Lunch & Learn - Session 23

Well, welcome to another session of Lunch and Learn. Last week I was out on the ski hill, so I understand we had a fabulous output with my co-hosts, our General Counsel Jackie Kiper. And Jackie, you look like you are somewhere with palm trees in the back.

I am. It is not AI-generated. I am in the Dominican Republic.

Oh, very nice. And Candace—

Notice how she doesn't miss it though, Dad.

I had that scheduled way in advance. I was with a bunch of Olympians. You can go look at it. Franz for Sky Tavern. We had fun. And Candace, my other co-host here, general partner in our organization, the Founder's Office, and Imagine how great it would be to have an industrial organizational psychology doctor who helps unicorns when they've hit the billion-dollar valuation, helps the actual founders and the C-suite organize around how to grow that company and how to maximize shareholder value. Well, joining us today is a great pleasure is Dr. Katie Powell Hinnitz. Yes, there is a tie-in to the name there. She's also part of the Founder's Office and, and part of our group, and we're going to be talking about family transitions, raising capital, all sorts of fun stuff. Katie, welcome to the show, Lunch and Learn.

Thanks for having me, and might I say, I'm quite impressed. You riffed off industrial organizational psychologist like a pro. Very proud of you.

Yeah, it's amazing. What'd you say? I could, I could have just said IOP, is that right?

Or I, oh, psychologist. Yes.

Psychologist. So does this mean like you, you sit here and you analyze your sister and friends and husband and father all the time?

All the time.

I do the same, but I'm not qualified. I psychoanalyzed all of you.

Well, what I think is really fun about it is it's not about the people, it's about the systems that help the people. So I just get to dissect all the problems of the piping because the structure needs to work for people, not against how people really work. So, don't worry, you're safe. I'm not psychoanalyzing you, but probably doing some detective work on the systems.

Your sister, yes. Your siblings, all the time. Your little brother, I see it going analyzation.

All the time.

You know, so, so this is a cool subject we're going to be talking about because we just finished up Lift Pitch a week ago. And Katie, you were up there skiing around as a number of people were making their presentations and doing pitches. And you you had this space of where they were within the capital structure. And we had some very new companies, we had some very seasoned companies, and we talk about the capital alignment method. And that's a critical, critical part of raising capital. And before we were starting the show, Jackie was talking about the ability to maximize value in the company. So, again, to what you do and how you bring those systems and structure in there and get get the founder out of their own way. Let's talk about that a little bit. What does that look like?

Yeah, I think what I like to do first with companies is typically the founder— this is their baby. They didn't like start a business to run a business. They started a business because they had a really great idea that they wanted to put into the world. And then as you grow, the business part kind of gets in the way of the founder part, and it can feel really hard to disentangle yourself from really the day-to-day operations and get back into that visionary spot. Because what worked well for you to get to this great valuation, this great vertical that you, you have right now, was being in the day-to-day. But that day-to-day model of behavior will not sustain you for the next phase of growth or your exit, right? It's really going to hurt your valuation. And so what we do is really come in and help you Say, okay, where can I empower my team? And that's not just saying yes to everything and delegating everything. It's saying, where can I actually duplicate my thought processes, processes with all of my team, get really clear on what we're working toward, who we're working for, such that the day-to-day decisions take care of themselves and I can work more on the business, not in the business. That really depends on the type of company, the scale of company. It's all very personal, But it really starts from that foundation of let's get you back to that visionary space that created this great idea and create the business structures around you to support you.

Well, we talk, we talk about the founder's isolation paradox. Sorry, Candice, we talk about the founder's isolation paradox, and you and I were actually out on a walk yesterday talking somewhat around that about how the complexity causes then a lack of creativity. Because as the company grows, the thing that you're most valuable for generally as the founder founder is the creativity and the connect the dots. And as soon as you're stuck in the complexity, you can't do any of that anymore, right?

Exactly. Yeah. And there's ways to kind of create those systems to protect your peace such that you are the creative engine and enabler for your team. I like to tell founders, right, you, you hired great, brilliant people who are now closer to the day-to-day than you are. And so we got to build the trust and enablement systems to have your team be able to do the work that they are now even better positioned to do than you are. That's a pretty big psychological shift because up until now you've been the best person to do all of these things. That's no longer the case when you're growing. And so as complexity increases, the level of trust and discernment also needs to increase.

