Jeremy Harbour ┃ Buy, Build, Exit: The Entrepreneur's Guide to Scaling Without More Capital

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If you don't give it one hundred and ten percent.
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If you're not all in, you're not going to be
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successful in a startup. So you basically have to sacrifice
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everything for two to three years. Relationships, family, you know, finances, everything.
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You have to go all in for that three years
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to have a chance of coming out the other side
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of it.
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When you come out the other side of it, your
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business will be valued on a multiple of the profits
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that it's generating. It won't be valued on how many
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people you pissed off in that first three years.
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So what if the fastest way to grow your business
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isn't by selling more, but by buying the right company.
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Today I sit down with mergers and acquisitions expert Jeremy
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Harbor to explore what entrepreneurs should think beyond organic growth.
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We discuss how acquisitions, strategic exits, and building businesses that
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can thrive without you can create leverage, increase value, and
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accelerate success without requiring massive amounts of capital. Thrilled to
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be here today with Jeremy Harbor.
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Welcome Jeremy, all right and keep having me.
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Well, it's great to have you, and really kind of
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excited to the magic of zoom to be able to
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have this conversation with you all the.
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Way over in Dubai.
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I've never been to Dubai, but it just brings up
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all kinds of exotic images of my mind and from
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the photographs I've seen and what I've read about it,
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with some of my favorite tennis stars living there and
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things like that, must be.
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A various Yeah, we'll just just down the right Yeah, Okay, Well, I'm.
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Going to share your bio and then we'll jump right
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into the conversation. Sound good, perfect, all right. Jeremy Harbor
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is a globally recognized expert in mergers and acquisitions, celebrated entrepreneur,
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and the founder of Unity Group and The Harbor Club.
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With decades of experienced Jeremy has mastered the art of buying, fixing,
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and selling businesses, developing innovative deal structures that allow entrepreneurs
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a scale without relying on capital, debt or expensive advisors.
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His work has helped small to medium sized enterprises unlocked
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shareholder value and access capital markets with investments spanning twelve
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countries or cost diverse industries. Jeremy's entrepreneurial journey began early,
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launching his first business at fifteen years of age and
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overcoming the challenges of a business failure by nineteen, which
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he credits for teaching him humility. In two thousand and nine,
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he founded The Harbor Club, an experiential training platform that
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equips entrepreneurs with real world strategies for acquiring and growing businesses.
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With over one thousand active members, the Harbor Club has
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become a transformative force, empowering entrepreneurs to create wealth and
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positively impact their communities. A sought after speaker, Jeremy has
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shared his expertise on acquisition strategies at prestigious venues like
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Buckingham Palace and the British Houses of Parliament. His insights
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have been featured in The Sunday Times, Financial Times and
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The Money Channel. When not closing deals are mentoring entrepreneurs,
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Jeremy enjoys traveling with his family, art boats and connecting
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with like minded business leaders worldwide. I think people can
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see why we're excited to have this conversation with you
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today on this day that focused on exit planning and
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growing to mergers and acquisitions and so forth. I was
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a little reluctant to ask somebody to encapsulate their kind
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of origin story or life story in just a minute
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or two. But we got a lot of ground to
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cover today, so I am going to do that, but
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maybe you could hit some highlights or maybe you know,
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you know, at some point every entrepreneur it kind of
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has a make or break up moment, or a moment
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of deeped out or real you know, big mountain they
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got overcome on their journey. And I wondered what that
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was for you. And I know you got started at
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very early age. So maybe if you could.
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Tell you some people understand who you are as an
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entrepreneur and they can relate with you.
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Right, Yeah, So I think in entrepreneurship, obviously your first failure,
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I think is always, you know, the tough one to take,
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particularly if things have gone your way initially.
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And I was really lucky that I did that at
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a young age.
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So I started a business when I was really really young,
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and if left school when I was fifteen to pursue
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that business. And when that business failed, it was a
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huge sense of relief actually, because.
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I'd reached this strange point where you know, when the
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phone rang I came out in.
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A cold sweat, there was a physiological reaction to it
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because I knew when I picked it up they were
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going to say horrible things to me, you know. And
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so when that business actually failed and I had to
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move back with my parents, I'd left home when I
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was seventeen, so I had to move back with my parents.
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It was a big kind of tail between the legs moment,
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a good dose of humility. But I think the biggest
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lesson that came from that was that the typerope is
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like six inches off the ground.
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When you fall, it doesn't hurt.
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So if you know the type rope six inches off
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the ground, why not run next time?
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You know?
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And so, and I think there's been a few of
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those kind of moments, like when I bought my first company.
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I'd built businesses in the past, always through sales.
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Marketing and managing your team.
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We were talking about this just before we joined, that
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your main focus is your you know, the growing of
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you of your business. And when I found you could
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acquire a company and effectively grow by a year worth
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of sales in an afternoon, that was a huge epiphany.
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Because the sales, marketing and team stuff are quite unpredictable
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and quite unreliable.
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And you can pour a lot of money.
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Into that as well and not get results, and then
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when you do find things that work, maybe they work
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temporarily and stop working again. And so I really felt
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like this was a hack that you don't have to
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run the marathon. You can just run the last ten
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yards and they still give you a medal.
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So I want to follow up on that particular point,
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but I have to ask you first, what was that
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first business that you started when you were fifteen?
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Well, so I was market trading.
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I was selling watches and jewelry on a market stall,
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and then I started supplying watches and jewelry to other
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market traders, and then I expanded into more general trading,
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so buying and selling all sorts of things.
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And one of the things I used to sell was
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was gaming machines.
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Like I think you'd call them slot machines in the
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in the US, we want them fruit machines in the UK.
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When I say fruit machines to foreigners, they look at
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me like I'm some sort of weird.
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Different pictures up on there. Why, they calm that.
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That's right, yeah, yeah, so there's you know, I think.
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So I was selling free machines and video games and
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pinball machines. And all this kind of stuff, and I
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ended up buying when I was eighteen, buying an amusement arcade,
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like a venue that was full of these and that
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was the business that eventually went bust. So it was
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kind of several evolutions. I think these gen z Is
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called it a pivot. Back then it was just going
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into a new line of business. It was more profitable
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than the.
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Main main one.
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But yeah, effectively it was finding anything you could buy
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for a dollar and salve of two dollars was the
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original business.
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Yeah, well obviously you were. You had really heard entrepreneurial
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instincts from the beginning. So the follow up questions of
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what you just shared. So there's a lot of risk
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in the startup phase and most of our businesses fail,
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as we know, and so getting a business working is
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hard work. So I think you're referencing you can come
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in and buy a business where that work's been done,
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but there's still risk. I mean there's still you know,
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at every stage of a business, the market changes, your
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business changes, competition changes. You still got to get the
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team work working, You got to have the sales and
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marketing working and so forth. So when you're buying businesses.
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What's the difference there on risk? Is it just that
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you're kind of avoiding the startup based particular type of risk,
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but you're still in the general business milliure, could you
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have that a little bit?
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In my experience, that startup phase is the pushing water
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uphill part and it's typically two to three years that
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you never get back and it's never really loaded into
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any future evaluation of the business.
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But there's two to three years where it's all money out,
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not a lot of money in.
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You're still figuring out your product, You're still figuring out
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the product market fit, who's going to buy your product.
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You're doing everything from creating the logo, the name, the website,
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the company culture, all of those things. It's huge amounts
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of effort. And I genuinely believe if you don't give
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it one hundred and ten percent, if you're not all in,
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you're not going to be successful in a startup. So
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you basically have to sacrifice.
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Everything for two to three years.
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Relationships, family, you know, finances, everything. You have to go
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all in for that.
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Three years to have a chance of coming out the
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other side of it.
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And when you come out the other side of it,
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your business will be valued on a multiple of the
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profits that it's generating. It won't be valued on how
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many people you pissed off in that first three years,
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So you never get that bit back, and so you've
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only have so many of those you can do in
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your life. I mean, look, you know, the first twenty
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years of your life you're not particularly useful, and you
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might argue the last twenty years of your life is
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probably not the most productive years. So what's the gap
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in between? You know, what's that How long has that
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been in between? And how many segments of three years
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are in that bit in between?
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Because you know, you can't keep doing these startups.
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And so when you acquire a company, it already has
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a website, it already has revenue, it already has staff,
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it already has product market fit, and it's delivering product
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and it's you know, it's figured all those bits out,
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and so the risk profile changes to one of I guess, really,
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time and opportunity that you're putting into into the business
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is your downside. If you can structure a deal that
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doesn't require a capital upfront in order to enter the business,
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then effectively you've created an asymmetric risk. You've taken away
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the downside, but you still have some of the upside,
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and and that that's the bet I prefer to make
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rather than investing three years just to find out if
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this is the one or if I need to do
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something different.
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Yeah, it makes a lot of sense.
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And so I want to talk to you a lot
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about you know, building two mergers and acquisition and you know,
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building a portfolio company and everything you do and train
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people to do. But first I want to speak to
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you know. I think at our audience, I hope we have,
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you know, some people interested in growing to venture capital.
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I hope we have some corporate leaders instant what we're offering,
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because I think there's a lot here in the summer
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for everyone. But I think the bulk of audience are
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probably bootstrapping entrepreneurs building their own companies. Right, So, I
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think a lot of times entrepreneurs fail to think about
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exiting until it's almost too late sometimes and then they're
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really exiting at a disadvantage. And so I wonder if
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you could say something about the mindset of building towards
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an exit early on. And of course, the more you're
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exiting the operations of your company, the more you're going
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to be.
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Able to get out of that all in you know, leading.
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To divorce situation, and be able to have a life
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but also have your company be more successful or highly valuable.
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So I wonder if you could talk about that mindset
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of building exit strategies from the beginning for entrepreneurs.
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Yeah.
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Actually, I think the mindset around exits and acquisitions is
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the same mindset. It's the next run on the entrepreneurial ladder.
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It's becoming an acquisition entrepreneur instead of an operating entrepreneur.
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And I think what happens is too many people start
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a business. Now, when you start a business, you do
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everything in that business. You're the salesperson, you're the marketing department,
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you're the product development department, you're the customer service department,
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you're the finance department.
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You do all, you wear all the hats.
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And it's gers me out because I'm still there a
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damn it.
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Okay, well listen to this. Then, So.
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As the business grows, you need to be handing those
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things over because all of those things are jobs.
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So basically you need to hand those things over.
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And where you see companies glass ceiling or plateau is
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where they basically don't hand things over. So if they
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don't pass all of those things onto other people, now
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entrepreneurs want to cling onto all.
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Of these bits.
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Now, entrepreneurs are great in that startup phase, but they're
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not great in the growth, you know, in the next phase,
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and so you need to hand all of those jobs over.
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The problem is entrepreneurs are worried they won't have anything
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to do. So there's a bit of the business that's
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their favorite bit they carry on doing, whether it's the
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sales or the marketing, or the operations or whatever it is.
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They stay ingrained in that part of the business and
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they often become the anchor that's dragging along behind the ship.
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They're the ones that are actually slowing down the growth
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and development of the business.
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So what we try.
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And do is encourage people to move one run up
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and become non executive in their own business, so effectively,
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have the management team run the business and the entrepreneur's
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job should be focusing on joint ventures, mergers, acquisitions, and exits.
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Those are the four shareholder value contributions that the entrepreneur
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can now keep busy and keep bringing that don't annoy
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everybody else in the business or hold the business back
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in any way so they can handle those things out.
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And a great way to check if you're there is
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go back to your calendar for last week, take all
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of the meetings you had and categorize them. Were they
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about products, were they about customers? Were they about finance?
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Or were they about joint ventures? Managers, acquisitions and exits
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Because those four things create huge amounts of value. A
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joint venture could double your revenue.
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Next year if you did the right.
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Joint venture is leveraging somebody else's you know, customers or
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products or whatever it is that you leverage through that
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joint venture. A merger is a great way of creating scale.
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And scale is important because when you become bigger, you
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become more interesting to potential buyers. So I always talk
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to people about the two pyramids. So this is the
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pyramid of all the businesses in the world, and there's
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a few big ones and lots of small ones. And
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then this is the pyramid of buyers in the world.
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And there's hardly anybody that can buy the small ones,
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and the loads of people that can buy the big ones.
