Episode Transcript
[00:00:00] Speaker A: Welcome to the Independence by Design podcast where we discuss what it means to be a business owner and ways to get unstuck from the day to day so we can design a business that gives us a life of independence.
I wanted to know how private equity backed companies and how they operate running a company compared to the discipline in the IBD ownership operating system that I've been working on. So I could not think of a better friend and person to have on the podcast. Nick Bradley, who has done 27 plus transactions, 5 billion worth of deals to hear from him over his career, what's it like running a private equity backed company? He has been the operating partner from the PE firm going into the portfolio company. He's also played the role of the CEO and he's a very disciplined, very thoughtful person and I wanted to know from him what, what's it like in the first hundred days after transaction? What's it like in the quarterly board meetings and then the monthly ownership meetings and then the ongoing annual recalibration, what's that all like? So that way they have the highest probability of getting the three to five times return in the three to five years.
So he's going to walk us all the way through that and he and I are going to compare how the ownership operating system that I've created compares to the PE backed model. And you're in for a treat. You're going to love it. Thanks everybody for tuning in. And here's my episode with Nick Bradley.
[00:01:27] Speaker B: Hi everybody, it's Nick Bradley here.
Yeah, so we were having a great conversation and I think sometimes the best thing about podcasts, Ryan, is it's a bit of a fly on the wall.
[00:01:35] Speaker A: Right.
[00:01:35] Speaker B: So people can kind of listen into how we're talking about things and get different insights.
Yeah, I mean I've.
People who have listened to me before here know that I've been in private equity for a long time and I've, I've sort of left that world but sort of floated around the edges of it. I think what I'd love to do is make that world more accessible and certainly make the reputation of it better for founders and business owners. And so I've been doing a bit of work around that. But in terms of clarity, what we really focus on now is helping prepare businesses, founder led businesses for private equity ownership by making them investor grade. Now the benefit of that, and we can get into it, the benefit of that of course, is if you build an investor grade business kind of ladders back into your world.
Right. You've Got something which is scalable, transferable if you ever choose to do that. But it gives you options. So there is the thing here that the precision around a private equity type of business is one that is the sort of business you'd want to own as well.
[00:02:41] Speaker A: I think it's such a great liftoff from. I mean like on our last conversation, I can't remember if it was six months ago or what it was, but towards the end of our conversation we kind of both got to. I love the grow the company, keep the company. Usually like esop, internal transfer, keep whatever it is. I mean there's a potential sale because at the end the result is optionality.
And then you're like well I like the third party arena, the third party sale. And I was like, I like the other messy arena. And so like. And you and I are even more clear on that. And one of the things that I wanted to get into Nick, that has to do with. I think we can spend some time if like you and I, what we're doing is like a venn diagram. It's 90% overlap in the last 10% is the final outcome. I want to unpack for my clients and for my listeners what it is like being in the actual boardroom of a private equity LED company.
And what because like in, you know, you and I both been in talking Morris programs, both of our coaching programs have that engine behind it. In my ownership operating system, I've got monthly ownership meetings as an agenda and then quarterly board meetings. I'm on the board of a handful of my current clients and I want to talk about. Because I've got my view of like, hey, some of my clients are ESOP led, some of them are privately held led that I'm. We're building this out. But full disclosure, I've never been on the board of a private equity LED company.
So I want to get a peer inside of that sort of. I think the listeners are like, okay, when it's non negotiable because there's an investment thesis here from a PE firm.
What is that monthly meeting? What's that quarterly meeting look like and why? And then I think also what we can do in this conversation is talk about the PE world and what you got going on.
[00:04:23] Speaker B: Sure, let's. Let's unpack it. I mean, I think one of the things I love doing more than anything else is demystifying it for people because it definitely has this kind of sort of cloud of mystery around what PE is. And to be frank, if you, if you are In a PE firm. Now I was on the operating side and the running business side. But you are told to lock down. I mean, you're told to not talk. So if you go into LinkedIn, you won't see too many private equity people posting every day on LinkedIn because not allowed to. Right. It is a closed shop. So I'm happy to kind of unpack all of that and go through it. And I think what would be really interesting is I don't think there'll be fundamental differences with how portfolio companies are run.
I think it'll be in the detail where there might be a few nuances which are maybe new insights or different perspectives than what most founders think about.
[00:05:14] Speaker A: Let's start there. What do you think is the nuanced details of what is actually different?
[00:05:20] Speaker B: And I had this conversation with some of my clients when they want to raise capital, so we'll start with that. And some of them say, oh, I want to raise capital, but I'm not sure if I want to sell my business.
And I'm like, well, you can really, I mean, simplifying for everyone here. We can get into the detail. But like. So you're saying you just want to raise debt?
Oh no, I want to. Equity debt. I don't know, but I, you know, I want to have all the options.
Once you raise equity, there ain't too many investors, I mean there are some, but there ain't too many investors that are not expecting a liquidity event in three to five years.
So as soon as you're on the.
[00:05:55] Speaker A: Operating agreement, where we've got distribution versus reinvestment with a valuation target, right?
[00:06:00] Speaker B: Yeah, we want both, we want distributions, of course, we want to get paid on the journey, but we want to get a big payment in the end. So the first thing that's fundamentally different is there is a, let's call it a liquidity exit thesis that's created right at the very beginning when a business is looking to be acquired. It's certainly compounded when you go through the a hundred day integrations and all that sort of stuff. But by that point there's a whole reverse engineered exit from that investment at a point in time.
And that, you know, what's good about that really I think is there's no ambiguity, there's no choice, there's no lack of clarity or what are we doing this for? Is it impact? Is it that. No, no, no. We are here to increase the valuation three to five times in three to five years.
[00:06:52] Speaker A: What are your thoughts about how that clarity impacts the journey depends who you are.
[00:07:03] Speaker B: If you're the founder who sold the business and you haven't operated in that world before, we've got, you know, Wharton and Harvard MBAs and all these sort of kind of quite full on GPS around your general partners.
It can be very difficult if you're on the other side of the table. And that's all you know and that's what you've been taught and you've been part of for a long time. It's just how you do things.
[00:07:28] Speaker A: It's so fascinating. And in our prior conversations, I mean you've, you've referred to the first, the former as the lifestyle business. You could be making millions of dollars. Oh yeah, like I talked to a friend of mine that has a family office and he said he's got a client right now, 70 million in net income.
Yeah, you probably start drooling over this freaking plan, dude. They're arguing with the family members. Everyone's just sucking going. I mean they're, they're wor. The business is working obviously, but like none of the stuff that you and I talk about so you can have a lifestyle business. But like going back to the clarity why I brought this up, you and I are both focused people in our health and you know, running disciplined health regimens. And that clarity is just so fascinating to me about how many people don't have it. But when you have like you said that there's this liquidity engineering mindset injected into that transaction. So that way it's non negotiable going forward. And that's why what I was getting at is like what that does for progress and execution. Like how does that impact the possibilities.
[00:08:39] Speaker B: Of getting that 3 to 5 value again? I can reflect on it in hindsight now that I've. Because I mean my background just to be super clear is I went from corporate to private equity through some pretty well known businesses that were PE backed. So I wasn't starting at the sort of entrepreneurial founder led. I mean I did start a business years ago, but that was very different to what I went through. So I've actually learned in the last seven years since I left private equity officially how chaotic some founder led businesses are because I never experienced that. I went from News International to a company called EMAP to then Getty Images which is like one of the jewels in the crown of private equity expansion. I mean huge success story when you study the case with the case study and I just thought that's how you do things.
So engineered high levels of discipline Absolute precision on execution to the point where there are conversations I've had these multiple times across multiple PE back businesses I've been involved in, where execution trumps strategy.
We don't want a lot of people who can think. We want a few people who can think, and then we want people who can execute to that thesis. And that's where I think it's different. It's very focused, but also militant in the way it's done.
[00:09:57] Speaker A: What are the pros and cons with that? And then how does that compare to the chaotic founder led?
And what do you see as the outcomes of the two different styles of running a business?
[00:10:07] Speaker B: Yeah, I mean, it's a great question because I think what's missing a little bit in the PE world, certainly I think it's changed a bit more recently because it's had to, but when I was there eight years ago, it was very much unapologetically about the money and less about the impact.
So not every entrepreneur starts a business for money.
Freedom tends to be a tenant. That's across most things. They want to have some autonomy and freedom, but sometimes people want purpose. They want to start a business to create a change in the world.
And one of the definitions of entrepreneurship is that find a big problem and solve it. Private equity don't look at it in the same way.
They obviously do want to have a big problem that's being solved, but it's more the way that it's solved and how much free cash flow that generates.
You see what I mean?
So I think this is where there's a massive collision that happens a little bit when, as I said, founder led to investor grade. If you were going to put both of those on two sides of the room, there are fundamental differences, I think, between how those businesses operate.
And that's the journey. I think that if someone wants to play in the, in the sort of PE world, they have to be able to understand what the PE guys value equally. The PE guys have to understand that what they're normally taking on is going to be more chaotic. It's going to have different, let's call it like idiosyncrasies. Doesn't mean they're not effective.
It's just not scalable, you know, not as scalable.
[00:11:42] Speaker A: Yeah, yeah. And back to nuances like. So let me, let me give you a couple of stories, Nick, that I want your reactions to. And I think where we can converge in what I'm anticipating is on these monthly and ownership meeting or monthly and quarterly board meetings, which are what I have, I've distinguished as different than the operating system like eos, great game of business scaling up. Those are the operating system. But there's this ownership operating system that I have proposed that goes on top. That is the boardroom which you and I both have similar words to talk about. But I believe that there it's these, these the ways of running a business can be part of that 90% that's overlap. So two example, two examples here. So I have a $30 million equipment reseller and servicer or rep group rep manufacturer and they have put a lot of these disciplines in place. And so I go at one of the board meetings and I what are we? A private equity backed company is what one of the board members said to me. And I was like so like back to hilarious.
[00:12:45] Speaker B: It is.
[00:12:46] Speaker A: And this, this gentleman's 90 years old.
[00:12:49] Speaker B: They'd love me. Honestly. I get, I get a tomato thrown in my head if I walked into that room.
[00:12:55] Speaker A: And but I want to tell you my response to this guy. And then I did a workshop for 1500 million dollar average companies got the same and a lot of them are third, fourth generation. One had been around for 137 years. So, so like all my type of like, you know, type of people, however I'm in, I'm proposing that like that's not an excuse to do this chaotic shit. So here's my response. I said okay, because like I have this three state three statement forecast tied to the valuation so that the only way we can see our constraint, Nick of working capital, debt, taxes and reinvestment and free cash flow is to have a freaking target at five years so we can mathematically back into it. So I said to both of these people, I said how the F do you make any decisions if you don't know where you're going mathematically? And I said, so you have three partners. How do you determine whether you're going to take a distribution or reinvest?
And I said here's the deal, we don't have to sell the private equity, but I said if you would like to give all your employees a raise in the, you know, because inflation's going rampant. One of my, this one of my clients gave us 7% pay pay raise to other employees because they knew that they could do that increase different pay structures, have enough distributions, a working cap. And so it was like the way to zero in to say that's how much cash we're going to have in the checking account and if we do this, what the impact would be on the valuation and what we're using is their goal to drive those decisions. And I said to the person, I said if you want to give everybody a 40% pay raise, more power to you. But what we're doing is isolating how much money you're going to have and what you want to do with it. This has nothing to do with private equity. And I said technically you're in private equity anyways.
