The first thing I want to get into is we've broken these sessions into three distinct parts. So the
first part is we're going to talk through where I want to do something for you as a leader, as a
CEO of your organization. And I know that for some of you, you're the plus one, which by the way,
Jeremy, you can bring someone along with you next time. So you can do that. And then the second
portion of it is to really get into a little bit of laser coaching, some hot seats, really get into
where your issues are, what you're working on. And we'll try to pick a couple of those as we go
through. And then the last piece is we're going to go through the Edge workshop component. That is,
how do you keep the Edge going and the training you've already installed in your team? And how do
you keep that going? Because there's a lot of value that happens in the second time round.
So they go, oh yeah, we know this. Yeah, they may have heard the content, but we don't necessarily
know this. And I think, Jenny, you've been through it four times, maybe, or five. So,
yeah, four or five times. And I think that because we keep adding new materials to it,
we've completely redesigned the Edge and everything to do with it. So I want to take
a second and explain to you exactly what that is. So this first little bit, we're just going to do
a little admin piece before we jump right in and to get into the nuts and bolts today.
So the first thing is that there are now two distinct components. There's the inner circle,
inner circle, which is this call, which is two hours once a month. And so the inner circle is
going to be 10 meetings, but also two in-person meetings. So there'll be a track day in Atlanta
for anyone who's been on a track. It's going to be a lot of fun. We'll do probably go-karts,
but we can do other go-karts or actually exotic cars, whatever you want. That's my wheelhouse,
my hobby to introduce you to that, but it's just a cool hangout day. We will do a short team thing
so we can do a write it off as training. So it'll be a tax deductible event for you.
And then we'll do a West Coast thing, whether that will be in Anaheim or maybe even Santa
Barbara. We'll pick that up exactly what we'll do there, but we'll do them one in about August and
one in about December. We'll give you more details as we firm up the nuts and bolts.
But I know that last year we tried to get together and weren't able to do that. So
this core group, there'll be people joining. We've also restructured the team side, the team
training side. So the team training, instead of just being 40 straight weeks, which you guys went
through that way, well, I think all the teams over time have all gone through it that way.
Now we've divided them into modules and a module is designed to last one month. So each module
will last one month. And Dee, I wonder if you would bring up that on just the list of the
modules on the website, if somebody wants to sign up for this. So we can just see the module list
on the website and then you can screen share while I'm talking. Just give it some visuals.
And so what we've done is we've taken these. So now you can run any module in any order
that you want. It's not like one through 40 anymore. So you can cherry pick as the CEO,
hey, I need this next. And by the way, we'll probably be adding more modules. So
Dee is sharing for us there. So if you look at the Edge training now, you'll see there is now a
library of nine modules. So now the module one really goes through the whole journey to prime,
building culture of trust, what are we doing, triple bottom line. And then module two will go
through the whole productivity unleashed, cognitive control, cue books, deep work,
all that stuff. And then module three will be the whole transformative thinking. So it'll be
about decision making, six hats, being a change agent, that stuff. Module four, all around
innovation, unleashing innovation at every level of the organization. Five will be about relationships,
the whole thing about wearing the different hats and managing different three types of people,
all that type of stuff. And then module six, mastering business growth, the whole thing of
courage, strategy. You guys remember all the scaling options, the 10%, the 100%, the 10x
growth, all that sort of thing. And then the growth accelerated module seven is really the
whole where we really tweak, how do we upgrade our meeting, set our people free, maximizing
contributions, how do you take your contribution to the next level, dealing with necessary endings.
Module eight talks about the art of effortless work.
So the whole Kaizen making work effortless.
And nine is really around flexibility.
And flexibility is really leveraging playbooks
and black box modeling, that type of thing.
So these are the nine modules.
So here's what I would,
and the modules do work on,
they do build in each other.
So rather than, oh, you have to start on one and end in 40.
Now you can start, thanks for doing that, dear.
I appreciate that.
And so now you can start
and pick any module that works for you.
What we're gonna do on the CEO call though,
once a month is I'm gonna talk to you about a module.
It doesn't have to be the module you're on.
I'm just gonna pick a module that we're doing next.
I'll do them in order one through nine each year.
And, but different CEOs will now be able to join anytime.
So it's not like, oh, there's the January intake.
Oh, I missed that.
You know, so now they can join any month.
And some will actually only join the inner circle.
They won't necessarily be buying
the edge portion for their team.
So this gets a lot of flexibility.
So this call, this meeting is now the core meeting.
This is the main thing.
This is, last time I threw this in as a freebie extra,
just to make sure you guys are getting
the most benefit out of the program.
And then it turned into its own product.
And thank you for signing up.
I appreciate that.
We do have a separate team now, separate from Brilliant,
that are running, that's running I-49.
So, you know, obviously I have Dia helping me
as our VP of business development.
And Dia just joined me in January.
She took some time off after quite a few months, was it?
Six or seven or eight months,
whatever it was from last year.
And Jenny is wearing two hats here.
One is as the leader of the BP team.
Since we restructured Brilliant Perspectives,
Jenny has taken over to running that team.
I still oversee that team, but she really runs that.
Bridget is here also with two hats.
Let me, sorry, let me finish Jenny's second hat.
The first one is running the BP team,
but the second one, she's also gonna be our live coach.
So in addition to the fact that your team
can go through the video training on their own
and get the worksheets and all that stuff,
every Friday, Jenny will be available for live training.
And having done it four times
and being a person who's actually doing it
still right in there, it's very practical.
It's not a theoretical coach who went through a course.
You know, she really does the work
and deals with it every day
and has hired a lot of people into that mode
and trained a lot of people.
