The Exit Engine Podcast Episode 29: A Day in the Life

Welcome to the ExitEngine Podcast, episode 29. Good morning, John.

Good morning, Joe. How are you?

Good, man. How you doing?

I'm doing great.

Excellent, excellent, excellent. It's a great day today. you know, we've been getting a lot of comments and questions about stuff, and particularly about the process of exit planning. And so I thought what we could do today would be actually to kind of like, let's walk through like, you know, like a day in the life kind of thing of like exit planning. Like, what does exit planning really look like over the long term? You know, there are times we know that there are businesses that have, that are, you know, relatively buttoned up, you know, and they are ready to go and they're, you know, relatively easy to sell. That's like 1 in like 1,000, right?

Right. And a lot of people, what we're getting comments on is, okay, what is it like? Like, what do I— what are the steps that I need to do and what will I be doing, or what could I be doing, I should say, to plan the exit from my business if Here's the scenario, and we get a scenario and they're all different, right? It's, I'm gonna sell in 1 year, I'm gonna sell in 2 years, or I wanna, I wanna reach a valuation, right? It's, it's, it's usually like time-based, or I wanna make this much money.

That's right. And so we actually put it in terms of what we call trajectory, okay? And so what we're looking at, the first thing that we're concerned about from, from a company, from any standpoint, and this doesn't matter what kind of company you are or what, how much money you're making or what your revenue is or what your You know, how many employees you have or any of that stuff. The most important thing that matters from the very first, from the jump, is what is the trajectory of the company in terms of getting from a— from point A right now to getting to the place at which we want to— we, we are satisfied with the exit.

Yep. Okay.

And so the first thing that we're going to do is to say to all of our owners is, where— what do you want to have happen, right? What is the goal? What's the very— what's the thing? If, if you could have anything in the world about— and where, as in relationship to this business in terms of exiting and the whole thing, how would it look? What would you want to have happen, right?

Yeah.

Because, because for most people, as we've discovered, is most people don't even— can't even actually envision what it is. And we think that actually stops people From exiting.

Yeah, because what they do is they like, oh, I want to sell my company, and they— it's sort of amorphous, right? They don't know what to do. They don't know the action plan to take. They know how to do their business, but they don't know how to prepare their company for sale, right? They don't know the levers they need to pull in order to increase the value of their business so that they can sell it when they want to sell it.

That's exactly right. And so the first step in all of this for everybody, right, is coming up with the envisioning in your brain what it is that your life is after you sell this company, right? How much money do you have, right? What have you made from this? What are you doing next, right? And the reason that we want to bring this up and the reason that we think this is so important, we've done it. We did an episode a bunch back about the kind of You know, the mental aspect of this, and we'll, we'll do more in-depth stuff in the future for sure because it's such an important topic that's almost completely overlooked by any— overlooked by anybody in this business, is, is that I'm changing. It's a major life transition.

Oh yes.

Okay, like the second biggest one there is. So if it's— even if it's not retirement, is a— it's a major transition. Okay, and you're gonna, you're gonna go, you're gonna, you're gonna change from things you've been doing for 30 years or 15 years or whatever it is on a daily basis, right? And all that's gonna change. It's gonna change pretty radically. Now, it's not necessarily gonna change radically from day 1, but it is going to change radically over the time in which the sale's occurring, over which you are earning out, right? And getting actually to the transition being completed.

Yeah.

Right. And so the very first thing that we're gonna always talk about is what do you want to have happen? Then we can talk about the steps we need to take in order to get there, because some people have absolutely outrageous and outlandish ideas about what they can do, but most people are really kind of like underplaying it.

Most people— Yeah. And, and sorry, the way that, the way that I think about it is you're gonna go on vaca— you're going on vacation. You need to know where you want to go.

I want to go to Bar Harbor, Maine.

Okay, Bar Harbor, Maine is a long way from where I live.

I think it's pronounced Baja, but that's okay.

Baja, exactly. Like my old— when I, when I was younger and had a Boston accent. But like, when you— you can drive a lot of ways to Bar Harbor. You can take scenic way, you can take the direct way, you can stop along the way, um, you can fly to Bar Harbor, you can drive to Bar Harbor. I'm sure you can take a boat there if you really want to, but The point is what Joe just said is you need to know where you want to go and you need to know your destination. And then what we can do is, okay, you have— you want to sell in 3 years and you want to— you want this valuation. Here are the steps you must take in order to get that valuation and sell in 3 years.

And many of the things that go on during this period, right, are not things that you would have ever considered. Okay, and I'll give you a great example. Yeah, we're working on a situation right now where the— where one of the first things that this company has to do is actually make an acquisition. Okay, so in order to get to the number they want to get to in the period of time they want to get to, right, what we've all discussed is, well, the fastest way to do that is actually for them to first, before they sell, acquire somebody else.

Yeah.

Right. So that's an immediate value raiser. That's a way in which you can raise the value of the company and the saleability of the company very, very—

Inorganic growth is how we like to describe it.

Inorganic. Exactly right. And so synthetic growth, right? But the idea is that, again, and that's an extreme, okay? But we're using it to describe the notion that These are the kinds of things that we should be open to depending on that first question, which is where you want to go, right?

And so, right, and often founders, you know, the people we've worked with, is they don't want to buy a company. They want to, like, they come to us because they want to sell a company. But to your point, oftentimes the way to sell your company is to make it bigger quickly with an acquisition.

