Reduce Owner Dependency and Boost Business Value with John Martinka

Welcome to the B2B Growth Blueprint podcast, where we talk with entrepreneurs, founders, and leaders at B2B services, tech, and SaaS companies to learn the systems and processes they've used to create success for their business. We'll also learn from marketing and sales experts to provide insights to help you grow your business. I'm your host, Mark Osborne, and the podcast is brought to you by Modern Revenue strategies and their 10x ROI B2B growth guarantee. Schedule a free diagnostic call to learn the fastest path to double your B2B revenues in just 90 days. Hello and welcome to another episode of the B2B Growth Blueprint podcast. I'm your host, Mark Osborne, and today I'm very excited to welcome my guest, John Martinka. Now, I'm going to read John's bio to make sure I get this right. He is the co-founder of Nokomis Advisory Services that he actually runs with his daughter Jessica. And there he helps businesses exit with style, grace, and more money, which is also the title of his latest book. John is known as the Escape Artist, as for 25 years he's helped close hundreds of deals and has been a breath of fresh air to his clients as they seek to buy or sell a business. John's widely recognized for assisting executives in transitioning out of the corporate world by purchasing the right business the right way, as well as facilitating large exits for small businesses. He also boasts business growth to overcome stagnation through strategic acquisitions, significantly enhancing company value. His books serve as a roadmap guiding clients to achieve their desired results with the support of John and his team. He's also involved in international service project with his Rotary Club and the Bellevue Washington School District's technology program. Every year, they take 14 students to Antigua and Barbuda to deliver around 1,500 computers, set up Wi-Fi networks, and provide essential supplies to schools. By February 2025, they will have donated approximately 10,000 computers and equipped. scores of schools with Wi-Fi, projectors, and other resources. John lives in the Pacific Northwest where he loves to spend time with his family and go for walks with his 2 dogs. So, John, welcome to the show.

Oh, glad to be here, Mark.

Yeah, I'm super excited for this conversation. You and I've had a chance to chat on some of these topics before, but before we jump into some of these topics around exiting and maximizing the value at exit and all those things, Why don't you tell us your story? Give us a bit of a picture of how you got to where you are today.

Well, I got into this, whether you call it M&A for the lower middle market or buy-sell advisory, through serendipity. I mentioned I'm in Rotary. I was in a smaller Rotary club many years ago. And, you know, it's funny, you get a small organization and you come in and you start doing what Takes everyone says they want to do, but a lot of times the more established members put it off, put it off, put it off. And I came in and I— they— the quick story is they said, we're going to do an auction with another Rotary Club. This was a brand new club, by the way, and everyone needs to get $1,000 of donations. And, you know, being young and naive, I went out and got over $1,000 of donations and a lot of the founding Members more senior, they were sitting on their butts. So what do they do? Get on the board. Oh, you're a good board member. Be president in a couple years. And the guy I was president after and I hit it off, and we were a little closer in age than many of the members that had started the club. And one day he just said something like, "I've always thought you'd be good in this business," and one thing led to another.

Wow.

And it was a good— like anything in life, Marc, timing is everything. He knew I liked but didn't love what I was doing. The business is great for someone like me who doesn't have the attention span of an engineer that can work on the same thing day in and day out and over and over and over again. So, the variety of— it could be doing a podcast, it could be writing, it could be working on a client. project, a spreadsheet, negotiating, etc. It's just different every hour.

Yeah. And so, what is your practice really focused on there at Nokomis Advisory?

Well, we do some work with, like you said, the executives wanting to leave the corporate world. That's a market that has changed dramatically over the years. You know, it used to be But buyers were all, say, 35 to 60 and had some experience, as I like to say, managing people, processes, money, and enthusiasm. And lately, there's been a wave of younger people searching for a company, and many of them don't have that experience.

Interesting.

And it's really, it's risk. You know, think about it. You've had a business. You know, you're on the tail end, you want to sell, you want to exit. It's part of a big part of your retirement. And a 26-year-old who's never run anything but has an MBA, is that an attractive buyer?

Right.

