Joe Valley: Getting top dollar for your online business | The Tyler Wagner Show #1005

All right everyone, welcome back to another episode. Um, today we have Joe Valley, so welcome to the show.

Good to be here, good to be here. Thanks for having me.

Of course, grateful to have you on. So if you want to kick us off, can you just tell us a little bit more about you and what you do?

Sure. I'm an old guy. I've been self-employed since 1997. And I'm an early remote worker as well. I got rid of my physical office back in 2005 and had remote employees going back that far as well. I ran a media buying agency that focused on direct response radio for a long time. I took two products that I launched from 1998 to 2005, the second one 100% online in 2005. Prior to that, I did the typical stuff, right? I did radio, I did a TV infomercial for two of them. I was the host of one of them. It was awful. I was awkward and it was embarrassing. But I had a hell of a radio voice and we took it to radio and then 100% online in 2005. And then I took that last brand through the best of and the worst of the economy, came out the other side exhausted, tired, and wanting to move on. I just woke up one day and decided to sell my business. Didn't know if I could, but I woke up and said, I need out, I wanna sell. And I found 3 business brokers that specialized in the online space, which is where I was. 2 felt like they were just trying to reach through the hooks to get a commission and the phone to get a commission. The third was very helpful, gave me good advice that was in my best interest, basically told me to go away and wait 6 months. And that's the company that I'm now a partner at. I went back to that company 6 months later, they sold my business, I joined it in, let's see, we sold in November 2012, we sold in, no, we sold in November 2010 and I joined the company in early 2012. And we now have 13 advisors and I've sold personally about $100 million in total transactions, $500 million through the company. And I've taken all that experience and over 5,000 conversations I've had with entrepreneurs since and written a book called The Exitpreneur's Playbook. It takes everything out of my head and my team's heads and puts it in writing so people can digest it that way because not everybody wants to have a conversation with an advisor about exiting their business. They want to learn on their own first.

Got it. Okay. So, uh, first question that comes to mind is like, if— what are people looking for when they're in the business of buying, uh, businesses? Like, what are the key things a business owner could be focused on, you know, prior to putting it up for sale so that they maximize their, um, I guess their, their sale price from selling?

What's the seller interested in or the buyer? Which is the focus?

What's the buyer interested in?

Okay. They want to get a good return on their investment. In fact, you know, the way that businesses in the sub-$25 million range are listed is a multiple of what's called seller's discretionary earnings. It's kind of adjusted EBITDA for owner-operated businesses. So they're listed as a multiple of that. And the multiple is basically years. So, you know, if I sold your business, Tyler, for a 3x multiple, you know, the buyer of that business is expecting to make their investment back in 3 years. So, they're looking first and foremost for a good return on their investment. The lower the multiple, the quicker they're going to make their money back. But at the same time, probably the higher risk business because there's some stuff wrong with it. It's either too young or too concentrated on one SKU or one, organic ranking and things of that nature, but they're looking for a positive return on their investment so that they can grow it and then sell it again later with a much bigger exit.

Got it. Okay. And then obviously, well, I guess maybe not obviously, but the seller is just maybe looking for freedom, right? Like they're just like—

That's a great word. It's funny because generally speaking, the entrepreneurs, myself, you, everybody else that runs a business, We go into that world thinking we're just going to have freedom and flexibility, but we become beholden to our businesses and it's kind of like running on a hamster wheel and we can't get off. More often than not, when I help somebody exit their business and I talk to them afterwards and say, "How do you feel?" They say, "Man, I feel like an incredible burden has been lifted off my shoulders." And it's a sense of freedom. That burden is because now they've got some money in the bank. They're not in the daily grind anymore, totally overleveraged with, you know, could be inventory or loans or things of that nature. And they're not done for the most part. They're free in a sense because they've got money in the bank and now they've got some real experience to do it again smarter, you know, with a shorter learning curve, better funded. And they've got, you know, their retirement partially or all funded if they just wait another 10 years or 20 years and some college funds put aside for the kids as well. But freedom is right on the mark. It's exactly what they feel is freedom.

