The Art of Succession

welcome to the art of succession podcast

with Barrett young join us as we explore

the strategies stories and insights that

shape the Journey of leadership

Transitions and business success no

matter where you find yourself along the

journey this is the podcast where you'll

find the tools to make it happen once we

got one and we satisfied that one then

you know you're talking about the

doctors they they talk to each other

talk yeah and so we we got a lot of

referrals there wer problems on an

ongoing basis and we did improve product

as we went along but we had our our

clients tell us what they wanted once

you get a little experience then you

realize especially if you've taken

understand valuation you learn pretty

quickly what companies won't sell my

name is Barrett young and this is the

art of succession podcast my guest today

is Tom gled Hill a former business owner

and broker and the author of two

best-selling books he's successfully

built and scaled four businesses and

he's written a book on his new exit plus

system helping other businesses business

owners scale and sell their businesses

Tom welcome to the art of succession

thank you for having me Barett so I want

to know why the speaking circuit I mean

what what causes you to share on

podcasts to be attracted to come on the

art of succession and talk to my

audience today we're launching that new

program that exit plus

program and I I want the world of small

business owners to know about the

program because it's most of them are

not aware of uh what is involved in

selling a company and they're not

prepared to sell a company and I want to

make them aware and the best way to do

it is through the media through podcasts

through writing books through giving

presentations to business associations

and so forth and I intend to do all of

those things awesome so I know exit plus

draws upon your years of experience

running your own businesses starting

those and and then selling those and the

mistakes and lessons that you've learned

so so let's go ahead and start there uh

give me a brief background of just

getting started in business maybe your

first company when you started it uh

whichever one interests you the most

well the first one just to back up a

little bit I I have um I have a degree

in in uh electrical engineering and I

have an MBA and I started out in

engineering and uh did not like it

lasted about a year and I got into sales

I was selling selling computers uh and I

did that and when I for a while and I

was going nights to get my MBA when I

got my MBA I went to work for a

consulting company in the healthc care

industry so I I became a project manag

manager there and I we were installing a

lot of uh IBM systems at the time and

they and they at the time were more

interested in Hardware than software so

the software they had on these hardware

systems was not very good so we another

guy and I decided we could do a better

job than that so we actually left the

consulting company and developed our own

software to do the administrative tasks

in a an outpatient Clinic's office could

be a group practice of a doctor could be

the outpatient uh clinic in a hospital

uh and we did the the we did the billing

we did the appointment scheduling and

other administrative tasks within within

the hospital so it was very difficult at

first because we

were it was like trying to sell a rifle

to a caveman at the time because you

know what do I need a computer for I've

got these electric cards all right what

was the time frame on this Tom this was

in the 70s okay this was so computers

were very large and not widespread at

this point exactly they were there was

no such thing as a desktop computer at

that time in fact when we did our

programming we had to travel 45 miles to

a a a Physician Group practice we had an

arrangement with them they would buy the

hardware and we would go there and put

the software on it but we did the

programming there also so it was it was

difficult but we we made it and then

selling it was was a you know getting

the word out and so we made a lot of

cold calls and so we you know we did

okay but what really turned the tide was

in 1980 when the IBM PC came out so now

you didn't have to buy this big Hulk of

a machine that you needed a forklift to

carry you know now you could have a a

small much smaller uh computer that you

could you could carry around and that

really opened up the gates and uh so we

took off from there and at the time I

mean when you're doing these big IBM

systems how big of a Doctor's practice

would be able to afford something like

this compared to the IBM PC that would

now be much more reasonable it would

have to be a clinic small we would we

were working when I had we had this

government contract to provide

management assistance to Neighborhood

Health Centers so they had government

grants and so forth um but to take it

down to the private level uh I would say

you probably needed a group practice of

half a dozen doctors because half half a

dozen doctors even at that time you know

they were probably doing a million

dollars a

piece in Revenue um so you're talking

about a $6 million outfit

that could afford a uh pdp1 which was a

a digital equipment pdp1 which was a a

mini

computer um and shipped with no software

on so everything needed to be customized

pretty much well we we our software

didn't need to be customized per se uh

because we we covered the whole spectrum

of Specialists you know a cardiologist

had the same spilling software

as a pediatrician for instance um but

the uh the people that you know when

you're talking about half a dozen

doctors probably Specialists because

Specialists made more money than primary

care and uh so I would say six to eight

specialists at that time could afford

you know the pdp11 or or would justify

buying the pdp11 they could probably all

afford it but justify buying it so uh

but the PD what we did was we tied the

the PDP the not the pdps but the IBM PCS

together in a network and so we use the

