Summary

In this episode, Jon Stoddard interviews Ryan Tansom, who shares his journey from running a family business to becoming an expert in mergers and acquisitions (M&A). Ryan discusses the importance of shifting mindsets from focusing solely on annual income to understanding the value of a business as an asset. He introduces the five principles of intentional growth, emphasizing the need for clear financial targets and exit strategies. Through real-life case studies, Ryan illustrates how business owners can transform their companies' value and navigate the complexities of M&A. In this conversation, Jon Stoddard discusses the complexities of business valuation, emphasizing the difference between intrinsic and strategic value. He highlights the importance of clean financials for accurate valuation and the role of mergers and acquisitions in business growth. Stoddard also stresses the significance of training for entrepreneurs to enhance their financial literacy and strategic planning. Additionally, he shares insights on leveraging content marketing to build relationships and generate business opportunities, while advocating for incremental growth through effective coaching.

Takeaways

Ryan Tansom emphasizes the importance of understanding business valuation.
Shifting from annual income to asset value is crucial for growth.
The five principles of intentional growth guide business owners.
Identifying the right business owner avatar is key to success.
Exit planning can be a sensitive topic for many entrepreneurs.
Financial targets should include income, net worth, and business value.
Real-life case studies demonstrate effective growth strategies.
Intrinsic value and strategic value are different concepts in valuation.
Business owners often face confusion about their company's worth.
A clear understanding of financial statements is essential for growth. Strategic buyers may pay a premium based on potential returns.
Financial valuation should start with a baseline risk assessment.
Clean financials are crucial for understanding business value.
Mergers and acquisitions can bridge growth gaps for businesses.
Training helps entrepreneurs view their companies as assets.
Content marketing can create valuable relationships and opportunities.
Incremental growth is more sustainable than rapid expansion.
Understanding cash flow is essential for business health.
CFO services can guide businesses through complex financial landscapes.
Coaching can help entrepreneurs achieve their goals effectively.

 Watch the Interview:

Transcript:

Jon Stoddard (00:00.14)
Well, welcome to the top &A Entrepreneurs Podcast. Today, my guest is Ryan Tansom, runs a company called Arcana. Let me just tell you, he ran a company, $21 million, sold that eight figures. He's got a podcast called Intentional Growth. This has over 300,000 downloads. Ryan, thanks for joining the show. John, I'm super pumped to be here. I'm already excited based on the couple of conversations you had right before we hit record. Yeah.

Well, I like what you're doing because you're so far ahead of me of creating this audience around yourself and helping people by helping people and then spending absolutely no money on ads and then getting business and deal flow. Yeah. That sums it up. Yeah. So tell me, how did this start? Let's go wine back to the family business. And what was it?

How did you get involved? And then like, what was the responsibility? Like, your dad or whoever it was said, hey, start taking over. You're, you got to chart mine. So this is back, early nineties. My dad mortgaged our house, bought a quarter million dollars of old used Panasonic copiers. yeah. He was a copier, cap your sales guy. So he, he went off on his own to do that and then sold them all on the 30 day terms. And I said, like, kind of the rest is history.

He was one heck of a grinder and entrepreneur. we, so I was in the business, John, like, so like my way of working or getting the narratives when I was younger was like at nine o'clock, my dad would come home and I'd get the play by play of what happened. Like when he got the Canon licensing, when he opened up the next branches. like,

My whole childhood, John, was inside of that business. mean, I was doing meter reads back when before copiers were actually plugged into the internet and you had to have an odometer. I'd have to call people and be like, hey, what's your print volume so that we could bill you? And of course they'd lie and not answer and all that. anyways, I was in Cause I could come down and get you some copier. Yeah, exactly. What is that $3,000 an ounce or something? my gosh. Yeah. There used to be, that was such a lucrative business back in the day. It was ridiculous.

Jon Stoddard (02:14.485)
One of my biggest paychecks for income, not on any kind of other deal was like literally selling copiers, but worked in another business my whole life. 09, the crash happens. I swear my Graven and I were gonna go work for him, but all I decided to, because there was like nothing to do. He was very distant from the company. So essentially the Cliff Note version is John, I jumped in, had like a blissful eight months of like just selling, but then I was jumping into it at CPA and a banking meeting with him.

we lost a lot of money that year, just like everybody else. And then for pretty much for the years going forward was all about, Hey, remember back in the day when there was a bunch of money in this business. So anyways, it was a six year turnaround. So it was new year, like we sold a couple of the branches to different competitors for cash. We built a new ERP system, built up the managed IT services, got to this point where we didn't know what to do with the business. Cause we couldn't align our goals with the business's goals.

sold the company in 2014. And that just sat on my eight year track to, to where we are today of like, what the heck was that? How do I learn as much about and A as possible? So I can take control over and I can help people essentially give them the fishing rod so they can learn how to fish. They can write their own narratives. It's kind of like what you're doing in your show, right? Like and A is a completely different way of growing a business and thinking about business than just revenue, which is what so many people just focus on. Yeah.

I get a lot of reach outs. can't remember the marketplace that, if you're looking for podcast guests, you know, and I, my title is top and A entrepreneurs. And I get said, Hey, I think this guy would be a great podcast guest on your sits. Like, well, I only have one criteria and that's you grow your business through acquisition. Would that be the case? No, we just do organic. Well, gets to the, you it's, know, what the difference is John, from what I've seen from all the people that go through our training or the hundreds of episodes that I've done is.

