Episode 52 Nick Bradley (Final)

[00:00:00] Nick: if you got a private equity,

[00:00:01] Nick: you are gonna get a boss. And you're gonna have a board put around you and you're gonna have an operating partner like I used to be telling you what to do.

[00:00:10] Nick: But there is a kind of caveat that, I don't wanna mock things up from my side.

[00:00:13] Nick: I want you to be supported. But if you are not doing what we want you to do,

[00:00:17] Nick: then you're gonna be out.

[00:00:18] ​

[00:00:24] Meet the Expert: Nick Bradley

[00:00:24] Allan: Welcome to the Lean Marketing Podcast. I'm your host, Allan Dib Today I've got a very special guest. He's helps entrepreneurs exit for eight or nine figures, the biggest payday of your life. And having been through that process a couple of times in the past myself, I can tell you that I've made a lot of mistakes.

[00:00:43] Allan: I left a lot of money on the table. I left a lot of heartache on the table as well. And so my guest today is Nick Bradley. You might think of him as the Sherpa who's gonna get you to eight or nine figures your biggest ever payday. Welcome Nick.

[00:00:56] Nick: Hey Allan . Thank you. And I'm laughing here as you're saying that 'cause can't, [00:01:00] I can't tell you the number of times I've heard someone say that.

[00:01:03] Nick: In fact, I speak on stages around the place and I often start off by saying, who here wants to sell their company? And you know, everyone puts their hand up 'cause it's an intention. And then I say, well, who, who here has done that? And then a few people put their hand up and then I say, did you enjoy the experience?

[00:01:18] Nick: Yeah. And you can see the heartache in their faces,

[00:01:21] Allan: man. Uh, there are so many ways I can take this, but why don't we start with, maybe give us the two sentence in introduction to yourself as well. Who are you, where are you from? Who are your people?

[00:01:32] Nick: Sure. Let, let's kick off with that.

[00:01:33] Nick Bradley's Journey and Insights

[00:01:33] Nick: I mean, the astute of your listeners will probably detect a twang of Australian accents.

[00:01:38] Nick: Yeah. I actually live in the UK these days. I've lived here for, uh, over 20 years. But I grew up in Adelaide, south Australia. Interesting story. I started and sold my first business when I was 21, and I sold it for 3000 Australian dollars. I then went into the world of corporate and I worked for News International and some of the big media companies around the [00:02:00] world for a number of years.

[00:02:00] Nick: So I reported directly into Lachland Murdoch, and then I moved to the UK in 2003 to work with one of the biggest, in fact, the second biggest consumer publishing group. At the time in the UK called emap, and I started to get involved in mergers and acquisitions while I was there because this was a huge company.

[00:02:18] Nick: In fact, it was the last company to be sold a big exit before the market crash in 2008, and it sold for over 2 billion pounds to a private equity firm, and it got broken up and all sorts of things. So I learned a lot of what I do now. You know, in the early two thousands, I then went from there to, um, a business called Getty Images, which was a huge learning experience for me.

[00:02:40] Nick: The, the owner of that company said to me, we do things differently, Nick. We don't just grow organically, we grow strategically. We buy and sell companies, and I was involved in 40 transactions while I was there, and that just took me on a path into the world of private equity, going in and fixing businesses, scaling businesses, taking them all the way through to exit.[00:03:00]

[00:03:00] Nick: And I've been doing that now for the last, well, I did that for 10 years and the last five years I decided to make a transition, and now I work exclusively, as you said, with founders who want to target an eight to nine figure exit at some point, you know, in their future.

[00:03:14] Allan: Very, very cool. I'm gonna throw out a few guesses as to what some of the big issues are, and I'd love to hear.

[00:03:21] Allan: Whether I'm on track, off track, and I'm sure there'd be others. So look, uh, to be honest, my transactions in the end went well, but not as cleanly as I would've liked because there was a lot of negotiation and things that weren't clear. I literally probably left a million dollars on the table just because of a one word difference in one of the contracts.

[00:03:41] Allan: So there were definitely things that could have done better. But having said that, look, honestly, they set me up for life. I did really well out of them, and I don't regret the transactions, but certainly some of the things could be optimized.

[00:03:54] Key Factors in Business Valuation

[00:03:54] Allan: Now I'm guessing one of the big issues is I. Not having a really clean set of books where you are intermingling, maybe some of your personal stuff.

[00:04:02] Allan: Then there's arguments about what's an add back, what's not an add back.

[00:04:05] Nick: Yeah, a hundred percent. We call that audit ready financials is the simplified way of saying that, and people are probably listening to you saying, what the hell is an add back? If I explain to you what an add back is, you'll never unhear it, so don't do this.

