$10M Valuation with $200k In Revenue - Why Your Business Is Worth More Than You Think

Your business may be worth more than you think, and this episode is gonna persuade you to target at least an 8-figure valuation. I'm gonna introduce you to Neil Conlon, who broke my brain when he told me how he values companies. In fact, he tells the story about one business that was doing almost no revenue and got an 8-figure valuation. How in the world does that math math? Once you see how the valuation is made behind the curtain, you will realize that the thing that you have been building may be worth far more than you think. And I like to work with clients on helping them maximize that so that we can have an 8-figure exit in the future. This episode is going to start your thinking process about how you lay the groundwork for an 8-figure valuation. Neil, is it true that you've raised over $100 million in your career?

That is correct.

Okay. Tell me what you were raising it for.

So I think in total, I think we've raised collectively to $260, maybe $300 million in a bunch of different companies. But I've done a bunch of, bunch of fun that done that in a bunch of different ways. The $100 million you're talking about was for a cybersecurity software company where we raised $100 million in 5 rounds in 3 years with this idea that we were going to take the company public and build that momentum in order to do so.

And did you?

We ended up not taking it public because as we had closed that $100 million, COVID showed up at the door, which is—

I heard about that.

Which is a catalyst, though, in that we had really, really smart people on our team that even though our goal was to take this company a certain direction, we had a very specific goal. When the environment changed, we pivoted and we ended up selling the company to a private equity fund as a depreciated asset. And I think that's one of the biggest things I've learned over time is have a very clear goal of where you're going. And when the environment or market changes, be ready to pivot somewhere else.

Yeah. When I sold my company in 2017, I had this idea that the private equity groups were the rich, smart guys in the room that knew how to grow a business from— I was at about $10 million a year to $100 million a year. That's what they said they were going to do. And they had all this capital that they were going to bring in and they bankrupted the business and now I own it again. And so it, it really turned me off to the idea of raising capital or partnering with these big rich people until I met you and you broke some of my beliefs. And you told me a story about raising capital for like a protein bar company or something. And I was hoping you could walk through the numbers of that deal because this is really where I started to go, wait a minute. I might have to rethink some things that I know about business.

Yeah. So company, company was doing $10,000 to $15,000 a month in MRR and recurring revenue, recurring revenue and had no debt and had a 76% retention subscription model that you buy a bunch of bars, they lock you in and very low overhead. And I said, if we make a couple tweaks in the business, get underneath the hood, we could very easily value the business at a $10 million valuation.

At when it's doing $200,000 in sales?

Correct.

Makes— that does not— that math doesn't math for me when I hear that for the first time.

Absolutely. Right. And so the way that we have addressed that is it's— I call it revenue architecture. And what it is, is you start to look at the— identify all the risks in the business. And, you know, for a company that's got intellectual property and a recipe tied to it, they're less risky than somebody who's just throwing a protein bar together that matches everybody else. Then there's a brand philosophy in that. Like, are people actually buying into the brand thing? And especially the branding stuff in 2025 and 2026 is so important because cranking out CPGs has just become so easy for the bigger companies, right? And then this retention thing is becoming very, very powerful because so many CPG companies have been building this kind of raving fan thing. But if you've ever been to a baseball game, the raving fan—

I've been to many baseball games, Neil.

It's very easy to be the raving fan until the team's not doing well. And then you just go find another stadium.

Yeah, if you're a fair-weather fan that, you know, cares if you've won a World Series in the last 75 years and, you know, has been through a couple rebuilds and dealt with things 30 years of last place.

I'm not bitter, but I think it's like re-architecting all of that and being able to really forecast out with obviously the right data, the right analytics that you can actually really get really clear on like forecasting out, you know, if the business continues to grow at this speed, at this pace, here's how much money we need.

So what did that look like with this protein bar company? I mean, it sounds like you have a recipe that you can build some IP or brand around. Okay, like, great. That de-risks some of the business. You've got MRR and you've got a high retention rate, so you've got some story in the numbers, but still it's a big gap between $200,000 a year and a $10 million valuation. So something's gotta change in the numbers in order to justify that.

Correct.

You're looking at me funny like you have a secret. A lot of entrepreneurs think that the value of their company simply comes down to the numbers, and they're right, except for the fact that they only look at one number. They look at profit or they look at top-line revenue, and they value their business based on that number. Well, what if that was not the most important number? What Neil outlines next is the other numbers that determine if your company is valuable or not. And even if you have no revenue, it may be possible to raise capital or value your business at $10 million or more. And then I know this because I get pitched on businesses that are pre-revenue and are raising capital at $10 million valuation. How do they do that? It's because of the other numbers that they know. And Neil breaks down what those are. And if you know these numbers, then your business may be worth far more money than you currently realize.

There's, there's these indicators, right? Where, you know, if you're looking at it from a traditional venture capital model, they're looking just to de-risk the liability piece of it. But there's proven indicators in this marketplace, especially in e-commerce now, because e-commerce world has matured significantly. You talk, even at your dinner last night, like you talked to some of the e-com guys that were there. They know exactly how Amazon works. They know exactly how Shopify works. They know now you can actually really get tight on like what needs to happen in order— we would need to spend X amount of dollars to make Y amount of ROI. I always say like the only reason why a lot of early stage CPG founders don't know how to value their company is just because they don't have access to the experience or the exposure or to somebody who can help them do that.

Yeah, I mean, they've been hanging out with other e-commerce entrepreneurs for so long.

Right.

