I Went from HoldCo GM to Exit Advisor and Here's What I Learned!

Summary

In this conversation, Damon Pistulka shares his extensive experience in mergers and acquisitions (M&A), detailing his journey from engineering to becoming a key player in over 100 M&A transactions. He discusses the thrill of building and selling companies, the importance of understanding value creation in acquisitions, and the transition from working for investment owners to helping business owners prepare for successful exits. Pistulka emphasizes the need for businesses to be ready for sale and the dynamics of business valuation in today's market. In this conversation, Jon Stoddard discusses strategies for maximizing business value before a sale, emphasizing the importance of operational changes, effective debt management, and strategic inventory practices. He shares a case study of a successful turnaround, highlighting the role of founders and the alignment of interests between consultants and business owners. Stoddard also addresses the challenges of personnel decisions and the significance of mindset in navigating business growth. He concludes by outlining educational resources aimed at empowering business owners to make informed decisions.

Takeaways

Damon Pistulka has been involved in over 100 M&A transactions.
He transitioned from engineering to M&A through various roles.
Understanding the connection between operations and finance is crucial.
Speed in business operations can lead to competitive advantages.
Many businesses do not sell due to lack of preparation.
Value creation is essential for successful acquisitions.
The importance of preparing businesses for sale cannot be overstated.
Market dynamics significantly influence business valuations.
Entrepreneurs must be cautious when projecting future profits.
Effective communication with business owners about valuation is key. Run the business for three or four more years and take as much money out of it as you can and sell it.
Sometimes the best thing is to run it for three or four years and be ready for the party at the end.
To go from 1 million to 5 million, you have to change the way your business operates.
You need to have the intestinal fortitude to do it.
If you get a $25 million deal and you've got $5 million in debt, that's a lot more fun.
You have to have your teams aligned to do it.
If they don't want to be in the organization that's going this way, they want to stay where we are today, that's pretty much a non-starter for us.
If you don't spend that time in the beginning, you're going to get down the road and they're going to get uncomfortable.
We're going to share absolutely everything we know.
I want to help both of them.

 

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Transcript:

Jon Stoddard (00:00.566)
Welcome to the top &A entrepreneurs. Today my guest is Damon Pistolka from the Northwest. Damon has been involved in over 100 &A transactions. Welcome to the show. Thanks for having me here today, John. All right. Let's get into this. Let's do about where you started. What were you doing in that ordinary life and what was the calling to &A acquisition adventure?

Well, I just heard somebody talk about this. And when we look back at our career, we think, there were some order to it, but there really wasn't a bit of order to mine at all. Other than I saw the next thing that I thought was interesting. And when I went to that one, I saw something else. You know, I went to school for engineering, thought I wanted to be an engineer and started working in manufacturing companies. And I was in a fast growing company. So I was able to help them build that company. They went from, don't know, it's like,

handful of employees, literally like 25 or 30 employees up to 300 when I left six, seven years later. And I built four facilities for them. And I ran the last facility I built for them for five years in the Southeast and, and was able to, you know, learn a lot from that. And my next job after that, because it was a family business. And once you get to a certain point, I knew that I wasn't going any further in the, up in the management or running.

company or anything like that, I was able to move into a company that little did I know was owned by investor owners. And that was my first foray into investment ownership. I didn't realize it because I was, I mean, I was contacted by a recruiter and they said, Hey, there's this company and it was in the nearby town from where I was living in Tennessee. And they're looking for somebody to run their facility. Well, their facility was, I don't forget it was like twice as large revenue wise.

and a little bit larger people-wise. And they said, hey, you want to meet the owners of this company? And it was two guys that were investment buyers. They were in it with private equity. I ran that facility for about a year. Then I started running the company alongside one of the owners for the next three years, three and a half years, something like that, until we sold it.

Jon Stoddard (02:23.31)
So you're the, if I'm going to start a holding company and I'm looking for a GM, you were the GM that was kind of running that company that we'd hire with it because it had a cashflow. Exactly. And during that, these guys were PricewaterhouseCoopers guys that had invested in their money, had built other companies, had sold them. The guy that I worked with had done like literally, I don't know,

how many hundreds of transactions with PricewaterhouseCooper in previous work. And he's a bit older than I am and did it during when the banking in the 80s and was consolidating banks and things like that. I mean, from a financial aspect, I came from a technical background, but these guys were financial just, and the thing that I really learned from that is I learned how to connect the operation to the finance.

and really see how the business is running based on what the numbers are telling me. And then visualize how that is happening on the factory floor or in the whatever. And now I do a lot of e-commerce work. We still do the same thing, but you're what's the digital information telling us. And that was really my key learning as getting into that because I'd never really been in a business where we said, listen, we're worth 5 million today. We need to get to 15.

before we sell because that's how we make our money on the egg, you know, during this and paying down debt and then on the exit. So that entails a lot of different things. It entails, of all, trying to figure out how the hell you're going to grow organically as fast as you can. How are you going to grow by acquisition as fast as you can? And then who the heck are we selling to when we're done? I was absolutely enthralled by the entire process.