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So as you move up the scale pyramid, you widen
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the audience of potential buyers that not only makes it
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easier to sell, but increases your valuation exponentially. So mergers
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are a great way of moving up the scale pyramid.
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It's also a great way of getting the best talent
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because the best talent is very loyal, so it's hard
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to poach them to come and work for you. But
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if you acquire the company or merge with the company,
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they come with you. Acquisitions can obviously create a massive scale.
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And then your question was around exits and being ready
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for an exit is actually putting your business in the
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best possible operational standpoint. So if you have a data
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room that's up to date, you have your accounts audited,
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you are positioned in a way that makes you sellable.
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That also means you have good systems and processes that
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drive all of your numbers. You have good systems and
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processes that drive all of your other activity like marketing
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and sales and these kind of things. These are good
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habits to get in. I mean, Michael Gerber famously said, working,
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you know, on your business and not in your business.
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It's just a truism, you know, It's just something that
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as an entrepreneur you need to do. And you know,
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he talked about franchising your business even though you're not
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going to sell a franchise, and that's a lovely way
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of describing what I'm talking about.
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We absolutely yeah, and I have a lot of follow
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up questions there and yeah, and you know, I'm on
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the way myself. I'm very much built a good team
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and I'm kind of still in but getting in the direction.
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I'm mostly spending more and more of my time working
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on the business and still wearing a few hats that
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I hope to turn over to some really smart people someday.
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I know, you purchase a lot of companies and you
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train people to buy companies, so you're dealing with you're
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often buying companies from founders. Probably, so I want to
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talk about, you know, that emotional side of that founder
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selling their company. But before that, you're talking about growing,
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about mergers and acquisitions as a strategyship for growth. So inevitably,
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if you're talking about mergers, I mean, acquisitions would be
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one thing, but mergers, you may be giving up equity.
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And I know for a lot of bootshapping entrepreneurs and founders,
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just the.
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Whole idea of giving up equity.
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Giving up control can bring up a lot of fear
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and uncertainty, and so how do you navigate that? Basically,
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clearly you could with a good merger, you could end
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up in a more valuable place. But now maybe you've
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got partners, you've got less control, you got it.
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So about that a little bit in terms of.
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Home, Well, I guess for the listeners, the easiest way
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to describe the merger is an acquisition using equity instead
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of cash, So you're issuing shares in order to execute
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the merger. Now, the two key reasons to do a
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merger would be to move up that pyramid. So you know,
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if you're a small business, it's very hard to find
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a buyer and it's very hard to get a decent
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price for your business. But if you move up the
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pyramid a little bit, you widen the number of people
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that can buy it, and you increase the valuation. So
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two plus two equals six in that environment, because you're
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now sellable and you can get a better deal. The
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other thing is it allows you to create a better
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depth of management, because the last thing you want when
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you sell it is to be the guy that's stuck
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running it for the next five years on some protected.
354
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Earn out, Whereas if you can.
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Merge together so you have a better depth of management,
356
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again makes it more biable that the buyer will like
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it more because there's plenty of people in there that
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can run the thing and it's not so dependent on
359
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you you. So I guess coming to those people that
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would be scared to kind of lose some control or whatever,
361
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it's more about making you exit ready. It's more about
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finding that capital event the person that's going to acquire
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the company. Now, of course, you can also do roll
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up strategies using mergers. So we discuss lots of different
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roll up strategies in my Harbor club community. Some of
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them allow you to retain one hundred percent equity in
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the holding company. Others are effectively collective mergers where you
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get diluted in terms of the equity percentage that you hold,
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but your earnings per share, so the profit per share.
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That you hold goes up.
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So they're beneficial in that respect, but diluted in terms
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of ownership. So yeah, it really depends what the end
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goal is and how you know, how you want to
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go about executing it. But sometimes, yeah, giving up a
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bit of a percentage in order to have something you
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can sell.
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Is it's quite quite a good idea.
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So, and I want to talk a lot more with
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you about mergers and acquisitions, but just to kind of
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to put a cap on this, you know, speaking to
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the current boost Trampie entrepreneur. If you have the mindset
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even if you know love running your company and you
383
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know hopefully you can run it as a true CEO
384
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where you're mostly working on the company. You have a
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good management team, you're coaching them, and maybe you want
386
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to do that for quite a few years.
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You love doing it.
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But if you make your company exitable, now it's going
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to be a much better company. It's going to be
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a better run company. It means you're doing all the
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right things to have a fabulous company. If you're making
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it exible. Would you agree with that?
393
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Yeah, absolutely, it's the same idea as making it franchisable
394
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in the in the e myth kind of context. But
395
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also I would say, look, organic growth is one engine
396
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on the plane, M and A is the other engine
397
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on the plane. So do you want a plane with
398
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one engine or two engines? It's yeah, it just it's
399
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a great way of increasing your growth.
400
00:18:59.000 --> 00:18:59.119
Right.
401
00:19:00.480 --> 00:19:03.599
Well, for any of the entrepreneurs or audience that are
402
00:19:03.599 --> 00:19:06.920
maybe thinking about selling their company, uh, and they're at
403
00:19:07.000 --> 00:19:10.160
whatever stage of being exitable or not, and hopefully they're
404
00:19:10.240 --> 00:19:11.960
learning a lot here in the summit about how to
405
00:19:11.960 --> 00:19:16.279
get their company exitible. But one if you, because you
406
00:19:16.319 --> 00:19:18.759
have a lot of experience in buying companies and probably
407
00:19:18.759 --> 00:19:22.440
buying them from founders, what what do you say about
408
00:19:22.480 --> 00:19:25.240
the emotional journey that founders go through and exiting their
409
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companies and how to make that work?
410
00:19:27.519 --> 00:19:30.599
And you know some uh, with their and outs, you can.
411
00:19:30.559 --> 00:19:33.359
End up you know while either wanting to be there
412
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for a while or being stuck being there for a while,
413
00:19:35.799 --> 00:19:37.680
or you can you know, be able to walk away
414
00:19:37.759 --> 00:19:39.839
day one, but you know, then there you are with
415
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maybe a bucket load of money but nothing to do.
416
00:19:42.640 --> 00:19:44.440
So I wonder if you could talk about what you've
417
00:19:44.440 --> 00:19:48.279
seen and understood about that, uh, the emotional journey for
418
00:19:48.400 --> 00:19:50.079
founders who are exiting their companies.
419
00:19:51.039 --> 00:19:53.799
Yeah, I mean what typically happens in the in the
420
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businesses that we're targeting is that they've reached some point
421
00:19:56.599 --> 00:20:01.000
of motivation. So something has happened that makes them, you
422
00:20:01.039 --> 00:20:03.720
know that now makes it important for them and that
423
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you know typically is things like wanting to retire. Business
424
00:20:07.799 --> 00:20:11.440
partner has retired, business partners, died, business partners.
425
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Ill they're ill.
426
00:20:12.680 --> 00:20:16.319
You know, there's a range of different motivations that can
427
00:20:17.400 --> 00:20:20.599
drive people to want to actually take some action and
428
00:20:21.000 --> 00:20:24.200
do something. And then with regards to kind of deal
429
00:20:24.279 --> 00:20:27.359
structures and preparation and things like that, it really depends
430
00:20:27.359 --> 00:20:28.359
if you're buying or selling.
431
00:20:28.599 --> 00:20:30.319
You know, if you're buying the business, you want.
432
00:20:30.160 --> 00:20:32.640
To pay as little upfront as you possibly can and
433
00:20:32.680 --> 00:20:35.759
as much on a deferred basis and linked to performance
434
00:20:36.079 --> 00:20:37.880
as you can, and you want them to stick around.
435
00:20:37.680 --> 00:20:38.400
For as long as you can.
436
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And if you're selling it, you want to get out
437
00:20:39.920 --> 00:20:41.799
as quick as you can with as much as you can.
438
00:20:42.200 --> 00:20:46.240
So it really does depend if you're buying, buying or selling,
439
00:20:46.279 --> 00:20:48.119
And of course the advice is different if you're buying
440
00:20:48.119 --> 00:20:48.799
and selling.
441
00:20:48.839 --> 00:20:50.400
And the deal happens somewhere in between.
442
00:20:50.920 --> 00:20:53.920
So you know, I know, Chris Voss wrote that famous book,
443
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never Split the Difference, But in most of these situations,
444
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ultimately somebody splits the difference and it ends up being
445
00:21:01.359 --> 00:21:04.039
a kind of compromise between the two extremes that.
446
00:21:03.960 --> 00:21:08.400
People are looking for I think that's really interesting, uh
447
00:21:08.440 --> 00:21:11.000
that you said that, because that there are two completely
448
00:21:11.000 --> 00:21:12.640
different strategies.
449
00:21:12.079 --> 00:21:13.559
Whether you're the buyer or the seller.
450
00:21:13.960 --> 00:21:16.319
And uh, you know, I was just listening to someone
451
00:21:16.440 --> 00:21:19.279
yesterday and we're talking about you know, if you're selling
452
00:21:19.319 --> 00:21:21.119
your business, you know you want to get all that
453
00:21:21.160 --> 00:21:23.480
money up front that you can because you don't really
454
00:21:23.519 --> 00:21:25.079
know if the rest of it's going to play out
455
00:21:26.039 --> 00:21:30.759
and U and of course, from the buyer's perspective, if
456
00:21:30.799 --> 00:21:34.279
you're if you're taking this approach of buying with a
457
00:21:34.279 --> 00:21:36.720
little money out of pocket and winting to a sure
458
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good transition and have the owner involved as long as
459
00:21:39.839 --> 00:21:43.200
possible to assure that transition and based on earnouts and
460
00:21:43.200 --> 00:21:45.799
things like that. So there are two very different uh,
461
00:21:46.240 --> 00:21:48.359
strategies and mindsets and sets of needs.
462
00:21:48.400 --> 00:21:49.920
So obviously the deal is going.
463
00:21:49.920 --> 00:21:52.039
To fall somewhere in the middle there and nobody's going
464
00:21:52.079 --> 00:21:54.759
to get completely what they want probably, Yeah.
465
00:21:54.799 --> 00:21:58.519
But the only difference is that it's a buyer's market,
466
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so the seller doesn't have many options.
467
00:22:02.039 --> 00:22:04.039
The buyer has infinite options.
468
00:22:04.319 --> 00:22:06.880
So this means that if you can't get the deal
469
00:22:06.920 --> 00:22:08.720
you want from Dave, you.
470
00:22:08.680 --> 00:22:09.960
Can get it from Jeff.
471
00:22:11.559 --> 00:22:15.079
So whereas the seller doesn't have that luxury of well,
472
00:22:15.079 --> 00:22:16.599
I've got these fifteen people.
473
00:22:16.319 --> 00:22:17.880
That all want to buy my company, so I can
474
00:22:17.880 --> 00:22:20.440
do the best possible deal. Yeah.
475
00:22:21.160 --> 00:22:23.960
Typically there's one game in town and they just have
476
00:22:24.039 --> 00:22:27.720
to decide if they can swallow that offer or not,
477
00:22:27.960 --> 00:22:28.960
or whether they carry on.
478
00:22:29.119 --> 00:22:30.880
And it's strange we're seeing.
479
00:22:31.519 --> 00:22:35.200
I'm seeing businesses that should be incredibly sellable that are
480
00:22:35.240 --> 00:22:39.160
just closing down because there's no natural succession and no plans.
481
00:22:39.160 --> 00:22:41.720
And I saw one that really surprised me because they
482
00:22:41.720 --> 00:22:44.720
sold solar pals, and I thought selling solar would be
483
00:22:44.759 --> 00:22:47.799
such a modern, cool business that the next generation would
484
00:22:47.799 --> 00:22:49.599
actually quite like it as a business.
485
00:22:49.759 --> 00:22:51.400
And this company was doing ten million.
486
00:22:51.200 --> 00:22:53.519
Dollars a year in revenue, have been going for over
487
00:22:53.559 --> 00:22:58.400
a decade, and most of their sales were online. They
488
00:22:58.519 --> 00:23:00.480
tried to sell it for a couple of years, hadn't
489
00:23:00.480 --> 00:23:04.960
had any offers, and they had noticed that their website
490
00:23:05.200 --> 00:23:08.039
URL was going to need it to be renewed, and
491
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they just didn't renew it, and they just locked the
492
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door on the office and walked away and retired.