network for you know a multi uh

multi-computer system to and they all

talk to each other and use the same

Central

database okay so I mean I've I've heard

Steve case talk about this once that

he's like you're trying to sell internet

to a world that doesn't even have have a

modem is what he described AOL in in the

mid 80s so here you have this amazing

technology doctors could really see huge

gains in their billing and their

Collections and everything like that but

they don't know that it's available they

don't know what it can do and it

probably is like well I'm here to do

medicine I don't understand that so

right so this is when you as the

salesman this is when you got bit by

that problem solving bug that that

entrepreneurs are just we wake up every

day looking for problems to solve is

that well our we knew the problem had to

be solved we had to solve it and we um

you know we were

just bound and determined to be

successful so we made a lot of cold

calls and you know that turned out we

once we got one and we satisfied that

one then you know you're talking about

the doctors they they talk to each other

talk Y and so we we got a lot of

referrals and um then we started doing a

a little bit of marketing you know as we

as we grew but you know the survival

years you know you talk about a new

entrepreneur getting in the the U

statistics are that at the end of five

years 50% of them are gone they didn't

make it through the 5year period but the

the survival period is is at least three

years so the first three years we were

just trying to

survive you know and

so gradually we started hiring people

and we getting getting more customers

and uh you know once we did that it kind

of took off we grew faster and faster as

we go went along but um when I sold the

company we had over we had 3,000

clients in the Northeast and we had

offices you know all over we had New

York and New Jersey including all of New

England so uh we and it took us about 10

years to get there to that

point okay so still doing software at

this point but this is now the late 80s

early 90s yes okay we were still with

with software especially for for

insurance billing they're always

changing their

forms so every one of our clients had

had a maintenance contract with us so we

had a lot of recurring

Revenue so as you know recurring revenue

is is uh is something that really scales

the company and something that really

increases the value of their

business and this is annual updates as

the new forms release you have to update

them across or you update it once and

then push it out across 3,000

clients yes yes the uh in the

unfortunately in the different states

you had there were different uh

different parts of it you know Medicare

was Medicare but Medicaid was not

Medicaid in every state was not the same

in every state so yeah it was it was it

was a problem but you know we were paid

for it so it was part of the recurring

Revenue so uh we we also sent surveys

out we also surveyed our customers

probably twice a year to say you know

what asked them what would they like to

see improved you know how how can we

improve our service how can we improve

our product you know and uh we get

feedback and then we would work from

there so we were we had a we had a

well-run company uh when I worked when I

ran the company um I knew everything

about the inside but his the difference

is when you own when you're a business

owner you're on the inside looking out

all right most business owners have the

shades drawn they can't see out they

don't know what's going on out there too

busy working to go talk to other people

and exactly from the outside in yeah

what I was fortunate enough to start I

went on the outside as a business broker

now I'm on the outside looking in and I

had to know everything about what was

going on you know what industries were

hot who the business buyers were what

they're looking for in an

acquisition you know about funding

problems um you know deal structures

valuations you know have to learn all of

that at being a being a good business

broker a lot of Brokers don't do

valuations I did valuations I went to

the ibba school which is terrific and uh

learned valuations and learned scaling

techniques and so forth but uh but

you're you're on you're on the so I I

get both I had both sides of the

equation here you know I was on the

inside looking out and then I was on the

outside looking in and there are two

different

views so I mean what caused you you and

your partner still at this point have

been running this for 10 years what

caused you to say I don't want to do

this for the rest of my career I'm

possibly going to sell this but you

wanted to start getting into business

brokering where you did were you looking

at other software companies to acquire

that they kind of peak that interest

what what caused that shift for you I

think there were a couple of things uh

par I think number

one we were having a bit of a problem

with a

partner and that happens you know over

time we we got along pretty well but I

got a little tired of it I think he

might have got a little tired of me and

we were looking for a change that's

number one I think the big big aspect of

it though I wanted to do something

different I was entrepreneurs too yeah I

was tired of dealing with with uh

Physicians you know they have their own

makeup

um and I I just got I got tired of it

and at this point you've got a

successful business that just keep doing

the same thing year after year

incremental changes there's no like no

new challenges for you to tackle in a

given year there probably were I think

if I had to do it over again there are

you know obviously looking back I think

everybody has that same you know feeling

if I could do it over again I would do

this and I would do that number one I

would I would engage the employees more

now I was a I was a walk around CEO I

walked around I knew everybody I knew

what they their private life uh and that

was good but I I we should have had more

meetings uh maybe bi-weekly or something