You know, I'm going to ask Jackie this question, but we talk a lot about the data room. So I just gave away the answer of what I was actually looking for. But when we go in and we ask the data room, and if the founder delivers us the data room, as opposed to just that simple of a thing, if the founder is the one who's controlling the data room, Jackie, what do those data rooms usually look like when the founder's been controlling the data room?

They're a little messy. They're real messy. They're incomplete. They're not user-friendly. And to what you're speaking about, Katie, um, I'm gonna simplify. It's like clean systems, right? Clean, tight systems. I'm gonna present the converse. Like say you are in a company and you're trying to raise capital or you're trying to grow and scale to exit eventually.

Mm-hmm.

What does it look like if you have a super messy data room, you're really heavily dependent on your founder, you don't have your systems or processes documented, if someone's coming in to give you capital and you're looking for like aligned capital, or if you're looking to exit, someone's coming in to buy you, what are they buying? They're not trying to buy you. If you step out with your IP, this company crumbles without good systems. They're not gonna be interested in that. So yeah, I'd love to hear from all of you what you've seen when like it is a messy data room versus someone who's like super clean, you know, you've got your right team in place. It's a well-oiled machine. Which company do you want to invest in? Either to help them raise capital or to buy. Do you want the— Yeah, no, no one wants a mess.

To the point where it's one of our first questions, you know, when we're talking to them, how dependent, whether we're making an investment or the client is looking to exit. And it is one of our first questions. How dependent is the business on you? If you were to step out, we ask, if you were to leave for 60 days out of pocket, no connection, how would the business operate? And a lot of times what I get is they could function, but they couldn't grow. Like, nothing would actually move up. That is something that we spend a lot of time working on. It's one of, like, the biggest things that you've got to have a really capable team. And sometimes those members are already there. It's just you giving them more autonomy, more systems, sharing some more of your knowledge so that they can actually do that work. The goal is not to have this organization dependent on you.

Well, and Katie, you were in a banking environment, right? I mean, they actually got their bank license. And so, you were dealing with— and it was a founder's bank somewhat, meaning it was geared towards founders that were starting that up. And coming from my banking background, one of the things that we saw was that the majority of businesses were so founder-centric that one, one of the primary things we did was we tied up the founder in case they ever went away. They had to have insurance in place. They had to have— because if that founder goes, oftentimes the business is going, right? So the Capital Alignment Method is about how do we extract that founder from in there so that they're not having to sign personal guarantees. They don't need to sign a personal guarantee if the business is valuable. But if the business is only valuable if the founder is inside that business, then of course we want a personal guarantee, right? So did you see that at, uh, at your former, uh, bank that you were working with?

Yeah, and I, I think it's actually like a really broad theme that you're talking about. And why I think there's kind of an undercurrent of identity crisis in these positions— people often mistake busyness for effectiveness. And so having a founder be able to say, I love being busy, I'm kind of addicted to work, I'm addicted to this idea, and I have gotten it this far, is a crisis of identity when you are demanded to move away in the, like, um, service of your company's not only higher valuation. So Jackie, what you're saying is really astute. You're going to get a premium on your valuation of your company when you've got organized systems that are not dependent on any one single person. And so, what that necessitates is the founder looking at this from a lot of different angles. I think founder dependency is a byproduct of unclean systems, unclear autonomy and authority decisioning criteria, and then also, really a lack of preparedness on the founder's part, a lack of preparedness to disentangle themselves from the business. And it doesn't mean you're not the most valuable contributor to the business and the vision, but the business can't be you. And that's what banks are looking at, that's what capital is looking at, and also it's what you need to be looking at to protect yourself, not only for now but in your eventual exit. Right? So these are conversations that I think are often overlooked early, but if taken care of early, can set you up for not only a higher trajectory now, but a greater valuation when you're ready to exit. That's—

I think that's fascinating. I also want to go back to, especially given your education and then your practical piece of being out in the workforce, how often do you see the founders truly still are, as they deem it, the smartest person in the room. And so they— but what it really is, is that it's a codependency in that they need the company because it's so much of their identity as to that the company really needs them. They've hired great people in many cases.

Yeah, absolutely. I mean, to answer your question plainly, I see it far too often and it really isn't a service to them the company, the shareholders. It's, it's a— it's one of the biggest disservices to continue to feel like you are the only one who can do it the right way. And so I think moving a founder from doer, from everything— you wore every hat to get it off the ground— to enabler and empowerer is a concentrated shift that a founder has to be willing to make and let things grow along the way. You have a very capable team, Ken. I love what you said. Like oftentimes the people are already there. They're just not being utilized to the extent that they can move the vision forward in a way that one person can't. But again, trust doesn't happen overnight. It happens over doing what we're saying we're going to do, committing to actions and doing things a little differently and letting it take shape over time. So you can't just say, you know what, everyone else handle this. It's your job to say, this is being super clear on the vision that I have. I would love your input on how we move the needle toward that vision. I'll give you my input along the way because I've grown this business and I know the inner pipings of it, but I'm going to let you help shape the how and eventually do the how without me because we've built that kind of muscle over doing this over time.