Probably not in 90-plus percent of the cases versus someone who is seasoned, has managed a team of people, had profit responsibilities for a division, etc., and done sales. Yeah, all of that comes together. So we do some of that. But really, my daughter and I, we really focus on helping people exit, sell. Our market is about $5 million of value up to about $15 or $20 million. We don't compete with Main Street brokers and we don't want to compete with the investment— true investment bankers.

Yeah. So I've heard some interesting statistics. Around business sales. And I'm sure you have a lot of these at your fingertips, but I've heard a startling statistic that something like 80% of businesses that want to sell don't sell because they aren't able to find a buyer, or they aren't able to sort of agree on the value of the business. That seems like a startlingly high number. Tell us, you know, from sort of your perspective of, you know, businesses that, that have looked at selling, what do you see? Is that a real statistic?

It probably is. And I've also heard a lot of people say 90% never sell. And the thing is, there are no true statistics on that. This is not like the Multiple Listing Service where they all go into one pool and they're tracked because there's, you know, there's under-the-radar stuff. which we will get into. So there really are no statistics, but there is a lot of knowledge that makes those numbers seem right. But I will say whether it's 80% or 90% or 73.5%, you know, the good businesses sell.

Okay.

So you flip the numbers, if it's a good business, you know, it's mature, profitable, And even fairly priced, but definitely profitable. Yeah. So, if you've got someone who's running a business and they're working, whether it's 40 or 60 or whatever hours, and they're taking home a mediocre salary with not much profit, that's not very saleable.

Interesting. So, and I know you use this phrase. that you and I have used in the conversation. I've heard other people talk about it, which is run it like you're going to sell it and really having a business ready to sell at any time. And so, a lot of our listeners might be entrepreneurs or founders who are out there and they're running along and running full speed. And they're mostly focused on how do I grow for today? But in the back of their mind, they have in their head, I'm going to be able to sell this one day and it's going to be A big, great asset for me. And to hear a statistic that, well, that might not sell even if it is generating revenue, that it might not sell for the full amount that they're hoping to get. Talk to us about this idea of running it like you're going to sell it and being exit-ready.

Yeah, that's really good. Now, let's qualify that, that at some point you hit a point where that becomes viable. So if you've started a business or someone's, you know, I can talk about a past client that I think they bought— the husband bought the business for a few hundred thousand dollars. And by the time I met him, it was doing millions. But when you're doing a few hundred thousand or you just started, you are not thinking about exiting. You're thinking about making payroll and getting customers and all of that.

Right.

But you hit a point and you hit that point and you say, you know, the thing is humming along. I've got a management team. We're making money every year. We've got loyal customers. Etc., etc. You need to then think about, yes, what happens? What happens if we have a family catastrophe? What happens if I get the offer I can't refuse? But when they, you know, I don't want them to go into due diligence and pick it apart.

Right.

So that does make sense. And the funny thing is, yeah, the owner will say, I'm not— well, I'm not really thinking of selling. But when you do the things they're supposed to do to make it more attractive to a buyer to get a higher price, your business is doing better for you.

That's right.

Now, where does that hit a speed bump? Big speed bump is you get the owner and it's all relative. I don't care what they're making, but let's just use a round number. They're making them— they're taking a salary, they're making $1 million in profit, and they're going, I like this. I'm not working very hard. And I just want to keep it where it is. Maybe we'll grow it a couple percent a year to manage inflation. But $1 million a year for a bunch of years and socking some away and I got some value, I'm good. But you got employees who are saying, we want to advance our careers. We want to do more. And, well, yeah, if we bought this new piece of equipment, look how we could grow if we— If we opened up a new territory, look what happened last time we did it. And the owner is saying, no, I'm at the age, I don't want to do that. And you risk losing those good employees. You risk a buyer coming in and saying, can it really grow? You haven't grown in 5 years. Can it?

Right. Well, and so then these pie-in-the-sky dreams of what multiple you're going to get start to shrink pretty dramatically. when you can't show that growth or you can't show some of those capabilities.