493
00:23:13.640 --> 00:23:15.720
And I was just got smacked. Wow, if we'd found
494
00:23:15.720 --> 00:23:16.799
this like a month earlier.
495
00:23:17.359 --> 00:23:20.680
It was ten million of revenue in a sector that
496
00:23:20.759 --> 00:23:23.640
I would perceive to be sexy enough. I mean, okay,
497
00:23:23.680 --> 00:23:26.599
it's ultimately it's a trading business. You import stuff and
498
00:23:27.039 --> 00:23:30.200
you sell it. It's with a margin, you know, so
499
00:23:30.400 --> 00:23:32.519
it's a simple business and you're only as good as
500
00:23:32.519 --> 00:23:36.440
your last month's sales. But this had you know, goodwill reputation,
501
00:23:36.839 --> 00:23:40.440
ten years of trading history, a big customer list, and
502
00:23:40.559 --> 00:23:42.799
yet they couldn't find a buyer and so that you know,
503
00:23:42.839 --> 00:23:45.279
after eighteen months, two years, and they just closed it.
504
00:23:45.319 --> 00:23:46.799
And it's getting more and more common.
505
00:23:47.519 --> 00:23:49.720
Well, you're pointing to, what's you know, really possible for
506
00:23:49.799 --> 00:23:52.000
someone who wants to just really start an M and
507
00:23:52.079 --> 00:23:55.559
a business, or who wants to grow their current business
508
00:23:55.599 --> 00:23:59.279
through acquisitions and mergers. Is there are a lot of
509
00:23:59.279 --> 00:24:01.960
companies for the majority of them end up just closing
510
00:24:01.960 --> 00:24:02.480
in their doors.
511
00:24:02.599 --> 00:24:03.119
Is that correct?
512
00:24:03.200 --> 00:24:07.079
Yeah, exactly, And unfortunately the business broker community doesn't help
513
00:24:07.119 --> 00:24:09.839
them a lot because they convince them that there's this
514
00:24:09.880 --> 00:24:12.799
big pot of gold somewhere that they can get and
515
00:24:13.400 --> 00:24:16.279
that's often what stops them from getting the sale and
516
00:24:16.319 --> 00:24:19.559
then makes them close the business down. Because when you've
517
00:24:19.559 --> 00:24:21.319
been told you're getting two million dollars and it's going
518
00:24:21.359 --> 00:24:22.519
to be in a single check.
519
00:24:23.440 --> 00:24:24.680
You're kind of holding out for that.
520
00:24:24.960 --> 00:24:28.000
And of course, if you're in your eighties, for example,
521
00:24:28.039 --> 00:24:29.680
how many years do you want to keep holding out
522
00:24:29.720 --> 00:24:31.559
for that? And how you know before you get on
523
00:24:31.640 --> 00:24:34.880
with your retirement. And so this is what's driving people
524
00:24:34.920 --> 00:24:38.839
to just close the doors was their unrealistic expectations aren't
525
00:24:38.880 --> 00:24:43.440
being met and therefore they're just going well balls to
526
00:24:43.480 --> 00:24:46.000
it and locking the doors.
527
00:24:48.559 --> 00:24:52.960
What a transformation isn't just about thinking differently, but feeling differently.
528
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Science shows us that true change happens when we align
529
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not just our minds, but also the neural networks in
530
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545
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I invite you to join us. Clip the link to
546
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learn more and start your journey today. I'd like to
547
00:26:05.359 --> 00:26:08.599
contextualize the rest of our conversation if it makes sense,
548
00:26:08.640 --> 00:26:11.759
in kind of two directions, and maybe we'll we back
549
00:26:11.799 --> 00:26:15.559
and forth. But one would be the current entrepreneur who's
550
00:26:15.720 --> 00:26:19.880
built their company and it's considering the possibilities of now
551
00:26:19.960 --> 00:26:24.160
continuing to grow through acquisition, whether it's vertical integration, horizontal
552
00:26:24.160 --> 00:26:28.319
integration and boltons, whatever it might be. To talk about that,
553
00:26:28.359 --> 00:26:30.480
and then the other possibility, the other way we could
554
00:26:30.480 --> 00:26:32.599
talk about, is someone who just really wants to get
555
00:26:32.599 --> 00:26:35.039
into the M and a business and just start go
556
00:26:35.079 --> 00:26:37.039
find a company to buy and then start building a
557
00:26:37.079 --> 00:26:39.799
portfolio or do roll ups or whatever. So those seem
558
00:26:39.839 --> 00:26:41.640
to be two different avenues. So I wonder if we
559
00:26:41.640 --> 00:26:44.720
could talk first about the entrepreneur who has a company.
560
00:26:44.920 --> 00:26:45.960
They're growing their company.
561
00:26:45.960 --> 00:26:48.319
They've been focused on growing through marketing and sales and
562
00:26:48.359 --> 00:26:50.920
all the strategies they can come up with to grow organically,
563
00:26:51.759 --> 00:26:56.519
and then now considering the possibilities of growing through acquisition
564
00:26:56.599 --> 00:26:58.279
or mergers. So I wonder if you could talk about
565
00:26:58.519 --> 00:27:02.920
some of the strategies there, and you've found how an
566
00:27:03.000 --> 00:27:06.599
entrepreneur is busy creating success in own company, can begin
567
00:27:06.680 --> 00:27:08.920
to think about that and think about, you know, how
568
00:27:08.960 --> 00:27:10.720
should I be looking at companies or where am I
569
00:27:10.720 --> 00:27:11.400
going to find them?
570
00:27:11.400 --> 00:27:13.480
And should I think horizontally or vertically?
571
00:27:14.160 --> 00:27:16.000
Yeah, So the first thing is obviously to make yourself
572
00:27:16.039 --> 00:27:18.680
non executive in your own business. So you're now the chairman,
573
00:27:19.359 --> 00:27:21.559
you have a board, you have a CEO that runs
574
00:27:21.599 --> 00:27:24.880
the company, and those jobs have all been delineated because
575
00:27:24.880 --> 00:27:27.839
if you're in the business the whole time, you're not
576
00:27:27.839 --> 00:27:30.640
going to be able to focuss on that shareholder value piece.
577
00:27:30.680 --> 00:27:31.920
So that's obviously step one.
578
00:27:32.359 --> 00:27:35.359
Step two is then to shortlist all of the potential
579
00:27:35.359 --> 00:27:38.880
acquisition targets. So are you looking to expand geographically or
580
00:27:38.920 --> 00:27:42.160
are you looking to expand within your own geographical region.
581
00:27:42.319 --> 00:27:44.559
Are you looking to buy more companies that do the
582
00:27:44.599 --> 00:27:47.519
exact same thing you do. So, if you're a lettings agent,
583
00:27:47.640 --> 00:27:50.400
is it more lettings agents or are you looking to
584
00:27:50.480 --> 00:27:53.440
vertically integrate? So do you want to provide the services
585
00:27:53.440 --> 00:27:56.079
that you're currently paying for outside of the business or
586
00:27:56.079 --> 00:27:57.519
that you're currently selling services to.
587
00:27:57.960 --> 00:27:59.680
So if you're a letting agent, it might be.
588
00:27:59.680 --> 00:28:03.079
A you know, mechanical and an electrical engineering company. It
589
00:28:03.160 --> 00:28:06.680
might be a property management company, it might be you know,
590
00:28:07.000 --> 00:28:11.079
these kind of related businesses that kind of fit into
591
00:28:11.079 --> 00:28:11.720
the same orbit.
592
00:28:11.799 --> 00:28:14.200
So once you've kind of brainstormed.
593
00:28:13.759 --> 00:28:16.000
That list, then start to look at the size of
594
00:28:16.039 --> 00:28:18.640
the universe of potential acquisitions.
595
00:28:18.000 --> 00:28:18.519
That there are.
596
00:28:18.599 --> 00:28:22.319
So you can use things like sales Navigator inside LinkedIn
597
00:28:22.440 --> 00:28:26.039
to search for those businesses by geography and jurisdiction and
598
00:28:26.920 --> 00:28:29.480
type of business. Or you can use some of the
599
00:28:29.480 --> 00:28:32.599
software applications, like in the US you have hoovers and
600
00:28:32.640 --> 00:28:33.720
there's things like Fame.
601
00:28:34.759 --> 00:28:36.839
In UK there's things like.
602
00:28:36.839 --> 00:28:40.319
Biz crunch, credit Safe. There's a whole bunch of different
603
00:28:40.359 --> 00:28:43.000
software tools. You can use a little hack by the way,
604
00:28:43.079 --> 00:28:45.279
some of this software is super expensive, but if you
605
00:28:45.319 --> 00:28:48.000
go to your local library, you can often get access
606
00:28:48.039 --> 00:28:50.279
to it for free. So things like Hoover's, which you
607
00:28:50.359 --> 00:28:54.359
might spend several thousand dollars a year for access to,
608
00:28:54.720 --> 00:28:57.559
you can go to your local library and access the
609
00:28:57.559 --> 00:28:58.799
same data for free.
610
00:28:58.920 --> 00:29:03.000
So draw up your shortlist of all.
611
00:29:02.839 --> 00:29:06.279
The businesses that meet your criteria and then just start
612
00:29:06.279 --> 00:29:07.559
an outreach campaign.
613
00:29:07.799 --> 00:29:08.079
Now.
614
00:29:08.599 --> 00:29:12.039
Outreach campaigns often work best when there's multiple points of contact,
615
00:29:12.079 --> 00:29:13.599
So you might want to write them a letter, hit
616
00:29:13.640 --> 00:29:16.759
them up on LinkedIn, email them, WhatsApp them, depending what
617
00:29:16.920 --> 00:29:20.559
data you have available for them, but reach out to
618
00:29:20.599 --> 00:29:23.599
them just on the basis that you're an investor in
619
00:29:23.640 --> 00:29:26.599
their industry. You can mention your company name because you're
620
00:29:26.640 --> 00:29:28.880
in the industry, you know they may have heard of you,
621
00:29:29.039 --> 00:29:31.359
or they can at least Google to figure out who
622
00:29:31.440 --> 00:29:34.119
you are, and just say you're an investor in this
623
00:29:34.240 --> 00:29:37.440
industry and you're just trying to figure out, you know,
624
00:29:37.480 --> 00:29:41.359
what the opportunities are out there, and that you'd love
625
00:29:41.359 --> 00:29:44.480
to have a quick chat and try and have just
626
00:29:44.599 --> 00:29:48.279
conversations with them, kind of fact finding conversations where you
627
00:29:48.319 --> 00:29:50.559
really just figure out what's their plan in the next
628
00:29:50.599 --> 00:29:52.440
three to five years, Are they going to retire, are
629
00:29:52.440 --> 00:29:54.839
they going to grow, are they going to IPO? You know,
630
00:29:54.880 --> 00:29:57.960
what's going on in their mind, and also just brain
631
00:29:58.079 --> 00:29:59.200
picking their brain on where.
632
00:29:59.079 --> 00:30:00.480
They see the industry going.
633
00:30:00.559 --> 00:30:04.119
If you go to them with that humility that you'd
634
00:30:04.160 --> 00:30:05.839
love to talk to them about where they see the
635
00:30:05.839 --> 00:30:09.079
industry going in the next five to ten years, this
636
00:30:09.160 --> 00:30:12.279
builds huge amounts of rapport and trust with them because
637
00:30:12.319 --> 00:30:15.960
they will then feel like you're taking counsel from them
638
00:30:16.000 --> 00:30:19.200
around the industry that you're both in as to where
639
00:30:19.240 --> 00:30:21.680
you see it going. And of course, because you're inside
640
00:30:21.680 --> 00:30:23.319
that industry, you'll have.
641
00:30:23.240 --> 00:30:23.920
A lot of.
642
00:30:25.799 --> 00:30:28.559
People that you know in common, or scandals that happened
643
00:30:28.559 --> 00:30:30.720
in the industry, you know, things that you can talk
644
00:30:30.759 --> 00:30:33.200
about together that will create huge amounts of rapport and
645
00:30:33.240 --> 00:30:37.359
trust between you. And what you'll find is, as you,
646
00:30:37.359 --> 00:30:40.680
you know, build out this universe of potential targets, you'll
647
00:30:40.680 --> 00:30:43.440
start to see how the stars line up between them. Okay,
648
00:30:43.440 --> 00:30:45.880
this one has a young, hungry management team that are
649
00:30:45.920 --> 00:30:48.640
in this for the long haul. This one is desperate
650
00:30:48.640 --> 00:30:51.359
to get out and wants to retire, would have retired
651
00:30:51.400 --> 00:30:53.359
five years ago if they could, but can't see a
652
00:30:53.400 --> 00:30:56.000
way out. You know, maybe if you put these two together,
653
00:30:56.759 --> 00:30:58.960
you've got a management team that can run both of them,
654
00:30:59.079 --> 00:31:01.359
and we can bring them into our group.