Got it. So question for people that maybe haven't started a business or plan on starting another one. Is there any, if somebody's going into it and they know right away that they want to grow a business to sell it, like their goal is to sell, is there any tips you could give on like, What type of business should they start? Like, is maybe like a software company more of interest to investors than like a digital marketing agency with a lot of employees?

Yeah. Let's start with the reason why they would sell it. Like, they're going to start a business because they know they're starting it and they know they're going to sell it. Let me answer the question as to why the hell would they do that? It's because The reality is for a business that is generally less than 5 years old, the vast majority of all the money that an entrepreneur makes in their business actually comes the day that they sell it. I go through that exercise in the book and I talk about the cash flow from a particular style of business over a 4-year period. And in that scenario, you make about 3.5 times more money on the exit. And I'm talking about leftover money after taxes on the exit versus the daily operations of the business over a 4-year period. As far as, you know, that's the why. I think that happens more with people that have already built something and sold something because they sold it and they're like, "Wow, okay. Now, I've got some money in the bank and experience. I'm going to do this again." At that point, they choose what they're going to do and what's going to help them maximize that exit at the end. I don't think that it's more of, "I'm going to do digital marketing. I'm going to do I'm going to do a blog site because those generally sell at a higher multiple or a SaaS site or an FBA business, which is Fulfilled by Amazon. I think people have to first look inside themselves and figure out what kind of an entrepreneur they are and make sure that they do what they're good at first and foremost, and that's going to help them succeed. And a service agency that helps people spend money on Amazon or grows their organic rankings can be just as valuable and just as successful as someone whether it's building a brand or writing about soap operas on a content site. It's just a matter of what you're gonna be passionate about, focused on, willing to stick with, because there are gonna be some tough days as an entrepreneur, there always are. But as long as you've focused on something that I believe you're interested in, you've got a higher chance of succeeding at that and getting over the hurdles and humps that we all have as entrepreneurs as you march towards your eventual exit goals.

Got it. Yeah, that makes sense. So you shouldn't like just choose a business based on that, which actually makes a lot of sense as well, similar to like choosing like a major if you're going to college. Like, it's not really the best idea to just choose, choose a major off of like what, um, job title gets the biggest initial salary out of college, because I mean, if you hate it, then what the hell does it matter?

Yeah. Yeah. And some people have a different approach when it comes to running a business. They say a widget is a widget and a widget is a widget. Doesn't matter what it is. You're running a business. What you're selling shouldn't matter. But I personally, I've been self-employed for a long time. It's emotional. You're ingrained in it. You sleep, you wake to it. You're an entrepreneur 24 hours a day. You don't go to work and then just stop at 5, it's always in your head. So it should be something that you're at least interested in.

Definitely. And I am bringing up— I'm curious. So it's called Quiet Light. That's the company you're partnered with?

Right. I am a partner at it. The original founder is Mark Doust. He's that guy that I spoke to that first time back in 2010. And I joined the company in 2012. And he and I are now partners at the company. It's Quiet Light Brokerage.

Got it. And this, can you explain exactly what the company does?

Yeah, it's a mergers and acquisitions firm specifically focused in the online business world. If you've got a brick-and-mortar presence, we're not for you. You want to hire, you know, Sunbelt Business Brokers or VR Business Brokers or somebody local. We, on the other hand, work with clients to sell businesses, you know, regardless of where they are in the world. We've got clients that have been in Venezuela, in Hong Kong, United States, Canada, UK, you name it. The clients can be anywhere and the buyers can be anywhere. So no physical presence is the difference between us and everyone else. And we sell physical product businesses, content businesses, SaaS businesses, service businesses, you name it, anything online. There's a few exceptions, of course, categories that we won't deal with, but it's an online business essentially.