The moment someone shifts their mindset away from solving for annual income, which my dad and I did with the $20 million business, which how much money can we take out of this company every year? And they shifted to, hey, what the heck is this thing worth? And how do we grow the value of this asset? It's a completely different game. It's like going from checkers to 3D chess. And it takes a special like circumstance or an experience or something.

Jon Stoddard (04:34.573)
to get someone into that new paradigm shift where then they can go, hey, I can actually buy a company with a certain amount of capital and grow the entire portfolio of assets instead of just launching a new product line. It's a completely different way of thinking. How many of the deals have you worked on like that now? So the way our business is structured. we had a bunch of deals in our company. Like I said, we sold a couple of the branches, sold the business in 2014. And then my partner has been through dozens and dozens of acquisitions and

Our business, we've got a training program where we've had hundreds of business owners go through it, teaches about valuations and exits and all this stuff. And then a fractional CFO business. So our CFOs will run through, do acquisitions for our clients, go through the eventual sale if they want to sell, whether it's an ESOP private equity. So, I mean, I'm not directly involved in a bunch of deals anymore, but it's more of like our CFOs, if they're on a team or a company, they each have about four or five, they'll do the deals.

for our clients, some involved in, I'm seeing them all day long. Yeah. Well, I mean, that's part of moving up and management, you just like, you set that structure and template in place. Well, it's fantastic. I you get to see inside of the financials of all these companies, just like a P firm. I you really think about it. How do you, the question I have for you is how do you find a willing receptive and then somebody that actually puts the time in,

you know, to say, okay, I want to grow and this is what I want my evaluation to be at the end and have a life change in exit. Who is that person Avatar looks like?

That is the golden question, isn't it? That's the golden question. mean, if I could just identify this, I can go out and look for them, right? So we can go out and find like a five minute tangent if you want, because it's a tangent I think is valuable for this point is I tried for six years to figure that out. And it threw like, I went and got my value building certification, certified value growth advisory certification. got ex- Is that John Warlow's group?

Jon Stoddard (06:41.995)
Yeah, one of them is him and then Ken San Gennario and the Exit Planning Institute, all of this stuff. And then I was consulting. Here's what I learned after burning through a lot of cash and trying to figure this out in a lot of time is the words exit planning pisses a lot of people off because they don't, they don't, think inherently they know that their company is not worth what they, it should be worth. So they're not ready to even think about it, talk about it. What happened was, John, I was sitting there at our program before it was called intentional growth.

Our book was on someone's desk and he goes, you know, I can't even put your guys's training material on my desk in my office. Cause it's a growth and exit planning. I was like, my God. I'm like, we, just can't like they can't even, I had people asking to like send me emails from different emails. I'm like, this is not about selling. This is about growing a valuable asset that gives you choices. So what happened was going back to your question, we went through the story brand framework with Donald Miller a couple of years ago, my partner and I.

And it's, a, we rebranded it to intentional growth because it's about shifting your mindset to grow a valuable asset that creates choices for you long-term. So what happens is the people that, I mean, when we did that, John, it went from like, kind of like, like fire, like fighting ground, essentially a hand-to-hand comment to exponential growth because entrepreneurs that are trapped, they wake up every day and they have the same repeated problems, same friction, same tension.

They know that they're not progressing. They know that what their company's doing right now is probably not worth enough money for them to be okay. But they don't know where to turn to. They're talking to different advisors and really universally what it is, they don't understand valuations and what creates value. Like if you and I bought a piece of commercial real estate, it's kind of obviously what you need to do to grow the value of that building. In a business, it's not an easy roadmap. So the whole goal is to get

that person, that avatar, when they're unbelievably confused as shit, asking lots of questions and frustrated because they're in Vistage, they try and EOS, they're working with other people and they still know that there's like, they're not moving towards the goals that they want. Yeah, I'll tell you my experience, I reaching, I reached out to a lot of people on LinkedIn. That's kind of my, where I find- I saw that, yeah, But, and you can talk to somebody that's been working in their business for five years and it's-

Jon Stoddard (09:04.845)
tube and a half or $5 million. And they said, you start having this conversation about how they can grow 50 % or a hundred percent, it breaks their brain. So it was like, I, that is too early, which was my point in this conversation. It's almost too early because it's going to be another year before he understands like, well, if I'm going to have an exit, I got to do all of these things. be big. A hundred percent. And it's not too early for anybody. I we've had people

go through our training and there's it's five prints. It's a framework based on five principles that we created just how to think about this stuff. We don't tell anybody what to do. It's like, Hey, here's how all this stuff works together. And there's a framework for that. And so we've had people from like four, four or $500,000 in revenue to 190 million in revenue go through our training. No way. Really 190 million revenue. Wow. mean, small, very lucrative business, but like still their question was, you know,

How do I, what is this thing worth? How do I grow it to be worth more? And what are my choices? I mean, he's in essentially in the process of building a family office. So that's a whole different kind of end of the spectrum, but like, regardless of whether on the timeline of selling their company either like tomorrow or in 20 years, we've got a couple of people more, more towards my age where like they've got one guy he's acquired, I don't know, five companies in the last few years and he's got, you know, four pieces of commercial real estate and he wants to be worth.

$40 million by the time he was 50. Okay. So where did he start? with a lot of questions like, what are these things worth? What am I supposed to do with them? How do I actually, how do I use my cash? How do I take my growth rates and like what I'm going to grow my with my income statement and then tie that to like, what does that mean for cash? What does that mean for my distributions? What does that mean for my ability to buy other companies? So they're like, after like all of that, then he's like, well, huh.