So what's your response to that?
[00:14:50] Speaker B: Well, the first thought that comes to mind as you're describing that is that's private equity operating. Right. Like you know, so that's why the.
[00:14:59] Speaker A: 90%, that's the same.
[00:15:01] Speaker B: And that what you, what you've basically said there is exactly what I've, I've encountered when I go into these businesses and they're not small businesses. I said they're typically between 5 and 50 million, you know, in revenue.
So you could imagine that they should have at least built the right, let's call it financial disciplines and, and operating kind of you would think.
But this is, I mean this is where I think it gets really interesting. The reason I put it all around the wrapper of investor grade is because it comes back to optionality, which we both agree with.
Do I fundamentally care if one of my clients wants to sell to private equity or not? We have the ability to help them do that all the way through. But I'm actually equally as happy if they build a business that runs like it's private equity backed even if they don't sell it and then they get all the benefits that come off the back of building a business that way.
[00:15:54] Speaker A: And agreed from everything that you've said that that reconciles I. But where you've landed with more clarity is you love the arena of the third party transaction and helping people with that.
[00:16:05] Speaker B: So like that's where I liquidity events.
[00:16:08] Speaker A: Because that's what I say the 10% wrapper is the outcome that they're striving for. But you and I are both driving people to that 90% which is all the same. We just happen to like different arenas when there's an actual event. But way I, the way I like to and this is where I want to get more visibility into the monthly and the quarterly rhythm. Now that you've got this injected liquidity reverse engineer 3 to 5 year value growth or 3, 3 to 5 year X with 3 to 5 years, I'm sorry, 3 to 5 times in 3 to 5 years. What I'm the way I coach the owner operator Nick is like hey, you're using your ownership goals as the investor, as the ability to then quit your employees from gaslighting you. It's like, oh, it's all Nick's fault. It's like, no. Like, I literally had a client said, okay, I'm gonna take my discipline from the. The conversation we had in our coaching call to say, I talked to my board, and this is. This is where we're going. So it's not like, oh, it's me versus my employees. Because that's why I think that dual role becomes very weird, because it's like big mama or papa who wants money versus their employees. So they're. You know, it's a lot different if you're private equity, and it's the same thing when we had our bank issues.
It's like the bank literally is forcing us to do this, and there's some peace of mind to that. But if we can somehow have that conversation that it's your goals as an investor, we can help.
[00:17:32] Speaker B: It's easier for me as you're. And we can get into. We'll get into the detail of kind of what the cadence and the structure looks like. But, you know, what's really interesting is, like, because we qualify in and qualify out who we work with based on the outcome that they want to achieve.
So as I said to you, as I said, I don't personally mind if they don't want to do it, but the reality is it makes my life a lot easier and my team's life a lot easier if someone makes that decision.
So I say, hey, listen, do you want to sell to a sophisticated buyer like private equity? Yes, I do. Well, we have to make you investor grade. So therefore, the conversation about why a board matters is really simple. I don't have to convince anyone. If you sell your business to private equity, the first thing you have in the first week is a board.
You have an operating partner. You have some smart dude, as I said, from Wharton.
[00:18:24] Speaker A: Let's actually.
Let's actually get into, like, what?
Yeah, yeah. Let's just. Let's. Let's not skimp on the details.
[00:18:30] Speaker B: Let me go through the process. Why don't we start. Why don't we do this? Why don't we start as if your business? Because this would be fun for everybody. Let's say you've got a business and you're going to sell it to private equity, and I'm the guy on the other side of the table. All right? And this will be a good way of doing it.
[00:18:43] Speaker A: I like it.
[00:18:44] Speaker B: You like it?
[00:18:45] Speaker A: Yes.
[00:18:45] Speaker B: Okay. So first and foremost, you've built a great business. Right. So private equity do buy, I wouldn't say distress, but they do buy businesses that are sort of undervalued, but they usually only buy those businesses to bolt onto something else. So let's assume that I'm going to buy you as a platform. Right. So platform business. First acquisition by a fund in a industry or sector.
In that situation, I'm not just buying, you know, the cash flow, the brand, the customers. I'm buying the operating team and I'm buying Ryan.
Right.
[00:19:18] Speaker A: And I'm buying the foundation because we're going to build other things onto my company.
[00:19:22] Speaker B: Yep. And I'm looking at you and I'm looking at two layers of succession underneath you. I'm looking at the whole structure of what you've built.
So if I'm going to pay you a really big multiple, certainly double digit multiple, I want to create as much predictability from what you've built into the future as I can possibly model. And I want to make sure that there are any risks that I'm going to assess through the due diligence process before we buy you are fully understood.
All of that is going to indicate how much money I'm going to pay you for your business and also how I'm going to incentivize you and your team to ongoing under new ownership and obviously a new sort of thesis around a liquidity event in the future.
[00:20:02] Speaker A: Okay, tracking.
[00:20:03] Speaker B: So that's all happening. So what's interesting is, let's say I come in, I love your business. You've built it really well, but you're a maverick.
One of the things that will be assessed is how long you're going to be able to stay around because they will give you a chance.
But if you can't, if you're, if you're really maverick and really creative and very entrepreneurial and you can't work with a, you know, someone above you telling you what to do, we're going to risk mitigate that through the process.
[00:20:34] Speaker A: This is probably pretty accurate with my.
[00:20:36] Speaker B: First, we're going to do two things. We're going to look at what you've got in the business already.
And if you're smart, if you are, and this is why it's so important to educate yourself on this before you go through a sales process with like a broker or an investment banker, if you know that you're the maverick CEO, you want to have a bench, a leadership bench, which is, you know, operational guys, you Know people who can actually just go in there and execute. And so in that situation, back to that thinker.
[00:21:02] Speaker A: Thinker versus doer ratio that you're talking about.
[00:21:04] Speaker B: Yeah, yeah. Because most like really successful private equity CEOs are not that entrepreneurial in the traditional sense. They're not startup founders.
They're, they're in there to fix problems, scale up, turn around.
And so if I, I'm buying your business, if you're not that guy Ryan, I want to see if there is someone like that in your business. If there isn't, I'm going to go to my bench of CEOs over here and get one of them ready to go into your business within sort of six or 12 months.
[00:21:35] Speaker A: Love the decision tree. How does that impact valuation and deal structure?
[00:21:41] Speaker B: So any risk?
Anytime I see risk in the business. And of course there's lots of different factors that drive valuation based on why I'm buying you. So you might, you might have a huge geographic presence in an area, you might have a customer base that's super valuable for me to be able to buy other companies and access.
So all of those things affect valuation, as you know. Right. But if I go in there and I do a risk assessment, I'm going to do either two things. I'm either going to retrade you, right. So at the beginning, at the LOI stage, we're going to make an offer and that offer is going to be based on a preliminary amount of due diligence and then through the sort of 60 to 90 days proper due diligence, I'm either going to retrade you, which simply means bring the offer down and what's cool, like private equity, don't mind that. Also on the basis that if, if the most of the fundamentals of the business are in there, and let's say the business is, you know, stop performing while this process is going on, which is quite common. If we can get a lower valuation, but the business is still sound, we're happy with that.
It might not be as good for you, the business owner, but you know, we're going to show you why. It's not like we're going to do it in a dodgy way. We're just going to say, hey, listen, these are the issues. You didn't fix them before we bought the business, so you're going to pay for them now.
Okay. That's the first bit. The second thing we do, and sometimes it's a combination is we get you on the terms and this is the big one.
So we might pay the price in terms of like this is what we agree. But of course, enterprise value.
[00:23:11] Speaker A: But yep.
[00:23:12] Speaker B: Yeah, it's how you get paid.
Right. That is the big thing.
And everyone I think knows this, who have kind of studied this world a little bit is that, you know, you don't really have any control once you sell the business. You know, you're not the owner anymore. Particularly in a traditional majority buyout in private equity.
So depending on how you negotiate that earnout and the figures and everything else, the metrics around it, that's going to decide in many cases whether you're going to get up to a quarter of what you should have been paid.
So, earn outs, what is the typical.
[00:23:47] Speaker A: Starting bench that you see for cash at closing? Rolled equity, earn out sellers? No, I mean any kind of typical deal structure that you're starting.
[00:23:55] Speaker B: I advise my clients to be going for 60 to 70% cash at close. Close.
[00:23:59] Speaker A: Okay.
[00:23:59] Speaker B: That's.
[00:24:00] Speaker A: That reconciles what I.
[00:24:01] Speaker B: And then I advise them to go for, depending on what's going on. I, I advise rollovers versus earnouts.
[00:24:07] Speaker A: Yeah. Yep.
[00:24:08] Speaker B: For obvious reasons. So just for everyone listening rollover, you know, you're rolling over equity and if you can negotiate that at the same level as the general partners, so you're kind of not diluted at all, which is an interesting negotiation, you know, you're effectively going to be operating at the same level as the main private equity guys all the way through to the exit. Very hard to negotiate that at times. But if you know that that's what you can do, then it's much easier to have those conversations at the beginning when they're loving you.
Sometimes it's an earnout as well as a rollover. So let's say back to my math, 60% cash at close, then you might have 20% as an earn out, 20% as rollover, something like that. I just try and minimize earnouts as much I can. Unless they're time based.
Because you can do time based, which means you just have to be around for two years. There's no performance tied to the business, but the majority of earnouts are tied to the numbers that you presented through the whole process.
[00:25:04] Speaker A: And then on the other side of that, you don't have any control, even if it's just revenue based. I've interviewed people where they had an earn out and then all of a sudden their salespeople got 17 new products that they had to sell. And so it just becomes messy.
[00:25:18] Speaker B: It becomes messy. You've got to also realize that the private Equity firm doesn't want the business to go backwards. So they're not going to screw you over just because they could have, you know, they don't want to pay you the money they're going to make. They're just going to ride you really hard. And so when we get into kind of what does that look like on a daily, weekly, monthly, quarterly basis, you'll see what I mean. Because they're just going to put much more forensics in terms of the metrics and KPIs and stuff like that into a business more than what most founders do.
[00:25:48] Speaker A: And I think what it's so important for people to remember is it's not because the general partners decide that they just want to ride really hard. It is there is an internal rate of return that was guaranteed, not guaranteed, it was promoted as a, you know, a base case. And then there's the hurdle rate. And then they like, you have to give this to a pension fund or an insurance company or a wealthy individual that was told that the private equity firm is going to give them their money back at a certain rate. So it's not subjective, you know what I mean? The goal is very clear.
[00:26:23] Speaker B: Yeah. The two metrics, and I think we spoke about this last time, is IRR and moic. So internal rate of return, which is the speed at which the investors get paid back and then MOIC is multiple on invested capital. So I buy your business for 50 million, put another 50 in, there's 100 million I put in. So that's that additional 50s to do like acquisitions.
I expect to make 300 million to 500 million back on that within usually a three to five year window.
So it's still an extraordinary level of kind of asset return, you know, to.
[00:26:56] Speaker A: That's why they're doing it, because like they're. But I think what it's so important for people to remember is that there's a percentage of the portfolio that is getting allocated to private equity, which is different than vc, which is different than real estate. And like they need this return because of their obligations. And most of the pension funds in the US are underfunded. So there's like real pressures from people that really need 2500 bucks a month for 40 years. And so like, oh yeah, and there's an investment committee that is under pressure from their stakeholders. So it just, it just, if you follow the money, there's obligations here. It's not just because.