And they've been seeing what other people have sold their company for in the e-commerce world. And they haven't had the exposure to people who have raised $100 million or had a billion-dollar exit or advised those types of companies. And if they had that exposure, they would probably see that there's not that much difference. There are some differences. There are absolutely some differences. But there's not that— there's not a cavern that needs to be crossed here. There's, there's, there's things that can be done methodically in order to cross that bridge. What are some of the things that you need to change or address in this protein bar company in order to justify a $10 million valuation?

I think you got to understand your metrics through and through all the data points of it. And I think the other piece of it is, is you need to get really dialed in really dialed in on what your ideal customer profile is. Because what this company really has done really, really well is mom-and-pop business, this great couple, and they're both super CrossFitters, that's their thing. And they went through the traditional model of, we don't like protein bars that have lots of chemicals in them. And they cater exclusively to somebody who works out, who's predominantly a woman, who doesn't want to eat bad ingredients in their protein. That is their target audience. All their language speaks to it. And the reason why you can value this company so well is because they have the data to support it. They have a 76% return, return customer retention rate. I mean, like on a protein bar. And they have hundreds of customers who every month go, keep it coming, keep it coming. So once you have all of the data points in there and it's really clear, no blind spots, that's the important piece really for this company. You can go, how much money will we need to give them in order to 10x this business? Mm-hmm. There is no blind spot in this business.

And, and what metrics are you looking at and how are you figuring that out?

Uh, we're looking at the cost of acquisition of a customer. Obviously the retention rate, the average customer. I think the last time I talked to 'em, the average customer is spending $200 and something a month, right? So that, that's their average, right? Which for a CPG is basically you're a high ticket item, right? You're not a $4.99 thing. And we're also looking at the revenue per seat, which is becoming the, this new metric.

Revenue per seat?

Yeah, so there's a new, this new metric that people are really focused on predominantly because of AI is how much revenue are we generating per employee that we have in the business?

Okay.

And they're starting to look at it where there's examples of $125 million companies out there that only have 125 employees. And so I'm starting to apply this into it because Do you really, like, to your point, you hit thresholds and you go, you might need to hire a new person. And that was true, 100% true 2 years ago. Now you might just need an AI copilot who reads all the books on CPG and tells you and goes into your business and evaluates what you should be doing and not doing. One of the things that I go through that I think comes across a little bit convoluted when I explain it is the valuation of the company skyrockets when there's no blind spots. When there's no, you take the time to get those metrics and to be very clear on updating them. A lot of times businesses, I've done it before and I'm sure you have too, you don't have the right metrics until somebody asks you for them.

Right.

And then you go find them.

Right.

And then if someone asks 3 months later, you probably still don't have them.

Yes.

Right.

Guilty as charged.

And so the biggest thing I think is, is becoming so data-centric that you have, you know, your number.

So here's what's going on in my brain is I look at this $15,000 MRR and I think there's no way you can value that at $10 million. You are ignoring that number as irrelevant.

Yeah.

And you are looking at other things like comps in the space, what other companies have raised for, or what companies have exited for. Yep. What needs to be true about the math in order for this to be an 8-figure company? How much capital do we need to have in order to put it down this math formula of customer acquisition costs versus lifetime value? Mm-hmm. In order to be able to acquire those customers, assuming a 50 to 72% retention rate, this is what the MRR will be in 2 years.

Yeah.

So you're not looking at the current snapshot of the business, which is where it really broke my brain. You're looking at the total possibility of the business. And this is just a starting point. This number, this revenue point is— this is not relevant. This doesn't matter. Here are the other things that matter. So most entrepreneurs will view it as, I'm at this revenue amount, no one is gonna fund this business until I'm at X number of revenue. You are saying, no, have these data points figured out and that will tell if your business is fundable or not. Is, is that a fair summary?

Exactly, exactly. And think about it, right? Like as entrepreneurs, we're all these pessimists of ourselves. Even on our best days, we're gonna beat ourselves up. Right. And you do that too.

Oh, thank God. It's not just me.

And if you're a CPG brand especially, right, where you don't get the pat on the back every day the way a services-based business is going to get pat on the back, right? You've got to have, you know, your digital marketing locked in, your accounting locked in, all these things locked in. And I think one of the biggest things that I've learned over time is if nobody sits there and picks and prods at your business in those things, and the only thing that they're gonna tell you is your business is worth more than you realize, even on your worst day, you're gonna do more.

That is 100% true. Right?

So going to this business and being like, you did great last month. How do we do—

how—

I actually used, I think, one of your conversations. I said, how do we increase the revenue of this business 4% every week, every week, 4% more, 4% more. And so then now that you're not worried about the email cadence or worried about the social media post that didn't get as many likes or views, and the only thing you're doing is locked in increasing the revenue. Now I can demonstrate to investors that there's so much conviction in this business that when they just, when you dump capital on them, they're just gonna do better. And that's the hardest thing is, is you're looking from— most investors are looking at like, how do I de-risk myself? But if you build confidence in the founder that they can get there, even when things don't go right, they're gonna keep on going.

