Hey guys, welcome back to another episode and this one, oh my gosh, I loved this conversation with Chris younger, it is rare that I get to talk to someone that has years and decades of experience like I have. So I love this conversation, I think you're gonna find so much value. Because for the last 25 plus years, Chris has been growing, acquiring and selling businesses, through his work with m&a. He has led over 70 transactions doing over $2 billion in value of companies that he has helped exit. He also initiated and manage companies in communication, software distribution, construction, investment, banking, private equity, you name it. And I think he is the very first person that I have interviewed, that is a Harvard law grad. So there is so much experience and knowledge and I wanted to unpack as much as I could, in our time together. You are going to love this episode. And please listen to the end when we share some of the best companies that is getting the highest returns on EBITA. Right now, you don't want to miss a minute of this conversation. Let's dive in. It guys, I am so excited for you to listen to this conversation. Chris, thanks so much for coming on the show.
Thanks for having me, candy, I appreciate it.
I told you before we hit record that we've gotten pitched tons of times over the years of doing podcast interviews, and I don't think we've ever accepted one. But when I saw your resume, I'm like, I want to interview this guy, Harvard Law grad. You've been doing mergers, acquisitions and exits for over 25 years. And I think there's so much wisdom that you have that I'd love to pick your brain if that's okay.
Well, I'm gonna tell my wife that somebody thought I had something useful to say. So that's pretty nice.
I love it. So you've been doing this a long time. Can you give us a little bit about, you know, Harvard, I wouldn't obviously think Harvard Law some people obviously think of criminal defense work and prosecutors in the DEA. But here you use yours to go into business. Tell us a little bit about what kind of got you into this so that we can start to unpack what you've done in the last 25 years?
Yeah, sure. No, I really enjoyed the law school experience, at least the last two years for first year of law school is miserable, and stress packed. But you definitely learn different ways to think and how to analyze problems. And and then I actually worked for federal appellate court judge for a year, which was fascinating. And I've always, in every position that I've ever taken, I've always tried to pick one where I was going to learn a lot, and not necessarily to make money because you don't make much money working for the federal government. But but then I practice for a couple years in Silicon Valley, and I loved the client work, we were working with startups and emerging technology companies and doing public offerings for them and m&a for them. I really love that I did not like the actual work, you know, doing contracts, reading the same contract 14 times. I've got bad enough add as it is trying to, you know, read the same contract that many times was maybe disconnect. And now but it was great background, a great learning and experience. And then I left that I was gonna start a search fund with another law school classmate of mine. And when we were out looking to raise capital, we met up with a group that said, Well, we we're not going to fund you guys. But we would love for you to come work for us and help us invest our capital. And so that's how I got to do all the initial m&a that I did, as we started a communications company that was a consolidation or a roll up and in the value added reseller space for communications equipment, and which, you know, I was way out over the tips of my skis, to use a Colorado analogy. In that job because I was mean, I did 27 acquisitions over a couple year period. And even the most experienced m&a person would make a lot of mistakes and me not being that experienced, I made way more than my share in doing deals, but you you learn a lot during that many deals in that shorter period of time. But the one thing that was that was common with the law practice was I was working with entrepreneurs. So all of these companies that we bought, I got to build this relationship with the entrepreneur prior to the purchase and then after the purchase. I ended up moving from being the deal guy to being The Chief Operating Officer and ultimately the president of that business. And so you get to, I always joke when I was doing the deals that, you know, when a deal went bad, I would tell the operations team, I'm not sure what you guys did afterwards. But when I closed that deal, it was a great company, you know. But, and that's really, that was the foundation of, you know, what we started at class six, and what we're doing now, but it's, it's very gratifying and inspiring to work with entrepreneurs. And, you know, they're kind of the heartbeat of this country, and we're honored to be able to serve them and all kinds of different ways.
I love it. And obviously, I have a huge heart for entrepreneurs being one more of my life that I've not, I started at 19. And so I understand what it's like, and I understand the grind to even get an opportunity to exit. You know, as a female, I learned pretty young that women owned businesses, less than 2% ever break a million dollars in revenue, and less than point five of that 2% will ever exit. So when I was young, I said, you know, challenge accepted, and let's do this. But I think that there are a lot of things that entrepreneurs miss when they're building and scaling the company that doesn't set them up to have a successful exit or ever be acquired. And so I would love if you could share with our audience some of those things that you think whether you're in year one, five, or 10, and you think an exit is close, or further down the line, what are some of the things that we can do now inside of our business to really set it up to be successfully acquired at some point?
