Podcast Episode 1 – Why are we doing a podcast?

/in /by

Fundamentals of Exit Planning

/in /by

Fundamentals of Exit PlanningOne of the drums we beat a lot in these articles, and have even more so this year, is the importance of exit planning.  The vast majority of business owners never do it until they’re in the middle of a transaction.  But if you take the time to do so, not only are you going to probably get a better deal than you otherwise would have, you’re going to get to keep more money too.  Let’s look at some fundamentals of the exit planning process.

When to Plan

As they say, the best time to plant a tree is twenty years ago; the next best time is now.  You don’t need to go back twenty years to plan a business exit, but 2-5 years will give you a chance to do the tax planning, business enhancement, and transition planning you’ll need in a sale.  On top of that, you’ll then be in the position of watching the market and making a move when it’s favorable for you, not just because now you’ve decided to sell.  Market timing is a factor often entirely disregarded by sellers.

What to Plan

A business sale is often the most significant financial transaction of an individual’s life.  What is it that you want to accomplish by a business sale?  That question can be overwhelming, so think about it in via these smaller questions:

  1. What do you want your business to accomplish before the exit?  Is there a revenue goal or particular milestone that matters to you?  Or do you feel that the only way to get to the next level is through significant investment and hiring?
  2. When do you want to exit?  In the next year, the next five years, the next ten years?
  3. How do you want to exit?  Are you okay to stay on for a transition period or do you want to be done right away?  Do you want cash upfront or are you okay with an earnout?
  4. What do you want to accomplish as a result of your exit?  Do you never want to work again?  Do you want a break from working?  Do you want to use the funds to buy a different business?

Once you’ve answered these smaller questions we will have a much better idea of your answer to the first question, which was what did you want to accomplish by a business sale.  Now the process begins of bringing your answers into alignment with each other.  For example, if you want to sell in the next year, and you want to walk away with no transition and an all cash-deal, is the business ready for you to leave and is the business attractive enough and in the right range to attract an all-cash deal?  The answers to those questions can then drive the changes you want or force you to question whether your expectations are reasonable.  And yes, there are plenty of times when seller’s expectations are out-of-this-galaxy unrealistic.

What to Know

Many sellers are in a first-time position, so rather than lamenting all they don’t know they should take the time to educate themselves.  Do they know:

These are just a few of the many areas that we as brokers will cover with buyers and sellers, but like anything in life, the more you bring to the table, the more you’ll get out of an experience.  The more familiar you are with these matters during your exit planning, the clearer headed you’ll be when it comes time to actually move towards a transaction.

Do you really want one of the most important, if not the most important financial transaction of your life to be something you compress into a few emotional weeks and months, or would you rather have the benefit of taking the time to do the exit planning now so that when those weeks and months before closing do come, they are less emotional, and as a result, probably more financially profitable?  Then take the time to do the work now.

We would love to help you think through your exit planning.  Give us a call.

Case Study #58: 3 Years to 30 Million

/in /by

Fab CBDIt was 2017 when Josh got a call from a fellow Milwaukee business owner about CBD.  Josh was already in the supplements space so he already understood how to build and market products to customers online.  He just needed to take a crash course in CBD.  Six weeks later he launched Fab CBD and three years later he sold his business for 10 figures in cash and stock.  Here’s a brief look at his story.

Affiliates

Have you ever done a search for “best mattress” or “best grill” and come across what looks to be a blog or a personal website?  Chances are those sites are being paid a commission for any sales (or even traffic) they send to the companies whose products they are creating content about.  Some of these affiliates work on a one-time basis, or “Cost per acquisition” and they normally demand 50-100% of the first order as a commission.  They receive nothing afterwards.  Josh and his Fab CBD team preferred for everyone to have some long-term skin in the game and hence would give 20-25% of the first order, but then 15-20% lifetime on the backend.  That meant that even after customers had entered the company funnel and were now responding to the marketing and tactics paid for by Josh and his team, the original affiliate was still being rewarded.  

On the strength of his affiliate marketing and organic SEO alone, Fab CBD kept doubling in revenue.  It ended 2018 on 2.5M, 2019 on 5.5M, and 2020 on 11.5M.  

Wait, What’s CBD?

If you are unfamiliar with the product, it comes from cannabidiol, which is one of 113 cannabinoids in cannabis plants.  It was discovered in 1940, but has most recently been used to help treat anxiety, depression, PTSD, and insomnia.  It’s non-psychoactive, meaning you get the benefit of the plant, without a high (or the munchies).

