Summary

In this episode of the Top M&A Entrepreneurs Podcast, Jon Stoddard interviews Matt Bodnar, an accomplished entrepreneur and M&A expert. They discuss Matt's impressive background, including his experiences in China, his transition from investment banking to entrepreneurship, and the lessons learned from his early acquisitions. Matt shares insights on strategic acquisitions, negotiation strategies, and the evolution of his businesses, particularly in the restaurant and IT sectors. The conversation highlights the importance of equity ownership, cash flow management, and collaborative deal structuring in the world of M&A. In this conversation, Jon Stoddard discusses various aspects of deal structuring, particularly focusing on baseline deals and creative financing strategies. He emphasizes the importance of understanding the value of contributions beyond monetary investments and explores the dynamics of exit strategies in business acquisitions. Stoddard also shares insights on the mindset required for successful deal-making, drawing parallels with poker to highlight decision-making processes and the significance of focusing on quality decisions over outcomes.

Takeaways

Matt Bodnar has a diverse background in M&A and entrepreneurship.
Experiences in China shaped his understanding of business dynamics.
Equity ownership is crucial for building wealth.
The four-hour work week opened his eyes to alternative lifestyles.
Cash flow management is vital for business success.
Strategic acquisitions can pivot a business into new markets.
Negotiation should focus on win-win scenarios.
Understanding the seller's needs is key to structuring deals.
Collaboration in negotiations can lead to better outcomes.
Witnessing family entrepreneurship inspired Matt's career path. You can frame contributions in non-monetary terms.
Baseline deals work best when there's a growth story.
It's important to have a flexible exit strategy.
The mindset of a deal-maker is crucial for success.
Poker teaches valuable lessons about decision quality.
Creative deal structuring opens up more opportunities.
Understanding the seller's perspective is key.
Building relationships can lead to better deal flow.
It's essential to have multiple deal models in mind.
Persistence in follow-up is critical for success.

Watch the Interview

Transcript

Jon Stoddard (00:02.67)
Welcome to the Top &A Entrepreneurs Podcast. My guest today is Matt Bodnar. Matt is an Epic Coach with Roller Fraser Groups. How's it going, Matt? What's going on, John? Thanks for having me on here. Yeah, Matt and I are actually working on a couple deals together. And if you can hear my dog, he's barking at home. So let me introduce, tell you a little bit about Matt. Matt is named to Forbes 30 Under 30.

Partner in Inc's fastest growing companies, deal maker, strategy expert, chairman of Fresh Technology, co-founder and managing partner of Fresh Capital, and managing partner of Fresh Holdings. He's done over eight deals. He's also the creator and host of the Science of Success podcast with more than 5 million downloads. That's cool.

And he also did some work as a working for Goldman Sachs in Ningjing, China. get the first thing I'm going to ask you is that's a pretty impressive background, but what's it like to work in China? just, yeah, slight clarification. I worked for Goldman Sachs, but not in China. And I also worked as a consultant in China. just clarifying those things a little bit, but it was really cool. China's awesome. I lived there for, I wasn't there for a long time. I was there for probably six months.

It was amazing. That was back in like 2007. So was pre-Olympics, very like, you know, it still hadn't been like really modernized, Westernized, developed. mean, it had to some degree, but it was still very much kind of like wild west-ish in a lot of fun ways. But it was great. I really enjoyed it. My Mandarin used to be pretty good. Now it's pretty rusty, but I still. What's the difference today is the perception of the CCP and the China.

Chinese people, were you ever exposed to that or the government influencing? I mean, if you read anything about Jack Ma and Alibaba, his worst challenge is, my God, it's that the government actually owns his company. Yeah. I I wasn't at the level where I was like interacting with that. Honestly, I was, most of the Chinese people I interacted with were like super entrepreneurial. I mean, I met very few folks who were really, other than kind of

Jon Stoddard (02:23.842)
just on a surface level, sort of towing the party line, so to speak, but most of them were just as capitalist as anybody you would run into in the U S. I, I came across a deal that, I don't even know if I put it in front of you, but it was 2 million, very profitable wants to sell. I ask, where's the headquarters United States, CEO was Chinese, but he said all the developers were in China. And I shared that with another people and just crickets. Nobody wanted to touch it.

Yeah, I mean, it's tough. The regulatory environment. I mean, I haven't done business in China in 15 years, practically. So I've spent a long time, but I mean, the regulatory environment there is very, it's just not very like pro Western. It's not very like pro outsiders. So I think there's a lot of risk there that you just can't control, you know, what happens if they nationalize your team or take it away or, you know, just arbitrarily do something that inhibits your ability to compete. Like there's a lot of risk there.

mean, obviously a lot of people do business in China, but you've also seen a lot of big US companies that pulled out and don't do stuff in China really, or aren't super active there. Let's kind of rewind and start after you work in a full-time job with consultant Goldman Sachs or working with, where did your &A, like the entrepreneurial journey start? And how did that start? Yeah, I mean, it started in a couple of different ways. I mean, really one of the biggest entrepreneurial, I had sort of two wake-ups.

calls, I think, so to speak, from an entrepreneurial standpoint. One was when I was at Goldman, I was reading this article about Larry Page and Sergey Brin, it was talking about, I forget which one of them was kind of the CEO of Google at the time. But I was reading it, it was basically saying, you know, Larry Page, CEO of Google has a salary of $100,000 a year.

And then I read that and I was like a Wall Street analyst at the time and my salary was more than that. So I was, and I was like, you my early twenties and I'm like, man, I'm so cool. Like I make more than the CEO of Google. And then it was like a comma. And then the next part of the sentence was Andy's worth like $20 billion in Google stock or whatever that number was. Right. And it was kind of like, like it just smashed me in the face. It's like, your salary isn't really the path to wealth. It's by owning equity in something that, that, you know, you really truly build value. So that was one piece.

Jon Stoddard (04:39.182)
And then another one, mean, the honestly, the four hour work week by Tim Ferriss, I know it was sort of a seminal book for a lot of people. I mean, this was, you know, 10 plus years ago, but that book was, very impactful and just sort of opening my eyes to the, fundamental idea that a lot of the rules of the world are just sort of socially reinforced illusions that you can break through and live life in a much more self-defined path than following the traditional

corporate structures and hierarchies and all of that. that sort of opened my eyes to some degree to the potential of life, I suppose. And those were really the two big catalysts for me. Yeah. And what did that look like? I do have to admit someone I live in San Francisco, and I was doing the high Silicon Valley thing. met a number of best bankers out there. goes, how many hours do you work? 120 hours a week. Like, how do you do that?

