Buying, Flipping, and Exiting Businesses with Matt Raad

Foreign. My yard is entirely free of kangaroos today. Not a kangaroo to be found. It's important to know because it's not true for our guest.

That's right.

What does that have to do with growing your business? What does that have to do with buy versus build? I think we got an interesting show for you today from all the way across the pond.

Thanks for having me on, Bill.

Yeah. So hey everybody, hand feeding kangaroos, flipping websites, what does that all have to do with each other? That's Matt Rad and we're going to talk to Matt. Matt, did I say that right? I didn't ask you how to pronounce your last name.

Yeah, no, that is spot on. That. That is just fine. And the story as well, Matt Rad.

All right, so listen up, everybody. Wouldn't get into that at all in just a second. My name is Bill Gallagher, scaling coach and host of this super fine Scaling up business podcast. You can tell we're running very professional today. It's Friday where we're recording right now. You'll be hearing this on a Wednesday probably, or whenever the heck you listen to it. We'll drop it on a Wednesday. But Friday here. I'm a bit punchy. I've been all over the state and back this week. I've got multiple countries to visit in the next little bit. I'm trying to figure out how to book flights back and forth across like, you know, I'm a little punchy today. So anyway, I think that there is a tie in to all this. It's got. But we've got more than 650 shows now@scalingcoach.com or wherever. You're getting this right now. So turn on your notifications like it, subscribe it, share it with other people, do all that and we'll send you like whatever. And if you want to come and do a little workshop with me and do a little one on one or one on a few and start to explore how some of this stuff all ties together for your business. You'll find all that and more@scalingcoach.com that's our website. Scalingcoach.com not hard to remember even if you're, if you're running, biking, swimming. Well, you're probably not listening to this if you're swimming, but you could be driving down the road, commuting, flying along. You can remember later. Follow up and go to scalingcoach.com all right. With all that said, Matt Rad, welcome to the show.

Thanks for having me on, Bill. Great to be Here. Yeah.

So, Matt, the day you signed those bank papers for the, for the wildlife park, what was scarier, the debt or the dingoes?

I think the debt. The debt's always influenced both my wife and I and everything we've done. So that's pretty much the biggest part of our story. That's why we ended up buying and selling online businesses.

Yeah.

Because our background was literally, like you said in the beginning, studying kangaroos. That's how Liz and I met at uni, was studying zoology. And we did things a little bit differently though. We decided zoology just isn't going to cut it even back then. This is 30 odd years ago. Scratching around for funding and stuff like that. We could see that's not going to be how we want our lives to be. And I'd always wanted to be wealthy because I grew up very poor. And Liz, both of us had grown up in the country and we decided business is the way to do it. I don't know where we got the idea from, but I'd always wanted to own a business as a kid, but luckily Liz bought into it with me and, you know, the rest is history. We got it. We quit uni. We actually quit to buy our first business. And then from there on we just went on this career of buying and selling businesses.

Excuse me, let me give the. Our listeners, viewers a little sense of some of the rest of this before we get. So you're right now broadcasting from place you can see like out your window. There's kangaroos on your property right now. Like that's a different part of the world. That is definitely not Chicago unless you live next to the zoo. You know, like it's a whole. It's. You're out in the country and.

Yeah, it is. Well, the bizarre thing is we're not actually in the country. We're in Australia's third largest city, Brisbane. But yet, yet we have. Where we live. We live, we're lucky enough to be able to live in, on acreage very close to the city. We're surrounded by beautiful mountains and forests. I ride, we both ride a lot of mountain bikes and we, it literally, we live the dream. It's taken us 30 years to get here. It's not a get rich quick thing. It took us 30 years to get here. But we do have kangaroos in the backyard, Bill. That's right. And literally it's kind of bizarre. We've gone full circle. Thirty years of business, full on mergers and acquisitions and now we're back to having kangaroos in the backyard. And riding mountain bikes every day and stuff like that. So pretty cool lifestyle.

So you are a, you run this thing, the E. Business Institute. We'll talk more about that. You spent, I don't know, 30 years now acquiring, renovating businesses. You teach other people how to do it. You build a portfolio. You're not a coder in yourself. You have a background in zoology, not technology. But you also host a podcast on the topic Digital Investors. You've been featured on Rich Dad Radio and Entrepreneurs on Fire for this idea of buy versus build. And we've talked about this a few times. We're going to talk about it some more because some of our clients do really well. After we figure out a niche to play in a kind of a business to run, we will often fuel that growth by doing acquisitions and. Way to go. And I know that that's what you love too. So folks just should know, got some cred. You've done a little bit of work in this. It's not like you're new.

