E287: Building a Business Without Owning It | Strategic M&A, Turnaround Risks & Exit Planning - How2Exit: Buy, Don't Build - M&A of Small Businesses

Episode Transcript
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Speaker 1 (00:06):
Hello and welcome to the How to ACCEP podcasts, where
we introduce you to a world of small to medium
business acquisitions and mergers. We interview business owners, industry leaders, authors,
mentors and other influencers with the sole intent to share
with you what it looks like to buy or sell
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(00:32):
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(00:52):
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Hello and welcome to the How to Exit podcast Today.
I'm here with Vadim Maloof and he is a serial

(01:13):
buyer as a strategic buyer in the mergers and acquisition
space in our space, he does the smaller and medium
sized businesses too, and then he advises in the in
the larger scale, looking forward to this conversation that I
thank you for being here.

Speaker 2 (01:27):
Thank you, Ron, I appreciate you having me here, looking
forward to sharing some of the ways I've exited and
provide as much great content as I possibly can for
your viewers.

Speaker 1 (01:38):
So I was looking through your LinkedIn profile and stuff.
I see you have a background and like healthcare, and
it looks like some tech stuff. What got you into
the mergers and acquisition space? Kind of give us We
always start with the origin story so people can connect
with you. Kind of what got you in the mind
and selling space.

Speaker 2 (01:54):
It's a good question. I want to say. There's been
several percepting events that got me to and unfortunately pain
is a really great reminder. So my first company, Body
by Fatty. I started it without an exit in mind.
It was created out of survival. I started doing personal

(02:20):
training at the age of seventeen when I lost my father.
My middle brother ten years old to me, he said,
if you're not seventeen, you're twenty seven. You need to
take care of yourself. And basically I was doing personal
training with him and two of the jobs and putting
myself to school. But I did that for about four
four and a half years, and then went off on
my own and started my own incorporated my own company.

(02:42):
I think it was nineteen ninety seven. Dad died in
ninety three, and so I built a brand for twenty
five something years. But I struggled with scaling because I
was the expert matter and I got out of the

(03:03):
industry because I was introduced by a real great operator
that was in the software industry. Brought me in on
sales and marketing. He said, he says, focus on sales
and marketing. He ran operation, and we had a technical person.
We lost a company in five years. We sold it.
I'm just giving you the short version of exit. I'll
elaborate a little bit more so the pain of me

(03:27):
trying to sell my company I had, you know, basically
walked away with it and lost its value. It's still
up online, but you know, I have one hundred and
sixty something pages. It's ranks pretty well on Google. I
have a brand. I used to have people that would
try to steal the name. I don't have that issue anymore.
But so anyways, so I think that's how I started

(03:51):
to learn how to get into exiting. And the second
part when I retired the first Yeah, the first time
I was advising companies, and that was something I was
not to tell people. It's you've got to have an
exit plan, even if you don't want to exit. Start
with end in mind, like Stephen said in Seven Habits

(04:12):
of poly Affective People and why, because it makes you
focus on systems and processes and you want a cash
flow and machine. You want a company that prints money,
makes you money when you're not sleep and think about
creating an ATM. So I didn't have that in mind,
and I think I had because of the type of

(04:34):
clients that I was working with and helping them grow
and get them to invest in putting systems in place
and hiring the right people train them or hiring people
that you don't need to train. Was It's like I
had to, like you have to as a business owner,
as a founder, you need to find a way to
fire yourself in that role within a certain period of time,
just depending where you're at in your business. So does

(04:56):
that answer your question?

Speaker 1 (04:58):
Absolutely? And I'm big fan of that, also a fan
of Steve Covey. I've actually had the benefit of getting
the meet with it once theh went to one of
his seminars and then I went afterwards, I went and
set outside on a bench on the back and while
he was waiting for his limo, he came and set
with me and we chatted for about ten minutes. So
it was right here in San Jose. It was really
cool to autographed the book for me. And by that

(05:20):
point he was old enough that I thought he was
a guy on the stage man. He was gasping for air.
He had somebody helping him up there and yeah, sou
but uh, yeah, it was you know, in the nineties,
the probably yeah, before two thousand, I was working for
a company called ZIELENX and they said you can choose
any any you know, any training you want to. You
had like a three or five thousand dollars year of

(05:41):
training budget and he was only doing these small events
where he'd only bring in twenty or thirty people, so
it was fairly expensive, and I chose that. When we
got to meet him, it was really cool. Yeah, but uh,
highlight of my business training life there. Ya got many
a seminars, but I've never really got to meet like
any of the like the higher end offers that. That's
one of the show here. But as far as like

(06:02):
hanging out on a park bench. So you went from
your health coach, you got pulled into the software world,
the tech world, and then you know, I was looking
through your stuff. It looked like you got back and
forth into the health in some later years too.

Speaker 2 (06:17):
Right, Yeah, I got into this personal training and then
I focused had in order to get the results for
my clients, I really had to focus on nutrition, and
I waited a lot on nutrition. So in order for
my clients to work with me, they had to get
the nutrition right. So so nutrition was a big key.

(06:39):
And then working with somebody with an nutrition is not
just a one hour in the gym, it's more of
their lifestyle. So naturally transit into life coaching, and then
from life's coaching, and after I've done really well with business,
I started consulting. So the skill set that I had
to learn to transfer was trans for knowledge basically and

(07:02):
being able to implement it. I suffer with learning disabilities
and I'm a visual and audio learner, and so reading
a comprehension and was always kind of difficult for me,
and I had to be really immersed in whatever I
was doing to retain information, and I had to things

(07:23):
had to come out of being naturally. So anytimes I
do an interview, I don't do a whole lot of preparation.
It's either I learned living it or not.

Speaker 1 (07:33):
So we're very similar. I'm slightly dyslexic, especially numbers. There's
a name for numeric dyslexia, but so I definitely impose
numbers and in some letters. So I've always had dyslexia
issues and I'm extremely ADHD. So I listened to audio

(07:53):
books at one one point two five or one point
five just because I just want to just give me
the damn information right, and then you know, I have
to really focus to do that or have something else
entertaining me, Like I listened to audio books when I'm driving.
So yeah, I get it. I've had the same issue
all my life. I've It's funny, it's a lot of

(08:14):
great CEOs and a lot of high end, high producing
people have those same learning disabilities. They either dyslexia. It's
a very ADHD which lends to creativity, and you end
up being more intelligence because you've you fought all your
life to gain the intelligence, where if somebody just learns easy,
they just learned what they had to learn to get by.

Speaker 2 (08:34):
So I used to own a online store. We had
over one hundred and sixty brands and worked with about
five manufacturers. We had about over thirty five hundred products
basically online. We sold online. You had to do a
lot of volume, and I just didn't really have the

(08:56):
appetite or the skill set to do the business. I
ended up selling what I have kind of walked away
from that, but I think personally, you know, for me,
I have to be really sold on something to be
able to naturally suggest it for others. I never really
taken sales courses, and I was a believer if you're
passionate about what you're doing, you care about the person

(09:16):
that you're talking to the company, and you're very knowledgeable
in that space because you've studied it and implemented it yourself,
and have you know, got some errors in your back
and so of speak, you've got some you've made some mistakes.
There's a huge testament to be able to teach somebody

(09:38):
else from your mistakes and your wins, and not just
somebody that just has all these success. In certain areas,
the dues and the don'ts are just as important. I've
gone through phases in my leadership where I maybe focused
just on the dues probably be more positive. And there's
a whole school of thought of like, here's what you

(09:59):
need to be focus sing on, and that's great, but
you should still have a really good sense of what
not to do because it can, you know, catch you
blindside you.

