The Profitable Path: Unleashing Business Brilliance with Marcus Lemonis

We also want you to understand, once you achieve that wealth, not if, but once you achieve that wealth, what is your responsibility as a human being? How much more successful would you be.

If you had lunch once a week with insanely successful entrepreneurs who share their biggest secrets on how they think and achieve success? Grab your seat at the table, because this is Business Lunch with Roland Frazier and Ryan Deiss. Welcome to another episode of Business Lunch, and today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com www.businesslunchpodcast.com and you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.

So let me ask this. Is there anybody here who does not know who Marcus Lamanis is? Raise your hand if you do not know you're lying. I can see the grin on your face. Okay. Thank you.

Love you, Marcus. Love you, too. So I used to be. I'm the nonprofit now.

He's the artist formerly known as the prophet.

That's right.

Yeah. So for those of you who don't know, Marcus has for several years been a fixture in our events as somebody that we really respect and admire and think has the servant's heart that we have to help other people. He's concerned about giving. He's concerned about serving. He's built several amazing businesses and is a fantastic entertainer as well on the shows. But the shows are shows with heart because he's helping people on those shows. And I think you just finished recently. When was season eight?

Season eight finished last fall.

Okay.

And we just wrapped about a month ago a new show which is very different for hdtv, called the Renovator, where we go into people's houses and try to understand what's wrong with them. Interesting to use their house.

Do you start with what's wrong with you?

Close. But we, you know, what happened is through. Through Covid, I really started to learn that the common theme that was happening across businesses that were struggling is that at the root of that is that they were struggling with what was happening at home.

Yeah.

And I almost thought to myself that I should have years ago done it. The inverse. And so we go into these folks home and we understand their money issues, their relationship issues, and we only use the renovation as the vehicle to uncover and unpack. So I found a couple that, you know, the wife found out that the husband was hiding 200,000 of cryptocurrency.

Oh, wow.

And the folks at HGTV saw the show, they were like, wait, what? What is this? But the reality of it is, is that if you go inside of anybody's home, you learn a lot more about them. And when you see businesses sometimes and business leaders sometimes struggling, you think it's their ineptness and it's not. And you think it's their lack of effort, and it's not. Every single person in business has some baggage that we don't know about.

Right.

Everybody in this room has baggage we don't know about. And so I wanted to pierce that veil a little bit to give people the level of comfort to discuss. My business is struggling because my stuff at home is a mess. And so that's what we're trying to do. And we'll see what happens.

So one season in on that, now.

We are eight episodes in. I'm going to be at your house next week. You said you wanted a new kitchen, right?

I did, yes. Yeah, I did.

We're going to do more than the kitchen, for sure.

I like the metaphor. I like the metaphor. So why did you decide to end the profit show?

Well, there's a couple reasons. One, my wife, who's here in the room somewhere, got tired of petty people being entitled. And I think, you know, I'm a capitalist at heart, but I'm an altruistic capitalist. That doesn't mean that I'm going to give you everything that you asked for. And that doesn't mean that I'm not going to hold you accountable.

It wasn't called the non profit.

Right. Well, it's not even about that. Right. When we get into business, the purpose of it is to really chart our own course. But this entitlement that some business owners have just started to wear on me. And there were too many people that quite frankly want to grow their business with the right process. So I'm working on some new business shows with a different network, a very big network that I can't discuss that will give me the ability to probably hold people a little more accountable.

Okay.

Started to feel a little regulated.

Yeah.

Tell us, can you tell us about the shows.

Yeah, I mean, I.

So we're looking at the network rhymes.

I cannot. It's not a streaming platform, I'll tell you that.

Okay.

And it doesn't. It's not the same home that I used to be at, which was NBC.

All right.

But I'm really looking at doing three different concepts. One, I believe that people do really silly things when money's around.

Amen.

And so we're working on a concept where we'll lock 12 know it alls in an empty and abandoned bank with $1 million of cash on the table literally in front of them. And they're all people who think they know the best way to invest. So you have NFT crypto people, gamblers, people who trade cars, house flippers.

Are my kids going to be there?

No, they're not going to be because you won't let them. I tried, but there are folks that we want to see the social experiment of how people behave when there's money in front of them. And so that's one concept. And it has a little bit of. A little bit of Big Brother feel, but money's involved. And the whole premise is to show people how people will act differently when there's money in front of them, including, will they try to steal it, like $20, because the cash is there. There's no security guards, there's hidden cameras. But will people try to steal a little bit?

Interesting.

The second concept that we're working on that is very near and dear to my heart is that there are a lot of people that are on the brink of financial disaster, personally.

Right.

And they don't really understand that when they go inside of their home, they're really running a different sort of P and L money coming in from their income, money going out from their expenses. And there's this little dirty secret called a credit card that creates this bridge between the money coming in and the money going out. And it all seems fine until they hit a wall. And so I'll immerse myself in their home and in their family, living with them, grocery shopping with them, understanding what they spend money on. And we're going to sell things, liquidate things, and change our life, including getting different jobs, getting a second job. And it's not meant to be a sad sacky sort of approach. It's meant to inspire people that, one, you can't take control of your financial destiny. Two, financial literacy in this country is a real problem. We teach math, which is one plus one, but we don't teach people how to understand how money is a weapon and a tool at the same time. And then the third will feel.

Similar.

To what you've seen me do in the past, except my wife had a strong hand in the structure of the show, which is we will no longer be making the deals. In the beginning, we'll be making the deals. Not after we see the trailer of the movie. We're going to watch the movie and then we're going to decide.

Interesting.

And so it's really all circled around business, but back to the same things, which are the principles of good ethics, good morals, good hard work, lots of sacrifice, first person in, last person out. And all the things that you talked about in those four squares, all those things that people don't think about, we need to do it in a simplistic.