That's exactly right. So again, just things that people don't think about, right? So we're not saying that that's the same, that's the right thing for everybody by any means, right? But obviously, but what we want to do is we want to be open at the beginning to anything, right? Because what's the most important thing? The most important thing is that you as the business owner are able to get what you want to get or what you should get, what you deserve to get. Out of the business, yeah, right? And and it's very very hard to do that because there are so many kind of moving parts and so many things going on here, right? If you want to have a a sellable company first, okay? Because that's that's again we talk about this all the time. It's value and sellability, saleability, the ability to be able to sell. The value is only the value if somebody.

Yeah. And one of the other things that comes up that's sort of not counterintuitive, but if you think about it, it's a buyer wants to buy a business that's a viable business, not reliant on the owner. And oftentimes what we see is the business is so reliant on the owner because you've built it up, you've created your business. So like all roads lead to Rome, so to speak, all roads lead to Joe or Paula or Sam or whatever it might be. or whoever the owner is. And that's the major part of convincing them to do that, to remove themselves from the day-to-day so that they can sell their business. That's what I find oftentimes is one of the more difficult ones, because once you say it to them, it's obvious. But like having them actually do it is like, wait a second, I shouldn't be involved in these things? And you're like, no, no, no, you shouldn't be involved in these discussions. Right.

That's hard. It is hard. And again, that's something that we're gonna tell, You know, just get used to it because that's something we're going to tell everybody. Okay. You will not sell the business if you are that ingrained in the business, just period, the end. Okay. So, correct. That's why you hear us say it so much because it is just, it's one of the biggest and easiest things to fix.

Okay. Correct.

So that, but again, as we look at the trajectory of the, uh, of this exit. Okay. So what we've done first is we've said, okay, What do you— what's realistic, but what do you want? Okay, so we're gonna— we can start, and we always start our process with our, with our value acceleration calculator, right? And we're gonna tell people, first of all, this is the value of the company as it exists today, right? We do an assessment, we look at every piece of the business, we use our TEV system, and we're gonna come up with, with the total exit value as it stands right now. What we're also going to be able to do is we're going to show you what it could be worth. Okay.

Right.

If you tell us that you want it, you want, this is how much money I want, I need to take home, meaning in my pocket at the end of the sale, we can use that and work backwards now. Right. If you've got a $3 million company, okay. Because time, the time is the other factor in here. Right. So, if you've got a $3 million company, let's say, okay, in terms of EBITDA right now, okay, let's say you've got a $3 million EBITDA company, but you want $10 million to retire. Okay? So, what we're gonna do is it's a math equation. Okay? What we're gonna be able to do is we're gonna be able to tell you, this is the value of the company now. This is the value of the company that you want. And here are the levers which we can see that would help pull you, would help get you to that, closer to that number.

And just to clarify, do you mean a $3 million in revenue company with $600,000 in EBITDA? Or sorry, I just wanna make sure.

Yeah, let's say either way. Let's just say, because again, we are gonna probably concentrate— again, revenue is one thing, right? Revenue is not your value, right? Right. But, but the, but we will be able to show you what your value is on an open market. Okay. At a, at a multiple and all that stuff. Right. But we need to be able to, what we, but the most important thing is showing the trajectory of how do I get from where I am right now, whether it's $3 million in EBITDA or $3 million, right. Okay. To, to this other, uh, other place.

Understood.

And how long, and how long will it take? Right. Because the other factor in here is, How much time you got? So, you got to say, hey, look, if I'm 70 years old and I want to sell the business, I might be in a situation where I'm less, I have less, I like to commit less time. And so, in that situation, maybe you're going to have to look at what we call your value gap, which is the difference between what you need and how much money you will actually get out of the business. If you should sell it.

Yep.

Right. And, and now you're going to determine, okay, well, wait, I don't have that. This would take 2 or 3 or 4 years to accomplish if everything went well. Okay. So you might say, you know what, I don't have that kind of time. Right. I got a year. Okay. What can we do in a year that's going to raise the value enough or get close to that number and how we can we do that? Does that make sense, John? So, right. So the idea here is it's simply a matter of saying, this is where I am. This is where I want to go. We will help you, help you, or, you know, exit planning, okay, using the TEV system, whether it's with us or on your own, will allow you to figure out, map out that path.

Yeah.

Okay. And then, then it becomes execution.

Yeah. And, and, and one of the ways, right, so we're just diving right in, is one of the ways is, you know, if you have, um, you know, if you wanna get to that valuation, one of the ways to do that is to obviously increase customers, right? Get more customers through many different channels. Obviously, that's, all companies wanna get more customers in 99% of those situations, but how do you do that? How do you, you know, maybe there's a geography expansion, they're selling to different industries, Increasing customer retention, right? There's always that churn, especially, you know, in every company that you have a churn rate. You're losing customers and you're gaining customers. If you can cut that churn rate, that's a very easy way to do to keep your to retain your customers and to grow revenue. If you get more customers all the time and you lower that churn rate, you're going to make more money.

Right?

That's just math. You're just gonna garner or generate more revenue. And if you can continue to do that and keep that churn rate, assign someone to do that churn rate to say, we need to lower this from 15%, 9% to 6%, that will be more money that your company generates.