[00:27:32] Speaker B: It's not just that the principals and the GPS get, you know, are getting richer. I mean they are getting richer, but they still have to. I mean, it's not like they're not doing the work they have to perform. Yeah. You know, I mean, I think where it's got really interesting and we can get into the detail, but where it's got really interesting is obviously with interest rates getting higher and access to debt, you know, obviously money isn't free anymore.
I did a paper recently for the Bisval guys on this, just talking about why a lack of operating understanding is killing the majority of private equity firms. The ones that understand that it's not just about the investment, it's about the operating precision you put in, which is what we'll get to in a sec.
That's the game changer. So the operating partner model, which I talk about a lot, is just such a powerful engine within the PE world. No one really knows what it is.
But when you understand that if you can apply that to your business, even the stuff that you're doing. Right. To create that discipline, it's massive.
[00:28:31] Speaker A: I agree.
The reason I laugh as a reaction is it's like what I hear is the secret to health is sleeping eight hours a day, eating well, pushing something, pulling something, lifting some heavy weights. And you just go like. It's this. Doing the work is what we gotta do.
[00:28:50] Speaker B: It's doing the work, but it's how you do the work. So it's like, to use your analogy, right. You can go to the gym and you can kind of lift a few weights and do this.
[00:28:58] Speaker A: Can you do that again?
[00:29:01] Speaker B: Everyone's listening to this. I just basically picked up some really pitiful weights and started popping my. They're covered in.
[00:29:08] Speaker A: They're covered in.
[00:29:09] Speaker B: Or you can go in there and you can do a. A kind of high rock session for 60 minutes where it's like, you know, I'm doing this, I'm doing this, I'm doing this. You know, I'm in and out, but it's really focused. And that's the difference, I think.
[00:29:19] Speaker A: Right.
[00:29:19] Speaker B: Yeah.
Oh, that was. That.
[00:29:22] Speaker A: We're gonna. That's gonna be the clip.
[00:29:25] Speaker B: I'm actually. I'm actually laughing and sweating now.
[00:29:27] Speaker A: It's quite fun because it was such a heavy weight.
[00:29:29] Speaker B: Okay, so let's let. Do you want to talk about the. Do you want to talk about the operating procedure decision?
[00:29:33] Speaker A: I do. So going back to. I think just to reorient us value has been agreed upon. Loi. Let's see, go through the due diligence, you land on the deal, structure the terms.
[00:29:43] Speaker B: Yep.
[00:29:44] Speaker A: The company and all of that is to then have this new starting recalibration that says we have to grow this kind of value and hit these metrics based on. That's why this transaction was done because this is all agreed upon now.
[00:29:59] Speaker B: It has to be signed off by the committees. So remember, like this isn't one person in a vacuum. This is like this has gone up through layers of governance and compliance. Again, things that don't really exist in a traditional founder led business. You know, if you're, if you're getting family, I do a lot of stuff with family offices now. Like if you're talking to a single family office where it's literally, you know, someone is managing a single family's kind of wealth, right? God, you've got to be really precise on I'm going to deliver this back for you.
There's a lot of scrutiny through the numbers and the logic and that all happens through due diligence. You just don't see that because that's happening from the investor side back to the PE firm or the family office piece.
It's not happening at the due diligence site.
That's what we're doing. We're taking the information and taking it back into the mothership.
[00:30:52] Speaker A: You're saying this is what we've all agreed upon, which this is how much cash flow we're going to make and this is what we think the valuation will be, will be if we do these things over the next three to five years. It's a story that's being told that is being agreed upon by all those.
[00:31:09] Speaker B: Sometimes, not always, you'll know the companies you're going to buy. Obviously those deals aren't done so you can't guarantee them. But the shape, geography, the contribution levels, all that sort of stuff. We know all that.
If there's a expansion thesis around sort of, you know, vertical or horizontal. Let's say we want to kind of buy supply chain and we want to do that. That will all be mapped out so we won't know the exact company but we'll know the industry we're going to buy. Let's say we're doing a home services roll up which is really popular right now. Let's say we buy a big roofing business that's got like, you know, most of the east coast kind of tied up. You know, the next part might be a landscaping business. So we'll know that we want to kind of find a big landscaping group somewhere in Atlanta or whatever. And you know, we won't know who it is necessarily. But we'll know that that's what we're going to be going after. And then we'll have, you know, target lists of what we're going to be going for.
[00:32:00] Speaker A: I love it. So go through the whole layers. You, everything's agreed upon, you're signed, you got the new document signed, the operating agreement or whatever. Like what? So walk us through then how that kind of rolls over to the.
[00:32:13] Speaker B: So this is, I'm going to go through the integration piece quickly because I think this is one of the things that most, most founders don't really look into enough. So as you're building through the process, of course you've got the loi, you've agreed the price, you know, you know, as you're getting close to the close, you know, that's when the legals are getting more scrutiny, when everything's basically been asked from the data room, you'll get to the sale and purchase agreement. Okay. And that's the bit where all the terms and everything I mentioned beforehand around the earnouts and all that will be in. So you've got to be, you've got to have the best lawyer you possibly can on that. I often say, don't just use your mate who you go to beers with.
Use a transaction lawyer, right? Best money you'll ever spend in this because you're going to get it back through that process. There's also the integration plan. Now this is really, really, really funny. It doesn't get a lot of airplay to the founder and the leadership team as much as it should.
It's kind of, and this is my experience, sometimes it can be different, different PFMs, but it's kind of enforced on you like we're going to buy your business. And here is the a hundred day plan.
Now some of it will be built through the due diligence process. So it's not just the private equity firm doesn't just do it but, but they are building that hundred day integration plan through the due diligence process.
And as soon as the transactions happens, literally, because a hundred days, right, it's really tight. It's like a proper clandestine strike, right?
The board is set up straight away. The operating partner has always been, has already been chosen. They might have already been involved in some of this at this stage, who's going to sit on that board from the PE firm has been decided. So when I was last a CEO for a sort of smallish mid market PE firm in London, it was the operating partner who was an exited founder and he had some Investment in the.
[00:34:00] Speaker A: Can you give some more clarity on your definition of what an operating partner is and how that would be different to prior to the transaction where there might, let's say the founder is actually still. You might have said the maverick is capable of being the CEO currently. But so how is the operating partner and then the board, like, who are these people?
[00:34:21] Speaker B: The operating partner. There's a couple of different ways of looking at this. Sometimes when people hear the word operating or operations, they think coo. It's not that at all.
It's usually someone who has been a successful CEO under private equity backing.
So they've sold a business, they've scaled, done a second exit, and now they're investing into the fund because they've made a lot of money and they're now becoming sort of operationally involved in that.
So the operating team is usually there to mentor and guide, mentor the CEO and to some extent the leadership team, but also to guide the investment from a, A strategy leadership perspective.
So if I've already done what we want to do with your business, Ryan, successfully in that environment.
And quite often the operating partner will have some industry understanding too. Not always, but, like, they won't just have like, you know, worked for, you know, sold a company in E Commerce to Amazon and now they're suddenly on a roofing thing. They would have come from that industry.
They know what good looks like and they also know bullshit. Right. So it's a really hard role because you have to build a relationship with the incoming founder and you have to try and help them do what they need to do. And I'll explain what that means in a sec as well, because a bit of detail, but equally, if the confidence isn't there in that founder or that leader at that point in time, you're the one who gets rid of them.
So you're an operating partner, in many cases, chairs the board that's put around the business, not really called a chairman. Sometimes they are, but they're normally the person who oversees the investment.
And this is where it gets a bit confusing because sometimes people think, oh, that surely it's the MBA guy from blah, blah, blah who does that. Well, no, that person's there and they're super smart, but they've never run a company.
[00:36:25] Speaker A: It's. I mean, it's super interesting because of my lack of experience working inside the PE environment. I mean, my God, how many conversations I've had with you and or other PE firms and friends who have PE firms and, you know, like, in a lot of these PE firms that I've come across are not as structured. Honestly, Nick. I mean, I think that's another big thing that's going on in the lower market too is there's all these. I'm going to put massive air quotes around funds because it's just people financing. And so like you're coming at it from. That's why I want to have this conversation which this is what good looks like. It's just fascinating to me because this operating part, I mean, that's just effectively what I'm doing with my coaching clients.
[00:37:05] Speaker B: It's like you are, you are 100% that, like, there's no question you are. And you've also come from a successful business background.
So.
[00:37:12] Speaker A: But it's, and it's coming at it from the investment perspective. And I'm working with like all of my clients are CEO, owner, operators, right. And there's a couple of them that have hang, rang the bell, hired a CEO and then it becomes different because then that client is actually kind of becoming the operating partner for their climate. But it's interesting, I've not heard it word like this is Dan Cremens. Is this, is this what he's really all about? I mean, you see him on LinkedIn.
[00:37:38] Speaker B: There'S a few different people. I mean there's a few people talking about operating partners a little bit more now. I mean, I talk broadly about private equity generally and this type of thing.
[00:37:46] Speaker A: This is super interesting, man.
[00:37:47] Speaker B: Yeah. And, and I think it's getting more airplay. Like there's. What's his name?
There's a guy on LinkedIn who talks about this all the time. I can't remember his name, but he, he kind of sort of did this post the other day saying, you know, to be an operator, it's not like you, you apply to be an operating partner. Right. It's an invitation only thing.
Right.
[00:38:04] Speaker A: Interesting.
[00:38:05] Speaker B: You have to have a track record. You have to have done something. It's not a job. Right.
[00:38:09] Speaker A: So you have the board.
So this is super helpful. So you have the board, operating partner, operating partner. Understand? Because when you.
What I start is they know what good looks like. And that's where I have found major issues in other private equity firms where it's like you have no idea how this business operates. So like they don't know how to have the bullshit filter when someone's reporting the numbers. It's like what kind of actual effort is that going to take in the business? So this board, this operating partner, you're saying is looking at it through the investment thesis of the board and mentoring and working with the operations. Like, so what kind of ongoing involvement does that person have?
[00:38:45] Speaker B: So I'll tell you how it all works. Now, one thing to be really clear on is that not all PE firms have operating partners.
[00:38:51] Speaker A: That's what. I guess maybe that's a different, clearer way.
I've had very few people that I have come across where that's actually a thing because it's so many jigsaw puzzles. I mean, I watch people where, like, they're able to raise 50 to $100 million because it was easy to raise capital and they don't have any of this structure behind it. Which is why I think PE gets a bad rap. Because people raise the money and they don't know how do all this stuff.
[00:39:14] Speaker B: That's why you've gotta be. If you are gonna. I mean, PE funds. I was listening to Tony Robbins, of all people, on a podcast recently, and he's involved in PE, and he was saying that the S&P 500 grew by 5%, 6% over the last five years, but private equity grew by 15.
And so in terms of the return, so there's a 3x return just on the PE. So it kind of works if you get it right. But there are so many that don't get it right. So what that means is there's a small few PE firms that are absolutely nailing it. I mean, I've had the privilege of being in a couple of them, right? Carlisle, Blackstone. I mean, I was on the periphery of some of those because they bought companies that I was involved in, but they all have operating partners, right? It's when you get down to these kind of, as you said, search funds, which aren't really PE firms. And it's all a bit odd in that sort of. Like when you get into this kind of weird world of who's got money, who hasn't, they tend to just be capital allocators, not operators. And you really have to have both people who are good at allocating capital and structuring capital and people who know what to do with that capital, which is create value from it. Through what?