Got it. Okay. Um, so I'm curious, what, what does it like look like? Um, not necessarily like on a weekly basis, but is it like people will come in here, um, to Quiet Light and they'll pitch you their business? You as a team, like on a weekly, quarterly, monthly, whatever it is, we'll look at all the submissions and then pick the ones that you think you can definitely obviously sell, and, and then you basically partner with the person and get a small cut of the sale. Is that basically the process?

Actually, no. We're kind of a weird little company. I say little, but, you know, we'll close about $250 million in total transactions this year, and this is being 2021. We just simply help first, first and second and third, you know, and it goes all the way back to 2007 when the company was founded. Content was written to help educate people on how to build a more valuable online business and eventually exit it. And fast forward all the way to 2021, that's what The Extrapreneur's Playbook is. It's in book format that's gonna help people grow a more valuable online business and eventually exit it at a time and value and deal structure that works for them. And so we wanna have conversations with as many entrepreneurs as possible. And we're all entrepreneurs ourselves. Everybody on the team has built, bought, or sold their own online business. That's a prerequisite in order to become an advisor on the team. So we want to have conversations with you well in advance of the sale, building a relationship with you. And sometimes that means 6, 12, 18, 24 months in advance of the sale. There's no commitment. We're just analyzing your business and giving you our thoughts. So if you think about the process of, you know, hitting your own goals, right? So, if you've got a business and you want to sell it for $1 million, that's your goal. The next two parts of that goal are, when do you want to sell it and how do you want to feel when you sell it? At least in my view, that feeling part is big and you just brought it up yourself. So, if you've got those goals set, what we're going to do is help you understand where you are today so you know how close or how far you are from those goals. And that means getting an accurate valuation of your business. And then we're going to help you with charting a path towards that, shoring up the weaknesses in your business and enhancing the strengths of your business, making you understand, helping you understand what buyers want, what they focus on. And there's— we call them the 4 pillars. And then underneath each pillar, there's 6 different categories that buyers are always looking at, whether they really know it or not. They're always focusing on that. The more we can educate people on that, the more valuable their business is going to become when they eventually decide to exit. We don't sign a contract with them during those initial phone calls. Until they're ready to sell the business, there's no contract, there's no fees, there's no process or anything like that. It's just us helping. And as my— I've got a mentor that said to me years ago, Joe, it seems like you're giving everything away for free and hoping that they just do business with you. And as I said, it's a strange little business, and that's exactly what it is. Because we've all been on the other side of it. We've all been that entrepreneur wondering what our business was worth. And now we're on the other side helping people understand that. So, we want to just help as much as possible, have as many conversations as possible. And that's going to lead to some people figuring out how to— thinking they want to sell their business on their own and doing that and succeeding with it. And plenty of others that will work with us to help make sure we get the maximum value and the best deal structure.

Got it. Now that makes complete sense. So because of the nature of the show, I want to dive in a little bit more into the book. So what was the, for you, like, what was the process like writing, publishing, and everything about your book launch? Like, is there any tips? Because there are a lot of authors and aspiring authors that listen.

Yeah. It was awesome and brutal all at the same time, to be honest with you. You know, I wrote it, I wrote the book because I felt like it had to be written, right? There is no book that's out there that is specifically to selling online businesses. And so I feel like it's very much the first of its kind. And there's just so much misinformation that's out there about the space that we're in that I felt like it had to be written. And I attacked it on my own probably 4 years ago. Did an outline and tried to get that introductory chapter written and all that. I just didn't get very far. And then I was at an event where somebody was speaking and, you know, launching his book and brought his scribe up on stage with him, a woman named Brannon from Scribe Media. I met Brannon afterwards, connected with her, and hired her and started the next month. So if it was a simple memoir, I probably would have been done in 6 to 8 months. But it took me about 18 months of working with Scribe to get the book launched. The interview process was great. I spent a lot of time on each chapter talking about it, being asked questions by Brannon, and she did an amazing job taking my words and putting them on paper and making sure that it was conversational, yet conveyed what needed to be conveyed. The challenge came when we got to the technical aspect of what I do, that really couldn't be conveyed verbally, and so there would be a part where I said, okay, well, I'll just— I'll add that later, and then we'd move on and we'd talk more. That technical aspect took a lot more time. It's funny, when you're writing a book, um, a friend of mine had done it before, and she said that she was unprepared for the scrutiny that she got and the comments that people made. And that kind of struck me, and I'm like, okay, well, you know, certain people are going to say whatever they want because they feel like they're protected because they're not in person, but I'm going to do everything I can to make sure that the book is fully accurate and not full of typos, if you will. No matter what, I think, publisher you have, it's the author's responsibility to read it 200 times looking for typos and grammatical errors. And so that took a lot of time, the technical aspect of it and going through that whole process. And then because of COVID the launch was delayed. We didn't do the audible version of it, still haven't done that yet. And the launch, you know, was great. I've got a fairly good-sized network of people that I've worked with over the last decade, so our launch goals were tripled and we're doing okay. It's been It's been about a month and 10 days, maybe 50 days so far, and sales are going well. It's already producing leads for Quiet Light that will more than pay for the cost of publishing the book, and that's just within the first 60 days.