So I'm really thrilled that Jenny's wearing that second hat,
her I-49 hat to help us be a live coach.
And then Bridget and I, as many of you might know,
now run a church together with Graham and Teresa Cook,
which we launched last year.
Bridget really runs the whole community side of this.
So she's here with also two hats
as one of the owners of I-49,
but also as somebody who leads that initiative.
So on our side, we're all wearing multiple hats doing this.
So this group, what we want you to do,
so a couple of real upgrades.
One is there's a brand new app coming out for the Edge
and the app will have two groups.
It'll have the inner circle group
where you can connect with other CEOs and leaders,
people on this call.
You can interact, go live, drop questions,
and only the CEOs see that.
So we can talk at that level.
And then the other group is the Edge.
And if you click into it,
it will literally show you each of the modules
and you can open the modules and see,
rather than just seeing 40 items.
That all just got finished like an hour ago.
So when you called me, Robin, that's what was going on.
So we wanna make that,
we're just waiting for final approval from Apple.
But if you go to myedge.group, excuse me one moment,
you can see the app.
You just have to log in.
I think I have all of you except maybe Rich,
I don't know if I have you in yet.
You can just send your email address,
we'll add you into the app.
In the meantime, you can access the app
through a normal web browser.
So until you wait for the iOS or the Apple,
the Android rather, and iOS apps,
they'll be approved soon.
Okay, there we go.
I think this is my sixth training session this week.
So little draggy, but I'm with it guys, I'm with it.
You'll inspire me and get me going.
So that'd be awesome.
So the app is gonna be.
new, and then from time to time we're going to bring special guests. So I said there were three,
there's the training time for you, then there's the laser coaching time, and then there's the
talking about how to help your team with the edge training, get the most out of it. The first one
from time to time we'll bring in guests. So I've got a couple of really awesome guests that I've
been talking to and I've lined up. And just to give a quick sampling of that, we'll have guests
like Bill Loftus, who is an investment banker, he's got a pretty large staff. Bill and I've been
friends for quite a while, and Bill is on the buy side of investment banking. In other words,
he buys companies for his clients, and they range from I think as small as 30 million up to I think
a billion dollar deal. So he does a lot, and I asked Bill would he come and tell us what is it
private equity firms or buyers are looking for, what are some of the red flags, and really help
you build value. And we're going to touch on some of that today. Joe Senna, many of you know about
Joe. Joe is the retired Deloitte and Touche senior partner for international tax. He does all my tax,
he does all the businesses we work with, and Joe is just an amazingly brilliant guy. And it's rare
to find a CPA will actually give advice. Most CPAs won't do that because of the liability issue.
So if you ask them a direct question, you may get an answer, but usually you don't.
We'll bring in Paul Orson, who runs a private equity firm here in Atlanta. Barry, as many of
you know from Sage, who runs Live Events. So she just has such a broad understanding of business.
We have an attorney, Nick Moore, who is one of the super attorneys here in Georgia,
also a friend of mine. And we got a couple of others we'll bring in. But that just gives you
a quick sample on the kind of people we'll bring in. And then as we grow and get bigger, and I can
attract better, maybe one day we'll have Simon Sinek or something, let's see. We can dream,
we can dream. I love Simon. He's a great thought leader. Awesome. Any questions about any of this
before we get into the actual session? All good? All good. I want to talk through a topic we've
been working quite a bit on here at The Edge. And as we're getting ready to just massively scale
this, we're in a position right now. And as you know, I speak to you as I counted the other day
because we were making a lot of videos and materials. I actually wrote down all the names
of all the companies that I've been involved with. And I've led 27 companies to date. And
three of them I did not have any ownership in. So one of them was 100X or 828 Media.
There were two others that I did. One was for a big petroleum company in Texas, in Houston.
I had no equity in that. And then I led an investment group for another group here in
Atlanta. But other than that, and that's not including all my consulting, that's not consulting
CEOs or any of that. So it was an actual business that I had to run the business where it's not,
well, I consulted for three months somewhere, not that, because then it's a long list.
And what I've learned is that if you look at the spectrum of where I've gone through,
it's technology, finance, real estate, investment, portfolios. I've been involved
in foreign exchange trading. I've been involved with three non-profits, a school, two churches.
And going through that process, what I found is a commonality. And when you're starting and running
a business, you do get kind of sucked into all the detail of it. And we talk often at The Edge
about working on the business, not always in it, and trying to take a few hours every week
where you work on the business and teaching your team to do the same.
And we did this little exercise and I call this little exercise, how does your business end?
We wanted to, we ran a few, I wrote an article, which should get published here in USA Today,
USA Today, in the next few days. And one of the things I talked through there is,
let me help you end your business, in parentheses, well. So here's what happens,
your business will end. One way or another, it will end. Whether you sell it, give it away or
close it, it's going to end one way or another. So the real question is, and here's a really
helpful exercise I'd love us to do today, is I would like to imagine that it's five years down
the road and you're selling your business to me. I'm the buyer, we're sitting at the table,
I'm buying your business. First question is, what exactly am I buying? That is not as easy to answer
This is one might think you can say, well, you know, Jeremy, so
while I have a roofing and solar business, no, but specifically,
what am I buying your clients?
Am I buying a technology?
Am I buying access to that regional market?
Because I already have access to other markets in the country, but not that one.
So the buyer is as important as the seller in these relationships.
And you say, well, I'm not thinking about, I just want to run my business.
I'm not thinking about five years down the road.
You should be.
Here's why.
I can't tell you how many times I've sat on both sides of the
table as the seller and as the buyer.
