Selling 3 Companies for $50 Million By The Age of 29 | Ep 74 13:13

If you're thinking from an investor perspective, they're just thinking, am I going to recoup my investment? And how risky is this? And the less options you have, the less options you have proven out to them, the less likely they're going to want to buy your business.

How do you create an unshakable business? I crossed $100 million in net worth by the age of 28. Now I'm growing acquisition.com into a billion dollar portfolio. In this podcast, I share the lessons I've learned in scaling big businesses and helping our portfolio companies do the same. Buckle up and let's build.

What is up? I want to share with you what I wish I had known before selling a business, which is it's really interesting because this past year, we actually sold three businesses. We sold a software business, a products, physical profits business, and a service business. And so it's been nuts. And we did all this because we wanted to consolidate down to just our holding company, Acquisition.com, and really focus in there and have practice what we preach, which is focusing.

And so that being said, I wrote down seven things that if I had known when we first started the business, I would have focused on more than. Because I'll tell you this, which is when we started our business, I remember someone saying, one day you might want to sell. And I thought to myself, because I'm in uninformed optimism land of this is fucking awesome. I was like, oh my God, I would never want to sell. I can't believe you didn't even say that. I'm almost like offended. I'm never going to be one of those people.

As time goes on, you kind of realize things about yourself. One thing I know about myself and Alex is by himself, we like to build things. And we're really great builders. I'm not necessarily, I can maintain and I can actually be an excellent maintainer, but I do not enjoy it as much. I think at a certain point with every business that we've had, we're kind of like, okay, it's kind of in maintenance, incremental improvement mode, but we really like getting shit fixed. I like fixing broken stuff and I like building new stuff.

And for me, it's mostly teams and infrastructure. That being said, I remember the beginning, you know, we were kind of like poo-pooed that, like, oh, we're not going to sell business, so why don't I give a fuck anyways? And I wish I hadn't because later on in 2019, March of 2019 is when we said, let's figure out how to sell this business. It took two years to get it to a point where it was truly sellable. And I will say that one main reason is because like our service business is, it was a dancing Mickey Mouse character guru business. And so we turned it into a real sellable enterprise.

enterprise. I think it was a really cool process and it was a lot of fun. It was really challenging, but I'm really proud of the work that we did. And I'm so proud of the company it is now. And I'm fucking stoked to take over the industry and take it to the next level. But I want to share the seven things that I learned along the way and that we really honed in on so that we could create a sellable enterprise, an asset, a true business that we own, not a business that owns us so that we have a job in. Let me go through those seven things with you.

The first one is financial performance. What I mean by this is what do your margins look like? What does your revenue look like? That's the most obvious thing. But here's why it's important is it shows your ability to sell. That's the first thing. Revenue, you know, people like why is revenue important? And this seems really, really elementary and obvious. But think about it like this. Revenue is important and revenue growth is important because it shows that you have an ability to sell and to sell more over time.

And so that's actually what people look at is like, how strong is the ability for you to sell your product to the market? Now, the second thing that goes with that is how and what is your ability to create margin? And the reason that margin is so important is because people that buy your business want to know they can recoup their investment because most firms out there want to know how long it will take to recoup their investment. And if your margin is slim or next to nothing, right?

And you can look, you can Google and see what your industry averages are to figure out your margins and what they should be and what's ideal and what's optimal. The higher your margin is, the more likely they're going to think your business is appealing because it says, one, you know how to sell revenue, right? And you know that you can continue to sell more and more because you have strong sales abilities. And then two is margin, which is they can recoup their investment so they feel comfortable pursuing that opportunity.

I understand and I know that everyone watching this channel knows those things are important, revenue and margin. But when it comes to why those are important when you're selling, I think it's important to understand the delineation. That's the first thing. The second thing is growth potential. You have to leave meat on the bone of your business. And I think that often what people want to do is they want to build their business and they want to sell it when they don't like it anymore. You know when you don't like your business anymore? It's often when it's sucking.

And you know when other people don't like your business? When it's sucking. And so the best time to sell is not when you want to sell. It's often when you don't want to sell. Because when you don't want to sell, it means that you have a fucking awesome thing going and other people want to buy it. Makes sense, right? It's two that go hand in hand, which is they have to see like, where's the untapped market? If you've tapped your whole marketplace, which...