Oh, that's awesome to hear. Okay. So I think it's helpful to like, stories are helpful, so you might not be able to name names, I'm not sure, some are public, some are not, I'm sure. But can you share like a couple stories of people that have come through Quiet Light and like they were, you know, at some point, and then after the, you know, 18 months of conversations with you and then putting it up, it like was kind of like a transformational moment so that their, you know, business was able to sell for a price that they were happy with?

Yeah, no, I give a lot of real-life stories like that in the book because I think without conveying my own personal successes and epic failures and then those of my clients, it wouldn't connect as well with the reader. I do change the names on the epic failures, and on a couple of the success stories, I had to change the first names as well, just because the person— the people are so in the public now. You know, but I had a situation with a client that this is a person that barely graduated high school, was actually invited not to continue to graduate high school, and he ended up with the equivalent of a GED. Single dad, living paycheck to paycheck, barely paycheck to paycheck. And his first business, his first site that he bought, he bought on like Flippa, where you can buy low-priced websites and flip them. And he bought one for $2,500, sold it for $7,500 a couple of months later. He improved it, made it better, and somebody else bought it. And that turned him into an exitpreneur. He's an entrepreneur, but his focus is on the exit because he knows he's going to make more money there. And so, the next one that he did, and we go into this in detail in the book, but it's all content sites, this particular individual. He bought for, I think, $14,000, $10,000, turned it around 6 months, sold it for $20,000. The next one was $200,000. And this was one that he built from scratch instead of buying it and sold it for $200,000. And that last one, the $200,000 one, was sold through Quiet Light. It wasn't through me as an advisor, but it was a member of my team. And then it got to the point where he had a much larger listing, it was $5 million, and that was directed towards me. And we had it listed And again, this is a situation where this person, it's almost like in the movie, he's stuck at the airport. Literally, he's in Vegas, he's stuck at the airport because his flight was canceled. He's got his 7-year-old son with him and he can't afford a hotel room because he's so poor. Fast forward 4 years later, we're listing a business for sale for him for $5 million. And he made the decision 3 weeks into due diligence He calls me on a Saturday. I'm literally, I'm driving home from a funeral. I'm in Georgia, driving back up to North Carolina on my way from a funeral. And this guy calls me and I'm like, oh, this can't be good. Nobody calls me on a Saturday. And I pick up the phone and I'm like, hey, hey buddy, what's up? And he says, ah, Joe. And I can hear the struggle in his voice. You know, he's really struggling to convey what he needs to convey to me. He said, I don't think I can do this. I'm like, okay, what's going on? He said, well, revenue kind of went up a lot last month. I'm like, okay, well, what's the situation? He goes, I netted $300,000 last month. I'm like, oh, okay, that's good. Is this gonna continue? Do you feel like it's gonna last? He said, yeah. I said, and then we ran through some numbers and within about 10 minutes, we figured out that if we waited another 6 months, the business would be worth at least $8 million. And so, I said, "I fully support you. Look, your letter of intent is non-binding. You can tear it up and walk away. Let's just do that. I'll deal with the owner, the buyer, let him know. He's going to yell at me, but I could take it. It's non-binding." And that's exactly what the buyer did. He yelled at me, threatened me. But then 3 weeks later, he and 2 others made offers that pushed the value of the business up just below $9 million. So this gentleman, Victor, we name, we call him in the book, had the courage to walk away from a $5 million letter of intent that was going to close in 3 weeks. He's going to have $5 million in 3 weeks. And he said, it's not enough. He had the courage to do that when 4 years prior to that, he was basically living paycheck to paycheck. Then 3 weeks after he said that, we're in the situation where we didn't have to wait those 6 months. 3 buyers bid the price up to just under $9 million. It took about 6 more weeks to close. And it was very, very tough and emotional for him. Because any deal that size can be very emotional, because it's life-changing. And that's exactly what happened for him. It was a life-changing number, we closed the deal. I'll tell you quickly, it was emotional for him because he had a key employee that was a single mother that he promised to buy her a house when the business closed. And when it fell off the rails 3 times, 2 weeks prior to closing, you know, he made promises to people and it was very stressful and he blew gaskets all the time. But he and I are good friends now. And that's one of the reasons why his name is Victor in the book and not his real name. But it's changed his life dramatically, not only because he has lots of money in the bank, but he's not done. He's still a young guy and he moved from the content space into the e-commerce physical product space. And now he's shooting for a billion-dollar valuation, the unicorn valuation. I'm hoping he just settles down and keeps his blood pressure lower and just shoots for a $100 million exit instead of something much, much larger. But it's just one example where if you learn the process of growing a business and selling it, where you can do it again and again and you absolutely make more money on the exit than than you do operating the business. And he's been running the Extrapreneur's Playbook long before I wrote it.