Way that's really great. Outside of the entertainment, or at least of those entertainment things, what would you say you're most excited about that you're working on right now?

Well, we have spent about $50 million. My wife and I have spent about $50 million setting up different success forums at various universities, allowing kids, particularly women and people of color who have not had an opportunity to access the educational platform and then potentially access funds to start their first business to invest in something. And so we've been super blessed. Thank you. We've been super blessed with our primary business, which is we own a business called Camping World. And we've been super blessed BY that with 14,000 people that are doing an amazing job. But there's only the two of us. And so we don't live off of much. We're not fancy people, we don't spend a lot of money. And we've both decided that if we could leave this earth infinitely better than we found it, that we're going to be in pretty good shape at least. Least. Regardless of what faith you have or what you believe in, at some point we're going somewhere. I just don't want to go south. So we decided that that was a way for us to leave a long lasting legacy. That if we could change one person's life, we'd be in pretty good shape.

That's really cool. What is it called?

It's a lemonade foundation.

Okay.

And so we started last year. We surprised my alma mater, high school. We went there on a Tuesday. We got the entire faculty together. It's a small private school that teachers don't make a lot. And we gave each of them $18,000 bonuses that day. And then we gave the school $12 million to start a really great program. Then a couple months later, we went to Marquette where I went to college and we built $15 million student success center geared towards women and people of color. And we're about to announce a big gift at a university that was part of my childhood hometown in Miami.

Oh, very cool.

Really excited about that.

That's awesome. That's really cool.

So the reason that Roland likes to put me on the spot about stuff like that is because the reason that organizations like his exist is because we. I'm going to say we because I feel like I'm part of your family. We want you to grow your net worth. We want you to grow your wealth. We want you to grow the number of employees that you have because you're giving them a roadmap for their own success. But I'll speak for myself and he can decide if he wants to echo it. We also want you to understand, once you achieve that wealth, not if, but once you achieve that wealth, what is your responsibility as a human being? You can buy nice things, you can have nice things. I'm a big believer that if you work for it, it belongs to you. If you own it, you decide what happens. If you have nice things, that's your business. But you can have nice things and do nice things. Yes, they can. They can live together and do both. Yeah, we. We really want to make sure that that message is clear. And I know that's a big part of your message.

It is, 100%. So why. Why do you do what you do?

Well, I probably. If we're going to get. God, I didn't think we were going to do this.

This is my favorite part of our talks.

I know I probably do it to feel voids of insecurity.

Okay.

I am a terribly insecure person and I really. I suffer from depression. And so I needed to find a way to self soothe. I needed to find a way to self satisfy. I don't have a lot of friends. I don't have any kids. Both my parents are gone, so I'm an orphan again. And I use business as a mechanism and as a tool to self satisfy. And it's not always good because sometimes I make business decisions for the wrong reasons. When I started doing the show, I wanted to really, I think, prove to myself that I was capable of doing something that everybody else said I could not. Which is why most of us started a business because everybody said we could not do it. It's hard for me to talk about because it requires me to really open up the kimono and Discuss the frailties of it all. But the reason that I usually do, and you always get me to do it more than others, is because we all have some sort of baggage. Yes. And business, the success that we can achieve in business supersedes any frailties that we will ever have. Your insecurities will never go away. No therapist can fix you. Because we're not broken. We're just different. But business allows me to cover a lot of it up. It keeps me busy, and I have some report card of success. What I learned, though, early on is that I use business for the wrong reasons. I used it for self promotion early in my career. I used it to accumulate wealth, and then I would use that wealth to buy things that would make me feel better about myself. And it took me a while to learn that my motivations were misguided. It wasn't about accumulating wealth. It was about accumulating stuff that would mask these, like, really ridiculous insecurities that even to this day, just like they exist, I. I wish they didn't. I'm embarrassed by them. I've tried to figure out how to solve them, but rather than spend my time on that, I decided that I'll just immerse myself in my business and other people's business. 14,000 employees that there are. They are my children. They're my responsibility. It's an interesting segue as we head into this weird period. You know, we. In the last week, I had that terrible devastation of laying off 600 people. It's emotional for me because.

Yeah, you try to support everybody. You do everything you can, but yet you have to do that to support everyone and keep it going, right?

Well, I have to keep the other 13,000.

That's what I mean. 600 or 400. Right. And for everybody here, as we look at both the opportunities and the challenges of going into whatever we're going into. What do you think are some of the things that. Cause you've been through? A few.

I've been through too many.

What do you think are some of the things people should be thinking about?

Well, there's really only two.

Okay.

And I had my earnings call this week. Or there's three, actually. One is you need to insulate your business from outside from things that. That other people are going to try to penetrate. You are the steward and the protector of every asset, every piece of intellectual property, every piece of technology, and every person that follows you on a daily basis. That you can call them employees. I call them our greatest asset. The second thing is this is the moment where you better tighten your belt to a buckle that you have never experienced before, but for one reason. It's a reason that Roland will like. I love a downturn because it forces me to get rid of the shit I don't need and it allows me to build capital in a war chest to go buy every other dumbass that isn't doing it. I grow my business at a much faster rate, a much faster rate in a downturn because everybody else is pumping the brake and everybody else is running for cover. And the quicker you can get your SG&A, which I'm sure you're all familiar with that term, you're selling in general at administrative expenses, the sooner you can pull all those back in. Every single dollar that you reduce in spending, unnecessary spending, you will be able to deploy in marketing your business to acquire new customers, and you will be able to acquire other businesses at a multiple that you may never see again in your lifetime. And so if you need to take on a little bit of extra debt, that makes you uncomfortable. If you need to sell a few things that make you uncomfortable, if you need to take one less vacation or you need to buy one less thing that ingratiates your life for one purpose, and that's to build your business at a very, very fast rate. And most people think I'm nuts. In 2008 and 9, a third of the business that I own today was built on basically $20 million that I deployed in that year. So if I've invested, let's say, a billion dollars over a 20 year period of my company, one third of it was built on 20 million, 1/3. But you got to have the cash available. You got to be comfortable to take on the risk. You better have your expenses dialed in like nobody's business to the point that you're uncomfortable. You better eliminate all the frills from your life. And every single dollar just goes into an account for M and A. Every dollar.