Yeah. And, or prove what you're making. I mean, too often, the accounting department is the weak little stepsister off in the corner. I call it the Cinderella. Okay. The accounting's got to be done. My niece will do it. My aunt will do it. And, you know, I see it all the time. CPAs see it all the time. And, you know, I've got one client now and the CPA says they do it their way. They don't want me to help them with anything. I do it. I make sure the taxes are correct. I go from the trial balance and— but they just don't want the owners' wives do the books. Well, what are you going to do?

Interesting. So Getting your accounting house in order is certainly one of those things that you should do if you're going to run it like you're going to sell it. What are some of the other things that you see that not only make it, you know, better and, you know, more fun, more enjoyable, more successful running it today, but also make a business better able to sell when it is time to sell?

Well, a big one is reducing the owner dependency on the business. That means having a management team. It means delegating. If you take the example we talked about and the owner is real happy making what they're making and all that, but maybe they're still too important to the business because what they love doing is designing product or working with the customers, generating new customers. Get that off their plate. Get it so that they're up here working on strategy or what do you call strategy or vision or whatever, that it's the big picture stuff. Now, it is a little bit of a myth that you can get a small business And work on it, not in it all the time.

Yeah.

I want to do business where I can work on it, not in it. Well, yeah, that's pretty rare. I mean, these businesses, small businesses, you know, I like to use the phrase they need the adult supervision that generally only an owner can provide. And as one of our clients has said, he was asked, what do you do? What do you do around here? You know, and because they don't do much anymore. It's, well, when the cat's away, the mice will play. So, we always want to be here.

Interesting.

So, you know, they've got rid of the owner dependency, but it's the other way. They're not growing. So, it's where those 2 meet, intersect. Owner builds a management team, still can show they can grow, delegates, etc.

That's right. Well, and one of the fastest ways that we see to enable that is by creating and documenting processes.

Mm-hmm.

Because, you know, very often if the whole thing lives between your ears, well, then it's pretty much impossible to put someone else in charge of it because they don't know how it's being run today. You have to sit on their shoulder and, you know, guide their hand on every mouse click, whereas If you've created a process, not only can you then delegate it, but actually then, you know, creates a new baseline, a new framework that the next person could improve on even and actually help it grow without you having to be involved with it.

That's right. And it's the big picture things like that. It's the little picture things. You know, your marketing guy, Jessica and I sat down over the weekend and got out a calendar and planned the month of our social media stuff, which is for our business is primarily LinkedIn. As well, you know, as well as putting on podcasts and audio and video, but getting the word out there about them. But just making sure every day is planned out. What are we going to do? Get some variety 6 days a week.

Yeah, that's right. So, I read a statistic somewhere that Businesses with a written-down marketing plan experience 2.5 times as much success as businesses that don't, all other things being equal. And it's literally just the act of writing it down separates you so far from those that haven't written it down. Yeah.

And sometimes that marketing, I mean, the social media stuff is nice, getting the word out about your podcast and building an audience. And I will say, as a sidelight to that, I don't know how many people I get— not— I've had a couple, or you get, or others get from podcasts. But I'll tell you, this is all verification that this person knows what the heck they're doing. If someone has them on there as a podcast guest, or they've written a book, or they host a podcast that can attract people that others want to hear.

That's right.

It just adds to that credibility factor.

That's right. That know, like, and trust that's so necessary as people do businesses. So, that does raise sort of an interesting question for you though. So, you know, you don't want to have too much owner dependence. And but if the owner is the person that's out there doing podcast appearances or they're the one writing the book or, you know, they're sort of the personality of the business, how do you see companies sort of, you know, separate that owner dependence from that owner as the sort of face of the brand or face of the business?

Good, darn good question. Now, we separate businesses like mine and maybe yours We're, you know, we're an advisory firm.

Yeah.

You'll notice that lawyers and accountants have overcome the fact that it's named Smith, Jones, and Johnson. And 50 years later, it's still Smith, Jones, and Johnson. But there's none of those names in the firm.

Right.