Well, first of all, congratulations and doing what you're doing. And we've had several women entrepreneurs who have successfully sold their businesses, and it's the I should give you their names, you should talk to them because they have great, great stories, and have been phenomenally successful. And one of the traits that I've identified during COVID, when when there weren't a lot of deals going on, I talked to probably 40 of our, our clients, former clients that had sold their companies and just interviewed him and trying to understand, hey, what were those common characteristics? And to your question on, hey, how do you set up your business? I think a lot of it is being pretty intentional about it. What is it you're trying to accomplish the fact that you started out with that objective in mind? You know, the one thing that I've learned about entrepreneurs in addition to them having unbelievable persistence and perseverance, in the face of daunting odds and problem after problem, the their level of persistence is that's probably one of the single common denominators that I see. But the other one is, is being intentional, what is it that you're trying to accomplish with this? For some business owners, it might be, I'm trying to replace a job. And I want to earn some money and make this a lifestyle business. And, you know, obviously, that's a whole different set of intentions than it is I want to build this business to sell in a lifestyle business, you don't necessarily need to think that much about, hey, what am I investing in today, that's going to pay off in two years, three years, five years, 10 years. Whereas if you're building your business to sell, you've got to be much more thoughtful around? Where do I get my best return on investment for my time? And my money? And what are those investments that I have to make? well ahead of when you're going to see a return from those investments. My favorite example is, as as companies get closer and closer to you know, call it 10 million in revenue, the demands on the entrepreneur grow to such an extent that if they haven't been thoughtful around building a team, they're going to burn out. And that business is going to spin out. I've watched this movie, I can't tell you how many times. So I would, I think the best piece of advice I would give him is be thinking about what team you need for your business two and three years from now, and start building that team today. Yes, it's going to cost you more your operating expenses are gonna go up. If you get the right team, though, what may have taken you three years to get to that team can help help you get there in a year and a half or maybe a year. And I've watched that movie a bunch of times with folks that have been willing to make big investments and so that that whole intention, hiring ahead of when you really need the people and being super thoughtful and intentional about your hiring practices. You know, obviously, you've hired people I've hired people you're you know, if you're 50% successful, that's doing pretty well. Right? Yeah, but being super intentional around alright, what is it? What are the characteristics that I want to see in that team and that person I was trying aim to interview by an ex Catholic priest named was David Ryan, I think any of that he, he said, You know, there's three things you can interview a person for there's talent, there's experience, and there's chemistry. So talent is really just, Hey, did they have the raw materials to be successful in the job? Do they have the raw capacity, experiences? Have they done this role and been successful with it. And then chemistry is how well do they fit the culture and the value system of your organization. Too many entrepreneurs hire for experience. And if, if either the talent is not there, or the chemistry is not there, they're going to fail. And he always told me, he said, if you're going to miss one of those three, you can give up on experience, if you've got the right person with the right fit with your company and the right capabilities, you'll you can train them, and now they will grow into that role. And you'll have somebody that fits the organization. So probably two or three different pieces, therefore you can't do more than you asked for
so much wisdom there. Because on it, nobody listened to any other part of his interview. But that I think that the one part of I always say there's like seven real mechanisms or valves, if you will, in every business, and I feel the one that trips people up the most is people. But what I love about what you said is if you can decide what team you need in a few years, but start hiring them now. Really, what you're doing is you're not just investing in the team, but you're buying time, like you're condensing time and your build, which is going to help you escalate revenue more quickly, it's going to help you scale more quickly. And if you do, if you don't have a lifestyle business, which I love how you separated the two, and you do want to build a company to exit now you're just getting there more quickly. And what entrepreneur doesn't love more speed, and more growth and a condensed time? So I love how you broke that down? I think that in a world where we do think what's the resume look like? We tend to ignore that chemistry part, which is so important. Oh, it's huge.
It's huge. We do. Anybody that we hired, you can talk to them about the the interview process is long and and involved. You know, the whole hire slowly fire quickly, Mantra, we try to live by as much as we can. But identifying Oh, go ahead.
Take us through that, if you will, because I know everyone's probably like, Well, what do they do? Like what we have heard, I've heard so many cool hiring processes on here where they interview the spouse and they they do all of this stuff. So what does your hiring process look like if you're able to share?