Speaker 1 (10:10):
Like it, and sometimes it don't do today. You do
this today, but don't do this today, and sometimes it
don't do. List is longer than that to do right, right,
So what.

Speaker 2 (10:19):
We're talking about is organizing time, energy, focus, and in
doing corporate wellness, doing over forty thousand hours of coaching
and consulting, I got obsessed about creating templates that work

(10:39):
for me, and then I would just pass it off
and provided other people and workbooks and so forth. Like
this usually reminded me of it, so I pulled it up.
And this template that I created is crazy. It started
as a one pager and I think it turned into
a seven pager at some point, and I think end
up spending all day filling it out, and I'm like,

(11:00):
this is great, but it's just it was just too much.
So I just kind of piece, you know, broke it
down and use it whenever I need it in different
areas until that habit was developed or that question was
popping out, uh, subconsciously without having to prompt it. But
you made me think of it. And it's so for
you viewers that really want to maximize your time and

(11:23):
energy and your on your focus. I've got on my
website fatting aloof dot com under resources. It is a
free PDF you can download and print and use. Or
if you use like a remarkable like I do, or boxing,
you can use that to handwriting and script it. I
know a lot of people just do things digitally. There's

(11:44):
just something about writing for me that helps script your
mind and helps recall information a bit better. Uh. So
you reminded me of that, and now I'm almost I
can't I can't help, but right now I want to
look at some of these questions you said. You asked
your question that I would ask every day at the

(12:04):
end of the day, what's missing? And I struggle with
that question because it felt like it said that it
was kind of alluding to something that's missing. So I
would ask the same question in maybe different ways. What
can I prove what worked really well, but I can
tweak and make it even better? So missing was something

(12:30):
I struggled with. I don't know why, because it's probably
because I grew up with always what's wrong, what's missing right,
So it's not enough, it's not ideal. And I think
it started to happen in the stages of delegation with
me when I had to learn how to hire people.

(12:50):
When you're a founder and a business owner and having
a perfectionist mindset like I did, I try to get
everything to one hundred percent. I can't remember who to
me where I read it. I'm sure you've heard this phrase.
You don't, It doesn't need to. When you're an owner,
you get it up to about eighty percent and then
just pass it off to somebody that's much better than
you to take it from there and grow it. But

(13:12):
you just need to have enough of an understanding. But
then as a founder, as an owner, you can't be
a jack of all trades. You don't have the time
and energy to try to execute on all this. So
I've struggled a lot with delegating, and so getting getting
to an eighty percent was really was really good, and
even less sometimes brought out about hiring somebody to do

(13:36):
what needs to be done. And this is what you
know you asked me a question earlier, and this is
for viewers. You know, this is really important because I
think our viewers are most of them are buyers then
are investing in businesses. There's just two types of businesses
that are typically invested in or bought. Is your turnaround

(13:56):
company or your company that's already healthy and profitable. I've
been in turnarounds. I'm glad that I did it, but
I'd rather buy a healthy business that's already profitable. Okay,
especially under a five million dollar evaluation, There's just a
lot of work that needs to be done and there's
not enough capital and resources to get the job done

(14:18):
fast enough. And especially in today's market with technology and
AI and innovation, speed is what kills business or makes it.
So that's why I'm reluctant to look at a turnaround
business with very little resources unless you have a very

(14:39):
clear understanding of it. You've got the resources and I'm
not saying just resources about it money, but you have
the team to just jump in and do what needs
to be done to make that business profitable, turnaround and
scale it. So it's just some of the things that
I'm reminding I think there's just maybe some tidbits takeaways there.
If you are looking to buy a business, I'm curious

(14:59):
to here from your audience, what would you say your
audience mostly are they buying into turnaround businesses or already
cash flown businesses.

Speaker 1 (15:10):
Most of them are either newer operators or first time operators,
And if they listen to me, what any bit at all?
They have no business finding a turnaround. A turnaround is
a very skilled set to have. I've only met probably
three or four people in my life that are really
good at it. I've met some people who got lucky
and did it, but I've only met three or four

(15:32):
people in my life. I can think of Rob and
a couple other guys that they just they do it.
They can do it. Even those guys right now, two
of the three I can think of, they don't do
them right now, like they've done a bunch in the
past and they're like, it's just too much work in
the It reminds me of my real estate investment firm.
So I had a real estate investment firm before. I
kind of assume I retired and down into merger and acquisitions,

(15:53):
and we specialize in the most complex real estate deals whatsoever.
And it wasn't until I almost to the day I
was about to sell it. One of my friends who's
a life coach and Robin Mandonna's training, he said, you
realize that you choose you're so into solving problems stuff,
you choose the most difficult business patterns you can. And

(16:15):
in the same timeframe it would take for me to
negotiate buying a single house and having a team of
four or five people negotiating because I was doing bank
owned foreclosures and short sell negotiations and those types of things,
it would take us six months, eighteen months, sometimes twenty
four months to get one deal through the pipeline. So
we always had dozens and dozens of deals in the
works because of it. Right, the guys that are flipping

(16:37):
houses and wholesale on houses are doing three a week
because they're choosing the easier deals. Right, So the same
thing goes for this. If you're picking the turnaround, you're
picking one of the most complex structures you can and
there is absolutely money to be made in it, but
you better be You can't be a jack of all trades.

(16:57):
You have to be a turnaround expert to have immense resources.
You have to build the network of resources, money, resources, technology, resources,
financial wizardy like your forensic CPAs and stuff like that,
because a lot of times these things are buried and hidden.
I think it's a dangerous play for movies. So that's

(17:18):
just a personal opinion. But I've just I've seen three
or four people buy a turnaround, even get FDA or
get SBA loans on it, and ended up having a
file bankruptcy and almost lose their own personal house. Right.
So I was.

Speaker 2 (17:31):
Looking at a very just recently was looking at a
to buying an m and a firm because I've been
doing these deals, but I haven't been doing it for
the last three years, and I needed something that builds
my credibility and get some systems in place and network.
So I wanted to buy a company that was about

(17:54):
nearly fifty years old, has a reputable name, but the
structure of it wasn't absolute nightmare. There was even though
there was a business done all across the country the US,
there was no streamline processes. I felt it would cost
me about a million and a half to put all
the systems in place, but all the people that were

(18:16):
working were basically independent caring territories and they would all
take him into from all independent kind of turned it
from a franchise into a corporate and there was just
so many risk factors there to really pull it together.

(18:36):
It was a profitable company, but the actual the actual
founder of the brand was really not making that much money. Yeah,
I was senior, was in his eighties, and his agents,
I guess the few agents that he had, there was
a few that were making money and if they went

(18:56):
to a corporate setting, they weren't going to make the
kind of money and we're going to basically lose a
lot of that a lot of a lot of that revenue.
So the restructure, we just thought it was just going
to be an uphill battle. And I'm still I haven't
given my hopes on buying an M and A firms. Uh,
there's not that many that are on the smaller side.

(19:18):
They were they were asking for I think twenty two
to twenty five million. Really after we did our valuation,
it was probably worth six to eight million.

Speaker 1 (19:26):
It was said that a couple of times.

Speaker 2 (19:29):
Where we're pricing and really at the end of the day,
we're buying the brand and its credibility. So but Nonetheless,
if you you had something to say, sorry, I.

Speaker 1 (19:41):
Was just saying you brought up a good point.

Speaker 2 (19:42):
Though.

