Business Case Studies To Make Your Family Finances Sing (with John Warrillow)

well on these cold days here in the south last week oh gee i thought to myself man is this bad life is bad when you're in a house that's not made for these temperatures and then you look at all of our friends in houston and southern texas and people these stories you're hearing about people out of power for long periods of time and pipes bursting and stuff and i think man they got it bad and then you know what i think i think about these people out on navy ships on these long cruises defending the country and then i think my life's not not so bad after all things are pretty good for me because of a lot of these people so on behalf of navy federal credit union our team here at stacky benjamin's want to start off the show today with a big navy federal shout out to our men and women serving in the armed forces thanks for all that you do let's go stack some benjamins so faced with a question where did they go next with this podcast the guys were recently joined by legendary musical genius bruce dickerson who's agreed to be the new producer of the stack and benjamin show they were all excited to meet him hey fellas i'm bruce dickerson yes the bruce dickerson you have a dynamite sound fantastic sound i have only one suggestion more cowbell [Music] live from joe's mom's basement it's the stacking benjamin show i'm joe's mom's neighbor doug and we all know that systems and processes are the only way to grow a great business but what about for your family budget here with business case studies that you can use in your life to get ahead we welcome mr built to sell radio john warlow plus the gamestop-related lawsuit slinging has begun who's suing who we'll share that and what advisors are thinking about bitcoin during our headline segment later we'll toss out the haven lifeline to zach who has a question about his individual stock investing strategy and i'll save time for my stellar trivia and now two guys who did a horrible job setting this podcast up to sell it's joe and oh j-j-juji it turns out it was about systems and not about just frugality oh there's always a price it's just not gonna be a great price to sell it right now maybe we need to listen to today's guest john will help us a little bit hey everybody welcome to the lowballing podcasters for the win podcast i'm joe salce hi average joe money on twitter and across the card table from me the man the myth the legend with coffee mr og yeah running a little low we're recording this a little early but uh we're hoping to get to the grocery store this week i see you got your hair done and everything oh oh i guess so huh that's got to be amazing like a hurricane going on there we have a fantastic guest today a guy that you like a lot i like a lot a man who knows systems to build businesses as well as anybody john warlow's with us today og love that book built to sell i love parable books they just yeah they just stick with me well he's got a new on the art of selling your business and it's funny because i think a lot of our listeners are going to go what does it have to do with me you and i know that when you look at yourself as a company cfo and you set up your business around systems your family around systems and so you can focus on your family you know it's funny we have the the not to go right to one of our advertisers but we got the haven lifeline talking about do what matters don't spend time filling out life insurance applications it's also not thinking about your roth ira or wondering what your tax strategy is or figuring out your retirement number over and over and over and over oh gee it's about about living your life yeah build the systems around it i like it we got great stuff here john warlow's here today but first og next wednesday night you want to mark your calendar because we've got a huge event our third stack happens and as you know from the planning of this thing uh oh gee from our planning meetings this is going to be the best one yet fantastic wednesday night now who's going to be there what's it all about well here's what we decided to do now stackers the first time we brought you four industry experts to help you rebuild your benjamin stack that was a lot of fun last time we brought you silicon valley's magician for billionaires talking about how he had to pivot during the time of covid and with lessons about pivoting in your life which so many people had to do in 2020 we also brought you a reformed drug dealer michael sanchez with an amazing story and then of course the grandmother of the fire movement vicki robin who do we have this time what lessons we gonna teach this time oh gee we have something new going on we're keeping it a secret do i get to know you already do know oh it is i just didn't know if this is one of those like game night things like oh yeah it's game night again yeah hot or cold this is going to be a fantastic we have a fantastic lineup of guest a great guest co-host who's going to join og and i 75 minutes of fun you want to be there or be square yeah it's all live on youtube we're going to give away books also if you sign up early so mom knows that you're coming so she can make sure that we're all ready for you we're also gonna give you some helpful tools that will also be hints as to who our big guests are going to be big names lots of learning but more than anything fun hanging out with all of our basement characters stackybetgermans.com forward slash stack that is wednesday march 3rd the fun starts at 8 p.m eastern 5 p.m pacific if i got my math right

stacking benjamins.com forward slash stack get on the list in a hurry because we're sending out some cool tools to everyone who tells us they're coming all right that's the stack gonna be a lot of fun let's get today's show started with some uh some pretty wild headlines hello darlings and now it's time for your favorite part of the show our stacking benjamin's headlines our first headline comes to us from the gaming site polygon written by owen goode the hits just keep coming og this is what happens every time there's money involved in a situation roaring kitty reddit investor sued overroll in gamestop stock surge oh boy lawsuit alleges that keith gilco is no robin hood and made more than 48 million dollars for himself one of the principal figures in a group of reddit investors who drove a huge surge in gamestop share price in january as being sued in federal court and a class action complaint alleging securities fraud the lead plaintiff a washington state investor suffered quote substantial financial losses when he used two hundred thousand dollars to speculate on gamestop's price when the company stock was below 100 it then went skyrocketing to a record closing price of 51 on january 27th in a story that caught mainstream media's fascination for more than a week the lawsuit says keith gill of massachusetts known on reddit is deep effing value and on youtube his roaring kitty is a shrewd investor representing himself as an average joe who beat big time investors at a shady game lawsuit says gil instead made 48 million cashing out from his day job as a licensed trader with mass mutual in boston individual suing gill christian ivan alleges gil was illegally manipulating gamestop share price by encouraging his youtube and reddit audience to hold other shares of gamestop causing what's called a short squeeze to artificially spike the price whenever there's money to be made and somebody loses how many times over the last nine years oh gee have we seen this happen yeah something happens people start suing people i read this article i read what this uh trader did he didn't lose he just bet wrong so what he did was he sold a call option which when you sell something in the market you