The oil itself has to be mixed with flavoring, hemp extract, and MCT oil, which acts as a carrier for the compound.  In 2017 when Josh started the business a kilo of the oil cost $16k.  That same oil now costs $2k.  But because of strong demand, most of the big players in the industry have not dropped their prices, which means there’s been a world of margin that opened up from when the company first started buying the oil.

“I’m Not Romantic About CBD”

From the start Josh wasn’t romantic about CBD.  He didn’t go to sleep or wake up thinking about the product.  It was just something helpful that he was delivering to consumers while also building a big business.  That meant that when he was at a certain level, he knew he would be objective about selling the company.

In 2020 he knew he had hit the numbers he wanted and with a goal of getting 6-8X EBITDA he went to various companies in the industry looking for a deal.  Given that some of the bigger players were doing $5M EBITDA on $30M in revenue and Josh had the same EBITDA on $11.5M in revenue, he was an attractive target, and unsurprisingly he had seven LOIs on a deadline day he had set.

Cash and Stock

Josh ended up taking $13M in cash and another $8M in stock which he is currently holding (his acquirer is listed on NASDAQ) and is optimistic it might double.  But in a sense he doesn’t care, because he sees it as a bet that he’s involved with: he’s still working with the acquirer and is helping to make sure that stock price grows, underwritten by a strong ecommerce pedigree.

When he reflected on why he waited for a certain number before cashing out, Josh was clear that he wasn’t interested in something like $5M or $6M when he was already pulling down $1M/$2M a year.  He wanted a very large payout.  And it turns out he got what he wanted.

Lessons

If Josh could have changed one thing, he said he would have gone to his broker with at least some idea of the structure of the deal he wanted.  He’s said he’s heard of sellers who go to their brokers with vague ideas for a sale outcome, and then complain when they end up with a yellow Camry instead of the black Mercedes they envisioned.  “Get your deal on paper, talk to lawyers, then bring it to your broker, then you’re all on the same page about the outcome you want.”

Other lessons Josh shared:

  • Affiliates can get you instant credibility and instant customers.  Depending on how you structure your commissions with them, they can take your growth to the moon (or not).
  • Be clear on your why for selling.  Josh wasn’t just looking for a quick buck.  This was not his first rodeo and given his trajectory and the margins he had built, he wanted to get paid for where the company was going (to the moon!) and was happy to move on to the next thing.
  • Avoid being romantic about your business.  Some sellers sleep/breathe/eat their businesses.  That’s great!  That’s often part of the success.  But realize too that can make you totally emotional when it comes to a transaction and that’s a liability.  Consider the value of emotional distance from your business.
  • When taking stock as part of the transaction, look to see how easy/safe it is to liquidate.  That has to be part of your calculus when considering how much you are willing to take.  

Do you want an unromantic look at your business to see if it’s in shape to sell?  We’ve got you covered.  Give us a call.

Book Club #25: Crushing It! How Great Entrepreneurs Build Their Business and Influence and How You Can Too, Gary Vaynerchuk

/in /by
Gary Vaynerchuk

Image Courtesy of Gary Vee IP, LLC

If you haven’t heard about Gary Vaynerchuk, here’s the short version: immigrant from Belarus who started in entrepreneurship while he was in grade school in lemonade stands and baseball cards and graduated to growing his family’s liquor store business from a 7 figure business to an 8 figure one by being one of the early YouTube personalities; Gary now runs a social media empire and has multiple business investments, including being one of the early investors in Twitter and Uber, with sizeable holdings in Facebook.  His (current) life aspiration is to own the New York Jets.

You could get all that information from reading this book, but you’re just as likely to have gotten it from all the social media platforms Gary and his team have a presence on.  Before he wrote Crushing It!, he wrote a book way back in 2009 called Crush It! which detailed exactly how to excel on social media and why it is so important in the first place.  Crushing It! is an updated form of that book packed with case studies of people who read the first book, applied what Gary taught, and built everything from fun side hustles to enormous businesses.

Social Media Bewilderment

A lot of our sellers here at Apex are a bit bewildered by social media.  We get it.  Many of our team of brokers came up in business when your Yellow Pages spend was always a big part of the marketing discussion.  Obviously times have changed but many people seem not to understand what social media can do for their businesses.

In this book, as he did in the first version of the book, Gary explains what social media is at a granular level.  Yes, there are cat videos and celebrity photos.  But there are also people asking, “who knows a good plumber?” on Facebook and people asking, “how do you buy a business?” on places like Twitter and Quora.  There are people sharing their thoughts and advocating for ideas on LinkedIn.  There are companies showing off their work for clients and sharing fun on Instagram and TikTok.  

What do all of these interactions have in common?
They scale human interactions.  