How do you work as an investment bank for 120 hours a week and just your life is just a ball of chain on it? I mean, it's an expectation going into it, right? I mean, you're kind of signing up for that to go through that sort of crucible and be forged by it to some degree. And everybody going in the industry knows that that's what they're signing up for. Now, some folks obviously don't like it or drop out or whatever, but

Generally speaking, I I was an intern the summer before I started too. And so, I mean, you get a sense of what that lifestyle is like. And I knew that I wanted to do that at least for a couple of years, just to really understand, you know, what life looks like, you know, on the inside of one of those companies and see, you know, I learned pretty early on that I probably didn't want to be a lifer at a bigger institution like Goldman, just because there's so many restrictions and rules and regs and all that stuff. And so I wanted to have a little more control over my destiny.

It was good experience to do on the front end to kind of jump in. Yeah. So did you start looking for companies to acquire or invest in while you were still full time or did you just quit and go culture? So, I mean, it was sort of a hybrid of those two things. I was really lucky. My family has been very entrepreneurial and I've kind of been able to witness what they've done over the last, you know, when I was growing up and all this other stuff. And so my father's big in the restaurant industry and he's

Jon Stoddard (06:58.412)
been a big restaurateur. He's done a lot of things. My brother is very active in that world and I invest in a lot of restaurant stuff with them. so while I was at Goldman, I would see what they were doing and they would show me deals and real estate investments and all this stuff they're working on. And I would see that and say, this is interesting. Let me put some money in this or this is really interesting. Let me invest in that. And ultimately got to a point where that lifestyle became a lot more compelling than sitting behind a desk for 100 hours a week or whatever.

being chained to the markets and all of that. I jumped and joined my dad and my brother. We had a company called Fresh Hospitality or Fresh Holdings that was an investment platform in the restaurant space. One of my first tasks was I led acquisitions for that portfolio for a decade and bought a bunch of different companies in a couple sectors and things.

While I was doing that, I started also just sort of buying deals opportunistically on my own. I would see something I would say, this company is really interesting. The first deal I did was kind of an old, it was a point of sale resellership, which is sort of adjacent to the restaurant space and acquired. What point of sale kind of business? We were an Aloha reseller. So, I mean, it was a terrible business. mean, day one.

That company was doing about a million in revenue, but they couldn't make payroll. They had like $5,000 in the bank. had like $300,000 of accounts receivable that was aged over 180 days, 360 super aged stuff that hadn't been collected for years. they had a major... That was the first real lesson I learned in business was like, there's a difference between paper profits and collecting your cash. And if you don't manage accounts receivable, you're not going to have any cash. And so I was able to basically buy that business.

for essentially zero dollars down. I I paid like 70 grand for it, which was over four five years. But again, the business was basically defunct when I bought it. And that was kind one of the first deals where I personally bought an equity stake in the company. And then there's a whole saga with that business with where we built it up. We actually got completely out of the point of sale business. We pivoted into IT services, and then we also pivoted into software.

Jon Stoddard (09:16.094)
sold out of the Aloha business entirely. And then since have really pivoted and focused primarily around SAS, we've acquired three or four other SAS businesses within that. And that's been a great kind of platform that we're continuing to scale to this day. Well, I got to ask you about the receivables. Did you ever collect any of those or did you just ride them off? yeah, no, I collected, I mean, I, I spent the first probably six months just collecting as many receivables as possible, like going to people's offices, like, you know,

threatening to shut people's service off, like all of that stuff. I mean, we definitely didn't collect everything, but I mean, we, played hard ball with a bunch of people to get as many receivables as possible. My buddy used to install Aloha systems and he said the easiest thing to do is just go to a restaurant and he goes, if they haven't paid their bill, he goes, Hmm, yeah, I'm going to shut it off. Yeah. Yeah. So mean, we would basically say, Hey guys, like you need to pay us or we're shutting your terminals down. You know what I mean? and so, I mean, we had,

I had meetings where guys were throwing stuff at me and all kinds of stuff. that customer base, which a reseller is selling to mom and pop operators mostly who are just skating by, barely able to pay their bills in a lot of cases. And those systems were pretty big installs that had a heavy hardware component. the company's shelling out. You're probably making a 30 % profit margin on an installation, but you could have a $60,000, $70,000 install of which...

40 of that is hardware, like hard costs that you're paying to Aloha. And then you go install that and they don't pay you anything. Like you're in a really bad spot. So. Wasn't the money in the merchant service accounts though? Cause we used to do this for when I worked for Intuit, they started selling a point of sale system and the resellers came on and we said, look, you're not going to make any money on this point of sale system. That's a computer. Get the merchant service account. Cause you're going to get reoccurring revs.

Yeah, I mean, the credit card processing, the ancillary services, I mean, all of those are ways that you make money. Ultimately, though, like if you have big daddy Aloha, like breathing down your neck the whole time, like it's just not a very good business model. At least I mean, I thought it was a terrible business. But we were able to use that customer base and then, you know, so couple acquisitions to get into like a pure play IT services where we were doing like managed desktops and VoIP phones and

Jon Stoddard (11:37.196)
you know, networks and all this kind of stuff for businesses, both that were originally kind of the same customers as our Aloha base, but also branching into like medical and all kinds of other different customer segments. And then we also piggybacked on that same kind of customer base and started getting into the software space. So, I mean, we really just said, Hey, there's, I mean, this, and this is the beauty of &A, right? Is there's, there's, there's kind of clay there that you can shape into something, right? Instead of being a startup where we said, Hey, we're starting with $0 and zero

customers, we actually took a customer base and pivoted it into two or three different revenue streams and then made those into standalone businesses, got completely out of the original business and built those into pillars that are still profitable, diversified businesses with thousands of customers now across all kinds of geographies and industries and stuff. And that took 10 years from, and that journey's not even finished yet, but that was a very long process of many acquisitions, many

know, starting out like in the back office of a bunch of small restaurants, like getting yelled at by people who weren't paying their bills type of thing. But, eventually we were able to pivot it. And, and if we had, you know, tried to do a startup, we wouldn't have had the customer list. We wouldn't have had the people to be able to execute against all the stuff that we executed against to scale that business up. are those business years like the Aloha, which you got rid of?