talking about what our vision is for the

future how we're doing now you know and

keep everybody engaged I would do that

if I did it over again but um but I

think the

uh there there were things that that

would come up we we looked to um buying

a company and uh we look to buying a

billing service and and uh so we we did

look at at acquiring but we we ended up

not doing it because we were so busy

yeah and um

so yeah there there were problems on an

ongoing basis and we did improve our

product as we went along but we had our

our clients tell us what they wanted and

so we did improve that as we went along

um but looking back I I certainly would

would work more with the with the

employees um I would have a profit

sharing

plan um you know I would do things like

that to for the for the employee we did

have a great health care plan and we we

also had insurance for for the

employees but uh but I would take it to

another level too I think if I had to do

it over again too we had a number of

women working for us and uh I would if I

had to do it over again again I would

have the U

I would have a daycare center for them

uh and so sell the company to outside

software company was it a consolidation

what what did that sale what did that

sale look like yeah it was a

consolidation for the uh for the buyer

the buyer was it was interesting the

buyer was

a quarter of a billion dollar company

they were doing about 250 million and

they were in the same business we were

in and um we were much smaller and that

when I started the company I mean I had

it I had the end in mind when I started

the company and my end in mind was

either an IPO which was about a

05% you know probability of that

happening uh and I I thought you know a

larger public a larger company would buy

my company uh if if I got it up to such

and such a de uh a revenue

so that's what happened actually a

larger company bought mine turns out

that about a year later a private Equity

Group bought his

company so now we're now I'm part of a

private Equity Group and then I think

General Electric it's hard following in

the sequence here the um I think General

Electric now owns my company oh okay so

I don't know what they're doing with it

but but uh but they don't it yeah okay

so you you're acquired by a larger

competitor adding this medical billing

component probably department just by B

by acquisition so you've you're already

in the business broker space did you

start doing that for a while and just

start did you build a consultancy and

focus on valuations or what was next for

you after that first company no what I

what I did was uh when I when I got out

I was a little Pocky you know I hey I've

did I've done this I I can still early

30s yeah yeah I can do anything you know

and uh so I really didn't have I really

didn't have a good plan I just thought I

I would do nothing for six months which

I which is what I did I did nothing for

six months but um but I started thinking

about what am I going to do after the

end of a month maybe you know and uh so

a friend of mine uh who was an an m&

advisor came along and he said you know

why don't you get involved in m&a he

said uh you you've got the background

for it so I did and uh the first thing I

did was was join ibba and start taking

their courses to to get my certification

as a CBI certified business

intermediary and um and it actually the

courses I took through the ibba were

better than the MBA courses took I mean

they were

superb so that's where I learned

valuation and uh but no I went out and I

was a a uh a business broker and I was

just making calls when you start out as

a business broker unless you go to work

for a

boutique you start out the

bottom so I started out at the bottom

and at the time there was no

email so I was mailing 100 letters a

week to businesses and I got you know a

uh directory of businesses in my

area and um so I did that and started

out at and I I talked to probably the

first year I probably talked to three or

four a

day so I talked to well over you almost

a thousand people thousand small

business owners my first

year and uh when I when I learned in the

IB ba

program that 80% of businesses don't

sell the go to market only 20%

do I didn't believe it I thought they

had mixed up the dos and the

don'ts but but when I got out there at

the end of the year I realized that 80%

is a good number one in five a little

generous yeah one in five don't sell

okay and so you so I mean just break

down those numbers a little more you

talk to a thousand businesses in year

how many of them actually went to

considering that and putting together a

list price and starting the process of

that prob not not just for you

necessarily but just on average what a

thousand businesses would turn into 10

deals in a year what would what would

that look like well yeah you know I I

would say the first first six months I

took deals just to learn the procedure

learn the what's the paperwork you you

submit and what is the procedure for

doing this knowing having a good idea

that I wouldn't be able to sell this

company all right so I probably took

four or five of

those um but once you get a little

experience then you realize what

companies pretty quickly especially if

you've taken understand valuation you

learn pretty quickly what companies

won't sell you raise your standards a

little bit and the close rate goes goes

down yeah

y so I how many of that those thousand

sold I don't know maybe 20 to 50 I I I

really don't know because what happens

Barrett is you you learn to walk away

from these people you know you don't

follow them and say GE I wonder if that

guy sold you know you don't have time

for that right yeah so I yeah I'm just

trying to get a handle on if a thousand

converts to 20 that say yes I want to

sell my company 80% of that would mean

only four actually go through and are

able to find a buyer to to kind of put

some meat on that 80%

so I mean I'm sure the problems haven't

changed significantly since then what