Exactly right. And again, this is just one area, right? So what the Total Exit Value System does, our system, and, you know, many other exit planning professionals out there in the world, okay, what they should be doing is they should be helping guide you through this process, okay? And we start our process, and everybody should start this, with a pretty intense assessment of the business, okay? And again, this is something that you can do on your own, certainly, if you are open enough to be able to ask yourself some hard questions, right? And be able to, you know, to take an honest, real honest look at what exactly what the business is, how it makes money, where it fails, okay? Meaning where it lets down, meaning process systems, right? Technology. Where is there— where are the— we talk about the inefficiencies in the business that can at least be noted, okay? Because again, we can't change everything. You're not going to be able to fix everything, right?

No.

But you are, and part of the process is the discernment of what is the most important stuff. And it's always going to be, you know, the way that we look at all these decision-making processes is, well, what do we— what is the benefit? How much effort is required? And things like that. And so what we want to do is try to identify things that are relatively— at first, let's identify the things that are relatively low effort. Okay. That could have a high impact. Right. And that generally starts again with your financial performance.

Yeah. And we're talking to 2 different clients right now. And by right now, I mean within the last 48 hours about cost of goods sold.

Right.

And it's such a large component of manufacturing businesses and, you know, all sorts of other businesses, but, you know, non-service-related businesses.

Right.

When you're making a product and you have to assemble Create whatever that is, create the product. When you can lower your cost of goods sold, that's like reducing your churn rate, right? That's profit that goes directly to the bottom line. Because just as an example, you're— let's say you're paying $100 for a component of your cost of goods sold, the machine parts, and— or the parts for the machine that you're building. If you reduce that by to $80 from $100, That $20 is pure profit given, you know, given that everything else stays the same.

Right.

And so, we're working with companies to reduce— there's all sorts of components of cost of goods sold. But if you can reduce that, and that's largely— that's all within your control, right? That's finding a new vendor, negotiating a new contract. That's not relying on your salespeople to get more revenue. That's all within your purview to say, no, we're going to lower the cost of goods sold. By doing X and by doing this and sort of attacking your financial statements and really looking at, yes, your top-line revenue is very important, but the costs that are nearly— that are always controlled by you, I should say, that's where a lot of the efficiency comes from and it boosts your profit margins. So it makes your company look more attractive and be more attractive, and it can attract new buyers when you're talking about— Higher margin businesses.

That's right. And it's like, again, it's not the kind of thing that— it's not necessarily an overnight situation, but it is kind of instant when it's done. Right. And so understand that these are, again, why would we look at specifically at this financial performance side of things is because even before you get into figuring out ways to grow revenue, even if you figure out ways of being able to reduce the cost of goods sold and things like that, your general accounting. Okay, so before you even get down to like major changes, the first thing, the highest, the highest chance of actually improving the value of your company and holding is to make sure your books are right.

Yes.

Right, so how many times have we seen this? So about 90% of the time, okay, we, when we, when we take on a new client, the first thing that we're— the first thing that we see is generally some kind of bookkeeping situation that is incorrect, unoptimized, could be better, is not telling a true and accurate picture of the business.

And Joe's exactly right. I just wanna amplify that and sort of tweak a little bit. Many times the books are fine, right? Many times the books are not fine, but there's very rarely a company who has their books straight, Knows their expenses and reviews it with, with regularity, right? So, and they don't elevate the finance function to where it should be elevated within the company, right? You don't necessarily need a chief financial officer. You really don't. Hint, hint. And our sort of secret here.

Right.

You do need someone to review the books on a regular basis and be presenting that information on a regular basis to the powers that be, the CEO, whoever else, the management team. If you don't have those sort of 3 components, right, your book set, you know, you're understanding your financials and then reviewing them, those 3 things are key. And we rarely see all 3 of those things. Either they're reviewing it and the books are bad, the books are fine and they're not reviewing it, and they're not taking those financials and saying, what can we do on these? Obviously, everyone knows how to increase revenue, but there's so much you can do That's not related to revenue. It's much more controllable inside your company that you can really make changes that can really affect profitability.

No question. I mean, the way that you— I mean, the speed, depending on the kind of company you are, we talked about cost of goods sold. It's a natural thing. Hopefully over time, as a manufacturing company or anybody who's actually producing that, you've got a handle on that. Okay? The hope is that you have an idea of that. That's obviously a piece of the thing. You wouldn't be in business for very long if you didn't realize that, right? However, that said, when we start to look at deep dive into things, and John brought this up before, you know, when you look at customer, your cost of customer acquisition, right? Like, how much does it cost you to get every single, each one of your customers, right?

Yeah.

Like, getting your financials and understanding your business to that level is the kind of stuff that opens up All kinds of potential and possibility. So the reason that we, we, we harp on this financial thing, okay, is because, A, because we see it, it's the, it's the, it's the most common thing that's messed up. Okay, which is a shame because it's the one of the most important things, right? But the other, other reason is that there are so many hints to how to ways in which you can, you can relatively quickly improve The the value of the business. Okay, I'm not saying there are many ways. I'm not when I say that, I'm not saying there are there. That's not the same as raising revenue. Okay, but the value of the business can be raised. Okay, with so many little kind of little idiosyncrasies and little small changes to the way in which we look at the financials because. They will give you hints to other things. And one of the biggest things we say is, again, is about how much money it's costing me to get customers, how much money it's taking me to service these customers, how much money— right, where are the— how much revenue per customer is going, you know, how much— is there more room inside each customer to sell them more stuff, things like that.