And then you add this IT firm, were they in silos? Did they share the same customer base or was it? They were structured as sort of standalone SPVs or standalone entities within the sort of parent company that we rolled everything up to. And so when we spun out the Aloha business, we basically carved that whole business out, got rid of it, and then kept the other two. now, mean, that company probably has.

I don't even know a half dozen to take a dozen LLCs that also roll up into its trunks and branches and so forth. which is pretty typical for the way we you know, we structure stuff and most things are structured generally. So they're all sort of siloed business entities. is your dad still involved like a board advisor, chairman or executive? in the restaurant world? Yeah, he's he's still very active. I mean, he's I mean, he's a restaurateur. He's been one since he was

Jon Stoddard (14:02.944)
basically out of grad school and he's super active in that space. And I mean, I'm still relatively active too. I'm working on a restaurant acquisition right now that for kind of the fresh portfolio. Did you read that article about what his name for Tita? Yeah. Tillman for Tito. Yeah. Yeah. That where he took all his restaurants to SPACs and now he's worth double the amount before COVID. Yeah. No SPACs. We actually looked at doing a SPAC. and we were kind of behind the curve on it because

now this market sentiment around SPACs has I think turned quite negative. But there's some folks who crushed it early on in the SPAC world. And I'm remiss that we didn't get into it sooner because I think it could have been a really good opportunity set. What kind of restaurants is your dad, would we know them? mean, I'm in a- I being on the West Coast, you probably wouldn't have encountered any of our stuff. It's all primarily in the Southeast. But we have probably 12, 15 different restaurant brands in that portfolio of which several of them are like

decent size multi-unit brands beyond just, you know, like one or two kind of mom and pop type thing. Yeah. So when you started looking at this, when you were in the LoHa business and did you guys just like decide to go, Hey man, this is a dead end business. We want to be bigger. Let's kind of acquire something else. Where was that thinking and commerce? mean that, that

The compressed timeline of telling the story doesn't really do justice, but it was years and years of slogging it out and trying to figure it out until we finally... And we tried a bunch of stuff that didn't work too. We tried startups within the company where we'd say, we're going to spin up a new division, we're going to do X and it would blow up and not work. hey, we're going to do Y. Ultimately, we just tested a bunch of different things and part of it was just through acquisition, by buying...

one of our earlier acquisitions, we acquired a data center company that was basically going out of business. the seller was just retiring and didn't want to be in the data center business anymore. And he basically gave us the company, we took over all of his revenue in exchange for taking over all of his expenses and servicing his customers. And we paid him sort of an earn out over time. But I mean, that gave us a whole nother treasure trove of customers to go after and sell them more stuff. But it was really just a question of

Jon Stoddard (16:23.052)
spending a lot of time looking at what are our capabilities, what's our customer base, what are the things we could do for them that are other than this current business that we're in. And I mean, we even acquired another Aloha dealership, which ended up being just more of the same headaches. And so we ultimately decided, hey, this business is just low margin. also, I mean, to some degree, we looked at the writing on the wall with the square and all this other stuff that was going on and said, hey, the day of the $100,000 POS install,

is going away and it's all moving to these low cost tablet solutions. so that was an, mean, we saw the both, was a pain in the, pain in the butt as a business. We also saw the writing on the wall in terms of what we thought that the broader industry was going towards. And so we wanted to migrate away from that as, as quickly as we could. So those kind of, let's not, not lean years, but frustrating years. Did you buy any businesses where you had to shut down? Cause

I mean, I did, I like freely, man, I bought this, coat, not a coaching, but it was a course business and I had to shut it down after six months. mean, that, I don't know specifically within FTI. I don't know if we've had to shut, shut any acquisitions down, but I mean, we, I mean, we acquired a POS company and then we basically got out of the POS business. So, I mean, and that it wasn't like a, a slam dunk exit was basically like, Hey, we want to get out of this.

We had kind of minority partner in the deal who liked the POS company and wanted to stay with it. So we basically gave him that company and traded for some stock in another business and went on our merry way. But I mean, we definitely had lots of failed projects and stuff like that. I mean, think that's pretty regular, but I don't know. I'm just trying to think back through the history of the company. If we had specifically like acquisitions that failed, mean, not anything magical that we did that I don't think

We necessarily had any, but that's just how things panned out. Yeah. That, that, hosting a business, and you pretty much walked into that. I mean, how did you see the opportunity to turn around and make it money? Cause that's a kind of a commodity business. Yeah. I mean, and it was, it was like data center. Co-location is like the technical term for what that business was. And I mean, there's bigger competitors and really as things like, AWS and other things come online, like

Jon Stoddard (18:41.74)
collocation gets less and less relevant as a business model. But we basically modeled it out and said, Hey, we can take this business over day one, it was doing a couple hundred thousand dollars in revenue. And we piggybacked it onto our operating expenses. We could it was it was basically net cash flow positive day one, even after payments to the seller. And so we base it was just like incremental cash flow that we added on. And then over time, you know, I mean, that business has

basically treaded water done okay, but we were able to use that customer base. We were able to use the credibility of having that. We were able to use that revenue stream to fund our bigger kind of IT services division and build out the sales team there and go and expand the customer base and do more stuff in like voiceover IP phones and networks and all these other kinds of elements of that business model. So we basically used what we could of the company's infrastructure.

But I mean, again, that business wasn't like, my gosh, we need to go buy a data center. was like, hey, literally my attorney, think, or maybe it one of our sales guys, actually, and I'm trying to think about it. Like he just reached out to them and was like, hey, you guys want this company because I'm going to shut it down otherwise. Yeah. And you're like, well, no, it's a gift. Why not? Can we turn something into it? Well, I mean, we looked at it and part of it too is, you know, this was before I'd ever heard of Roland and, and, you know, the whole sort of Epic methodology and all this stuff, but

I mean, we basically just said, okay, well, what's a deal that makes sense? Right? Like, and this is, this is how I underwrite most deals is I basically ask myself, what makes sense for me? And then I'll propose that as a deal. Right? And it's like, if they say no, like I've, I've put out a lot of proposals for a lot of deals that I thought I was like, I'll do it under these terms, you know, which are potentially very advantageous for me. And if the person says no, then

Okay. You know what I mean? I don't do that deal, but every now and then somebody says yes, and then you get a great deal. And so I try to look at every opportunity as like a, is the, what is the win-win way to structure the deal? You know what mean? Maybe you're at least what's the way to structure the deal where I can't lose. Right. And so I figured out, okay, if we, if we paid half a million dollars in cash for that business, I'd be super pissed about that acquisition. You know what I mean? But I paid. That'd be dumb. Right. And so, mean, but we didn't.