Um, and it's really sad when I see founders who've poured their lives,
made unbelievable sacrifice, their families have paid a price, and then
they realize, man, if just a year or two ago, I tweet this, change that,
fix this, I could have doubled the value in one case, literally could have made
10 X could have literally added a zero.
If they put the thing online and made it a SAS product, software as
a service product, rather than.
So when you're thinking about this, this is a powerful way as a leader
to think about what are you doing?
What are we actually doing?
Why did I start this business?
What's the point of it?
If you were just looking for a job, you know, you can get a franchise,
you can become a franchisee.
That's a cool job.
A lot of people from professional world go and do that.
They just become a franchisee.
It's like, you know, and you've seen a lot of very senior people from
consulting firms and so on, but like, I'm done with that stress.
I just want to run five pizza stores, you know, or whatever it is.
And that's fine.
If you're looking to give yourself a job, that's fine.
And here's the thing.
If, if you are the person who does all the selling and all the fulfillment,
you don't, you don't have a business.
You just have a job, but now you can turn it into a business and there's
a way to turn it into a business.
And so this exercise is designed to help you cut through the noise.
What am I building here?
Actually, you know and you know, so as I said, the two questions, what
are you, if I'm buying your business, what exactly am I buying and how much
am I paying and you say, well, I don't know, but you should know you should
have a good sense of it, or at least know what things will influence that value.
So if I were to buy your business today, you know, and we're going to go
through, how do you determine that?
We can do that right now.
And so we're not going to just keep it theoretical.
We're going to dig into this.
And the reason is, is as you dig out the underlying economics of what's
creating value that somebody would buy, you'll realize exactly what it is you're
building and may, and so I'm also going to take a moment and I'm going to put
for this exercise, put my private equity hat on, and as many of you know, when I
was running my own private equity firm up till six years ago you know, we get
pitched all the time, come by my business, invest in my business, all that stuff.
And I would say of the 20 companies that pitched us, we
probably took an interesting one.
And so a friend of mine who consults with CEOs here in Atlanta, he you know, I'd
mentioned that and he said, well, I have a group of 12 CEOs.
I work with it every, you know, and would you come and spend a day with us and, and
tell us, you know, what is it you look at when you, when you pick up our pitch book,
you know, cause you know, we'll write those big fat pitch books and a pitch deck
or whatever you call it.
So, you know, that, that, that document that says buy my business, this is the
my, or put invest in my businesses, here's the returns and so on.
And so it was talking to those group of CEOs.
So they all gave me their, their, they all came to the meeting with their
pitch, I didn't see any of them beforehand.
They didn't send me them before and they just put them on the table.
I picked them up.
I turned to certain pages and I just explained what I was doing.
And, um, it was really helpful, but I think it was very
disheartening for many of them.
Because what they were focused on because they were running the business,
because they were dealing with staff issues and customer issues and product
issues and trying to manage payroll.
And just the stuff that makes up business is they, they were a little
surprised to see it through my eyes.
And here's some of the surprise elements.
Firstly, I said to them, um, if I gave you an interview, I'd be, I'd be looking at
the 40, 10, uh, the 50, 40, 10 principle, 50.
So the 10% of what we, I want you to talk, you got, if we got an hour.
So think of yourself as this, you're coming to pitch to the private equity
firm and you have to pitch the full value of your business, they're going to buy it
or invest in it, doesn't really matter.
Same thing.
The first 10% of the time, in other words, six minutes,
you get to talk about the product.
That's it, six minutes.
Because at the end of the day, it's just a widget.
From the private equity point of view,
I don't care if you're selling pencils or barbed wire.
Honestly, I don't care.
I really don't because it's the other things
that make it up that I'm looking at.
You can be super excited about your new high-tech
solar panel that has better power densities
and da, da, da, da, da.
Okay, say all that in six minutes.
My new software, whatever.
All right, let's assume it's fantastic and it has no bugs.
Well, there's a few, no, no,
let's assume it's perfect for the six-minute conversation.
The next 24 minutes, the 40%,
I wanna hear about your team.
Do you have a team?
If we took you out of the picture,
if I'm buying your business and you want out,
I'm buying your company and you leave, what have I got?
So prime is that point as you go up the bell curve,
go from success to prime.
Prime is that point at the top of the curve
where you're gonna get the maximum price
because the company can thrive without you.
That's prime.
And prime is building yourself to that point.
Now, if you, you know,
let's take the Noah example here, it's a good one.
So, you know, if Rich is brought in and Rich is now,
I got legs for this, man.
I wanna do this for at least another 10 years.
And Robin says, I'm out.
That's good because Robin's left something behind.
The company can thrive without him.
The company is heading towards prime.
The backroom chatter that private equity people use
behind the scenes is they say,
we don't want the IP going home at night,
meaning you.
We don't want all the intellectual property
leaving the building and going home.
Something happens to you, it's the end of the business.
Can't all be in your head, is what we're saying.
Can't just be you.
So the faster way you can get out of your head
and what you do and the thing that caused your contribution
gets multiplied in the organization,
even if it's distributed, fine.
But if you leave, does it work?
Does it, not just can it be maintained, but will it grow?
So that's the 40%.
So I wanna hear for 24 minutes about your team.
And it's okay if you don't have a whole team.
Oh, we're missing a this and we're missing a that.
The fact that you know what you're missing
and you have a sense of profile of what you're missing,
how you think you're gonna attract those new people.
I wanna hear all that.
Tell me how, to your little 10 man company,
your 10 person, sorry, 10 person company,
how are you going to attract that new CFO?
Why would this very talented CFO leave a secure job
in a $100 million company or $50 million company
to come and work for your $1 million company?
How are you going to attract that talent?
Robin, you and I have talked a great deal about this.
It's a challenge.
And this says a lot about you
and how the organization is being built.