And I'll tell you how critical this is in the capital raise process. We will not, and we have in the past, and this is why it's such a firm no for us. We will not invest in organizations that the main person and the cure-all, and we really can't access anybody else on the team, is the founder. When they think they're smarter than about every component, you know, and when they don't trust their CFO or their financial team enough to share information with us directly or give us access, when they're the ones uploading, like we said, the data room, if they don't mention to us, oh yeah, let me get my— a member of my team, or let me have so-and-so will be reaching out. That actually is a huge bonus to us. I like when a founder maybe doesn't know an answer because one of their team members knows the answer better than they do. Um, I, I don't invest in the smartest person in the room because that's a big red flag for so, for so many reasons. It's a red flag for many, many reasons. Um, and so this is layered. It's, it's Good business planning. It's good exit planning, and it's very smart for any sort of capital transition.

So, you know, Candace, I want to say something really important for the, for the people that are here, and we don't have any questions yet, so we're going to keep going until we probably do. So we'll talk all day if you guys don't want to ask questions, but you've got a great opportunity to ask some questions on, on the scenario. We don't do business with when it's the smartest person in the room. You know, again, if it's an early stage, and once in a while we do work with very early stage people and that's the only person in the room, so yes. But if they're not open to at least who— identifying who's in the team that they should get on. Have we worked with groups in the past that they were— the CEO or founder was deemed the smartest person in the room, and how did that turn out for us and them?

I think you have a whole Substack on this.

I have a whole conversation.

Really not great. Um, that's one of those OPEs, other people's experiences. Learn from us, don't do that.

Um, it has a 46-episode miniseries coming soon.

How to Lose $400 Million, right?

It hasn't worked out.

Um, so sorry, without questions in the chat, If someone's like, okay, I get it, I get it conceptually, I get it theoretically, I know the importance of this, but where do I start? You mentioned insurance, Tom. I don't know what kind of insurance policy to get. Katie, you're talking about, um, moving the needle toward delegating. You can't just show up and be like, you guys handle it. Where do we start on these things?

Well, let's, let's start, if we don't mind. I, I gave Angela something, so, uh, pop that up on the chart there, Angela. There's 3 slides in here. I'm just gonna go through 'em. Briefly, and I'm building this into for our website of how it'll be actually an engine. But it talks about when we go look at our capital, if are we going to make an investment or do we want, who do we get them to talk to? The first is that personal experience. Is it something, that's why you want to define the problem that you're solving. So, if you could really quickly look at it and Angela, it's the third sheet in there. Just quickly turn to that. Yeah. So the first one we're talking about is you define what the problem is that you're solving or the challenge. The second is how do you solve that or what's the champion of that? And then what does it mean to actually solve that problem? That's the change. The credibility comes into it of what proof do you have or who else is saying this is a big deal? The call to action is what you're using that money for and when. So a lot of times it's I'm doing the early stage, I'm getting the next $300,000 because we're going to go get this intellectual property secured and we're going to be able to get our first model out there. And then the connection is where this comes in. It's the personal experience. So, Angela, if you go back to that first, first one there, the, that personal experience is where someone says, Yes, I understand what problem you're solving. The second one that's important is, is the market size. So is it going to be a good investment? And the third one is, are there barriers to entry like we talked about intellectual property? That's the problem, the persuasiveness of it. But if you go to the second one, this is what we're really talking about now in this group, which is the second, second page there, Angela, is the passion of the entrepreneur. It doesn't say the intelligence of the entrepreneur or being the smartest person in the room. It's about the passion of the entrepreneur. Entrepreneur that is a scenario of most days of an entrepreneur. And sorry for the crassness in it, but Joe Polish has this in his room. It's like the life of an entrepreneur. It starts off with a morning that goes, oh yay. And then it's fuck, fuck, fuck, fuck, fuck. Hey, fuck, fuck, fuck, fuck.

Yay.