Yeah, yeah, yeah. That, that's what we've lived and breathed is buying and selling businesses and all our friends and, and I guess you'd call them mentors, like people that are older than us who done extremely well out of it as well for 30 years. It's who we hang out with, people that use acquisitions, business acquisitions to grow their wealth significantly.

So let's start with that first story. How do you talk to your zoologist? You meet your wife, you do whatever. You buy a wildlife park. Tell, tell us about that.

No, it was actually a manufacturing business. Yeah, yeah, yeah. Manufacturing business. And so that was, it was completely different to zoology. That was the thing that surprised everyone, including our professors when we told them we're quitting. It was through friends and family. We did the classic thing, we bootstrapped it. We used funding with friends and family. We had no idea what we're doing. Both of us had grown up on farms and we got this opportunity to buy this at the time, a little manufacturing business. And we made every mistake in the book because we were so rookie. And the main mistakes that we made was in the due diligence. We were told, given advice by a country based accountant who. Wait till you hear this bill. He had his practice next to the local pub, which is a hot, which is a hotel here, I think you guys call it hotels. And so that's where he was every lunchtime drinking beers and things like that with all his business cronies. So needless to say, he did not give us the Right Advice. And it was just. It was like something out of a movie. You know, when I think back to it now, how naive we were. You know, you walk into his office and he's chain smoking and there's. Yeah, you can tell he'd been at the pub all day. And this is the sort of person that, you know, when you're in a country town, that's who you take advice off. Trusted him. He's like an elder there. But it was completely wrong. The business was going out backwards. We didn't know that at the time. And so when we got into it within, it's funny, within the first 24 hours, I was hooked. I absolutely loved it. I could see this is what I want to do with my life. But within the next 24 hours, we realized, basically the next week we figured out, okay, this has gone bankrupt, is about to lose all the clients, and we'd been given the wrong advice. How do we turn this around? So we started. We basically started reading all the American business and classic sales books. So if any of your listeners remember Tom Hopkins, Zig Ziglar, Brian Tracy, they were just. This is back in the days at cassettes. We listened to them over and over. And also there was a really book called what they don't teach you at Business, Harvard School. I've got it for 60 cents from the local op shop. And that pretty much set us up for this idea. The way you turn around a business is just get more sales, forget about expenses and stuff. I know that if you're an accountant, you probably disagree, but I'm not a fan of accountants when it comes to turning around businesses quickly. And that's what we did. So. So we turned. We got really good at turning businesses around quickly. And I think we became so good at it, we bought multiple always manufacturing or wholesale import businesses. And it was really difficult when you're a young entrepreneur because you're always in debt to the bank. That's the next thing that shaped us in a major way. So due diligence, getting that right, and then debt in businesses, managing cash flow. Oh, man, it's hard, really.

We didn't like prepare this or throw this in the show prep or notes, but it points to something interesting and hopefully you could think of something on the spot. So I'd love to hear a couple stories about turnarounds. Maybe one that went brilliant. But before that, tell me about a turnaround that you really struggled with. Right. That didn't go well, maybe that even ultimately failed.