That is awesome. I'm just curious, and obviously you can't share the site, or I guess people would be able to track back to who he is, but is it a site that a lot of people know about, or was it more like a niche?

No, it was a niche site. It's in the entertainment space, you know, amusement space. Stuff that people would look at every day, but it's, no, it's not something that everybody in the world knows about. It's very niche.

Okay, got it, got it. Okay, now I love, that story was amazing, by the way. That was awesome. So can we hear some failures? 'Cause that also is normally fun.

Yeah, I know, they're tougher. Let's go with, Let's go with— I can't even remember the guy's name. And again, this is because I made up the names in the book, but we had this one gentleman, let's call him Chris. He came to me and I said yes before I should have. So he called me and says, "Hey, Joe, look, I was about to sign an engagement letter with XYZ competitor of yours. And, you know, they put a value of my business at about $10 million. So I got a funny feeling." I can't do it. I want to work with you. I've heard a lot about you and I should have gone with you in the first place.

All right.

Okay. Let's go ahead and do it. Based upon what other details he told me about the business. And we signed an engagement letter before I got a chance to really delve into the P&Ls and ask him lots and lots of questions and do the add-back schedule and my own due diligence. So, we're in a screen share now that I've got the P&Ls. I've signed the engagement letter and I'm going through the numbers. And asking him questions and trying to develop what's called an add-back schedule, which is absolutely critical to getting maximum value for your business. Add-backs, entrepreneurs have to figure out what their add-backs are. But much simpler than that, I'm just scrolling through the P&L with him. He goes, "Whoa, whoa, whoa, hold on, hold on. What's that number there in July?" I'm like, "What do you mean?" "The revenue number, Joe. What's that number?" I'm like, "Well, it says $297,000, $380,000." I didn't do $297,000 in July, Joe. I'm like, well, Chris, this is your P&L. This is what you sent me. What'd you do? He goes, oh, much, much less than that. I'm like, okay. So long story short, you can't sell your business if your P&Ls are wrong. And in this case, he had an in-house bookkeeper that was just out of college that was doing everything his CPA told her to do, and she was doing it wrong. His total revenue wasn't that. His business, you know, the value that $10 million that the other brokerage firm gave him was based off wrong P&Ls as well. It was, you know, about $2.5 million in profit or discretionary earnings. Turned out that his discretionary earnings was only about $1.5 million. So at best, I know this sounds awful, right? At best, his business was worth $6 million. But it's a 40% difference between 10 and 6. And it made a difference to him as to whether he could be done and never work again for the rest of his life, which was his goal. So, he didn't do his homework. He didn't get trained on creating a proper profit and loss statement. He wasn't using accrual accounting. He was just doing whatever the CPA said to do. Let me clarify, a CPA, is an expert in tax mitigation and tax preparation. A bookkeeper is the expert in setting up your, your P&Ls, your profit and loss statements, your balance sheets, so that the CPA can do their job well. And there's a clear, clear difference between the two. So I ended up referring them over to an e-commerce bookkeeper that could import everything, set it up on an accrual basis, and actually do it for about $500 a month. So, $6,000 a year to have it done professionally and done right versus the $24,000 he was paying the bookkeeper. That's a $19,000 