Yeah, and, and that's important to know because, you know, you're deal— if you're dealing with a company where each of your customers is profitable, right? And that's not the case a lot of times, right? You really need to know your, as Jo mentioned, customer acquisition costs, servicing costs, all the costs it takes you to service as well as gain that customer as a new customer. So if it's a question of every profit or, you know, 90% of your customers are profitable, then it's a volume problem, right? You just need more customers. And you're gonna— then the margins will take care of itself. Maybe you have a high break-even point, right? If you're losing money on every customer and you are just barely, you know, barely eking out a profit or, or barely not making money, then getting more customers will not help you, right? And getting more customers actually hurt you because you'll just lose more money. Just lose money, right? So, so really understanding, you know, what your company— what your customers are paying you, what your cost to doing business with them, right? There's a cost of doing business that you need to incur. It's not going to be 100% profit margin. You need to really understand where you are in your trajectory. Volume problems are great. Just load up the top of the funnel, things will come out and you'll get more customers. If you're not making money on every customer, what's the point, right?

Why have those customers?

Right. Why have the customers? And we work with an excellent company that actually helps do this, right, for product-related companies. They put companies into 4, into your customers into 4 segments, and they break them down and they say, you really want to focus on, not only focus on, you have to get these types of customers in quadrant 1, and you want to get rid of the customers in quadrant 4. And it's always amazing because every time we present this analysis, people know, like people sort of inherently know that certain customers are unprofitable, but they're really reluctant to do anything about it to say, Oh, but they've been a customer for 17 years. You haven't made money in 15. So again, what's the point?

Right. And so either, either you get them into other products. I mean, you don't have to fire the customers necessarily.

You can, yeah, you can raise prices, you can lower your expenses, you can lower service, and you can say something, you know, if you don't want to fire them, then you raise a price and say, look, we haven't raised prices for you, Joshmo, in, you know, this long, or We can't dedicate Carol to this product anymore because she's a vital resource. And, um, and, and, you know, lower service costs so you can get that company to profitability. There's all sorts of levers to pull when you have a customer. If you don't want to necessarily fire them and lose the revenue, you can lower the, the, the cost it takes to service that customer.

That's huge. And, and again, showing, uh, on paper, okay, with proof that you're— how diversified and profitable your customer personas are, right? Your individual customer, you know, you know, targets, right? The— you— if you— when you can show that your customers are profitable and that you've got the revenue is diverse amongst them, okay, that raises your saleability significantly, right?

Correct.

So again, it's not just about the value, meaning the dollar figure. What we also have to balance here is the saleability. Okay, so if you have a situation in which your customer— 90% of your revenue comes from 10% of your, of your customers, okay, that is a problem for you. That is not good. And the reason is, is that the next guy doesn't want to buy that. Okay, right.

Just to be clear, you meant profit, right? If 90% of your profit comes from 10% of the company revenue, I just want to make sure.

Sorry. Yes, my bad, guys. Sorry. Um, I didn't mean to say profit. So if, if, if the idea is that, again, you, you're talking about you're going to show this, people look at the books, they're going to see these numbers, they're going to do the analysis on this even if you haven't.

Yeah. And a lot of times what they'll do is they'll— exactly, they will, they'll take, you know, they look at your balance sheet, they look at your income statement and cash flow statement, and they'll ask for key metrics about your business. How many customers do you have? What's your average ticket price? How long has your customer— have your customers been with you on average? What's your average churn? Those things, so they can connect and say, okay, you have $500,000 in revenue on a monthly basis. Let's just say that, or let's say, let's say, make it easy, $100,000 in monthly revenue. Okay, does that mean you have— so, and you have 10 customers, right? Well, you probably don't have 10 customers paying you 10, you know, $10,000 a month. It's all over the place, right? Customers will pay you. There might be a very high concentration, right? One customer pays you or is responsible for 55% of your revenue or 65% of revenue. That's a problem for someone looking at this. And once you give them that information, they're gonna come back with you. It was like, okay, what are you doing about this, right? You can't— it's not a saleable business if you lose customer A. And they're 65% of your revenue, what has the person bought? They've bought your problem that you're not solving.

That's exactly right. And it's very difficult to spin that into some kind of marketable inefficiency, right? And so that's the problem. You can say, well, the only thing I didn't do right with the business was make sure that I had profitable clients. That's going to be a big goose egg, right? Again, the idea here is, guys, is the balance between the value of the company, okay, and the, and the ability to actually physically sell it, meaning that somebody would be willing to pay that money. And the things that we are recommending that you do or examine are the things that, mark my words, the buyer is gonna do.

Yeah, and, and like other one— other things that they— you can do, like I'm always— I've been a big fan of, you know, baker's dozen contracts, right? And it's like, what's a baker's dozen contract, right? It I've never really heard it referred to as that term, but when you have a service, when you have a service and you're able to sell it and give somebody a free month for signing a long-term contract, 13 months for $12 as an example, is a great way to incent people to, um, to A, sign that contract because they're getting a month for free, and B, from your perspective, you're locking in revenue. Yeah, you're lowering your average revenue, uh, per month you're— that you're getting, But when you have long-term contracts and you're selling your business for a number of dollars, that recurring revenue that's contractually bound for 24 months, maybe 25 for 24 months or 24 for 25 months or 36 for 37 for 36, those types of things. People really like those long-term buyers like evergreen contracts. That are just rolling. And obviously someone can cancel an evergreen contract, but it's an action that they have to take to, uh, to cancel it.