I wanna just interrupt here and answer the question, why should you raise capital? Because it may not be so that you can invest more in the business or hire more people. There are other ancillary benefits to raising capital as well. And I'm not saying that you should, but Here's an example, and that highlights one of the benefits of raising capital. If you want to get an advisor to sit on your advisory board and you want to compensate them for advising you, you might offer them 10% of the company, or you might offer them $100,000 worth of shares. Well, how do we know how many shares $100,000 is? Well, if you do a capital raise, at a $10 million valuation, then $100,000 in shares is actually 1% of the company. Now, what sounds better? 10% of the company or 1% of the company or $100,000 in shares that may go up over time? This is where we can start to use the valuation of a company as a way to have intelligent conversations with people who can help us grow to the level that we desire. The first step that we put people through is creating the pitch deck that values a company at $10 million, and then we backfill the steps that need to happen in order for that to be true. Whether or not we raise capital or have an exit or not, it's the first exercise we do to build a company that is worth $10 million or more. And if you want help with that process, you can see how we can work together on building your 8-figure valuation over at Capitalism.com/partners. Now, Neil, who's writing these checks in these cases? Like, who is— when somebody, let's say, okay, we can create a story where this protein bar company is valued at $10 million. And it's funny, as I'm saying that, I'm remembering that I got pitched on an oatmeal company and I passed on it. It was pre-revenue and they raised at a $10 million valuation. And it was a pure story. I passed on it 'cause I didn't, it didn't match, you know, what I like to invest in. But I think they got their number. So I actually just found evidence for, there are food brands in this space that can raise a $10 million valuation with no revenue. So that is interesting that that just happened in my brain. But who are the people writing these checks? When you go to raise capital for somebody doing 6 figures in revenue at a multimillion-dollar valuation or an 8-figure valuation, who's writing those checks?

I think in this year, last year too, but I think what's going on is, um, people are really excited about companies that have like lots of momentum. And so I think there's actually a lot of money coming, like traditional money that would have normally gone to some unicorn software company is now not being deployed in that way. And it's going to people who actually want to be part of a story of something bigger. So I think the investors that I end up talking to a lot would— will see a company like this and they'll be like, at first they're like, protein's not that interesting to me. I mean, it's a very— it's a— the market's saturated. Every gas station has 140 protein bars in it, etc., etc. But now there's like this universe of purpose-driven, authentic companies with great stories that ultimately in the $10 million example, that protein company gets rolled up with a couple other protein companies, and then we're creating insights and analytics, and then that gets rolled into something bigger. And I think even the first time I heard about a roll-up, it seemed like it was so far away from me.

It still does to me sometimes, and you've helped me with that. So we should probably talk about that a little bit.

Yeah.

But, but keep, keep going down this, down this road because what you're starting to touch on is if you raise, even if you don't need capital, if you raise capital from people who are well-connected, you can open yourself up to opportunities for a higher valuation when you go have a liquidity event or you're part of a roll-up. There's— raising capital is not just about putting money in the bank. It is also about the partnerships that you bring to the table. It is about the opportunities that open up because of who is on the cap table. It also just allows you to value the company for the first time so that when you go to your manufacturer and you have a legitimate conversation, you can say, we just raised capital at a $10 million valuation. We're a player. Put us in first line for manufacturing. It, it— even if you raised $100,000 at a $10 million valuation, I now have leverage with my supplier or my manufacturer. So it's not just about the money that shows up in the bank. It is about all of the other opportunities that it creates, because now I can say I have a business that's valued at this number.

Yeah, well, that's the thing is like when, when we were raising capital, you know, in the software company, right, it was 5 rounds of capital, 3 years, every like 4 to 6 months we were back in front of investors and we took money in all forms. We took VC, private, all forms. And I think what a lot of people don't know or have access to is, you know, and you just hit upon it, is how to use money as a utility, right, throughout your business experience. There are so many different ways you can take capital. There are so many different ways you can exchange, you know, everything from the cap table, shares, advisory sessions, referrals, factoring, debt.

Is— are you starting to flirt with like financial engineering? Right now. You're using a lot of terms I don't know.

So, so I think that's the thing is I had to get access to those words because the first time I heard someone talk about stuff like that, I'm like, what do you mean that if I have an invoice coming in every month, I can present it to a bank and they will give me a 1% loan? I don't have to raise more capital. That's what factoring is. Okay. And, and stuff like that. But again, if you don't know the revenue architecture of the business really, really well, then the financial piece of it becomes much, much harder.

So when you go and raise capital for one of these brands, are these often family offices that are putting in the capital? Are these individuals? Are these funds? What's your process for taking a brand and shopping it to the market?

Yeah. So I think I've built kind of a— I wouldn't say a private network, but I've got definitely a universe of people that I've made enough noise in the space that they'll entertain the conversation of, hey, this is interesting. But definitely lots of family offices for sure. Understanding how a family office works, I think is critical. We can talk about that if you want. And also there's these like micro communities, and I'm sure you've been part of this before, where someone who's been successful with a raise of capital or with an exit, becomes really easy for you to, like, pass something around to 10 of your friends and say, we're all going to go in for $100 grand on this and let's have fun doing this. Like, that unlocked for me crazy when I heard Gary Vaynerchuk talk about that like 10 or 12, like 10 years ago. He was talking about throwing money into Uber with a bunch of his friends. I think Travis asked for like I want $60 grand from every person. And they were like having fun watching Uber scale. Whereas like in my head growing up in New York City, investing was always so serious and there was so much money stuff about it that I was like apprehensive to it versus like, how do we like get good at knowing what we're doing and then have fun doing it? And if we take the loss, we take the loss. It's not this like skull-crushing, painful, scary thing that money can be for some people.

As an investor, I get that now. I realize that when I put money into a business, I'm, I'm a big boy. I might lose my ass. Like, that's the risk that I take. But as an entrepreneur who has never had the big win and has never been on that side of the table, I think a lot of the fear comes from, I don't want to raise capital because I don't want that hanging on my shoulders. I got to— I got to make good by these investors. I now work for these investors. I mean, I still feel that when I raise capital, like I am— I'm responsible to those investors. I'm not responsible for them. I'm responsible to them. And that weight can be kind of soul-crushing when things aren't working out. So how do you advise an entrepreneur to think about that when the resistance to raising capital prevents them from exploring this as an option?

Oh, I love this question.

Um, me too. That's why I asked it.