Jon Stoddard (21:04.812)
And so, and I could have, if I had only had one approach to it, I could have just said, well, you know, I can't pay you half a million bucks for this deal. So I'm just going to move on. Thanks. Instead. was like, expectations of making any money out of it. Or was he, know, I he made money out of it. I mean, he didn't make like, you know, hundreds of thousands of dollars, but I mean, he made a decent amount of money on the sale. And I mean, again, I don't know, like this was

pre me having encountered a lot of Roland stuff, but like Roland has the same idea where he says, you know, he doesn't negotiate, he only collaborates. And that's how I try to approach any deal was, I mean, I just sat down with the seller in that deal. And I was like, Hey, like, what's like, what do you want? You know, what are you trying to accomplish? What are you know, here's what we're thinking about. I mean, it wasn't like a hardball style of thing. It was just like, yeah, let me think about it and see if I can come up with something that kind of checks box enough boxes for everyone that it makes sense for us to do it.

And that's how I approach most stuff is I'm not trying to necessarily, ramrod, like a certain structure. And sometimes there's only like one or two structures that really are worth pursuing. And so you kind of have to do that, but I just try to say, Hey, here's what makes sense for me. Here's what I'm thinking about. Like, you don't like it. That's fine. Like you're not going to hurt my feelings. If you have alternative proposals, like tell me about them. but I try to say, I try to tell every sort of seller or person that I'm potentially JVing with that.

I view every deal as a statue that you're starting with a block of marble and you're just sort of chipping away and getting it more and more refined. And so don't get offended at the first chips at the block of marble. Cause we still have a lot to do to figure out where it lands. Yeah. start out with that. I do say, Hey, this is kind of what works for me. You're sitting on the same side of the table and say, I like to tell you what would work for me. I mean, I don't necessarily frame it in that way, but like what I'll usually say is like, I'll frame it to my, like I'll

think about it in that way. It's like, okay, well, at what terms would I do this deal? Right? Like that's the question that I'm always asking myself. Instead of just saying, no, it's like, okay, well, I would do it if the seller carried a hundred percent and it was positive carry. Right? So, and it was big enough to justify the time and effort that that would take. Now, you know, again, maybe the seller doesn't ever want to do that, but like, that's the starting point. It's like a spectrum, right? Where, what works for me? And then how far along can I get on that to where I start to get into the zone of like, it also works for the seller.

Jon Stoddard (23:28.618)
And if there's an intersection there, then there's a deal to be done. if there's not, I'm kind of more value oriented in the sense that I'm not going to die on the hill of having to get a deal done versus being like, this deal is starting to get outside the zone of what I think is a good deal, so I'm just going to move on and not get caught chasing it so that it blows up. But broadly, I'm interacting with a seller, it's more...

Hey, here's some ideas that I have. I welcome if you have other ideas, like throw them out. I'm not trying to pigeonhole us into anything other than just seeing if there's something that works for both of us. You know what I mean? And I mean, I'll give you, isn't an apples to apples comparison, but like I was, I was pitching somebody on a deal maybe four or five months ago. And like, I could have just pitched like a

a straight, hey, I think the company is worth X and I'll buy it at this price, you know, mostly all cash or maybe with some seller financing or whatever. And instead, basically what I said was like, I was like, look, I see kind of two options here. And you tell me which one you like better, which is either A, I can just give you a chunk of cash and that's it. And you walk away or B, I can give you kind of payments over time.

that are equal to approximately what you're making in the business today. Maybe you can keep some equity upside, but it would be like passive ownership. And you can basically keep making that. You can have some upside kicker and I'll step in and take over the company and kind of do what I think is best for it. I threw that out as kind of a hail Mary. I was like, I don't think they're going to take that when they could take all cash. And they were like, I really liked the sound of that one, the deferred payments. And I can keep getting money every year, every quarter or whatever.

And so, you know, that like, without me just tossing that out there and just creating that possibility, they might not have ever told me that and I might have just been pigeonholed and like, I have to pay, I have to come up with, you know, $4 million in cash to buy this company versus, the seller is actually willing to carry like a big chunk of this deal structure. How would you know that? What kind of questions did you ask?

Jon Stoddard (25:41.674)
present those two offers and let me give you like on the scale of things. You look at a business and say, I'm gonna give him cash and it's on this side. Or I want, he's got this business, same business, but I'm gonna ask for seven years of seller financing because it's zero out of pocket. It's 5 million out of pocket here. mean, how did you know what kind of questions to ask to say, I mean, that seems like that on both extremes. I mean, to start, I just try to get a sense of

What are they making from the business? I've done a ton of baseline deals in my life and most of them, they all stem from this premise of like, what are you making today? And especially for smaller businesses, it's like a lot of people think in that, hey, I'm making $250,000 a year from the company today. That's what I'm taking out of it in a combination of salary and profits and all this stuff. And it's weird, but I don't...

characterize it as seller financing, because I think that has some baggage around it. Sometimes I just put that in a term sheet and it's like, I'm going to give you, I want you to carry 30 % of the deal or whatever. But that's usually if there's more market, brokers, advisors type stuff. for a baseline deal, the way I framed pretty much every baseline deal I've ever done is we don't even talk about valuation. And I sidestep that question and I use this framework to sidestep it, which is to basically say, hey, you're making 300 grand a year out of your company.

Here's what I would propose. Let's create a structure where you keep making 300 grand and we can partner together and I'll bring some resources to the table to help the company grow. And we split the upside in some form or fashion. And so what that effectively does is, and then you kind of come back in later and you say, okay, well, I want to have like, let's say, if you're making 300 grand, let's say for the next five years, the business will keep paying you 300 grand.

and then it'll kick out to a point where we just split the profits 50-50 or 60-40. Again, it depends on if they want to keep being active or whatever else. Effectively, that sets evaluation and it sets a term and it's all seller finance. That's implied in that structure, but you do it without ever having that conversation about, I'm going to pay you this and it's going to have this interest and you're going to carry it and blah, blah, blah. But the way I basically frame it is like, hey, you keep making what you're making.