Fuck, fuck. All the way through, right? Because that's the way the life is. And if you don't have that passionate entrepreneur, that passionate founder, they don't make it through and the rest of the team doesn't make it through because there's too many things that come up. But the key part is, can that entrepreneur attract and retain quality talent? And that's where, uh, Dr. Powell Hinatz comes in, is because that team credibility and the skill sets that most founders have do not generally have them being great leaders of teams and attracting and retaining them. So they have to learn those skills. That's why also oftentimes they don't stay in that CEO role. The proof of claim and solution clarity and risk management, competition— we can talk about those later. But the confidence in the solution really comes and starts in those two, because the other ones will get there. Uh, specifically, thanks Angela for putting those up there. Um, Katie, what do you think about that? How do you collect— especially when you're starting a brand new company— how do you collect talent when you can't even pay them? What's— I mean, what's that look like in the companies you've seen out there?

Well, I think you did a really great linear projection of that process, which is passion can be infectious. And so good people like to own, own, um, own a part of a solution. There have been plenty of times— I'm part of a startup right now that's doing that— where it was, wow, I really see your vision, you've painted the vision for me, and I would love to be able to contribute there. Your best people want to contribute. Some of the red flag people want to ride your coattails. And so having the ability to say, I have this vision, I can't do this part of this, right? I need you to own it is where that starts to happen. I really don't care about the credentials of your team if they have no decision-making authority, if they have no influence over the energy, right? So it doesn't matter if you're pulling in the right people, because guess what? Those right people will leave because they want to contribute, they want to have impact. And so it's really imperative for the founder to channel that passion for what they're building and, and use it as an empowering vessel for the people who can actually move the needle more than you can in these areas, right? You had the idea, and you're probably really great at executing those things, but there are people who are really great in a hyper-focused area. Let's figure out how to start handing off your vision so they can execute.

I love that. So, in getting that team, we come in and a lot of times where somebody approaches us and, you know, they're $10, $15, $20 million up to about $100 million and they're like, I want to be ready for an exit somewhere down the road. I may never exit. And many of the founders don't even like to talk about that. What they're looking at is they want to go do an acquisition or they want to get rid of the personal guarantees, or their spouse has reached out and said, you need help because you never take vacations. I mean, all these reasons that we get involved in companies. And one of the first places we're looking at is what's their team? So how do— Jackie, what have you seen that we do when we start looking at their team? And Katie, how do you facilitate that as well? When we're looking at the overall team?

We do look at education, but mostly we look to experience. Like, for instance, if it was an M&A issue, how many M&A deals have you done? Talk to me about the counsel you're using. Let's look at documents. What's currently in place? What do we need? We try to identify gaps. This also goes back to identifying really how deeply entrenched the founder is in the business, because I think there's room to level set and have a little bit of like a sanity check or reality check. Because when you get so entrenched, you might know how much you're doing and it might feel like you've got 84, you know, to-do items and that you've delegated 60 of 'em. So you're like, yeah, I rely on my team a lot, but, but do you? So I think it's important to have conversations with multiple members of the team, sometimes independently to get at what the truth is, and then sometimes collectively.

Katie, what do you think?

Yeah, I completely agree with that. There's often— sorry, I'm getting an internet is unstable. So I hope you can hear me, but I love what you're talking about. Oh, good. Jackie, your disconnect between something that can surface at the team level versus the individual level. And honestly, this is where external eyes can be really, really helpful here. Because in a company that's been moving fast, growing quickly, has a lot of pressure to go get the next fundraising, truth starts to get a little washy. People start to play shadow politics because your, your job's on the line, right? And so it's, I think, a big fallacy to only speak to one person's perception or see only one perspective. You really have to do the whole gamut. And so one of, like, a really good litmus test for actual team enablement is to witness in a group setting who talks the most, who talks first, and who talks last. And this really helps to say, okay, who's leading the charge here and who's contributing to the charge, right? If you're, if you have a bench with experience who is not contributing to the decisions, we know that there's a disconnect there that we really need to disentangle, right? It's all about ensuring that the decision topics that we have to make as a group are being decided by the people with the most experience and tying it back to kind of that beacon of the vision. And so you can see that in group dynamics, but oftentimes group dynamics is just one part of the puzzle. You really need to get to understand how people are operating in their day-to-day, what experience they have to share that maybe they're not leveraging, and start to close that gap between performance and actual execution.

Well, and Candice, you've seen this because I think this is really an interesting piece. Katie, we have gone into companies and the CEO founder starts telling us about how wonderful and it is almost always in the CFO role, maybe the COO role, that they've brought in someone who has built or been part of a $200 million company and they're at $10 million. And as soon as we meet with the CFO, Candice, what happens?