were some of the issues that you saw in

some of these businesses that would

cause you to walk away or say you you

want to sell your business but it's

there's nothing here to sell what were

some of those issues yeah probably the

biggest issue was

expectations they their company was

worth half a million they wanted two

million for it um I mean seriously they

got that outrageous in their

expectations expectations was number one

not knowing who the business buyers were

and what they were looking for in an

acquisition so

they they had uh the wrong thing they

were good at the wrong things okay they

had some value drivers they were pretty

good at but the ones that the business

buyers were looking for they were not

good at

gotcha yeah just work on that a little

bit explain explain that difference to

me what a seller thinks is the value

driver versus what a buyer is looking at

yeah well it depends on what who the

buyer is if it's a a corporation you

know the corporation are looking they're

looking

for they're looking for systems that

that are you know that only the top

Oracle and and apple and so forth are

looking for and that's one of the things

that corporations are looking for these

these systems that are are ahead of the

game okay and they're also something

Innovative because it's easier for them

to buy it yes than for them to change

their own yeah and they're they're

scouring the countryside looking for the

for those the bigger companies are there

also looking for synergistic uh

synergistic uh

systems uh system I'm sorry system

synergistic products okay that they can

sell they can sell to their customer

base okay yep we now do this we already

do this for you would you like to buy

this yes y yep okay so I can sell that

to my customer base and they they're

also looking for top management

uh uh was it uh Microsoft years ago

bought a very small company for the

president because he he was very

talented uh he he hadn't really

developed any revenues yet he was very

brand new but he was well known

Microsoft bought his company and this

individual became the the CTO Chief

technology officer of

Microsoft so they're looking for

people and uh

then you then you got the financial

buyers private Equity groups and the the

uh office uh family offices family

offices they're they're looking

for they're looking for good

management they're looking for

um high value recurring revenues and and

things that they can

scale because they're going to sell it

within you know three to five

years and uh

and then you you got the lifestyle

buyers you know those people that were

you know maybe given uh early retirement

with a with a big Corporation you know

what are they going to do now they're 50

years old and they've got some money

they got maybe a you know some kind of a

parachute uh for extra money so they got

some money to buy a company um but they

what they're looking for they're looking

for a job and they're looking for

something that they can build and sell

someday they're looking for an asset

they can

build so it depends really on who the

the potential buyers are now for these

small companies they're all lifestyle

buyers unless they really have you know

good products that the smaller

corporations are looking for then you

might have a an $8 million company

that's looking to grow they're looking

to grow by acquisition so they might buy

one of these smaller

companies yep and the life style buyer

is going to have a a lower price tag

than just buy it and we'll deal we'll

figure it out later that a that a

financial or uh uh systems buyer would

um because if if I'm going to buy this

and run it and get my own payout I don't

want to be buying your business at $2

million if I'm only going to be able to

sell for 2.5 you know 10 years down the

road I want to buy it for half a million

as you were saying yeah and so I mean

had these owners is in your experience

the 80% that can't sell their business

are they

building they're building effectively

lifestyle businesses right is that yeah

typically typically what what happens is

uh there's a 5 million doll gate that

you your growth companies like mine was

mine was a growth company I go flying

through that $5 million Revenue gate the

lifestyle buyers probably don't reach it

because they've reached a point where in

Revenue that they're making enough money

to have a good lifestyle you know they

have a nice home they have a couple of

cars they have probably have a cabin on

a lake and a boat you know they have a

good lifestyle they don't want the

aggravation

of you know by employing and training

new employees or getting a new location

going from 10 to 100 employees it's just

like nope that's not worth it right

exactly exactly they've got a good

lifestyle and um in fact I have I I have

a a uh an ebook that's I've got on

LinkedIn that uh I call my baby boomer

business owner Playbook and it goes

through from the time an entrepreneur

starts until they

sell and it really goes through and it

it looks at lifestyle companies

lifestyle owners and uh so yeah they

it's um so they get to that point and

they just stop say it might be at 3

million might be at 4 million might be

at 2 million who knows you know at 2

million they could be taking if they if

they manage the company right they can

be taking out you know3

$400,000 from the

company uh would that also with the

perks that a small company uh you know

gives you so you did the business broker

thing for a while um but I mean you've

started businesses since then so what

caused you to shift back into a a

different line of

work I had to sell my brokerage uh okay

for personal

reasons okay and take some time off or

just too much the pace was to I mean

calling a thousand people a year kind of

yeah no I I as a broker um I I was I did

it for about 15 years okay and uh and

then um I was a caregiver quite frankly

when I

I I uh sold my brokerage I became a

caregiver uh my wife was ill and

so it lasted lasted I was a caregiver

for 10 10 12 years you know but not but

at first it was I had a lot of time