And I still remember when we finished that first transaction I was in and we sold that company. I said, I was 36 years old and I said, this is what I want to do. This is what I want to do. I want to help people build and sell companies like this is the coolest experience I've ever had by being able to help them build it, figure out that business, get it really running and take over an industry and then sell it. And

Jon Stoddard (04:41.57)
During that time, we evaluated, I don't know how many companies did transactions, grew organically with the things and just a whole bunch and went out to try to buy the biggest competitor, went all the way down to the end, raise the money to do it. And the owner of that company got greedy and we couldn't do that deal. we ended up, so it wasn't, it's not like a straight path. We just did this stuff, right? I mean, we had to go through

Starting out, we had to do a turnaround in the beginning because the previous management damn near ran it out of business. So the owner and I did that. Then we were out evaluating companies. Then we were trying to buy. And then we ended up deciding that a much bigger competitor of ours wanted to buy us. And that was our best way to exit and did that. Did you grow up frustrated because you couldn't do that leaps and bounds revenue growth like you did?

But then somebody came courting you and said, Hey, this is probably your best exit. Really? Yeah. We, we, we look at the other competitors and we were in a niche market. We knew our market was about $160 million in the, U S and we were at, what were we at that time? 30. So, I mean, we're, we're already sizeable in the market. And, and, and when somebody else that came to us from an ancillary market, we're like, wow, this is the value was great.

that we were getting for the business. We had some key accounts that they could do things for those key accounts that we didn't do and they were very good at. So it was a great synergistic acquisition for them. They were a hundred and some million dollar company. So it was a bit bigger and yeah, so it was great.

Great experience. But what did you learn from that company, them acquiring you about what they were looking for and how it fit like a glove to say, my God, we should sell to these because there's a lot of synergies here. Yeah, the synergies were as we created a sales and a market driven engine that hadn't been in the industry before. And they were doing a similar thing in their industry, but

Jon Stoddard (07:00.621)
They could, like I said, when what we made is it was real simple. If you go into a grocery store today and you get groceries and you get it through a self-check or you get it through where someone's helping you and you're putting the groceries on the belt, we made those lanes. We made those things and we made them out of wood. We're the biggest wood manufacturer. I've had two facilities and you wouldn't think that you're going to make 10 or 15,000 of those every year for people like Kroger and, and in your, you know, it could be.

You you look at the Texas change, you look at Safeway, you look at Albertsons, you look at all, they do a lot of these, right? Yeah. Yeah. Interesting. Yeah, that's a niche market. Yeah, it is. It's a very niche, but so, so then the company that bought us, they actually do convenience store fixturing, but they do it out of metal. huh. They were in wood, they were in metal. But what we had done is we had over the, when we figured out, you know, what our, you know, moment was going to be in the industry, we figured out how to be very flexible and very fast.

The industry had an eight week lead time and I was fortunate enough to work with some really great engineering, operational people, all that kind of stuff. And while we were running it, we redesigned our entire, it was a 60 year old company. So it had lots of baggage, right? We redesigned our entire product line so that we could go, what used to take eight weeks would take us 10 business days. And who pushed for that?

Was that you or? Yeah, I knew I knew speed was speed, speed wins in business, right? I think it still wins today, right? Look at Amazon. Why do they win? They got prime because I can order something in the morning and afternoon. Unbelievable. Yeah, it's unbelievable. And everybody else tries to copy and you know, it was simple, simple fact in it. You know, I'm not brain. I'm not brilliant or anything like that.

It actually came to me one day when I was walking through the factories and we had 400,000 square feet and two different, I have more net, but you go into our shipping areas and there are huge orders because these things aren't small, right? Well, when the construction schedule would shift, you got to store all these damn things. And I'm like, shoot, we got all these, this product out here and it, we can't ship it because they changed the construction schedule. Well, how do we fix that? How do we get that? So we don't have to do that.

Jon Stoddard (09:21.761)
Well, we have eight weeks, you know, and they're, they're, know, all the other shit. said, well, we went to the customer and we said, how, how, when is it rock solid that you're going to open that store and we need to be there. And they said, well, you know, a month, month, no, doesn't change it after a month. Cause we got food coming in. It was like, all right, let's figure out how to do it faster than that. So they can order, they can, we can reduce their lead time, make it easier for them. And I said it in, in the.

process of this, let's make this product totally customizable. And then we're going to reduce the number of custom components significantly in it. So now we can make these like we're making cars. And it was a three-year journey that the engineering and operational people figured out how to reduce R-squared footage

down to 200,000 square feet in two facilities instead of close to five, including inventory storage and reduce the cost by 40 % and reduced our lead time from eight weeks to 10 days. Reduce the cost by 40%. Man, that's a wonders on your profit margin. Yeah. yeah. And we could kill people because what would we do? I could go out with my salespeople and I could say, listen, chain, you want a thousand lanes this year.

I can deliver them 48 hours, wherever you want in the U.S. because we'll stock a store worth. And this was a while ago when dollar stores were really pumping. They would open 10, 20 a week. We said, 48 hours, you can have stuff there. You just tell us where you want it. We'll come from one of our facilities, tell us what you want because they only had four or five products. And we could do that with people. We could do it like Safeway. was like, you order, we can have it there in seven business days.

You must have read Dell's book when they talked about just-in-time manufacturing. Compact and HP. yeah. Like building just in time. That's how we did it. Yeah. I'm a geek. I'm a geek on that stuff, right? And that's but that that to me was not much that I get to do anymore other than the innovative part around it because. But you see it though, because you can see it in an acquisition. Yes. Yes. Yes. You can see these things in an acquisition.

Jon Stoddard (11:45.517)
And what I see in different businesses I work with, like in e-commerce and some of these other businesses that we're dealing with now, these opportunities are the same. And when you look at a company and you're evaluating it and you go, so as the acquiring company, develop these things like this, like I mentioned, then I can go out and acquire others that aren't and show them how to do it.