Well, a couple of things. One, we find out there's like a stage misalignment. I, and I don't know if you're, if that's what you're talking about, but a lot of times we're finding out that they actually, yes, they were, they came in as that executive when the organization was already at that stage. They missed the ugly middle, the very ugly beginnings. And so, they actually are not necessarily, they're the right person for what the goal is. Where you want to be, but they may not actually be the right person to get you there. We also hear a lot of times the misplaced term of they were early in, or they were a part of the founding team, or, um, and really they came in when the organization was still relatively new, maybe to what our standards as a society would be. But pretty far along in their business journey, especially in their capital raise, in their growth. And so I think sometimes the big gold star of where they peaked in their career can actually be a hindrance because they may not actually have the skills of what it takes to get through those gritty middle pieces. And in an earlier stage capital raise, maybe they're great for taking a bit business public, but that's not where you're at, babe. We got to get you— you got a lot of ways, you got a ways to go. We want to see you get there too, but making sure you have the right team.

I agree. Hey, uh, Angela, are you able to pull that value multiplier framework up?

And once we get there, Tom, just to know there is a question in the chat. I don't want to cut off your stream.

No, no, while she's trying to bring that up, I don't know if she's going to be able to get it. Uh, so do we invest in me-too models that have at least a 2x upside, or how do we treat models that are a better mousetrap? Uh, Ben, the question is a great question. 2x is a, uh, 2x of what? So if it's a billion-dollar company that's going to go to $2 billion, then the answer might be yes. If it's a small coffee shop that's going to go from, you know, half a million to maybe a million, probably not for us, but there would be somebody that's the right investor. In almost all cases Our, our 6 C's are really the kind of Betty Crocker model. There are lots of other models of how to cook. You can be Julia Child if you want to. You can also just take a whole bunch of ingredients and throw them back in and you get something. You may not get something great, but you get something, right? Type scenario. We've had that happen with my grandchildren quite a bit where they make up some mystery thing that they want me to try out. They pulled a whole bunch of ingredients out of the cupboards. Something's there, but I don't know that it's something I want to eat. So I don't know if that answers the right question. You'd have to have more information, uh, and, and in that, what you really want to start with is, is it a problem? And generally, is it a big problem that if solved, you're going to be able to make a lot of money or returns for the investors, or you're going to solve a big problem and then you're more in a philanthropic side as well? And so I don't know if you can make that larger through this or not. You just— snipping tool. But this is, this is, uh, I don't know how well you guys see it on your screens. My screen's pretty big, but, um, Candace, we were talking about— I think the—

zoom it in a little bit, Angela. Are you able to zoom it in a little?

We didn't— we weren't— we weren't planning on bringing this one up, so sorry about that. You can get to this by just going to thevaluemultiplier.com, and it's up there, and, and it's a design on the web page about this. But I want to get down to the phase one, when we're talking with somebody, is that discovery phase where we're going in there and we're looking. We start right there with their— what's their income look like and is it real? Is it really showing there? Then the second phase, which is generally 90 to 120 days, maybe a little bit longer in there, that's where we start looking at business priorities and personal priorities and the capital alignment method. So this is why we're talking about the raising of capital. Candice, you were talking about one of our clients today, well-run company, but aligning their capital to where they are today is actually going to make a major deal. And we do that in a number of different ways. Can you talk about a couple of those? I'm good on the screen there, Angela. Thanks.

On aligning the capital for where they are today?

Yep.

Yeah. Which one do you want me? There's so many examples. I think a lot of times what we run into, and maybe this is the one that you're talking about, we come across clients that the alignment of capital is not the same as maybe when they first started. And so there's actually some cap table challenges that need to be addressed. On the other end, we see people on the earlier stage where they're starting to raise maybe their first couple rounds, and I have concerns for future capital raises because of the way that they're raising this current capital, the commitments they're making to investors. They're actually causing some issues for future growth, future capital raises, and I'm seeing this as a red flag of like, oh God, in a year or two, you're gonna hate this. This is not going to be great. The other piece is sometimes there's just— I'm not going to say there's, there's bad advice, but there's maybe misaligned advice. And we see clients who come to us, they're raising capital, great capital's actually there, and the terms that the capital wants is going to be slightly different than what they think the terms should be. Um, and advisors around them are giving them conflicting information and maybe will talk them out of capital that actually could be the capital that could get them so much further along in their journey and actually maybe even skip a couple steps because the capital alignment— maybe it is a strategic partnership that really could take their organization, their mission, their business, their idea into a direction that maybe they didn't originally think was where they wanted to take it, and they're so close-minded to what their product is or what it could be that they're not considering that capital. And that really could be the big idea. I think of Play-Doh as a great example. Play-Doh didn't start out as Play-Doh. Play-Doh started out as fireplace soot cleaner. Somebody comes to the table and says, hey, kids love to play with this. It's really super fun to get out of your carpet and hair. Let's dye it and sell it to children. If that person had held on to this idea and been like, no, no, no, I'm really married to the idea of cleaning fireplaces. Trust me, I got this. They would have missed out on the opportunity. We see that in small scale all the time. All the time.