And so we ask a lot of questions around that.
Notice we got past the fun part of whatever it is you do.
We got past that in the first six minutes.
We're gone.
24 minutes in, I'm looking to see
how you're gonna build a team, how it's gonna grow,
how you're gonna scale.
And then the last half an hour,
which we're all the CEOs kind of lose that enthusiasm
is we wanna know your capital structure.
How much debt do you have?
How many investors have you brought so far?
How many investors have special rights?
Do they have options?
Do they have warrants?
Blah, blah, blah, all the complexities of that.
Meaning if I put my money in your business,
am I gonna get diluted?
Or if they're gonna get diluted, or we got a lawsuit.
Well, if I find out you've got over 30 different investors
in your small company, I don't wanna deal with all that.
Because in most states, anyone owns less than 5%
in some states, 10% in others,
have minority right protections.
That means we can't just decide
because we have majority interest.
So now we have all sorts of new issues
and limited partners are protected and blah, blah.
And I just look into that and say,
I'm gonna put my money into that mess, I'm not interested.
One of the big things I do when we came in
is we bought all those people out.
Another way we did it is, we cleaned up,
it's called cleaning up the capital table,
cleaning up the cap table.
What that means, a capital table is nothing more
than a list of all the people and how many shares they own.
Well, that's in its simplest, simplest form.
But sometimes people come in and say,
well, if I put my money in, now, let me tell you,
venture capitals or vulture capital
is the most talented at this.
They come in and say, we won't take a majority of this
and we'll put in, we'll take 20%.
cent. We'll give you the million dollars you're asking for, we'll take 20 percent of the company
which is great because that values it at five million dollars. I'm sure you saw the math and so
with 20 percent it's worth a million, obviously the company's worth five million.
So I'm going to give you the million dollars and guess what we're going to do is you're going to
hit these three milestones of revenue. If you miss the first one then we're going to go to 40 percent,
then we're going to go to 60 percent and we'll put the extra money in, we'll put another
another half a million, another half a million and if we put the third half a million in now
we're two and a half million to it, we'll earn 85 or 90 percent of it. How do I know all this?
Because I was 20, 31 years old, raised 30 million dollars for my business. I thought I was a genius
for my technology firm and we were thought man I'm so smart and then one day it dawned on me,
hang on, before they came in I owned 70 percent of this business, now I own six percent.
I didn't feel so smart now. So when they sold it guess who made all the money? The money people
made the money. So the person who did the work doesn't get the money. Okay here's good news
before you get too depressed with that whole private equity approach because here's the good
news. Private equity is desperate for capital. I just found out yesterday that right now there's
one, I can't believe this amount, this is so huge, 1.3 trillion dollars. So that's one point, that's
1,300 million million dollars. Think about it for a second, right? That 1.3 trillion dollars
looking for investments. There are far too few businesses and way way too much money.
Part of it is when you overprint money that money has to go somewhere and you say well where is all
that money? You know I've been looking for money, I can't find money. Here's the thing, if you build
really smartly over the next three to five years it doesn't matter that you're a million dollar
business. It's what that million dollar business can sell for because you can have one
million dollar business that sells for three million or it can sell for 13 million. You say what? Really
it can be that different and it's got to do with how you build it. So I'm going to talk a bit about
that for today. So this is the most serious leadership conversation we can have
and we'll have it two or three times through the year. So every now and again you can look up and
say what am I actually building? If you're building a non-profit you're not measuring your dollars,
you're measuring your reach. How many people did we reach? Okay questions around that before I get
into it. So just jump in if you've got a question. So here's Robin, did you have you were going to
ask questions? Yeah I was going to make a comment. You said that when I've talked to people
before and they're always thinking like this you know what's your exit strategy and it's like
well I don't have an exit. I don't plan on ever you know just like you said but
I think what you said is eventually I mean I'm going to die eventually I guess and that could
end the company you know but we're not really building to sell but what I hear is if you
build to sell then you're building a company of value rather than just a job and going through the
the exercise. Okay let's let's take that that's a good thought let's take that thought another
step forward. If you build it to sell you're honoring yourself way more because if you
if I told you I'm coming to buy your business in three years time and we both agree and you
went flat out to create as much value for me as possible if you were willing to do it for me why
wouldn't you do it for yourself and your family? So it's not just willing to sell it's not it's
not about the I want out it's I want to build smartly whether I keep it think about whether
I keep it and ultimately my estate gets it like you said you die and it goes to your estate you
want to leave as much value as possible or you sell it to your management team that's another
good buyer right or you give it to a family member which is a lot like the other one as part
of the estate but you just do it before you die or you sell it to a very smart buyer like a PE group
so let me talk for a second right now over 60 percent of all the price there are 585,000
privately owned companies in the United States.
and what's called middle market.
So this means companies that are between 50 million
in revenue up to 2 billion, that's called middle market.
The smaller companies under 50 million,
I don't know how many there are, it's just a lot,
because that group fails a lot.
You know, you've got 70, 80% failure rates
within the first five years,
which means that if you survive five years,
you're already like in the top 30%,
20% of businesses anyway, so well done to you, right?
So recognize your achievement, firstly.
The next thing is to look at it as,
look, even if you're gonna give it away,
how many of you know the story of Bob Goff, you know?
It's, what's the Thursdays he gives stuff away
as the Thursdays?
Thursdays, right?
He gives stuff away on Thursdays.
He always gives something away on Thursdays.
It doesn't matter what it is,
he gives stuff away on Thursdays.
And then one time, he runs a big law firm,
he also teaches Lord Pepperdine.
And so he comes in and he calls his whole team together,
and there's a big group of attorneys,
and he calls one of the younger attorneys up,
hands him the keys, says, you now own the law firm.