But now show us how to do it there. And how much more am I going to realize than that owner? And then when you go to do an acquisition, now I'm not buying based on the profit from the last 12 months like everybody else is. I'm thinking about this and going, I can turn that profit up 25, 30%, whatever the number is in the next 12 months, because I've got things figured out that we can help them implement.

and we can radically change how they're doing things. Yeah. And I can you actually put a number on that when you see something like that. have You have to. You have to. You have to. How close do you think you've been to when you say, I'm going to make a prediction of 25 % increased profit margin? And how close you are to? I'm a cautious person. So I'm normally about half of what we do, half of what we really realize. Because you got to be, I mean, we're not spending millions of dollars, dude. You got to be careful.

You got to be careful. that's so if you say if I said 25%, I probably will be thinking I can get closer to 50. And then I would have a margin of safety. Yeah, a little margin of safety because everybody loves to be beat. It loves to beat their performance and especially and this is this is what your own cop lab. Yeah. Well, entrepreneurs they that that haven't worked with funding before. And this is what I learned back in that very first company because you know,

You come to board meetings and you get a few board meetings missing it, your projections and your profitability, but you don't get unlimited time on that. And it doesn't matter if I'm an entrepreneur and I go out with a venture firm and we start up something and we're going on. If you're not running that thing, like it needs to be a year from now, six months from now, you're out. Yeah. Yeah. And so you got to learn these things, learn how to work with them, learn how to create the value along the way and really.

Jon Stoddard (14:09.837)
really be developed. You know, that's like a skill. You see a company that's undervalued, distressed, whatever situation it's in. This is a kind of same thing where, three or four years ago when Elon Musk wrote his own comp plan, he saw something that the demand was going to kill it. And he's board of directors said, yeah, go ahead. That's how he went from like $25 billion to $150 billion. Yeah. You are, and you're exactly right.

You may see something that nobody else sees and you've got to have enough confidence and enough knowledge in industry or what you're doing that it will make a difference. And actually it comes from talking to people too and figuring it out. But you still don't overpay for these acquisitions. You still get them at the cashflow. Yeah. You can get them at the price, if you have a strategic, we just did it this last week for a client, we had a strategic acquisition.

we didn't pay crazy money, but we paid enough that it's like, you're not getting that on the street from anyone else. We still go back to it and we say, you talk about the 25 % increase. Well, if I think over a year, I'm gonna get 25 % increase, that's 25 % increase in cashflow. I can pay 25 % more for that business if I want to. But if it takes me 10 or 15 % to buy it, yeah, I might be a little bit tight in the beginning, but.

If we know there's two or three things that are going to hit that are going to help it snowball pretty quickly, you're comfortable with it. And, you know, and that's, it's, one of things that I talk about a lot with people is the better you set up your company to acquire other companies, the more you can pay when you do it. you know, phrase from, Jeff Bezos, or maybe it was somebody else to, Dan Kennedy, the more that you can,

spend to acquire a customer, you'll win the industry. Yeah. And that comes from doing things differently on the backside than no one else. Yeah. So how did you go from these roles where you're working for somebody else and a investor, and then you just go, okay, I'm going to go do this myself. I'm going to go find businesses that want that help. How did that transition?

Jon Stoddard (16:37.003)
Well, was in my...

Hold on, hold your mic stop.

Jon Stoddard (16:47.933)
I'll fix it later. Refresh the question for me there. You were working for essentially inside the company. You were the general manager that people will hire. It's like, hey, I buy a company, even it's got to be 750K because it can afford a general. You were that general manager people brought in. How did you go from doing that to just outside helping other companies

with this vision, go, hey, I need a great exit down the road, because I'm stuck. Yeah. Yeah. So that's like I said, when I was about 36 and we finished that first one, I knew I was passionate about it and I thought it was something I wanted to do. I ended up doing five more of those stints, I think five or six more of those stints where I was called in to do turnarounds or building and selling and those kinds of things. And then I did other project work after that.

Ultimately, was into what I'm doing today. was because I got really

frustrated with investment owners because, and I appreciate what they do. Investment owners are there to create value for shareholders. It's awesome. But on the other hand too, some of the things that they have to do a long way, and I'm not saying they don't have to do them because they do, just doesn't set well with me, right? And it really happened one day, I had to close down a couple of companies that were, I think it was like 350 people that I had to let go.

And it was all of a sudden, hell, I was running them. didn't even know till got, got call. Hey, we decided we're to get out of this. And I was like, man, I don't want to do that anymore. I don't want to create value for somebody. don't know. want to help people. know. And then actually to shut down, let's say, let's say a plant or something. Yeah. Two of them, 350 people have to be 250. had to go to the war and act had to do all that good junk you have to do. and, and it was, it was.

Jon Stoddard (18:52.543)
Under circumstances that I thought we were blowing forward because we were profitable. were doing what we were supposed to be doing. Why do think they shut them down? They said they weren't making enough money, but I, there was more political motivations behind it or something. don't know what it was, but, just, the whole, the whole thing didn't make sense, but, but they're no, they were no longer with the holding company after, I don't know, six months after that or something like that too. So there is more going on that.

But that pushed me out of the working for those kind of people. And then I was like, I'm gonna start helping as I wanted to a long time ago. I'm still helping business owners. then in 20, I actually was building facilities for a while because I liked to do that. In the 2015, I met up with my old business associate, Andrew Cross, and we started Exit Your Way and to do this, to.