Jon Stoddard (28:02.55)
will split the upside in some way, right? If you want to go be passive and like right off in the sunset, I'll take 70 % of the upside, you take 30 or I'll take 80 % of upside, you take 20 or whatever. Or if you want to be super active and you want me to keep being active, maybe it's like a 60, 40 or 50, 50 or whatever. And then, you know, I may be Sorry, keep going. You say, Hey, I'll keep giving you.

it's 200,000 a year, I'll give you for five years, it's a million dollars, kind of sets the valuation. And then the upside is you bring your resources in, how do you determine who, how are you gonna split that? Because you, they're doing the same thing, or they may be, you know, lagging or whatever. And, I mean, so again, you can do it. I mean, there's no right answer other than you can just do it in a way where you're not.

You don't have to have a conversation about what's the dollar value of what I'm bringing to the table and what's the dollar value of what you're bringing to the table. Sometimes you can frame it like, and if you want to invest capital or it's a necessary component, you can do a baseline deal where it's like, I'm going to bring, let's say, $200,000 of growth capital to the table and you keep making your 200 grand a year. I'm going to put that in the business and I'm going to take a majority

stake and I'll have 60 % you have 40 % and we'll keep you know, we'll keep going. In that scenario, you can maybe invest it as cash or you can take out like a line of credit in the company's name and like use that as the capital that you're bringing. Or you can say, Hey, I'm going to provide $200,000 worth of resources or $500,000 worth of resources. And that could be, you know, like services in kind, it can be consulting, it can be like, maybe you have another business that you can grant them, you know, say, Hey,

If were to give you, and this is something that also Roland is really good at, which is basically like saying, all right, let's say I, this is how you frame it to a seller, right? Let's say I gave you half a million dollars or I put half a million dollars in the company. What would we spend that on to grow? Right? So if we say, Hey, we would spend a hundred thousand dollars on sales. Okay. That's one thing we'd spend a hundred thousand dollars on marketing. Okay. That's another, right? And so we'll just use those two as examples. You can say, okay, great. Well, when I take over, I'm going to bring my marketing company.

Jon Stoddard (30:22.828)
to the table and that marketing company is going to actually give us $200,000 worth of marketing services for free, right? Or whatever. And so you can say that's effectively $200,000 cash contribution, maybe even more than that. But you don't actually have to come up with $200,000. So I mean, those are some just illustrations of ways to... Yeah, exactly. So using, figuring out ways you can sort of say, Hey, I'm bringing non-monetary contributions.

Now you can also just do it where you can just, you know, it doesn't work in every case, but like you can take out a loan in the company's name and have that be your contribution. Right? What happens to the owner? You know, normally those guys, you know, when you're buying female or male or female and you say they grew their business, but they're stagnant, you know, they just don't know how to get to the next level, which is what your $200,000 or

$200,000 in marketing contribution does. How do they fit in after that for the next five years? Are they just- It varies. They can be totally passive or they can still be running the company. I think part of that depends on what's your thesis for the deal and what's your relationship. Do you want them to be involved or do you want them to completely be uninvolved? I think with a baseline, there's an inherent element of

their continued involvement to some degree. Because otherwise, like a baseline is not really the right structure. Because if you want to buy them out completely, like get them out, you can still use seller financing. But a baseline is sort of implied that they're going to be involved on a go forward basis, and you're going to come in and you're going to help split the growth or whatever. And so in that scenario, I think, generally, they're going to stick around. Now I've done baseline deals where

We've had to come in 18 months later and be like, look, I know you wanted to run the company, but it's not really working. You can keep your payments and everything, but let's figure out a way where you can focus on something else within the business that you really like to do. And maybe we bring in another manager from outside, or we find, promote somebody from within to take over XYZ function. most people, they're stuck, they're frustrated, whatever, they're going to know that

Jon Stoddard (32:44.478)
it's not working and they need to like, they need something or they need someone else to take over. I mean, sometimes those are harder conversations, but I mean, a lot of times it's just, if you look at, okay, what happens if we don't change trajectories, right? Everybody loses. And so let's figure out something where we can create a win for everyone. Yeah. It sounds like your Aloha experiences where if you don't pay us, we'll shut you down was a good working experience for these kinds of conversations. Yeah. And I mean, I've

I mean, look, I've had a lot of like difficult conversations with people. I've counting, I mean, to some degree, the low hot thing was like sort of a turnaround ish. but I mean, counting that business, I've turned around like two or three companies. And I mean, it's a very simple conversation that you, know, you come in and you say, Hey, look, we have a couple alternatives. We can either shut the company down in which case everyone gets nothing. Or, I mean, you if you're, if you have like, or you can say, Hey, you call your landlord and be like, Hey, I have two options.

I can either not pay you rent because I'm going out of business, or I cannot pay you rent for the next three months while I get the company fixed. Which one of those would you rather have happen? Right? And so like, that's an easy conversation to basically say, Okay, well, I'll defer your rent for three months or whatever. And if they don't, they're just like, Okay, cool. Like, then I'm just going to close the business down. And you know, it's a loss for you and it's a loss for me. So, you know, I mean, sometimes you just have to look at like the, the inevitability of the situation to, to

have like a very clear eyed picture on what's going to happen and what needs to happen. Like whether you're slashing expenses or, you know, restructuring a business or whatever, which I know we've, we've worked on some stuff in that, in that realm a little bit as well. Full disclosure, man, I worked on a couple offers for a host business for a large elastic wear search type business. So which didn't go through, but we'll see. Not yet, but I mean, that's a good one where we looked at it and said, okay, there's a lot messed up about this deal, but like what's a deal we would do.

and we pitched him on the deal we would do and he didn't want to do it. you know, I mean, you got to have 10 plus conversations like that where then one of them hits and then suddenly you have a great deal. Yeah. Now, is there any characteristic of the business where this type of offer makes sense? Is it a distress situation or have you ever presented this offer to somebody that just said, you know, it's ongoing and they're actually growing 10, 15 % per year?

