What Entrepreneurs Desperately Need To Know About Personal Wealth

You might be looking to exit your company, or you might be saying, you know what, in 10 years, it'd be really nice to exit your company. Let's talk really quick about the dumbest things you could do if you were to exit your company or planning to in the near future. Welcome to the Magnetic Marketing Podcast. Today, we're gonna be listening to Dan Kennedy as he interviews Ted Oakley. Now, Ted Oakley is the author of multiple books, the 20 Million and Broke, Rich Kids, Poor Kids, and Crazy Times books. And in this episode, we're gonna talk about the dumb things and the smart things business owners do with their money. Including the things that they should and shouldn't be doing if they're looking to exit their business. Now, as always, Dan Kennedy does a brilliant job asking some amazing questions. At the end of this one, I'm just going to tease one special one, which I think is going to be amazing. What is the best advice to sell high-ticket net worth individuals in your business? What's the difference? What's difficult? And what's the most important? And that is just one of many golden nuggets you're going to learn with Ted Oakley as we go into what entrepreneurs desperately need to know about personal wealth. Let's jump in.

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Welcome to the Magnetic Marketing Podcast with your host, Dan Kennedy.

Good afternoon, everybody.

Welcome to the Divid Call. I have with me, and we will get to him just momentarily, my client and friend Ted Oakley, a money expert. I'll come back to that in just a second. Today we are going to talk about money. And specifically dumb things and smart things that entrepreneurs and business owners do with their money and dumb things people do if and when they do sell their businesses. My guest, Ted Oakley, I'm going to let him give you the details, but he manages a huge amount of wealth for clients. Specializing in people that own companies and/or that sell companies. Some of you will recognize him from my showing off some of his advertising in a newsletter or two, or you may have seen it directly in places like Forbes, perhaps your local city newspaper, Investor's Business Daily, etc., etc. Ted is the author of a number of books you see me recommend from time to time for people that have reason to get them. 20 Million and Broke, which is all about the aftermath of selling a company. Rich Kids, Poor Kids, a new one coming, Crazy Times, and maybe we'll talk about that a little bit. And so Ted is on top of the markets all the time and he is trying to help people preserve grow wealth and create income from wealth and is damn smart about all of that. Ted, welcome and thank you for making the time for us.

Thanks, Dan.

I'm going to invite you before we get started to sort of do your own introduction and give people the thumbnail sketch of what your business is all about now and kind of how you got to be doing this. Where you came from without going all the way back to the womb.

Well, thank you, Dan. Based in Austin, Texas, 34 years ago we started calling on business owners out of necessity because the oil and gas market had blown up the state of Texas and we wanted a way to manage larger money. And in order to do that, we ended up having to go out of state and we started working in two areas. We work a lot with people that have sold companies, but in addition, we work with a number of people in public companies where they have a very large liquidity event, too, if they leave the company or the company gets sold or something like that. So both of those create very large liquidity events, and that's what we went after. Back in the day, you had lettered stock and a lot of things that were more confusing than they are today, but that's sort of how we got started, and we ended up working in 30 states. We work with people that have liquidity events between $10 and $100 million. All of them have something typically in common that they're going to have a lifestyle change or going to have something go on in their life. We think we understand it as well or better than anybody ever has. Our first book we call "You Sold Your Company," and if they read that, and that book's been out— oh, some 18, 20 years, but still has— and we've updated 3 or 4 times, but it has the same thing about, okay, what is going to really happen to me now? And I don't think they're really ready for it, but that's how we got started. And I will say that the business people in the business community have taught us quite a bit, about as much as we have taught them in many, many ways. And so I'm appreciative of that. We don't have the Holy Grail for sure, but we know a lot because we've witnessed virtually every twist-off and every great thing you could see happen after somebody has had a really large liquidity event. So that's it, Dan. Thanks.

Okay, cool. So let's back up from selling or having sold first to many of our members who will be entrepreneurs Some of them in professional practices not unlike your circumstances. Some butcher, baker, candlestick maker. They may have businesses that are true small businesses, 7-figure income businesses. Many, however, will have $10 million, $15 million, $20 million, $25 million, $30 million businesses and a sale probably some exit strategy or endgame is down the road, but it's not looming in the immediate future. They're younger than me, younger than you, they're still active. What are the main mistakes that you see looking backwards when you deal with the person who sells? What could they have done better while they were still running their companies with their money and/or what are the mistakes they ought to avoid?