Speaker 1 (19:43):
Anytime you're looking at something, you think in order to
make this workable, doable, or even sellable in the future,
I'm going to have to change a lot. You have
to be careful. There are entire sections of libraries written
no change, resistance and change. Man who move might choose
all that type of stuff. People are really resistant to change.

(20:04):
So if you have a firm full of senior executives
that have been there for twenty thirty years, ten years,
fifteen years, and they've always been able to do whatever
the hell they felt like, and you come in with
systems and processes, unless they're prior military or something where
they can just adopt systems and processes, probably well in
the structured environment, they're going to resist. You're not going
to be able to implement them. You're going to have
to replace those people. It's two different mindsets. There are

(20:26):
people who need structure. My wife is a beautiful, wonderful woman.
She needs structure at work. She needs to know that
this needs to be done at this time, this way.
That's just the way she works. She works better under
structure me if you gave me the same thing to
do every day when you just lose my every living
with It's one of the reasons if you look at
my h if you looked at my history, I bounced

(20:46):
from company and company company, and people like, what did
you do that? You worked at a year and a
half at this company? Two years of that. I was like,
because everything was fixed. I go into companies when like
they had poor I ran big data centers and tech coperations,
and they'd have huge down times and all kinds of problems.
We get it all ironed out, and you know, all
my you know, as soon as I went and stop
getting wake up in the middle of the night for

(21:07):
outage calls, I'm like, what the hell am I doing here?
Nothing's wrooking anymore?

Speaker 2 (21:10):
Do you like to solve the problem and move bought?

Speaker 1 (21:13):
Yeah? Problem twitch trying to tell people that though, because
what happens when you tell somebody your problem solver? If
you make the brand, If your brand is I'm a
problem solver, what do people bring you?

Speaker 2 (21:24):
Problems?

Speaker 1 (21:25):
Problems? Right? And after a while you get burned out
on like just dealing with everybody's freaking problems, Right, I
did the same thing in the real estate world. I
solved the problem nobody else could. I wanted to get
into real estate. I seen the profit margins. One of
my clients had bought me my company. I had a
marketing agency. One of my biggest clients was a real
estate investment firm. They bought us, brought us in house.

(21:45):
We had a falling out because I made him a
lot of money. You quit. He wanted to quit paying
me like an owner. I owned sixteen and a half
percent of the company. He wanted to start paying me
late twenty five hundred a month as an employee. And
I'm like, yeah, that ain't gonna work. Man, I owned
sixteen and a half percent of your firm. Well, we're
going to restructure underneath another LLC. You're not going to
own any of us. Like, okay, I'll just go do
this on my own. So we went and done in

(22:07):
our own. But we created, you know, we just like,
what is the problem nobody else can solve? Well that
was the most difficult one to do, right, Yeah, So yeah,
I do. I do my best not to tell the
world I'm a problem solved anymore because I other there's
the simpler models and more profitable model most cases.

Speaker 2 (22:25):
For sure, simplicity, Definitely, you're going to get a lot
more speed and simplicity. Heck, I was. You know, Cody
Sanchez is really a big person right now. Yeah, Alex
Parmosi as well. But I think Cody Saint Chez likes
the old, boring businesses, especially with the baby boomers right now,

(22:47):
people owning their business for twenty twenty five plus years
are getting older that there's great opportunity to innovate, but uh,
they're not doing it. Nonetheless, this is a really good space,
you know, for for our buy audience that are looking
to buy something under five million. There's tons of resources
online to where to find the business and get a
sense of the evaluation. Make me intently strike up some deals,

(23:12):
but I typically get the deals that I buy or
buy from. My clients are usually through my network because
they know I'm a buyer. And I also lend money
just like you in real estate. I do bridge. I
have a private capital. I've got three entities, FM Enterprises,
FM Capital and FM Advisory, so we've got about sixty advisors.

(23:35):
We're all independent who work together, and then of course
the fund. We've got a we're raising, We're in a
process the processes are raised about a hundred million right
now for a fund. That's the first fun that I've
ever raised. And that's just due to the pain and
ass of working with clients and I've had. I brought

(23:59):
twenty five sixty five million dollar capital deals, debt equity
or stacks amazings to clients and they burned the deal,
screwed the deal, screwed the pood so to speak. And
I'm like, you know what, I want to structure this
a little different. So some of the clients that come

(24:20):
to us, we can become partners and we can just
provide the capital directly as opposed to raise the capital
for them.

Speaker 1 (24:26):
Why do you think they screwed the deal up? Is
because they couldn't raise the capital fast enough, did they Not? Really?

Speaker 2 (24:32):
Good question, Ron, And here's the thing. And I used
to when I started owning and become partners of different companies,
I was somebody told me you need to be an owner,
and I was really pushing for ownership, and believe it
or not, ownership comes with a lot of risk as well.

(24:54):
So I actually I don't focus as much on ownership,
but now I focus on more control because I know
what I'm able to do or to produce an outcome
for the company. At the end of the day, as
long as I'm compensated for you know, the growth and
you know, putting the deals together and making the company grow,

(25:16):
I don't care to be an owner because if you're
going to be owner, are you going to take majority
of the risk or if you go sideways, you're left
on the hook. So so this particular particular person didn't
have the credibility, and so we said, hey, we're not
going to give you the capital directly. It's going to
go through our it's going to go through our funds

(25:39):
through We're going to build a SMP and s grow
it and just set it all up. And by the way,
I have a team that does a lot of this
techn administrative, logistical kind of stuff and attorneys that I
that I pay about fifteen twenty grand to set up
a deal typically a minimum to deal with these stuff.
I really try to focus just on getting the right
people in the in the in the right meetings sort

(26:01):
of speak. So I definitely lean so anyways, the owner,
the buyer technically would not take a back seat on
the ownership at thirty percent. We said, it's just like
a private equity. This is what they do until the
company is running. In the first twelve months, we're going
to own seventy percent. After us up and running, we

(26:22):
got some traction, then you can you can be the
seventy seventy percent. Heck, in fact that we can just
you know, do a debt deal at that point and
give you even more control. And we have we don't
have to be any equity partners at all potentially there
so a lot of buyers think that when they do
a deal, they they're stuck with it. You can always

(26:42):
renegotiate and setting up different things depending on what's happening
with the business. With top of partners, with toper resources
are coming in, there's a lot of different things that
you could do. This is what I love about financing.
You could get quite creative with doing what you need
to do. Anyways, So I don't know if that answers
your question. So the guy that the owner would not

(27:03):
take a back seat. He didn't have the credit, he
didn't have the credibility to take the sixty five million
dollar on this on this property. This was a fourteen
billion dollar business opportunity that he just and then he
had been sitting two or three years trying to get
the money, and I brought him sixty five million dollars
with amazing terms, and he didn't he didn't jump on it.

(27:25):
So I'm curious, Actually, I'm wondering what happened. I'm probably
gonna circle back around to see if he's actually gotten
moved forward on our project. I bet you he has not.
He was just too much ego. He wanted to control,
and he had never raised that kind of capital, and
he just wouldn't take a back seat on the ownership.
He was gonna He's definitely a great operational person. We

(27:46):
felt like we wouldn't have you know, I wouldn't bought
up the capitol. I didn't feel like he could do
the job. But he needed to just you know, make
the pie before trying to you know, start eating the
pie before for anybody else, or to get to dictate
where the pie is. You're not bringing You're not the
money person. So whatever brings the money is going to
control the pie.