I'm going to create a holding company. I've got nine entities underneath that. They have to working capital at all. The capital flows to the top and then they acquire more companies. So it was really to your question confusion and disappointment with the lack of meaty answers they're getting from other people. all these, know, I mean, I was listening to a couple of your shows, like entrepreneurs have a vision and they've got really good ideas.

Jon Stoddard (11:21.793)
But it's very difficult for them to take those ideas and actually put those into the three financial statements and project them forward to actually understand what the heck it means to them financially. Now and into the future. Yeah. Well, there's this, I had a great interview with this guy and he says, so if you start here and you want to go here, like how do I, what needs to be true for me to get to this pot? And most of the times you don't have the map to get there. So you have to go start asking a lot of people who have been to a hundred million dollar company to get there.

and work backwards. But hey, you just can't knock on somebody's door and go, hey, you're doing a hundred million. Can you spend some time with me? I agree with that last comment. And you know, that's a good reason to start a podcast, there's actually doesn't need to be that complicated because every company has three financial statements. Every single company, Apple does, I do, so do you.

income saving, balance sheet, cash flow statement. If you actually tie those together and you start with the income savings, say, what kind of sales do have to do and what kind of line items, what is the cost of goods of each of those line items that need to be after all the stuff that I do, how much cash ends up at the end of the day, end of the month. And then if I take my strategies and I put those in, I mean, it's just a bunch of assumptions. We started our business three years ago and well, we're exponentially growing and we have, we've hired nine people in the last,

eight months or maybe it's been seven anyways, all of that is built out from the income statement from the actual sales and capacity planning to say, if we hit these numbers, then how do we build to get there? So we don't run out of cash. Cause like I did a presentation for Vistage a couple months ago, John, very large companies. mean, this group specifically was a couple hundred million. So raise your hand if you can.

see into the future, all three statements tied together, your growth rate, your distributions, your taxes, and the value of the business and the net proceeds, and return a return two years up, not one hand. And so those are big, sophisticated groups. Who was the, in the audience, what was the role, like CEO or president or founder? third generation, mean, or president, one president, actually the most sophisticated group, person in that group.

Jon Stoddard (13:37.901)
The president was a non-family member and his comp plan was completely tied to working capital. was like, that's interesting. Yeah, that's scary. Exactly. Like working capital is in a ship sitting off of LA. All right. Yeah. Maybe his comp plan might be a little hard to execute, but I think going back to your point of from zero to a hundred million, how do I get there? Yeah. It's going to be a combination of, you know, a good business and a good strategy. And then if you're going to think about through acquisitions, an investment thesis,

And then how are you going to fund that growth to get there? I mean, it's really just, it's not as complicated as people think it is. Let's go back to the five things that you guys talk about. Like, what are those five things that you work on? mean, so we, call them the five, the five intentional growth principles. And the reason I started creating these about six, seven years ago, John, is I'd be sitting down consulting with someone that's looking to sell or looking to buy. And I'd be like, they, they, I'm like, you just don't, have to like,

take a pause and step all the way back and go, okay, here's how all this stuff fits together. So then we can have a good conversation. So these five principles that go in order and the first one is your drivers. What do you want from this business and why legacy community, disrupting industry, family? don't care. We have to really. Are those similar? Like after talking to a thousand people, are they almost the same thing? Well, everybody's got different, like you might be different from me versus someone else, but like,

the process to think about it and reflect, I don't care what you want, but you need to determine what you want. Otherwise we can't get a deal done. And we can't grow this company. Second principle is your- Well, let go back to that. Is it ever too late to say, well, know, somebody's got, you know, you're 60 and you want to dunk the basketball. Well, maybe not, right? I agree. But I'll tell you what, if you had, you know, stage two cancer, you want to know what stage two or stage four. I don't know, man. would like, unless you can

look up in the mirror and see what's going on. And actually, let me tell you an exact example. I'm going to, tell you a story after I tie these all together about a guy that's in his late sixties about what he's doing about that specific topic. So second principle is your financial targets. are three of them. What is your target annual income, no matter what your ownership structure is. So if it's 200 grand and income for life, okay. Then you've got your second target, which is your net worth outside the business.

Jon Stoddard (16:05.695)
It's just because that matters on your choices. If you have nothing outside the business, you're going to have to maximize certain things to get to your wealth. The third financial target is the value of your business net today and always measuring what that net would be. So enterprise equity. then truly, if you sold it today, you don't have to sell it, but as an investor, if you sold this, what would it be worth? And you can track and measure that. So you have an idea of that gap. So how, how, how long do you have to go?

And let me ask about the valuation. Do you value that you have your skills tools to value the business today and say, here's where they're at, or do they do that themselves? Yeah. So the training, we just go through case studies. If someone has a one of our CFOs involved, we build the entire financial plan with the statements, tie in the valuation, roll in their strategies to the future. So like the CFO is the actual executing. yeah. if you think about principle one, what do you want?

Principle two, what are your financial targets? Now we're going, okay, what is the possibilities with this business long-term? So that's where exit options come into play. And we bucket them in general into five and there's an infinite amount of ways to do this. But we just said, okay, like categories that have certain attributes that are similar. The first one is internal, family, partners, family partners. mean, you got any different ways that you can do internal transfers, management buyouts.