The guy says, why?
He says, because it's Thursday.
So, so there you go.
So even if you do that,
then don't you wanna give that young man
the best possible business?
You don't wanna hand him a pile of debt and a bad,
you know, on the verge of a bunch of lawsuits.
And what is it you're giving him?
What are you gonna give your kids?
So there's no, there's no,
I know there's this,
most guys are not thinking about that.
You should be thinking about this
because it'll make you build
the smartest possible business for you.
Even if you never sell it,
then you're honoring you and your children.
Makes sense, so thanks for raising that.
Okay, so let's talk about,
let's talk about how do we value a business?
So there are only really three ways to value a business.
And I have a book this thick on my, from my MBA days,
I'll save you all that, called Valuation.
It's massively complex.
And I've done this by the way,
right at the level of Goldman Sachs
and I've helped value businesses and so forth.
So I've spent a career doing this,
but let me make it really straightforward.
For you as the business owner of a small business
trying to think, what is my business value today?
We will watch Shark Tank and they do 5X times
the profits or whatever, fine.
You know, that is such a unique case
because valuation is so complex that they do that
just because they're very smart people
and they'll eat the whatever dumb thing it is.
And they often are pulling out of,
there are deals you look and you go,
why did they pull out of that deal?
Because they evaluated it very differently
beyond the five times the profit.
So let's say you have a $10 million business
and you drop a million dollars to the bottom line,
gross profit before the owner's earnings.
So they'll take out your salary out of that,
your owner's earnings,
because if they're the owners, they would earn that.
So they add that in, right?
So let's say with owner, taking out owner's earnings
there's a million dollars left,
then they do the 5X, okay, it's worth $5 million.
Think of all they're really saying
is actually quite simple.
They're saying you created a black box, right?
And that black box, once a year,
drops out a pile of cash, a million dollars.
Now the question is how many advanced years am I buying?
So assuming that,
because the business could go grow faster,
the next year could do two or three or four profits.
What I'm doing is I'm buying the black box
as it stands today.
And I'm saying that I can pretty much guarantee
that it's probably gonna grow up, go up,
but it may go down.
So let's just net that all out and say,
I'm gonna have the same black box,
it's gonna drop the same million dollars a year,
therefore it's worth five years of dropping the box value.
That's the simplest way to understand it.
The next thing I'm trying to understand is
how hard is it to crank the handle on the black box
to make the million dollars?
Do I need a team of a hundred
or can two people online do that?
Now, now, if it takes two people online to crank,
that's why I don't care what the company is.
As a private equity investor,
I don't care whether it's widgets or whatever.
Because to me, it's how hard is it to crank?
How complex is this business?
Well, there was a company in Atlanta
that I worked with closely, it was called Aperon.
And Aperon Technologies had 42 PhDs working there, 42.
And they worked with major research grants
from the US government,
and their job was to extract arsenic-3
and arsenic-5 out of water.
Turns out Atlanta is some of the cleanest water
in the world, you know, in the country, it's amazing.
I didn't know that until I did that exercise.
Here's why I would never buy this company.
And their investors, their board brought me in
to look at the whole thing.
The capital table was so complex, this one,
and then, you know, it was just a mess.
Even if I fix the capital table,
even if we simply...
I had all these investors and what they could do
and not get and all that stuff.
Even if you took away all the options
and all the complexity and just made them simple investors,
I still wouldn't buy their business.
Even if those investors handed me their shares,
I wouldn't have bought that business.
It was so complex, that business.
So I would pay them one times earnings, not five.
It's too hard to crank the handle.
But if it was two people,
so let's say it's two people online doing this,
no offices, just two shareholders,
they're cranking the handle.
And we all say, oh, YouTube guys, it's so easy.
It's not, those guys burn out.
That is a tough, tough business.
But if you get to a certain momentum,
you're gonna have a team of 10, 15 people doing it,
but the cranking of it is fairly easy.
But who's coming up with all this stuff
and how long will that be there?
Will YouTube still be the same in five years?
No way.
So I don't think that if it's dropping a million dollars
today, cranking the handle is gonna be a million dollars
in five years time.
Might be nothing.
So I'm not gonna give them 5X, give them 3X.
Yeah, but it's easy, it's cranking the handle.
But if somebody comes up with such a clever idea
and it's growing so quickly.
So a friend of mine opened up a restaurant group
and he owned, he built a restaurant, sold it,
built another, he's a CPA, smart guy.
And what he did was he sold a business chain
and then he took the money and he bought 150 pizza
with a major pizza franchise.
He bought 150 of them.
And I thought, this is crazy.
I mean, he didn't build them all at once,
but he built him in groups of five and 10 very rapidly.
Within two, three years, he got it up to 150.
And then he decided, and so people could come to him
and offer him, you know, three, 5X,
because that little pizza place will just churn out cash.
They make between 11 and 13% a year.
That's the gross profit.
Those little things can count, just churn them out.
And by the way, if you have a sitting in pizza,
then it drops way down.
If it's just sheer delivery, it goes up to 14, 15%.
Which is really interesting
because you could take your money
and give it to Warren Buffett and get 15% a year
and do absolutely nothing, as an example.
And well, how long can he keep that up for?
Well, he's done it for 39 years.
I think he's fine.
So the issue is, you know,
but what happens if Warren dies?
So you, but he's got a team that is showing they can do it.
So he comes to me and he says,
hey, I got this new big thing.
You need to buy the franchise for this.
It's a primary.
And I said, well, how much can I make?
And he said, well, you know, you're good.
So you probably make 15% out of it.
And I said, well, how much does it make in a year?
