted to sell
.
So that Venn diagram, if youcould just sum up how businesses
(39:58):
run successfully.
It's your sales marketingoperations team all running like
a fine-tuned machine.
Speaker 2 (40:03):
I really like that.
Speaker 3 (40:29):
And the Venn diagram is a good visual because
obviously all three of those aregoing to be existing at a
company and the point you madeabout generally 80% is
operations and sometimes thatthey get their way instead of
the sales and marketing.
That is something I have notthought about, but that makes
complete sense and I could seewhere that would be a recipe for
disaster.
Cousin was a car executive andhe thought Homer had these great
ideas.
Homer, I want you to design ournext car.
And Homer starts designing thecar because he's the guy.
(40:51):
He's like the productdevelopment guy.
Oh, I have all these ideas.
We're going to put a horn here,a horn here, a horn here.
I need this cup, roll this cup.
He makes this absolutelyatrocious vehicle that no one
ends up buying, right.
On the other hand, if you startwith, you know the lean startup
kind of methodology and you'rethinking about how this whole
process works, you're solvingproblems for real people and
(41:12):
that's your sales and marketingteam needs to relay that back to
the people who are designingthe product, who are doing the
service, all of that, and yoursales team should be the one
that's relaying information backto let them know hey, this is
what they really, why theybought Not because you put this
cool little widget in here.
They bought it because of thisthing over here that no one's
talking about, and that's howyou actually continue to grow a
(41:34):
company.
Speaker 2 (41:35):
I like it.
I like it Well, before we getto the fire round, I would like
to talk about Patriot GrowthCapital and what you guys have
going on over there.
Can you discuss that a littlebit?
Speaker 3 (41:47):
Yeah, absolutely so.
Patriot Growth Capital is aveteran-owned and operated
private equity firm with thesole focus of buying small
mid-sized businesses to thenhire veterans to graduate to a
CEO role and eventually sell thebusiness to veterans.
So what we're doing is we'reimpacting veterans and their
families through businessownership.
That's really what our focus is.
(42:07):
Our mission is to impact 1million veteran families over
the next 10 years and showveterans how they can become
business owners, because a lotof them are going to be like me,
where they have this amazingskill and experience and
training and discipline whilethey're in the military, but the
rest of the world has no ideawhat to do with them when they
get out.
And so, as a result, you end upgetting a job at a company that
(42:30):
will hire you because, let'sface it, you don't retire rich
from the military.
I don't care how long you werein, and yet you don't feel like
your skills are being used, andfor me, it's also giving them a
purpose after the uniform.
You know when you're in themilitary and this is something
that a lot of people don't talkabout I was on a submarine and I
had 130 other guys you knowwe're brothers essentially
(42:52):
working together and we had noidea what the mission was that
we were doing most of the time,because a lot of it was really
top secret.
You get to find out some of thestuff you're doing, you're
patrolling but you all felt thispride because you were part of
something much bigger thanyourself.
And when all of a sudden youget out of the military, you not
only take away that you knowbeing part of something bigger
(43:13):
than yourself, but you also takeaway all the people who are in
the shit with you, right?
So we all, you know, say miseryloves company, and that's you
know.
They say a bitching sailor is ahappy sailor, and there's a lot
of truth to that, right.
So what happens is you take allof that away from them and then
you put these people into a rolethat they're overqualified for
or it's so mundane and boringand they don't see how they fit
(43:34):
into the big picture and theydon't really see how they're
actually making a difference.
Because really, what are wedoing?
We're increasing shareholdervalue or making other people
rich, right?
That's kind of the way peoplefeel about it.
And so, by showing them how tobecome the shareholder, become
the owner and step in this placewhere now they have a team of
people underneath them again.
They're supporting other people, they're supporting their
families and their employees'families.
(43:54):
It gives them another sense ofpurpose and it gives them
something bigger than themselvesagain to work towards and it
allows them to continue movingon in the trajectory.
That's positive, as opposed tofeeling lost and alone out there
in the corporate world.
Speaker 2 (44:14):
I love that business model.
I love what you guys are doingwith veterans.
I'm going to post a link tothat in the show notes and to
everybody listening.
Go check it out, whether youhave a business for sale or
you're interested in investing.
It's just a really coolorganization and a different
type of private equity that hasa great social purpose, and I
love that.
So, jeff, this has been anawesome interview.
Before we wrap up, I would liketo do the fire round.
(44:37):
This is four questions we askevery guest at the end of the
interview.
Are you ready?
Let's do it All right.
What is your favorite book?
Speaker 3 (44:49):
let's do it All right .
What is your favorite book?
I have two, um man's search formeaning and unbroken, and
they're both about you know thehuman spirit and how it can
endure, and in spite ofoverwhelming odds.
Speaker 2 (44:57):
Very nice.
What are your hobbies?
Speaker 3 (45:01):
I have two boys so they play baseball a lot so I'm
out there coaching little league, helping them out.
Uh, we like going shooting.
My wife and I love goingshooting and, um, you know I
hate to use the word playingwith guns, but it's kind of like
playing with guns going out inthe woods and shooting all sorts
of fun stuff.
Speaker 2 (45:15):
Very nice, very nice.
What is one thing that you donot miss about working for the
man?
Speaker 3 (45:22):
Uh, I, I love my freedom of autonomy, I love to
be able to set my own schedule.
And I I never liked it when Iwas told like I had to fly the
night after the Seahawks lostthe Superbowl.
I had to take a red eye flightin a snowstorm with a bunch of
people that were on the sameplane from China, and it was
really terrible.
Like how to do stuff like thatjust to appease somebody else's
(45:44):
schedule.
I don't miss that at all.
Speaker 2 (45:47):
Yeah, yeah, I agree with that.
And final question what do youthink sets apart successful
e-commerce entrepreneurs fromthose who give up, fail or never
get started?
Speaker 3 (45:58):
Oh man, we didn't even get into my e-commerce back
when we took one business fromzero to 17 million in about
eight months.
And the number one thing that Ithink is going to eight months
and the number one thing that Ithink is going to cause any
e-commerce business owner tofail is not tracking everything
tracking the data, tracking yournumbers, knowing where your
customers are coming from what,knowing everything about that
(46:21):
customer journey and having thedata.
The more data you have, themore informed decision you can
make, and if you're not tracking, then you don't have a way to
make a good decision.
Speaker 2 (46:31):
I like it.
I like it.
All right, Jeff, if people areinterested in getting in touch
with you, what is the best way?
Speaker 3 (46:38):
Yeah, well, you already talked about Patriot
Growth Capital, so put that inthe show notes.
And then my personal website isjeffbarnesceo, so you can learn
a little bit more about methere.
Outstanding.
Speaker 2 (46:47):
Jeff, thank you so much for your time today, and
looking forward to staying intouch Sounds good.
Thanks, david.
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