So that, yeah, that goes back to Ben's question. I am going to answer— or the next question here is Fortune 500 CFO and CEOs might not be the right fit for early-stage startups. But the VCs love them for credibility. And as a, as a VC in a company that funds them, I'd say it depends. There are an awful lot of companies that do want to place that, and they oftentimes call them gray hairs, in with a bunch of young kids that are running the company. And it's the right fit, not just that. So oftentimes the best place for those larger CEOs, CFOs are on the board or board of advisors. Not necessarily in the workplace. And the reason I say that and have this debate with other VCs out in the world is the, the CEO or the CFO that comes from a $100 million to $500 million to a multibillion-dollar company has a much different staff level and day-to-day interaction than the one who's at $10 million. So the CFO at a $10 million company is really not truly a CFO. They're more of a controller still. They might have some finance side in there, but generally they don't have that huge side. Their founder is probably still very much taking over the banking. And so all those scenarios. But if it is one of the unicorns and Katie, again, you've been in this role, if it is one of the unicorns and they've got a billion dollar valuation, they do expect some professionals to get in there pretty damn quick, right?

I think there's an opportunity here where don't just do what you think the VCs want you to do. Show that you are the expert within your company. Show that you know your shit, excuse me, that you know your company and that it would be foolish for you to hire a Fortune 500 CFO when all you need is a controller, you know? So push back on that a little bit. There's a lot of other ways to build credibility. And one of them is to get down and dirty and show your potential investors why you've made the hire you have, why it's a strategic hire, why it's the right hire at the right time, and maybe present your pathway toward a future point in time when you will need a CFO, a Fortune 500 CFO, and that you've been thoughtful and you've already identified that point in time in your trajectory.

So I think that that's an important part to talk back to again. And this whole conversation started because at the beginning of the year, and I'm going I'm going to throw it out there. We're having our family office conversation, and Candice, who is most intimately involved in running the family office, and Katie's got a role within it and in the founder's office, a different, you know, a different piece of where Candice is. And we're talking about our own family office planning, and we were covering a number of things from the use of insurance products, uh, and, and so how does the estate planning work, and there's multiple trusts that are within there and trustees and all the pieces that come together when you've got a high complicated network worth and desire of how to transfer those. And by the way, it changes. So the thoughts that I had in my 30s and 40s are way different than I have in my 50s and 60s, coming through and saying, okay, kids are growing up now, now I've got grandkids, all those different things. But it led us to a really cool conversation, Candice. You talked about, uh, a number of years ago I had a conversation about consistent cash flow regardless of where any investments are. Because when you sometimes need the consistent cash flow is not the time when you want to liquidate. Jackie and I just had one of our deals that came back through, and it's great. We got some oil wells that came back into our portfolio. And where's oil today? Sorry about the war, but oil's at $100 a barrel. That doesn't make me sad about that investment. But when oil was at $32 a barrel, I wasn't thrilled about that investment. Estimate, right? The value of the wells are still there, but it's, it's the cash flow scenario. So we utilized insurance. Now, Candace and, and Katie and even Jackie, how did that benefit you guys? Because not— you don't— it's not that the insurance policies are going to pay you a bunch of cash when I die. That wasn't the purpose of the insurance. But what did you guys also get out of that insurance? Do you guys remember?

Yeah, I, I do. I, I do very well because I have kids, and so I got a— my husband and I both got pretty sizable policies out of this policy that you got, which was amazing because in that family planning, in that succession piece, there was another important component to this. One of the things that triggered us to also look at this was our own planning we had a very dear friend and partner pass unexpectedly. And so from the business, business perspective, it did cause us to take a look at all of our insurance for our organization. And so this— we, we chose this product, and from a business perspective, it made sense. From a founder's perspective, financial planning, it made sense. And from an executive retention planning, it made a ton of sense as well. So So, it fit a lot of buckets, which was really neat.