I think, I think the money— so one, you're absolutely correct. In the world of entrepreneurship, we throw all these words around, and I've realized over time that until you have experienced it, you can't— you can logically in your head go, I understand what leverage is, But until you've been in a conversation where you had leverage, now you're like, oh, that's leverage. Yeah, that's what leverage is, right? It's just like gratitude. Like, unless you've actually felt it, sounds good, Dalai Lama, but like, now I get it. And with money, I think money is actually, as long as your business is being run well, money's always available in some form. And I think that for an entrepreneur who hasn't had that experience, I think the person bringing you money has either got to be A, a silent investor, which is, hey, I'm writing you a check, go forth and do the thing, or being very clear on what the expectations or that person brings to the table. Why I've never, I've never been able to be the person who just writes a check and goes, here you go, have fun. Because I think I bring so much more value to your business than just being able to write zeros. And I think that has to be very clear for the, for the person. Because if you're just like, yeah, I'm going to give you 1% or 100,000 shares, just being real clear on like what the relationship is with that person goes so far, goes so far.

One of the first things that we have clients do is we'll sit down with them and we'll build the pitch deck at a minimum of a $10 million valuation. Nice. Because the minimum for us, if we're going to work with somebody, is they've got to be targeting at least a $10 million business at some point. Otherwise it's just not worth us getting, getting involved. And plus, I don't want to advise you if we're shooting for a $3 million business long term. So we build the pitch deck for a $10 million valuation. Okay, what team members are we going to need in order to add to make this a reality? And what is our product roadmap gonna look like? And what does our math look like? And we just, it anchors a goal of the different steps that we're gonna need to take. And then it's, okay, go have 10 conversations with people that you respect and ask for advice. Mm-hmm. Because if you ask for advice, you get money. And if you ask for money, you get advice. So go sit down and have conversations with 10 people who you would value their opinion and go through this deck and say, where, where are the gaps? What am I missing? What should I consider? And do you know anybody?

Yeah.

Like, how would you suggest that I go about this? And that is a beautiful opening move to having a legitimate ask with good advice. And now you're in the game, like you're on the board. What steps do you recommend somebody go through that are starting the process if they're gonna raise capital or establish a valuation for their business?

I, I, I have a, when I first got into entrepreneurship, every entrepreneur book I read about a business always said, start with your friends and family. And what's funny about that, when I started my first business, because I'd left the corporate world in New York City and I'd worked so hard for so long, I had no friends and my family were not my buyers. And so I had to take, my business to strangers. And to this day, I think the thing you have to do after you do those steps that you just talked about is go after the strangers because the people that know you are gonna have a cognitive bias and want you to be successful and are going to lie to you because they want you to be successful. And in my first business, one of the catalysts was because I had this like helmet on my head from the military, was going out to people who I think would be the buyer and collecting real feedback from potential buyers, not people who are friends and family who are going to say, "This is great." 'Cause telling me this is great doesn't help me at all in the business.

Well, they also may be amazed at a million-dollar revenue business. Yep. Or amazed at a million-dollar potential payday. Whereas if you go have a conversation with somebody who's been in this game for a while, they are not amazed at a $100 million valuation. And so very different pools of advice.

Yep.

Now when you're raising capital for one of these brands, how do they usually use the money?

Usually, I mean, I think I tend to separate capital raising into two possibilities. One, they've maxed out all of their growth opportunities and they recognize they need to do some kind of infrastructure upgrade. That could be, hey, we need to hire more people to build something out, we need a better process. That's the first one would be infrastructure. The second one's gonna be inventory. There's a threshold for all CPGs, multiple thresholds, where inventory versus warehousing versus demand, there's a delta for that.

$2.5 million is the threshold that I see almost every entrepreneur hit is right at 2.5. They hit some invisible ceiling that they gotta invest more capital in some way in order to break through that.

I'd say it's 2.5, 7.5, which is interesting because that's the inflection point where you can really think about acquisition because you can carve out a path to 10 really easy. And then at 15 is a cliff because again, it's a warehousing thing.

Interesting.

Yeah. Um, and then the third one would be, hey, we have all the systems in place, we're doing extremely well, we just need kerosene on the fire. Like that one is the one that people will write checks tomorrow.

In this next part of the discussion, Neil and I have a conversation about growing enterprise value. Enterprise value is the value of a business when it's sells. A lot of entrepreneurs ignore this because they're so focused on, well, revenue and profit, as a lot of times they should be. But enterprise value is ultimately going to be the thing that makes you the most money in your career. And there are things that you can do to increase enterprise value. Once you're over $1 million to $2 million, the biggest unlocks in your business often come from focusing on growing the enterprise value. Because that is ultimately what is going to put the most money in your pocket when you exit the business. So listen to how Neil and I talk about the changes that can be made to increase the enterprise value of your business. You recently did a deal, a healthcare deal. And the interesting thing here was that you worked a lot on building the enterprise value, right? Which is basically exclusive what we, exclusively what we do with clients when we're working on getting them ready for a capital raise or an exit. It's like those levers that you can pull are so much fun 'cause there's a million dollars here and there's half a million dollars here. Like I'm thinking of an example of one brand that we're working on an exit for right now where if we recast the books, not in a manipulative or weird way, but he was running on cash accounting, so in cash accounting, and it is exactly what he should be doing from a tax liability perspective. Mm-hmm. But, but because it's cash accounting, he's writing off his inventory, getting the tax write-off for it. It's exactly what he should be doing. But that means that there's like $300,000 in expense that isn't actually expense, it's inventory. So if we recast the books as accrual accounting, We've just found $300,000 in profit. Okay, well that's great. Well, the business is gonna sell for a 5x multiple. So it's $1.5 million that we just added to the valuation of the company that we're gonna get. Like that's real cash that is gonna show up that wasn't there before. It was just hidden in the bookkeeping. I love finding those, Neil. So you did this with the healthcare company. I think you raised the enterprise value by like 40%. So tell me how you did that.