Sure sure that the first part of it, we obviously you get your resumes or the applications, the first thing that we do in our business attention to detail is really important in the deal business. And so the first thing we do is we give will send back any candidate that we think is promising a set of pretty detailed instructions for how to apply for the position and the types of information that we want. And we sat Gibson who works for us calls it the blue m&m test, as you know, I can't remember the rock band that it was but they would test the detail orientation of venues by saying I only want blue m&ms in the bowl in the green room or you know, wherever the room before the concert,
Tesla hides the Easter eggs or whatever. Yeah, exactly.
But, and then we just if anybody misses one of those instructions, and we know that's not going to be a fit. So that's an immediate disqualifier. And then we always insist that the first interview is done on the phone. And we've got a set of prescribed questions that we ask. And the reason why we do it on the phone is people that are really good at interviewing, they're gonna watch your body language. And so on the phone, they can't watch your body language. Right? So we, we typically don't do these on Zoom, we just do them over the telephone. And we've trained our folks that really resist the urge to talk. All you want to do is ask the question and just listen. And usually, the first answer that someone gives you is probably the most accurate answer. They likely, with some awkward silence, we'll follow that with some other answers that kind of get less and less accurate or true as they go along. And so you just write all that down, and you're trying to listen for just clues for All right, hey, based on that question, how are they going to fit with us one of our favorite questions, and I probably shouldn't be given away our trade secrets here. It gives the two candidates are listening. But you know, one of the favorite questions is, hey, you know, you're you're working on this project, and you've got this task that's due on Friday, and it's Monday and it's looking really, really likely that you're not going to be able to get it done. What do you do? Most people's answer is, well, I would call my boss or, you know, whoever's leading the project and let them know and that's not the answer we're looking for. The answer we're looking for is the entrepreneurs answer, which is well, I've just figured out how to get it done. Uh, you know, if that means I got to work late, that's what I'm going to do. And so we're looking for those traits. Ours is a big service culture, we're here to be in service of entrepreneurs. And so, and we want people who not just are good at that, but that love that they love taking care of somebody they love, you know, so we look for examples of that in their background. And then when they come in, we'll run them through it, you know, kind of more traditional interview process, we typically from the phone interviews will identify, hey, here are the three or four areas we really want to test. So if they've got four or five interviews that they're going to do in our office, each person has one of those areas to really explore with them and look for examples of, of how they either have done what we're asking them to do or haven't. And then finally, we do a test. Once they've passed through that, then we give them a fake company with messed up financials. And we asked him to do a presentation to us. And you'd be surprised, interestingly, how many people bail at that stage of the process. Or they just say, I just don't have this in me. But we usually you will give them 48 hours or 72 hours to put it together. And then they get to present and they're presenting to a big portion of our team. And so we get a chance to see how do they perform under pressure. And, and I'm a big believer, no matter what the job is to be able to see them kind of in doing what you're going to ask them to do in a relatively high stakes, high pressure situation, that's going to tell you a lot. And to the spouse comment, which I was happy to hear that any any position, we always try to have dinner with them and their significant other, you can learn a lot about a person by who they've chosen as a significant other or spouse and and how they treat them. So watch,
in some regard, you're working with that significant other too, because what does that home dynamic look like? And is that going to be coming in and affecting performance inside of the business. So the more stable that is, the more the happier they are that they're getting this position, he tells you a lot. So that's interesting that you do that.
200% 100%. And so it's I think, again, you're hiring a person is not a robot, you know, they're going to have strengths and weaknesses, you're just trying to identify, Hey, how is this person going to fit? Are they going to be able to do what we're asking him to do? You know, in our culture, we're big collaborators, and we are really, really big on kind of the collegiality of our firm. And so hey, if somebody's got a really strong ego, or they're not a good listener, or they're not a good collaborator, you know, we'll exit those people fairly quickly. You know, we're, we're not small anymore, we have almost 50 people, but we're very careful, right? If if we identify somebody that's not a fit, hey, maybe there's a different organization, that would be a better fit for them that will help them find,
yeah, right. And it just, it actually makes everyone happier, when it's not a great fit. I think oftentimes, people get so worried about firing because you feel you're gonna let that person down, but you're giving them the opportunity to find something else that they can excel in. Because there's obviously going to be an organization that they align and they fit with. So I love that. We talked a little bit about some of the things that people can do, obviously, being an intentional with the way they build, let's flip it to the other side, what are some of the most common mistakes that you see that people are saying, Hey, I'm gonna point I'm doing 1020 50 million in revenue, I think it's time to exit. And you're like, Whoa, whoa, whoa, we need to do all of these things. First, what are some of the mistakes that maybe you see entrepreneurs make?