Well, the primary thing, Dan, is that if you look at any business, it doesn't make any difference what kind of business it is, every one of them has their own biorhythm. And at the top of that biorhythm, which is the perfect time to sell, if you miss it, you have to go through another complete cycle. To get to the top again. And sometimes you never get the price at one of those. And I've seen— I think the biggest mistake I see people make is they don't have the capacity to be able to, when they're in the midst of their own business and they're making plenty of money, but they don't have the ability to say, you know, this is it. This is when I should sell this company. The multiple is really high. I'll probably never get this type of multiple again. And I could go back over 30 years and tell you every 5 or 6 or 7 years which industries peaked in that cycle and they never went back. They still sell them, but not for the prices they did at the time. And if I saw the one biggest mistake people make before they sell a company is they get a chance to sell a company, and there's all kinds of examples I can give you, but they pass on it.. And in passing, they have to go through to the entire next cycle, maybe, and maybe not. Maybe it never has another cycle. I've seen things before where you had that chance and you passed it and never came back again. And if I had to say one of the biggest errors, I think that's the biggest error I see—

pre-sale of entrepreneurs. So that's interesting in that, you know, I think most people would I think certainly about the sale as something they decide on the timing of based on age, desire to go do something else, life event, you know, whatever, rather than the business having a say in that decision. The idea that businesses have their own cycles and their own biorhythms. That to me says you not only need to understand that and pay attention to that, not just from the standpoint of selling the company, but even while you're running it, ramping up marketing investments, scaling back marketing investments. Is this the right time to open 6 more outlets or did I miss that time because I wasn't paying attention? How do you sort of monitor that or figure that out? Where are you drawing your information?

Well, my information comes from having invested in companies myself, so I know sort of the lines where they come to. Just sold one last year in the fall, but what happens with people in these businesses is they've done fairly well. They came normally, they came from nothing or very little at the most, and they've done well. And so they know they're good at what they do. I think what they have a hard time doing is understanding that people have— they're optimistic typically by nature in business when you're running a business. And unless you understand that there's a downside where you can sort of be a little afraid of this, you'll have a tendency to be too optimistic sometimes, and that's when you expand too much. What I find is if they put on vertical and horizontal debt and they don't think about what the outcome is 24 months, 36 months, 48 months from now, they stack it up little at a time and all of a sudden they look up and They're trying— they've left the niche of their business and they've expanded into different areas, somewhat related but not really, and they push too far. They would have been better off to stay right where they were and just stack it up and try to expand that part of the business only, and that's what we see the most of.

So now going to the person who sells. Readies to sell, sells, and the aftermath of the sale. What are the mistakes made there? What are the trains on the track that people don't even see coming?

Well, the number one thing is that their greatest strength is their greatest weakness. They could take a company that they grew and they could make it happen. They could grow it. They could see. Everything happening in front of them, and they spent 20 years, 15 years, whatever the term was, and they built something up. And they were right. They probably had some errors along the way, but by and large they were right. And they typically— most business owners make the final decision say. The really good business owners are going to say, "Hey, the buck stops here. I'm the last decision." Which is good, but unfortunately when they leave and sell a business and go off and start looking at all of these other things, they don't have the ability to say, "Hey, I'm the last word," because most of them don't know what they're talking about. Now, I will say most of them have a fairly good handle on real estate, which I really like, and you can discuss cash flow real estate with them because they're somewhat savvy to that because their businesses would have been around it. But everything else they don't have a clue on. They don't have a clue on going into another business, they don't have a clue on going into stock and bond investments. They don't have a clue in anything else other than maybe what they use in their own companies. But they think they do. And so when they leave and sell a company and they go out on their own, then one of the things— my new book that's coming out, the first chapter in that book is called "Crazy Times." The subheading is "Surviving the First 12 Months After Selling Your Company Without Losing Your Fortune or Your Mind." The first chapter of the book is called "You're a Nobody." And what happens is when they sell this company, and you have to understand everybody is saying, "Mr. or Mrs. So-and-so, you are it. Everything revolves around you. The decisions revolve around you. The vendors love you. The people that sell property and casualty insurance to the company love you. The banks love you. Everybody loves you." But all of a sudden, You're not that entity anymore and 2 to 4 weeks later, you're sitting there and you really are a nobody. You get no phone calls other than your relatives, maybe a couple of really good friends because you can't move any business around to these people anymore. Your employees are down the road. You're not hearing from them. Your life goes from activity to quiet in a really, really short period of time. And so what these business owners do is they go out and try to fill that time void with things that they think are really profitable, but they don't really know. And that's why I was coming back here to say the biggest errors happen because they don't really know what's— they don't know what they're doing, but they think they do, which is a problem.