Love it.

That may or may not conflict with what you tell.

No, it's 100% on board what I.

Said, but I'm here to tell you today, and I was excited to come here today, this is the moment. That's why I, you know, butted in to the earlier conversation, those kind of events where you could come in next year to how do I deploy my capital? How do I lower my cost of acquisition? How do I drive more margin in my business? How do I lower my sga? How do I get more out of my people? This is the moment where whatever you Spend on learning and growing and deploying those things. It's going to pay you stupid money. And if you are on the cusp of potentially wanting to sell your business, every potential buyer is going to study one 12 month period. The 12 month period where the world was collapsing and you were excelling. And the multiple that you will get for your business will be infinitely higher because of your ability to display your recession proof defensiveness and your willingness to take calculated risks and grow and your willingness to make sacrifices. Every buyer will study your behavior and your business's behavior in that period.

100%. And so there were three things.

I said them all.

Oh, you said okay.

I just probably didn't say 1, 2, 3.

Okay.

All right.

So in line with what you're cutting.

SG&A, taking care of your people and making acquisitions like you're like it's, it's the most important thing you're doing.

Okay, so I love acquisitions. One of my favorite things.

We know, we all know. Okay, we, that's why we're here. We know. But acquisitions, and this is where I love to debate it with you. Acquisitions can't just be for the sake.

No, absolutely not.

You got to have a real plan and that's why I want you guys to be here as much as you can. You got to have a real plan and, and you got to have a real strategy.

So Camping World and Marcus built on roll ups, acquisitions of related companies that will help you grow faster. Would you share a little bit about kind of how you're using acquisitions for growth and some of the takeaways maybe you've had from all of this?

Yeah, I'll use my, I'll use my big business because it's the easiest one. So, you know, 20 years ago I decided to get into the, what used people used to tell me was the redneck hillbilly RV business, which now everybody wants to have a piece of. I use acquisitions as a weapon of leverage. I know that the more that I can control the marketplace and the more that I can grow my market share, there's this really bizarre scalable thing that happens both on the top side and on the margin side. There is no benefit. And I hope this doesn't conflict with you. You know what if it does, it's totally okay.

Good.

I hope it does. Then there is no benefit. You don't buy toilet paper cheaper and get your, you know, phone lines cheaper. When you consolidate businesses, this idea that you're going to like get these economies of scale, you remember that they're almost.

Never realized merger synergies.

Well, these economies of scale was like 1980s term.

Yes.

In fact, I would make the argument that chick gets more expensive because our ability to control those small little things almost dissipates because we're worried about growth and not about the little things. What happens is our ability to control the marketplace with the consumer, particularly on the digital side. Our ability to create products and services that are proprietary to us and disseminate them to a larger scale are bigger. And our ability to negotiate with our vendors because they become more reliant on us because they sold the same amount of products and services to the marketplace before. But if we become a larger consumer of their stuff, they become more reliant on us. And I don't want to be punitive, I'm not trying to hurt anybody, but I'm trying to extract value. And my counter argument to them is I want a better deal on X because you're going to get a better deal on servicing one customer instead of 10. So if I consolidate 10 people, you need less reps, you have less credit risk, you have less communication expense and you can talk to one person. I want you to enjoy those savings, but you're not getting all of them.

Right.

I'm getting some of them too. And so as you think about scaling, the reason that scaling in a like minded industry is because you want to have like minded vendors or like minded consumers in that. That's where I believe you get scale.

I love it. So the last time we talked, when we were talking about a roll up that we're doing right now, you said I definitely want to take some time and we've both been busy to talk about some of the downsides and some of the things I've learned. What are some of the takeaways, some of the benefits and the risks in a roll up. In particular.

I learned the hard way that when you're making acquisitions, you are in selling mode trying to convince somebody else that your business and your acquisition of their business is going to be good for them. And I used to, early on in my career almost create silver linings everywhere. As if I wasn't giving them $25 million. I started giving them $25 million and then making all these other promises to them. Right. That I thought in my mind, I think it sounded good and I think at the time I probably thought I could do it. But in reality I realized I was doing both of us a disservice. So that's number one, don't make promises to people when you're giving them a lot of money that you don't really want to fulfill. If the transaction isn't right for them and it's not right for you and you can't be straight up like, I may not need your services and if I need to pay you more now, because that's the plan, that's fine. Or I'm going to need your services, but I don't need your nine kids.

Yeah.

Or I'm going to need your services. But the way that you ran your SG and A, or the way that you ran these other things, we just culturally, we don't see the world that way.

Right.

Or the way that they treated their customers is inconsistent with how you're going to treat the customers. Trying to convince them that, oh, everything's going to be the same.

Right.

If you leave here with one thing today around M and A, don't ever say it's going to be the same. But I used to say it all the time. And you say it, don't say it. Because it's not true.

Yeah.

Even if your intentions are good, it's not true.

And we've experienced that on both sides.

The other thing is I've had to borrow money to make acquisitions in the past and I've convinced myself in trying to achieve a certain credit that I'm going to have all these pro forma adjustments. I stopped using pro forma accounting in any acquisition.

Would you.

For anybody doesn't understand what proforma.

Yeah.

So you would basically. Can I stand for.

Yeah, absolutely.