They built that company brand. That is a tricky one. Now, let's realize most operating businesses The owner's not going to write a book. They may go on podcasts as an expert or they may speak at trade shows. But if they're smart, they get some other people in the firm to do that also.

That's right.

Do that, do the trade show stuff, etc.

Well, and one of the ways that we see folks do it successfully is by really sort of approaching it not as, well, these are my opinions. But instead, these are the results that the firm gets from using the firm's process. And then it becomes really sort of an owned asset within the firm itself that the figurehead is a proponent of the process that the firm has developed and that the firm delivers. And so, they're almost like an influencer on behalf of the company. Rather than the whole heart of the company themselves.

Right.

And it's funny how often though, when sales systems are dependent on sort of that kind of heroic person that does the sales, simply by documenting the process, it sort of creates that first step for removing that person from being that bottleneck in the process Or from being that, that piece that keeps it from being successful. And it's oftentimes a lot simpler to document the process than people even think of. We've done some stuff where we'll have, you know, just sort of like an assistant follow the person around for the day and kind of write down what they do. From there, be able to put together a standard operating procedure and then just have the person sort of sign off or say, Well, no, actually, this is a little different, or this is a little different. But getting that first step is actually a lot faster than people think. What are some other shortcuts to process that you've seen companies use to get sort of, you know, sale-ready as they're operating?

Well, what you mentioned is a good one. And what we found— and before I get into those next couple of points— that we work with a company and its owners Or often owner. And we ask them a lot of questions about the business so we can make a good presentation to prospective buyers, put a nice book together on it. And then it comes out that they are what is called an unconscious competent. They do so much they don't even think about. Right.

They're just so good at it.

Yeah. What do you do on Wednesday afternoons? Okay, well, I never mentioned that before, but I always Call on customer X on Wednesday afternoon.

That's right.

It comes out much later. So that is a that is an issue. But other things are, you know, hire and be able to retain really good people. Yeah. Employees could be subcontractors. Could be advisors. Advisors also. You get a good advisor. You want to keep them.

That's right.

You know, you want to do what they say. It's the, you know, the— take CPAs for instance. CPAs, their industry by all accounts is 400,000 to 500,000 people short. If you're a business and, you know, your CPA says you need to do these 5 things, you know, or you're skirting the law by do it this way, not that way, and you don't do it, They have no problem replacing you as a client.

Interesting.

Keep that in mind. But lower dependency, other dependencies, not just the owner. A big one that always is asked right up front is customer dependency. What are your top customers' percentage of your annual revenue? Is it the same top customers every year? And it varies by industry. In some cases, you want to be scared if it's so 10%. And around here in the Seattle area, we have a lot of aerospace with Boeing. It's not uncommon to have the top 10 customers account for a high percentage of business because Boeing's making a plane. They don't want to— they're not going to go save a dime a part. with their subcontractors who are not going to do the same thing. If you can provide that part done to specs on time, why would they risk the assembly line getting disrupted to save a little bit of money?

That's right.

So, yes, you do see stickiness of top customers and suppliers these days, especially with with tariffs is having multiple suppliers.

So, it's so interesting you talked about customer concentration because we do marketing and sales systems for folks. And very often other marketing and sales companies will just kind of, let's go do something that's going to generate revenue in the next 90 days or so. And so, have a focus there. But when we work, or a lack of focus really because There's sort of haphazard things that they'll do. But when we work with businesses that are sort of preparing for exit, we actually have a very disciplined approach of saying, what are the things that will both generate revenue today but also drive the overall enterprise value? So, it's funny that you talked about, you know, sort of customer concentration as one of the key things because You know, as we do marketing and sales systems, that's one of the things that we focus on, especially when we're working with companies preparing for exit. Because a lot of other marketing and sales consultants or advisory, they'll just kind of do random things to try to generate revenue for the next 90 days or over the next 6 months. Whereas we tend to look at, well, what's not only going to drive revenue in the short term, but what will actually increase your enterprise value and increase that multiple at exit. And we see that improving customer concentration and lifetime value and the percent of revenues that come from recurring revenue are sort of 3 key things that we can do that not only will increase our revenues but also de-risks the buy— the sale for the buyer And it makes it a much more attractive business compared to others in their category and really will drive that multiple as they approach exit.