You know, we've had several members who— I know well or have had in coaching groups or whatever in recent years sell companies for fairly large sums of money, and I have always urged and begged them to do nothing for at least 12 months. Don't buy anything. Don't invest in anything, and certainly suitors will flock to you. And I think for this very reason, you know, they're like, now what? And after about 3 weeks of golf, the glow of that has worn off. And the longer you've been at the helm of something, it has to be proportionately harder to be at the helm of nothing.

Well, and I would totally agree with that. That's the best advice you could give somebody. Is to wait at least 12 months. I would compare it to getting a divorce. I've been divorced and I'm sure a number of the people have. At least 50% of you out there have for sure. But when you first get divorced, the last thing you do is you don't need to be out getting super involved again with somebody and ramping that back up again. And always the great advice to most women is never marry a guy or never start going out with a guy that's just gotten divorced because he doesn't know where he is. Same with a business person. They don't know where they are emotionally. Forget the money. They don't know where they are emotionally right now because all of a sudden they are going to be underfoot for their spouse, whether it be female or male, and the spouse is like, "I'm not really ready for this. This is not what I wanted. I need you out of the way." That starts, and so that works on them emotionally. They don't have any purpose in life. Unless they have a lot of philanthropic things that they can really jump into that they run themselves or whatever, but most of them don't have any major purpose in life at that point because their purpose was 24/7 the business. So you need at least a year or maybe two to get your emotional feet on the ground, not counting the money, because once you get your emotional feet on the ground and you're okay with that, then you can say, you know, Let's look around. And I think they think that there's never going to be another good deal, which is one of the great falsehoods of the world. But there's always great deals that come along. And so they need to try to get emotionally on the ground first, and then they can start to look at the business side.

Barbara Bush tells two little stories about George. They left the White House and they flew home. And she says the next morning she wakes up and looks over and he's sitting straight up in bed staring off into space. And she asks him what he's doing and he says, well, he said, I don't really know what to do about this, but every morning for the past 16 years somebody has brought coffee and a newspaper. And so, you know, she said, well, George, you've got to go into the kitchen and make the coffee, you know, go to the door and get the newspaper. And she said, you know, later that same day, she comes into a room and he's sitting in a chair staring off into space. And she says, what are you doing? He says, nothing, I don't know what to do. And I just, I'm sure that happens. You know, we, last night was Letterman's last show after 33 years on the air. Um, I came home from, I was in the last race, but I come home from the track and watched the first half of it anyway, maybe two-thirds of it. And I, I gotta think that whatever he thinks now it's going to be like and that he's going to do, that's not going to be That's not going to be the case. And 2 or 3 weeks from now, he's going to be wondering what he did. And people are going to be— if anybody's calling him, to your point, it's going to be people pitching him on doing things or investing in things or backing things. I mean, I imagine— it's a line we used in your ad— I imagine vulture circle.

Yeah. And what happens is, you know, there's a book out there that Johnny Carson's lawyer wrote. I wish I had it right at my fingertips.

I don't.