655
00:31:01.119 --> 00:31:02.279
Et cetera, et cetera, et cetera.
656
00:31:02.400 --> 00:31:04.599
So just start building up that kind of universe of
657
00:31:04.640 --> 00:31:06.519
potential targets and speak to as many of.
658
00:31:06.480 --> 00:31:07.119
Them as you can.
659
00:31:08.079 --> 00:31:10.880
And the other thing is when you're building groups, everybody
660
00:31:10.880 --> 00:31:13.440
thinks that your business is going to buy that business
661
00:31:13.440 --> 00:31:15.079
and it's all going to be integrated somehow.
662
00:31:15.240 --> 00:31:16.440
It's not necessarily the case.
663
00:31:16.519 --> 00:31:20.519
We normally create a separate SPV, a separate company that
664
00:31:20.559 --> 00:31:21.799
sits alongside yours.
665
00:31:22.079 --> 00:31:22.880
You acquire the.
666
00:31:22.799 --> 00:31:25.480
Other company through that, and all of the synergies are
667
00:31:25.519 --> 00:31:29.079
through into trading relationships between your two companies. You're not
668
00:31:29.160 --> 00:31:32.160
looking to take your big barrel of nice, shiny apples
669
00:31:32.240 --> 00:31:35.480
and potentially introduce a rotten apple. You want to keep
670
00:31:35.559 --> 00:31:39.079
the apples separate and just do business together. You can,
671
00:31:39.599 --> 00:31:41.640
you know, if there's obvious savings, you can make those
672
00:31:41.640 --> 00:31:44.119
savings through an inter trading relationship. You don't have to
673
00:31:44.160 --> 00:31:49.519
push everything together under one brand in one pot. So yeah,
674
00:31:49.799 --> 00:31:51.039
think of it in those terms.
675
00:31:51.960 --> 00:31:54.839
So you made the point that if you're going to
676
00:31:54.960 --> 00:31:57.720
go in this direction, you need to exit your own
677
00:31:57.720 --> 00:32:00.359
company really to a board level, to an investor level.
678
00:32:00.359 --> 00:32:02.880
You got a CEO and place you're not involved in operations.
679
00:32:03.000 --> 00:32:05.359
So are you suggesting that if you're still, let's say
680
00:32:05.359 --> 00:32:07.880
at the CEO level, and you're a true CEO, you're
681
00:32:07.920 --> 00:32:10.799
not mired deep in operations, you're really managing the company
682
00:32:10.799 --> 00:32:13.119
as the CEO at that level, that it would be
683
00:32:13.160 --> 00:32:16.200
too distracting to also get involved in acquisition.
684
00:32:17.279 --> 00:32:19.640
I think you need half your diary to be empty
685
00:32:21.119 --> 00:32:22.960
to give it, to give it it's due, you know.
686
00:32:23.279 --> 00:32:26.279
So Yeah, I mean people can make their own judgment.
687
00:32:26.319 --> 00:32:28.279
I guess about how much time they have available to
688
00:32:28.319 --> 00:32:29.680
put into something.
689
00:32:30.640 --> 00:32:32.599
But like everything in life, the more you put in,
690
00:32:32.720 --> 00:32:33.480
the more you get out.
691
00:32:34.160 --> 00:32:34.559
Yeah.
692
00:32:34.759 --> 00:32:36.640
Well, I think that seems to be a pretty good
693
00:32:36.960 --> 00:32:39.400
stage advice, having at least half your diary empty there
694
00:32:39.640 --> 00:32:43.359
before you think about doing something like that. Yeah, because
695
00:32:43.400 --> 00:32:46.759
the seed in anything hobbyists don't do very well. It's
696
00:32:46.759 --> 00:32:49.119
succeeding and things, especially when the stakes are very high.
697
00:32:49.119 --> 00:32:51.759
Exact, if you've started installing games on your phone or
698
00:32:51.799 --> 00:32:54.319
playing solitaire, you're ready for M and A.
699
00:32:57.880 --> 00:32:59.920
Okay, so.
700
00:33:02.799 --> 00:33:04.039
Let's look at this.
701
00:33:04.039 --> 00:33:07.680
This idea of being able to, you know, get into
702
00:33:07.720 --> 00:33:10.400
the m and A world and build a portfolio companies
703
00:33:10.799 --> 00:33:14.400
without a lot of upfront capital and being able to
704
00:33:14.400 --> 00:33:17.400
do deals without a lot of money out of pocket.
705
00:33:17.480 --> 00:33:20.319
Some you know, somehow, it can sound a little bit
706
00:33:20.400 --> 00:33:22.519
like a pipe dream. And you know, we've all seen
707
00:33:22.559 --> 00:33:25.440
a lot of advertisements, you know, build your real estate
708
00:33:25.519 --> 00:33:27.559
empire with no money out of pocket and so forth.
709
00:33:27.640 --> 00:33:31.000
And I think this stuff actually happens, but it tends
710
00:33:31.039 --> 00:33:32.160
to sound like a little.
711
00:33:31.960 --> 00:33:33.480
Too good to be true. So I wonder if you
712
00:33:33.480 --> 00:33:36.279
give it what it's really all about, how it really works.
713
00:33:37.160 --> 00:33:40.240
Yeah. Look, we have a community called the Harbor Club.
714
00:33:40.279 --> 00:33:42.559
I started it in two thousand and nine, and we
715
00:33:42.680 --> 00:33:46.799
have fifteen different no money down strategies. And honestly, when
716
00:33:46.799 --> 00:33:50.079
you're buying small to medium sized businesses, the risk profile
717
00:33:50.759 --> 00:33:53.079
is such that you shouldn't really be putting lots of
718
00:33:53.079 --> 00:33:56.880
money into these transactions. These are very volatile assets, and
719
00:33:56.920 --> 00:34:00.160
if the business owner wants to get, you know, the
720
00:34:00.200 --> 00:34:02.599
sort of level of money out of this business that
721
00:34:02.640 --> 00:34:04.680
they want, it's going to have to be a collaborative
722
00:34:04.720 --> 00:34:07.440
exercise with a buyer in order to get them there.
723
00:34:07.519 --> 00:34:09.840
It's somebody's not going to write a million dollar check
724
00:34:09.920 --> 00:34:11.519
or a two million dollar check. They're going to have
725
00:34:11.599 --> 00:34:14.400
to work with the buyer over a period of time
726
00:34:14.519 --> 00:34:18.880
to extract that two million dollars from the transaction. Now,
727
00:34:19.199 --> 00:34:22.760
there are some really clever deal structures that we have,
728
00:34:22.920 --> 00:34:26.840
including you know, like a listed bond structure that we use.
729
00:34:27.079 --> 00:34:30.360
But the simplest one, I guess to explain is one that.
730
00:34:30.280 --> 00:34:34.119
We call a WYBO, which is a work in buyout strategy,
731
00:34:34.360 --> 00:34:36.559
and you can also use this for building groups of
732
00:34:36.639 --> 00:34:40.679
companies in the same sector. But ultimately, if you approached
733
00:34:40.719 --> 00:34:45.159
a retiring baby boomer and said, you know who, said
734
00:34:45.199 --> 00:34:48.119
they wanted, you know, two million dollars for their business,
735
00:34:48.119 --> 00:34:50.360
and you said, give me your business and I will
736
00:34:50.360 --> 00:34:52.760
pay you from your own profits over the next four
737
00:34:53.199 --> 00:34:56.239
five years, They're probably going to say, no, there's not
738
00:34:56.360 --> 00:34:59.440
really any redeeming features to that deal structure. They don't
739
00:34:59.440 --> 00:35:01.880
know who you are, they don't trust you, you know,
740
00:35:02.079 --> 00:35:04.039
why not give it to their key employee and their
741
00:35:04.079 --> 00:35:05.679
business instead or whatever.
742
00:35:06.280 --> 00:35:08.440
So what a wi BO does is we.
743
00:35:08.599 --> 00:35:11.440
Solve a problem in exchange for an equity stake. And
744
00:35:11.480 --> 00:35:14.039
this is particularly This is normally done through some sort
745
00:35:14.039 --> 00:35:15.679
of consulting project for them.
746
00:35:15.800 --> 00:35:17.480
And there's lots of different ways you can approach this.
747
00:35:17.519 --> 00:35:20.280
If you have specific skills, you can bring those skills
748
00:35:20.320 --> 00:35:21.320
in exchange for equity.
749
00:35:21.360 --> 00:35:21.760
So if you're a.
750
00:35:21.800 --> 00:35:25.840
Marketing expert, sales expert, finance expert, whatever, you can bring
751
00:35:25.880 --> 00:35:28.599
those skills and take a percentage. Quite a common one
752
00:35:28.639 --> 00:35:32.199
that Harvard clubs do is actually getting the business sale ready.
753
00:35:32.599 --> 00:35:35.760
So you take them through what's needed to sell their business,
754
00:35:35.800 --> 00:35:38.960
having a data room, having their accounts audited, having all
755
00:35:38.960 --> 00:35:42.960
these systems and processes put into a document documented.
756
00:35:42.440 --> 00:35:45.480
Form, having an information memoran, and all of those things.
757
00:35:45.840 --> 00:35:48.960
The business owner doesn't have those, and they're overwhelmed the
758
00:35:49.000 --> 00:35:52.360
idea of creating them. And so typically you would say, okay,
759
00:35:52.360 --> 00:35:55.280
well it will cost X amount to create this, but
760
00:35:55.400 --> 00:35:57.559
how about you give me why amount which is a
761
00:35:57.639 --> 00:36:00.679
much smaller amount of cash paid over then six months
762
00:36:00.719 --> 00:36:02.840
while I do this, and you give me some equity
763
00:36:02.840 --> 00:36:03.840
in the business.
764
00:36:03.480 --> 00:36:05.239
So that our goals are aligned.
765
00:36:05.320 --> 00:36:07.960
When I've created all this additional value and we can
766
00:36:08.039 --> 00:36:10.920
sell the business, I'll get some of the sale value.
767
00:36:10.960 --> 00:36:12.599
So you're putting in money where your mouth is. So
768
00:36:12.679 --> 00:36:15.639
typically the deals that I see might be you know,
769
00:36:15.719 --> 00:36:18.400
anywhere between two and five thousand dollars a month and
770
00:36:18.599 --> 00:36:21.360
anywhere around sort of twenty thirty percent of the equity
771
00:36:21.400 --> 00:36:24.760
of the company in exchange for solving some problem or
772
00:36:25.320 --> 00:36:27.360
improving the value in the business in some way.
773
00:36:27.840 --> 00:36:29.440
So for the next six months, you're getting a job,
774
00:36:29.440 --> 00:36:30.119
you're getting paid.
775
00:36:30.800 --> 00:36:32.639
So this is great for people that are starting out
776
00:36:32.679 --> 00:36:35.719
in this industry and want to have an income stream,
777
00:36:36.440 --> 00:36:40.800
but also they're making they're doing the best due diligence
778
00:36:40.840 --> 00:36:42.480
you could ever do because they're in the business on
779
00:36:42.519 --> 00:36:43.239
a regular.
780
00:36:42.960 --> 00:36:45.199
Basis, or liaising with the team.
781
00:36:45.039 --> 00:36:46.840
In the business on a regular basis in order to
782
00:36:46.880 --> 00:36:49.360
put together the virtual data room and all of the
783
00:36:49.400 --> 00:36:53.400
assets necessary to sell the business. And then at the
784
00:36:53.480 --> 00:36:56.119
end of that process you put the business up for sale.
785
00:36:56.480 --> 00:36:58.039
The first two or three offers.