have some obligation in the future so he had an obligation to provide those shares at 100 bucks to somebody else and he's saying because i'd give him to somebody else at 100 when it was really trading at 400 i lost out on that 300 share but when you sell a call option when you sell that type of derivative you get paid in cash today so that's the bet that you make you make the bet that hey i'm gonna take this cash today in exchange for no future upside so if you let's do this with the normal company like apple so apple is trading at 130 dollars if you think that apple's not going to trade above 140 by april you can sell the right to somebody to buy t from you for 140 bucks in exchange for that promise in exchange for that promise that you gave that said hey i'm gonna give this to you at 140. somebody has to give you cash today that's the exchange so he probably got some not some money he probably got a substantial amount of money especially if gamestop was under 100 at the time and it was volatile because it's priced on volatility so you know it's not like he got he didn't get anything he just bet incorrectly but he still if he did deliver shares it through somebody if somebody went ahead and bought that call when he was when it was trading at 300 let's say uh he's he's still eating it big time i'm sure that call the premium he got for selling that call the amount of money he got for selling it was nothing compared to what he had to deliver yeah and that's the same sort of strategy that the allegedly the hedge funds were doing which was selling it short he effectively was selling it short at 100 saying hey at 50 i'm gonna sell it short at 100 it's never going to go to 100. and it goes to 200. now he's left holding the bag going uh-oh i got i got to get out of this somebody's come knocking on my door going hey you promised to give me a whole bunch of stock at 100 sure it's at 200 i want that but that happens every day that happens all that sort of trade happens hundreds of millions of times a week and this dude got it wrong now i don't know anything about uh keith gill i don't uh really care to i do know that he's a cfa which means that he's taken some advanced coursework and advanced licensing in uh security analysis and as i understand it he wasn't actually an advisor at massmutual but more of a tech uh person around uh trying to create programs and stuff for for investors so he was licensed but he wasn't you know an advisor so yeah he's probably gonna have some reckoning for the um for the fact that he was licensed and kind of running the side business that nobody knew about but houses different than any other sort of trading website or newsletter subscription you can buy or freaking twitter i mean this guy bet wrong and and lost was there anybody who didn't think that this guy was making money i mean he seems to be he publicized it every he publicized everything he was doing the whole time and what what's what's more interesting is if it really was a long con right if it was it took him like the better part of a year and a half to pull it off yeah and i was just thinking a family member of mine thought he got in late he got in november yeah well this guy was posting about it back in early 20 mid 2019 and everybody called him you know he's like oh you're full oh you're full and he's like no this is my rationale behind it it wasn't obviously the short selling had an impact on that but it was and he laid his case out a couple of times of like here's why i'm doing this and here's what i think you know the business is cash flow positive land is worth whatever and all this other sort of stuff i i mean for everybody out here who who is elbow deep and benjamin graham that's that's security analysis by benjamin graham but the value of the organization of the parts pulled apart is worth more than the stock price then you've got a value stock like if you the land and the cash flows and the you know all the equipment and all that sort of stuff if you could sell it all for more than the value of the stock then guess what the stock's undervalued you got a discount that's a benjamin graham thing and that was kind of his point i don't think that he expected it to go to freaking 450 a share which by the way to my knowledge anyway i don't think he sold all of it at that point now he sold some along the way but anyways nevertheless this is part of the problem with with litigation i think that there's a need for people who are manipulative and uh people who do things incorrectly who are wrong you know cheats in the system and so on so forth this you know to be punished but if you look up this company's law firm's website or follow their twitter posts they literally every stock that goes down they tweet about it like hey did you own this stock and it went down we can sue you for it hey did you own this stock and i went down yeah we can sue for it hey did you own this talking right now we could switch off in the case it's not even this particular investor it's the firm doing what they do best it is and you know by naming this dude they put a face to it and then they also imply that mass mutual has something to do with it and mass mutual is you know not dumb they have tons of attorneys and lots of money so they're gonna say yeah just make this go away here's a million dollars you know and the law firm's gonna get their 30 percent and you know off they go and i mean to disparage law firms that do this for clients because there are lots of places and times and opportunities where people are misbehaving and and that's what it's for but this is a little bottom feedy for me our second headline also going to the get rich quickers among us uh a piece i saw on investment news oh gee advisers agree it's time to stop ignoring bitcoin another headline now that is now that it's at 52 000. well that's that's the thing does this this feels so reactionary we spend so much time telling people what is a what does a pro do a pro does not respond to anything a pro does not react a pro has a plan going in and then adjust in a systematic way through an investment policy statement any advisor right now going oh yeah i think i got to tell people to get into bitcoin goes back to 2020 remember the story that you told about the advisor who sold all his clients stuff on the worst day yeah just uh why advisors saying now it's time to stop ignoring bitcoin especially because it went from 3 000 to 52 000 and they've all sat down and done the math but here's the thing first of all it's not like when bitcoin was at 3000 you could have an honest discussion with most of your clients and go listen i think we're gonna put five percent of our portfolio in this they would have you know been like saying hey tesla's at 70 bucks we'll sell everything and put it in tesla like who would you can fantasize about that you know the past always sounds really rosy when you cherry pick all the good stuff that happened in it and then you apply your situation to that and and what if it to death yeah i mean it would have been great if i would have picked all six numbers correctly in the powerball a couple weeks ago too you know you called and been like hey are we recording are you coming over to the basement to record and the phone would have been like doo doo doo we're sorry the number you've called has been disconnected you know we can all fantasize joe yeah but my point is is that in no real world does that exist yeah i you know what listen i wish hand to god i wish that during the recession in 2009 and also this more recent one i wish i would have like literally taken all of the available credit i had all cash advanced and dumped it all into tesla options i sold your house i wish i lived in a tent yeah i didn't even have to do that i could have just taken all the i