It was really a good book. But if you'll read the book, you'll see that after he left the show, he was downhill all the way until he finally died alone on a yacht with people handling him that was offshore California. Now, that was in the book. I'm assuming that's true. But the point being is that when you're used to being in the spotlight all of a sudden and you're not, because no matter what anybody says, and I've talked to thousands of business owners, and they'll all downplay the fact that, "Hey, I'm the owner," and blah, blah, blah. But believe me, underneath they have giant egos. They like the fact that they are the boss. They enjoy that part of doing business and you know what? They deserve it. They're the ones that have spent every day, every night of their lives putting money on the line and so they deserve it. But now there's a change all of a sudden and like I say in the new book coming out, you're a nobody now and so you're going to have to learn to be somebody again some way or another. So let's—

ultimately I'm even going to have a little conversation with you about selling to these kinds of people. This is what you do and we talk a lot about marketing and selling to the affluent. But let's broaden the conversation for a second to money because everybody is or ought to be an investor at some level whether they're running their business or selling their business or sold their business and you're managing a lot of it, hundreds of millions of dollars' worth. What's your position on— John Brown owns the company. He's not planning on going anywhere anytime soon. Company's doing somewhere from okay to tremendously. About reinvestment within the business versus systematically taking some out— and placing it elsewhere? So advise somebody who's 10 years away from selling.

Yeah. If it's the kind of business, Dan, where you have a product, for example, that has— it has a territory that nobody can enter. I'll use an example, a Budweiser distributorship. I have no problem putting money back into that because you don't have somebody else— there's no entry into your area.

That's controlled by Budweiser.

Yeah, that's profit motive theory. Exactly. And there's a number of things like that. There's all kinds of products. That kind of product is a different animal, but if it's a normal business, I always recommend people to have some of the money, you know, take some money out of your business as you go along. I understand that the return on the business is going to be higher than the return outside. There's no question about that. If somebody tells me, "Hey, I'm making 20 or 25% on my money in my business," I understand that. And I tell them straight up, "We can't compete with that. We really can't. Not in the public market." And make sure they understand that that's not what we're doing. What we're doing is saying, "Hey, if you look at all the great investors, they always have some money." that is untouchable and they always have it there. It's not something about living expenses for a year or two, but it's more than that. It's enough money to where if the worst situation happened and that business blew up tomorrow and they were sued for $200 million and they had to close it, walking out, walking away, they're okay. If you have every single dime in that business, that's a mistake in my opinion. You have to have enough money out of the business such that if something happened— you never know what might happen— but you're okay. And that's what we recommend to people. You have to have that on the side.

You know, you made a very important point. I mean, the temptation— and I think probably the overwhelming majority of business owners, they keep 90% or more of everything they make locked up in their business until the day they sell. True. And their argument would be the argument you just made. Geez, I can make more on my money in my business than I can make anywhere else with it. But that doesn't take into calculation the comparable vulnerability and fragility, and of course My own principle is the worst number on earth is 1 of anything, and that goes to one place to have your money, too. I agree with that. Let me ask you a couple of questions before we open the phones. Sort of switching gears to everything you've learned about selling. Getting to, marketing to, getting to and selling to these high net worth individuals? What's different? What's most difficult?

What's most important? Well, the one thing that you have to understand about people that have a lot of money The number one thing you have to understand if you're marketing to them is they do not need you. They have to want you, but they for sure don't need you. People with a lot of money, outside of health, and I've always said this, that they can buy anything they want outside of health.