It's hard to believe anyone would. But if you have, then why would they have an interest in buying it? They're like, what am I, where's my return going to come from? It's only going to decline. The second piece to that is they don't want to buy a business that's going down, right? And so if, you know, you want to sell your business because now you kind of run out of ideas or you run out of spark or whatever it is, it's not as fun as it used to be, all this stuff, it's usually the business isn't good. And so people don't want to buy it.

It's that simple. If you desperately want to sell your business, nobody desperately wants to buy your business. So instead, you're killing it right now and you're crushing it. Whether you want to or not, it's probably one of the better times to sell your business. Obviously, you have to have a track record. Like if you're in year one, I don't care how good your business is, it's going to be very hard to sell. But if you're three, four, five years in and your business is crushing it, it's murdering it right now, that's probably a fantastic time to sell. So that's the second thing. The third thing is going to be concentration of revenue.

So if we think about number one, revenue is your ability to sell, right? And so it's showing them that you have the ability to continue to sell and continue to compound that selling. When you say concentration of revenue, there's two pieces to this, which is most people don't want to buy a business where the majority of the revenue is coming from just a few clients.

And so I know a couple of people who have businesses that are great, but they are enterprise and they have like three clients that create like 3 million a year revenue. And because of that, someone's going to look at that and be like, and what do I do if that one client leaves?

Like they're fucked. And so it's not appealing to especially a financial buyer. They're not going to want to do that. It's too risky for them. They want diversification of revenue, which means you have lots of clients the revenue is spread through. They also want to ensure that you have diversification of revenue in terms of where the revenue is generated. So that can mean a couple things.

diversification of clients, meaning there's not just a couple of clients that hold all the concentration of the revenue, and then diversification of revenue in terms of where is it coming from? Are you only getting revenue from Facebook? If you're only getting revenue from Facebook, again, that's too risky for them. What if you have Facebook, Instagram, YouTube? That looks much better. And if you want to go a step further than that, then it's just what products do you sell through those multiple channels? So you have multiple products on multiple channels

with lots of customers. And so you have to understand that, again, this all comes down to risk. If you're thinking from an investor perspective, they're just thinking, am I going to recoup my investment? And how risky is this? And the less options you have, the less options you have proven out to them, the less likely they're going to want to buy your business because they're going to be worried that it's too risky. So that's number three.

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Number four is cash flow. This seems obvious again, but if you look at it, actually, so if you read Jeff Bezos' Amazon shareholder letters, really interesting because he talks about this, which is net free cash flow is the number one metric that he always measured. And I think that's really interesting. And we actually started measuring it, I want to say, 18 months ago. And that's like our sole like guiding North Star metric in any of our companies. But what that does is that determines the ability to finance your own growth as well as

Take on debt. Okay, so think about what a buyer wants. One, if they don't want you to have to sink more money into their investment that they just bought, which was probably expensive. So if somebody buys your business for $10 million, the last thing that they want to do is think that I'm going to have to go shovel out $5 million more to make this thing actually work. That's why net free cash flow is important to them because they want to know that you can self-finance the growth.

that they intend to put into it. Now, the second thing to that is that if you have healthy net free cash flow, ironically, then it's more likely that you can get debt because they know that the net free cash flow can cover the debt service. People think, oh, well, if I don't have a lot of cash flow, they can just go take a loan. It's like, you're gonna get shittier loans if you have less cash flow because the banks will look at it and be like, you can't even service the debt. You have to think about it like that when you think of cash flow. That's why it's so important to a buyer. The fifth

item in terms of creating a sellable business is recurring revenue. And this is an obvious one. I don't think I need to talk about this one too much, but it shows stability and long-term investment. And so I'll tell you, conversation I feel like I've had like 16 times with 16 different SaaS founders, which is

It's typically, it's a marketer. And then they figure out that they know that they want to create some kind of MarTech. And so they create this MarTech and their churn is like through the roof. It's like between 10 and 30% month over month churn. But they're like, but look at my revenue and look at this and that. And I'm like, good fucking luck selling to anybody. Because what that tells me is that you have no customers in 12 months.