Then there's the second option, which is search funds and acquisition entrepreneurs, which you, know you've had, I think Walker Dible on the show. And I mean, I've got, we got a bunch of people that we know that are in the acquisition entrepreneur space. Then there's the third exit option, which is ESOPs, selling to your employees through a stock ownership plan. The fourth option is private equity. And then the fifth is strategic, like a competitor. you know, half.

the strategic are backed by private equity nowadays. But anyways, these five give you insights on deal structures, how the value of the companies can be valued, your role of your job pre and post closing. So you go, what do I want? What are my financial targets? Okay, here are my options. And as people round the third principle, going, got it. Now I want to shift my mindset to grow value, which is principle number four. Yeah, that's the customer. The possibilities are the customer and customer in mind.

Jon Stoddard (18:30.893)
Do you guys ever, does it ever come up where I said you're working on ESOP? The guys goes, I really wanted to give it to the employees because I love them. They've been around 20 years, but was there ever a case where you're competing using one of these situations to find out to get the best price for this business owner? Yeah, it depends on what they want. Around that, around the fifth principle, and then we'll tell that story and then we'll dive into what you just said.

The fourth principle is increased value. And that's by creating sustainable, predictable and transferable cashflow. So you're de-risking your cashflow to grow the multiple. So, and you're rolling your strategic plan into your financials and you're de-risking that cashflow to grow the multiple by de-risking the company. The fifth principle is your team of advisors. So that way you're surrounding yourself, like with people like yourself that get it, that have been through deals and that can optimize the tax plan, the estate plan, the deal structure, the financing.

but you're the one telling them, this is what I want versus relying on everybody else to tell you what you want. So here goes the story. So we had a, we had a gentleman, he has, but a $15 million manufacturing firm goes through the training. He's got 70 employees own the company for 30 years. He's like Mr. Like culture community, two of his daughters in the business, two of his daughters out of the business, his wealth manager said, Hey, by the way, the companies were 7 million bucks.

How many times you've seen this? Where did you get that? It's the first question. And tell me how you arrived at that. Yeah. Which dirt did you pull out of it? And so, well, after going through the training and him like undergoing the understanding, the principles, he said, well, I've got about 1.1 in EBITDA. So it's worth about five and a half million bucks debt taxes. I'd only walk away two and a half million bucks. That's $5 million short.

than his $7 million financial freedom number that he was told. So he went, shit. because he, first principle drivers is he was like community, legacy focused, family. If he sold, he'd have to do what I did, which is maximize purchase price and sacrifice a lot of your first principle drivers, which makes you unhappy. might have satisfied your second principle financial targets, your wealth, but at the cost of everything that you thought you were building for. So he said, hell with that.

Jon Stoddard (20:57.197)
I know he shifted his mindset. was 67 at the time. he's in a seven. Well, let me ask you about that. Do they go through the five stages of grief when they go? It's not worth 70, it's worth five or six. It's really painful to watch people's face, man. I've had, you know, who, who is victim to this a lot are doctors and CPAs and just different things. There was a guy that was a doctor going through our training, 15 employees, physician, and everybody was supporting him. And he got cancer actually in the middle of our training. No joke.

And he found out, mean, this thing's worth four and a half, five million bucks. And I'm like, well, dude, it's you. It's you and 49 other people. Like, what am I supposed to do? I'm not a doctor. Right. And so just like, and hadn't saved a penny for his entire life. I mean, a lot of really cool stuff. And so like, it's, painful to watch that because it's kind of like us just showing through cases. Like here's how it all works. Like, sorry. mean, like you could maybe get a huge purchase price out of this. you, know, got a strategic buyer.

pinned a couple of people against each other, but there's like, hopefully that works because there's not a lot of plan B's, but like, I want to give you a bit of going back to that story. He said, okay, this is where that shift in the mindset happened. Like I was telling you about, he said, instead of focusing on top on revenue, I'm going to grow my value of the company. I'm going to increase my EBITDA from 1.1 to 2 million. I'll then go, I'm going to take my enterprise value from five and a half million to then 12 based on de-risk in the cashflow increase in the multiple.

and he paid down one and a half million dollars in debt in the first 12 months after going through the training. Did that come from cashflow or did he issue equity or something or what? focused on it. He focused on paying down debt and then he was investing in ERP systems, his management team, the strategic plan, the financials to de-risk his cashflow to make it more sustainable at the same time. So invest in the right things, pay some debt down. And then over his goal was I want to do an ESA.

in year three and literally went from a five and a half million dollar valuation at 12, he increases EBITDA, increased the multiple, pay down some debt. It's like he's pre-engineering exactly what he wants because he knew what he wanted and he knew how he was gonna go do it instead of just waking up every day and just fighting fires and not knowing what they're doing. yeah, you know, I want to sell, right? How many times people call me and they're like, hey Ryan, I just want out.