Speaker 1 (28:05):
Yeah, so many people that their own ego get in
the way. We were looking at a we were looking
at a concrete plant early on when I got into
this space and I had I had three conversations. Two
of them went exactly the way you were talking about
looking for operators. What we were going to do is

(28:26):
make people put skin in the game. So if I
hired a CEO that wasn't going to be me. They
needed to bring two hundred and fifty k to the
table at that with that evaluation was going to give
them about ten percent ownership. But the way it structures,
after three years, they had the opportunity to buy the
rest of us, buy us out right at the current
at the valuation at three years, after we helped them grow,

(28:46):
they had to buy it out current view. If they
thought they could continue to grow that they could buy
us out. And the first two guys is like, why
would I grow something for you for two years? Because well,
first of all, you've been searching for a deal for
two years. You don't have one, right you know you
just told me E've ben on the search for two
years you don't have one. I'm putting something in front
of you that works, it's profitable, it's really it was
a turnaround, but it was had a lot of low

(29:08):
hanging fruit, right. They were just they were doing, you know,
eighteen to twenty five, at the top year, they were
doing thirty million dollars in revenue. And then they were
trying to tell they were in trouble with the irs
because they've been telling the irs they're making thirty thousand
in profit because they wrote everything off and they had
fifty six cars in their books, they had eighteen semis.
They had just stuff that was just sitting around in

(29:28):
their yard that wasn't being used.

Speaker 2 (29:30):
That's the thing. Buyers also, they want somebody to raise
the money for them, and they don't realize how much
work that is. And even if you company qualifies, which
most like most companies, nine percent don't qualify. I've seen
great opportunities get passed even though they're profitable, they just
get passed over. There's better deals.

Speaker 1 (29:49):
Means are not bankable, right Like, just because you have
a profitable, high revenue company that's got good margins doesn't
mean it's bankable in the bankable sense. Banks look for
hard assets. They look for things that if you screw
this up, they can still recover some or all of
their money. And if you're in like I think a
lot of tech companies, a lot of SaaS companies are
hard to be bankable because there's no hard assets. If

(30:12):
they mess it up, they lose all their customers. There's
nothing to sell, right.

Speaker 2 (30:16):
Yeah, there's a lot of people raising money hoping just
for these these type of investors that are you know,
venture capital, which are moonshot deals like they're very specfultive,
very specfulive, and you know investors that have tons of
cash that are going to invest in ten, fifteen, twenty,

(30:36):
I don't know one hundred companies. They know they're they're
going to only have one, you know, breadwinner out of
you know, twenty companies that they might invest in. They'll
throw in one hundred thousand into ten different companies or
twenty different companies, right, So they're playing the numbers game
at the end of the day. As investors, that's not
my topic. I'm not sitting on billions. I'm not speculating.

(31:00):
If you're not, if you're a if you're not have
done any investments in the market. If you're a business owner,
you're a founder, your buyer, I highly recommend that you
do some trading. If it's just paper trading, do options.
The one thing that people really miss miss is they're
focused a lot on on the price. And if you're

(31:22):
an amazing operator and you got this a great vision,
you're you're looking at supply and demand. When he comes
to money, you know, somebody's going to provide you this
capital because your potential. Okay, that's what you want to
focus on, not the price, but the potential. So I'm
going to give you, you know, five million dollars here in
the next you know, few years, but you're going to

(31:44):
produce you know, ten fifteen million dollars about it? Okay,
there's two there's three types of people. People that need
to make money, people that have money that are can
make the money work. And there's both. I'm both like,
I'll make my I still like to make my own money,
but I got to also make my money work. So

(32:06):
and there's just people that just got so much money
they don't even know what to do with it.

Speaker 1 (32:10):
I'm not there yet.

Speaker 2 (32:13):
They'll just squander it. But nonetheless, you know, there's there's
there a lot of people focus on the money, but
they don't focus on the time, the decay, the missopportunity.
So if you got an opportunity and you have the
potential of it, you've got to think of you've got
to put a deadline on when to make that opportunity

(32:35):
turn this out the opportunity of reality. Jeff Bezos, you know,
what is your own percentage of his business? Do you know?

Speaker 1 (32:43):
I don't remember now. I think it's like down to
the sixteen percent of it's lower, and I think.

Speaker 2 (32:47):
It's even less than that since personal stuff and that's
going on. So sixteen percent, you know, it's like what
you're saying, you want one hundred percent of nothing, or
you know, one percent of one hundred million or a billion.
You know, my one of my biggest exits in twenty
twelve with a software health tech software tech company. We

(33:08):
got bought out and they got bought out again. I
wish that I still had one percent because the company
who eventually now owns us it's under armour. If I
still had one percent, i'd probably have my own island.

Speaker 1 (33:20):
Right now, I double checked, it's eight. He owns eight
point four to ten percent what they're estimating, right, it.

Speaker 2 (33:26):
Was like half of half of that. It was sixteen percent.
I think maybe his his ex wife.

Speaker 1 (33:30):
He probably yeah, I say, you got divorced. Now he's
now he's at eight. That makes sense.

Speaker 2 (33:37):
So you know, architecting architect these deals thes just opportunities.
Really has to do with bringing the right people to
the table and just put your ego to the side,
as you stayed said, Bron and make the deal happen.
It's more important that you're making deals happen than instead
of trying to be, you know, the biggest winner. You'll

(33:57):
be the biggest when everybody wins.

Speaker 1 (34:00):
A lot of people don't understand there's just so many,
so many ways these deals are done right. The model
you're talking about reminds me very much of the sponsored
model under the venture capital where you go find the deal,
they'll they'll fund eighty ninety one hundred percent of the deal,
but you're only going to end up with five or
ten percent ownership. With the ability to do earn out

(34:20):
and earn more time, you know, kind of a reverse
turnout where you're earning more the longer you stay. So
you might, oh, if you succeed, hit your goals and
everything else, at the end of the game, you might
own twenty five percent of the company. But they don't.
They when these these sponsored deals that the VC's where
they're pay out, they're putting one hunder percent of the
funding in it, and betting on you is being the
horse to run the race. I mean the jockey to

(34:41):
run the horse. They're only like giving these guys ten twelve,
fifteen percent of equity, right, that's that's the normal starting point.
And because you know they put they're putting fourth millions.
So people think, like, I like what you said earlier.
You don't need to be the owner, you need to
be in control. I can't for the life of me,
I can't remember that the guy's name that had the

(35:03):
TV show where you go and help restaurant owners and
bar owners, and he would invest in them, but he
would take control and make you take a minority stake,
but majority control, right exactly.

Speaker 2 (35:14):
And who I want in control is the one who
can drive the results.

Speaker 1 (35:18):
Right.

Speaker 2 (35:19):
If you showed me that you could drive the results,
that's great. That's one of the first things that I
do when I buyd a company. The first thing I
think about, Okay, who's gonna be who's gonna be running this,
who's gonna be driving it? Who's my driver? You know,
you have an expensive Formula one race car. That driver
doesn't know anything or may not know anything about how
to build a race car, but he or she will

(35:40):
drive the hell out of that car and run some
amazing times. Right, So I want that person driving it.
I want that person in control. He does. They don't
have to own the company. They don't have to own
the car to make a boatload of money and retire
and build wealth. Right. So, yeah, so controls the name

(36:01):
of the game. And I have enough problems. So a
great operator supposed to be the one who's bringing the
solutions to the problems. And that's that's what a business is.
You know, it's solving problems and move on to the
next problem and innovating and growing.