would have actually i mean if i could see back into the past i would have totally done that i would have taken all my mom's money i would have called my dad and all taken all his money all my family i would have taken your money everybody's money and put it in tesla options and bitcoin god i wish i would have done it but guess what i didn't you know why because it would have been effing stupid to do well you know what you do next you didn't do it so you sue elon musk exactly that's exactly what you got to do yeah but think about this from you know we talk about like people have a plan for this think about this from an actual logical investment policy statement type of question if you believe like we do that you know you can't control or predict the future that we don't know which stocks are going to outperform we don't know which countries are going to outperform therefore we should have a lot of everything and we should be pretty well diversified using that theory you could argue and say well cryptocurrency or bitcoin or whatever should be a part of that because it's a it's it's some part of the of the world's you know investment allocation so to speak fine what percent is it you know you say well the the u.s gdp is 55 of the world's gdp so

maybe 55 of our money should be invested in the u.s if you think of that maybe there's a little home bias so using that logic what's the number for bitcoin i don't know it off the top of my head but the number is in the decimals of percents 0.5 0.7 maybe one percent you know the total market cap of bitcoin is under a trillion right it's like 900 billion so that puts it in line with like the same size as like a tesla or half of an apple you wouldn't put all of your well some people did put all their money in tesla some people you know what i mean yeah so should you have some yeah maybe maybe not should you put all of your money in it probably not but if you're going to and you're thinking of it like an investment and thinking of it like your investment policy statement what would you do it might be a half or a one percent waiting put it in your sandbox account or that yeah i thought there listen there is no such thing as timing the market right because like as you said the his history will always show that when you try to time the market wrong but it does seem weird goes from five thousand to fifty thousand and all there's this piece about oh hey we should pay attention to this but on the same damn day og there's another headline at yahoo finance this is written by uh jamie crawley bill gates says he's neutral on bitcoin the big thing here though is that gates points out that the volatility bitcoin driven by quote mania and the difficulty of predicting how prices will progress is part of the problem and the fact that it has to be if you're using it as a currency and people are buying it as an investment you have the same dichotomy that we've talked about over and over on this show right is it investment and and should i load up on it or is it occur if it's a currency i need to be able to buy a sandwich with it yeah i can't buy a sandwich with something going from five thousand to fifty thousand i can't do it like why the hell would i spend a bitcoin on something when i could take a dollar i know isn't gonna appreciate out of my wallet and buy my sandwich yeah i was just reading it oh god sorry well he also says just one more thing he says that he would short bitcoin if there was an easy way to do it at this point he would short bitcoin i take that back i'm sorry this is i i just read the end of that quote that was from 2018 that he said he would short pick up well [ __ ] well there you go bill good job look at this i mean and so clearly bill gates doesn't necessarily have his arms around bitcoin but when i look at smart people and they're going ah man i don't know it just it just tells me that advisors saying hey we need to we need to ramp this baby up at the same time same day gates is saying i don't know i'm neutral well yeah and that's and we use the word advisors and air quotes because that's really not being an advisor that's being true a broker you know what i mean that's being a bit that's no different than a portfolio manager getting to the end of the quarter and going what was the number one stock this quarter oh my god it was tesla we don't have any tesla buy a whole bunch of tesla the last day so that when our quarterly numbers post and everybody goes what did you own you go yeah look at all the tesla we have like that's it's just making you know what do they say lipstick on a pig it's trying to make it look pretty but if you're looking at this from an investment perspective which i'm with you i don't know how you can use it as a currency right i mean could you imagine what would you do with your dollar this is what i was going to say i was reading this book called the storm before the calm it's written by this futurist guy his name is george friedman and i really liked his other book that he wrote maybe about 10 or 15 years ago called the next hundred years where he talks kind of lays out like what the century is going to look like in terms of progress and technical advancements and so on and so forth so this book the storm before the column was all about the u.s cycles anyways but he goes into detail and a couple of different times where the us currency when the dollar ebbed and flowed so greatly because of it being backed by gold and that being backed by silver and then being backed by gold and silver and then being backed by nothing and then banks collapsing and like the impacts that that had and to your point when it was backed by gold early on people were like yeah i'm gonna hold on to this because i'd rather have gold than money and since i can go trade this money in for gold i'm not going to spend it you know so when it's an investment you tend to hang on to it you know i mean you've heard the stories of the people who bought pizzas with 10 000 bitcoin and all that sort of so you want to be that story you know if it's going to go from 5 000 to 50 000 or 50 000 to 250 you don't want to be the guy that's like yeah i spent a third of a bitcoin on a car and now that car's worth 10 million dollars in bitcoin you know that's you want to do that so so you'd hold on to it i'm just thinking if i bought that old ford aerostar i had a long time ago the one that i i ended up donating to charity after it was just done and i'm thinking i'm thinking if i bought that with bitcoin well there was a story not too long ago about this guy it was a billionaire who did the first bitcoin transaction did we talk about this you did about the tahoe property yeah and now it's worth you know 100 million dollars or something in bitcoin it's like you don't want to be that guy no if you're going to have it small percentage you know who you want to be though g you want to be somebody that has a good dashboard when it comes to managing your money because managing your money as you know has typically been complicated time consuming just another reason to bite your nails but for half a million investors who've accounts with m1 finance investing smarter more automated and easier than ever do 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sb to sign up and all stackers are gonna get 30 to invest that do sign up terms and conditions apply i think our lessons number one is lose a little money in the stock market go sue somebody og there's a good idea been meaning to call the attorney i gotta do that about my cannabis stock yeah you need both i've had a lawsuit there for quite a while that was a big swing and a miss on my part then our second takeaway work from an investment policy statement when you're creating your investment portfolio don't react and decide hey i got to do