A Look, no business is perfect. We use several assessments in our business to help us get up to speed really quickly on a on a company. One of them, as we call it, the business health assessment, we patented it, where it's basically we're just trying to identify what are all the potential risks that this business has, that an investor is not going to like? And the way we built that we just went through the last couple 100 deals that we had worked on, deal by deal? Hey, what surprised us in that deal, what got in the way of evaluation, what potentially got in the way of the deal happening? And let's identify what that issue was or what that risk was. And then let's come up with some questions that we could ask to an entrepreneur so we could issue spot for that. And, you know, the ones that we've given this assessment, almost 1000 companies the the issues or the risks that rise to the top of that list is one of them we've already talked about which is if that business is too dependent on the owner in some way that we're gonna have a hard time selling it It's no matter how well intentioned an owner is, hey, if candy, if somebody writes you a big check for your business, your motivations are going to change. Not intentionally, but just by default, kind of after that versus before. And so in smart investors know this. And so if most of the sales are done by the owner, or if most of the product development or innovation is done by that owner, or he or she is in charge of operations, that's at least a yellow flag for investors. And this goes back to that. If you really want to maximize value for your business, build that team, and get that business running to where you're not having to fulfill significant roles in the business, it'll, it'll do a couple things for you. One is it will make your business more valuable. But it will also it'll improve your life. Because you'll get time back and get to focus on those things that you enjoy doing. The it's amazing to me, as an entrepreneur, it happens to me as well. So it's not a I don't want to cast aspersions. But how many business owners are doing things in their business that they don't like, or that maybe they're not that good at. And so that's, you know, one of the things for business owners, they really identify those things that you're doing that you enjoy, and that are adding value to your business and that you're really good at. And it's the 8020 rule, hate, get 80% of your effort into those areas, and you're going to you're going to help your business, those areas where you may not be as good at or you don't like, hey, let's find, let's find ways to delegate those and get somebody else that probably does like them and will do a lot better job. And in my world as compliance, we have to regulated businesses. And so as my business partner would tell you, that's the I just hate compliance calls, you know, to go through that. The other issues that we typically in a lot of businesses, hey, you've got too much of your revenue tied up in a and one or a few customers. Big, big risk. And I think the final piece is, and this goes back to being intentional, if you're going to build a business that saleable. You want to be really, really thoughtful about your business model, and how revenue comes in the door. To many businesses, you know, I call it the run faster jump higher type business where I basically have gotta run faster than my competitors every single day in order to win. Versus I'm building a business that, hey, 80% of my revenue for 2024 is already it's already contracted. I've already you know, those are your typical examples, right? A software business, a subscription business, businesses where we've got recurring revenue, those are, those are really valuable businesses, the general contracting business where it's all people, and it's all project based, and you're basically as valuable as your backlog, those businesses are not very valuable, unfortunately. And so as an entrepreneur, really digging into the business model, to find those business models that are going to be most attractive to investors is that's a, that's a good exercise, regardless, because that'll help you sleep better.
Yeah, and you know, it's interesting for anyone that's listening now that you're like, oh, my gosh, that's what I'm in, you know, I'm a roofer or I'm an HVAC contractor. I think what's important is to then use your business as a vehicle, to be able to make it more profitable, take money out of the business, and invest it in into other other businesses, different business models, real estate, you know, portfolio, whatever it may be, because I think not all businesses are attractive to be acquired, like, let's be real, there are some, but maybe it gives you joy in the moment, and you can go pick up your kid from soccer, and the thought of having 50 or 100 employees would drive you crazy. So I definitely think so great about about being an entrepreneur. It's great. It's a blessing, but it's also a curse, because there's so much opportunity I see people get paralyzed in what do they really want to do. And so they don't do anything. They don't take the step forward. And I think it's important to be intentional, but you also got to kind of test things out. Would you agree? I mean, it's kind of part of the whole process, for me at least
100%, right. We entrepreneurs, are successful to the extent that they're solving problems that the market hasn't solved, or they're solving it in a more efficient way or a less costly way. And that all requires experimentation, right? You have to go out and test things and see what's going to work and what isn't going to work. On the flip side, is an entrepreneur. One of the things that we see is a lot of entrepreneurs are focused on, you know, 14 different things. There's a lot going on in their business. And I'm a big believer, and sometimes it's and I'm guilty of this. Sometimes it's not as fun just to do those things that they're really working well and continue to do those. And just, you know, as I, as I like to tell clients, you want to double and triple and quadruple down on those things that are working the best for you. And you want to continue to do that, until you feel like, hey, it's not working as well, or we're starting to hit the point of diminishing returns on that, in which case, okay, now you got to pivot and look at something different. Unfortunately, a lot of entrepreneurs there, I mean, I would say for a lot of the companies that we work with, a big part of our job is just helping them narrow the focus a little bit, and say, hey, you've got these 14 things going on, let's focus on these three that you're really good at, and you know how to make it work, and they're profitable, and they're gonna drive value. It's not as exciting, sometimes, right? It's not as fun as coming up with the new idea. And, and I also think back to the comeback to this team concept. For most entrepreneurs, you need somebody who is the I call it the brakes of the organization, somebody who is very focused on execution and delivery. Because a lot of us as entrepreneurs, we're very good at coming up with the ideas, and I get this feedback from my team all the time. So you, you've come up with a lot of great ideas, but if you don't have somebody who's very disciplined about execution, they're just gonna be ideas, and they're likely not to be that successful.