He started out, he was business brokering and I said, listen, I don't want to do just straight business brokering. I want us to do the entire thing where we help people get their businesses to the right value and sell them. Because most businesses don't sell. People, can one way the other, it's 80 % won't sell. When that business, what was...

that you did not like about the business broker, because they just sold them as is. It's just like moving. Yeah. Yeah. They'll tell you, John, John, your business is worth a million and a half dollars. We'll list it for you and try to sell it. And some have enough intestinal fortitude to tell you that, well, it might be difficult to sell because John, you're the brains in this business. And without you, you're not worth a lot of money, but we'll list it anyway. That's probably about as good as you're going to get from the industry.

Most will just say, yeah, we'll sell it. And then they realize that, A, if I get an offer, it's gonna be something way lower than I've told you. And I'm gonna work to try to get you to take that offer because it's realistic, rather than in the beginning saying, John, how much do you really need? Yeah. How much do you really need from this business? I mean, because we all are gonna do something next. And this is the premise for our business. How much do you need for what you're doing next?

Jon Stoddard (21:07.565)
It's a million, five million, 10 million. I really don't care. Where are we at? Where do we need to go? And we help people get there. And along the way, we're not only increasing value, but we're preparing that business to be valuable for the next buyer, just like we had to do when we were in private equity business, because they don't start that without knowing where it's going. And we do that. And along the way, so when you get the value up to where you want it, and you know, and your financial advisor says, hey, you need this much money.

we're that much plus of cushion, so you're ready to get out. This whole thing becomes much easier. You're not in the 80 % that doesn't sell, you're in the 20 % that does sell, but not only are you in the 20 % that does sell, because that 20 % still gets hammered on price, you're in the whatever, the very fine margin of the probably the top 5%, that actually get pretty damn close to what they think they're gonna get.

And this is the thing that's different. And once you start doing that for people, when we've done it a few times and got the things going, now we have buyers that come to us, private equity or search fund kind of buyers with these search fund groups that they know what the companies look like that we're preparing and selling. And they're in it. They're like, yep, we're ready to look at it. So you already have, for instance, I have a buddy in the &A advisory business and he has a list of about...

a hundred wealthy high net worth individuals that are doing roll ups or cheating prize. Private equity firms, not any family offices, just usually strategic high net worth individuals or private equity. And he goes, I know exactly what their menu is. Here's what they give it to me. So this is what I'm looking for. Yeah. Yeah. Yeah. Those are out there. I mean, selling a business anymore is way different than it was 10, 15 years ago.

My partner has been in it for, I don't know, 15 plus years. And he tells me about how they used to do it. I now it's like, I posted about this last week on LinkedIn. It's like a marketing product launch. mean, because yes, we know the people that, those people that we've worked with that might be interested, but you never know who's in and out of the market, right? Even in private buyers, even you, me, if we wanted to buy business. We could be in the middle of diligence, something else you never know. So you're...

Jon Stoddard (23:26.859)
your reach when you're trying to sell that thing really has to be a multi-prong approach. And it's got to be, it's like a product launch. But having those buyers that know that is definitely valuable because what we use it for is value. What are you going to pay for this kind of business actually on the market? And then what do you see wrong with this business right now? Early. Because then it's not like I'm saying your business is worth a million bucks. Susan over there at blah, blah.

private equity group that buys these businesses, this is how much they're valuing a business your size today. Yeah. So how much is that similar to each one? You said they're looking for e-commerce businesses, but you take them into private equity and we pay this, this one pays that. I mean, are they similar to valuations and how do they do that? They're similar. Yeah. Yeah. Because, you know, business valuation is based off of market data. You know, when you're looking at market price for a business, we have

private databases that pull it up. can get the banks to use them. Same thing. We know the approximate multiples, but it's always good for a business owner to see an outside resource, not me. Somebody else that's actually a buyer in the market telling them how much their business is worth and telling them that two, three years before they buy it, before they want to sell it because you get to the end and that's a pretty damn somber day.

you know, six months from wanting to be out of your business and they tell you it's 30 % less than what you want. If you see that two, three years ahead of time, yeah, just means we've got to put a little, little extra elbow grease to get there. Yeah. You know, cause that's, that's the whole thing. It's the whole thing behind our business is we, we didn't want these people to get to the end of their life and their business and go, shit, it's not worth that money. Yeah. So how, where do you find these people that say, okay, it's not

Are they rejected by a broker saying, here's, Hey, I want to sell my $3 million business. And they say it's only worth $200,000 because you're spending a hundred hours a week and your cash flow is not great. Well, how do you find those? And then are they rejects from trying to sell their business or what? They're not rejects from trying to sell their business. Our average client ages is. Well, let me, let me explain that. There's some context to that because five, six years ago, I went to quiet light and Joe Valley said, Hey, John.

Jon Stoddard (25:52.791)
Like how much time do you spend in your business? Like, 40, 60 hours a week. And you know, here's your profit margin. I tell you what, it's really not worth that much because I got $400,000 cashflow businesses and the guy's working a couple hours a week because he's got systems in place. He's got people, he's delegating the systems. You need to go back and do that. that's what I was referring to. Yeah. Yeah. And that those, it really depends for us.

And why I go to the average age of our client is because what we do, it's not easy. If you're going to do this, you have to have gas in the tank. If you're done, you're burnt out. We tell business owners all the time, your best course is to run this until you don't want to run it anymore and liquidate your assets.

Why sell if it's just going to be a pain in the ass? It's going to create all kinds of stuff. Did you have that conversation early on with them? yeah, right away. That's right out the back. Yeah, I don't know. If somebody thinks that they're going to get $5 million for their business and I know it's going to be worth two or three, there's no reason for me to spend my time with them. And the bigger thing is what they really need to hear is

It's not going to be worth that, but you can get your $5 million. Let me, when you have this conversation, you say that, you know, that's provocative and then you sit and how long do you wait for you say, but, sometimes it's, yeah, that's a good question. I wait, I wait for them to understand. Yeah. Yeah. Yeah. Because they need to understand that,

Value is simple math.