And he said, well, yeah, if you push it,
you make a million dollars.
So I said, I'm doing this for 150K.
You're out of your mind.
Why don't I give the million dollars to Warren Buffett
and do nothing and go and sit at the beach?
I have no headaches.
That's a lot easier to crank the handle.
So that's what you're competing with.
I'm a private, I'm an investor.
I can give the money to Warren Buffett
or I can buy your business.
That's what you're competing with.
I'm not gonna put it in the bank
because I'm gonna get what, one or 2%, that's worthless.
Okay, so let's go back to the three ways you can,
not Shark Tank way, three ways, crank the box.
So you think about your business as a black box.
Think about how you can make the cranking easier.
What can you automate?
What can you delete?
What can, how can you get less of the gears in there?
Get some of the gears out of there.
Make that thing smooth, you know?
Can you automate it?
Can you put a little electric motor in there,
let it turn the handle almost by itself?
You know, what can you do to make it easier to crank?
And that's what we're gonna spend
a lot of time this year doing, talking about all that.
Three ways to build your business.
Number one value is what's called book value.
I take your financials
and I look at the assets in your business.
This only really works particularly for real estate
and some unique situations
where there's big assets on the books.
By assets I'm, you know, I'm referring to,
you know, longer term assets like, you know,
like real estate, like cash and so on.
That's a horrible way to value a business
and no one will really do that
unless it's a really old business
and it's in a very unique spot.
So pretty useless to you.
The next way is a competitive valuation
based on your market.
So we'll go and look up in your market segment.
The public markets are divided up
into very specific market types.
We can look up where you fit in that market type
and the size of your business,
and we can scale and see what is the typical.
factor. Is it 5x like we've been talking about for the black box or in your industry it's 7.5,
14, it's pretty well documented and private equity firms know what that number should be.
But the best way to do it is called DCF, discounted cash flow. Basically what we do is
this, we say here's my black box today, next year, each year something new is going to be added.
And so what happened is I'm starting now but then we're launching that second product so
that's going to go up so we're going to grow, the box is going to get bigger, it's going to
crank out more cash. The next year we're automating all that and we can do it with half the staff so
the amount falling to the bottom line is going to go. So this year it's going to go a million,
million five, then it's going to go to three because we've got this new automation thing
we're building and when that kicks in we need half the staff to do it. Like we did at Brilliant,
we roughly ended up with half the staff, we simplified the cranking of the handle.
And it wasn't just getting rid of costs, you've got to think smarter than just getting rid of
costs. What you're looking for is how easy it is. And then if I can explain now the question
the private equity person is, what's the likelihood that you do the first thing,
what's the likelihood you do the second thing, what's the likelihood you do the third thing,
and then what we do is we discount that cash flow. You say in three years time it'll be three
million, today it's a million, it's gonna be three million, then I discount that back to today's
money based on the risk I perceive. Maybe I say well there's a 50-50 so I knock off 50% so I'll
give you one and a half million credit for that. So it's a million a year, million and a half,
million and a half, so you see what I'm doing I'm discounting it based on the risk. So this is how
this is how venture capital people look at your business, they're looking at the risk
they're gonna have to take and they're looking to how probable is it. This means
that when you make an assumption, I'm assuming that we're going to add this next product,
if you've got that tested, piloted, if I was selling the edge today, if I were going to go
and sell this off today, notice I piloted it for a whole year first so that every assumption that
I put in that projection going forward has already been tested. Where did I learn that
from I wonder? I learned that from people and I can't tell you how many founders massively
overestimate the value of their business or massively undervalue, they're not anywhere near.
So this is 30 years of figuring this stuff out by the way, I think my goal was to give you the
full value of your whole year investment and then some in the first half an hour, first hour of the
day. So here's where we're landing with this, we're landing here, that discounted cash flow,
most founders if I asked each of you tell me what your business is worth,
I put serious money on the fact that none of you or very few of you would get it close,
you're either going to underestimate it or overestimate it. Here's how you can get past
that under over thing and that is ask yourself what am I assuming is going to drive the growth
next year and the year after that? And how well tested is that assumption? Now that you know how
to do thin slicing because you've been through the edge, you can go and thin slice that test
and find out and find out what you do and don't know. Hence the joke at Brilliant that if you
really want the team to burst out laughing say it's my intuition red hat that we're going to
do whatever and everyone just laughs because we know you're 90 to 95 percent wrong. And why we
have our whole teaching and a whole training on how to make things less dumb? Because almost all
our assumptions we make on the growth of the business is almost always wrong either because
of the market or because of the amount we think we'll sell, for what we'll sell it for and how
much it will cost to produce. We all make mistakes in all of that and so when you're asking
somebody to pay for so here's what the private equity people are thinking. I'm looking to buy
realistic cash flows not your dreams.
They're not buying your dream. It's your dream but it's not their dream. They just look at the
black box and look at the machinery. Does that help? Okay so here's three things you can do
that will really drive value in your business. Create a team of leaders. We've already covered
that so the IP doesn't go home at night. The intellectual property isn't all in your head.
Number two, focus on reoccurring revenue. The fastest way to grow revenue is sell
more stuff to the customers you already have. If you have tried to reduce the one-time customer
You work your tail off, get a customer and lose them.
Don't be like the big telephone companies who spend billions of dollars on advertising
or whatever to get you as a customer and then give you the worst possible customer
service on the backend.
And so you get so annoyed, you leave and you think, I wonder what the acquisition cost
was to get my $50 a month, my $600 a year.
Maybe they spent $6,000 or $600 or whatever it is.
And the person on the backend didn't care.
Literally, you say, I'll go somewhere else that are like, fine, whatever.