something with this put together a more comprehensive plan and you're not going to make mistakes and then you might have to sue anybody [Music] john warlow is a guy that og you and i have known for a long time i'm very excited he was one of these guys that i'm just proud to uh say that he's a friend of ours he has built and sold businesses himself so he knows what it takes to have the systems to build value and for business owners he created the value builder system which is a simple software for building the value of a company and it's used by thousands of businesses worldwide in fact what you do is you keep working on your company ogt you get a score of over 90 and then you know that your business is set to sell when it comes to this i know there's people already thinking i don't own a business this one's not for me we're not going to really talk about business today we're going to talk about some of the correlations that we can make between setting your business up to sell and setting your family up first financial success so whether you're planning your retirement like somebody who's selling their business or you're somebody who's just trying to make things hum better so you can live your life more we're gonna talk about all that john warlow on today's show [Music] and coming down the stairs to the basement it's our friend john we're hello how are you man i'm good how are you well i'm great i'm sorry you got to sit across the room but mom adheres to the rules yeah absolutely you have to right social distancing absolutely but i'm glad that you included us on the book tour why did you you of course have the best seller built to sell you had a follow-up book which actually was amazing that we can talk about too but why this book the art of selling your business built to sell came out and i started a podcast called built to sell radio i've done something like 300 episodes one of the things i noticed that most of the entrepreneurs i interview have kind of regular exits they go for multiples that are pretty industry standard and then there's this sort of cohort of my case studies interviews that trade at multiples of revenue like they they are way outside of the box in terms of what is normal for their industry and so i got to thinking it would be cool to to try to deconstruct what they do these these entrepreneurs who are selling for multiples of revenue and uh and that's what started the journey and and that's what ultimately became the art of selling your business i want to ask you some questions about that later some of the things especially that surprised you that some of the outlier people are doing but i'm very fascinated about the idea of just built to sell john because of the fact that when i was a financial planner i got great lessons from looking at how businesses operate how good businesses operate and i know i'm built to sell really your whole focus during that book was about that same thing set up set up your business so it gives a better value proposition to people so that it's worth more right i mean isn't that contextually what you're trying to do to sell a business effectively yes you want to create it so that it doesn't rely on you it's an independent entity and and that's in many ways the same thing you're trying to do when building out a wealth plan but we can talk more about that but yes that is the essence of building to sell when you've sold businesses and you've sold several businesses is my understanding the early businesses what were some of the mistakes you made oh my gosh so many he's like yeah yeah i remember one i was building a quantitative market research business we like us what's that i said like us all yeah well we did we did quantitative market research like you know uh telephone surveys internet surveys and we had about five or six million bucks worth of revenue we had clients like some of the best blue chip client microsoft and bank of america really good clients and i went down to see a guy named perry mealy in his office in toronto and perry's an m a professional and i was kind of walking into the office super confident right like i've got this amazing business it's gonna be worth the truckload and i say perry five million bucks in revenue what are we worth right and i'm waiting for the you know the stack of benjamins that yeah the big number and perry says well before i answer that question let me ask you two questions and i say shoot okay your market research company question number one well who does the research i'm like my research guys do the research he's like you're telling me like bank of america hires you to do research and you're not overseeing that work and i said okay fine i'm involved in the research right now he said okay question number two who does the selling oh those are my sales guys do the selling and he's like you've got clients like american express don't you think that if american express calls you're personally taking that call and i'm like all right fine sure i'm involved in the selling and so perry responded by saying all right john well here's the deal you've got a market research company where you're doing the selling and you're doing the research i got bad news for you i can't sell your company it's worthless and i was like punched in the gut right just absolutely crestfallen coming into his office thinking i had this huge business leaving feeling like it was worthless and so that was my introduction to what actually drives the value of a company with versus what i was perceiving to drive the value of the company long story short i i transitioned that company into a recurring revenue business one like a little bit like a mini version of a bloomberg thompson reuters and ultimately perry was able to sell the company um to a publicly traded company so it had a half a happy ending but it was a very bitter pill to swallow when i first heard that i've got 50 specific questions there and and and i love this as a case analysis for building personal wealth because it sounds like what he's saying john is the first thing you've got to do is exactly what he kind of trapped you with it sounds like by taking yourself out of the company same way to build wealth right take yourself out of the process automate things well not only automate things but you want it working without you right so you want basically your wealth to be stacking on itself right those little army of dollars building and expanding over time through the magic of compound interest you want that to be happening without you right so once you build an amount of wealth it starts to build on itself same thing is true of the business right you want the business to grow to a point where it can succeed without you i had not done that in that business it was still dependent on me and and equally i think you know some people who are still in the very early days of wealth accumulation you know they haven't reached that that threshold with where their their account starts to take on a life of its own independent of the hours they put into work etc what's interesting about that is in the us anyway your money so much more tax advantage so when you when you're money and i'm borrowing this from a guy robert kiyosaki i'm borrowing his analogy so i'll apologize robert for stealing it for this discussion but when your money goes to work with this lunch pail every day it's being taxed less than you are so actually building that more quickly makes you much more efficient but i'm also thinking just backing away john when you take yourself out of that equation you start thinking about where i fit you talk to people in the business of selling businesses all the time that must get them thinking where's my role and i would guess that role has to be in building a better engine instead of how do i do the