difference. Let me explain, that kind of savings times a 4-time multiple, that adds about $80,000 onto the list price of the business at the end of the day. So, all sorts of nuances and things, but he had his hopes and dreams and goals set and he couldn't achieve them because you didn't train for them or prepare for them, if you will. It's kind of like running a marathon or a 5K. Most of us could go out and run a 5K, at least get through it. We might have to walk some of it. We're hurt like hell afterwards. We wouldn't have a good time and we're hurt like hell. If you train for that, you know your time's going to be better, you're going to be more excited about it, and your recovery is going to be short. Same thing with preparing your business for sale. If you train for it and understand the value of what buyers are looking for and present a business to them, that's a great business that you've built for a great buyer to take over at a great price, you're going to wind up with a great exit on your hands. And unfortunately, in this situation, Chris didn't do any of that and he's still running the business today.

Wow. Okay. So one of the last questions I want to ask you is, I do like to ask like about like morning routines and stuff because obviously I think with all the businesses you've had and all the businesses that you've helped exit, um, I'd consider you a pretty high achieving individual. So, um, like what, what does it look like for you? Do you have specific like rituals, routines, or are you just kind of like wherever the wind blows?

Yeah, no, that's a great question and I wish I could tell you that I'm superhuman and have always had a specific routine that all you have to do is what I've done and you will run whatever company you want at whatever size. But that's not the case. I have had bouts where I've done the 5:00 AM wake up or 4:00 AM wake up and I drink that glass of water and I do my journaling and I do my meditating and then I work out. And then I've had bouts where I can't sleep a lick and there's no way in hell I'm getting up at 5:00 because I'm already up at 3:00 and I'm so tired because I didn't sleep. So, you know, I think the best thing that's ever worked for me to reach my goals is to write them down. And not just in terms of, you know, I want to sell my business for X amount of dollars, but it's also getting really specific. You know, I want to achieve X, and this is when I want to achieve it by, and this is how I want to feel when I achieve that. And so, I learned at an early age, it actually was one of the early Tony Robbins programs about writing down the goals and visualizing them and just naturally gravitating towards them. The morning routine for me, it does come and go, but what never ever leaves me is writing down my goals and charting a path towards them.

Perfect, man. Well, if there's anything else you want to share, I want to leave the floor to you. If there's anything that we didn't cover that you wanted to? And then let people know, like websites, social medias, where they can grab the book and anything else.

Yeah, look, the book was written because again, it needed to be written. There's nothing else that was like it out there in the market. And it basically is a tool to help online business owners understand the value of their business and how to reverse engineer a path to that exit and that maximum value so you can have more money in the bank and sleep, sleep better and have peace of mind after you sell your business. You can find it either on Amazon, just search for The Exitpreneur's Playbook, or go to exitpreneur.io where you can find the book and lots of other resources as well that will help you operate and run your business for maximum value.

Perfect, man. Thanks again for coming on.

You bet. Thanks for having me.