Look, there's no question, right, that, that one of the ways to increase your salability and your value is to be able to figure out, you know, repeating and recurring revenue, right? Um, again, many people walk into a business, especially in a service business, when they start it and they are, you doing the work of, you know, the hands-on work they need to do to service a client. That you could be in the ad, you know, advertising, you know, professional service, any professional services businesses like this, right? Where you're basically, you have to hands-on do the work and that the delivery of the work is something that's kind of coming out of your brain and is being kind of created in real time. And maybe phone calls are being made and things are being set up and papers being moved around and stuff like that, right? That's different than a manufacturing business, for example, where you are making a product in a mass market way, right? And the making of those materials and things like that, as we said before, those are costs, right? When you're in the service business and you're talking about your business model, right, one of the fastest ways to be able to increase the value of your business is to figure out some kind of recurring revenue. Okay. And again, you might have contracts, as John said, they're 13 months for 12 months of stuff and locking people into long-term things, and that stuff's all good. It's the same basic thing, right? But other ways are things like subscription, right? Subscription models, right? Is there a piece of stuff that you can sell to a client, a piece of your client base that is maybe even lower in service, easy to do, easy for you to be able to deliver, like automatic, right? But that you can charge for that happens on a regular recurring basis, right? So again, the idea here is that to look at your business model, okay, and to examine the ways in which you are doing business right now, and can any of those actually be improved to be more efficient? Even if, again, even if the price point is slightly lower than what you're used to charging, can you do this and have it be in a repeatable way? Because repeatable revenue that I can— is predictable and that I can count on and I can model churn and all that stuff in there is much better than the unpredictable lumpy income of a consulting business, for example.

Exactly correct, yes.

So obviously strengthening your business model, whatever that is, okay, um, your customer base, understanding your customers and where they are, these are your, your financial things. These, these are the first that your financial reporting How that happens, how often, how clear, how tight are your books, and things like that. Those, those 3 things right there alone— oh, that the 4th one is you removing yourself from the day-to-day operations of the business. Okay, if you could concentrate, and this is 80% of businesses just looked at these 4 things, they would raise their value and saleability significantly.

Yeah, and, and, and one of the ones that's really important, and there's a lot of ways to do this, right? The number 4, the, the one that Joe mentioned, was removing owner dependency, right? That can be, um, you know, creating a manual from all the stuff in your head, right? In, in a lot of founder-led businesses, it's, oh, we can, we can ask Paul, or we can ask Sarah, or whoever it happens to be that, you know, ask Jane who knows everything about this. Well, that's great, but when you're trying to sell your business, you want to have that stuff written down. You want to have everyone know a playbook. And when you When you surface this stuff, it lets people— and you say you're constantly looking for improvements to the standard operating procedures. It's never done, right? Standard operating procedures, just like process improvement, is never done. Yes, it's standard now, but you constantly want people that are doing the tasks to remove as many tasks as possible to make it simple. And to simplify it. That's what, you know, if you study Toyota, Toyota drove down those decisions when they're making their car parts all the way down to the line managers, and they were the ones making the changes when they were on the line, because the executives realized soon after talking to the people that were doing the changes that the ones who really know, the ones who are really doing the work, are the best ones to make the changes and make improvements.

And look, this is a great example, right, of showing you that even if you weren't ready to sell your business right now, okay, even if you weren't, maybe say you're years and years away from retirement or whatever, okay, the, the, this just goes to show you that the, that the, the exercise of exit planning, okay, is a business improvement process. That's all it is, right?

Yes.

At the end of the day, right, it is simply a matter of improving your business building, whether you're going to sell it or not, whatever. You're not doing things in this, in this, uh, within our system that are like fluff.

Well, yeah, because I mean, we've had— sorry, we, we— I just want to just drop one quick story is we've, we've had clients that we've walked through and we've helped them. When I say walk through, I mean we've walked them through the process. We've We work with them, they improve their business, and they decide not to sell. Which, you know what, is great because we've helped people. Um, and again, clients pay us for this, right? That we're improving their business. Sure, maybe we didn't get a transaction fee when they sold their business, but A, we did get paid, which is important for businesses to get paid. B, we've walked them through and we've helped them improve their business so that they can stay. And they decide, hey, I want to, I want to pass this business along. Or Or I want to sell it. I don't want to sell in 2 years. I'm going to keep it going.

So, right. Exactly right. And I think the point is to show is that the, the what we're doing here isn't like— it's not like magic, okay? I mean, I wish it was, but the reality is, is that it's not really magic. It is, it is a matter of being able to start to, to really, at the end of the day, is, is, is start to, uh, take a different perspective on your business, right? And so, when we say that the things you did that got you here won't get you there, that's kind of what we mean, right? Is that because it takes you stepping back and looking at the business at a 30,000-foot view, as opposed to the 10,000-foot view that you've been working in all the time because you're solving problems and getting things out of the way for your employees and doing all the things that a good founder and a good kind of owner and CEO would be doing. Right. And so what it's going to take though is for you to be able to step back and go, okay, let me look at this as a whole, right? Where is the business here today? What are we good at? What are we not good at, right? What are the things that if I was a buyer, what were the things that I would look at this business and that I would want it to be, right?

Yeah.