786
00:36:57.719 --> 00:36:59.599
They're going to get are going to be somebody saying
787
00:36:59.639 --> 00:37:01.840
I'm going to pay you two million dollars over the
788
00:37:01.840 --> 00:37:04.480
next five years, which of course the business owner will
789
00:37:04.519 --> 00:37:06.280
turn down, just like they would have if you were
790
00:37:06.280 --> 00:37:09.119
the one proposing that in the first place. However, now
791
00:37:09.480 --> 00:37:13.960
if you say, well, look, Dave, I'm already thirty percent shareholder,
792
00:37:14.199 --> 00:37:16.440
why don't I buy the other seventy percent off you
793
00:37:16.880 --> 00:37:19.000
for that two million dollars and I'll pay you over
794
00:37:19.000 --> 00:37:22.239
the next five years. You now have the trust and
795
00:37:22.280 --> 00:37:25.119
empathy and rapport with them that they're more likely to
796
00:37:25.199 --> 00:37:26.559
take that option.
797
00:37:27.480 --> 00:37:29.320
And you've built a trust. They now know you, they
798
00:37:29.360 --> 00:37:30.039
know who you are.
799
00:37:30.119 --> 00:37:32.119
So by buying a little bit of it first and
800
00:37:32.119 --> 00:37:33.880
then buying the rest of it, And by the way,
801
00:37:34.199 --> 00:37:36.360
the first step is three to six months and the
802
00:37:36.400 --> 00:37:39.320
second step is normally another three to six months after that.
803
00:37:39.719 --> 00:37:41.800
If you try to do a leverage buyout with that deal,
804
00:37:41.840 --> 00:37:43.400
if you wanted to go to the SBA and get
805
00:37:43.400 --> 00:37:46.239
a five million dollar or two million dollar loan to buy.
806
00:37:46.000 --> 00:37:48.480
That business, it would take you twelve months to.
807
00:37:48.440 --> 00:37:50.559
Do that, you know, to get that done, and you'd
808
00:37:50.559 --> 00:37:52.559
have a whole bunch of legal fees and a whole
809
00:37:52.559 --> 00:37:55.159
bunch of debt and a personal guarantee on that debt.
810
00:37:55.239 --> 00:37:58.360
So the time to complete the acquisition is about the same.
811
00:37:58.760 --> 00:38:02.280
You get paid through the process, and you still end
812
00:38:02.360 --> 00:38:04.280
up owning the company and paying for it entirely out
813
00:38:04.320 --> 00:38:06.920
of its own profits. So that's called a why boat
814
00:38:06.920 --> 00:38:09.920
strategy of working by our strategy, it's very popular in
815
00:38:09.920 --> 00:38:10.519
our community.
816
00:38:11.280 --> 00:38:14.320
I've done hundreds of interviews with my.
817
00:38:14.360 --> 00:38:16.719
Members who have done exactly those kind of deals, And
818
00:38:16.760 --> 00:38:19.760
there's so many variations and nuances people have added to
819
00:38:19.800 --> 00:38:21.079
it or tried or whatever.
820
00:38:21.360 --> 00:38:24.000
You can really come up with your own creative way
821
00:38:24.000 --> 00:38:24.400
of doing it.
822
00:38:24.440 --> 00:38:28.639
But fundamentally, it's a sweat equity position and then an
823
00:38:28.679 --> 00:38:30.199
agreement to buy the balance.
824
00:38:29.880 --> 00:38:31.960
Of it at the end of the process.
825
00:38:32.039 --> 00:38:34.760
And it's having built that both built value for the
826
00:38:34.800 --> 00:38:38.639
owner and built a rapport and the trust there right exactly.
827
00:38:38.320 --> 00:38:40.159
So once you deliver on something, you're in the top
828
00:38:40.199 --> 00:38:42.360
one percent of humanity. How many people have you had
829
00:38:42.400 --> 00:38:44.840
in your life promise you something and then do nothing.
830
00:38:45.840 --> 00:38:48.400
So if you promise them something and do it, Wow,
831
00:38:48.480 --> 00:38:52.480
you're like God, so so much easier to get something
832
00:38:52.519 --> 00:38:53.559
done after that.
833
00:38:54.280 --> 00:38:58.400
So I have one question about it. It would seemed
834
00:38:58.440 --> 00:39:01.000
to be this could be pivotal. In many case. You
835
00:39:01.079 --> 00:39:04.320
may work out lots of different types of deal structures
836
00:39:04.320 --> 00:39:09.440
like the one you're talking about to be able to
837
00:39:09.440 --> 00:39:12.039
purchase a company with little money out of pocket. But
838
00:39:12.199 --> 00:39:17.840
for them owner, founder, owner, maybe they're motivated. But for
839
00:39:17.920 --> 00:39:20.840
them to sign that deal and not walk away with
840
00:39:20.960 --> 00:39:24.280
any check, I mean, and I know there are strategies
841
00:39:24.280 --> 00:39:25.880
to where you could fund it so they can at
842
00:39:25.920 --> 00:39:27.800
least walk away with something even if it doesn't come
843
00:39:27.800 --> 00:39:29.559
out of your pocket. But I would think it's going
844
00:39:29.639 --> 00:39:33.400
to be a lot easier to swallow for most owners
845
00:39:33.440 --> 00:39:35.880
if they walk away with something rather than they walk
846
00:39:35.920 --> 00:39:38.960
away only with a promise of an earnout or seller
847
00:39:39.000 --> 00:39:40.519
financing deal and so forth.
848
00:39:41.039 --> 00:39:43.360
Yeah, it really comes down to what they want versus
849
00:39:43.440 --> 00:39:46.840
what's available. So if they were a queue of people
850
00:39:46.880 --> 00:39:51.039
with checks, then of course a check could be an alternative. Now,
851
00:39:51.280 --> 00:39:53.719
of course they would just want you to pay everything upfront,
852
00:39:53.840 --> 00:39:55.599
and if I'm selling a business, I want them to
853
00:39:55.599 --> 00:39:58.559
pay everything upfront. But that doesn't mean that that's available
854
00:39:58.559 --> 00:40:01.840
to them. So just the fact that they want it
855
00:40:01.880 --> 00:40:04.960
isn't enough to make it happen. And if they want
856
00:40:04.960 --> 00:40:07.000
to get the other thing is that if they take
857
00:40:07.119 --> 00:40:09.920
cash up front, the overall transaction value.
858
00:40:09.679 --> 00:40:10.679
Will be a lot smaller.
859
00:40:11.280 --> 00:40:13.280
So the person that's going to give them the cash
860
00:40:13.400 --> 00:40:15.519
up front is probably going to have a much smaller
861
00:40:15.559 --> 00:40:16.719
amount of deferred payment.
862
00:40:16.840 --> 00:40:18.639
So you might find that that two.
863
00:40:18.440 --> 00:40:21.239
Million dollar business they only get eight hundred grand if
864
00:40:21.239 --> 00:40:23.559
they get like three hundred grand up front and the
865
00:40:23.599 --> 00:40:25.960
rest later, so they can more or less double the
866
00:40:26.039 --> 00:40:30.880
amount they receive in total because it's being self financed
867
00:40:30.880 --> 00:40:36.719
from the business. So, you know, the the comment that's
868
00:40:36.760 --> 00:40:39.320
used a lot in my community is you name the price,
869
00:40:39.360 --> 00:40:43.519
I'll name the terms. So it helps helps people get
870
00:40:43.559 --> 00:40:47.159
to their headline, which is an enormously powerful negotiating technique.
871
00:40:47.960 --> 00:40:50.880
So how does one work with you know, coaching and honor,
872
00:40:50.960 --> 00:40:53.760
especially if it's a founder and maybe they're approaching retirement, whatever,
873
00:40:53.800 --> 00:40:55.719
they have some motivation with the culture in that space
874
00:40:55.719 --> 00:40:57.719
because they may be they may have worked with a broker,
875
00:40:58.920 --> 00:41:00.960
they may have had people tell them they're going to
876
00:41:00.960 --> 00:41:03.760
get this multiple of see or if or or if
877
00:41:03.760 --> 00:41:06.559
they're actually a better organized company, they may be getting
878
00:41:06.559 --> 00:41:10.159
a multiple vivida uh. And then they start hearing numbers
879
00:41:10.199 --> 00:41:10.719
that are less.
880
00:41:10.719 --> 00:41:12.079
So they're saying, well, if you want all.
881
00:41:12.000 --> 00:41:14.960
Your money uh, you know, uh, if you want any
882
00:41:14.960 --> 00:41:16.760
money up, but that's going to lower the deal a
883
00:41:16.800 --> 00:41:19.159
whole lot. And they're there's like they're head spinning, and
884
00:41:19.159 --> 00:41:22.039
then you know they're and the coach them into reality
885
00:41:22.079 --> 00:41:25.079
because I think probably a lot of people getting ready
886
00:41:25.119 --> 00:41:28.400
to sell their company are not really in that reality space.
887
00:41:28.480 --> 00:41:30.280
They have a lot of ideas that they've.
888
00:41:30.079 --> 00:41:32.599
Gotten and what you know, it can be a painful
889
00:41:32.639 --> 00:41:35.000
process for them to adjust to the reality of what
890
00:41:35.039 --> 00:41:37.039
they're going to be able to realize from their company.
891
00:41:37.320 --> 00:41:39.960
Yeah, so there's a universal businesses for sale. Let's say
892
00:41:39.960 --> 00:41:42.880
it's like this long. You'll have this third at the
893
00:41:42.960 --> 00:41:46.039
end here who have tried to sell their company have
894
00:41:46.159 --> 00:41:48.800
not been able to and they'll be open to this
895
00:41:48.920 --> 00:41:52.639
sort of a discussion because they that the rubbers met
896
00:41:52.679 --> 00:41:55.880
the road when it comes to reality and they understand.
897
00:41:55.920 --> 00:41:57.639
So the brokers told them they'll get too many and
898
00:41:57.639 --> 00:42:00.280
they realized that's just not true. And they you have
899
00:42:00.320 --> 00:42:02.760
the other third at the beginning, who just don't see
900
00:42:02.800 --> 00:42:04.360
why anybody would want this business.
901
00:42:04.440 --> 00:42:07.800
It's too small. It's a pain in the ass. You know.
902
00:42:08.360 --> 00:42:10.280
I don't think we could sell it because we're you know,
903
00:42:10.320 --> 00:42:12.599
we've only got twenty staff and three million of revenue.
904
00:42:12.599 --> 00:42:15.880
Who's going to want that? And those are very easy
905
00:42:15.880 --> 00:42:16.719
to do business with.
906
00:42:16.800 --> 00:42:17.400
The third in the.
907
00:42:17.320 --> 00:42:19.679
Middle, Yeah, it's going to be a bit harder, and
908
00:42:20.039 --> 00:42:21.840
it may be that you put your best offer on
909
00:42:21.880 --> 00:42:24.199
the table and you come back to them later. I
910
00:42:24.239 --> 00:42:27.639
actually the zoom call I had just before this was
911
00:42:27.679 --> 00:42:30.280
with a harbor clubber who did a deal a few
912
00:42:30.280 --> 00:42:34.119
months ago that he'd first spoken to five years ago.
913
00:42:34.800 --> 00:42:36.880
So he'd spoken to this business five years.
914
00:42:36.760 --> 00:42:40.000
Ago, and basically at that time, the guy was he
915
00:42:40.079 --> 00:42:42.280
was on with the broker, he was speaking to everybody
916
00:42:42.320 --> 00:42:46.159
about getting the maximum he could for the business, and
917
00:42:46.639 --> 00:42:48.639
at the end of that period, he realized he's not
918
00:42:48.679 --> 00:42:50.280
going to be able to sell it for this so
919
00:42:50.880 --> 00:42:52.920
he just needs to think of all the people I
920
00:42:53.039 --> 00:42:54.400
met over the last five.
921
00:42:54.239 --> 00:42:56.960
Years, who was the nicest. And so he.
922
00:42:57.039 --> 00:42:59.320
Kicked up the phone to this guy Ross who I
923
00:42:59.360 --> 00:43:02.039
was just speaking to, and pretty much said that after
924
00:43:02.039 --> 00:43:03.719
five years, I've realized I'm not going to get what
925
00:43:03.719 --> 00:43:05.639
I want. So I figured I'd just speak to the
926
00:43:05.639 --> 00:43:07.800
one who is the nicest. And you were always the
927
00:43:07.920 --> 00:43:09.760
you know, you're always the nicest to me, So let's
928
00:43:09.840 --> 00:43:11.280
let's have that conversation again.