Jon Stoddard (23:24.877)
Like out of what, your job or your asset? Or like, are going to jump off the bridge or what? What do you want out of Yeah, exactly. And they don't even know how to answer it. I'm like, well, if you want out of your company, that's just finding a way to monetize that. And if you're doing a million dollars in even time clipping coupons, I was listening to one of your shows, like why, why would you want to sell? Well, it might be industry risk. Well, that's an investor thinking about why you want to diversify. Usually nine out of 10 times it's they have a job.

a lot of stress, they haven't built a structure where they can be the investor. It's, they're still stuck in the company. So they want out of their job. I mean, it's almost, it happens almost every day. like you name the size companies, it doesn't discriminate. It's usually a lot of it is dictated based on the cap table and who actually owns the company. Yeah. I have to tell you yesterday, I had a conversation with a guy I've known for a while and he told me what his EBITDA was and he wanted a 25 multiple. go, I, I,

I don't even budge, I don't even like flinch anymore. like, really think somebody is gonna take 25 years to pay off this deal. No. I know. Yeah. I know. It's a, you know, and I'll introduce a topic if you want, is like how to think about value and valuations, which I have seen very helpful for these entrepreneurs that are becoming &A entrepreneurs is, so there's two different ways to think about it. There's what we call intrinsic financial value.

which is what is the value of this asset based on the risk of its cashflow. So if it's a million dollars in EBITDA and you're saying, hey, it might be worth a five or six, okay, based on the cashflow, based on me owning it as an investor, then there's the, that compares to what we call transaction strategic value, where it starts at the financial value, right? Like if you're gonna come buy my company, it's gonna start at like, hey, I know that I could do an SBA, an SBA loan fund this or a management buyout or an ESAP at this valuation.

But if there's a strategic buyer, like you were talking about pinning people against each other, they might pay a huge premium because of what they're willing to do with that business and how they get the return. But that's a spread between the intrinsic and then the strategic value. The opposite of that, John, I see all day long too is, second generation where the family owner or the parents don't need the liquidation event. So they discount it using the IRS rules of lack of liquidity and lack of control up to 35 % and then gift it to the kids with the estate plan.

Jon Stoddard (25:48.193)
but it started at a noble number. Like it started at this financial valuation based on the risk of the cashflow. And then that's your baseline. If you focus on engineering that financial value to what you want, then everything in the upside is just choices. So can be sitting at a deal table with you and just going, nope, don't like those terms. Sorry. I got the coupon, clipping coupons. The, let me give you this example again, is he's got actually three different cash flows like, they're

uniquely separate, but they relate to each other. It's like this one cashflow made by this product and this cashflow from this one made by this product, but it's not necessary because there's so many other options out there. So he's gotten offers from some companies that just wants this cashflow and they kill these two others. Or they, you know, there's another company that made an offer, just wants this one. they're like, I don't care about those other two. How do you

How do you work with somebody that's done that? So we have tons of clients that have that set up. And I did it, our old business, had copiers, managed IT services, document management, all different, you know, essentially P &Ls that rolled up to a consolidated P &L. And like I mentioned at the one client, he has nine entities. And the reality is every one of those entities needs to have clean books based on the operations that they're doing. once, sorry, one sec, my dog is like losing her mind. Can I pause this for

Yeah, yeah, yeah, yeah. Let me pause this.

So like I had like an example I gave earlier that company that's got nine entities or like, mean, like my old business that had the three, every it all starts with clean financials, John. And I was a copier sales guy. Like the fact that I'm sitting here preaching financials, it's really where the game is played and what the levers can be pulled. So if you have every one of those entities that have a clean income statement and saying, okay, what money is going, like what sales are going back and forth?

Jon Stoddard (27:47.275)
It's where everything gets convoluted that you can't see as each thing stands alone, what is it worth based on the risk of the cashflow that is coming out of that. So if you have a holding company and they've got different services that are getting used, make sure that you're putting the costs of goods or the costs of the SG &A according to what you're doing. then- Whatever the cashflow is for that business. Yeah, exactly. So like-

I had three business units and they all shared a bunch of overhead, but I had the correct allocation of the overhead to each of those divisions. And then yes, like one of my company, one of the divisions would have the IT services from the other one, but they had a contract. Well, it was just essentially showing the due to do for, not the due to do from, but they had a management agreement back and forth. Point is, so then once you have that cleanliness there, then you can say, okay, well, let's say there's three assets. Like you said, let's say one's worth one, one's worth two, and one's worth.

four alone, but maybe the whole thing might be worth eight. And one comes in and says, I want the one that's worth two. Okay. Well, how does that? Let let me stop because do you think it's, you know, it's three different distinct units. Do you think it's worth some kind of higher multiple or just, you know, this is once you said four, two and one. yeah, I'm following you. Like, let's, let's take the concept that I have through at us is intrinsic financial value versus strategic. Right.

So if we're talking about the risk of the cashflow as the consolidated report, the consolidated financial say, okay, let's say it's 2 million in EBITDA and it's combined of three different entities. That 2 million of EBITDA has a certain amount of risk in the cashflow. So let's say we were going to do an ESOP because an ESOP is based on the financial risk, this kind of cashflow. say, okay, well the risk of this whole thing as is, because the ESOP just wants the cashflow, right? So like.

we're going to yield the valuation that we want based on the risk of the cashflow and the story that we're telling. So great. The math makes sense. The debt payoff makes sense. The warrants makes sense. And the valuation makes sense based on the risk and based on the cashflow. then third party comes out of the woodwork and says, well, I want the second company. Okay. And they're willing to pay something, but they're willing to kill the other two. it's like, well, how do we compare those two? Now we have a comparison. Well, if you're going to do this, that, you know, let's say you take

Jon Stoddard (30:03.981)
700 grand of EBITDA off the 2 million and it's only 1.3. That might have a lower multiple and more risk because you got rid of part of it. Okay, so was there enough value left over after that strategic bought that? It's just, you're kind of just putting the puzzle pieces together and you say, okay, well, maybe that third party is willing to buy one, I've seen this before, where they buy one division because they need it so bad. Cause the transaction strategic value for them is so high that they're overpaying based on just the financial value.