So you look at where it's bleeding.
And if you've got customers and you're selling a customer, like if you do, if
you're in construction, right, since I'm sure Ben and Tyler will hear this
afterwards, but if you're in construction and you're building a house and then the
person leaves, the next time I'm going to build a house at seven, 10 or 15 years
from now, that's, that's not reoccurring revenue.
But maybe there's a series of other things you can add that will allow
you to build on top of that.
So go and sell to the same customer and try to set them up on some subscription
or some annual payment or some mechanism.
Don't do a cost per job business.
That's a horrible, horrible way to value a business that doesn't do very well.
You're going to get two or three X out of that deal.
And then the last thing is free cashflow.
So what about debt?
Look, if debt is smartly used and there's a lot of free cashflow still fine.
Building free cashflow in a business, as you all know, is the hardest thing to do.
Businesses don't die because they don't have good products.
They die because they run out of cash.
So have two, three months of cash in the bank that you can run your team.
Try to get it up to six if you can.
And if you've got a, if you've got a cyclical business, definitely,
you know, six months.
So you can last half a year if you sell nothing.
That's a huge sign.
You say, well, that's so hard to do.
It's not actually as hard to do as you think when you put your mind to it.
Okay.
So those are the three things you can do.
Create a team of leaders, focus on reoccurring revenue, you know,
manage free cashflow.
So you have, here are three big things that buyers are looking for.
And, and this is a summary and then we're done.
So the three big things that a buyer is looking for.
On the financial side, they're looking at, do you have multiple sources of revenue?
They don't want to see you singularly dependent on one source of revenue.
Two, how cyclical is your business?
It's okay if it's cyclical, especially if you've got free cashflow cushion in there.
That's fine.
If you sell Christmas trees, you know, it's fine.
Just, we know that the business runs for two months a year or whatever you do.
But it's okay.
As long as that, that you've structured the business around its cyclical nature.
You don't get shocked every time the cycle comes around.
And some of the cycles are more easy to see than others.
You know, Christmas trees rather obvious, but some of them are much more so like
the, you know, the housing cycles and all those.
Three, is it recession proof?
By that it means, do you have enough cash that you could carry?
So one of the, one of the big things you can do there guys is to structure your,
Rich, you mentioned like you really care about getting your team.
Here's, here's a simple rule.
Pull your cashflow, pull your expense down to the lowest expense.
You can pull everybody's salary below the market.
What the markets offer everybody, yours include everybody.
Pull them really low, low, low, as low as the team can take it this way.
When you hit a recession time, you don't have to fire anyone.
It always annoys me.
No CS to lay people off what you didn't know what you were doing.
What did you get caught of God with, with that?
Oh, well, you know, the market's different and you don't
know this about markets move and change.
You didn't know this.
How did you not know this?
When 9-11 happened, the reinsurer behind some of the buildings.
For, uh, at 9-11 was, was Warren Buffett's reinsurance company.
I think it was Munich real or whatever.
That's it.
And he apologized for the losses to his shareholders as an insurance company.
They should have modeled that there would be a major catastrophe.
What's the probability of a major catastrophe in a major
US city in the next 10 years?
How was that not planned for?
You said, well, I'm a small business.
I can't, you must think of this.
So here's what you do.
Lower your lowest with your team can tolerate, and then be super generous
on bonuses when the team does well.
That way we've done this at brilliant.
We even moved to a four day work week to help get that thing
to really, really, really low.
Well, the, the performance is so high productivity wise, we could do that.
So four day work week, we pulled it really, really way down, but man, they
can really earn great bonuses and have so because our business can be spiky.
It's brilliant.
Okay, so that's revenue.
Margin, how much margin is your business?
Honestly, if you're not running a 40% margin on things,
I'm not sure it's worth doing.
60 is better, more space there, you know.
So you want some, you know, the rule of three.
Remember how we broke up the rule of three?
Okay, I can't go through all that again,
but you can go back to the training on the rule of three.
And let's get to scalability.
So number two is they're looking for scalability.
One of the first things a private equity firm will ask you
or a buyer will ask is how big is the market
for what you have?
And they don't want you to say things like big.
They want you to give a number, right?
So they say, okay, and they will sit there with a calculator.
I can't, I've done this more times than I can count.
They'll sit there with a calculator and go, okay,
so for tiny homes, our total market is 50 million.
I'm going to make this up because I don't know your market,
but the point will come across 50 million.
What percentage do you have now?
Oh, 2%.
All right, fine.
If you've got 2% of the market,
could you grow, could you get 10% of the market?
That's pretty aggressive.
What if you've got 5% of the market?
Now as an investor, I'm thinking,
is it realistic that Robin and his team
will get 5% of the market?
Probably, but if they come with their business plan
and show me they're going to take 65% of the market,
I'm not paying for that plan.
While they might do it, they may actually be that good,
the chances and the risk for me to put capital in
that they will do that is too high.
So they quickly look at the size of the market,
where are you now?
So we did this at Brilliant.
We know that Brilliant, the market is 47 million people.
And we own such a tiny, tiny fraction
that to get our subscriptions up to 100,000
from where we were at the time was about 4,000,
seemed very realistic.
Never got near that, but the market is so big,
but it's not a market that pays for subscriptions.
So we scratched our head forever
trying to crack the code on that.
Can you scale this business?
It's great that you can do this in Atlanta,
but can you take this to other markets?
And what would that be?
Can you franchise this idea?
Can you, so franchising is a great way
to scale something, right?
If especially it's a service business,
people always, there are all these people
that wanna just own a salary.
You can do that.
What is the customer acquisition cost?
You watch on Shark Tank.