So you would essentially take the P and L of the business that you were buying and you would go line by line and you would try to convince yourself and your potential lender that you were going to put these synergies into the P and L that were going to yield a higher result of earnings than what you're currently achieving. So I'm paying, you know, I'm paying $1 million for a business that makes $250,000. But I need you to know, Mr. Banker, when I go in there and I do my song and dance and I start making adjustments and cuts and I put my process in, the business is really going to make 350. So it's really a three time multiple and your coverage is going to be great. And the reality of it is, is that when you close, at least in my experience, sometimes for about a 12 month period, it goes the other way. It goes the other way. Instead of it being 250, it's like 175. Because the people that sold it to you lied, they misrepresented stuff. Sometimes people leave. And so I think you have to go in and just accept. Trust but verify, but accept the financials. Assume that in the first 12 months, don't tell your banker, but assume in the first 12 months things are probably going to go backwards 10 or 15%. You're going to put all your processes in place and then they're going to move forward. So no more BSing yourself and kind of petting yourself on the back telling you like, I'm not overpaying for this deal. The last thing is I've missed deals out of my ego because I had never done a deal at more than 4x or 5x.

Yeah.

And I was like, I just, I'm not doing it. I'll just open up down the street. I'm not paying it. And the people that worked there were amazing. And the business had been there for 40 years and everything was great and you didn't want to pay the premium. What I learned is you pay a huge premium for businesses that have proven that they are recession proof, that they can be nimble, that have a great standing in the community, that have a good employee base, because that secret sauce that you're paying for what you're buying will probably make the balance of your business better.

Absolutely.

So I missed out on a bunch of deals that way.

I may have experienced that as well. A couple of things about what you said was, with respect to the promises, one thing that I'll tell people as a recovering attorney is that you can always be more generous.

I'm glad that you acknowledge recovery.

I do, I do. Yeah. But you can always be more generous than the contracted terms, but you cannot be less generous because you'll be held to the terms.

Well, you can be less generous. And even if you aren't held to the terms, your reputation agree. Take the lawyers out, take the contract out. Your reputation is more important than that piece of paper.

I agree 100%.

And so I think that's great advice. And I want to make sure everybody heard that. You can always do more for people and you will be known as being more generous.

Yes, it'll be appreciated instead of expected.

And you're better off grinding at the time of the negotiation to get the deal right, even if you're keeping a little money in your pocket. But once you break it even by 50 cents the other way, you're an 100%. And then they'll tell other people, they will tell everybody. And then your deal next Time is built with suspicion.

Yes.

And then you'll pay a bigger premium on the other side.

You will.

And the other thing would be that if you are, with respect to the bankers, if you are painting too rosy a picture, you might find yourself with covenants that you don't want to live with because they're saying, well, this is what you said. So we're building this in as your debt to equity ratio or something like that. That if you go below that then bad things happen.

Let's talk about covenants.

Yes.

So I don't do deals with covenants.

Okay.

I'll do personal guarantees.

Okay.

And there's a difference. I'd rather keep pressure on myself in a covenant light deal that I know that I can sit down at the table and work it out because there's no tipping point. But when you sign up for covenants, sometimes you have no control of the tripping of that covenant. Covid was a great example.

No kidding, right?

Okay. Nobody could have ever expected that the world would come to a crash that way. And I knew a lot of people who unfortunately lost their business because covenants tipped over. And the kind of lender that you go out and get money from matter if you're going to go out and get money from a lender who also owns equity and businesses. What they're essentially telling you is we're comfortable lending. Why? Because we're comfortable owning.

Yeah.

So you'll find that in the private equity world, covenants are there for a reason. And the stress test is there for a reason. It's there for control. In my opinion, it breaks the entrepreneurial spirit because a dude in an office in some city that has no friggin idea what it's like to put the first deposit on a credit card and sign for a lease and not be able to make payroll, has no idea how that works, is more than happy to own your very high valued business.

Right.

They almost, in my opinion, structure deals going. Yeah. When we go to credit committee, we say to ourselves, if they trip, are we okay owning that business? And if the answer is yes, don't do the deal. I'd rather you paid a higher rate from a conventional bank with an honest conversation that you will stand behind it personally. Which a lot of people are like, I'm not giving a personal guarantee. It's like, well, you kind of are, no matter what. Because they're going to take your stuff. Your stuff is your business.

Yeah.

Okay. They didn't take your house and they didn't take your bank account. They didn't take your car, but if they took your business, most of us would rather have our business than our house. Yes, I'd rather live in my business. This is the honest truth. My wife's going to freak out when she hears this. If you gave me a choice of losing all of my houses and all of my stuff or my business, I'd be like, I'll just sleep at the. That. I'll just sleep on a couch at the office because my business will regenerate.

Yeah, exactly. That's a no.

I can buy another house. I don't buy another business.

I don't get when people. Sorry, honey, let those go.

That's why we're in the RV business. We could drive away.

You can live in your business.

Yes.

Yeah, I love that. On the. On the acquisition, kind of sticking with that.

Can I just finish one more thing, please? Yeah. The other reason I don't like covenants is because a lot of people sign up for bad debt deals because they don't want partners.

Yep.

It's okay to have partners. I have partners. I took my business public. I have a bunch of partners. It's a little bit of a pain in the ass because you got to, like, file paperwork and answer reports and you're accountable to people. But being accountable to people is actually a good discipline.

I think it's a good discipline. Yeah.

Because it makes you, like, pay attention to stuff and you have to answer questions and you get annoyed and you get challenged. But equity, 80%, owning 80% or 20% or 30% or whatever it may be, is a lot better off in the bad times than having the lender take stuff.

Yeah.

So let's not have a lot of crazy covenants. Let's be okay with a higher interest rate, and let's be okay with having partners. If you can scale quicker with partners, why not do it?