Speaker 1 (36:16):
Right, That's one of the keys in this space is
making sure the right bus are in the right seats.
Almost every company I've ever evaluated and looked at, when
you look around, you can clearly tell there the right
bus are not in the right seats all the time.
And you know, often it's not about laying people off
of firing people because they're not right for the company.
It's like they're not right for the position they're currently in.

(36:38):
If you really sit down and ask somebody what do
you love doing, what are you great at? They probably
belong somewhere else in the company doing something else because
that's what they' that's what they want to focus on.
They just happen to fill the need, took the job
that they could get when they got there, and they're
just in the wrong position to excel. I always tease
around and say, you know, there's no such thing as
a bad employee. Some people are just better better employed

(36:59):
somewhere else. Right that said, you know, sometimes it's somewhere
else in your company. How do you figure out, Like
I love what you said about having the right operator
and having people you know in those right seats, how
do you go about choosing who goes where and building
that executive team out and making sure you know everybody

(37:19):
like you've got the right team to grow a company.

Speaker 2 (37:25):
So, if I'm in the trenches and already operating a
similar business model of our business, a lot of the
recruiting and hiring, most likely I'm just going to hire
a recruiting firm because this is what they do day
in and day out there. They know how to they
know how to recruit. Of course, i'd like to I'm

(37:47):
going to have a say so in the hire, And
a lot of times the operator is going to be
the buyer as well, so so sometimes I don't have
to worry about about that. I could be the buyer,
and initially it would start out it's like, hey, I'm
looking to buy this business. I'm going to be you know,

(38:08):
owning and operating. So I'll turn into the buyer their operator.
O'll provide some capital, provide some resources, and then just
like a private equity firm, they buy me out. I
may stay in the on the on the board. So
that's the way to do it. So I also get
a lot of people to you know, ask me, hey,
where do I find businesses? Like I mentioned online through

(38:30):
my network, just at least online you could do some
type of comparison. And many times they're buying in business
because they think this is something they enjoy doing. They
think they're going to make a lot of money doing.
But they don't have the experience. So if they've had
leadership experience corporate America or their own business, I'll say,

(38:53):
you know what, you can figure this out. But if
they hadn't had leadership they have, they're not entrepreneurs. I
will most likely influence them not buying a business because
this was like a plane, you know, you can. You can.
You can buy a plane, but good luck flying it.

(39:14):
So you need a little Actually that's how I before
I started buying businesses. I got out of the personal
training business, having a gym and so forth, and I
had to go into I didn't have the confidence to
really scale and build a business. I got called in
with a friend of mine, attorney and a doctor, and
we were having breakfasts and the doctor saying, man, I

(39:36):
lost my case manager. She was he was operator for
like ten years, and so I said, hey, you know,
so you know, just as a friend started giving him
some advice on what he could do, the next thing,
you know, he looks at me. He's like, hey, can
you run this place for me for a couple of
months until I find somebody to run it. I said,
I'd say I've never done it before. I have known nothing,

(39:57):
no clue about running a medical office, but happy to
help anywhere I can. He said, yeah, come on in.
So I went in. A month turned into a year,
and I literally turned the business around. Reduced costs, improve
efficiencies and improve case averages, increase revenue, got a lot
more patients than retain more patients, and I loved it.

(40:22):
Why because I couldn't be the doctor anymore. I couldn't
be the expert matter anymore. And I was selling the clinic,
you know, and I was selling the experience. I wasn't.
I was focused really on being an assistent patient. So
I saw every patient as my eighty five year old

(40:42):
mother and sat next to them when they came in
into the clinic, just really listen to them and see
what their needs were.

Speaker 1 (40:52):
Right.

Speaker 2 (40:52):
And so that's why I was going to ask you
a question earlier about this. I cannot. I struggled with
being a virtual operator. For me, I'm very tactile, visual,
high level, being cataesthetic. And so I'm saying this, actually
takeaway for our audience here is really got to know

(41:13):
yourself and how to position yourself. You can be amazing.
It's you know, as an operator. But I've learned in
a metal clinic, I thrive. So after that clinic, I
ran another for clinics, and then I was consulting over
sixty clinics nationwise. I did nationwide. I was working with

(41:37):
a company doing it, and they wouldn't spend the money
for me to travel to go to be in the clinic.
I said, listen, if you want really great real faults.
Let me be in that office doing intensive and we
did start doing that, but they, of course they had
to pay for that extra twenty to thirty grand for
me to come in and do that intensive it in there.
But a long story short, it kind of fizzled out.

(42:00):
When I was doing the virtual advisory. This is wait,
this is before COVID, so people were used to in person.
I still got great results, produced about on average of
thirty eight percent growth within the first year. For all
the clinics that worked with us, especially the ones that
actually you know how when you a client hires you,
whether they do the work or they don't do the work,

(42:22):
you can only do so much of it. You can
only all help so much of the ones that are
actually executing on what I suggested.

Speaker 1 (42:29):
And I can see if you're there every day, though,
you really get to see it happen and make sure
things are happening.

Speaker 2 (42:33):
I was.

Speaker 1 (42:34):
I told you I owned a marketing firm. My real
estate client bought us. We were a coaching firm. Basically,
I was one of J. Conrad Levinston's coaches. The rule
of marketing high cost or low cost high impact marketing
strategies under Jay, and so we would bring people in,
I'd give them a you know, a seven hundred dollars

(42:56):
short couple of days seminar and give them the basics
of it, and then bringing me for individual coaching, and
we give them a plan and be like step one,
step two, step three. And they went near the damn steps.
They called me up, well this isn't working, like, well
did you do step one right? And business coaching became
life coaching right like you know, you start like trying
to figure out what's in their way. Or they called

(43:16):
me up and go, I need to cut my marketing budgets.
Why I got to pay for attorney? Why well, I'm
in I'm getting divorced. Why well, because I'm having an
affair with the secretary. It's like, okay, you don't need it.
You don't need a business coach, you need a life coaching.
You need to keep you need to keep your priorities
straightened out there. You might need to go down to
the river find Jesus or something. I don't know, I'm
not that religious, but you got to find something here.

(43:38):
But that said, it all it all works together. So
finding the right person there, Yeah, I can I can
see the I can see the power of what you're
talking about.

Speaker 2 (43:49):
Some of the best CEOs are really great operators, but
they're the worst entrepreneurs. Okay, because you have like you said,
you mentioned did you say your wife, Oh yeah, yeah,
she's really good at structure. You give her the steps
and they're very good. She's very good at complying. Right.

(44:11):
I spent tons of time and energy and personal development.
I'm just I'm like you. I will build the system,
build the process, but don't ask me to continuously execute
on it, to do compliance on it. So a lot
of CEOs are very good at compliance and communication and
they're just gonna make sure that things are being done

(44:33):
as the policy has been written out to do that.
So I think you know, if you're going to invest
in firing the right operator, that is, if you use
the disk assessment D for driver, I for influencer, S
for systematic, and C for compliance, you really got to
know your team based on that. Somebody that's very driven

(44:56):
D and I and C. They don't have to be
necessary system because the policy and the system has already
been laid out. And as a good founder owner, that's
your job is put the systems in place. And many
times I've hired outside consultants to put the systems in
place because they can look at things objectively, and because,
like you said, change is really hard for people who

(45:18):
already doing that. And many times I will start with
my existing employees that are working there and say, hey,
you have an opportunity to build this policy and create
this process, and so they have immediate ownership of the policy.
The chances of them executing is exceptionally higher. Even though

(45:41):
I hire a consultant. I tell the consultant, I say, yeah,
I think I want you to create these systems and policies,
but you have to have buying from everybody. Let them
come up, give you the solutions, and you as a
collective figure out what the policy is going to be,
and I'll review it and I'll sign off on it,
and then we'll check on metrics on quarterly, bi annually

(46:03):
and annually, just see how things are going, and don't
touch that policy or process for a period of time,
so give it some time for it to effectively work.
And now, so as I talk about this is all
starting to come back up. Companies are under ten or
fifteen employees, and if they're not there are not working remotely.
You see these people on a regular basis, and there's

(46:24):
level of communication. It's pretty high because you can't bump
into somebody and not talk about it, about missus Jones' account,
whatever it may be. So it's all done through osmosis. Right,
But if you're working remotely and you've got a team
of more than fifteen people, you better have flow charts,
you better have policies of charts and that nature. You

(46:45):
have people in HR that are exceptional at doing that.
That's not my specialty, but if you give me metrics,
I can help fine tune in and fix the gaps.