[00:40:18] Speaker A: Because they're judged by the outcome.
Yeah.
[00:40:22] Speaker B: Creating value. Ultimately, you know, it's changing a bit more in the world of AI, but ultimately it's about people, right? People. It's numbers. But, you know, if you're going to create a scalable organization, you ain't doing that usually with one person. And as I said, with AI aside.
[00:40:40] Speaker A: Yeah, but it's still People, I agree with you.
[00:40:42] Speaker B: It's leadership and it's, and it's, and it's all the things that are important to how you kind of relate to, kind of sell a vision. Clarity of strategy, obviously, precise execution.
These are all qualities of leadership really when you get into it and how you can galvanize people behind that to create value.
[00:41:03] Speaker A: I love it. So the super helpful additional context on the operating partner. So board, operating partner, how many people? And then what's the operating partner's ongoing.
[00:41:13] Speaker B: Yeah, so I'll take you through my experience so I can kind of sort of. So I'm running this company. I'm the CEO. I was actually brought in to replace. See the. Well actually I wasn't even brought in to replace the founder. I was brought in to replace the other CEO that replaced the founder. So I was kind of like third in line. So this is probably example of how sometimes pe get it wrong and they just flip CEOs left, right and center.
So in that, in that structure, there was the operating partner who I effectively reported into.
There was a really sharp investment analysts, if you want to call it that, but someone from the actual fund who sat there as well, who was just brilliant.
And then it was my team and my team, my leadership team at the board level was the CFO and the coo. And I think we eventually brought in a CRO as well. But this is, this is the one thing I wanted to really nail is that when you have a PE board around you guess who creates the strategy?
[00:42:10] Speaker A: AE board or you?
[00:42:12] Speaker B: Just the board.
So, so if you're the CEO generally, if you're the CEO, of course you have a say on what the strategy is and you get to influence it. You don't decide it.
[00:42:25] Speaker A: And the board, who in this situation, who, who what is the cast of characters for the board? How many people?
[00:42:31] Speaker B: How many people are.
[00:42:32] Speaker A: Sorry around the board? Like, like what's the board consist of?
[00:42:35] Speaker B: So, so, so five people. So as I said, operating partner, sharp sort of mba, dude from the fund. CEO. CEO. CEO.
[00:42:43] Speaker A: So you're a senior leadership team and the general and the operating partner and then the investment, these two.
[00:42:48] Speaker B: And generally there can be other roles. So you might sometimes have a non exec who comes in who's like an industry specialist if the operating partner is in that. So that might. And the other, sometimes one of the GPs might be involved as well, depending on how important the platform is.
But you're talking on average somewhere between five to eight individuals.
[00:43:07] Speaker A: Okay, this is. Okay, so super fascinating. You can Keep going because I got some comments on my side.
[00:43:13] Speaker B: But so, so, so strategy, as we just said, so strategy is created at the board. Now I learned this best place I learned this was Getty Images. Now Getty, when I joined there, had thousands of employees and it was private equity backed by a group. I think it was Hellman and Friedman.
And then it was sold to Carlisle after that. I think I can't remember exactly the. I was there through the first transaction. But anyway, what was interesting is Jonathan Klein, who was my mentor there and the owner of one of the founders of Getty. So he was an interesting one. So he's a guy who was an ex investment banker, launched Getty Images and then ended up just running the company all the way through because he came from that background. So he wasn't that entrepreneurial. What he did is he didn't actually found Getty Images. He kind of went out there and acquired stuff, stock photography, libraries, and then use technology to change the business model and made it all online.
But here's the thing he said to me, he said, I don't want people in here who think too much, right? I want, I want all of the, all of the kind of strategic stuff happening at the 10. There's 10 people on the board at Getty. The 10 people who sit around the board table at Getty. That's where we make decisions.
Every other person in the business, the thousands of employees are here to execute.
And they had a 10 stage interview process, Ryan, where the first two or three meetings were about can you do the job? And the other sort of seven or so were do you fit the culture? Which is all about operational precision.
So back to my story. So I'm at the board running this company. The strategy's created at the board, I present it, but it gets pulled apart and put back together multiple times and then it gets agreed at a board level. And then my job is to execute it as the CEO. And so everything that happens after that is execution layer, which is what we're going to get into in terms of the monthly, weekly, et cetera, et cetera.
[00:45:07] Speaker A: This is so awesome.
I've got this image, this graphic where I've got this board box, arrow to the CEO. And then the CEO oversees the Chief Revenue Officer, the chief Operating Officer and then the cfo. And I say those are, there's three buckets of the income statement revenue, gross margins and cash. And those three people reported the CEO. And then it's all based on the ownership objectives of cash flow and value. And I was like it's as simple.
[00:45:34] Speaker B: As that, you know, that's what it is.
[00:45:35] Speaker A: Thank you so much for just, just like I've been looking at this and I've been showing this to like my groups and Vistage and all the different places and people. Look, I mean it's crazy to me Nick, and I know it's a small digression but I look at this and I go, how could it be any other way? Because it's like you have three buckets, the income statement. You should have three people that manage each of those three main numbers. And then everything on the cash flow statement is based on the ownership's objectives of capital allocation.
[00:46:02] Speaker B: But that's why this is why like one of the first things I do again remember it's easy for me to convince people because I'm, you know they want to get ready for, for an exit to pe. So they have to operate like this otherwise they're not going to be, they're going to lose money on the, on the multiple when they sell.
But for you it's a little bit more tricky because you have to convince someone that this is actually worthwhile doing when what they've probably done traditionally is just a little bit haphazard.
Right.
[00:46:25] Speaker A: Well you have a chaotic.
[00:46:27] Speaker B: We don't really have an agenda.
We kind of do management accounts, we might do planning but last year it was in December and you had two weeks to get the budget done.
[00:46:38] Speaker A: Well let me even go one step further because I want you to react to this and then this will carry us into how it's different on an ongoing basis.
Even people like, I mean I've had, I've done 60 vistage workshops so call it like three and a half thousand people have been through that, this workshop and I mean I can count single digit, low single digits Nick, on the people that are running a business like this. And so even if you have a highly cleaned up operating business that's running something like Eos or Traction, the chances of them having that operating business tied to cash flow and valuation is like almost zero. It's not zero.
[00:47:20] Speaker B: They don't teach that. That's not, that's what I'm saying.
[00:47:22] Speaker A: So like people and I want to differentiate in operate like even if they're like as a clean org chart and clear KPIs and a VTO with a 5 and 10 year and 3 year and it's just like. But if it's not tied to the financials, to cash flow and the valuation we're missing like the base layer of this stuff. And then once we have that base layer, then it becomes the CRO, the CEO and the cfo and then the CEO manages through those people.
[00:47:48] Speaker B: So I just think it's, it's straight, it's straightforward. The difference I think with, with founder led businesses, particularly when they haven't made that decision for a liquidity event, is they don't, they don't really understand the importance of value.
So, so like, you know, a valuable business that's an asset creates wealth. If you, if you understand how that can work in different ways and you do it in different ways to me. But most people don't understand that, right? So they're thinking, well, actually I just want to make more money. I don't, I don't want to.
[00:48:17] Speaker A: They don't even know what that means. Yeah, exactly.
[00:48:20] Speaker B: They understand income and they understand maybe dividends, but they don't understand the idea of a business that's built as an asset, which I think is the thing. If you build a business as an asset, you can sell it if you want to, but you can also get all the other benefits, which is what you're talking about, because the structure is there to be able to leverage that.
[00:48:38] Speaker A: And it's also risky and that's the decision tree. And so that's why when I say the base layer, if we're actually supposed to be decision making machines, which is how we actually delegate to CRO, cfo, COO and to a CEO, eventually to actually run from the board, it's through the decision making that reconciles the trade off of more cash flow today in the form of distributions, more or more value tomorrow. And we're missing that part of the trade off of like we, we can't even see the trade off if we're not reconciling it against value creation. So again, small digression because I, it was just so helpful for you to say like this is how it is.
[00:49:18] Speaker B: And because I don't know, I agree with you fully. But if you don't know, like, you know, we're talking a language here which we, we've talked about for, you know, we've been mates for years, right? We've been talking about this multiple times.
Sometimes this is the first time a founder's ever heard this.
Because if you think about it, to have, let's say, a basic successful business, let's say it's doing seven figures of revenue, kind of gotta be good at marketing and sales, right? Like I've got a product, I can understand a problem, you know, that's not going to get you to the next level, but it might create a really nice little lifestyle business for you where none of the stuff that we're talking about matters that much at that stage. But when you start to build more complexity, let's call it. This is why lots of founders I work with struggle with the scale stage for business because it's more people, more process and they're not tuned for that. And they need to have these disciplines we're talking about, about financial management, value creation. Their eyes glaze over. It's not what they, it's not what they signed up for.
So it's an interesting thing.
[00:50:19] Speaker A: No, no disagreement and I'll let you keep going with the way I'm framing it up is I think it becomes really exciting to figure out how to build a machine that creates your freedom and the way like you can actually have freedom of cash flow and be able to actually make decisions without having to be stuck in the office. So I'm working on the point of making that exciting enough to make the discipline easier. But it, that's why this conversation is so important for everybody listening in. Is this like what the world you're talking about is just how it works. It's how assets work, it's how finance works, it's how capitalism works. It's not subjective, it's objective and you're just giving it.
[00:51:00] Speaker B: There's no room for ambiguity in it. I think the only difference when you get into the investor world, like particularly the high end private equity world, it comes back to my point around the level of precision in each of those areas.
So I'll take you through the cadence so how this will work. So, so there is a really, really formulated structure to how the business is run based on governance and reporting and all that sort of thing. So I've had a few different models of this. So I wouldn't say it's 100% uniform across all the detail, but I'll give you some examples. But the idea is basically there.
So most of the businesses in private equity that I've worked in do quarterly boards. Sometimes they might do bi monthly, so every second month depending on the stage of the business and what's going on in the market.
But they do a quarterly board. The quarterly board is a very detailed session, normally runs for about a half day.
And you're going into sort of strategic priorities, how everything's building back to the investment thesis.
[00:51:59] Speaker A: Can you walk me through an agenda?
So you got a half a day. Walk me through it?
[00:52:05] Speaker B: Yeah.
So you Do a look back and look forward. So I'll go through it. So the look back is obviously the review of the last 90 days.
So, so let, let me start, let me start from actually the higher level and then we'll go into this because it's getting probably more into the data.
So every, when you're the CEO, you are asked to work back from the investment thesis and create your vision from the investment thesis.
Okay. So you wouldn't necessarily go back to all your employees and say oh we want to sell this business for 80 million bucks. But you would sit there and say the vision is over the next 36 months we're going to do this, this, this and this to create value right in the business. And that's quite uniform.
Then you go into the 12 month cycle and say, okay, well in order to hit the three year exit vision or whatever it is, we now have to have what does the world look like in 12 months time.
Right. Which then gets you into your annual planning. So when you go away for an annual planning it's normally a couple of days. We used to do two day off site annual planning and that would normally run in October so that we could get the budget finished by December. If you're working on a, on a calendar year, most founders don't do that. They plan too late. Right.
So you've worked out, you know, let.
[00:53:16] Speaker A: Me comment because like I'm, I'm, I'm proposing that as well because you're locking in a 12 month monthly three statement budget. So you have all the capital allocations here. The bottom up is the cash working capital taxes all the way up to then the, the top down. And they what I think people in it is it the essentially December 15th lock all that in for the next year.