It's not that difficult. You'd be able to look at this thing and go, yeah, if I was a buyer, would I like what was going on here in this particular area of my business? Probably not. Great. So how can I look at— how can I fix this? How can I address this issue? And again, we just gave you a bunch of examples of things like that. It could be any of those things. It could be your risk. It could be the kinds of insurance and stuff that you're carrying. It could be, you know, it could be that you'd be looking at process improvement, right? And looking at the ways in which you systematize your operations, right? Systematizing your operations also, by the way, is a way in which you're going to actually be able to scale the business. So if you're, if you are one of those businesses that gets stuck in scale, which is a very, very common problem too, right? You get into a problem with, I can't get out past this, this tier I'm on, right? Let's say I'm at, a very common one is $5 million worth of revenue. I don't know why this happens. Um, we should do a study on it, but many businesses get stuck at that point.

Yeah, they get, right, they get, and oddly they get stuck at $10 million too. And $5 million oftentimes is when, you know, you're outgrowing the founder's ability to be everywhere, right? So, and $10 million is you're outgrowing the key people that can be, that are responsible for things. And they can, and once you get past those thresholds, right, you can grow sort of exponentially. But when you, when you get to that $5 million, you must change because you can't be doing, you can't be the chief cook and bottle washer. Right.

Any longer.

When you're having a $5 million business. And do you think of a restaurant, right? You can't have someone be a cook and, and wash the bottles. And again, I worked in the restaurant business for a long time, so like, you need to have a system for doing this. You need to hire people. You need to drive down responsibility and drive down the things that you're doing and the things that need to get done to run the business so that you can run the business. It's, it's sort of, it's, it's counterintuitive in a way, is as you get bigger You need to be less involved in the day-to-day.

That's it. And then being able to create systems is the way in which you're able to create scale. And if you've gotten to a point where you get past that $5 million mark, it's because you've figured out how to scale to the next level.

Okay?

And so that scaling is a matter of a bunch of different things kind of coming together. But again, when you're looking— let's get back to our trajectory, our exit trajectory. Okay, I need to scale the business to get to here in order for me to get from $5 to $10 million, or from, or from wherever we were, $3 to $10 or whatever it is. Okay, so, you know, the idea of scaling this becomes a matter of looking at all this stuff, right? Because you want to maximize this, this, the, the salability of this, then scaling this to a level at which it can, it can get to those— it can do numbers like $10 million instead of $5. I mean, that's doubling your revenue, okay? That doesn't mean you're doubling your profitability, but doubling your revenue is not easy to do, okay? If it was, everybody would do it all the time, right?

Correct.

But it can be done, right, with a combination of looking internally at what you're currently doing, the way you've been doing things, and examining these things at a very deep level, and then also looking at things like, how do I Have I positioned myself as a company out in the world, right, to maximize even my marketing, right? Am I in a— am I in the right position? Am I talking this— am I telling the right story about what I do? Am I telling it to the right people, right? Do I go to my customers and get feedback from the customers that I then have a system for basically turning back into learning that I can reinvest into my product or my service? Right? All these things, again, are good things to be doing no matter what, even if you're not selling the company. But they are things that you'll have to do if you really want to be able to maximize the value of it. I also think that people think, and this again happens to us every day, that they, that they've done these things.

Yep.

Many times people will come and go, yeah, yeah, no, I did that, I did that. Yeah, no, we are, we are, we are, we're clear. Our market position is clear and defined, and we're there, we're doing a good job, and we have, you know, we have systematized operations, and, you know, and everything that we do is kind of automated where we can, and we've got a lot of efficiencies, and where our cost of goods sold is really low, and all the things, right, that we're asking people to do, they think they've done. But I can tell you this, that almost every single one of them, if asked to look at something deeper, would find another way for them to be able to maximize the value.

Yeah, and it couldn't be something as simple as a component cost to your product, right? And when I say simple, I don't want to simplify that changing those vendors out is easy because trust me, I've done it and it's tough. But when you get into your, when you get into your sort of rut of doing things on a monthly basis and you're not sort of constantly looking at ways to improve, And we all know that changing things is hard, but if you can realize a significant— and, you know, you can define the significant internally— but if you can realize a significant expense reduction by changing a vendor and there's no result in quality and no result in customer being able to tell, why wouldn't you do that, right? Again, that's profit directly to you. You know, if you have an adjacent product and you have a company that you think would be a good product for it, a good customer for it. Like, you need to do those things. You can take advantage of the fact that you have a customer, you have a relationship with them. Hey, I have this new product. And that's what one of my companies did back in the day when I was young, first starting out, is we had a core product and we built ancillary products around it that were related, right?

Right.

It was having to do with CFOs and helping them with their roadshows and helping them with their understanding how investors looked at them. And that adjacent product was introduced and it went over really well. People were like, oh, I love this, I need this. Because again, they like your product, they will likely like your adjacent product as well. And that can be a great source of additional revenue. And the customer acquisition cost on that is zero, right? You already have the customer, you can sell them the new product.

Much cheaper. Exactly right. Yep, that's exactly right. And these, again, are really good. All of these things are just kernels of ideas, okay? To be clear, they take execution, okay? So again, we can have the greatest strategy in the world, okay? But if we can't execute on it, right, then we're gonna have— it's gonna be a problem. So what we can help you with, okay, or what this process, the total exit value process through ExitEngine, can help you with is is getting you to ask yourself the right questions. Okay? The answers to those questions are going to be varied and sundried, and they're going to be the kinds of things that are basically going to be— that are going to try— are going to take some effort. Okay? And they might not work the first time.