Jon Stoddard (27:51.725)
And it doesn't matter how much work you've put into your business. doesn't mean, that doesn't mean a damn thing. It means I have to be able to buy your business. I have to pay for buying your business. I have to make a return on that and I have to make a living. If you're trying to get $5 million out of a business that makes $100,000 a year in profit, tell me how you're gonna make that work. Nobody's gonna walk up and dump 5 million in.

wait for 47 years to get that paid back. mean, it's not working, right? It's not working. So it's that simple. And we tell them that, and then we say, but if you want $5 million, your business, you know, there's a lot of businesses that are worth two, three, sometimes four times their cashflow. Run the business for three or four more years and take as much money out of it as you can and sell it. We're going to be in the same place.

you're taking $100,000 out of cashflow and you're going to get $253,000, sometimes the best thing is to run it for three, four years and be ready for the party at the end. Because you can go the other route and you'll find a broker that will tell you that, this pisses me off every bit about broker, because they'll tell you it's worth whatever you want to hear. And you're going to waste a year f-ing around with that. You're going to put all that stuff together. You're going to try to market that business.

totally knowing that it's a long shot. Why the hell put yourself through that? Run it for those three years, save all the money you can, create the most goodwill in your community you can by being philanthropic, whatever you can with, just get yourself out of it as clean as you can, take the money and run. Do that or if you have the energy,

and your business is really worth a million dollars and you need three. If you spend 24 to 36 months on it with the right effort, that's not hard to change. That's not hard to change to go from one to five in three years. long do you say that, do you let it sit with them? Because some people say, I've got the energy, but they really don't. Yeah. Yeah. Then it's a different, if they say they have the energy, this is a much different conversation because then we have to get in

Jon Stoddard (30:16.363)
Before we ever decide that we're gonna do anything, we have to have a lot more conversation around it because this, you know, to go from 1 million to 5 million, you have two things that are gonna happen. You're gonna have to change the way your business operates. You're gonna have to change the way that you operate. The people that are in your business are probably gonna change, they will change. I'm not gonna say probably, they will change. So if you're ready for those kinds of changes in your life,

that's okay, then we can probably start working together. We probably keep talking because it is, you're changing everything. It's not like, again, if you're at a point in your life when your business is cruising and I make this stuff every year and you come to me and say, after 10 years now, I've been taking half a million dollars this for the last 10 years, but now I want it to be $2 million. I'm probably gonna say, you just, don't know it, but you don't have it in you because your lifestyle change

is going to be so much. If you're in the business still working and really, really going for it, then we can, then we can work. But it takes it, it takes, it takes outside effort. It takes inside effort. It's it really, it's an all out court, full court press to do this thing. And, and you, really need to have the intestinal fortitude to do it. Yeah. So the, these types of people that you see that's just like, okay, I'm going to do that. Let's go back to, know, one of your first clients that

brought you on and goes, yes, I want to do that. What kind of company was that? what e-commerce company, e-commerce company. Yeah. And they came to you, how old were they? Terrius? 10 years. No, no, mean, how old was the owner? 45. 45. And you had this conversation with them or you got better, definitely got better at it too, after the years and years. And they said, yes, I do want to do that. And then you did what for them? You said, Hey, here's an analysis of where you're at right now.

Here's where you want to go. Let's work backwards. What did you do for them? So their value at the time was about $8 million. They had about $7 million in debt. Seven million in debt. Yeah, it was, there was a lot of debt. can something like that. was like, it was like one or two million. Yeah, it's too high because it was, you know, but it was, it was, was good. The company was at the point though.

Jon Stoddard (32:43.873)
where it had started being profitable, but it was kind of in and out of profitability, but there was a lot of good still had the book down on the books. Yeah, yeah, I've a lot of good bones. so we had that hard conversation. And I still remember to this day when I was in there with one of our sales guys that we got out of that meeting, he goes, I don't believe how long you sat there and didn't say anything.

I said, because they had to think about, do they really want to do this or not? And part of it was that they, you know, it's not, it's not cheap to do this in a company that's a little bit bigger. And when you need a lot of help, but we were able to take that company in the course of about, I think it was 20 months, 18 or 20 months. It went from about 13 million top line to about 35 million in top line. And the EBITDA went from.

think it was 600,000 or something like that to about 3.4. And, and, what's the multiples? When was that? 10 years ago or something? Yeah, was, yeah, was something like that. was years ago. at the first start, you know, you're at a three or four, but it was, and we had offers that

Seven, I think seven and a half when we sold it. Yeah. Yeah. How did you get rid of the debt? it's aggressive paying it down. Just aggressive paying it down a long way. Cause you know, so we're working in it for a year and you go, okay, the debt that's just, you take zero freaking money out of it. You do two things. go, inventory was way too high. You go, let's sell this stuff and let's get our supply chain in.

in sync. what you learned back at the grocery company. Yeah, you don't need $8 million of inventory because that's seven months worth of inventory. We need to have it at $3 million worth of inventory and be turning it, right? They didn't know about inventory. It's just better cash flow. It's more positive. Yeah, better cash flow. So what that cash flow will do, that paid down debt. And then you go, and then you're scaling too. So it gets better as that $3 million stretches over 10 million, 15 million, 20 million, and we're turning inventory even faster.