selling how do i create a better mouse trap is that true yeah absolutely true you know i learned this one the hard way i got invited to a conference thing called birthing of giants it's been rebranded emp it's in at mit's executive education center 60 entrepreneurs in the room and in what we had speakers like jack stack talking about open book management and and uh palin shoney talking about leadership and in walks the final speaker of the day and i'm in this auditorium this kind of amphitheater thing and he starts off with a question he says look how many of you guys guys name was steven watkins he says watkins says okay how many guys are involved in the selling of your product or service and like every one of our hands raised up in the air right proud of ourselves for being rain makers through our company right and you know he took a long pull on his water and he said all right you've got all the right skills to be an entrepreneur but you're selling the wrong product and kind of everybody leaned forward on their chair saying what are you talking about he's like you've got all the right skills but what you should be doing is investing your sales and marketing skills in building the value of your company selling to your company talking to investors about why your company's great not the customer hire sales people to sell to customers you should reserve your selling talents for your company you know i always remember that lesson because it felt like you know when you want you think oh like i'm a pretty good basketball player and then you actually watch a professional game and you go i am completely terrible relative to the professionals it was like i'd been given a glimpse into what actual entrepreneurs think about and that i was uh i had been playing an amateur's game before that's that is a huge aha and while on one end it's a real kick in the teeth on the other i think that's a nice splash of water wake up call john it absolutely is it absolutely was it certainly was for me and so that the whole idea of building a company that is is basically working while you sleep that that same notion of building wealth the other piece i think the the other nice parallel between building wealth and building a business is is this notion of what we refer to as the switzerland structure where in a business you don't want to be overly dependent on any one customer employee or supplier we give it the name the switzerland structure because of course switzerland is is the kind of famous for independence right like it's butt of a joke right well i'm going to be switzerland of this right very independent-minded people and i think the same is true building wealth right like if you're all bitcoin if you're all tesla stock all those that's that's worked out well for you recently but it is not necessarily the foundation of a great portfolio right you want diversity you don't want to be overly dependent on anyone's stock et cetera so i think there's a lot of these sort of parallels if you will when you see business owners getting ready to sell their business where do most of them need help i think a lot of them need help answering the question why do you want to sell we talk about pull factors and push factors but push factors are all the things that frustrate owners about their company right tax the irs employees you know regulation all the stuff that is frustrating for entrepreneurs yet we have found the most successful happiest entrepreneurs and again i think this is also true of creating financial independence the most successful and happy entrepreneurs are the ones that think more about their pull factors meaning what are they excited to go do i remember i did a podcast with a guy named sean oschman he was a denver based entrepreneur who had an i.t consulting cup a couple million bucks in revenue not a big company but he decided on his 39th birthday that by the time he was 40 he wanted to be living on a sailboat and so he got to think okay how am i going to do this here he's landlocked denver right and he figures well there's no way i got to sell my company so it goes to a broker says you know sell my business ultimately the broker comes back with an offer between two and three times profit and ashman says all right well as long as you can get me the cash before i my 40th birthday i'll take the deal and i asked sean after he accepted the sale and we talked about on the on the show and i said like how do you feel about that because two to three times profit is like it's an okay exit but it's not like a like a spectacular exit right it's not like front of the newspaper kind of accident yeah and he says i'm super happy and i said why are you so happy because i'm because i'm living on my sailboat and it was a good reminder to me that if you've got something you want to go to and you're excited about it makes squeezing out every last nickel of value out of your company is actually a little less important if you're excited to go do something are there though for him and by the way clearly that's the same thing with people working in nine to five right people show up all day they work all day they get really tight excited about retirement john but as you know they get excited because it's finally ending and i don't want to get up anymore and then two years later like i don't have any statistical proof but you see all these people that pass away and i feel like having this sailboat having this dream this thing out there keeps you rolling when especially for an entrepreneur this is all they've done i mean this is yeah this has been your heartbeat absolutely absolutely a scary stat for us 76 of business owners one year after selling their company regret the decision to sell wow 76 76 i mean this should be this should be like the happiest day of their lives they should commemorate it like a birthday or a wedding anniversary right this is this is the sale of their company yet three quarters of them a year after selling regret and the number one reason they regret is they had more push factors than they had pull factors the second most important reason is that their ego is still so entwined with their company right they weren't able to separate their ego from the company and and that's another reason the third reason again this comes very much into the financial piece the third reason they tell us they end up regretting is that they think they left money on the table and the biggest reason they feel that way is they didn't create a competitive marketplace for their company when you get multiple bidders you can feel fairly certain that there's a liquid market right there's a there's a it's not opaque there's a liquid market and you've got a fair price for your company when you deal with one acquirer no matter how good the offer you will always sit back and wonder did i leave money on the table and that's one of the biggest reasons so i think if you could tackle those three things your ego making sure you get competitive offers and of course having more pull and push i think you're setting yourself up for a very happy exit but not all owners do that yeah you have a section of your book speaking of that exit time that discusses timing and i've never really thought about timing is is is timing super important when you decide it's time to go yeah look i mean right now it is one of the best times in history to sell a company money is effectively free interest rates are virtually nil and what that has done is turbo charged the private equity world so companies that are sort of i don't know valued somewhere around one to fifty million dollars worth of value the vast majority of businesses that sell they will be bought by private equity groups and private equity groups their business model is enabled by interest rates the lower the interest