[00:53:39] Speaker B: Yeah. So we do, when we do that, that sort of two day planning retreat, let's call it that we are normally doing the top down perspective.
So the usual sort of stuff that you look at like market forces, you look at swats, you do all the kind of usual stuff. So there's a lot of detail that goes into that two day planning with the premise that we're getting a sense of what we want the year to be like again building towards that three year exit vision. Then we go away and do the bottom up and that's where the financial modeling and stuff. So it comes together like a top down, bottom up and that then forms the budget.
[00:54:14] Speaker A: You're going away after that two year treat because now you've got direction from the top down. So Then the bottom up is coming from in. Is it safe to say that the CRO is responsible for revenue, COO is responsible for matching the margins, and then the CFO is guiding the.
[00:54:29] Speaker B: And then they're coming. The CFO oversees the process at that point.
[00:54:32] Speaker A: Right.
[00:54:33] Speaker B: And that's where there's the partnership in private equity, which I think is maybe not as understood as well in founder led businesses is the CEO and the CFO is the main partnership.
And quite often the CFO in the business has been put in by the PE firm. So unfortunately if you're a CFO listening to this, quite often the role that gets shaken out the quickest is the cfo. So we can plant someone inside.
So you've got the operating partner at the board level and kind of involved in various things depending on what's needed. You've actually got an employee on the payroll in that CFO role.
[00:55:09] Speaker A: It's so fascinating, dude, like, because I've never been in private equity, but I've landed with the entire structure that you're talking about for the coaching rhythm. Because like I'll jump on my monthly meetings with the owner operator who ends up being that CEO and their cfo. And then we have a quarterly board meeting and we have the annual budget. So it's just like, because like it's what needs to be done. Like you just need to.
[00:55:30] Speaker B: Exactly, exactly. So if I go through. So that's how you set everything up for the annual. And you've kind of got the priorities for the year, you've got the financial objectives and those things, you start to work through the KPIs. But where it changes and where it gets really good in my opinion is the breakdown into 90 day sprints.
So the reason we do the quarterly board meetings is that we execute, we create strategy on a longer term basis, but we execute in 90 day sprints.
Okay. And so when we get to a board meeting, as I said, the look back, which is one of the first things that we do is like how did the last 90 days performed based on what you said you were going to do 90 days ago?
[00:56:11] Speaker A: Okay.
[00:56:12] Speaker B: And so, and then we assess all that, we look at the numbers, we look at kind of how that's forecasting. And then in that board meeting over that half day, we set the next 90 days.
[00:56:21] Speaker A: If we get nuanced and like, okay, you're looking at the financials like what's the financial package look like and what, what are the top KPIs that the general partner's asking for and maybe even Nick, like, if you. The CEO, what relationship or cadence do you and the CFO have before going to this?
[00:56:38] Speaker B: Let me. There's. I'm gonna. I'm gonna break down the monthlies and the weeklies, so you can understand that.
[00:56:43] Speaker A: Then we'll go back to the quarterly. Would that be. Would that be better?
[00:56:46] Speaker B: Yeah, because there's stuff that happens on the monthly level, which I think infl.
Everything else. Okay, I'll start with weekly because it will build up to it. So weekly is always just an analysis of the numbers, and that's what I was doing as the CEO. So a lot of the internal cadence that you're told to do this, who knows? But you always want to know that you've got a rhythm weekly around the financial performance of the business. And that's normally your leads and your conversions, your retentions.
A set of metrics which you're looking at, which. Which are the main. The main KPIs, right. So that's looked at weekly, would you say, like.
[00:57:21] Speaker A: So, like, I just did a podcast last week with my friend Kim Clark, who is the chief Revenue officer of Iter Economics, and she's working on building out her CO CRO coaching for my community as well. And we walk through all the leading indicators. So it's all these leading indicators that are essentially before the income statement. So we have a view inside the future.
And then are you also on those weeklies, are you looking at any operational KPIs from, like, labor efficiencies?
[00:57:47] Speaker B: Normally, I used to focus mainly on the revenue and the sort of piece of it. But the monthly, I want to kind of talk about the monthly thing, because the monthly review, it depends on the business. But I remember when I was working with Providence, which is one of the big PE firms, we would have the quarterly board, but we'd also have this monthly review meeting that was about 15, 20 minutes.
And it was kind of weird. It was like a check in.
So you know you're gonna have the board in three months. But if anything's not working at a monthly level, this is where the precision comes in. If something's not working in month one, month two, before we get to month three, when the board is. We want to know about it in month one.
So you turn up and you'd have one slide, and the slide would have four quadrants, and it would be like, okay, so what's the revenue performance for the month? What's the forecast going forward for the quarter?
What are our kind of opportunities and risks?
That sort of thing. So what, you know, what are we worried about at this point? And depending on how, and we had it like rag status, red, amber, green, whatever. And so you'd have that one page and then you'd have supporting documents depending on what that one page said.
So if there was a risk on retention, you'd have three or four slides talking about the retention metrics and what you're doing about it. So you could never turn up to a monthly meeting or a board without a solution.
[00:59:11] Speaker A: Ever say that, oh my God, I'm trying so hard with my clients where we are getting their executives. So say that again.
[00:59:18] Speaker B: So you'd never turn up to a monthly review or board meeting without a solution. So if there's a risk that you've identified, I mean you can kick it around and get help in the meeting and ask for support, that's, that's accepted. But they expect you to have done the work first.
That's why the reason I would have that weekly structure was because I wanted to be ready for the monthly review so that I would have an easy board meeting.
Right. Like, but, but the, what was funny about those reviews? If anything, if you couldn't, if you didn't deliver in the monthly review, you didn't wait till the next monthly review.
Right. The operating partner was straight in, right.
What happened? There'd be a two hour meeting with you and the CFO and him or her the next day.
So what often happens sometimes in the bigger PE firms is those monthly reviews. You'll have someone more senior than the sort of board that's around the business come in and have a look at it.
And so sometimes the main GPS would turn up to those, depending on how many investments they've got.
[01:00:24] Speaker A: This monthly, I love this dude, monthly meeting. So what I'm doing right now with my clients is we'll as they are working building out all their financials and their plan, all that. So there's this whole building phase. But once, you know, for my more mature, ongoing clients, this monthly review, we have it as 90 minutes and it's what we are spending our time doing is reviewing the monthly financials and then we're looking at what I the owner's playbook, which I've got this thing called the owner's North Star and Scorecard, the roadmap. Kind of use these documents to kind of help us analyze what's going on. But we're reviewing the numbers and it's a 90 minute session. I mean, is there something like that?
[01:01:01] Speaker B: That's what I do now with my Clients. So, so the, so I, when, when we do an operating partnership now and we have an operating partner going into a business, the cadence is it's built around the 90 day monthly. We do a monthly kind of, we call it the monthly board for lack of a better term. But it's that monthly meeting.
Then we do weekly check ins in the same way, but they're 30 minutes. We have access as needed in between that and then we do a half day quarterly. We call it quarterly planning and monthly board. I might switch that around.
[01:01:32] Speaker A: Just kind of mine are the minor monthly ownership meetings and quarterly board.
[01:01:36] Speaker B: Yeah, well you can do it either way. The reason I've done it like that is sometimes it's easier to go to a monthly board to get the discipline into founder led businesses.
So that's the reason I call it that. So it's kind of like you have a formal board meeting, it's 90 minutes and we have an agenda and this is what we go through.
[01:01:52] Speaker A: And then the quarterly sessions it so much. Yeah, yeah.
[01:01:55] Speaker B: The quarterly sessions end up becoming planning sessions. So that look back and look forward that I mentioned, we do that. So it's like we're going to make the board more formal in the founder led businesses just to get the cadence and the discipline. And then we plan every quarter. So the principles haven't changed.
[01:02:12] Speaker A: Yeah, I'd say that, that, that I like that from just like how the energy goes because like when I was just in a board meeting last week and like went down there and again they've got their, they've got all the put together five year plan. They got their goals, they got their cash flow, we got the visibility, we got the CRO, the CFO and the CEO that come in present talk about the look back, we look forward, the whole, the whole works. But then what that allows us to do is then talk about the most like most pressing things with context. So we don't necessarily know what we're going to be talking about but the agenda will flush that out because it's like, well this is off, we need to talk about this. And you know, I'd say that we want more people that are coming with solutions. So we're all working on that.
[01:02:55] Speaker B: But it is, it is, it is hard because in many cases, and this is the challenge that we find is it is very much a new language. Like people understand it but they haven't operated to it. Like I've got business I'm working with at the moment where we're very focused on reducing sort of the Founder dependency piece of that because this person's had the business for 15, 20 years and they're really struggling like with this idea of I had to go through a kind of control versus being in charge conversation. Right. Being in charge is a higher level positioning than being in control because if you control, it's more about execution. So things like that. But like it's. You can tell that she, she really smart and she's. Her business is doing like 3 million of EBITDA. So it's a great business but it's been run to support the lifestyle up until this point. But you know, they're, they're in their 60s and they want to transition. They haven't got anyone who's going to buy it internally. They haven't built that.
So they're interested in selling it to a third party, probably a strategic sale. So we have to get it ready for that.
And it's a journey for them.
[01:03:58] Speaker A: And you're spending the time. Because like what I'm hearing and what I've experienced is with the goal clear, with the cadences. And I still want to get into some of the nuances of what you're doing in the, the agenda and the financials. But like what I find, Nick, which becomes peaceful, honestly, there's still hard work, but like there's no more wondering what the f we should work on. It's like that, that like you, like I could even see with your face, like that's a hard journey. I'm working with some clients on that too, man. And it's like this is like, I don't want to belittle like the emotional journey that this is.
But what I have noticed is now we have space to acknowledge that this is the most important priority and it's not, we're not going to belittle this problem anymore.
Instead of wondering that there's all this other shit that we should be doing, it's like, no, like we've all identified that this is the most important thing. So let's not, let's not move on too fast here. We're not going to just quickly go by this. And I don't know if you've experienced that, but like that it's the whole point of the goal and the execution. It's like, hey, we still need to just work on this hard shit.
[01:05:00] Speaker B: Well, you think about it. If you go back to the annual versus quarterly piece for a second, right? Like if I know that I'm targeting an event or some type of outcome in three years time, I've obviously got to map out what the stages of that looks like over that 36 month period. So if I want to hit X in three years, what do I need to hit in, in 12 months?
And then that indicates the big things that need to shift, right? So what, so in order to hit that which is going to be a financial goal or whatever else, what do I need to do? Well, I need to, I need to hire a new sales director or I need to launch this product line or I have to open up this site. And so they become the strategic priorities, right. And you have you know, anywhere between three to seven of those, right? Maximum. So that's, that's the range. Sometimes, sometimes it's less, you know, than like the three. Because if we just do these three things, we're going to get the outcome. Well, let's just do those three things. But they could be big things which are going to take more than a quarter to execute.
[01:05:50] Speaker A: You're going to break them down into more chunks and then you break down.
[01:05:52] Speaker B: Okay, well three big things. What do I need to do this quarter against those three things to move forward? Or maybe I'm not even going to touch one of them until quarter two and I'm only going to focus on two of them in Q1 and then you break it into the operational plans and that's when you get into the resourcing.
What do we need? Do we have the right team people? Internal, external, what are the capital requirements? So all of that's created at a high level at the annual planning.