Jon Stoddard (35:08.618)
I mean, I would say baseline, I mean, we've been talking a lot about baseline deals, right? I mean, that's one arrow in the quiver of doing deals that there's a ton of different errors in that quiver broadly. So that this isn't to say this is the only way you can do deals by any stretch, right? Like you can do tons of different deals for baselines in particular. I think it works better if there's a growth story and it's not as compelling for a turnaround. You know, I think for especially depending on the nature of the turnaround, but I think a baseline is basically it works great if someone wants to grow and they don't know how.

That's probably the best use of a baseline, which is, you don't know how to grow. What are you making today out of the business? Keep making that. So your downside is the status quo, because you're going to keep making that either way. We're going to split the upside, and we'll figure out a formula for that. And I'm going to come and bring resources. This might be capital, it might be intellectual capital, it might be relationships, it might be sweat equity. I'm going to come bring resources, and we're going to split the growth. And I think it's also not unreasonable to have

some mechanisms where you like hold your, your side of sort of the equation accountable for achieving stuff too. Like I've done baseline deals that I haven't like been able to generate growth and I've literally handed them back and I wasn't required to do it by the contract, but I've basically given them back the equity. been like, Hey, you know what? I didn't deliver on my piece of the puzzle. So here take the equity back. I don't want to like have any bad blood, like keep doing what you're doing, but like I'm, you know, I'm sorry that I couldn't be helpful.

And I, you know, I mean, that like, would much rather do that and have like a very honest conversation with them as opposed to and like, have them leave that being like, okay, you know what, like he lived up to the ethos of our agreement versus being like, you know what, I haven't delivered, but like, I'm keeping my equity anyway. Like, I think that, you know, I don't want to have that kind of energy or vibe or whatever in my in my dealings with people. So, you know, I mean,

Baseline deals don't work out in every case, right? But it's just a very de-risked way to do a deal because you have a lot of asymmetric upside for, you know, sort of a low contribution. And you also end up essentially, you know, getting like the seller to carry a huge piece of the deal without ever having to actually talk about like seller carry and valuation and all of these issues, which can get sticky and tricky to deal with. Yeah.

Jon Stoddard (37:33.46)
I was curious is if you could say that a baseline deal is good for businesses that are stagnant owner wants to stay but unsatisfied. Because I I mean, think characteristics of the deal. The better you get at presenting an offer that it will be accepted. Yeah, I think that's right. And to me, like baselines are one deal type. But the way that I look at doing deals is like,

I'm always trying to collect what I would call kind of deal models or like mental models for ways to structure transactions so that I, and they can be wholly disparate and like completely different from one another in the type of company they work for, the type of opportunity they present well into, et cetera. And what I try to do is have as many different kind of deal models as I can, as I can keep in my head and I know work.

And then when I see an opportunity, I can basically say, Hey, this is the model that I think is the most applicable for this opportunity. Right. And then I try to plug that in and say, Hey, this deal feels a lot like a baseline deal or Hey, this deal feels a lot like an SBA deal or this deal feels a lot like. Like the only way this deal gets done is if I take it down with like a traditional bank loan and like smiling and dialing, you know, high net worth investors for

100K checks at a time to get the equity that I need to close it. And there's nothing wrong with any of those approaches. I think sometimes it's, and I fall prey to this too, but I think especially in the broader &A community, like Epic and all that stuff, I think it's easy to get seduced by the idea of doing a deal that doesn't require any equity or no cash down or whatever. But those deals are much harder to find. A lot of times it...

it might take just as much effort to get a deal done where it's like, hey, this is actually a pretty good deal, but I'm going to need to pay mostly cash for it. And I need to go raise a million dollars or a million and a half dollars of equity or whatever. And just smiling and dialing for that and like going and leveraging your network and calling people and like getting the equity check and like getting a bank loan for the rest of it. Now, there's a lot of downsides to doing that too, but

Jon Stoddard (39:53.738)
Like that is a method of doing deals. Lots of people have done deals that way in the past, even if they didn't have any equity to put in themselves. And it's another modality that you can use to do transactions outside of just trying to always find like, you know, an angle for a no cash deal. Now that said, I always try to figure out can this deal be done without equity, right? Like there's like five different filters that I look to do to try and do that. But some deals that doesn't work and it might still be a good deal that you're like, you know what, it can't.

but I really like the company, the founder, the market or whatever, and I still want to do it. And so I'm going to figure out another way to do it. Yeah. Do you have in mind an exit strategy for the business the first day you go in? Like, or do you say, you know, I like the market, I like the people, I like the growth potential of this. You know, let's see how we can afford it and or buy it. And then, you know, what's my exit strategy on this?

I, and I may be atypical about this, but I really don't try to have like a very tightly predefined exit strategy. And my fundamental thesis is like, if it's a good deal and you execute well, it creates optionality from an exit standpoint, right? So like if the deal grows a bunch of it's doing really well, if it's a great company, like you're going to have lots of things you can do from that point forward, right? You, mean, three of the biggest paths would be a

You can just keep, if it's a cashflow generator, you can keep cash flowing the company and not sell it and just hold it for cash. Again, you don't necessarily have to do that, but that is an option. And if the company's run well and you built it and it's great, it can just be like a passive cash cow type business potentially. think scenario B would be do a recapitalization of the business, like a dividend recap or something like that, where, you know, you can basically pull a bunch of money out of the company without selling it by recapitalizing it in some way, whether that's with debt or equity or whatever.

And then the third would be just exiting and selling, right? And so I don't necessarily have a predefined, I need to exit this business in three years or five years or whatever. It's more, hey, based on this opportunity, I know if we execute, we can maybe do any of those. And rather than lock myself into one course of action, I'd rather get to a place where the business has performed really well and then make a determination at that point. It's like, hey, maybe I just cashflow this thing and keep going. Or hey, you know what, it's time to get out.

Jon Stoddard (42:18.048)
for XYZ reason, we can get a crazy price, the market might be turning, we've really hit a lot of the growth and we want to realize our economics or whatever. There's lots of reasons, but I say all that to say I don't have a predefined exit because if the business does well, exiting or doing something else is really easy. If it doesn't go well, then you're just going to be dealing with that regardless and your exit plan didn't really matter.