Speaker 1 (46:54):
So it's brilliant to do that. To have somebody else
go through all that true life work that should be
done and hiring the perfect person in any role. It's
time consuming. So if you're if you're not the systems
and processed guys, you can spend the time to go
through one hundred resumes and you know, talk to fifteen
twenty people on the phone, you know, do zoom calls

(47:16):
with the last five you probably find somebody else to
do that for you.

Speaker 2 (47:19):
Yeah, time consumption. It's like we've talked about the speed
of growing a business. This is why I don't like startups.
I wish that I know what I know now. Back
in the day, maybe the market was different, but it's
not that much off different. You know, private equity's been
doing this for a long time. They got the gist

(47:40):
of it. To your company. You know, it's worth at
least five million really actually now ten million valuation plus
because they know that it's been all the bugs have
been worked out of it. Right, Ron, This is a
great parallel into business man. Yeah, I used to I've
done done projects for the money, and I was miserable.
I made tons of money, but I was just miserable

(48:01):
lifestyle wise. Right. I lived forty years in Georgia, and
so a couple of years ago I said, I got
rid of downsides, got rid of everything, and I bet
I didn't know where I'm want to move. So I'm
just gonna travel see where I'm gonna go. I started
in Morocco, I went to Portugal, Spain, France, Albania, Italy, Greece, Montenegro, Macedonia.

(48:25):
I mean, I did probably twenty plus countries just last year,
and I just realized and I came back, I'm gonna
do it I'm just like, man, this was fun. I
said I should do this in the US. I could
at least I speak the language. I got so tongue
tied with different you know, being in a different country
almost every month or two. So anyway, said my god,

(48:46):
I should do this in Georgia. So I've done South.
I went all the way down to the keys and
back up on the bike, and I didn't north. Now
I was going to go through the west, and I've
been all doing this on a motorbike. So that's that's
that's where I'm at this year. It's going to do that,
you know. I think everything happens for a reason. And
back to the lesson in a parallel if you're in
the business that you are, especially if you're gonna be
doing an operator, just make sure that you love what

(49:10):
you're doing, because there's gonna be so many days that
shit is just gonna hit the ceiling and it's not
gonna work. I guarantee you it's not gonna work. And
but that's why you're there is to make it. You
got to figure it out, resolve it, and make it work.
So at the end of the day, I think if
you love what you're doing and then it just doesn't
feel like work. They know that old saying. And just

(49:32):
even though that you love what you're doing, it's still
good to take some breaks because when you're taking the breaks,
all the solutions kind of come, you know, naturally pop up.
I love that you're you know, you're living your life
on your own terms. Since I had this motorcycle accent
about three weeks ago and me doing a lot of
option trading I started about three or four months ago,

(49:55):
I've kind of beaten myself up because I wish that
I had done it earlier. Right. One thing, when you're
training in the market, it's just you in the market.
You don't have to will about any operator, any employees
doing what they're supposed to be doing and not doing it,
you know, you know, influencing and leading. You really got

(50:16):
to be patient, and it's your responsibility to be able
to communicate. True communication is a response that you receive.
You've got to give your team what they need, directions
and all the resources to do their job as best
as they can a lot of times when they're failing
is because I've I failed them. So that's the first
thing that I look at, is like if if they failed,
I'm going to always look at myself first, what did

(50:37):
I What did I do wrong? What could I do better?
To support them? Obviously if there's something, you know, a
pattern there with them, that's and then I bring in
other people because I tend to be too patient because
my background has been with coaching and training and developing,
and I have a high value to progression. But when
you're fighting lost opportunity and time decay and you have

(50:59):
investors involved, it's it makes you know, it's like what
is it swim or sink situation, So you you've got
to be pretty pretty shrewd and get the right people
on the bus can continue to do the job anyways,
So moral of the story, just love what you're doing.

(51:20):
It makes it makes a difference. And even the companies
that I try to support, I like I do a
lot of things for veterans I having served, but for
people who are really put their life out there to
serve and to give us the freedom that we have,
I think that's the ultimate freedom is freedom is huge

(51:41):
and right now we are in a state it was
like do we in America? Do we really feel free?

Speaker 1 (51:46):
Yeah, it's definitely in a state of uncertainty. I think, right,
there's a lot of uncertain It's been that way for
a while. The last president, with this president and everybody,
you know, the division of everybody and everything else just
causes this whole chaotic uncertainty, right, And that's not good
for any market. That's not good for anything. But I'll
tell you, if you can buy something now and build

(52:07):
it or build something now and it survives now, then
this is this is a downcycle, you know, definitely an
uncertain maybe a downcycle, but definitely an uncertainty area. If
you if you do well now, then when when the
market hits its peak, you're going to be doing really well.
Like it's the people who bought companies or did things
that started companies during the Great Depression and when other

(52:28):
economic uncertainties and economic downturns and they survived, those became behemos,
those became giants, right, That's when the that's when the
masters are made.

Speaker 2 (52:38):
So sure, I have two questions for you, If you
don't mind here, go ahead, man. So I know a
lot of our listeners here are buyers, say they are
buyer operators or just buyers, and they're hiring or partnering
for in regard to operators, what percentage would you would

(52:58):
you say there are buyers that are bringing in operators.

Speaker 1 (53:02):
I would say it's I'll say it's fifty to fifty
that the people are saying to say they're going to
bring in operators, and I always encourage them. Look, don't
buy anything where you can't be the operator for six
months to eighteen months. A great executive search takes six
to eighteen months to fire, to find that general manager,
that CEO if you can't run it during that timeframe

(53:23):
and be willing to go there. If you don't like
the umity and humidity in Atlanta, Georgia, don't buy a
damn company in Atlanta, Georgia, because I promise you your
butt's going to be in that seat when you took
an SBA loan, that your house is on the line.
The CEO leaves and you've got to take six months
to eighteen months to find the perfect replacement. Somebody's flying
to Atlanta and running this thing and hope, hopefully it's
you because it's your house and you're you know, you

(53:45):
just personally guarantee if you use an SBA loans and
traditional financing, you've just personally guaranteed every everysset you have
against this acquisition. Right, And that's the discouragement I tell
people the time. Number One, determine what kind of investor
you are, right, if you're truly the passive, you want
to be as passive. I don't believe in passive investments.

(54:06):
I think that I don't believe there's I think that's
a fairytale among all fairy tales. But if you're trying
to be as passive as possible, at least understand you
need a BS meter in the industry, and you need
to be willing to roll up your sleeves and handle
it until somebody else can. Otherwise you're in trouble.

Speaker 2 (54:23):
Right.

Speaker 1 (54:24):
You may be lucky and never need they never need you,
but if they do and you can't step up to
the plate, you're putting a lot of risk.