Well, let's. Let's talk about partners for a minute then. So what. What do you look for? How do you identify what might be a good partner versus a not so good partner?

Somebody that's smarter than me.

Okay. How do you figure that out?

Well, when they ask me questions that I don't know the answer to.

Okay.

And they're not stupid questions.

Okay. They're good questions like, tell me PI to the 75th decimal. Not a good question.

They challenge me on. They challenge me on the way I think about people. They challenge me the way I think about how I communicate to the. The consumer. They challenge me. And maybe they're not totally right, but they Bring us. They bring a tribal knowledge from other industries, or they bring a tribal knowledge of their own experience to the table. So that's. That's sort of number one. I want them to be smarter than me. I also want the partner to bring additional resources to the table that are more than just money.

Right.

I want them to bring maybe their own portfolio of companies that can add value to my business that I could either sell to or buy from, where this web is going to start to build itself. I think the last thing is that I want them to understand the time horizon and the goals that I have and be okay with it. And I made the mistake, and I'm grateful to them. So I. They may be in the room, I don't know. But I will never get into a deal where a partner has a very tight time horizon that doesn't line up with mine because all you're doing is inevitably going to run into some sort of conflict where they say, it's been five years. I need my money out. And you're like, I don't want my money out. And they have some sort of Chinese option where they can buy and you can sell, and things get crazy, and then you get forced to sell your business or take it public. And a lot of crazy stuff happens. You really want to find people that. Family offices are great people like yourself who understand that, and you want them to just agree that there's a time horizon that works for everybody.

Speaking of family offices, have you ever thought about that.

I would be a terrible family office investor because I'm an active investor, not a passive investor.

Yeah.

And I always tell people, they're like, we'd like you to invest in our business. I'm like, no, you don't. You just don't. They're like, why? Because I want to be involved. They're like, no, we're totally good with that. I'm like, I promise you, you're not. I'm a better 100% owner or majority owner. I'm not a good minority owner because I want to drive the car and be in control of my own destiny. That's why I don't own any stocks in America other than my own.

Yeah, I don't.

I don't own one stock. Stock because I. I don't, like, I don't want to rely on. You could be super smart, but I just don't want to rely on you.

Also, I trust me to get the.

Returns I want, but if I mess up, I. I take responsibility.

I can hold myself accountable.

Yeah. Exactly what?

I like that a lot. What did you learn about yourself during the pandemic that surprised you?

That I didn't need as much as I thought I needed everywhere.

Interesting.

Including inside of my business. I also learned where my deficiencies were. I was not as much into technology and communicating with consumers in a rapid pace and I had to overspend to accelerate our ability to communicate with consumers. We were behind the eight ball digitally.

Okay.

From a digital marketing standpoint, we were buying the eight ball and the way consumers started to transact just changed. I had overbuilt big facilities. People didn't need to come in. They didn't have. They could communicate a different way. I had overbuilt big marketing staffs and big marketing budgets that I didn't need to. And I realized that I was my own worst enemy prior to that. I used to tell people I don't invest in technology and I don't do a lot of it because I don't understand it. Which seemed kind of silly. So I really changed and pivoted the way I thought about that. And I also changed, as I said to you, the way I thought about my own stuff. I just didn't need as much. When we all got locked up, we were like, just with our families and it was like life seemed a lot, I'm gonna be honest, it seemed a lot simpler. I was a little lonely because I like to be in my office and see people. But we just didn't need as much. My business got a lot tighter because I would go back to the office and be like, we don't need that. We don't need all this. I'm sorry, sir, we don't need you. Thank you. And we're not going to do business like we used to.

Okay.

That I think I learned more than anything.

And so how are you doing business now? Differently.

I brought in a bunch of engineers.

Okay, interesting.

In a non engineer type business to document every single process and every single deficiency in my business that even I still argue to this day. And they'd say to me, you could argue with us. This is like it's right here. And so I decided to bring in 30 different engineers across our entire platform in a business that didn't have one.

What kind of engineers?

So process engineers. People that really understand how things have to work and where the efficiencies are or are not. I'll give you an example. A regional manager historically was an over promoted manager who had done well.

Right.

And it was like this Peter principle, like, oh, they did good in one side of the business so they could do everything. What I realized is, what I need is professional managers who documented things and who understood how to run it better than we ever did. And even if we didn't end up pivoting our business to that thesis, it forced us to analyze and ask questions. So what I did is I took $5 million out of our marketing budget and put $5 million into our process budget.

Interesting.

And the business got faster and stronger, and the cost of acquisition got lower, and the margins got better, and the SGA got better. And it was all things that I could have never figured out for myself.

So for everybody here, that's thinking. That sounds really cool. I'm not sure exactly how to find one of those people or how to implement that.

Korn Ferry could help you find one.

Yeah.

And you're going to spend way more than 100 grand, my friend.

I know.

You told everybody you're spending. I was.

I didn't want to make it sound too bad.

It'll be like a half a million million.

I know what it is.

Yeah. Yeah. When he gives you a number. When he gives you a number, he's probably trying to make it relatable to all of us. Okay. Because the number may not be 100 for you, but there are outside resources like the one we're in today. And like, outside firms that I used to shy away from. Me, too.

Same.

I would look at those folks and be like, I'm not paying a consultancy some money.

Yes. Because it's.

Consultant was a dirty word. I was like, you know what? It's kind of like. It's like temporary labor. I don't have to take on the fixed expense. I get the immediate gratification of learning what I need to know, and then I can thank them and say goodbye.

It was my ego that stopped me from the longest time from doing that because I was like, I can find that person. I don't need these people. And.

Or I don't want to be told that I'm wrong.

Yes. Yeah.

That's a hard thing.