Oh, my gosh, one of my quotes from my books is like ideas will not build your million dollar business. And implementation of the idea that will, and so I love that you said that, and you touched on something else about kind of finding like that, that one thing like using using parados principle, also with your products, your services, or your client base, I'd love to hear your take on this, I always say whether it's clients or the services that you provide, if you have those 14 different things, what 20% of what you're doing is giving you 80% of that result. And then just cutting I, I always use, you know, I don't have a fancy degree, I always say I wish I did, I wish I went. But um, you know, I always use Walmart as my example, like, when Walmart has stuff sitting on their shelf, if it doesn't sell, they're not going to put it back on the shelf, they're getting more of what actually sells. So it's like the very simple concept of that, that we can apply in our business. Is there something else that maybe you can elaborate on that people can also do to take a look at maybe those products, their services, their clients, and or maybe even encourage them on on what happens to the business when they make those tough decisions to narrow their focus?
Oh, huge believer in the Pareto principle and the 8020. And whether you're talking about where the entrepreneur is spending their time, in terms of a What's the 20% of their time that is delivering most of the results? Or how do we turn that into 40? Or we do a lot of work with consumer products, companies, and the whole skew rationalization, right? Hey, you've got 400 skews, you'd be much better off if you were focused on these ad. It's almost like a religion for some of them, where it's, it's impossible, like a good friend of mine, and we, we've we sold his company a long time ago, you know, hey, if a if a product was making money and making margin what we should keep it, and trying to help them understand, hey, actually, if you put the marketing, you know, wood behind the 20%, that that are really driving your margins, and really driving brand recognition, that's going to be way better for you. So I, I 100% agree with the, you know, the concept of sometimes less is more. And that's tough for entrepreneurs, because they fought so hard to either get that product developed or get that product into market or whatever the you know, whatever it is that they they had to do. So at some level, I think they forget the concept of sunk costs that, hey, this is, you know, I'm much better off getting a lot more focused than trying to come up with something brand new at this point.
In every one of those ideas, that is going to distract you. I think the quote is like distraction gives you diluted results, like distracted focus gives you diluted results, because it's like every one of those people don't see the opportunity costs involved that every one of those products, services, new locations, like all the things that you're doing is really just wearing you thin and especially the entrepreneur or the CEO, if they're the founder in the beginning, you have so many different ideas and to have your team try and execute on all of them. If you don't have a really well developed team with layers, it's going to burn them out too because they feel like they're always trying to pick up the baton. Do you see this perpetuating thing happen with entrepreneurs by the time they're trying to exit that they've kind of lasered into a few things? Are you cleaning that up before you actually go to the investors?