that's when I started writing actually

so I wrote my my two books there and

then I developed an online course and it

was all about what I did was I I dug

deeper than most value raters do I went

down to the source I like to get to the

source of of the problem and I came up

with 16 value drivers and I categorized

these value drivers and uh developed a a

course to increase the the important

value

drivers uh to increase the business

value so they could so they could sell

it so that's basically what I did um up

until GE I don't know three four years

ago and uh I met this other fellow

online and he and I collaborated and got

together and um we're doing this exit

plus together so that's kind of what I'm

what I'm doing now Barett um I'm not

doing brokerage anymore uh although I do

somebody calls me you know somebody that

I know that I worked with in the past

will call me and and wants you know want

some information on why what do I think

about certain things I'll give them you

know some advice you know I'm glad glad

to help them you know but I don't take a

commission or charge them anything for

that okay all right yeah sorry about the

personal situation I know that that'll

definitely rock your world and your

plans um explain to me then the

difference between what does a business

broker

do when they come into a business and

they're working with a business owner to

sell it versus what you've built that's

different than that here with with the

exit Pro System explain to me the

difference there well the the difference

is when I when I'm helping them

sell they are the owner and I'm helping

them sell to a third

party and the difference is I'm going to

be buying I'm going to be the

buyer so that's that's the the the main

the main difference right there so you

and your new partner here you're looking

for small businesses to acquire scale

and flip

effectively we're going to test test

this out and then share me share a

little bit Yeah okay the uh the plan is

the plan is to look

for buyers that are B typically Baby

Boomers now that are looking to sell and

they're having a hard time selling so

let's say that their company if they

could sell it would be valued at a

million dollars just to use a round

number so we expect you know this is a

motivated seller now we expect to buy

that at something below 1 million all

right we we are both getting our

certificate in in uh artificial

intelligence we've been working working

on that for body Year we're actually

installing artificial intelligence in a

small company right

now we're going to the first thing we're

going to do is transform this company

using AI all right we're going to scale

it using AI all right so we're going to

make it effective and efficient using Ai

and then we're going to use AI to help

with marketing to scale this company

when we buy when we buy the company we

are going to train the

employees to run the company we're going

to we're going to H help with the help

of the business

owner we're going to choose among the

employees the key

employees a

president and key employees to fill key

management positions and we are going to

train them and monitor them as we go

along also we are going to with a with

the community the community is a big

part of this now the community we're

going to sponsor a scholarship to a

needy student in the

community we are going to sponsor a

little league baseball team or some

other Recreational facility and during

during the holidays we're going to feed

the needy so we're going we're going to

do this from the company the company is

going to do this within the

community we're also going to provide

profit sharing what now this is when we

get the the uh cash flow up we're going

to provide uh profit sharing to the all

of the

employees and now and when at the end of

and and we'll use the business owner the

business owner will be on our Board of

advisors as we go along okay because

what we plan to do here is buy 80% of

the company gotcha that that was my next

question it doesn't sound like you're

acquiring it outright it looks like

you're coming in as a strategic investor

to this business owner to help them get

their company to pretty much pretty much

like a private Equity Group does yep so

we'll we'll buy 80% now that's

negotiable but we'll go in at 80% so

will the business owner will retain

20% so when we sell the company when we

scale the company you know three to five

times we plan to do that three to four

years

and we can do that with AI I know that I

know that for a

fact so when we do that we get to that

point and the key employees are well

trained to run the company going forward

then we're going to sell that 80% we'll

sell the whole thing to the key

employees oh okay so that's the that's

the employee ownership part of this this

program they will be the eventual owners

of the company the business owner will

be an

advisor until we sell and he'll get the

second bite of the Apple which you talk

about in private Equity second bite of

the Apple may be equivalent to the first

bite because of the scaling that we've

done so that's the program you might

clean up a little bit but it's a short

time frame that you're going to be

working with that buyer in order to

identify uh or sorry with that seller in

order to bring in a buyer for that

you're actually talking about here this

is a little bit more of a longer term

play to completely reposition the

company and move it from that 80% of

small businesses that can't sell to

ideally in in you know in your plan a

business that doesn't need to sell

because the employees now have the are

empowered to be able to buy it yeah in

addition in addition to that Barrett

also it's it's a company that's not only

surviving but it's thriving yeah you

know yeah because it's pretty producing

the cash the employees need in order to

acquire it that way exactly that one of

the the first the first uh part of the

exit plus program was really helping the

business owner sell to the

employees and we tried that actually the