Yeah. And you have to look, you know, you have to dig on some of these things. We have a prospective client. He told us at the beginning of the year he thought he wanted to sell it, start at the beginning of the year. And he said, I'm having too much fun. But when we're set, you know, I'm ready to sell, you're going to do it. And but he has a situation. He does have a top customer. Yeah, top customer is about 20%. But that customer has negotiated with him and his gross profit on that customer is much less than all other customers. And he said, look, if I lose that customer, it's, it's not that big a deal. I can replace him with a lot less sales for the same gross profit.

Interesting.

You have to dig into that stuff.

That's right.

Yeah, it is. You know, yeah, you know, suppliers and, you know, having multiple suppliers with supply chain issues been so prevalent the last few years. And of course, if there's a key employee that's the only one who can do certain things like, you know, certified to do something. And then one that's on outside of the company a little bit is landlord. What's the landlord want to do? And it depends on the size of the deal. But if there's a bank loan, there's a darn good chance the bank is going to not make the loan if there's not a lease that covers the term of the loan, including— they don't want— they don't want the buyer kicked out. I mean, and we're not talking about, you know, you know, a mega company buying— buying something. We're talking about, you know, even a Small private equity fund or a larger private equity fund, they don't want to be booted out, especially if, you know, it's location dependent or—

That's right.

It's— there's so many machines, much machinery in that, that, you know, it would cost a fortune. A fortune. I've seen it where it's cost a year of profit to move the company. So keeping a good lease is important.

Yeah. So you're obviously super knowledgeable about all of these topics and things we could chat about all day, but I do want to be mindful of time. But I want to give our audience— maybe there's someone that's listening that is at that inflection point of, I'm not just running to make payroll and I'm not just trying to keep the lights on, but I am actually starting to think about What's something that they could start doing today that is part of that sort of run it like you want to sell it mindset that could start to help them get ready for exit and both improve their life today as well as improve the value of the business at exit?

Blatant self-promotion here. Get a copy of my book, Exit with Style, Grace, and More Money, and it's on Amazon. But if you want it free, free complimentary e-copy, they can reach out to me and I'll send it to them.

Fantastic. How do they reach out to you for that?

They can go to our website, nokomisadvisory.com, N-O-K-O-M-I-S dot advisory.com. There's a contact form and just say, I saw— I heard you on the podcast with Mark and I'd like to get a copy of your book.

Fantastic.

Other things would be Step back, maybe have— and also, I would say a lot of times, a third party can come in. And as you know, with what you do, they can see things you don't see because—

That's right.

You can't see the forest for the trees kind of thing. So, they can come in. A lot of good people like us and others, depending on the size of your company, who you want to use. But have them look at your company and say, here's what you could do To make it more attractive. And if you make it more attractive, you're going to streamline the process and be better off along the way too.

That's right.

And a lot of times, it's taking care of little things. These days, IT. I mean, you can't see an article or online paper magazine, there isn't something about some phishing attempt or hacking, etc., ransomware. See the big picture. Growth hides a lot of warts. I got that from a guy who was a friend who is the president of one of the divisions at Expedia. He said that you grow, there'll be warts. You fix the warts after you've grown.

Yeah.

And so, it's, you know, and Don't trip over dollars to save a dime. You know, in marketing, you know, I don't want to spend that money on that. What's it going to get me? Well, you don't know till you do it. And it's— but when it works, it comes back tenfold.

That's right.

That's right.

Well, John, thank you so much for taking the time to join us today. So you threw out the website and the offer of getting a free download of the book. That's Nokomis Advisory. Is the name of the website?

nicomusadvisory.com.

That's right. And I really appreciate that offer of giving our audience a free copy of the electronic book for those that want to go grab that. And thanks so much for taking the time to share with us today.

Oh yeah, it was a great discussion. I think we had a good flow going. Awesome.

Talk to you soon.

Yeah.

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