Yeah, I'd say, oh, There's. There's a few because they're all being hard. So actually the first business that we bought, that manufacturing business, we were making spare parts for outdoor power equipment. And it all looks great. It ended up well. So it's not that it failed, but it took a lot longer than what we thought. It took about 10 years. And we got it to the point where we were exporting to America, which is our favorite country for business. And also so we were supplying a company called Shindaiwa, which was at the time based in America, but also was exporting to Germany. And that was. Taught us a lot about turnarounds because we got all there through sales. The big turnaround for us that failed. So we bought wholesale import businesses as well. We once had a crack at buying a retail business, which was a big lawn mower shop here in Australia. That was a failure for us and that also shaped our journey. Never again will we go retail because it just sucked. You're stuck in there. It was very, very difficult. The margins are shocking. And that one did not work for us at all. We thought we could turn it around just like we were used to turning around wholesale import businesses or manufacturing businesses, because really the quickest way to turn around businesses that we discovered, and it's 101 stuff, but most business owners don't do it. And we became advisors in M and A mergers and acquisitions. And it's the number one thing we do to prepare a business when is to turn it around, is to get the sales up. And it's simply put the prices up and go out and get more sales. Now, it sounds simple, but so many business owners resist that. So they look at all these other things and they. And I think their accountants get in their ears about, you know, reducing costs and stuff like that. You know, in a wholesale import business, there's only the quickest way to. It goes straight to your bottom line. If you can up the prices by 10 to 20% and keep pushing on that, upping the prices and then get more sales. It worked on every multimillion dollar business we were ever involved in. And you know, we would have even people come to us. We've struggled. We got really good at this, at helping people prep their businesses for a big exit or relatively big exit by American standards. It's not big exits, but back in the night in the early 2000s, they were kind of big ish here in Australia. Like we were selling businesses in the app for clients. My specialty was businesses that were netting a million dollars a year. EBIT so 1 to 2 million. So I had this really nice little niche that I was well known for in Sydney and in particular manufacturing and wholesale import businesses. And for, you know, we'd have people coming to us and saying, you know, we're struggling in or we want to get out of this, we want to retire. You know, we just want to sell it. And I'd look at their figures and go, you got a problem here. It's I can only get you three times and that's not going to be enough to retire on. But I can, if we can tidy this business up and turn it around and it's not going to happen overnight, but give us like 12 months and we can get it prepped and then I can get you a really good exit at a much higher multiple. And that's what, that's what we did. And honestly, the secret behind it, Bill, was what I just said, the simplicity of just gently coaching them, what do you call them, coaxing them to put your prices up and build up your sales team and get more sales. You know, very blunt, but it works.

Let's take it apart because I have a different view view of it and a different approach. And I learned something from somebody from an accounting banking background that was really helpful to me. And I've done a couple of turnarounds, including my own. And the thing that I learned from the banking guy was actually from a banking guy and somebody on the accounting side was that cutting the expenses is a pathway to breathing room. You're so stressed by all the burn that you have and all, if you look at it, And a number of businesses that I work at that get stressed, that hit an inflection point and we make two columns of things that are working and profitable and things that are hard and not profitable. And then we just shut down everything, right? Everything. But I'm talking about a business that's really about to fail. So everything that just seems like crap, we just get rid of it and we inevitably find savings of not only money, but time and energy and like mental bandwidth. And then we put that into sales, right? We put that. And a lot of times leaning into more of the other. And then the thing about raising the price, it's funny because I totally agree with you there. And the thing that runs business owners, that's just all fear, they can't raise the prices. And I'm doing it now, I'm like, all the time like, oh, I'm afraid to raise the price for whatever reason. But if you come in, you just don't care. You're like, oh whatever, this needs to be 50% more and you just jack it up. And then some people go away for sure.

But the rest, yeah, it's not. I'll put a subtlety to it. I'm sounding very blunt. We do. You're dead right. Cutting. I'll come back to what you said. Cutting expenses and things is super important. But what I found that was actually really easy to do with clients. So these are, these are also specific businesses that I was doing with their factories in industrial areas basically. So think of them, you know when you see big warehouses or factories that are either making stuff or they've got a lot of inventory on the shelves. So most of the business revolves around the cost of goods so that the actual products that's sitting there. Most business owners I find are pretty good for me when I come in to advise them on selling. So they've been running These business for 10 to 15 years. Typically they're older, they're approaching retirement. Most businesses I found were pretty good. They were pretty scrappy in terms of they were good at the manufacturing side and getting the cost down already. So for me as an advisor, there wasn't a lot of room where I could say to them, look, cut the cost of goods by you know, an extra 10, 20% because they're already negotiated pretty good deals with their suppliers. But we would certainly look at that. But if they were, you know, blowing money on.

Yeah. Extra staff or equipment.