Yeah, let's go in the weeds on this one a little bit. Because we just closed 10 days ago. It's fresh. And I'm really grateful that I got to do this for the founder because that founder will retire for life, right? So background of business, healthcare services-based business, been around for 10 years, very sound business. Founder got to a point where her children are getting older. She's realizing they're gonna leave the house in a couple years, wants to spend more time with them and is like, shit, running outta time here. And she had been shopping the business for a year, used traditional business brokerages, all the things that people were telling her to do, spending thousands of dollars. And she's just at her wit's end because the most she could get for the business was about 1.5, a multiple about 1.5 on the revenue, which came down to about $6.5, $7 million, which after capital gains, which entrepreneurs never think about. Mm-hmm. Doesn't make any sense, right? You're not gonna retire after your capital gains are done. And so I sat there and looked at her and I said, your business is worth more than you realize. I think I can help. And we took the business, to your point, went through bookkeeping first, did that low-hanging fruit always because most owner-operators are not thinking about stuff like that. We then went into the OpEx. And then drastically reduced the OpEx using some AI tools and got to cut down on a bunch of subscriptions, software platform things. So we got the one, first lever comes down is bookkeeping, second lever comes down is go into the OpEx and reduce the OpEx of it. And then the third one was to streamline a bunch of the systems and processes throughout the business, because they were, you go into some of these cool techie software companies and everybody's using Slack and it's connected and automated and they don't realize like how much money you're saving the business. But just because you're saving that money in the business doesn't mean you shouldn't be adding that to the value of the business. It's a weird thing that a lot of companies do. We're like, we got so much more efficient or better, but you're still, why would you decrease the value of that business just because you became more efficient? So we play around with that a little bit. Then I went out and we talked about this last night. I literally emailed 5 or 6 private equity funds that I have no relationship with, but I knew because of their websites they were acquiring entities like this. And I emailed the CEOs of all 5 of them and I said, you'd be a dick to miss out on this deal in the subject line.

And out of the 5, not necessarily recommended by Capitalism.com. Please continue, Neal.

But one of the 5 came back to me, Tim Murphy, and Tim said, you're either a jerk or you're onto something. Let's have a phone call. And so I got on the phone with the CEO's company.

Did you follow up with the other 4 and tell them that they were indeed dicks?

In the next campaign, we'll do that. Thank you for that. And guaranteed phone call back.

Probably.

Or a subpoena.

I'll take 20%. So Tim Murphy.

So Tim Murphy hands me over to his acquisition team. I get on the phone with them and I position this company based on what we've done so far. And they made us an offer a couple days later. Just in that exercise, we increase, I think the value, revenue offer, I'm sorry, offer after that was $8.5 million just from doing the exercise, which is great. Here's where people stop because you've already, they've already offered you more money than you thought you were gonna get. And I said, what would need to change in order for us to increase the value of the business more for you? And they told me the formula.

And you're talking to the buyer.

The buyer.

I love this.

What would make this company more valuable to you? And they told me, then I took that.

What did they tell you?

They were like, so one, there needed to be some changes in the C-suite salary-wise. So we had to find some synergies and some buyback, what they call buybacks in the company. Two, they were like, hey, in the contracts, if the contracts were longer periods of time, that would be interesting to us. And I'm dropping, I forget what the third one was.

But they basically said, they told you what the risks were.

Correct. But then I took this and I kind of put on like a lawyer mindset, I guess, because when a lawyer hears a rule during a court case, if they want, they don't argue back. They go find a different rule that supersedes the rule that it's like trying to be a kid and trying to find where mom said, I can do whatever I want, just don't get caught. and then she gets mad at me when I went to the cookie jar. But you said just don't get caught. Like, it's like that playfulness, having fun with it, right? So I take that model and I go out to McKinsey's and Deloitte's and all the larger entities of the world and create other examples where in this industry other cadences were approved, such as McKinsey has a well-documented white paper about buying healthcare companies because of the value of the brand of the company in the community when it's in healthcare services. And so, shorten the story a little bit.

Could you try to say that again in English?

So when businesses are around in local communities for 10+ years, while everyone is focused on like SEO and all the digital stuff, you don't realize if you're a healthcare company, education company, health and wellness for sure, you build a brand in the community you're in.

Ah, I see.

People become familiar with you. People choose you because of the brand.

Yeah.

Right? So if you're trying to expand into a region and you acquire the business that's the local go-to for the thing, there's a value to that.

Yeah, that makes sense.

Right? So I then entered a bunch of formulas back to the private equity fund without our variables and said, would you entertain these formulas? Which is, would you consider factoring in the personal brand of this company? Would you consider this? And they, and they couldn't not say yes because it was coming from a larger rule base than they have. And so then once they agreed to that, We went back to, we went back to drawing board. We then reached out to a bunch of the existing customers and said, we're updating our contracts. Here's some new language for you. Negotiated some new contracts, which then put a very clear, nice dovetail on the next couple of years. Made a couple more choices, went back, and then the private equity firm came back and said, we've got an offer for you. Let's do $9.6 million. And I said, well, I actually went back to the founder and I said, I think you might want to think about this. And she said to me, you can do better, Neal. That's what she said. She said, I think you can do more. You told me my business is worth more than I realize. I need you to believe what you just told me.

Good for this client.