Then when you get into the quarterly cadence, you are resource allocating to those priorities and effectively just focusing on progressing them or completing them within those 90 days.
[01:06:28] Speaker A: I think most people's stress and anxiety comes from having no context.
I just think most people are capable of doing this hard work. And like when I look at people doing EOS meetings or sitting in their freaking Vistage peer group and they're just talking about, and it's like the only thing that is the ultimate judge is what the hell is this thing worth at a point in time in the future. And then like because I think about like how you just broke this down of like reverse engineering and I like all these different systems and processes and like you know, all the, like the different, you know, business operating systems, whatever, like all the different nuance of strategic planning and it's like, well if you need the cash flow to be 5 million and normalize deeper than the multiple to be a 9, what do we got to do? Well, we have to Diversify our supply chain.
[01:07:18] Speaker B: Okay.
[01:07:20] Speaker A: Like, it becomes a lot easier, I think, to do strategy when that goal is like, this is the ultimate judge. It's like, well, diversify supply chains or expand the territory.
[01:07:30] Speaker B: You know what I mean?
[01:07:31] Speaker A: Like, you start to come up with.
[01:07:32] Speaker B: You got to have the reason behind. I think, you know what I think with your area in particular. So mine, mine is straightforward. Because I mind you, I've spent ages simplifying the bloody thing. Do you want to sell your business or not? Right.
That's the question I asked. Right? No, I don't. Okay, well then move on. Right. I'm not going to even. I'm not going to try and convince.
[01:07:51] Speaker A: You, by the way. This is a little bit of feedback. You weren't that freaking clear when I first met you. I think I can tell just the.
[01:07:57] Speaker B: Refinery that clear was. I think. I don't think I was that clear when we first met. I was.
[01:08:01] Speaker A: No, I said you weren't. That's what I'm saying. Like you've got, you've refined it to the point where you now know that that's the one question you need to ask. So that way you can get helping people. And that's what I think is so cool.
[01:08:11] Speaker B: Yeah, well, it's. You would think from someone coming from private equity, it would be the obvious question. But I wasn't approaching, I wasn't approaching the businesses that I was going to buy them, Right. I was approaching them to get them ready for a sale. What I realized though, if you ask the question, question, do you want to sell your business? And the answer is a definitive yes, then it's really, are you ready now or are you ready in the future?
It opens up conversations about how we can help them. I think in your world though, and I know you, you touch on this, but I think it's really powerful, is it's not about necessarily a liquidity event, but it is about a certain amount of wealth, I would imagine, right. A certain amount of freedom. So there has to be a way to say, okay, if you keep doing what you're doing, I'm sure you must touch on this. You ain't gonna hit your wealth goals, right? Or whatever, your investment goals in the future. So we have to work to a number so that you can achieve those things that you really want to achieve.
[01:09:02] Speaker A: Let me digress for just two seconds. Cause I want to show you this, Nick. The. I have this thing called the owner's scorecard.
So can you see this?
[01:09:11] Speaker B: So people listening, how to do tricky zoom stuff I have no idea.
[01:09:16] Speaker A: Thank you. Talking more. I like it took me two days to figure this out straight. But right this, I'm digressing because I want to then go back to then the detail of the quarterly and like what you're asking of these people because this is the. I think we're, we're doing the same thing, but. So the owner scorecard is my way of saying, do you want freedom and independence and it's no longer fluffy. We're going to quantify this. We're going to go from hypothetical down to a freaking cash flow statement and a set of financials. So we have over here the what do you want out of your time, cash flow and wealth. So these are the three constraints that I think we all have. So the time is you want to go from. So in my case study I go, so you want to go from 60 hours a week down to zero. You want to, you know, in the ownership, you're not spending anything. We only have 168 hours. So effectively if you want to go to replace your operating role in five years, this is the goal. Well, you're going have to buy your time back. So instead of just hypothetically, we want to go, let's say you got a $250,000 salary and $150,000 distribution equals 400, okay?
And we want you to have 600 grand in five years. And we want mainly that 600 grand coming from ownership distributions because you have replaced your salary. So we're going from 400 to 600 grand, but we're moving that number around of where it's coming from and then down here with the wealth, like no one knows what the hell it is because they don't have valuations working. I'm showing them like, this is totally fucking insane.
Like it's crazy that we're making decisions without understanding your trade offs. And if the valuation, once we understand where we are, then we can understand where we're going. So the market valuation, I've now come up with three lenses, Nick, to say the discounted cash flow is your keep its value. The market multiple is the Zillow value. And then there's the transaction value, which is how much cash to get at closing. So every single milestone and the monthly and the quarterly and the annual, we're looking through all three of those lenses, but we use the Zillow, the market multiple to say, okay, if your company goes from 7 million, I think we can take it to $21 million in five years through. And it's, it Ends up being like, what I, what I show in the case is one and a half million dollars normalized E to the 3, and it goes from a 4.5 million or 4.5 multiple to a 6.7. But my point is, then we can have this. We can fill in the net worth with the outside investments and all that stuff. And I say all that because that owner scorecard then becomes the judgment. So when I can look at someone say, you said you wanted this and you're doing this, I don't care what you do. So it's still difficult because it's not an investment committee saying, if you don't do this, we're going to fire you.
[01:11:57] Speaker B: But it's an attempt, isn't it? I mean, I look at it, thank you for giving me what's really cool about sort of financial value and that sort of thing is if someone increases the profitability of the business, regardless of whether they sell, they're going to have more options, right. Whatever they choose to do with that. So there's a table stakes around just increasing the profitability of your company and the cash flow. The only difference to what we do on that is we are building to the liquidity events.
So you then have this weird sort of, well, do I just want to hold this business for another two years because it's making so much profit, or do I want to run a process now if I could sell it for some seven times? So we have those, there's a judgment.
[01:12:36] Speaker A: There's that final judgment that said, like you, how clearly you said, do you want to sell your business or not? And I don't have that clear because, like, do you want freedom or not? Once they might have some freedom right now it becomes too obscure where like you're, you have like this binary. Yes, no.
[01:12:51] Speaker B: And then that also target people in their 50s and 60s.
[01:12:55] Speaker A: Yeah.
[01:12:56] Speaker B: Because like, you know, because I, I, I not to be is every closer.
[01:12:59] Speaker A: They become closer to the. Yes, I do.
[01:13:02] Speaker B: Well, yeah, it comes closer to the decision that I have to do something.
Right. Like, you know, my business. Like, because what happens sometimes we get people who've got like EBITDA positions, 5 to 10 million or more. And so, and you know, there might be a couple of partners, but they're making, I mean, they've got houses everywhere and nice cars and, you know, their own golf courses, all that sort of stuff. And they're like, oh, why would I sell?
I want to sell this. This is amazing. And then, you know, you have the conversation if someone's like, say 65, 70. Well, is your son or daughter going to take it over?
No. Well, then what are you going to do?
I don't know.
[01:13:39] Speaker A: I know it's crazy, dude. I know it's crazy.
[01:13:41] Speaker B: They start to think about that more because if they haven't got options, like, there are obviously lots of exit options, but if they haven't got many of them, they're kind of then thinking, well, actually a competitor is going to buy me or it's going to be a financial buyer like Pen. So we like to step into that lane because we're not. What do they say about marketing? You know, if you have to convince someone of something, it's really hard if they're already thinking it.
Right.
[01:14:04] Speaker A: I know.
[01:14:04] Speaker B: If they're already thinking it, all you're doing is showing up and going, you want some business? Oh, actually, yeah. I'm 65. I do. I know.
[01:14:10] Speaker A: I like, I've chosen the hardest route ever possible over 11 years trying to convince people.
[01:14:15] Speaker B: I don't know. I think what you do is pretty cool, though, because the independence things I. There is definitely a thing here about how do you.
How do you create a business? That's because I, you know, I talk about the three exits. The exit the chaos, exit the operation, then exit the business. You kind of go up to the exit the operation piece, which is. Which is still, I think, the most valuable place to play in terms of if you're a business owner. Because, I mean, I've got a few different businesses now I don't really run. I mean, I oversee a lot of them as a managing partner, but I have people run them. That's a great place to be. Do I want to sell the whole thing one day? Possibly, but I'm not.
One of my mentors said to me, you love this. He said, I'm a lifestyle business. Building performance businesses that connects it.
[01:14:56] Speaker A: Fuck yeah. I love that.
[01:15:00] Speaker B: Oh, I like that.
[01:15:02] Speaker A: Let's. Okay. And let's zoom back down with that context on these quarterly. And maybe I'm looking for something that's not there, but I want to get a little more detail of, like, how I think that what you just said is possible. And also with my current clients and is knowing all of this stuff allows for precision of decision making to allocate resources and outcomes where we don't have to be the person that does it. And so like, that comes with the financial literacy, the clarity of the goals, all this stuff. Because when at the end of the day, when we're sitting down in a board meeting, we're going over on track, off track of the entire income statement, balance sheet, cash flow statement, like, then we can delegate resources. So walk me through when you say, okay, in that quarterly meeting, what happened? You know, you see you're talking about the monthly. So that was getting you prepped and so you and the cfo. So if you're the CEO, maybe whatever role you want to play, leading you up to this quarterly meeting, what are the KPIs that you're reviewing in the. Look back and then look forward.
[01:16:01] Speaker B: Okay, so, so there's a, there's. I've actually done a whole podcast episode on this with the four what I call the five key metrics. I can't see if I can remember them, but we are at a high level. We are looking at the exit all the way through. So we're looking at growth rates, we're looking at EBITDA margins, we're looking at percentage of revenue that's either recurring or constant. So what I call the main drivers of a high multiple, we're also looking at what we call pipeline coverage. So a lot of the businesses I work with are mainly service based. So this idea that if you can't project forward what your revenue is going to be because you've got the pipeline to support that, we have different ratios, but there's a whole. I can link it actually, if you want to link it, but there's a whole.
[01:16:44] Speaker A: I would absolutely do that.
[01:16:45] Speaker B: Yeah, it's really cool. So we've got all that and then, and then we do go. The way, the way I was always taught is there's only really five core metrics the CEO oversees and then his team oversees the rest. So you do end up with a reasonably robust sort of dashboard. But like the marketing metrics on conversion, retention and all of that sit with the CRO.
Right. So they get reviewed, but they get reviewed under the lens of that person's accountable for those numbers.
[01:17:10] Speaker A: No, no.
[01:17:11] Speaker B: So the CEO because.
[01:17:12] Speaker A: Because those land on the income statement that the CEO is responsible for. Because like in order to project out the revenue on the income statement every month or every year, you have to have all of those conversion rates that the CRO is responsible for to be done or to be.
[01:17:25] Speaker B: It all comes down to the metrics that I wouldn't say it's standardized. It's a lot like every single business looks at the same things. It depends. There are, there are universal things in peace. The drive, the valuation, like I mentioned, the recurring revenue percentages, the retention rates, all that cac ltv, of course, we measure those things because they're all indicators of the valuation.
But depending on the business, industry and stage and things like that, depends on what else we look at. But more importantly, it's things like, did the thing get done that you said that would get done?
So instead of it just being a KPI, it's a project, right. Did that project that you said that we were going to, you know, launch this new product by this date at this budget, did it happen? And so let's go through an analysis of that. And that normally comes under what's called strategic priorities within the agenda. So you start off with there's normally like a CEO update. So how's, how's everything been going? Right. And that's normally tabled in a, in a paper beforehand. Then you go through the financials first.