929
00:43:11.760 --> 00:43:12.159
That's great.
930
00:43:12.159 --> 00:43:14.920
Well, it points are the importance of rapport obviously in business,
931
00:43:15.719 --> 00:43:21.280
so bridges so thinking about, you know, building out a portfolio,
932
00:43:21.360 --> 00:43:23.719
especially someone who's you know, not trying to add on
933
00:43:23.760 --> 00:43:27.239
to a company they already have, but they're just so uh,
934
00:43:28.280 --> 00:43:30.440
you know, you're you're building a portfraitio well, I mean, one,
935
00:43:30.480 --> 00:43:32.440
you may be building companies to hold for a certain
936
00:43:32.480 --> 00:43:34.400
period of time and then make a profit and maybe
937
00:43:34.440 --> 00:43:37.239
not quite immediate flipping, but there's some sense you're not
938
00:43:37.280 --> 00:43:39.360
intending to hold them for a long period of time.
939
00:43:39.960 --> 00:43:42.480
Or maybe you want to build a really nice portfolio
940
00:43:42.519 --> 00:43:44.079
that you can manage, that you think is a good
941
00:43:44.119 --> 00:43:47.199
long term investment. And in that case, uh, you know,
942
00:43:47.639 --> 00:43:51.760
how would you strategize that portfolio. Is that around diversity
943
00:43:51.760 --> 00:43:54.480
of industries and so forth, or the other approach If
944
00:43:54.519 --> 00:43:57.000
you're thinking about doing a roll up some kind and
945
00:43:57.039 --> 00:44:00.159
you want to buy a bunch of similar businesses and
946
00:44:00.159 --> 00:44:02.639
and then roll them up into some overarching brand or
947
00:44:02.639 --> 00:44:03.480
all under one brand.
948
00:44:03.480 --> 00:44:04.360
I wanted to talk.
949
00:44:04.199 --> 00:44:06.880
About some of these different strategies for building out a
950
00:44:06.920 --> 00:44:08.280
portfolio through M and A.
951
00:44:09.320 --> 00:44:10.280
Yeah. Absolutely so.
952
00:44:10.440 --> 00:44:12.039
One of the things I would say, and this is
953
00:44:12.440 --> 00:44:16.000
a hard one lesson, is the best time to sell
954
00:44:16.000 --> 00:44:19.000
a business is now. So I'm a big believer in
955
00:44:19.079 --> 00:44:23.079
exiting businesses because they don't work very well under management,
956
00:44:23.880 --> 00:44:26.800
and things change so much in the business landscape that
957
00:44:26.920 --> 00:44:29.920
owning a portfolio of disparate businesses is not as glamorous
958
00:44:29.920 --> 00:44:30.519
as it sounds.
959
00:44:30.559 --> 00:44:31.440
I've been there, I've done it.
960
00:44:31.480 --> 00:44:34.559
I've had a group of companies, and I used to
961
00:44:34.679 --> 00:44:37.239
joke the only thing worse than having one crappy company
962
00:44:37.320 --> 00:44:38.639
is having twelve crappy companies.
963
00:44:38.920 --> 00:44:42.840
So it was it was not the best.
964
00:44:43.719 --> 00:44:46.559
The problem was I had Warren Buffett's words ringing in
965
00:44:46.599 --> 00:44:48.679
my ears, which were, you know, the best time to
966
00:44:48.719 --> 00:44:51.519
sell a good company is never, And so I was like, right,
967
00:44:51.559 --> 00:44:53.880
I'm keeping all of these but his idea of a
968
00:44:53.880 --> 00:44:57.480
good company is Coca Cola or Apple, not an HVAC
969
00:44:57.519 --> 00:45:01.079
company in the wilds of rural England, you know. So
970
00:45:01.719 --> 00:45:06.519
I'd misunderstood the value of his words and or reinterpreted
971
00:45:06.519 --> 00:45:10.079
his words to meet my expectations. So, yeah, the best
972
00:45:10.079 --> 00:45:12.679
time to sell a business is now. Typically you'll find
973
00:45:12.679 --> 00:45:14.920
that you can make more money on the money than you.
974
00:45:14.880 --> 00:45:15.960
Can by owning the business.
975
00:45:16.239 --> 00:45:18.000
So if you have a business that's doing half a
976
00:45:18.000 --> 00:45:20.039
million of EBIT, you can probably sell it for one
977
00:45:20.079 --> 00:45:22.639
point five million. You can make more money from that
978
00:45:22.679 --> 00:45:27.239
one point five million deployed into income generating assets. Then
979
00:45:27.280 --> 00:45:29.119
you'd probably be able to take out that company in
980
00:45:29.199 --> 00:45:31.599
hash every day after you've paid tax, left some working
981
00:45:31.599 --> 00:45:32.840
capital in the business.
982
00:45:32.599 --> 00:45:33.480
Et cetera, et cetera.
983
00:45:33.559 --> 00:45:37.159
So I would much rather sleep well at night and
984
00:45:37.239 --> 00:45:42.239
have that capital return than have to worry about staff, customers,
985
00:45:42.519 --> 00:45:44.400
you know, or all of the stuff that goes with
986
00:45:45.639 --> 00:45:46.800
the constantat That's.
987
00:45:46.719 --> 00:45:49.480
A really important po I want to fill up on
988
00:45:49.519 --> 00:45:51.880
that point because I think a lot of existing business
989
00:45:51.920 --> 00:45:54.079
owners were you know, fairly legacy companies.
990
00:45:54.079 --> 00:45:56.400
They've been in there for a while. They may find.
991
00:45:56.199 --> 00:45:59.599
Themselves in a place where they if they could take
992
00:45:59.599 --> 00:46:03.079
the of their company and put it in reasonable investments,
993
00:46:03.119 --> 00:46:05.599
they'd be making more money without all the headaches still
994
00:46:05.639 --> 00:46:08.920
running that business. And that could be that could be
995
00:46:09.000 --> 00:46:11.639
a place where you have a motivated seller to begin.
996
00:46:11.480 --> 00:46:13.760
With, hands down. Yeah.
997
00:46:13.800 --> 00:46:19.199
So yeah, So that's you know, like a really important point.
998
00:46:19.239 --> 00:46:21.280
I think about building portfolios. Don't build them for the
999
00:46:21.280 --> 00:46:23.000
sake of it, build to sell.
1000
00:46:24.039 --> 00:46:28.400
So it sounds like, so what does that trajectory look
1001
00:46:28.519 --> 00:46:32.119
like from you know, getting a reasonable deal with the company,
1002
00:46:32.159 --> 00:46:34.440
And obviously there are may be some earnouts involved, so
1003
00:46:34.519 --> 00:46:37.719
maybe some seller financing, which is going to take a
1004
00:46:37.760 --> 00:46:40.320
bit of a time, so you may you may need
1005
00:46:40.320 --> 00:46:42.360
to hold a long enough for that to play out,
1006
00:46:42.400 --> 00:46:44.360
or I guess you could sell it with some of
1007
00:46:44.400 --> 00:46:45.360
that still involved.
1008
00:46:45.360 --> 00:46:46.760
But if you can sell it with some of that
1009
00:46:46.800 --> 00:46:49.280
still in there, you can accelerate the repayments. There's there's
1010
00:46:49.320 --> 00:46:51.599
a few things you can do once once you get there,
1011
00:46:51.639 --> 00:46:54.880
but but building groups is really important because, as I
1012
00:46:54.960 --> 00:46:58.280
pointed out, as you go up the pyramid, the audience
1013
00:46:58.320 --> 00:47:02.039
widens and basically cannot if you have more buyers than sellers,
1014
00:47:02.559 --> 00:47:06.559
then the price increases, so you have pricing power. At
1015
00:47:06.559 --> 00:47:10.880
the bottom, there's no pricing power because there's less there's
1016
00:47:10.880 --> 00:47:12.559
more companies available and less buyers.
1017
00:47:12.559 --> 00:47:14.519
But as you move up the pyramid, there's more.
1018
00:47:14.360 --> 00:47:17.280
And more buyers, less and less sellers, and you start
1019
00:47:17.320 --> 00:47:19.960
to get an exponential increase in price. So you'll find
1020
00:47:19.960 --> 00:47:22.400
a small engineering company might sell for one and a
1021
00:47:22.440 --> 00:47:26.960
half times earnings, a five million revenue engineering company might
1022
00:47:27.000 --> 00:47:29.760
sell for four or five times earnings, a twenty million
1023
00:47:30.159 --> 00:47:32.639
engineering company might sell for eight times earnings, and then
1024
00:47:32.679 --> 00:47:35.119
a big public listed engineering company might be at twenty
1025
00:47:35.119 --> 00:47:38.360
five times earning. So you've got a more than ten
1026
00:47:38.599 --> 00:47:43.320
x increase in value by simply increasing the scale of
1027
00:47:43.360 --> 00:47:45.159
the business. So moving up that scale thing is really
1028
00:47:45.199 --> 00:47:47.519
important when you do that strategy. I was talking about
1029
00:47:47.559 --> 00:47:51.239
the minority acquisition you know this Wibo acquisition. What we
1030
00:47:51.320 --> 00:47:53.079
found in our community is when people do.
1031
00:47:53.039 --> 00:47:53.840
The first one.
1032
00:47:54.159 --> 00:47:56.800
So let's say the first one is a widget manufacturer,
1033
00:47:57.199 --> 00:47:59.920
suddenly they are catnip to widget manufacturers.
1034
00:48:00.079 --> 00:48:01.199
All the other ones are really.
1035
00:48:01.000 --> 00:48:03.239
Interested because you've just done a deal in their sector
1036
00:48:03.599 --> 00:48:05.840
and they think you're now an expert in that sector.
1037
00:48:05.960 --> 00:48:08.320
And the previous owner will also introduce you to lots
1038
00:48:08.360 --> 00:48:11.639
of other friends who also have widget manufacturers, and so
1039
00:48:11.760 --> 00:48:15.039
actually that first deal is a catalyst to the second
1040
00:48:15.079 --> 00:48:17.800
and the third one typically, and then you start to
1041
00:48:17.800 --> 00:48:19.599
build a group. So you can start to build a
1042
00:48:19.599 --> 00:48:22.840
group of these minority holdings that are gradually turning into
1043
00:48:22.679 --> 00:48:26.480
whole ownership, and that can be a really good way
1044
00:48:26.480 --> 00:48:28.320
of doing a no money down roll up in a
1045
00:48:28.880 --> 00:48:31.840
sector specific way, and we're seeing that happen quite a
1046
00:48:31.840 --> 00:48:34.000
bit in the Harvard Club community.
1047
00:48:34.599 --> 00:48:37.119
So one way or another, if you're buying businesses to
1048
00:48:37.199 --> 00:48:39.480
eventually sell the businesses, you're not trying to build a
1049
00:48:39.519 --> 00:48:44.159
long term investment portfolio. So then you've got to increase
1050
00:48:44.199 --> 00:48:46.400
the value somehow, So you talk about one way to
1051
00:48:46.440 --> 00:48:49.119
increase So one way to increase value is like a
1052
00:48:49.199 --> 00:48:51.880
roll up, So you know you have a bigger company
1053
00:48:51.920 --> 00:48:54.920
with greater revenue and greater prop and so it becomes
1054
00:48:55.320 --> 00:48:59.760
a potential higher multiple when you sell it. Another way,
1055
00:48:59.800 --> 00:49:02.639
we be to take an existing company and improve that
1056
00:49:02.760 --> 00:49:05.440
company to have it operating better, to improve its systems,
1057
00:49:05.480 --> 00:49:07.719
it's management, and so forth, which is going to make
1058
00:49:07.719 --> 00:49:10.599
it more valuable. I wonder if you could talk about
1059
00:49:10.639 --> 00:49:13.239
those two different strategies, and if you are talking about
1060
00:49:13.280 --> 00:49:17.440
a roll up, inevitably, like you said, the only the
1061
00:49:17.480 --> 00:49:21.199
worst than owning one crappy company would be owned twelve
1062
00:49:21.239 --> 00:49:23.039
of them. Right, So if you put together a bunch
1063
00:49:23.039 --> 00:49:25.960
of roll ups and they all have insufficient systems and
1064
00:49:26.119 --> 00:49:29.000
there's management issues, I mean, somehow you're to make that
1065
00:49:29.039 --> 00:49:32.880
thing really attractive, You're going to have to improve those companies,
1066
00:49:32.960 --> 00:49:37.119
are building overarching culture or get some some economies of
1067
00:49:37.159 --> 00:49:39.800
scale because you're sharing systems and so forth.