But that's their deal, right? They're in a rollout. Yeah, yeah. They could say, you know, we could just pay, take your product, your cashflow and put it in our product line and we will make our money back in a week. Exactly. so they might like, and so yes, you and I might, that actually might go back to your 27 multiple. That could happen, but it's like a hole in one. It's like that all the stars aligned for that to make.

Well, the reason he reached out to me was after he got these offers. So I know that he didn't like the offers of, know, separate somebody separated in his business. And I got another client where they, they've got a unique set of revenue streams that all create one really nice stream of cashflow. Trust me, this is a great business. And there are a bunch of, well, we had, we've had four interviews with different investment bankers. None of them get it.

I mean, it's in the online space and they're just, they're old school. They don't understand how they all compliment each other. And it's like, yeah, these people don't get this, but guess what? The ESOP investment banker totally gets it. And he's like, wait a second, you've been generating this much cash for that long. And this is exactly where it's going. This is a no brainer. Yeah. So you just go down this list and go, well, it's probably not a strategic buyer because they'd split it up and throw away. It's probably not a private equity, but

If we can find a search funder or internal or some guy independent or an ESOP, it'll work. Yeah. And my goal, get back to your one of earlier points is I want everybody to have multiple options. And if you build the value and you concentrate on acquisitions and organic growth, the de-risk that cashflow, you can always do whatever sale you want at the discounted cashflow. You don't have to wait on the strategic lucky pull tab or- Crazy multiple.

Jon Stoddard (32:24.053)
Yeah. Like in bot, bot, if you get that offer, let's say you were the strategic coming at me and I'm sitting here going, Jen, this thing's worth 10 times my EBITDA because look at what I've got going here. So you're going to pay me way more than that. My five year plan is this will be worth this much. You better pay me more than my five year plan. Otherwise we're not having a conversation. Right. Just move on. Right. Yeah. I, I, with our, with our CFO clients, we got people who will, we have this ongoing file, this whole like model that we have.

And it'll be like, sign the end of date, send it over here. We want this valuation. Here's the five-year forecast with all three statements, internal rate of return. If you don't over exceed this, like we're not having a discussion. It's just that simple. Yeah. Let's see, let me go back to the part where, you know, somebody is short where they want their goal are and organics, organically, it's not going to happen. So you're to have to do it through &A. What do you guys do to help them do that? I mean, do you go look for companies like

These are the best, you need IP, you need distribution, you need to go buy a competitor, whatever that, you know, a spoken wheel is. So, yeah, good question. So the way that our model works, they go through the training, then if they don't have to have onboard a CFO, but if they do, the CFO will onboard, build that model, like you said, that three statement model to show the gap. Yeah. Then the next question is how confident are you in your plan? And then they do what you just said.

there's no way I can get there. can't do 40 % year over year growth. Yeah, not going to happen. get it. HVAC company could say 10 at most 15 % per year because it just doesn't, no matter how much you spend locally on radio ads or whatever, you're just not going to. 100%. Yeah. And it's harder. It's hard to scale that way. So then you say, okay, so to your question about how do we get involved? So the CFO is just like a normal CFO. Like all of our CFOs that came from like private equity, done a bunch of &A. like they're

verse in this whole world. So the goal is they're connecting all the dots with the advisors and the people. So we have a partner that does strategic planning. we build up, we build out the model. And then if they're not confident in their plan, then they should go do a strategic plan, roll that strategic plan into the three financial statements. And part of that strategic plan is going to be mergers and acquisitions, like you said. So then it's going to be, what is our investment thesis? Who are we going to target? What geographic location? What is going to

Jon Stoddard (34:49.261)
diversifier cashflow, de-risk it. So don't just go like, for example, we had someone in the automotive industry and it's like, don't go buy more companies in that industry because like, look at what's going on with microchips and supply chains, like bad idea. So that whole strategy is enrolled together. Then it's our job as a C or our team's job as a CFO, find people like you work with the CPA, work with the lawyers, work with the business owner. A lot of times a business owner is helping someone like you.

knock on doors and talk to business owners, but the CFO is doing the CFO's job and our clients just don't need someone full time. You know what Like that's why they share. If you help somebody acquire another company, let's say, you know, they're doing 7 million and they go, well, I just found out the direct competitor next state over wants to sell and we can get them for 6 million and I'm at $13 million. Do you take a piece of that or is it still just training?

So it's the training and then it's the CFO. goal is John, like I felt like everybody was making more money than us when my dad and I were doing all this stuff. So our goal is to help protect the owner's equity at their table and say, to go back to your point about if that gap is there and let's say they're doing a million in EBITDA and then we find a company for 500 grand in EBITDA. Now we've got 1.5. It's just the traditional multiple arbitrage that you're talking about, but also

not just arbitrage, but a good integration plan, which is what my business partner used to do at the old PE firm that he was working for. It's like, we buy all these companies, what do we pay for them? What are we doing first? How do we roll in the payroll, the ERP system, the accounting system, the estimating tool, all that stuff, the CRM goes into the mothership and then you keep going. So it's really- You guys trained the, know, grown his $7 million company, took 30 years, never made an acquisition. You teach him how to-

integrate a company. Yeah. I I believe John, that most business owners, specifically the ones that are willing and open to do training, right? Like, so like, let's think about this. This is not my, my stores aren't, aren't applicable to the whole marketplace. Cause there are people that have their head in the sand and they're never taking it out. Right. Like, that's generally the majority, right? So the people that are coming to our training are the people kind of like, go hire someone at the, trainer at the gym. They're going, I want to get better. they're disproportionately.