If if a business comes to us, you know two or three years before they're gonna go to market, we will definitely help get there. More focused is not to say, I mean, we have a lot of clients that show up and just want to go to market. But I think almost all entrepreneurs, unless they have been really disciplined and really well coached, they're going to have some element of that distraction. And it's, it's rare, right that you have an entrepreneur who's both excellent at ideation and product development, and thinking about the market, and excellent at operations and efficiency and delivery. And so that's that, if finding that counterbalance to, you know, a typical entrepreneur is somebody who can be a great chief operating officer, a great president of that business and can go execute. And somebody who's not afraid to tell the emperor, they've got no clothes, that hey, you know, I know, this is where you want to go, but it's not going to work the way you think it will. And it too often, in my prior life, the business that all the acquisitions, you know, we have probably 4500 employees. And one of the things that really was frustrating was very few people in the organization, were willing to tell me, that's a really dumb idea. And when I found those people, I tried to surround myself with them, right? I was like, Look, I want you to tell me, if this is really stupid, because you're likely a lot closer to the customer, you're likely a lot closer to our delivery, or likely a lot closer to our systems and processes. And, you know, smiling at me and telling me everything's gonna be fine, is that's not going to be good for the business. And so, you know, I always try, one of the things that I tried to interview for is just a willingness, not to not respect authority, but basically to hate to challenge because that's the only way we're gonna get better as an organization is if somebody's willing to tell you, hey, that's really stupid.
Oh, my gosh, I'm so glad you mentioned that, because I was just, I was having a conversation with someone not that long ago. And you know, because of doing like, the podcasts and some events, I feel like, I'm in this online world, you know, far more than I ever was in any of my other businesses that I built. And I see this, this quote in this, like, semantics almost like shared all the time that says, like, if you're not my greatest cheerleader, you don't have a seat at my table. Now I'm paraphrasing it. And you know, or if you're not cheering for me, you know, I don't, I don't have time for you. And I'm like, Oh, my gosh, like, how we learn is by somebody challenging and having one position like, that's where you have actual growth, I don't want a bunch of people around me saying that's the greatest idea if they don't think it actually is like, that's where we actually are able to grow and scale, not even just in our business, but as humans by having that opposition,
for sure. For sure. It's, as a woman who works in our firm that I just love having her on the team, because she will always tell me, that's not going to work. Or, hey, if you thought about X, Y, and Z, or we're going to run into a problem here, because we're, again, we don't see the same things that the rest of the organization sees. And you need that perspective, and you need that visibility, to be able to fix things. When I was at exponet, I got so frustrated, you know, there's probably six or seven layers in the organization, right from folks that we're serving our customers to, you know, when it got to me. And at every layer, it felt like the message got further and further diluted. So by the time that I heard it, everything was fine. And so I finally I set up this President's Council or whatever it was, and I, you know, I picked 40 people that I gotten to know a little bit, and, but they were all at the field level. And I said, Hey, you're here, because I want to hear exactly what's going on at the field level, I want to hear exactly the problems that we're having with customers or our systems or our products. And that way you can hopefully get, you know, you could distill the truth in a much more effective way. It's, again, unfortunate, I think, in too many organizations, to your point, you've got CEOs who want to be told everything's great, and they're great. And I've always tried really hard with our team is, you're not here to serve me, right? I'm actually here to serve you. You're here to serve the organization and our customers and our clients. And the only way that you can be effective at your job is if we continually improve that and that means, you know, look, there are a lot of things that we're doing today that we should be doing better and that only happens if we're willing to to pay called BS on it.
Yeah, I love it. I love it. I think that honesty is what's really it's It's refreshing. And companies when they have that, and I think that makes them grow and excel more quickly, you had talked a little bit about companies that are too diverse right on how we can narrow their focus and really get better returns. And I also know that there are companies that struggle with the opposite, they have maybe a few key customers, and they can't seem to diversify, or a few products or services that work really well and their customers buy and they get tripped up of what they need to have a better bandwidth and diversify for their customers and have additional offerings. Is there something maybe you look at when you're evaluating businesses, of how you can intentionally decide what other products or ancillary revenue streams that an entrepreneur should create?