Jon Stoddard (35:03.597)
it helped the cash flow even more. That's how you pay down the debt. Let me ask you about this. there anything about him, because you've seen this with some business owners, they use their business as a personal bank account. That's so prerogative, right? But they're taking out so much money that it's hard to transition to some new owner or pay down the debt, right? Maybe the guy was taking a lot of money out and I go, no, you got to have a $150,000, $250,000 salary, not a $600,000 salary. Yeah. Yeah. He was good about that.

He was good about it. Yeah, it was good about it. was like, listen, I don't need to need exorbitant money to live. Yeah, he wanted a couple of cars and stuff like that, but it wasn't crazy. It wasn't buying new houses everywhere and doing that every month. But that's how you have to be to pay down the debt going forward because, you know, if you get a 25, $30 million deal and you've got $12 million of debt, well, that kind of takes the fun out of it. If you can get a $25 million deal and you got $5 million in debt, that's a lot more fun.

And you know, when you start to even, and this is just scale, right? There's just zeros at the end of this. It's the same amount of ecstasy, I think, from somebody that has a business that sells for 2 million as it is for 20 million, if that's a big deal, if 2 million is a big deal to you. Don't think there's anything less about it if it's smaller. When you can create that exit and you can get the money that you want, it's great if it's whatever you want it to be.

Let me ask you about this. So you went to kind of just in time or reduced inventory, increased cash flow, pay down the debt. What did you do with that excess cash flow aside from just paying down debt? Did you go make acquisitions from that or was it just organic growth? It was just organic growth. You had to feed the beast, right? Because as soon as you grow, you start growing. We were always fighting.

fighting the fact that you can't just order more inventory and everything. If you're an e-commerce, right? And you're selling on Amazon and all these other platforms, I mean, they've got payable, right? They've got two, three, sometimes four weeks payable on it. just grows, right? So cash has to go in there. Cash has to go into inventory growth you need. Cash has to go into...

Jon Stoddard (37:26.197)
other places as well, facilities and things like that that increase your fixed costs a little bit. that's really, you have to fund the growth. Yeah. I actually had the same problem when I owned an e-commerce company here in AIDS. The manufacturer wanted me to buy in front like every month. Yeah. inventory and I said, it's not good. It's not good on my cash flow to hold this inventory and I don't know what they're going to buy because I carry exactly the thing. So I'm just going to order from you. I'll pay a little extra. And it was just enough.

for my margins and my turn to increase and my profit margins. Yeah. Yeah. And that's why I've got an e-commerce client now, it's a reseller. And it is, if you structure the businesses right, you can run a $20 million business with a few employees, if you do it right in that situation. And you can run on lower margin, if you concentrate on customer service,

making sure you're really tight with information flow to customers, to suppliers, to platforms. You can make it that way too. Was this CEO at the time, was he aware of how to fix it or was just into it? It was a founder, was a founder, Founder, they build these things and they don't, they're great at what they do, right? They're great at what they do. Shit, I'm not a founder. I wouldn't start a business like that. wouldn't know.

A, wouldn't have the guts to do it and those kinds of things. And these people are incredible people. What they don't understand, they haven't had the hard knocks and the business experience like some people have had with what I specialize in and what eggs are your way and the people we work with specialize in. It's like, listen, you've got a great thing. We're gonna show you how to make it a little different and show you how to really understand it and make it even better.

map out the process and on a hand telling them like, hey, here's the game plan. And it was under NDA. You said, here's the game. Yeah. Yeah. Yeah. This is, mean, it's, I'll tell people what it is. You have to lay out your annual goals and you have to work back that down into weekly KPIs. You have to have your teams aligned to do it. It's, you know, someone, someone can read an attraction, the EOS book. It tells you what to do. Is it, can take that book and tell it to whatever, but it's the same thing. You know, traction was.

Jon Stoddard (39:48.961)
written in like 2005 or six and everybody does, but we were doing it before that. doing that. We were doing that before it, If you lay out where you need to be, you break that down into where I need to be this week and next week and your teams know it. And you've got the right people running those teams. You will get there if you're facilitating their work and helping them get there. That's what people get into business because they're good at something. But

They're not necessarily good at structuring a business to run right. As well as it can not right. That's a skill in itself. Yeah. That's what we honor. Was he a hundred percent owner? Yes. Yeah. So how did you get paid? How did you say, here's how we get paid monthly and then somebody. Yeah. Yeah. We get paid. We get paid consulting our consulting fees when people will look at them. They're fairly low because we get paid the most money when we sell a business. Yeah.

Yeah. Has there been ever cases like, Hey, here's your three year target. And he did exit at that time. Does anybody just say, no, I'm not going to exit, you still do you have clauses in our contracts? They can buy us out. They can buy us out at any time. mean, they can just, if, if, they get to the end and we put the business up for sale or it's time to put it up for sale and they say, no, I want to keep it. They can just pay us. There's, there's a buyout fee that we have in our contract. that like, is that a fee or is that phantom shares or something or, or, or commission from?

We've done it several different ways. We've got some companies that will take ownership stakes and we got some companies, it's cash, you just pay us cash. You say, listen, when we sold your company, we're going to make X and it's a discount off that obviously because we don't actually do it, but make us feel good for the work we did and we can apart friends. You did this first one, it felt like a good template or platform type learning lesson.