Yeah. Do you use recruiters?

We do, but I. We use a combination of internal and external.

Okay.

And we're building a lot more platforms because we have so many different types of employees that we need to have different types of recruiters. It is. The single hardest thing in any business is to find the talent. And what we've started to do is these assessment tests of really understanding what's the kind of profile of person that we're looking for, what Are the disciplines and the characteristics of that successful person in that job. And how are we mis hiring that?

Right.

We do a lot of mis hiring because we're like, well, we think the person should look or sound or act like this. When the reality of it is you take these assessment tests and they're like, no, no, no, no, no. If you look at your top performers, this is the personality traits and the characteristics of them. Just go find those people.

Right.

Are there any particular assessments that you're using that you find to be effective?

The smart people know that.

Okay.

But I will come back to you when we come back next time, I will bring you the Rolodex of stuff.

That's awesome.

I know. It's 1.5 million a year.

Yeah, okay, that's good.

But. But the attrition was costing me 3.5 million.

Yeah, absolutely.

I want to make sure you caught that. I spent 1.5 million a year, which I choked on, But I ended up seeing saving through inefficiencies and attrition. That's people leaving and me having to hire people and teach them. Again, 3.5 million.

Who do you hire in your business? Like, what positions?

Well, I tend to hire the server at Red Lobster that I think is going to be a great salesperson. You joke. I mean, you're laughing, but I am always recruiting. I am always recruiting and I look for people from different industries with different skill sets that are going to bring something new to the business.

I like that. Do you have a kind of a wish list of new things to bring or is it just opportunistic identification?

Yeah, forgive the vulgarity, but I have a no asshole policy in my business.

We.

We like that policy.

Well, we like it, but we sometimes struggle to live by it. Yes, because they're top performers, because they make us a lot of money. But what we don't understand, and I want to make sure everybody's paying attention to this, the no asshole policy is very clear. It applies to everybody, regardless of how they perform. Because what you can't see hidden behind the performance of the bad person person is the collateral damage that they create around them and the inefficiencies and the turnover and the lack of production that happens around them. And we think that person generates this much in marketing fees or that person generates this much in whatever it is business that you have and you don't understand the collateral damage. And people will walk into our office and say, hey, Joe's got to go. Hell no, Joe's not going. And when a Lot of people start telling you that Joe has to go. And I'm sorry if you are named Joe, Roland has to go. You really need to take your time as a leader. And I'd like to segue a little bit here.

Let's do it.

You need to take your time as a leader to really listen to what's happening in the marketplace. When our business starts to grow, we all have a tendency, all of you have a tendency to remove ourselves from the little details. Remove ourselves? Oh, I'm just going to hire better people and they're going to run the business for me. And one of the conflicts that has happened in sessions that I've been in with you is that I want you to work on your business and not in your business. We don't agree on that. I'm a micromanager of my people's life, not a micromanager of their tasks. And what I mean by that is I spend a lot of time understanding where their mental health and wellness is inside of the business, how they're doing, what's happening with, with them in terms of how they're interacting with other people. I spend more time on micromanaging the culture, not what's happening on the assembly line. And I think sometimes when we remove ourselves from that and we don't have our pulse on it, the business starts to deteriorate in ways that the P and L won't show today. When you're going to sell your business and people start doing due diligence like you do, they don't ask the owner a lot of things. They tell the owner, I'll be back in an hour, and they start walking the production floor, they start walking the labs, they start walking all these other things and they start asking questions. Hey, what's it like working here? It's all right. What's been your growth in the company? I haven't grown much. Well, what's your wage growth like? I haven't received a wage in five years. And if you think that a potential buyer of a business isn't paying attention to those answers, then what they're doing is they're paying attention to the health of the DNA of the business that doesn't show up on paper. So in order to avoid multiple compression value compression in your own business, I'd like you to go back over the next couple of months and reimmerse yourself and ask the questions of your own business that you would ask of a business that you would buy. You may not like the answer. Also try to have some other People do it. Including third parties. I brought in a few third parties to do assessments, and I was deathly scared that they were going to tell me how screwed up we were. And they did. And the reason that I was shocked is because when I would ask the same questions, you got a different answer. I would get a totally different answer. They're not going to tell the boss or the supervisor how bad Susie is because they would worry about the repercussions. So spend a little money on having third party assessments come in and prepare yourself for very bad news.

Yeah, I like that. Is, do you maintain, like, ENPs, like employee net promoter score or any of those kinds of measuring things or.

We do.

Okay. Do you find them to be effective?

I find them to be effective, but I also find that our staff. My staff tends to be reactive.

Okay.

And overcompensate. And they get a bad score and they forget that it was December and business was a little slower or they forget that, you know, the pay raise didn't go the way they thought it was going to. Net promoter scores in the business are a good guide. Yes, but they're not the Bible.

Right.

And you can't overreact. And a lot of companies tend to do this. We better change our benefits. We better give people Fridays off. And it started to happen a lot during COVID when the NPS scores would happen around this work from home model. People will not be happy if they have to come back into the office. I said, okay, I guess we'll just let people stay at home.

How'd that work out?

Not good. Not good. And it wasn't about their productivity. Their productivity was actually, oddly enough, that slightly better. But it was the culture that started to break because they weren't communicating with each other and their relationships weren't built. And I didn't know that you had a kid, and I didn't know that your wife got cancer, and I didn't know that your son almost died. And so my empathy and my sympathy and my warmness towards you didn't exist because I didn't know. And then the culture started to get cold, and then it started just to feel like a job and nobody could figure out why it happened. We would get on a zoom with somebody and they would seem a little, like, placid. And they're not obviously on a giant zoom call going to tell you, like, they found out that they were diagnosed with some terrible thing. And if you don't get a chance to be with people and read their body language, you don't do it right. I'm grateful for all the people that are here on Zoom, but you need to get your ass here right. Because you can't feel what we're feeling in this room. Because as I talk, I look around the room and I could see who's paying attention, who's not. I could see who's engaging, who's not. I could see who's shaking their head and who's not. And I adjust based on that, number one thing. To be an owner of a business, the number one thing is to know your audience, whatever that audience is. And you can't know them if you're not with them. You can't know them if you don't show a little bit of yourself at the same time. And you can't know them if you don't ask them. And you can't ask them if you're not with them. That's ultimately, I think, how you build value in a business.