So the reason I bring that up, one of my prior guests, Michael Barislawski, he buys SaaS businesses, content businesses, and then he buys them from somebody that's maxed out their capabilities. He brings his resources to it and then grows it to whatever, he knows, he's done 300. He's like, knows when to hold them, knows when to fold them and knows when to run. Because if you hold them too long, it's less painful. He always sets it up for the next big fish.

Yep. Yeah. And that's I mean, if you're if you're aiming for an exit, like there's a there's very much a compelling argument to leave some blue sky for the next buyer, right? Like that's almost a key part of any good &A sale. And the same thing applies in real estate, too. But, you know, not to necessarily try and extract every piece of value before you exit. And this is something Roland talks about. But to leave like

hey, the next person buying this, they want to have a story like they want and sometimes need to have a story that they can tell themselves of, hey, when we buy this, like there's still XYZ opportunities to expand and grow and improve versus just, they did everything and now the business is just mature and we can't do anything to grow it. Like you're going to trade it a lower multiple than if you are like, we still have 10 more growth opportunities and five new markets we can get into. And like, we just started doing this and like,

But sometimes like selling when that like a lot of that stuff is about to happen, you can generate a lot more interest from buyers. Yeah. Yeah. So what did you learn from Epic that you weren't doing already? I mean, there's a couple of things. I mean, really, what I learned from Epic was more than anything like a vocabulary of some stuff that I had been sort of doing, but I hadn't really put labels and buckets on it.

Jon Stoddard (44:42.512)
and it was really helpful to sort of categorize that. I think the other thing too is weirdly I had done like multiple kind of zero out of pocket deals as, as Epic or Roland would call them. And I never really thought of them that way. And even like, as someone who had done a couple, I thought to myself like, if I want to buy a company, I have to come up with all the money, right? Or I have to have millions of dollars in my pocket to do it. and

for whatever reason, like Roland's content really resonated with me to kind of like blow apart those assumptions and hear stories of like how all these transactions are being done without necessarily like a huge equity check or without, you know, having millions of dollars in your pocket. And so it was just very similar almost to what Tim Ferriss was just in terms of opening my eyes 10 or 15 years ago.

I think Epic opened my eyes to like, there's a lot more deals to be done. And there's a lot more creative ways to do deals than I had ever imagined. And so it was very helpful. I mean, even, I mean, we did a big SaaS acquisition after kind of coming across a lot of Roland's content. And I think if we hadn't, we probably wouldn't have been able to structure that deal to where we, we did it with zero cash out of pocket. And so, I mean, it's just having

having that framework of like, there's all these ways to do deals. There's all these ways to find the financing was very helpful. It's almost just like permission to think that way and, and, and the awareness that it's possible, both of those things make it easier and more likely for you to do it. makes sense. know, yeah, it makes sense. And then this is thought came through my mind about this. If you were in the successful mind, like inspiration coaches, know, Tony Robbins, all those guys.

If you first started out and you wanted to buy something, you would say from a, you know, I can't afford that. Right. But all the success coaches tell you, you know, stop saying that. Figure out how to say, I can't afford that. How do I do this? This is perfect scenario of a business like, well, that's a $50 million business. Don't say I can't afford it because you can't. No, you know, nobody's going to write a check for, you know, a hundred million dollars. Say, how can I afford it? And these are the resources to do that.

Jon Stoddard (47:01.652)
Yeah, exactly. And that's, and that almost comes back to what I was talking about earlier of like trying to have a lot of different tools in the tool belt or like arrows in your quiver or deal models to do deals is like, once you know that there's, this is not like the definitive number I'm saying once you know there's seven different ways to do a deal or 15 different ways to do a deal or infinite ways to do a deal. When you see a deal that you think is interesting, suddenly it's not, I can't do that. It's what are the different ways that I can do this?

right? And so you can say, can I do it with the seller carrying most of it? Can I do it as a baseline? Can I do it as an asset back deal? Can I do it as like an SBA deal? Can I do it as an independent sponsor? Can I do it as you know, just a traditional like equity raise? And there's all these different ways you can do it. And so you see an opportunity you like, and then you start to kind of slide it into, okay, this could be a really good deal to do this way. And that way may not work. But you know,

You got to if the seller doesn't want it or whatever. Yeah. But you got to, you got to take a lot of shots. mean, this is definitely a game of, sourcing a lot of opportunities, taking a look at a lot of stuff and filtering through the few things that really are interesting and make sense and can be done. How is being a coach for Epic helping with your deal sourcing? Cause I know you and I have already talked about two different deals. One, we made an offer on and

Another one, it's still open. Yeah, it still may materialize. mean, it's been really interesting. I wasn't sure what to expect. I've really enjoyed, honestly, connecting with the Epic community because it's a ton of people that are very like-minded and approaching stuff in a very similar way. And I think some of the people in Epic are maybe even more advanced than I am in terms of deal execution and track record and all that stuff.

There's a lot of people that are similar. think there's a lot of people that are maybe a step or two behind me. And so it's great to be able to just be like, well, I was just dealing with that thing and here's how I did it. Part of the reason I've got a podcast too that I started and all that. Part of the reason I like that stuff is just I naturally gravitate to teaching, coaching, helping people. And Epic has been great from that perspective, but it's also been great because I've connected with a lot of deal makers. Honestly, it's hard to...

Jon Stoddard (49:22.06)
It's almost hard to keep track of like a lot of the deals I get sent on Epic because I mean, some of many of them are just like somebody who like peeled a broker listing and is like showing it to me, which I'm like, that's like guys, dude, this is the same from a broker and like losing money. to like hammer that home like guys, I can go peel broker Sims on my own. Like I don't, if you send me something that's brokered, like it's the value proposition is like very low. But

I mean, I've been amazed. There's some really innovative guys and I would put you near the top of that list in terms of folks who have been sourcing stuff off market, being really creative, generating real opportunities. And it's been great. mean, it's been a lot of fun. It was probably more interesting deal flow than I thought I would see more quickly, but it's been great.