Speaker 2 (54:31):
So yeah, I agree with you. Usually any within that
generating the first three million dollars for the company, just
in revenue guarantee one hundred percent. There's not enough people
and systems in place there that are really established. So
if you're under three million of revenue, you're most likely
the bottleneck and you're pulled apart in many different directions.

(54:56):
The other second question I had for you success rate,
Where do you see the success rate being hired? The
ones that are buying buying and hiring and or partnering
with operator or the buyer operator.

Speaker 1 (55:10):
People with great operational skills, and they're buying it around themselves.
I see a lot of them succeeding well long as
they don't try to do a turnaround. So I haven't
met I've only met one who fail that he bought
a turnaround, and I've met quite a few I've interviewed.
I've interviewed over three hundred people. I've met all their
a lot of their clients and stuff. Maybe they didn't
come on camera because they can't. It's real hard to
get a recent acquisition or recent exit to come on

(55:32):
here because of all the non disclosures and stuff they
have to sign. Right, they're just worried they're gonna you know,
and we've done it. We've actually had somebody on here
who bought a company and the next thing I know,
he's calling me up and going, hey, could you take
this segment out to the second. My employees heard it,
and they're mad and like he's like his people are
revolting right, because they heard about the deal on the show.
So it is risky to come on here and talk

(55:55):
about a recent acquisition, especially if you got creative in
the financing. He did a a sell lease back, bought
the company and the real estate, and the real estate
was worth enough that it paid for the company almost
in full. Matter of fact, he ended up with eight
hundred thousand dollars in cash for growth capital. So his
employees like he ripped off the previous owners like, no, right,
we negotiated the deal. He's happy, he's retired. I found

(56:17):
a buyer and was willing to do something the owner.
But people don't understand on that situation, the owner could
have never sold that real estate for what he could
sell it for because the owner couldn't guarantee a thirty
year lease or a fifteen year lease to a private
equity firm. So he gets a premium on the real
estate because he's guaranteed and you know, a long term
lease that the other guy just couldn't couldn't guarantee. But anyway,

(56:40):
I think the operator has a better chance. I think
some of who has skills running something in that industry
has a better chance. Unless you're truly a good investor.
So you've got fifteen to one hundred million dollars in
your back, you're just you're you're you're doing this because
or access to it a a family office or something's
back in you. If you're doing this because you're destructive

(57:02):
when you're retired, right, you got to have something gainfully
to do, then yeah, bring bring an operator in. Because
if you can afford to eat the cost of an
executive what do you call a fractional CEO or is
fractional CFO while you're doing that executive search, even though
the company can't afford it, you can, then you can
buy almost anything. Right, So I can buy a company

(57:23):
the CEO leaves, I hire a fractional CFO from one
of the big top firms. They run it until and
they perform the search. There are firms that will do it.
But it's one hundred and two hundred thousand dollars a
year for me to have you come in and be
my CEO for six months while the same company is
back in the background trying in your replacement. Those aren't
cheap engagements. If I can eat that, because it's a
long term, you know, investment for my family office. Then yeah,

(57:46):
be a standoff investor. But most of our guys listening,
they're not there. They're they're you know, fresh out of
a business, fresh out of maybe a recent exit. They've got,
you know, a couple three four, five million, eight million,
ten million dollars. They're playing the VC route a little bit.
They're finding some small companies, uh, and they're looking for

(58:07):
something to buy and grow of their own again.

Speaker 2 (58:09):
Yeah, So I'm gonna do a little exercise for the
listeners if that, if you're okay with it, and help me,
help me go through this. I'm a proponent of really
getting to know businesses, especially here for first on buyer.
A lot of people shopping for a house, there's a

(58:30):
lot of it's a big commitment, and there's a lot
of things to look at, especially if you want to
build a house too. But we're going to buy a
house that's already built. Okay, so think about it. I'm
gonna just kind of put a target. Let's say we're
gonna buy a million dollar business. Okay, the company is
doing at least thirty percent in profit, so that's three

(58:54):
three thousand dollars. Okay, we're going to let's just say
we have one hundred thousand dollars in cash, and we
may do seller finance ten percent of it maybe or
more if we can, and we can get the bank
to cover sixty to eighty percent. But let's just say

(59:17):
the only thing is really coming out of our pocket
as a buyer is about one hundred grand.

Speaker 1 (59:21):
Okay, okay.

Speaker 2 (59:22):
So and in the first year you want to get
obviously your one hundred thousand dollars back. So we said
the company is profiting three hundred and your cash on
cash investment is one hundred, so you should give back
we get back, you know, two hundred thousands. Should be
able to put in your pocket two hundred thousand dollars

(59:42):
if the company's still running the same way he's running.

Speaker 1 (59:45):
Let's still got the debt coverage ratio, right, you got
to cover the debt too, now, so out of that
two hundred thousand. A lot of people miss that when
we're talking about, well, you know, the companies make the
companies may pay me three hundred thousand. No, the company
paid the last guy three hundred thousand, but he didn't
have a million dollar loan on the company. You're going
to have a million dollar loan in the company, So
it's going to pay you know, three hundred thousand minus
you know, the interest and principal payment on a three

(01:00:07):
hundred thousand or three million dollar loan or whatever the loan.

Speaker 2 (01:00:09):
Is, right exactly, So we got a loan of at
least nine hundred thousand, right. So, and then if you
are going to hire an operator, let's just say minimum
of six figures, so you're going to pay pay them
one hundred thousand. You're out of pocket thousand. But you
do you think that we can get our cash cash
back within the first twelve months.

Speaker 1 (01:00:28):
It'd be lean because you do a one hundred thousand
to the employee dood simple math on a nine hundred
thousand doll loan usually about ten percent of months, you're
nine thousand a month, right, which is eighteen ninety one
hundred and eight thousand dollars a year. So you're two
hundred and eight thousand dollars in the hole before you
can get it. So you only got ninety two thousand
this public math, but you got about ninety two thousand

(01:00:49):
dollars coming to you in the first year if you
don't have any other surprise expenses or declined in income.

Speaker 2 (01:00:54):
Right, Well, we're hoping for what ten fifteen to twenty
percent growth in the.

Speaker 1 (01:00:58):
First right, then yeah, then you're going to be able
to get it.

Speaker 2 (01:01:01):
Right, So, assuming everything goes well, you got your twenty
percent growth or more potentially. But you know, you basically
bought a company within within a year and it's worth
a million bucks, okay, and you have an operator. So
I'm just trying to paint an ideal picture. And then
so people look at least thirty companies, look at their

(01:01:24):
financials and be looking at buying something that you really
like starting at a million million dollars. Just you know
a lot of people will put a down payment for
a house one hundred thousand before they would do it
to buy a business, right And the house is not
going to cash flow for you. It's not going to
print out money for you. It's just it's a liability

(01:01:46):
or buying a business that is cash flow and it's
a vehicle that's you know, producing revenue. So I'm saying
this that just I'm simplifying to encourage you know, buyers
have a target an idea of a cash flow business
the sort of at least doing thirty percent and Believe me,
I've seen forty fifty, sixty seventy percent profit margins because
of really great operators that have put some systems in

(01:02:08):
place and they're running themselves. In fact, this is how
I've a lot of times. The guys and girls that
have built a million dollar business revenue and they and
they're profiting sixty percent seventy percent, they usually get stuck.
That's where they're part They don't know how to grow
the business from there. So tether times I'll sell fin

(01:02:30):
finance can let them continue to be operators, partner with them,
bring in the cash, cash on cash, you know, the
cash down payment, and get an SBA loan potentially or
you know, a private capital whatever may be, and you know,
provide some guidance leadership for that operator to grow the business. Prefermly,

(01:02:53):
I like them younger, so because they're usually more open,
they're more coachable, and we can we can grow the business.
I like those type of deals because you already have
the operator that's built it, but they're just not able
to take it to the next level. Right right, So
I'm bringing in the capital, and I'm bringing the strategy,
and of course, you know, whatever resources need to be
in my network to help that business. And hostly, I'm

(01:03:16):
buying into something that I know, technology, healthcare, well wellness.
This is the kind of space that I know. So
I encourage our audience to buy into something that you
know that the operator might be already there another really
good one. It's a little different. Companies may have been
around for twenty, you know, thirty years, and there's a
family business. The father or the mother they're they're retiring,

(01:03:41):
they're too old, but they may have a son or
daughter that want to stay in the business. Right, So
there's your operator right there, and you come in bringing
the capital and the innovation to help them grow and
scale and get them out of the stagnant, you know,
business that they're in. A look at the model, see
how you can scale the model.