I like that. From a leadership standpoint, what do you feel your obligation is within the companies that you've got? And how do you nurture and promote leadership for the people under you?

My sole obligation as the leader of any business is to shepherd every single person to something better than when they came, to shepherd their financial health, to finance, to shepherd their mental and physical health, and to shepherd their family's sort of trajectory.

Okay.

I take that a little too seriously because I get involved in people's business, like calling them at six in the morning and asking them if they're at the gym, because two years ago they were diagnosed as overweight with high cholesterol. And I know that they have two kids that home, and if they. And he's the. He or she is the wage earner. And if something happens, their whole world's going to collapse. I take that burden onto myself. It's the greatest. The one thing that people ask me all the time is like, how do you measure financial success? And I said, well, I don't measure it through my own financial success. I manage it through the average wages that I pay on an annual basis. So I measure at the every. At the end of every year, the number of employees and the average wage and not even my own. I don't think anybody in my company even knows that I do this. I take the number of employees and the total compensation and benefits that we paid out, and I divide it. And if I see that we don't have growth every single year, I make that my burden. Because. Because costs are going up.

Yep.

And some people would look at that and say, I'm paying too much. I need to pull back. If somebody's wage, the average wage went from 43,000 to 44,000, we probably need to look at doing something. And that's the wrong way to look at it.

I agree.

The right way to look at it is. Wouldn't you want, and you and I have talked about this, wouldn't you want people to feel like their personal financial growth was attributable to you? Sir, what is your name? In the blue shirt? Yes. Jerry. Okay. Not you, the guy that has hair like me. Sir. Right there. No, no, no.

We don't have the box.

Stand up. What is your name? Here you go.

Wait, wait.

Come on up, please.

You did a good job of trying.

To get out of that.

I mean, I really like.

Who's like, oh, that guy, that guy. How are you?

Good.

Nice to meet you.

What do you do in a real estate investment company? Company in Australia.

Okay. Do you live in Australia?

Yes, in Brisbane.

You came all the way here to be with him?

Yeah, yeah, yeah.

How long Was that flight?

14 hours. Brisbane to LA, and then three hours to here.

And when do you leave again?

On Wednesday.

So you're here for some other things as well?

Yeah. Well, if you're going to fly all the way here, might as well hang around. And my friend Chris is also. So he's the same.

Same business?

No, we're both entrepreneurs in Brisbane. Different businesses.

Okay. You didn't seem. You seemed like you were distracted.

I was listening.

Were you?

Yeah, relating it to my own business. So I'm listening and then my eyes are down because I'm thinking about how it applies to my business.

How does it apply?

Yeah, I think it's very true, actually. I'm thinking right now we've got some pretty hard inflation in Australia as well. Very similar. I think it's like 9% it's tracking for this year. And I was thinking about my own staff and I'm like, yeah, you know, they've got mortgages, they've got things. And I think we really need to look after them and give them a pay rise. And then I'm like. But then we're gonna probably have to put prices up or something to cover that as well. And yeah, so that's. That was what was going through my mind right then when you were talking.

Have a seat. You sit down, Roland. Okay. Based on. Isn't that accent awesome? Based on valuations of businesses. This is a question. Is the value of a business going to be higher or Lower. If the retention and the tenure of the employees is 10 years and the business makes $1 million a year, or the employees have a tenure of about one and a half to two years and the business makes $1.4 million a year in an exit, what will a buyer pay a greater overall purchase price for? And be honest, if you don't.

Let's. Let's pull them by hands, okay? Hands up on the fir on.

So option one. Option one is a million dollars a year in earnings in net income, ebitda, whatever your metric is. And the average tenure of your employees is a year and a half.

You have a phone.

Okay. Or take pictures. A million or so is a million. A million four. Excuse me. 1.4 million a year in earnings and the average tenure is 1.4 years. Or the business makes less because it has a higher payroll of 1 million. And the 10 years. 10 years. What's that? Stand up. You're going to be uncomfortable here. You. You're the buyer. Be honest. Don't bullshit. Thank you. With the one that makes more money.

Can I throw this so everybody can hear? Because the people at home will be able to hear.

Let me review one more time. Number one is. Makes 1.4 million. The average 10 years. 1.4 years. Option two is the business makes a million. The 10 years. 10 years. I personally, I would go with number one. Making 1.4 million. No, no, no, no, no,no, no one. Oh, sorry. Option two. Tell me which one you pay more for. I'm screwing this up. I want the people. I want the people. Does anybody have the courage to disagree with that? Come on up. You got no come up. Means like up here with us. Because we're all here trying to figure out how to scale our business. Business. And we're all here to scale it for a potential exit at some point. And we all know the value we want for our business. And the only way a deal gets done is if the buyer and the seller agree on a value and the deal gets done. So as a, as a. Hi.

Hello.

Come on up. I'd like to have an open debate and I'd like you to debate it with Roland. Oh.

No way. I can't.

What do you mean no way? Why do you think you paid to come here?

I. I can't win debate with him.

You can do it.

Okay. Why I chose to disagree with him is. See, when the employee turnover ratio is, you know, tenure is 10 years, but top line is 1 billion only, that means two things. Number one is they are not growing aggressively, number one. With 10 years. That culture has been set.