And so all that that firm's going to be looking at is they're like, cool, you have a lot of revenue, but I have no customers 12 months of something if your one channel shuts down. And so that's why when there's recurring revenue, it means that there's a long-term perspective of the business and there's no rough. And rough decisions are honestly not good ones in terms of investments. And obviously, P, if they buy your business, they're going to come in, they're going to go quickly, but they're not going to be so quickly they're going to break something. And they also don't want to feel like it's a sinking ship. If you have churn like that and you don't have enough recurring revenue, they feel like it's a sinking ship.

And so they don't want to buy it. It's too risky. So that's number five. Now, number six is a principle of business that I'm sure anyone watching the channel again understands, but you have to understand how it's different in terms of when you're selling the business, the perspective, which is having a unique value proposition. So what differentiates you from your competitors? It could be product, it could be price, it could be promotion. I think those are the

three most common. And I came up with that on my own thinking like those are the three legs of a company. But a lot of times it's like, where do you fall in terms of price? You can either be a low cost leader or you can be the premium leader. They definitely want one of those. Either of those are appealing businesses, right? Premium leader, meaning your most expensive, most value. Low cost leader mean lowest cost for most value. The second is product. You can have a unique value rather than product, meaning like software, you can have patents, you can have some special methodology. There's something with their product that's different.

With anything like an e-commerce or food, it's like you patented a certain ingredient, things like that. And then when it comes to promotion, it could be that you have a unique marketing hook that you've copyrighted or trademarked or whatever. You have something that's working really well with promotion. And so those are the three things that I've seen that when I've seen buyers look at businesses that they have identified as the reason that business is successful.

has wherewithal. It's because it has some kind of unique value prop that is one of those things. So I can tell you that for our business, you know, when people were evaluating it, everyone said like, you're the leader in the marketplace in terms of our business gym launch. They're like, there's nobody even close to you. And that's that. Like you're the leader in the marketplace. So you can do a lot when you're the leader in the marketplace. And now the last piece, probably the, I mean, in my opinion, it's the hardest. That's probably because I

I did a lot of it over the last few years, which is the strength of the team. The reason for that is that if a company relies on the founders, it's not a stable asset to purchase. I mean, it can be, but you're going to go with the purchase, right? And so you have to create something that can stand on its own. The reason this is harder is because if you look at like the stats in terms of, you know, CEO succession, all these things, it's rough. It's not that great. And so you have to start planning well in advance. Luckily, this is something I think we did really well, which is getting in the right people and promoting and investing in the right people.

And I can tell you that at a couple of the meetings that we had where we flew in our executive teams and they met with the buyers, after when we had the meeting and they were asking all the questions about the business, it was like a six-hour day with one of them, Alex and I didn't really talk. And the reason we didn't talk is we really have moved to board founder seats and we really did have a true CEO and COO. And after we reconvened with the firm after that meeting, they kind of looked at us and they were like, shit, this is one of the best teams we've seen. They're like, you know, most of these meetings,

It's the founders that talk the whole time. And the reason that we didn't talk is because we didn't know. We didn't know the answers to a lot of their questions because we're truly not the ones running the businesses anymore. And that, I think, is what creates a truly sellable asset. You know, it's not like we have some crazy burnout or have to work in the business for years. It's

done. And the reason for that is because we didn't have a job in the business. We were just advisors. And that was probably the part that was the hardest, but also the most rewarding, is learning to create a team that can truly not just run, but grow a business without you. And so...

With that, those are the seven things. There's financial performance. There's growth potential. There's concentration of revenue, cash flow, recurring revenue, unique value proposition, and strength of team. If you're looking at, like you want to know at least, maybe you're like, hey, I don't want to sell it now, but I don't want to eliminate the option, then

look at those things and think to yourself like, okay, next quarter, in the next six months, like right now, it's beginning of Q1, what are your initiatives that are going to help shore up those pieces so that you can create an asset that if you choose, one day you can sell? So I hope that was useful for you. I hope you enjoyed your walk, break from work, lunch, whatever it may be. And I will see you on the next one.