Speaker 1 (01:03:58):
So I think they that is, are they coachable? Right?
It's it's really difficult. I've I've walked away from a
three opportunities like that.

Speaker 2 (01:04:10):
I I do.

Speaker 1 (01:04:11):
I do those opportunities inside of things like newsletters and
stuff because they're insanely profit margins are huge, seventy eighty
percent profit margins and newsletters and some online education type
of stuff. So I'm interested in you know, newsletters and
things where like, because I can remote, I can be
any anywhere in the world and run it too. So
that said, I've walked away two or three different times
where I had a really great deal. It's going to

(01:04:32):
be very profitable, but the current operator does want to stay,
but he's not very coachable, right And if I'm gonna
put money in and take control, I don't touch anything
I don't control. But uh, I don't need fifty one percent,
but I'm going to have contractual control over over everything.
That's because it's because it's money you know that I

(01:04:53):
can use for my family in other ways.

Speaker 2 (01:04:55):
That said, well, you're taking the risk, you're bearing the
capital right.

Speaker 1 (01:04:59):
Right that And you know the reason you're even wanting
me to come in is you know, I'm I'm older,
I'm grayer, and I've I've got some experience to get
you to where you're trying to get to, right and
you know, you know, got the education, got the experience,
And if you can't listen and you can't implement, then
what are we doing here? So that's the real trick
with that is you've got to find people that are

(01:05:20):
truly coachable. If you're gonna leave the operator in place.
You're looking for somebody who's hungry to learn, hungry to grow,
and you've got to build really deep trust and rapport
with that person where they really they trust you. They
look at you as a coach, they look at you
as an executive coach and mentor.

Speaker 2 (01:05:37):
Yeah, I love it. I love it speaking of a mentor.
I believe quite a bit of your listeners are advisors themselves,
and I see a lot of advisors that a lot
in the market that have not been owners themselves. So go.
My suggestion is lead by example. Have a buyer, buyer

(01:06:01):
and beaten on the hunt for yourself to buy a business,
you know, any even if you bought something, if you
don't have the capital, buy through sweat equity.

Speaker 1 (01:06:10):
Okay, most of the guys I've interviewed have actually sold
the company at some point. A lot of them become
advisors and brokers because, like you, the first time they
try to sell when it didn't work or they can
get what they wanted right. You try to sell the
health company, realized you didn't build it, or your bodies
by body, you couldn't sell it because you didn't do
it right. So now you got this lesson learned, and

(01:06:31):
as you don't let other people cross that line. Most
of the guys that I have that are been on
this show, they've either done an exit or they try
to and quit and realize like, I'm not gonna let
anybody else They they let that scar be a lesson
to other people and are like, I'm never letting anybody
fall for that again. Or they sold something you know,
it's way too cheap or a way too you know, cumbersome.

(01:06:52):
They had huge earn outs and stuff like that, and
they they or the broker was horrible or whatever happened,
they induced a scar that they're going to you know,
keep other people from having to deal with.

Speaker 2 (01:07:03):
So, yeah, the name of the show is something exit,
How to.

Speaker 1 (01:07:09):
Exit right, How to exit right.

Speaker 2 (01:07:11):
So if you've got to hire an advisor, make sure
your advisor has had multiple exits.

Speaker 1 (01:07:16):
Absolutely, that's one thing, right and proverbly in your industry,
a lot of things people don't realize this industry, this
the mergers and acquisition space is extremely industry specific, meaning
that if you're selling an online tech company with a
you know, SaaS or an online newsletter, the evaluation models
are totally different than your brick and mortar mom and

(01:07:37):
pop pest control company. Right, totally different evaluation model. We
don't even use multiples of yubadah and stuff like that
when looking at newsletters and stuff like that. We use
trailing twelve months revenue, and we pay up multiple on
twelve twelve trailing twelve months revenue thirty six to forty
two times trailing twelve months revenue. Right that said, you
know that has nothing to do because they're so high

(01:07:58):
profit margin and other stuff. None of the other stuff
comes into play. You can never do, you know, those
type of math and that type of stuff on the
small mama pop brick and mortars. So, I think industry matters. So,
and I tell the same thing. When you're going out
and doing an SBA loan, you're trying to go to
a lender if you're in Tulsa, Oklahoma like we were
before I moved out here to California. The and you
go and say, hey, I'm buy a tech company, and

(01:08:20):
you know your local credit union says, yeah, we do
SBA loans. I promise you they're not going to help
you buy a tech company. They never seen one. Right,
If you look at all the SBA loans they've ever done.
It's for restaurants, bars, and medical type of things, medical
clinics and you know, chiropractics and stuff like that, because
that's what the industry is in that location. So if
you want, like I I, you know, industry matters in

(01:08:43):
both the acquisition and the selling and both the lending
and the you know, an investor in a family office
who's never seen a tech company is going to be
a little skitty sh about helping you buy one where
you know, you know, investor in a family office to
you know, have fifteen tech companies in their portfolio. They

(01:09:04):
know if you fail, they got somebody they can lean
on to go help help help straighten you out. So
we are running out of time. Man, How do people
reach out with you? How do they work with you?
What is that criteria to do something with you?

Speaker 2 (01:09:17):
Man? Yeah, so I'm very most active on LinkedIn to
send me a message. I'm also have Fatty maloof dot com.
You can schedule a discovery a strategy session I am
known for. Yeah, I didn't come up with this my clients,
just like how the name of my first company by

(01:09:37):
by Fatty and my clients come up with my branding.
A lot of time, it's not who you say who
you are, is what your customers or clients at who
you are. So that I've been recently labeled the one
hundred x even thousand X guy conversations. So I like
to have conversations that I can at least one hundred
x or one thousand x you're whether you be time

(01:10:00):
or your money, or the combination of both. So that's
what I've been able to historically prove. If somebody invested
one hundred thousand dollars with me, I've been able to
hundred x that for them. So Fatty maloof dot com
for a one hundred x conversation.

Speaker 1 (01:10:16):
Awesome, Awesome, And I'll make sure that LinkedIn. LinkedIn is
in the bio or of the show. There the show notes,
so people have it. Thank you for being here today,
hang out for a few minutes after we turn off
the mic, and we'll call that a show.

Speaker 2 (01:10:29):
Great. Thank you so much, Ron, I appreciate you.

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E287: Building a Business Without Owning It | Strategic M&A, Turnaround Risks & Exit Planning

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}E287: Building a Business Without Owning It | Strategic M&A, Turnaround Risks & Exit Planning