[00:04:17] Nick: When I tell you what it is, don't do this, but it's effectively something that sits on the p and l, right, which affects the property of the business. That is not gonna be something that is. Of future importance to the growth and scale of that company. So it's kind of like an exceptional item that you may spend that if someone's gonna buy your company, they don't have to spend that ongoing.

[00:04:37] Nick: So therefore it doesn't count in terms of the running of the company successfully. The point being is like add-backs are kind of an interesting thing to understand, but you are right. It's to suggest that that. If you are a business owner, you need to get over the all over the numbers, not necessarily personally, but you do need to have someone in your team who's gonna get the cleanest set of books possible because you know, one half of the value of [00:05:00] a company is gonna come from the financial performance and particularly the net profit or the ebitda.

[00:05:06] Nick: The other half is gonna come through from a lot of other things, but you really want to sort of nail that financial piece upfront.

[00:05:12] Allan: On the plus side, I mean in both. In the last couple of businesses that I've sold, the thing that really got us the blue sky valuation was having some proprietary intellectual property, and that got us a valuation way, way above just a normal industry earnings multiple.

[00:05:30] Allan: We got way more than we would've just based on the revenue or the customer basis because. The acquirer could say, Hey, if I buy this intellectual property, apply it to my other business. We can get this kind of margin uplift or you know, benefit or whatever. And painting that kind of blue sky picture gets you a much, much bigger valuation.

[00:05:49] Nick: Yeah. You've gotta create this kind of lands, I think, a little bit into your world, Allan , and the marketing piece, and particularly the branding piece, because as I look at the. Yeah, there are 15 things that are absolute and there's a [00:06:00] bonus. And the bonus is actually the proprietary ip. 'cause not every business has to have the proprietary ip, but if you have that, it can give you a kicker on the multiple.

[00:06:06] Nick: Yeah. If I'm a private equity guy, particularly coming in to buy your company, what I would call a sophisticated buyer, I'm doing transactions all the time. Right. There are a number of sort of lanes I'm gonna look at, and at least three or four of them are marketing or brand related. Yes. And the more unique, remarkable, differentiated.

[00:06:25] Nick: You can make yourself right and position yourself as effectively a category of one, if that's possible, or certainly as close to that as possible. That's gonna increase the valuation as well. So if you've got what you said, some form of proprietary ip, be that methodology, products, even service, however it's done, plus you've got a unique and differentiated brand, then you know it becomes, if you just think about it logically, you're gonna be more valuable because you are the only game in town.

[00:06:51] Allan: Yeah. And you're not just then talking about. Your own numbers, your performance, your profitability. It's like, hey, if this intellectual property is applied to the other businesses [00:07:00] that they run, then what's the uplift there? What's the additional benefit that they can derive this?

[00:07:05] Nick: Yeah, it's, it's called synergistic value.

[00:07:07] Nick: And one of the things I often say to people I advise, and this is a really important point, is a sophisticated buyer is gonna try and value your company based on the financials, the numbers that you present under NDA. So usually it's a multiple of EBITDA or profit. Yeah. However, if you really wanna win, and this is kind of going behind the scenes, you wanna work on their math, not yours.

[00:07:28] Nick: Mm-hmm. And their math is what you're articulating now. It's what they can do with what you've created. And there are ways of getting that information out through the whole process of due diligence and negotiation if you ask the right questions. And you can, if you've got a really good finance person on your team who's helping with the process.

[00:07:47] Nick: You can start to run numbers that show the value that you will bring to that company. The way I sort of say to people is, you won't win the full amount of that value. Mm. But if someone says that your business is worth five or six times [00:08:00] profit, and you know your business is gonna be worth 10 to 12 times when it's been acquired by, say another company, you can certainly negotiate a couple more points up.

[00:08:09] Nick: And if your EBITDA is say, 5 million or something like that, you've just made an additional 10 million in enterprise value for yourself. Yeah.

[00:08:16] Maximizing Your Business Exit

[00:08:16] Allan: So one thing I always like to think about, I mean obviously from a marketing perspective, I'm always thinking from the customer's point of view, what, what does the customer desire?

[00:08:25] Allan: What are their dreams? What are their hopes and things like that. Now, essentially, private equity in this case would be our ultimate customer, so from their perspective, but my understanding is they essentially wanna acquire the business, reduce costs, increase profitability, and then flip it down the track for a profit, essentially.

[00:08:43] Allan: Is that accurate?

[00:08:45] Nick: Uh, that's the simplified and that's exactly where we should start. Okay. There. That, that, I mean, I say buy low to sell high, and we use terms in private equity, which again, you won't hear talked about often, like prize versus pray. And both of those [00:09:00] we would look at your business, for example, and we would give it a, a name like prize or pray.