If a person walks onto that stage
and knows their customer acquisition cost,
what it costs me, all my advertising,
some of my staff that run that, my sales team,
all that, all in, we sell a $1,000 product
and it costs me $150 to get it.
That is a nice business.
But if it costs $1,000 and it costs me $800 to get it,
get out now.
Stop that immediately.
You'll hear Mr. Wonderful say,
I forbid you to continue with this business.
And he's actually being kind.
He's not being obnoxious.
He's saying you're wasting your time.
You're wasting your shareholder's time.
And if you're the primary shareholder,
you're being really unkind to yourself.
You're showing no self-respect.
Stop this immediately.
This is, by the way, there's about 20% of all businesses
that should be stopped today,
not even get to tomorrow morning.
Stop them today.
Don't shut it down.
Don't be that business or convert what you're doing.
Okay, so that's your market.
The next thing they wanna know on the scalability side
is customer base.
Are you over-reliant on a single customer
or on a very, very small group of customers?
So you wanna diversify the risk of the customer base.
So you're not like, well, we have the US government,
we have the IRS contract.
Okay, and if that goes away, do you have a business?
No.
Well, we've got these other little smaller customers
that we do stuff for, but we've got the IRS.
You think, oh, they're gonna pay big money
because I have the IRS.
No, they will not pay big money because you have the IRS.
But if you had five government agencies
or three government agencies
and a whole bunch of mid-tier and small-tier stuff,
for sure, then can you sell multiple products
and services to the same customer?
This says, this speaks to when you spent $100
to get a customer, so you can sell them a $1,000 product,
but then you go back and sell them another $2,000 product
and have $10 acquisition because they were your customer,
took the phone call or whatever, right?
In this particular case,
Bryn has done a really good job, right?
We took a customer that was paying us $20 a month
in a subscription, and as many of you know,
we recently sent a training program that cost $6,000,
but we built it up to that.
We didn't go from 20 to 6,000.
It took us time, by the way, it was tricky.
So that idea, while 6,000 people may give you $20,
we only needed 80 people to give us...
$6,000.
So the issue is, if you're gonna scale the business,
make sure you have multiple customers.
And then this is the last and biggie one.
They want to see uniqueness.
So I talked about one, the financials,
two, scalability, and three, uniqueness.
What's the barrier to entry to get into your business?
Don't worry if there is no barrier of entry.
Don't worry about that.
Well, anybody can start this up.
You know, I'm a YouTube channel, fine.
But the barrier to entry doesn't have to be,
but if you've got some sort of magic something.
So if you have anything, a process,
a technology that you can patent in your space,
you've raised the barrier of entry.
It doesn't even matter how simple that is.
You'll notice on Shark Tank, they'll often ask that.
Do you have a patent?
Why?
Because the barrier to entry is now high.
It means somebody will have to invent
something completely different to compete with you.
And then of course, the other uniqueness is,
if you have a team of leaders that can function without you,
if you are truly at prime,
then what's gonna happen in that overall structure
is you're gonna show that you've released innovation
at every level.
You're innovating how you get accounts paid.
You're innovating, you know, your HR.
You're innovating how you do payroll.
You're innovating your capital structure.
You're innovating how you do your debt.
You're innovating everywhere.
You never stop innovating,
and you're constantly innovating all the time,
and you're innovating faster and faster and faster.
So if I've got the cycle of innovation
going quicker and quicker,
used to take us eight months to release a new product.
Now it's taking us three months.
Now we did it.
So last year we launched a school and a church
in three weeks at Brilliant.
Now, two years before that, no way, no way.
No way, no way.
Couldn't even vaguely even consider such a thing.
We wouldn't have had that cycle of innovation.
And by the way, they did it in their,
pretty much in, there was a certain east.
I'm not overstating.
I don't think, Jenny, do you think?
Well, dear, you were there too at the time, I think.
So, hey, getting that cycle of innovation.
So this idea of, oh, we all innovate at every level.
People don't think about this properly,
but if you're thinking about this deeply,
you're saying that means that when we go
and test a new product in the market,
we are going to give ourselves very short appetites,
hugely unrealistic, short appetites.
I wanna know this in 30 days, if this is gonna work.
I don't wanna wait six months.
Go and get wide data.
What's the fastest, thinnest slice?
Change this, turn this around, turn this around.
Learn, learn, renovate, learn, innovate, learn, innovate,
and get that cycle happening quickly.
Why did we change the edge so that people can join any month?
Anyone wanna say?
I would say so that you could actually add people
along the way, if you have to wait a year
to add more people, that doesn't work.
Yeah, so what happens if our sales effort fails?
Because the first pilot stuff was because people knew me,
either at 100X or Brilliant or somewhere else,
there was a connection, right?
Now the question is, can we bring in a large number
of people and we've got this group in New York
who are helping us and blah, blah, blah, blah,
but the innovation cycle is too slow
and they were very slow.
They think they're fast
because they think they're innovating quickly.
So, and the reason why I was so thrilled,
Deer came back because Deer knows how to do that
really, really fast.
And that's what we need.
Because if I team brilliant people, that's what you get.
So you wanna create those people in your organization.
And most people just don't think in those terms.
They don't have the capacity necessarily,
or the framework or the training or the education
to think about how innovation is gonna change
the black box dropping off piles of cash.
Because if I'm looking at a black box
that's got a super fast innovation cycle in it,
then I know that the chances of them growing
by more than 10% next year is very high.
Maybe even 25%.
I'm watching them.
Maybe they could even double their money.
Well, okay, I'll give them 50% of it.
Because I, and I see that the innovation cycle is improving.
The rate of change is improving.
Now you've built a massively valuable business.
Okay, we should end the recording for that portion there
and then start a new recording.