And so I went back to the private equity fund. I said, we very much like this offer. What would we need to do in order for this to get better? And they very happily were like, well, the thing that's missing here is X, which was new customer base. We want to know there's a new customer base. And then that was great. I went back to the founder and I said, we need 3 more contracts. Go get them. And during this process, while I'm doing— this is like 4 or 5 months back and forth of doing this— she is strategically removing herself from every other part of the business and becoming the owner of the business and not the operator, which I think is critical because it's so hard to work in the business while you're trying to revalue the business because you're constantly going to be tweaking things. And long story short, She secures those 3 contracts. They were just kind of lying out there. We go back, they make us another offer, and they say, uh, we'll give you $10 million. They just upped it a couple hundred thousand dollars. And then, and again, this is the final piece of this, is you don't realize how much leverage you have until you have leverage. I went back to them right away without even taking that offer back to my client, and I said, She'll stay on for a year and she'll increase the revenue of the business another million dollars, and she'll take an earnout on top of that for $11 million. And they went, if she can do that, great. We signed a deal. 4 months of due diligence. Make sure we do— make sure checks and balances validate everything happened. But as of 10 days ago, done deal.

Now, the interesting thing about this is the revenue of this business really didn't change much. Correct. Maybe a little with these extra contracts. And there's a promise of some additional revenue if the business continues to grow in the form of an earnout. But there's, there's no major changes to the strategy or to the revenue or profitability of the business. You are just adjusting the story that made the buyer more confident in the long-term performance of this business. Correct. And that means that you have to clean up a few things or you have to adjust a few things or change some contracts. But the fundamental, the fundamentals of the business didn't change. This is, this is the thing that I wish I had known when I sold my company. Mm-hmm. Just 'cause I just saw a number. This is my EBITDA. I'm gonna get this multiple. We're gonna do a deal.

Yep.

Instead of knowing my terms and saying, okay, actually this is what other brands in the marketplace are worth, or even asking the question, what do we need to do in order to make this number better?

Yeah.

And so instead, guess what I didn't have, Neil? Leverage. Had none of it. And flipping the script changes your valuation by many, many millions of dollars. You made this statement that the founder of this business needed to make this transition from operator to owner. I would call that the transition from entrepreneur to owner. The entrepreneur who is wearing all of the hats, knows everything that's going on in the business, has their life savings tied up in the success of the business. They're not an owner. They are the CEO, the entrepreneur, the operator. They're the head honcho and nothing happens without them. If they go away, the business crumbles. That's an entrepreneur. Yeah. But an owner can sit in the owner's box and watch the team play on the field. So I have my way of getting people to make that transition, and I think that is an essential part of valuing your company. Because if you're the entrepreneur who's running everything, you're really valuing you. But when we start to move into the owner's seat, now we're valuing the business. How do you start to walk people through that transition? It's a big transformation to go from starting out to becoming a 7-figure entrepreneur. The next transformation that has to happen is going from entrepreneur to owner. And this is where you move from being the person who's working 29 hours a day and has all of your risk tied up in the business to the person who owns the business. And you can operate the business, but you don't have to. You can fund the growth of the business, but you don't have to. You can sell the business, but you don't have to. You can show up early on Monday and work work on things, but you don't have to. It's then that you have a business that you can really scale and ultimately sell for a whack ton of money. If you want some help making the transformation, going from entrepreneur to owner, you can see what we do and get on the waiting list for our partners program over at Capitalism.com/partners. This is where we get very involved in a small group of clients to help them grow beyond 7 figures. This is where we help them achieve an 8-figure valuation. And my intent is to take a small minority position in some of the brands that come through this process so that I can guide them to an 8-figure life-changing exit. If you would like to be part of this cohort, we take no more than 30 people, and you can find out what's going on in there over at Capitalism.com/cohort. Partners?

I'm doing that right now with a couple of companies. And, uh, there's two ways. I— two ways. One, the easy one, is I think the most valuable and cost-effective way to do it is you hire an admin who's worked in that industry that comes with systems and processes that you don't have. It's the best.

What do you mean, an admin?

Or administrative assistant type person. An op— what do we call them now? Office business administrator. But some— not the virtual assistant, but somebody who actually comes from the industry that comes with a set of skills that you don't have. Because the biggest challenge is you think that when you remove yourself from those roles that everyone's got to do the things that you— the way you did them, which doesn't mean they're getting any better. Right? And that's the quick, easy win, you know, for it. The second one is, is I think the exercise I tend to put people through, I'm doing this right now with a, with a business owner, is we're removing him from the business. Business does a couple million dollars a year. He's a rainmaker of a person. He buys like a motorcycle every month because he likes motorcycles. The exercise is in August, he's taking 30 days off straight. And between now and August 1st, he's got to build all the systems and processes that aside from checking in when he's on the road going to Sturgis or wherever he's going, he's out of the business for a month. Because I don't think we realize as entrepreneurs how much we start to love and like the grind of it. And we reward ourselves with like work hard, play hard mentality. So if you really want to move to the owner of the business, you've got to feel what it's like to not have that in front of you. And then you can be like, I want to feel that more often. I want to feel that I can stop.

Oh, that's really good. Yeah, I needed that one. I needed that one. I mean, Capitalism.com. At least like the content engine of this can't really run without me. And so the idea of stepping away from that and like the, that feels actually very refreshing to be able to do that. I haven't walked away from my business in, for more than a week at a time in a couple of years. I think I'm gonna take that exercise. I needed that reminder.

Yeah.

One of the things that we like to remind entrepreneurs that are making that transition into owner is, those investments that you make into becoming the owner, they have an immediate ROI. So I'm thinking about, there's this, there's this girl, hi Vanessa. Vanessa, she has this, this juice powder company and she was doing like $1.2 million a year in sales. And she was spending 40 hours a month doing inventory management. She had all these different SKUs that she was managing. And so for, I don't know, maybe $1,500 to $2,000 a month, we got her a fractional supply chain manager through one of the entities that we partner with, and that freed up 40 hours a month of her time. Okay, well, what's her time worth if she's running a $1.2 million business? It's worth more than $1,500 to $2,000 a month, I'll tell you that much. Okay, so there's an immediate ROI there.