rates the higher the value they can place on your company and so right now in an effort the fed is just pumping money into the system keeping interest rates low in an effort to keep people solvent but what that is also doing is making it virtually impossible for a private equity company to lose when they go and buy your company and so there is a lot of activity and what i think the biggest mistake a lot of entrepreneurs make is they ride it over the top meaning they think that they're gonna sell three years from now five years from now when they when they reach that next plateau of revenue and what they don't realize is that you can write it over the top just as easily i'm reminded of a guy named rand fishkin who i talked about in the book and i interviewed him for my podcast he built a company called seomoz which is uh search engine optimization software built up to five million dollars in revenue and he got a call from a guy named brian halligan who at the time was and is the co-founder of hubspot which is like an all-in-one marketing software and they were a bit weak in seo and they said man i we would love to buy your company rand and rand said okay what's your offer and halligan said we're gonna give you we're gonna offer you 25 million dollars of cash and hubspot stock and fish can thought about this and in his mind heard that his company should be worth four times revenue but he was expecting to go from five to ten million dollars of revenue the next year so in his mind he was like well when we get to 10 we're going to be worth 4 times 10 or 40. and so we went back with 40 to halligan and halligan said no way can't do it and so fishkin said well fine and he decided to raise some venture capital now he got a bunch of money invested in a bunch of products went well beyond his sort of comfort zone and ultimately the business started to bleed cash so much so that the vcs removed rand as oh man oh and i interviewed rand and i said man like what's your moss stock worth these days and he said probably nothing i said what do you mean nothing he said well vcs invest with preferred shares which mean they get their preferred return before you get anything and he based on the length of time the vc had held the stock it wasn't likely that his moz software stock was worth anything and i said what would that hubspot be offered today based on the appreciation in hubspot stock and he said based on how well the hubspot stock has performed it would be worth close to 200 million dollars holy ghost so that's a very dramatic example of of writing it over the top when you know we always think we're optimistic right entrepreneurs are optimistic and they always think tomorrow is going to be better than today the best time to sell is when somebody's buying and when you get a call from a guy like brian halligan saying we want to buy your company that's a really good time to pay attention absolutely well and i'm thinking as you're talking john that there's another place where i like this is we talk about getting into investments having an exit strategy we saw a lot of people involved and beating this hammer a lot the last few weeks and the game stop thing wrote it all the way up and then wrote it all the way back down right no exit strategy what so even though i think that was more of a casino than anything else but when it comes to selling your company i'm trying to put myself in this seat that you see all the time on your podcast which is i'm an owner wants to take advantage of an opportunity but i also am optimistic how do i thread that needle between wanting to grow it even more because that's what i've done my whole life and now is the time out like i i think most people would would always bet on themselves for the future right does this go back again to and i'm just thinking out loud here as i'm processing it does this go back again to having these these pulls to having more things pulling you than pushing you out yeah it does but it also has something to do with what we call the freedom point and the freedom point stated very simply is where the sale of your business after tax and commissions if that will generate enough wealth for you to create enough income to live comfortably the lifestyle that you aspire to you've reached the freedom point and you may be saying well how do i calculate that well you've heard obviously four percent rule i mean you must talk about it all the time three percent rule we talk about the three percent rule because it's it's a little safer and so basically you're taking what you need in the way of income to fund the lifestyle that you envision multiply by 33 and that's your nest egg that you've got to accumulate and when your company is worth after tax and proceeds that amount you have to ask yourself what's the point in continuing now you may want to continue because you've got to create you love the creativity you love the camaraderie you love the technical challenge whatever it is but but what getting to the next tranche of value will not do is create more financial freedom and in fact the more you hold your company the more you risk financial freedom you know i was reminded of this fact earlier i interviewed a guy named rob walling who built a company called drip and drip was in the um in the software space where where again like ran they sell for really high multiples and he was starting to receive offers in the nine if you believe it nine to 12 times revenues wow little two million dollar company so you do the math on that and you realize that was the freedom point and rob was a young guy he's got a couple kids and he said i'm out it's too big a portion of my wealth to put it at risk every day because every day if if your company is 50 60 70 of your wealth you're effectively the gambler at the las vegas craps table and you're all in every day and you never know when the next pandemic the next you know like storm or whatever crisis is going to happen that will essentially undermine that freedom and once you've earned it it just begs the question maybe i should monetize it maybe i should make it real are there some key metrics that you look at when you're evaluating somebody's business and and how much you think it can go for like i'm thinking about you know for us like many publicly listed companies john free cash flow is a big thing right if a person has a lot of free cash flow they kept their debt low like you are a stock on the rise if you're a company with a lot of free cash flow you can pivot much more quickly than ones that don't what are what are some of the key metrics that uc entrepreneurs really need to drive to get that multiple up there to sell their business yeah look again the financial buyers so three types of buyers and they think about valuation slightly differently so individual investors are usually buying a job they buy smaller companies less than a million or two in value and they're buying a job so they're going to be looking at profitability to your point private equity groups use debt often borrowed from a bank which they have to finance in other words pay payback and so the more predictable your future stream of cash is the more subscription-based or recurring revenue you have uh the more of a niche you have the more gross margin you have the more valuable they're going to be your business is going to be in their hands because they can bank it they can go to a bank and say look lend us the money because this business is bulletproof and that to stop you john but well i i just did but on that point is that why you like subscription businesses so much is because of that type of buyer yeah it de-risks it for an acquirer absolutely okay yeah and so that's what makes for especially for a financial buyer your business that much more valuable the strategic buyer