Yeah.

All right? So, understand that when we— again, back to our trajectory, right? What our exit trajectory is saying, I am, you know, let's just say that, again, I am a $3 million Uh, you know, a value right now. I want to be at a $10 million value. Okay, that means that my EBITDA— I'm looking at a general, uh, situation of 3 or 4x, which is a general kind of, you know, average kind of multiple. That means that my EBITDA would need to be about $3, $4 million, $4 or $5, you know, $3, $3.5, $4 million in EBITDA in order for my value of my company to be $10 million.

Okay. Correct.

And so Armed with that knowledge alone, right? What you're— what, what is that telling you need to do, right? Well, it's not immediately, uh, it's not immediately, uh, understandable about what to do, okay? But it does say, well, the first place I'm going to start is I'm going to start at my EBITDA, right? Because if my EBITDA is incorrect If my EBITDA is right, is not accurate or whatever, if I'm calculating it wrong, if I'm not doing add-backs, there's all kinds of things I could be doing to calculating that EBITDA wrong. That would be the first step, right? Because maybe my EBITDA isn't what I think it is. That's the first thing, right? The second thing then is then to be able to look at that value gap, right? So I need this much money to be able to get, to be able to do the next thing that I want to do. And I've just decided that I now know that my value is this. I now know that I want to get here is that. And so what I'm going to be able to do is build a plan that says, okay, how do I increase my EBITDA from $1 million at 3, you know, whatever, $650,000 at $3 million revenue to $4 million of EBITDA at 10, at, uh, you know, whatever it's going to be, whatever it's going to be, you know. Again, it could be $8 million in revenue or Or whatever. The idea here is to be looking at and pulling all— examining the places that are, again, the easiest to pull first.

Yeah. And, and, and there, again, you know your company really well. I'll give you a hint though, like, people like us, like Joe and I and other— there's, again, there's many other advisors out there that can help you do this. We have our system, our TEV system, that works really well. Oftentimes people that are outside the firm can be the person that can point out ways to do these things and with the effort that you wanna put into them, right? Obviously you can grow revenue, you can hire additional salespeople, you can expand to different markets, but like that's hard work, right? That's difficult work. People do that and you might have to do that. Ways to improve internally often are easier and are the low-hanging fruit that you can improve your profitability, which will thus— if the multiple stays the same and you improve your profitability, thus your EBITDA goes up, you will get more money for your company, all other things being equal. So again, there are, as Joe mentioned, there's a lot of different levers to pull. In 80% of the cases, you need to increase revenue, but there are all sorts of ways to increase revenue. And increasing profit and increasing that EBITDA is a really important point. There's all sorts of add-backs that go back into profitability that owners pay and all these types of things. And basically what you're trying to do with EBITDA, obviously, is you're trying to project what the company will be worth in the future, right? You're going to take your owner's salary out because The owner's not gonna be there. You might not be there. You maybe you'll get something, but, but they'll— but that goes back into the business to reflect the true value of the business as a going-forward concern. The owner's no longer gonna be there. It's, it's gonna be operated differently. So these are the types of levers that are really important. Um, many— again, many other advisors can, uh, including us, can help you work on this. Um, but it's, it's really important for you to Again, stay disciplined, know your company, and either objectively look at your company. And if you don't think you can be objective, engage an advisor to help you. There's a lot of them out there, and they can help you sort of focus in on the big rocks. You can make the biggest returns.

Absolutely. So there's no question. Look, there's a playbook here, guys. Okay? I mean, it's very simple. And this is the same playbook that everybody, that every business in the world can use, at least as a starting Okay, so if you're looking again, if you're thinking about an exit and you're thinking about the exit plan, the whole thing, you're going to build a roadmap that's going to help you get from, from point A where you are right now to point B where you want to be. All right, there are, there are a few steps we can break it down in. The first is you're gonna define your value gap. Okay, understand what the value and saleability of your company is right now. Understand what you want it to be. Target that, and then we and then we then some people can help you figure out how many how much time it might take to do that. But if you've got a good idea of project work, you'll be able to look at that and should know for yourself about how long it will take, and then you can adjust from there. Step two, you're going to optimize always. Step two, optimize your financial performance. That means in every single place you can. Okay, start by looking at the books. How are the books reported? What software are you using to report them? Who is actually doing that stuff? Are all the entries right? Is everything that's going on there accurate? Okay. Are you doing, are you using the correct methods of accounting? What's the tax situation? All kinds of stuff that kind of goes into that stuff, right? You're gonna wanna, then you're gonna start to strengthen the business model, right? How can I reduce risk? How can I make my business model better? Can I go, can I find some ways of getting recurring revenue? Can I build a new model that goes after a new set of clients, etc., etc.? Step 4, systematize the operations for scalability. Now that I know how to do and how to change and how to add, now I can go about the work of actually making it a system, bringing in a tech stack, doing whatever I needed to make it as efficient and automated as possible, because that's obviously, you know, in general, a, you know, a game changer in terms of cost savings and being able to deliver a service or a product faster. Step 5, position for maximum marketability. Now you're talking about being able to, to also position and do some things outside in the world to talk about your company and what a great— and what a great company it is. That stuff is going to be collected. You're going to get interviews. You're going to have all kinds of materials and things like that that you can put together so that when you are about to approach a company who might be interested in buying you, you've got all this backup, okay? Not just the financials, not just the actual, you know, the, the— not just the numbers, not just your, you know, your, your, uh, your prospectus, but the— this is what my customers say, this is— these are— here's some articles from, from that have been written about us in the news, things like that, right? Being able to be able to get— gather all that stuff and position yourself to, to market yourself on the open market as a For sale.