Yeah, it's a great question. And if you think about what, what drives value for a business, I, you know, I'm not that smart. So I try to make things really simple for myself. And one is, you're gonna, you're asking an investor to evaluate the future cash flows of that business. So it's really how much is that business going to grow over time? And how much cash is it going to generate? So that's one piece is how credible is that growth plan. The second piece is how risky is that growth. And so hey, if that business has this growth plan, but they've got too much revenue concentration with certain customers, or they've got too much revenue concentration with their hero product, which is starting to flag a little bit, hey, that makes that future growth plan a lot less credible, and a lot more risky. And so I've always encouraged entrepreneurs we use, we call it a growth quadrant, which is, you want to think about the different areas where revenue is going to come from in the future. And you have existing customers and existing products, and then you've got future rev of new customers and new products, right, there's this there's that quadrant, imagine a quadrant. And for most businesses, the most credible growth plan is when most of the growth is coming from existing customers or customers that are like their existing customers, they've they've they've been successful at selling to them. And their existing products, hey, we're not having to prove to the market that we're rolling out a new product, right, and we're going to be successful with that. So if you think about it, from an investor standpoint, what I really need is, is to help them get comfortable that the future revenues in this business, there's no high jumps involved, right, I'm not asking the investor to make any leaps of logic in understanding where growth in my business is going to come from. So if, for example, growth by acquisition is going to be a core tenant of your growth strategy that you're going to tell an investor about. If you haven't done any acquisitions, that growth story is not going to be credible at all, no one's going to believe you. And and particularly folks that have done acquisitions, I mean, they're very difficult, lots of mistakes lose a lot of money pretty quickly. Likewise, if most of their growth is coming from brand new customers that they've never sold to, or brand new products that they've never developed, also going to be not very credible. So if your growth plan depends on some of that, what I would encourage an entrepreneur to do is, hey, go prove that you can be successful with the new product and with those new customers, so that the leap of logic that you're asking that investor to make is not nearly as significant, where you're, it's just a lot more believable if the entrepreneur has already done it. Too many growth plans that I see entrepreneurs show up with when they walk into our office, you know, it's, it's those areas where they just haven't, there's been no demonstrated success, doing what they're trying to convince an investor that they're going to do in the future. And I always ask them, I say he's, so if you are buying a company, and you know, the seller was telling you about all these great plans, what would be your reaction? Well, I'd be asking them why they hadn't done it, of course. Right. And, and you're not gonna believe them?
Especially if you're the founder. Right? Right. And no investor wants to buy a company that then they have to go work on or they would just started themselves.
Exactly. Yeah, exactly. Um, oh, my gosh,
I could literally talk to you forever. And I don't know what final questions I want to ask. Okay, so one selfish question. What do you think are the business models that are still getting the highest return on EBITA? Right now?
So the best? We've been? Yeah, we've been at market with a number of businesses this year. Obviously, with all the conversation around, you know, I call it the most talked about recession we've never had. I love it businesses that do well, during recessions. We have a couple of businesses at market right now that are the demand for their product is all driven by regulatory requirements. So it's not you businesses don't have a choice in terms of using their services, they have to use their services. In those businesses where that revenue is very predictable are they're definitely trading at a premium today. You mentioned SAS or subscription businesses where the revenue is also very predictable. Obviously, you want to look into churn rates and cancellation rates and all that. But again, businesses that do well, during a recession where their demand is much more predictable, and revenue streams are much more predictable, those are going to be a lot more valuable today, we see this, we saw it right after COVID. Hey, what businesses kind of sustained during COVID, they ended up getting a premium. We saw this after the financial crisis, we saw it after the.com burst, hey, this is I think the the investor community, unfortunately, sometimes short memories. So they they tend to be very reactive. And so right now, at least, you know, folks are very focused on businesses that are going to do well, in a pretty uncertain economic environment.
You said churn rate, which was the other question I was going to ask you, which are, you know, I've worked with a lot of earlier stage, like under 3 million in revenue entrepreneurs, and then mid cap, like anywhere from three to 10. And it's surprising to me how many entrepreneurs have great businesses like they've been able to sustain through COVID, and make shifts and figure everything out. And I'm always so impressed by them. But I'm always shocked how they're doing it with no business metrics, or measuring specific KPIs. And I'm like, if you did all of this without the data, imagine what you can do when? Oh, my gosh, so are there a few just that you're like, hey, if you're not doing anything, maybe other than looking at your customer acquisition costs? Like, what are a few KPIs that all entrepreneurs should be like? Just start with these few if you don't do anything else?
No, I, you've picked up on the one that I would be very, very focused on, obviously, how much is a customer worth to you? You know, over the lifetime? And then do you know what it costs for you to get that customer on board? And then understanding the levers that drive each one of those metrics? Right? Hey, how do we derive more value out of out of a customer over the lifetime of their experience with us? Or how do we drive down our acquisition costs? I do think those are those can be very focusing for an entrepreneur, and understanding where do we place time? Where do we place money? Where do we place energy of the organization? In it also, I think it to that point, I'm a huge believer in KPIs and a huge believer in sharing financials with the organization so they can understand, here's what drives the success of this business. And I think for most people, they, they want to be big contributors, right? They want to help the business and they want to be, you know, important in the in the success of the company. And so sometimes you just have to help them kind of put what they're doing in the context of this, you know, this bigger picture and KPIs to your point are a fantastic way to do that.