is a slightly different animal the strategic buyer is is buying your business for what it's worth in their hands and that calculation is completely different so i'll give you an example because i think it helps illustrate it so i talked about a woman in the book and i interviewed her called stephanie breedlove she built up a little payroll company that did payroll for parents who have a nanny to pay and so if you've got a nanny you've got to do go through all the government red tape to pay your nanny right yet you call up paychecks or adp and they're like they you know like forget about it we don't want to deal with this right yeah and so breedlove thought oh cool why don't i set up a company that just does payroll for parents of a nanny anyways 25 years later she's built this company up to nine million dollars in revenue so it's not like a juggernaut it's not the next google it looks facebook next tesla it's a good solid business nine million dollars in revenue she's got 10 000 customers and she decides it's time for her to leave she's reached a freedom point and she wants to sell she goes to the landscape and says who's out there that would want to buy my company and she realizes care.com is has got incredible reason to buy her business because care.com is like the angie's list of care providers right you put in your zip code and it'll give you babysitters and whatever who's out there yeah yeah all five star rated and care.com has 70 sorry 7 million parents and breedlove reasons man if seven million parents they all have to have payroll they have to pay their nanny and so she approaches them long story short she manages to get an offer of care.com

of 40 million dollars for her nine weeks which is crazy but the postscript to the story is she doesn't settle there she says that's not enough and she quantifies the value for care she says look if one percent of your seven million buy my payroll service that's a business seven times the size of my company long story short she sells it for 54 million dollars wow that's that's fantastic i can talk about these stories all day and and i just love so many parallels between the world of personal finance and and the world of building a business to sell the book is called the art of selling your business winning strategies and secret hacks for exiting on top it's some of the best and quirkiest and most enlightening interviews i think we've had john uh from your show but uh books available everywhere everywhere yeah just if you like the stories and and stuff uh built to sell.com if you opt in top right corner i think there's a button that says free gifts you get a fresh episode every week it's free so you also include i believe uh worksheets too right so people can work through each one of the chapters that's right if yeah if you uh if you opt in at buildtocell.com you get a workbook on how to apply this to your uh to your business and we'll link to it in our show notes at stackingbenjamins.com last question you've done so many episodes i have to ask just one podcaster to another my friend has there been an episode that really surprised you something where you showed up and and by the end of the episode you're like i didn't bargain for that at all oh man i yeah but it's funny i one of the biggest surprises i ever got was not when i was interviewing it was when i was being interviewed oh i won't say the name of the podcaster but the guy started and he said warlow right warlow you're the you're the douchebag who wrote gift to sell i was like i've never been called out of my life before and he went on to kind of chastise me to criticize me for for writing a book that was advocating people build the flip and he was saying this is the worst thing in the world you know the economy needs people to build to last with the microphone on it is the microphone on are you guys recording is this is this live [Music] and i didn't rebut his comment time but i've thought about it a ton since and i just i fundamentally disagree with that idea i think for most entrepreneurs we we do our best work when creativity is at a premium when problem solving is hardest and it's it's usually the early days in a business the first certainly the first decade of a business after which you know oftentimes we become the biggest albatross a yolk around the neck of our company because we become more conservative right as our business becomes a bigger part of our wealth we're like oh i don't want to really risk it and it reminds me the story of joey redner who built a company beer company called cigar city brewing tampa built it up and and he kept having to refinance the company because the beer was successful it was selling out every time he you know built a bigger facility the bank would say okay great we're gonna lend you another million bucks to extend the you know facility and after about three expansions he just kind of threw his hands up in the air and said no more like i i i feel like a gambler just gambling it every day and i've just won five consecutive hands and and i'm not willing to bet at all on the sixth and he decided to sell and i don't think that makes him a douchebag like i really think that our best days as entrepreneurs are in the earliest period and that for many of us we would be best served to create some value monetize that value put it into the bank so and invest it so that we're starting to have that little army of soldiers working for us when we sleep and then go do something else anyways that's probably the most surprising but it wasn't on the receiving end it was when i was being interviewed [Music] hey stackers i'm your host joe's mom's neighbor doug and you know all this talk with john warlow about building your business to sell got me thinking about just how much the stacking benjamin's podcast company missed that memo but the good news is stackers old doug as you know is a business guru just like john and today i'm sharing the rescue plan with the whole world on how to get this business back on track you want a case study well how about these gems i i think we need to apply more plastic surgery and anti-aging cream for the the whole crew i know this is audio only but i mean have you seen these guys if we do more youtube her audience size is going to recede faster than joe's hairline number two more camera filters like you and i both doubt that suggestion one's gonna be enough so let's bust out some flowers or you know like those little sparkly things that pop up on the screen i mean who doesn't like flowers and sparkly things with their budget or gamestop talk we're gonna go from old to irresistible can i keep going oh yes i can stackers and i'll crank out the really good stuff after today's trivia so here it is steve jobs the former ceo of apple was born on this date in 1955. you may recall that apple became the first company with a trillion dollar market cap back in august of 2018. so today's