Right. Then you go through the strategic initiatives or priorities. Are they on track? Are they not on track?
Right. Then there's normally a conversation about sort of people, right, and culture and making sure that that's, you know, if there's hires or whatever else, how we know what's happening with that. So there's a temperature check on that. So in that area, we look at things like the retention rates of staff, things like what we call regrettable retention, et cetera, et cetera, where people have left that we didn't want to leave, etc. And then it normally finishes up with the, as I said, what's happening for the next 90 days? So now that we've reviewed everything, you never leave one of those meetings without the actions assigned to someone.
And if they can't put like, data or metrics to them, the, the ask at the end of those meetings is for that person to come back with how that's going to be measured. And then that formulates the focus for the next 90 days.
[01:19:20] Speaker A: And when you're saying that actions. Because what I gathered is, so it's the CEO, the, the operating partner, the CRO, CFO and coo. So the action items, did you have like each of your functional leaders presenting on a particular KPI?
[01:19:36] Speaker B: Yeah, yeah. If it's a half day, yeah. So. And sometimes depending on the project, we might even bring people in deeper levels in the business would turn up and just present for their agenda item. And that was part of the development process. So we wanted people in the business to get used to presenting to a board.
Yeah, I love it.
[01:19:52] Speaker A: Yeah. Yeah.
[01:19:53] Speaker B: So.
But nothing, nothing. Rocket science. I think the difference is the level of depth that you go to on everything.
Right. So we're not just skimming through something. If something's a strategic priority, we're going to spend as much time as we need going deep on the execution of that priority.
And if it's not on track and you know, and you haven't got a good reason as to why, then that's not favorable.
[01:20:18] Speaker A: So when you do the CEO update and then when you're doing the financials, is it just the CFO that's reviewing the financials or do you have then like the CRO presenting what the hap, what happened over the last 90 days for revenue and the leading indicators?
[01:20:30] Speaker B: Usually it's the CFO that presents the financial report, but then anything that comes out of the financial report then goes into the next layer, which is under the sort of strategic stuff. So normally in the strategic priorities you're going to have revenue goals and you're going to have certain initiatives. It might be, you know, we, we've launched this product, we want to sell X from it, so there'll be a ladder into it. So the way I look at it is we're starting at like 30,000 foot and then we're looking at the overarching numbers for the business and then as we get into the different lines, depending on whether they're on track or not, we'll determine what's talked about next.
So if something's not performing. So retention's dropped off a cliff this quarter. Well, someone's going to be coming in from probably the CRO's team or the CRO themselves and we're going to have, on the strategic priorities list, we're going to have a deep dive on retention and we turn up to the meeting with all the work done. So then there might be a decision at the end or there's a confidence level at the end. Are we going to turn that around next quarter or not? Do I have your commitment?
You don't want to be turning up to too many of those meetings not having delivered what you said you committed to or you won't be there very long.
And that is the difference A little bit in P, there's no, there's no holding back of that. Everyone knows that's the world. That's why some people really thrive in it, that other people struggle with it. But again, in founder led businesses there's more leniency, I find. Oh yeah, they didn't hit the number, but it doesn't matter because I've worked with them for 10 years and played golf with him on Friday.
[01:21:59] Speaker A: Yeah. And agreed. I Agreed. And so here's my observation and I am taking my own, my own experience into account, which I could be blinded by.
I freaking hate that situation because it breeds resentment of people against each other, teams against each other, owner and operator versus their employees for leadership team. Like, it's, it's all like randomly, whoever gets the good grace. It's politics and it just is gross. And what I, the people that I'm trying to work with and I like is by clarifying all these goals and the objectives, they get rid of all of that crap. We can still have a lot of fun. And like, this can be a shitload of fun. And then what I think is then that leniency can show up in the right precision, the right precise spots instead of for everything.
It's like, okay.
[01:22:59] Speaker B: It comes back to what we said about leadership though, Ryan. I think what's interesting in the PE world is kind of everyone's an employee unless you own the fund. Whereas when you're the business owner and you've got all these people around you, sometimes people are just saying what, you know, you want to hear to keep their jobs. And there's this kind of us and them thing. The PE backed CEO doesn't really have that same thing. I mean, it may be in the, in the business there's not everyone understands that dynamic that we're talking about here. But you know, I remember when I was a CEO, I felt, I felt like I was kind of like, what do you call it in America, like a pinch hitter or some sort of, you know, person brought in to get.
[01:23:37] Speaker A: A result, like an assassin or like a Navy seal.
[01:23:40] Speaker B: Just, just. Yeah, like a special forces dude just going in there to get a result. So. So it was very clinical and very. That's probably why I left because I didn't think it was good for my psychology doing it for too long. But it's very clinical and it's very like, you know, roof. This is where the ruthlessness comes in. But it's because there's, there's not really anywhere to hide.
Right?
It's, it's all very clear what you're there to do and it's very measurable. You either buy into that and you can deliver it or you can't.
[01:24:07] Speaker A: It's really interesting because I had that same exact experience when I started at the family business in 2009 because we were in a turnout part of the bank.
There was not like, oh, Ryan and Corey want more money. It was like, we are going to be out of business if I Don't provide this reporting and cut these expenses and have enough money for the $240,000 payroll, it's over. So it took all the ambiguity out of it. For me, that was my first entry point into the working world was like this has to be done non negotiable, we need this data. So like I was able to flush through all the political BS even in our own business because of that. So it was a bank, it wasn't a private equity firm. But I got a similar experience.
[01:24:54] Speaker B: You have a point of governance above you and I think, I think one thing, I think that is probably consistent or should be consistent about whoever you and I work with is not to be thinking that governance is a restricting thing.
If anything it should be an enabler. And so having, you know, even if you just start with a board that has advisors and whatever else, at least you have some kind of structure around that which is going to create more discipline and to some extent more accountability. And I think every business owner needs that. Like, you know, you get better results when you have that, whatever that looks like.
[01:25:27] Speaker A: So what is your, what's your thoughts on so like traction eos and, or like Vistage and these owner peer groups or these, these operator peer groups where they're not all looking at the financials. Like what happens? Because like I, I've been accused of like only being able the financials over the last 10 years. I'm like no, no, no, it's literally out of my nine modules, it's only one of them. But like if you pull the whole, if you pull all those, the whole thing unravels. Like what are your thoughts like about when these advisory groups and all these other things when they're not sitting down and talking about the financials and the goal?
[01:26:04] Speaker B: I think, I mean eos, let's talk about the kind of operating systems for a second and things like that. I think, you know, the operating systems are designed to add a very easy way of implementing some form of structure to a business.
So if I look at eos, I've used EOS in private equity before but businesses grow out of it very quickly because again it's not precise enough in certain areas.
Right. It's a good starting point as a framework I think, I think, you know, I haven't had much exposure with the Vistage side of things.
I, I, I've always said, and I'm, and I'm pretty consistent with it that you know, business at its simplest form is people and numbers.
Okay, right, forgetting AI say that again. Right. It's, it's, it's leadership. It's people. It's getting the right people around you. It's, it's how you kind of engage all of that. And it's having numbers around performance and it's both things and they're both equally important. So if you're just talking about people in leadership all the time, then that's not enough. If you're talking about finance all the time, that's not enough. You've got to talk about both.
If you can get deep on both of those things, that's where you start to get real traction.
[01:27:13] Speaker A: I think you said that in a very elegant way, because it is what I believe too. You can't have one without the other. It is the ying and the yang. And I just. And I, and I. And I find a lot of value because, I mean, there's going to be people that are in vistage or vistage chairs that are listening to this and like, it's not that I'm knocking on these things and I'm trying to explain, like when we are missing what you and I are talking about, we're missing the base layer of the game, which to me is crazy. That people go to groups of places to have conversations about decisions when we're not looking at the scoreboard.
[01:27:46] Speaker B: It's just crazy. They become peer group stuff and that. And, you know, sometimes it's lonely, right? I get it that, you know, you want to be around others, but it ends up becoming. Because one of my, one of my clients went to something similar recently and they were talking about lots of deep personal issues. Because. Because the question that was raised is what's the biggest constraint right now? And it wasn't even a business constraint for a couple of these guys, you know, serious stuff. Like not, you know, but. And so therefore those groups exist to solve that type of thing so that you can just feel like you're not alone.
I think that's a very different thing that we're talking about here. I know they might be positioned about value creation and growth, but more often it's not that. It's just the network, in my opinion.
[01:28:29] Speaker A: I agree. And that's why I'd say half or more than half of my clients are Envisage or EO or something like that, because it's solving a different need, solving a different problem.
[01:28:39] Speaker B: It's a connection problem. And I think there's value in that, particularly because of the loneliness of the CEO, which is a true thing.
[01:28:45] Speaker A: Just gets a little complicated. Like everybody does a Biz equity and everybody's got their valuation that's perfectly based in real world stuff.
[01:28:55] Speaker B: Well, everyone has the thing that floats their boat.
[01:29:00] Speaker A: This has been unbelievably fun. Is there something that we didn't cover in this round that you think would be worthwhile within the context of the conversation?
[01:29:08] Speaker B: I think we've gone deep into how private equity works from an operating side. I'm just trying to think there's.
I think the only thing I'd say is there's two parts that I think of unpacked. So one, of course if you want to sell to a sophisticated buyer, you need to learn the game in advance. So some of that we've covered today, but I do think, and I didn't appreciate it as much in terms of what you do on a day to day basis with your clients is you're probably better off, you're probably better off learning this stuff even if you haven't decided to sell because it's going to make your business better anyway. I don't think there was much difference between maybe the way we think about things.
It's all commonality but there's a huge gap in my opinion that most business owners don't understand that or appreciate it enough.
[01:29:49] Speaker A: Yeah. And I think that as you and I mean I still think there's at some point ways that we're gonna be able to collaborate on a more in depth level where like I got a couple people that are looking to, that are in the process of selling and like I'm helping them but as I grow my coaching base because this year is the process of growing the one to many and I've got a couple other coaches that I am going to be bringing because like I, I can only work with so many people and I'm choosing to only work with my, my handful people. But I think that the people that have raised their hands that I want to sell to a third party, there is different stuff. Maybe this is maybe the last, if you want to comment on it is when people get to the point of optionality where I get them, they really can do. I mean there's a couple people like I want to sell to a third party. Maybe I'll run a process or maybe you do an ESAP or whatever the hell it might be the moment that I think that someone has a third party sale in mind, there are certain things that you might do slightly different.
You know what I mean? Like so like it's like the way I've kind of articulated Nick is like when Someone says like, okay, I want to sell to a third party in like 12 months. Or when I say third party, you know, private equity, third party strategic, not an ESOP, not an internal transfer.
[01:31:03] Speaker B: There's going to be someone else, another entity coming in that's to have another.
[01:31:05] Speaker A: Entity influence y. I think that there needs to be some sort of coaching program for that. Those individuals where it's like M and A attorney, investment banker, like tax strategies, like, you know, wealth management, you know, like, we're like, there's a. I, like I, I have this vision of like the deal room where like you're not talking about all the other stuff of the operating partners because there's a transaction coming into play. I don't know, maybe it's something for you to think about or I to think about.