Yeah. And in the case of our team member, she was not insurable because she'd had two bouts of cancer, right? And so, that also went into it in that anything can happen. So, what I was able to do for my kids and team members was I was able to buy permanent insurance for them, fund it. And so, regardless of whatever happens in their lives. They'll always have that insurance. So, they have kids, they've now got that permanent insurance. And so, it's a way for them to have some level of security, which goes into that phase 3 of de-risking. It also goes into that phase of separating the company from the overall wealth because, Jackie, you just took the, I think, the CPA exam not too long ago. What do they estimate?

[Speaker:JACKIE] Everyone on this Everyone whose face we can see right now.

I know, but I'm calling on you, ma'am.

Pop quiz time.

Pop quiz. Pop quiz. So what did it say? What did the EPI say was the average concentration of wealth for most founders? Where was it concentrated?

Meaning 80% of your wealth is tied up in your business.

Yeah. For almost—

why your girl passed.

That's why. That's why you passed. I love that. That was fascinating to me, but we knew that intuitively. They'd actually done the research. To actually get those data numbers, which were, which was super interesting. So, one of the ways to be able to look at that is be able to use a whole life policy type scenario that can actually fund, utilize for operational capital within the business. It's a term out there called self-banking, I think it is, or independent banking, and be able, and it doesn't matter if you have $100, $200, $500 million net net worth. In fact, many of the people I know that have those high net worths actually are utilizing insurance products as part of that, and they did it from the very beginning.

Well, and it's one of the questions, again, when we're evaluating, when we're taking a deep look at a company's valuation and really working with a founder, it's one of those pieces that it, again, early question out is we're curious about their insurance setup. And it can be a detractor for us on making the investment or not, or moving ahead on making introductions, because you have to have that forethought. And again, and then further on our founders that we're guiding through an exit process, so many of them didn't plant the tree early enough. And so if their business doesn't sell for what they want, or if they don't get the capital that they need to maybe take it to the next stage and they are getting tired, or some life event happened and they're looking to make a transition, sometimes that's a difficult offer— options. They don't have the options they would have had available had we started the discussion earlier on. So we say best time to plant a tree.

Absolutely. Best time to plant a tree is when you're young and can get the least cost of insurance. But the next best time is today to take a look at it. So, you can be someone in your 50s or 60s and actually take a look at that. And another opportunity there is we go back to team. One of the ways you can keep your team in the organization is by golden handcuffs that keep the people there, especially when it's not that much fun or there's something going on. Right. And so, and it's not that you want to keep them there as a prisoner, but it is something that keeps them there with aligned incentives. And this is one of those ways to do that. And we utilize in that phase 3 in de-risking the loss of management team. How do you keep them involved and engaged in the company? And so it's a great structure to be able to do that, right?

I would maybe positively reframe that into like it's a vessel to invest in your people, right? And so I think that—

and not hold them hostage.

Not hold them hostage. We're not in the business of handcuffing, but we are in the business of saying, especially when you're growing, especially when you have constraints, what are the creative ways that we can attract top talent, people with not only the credentials but the depth of experience, and say, I am going to invest in you because I know you're going to invest a lot in this company. And this is a really creative and effective way to, to hit so many priorities that not only will help your capital raising get a lot easier, but just help your growth in general, right? So you're de-risking and you're investing in the people that matter most. And that I think is a, is a win-win all around.

I always love this because I get schooled, uh, by the younger generations. And I come from, you know, I'm at the tail end of the generation where it was the beatings will continue until morale improves. And, uh, that's not— but that was, that was a saying within, you know, the world that I started in. And then of course we got the Jack Welch's and how to motivate and all the wonderful things that came through that. And now we've come to this point that it is that you don't say golden handcuffs anymore, right? Because we want—

What's it like having the 3 of us on?

It's millennial heaven.

Well, what I would say, Tom, is feel free, feel free, fly your flag to say golden handcuffs. But I think the actual intent is that you're investing in your people. And that feels a little bit more exciting for people to get on with. I'm just giving you the persuasive and more realistic language.

I totally agree, and I love it. And you know what I've had is with the three of you, I've had this experience, especially Jackie and Candice the other day in our conference room, where I was saying something like, you can't say that. No, no, no, that's not a word that you can't say that. And I'm not going to say it here.

There were a few things, and you just need to stop, sir. And with that, on that note, before this man gets crazy I'm taking over the closeout on these.