question is if apple had the highest market cap then which company has the highest market cap today i'll be back with your answer faster than you can crack a book before you start your business [Music] throughout the 1900s coca-cola grew into a multi-national multi-billion dollar corporation they were beloved by many especially americans which is why when they changed their recipe to what they called new coke back in 1985 i don't want to give away by the way how old i am but i will tell you i remember this controversy and it was big the backlash was swift and severe everybody i know was talking about old coke versus new coke and the man who drove it chairman robert gozueta pulled new coke from the shelves in just a few months wonder he's business movers podcast explores how the reformulated new coke disrupted coca-cola's public perception the story new coke is often seen as a classic case study for how not to launch a product in a cautionary tale of an out of touch executive who defied conventional wisdom and played a dangerous game with his company's signature product but this is a cool thing that's not the whole story the real story new coke is much more complex way more human the story of robert cosweta's improbable rise and his controversial decision to change the recipe for coke starts decades before the launch of new coke in the midst of a violent political revolution in havana cuba what i love about this whole crazy episode is the twist and turns that you don't expect you know there was even a piece of me that thought did coca-cola actually manufacture this whole thing did they come up with this so that people would talk about coke more and uh nope a lot more going on there so not just the coca-cola controversy there's a ton of cool stuff you listen to the newest season of business movers on apple podcast spotify or ad-free by joining wondering plus in the wondery app wonder he feel the story [Music] hey stackers i'm joe's mom's neighbor doug back with some business best practices to save this podcast while some companies are hoping to go from good to great i think we can all agree that these guys are hoping to go for like fair to middling so my third tip is more doug of course duh we all know why you're here well all of you except tom turk toledo on itunes who says i should reign it in a little bit but what does he know he's from ohio like any successful business has ever happened there we need to give the people what they want tom turk toledo longer intros more trivia that's what it takes to have a billion dollar podcast right there and finally i think we need some more brown bags specifically one for joe saul see hi i mean all of the science and the facial uh you know cream moisturizer things and the plastic surgery in the world ain't gonna help that guy am i right so put a brown bag on it joe can't hurt i got one last tip but you're gonna have to wait until our takeaway for that back to our trivia question which was this what company has the highest market cap today coming in at number three at 1.85 trillion it's microsoft number two at 2.02 trillion is saudi aramco but number one are you surprised it's apple again at 2.27 trillion dollars time for me to go finish up my list of suggestions see ya thanks again to john for sharing some some great analogies oh gee and i remember early in my career as a financial planner one of our trainers took us through some other businesses like benihana and how benihana operates very interesting the early benihanas focused on the cooking you can tell later benihana's because the bar area is much bigger because they realize that while the margins are low on food the margins were huge on alcohol and if they can create a little bit of a waiting line so you go to get a drink and they make it warm and inviting for you to wait there notice in a lot of benihanas the newer ones the waiting area is kind of integrated into the bar yeah it it kind of feels very comfortable and easy to go over and get a drink while you wait and there were so many analogies there for companies and also for for families when john talked about retirement planning man that just hit home this idea of what goals are pulling you and you also see people do this oh gee they retire at the wrong time because all they think about is i need to get out of here i need to leave this right i need to so they're pushed out to use john's terminology instead of pulled toward this thing that's you know you might if you retire at 50 or 60 it could be another 30 or 40 years it could be like a whole another career worth the time so much like you are in your 20s when you're excited to get started on your career journey i think you need the same excitement your 50s or 60s when you're retiring well and that's from a planning standpoint from a retirement standpoint that's the big challenge you know is that you get so focused on the thing you get so focused on the i got to get to a million i got to get to two million i gotta get to my number you get there and you're like uh so this is it so now what like i thought there would be like some like fireworks or a party or i mean i i always try to find clients when they cross a milestone right if they're investing money and the first time they get to six figures i try to i try to catch it really close like hey by the way congratulations hey you gotta you got an extra comma and you're you know you crossed into the million congratulations hey you cost enough and the response is always the same like huh cool yeah no that's cool and there's like like so what does that mean so i went from 998 000 to a million and three dollars i mean it's awesome it's cool i guess it sounds great when you're hanging out at like 150k in your retirement account you go up i'd love to have a million i don't know what was it you know when you crossed from 140 to 150 did you have a big celebration because that's the same reality that happens when you go from 9.95 to a million five it's like yeah okay still still gotta work tomorrow right still gotta put the kids through college still gotta pay off the house you know that sort of thing so i like the idea of thinking about it from the perspective of kind of your why what do you want to what do you want to get out of it strong strong goals thanks again to john and we'll we'll link to his new book the artist selling your business on our show notes page hey let's throw out david lifeline oh gee and tackle some of life's most important questions we talked about this later you don't want to spend time filling out life insurance apps that's why our friends at haven life insurance agency put what you value first your loved ones and your time and they made the process simple it's all online you get an instant coverage decision their prices are affordable stacking benjamins.com forward slash haven life for more to get your life insurance done and to move on today we're going to say hi to our friend zach say hi zach joe og stacking benjamin's crew i put 20 dollars a week into a somewhat random stock that has shown a positive increase over the life of its trading good strategy a bad strategy thank you zach for the for the question and by the way i'm not i'm not laughing at you i'm laughing because that is a question we've never had anything like before that is not and you see a stock og it just tends to go up momentum actually zach is a real thing in the stock market when you talk to technical traders so from that aspect yeah but i think there's a lot more to it oh gee so his investment strategy is i put 20 a week into a stock that just happens to go up all the time random stock continually goes up i put all my money in it i know you missed out dude should have done it years ago i think i would do a little bit more research than that finding this one only goes up you know i mean stocks tend to go up that's the goal right i mean of companies but um you know the problem with individual stock ownership is that a lot's on the line i mean if you're putting all of your money into one particular thing or one one idea one thesis so to speak you know then that has to be right and if it's not then you're destitute the key here i think for zach oh gee isn't it it's finding out why it's gone up because stocks don't just mysteriously go up for no reason and i think you want to know the heartbeat of that stock a little better so find out is it the fact they have little debt and sales keep going up is it the fact that they've had some big things happen uh to them recently is it uh management change does it happen like i want to get to know the why behind it goes don

2021-03-03 08:30

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