How did you start gaining speed on this from other clients and finding these people that are just going, yeah, I still have gas in my tank. I want to do this. I want a better exit and I have gas in my tank. Yeah. I worked with really good sales guy in the beginning, Jeffrey Graham, still work with him a lot. He taught me how to, you know, hell, I didn't know social media. I didn't know do those kinds of things. I didn't know, you know, I didn't know what a webinar was. Didn't, you know,

Jon Stoddard (42:14.509)
I knew what it was, but never done it before. And really we began building and educating people about the process because most people are in their business, they look in that mirror every day trying to make the best decisions they can and don't really understand the resources that are available to them. And that's honestly our biggest thing that we do is help people understand there are resources. You can do it yourself. Here's some information.

go for it, but if you need help, there are people that can help you. And people that quite honestly, if we can't help people and we're in it a little while, we walk away. We say, sorry, we can't help you. Because the way we're aligned, right? And this is what, when we first laid out the business, we knew that we didn't want to make very much money in our consulting. I'm we're talking about very much, like $5,000 or less or $10,000? No, I'm just talking about it as a business.

As a business, we make less than 25 % of our money from consulting. We make 75 % of our money from selling the businesses we consult with. So we're aligned with the owners to get their business sold. I'm not just there to milk the clock to get, you know, a little every month out of this thing. That's cool and everything, because it keeps gas in the car or whatever else, you know, and keeps us doing this stuff. But

We make our money when we sell them. That's what the owners, we align with the owners that way. Cause you told us you wanted to sell when you can get $5 million. And that's what we're going to do. We're incentivized to get you faster, get you there faster and get you sold faster. And how many of those deals do you have to have in your pipeline for it to, you where you, you know, you're tapped out or you're making the money you want to make. Yeah. We don't need a handful.

is about where we're at now. But the team we've got that is what we want to be is in three more years. We've been in this for a while now. We've been in five years, five or six years. This model, we want to be 10. We don't want to be any more than 10. We've already got the team identified. The process is set, but because we think, well, we're, I'm not young, you know, I'm not 20.

Jon Stoddard (44:41.453)
So our exit, know what our exit wants to look like. And when we get there, we're do it. If any Munger and Buffett are any example, I mean, they're still 95 and 93. Yeah, yeah, yeah. I love what I do. I absolutely love what I do. I think every day I get up, I thank God that I figured out that I could do this because it is so much fun helping business owners because once they see that...

there's a little different way to do this that makes a huge difference. We just had a client in January, been working with them for four months, something like that. Got some team adjustments made and things like that. Biggest month he's ever had in his life. Do you recommend firing people? Say, this guy is an anchor on your business. You need to get rid of him. You have to, right? You have to because

As business owners, yeah, it's holding people back. I used to be, well, when I worked with the equity companies, that's where your heartless piece has to come out. And sometimes you just have to, you know, and do that, right? Now we do it a much different way. And really when you look at EOS traction, they deliver a nice framework for it. Does this person get it? Do they want it? Do they have the capacity to do it? Let's really look at that and look at what the organization needs from this person. And if they don't,

They don't have the capacity to do it. Well, is there someplace else where they can be there? If they don't get it, can we help them get it? Can we help them get what, what, how their role is? But there's one thing we can't over, can't come. If they don't want to be in the organization that's going this way, they want to stay where we are today. That's pretty much a non-starter for us. And we do help them transition people out. Yeah. But they, you, you,

It's not easy for a founder to do that. And I understand why. These are friends sometimes. But when they're holding your business back and you have to get somewhere.

Jon Stoddard (46:51.149)
It's like you have to clear the tracks if there's mud across it. Well, I mean, you've got a vision too. If you're going to get that vision, there are obstacles in the way. Yeah, that's for sure. It's one of the fastest exits. You hit your target real fast. What kind of time frame was that? How did you do that?

Jon Stoddard (47:13.677)
You know, everything we do, when you look at selling a business, if anyone tells you they can sell your business in six months, they're full of shit. It takes too long to do that. So I think about the shortest time we've ever done it is 12 months. The reason why we did that is because they were already growing like they had like 70 % growth and 100 % growth one year.

And so growing like crazy because growth is what buyers want. If you got growth, you got crazy good growth. does that change the multiple even though you're still in the NBA? You go from 1 million to 3 million to 5 million. It's incredible, dude. It's incredible. That's why, okay, why do people do roll ups, right? Why do people do roll ups? Because as your value, your profitability gets higher, my multiple gets higher. So

If and in a quick growing company, not only do you have the fact that last year I was at 1 million, but now I'm at 2 million in EBITDA, which probably jumped my multiple by a half or another multiple altogether. I, when I sell that business, I am creating a different value because I'm, if we do this as we show owners how to do where we're tracking growth, projecting growth and hitting growth.

If I've got a history of six months or a year where I said I was going to grow 30 % and I'm growing 30 % and I got 50, 60 % more to grow on this spurt that we're doing or this efforts that we're doing to grow that. You can get 20, 25 % pretty handily just when you sell that company because we're not valuing it on the trailing 12 months alone. We're saying, listen, this is growing so much.

We're valuing it. Yes, the trailing 12 months is part of it, but you're growing so fast that we're going to be higher than that. And depending on the amount of growth, we can go out there, but we had one last fall that was, it came down to two buyers and it went up 20 % at the end. Did they know each other what the bid was or were you just keeping a blind? We were keeping them blind.

Jon Stoddard (49:37.101)
but the final offer went up 20 % from where they were at. Yeah. They just had to have it. They had to have it. They justified that they could pay for itself in some time. Because of the growth. Because of the Let me go back to the owner stuff. Do you send them, many of the times the reason people are stuck is, I have a friend that says it's difference between harbor sailing and ocean sailing, right? It's scary, ocean sailing.