Yeah, I love it. I always say that if you can at least know where you're getting your customers from, how much they cost, how you can drive, because that's the only way you know if you can drive that down. And that's the only way you can develop a customer acquisition strategy to go get more of them. And then what's your retention or your churn rate? And what's that lifetime value? Because really, without like a few of those, you can't even be predictable if you're going to sustain any type of sickness in the market or any pull backs or anything. So I think there's so important for all entrepreneurs, and the sooner they learn the data, the better the decisions that
they can make. Oh, for sure. 100% 100%
You obviously it's funny, because you said I'm not that smart yet. I don't think Harvard just lets anyone graduate.
Like I said, Harvard makes mistakes to candy.
So I want to ask you, this, this last final question. And it's, you know, knowing all of the things that you know, you know, you've obviously had an incredible education, and you've had, you know, almost three decades of dealing with m&a and exit. And you're an entrepreneur, too. It's not like you're a lawyer that does is your lawyer, but an entrepreneur also, which I think is just such a uniqueness. And I just often wonder if you woke up tomorrow, so for some reason you woke up tomorrow, your company, your 50, employees, everybody that knows you, all the things that you've done, you don't have a LinkedIn profile anymore. Nobody knows your name. It's all gone. The only thing you get to keep is what the information and knowledge you've retained for your entire life. But yet your money was gone. Your bank account was gone and you were starting from nothing. What are some of the first few things that you would do tomorrow morning?
What an interesting question. I would probably start with conversation. I would reach out to the smartest people I knew and start to ask them the questions that are probably probably would be rattling around my head in terms of where should you start and and I just, I get a lot out of talking to really smart people. So that's probably the first thing that I would do. And I think the other thing, and I think every entrepreneur ought to do this is, you do need to answer the question what's most important to you? I think, you know, a lot of entrepreneurs, you know, for whatever reason, they get so committed to whatever venture they're working on that sometimes they forget, Hey, what are the priorities in your life? You know, and for me, obviously, you know, my wife, and my kids and health and all that are big priorities. And so I think I would start to architect something that, hey, how do I manage all of that together? And then again, talk to the smartest people I knew, I probably call you.
Why be gone? Yes. I love that. And I think there's so much wisdom in that last statement that you shared, because I see so often people build a business that they hate. Because, yeah, that you can build, you can build a business doing anything. So why not architect you know, design it if you will be the architect of your life and build a business that you enjoy. You know, like, oh, my gosh, I remember so many times, I dreaded going into my own building my own company, and I'm, I'm like, wait a minute, I'm the one that has the power to change this, nobody forced me to be here, happens to all of us at some point. So no matter where someone is, in their journey, I think there's a lot of wisdom to build what you enjoy.
Yeah. I believe if you're gonna put the money, time energy stress into building a business that I've serve you. And if it's not, then hey, that's a problem. And we have to work to fix that. And that the great thing about entrepreneurs is they tend to be incredibly flexible, in terms of just being able to adapt. And so sometimes all it takes is some hard questions for them to answer.
Yeah. So so good. Can you share with everyone, if someone's in a position where they're maybe looking to exit or they're there, maybe have a buyer right now that they're kind of going through talks? And they want some support? How can they find you? How can they learn more about you? Where are you online?
Yeah, sure. Well, www dot class six Class V. I partners.com, will get to us or Chris at class six partners is my email address. And I look, we do a lot of what I call pro bono work for entrepreneurs. And so we're always happy to help entrepreneurs, no matter if we're engaged or not. So certainly, if somebody's dealing with something, we're happy to give them a hand. Oh,
well, thank you. We're gonna link all of that up in the show notes for everyone so that they can find you. Thank you so much for spending the time with me and just Oh, you bet. I just I love this conversation. I know, it's gonna provide a lot of value for people.
I'm glad and thank you for doing what you're doing for entrepreneurs. It's, you know, our mission as an organization is to empower the entrepreneurial spirit. And so the fact that we have folks like you that are out there, trying to get them more educated, and help them is awesome.
Thank you. I appreciate it. Hey, guys, thanks for tuning in to this episode. And if there was something that you loved, or you had a specific takeaway, share it and tag me at Candy Valentino, and if you haven't yet, grab your copy of wealth habits everywhere books are sold, and for upcoming events or ways to stay connected, head over to candy valentino.com. That's all for today. Thanks so much for tuning into the show. We'll see you next time.