1068
00:49:39.800 --> 00:49:42.559
So I wonder how you really actually, whether.
1069
00:49:42.320 --> 00:49:45.360
You're one company will improve the value or whether you're
1070
00:49:45.639 --> 00:49:48.559
building a portfolio or a roll up to really increase
1071
00:49:48.559 --> 00:49:48.960
the value.
1072
00:49:49.000 --> 00:49:50.639
What's the work you have you actually have to do
1073
00:49:50.679 --> 00:49:51.199
to make that well?
1074
00:49:51.199 --> 00:49:54.960
Well, there's a four hour conversation in this, because this
1075
00:49:55.079 --> 00:49:58.639
is really getting getting into the weeds, but I'll give
1076
00:49:58.679 --> 00:49:59.480
you some highlights.
1077
00:49:59.480 --> 00:50:03.039
So one of the things is getting the internal getting
1078
00:50:03.079 --> 00:50:05.039
the internal people to rinse out the synergies.
1079
00:50:05.159 --> 00:50:07.079
If you get a spreadsheet and decide where all the
1080
00:50:07.079 --> 00:50:10.320
savings are and you go and implement that in small businesses,
1081
00:50:10.679 --> 00:50:14.639
they'll rebel against that, and often they'll sabotage it deliberately,
1082
00:50:15.400 --> 00:50:17.159
so you don't end up with what you think you're
1083
00:50:17.199 --> 00:50:19.280
going to end up with. So the thing I've learned
1084
00:50:19.360 --> 00:50:22.039
is if it's your idea, it's terrible. If it's their idea,
1085
00:50:22.079 --> 00:50:25.519
it's amazing. So you make it their idea. You ask them,
1086
00:50:25.840 --> 00:50:27.280
how are you going to save a dollar or make
1087
00:50:27.320 --> 00:50:29.440
a dollar by being in the same group as this
1088
00:50:29.519 --> 00:50:31.239
other company that does more or less the same thing
1089
00:50:31.239 --> 00:50:33.599
as you, and you get them to collaborate together on
1090
00:50:34.000 --> 00:50:37.199
that mega dollar or save a dollar. So don't you
1091
00:50:37.239 --> 00:50:39.679
don't have to plan and execute the synergies. They have
1092
00:50:39.760 --> 00:50:42.000
to plan and execute the synergies because that's the only way.
1093
00:50:42.519 --> 00:50:44.760
It will tend to work. So that LA's number one.
1094
00:50:44.960 --> 00:50:48.119
Number two, there are huge improvements that you can normally
1095
00:50:48.159 --> 00:50:51.480
make through simple financial engineering where you're not actually doing
1096
00:50:51.480 --> 00:50:54.800
anything with sales, marketing or costs but simply the way
1097
00:50:54.840 --> 00:50:59.519
the accounts are presented and delivered. So all accountants on
1098
00:50:59.639 --> 00:51:04.159
default setting aim to save you tax. Now, the way
1099
00:51:04.199 --> 00:51:06.360
to save tax is to make less profit. And when
1100
00:51:06.400 --> 00:51:09.480
you make less profit, you decrease the value of the business.
1101
00:51:09.760 --> 00:51:13.559
So simply by redressing the accounts in a profit optimizing way,
1102
00:51:13.840 --> 00:51:16.119
you can have a massive improvement to the same business.
1103
00:51:16.119 --> 00:51:20.440
So it is simple things like capitalization of expenses into assets,
1104
00:51:21.119 --> 00:51:24.119
the recognition of revenue, and the recognition of costs and
1105
00:51:24.519 --> 00:51:28.360
the way that you recognize those in the P and
1106
00:51:28.480 --> 00:51:31.079
L of the company. So there's a bunch of stuff
1107
00:51:31.079 --> 00:51:34.599
you can do there. And then on the joined up picture,
1108
00:51:35.000 --> 00:51:37.480
I would focus on the really low hanging fruit, so
1109
00:51:37.519 --> 00:51:39.599
the simple things that you can do that have the
1110
00:51:39.639 --> 00:51:44.239
biggest bang for buck, and it's typically things like the
1111
00:51:44.320 --> 00:51:49.000
obvious cost reductions, so stripping out things that just are
1112
00:51:49.039 --> 00:51:52.480
not needed or are cumbersome, and there's normally some really
1113
00:51:52.519 --> 00:51:57.320
obvious ones of those kicking around and increasing prices. A
1114
00:51:57.519 --> 00:52:00.960
five percent increase in prices in an average company is
1115
00:52:01.079 --> 00:52:04.239
forty percent more on the bottom line because that increase
1116
00:52:04.239 --> 00:52:07.599
in price comes with no incremental cost associated with it.
1117
00:52:07.960 --> 00:52:10.960
So adding five percent to the prices. You don't really
1118
00:52:10.960 --> 00:52:14.119
lose any customers that it's very rare that you lose customers,
1119
00:52:14.320 --> 00:52:16.880
but you add significant amounts to the bottom line. If
1120
00:52:16.920 --> 00:52:18.760
you think about it, if you just bought a company
1121
00:52:18.760 --> 00:52:21.800
for three times earnings and you've put it into another
1122
00:52:22.159 --> 00:52:24.519
put it with another company, and that you can now
1123
00:52:24.559 --> 00:52:28.159
get five times earnings because you're a bigger company. So
1124
00:52:28.199 --> 00:52:30.880
you can now increase the earnings that you get. But
1125
00:52:30.960 --> 00:52:33.599
you've just increased those earnings by forty percent as well.
1126
00:52:34.559 --> 00:52:38.039
You've actually got a really big uplift in shareholder value
1127
00:52:38.079 --> 00:52:40.840
from just those two things, putting two companies together and
1128
00:52:40.880 --> 00:52:46.599
adding five percent to their pricing. So, but there's fifty
1129
00:52:46.599 --> 00:52:48.639
things you can do, and like I said, there's a
1130
00:52:48.679 --> 00:52:52.079
four hour discussion around how you do those and also
1131
00:52:52.199 --> 00:52:53.719
some of the common sense things. This is why I
1132
00:52:53.760 --> 00:52:56.800
mentioned the synergies. You know, the first mistake I ever
1133
00:52:56.840 --> 00:52:59.079
made when I put two companies together was I drew
1134
00:52:59.119 --> 00:53:00.800
up the spreadsheet of all the savings we were going
1135
00:53:00.880 --> 00:53:02.920
to make, and then I tried to implement it. And
1136
00:53:02.960 --> 00:53:07.039
as you try and implement it, it's a fight. Every
1137
00:53:07.079 --> 00:53:10.039
single step, every simple thing you want to do is
1138
00:53:10.079 --> 00:53:14.159
a fight, and it's an unnecessary fight because if you
1139
00:53:14.320 --> 00:53:17.000
just chill out and let them take care of it.
1140
00:53:17.119 --> 00:53:21.480
It's actually it's kind of born in ego and our
1141
00:53:21.519 --> 00:53:25.480
own self importance. And because if you have that ego
1142
00:53:25.559 --> 00:53:28.079
and self importance, you think everything you have is right
1143
00:53:28.119 --> 00:53:29.400
and everything they're doing is wrong.
1144
00:53:29.440 --> 00:53:32.559
And that's if you come from that angle, it's it's
1145
00:53:32.599 --> 00:53:36.039
going to be a disaster. So bless you, thank you.
1146
00:53:36.559 --> 00:53:38.880
So yeah, there's a lot of stage advice in there,
1147
00:53:38.880 --> 00:53:40.760
and you're hitting on some cores. I realized this could
1148
00:53:40.760 --> 00:53:42.199
be a four hour discussion, but you're here.
1149
00:53:42.920 --> 00:53:44.639
We'll do it one day. I'm up for it, but
1150
00:53:45.320 --> 00:53:46.599
I'm going to put the kids to bed at some
1151
00:53:46.639 --> 00:53:47.440
point today.
1152
00:53:49.199 --> 00:53:51.800
But you also pointed something very important there, that this
1153
00:53:51.960 --> 00:53:55.719
accounting perspective, right, and so a lot of founders. I
1154
00:53:55.760 --> 00:53:58.360
actually just you know, recently had a conversation with a
1155
00:53:58.400 --> 00:54:02.840
founder trying to sell their company and they've been structuring
1156
00:54:02.880 --> 00:54:07.360
everything to avoid taxes, right, And so they're a company
1157
00:54:07.400 --> 00:54:10.000
does not look very profitable, and they're trying to sert, oh,
1158
00:54:10.039 --> 00:54:11.480
it's really actually quite profitable.
1159
00:54:11.519 --> 00:54:12.760
It's just that I've been you know.
1160
00:54:12.800 --> 00:54:14.239
I've just been lying to the tax panel.
1161
00:54:14.559 --> 00:54:16.760
Well, I think mostly legally I don't know bout it
1162
00:54:16.760 --> 00:54:19.360
completely legally, but you know, but they've been really trying
1163
00:54:19.360 --> 00:54:22.840
to minimize their tax By well, mister owner, in a process,
1164
00:54:22.880 --> 00:54:25.360
you've actually made your company worth a lot less money.
1165
00:54:26.000 --> 00:54:26.239
Yeah.
1166
00:54:26.239 --> 00:54:29.119
And often do you know rEFInd accountants don't even ask.
1167
00:54:29.400 --> 00:54:32.280
It's just default. So you know, things like when you
1168
00:54:32.320 --> 00:54:35.199
recognize an invoice and when you recognize costs associated with
1169
00:54:35.280 --> 00:54:37.920
delivering a service, the accountant will just look at all
1170
00:54:37.960 --> 00:54:40.000
the options and choose the one that generates the least
1171
00:54:40.000 --> 00:54:42.320
amount of profit. And they won't say to you, hey,
1172
00:54:42.360 --> 00:54:45.440
did you know you could recognize this invoice now or
1173
00:54:45.760 --> 00:54:48.480
when it's paid or when the service is delivered, And
1174
00:54:48.559 --> 00:54:49.000
if we do.
1175
00:54:48.960 --> 00:54:50.400
It this way, it does this, and if we do
1176
00:54:50.440 --> 00:54:51.320
it that way, it does that.
1177
00:54:51.400 --> 00:54:53.280
I mean, I remember when I have my telecoms company,
1178
00:54:53.320 --> 00:54:56.440
my financial director saying to me, hey, Jeremy, this year,
1179
00:54:56.480 --> 00:54:58.719
would you like to make three hundred grand break even
1180
00:54:58.840 --> 00:55:00.159
or lose three hundred grand?
1181
00:55:00.400 --> 00:55:01.960
And I was just like, well, hang on a second,
1182
00:55:02.039 --> 00:55:05.639
we have sales costs. You know, this is math. You
1183
00:55:05.639 --> 00:55:07.400
know you can't you can't have two plus two. What
1184
00:55:07.400 --> 00:55:08.519
would you like the answer to be?
1185
00:55:08.840 --> 00:55:11.239
And then he explained kind of a cruel accounting to me,
1186
00:55:11.280 --> 00:55:15.119
and I was like, Ship, this is this is insane.
1187
00:55:15.320 --> 00:55:18.760
And I remember I remember thinking like, you know, if
1188
00:55:18.800 --> 00:55:21.199
you teach entrepreneurs accounting, this is why you have things
1189
00:55:21.239 --> 00:55:26.960
like Enron, because they just get super creative with all
1190
00:55:27.000 --> 00:55:28.519
these opportunities that they have.
1191
00:55:30.920 --> 00:55:34.760
Yeah, and you know, I think owners are another issue,
1192
00:55:34.840 --> 00:55:36.880
especially small companies and founders.
1193
00:55:37.239 --> 00:55:39.599
They may be running a lot of their life through.
1194
00:55:39.400 --> 00:55:43.360
That business, which somehow I asked to get separated out
1195
00:55:43.400 --> 00:55:47.320
before you can really determine real solar discussion and income, right,
1196
00:55:47.360 --> 00:55:49.239
so they have to be more prevalent.