[01:31:33] Speaker B: Yeah, I tell you what I've done on that, and maybe, maybe this was a bit of a limiting belief on my side is because we work, as I said, with businesses at that 5 to 50 million when there's, there's two things we do, right? Mainly right. The first thing we do is we actually go and run a due diligence process on the business before it sells, right? So that's a proper analysis audit, like detailed, like if you, if you, if we were going to buy your business and they're all peis who do it, right. So they're all my kind of ex colleagues and whatever. So right now, if I was going to buy your business, these are the reasons why we would or we would not now in that situation, you know, and we're going to give you high certainty that you're going to get the valuation you want. If everything's there equally, if you, if, if you know it's not on track with what you're trying to do, we're going to tell you what you need to fix. So, so that piece, we're, it's coming.
[01:32:20] Speaker A: At the exit lens from day one.
[01:32:22] Speaker B: I mean, the best thing though, and this is the thing I found hard, is it's hard to deliver that level of precision in a group format. You can educate people to death on all of it. But what I find is you have to go in there into the weeds and get it done.
And, and that's why I've never built out.
Other people have tried to build out these things where like everyone can sit around and talk about what it looks like. There is value in that. But I find every business needs a bit more precision at that level. That's why we work with businesses that are more Established.
[01:32:51] Speaker A: Well, I was falling into that last. It's not necessarily more established or it's more like I'm going to sell to a third party and here's. And I need the tlc. And maybe I don't know if you're open to sharing where your price leveling engagement, what that looks like because I've, you know, you and I both have gone through the talking more program that, that's. I've got this coaching program that I am working on scaling this year where it's gonna be. What I'm working on right now, nick, is it's 1500 bucks a month for the group program and there's an onboarding. I've now got this 90 day boardroom blueprint. They get all this for the 90 days, then it's the whole love it or leave it, you've got a whole plan. But the 1500 bucks a month comes with like the weekly stuff, the, the training program, the quarterlies, all that stuff. And then if they wanted a ownership coach that does the monthly meetings and then it has a monthly owner's mastermind, it's 2,500 bucks a month. Yeah.
[01:33:40] Speaker B: That is not a similar pricing on our stuff. I mean we, so that's a little bit different. So we have our early stage program, what we call boardroom and we let people in when they're at 500k revenue. So not even like they might be making 100k profit, but it's between 500k and 5 million. So if you're in that bracket, that's our group program and we charge five grand a year for that.
But if you want a one to one mentor for either all of it or part of it, it's 2,500amonth.
Okay, but the goal, the goal for.
[01:34:11] Speaker A: Us, but that's not doing the like the cheap, the, the general partner level, the operating part.
[01:34:16] Speaker B: No, no, no, no, no. This is, this is, this is for people who, because we get this a.
[01:34:20] Speaker A: Lot, who want to be professional services that you're working with.
[01:34:24] Speaker B: I mean because you were B2B professional services. But the reason we do that, we don't make any money from that. Like the goal, the goal, the five, five grand for a year, weekly calls. We don't do it because, you know, it's a revenue stream for us. We do it because we want deal flow.
[01:34:39] Speaker A: Yeah.
[01:34:39] Speaker B: We want the businesses to come in when they're one of my mentors. I mentioned last time the Happy Meal before, it's the Big Mac so they get access to playbooks they get access to methodologies. I have a team of people who deliver that. So I deliver one. One week per month is strategy and leadership. But I don't do pipeline, I don't do process or profit. I' experts who deliver them. So that's our entry level program. Once someone gets to that 5 million or certainly in that 1 to 2 million of EBIT, then we have what's called the operating partnership. And that's $24,000 three months and then it rolls across at 8k a month, ongoing. And if we work with you for longer than 12 months, we take a 2 1/2% success fee all the way through to exit and we have the ability to do the transaction through my investment banking group. Got it. So that's what we charge. It's not crazy money when you think about it. But if someone's going to work with us for, let's say two or three years, they might be spending anywhere between $200,000. But our kind of guarantee back is that because we're working with those sort of businesses, we're going to be adding at least seven multi seven figures to your valuation.
[01:35:42] Speaker A: And the way that you can prove that is because you're doing due diligence and that level of attention at the beginning, because that's where I.
Well, and I believe you because you've got the experience where so many people pitch that bs, but like you have a real valuation that's not made up, that they have at least an understanding of here where I'm at right now and here's where I want to go. So you can actually quantify that value gap based on.
[01:36:07] Speaker B: We do an independent valuation in that. In the operating partnership, we do an independent valuation at the beginning and we often say that we do that six monthly, depending on what we're building tomorrow.
[01:36:16] Speaker A: Is that what you're using Bizval for?
[01:36:17] Speaker B: Use Biz Val for that. There are.
[01:36:18] Speaker A: And Kyle's a friend, he was just on the podcast.
[01:36:20] Speaker B: Yeah, they're great. I mean the guys are really good. They turn up to our. We do exit workshops as part of the first three months of that engagement. So it starts off with we have like what we call a AAA framework where the first is assessment and that normally takes the first month. Then we go into architecture, which is the strategic sort of exit strategy stuff. And then we go into accelerate, which is the execution.
[01:36:39] Speaker A: And this is the 24 grand and the 8 grand a month thing.
[01:36:42] Speaker B: Yeah. So in the first three months that, that 24K, we do it 8K a month. But it's a commitment for three months. Initially, we want to be able to build the plan and start execution. And at that point, we've embedded enough, I think, to be able to show the value of the operating partner model. But it's definitely, it's intimate.
[01:37:00] Speaker A: It has to be because of the super fascinating man. And I, and I appreciate that, and I hope the listeners are gathering this, because, I mean, my two cents on this is, like, I have worked with people to do the things that you and I are talking about. And, like, until I landed on talking More's business model, I didn't know how to freaking figure out, like, what should I do? Should I help people intimately? Should I do some coaching? And then it was just like, I can't do it all. Like, and then, like, because, like, you have to, you have to have a machine. Like, you're talking about the right people to actually deliver.
Because even if you were doing it only on yourself, it's not enough money for you, right? And then you go, okay, well, there.
[01:37:37] Speaker B: Has to be a. I do it for you a hundred percent. I mean, I, I, I think what's interesting is, like, as you go through this journey of advisory, coaching, consulting, whatever you call it, mentoring is, there are different ways of doing it, and there are different levels. And what I, what I struggled with, to be really transparent, is trying to shoehorn things into other people's models.
So you go out there, you go to a mastermind, and someone's doing something, you think, oh, that's what I should be doing.
And it took me ages, Ryan. Right. Of trying things and realizing, you know, like, they say, try the, try the suit on. If it doesn't fit, then try something else. So I realized that group, I probably should have worked this out earlier, but I realized that group works well for a certain level.
[01:38:19] Speaker A: Right.
[01:38:19] Speaker B: Where it's not that sophisticated and people just want to get the basics in place. It works brilliantly well for that. Right? And you can template it and you can teach it and all that. When someone gets to be more sophisticated and the outcome and the stuff stakes are higher. It's hard. They don't want to share information in a group in the same way. Certainly the stuff that we're talking about, they want it to be more personalized. They're more edgy sometimes about the outcome because they've got to a point where they're going after something that they never maybe expected they would do.
And so that's why I had to change the model to say, hey, we'll get you to, we'll get you to 1 to 2 million of EBIT. Now we're going to teach you a whole different way of doing things. And we also go in there and we teach them how to buy companies. So we do kind of.
[01:38:58] Speaker A: That's why like, I mean like 24 grand and 8 grand a month is. It seems reasonable if the outcome's there. And like, because like I look at it, I've had a similar experience, Nick. I mean like, it's like, okay, well if I do this for people, like I have to charge an insane amount of money if I'm going to be doing it, it's just me. And then it's like, well, because like, I mean you look at the time value of money for both people like you and I and it's like, dude, I mean I've gone through, do I raise a fund, do I like jump in? There is how many different people's operating partner without the, you know, you just, you go through all these decision trees like what is it? What, how to deliver the value at, at a outcome based scale without crushing yourself. But then also getting people what they want. And it's fascinating man, because I'm, I've kind of landed where you are where like I've got a handful of people I'm doing those, those quarterlies with. I've got this mastermind. But like, I think, I think you're very much on track where like if someone wants to get done and they actually want to go to that outcome, I think that you're that 24. And then the eight makes a ton of sense because then it's like, and it's the outcome, like we're going to this and it's not like, oh, this is kind of fun because like if it's all this, this is kind of fun. It's, then it looks at it as a very large expense.
[01:40:08] Speaker B: Well, we're showing them. You know, one of the things that's transparent again it comes from the PE world is it's all results and outcomes focus. So like even in the first 90 days of that engagement, we've already set the stall out of what, what we're going to create in that first 90 days. And one of the things I try and do is when we're doing that first assessment phase, we add a financial metric that we're going to affect and it's normally something to do with, with revenue growth or OPEX or some sort of improvement. And so that we say within 90 days we're going to show you a metric improvement as part of what we do.
[01:40:38] Speaker A: How do you pick from which ones do you. That's fascinating because I start with like, by the way, you can see for the first time that's like kind of we do it.
[01:40:46] Speaker B: I know we're, I know we're chatting away here, but we do it. I've got it here. So it used to be, it's under my accelerator program. But I'll tell you exactly the things that we, we look at because I, because I do a financial, a deep dive financial analysis and then I do sort of a value based analysis as well.
[01:41:03] Speaker A: And that's where I think it's important for the listeners to understand is that you're getting, you and your team are getting paid appropriately for that. Because otherwise people like, I mean there, there's just.
I've got some interesting stuff going on, Nick. It's alluded with AI and building out this financial model and I've got a team in Dubai doing an arms race with a, with a guy and with AI. So I've got an AI versus a team in Dubai and I'm going to see who wins on how to. I think I can get this like full financial model.
[01:41:30] Speaker B: There's so much you can do with AI these days. We're touching on that as well. But so yeah, the three metrics we look at, we look at revenue obviously we look at cogs and we look at OPEX as the three main drivers and we like look at what's the most important thing to flex based on some financial recasting, benchmarking across various metrics and then obviously what that does to enterprise value. So through that process we say, okay, this is the one that's going to give you the most immediate return depending on what their challenge is. We just help them do some things in the execution phase to deliver that. So they're getting a return on that investment anyway just because of that focus in the first.
[01:42:03] Speaker A: If they're looking through the lens of value creation and an exit. Right.
[01:42:06] Speaker B: They all are.
[01:42:07] Speaker A: Exactly.
Mate. This is so fun. I just absolutely love it, man. I just, yeah, I can do this.
[01:42:14] Speaker B: Right, isn't it? I enjoy these, these that, these because we, we kind of learn from each other as well. But hopefully, as I said, the fly on the wall for, for everyone listening is valuable too.
Maybe it's helping people, you know, decide what their options are and what they want to do, which is cool.
[01:42:28] Speaker A: I think so, man. I really do. I think there's, I mean I've gotten feedback on our previous episodes. And people love hearing us banter back and forth because I think we've got the relationship, we got the. We're both trying to get better and hopefully other people are benefiting from it, so.
[01:42:42] Speaker B: Exactly. Well, we have the respect. I think that we all kind of. We approach it in similar ways, but also some distinctions which are quite nice. And.
[01:42:48] Speaker A: And we've been learning what those distinctions are together.
[01:42:52] Speaker B: Exactly. Over the last few years, mate. It's been a few years.
[01:42:55] Speaker A: I'll put the link to those five KPIs, as well as your website, program, web podcast, all that kind of stuff, and I'll encourage people to check it out.
[01:43:03] Speaker B: Perfect. Love it. Always fun. Ryan, thank you very much.