the business that we're working with now

we're employing

AI we tried to do that but it was so

difficult to get funding at that point

for the employ employees for the key

employee that we had we had to Pivot and

we pivoted to installing AI in the

company and that's going very well and

uh we we hope to you know scale this

company so the owner can can sell it

okay gotcha yeah that that was going to

be my question you've got employee

ownership you've got an employee stock

pool when you sell it to the employees

you're looking to sell it to all the

employees or you looking to sell it to

those few positions that I've identified

and said no I want to I want to lead

this company yeah we're thinking right

now of selling it to just the key

employees because uh you know one of the

there are government programs for bigger

companies you have to really be a $10

million company in Revenue have an eiter

of at least a million for to for an ESOP

or or trust or a co-op uh you because

you're dealing with all of these

employees now

excuse me and a lot of them come and go

so now you've got the administrative

problem of buying and selling the the

stock back and forth to these people

that are coming and going and then you

have to deal with vesting and it's just

too complicated for these smaller

companies to do you know they they can't

they can't justify an ESOP in fact there

are people that install

esops that you know do the ad

Administration and and all of that and

they won't look at a company that has an

ebba of less than a

million so in Ana you know it's like a

great idea but just too many variables

yeah and and you know I can suck the

cash out of a company if if a whole

bunch of employees start to see kind of

like a run on a bank almost it's like oh

well this person sold and they're out

I'm gonna for no good reason I'm going

to follow my feelings here and do the

same thing yeah you know I don't know

how I know I've read how they work and

they're working I guess that they're

doing pretty well because there are a

lot of companies doing doing esops and

and and trust or co-ops um but I can't

imagine a smaller company of 10 to 30

employees doing that yeah gotcha

okay um

so go over some of the not all of them

but go over some of the 16 points that

you guys that you guys are improving as

you're coming into these businesses to

increase the valuation and and help them

be able to sell if you don't mind sure I

broken them down into categories

Foundation Foundation value drivers that

must-have value

drivers the um I forget the name of

these value drivers they four of them

and then the the big hitter value

drivers okay the foundation value

drivers are are basically the um the

company

and the company is just really the brand

and reputation of the company okay the

industry they're in is very important

and the trend it's the trend of that

industry that's the most important is it

is it going down is it going up or you

know what's the trend of the

industry um then you have the

competition and you know if there's no

competition for your product or service

there probably no demand for it okay bad

thing yeah and and the other is is the

product of service itself you know is it

a is it a product that's that's um you

know that's being that's doing well is

it being are you getting referrals for

it you know and then in the must have

value drivers the first there are two

value drivers that are absolutely

critical for a successful company the

first one is the

employees all right well-trained

employees and the second are systems the

systems that you have in company okay

those two if you can if you can maximize

those two you're a long way to

increasing the value of your company all

right then you have you have a couple

especially you have cash flow obviously

okay but cash flow is really a result of

all of the other things you have with

the company right that's part of your

report

card and then you have growth now for a

for a company for instance for uh most

companies that are going to buy that

company they for instance a a um uh

private Equity Group a financial buyer

you know they are looking for growth but

not potential

growth a corporation might be just

looking for potential

growth okay but um so growth is another

value driver that's one of the must

Financial a financial

once proven growth notal growth yes a

corporation may say hey there there's a

lot of growth here you know and we can

make that you're just terrible at

tapping into it but once we plug you

into our system exactly but the third

the third uh third category um

Personnel um I'm sorry C customer base

customer base and uh you know the

problem there that I found is that a lot

of people have don't have diverse

customer bases they'll have half a dozen

people that represent 90% of their

revenue you know and that's a that's a

serious problem that really decreases

the value of

business okay then you have suppliers

you know having a good relationship with

your suppliers you know having certainly

backup at least one backup for your

suppliers um your lease you know when I

first got into the business what the

hell's lease got to do with value well

it's got a lot to do with value because

I have been at the at the closing table

when deals have gone South because of a

lease so you've got to have a good

relationship with a landlord you got to

have a transferable lease so Le a lease

is important this is our chance to get

out of something longterm and double the

price right and you're ready to to buy

the company yeah if you're landlord yeah

the uh the big hit of value drivers

number one is

scalability all right now you have to

have an effective and efficient company

before you start even start scaling all

right and then you've got um recurring

revenues okay and then you've got

bankability because the business owner

the business buyer that's coming in to

buy the company is going to use the

bankability of your company to buy the

company bankability means the ability to

prove itself for a loan yes okay okay if