Jon Stoddard (37:12.525)
proactive thinkers. And so they're excited to do this. I mean, when people go through the train, like I want to buy assets and sell stock. That's like the one of the like phrase that people come out of the train with, it's &A is a two-sided game, right? It's just changing the nature of how they view their company as an asset. Then the...

every person that comes through their entrepreneurs, their visionaries, they got ideas, they know what competitors or product lines, they have all this, they just need the financial roadmap to make sure that like they don't go broke while they're doing it. And I sat there and I showed this Visage group I was saying, Tonya, is like, you can have a positive net income in a month and a negative net use of cash. And they just look at me and I'm like, you can grow too fast. Yeah, yeah. And so like, and the goal is- Whatever shows on your income statement.

doesn't match what's in your bank. And everybody knows that. Like my dad and I, I like at tax time, you're like, son of a, what's the bill? Where's that coming from? We're growing. How do we write that bill when there's, know, but the income statement shows this like, well, yeah. And the CPA is going, you did good, John. So I want to go to how you get deal flow for, they get customers in there. I mean, the, how did that,

transact from just doing this podcast. Cause I do a podcast. I'm at 53 episodes. You've done over 300. How does that help? And, know, I, there's a book that I read years ago, Janet led me to thinking that this was a good strategy before everybody was locked in their basements in 2020 and doing it. And it was this book called killing marketing. think it was Joe Paloozy or the same thing.

Anytime somebody recommends a book, I write it down and buy it, go buy it on Amazon. Here's the general takeaway is that you should take marketing out of your income statement as a cost and then create a content, some sort of business that people would pay for it because it's so valuable. So good example would be as like Lego is they have movies, they have like the Mall of America displays and they sell plastic blocks, right? And so when I heard this

Jon Stoddard (39:29.057)
book and then also the Seth Godin's book, This is Marketing, where Seth Godin says in that book, which I really enjoyed. And this was like five years ago. And I went down this marketing flashy marketing rabbit hole and spent so much money. yeah, you will never stop spending money if you get caught in that rabbit hole on Amazon and marketing. I did, man. At some point you got to cut yourself off like, dude, you're addicted. You just got to execute now.

Yeah. Well, that Amen to that. And so Seth's book, this is Mark. And he said, build your thousand disciples where if you stopped doing what you're doing, they would go, where's Ryan? That's it. It's so damn valuable. If people care so many people just produce shit. And it's like, I don't know. Like from day one is I'm like, I'm going have a very highly valuable conversation once a week. That was, that was it, man. And so to your question about how do we leverage that now is

I've learned a lot. have good relationships and connections from the people I've interviewed. They've introduced me to other people. I've got business partners and clients and stuff that have come from the podcast. I grew up as a copier salesman and like, so like I go do a presentation. I have a highly valuable presentation. And then like, Hey, by the way, if you like any of stuff, you can listen to me for 300 hours and then judge whether you like me or not. Honestly, I don't care. mean, I do care. want people to like me I want to provide value, but if it's not a fit,

You can listen to me and get to know me without having to write a huge check and risk, you know, failing at your projects. That is a Frank Kearns, like you're pre-framing yourself before they, they're forming an opinion of you before they even meet you. I listened to 300 hours of your podcast. Yeah. mean, I, the amount of times people have called and said, I've listened to you for two years now. I'm like, I'm like, they think literally John just come in and like, they know me. I'm like, I've never talked to you before, but like,

So to your point is now it helps get speaking gigs and now helps, you know, work with other channel partners, clients, but also to your point about deal flow. mean, because we have a very specific model and this is where we could, you know, offline, we can talk about ways to refer different people to each other, but like, because we've got training and CFO services, people call me that are looking to sell right now. We're looking to buy not ideal clients of ours so I can push them to other people. So I get people every day. That's a broker. Right. Right.

Jon Stoddard (41:51.337)
It's just a LinkedIn inbound or whatever it is. And I'm like, okay, well, you need this person. You wanted this person, a wealth manager over here, an investment banker over here. Like we're not any of those things. We have two very distinct, we have a path for people that are looking for like, you know, training and then, you know, acquisitions, and then eventually an exit at some point. That's, that's our perfect fit, but a lot of other people consume the content, which makes good relationships like yourself say, like, do you want some referrals? And then it builds other relationships. Yeah. I, I love it. do you have any,

I'm good. This is really curious because I'm following this new guy called Justin Welsh, who have you seen him? he just sells this $150 product, how to use LinkedIn and like copyright. And he sold, I don't know. Now it's like 5,000 pieces, a couple million bucks, but it's just kind of flipped the funnel on its head where you had the click funnels guys, where you go through this funnel, upsell, cross sell, sell. He just goes, look, there's 800 million people on LinkedIn, right? Sell a $99 product, get it.

couple of 5,000 of them, and then at some point later, sell another product. And then they'll, all of those 5,000 people will come to you and want to do business with you. I mean, so our flywheel, so we have our own strategic plan. built into our financial plan is we're building our company. And the first part of the flywheel is create highly valuable, timely, relevant, free content. Like the podcast and all the videos that we have, which leads to paid training. I mean,

paid training, John is 1000 bucks for do it yourself and three grand for four calls with me and accountability calls over a month. Then the, so that's paid training. So it's not much, right? When you think about the people we're talking to, then that leads to CFO service clients. And as we have CFO service clients, I get to see inside of all of these companies of truly what they're worth, what's going on, what their problems are that lead us to build free, highly valuable, timely, relevant content to help us create.

new training products. like on the docket for 2023 is a financial literacy bootcamp that literally dozens of our clients and customers have asked for. So it's gonna be five grand two days. This is when you funny when you say that, it was like, I'm running a $10 million business and I need some financial literacy. Right. And it's so true. I look, I, when you say preaching the choir, I used to work for do it business developer into it. saw thousands of income statements, cashflow statements, balance sheet. tells a story. I don't even have to see you.