1197
00:55:49.960 --> 00:55:52.119
Yeah, it's more prevalent in the US than almost anywhere
1198
00:55:52.119 --> 00:55:56.360
else actually, to have you know, the nanny and everything
1199
00:55:56.440 --> 00:56:00.920
kind of running through the books in Europe, you see
1200
00:56:00.920 --> 00:56:02.679
it a little bit in Australia in place on that
1201
00:56:02.760 --> 00:56:04.039
you see it a little bit in the US.
1202
00:56:04.039 --> 00:56:06.239
It seems like it must be compulsory over there.
1203
00:56:07.639 --> 00:56:10.719
So we're kind of coming near the end of our time.
1204
00:56:10.760 --> 00:56:13.519
It's been really illuminating and so much to take action
1205
00:56:13.639 --> 00:56:15.800
on here. What I wonder if we could talk a
1206
00:56:15.840 --> 00:56:21.199
little bit about two things. Being someone who's uh, you know,
1207
00:56:23.239 --> 00:56:25.239
running an m and a business. Okay, you're you're in
1208
00:56:25.280 --> 00:56:28.840
the M and A business, And so how's that different
1209
00:56:28.840 --> 00:56:30.760
than running a regular business? And you know, what are
1210
00:56:30.800 --> 00:56:33.760
the qualities of a leader who's doing that? That's one
1211
00:56:33.840 --> 00:56:37.239
the one question. And then also, uh, what does success
1212
00:56:37.320 --> 00:56:40.599
really look like post exit, either for a founder or
1213
00:56:40.599 --> 00:56:42.800
for someone in the M and A business you're buying
1214
00:56:42.840 --> 00:56:43.760
and selling companies?
1215
00:56:43.760 --> 00:56:44.920
What are you looking for?
1216
00:56:45.000 --> 00:56:47.559
What's what's how do you define success? And and what
1217
00:56:47.679 --> 00:56:50.199
makes a good leader in this business, the M and
1218
00:56:50.280 --> 00:56:53.239
A business as opposed to other industries and businesses.
1219
00:56:54.119 --> 00:56:56.280
Yeah, that's a really good question and actually not not
1220
00:56:56.320 --> 00:56:58.480
one I've ever been asked before, So I'm kind of
1221
00:56:58.920 --> 00:57:01.119
there's very few sentences is that start that I don't
1222
00:57:01.159 --> 00:57:03.280
know how they finish in these in these kind of interviews,
1223
00:57:03.280 --> 00:57:05.800
So it's an unusual one to actually kind of come
1224
00:57:05.840 --> 00:57:08.599
back to looking at it in those terms. I Mean,
1225
00:57:08.639 --> 00:57:12.320
what works really well for me is I'm the front end.
1226
00:57:12.480 --> 00:57:15.119
I'm the deal maker. I'm the person that sits with
1227
00:57:15.159 --> 00:57:19.719
the business owner and constructs the structure and the deal.
1228
00:57:19.920 --> 00:57:21.880
And I guess a bit like an entrepreneur not being
1229
00:57:21.920 --> 00:57:25.679
terribly useful after startup phase, I'm not terribly useful after
1230
00:57:25.719 --> 00:57:28.719
that point. And so they'll generally only wheel me back
1231
00:57:28.760 --> 00:57:32.480
into a deal if it's going wrong. Effectively kind of
1232
00:57:32.519 --> 00:57:35.599
needs to be resold because it hasn't quite gone the
1233
00:57:35.599 --> 00:57:38.360
way it's supposed to go. And I'm in WhatsApp communication
1234
00:57:38.480 --> 00:57:41.639
with the business owner throughout the entire transaction, but all
1235
00:57:41.639 --> 00:57:44.400
of the legal and finance stuff is going on completely
1236
00:57:44.559 --> 00:57:46.960
separate to me, and I often don't know what stage things.
1237
00:57:46.800 --> 00:57:48.239
Are about or quite where they are.
1238
00:57:48.519 --> 00:57:50.280
And I would say the difference between an M and
1239
00:57:50.320 --> 00:57:53.119
a business, So I guess an M and a business
1240
00:57:53.199 --> 00:57:55.880
is a business because it has staff, it has customers,
1241
00:57:55.880 --> 00:57:58.800
it has marketing, it has sales, you know, but the
1242
00:57:58.880 --> 00:58:03.599
product our company, and you know, when we're busy, we're
1243
00:58:03.599 --> 00:58:07.320
doing roughly a deal a month, and it tends to
1244
00:58:07.360 --> 00:58:10.119
be a bit feast or famine, so those deals don't
1245
00:58:10.119 --> 00:58:12.519
come in nice and regularly every four weeks. You'll do
1246
00:58:12.599 --> 00:58:14.920
nothing for three months and then do two at the
1247
00:58:14.920 --> 00:58:16.719
same time, and then do nothing for a month, then
1248
00:58:16.760 --> 00:58:19.519
do four at the same time. So it tends to
1249
00:58:19.519 --> 00:58:21.239
go a little bit like that. And when you have
1250
00:58:21.679 --> 00:58:23.880
a lot of transactions happening at the same time, it
1251
00:58:24.159 --> 00:58:26.880
can be extremely busy. And I take a lot of
1252
00:58:26.920 --> 00:58:29.360
vacations if you look at my wife's Instagram, you'll see
1253
00:58:30.079 --> 00:58:31.840
I don't post this kind of stuff, but yeah, you'll
1254
00:58:31.880 --> 00:58:34.559
see on her Instagram all the different places we're going
1255
00:58:34.599 --> 00:58:37.159
off to all the time. And I always joke that
1256
00:58:37.199 --> 00:58:38.760
the best way to get a deal closed is to
1257
00:58:38.800 --> 00:58:41.199
take an expensive vacation, you know, so you go to
1258
00:58:41.239 --> 00:58:43.760
the chevel bloc in the mold Eves and the day
1259
00:58:43.800 --> 00:58:45.960
you arrive is the day everybody wants to complete.
1260
00:58:46.400 --> 00:58:50.360
So it's great.
1261
00:58:50.440 --> 00:58:52.920
It's a great way to make deals happen. It's a
1262
00:58:52.960 --> 00:58:55.639
bit like the restaurant food always arrives.
1263
00:58:55.280 --> 00:58:58.159
You know, yeah, exactly when I'm doing interviews and a
1264
00:58:58.159 --> 00:59:00.239
person hasn't arrived, depth, all you gotta do is start
1265
00:59:00.280 --> 00:59:02.639
writing email and then they arrivee exactly.
1266
00:59:02.719 --> 00:59:05.519
Yeah, yeah, timing how that works.
1267
00:59:05.639 --> 00:59:07.360
On a much bigger scale of course. So it has
1268
00:59:07.400 --> 00:59:11.000
been incredibly valuable. Jeremy, I really just appreciate this so much.
1269
00:59:11.000 --> 00:59:14.320
There's so much to take action on here. How can
1270
00:59:14.360 --> 00:59:17.360
people find out more about your companies and the services
1271
00:59:17.360 --> 00:59:19.519
and the programs you offer? And I also know that
1272
00:59:19.559 --> 00:59:21.920
you put together a wonderful free gift priority and so
1273
00:59:21.960 --> 00:59:23.599
maybe she could tell us about how they can find
1274
00:59:23.639 --> 00:59:25.400
you and how they can find that free gift.
1275
00:59:26.119 --> 00:59:28.760
Yeah, absolutely so. Look, I'm on all the usual social
1276
00:59:28.760 --> 00:59:31.440
media things. If you go to Harbor dot jeremy and
1277
00:59:31.440 --> 00:59:33.400
it's the one with the blue tick. If they're trying
1278
00:59:33.400 --> 00:59:37.280
to sell you crypto, it's not me, so the Harbor
1279
00:59:37.320 --> 00:59:38.480
dot Jeremy with the blue tick.
1280
00:59:39.119 --> 00:59:40.719
We also have a Harbor Club.
1281
00:59:42.159 --> 00:59:45.280
Instagram account and you can tell which which one is
1282
00:59:45.280 --> 00:59:47.119
the right one because I'm following it. It's the only
1283
00:59:47.119 --> 00:59:49.559
one that I'm following that's called Harbor Club. We also
1284
00:59:49.599 --> 00:59:52.519
publish loads of YouTube content and stuff. But when Fleet
1285
00:59:52.559 --> 00:59:57.039
asked me to do something special for you guys, we
1286
00:59:57.159 --> 01:00:01.199
actually have a twenty one day email course. Now we've
1287
01:00:01.239 --> 01:00:03.159
been told that this is better than most of our
1288
01:00:03.199 --> 01:00:07.639
competitors full priced products. We developed it during COVID because
1289
01:00:07.639 --> 01:00:09.480
we were sitting at home with nothing to do and
1290
01:00:10.320 --> 01:00:12.039
we weren't running live events, so.
1291
01:00:12.000 --> 01:00:14.800
We put this course together. But it's really good. It's
1292
01:00:14.800 --> 01:00:15.440
really relevant.
1293
01:00:15.480 --> 01:00:17.840
It teaches you how to source deals, how to put
1294
01:00:17.840 --> 01:00:20.599
no money down deal structures together, how to optimize the
1295
01:00:20.679 --> 01:00:23.039
value of the business, how to market it for sale,
1296
01:00:23.360 --> 01:00:25.679
and also some wealth tactics that we use with the
1297
01:00:25.719 --> 01:00:29.360
capital events in order to drive income after we've sold
1298
01:00:29.400 --> 01:00:32.039
a business, and it takes you through it with an email.
1299
01:00:32.079 --> 01:00:33.519
It's multi.
1300
01:00:34.519 --> 01:00:37.000
Multimedia, so you've got some videos to watch, some stuff
1301
01:00:37.000 --> 01:00:40.880
to read throughout that twenty one day period. If you want,
1302
01:00:40.920 --> 01:00:42.400
you can just save them all up. You'll get one
1303
01:00:42.400 --> 01:00:43.800
a day. You can save them all up in one
1304
01:00:43.800 --> 01:00:45.760
folder and do it in your own time.
1305
01:00:45.880 --> 01:00:48.480
But yeah, entirely up to you.
1306
01:00:48.719 --> 01:00:50.800
But all you need to do is just create open
1307
01:00:50.840 --> 01:00:54.360
an email, put heart mind in the subject line and
1308
01:00:54.440 --> 01:00:57.719
send it to Chrissy at Harbor Club Events dot com.
1309
01:00:57.760 --> 01:01:02.000
Now Chrissy is Criss unusual spelling, but c r I
1310
01:01:02.440 --> 01:01:06.559
s s y and then at Harbor Clubevents dot com
1311
01:01:06.599 --> 01:01:09.440
and Harbor and British so Harbor spelt funny, it's.
1312
01:01:09.599 --> 01:01:13.199
H r b o u r so hr b ohu
1313
01:01:13.320 --> 01:01:14.800
are Clubevents dot com.
1314
01:01:14.840 --> 01:01:17.000
Send that message to Chrissy and she'll reply with the
1315
01:01:17.079 --> 01:01:20.239
twenty one day email. Course every day for the next
1316
01:01:20.280 --> 01:01:21.119
twenty one days.
1317
01:01:21.400 --> 01:01:23.679
Wonderful note leaks are right down below so people would
1318
01:01:23.800 --> 01:01:26.679
encourage ours to take action on this right now. So again,
1319
01:01:26.760 --> 01:01:29.920
thank you so much. Jeremy Harbor from Harbor Club, thank
1320
01:01:29.960 --> 01:01:30.559
you so much.
1321
01:01:31.119 --> 01:01:32.639
Thank you for having me. It's been wonderful.
1322
01:01:33.039 --> 01:01:33.480
Be well.
1323
01:01:36.079 --> 01:01:39.519
Thank you for joining me on the redic Responsibility podcast. Remember,
1324
01:01:39.679 --> 01:01:42.880
real change happens when we commit to our growth, face
1325
01:01:42.960 --> 01:01:46.800
our challenges with compassion, and stay open to transformation. If
1326
01:01:46.800 --> 01:01:49.480
you found this episode help, I encourage you to subscribe
1327
01:01:49.480 --> 01:01:52.559
and help us spread the message of healing and personal empowerment.
1328
01:01:52.800 --> 01:01:56.199
Until next time, stay grounded, stay present, and stay true
1329
01:01:56.199 --> 01:01:56.760
to yourself.
1330
01:01:56.840 --> 01:01:57.280
Take care,