Did you answer? Did you answer the safe question? You didn't answer the safe question.

Oh, answer the question. You answer.

Okay.

The question is, what are your thoughts, experience? I'm going to let you answer it, dad, on a safe structure to bring in a senior advisor to the company platform in its early stages.

I like a vesting advisory equity grant. Better than I would like a SAFE structure, because the SAFE structure is generally used in raising capital. Now, I will tell you, in the SAFEs, because they're very popular, but we almost— and I say almost without exception— we do not invest in SAFEs. So I don't like SAFEs. I don't like that structure. It's not what we do. We're not that investor type. Uh, and so, um, it, you know, and so, so that's, so that's my bias. There's a whole group out of Silicon Valley that thinks that's the only way you can do it, and that's the way you should do it, and that's the way you should do it. It is a great way for the founder. It's not a great way for the investor. So from an investor standpoint, just, that's not something we stick with. Now, on the other side, if you're legitimately raising the capital, then structure it the right way and raise the capital for the right capital at the right time in the right place. Not some whim that if we get to there, then there may or may not be something. And so that's, that's my bias on SAFEs. Uh, again, I've sat on many stages where we have these debates. Um, but I do think in giving equity, uh, I gave, and I did this the other day, the most simple, simple, simple model that I use is a pie that's divided into 3 shares. So a third of it for the people that have the idea or the person that has the idea, a third for the people that put in the money. And yes, that means the money is never worth more than a third of the company. Right. And the people who put in the work. Now, when you're the founder and you're the single founder to start with, you're in all three. So you own 100% of a pie that's not worth very much. But as you grow, you need to look at giving some of those pieces out there. And some of the best ways to do it are to, to allow people the opportunity to own something that they're building as well. It also shows the diversity that you, founder, are not the company. You are the founder and the company is a separate basis for you.

So I don't know if that answered it or not, but did a beautiful job, Dad. All right. If I can get the codes up— cutting you off. I redid the— I had— well, I didn't redo the codes. I asked for new codes, so hopefully we have them done for more content.

Like this.

Um, oh wow. Oh my God, look at this queen. You can follow, uh, Katie on LinkedIn. Uh, you can learn all about the Kindred Consulting Group. So she's got her QR codes up there, and, um, cannot speak more highly of her. And then, um, if we can get the other— I don't know if we have them yet. If we can get the other QR codes up, maybe we have them. For more content, Tom has some great material that comes out on LinkedIn. So connect with him on LinkedIn. Go ahead and give him a follow on Instagram. After years of fighting him on this, we finally got him on Instagram. And then you can also subscribe to his Substack. This man is a prolific writer. I mean, he just, he writes all day, every day, constantly. And so, um, it's amazing to get his updates, and you can get more content, um, that way as well. So those are the links there.

And this, on this, I can't say, on the Substacks or on the LinkedIn, it's great to ask questions, and then it prompts me to write questions. We've got one out there, and I don't know that it shows up on the Substack too, but it's fun because everybody in our team plays in this field, which is the just ask dad, just ask dad. So it'll be like something came out on, you know, how did Nvidia make so much money for Larry Ellison? And that was the question. And those are our coffee table questions, by the way, that we'd have around our dinner table questions when these guys were kids and they're still my kids. So it gets great. And it's not even the team and other people send their friends and questions and always love that.

And coming soon, we're actually working with our developers. We had a chat this morning. We will have a way to record your questions on our website or some website soon where you can actually record your questions and submit the, the Just Ask Dad or even topics for Lunch and Learn. So we want to make sure to include everybody in those. He doesn't have to be your dad, so it can be anybody. So I will lease him out Katie and I are happy to share. So, uh, with that, thank you so much for joining. Really appreciate it, Katie. Thank you. Uh, amazing, amazing job. And, um, yeah, we'll see you guys next week.

Next week? Who's our guest next week? Do we know?

I do know, but I don't know. I think it's Gary. Is it Gary?

I think it's Pardis.

Is it Pardis? Oh, I love that.

I think it is. It's going to be awesome. Awesome. I mean, this could go in all sorts of directions. So it's just going to be awesome. I think it is. And then it's— yeah, it is. So that's awesome.

Oh, that's so fun.

Yeah.

That's great.

Founder, president of universities, just brilliant person, but also just really cool and all sorts of fun. So, all right. Thanks for joining everyone. Have a great week and we'll see you next week. Thanks, Katie.

Thank you.

Take care. Bye.