Jon Stoddard (44:19.105)
hear your story, those documents tell me a story on how you're your business. 100%. And like, and this is where I I do that presentation. And we wouldn't have gotten to this point without the flywheel I just talked about, which is the podcast and the paid training and the CFO clients. And then everybody's saying, my God, can you guys create this? Sure. We'll create this. And we've already got a pretty much prepaid for, but the, it's an obvious thing. And the amount of times going back to your point about the story, entrepreneurs.

through acquisitions, through their strategies. I'm truly confident that entrepreneurs and business owners know what they're doing and they can see clearly the vision. Yeah, I would never underestimate their- They can't connect it like you said though, financially. Cause I said, do you want to be in charge of the story that your business is telling or not? Yes. Like, I mean, me, when we were trying to turn the business around, I'd sit down and another bank would come in and I'm like, all right.

Here's the whiteboard and I have bubble charts and like, here's how the entities work. like, and then a bank would leave and I did that 17 different banks. mean, like exhausting versus being able to understand how the numbers work and then tell the story and say, see, told you. by the way, if you're questioning my execution budget to actual every single month was in one within 1 % of each other. I can predict the future and I execute like hell. And here's the story.

Yeah, and that's because the desire to go to a next level, let's say the plateau, right? And then they need a new coach to go to the next plateau. It's like somebody told me this, you know, Michael Phelps, 21, 20 plus, you never had the same coach, right? You have the coach when you're in grade school, middle school, high school, college, and an Olympic coach, all different coaches, because they expand your mindset a little bit.

100%, I just interviewed this woman that's a high performance coach for entrepreneurs and athletes actually on the show. And like we as human beings can only like push it forward really a few degrees. We can't like reinvent ourselves completely tomorrow. I mean, it's just, it's like almost traumatic, right? So like to your point, it's like, how do we incrementally get better? You can't go from a million to a hundred million dollar company tomorrow. Like this is where like, think private equity will at some point.

Jon Stoddard (46:31.691)
the industry will have a reckoning where like, mean, I, you many times I talked to these PE firms. Well, I bought 17 companies in 24 months. And then we just handed this big flaming pile of shit onto a strategic buyer that bottle zero systems are integrated zero culture. Like it was like, great. Like all that worked in the spreadsheet, but you have to like actually do it. like my point about that is you can, on a spreadsheet, you can go zero to a hundred real fast, but like, then there's real life where you have to like incrementally get better.

And then you would stay, you're essentially constantly building a new equilibrium. Right. You're like, so this is my new habits, like kind of the atomic habits, right? This is, you ever read that book, atomic habits, James. But I'm writing it down. He calls it a habit stacking. So once you have a really good routines and habits, you just start stacking shit on top of each other. And it's a lot easier to continue to execute because you're not reinventing everything. Like, I mean, I want to, a of times I hear people like we're on the 70 day challenge.

And they tell me what they're doing in 70 days. I'm like, you're reading a book a day. You're doing this, but the things with your workout and your diet and your medicine, you're going to keep any of that shit after the day 70. Like how much of that stuff you want to keep once you rather just slowly get the right stuff to have like an actual change over time. Yeah. I, I, Ferriss talks about that smaller achievable goals, know, precursor, small wins are precursors to the big ones. that's where they, to your point about the coach, making sure you identify what is your weakness.

help that coach get you up to that next rung of the ladder. Yeah. Is there any people you just turned down aside from the fact that they, you know, they, Hey, I want to exit now, but the personalities where you have to match, because we're in this stage of the industry where you just want to pick people you like and trust. want to do business with. Yeah. In the training, doesn't matter. mean, what, I mean, people can go through the training and we want everybody to learn.

for the CFO services, you're absolutely right. The people that, like, first of all, I'm recruiting what we call unicorn CFOs because they were in private equity making a bunch of money or whatever, working 80, 90 hours a week. And they're going, I want to make a difference now. Now that I've made my money, I wanted to go in and help really move the needle for people. So they're coming and working for us to make a difference for others. And their currency, oddly enough, even though they're highly paid,

Jon Stoddard (48:54.089)
is they love affirmation because they love being able to help people. And so when people don't listen, they hate it. Honestly, if you think about a trainer, coach, I was training, I'm like, dude, John will walked into the gym, smoking a cigarette and eating a Big Mac again. damn it. Like, we going to, like, are we going to make progress John or not? Like as a trainer, I want you to succeed. And if you're not, you set your goals and if you're not willing to do the hard work to help get to you to the goals, I don't want to help you.

And that's kind of the way that our CFOs think. Beautiful. Ryan, up on three minutes before an hour. So I really appreciate the time being on top &A Entrepreneurs Podcast. Thank you so much, Jen. It's been a blast.