you if you got a lot of debt you not

backup you not bankability you don't

have good bank ability and the last is

is uh um

um what's the word I'm looking for here

um special

patents oh yeah intellectual property

intellectual property that's that's the

fourth one now it doesn't have to be a

product or a service it can be a

transaction it can be something unique

that you do with that company but it has

to be documented

okay so those are the those are the

value drivers that I uh I came up with

after my research and and analyzing

small businesses and I was looking at

small business I wasn't looking at

businesses that were 10 million and up I

was looking at the small ones what are

the value drivers that are critical to

these small companies so they can sell

so I got two questions and they both

could be

rather deep or rather uh complicated

how do you how do you measure some of

these value drivers because some of them

can be

pretty uh not ambiguous but

just a

feeling like like key employees like are

they well trained how do you grade grade

some of these value drivers that's a

great question it's a lot of it is

really talking to people the business

owner talking to some of the employees

you all right um looking at the systems

I mean if fortunately I'm a systems

person I'm an engineer I'm a systems

person I can evaluate their

systems um talking you're talking to the

business owner um you know the report

cards the cash flow uh oh their

financial presentation that's a one I

forgot

if they if their if their finances

aren't readily available that sends a

red flag up okay they have to be readily

and I I would say a good 50% of the

people that I have talked to business

owners didn't have a financial they had

to get it from their account okay which

took God knows how long you know and

there you got a potential buyer out

there waiting to look at these

financials so so the the uh having

having financials that are

uh readily available that are in the

proper format okay into a standard

accounting

format and I've seen people you know

they have financials they have them on

on an exit on an Excel spreadsheet all

right they they probably tell this

person more about their company than an

outsider you know would get from it but

the outsider is not going to understand

it and he's not going to pay much

attention to it he's going to walk away

yeah all right he's just gonna walk away

from it yeah

so I know I sorry go ahead the recurring

revenues you you know you can they're

not obvious they're you know they're

there's you can see them so recurring

revenues um bankability well you can see

that balance sheet all right uh IP you

just don't know what they've got you

know you have to talk to the they might

have something that he's not even aware

of that is very unique you know to his

company his or her company yeah I I

think that's the answer is a lot of this

is just from conversations and you've

got to you've got to let a broker you've

got to let someone like you come in and

talk to your employees talk to your

customers ask the tough questions like

why do you keep coming back to to me

when there are other options out there

like what do we do really well a lot of

those conversations that business owners

don't want to have like even asking your

employees why do you stay here what you

know what keeps you coming back on a

regular basis because we look at the the

solids the stuff that we can put a

number to like cash flow or Revenue but

that has so many different inputs that

are harder or fuzzier to track down and

so it's easy to go to the concrete

things that we could measure so a lot a

lot of them are pretty fairly solid but

a lot of are

not but uh but if you look at the the B

the basic valuation equation you know

it's a multiplier

times cash flow right the

multiplier is

risk the multiplier is the inverse of

risk because risk is is a percentage so

you take the inverse of that that

becomes a multiplier because it's easier

to multiply than it's to divide that's

why that came

up but the uh but the risk is you have

to go through these value drivers and

evaluate the value driv to see what the

risk is you all right but most of that

is an opinion A lot of that is an

opinion of different

people so you're right there's a chunk

of that that is really just

is a

little

unclear so it's not a number you

know so how do

you sorry uh how do you take a business

owner who thinks their company's worth a

million you're going to buy a portion of

it for less than that and come alongside

them and convince them to that in four

to five years it'll be worth more than a

million

how do you do that if this is the

problem with business owners is they

hear something like that risk

multipliers an opinion and then they

would just write off the valuation of

their business a realistic valuation of

their business and be like well that

analyst's opinion is wrong I I know it's

worth more than this how do how do you

get them because you've got to you've

got to break the bad news for to them at

the beginning to get them to partner

alongside you to grow the company

to multiple in the future how do you do

that well we're looking for people that

that's a good question we're looking for

people that are motivated sellers we're

looking for people that have already

found out that they can't sell their

company okay so they're

motivated it's been on the market for a

long time and nobody's everybody's

walked away already so well see that and

they don't advertise that that's why

there's no days on Market on Zillow or

anything like that for small businesses

well five five deals fell through in the

past year that's why it's still here

yeah so we we have to go out to them we

have to make them aware of it so that

they call

us that's why the book I want to launch

launch the book and and promote the book

I want to you know give presentations to

associations Chambers of Commerce you

know if they you know this a community

is really hurt when a a a thriving

business goes out of business so the