Yeah. Yep.

And now number 2, okay, what is she going to now be empowered to do with that extra time? Well, she launched another product with that time and it doubled the business. Like, okay, great. Like we're using our time effectively now. But the third way that it paid for itself was that the inventory now got managed by someone who had a lot of experience managing inventory, so they never ran out of stock and they had proper forecasting. Which actually allows them to be more aggressive with advertising, which allows them to know their numbers clear so they can do the type of exercises that you recommend. So there's a, there's a return there, and there's yet a fourth return on this investment, which is now we've reduced founder's risk. And if a buyer wants to come in and buy this business, they're not going to buy a business where the founder is in the way. So we've actually gotten valuation of the company out of this hire because the founder is no longer in the way in that department. And so there were 4 different areas of return from this hire that were worth way more than $1,500 a month or whatever they were paying this person. And so these, these moves from entrepreneur to owner have an immediate ROI. And, and I've found that the resistance is often, well, if I'm gonna raise for this business or I'm gonna exit this business, I wanna keep my expenses as low as possible so that I can show as much EBITDA as possible.

Yep.

And once we take the revenue and the profit out of it and we see that there's all these other ways to value the business, it destresses that valuation process.

Yeah, there's an exercise that I put everyone through because what happens is we live in this world where you tell anybody anything and they're gonna Google and go look for validation that someone else agrees with the thing, right?

ChatGPT seems to do that a lot. Correct. Just agrees with you on everything. You're just the most amazing person. —person.

And I always say to founders when we're talking about valuation of the company or exits, the business is sold. This is the exercise. You're on the beach with the piña colada. What in the business breaks in the first month you're gone? Make that list. That's your to-do list for the next couple weeks. Fix those gaps. Fix those gaps. And if you just focus on that, what you'll realize, similar to your, hey, if you focus on increasing 4% of revenue every week, you'll very quickly get to a point where you're like, we've, we've, we've identified all the blind spots and we're working on them. 'Cause there really is no blind spots in your business. There's just, there's just the things you don't wanna focus on really.

In this next section, Neil and I are gonna talk about something called rollups. And rollups are basically where you take multiple different companies and you put them under one holding company structure. Why would you want to do that? Well, if you have all these different companies under one entity, then the collective profit is going to be higher. And there's some buyers who are willing to pay a premium for more profit rather than buying up 5 companies. They'll pay a premium for that one business that has the same amount of profit as the other Five do combined. And this is where it gets very interesting to look at valuations and leverage. Because if you realize that you can sell your business today for $10 million, or you can make it part of a roll-up and sell the exact same business for $15 to $25 million, you start to realize that value is very subjective. And that creates a lot of opportunity and upside for those of us who are scrappy entrepreneurs. Neil, you mentioned earlier about roll-ups and you had this idea that they were really complicated and I still kind of think they're complicated, but the numbers behind roll-ups are really freaking exciting. So could you walk us through what a roll-up is, how they get structured, what you've learned about keeping them simple? Because this is such a big unlock in terms of valuation.

Yeah, I think what's interesting is because I'd been at a hedge fund and a private equity fund and at an investment bank back then, and this is going back 10, 12 years, you know, it was business suits and, you know, behind closed doors conversations. And so maybe some of it just through osmosis, I just kind of learned the lingo earlier before I actually saw it in practical application. But the roll-up is a concept of, at the end of the day, it may be cheaper to buy a business than it is to build a business, right? And it may be cheaper to acquire a bunch of businesses than it is to, than it is to scale your own business, right? Because at some point, if you're a large entity and you have multiple, or you have a lot of market share, there's a threshold that you will reach where it's becoming much more expensive for you to acquire customers, right? And so like if you look at, you know, any business at some point, it gets to a certain point where that happens. So this idea of being like, hey, rather than having to spend millions of dollars on acquiring new customers, why don't we spend a couple million dollars on the, buying the competitors or—

Buying all the competitors. Or buying all the competitors. Or buying all the customers owned by that competitor. Right. And you just buy it, we get all our customers.

And there's a big, you know, surge around this. Shout out to Codie Sanchez and her methodology around a bunch of this stuff as well. But there's like, now it's like people are realizing, you know, laundromats, car washes, HVAC companies, you know, electrical companies, plumbing companies, all of them, they're all the same kind of business with high, high-ticket items. Why not roll them all together? And so I started working with companies on this about 18 months ago with this concept of, you know, realizing, and even this in the CPG and the health and wellness space especially, because there's never been a market so great because people care so much about their own health of like, why do we all have to continuously walk through this path of figuring out marketing, figuring out this, figuring out this. When you find the commonalities and the strengths and the weaknesses in these businesses and talk to them and see and value all of them, let's just say there's 7 to 10 $2 million, $2.5 million businesses. To your point, they're all coming up on that threshold where they may or may not have the resources or the energy or momentum to do the next leap into the next thing. Well, if you partner and you bring all of those 10 companies together, you now have a $25 billion company. But if you do it with 20 companies, now you've got a $100 million company. And now in the age of data and AI, if you can combine those CRMs and combine a lot of the data, you now have intellectual property, you now have even more value to the business.