So what that means is—

And in many cases they already own it. Yeah, in many cases they do already own it. Exactly. So you have to have them in a position where they want to listen to you about something. So when you're marketing to them, in our case for example, we try to write pieces and books and send them articles and tapes and various things that say, hey look, unlike most people, we understand where you're coming from. And when we visit with them, just as an example, if you're going to be around wealthy people and you're planning on being in that category, you need to understand, you know, what goes on inside a FBO, a fixed base operator. You need to understand planes and pilots and costs. You need to understand yachts, and you need to understand the cost of property in Palm Springs, in New York City, Madison Avenue. Aspen. You need to know what goes on in rich people's minds. If you show up around somebody that's worth $75 million and you have no idea about what they're talking about, you will never get the business because they're going to try to do business with a peer. The hardest part about wealthy people that have any kind of wealth, any way you want to go at it, is getting— if you don't know them— is getting to them. And it has to be specific. You have to really rifle them because if they know that they don't need anybody, then you're just somebody else that's there. You have to put them in a position where they say, you know, that's of interest to me, so I think I'll take the call or I'll call them back or I want some more information on this. Or I may have them come and visit with us, whatever. And you need to have a specific item. One of the easier things to do is if you have somebody that's really wealthy, they're going to be running with wealthy friends. And we don't— we're not in one of those modes where we don't ask for referrals, but if we know somebody is a good friend of somebody we're working with who also has the same level of wealth, What we do ask them specifically is, "Hey, could you help us with this person? We really think we might be right for them." They will do that. They'll do that because they'll pick up the phone and say, "Hey, so-and-so, look, these guys are good. Just give them a visit with them. I've used them for years. Things are working." But you're not going to blanket market these people. They're not going to go to a website or a Facebook site and pull it off and give you a phone call. Because number one, they don't need to, and number two, they've got enough money to last the rest of their life, but they never see anybody. So you have to be real specific, but the hardest part, if there's somebody that you know would be great for you to do business with, the hardest, very hardest part is getting to them and then getting in front of them. If you can get in front of them, you're going to do probably fairly well, but that's the hardest spot right there.

I don't want people to miss, so in there one real gem is, and I would say it this way, that, and I see people that occasionally they try and sell to me and they think that their exceptional product knowledge is what's going to flip the switch where really as you just said, that won't work unless you have really deep knowledge about this customer, about this type of customer and the way they live and their concerns and their tribal language and all of that.

Technical knowledge alone won't cut it, right? Exactly. It won't even get you anywhere close because they have, number one, to like you because that's the people they work with in the beginning. And I rarely see somebody when we— and I teach this to everybody that works with us— that when you go to see somebody, don't talk about investing. Don't even bring it up at the first meeting. Just try to visit with them as you would a friend of yours that's just sitting across the table or you're doing something. And you'll find all of a sudden you'll create the right kind of warmth you need for that person to say, you know— and I've had them tell me this before— and they say, you know, you never mentioned anything about investing. I said, well, I will. Next time I see you, we'll talk about it or something. Because that way you're saying to them, hey look, Ms. Big or Mr. Big, I don't really need to do business with you because I'm okay too. But you know what? I like you. I like you as a person. And you take it— that's how you take it from there to go to the next step. And once you do that, then you're creating something where they're saying— and it's always interesting because if you're— You're talking to them and you want to really listen to them. Most people that are calling on people, they don't listen to anybody. What I try to do is I just continually ask questions. Talk to me about yourself. Tell me about it. Whatever. They really like to do that. They like to talk about it. It was great. We did this. We did that. Whatever. But I see a lot of people go in and they can't, honestly, Dan, they can't shut up.

Yep. Yeah, well, I always say, you know, your story is important, but so is theirs, right? And there's an art to getting them to and to letting them tell their story. I went through, in your industry, I went through, I guess now it's almost 3 years ago, a round of auditioning you know, private bankers. And it's just instant pain in the pit of the stomach when they walk in laptop underarm, you know, and they can't wait to get that thing open and get a PowerPoint presentation open, um, and, and start presenting. Um, I, I, and I'm I was amazed at how bad and how identical they all were.

Exactly. If I show— and I, I've done this before because I've been on various— I'm on a number of charities as well— but if you show up with 10 people that are making a presentation, I would say that at least 9 of them will all be generally alike. They'll have the same things and that sort of thing. When we first visit somebody, we usually have nothing in hand. In fact, we roll up our sleeves, walk in, we like to just ask some questions about, hey, you know, so how are you doing? I mean, how is it? How are you feeling? You just sold this thing or you left this public company and they'll talk about that all of a sudden. And then you get around to saying, "Well, what do you want to do? What are the things in life that you really want to try to do now?" Forget about the money. We're talking about living now. You try to get off on subjects where they'll talk to you about their life, because once you know about their life, then you can figure out which direction you want to go later on, on the investment side. We rarely take anything in, and many times if we do have something, we never pull it out. Because we end up talking about everything. They'll want to tell you about a new project. They'll want to tell you, "Hey, I'm doing this, I'm doing that." That's where we start it. We never start really with a presentation per se because you're wasting your time. You're just like every other person that walks in the door.

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