Chambers of Commerce should be very

interested in keeping those businesses

going and uh so yeah the

the marketing of this is quite different

than knocking on doors you know you

can't go around knocking on doors for

this we have to go after you know we

have to go through it to the media I

intend to do a press release on this

so um you know whatever I can think of

to get the get the plan out there the

program out there to these people these

business owners that cannot sell their

companies motivated sellers uh my second

question was just

um what's what is the role of AI in this

or what do you guys see specifically as

bringing in and installing AI within the

business you we we got to start out

employing AI very very simply because

you've got to work with the employee you

don't want to scale the employees of you

want to work with them you want to

convince them that this is here to this

AI is here to help you not to take your

job so if we can scale the company you

know using Ai and proper marketing scale

the company have the have the graph of

Revenue going up and the cost graph

being going up at a very much smaller

rate then it's that Gap that is the

increase in revenue and the increase in

value okay gotcha for any small company

you know the first thing we want to do

is an assessment you know what is their

biggest pain where do we where will AI

make the biggest impact in their

workflows and also you know what aspects

of marketing can we use AI to

optimize so those are the two things

that we'll work on one to keep the

cost as as is as we scale because if we

if we can scale without having any

increase in cost you know every increase

in revenue is an increase in in value um

Tom was there anything else before we

jump into the lightning round that uh I

didn't ask or that you wanted to that

you wanted to cover I think you I think

you answer as some good questions Barett

uh you you obviously know small business

and uh and the problems with buying and

selling um so I think we I think we

covered just about you know everything I

can think of right now awesome thank you

very much so uh we're going to jump into

the lightning round and then we'll get

you to let people know where they can go

to read your books and read more about

your read more about the program that

you guys are developing right now so are

you ready for the lightning round I am

okay uh coffee or tea and how do you

like it coffee early in the morning

black late morning tea green tea um pie

or cake and do you have a specific kind

don't eat either one of them I'm on a

plant-based diet all right all right um

what is a common belief among

entrepreneurs that you would want to

challenge that they can't do it

can't do what anything whatever whatever

whatever idea they have if it's a good

idea they've done their market research

and they're reluctant to do it because

they're afraid do it just do it yep that

limiting belief kind of kind of thing so

all right do you have a favorite holiday

and why I think Thanksgiving is my

favorite holiday because my whole family

and we have we have about 20 members of

my Nuclear family and um we get together

on Thanksgiving we we rent a place at a

at a a restaurant we rent a room and we

get we get together it's it's it's great

we're all together so yeah Thanksgiving

would be my favorite I that of my guess

that's like the that's the the biggest

one so yeah it's my it's my favorite too

so um are you a morning person or a

night person and do you have a favorite

routine yeah you know it's interesting

I'm neither I uh I go to bed about 11:

and I get up at 7 typically when I need

to get up earlier I do um and I do have

a bit of a morning uh thing if I have

time I uh I

meditate try to try to meditate about

half an hour okay are you specifically I

mean 11 to 7 are you specifically like

shooting for eight hours minimum sleep

for health reasons also yes I I I've

imagined as much awesome good to hear it

um what is one thing that you want your

successors in any Endeavor that you take

what's one thing you want your

successors to say about you that I

enjoyed helping other people well you've

helped me a lot today this has been a

great

conversation um where where are you

finding creativity right now I think

with a with AI where to use it and what

are the main problems with AI and we can

get into that a little later there is a

a main problem I'm focusing on right now

with AI and I I've used a bit of

creativity to come up with a uh a lead

magnet that uh that

Embraces that problem um I mean that

leads into the next question what do

what do you have coming up this NE this

next year that's got you really excited

oh

wow buying companies buy buying buying

transforming training and just helping

everybody involved with that company as

I as I said before you know there

everybody wins you know the I I win the

business owner wins the employees win

the community wins add literally adding

value all all throughout that company

yes in that role so okay very good well

Tom where can more people go to find out

information about you well they can go

to my website which is exit

pros.com that's

xit

p.com and they can navigate to my media

site to my toolkit to my report well

thank you very much Tom I've appreciated

the conversation uh it's great to talk

to another valuator out there and just

gain from your experience and the and

the deals that you've done so this has

been a wonderful conversation I

appreciate you being on the art of

succession well thank you very much

Barett you you asked great questions by

the way you you really dug beneath the

surface and and I love that so I love

interviewing it's it's one of the most

fun things I can do so thank you so much

you're very good at it you've been

listening to the art of succession

podcast with your host Barrett young

twice a month we'll bring you interviews

sharing the successes and challenges

from business owners with their own

succession Stories the art of succession

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