It's one of those where the sum of the, what's the phrase? The sum of the total is more than the, what's the phrase? Someone help me out with this. The value of the total is greater than the sum of the parts. Correct. Something like that, right? When you take these assets and you bring them together, 2 2 5. And, and, and if you sell a business, you're gonna be valued at whatever you negotiate the value of that is. But if you combine your business with 4 other similar sized businesses, mm-hmm, the total value is worth more than if each brand were to sell on its own. Yeah. And there's a bunch of different reasons for that. One of them that you're saying is there's other assets that come out of that conglomerate. Another is that the total revenue and the total profit will attract a bigger-pocketed buyer that only wants to do one transaction instead of five transactions. And so if you can participate in that type of a structure, the numbers are very favorable. What are you seeing in the marketplace right now in terms of where we are in a cycle, in terms of valuations, you look at e-commerce companies, you look at roll-ups and healthcare companies. What do you see? Like, what's your pulse on the marketplace right now? Are we in a recession? Are we in a boom? Are we in AI bubble? Like, everybody has a different opinion depending on what time it is. What's yours?

I mean, on the e-com CPG side, I think we're on the cusp of probably one of the biggest and greatest times ever to be in that space. I mean, I think we talked about last night, actually, like, this feels to me very like 2002, 2003, 2004. They unlocked like the ability for everybody to get mortgages and the whole real estate market becomes flooded with people buying real estate. And I think that like AI has actually— AI and the changes in the, the US government's position on health, you know, flipping the food triangle, the, the surge in biohacking and supplement stuff and health stuff. Like, it's such a massive opportunity that people, I think, we're only starting to see, like, people are starting to realize how great it really is because you have a— the environment is fantastic for it right now. You have people trusting them, taking more control and more responsibility for their own health. And then you have all these things that are now available to people that were never available before. I mean, like, it's amazing what you could do on your own. The fact that you've got people in your 1% Club that are doing the volume of capital that they— like, of revenue that they are, and they're like team of 1, 2, or 3 is wild.

It's bananas. Couldn't do that 10 years ago for sure.

No. Going back to your point about what this market feels like, in 2002, 2003, 2004, everybody was buying houses, right? And then what happened after that? A big massive consolidation happened. All the big real estate companies, you know, bought all the houses and bought people's houses. So I think the next year or two is going to be people building e-commerce brands and supplement companies and wellness stuff. And then the big companies are gonna be like, let's consolidate and roll them all up. Yes. It's just the trend is right there. That's right.

So it's like a 5-year cycle. Yeah. And we're right at the beginning of a new cycle 'cause we just had a bunch of margin compression over the last 3 years. And that was winter and things died off. And now it's spring. Yep.

And I think the indicator of that is if you're an entrepreneur or business owner, make your 5-year plan. And then compress it to 18 months and then see how much capital you need to raise to do that. And I would go after that because, because I think there's some indicators out there that what happened to your point around a 5-year plan, what happened after that consolidation, housing market burst, right? And there's a recovery phase after that. So I think it is, we're in the stage where everybody should be buying houses. Right, or launching the e-commerce brand, building the CPG, doing the e-commerce stuff.

Or acquiring e-commerce brands.

Or acquiring brands, buying them. Or trying to grow faster.

Like, this is the time to plant seeds and water 'em and work like hell. Yep. Whether you are raising capital or not raising capital, doing a roll-up or building on your own, ultimately success comes down to the people that are involved. You have a long career in the Marine Corps, correct? Mm-hmm. And so you have a certain way of handling yourself and how you see other people. What are the character traits that you see in the entrepreneurs that are fundable and have a chance at an 8-figure valuation? I think a clear vision is so important.

Clear vision is so important. One, the other one is consistency. I think consistency is such an underrated thing for a founder. You could be consistently sloppy, Just be consistent. Like, and then the one that's come up for me recently is I want them to have a life outside of the business.

Oh, interesting. That's very counterintuitive. Very counterintuitive.

Like, I want the founder who in the middle of the day says, I gotta go pick up my kids from school. I'll be back online later on. Because I think there is that, not the balance, 'cause there's nothing in entrepreneurship that's balanced, but I want the person who can go, 'cause there is no 50/50, there is no any of that. I want the person who is all into the business and believes in something outside of the business. Because at some point the business is gonna go bad. At some point something's gonna break. And as somebody who knows what it's like to go off the rails and have to recover afterwards, that's where shit hits the fan in the valuation of your business and everything you've done.

Neal Conlon, great to see you, my man. Thanks for hanging out with us again. I love doing this with you, man. This is fun. This is great. Good to see you.

How do people find you? www.nealconlon.com or—

It's 2026. You don't need the www anymore, Neal.

Fair. And every single social channel, just look me up on there.

Great to see you, my friend. All right. My goal for those of you who are watching is that you build something great so that we're sitting at the table having a conversation about what it looks like to maximize your enterprise value and have a life-changing exit. That's, that's what I want. Like, I want to have partnerships with people who are building cool things where we pull a few levers, bring interesting people to support the business, like influencers and investors and advisors who have done all of this before. And we as a team can oversee the exciting business that you're building and that our community is launching and watch it go from nothing to an 8-figure exit. That's, that's what I do this for. And so if you're building something that you want to take to an 8-figure valuation and maybe have an exit in the future, I work with a small group of people. I have a new program that is launching I don't even have a name for it yet. Right now I'm just calling it partners because these are people that I hope to have partnerships with in the future. There's no equity exchange or anything like that upfront, but that's what I want it to lead to. I want to take minority stakes in a handful of businesses and guide them towards an 8-figure exit. We're working on a few deals right now that I'll share more at another time, but I wanna do more of those types of partnerships so that I get to sit at the table when we go have multimillion-dollar exit as a result of what you've built and what we've done together. If you want to find out more about that, it's at Capitalism.com/partners. In the meantime, if you're building something great, I would love to mentor you on your journey. Hit the subscribe button and I'll see you guys in the next episode. Take care.