Yeah, that sort of thing can make a huge difference because sometimes they can get dead right that. I'm just thinking of some particular deals that we had. Some of them can get a fair bit of bloat over the years particularly interesting enough as they get bigger. But I was with these guys, you know, they were family run businesses, solo owned, needing good money and they were, they were pretty darn good at business. But they just, they were trying to sell things too cheaply to get the volume up. And in a wholesale import business here in Australia that was a, that it was so much easier just to get the prices up and go out and often what they do too because they'd gotten comfortable. Remember these are very comfortable businesses to run. They literally didn't have to work that much really. So these guys were typically quite comfortable. They're off playing golf and stuff. Your average wholesale import business that's needing around a million dollars. They're no disrespect to anyone that's working way harder and not making that sort of money. But once they're at that level, they're only working three or four days a week. Most of them are investing in real estate. They've got lots of other things going on in their lives. And these businesses, you know, they do a buying trip to China four times a year. That's about it. They run their sales teams and they don't. They lose the ball with their sales teams. That's what I was coming to and I think that's where we can work with. So one of the big success stories I had was with a young guy that had done it. He was young and hungry and he'd heard about me, how I'd sold these. And he's saying, you know, I'm turning over that business was we sold it for $5 million. So it must have been turning over the netting more than a mil. This is a long time ago. But I remember working with him and he got that excited realizing when I said to him, what do you talk to me about your sales team? What are they actually doing? How much are you paying them? And we changed the commission structure a bit and got them a bit hungrier. And literally within 12 months, he had significantly improved the ebit of his business. And it was a much easier sale. We suddenly had private equity firms interested in buying it and it worked phenomenally well. And I remember with him, he had already had all the expenses dialed in through his accountant. So accountants, if someone's working with an accountant, I can't replace an accountant. What I found was accountants are really good at fixing up those expenses. And so remember, I'm the last point of contact the advisor just before we sell the business to the PE firm. So for me to really get it humming is make sure the sales are maximized.

Yeah, yeah, yeah.

If it was a turnaround one. If it was a turnaround.

So let's talk about. Is the, is the. Your packaging billionaire, Anthony Pratt, Is that who you.

Oh, he's, he's a legend here in Australia. Yeah. Those sorts of businesses, what I love to sell, but not, not at his level, but, but they're literally where his factories were. That was my stamping ground for finding businesses to sell. So managing love selling those sorts of businesses.

That changed your mind there?

I beg your pardon.

Did you have some coffee conversation with him that.

Oh, I had coffee conversations with some very, very. Not Richard Pratt himself, but some very successful, well known entrepreneurs in Australia who buy and sell businesses for. That's what they do professionally and that's who I was very fortunate to work with very closely. Quite a few people like that. So ultra high net worth or private equity firms, that's who became my main network. And, and I, that's where I learned most about business. I learned more off those guys than running my own manufacturing businesses.

Yeah, the buying, selling, tuning up a business is different than the one started your own. Or when you're very much. How about the first online business that you bought? What was that? How did that go? Tell us about that.

That was awesome. That's when our lives really did change. So we were bricks and mortar wholesale import businesses. Very difficult to run cash flow wise. When you're a young entrepreneur you're always in debt to the bank and there's a lot of moving parts and all your wealth is tied up in a warehouse. When we discovered the online space we suddenly realized we can be in America tomorrow. There's no more borders. We don't have to stick stuff on container ships and send it over and go through all that. There's instant cash flow and these things work 24 7. And we decided, Liz and I made a pact. When we go online we're not repeating the same mistakes that we did with the offline business. We are not going for e commerce websites. So we're not, we don't do e commerce at all. We don't sell any physical inventory. We just do either a good old fashioned affiliate sites or advertising sites. So we bought big sites that made a lot of money off advertising. And our first deal that we bought it wasn't a big deal. But this was before brokers existed for online businesses. And it was actually Liz that figured it out. She, she. We'd been looking at this Internet thing and the hardest thing for this was back in the early 2000s we couldn't figure out the technical side. We were, we weren't. Liz is good with computers. I wasn't. And so we actually put it off because we're kind of scared of the technical side. And then in the end after a couple of years we just, we realized this is the perfect business model for us. We can work from home and it'll give us 24. 7 business overseas. Straight away we wanted to get out of Australia because it's such a small market here. And so Liz just said why don't we do what we've always done? Let's just. She's tried to build her first business and it took a year, an online business and she got it to break even and then she got it to work and she was making around $5,000 a month net off it, which sounds pretty cool. This is off a crafting website selling an ebook. And so she's pretty happy with that. But she said Liz is very impatient and a real go getter, ultra high achiever. She goes I'm not going through all that again. Let's just do what we've always done, just buy an existing business. Cause you get instant cash flow. That's by the way if you listen to this, that's the beautiful thing about buying businesses. You just get instant cash flow. So we're trying to figure out how to do it and would you believe the first website we ever bought, we bought on ebay. Often a lovely American guy. But because no one we're on forums trying to see who's selling their websites or whatever. So there's no brokers. And we said to the seller, lovely American guy, why are you selling this website on ebay? And he goes why are you guys buying on ebay? The same reason. Where the hell do you sell a website?