Are you looking to say, hey, if I could just get a wash, repeat, rinse, repeat model in there? Or are you just, I mean, I looked at the bio, you're in real estate, you're into restaurants, is restaurants is something I avoid 1000 %? If my family wasn't in it, I wouldn't be in it, right? I mean, it's a very specific niche that we have a lot of expertise in that kind of stuff. But are you looking to continually move up or a certain model? Or is this

you know, any deal that comes on, I'm going to see what kind of proposal I can make, and then we're going to do it because it's fun. And there's nothing wrong about doing what's fun. Yeah. I mean, I'm, I'm a deal guy, basically. You know what I mean? I like doing deals. I like looking for them. I like negotiating them. I like putting them together. And so I'm always just kind of hunting around for the next deal. And I just like to do it. You know I mean? I probably could make my life easier and like look at less deals and slow the pace down a little bit, but

I'm also very, I'm still very like hungry and I feel like I haven't, you know, I want to execute much more than I've executed so far. And so, you know, maybe at some point I'll, I'll slow down, but really I just want to get to like, I I'm a poker player too. played in the world series of poker the last handful of years, like sans COVID and, you know, I just want to get to like the big, the big game. You know what I mean? Like I want to, I want to keep leveling up to where I'm looking at.

Jon Stoddard (51:39.69)
massive companies and like huge deals and stuff. And so I just look at it as like every deal is just accumulating chips so that I can keep playing like a bigger poker hand basically. Yeah, we, I just got off the phone with a proposal we made to a restaurant, which I'll talk to you about after this. They're on trending doing 80 million a year and they were wanting to still look at raising money. And I said, look, we're not interested in helping raise 2 million.

I mean, it's just as easy to raise 20 million. is 2 million. Yep. Because it requires the same skills. You just got rewarded. And we just said, Hey, look, we could do that for you, but we're not interested in that. So yeah, I know what you're feeling and that you keep moving up because it's the same game. It's just a bigger challenge, a bigger mountain. That's right. And I mean, it gets more competitive too, right? I mean, you start to butt heads with like big private equity groups and all this stuff, which I try to stay under their radar at least for now, but

At some point, my goal is to level up the level of deals that we're looking at and do bigger transactions. Yeah, beautiful. How did you get to five million downloads on your podcast? Because this is a podcast, it's on YouTube and all the other stuff. How did you get to five million? That's a whole episode and a half, probably worth of stuff. You got five minutes and that's it. Yeah, mean, honestly, I've been doing that show for six plus years at this point. So it's been around for a long time.

When we launched originally, we launched on like in partnership with a website that was kind of in our niche. And so we were able to get some initial sort of snowball traction from their audience base. And that helped sort of seed it. And then really we just doubled down on that and were able to get new and noteworthy, which again kind of helped. It's sort of just like a snowball where you keep getting some critical mass.

But I think it was a combination of launching in partnership with somebody who was already targeting the existing audience that we were targeting, so that we had a built-in audience from day one. It wasn't like me and my mom and like two other people listening to it. And that was very helpful. And then I think really the other piece is just we've been able to just get some cool guests on the show over the last like six plus years. know, lots of people in sort of the psychology, personal development, even the business world who are

Jon Stoddard (53:59.616)
you know, not like insanely famous, but we've had people from Shark Tank, we've had like famous astronauts, we've had, you know, championship poker players, we've had like, some of the top psychologists and like psychology influencers in the world, like all this stuff. And most of that is the same thing. It's the same skill set that it takes to do a deal, which is just you got to be very like follow up constantly, like, you know, just ask a million people, like, don't be afraid to ask them and like, eventually,

And I mean, we followed up with some people for like years before they say yes to being on the show. You know what mean? It's the same thing to buy a company to do the right kinds of deal. know who Marcus Sheridan is? I don't think so. But he's bought a cool company that it'd mark me six months to get him and I had to cancel because of something else. And it's going to take me another three months to get them on the podcast. But he's a guy I wanted to talk to. Nice. Yeah. But I mean, again, it's just like, relentless follow up, just staying on top of things and like,

you know, figuring out just like not giving up, not giving up. I got to say, we only got a couple of minutes, but what did you learn from that poker expert about playing poker? So we've had, we've had like three or four poker folks. one of my favorites was Annie Duke, who's like a relatively well-known poker player. and she's written a bunch of stuff about decision-making actually that, that to me, like, I mean, we, we don't like on those episodes, we don't talk about like,

poker strategy per se. Like we had another kind of poker guru guys got him Jared Tendler who's like a big he's like one of the top like mindset coaches in the poker world. And he's like one a bunch of stuff we had trying to think we had at least one other poker player I'm trying to remember who it was. But but really like the poker lessons for me are less about like what to do in poker because that's a whole nother thing. But it's really like there's a ton of lessons from poker that can be applied to to life more broadly.

Yeah. And, you know, thinking in expected value, thinking in bets, focusing on decision quality instead of outcome. Like all of those are lessons that you learn in poker. And one of the things I like about poker as a crucible for kind of getting rid of ego is like poker doesn't care about you being on tilt or you having like an ego problem that's getting in the way of your performance because you'll just get crushed and lose all your money. Right. And like if you're making bad decisions because you're

Jon Stoddard (56:25.93)
Yeah, well, if you're making bad decisions because your ego's in the way, you're just going to keep getting crushed over and over again. And the game is totally merciless. And life is like that too, but the difference is that the feedback loop in poker is immediate or very short term. And the feedback loop in life, in business can be very long. And so people never see their mistakes or they don't understand how their decision making is getting in the way of better performance. And poker really teaches you to focus on decision quality and try to understand

whether or not your decisions are good, why or not they're good. Like what are the factors that go into it and try to improve on your thinking and your decision quality. Because that's something that can have really good impacts. But you have to be very, you have to really understand like why decisions work and why they don't. Because just like in poker, like you can go all in with the worst hand pre-flop and still win, right? I mean, life, you can make bad decisions and get rewarded, or you can make great decisions and they cannot go well.

And so you have to be able to parse through like what was, was the decision quality good or bad? Was the outcome good or bad? And how do you, how do you differentiate between those two things and sort of see through the noise much, much harder to do in business than it is in poker. cause poker has very definitive mathematical framework. but it's still a great crucible to teach the importance of those lessons as a whole. Yeah. What does that? I can't remember who said that you can deny reality, but you can't deny the consequences of reality. Yep.

Yeah, exactly. And poker just teach you that in a very short timeframe. It's where you learn that like, I need to get out of my own way and figure out what works. And if I don't, then I'm just going to keep getting destroyed. Yeah. Beautiful. Matt, thank you so much for your time. I greatly appreciate it. And we'll be talking soon. John, thanks so much for having me on here. It was an honor and I appreciate you inviting me. I'm going to stop recording and then I'm going to...