There's waves that could go over the sides of the boat. Do you send it like it's, so it's mindset, right? Do you send them to something like a Tony Robbins, like modeling success, peer groups, stuff like that? Anything like that? No, we do a lot of that ourselves. do a lot of coaching. I mean, we really spend a lot of time with that in the beginning because if you don't spend that time in the beginning, you're going to get down the road and they're going to get uncomfortable. They still will.

You still know. It's big change because we're in a storm now. We're in a storm now. And you're like, we're in a storm. We're halfway through this where we want to get to. And we're finding out that something that's near and dear to your heart is holding you back. I always try to think of that as we go in. If I was talking with you, what do we need to do to prepare you?

to let go of something near and dear to your heart because you know what I'm letting go is gonna allow me to go to something better. So they're speaking freely to you because you're acting like a therapist. I mean, what's the of the oddest thing you've heard that held somebody back?

Jon Stoddard (51:19.265)
Well, people honestly, a lot of business owners think they can get by without somebody. They can't get by without somebody. Yeah. Yeah. Yeah. That's my biggest thing. I'm like, listen, if they're meant to be here, they should be here. But if it's not, if they don't want it or they don't can't do it.

and you can't find a place for them. they're whole, you know, they're whatever, they're creating cultural problems, they're creating profitability for whatever, they need to go. You can get by without them. And it's tough, it's tough. That's the toughest thing. So to letting go, trotting somebody that they, you always think that you can do a better job in whoever's sitting in that role. You've got to get comfortable with that, maybe not.

Yeah. And letting go. Yeah. Yeah. Yeah. They have to, it's, the toughest thing is for them to trust the process. You know, I've had people freak out and go, we're making more money, but where's the money at? Well, they don't understand finance, right? And I'm, I'm a finance rookie, right? I'm not a CPA or anything like that, but I can explain to them that, listen, your AR last year was a million dollars and it was 45, 50 days, whatever.

We doubled your business. Your AR is $2 million now. That took a million dollars in cash. Unless it's not being collected. Unless it's not being collected, but we make sure that's happening. So you're a grown-up. a business this week with a partner and I go, man, they're doing 3 million and the AR is 2 million. What's going on? God. Yeah. We, look, you're looking at medical companies. I get it. Like the DME is durable medical companies. Like your AR shouldn't be that big, buddy.

No. Yeah. You got a problem. Yeah. And that's, and that's where you're doing a good job of looking at the companies and they don't even know they've got the problem because it's developed over time. Yeah. Yeah. The outside look is, is huge in the beginning. that's, you just, that's a point of view, man. It's your point of view. Like it's so easy to point out, Hey man, you got to stand on the couch when they just like, I know I made that 20 years ago and I don't even think about it anymore. Yeah. Yeah. Yeah. Yeah.

Jon Stoddard (53:39.787)
So what's next? So you're to add your ramping up sales to add 10. You've got an incredible amount of followers on LinkedIn and over 50,000, which is fantastic. What else are you doing to, you know, get awareness and eyeballs? Are you following? This is always the question. Are you following your own rules that you would give somebody else? You know, perspective, like how to fix your risk. We do, we're somewhat of the cobblers doesn't have the best shoes.

but we have shoes. We do put in goals. We do do what we can to reach them. We measure what we do. It's just we, you know, we're not a hundred percent because we focus on clients so much. And that's, it's honest. It's just honest. But we've been able to put, do pretty significant growth every year. And we still, we still feel pretty comfortable in where we, where we set our goals years ago to get to. So yeah, we do.

Well, let me ask you this then, because there's a lot of founders are going to watch this show. How do they get in touch with you? He goes like, I'm stuck. I got a $2 million business. took it to Empire Flippers or Quiet Light or F.E. International and they're signing up for 12 months and I'm only going to get 2X. Well, what we're doing now is we went back and really decided that

we're gonna share absolutely everything we know. Because listen, I can tell you the same thing I did today for a business and give you a specific situation if you want. That's awesome. If you can go do it yourself, that's great. So we've created a few FAQs and guides to growth by acquisition, how to increase business value, how do you value a business? And then we're going to have webinars this year starting next month.

next month in April, free webinars to tell people how to value your business. Yeah. And, and, and yeah, if you want a detailed valuation, that's something we can do and we can talk about that, but I'll show you how to value your business. Cause listen, if that's all you need is a thumbnail, you know, kind of where it's at. Cool. Do it. I'll show you how to do it. At the end of the day, our goal is to educate owners so they can make informed decisions and build good businesses. can get out. My, my

Jon Stoddard (56:06.943)
I know there'll be enough people to come to us for business if I can reach more people with good information. Cause there's going to be some people that want help and some people want to do it themselves. And Hey, I want to help both of them. So that's the kind of stuff we're doing. We're going to go webinars. Then we're going to have some online courses that people can take video based courses. And then we're going to do some, cohort kind of training later this year, and then, and then move into with a VIP kind of one-on-one.

more of that if that's what people want to go to. If that's what they want to Marking's all a test. Yeah, it is. But that's where we're headed so far. And I tell you, I'm really encouraged so far by the amount of interest with our FAQ pages and the guides that we're putting out. That's cool. think that's fun. Damon, we're up on the hour. want to thank you being the guest on Top &A Entrepreneurs. Awesome. Thanks, John.

I hope this video has inspired you. If you need help buying your first billion dollar business, make sure to visit me at dealflowsystem.net. If you like this video, make sure you subscribe down below, comment on it, share it, tell everyone about it. And thanks for watching.