Exactly correct.

And then the last piece here, man, is, you know what it is? And John, you just brought it up before. It is, it's about having an exit mindset. And I love this term, and I think we're going to start using it more. The idea is that you just said it's about staying disciplined because—

Really hard.

I'll tell you, it's hard anyway, right? But, but I think that one of the things that helps our clients is, again, is that keeping that eye on the prize. Okay, you've got to— some people are very, very goal-oriented, right? You, and when, and the more specific the goal is, the easier it is to actually put together a plan to achieve it, right? Because what you're saying is, I want this company to be worth $10 million in 3 years, right? That is a, that's a call to action. It's a call to arms for your employees. It's a, it's a rallying cry. It is a, this is a specific thing we're gonna do. All right, and we're going to find all the ways in which we can do this to maximize this value over the next 3 years, right? And if you stay on that strategy, right, and you, and you don't get— avoid the shiny object or the— or the— it's really easy to, you know, what's really easy to do is get off track to focus on problems, right?

Or, or opportunities, right? So like, so, so as an example, let me give you one, one last example is we had a situation where The opportunity was to open a London office. It was the dumbest idea we ever had. I was partially in support of it, so I was wrong. But because it was like, oh, imagine we have international customers, and then it was the dumbest idea because it's so expensive. It's like, and problems and opportunities, right? You, you know, sometimes things can look like an opportunity and they quickly turn into a problem. That was the case. Avoid shiny objects, right? That's why when you do strategic planning and you have a plan, you plan the work and then you work the plan. And when you deviate from those, you really need to make sure— like, sometimes it makes sense to deviate from them, right? If something has drastically changed. But if you've bothered to sit down and have a strategic plan and then you work the plan, make sure you do it. Make sure you stick to it. Be disciplined. Do the things you said you were going to do. You know, throughout the year. So do them, finish them, then you can move on to other things.

Yeah, look, and, and some of this is, uh, you know, you're gonna— situation where you get— where you're gonna spend money to do this, okay? But understand that when you're in a situation like this, you're— this is, this is, this is financial investment that's gonna get you to a place, you know, to the promised land. Yes, right. And so whether that's with advisors or whether you're doing project work with, uh, with marketing firms or outside help or whatever, or you have to hire new employees or whatever you have to do That money is not cost. That money is investment. All right? And if you have a plan, then what you're doing is you're investing smartly, you know, and correctly in that, in, in that plan and, and in your own ability. Look, the reality is, does everybody have this ability? No. You know, does everybody have the ability to take a company and, and in 3 years, you know, you know, change its revenue significantly? No, most don't.

Right.

But the reality is, is that with help, All right, right. You can get it as close as possible. The biggest thing that you could take away from this discussion today, everybody, I think is this. It's not really about going from 3 to 10, you know, in terms of value. It's not, it's not really about that. What it's about is, in general, is understanding the, the exit mindset. The exit mindset requires you as the founder, owner, CEO of the company, whatever, to be able to start to look at the company from a higher level. be able to understand its inside and out, what its issues, its strengths, its weaknesses, its opportunities, its threats are, to be able to understand at a detailed level what can be changed in order to change the value and salability. That might, as we said at the beginning, that might require acquiring another company, right? That will be one way to do it. It might require, again, changes in personnel. It might require that you go after a new client base with a new product, whatever those things are, right? Those are kind of like the byproduct of the discussion here. What we're trying to get across to everyone is understand that you have the power to do this.

Yes. And I think that's a good way that we can— we will end today. You have the power, right? You can control Your company and what your company does.

That's why we talk about how you control your business destiny. That's what this is, right? Don't leave it up to chance. Don't leave it up to some buyer coming along thinking you have a good deal or whatever. Take the— take it into your own hands. Hire an advisor like Ezio. Come, come join Exit Engine. Find someone to help to be able to get you from point A to point B. Um, speaking of that, here's a great way to start, everybody. Exit Engine. And actually, we're going to start our series of actual free webinars. You're going to come to LinkedIn. We'll give you the details. We'll be here in the notes section. But basically, it's a LinkedIn Live we're going to actually do. And what we're going to do is we're going to do very similar to what we do on this podcast, is help you specifically understand the things that you can do to be able to raise your value and salability of your company. And to be able to start the exit planning process. We're going to give you some tools and some tricks and some free stuff that you can use, and we're going to help you get an evaluation.

Yes.

And that will be a huge part in helping you start your process is by, again, understanding where you are, where you want to go, and then we can develop a plan to get there, right? So, that's going to be an important thing to do. Again, you can reach us. Where can you find us, Jon? You can reach us anywhere. Mostly LinkedIn is a great spot to get us.

LinkedIn.

You want to send us an email if you're an email person?

info@myexitengine.com.

Exactly right. Thank you guys so much for listening. Please remember to share this podcast with a business owner that you love. One day it could make a difference in all of your lives depending how close you are to them. If we can help anybody get— our job here is to help you figure out how to how to increase the value of your company, how to get it sold, and how to reap the rewards from that. Thanks so much for joining us today, John. Thanks much as always. It was awesome.

Thanks, Joe. I appreciate it. Talk to you later. See ya.