We're not talking about growth. So let me help you here for a second. We are in a moment in time.

Okay.

It's Friday afternoon. We're looking at two P. L's, two financial statements. the bottom of that financial statement is net income. Hmm. That's the profit, right? Not revenue.

Okay.

Okay. Okay. Net income. One has $1 million of net income. We don't know what kind of business it is. It doesn't really matter. They could have had 100% growth. We don't know.

Okay?

$1 million. And the tenure of those employees is 10 years.

Okay?

The other one has $1.4 million in net income. It makes 400,000 more in profit. Okay, but the tenure, average tenure of those employees is 1.4 years.

Okay, okay. But. Okay, based on this information only, if I need to take decision, I would go with that option A, that 1 million with the tenure of 10 years of employee.

Okay. Thank you for agreeing. I think you all are totally full of shit. And let me tell you why. I know you're going to say why. Because ultimately we're capitalists. We're capitalists and we all think we're smarter than everybody else, which is why we're capitalists. Okay, let's just not. We can all be nice and humble and all these things, but we're capitalists. And we have to correct ourselves away from that logic. We have to correct ourselves away from that logic. Because if I'm going to get bank financing, I need the EBITDA to support the purchase price. If I need bank financing, I got to make sure that the wages are in line. And the reality of it is, is that if I was selling a business or buying a business, Stability and a higher multiple is better than instability and a lower multiple. Can we agree on that? Can you agree on that, ma'?

Am?

Okay, so I want to make sure that you go back to your business, whatever it is, however many employees you have, and you take your total compensation for the year and the divided by the number of employees, and you take your total compensation divided by the number of employees last year and the year before. You tell me, and I'm going to have you email me. Did your number go up every single year? And did it go up because your revenue went up or did it go up because you passed on some of those earnings to them? Then I also want you to tell me what the average tenure is of your employees. And I want you to pick people at the highest level and I want you to track over five years what happened to their wage. It's a really interesting study in how we think about our people. And so he's. This all started with him asking me the question, how do I determine financial success? Financial success is not determined by my P L. It's determined by their P l, their individual W2, which is their source of revenue, their source of income. If you can't do that, it's a problem. And if you can do this over time, when a potential buyer comes in and you can say to them, look, I came up with this thing at Roland's session, or you can even take credit for it, I came up with this idea and I want to tell you before we even get into talking about price or value, I want to show you something thing. If you do this deal with me, I need to know that this is important to you as a buyer. I measure our company's success on the growth of our employees own wages. Now, there may be a year where it dips because the economy gets crushed. And depending on how you pay people, they may go backwards a little bit. But over a five or eight year period, the you can't run from the truth. The $2 billion valuation that you got could be 3 a couple years from now. Even if your revenue and everything stayed constant because the viability and the stability of your business really mattered. That is how I extract value out of companies. That's how I look at it. May not be right, but it's worked. It's been okay for me.

You're doing okay?

I'm doing okay.

Yeah, I like it.

So when you go back, if you find that you don't see any growth, I'd like you to dip a little bit into your earnings. 1%, a half a percent, something it doesn't need to change like any sort of big thing and just say to people, I'm going to give you a raise. Best way to build stability, Give people more money when they don't ask for it. When they don't ask for for it. Give people money when they don't ask for it.

Okay, sir. Yes, give. If you don't mind, with your kind person, can I ask ask you one question only regarding this? No, no. Regarding this. The information which you gave. See, based on the information which you.

Gave us, can you turn that overtime sign off?

I'm 1, 1, 1 second. Based on the information you gave us, which one would be the better one? 2.4 or 1 million for me? Which one? You would pay more?

I would pay probably one or two times more in a multiple for a business that I knew there was people that were going to be there 10 more years. Because the most difficult thing to replace in an acquisition. Right. The most difficult thing to replace in an acquisition is where do you get the tribal knowledge of the business? And if you do that, you could buy businesses that you weren't that familiar. Familiar with. What I've learned is I can dabble in things that I'm not a subject matter expert, because I can, I can pay people to be subject matter experts and I can say to them, you have 10 years of history. Great. I'm going to pay you even more because I need you to be here 20 years, then I don't have to invest the time. If I get a deal and I buy the thing cheap and I'm thinking that there's 1.4 years of tenure, how much time am I, I going to have to spend there? And what's that cost?

Yeah.

Does it make sense to you? 100%.

Absolutely, sir. Thank you.

Thank you, sir. Thank you.

Thank you guys for coming up.

Thank you.

Let's give Marcus a giant hand. I just think it's been awesome having you here, as always. Thank you, man.

Before we leave, I want to make sure that everybody either wrote this down or took a mental note. What are the three things that we started out this conversation with that we're going to do to scale our business? What are the three things? Insulate from the outside. How much?

One. Not one notch.

Tight as you can. One notch.

That's what I thought you said.

No, I said as tight as it'll go.

Oh, okay. All right.

Tighten our belts. Look at our sga. How many people in this room need help understanding how to manage their sga? So the rest of your sgna, how.

Many of you honestly need help with that? There we go.

Because I would love to come back at some point and really do a little session on how to think about SGNA and what the ratios are. They apply from industry to industry. Okay, what's the third thing? Hoard cash from those SGA savings and buy everything that you could buy that's in your flywheel. Buy everything you could buy that's in your flywheel. And you're going to find that if you pull up a bunch of acquisitions, you're going to think that your infrastructure can't handle the absorption and the integration of them. If you have to spend a little bit of money to staff up, do that. Because the multiple, the arbitrage, everybody know the what the word arbitrage is. The arbitrage is unbelievable.

It is.

Okay, Those three things. Thank you, guys.

Thank you.

Thank you.

Hey, Roland Frazier here.

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