Many people think of “doing business” as going to a networking event or having one-on-one coffees, and for sure, those will always be opportunities for “retail business.”  But there is a limit to the hours of your day and there’s also a limit to how many people you want to meet and interact with in a given week.  Everyone needs private time not just to relax but to get work done.

Social media works while you’re asleep.  It works on your behalf.  It brings people to you that could never have met you otherwise.  But just like going out to networking events or having one-on-one coffees, it requires work.  You have to be willing to put in the time on social media in order to get social media results.  

Just a few examples Gary shares in the book include:

  • Interacting with people on Twitter: answering questions, posing them.  Staking out business positions you believe in strongly but aren’t necessarily popular.
  • Sharing on LinkedIn: all things considered, people prefer to do business with people they know and trust.  A way that people can get to know and trust you is by your interacting on LinkedIn by adding value: share links to articles and podcasts you really enjoyed and give a one paragraph summary of why someone would find this content valuable.
  • Creating articles on platforms like Medium or answering questions on Quora.  People are always looking for good content and taking the time to share your knowledge will pay dividends.

In all these cases Gary is pointing out that social media, like business (and often, life), is about leading with value.  If your social media strategy to this point has consisted of “hey look at me” or “hey buy my product” or “hey use my services” and you’re bewildered as to why “social media” “doesn’t work” “for you” it’s because you’re doing it wrong.  

Social media is not a digital version of the Yellow Pages, where you unabashedly list your business and wait for the leads to roll in.

Social media is your business, digital and at scale, for the entire world to come and learn about and interact with.  It’s your opportunity to earn business.  That’s going to take effort on your part.  This book not only shows you how, it also shows you people who’ve done it and continue to do it.

Would you like some help with your social media?  We aren’t gurus but we know people who are and would be happy to refer you.  Give us a call!

Understanding the Great Resignation

/in /by

Understanding the Great ResignationJuly 2021 saw 4M workers leave the workforce, with that number increasing in August and September.  The largest age group among these workers were in the 30-45 age group.  While these numbers are not insignificant, they still only represent 3% of the workforce, not 30%.  But as we noted before in our discussion about the $15 minimum wage, business owners are at their best when they anticipate trends, instead of waiting for those trends to happen to them.

Causes

While the term “great resignation” is just as recent as the resignations themselves, a few theories have been floated as root causes of these employees leaving their jobs:

  • “Pent-up” quitting: those who didn’t immediately resign in the face of uncertainty in 2020 have decided to finally do so now
  • Existential revelations: when people were laid off or had some time to work remotely, they took a hard look at their present circumstances and didn’t like them
  • High stress: resignations have been higher in health care, tech, food service, and retail, all sectors that either had a sharp increase or a sharp decrease in revenues and customers

Given that the event is still happening amidst a lot of other global uncertainty, it’s not clear that any of these possible causes is driving resignations more than another.  There may be a hidden factor that will become more clear in time.  But that shouldn’t stop buyers or sellers from moving forward with transactions.

Address the Situation

Whether you’re a buyer or a seller, you can lean into the so-called “Great Resignation” as part of your due diligence or preparation to sell your business, respectively.

Buyers

We’ve already mentioned earlier this year that Covid-19 is causing buyers to look at staffing issues more closely.  Buyers are often not going to be able to interview current employees directly, but they can ask the seller for employment information: how long employees have been there, what the historic turnover rate has been, and if that’s been any different since March 2020.  If there is a significant difference, ask the seller for reasons why.  

Sellers

With the additional buyer scrutiny directed at personnel, it’s entirely justifiable to lean into retention as you prep your business for sale.  If you have had more resignations than usual since March 2020, try to look at aspects of employment that may have broken under the stress:

  • Company culture: is it healthy and thriving and did it weather the challenges that lockdowns and layoffs may have caused?  If not, what are you doing to address this?
  • Pay and working conditions: are your workers in-person or working remotely?  How is your pay in relation to the rest of the marketplace and its adjustments since March 2020?  If your staff is unhappy with pay and working conditions, what do you intend to do?
  • Vendors and supply chains: bad business conditions tend to roll downhill.  Did you have to absorb any of the challenges of your vendors?  Did your supply chain break down?  How did this affect your team?  Are there measures you can take to mitigate future shocks?  Have you implemented those measures?

Business owners often look at what is going on around them and try to think about how conditions might affect their businesses.  But those who are looking to sell need to be particularly sensitive and proactive.  It’s not enough to know about the Great Resignation, you need to make sure you take whatever measures you can to make sure you don’t become part of its statistics, as that will directly affect your ability to sell the business at the price you want.

Has your business been affected by the Great Resignation?  We’d love to talk to you about how to turn things around.  Give us a call.