[00:09:04] Nick: And both of those are attractive to private equity. I mean, the prize business is one that's beautifully constructed and all that. It's gonna, we're gonna pay more for it, but it's like buying a house that's fully renovated. We don't have to do anything to it. Whereas the prey business has got lots of holes.

[00:09:18] Nick: We may still find that attractive, but we're gonna pay less 'cause we have to do more. Yeah. But there are two things I'll say here, which are important. The way private equity is really measured is in a couple of metrics. And if you understand those metrics or at least understand what they're about, they can help you in terms of the conversation.

[00:09:35] Nick: So one is called MOIC, which is multiple of invested capital, and the other one is called IRR, which is internal rate of return. Yeah, multiple of investor capital is the most important one in my opinion, because the way to think of it is they buy your company for, let's say they buy 50 million. And they put another 50 million in by, you know, buying other companies and bolting them all together.

[00:09:57] Nick: So they've put a hundred million of capital into this [00:10:00] group, right? They wanna sell that group between three to five times that invested capital. So they wanna make between 300 and 500 million. Within usually a three to seven year window. So net 200 within that period, in fact, that would be a poor performance.

[00:10:18] Nick: They'd wanna get closer to probably 500. So they've made a net 400 million in three to seven years. Got it. Crazy numbers. It's, it's a, that's why as an asset class, um, there isn't much that competes with buying and selling companies. Other than crypto point to that, but it, it doesn't compete with real estate or anything like that, just 'cause the quantums on those multiples can be quite significant

[00:10:38] Allan: and their hope is to sell it to a bigger publicly listed private equity or,

[00:10:43] Nick: yeah, there's tiers.

[00:10:44] Nick: There's tiers. So what you were talking about with, with your exits is if, if you get bolted onto another business. Uh, which is called a strategic sale. So there's two types of sales. There's financial sale, which is selling to a financial investor, like private equity or a [00:11:00] strategic sale where you're selling to another company.

[00:11:03] Nick: If you sell to another company, that company has all the opportunity. You described very well about trying to take cost out of your business and take your product at service and sell to their customers. If you sell to a private equity standalone, and you are the first acquisition that they've made in an industry, you're called a portfolio or platform, actually platform company.

[00:11:21] Nick: And they want to sell you to either a bigger private equity firm that has raised a bigger fund. Mm-hmm. And there are tiers of private equity, or they wanna sell you to a big corporate, or they want to potentially increase something that can be listed on the stock exchange. Got it.

[00:11:37] Allan: I mean, private equity's gotten a bad rap, rightly or wrongly.

[00:11:40] Allan: Like, I mean, we've seen a lot of times where they buy out a seemingly pretty good company, they saddle it with a lot of debt, rip out some of the assets, and then ba it goes bankrupt a couple of years later. And yeah, they've made a lot of money and a lot of people have lost jobs and things like that.

[00:11:57] Nick: I mean, it's got, it has changed a lot.

[00:11:59] Nick: I mean, my, [00:12:00] um, my book is coming out next month on this, which is called Exit for Millions, and. There is a paragraph in that book, Allan , where I take the reader behind the scenes of private equity by going into a private member's club in London for a night. And, and what I'll say is this, is that, you know, private equity, if you, you may love it or you may hate it, or you may not even have an opinion of it, but you have to respect the fact that it's unapologetically about money.

[00:12:28] Nick: There's no ambiguity. Right? You know, and if you go back years and years ago, let's say to this in sort of 1970s or that sort of thing, there wasn't the opportunity for an entrepreneur to have an exit like I helped them do now. 'cause private equity didn't exist. So the only way that you really exited your company by then was to sell to a competitor.

[00:12:47] Nick: Usually not on great terms, or you'd have to close your company down if you didn't have any succession. Yeah. So private equity has, has created this huge wealth opportunity for entrepreneurs that just didn't [00:13:00] exist. Mm-hmm. So it is a tough environment. Think of it like any game that you don't know how to play, you're gonna get taken advantage of massively unless you learn the rules of the game.

[00:13:10] Nick: Mm-hmm. But if you learn the rules, you can compete, you can often win. Certainly, you know, on your terms. And, you know, you can create a life changing exit, which is gonna set you off for life. So I look at it like that. It's, yeah, it's a tough environment, but the stakes are high. Yeah. It depends. If you wanna play in that world,

[00:13:28] Allan: what are the small hinges that are gonna be swinging the big doors here?

[00:13:31] Allan: What are the things that are really gonna move that needle on the valuation?

[00:13:37] Nick: Yeah. So what I often say to people is, and, and Daniel Priestley talks about this a little bit as well, when he says, you know, you've got the, the lifestyle business versus the performance. And it's, it's worth making a decision at some point in your entrepreneurial journey, which lane you're gonna go down.

[00:13:50] Nick: You can pivot if you want to, but they are very, very different outcomes. And I, I start with that because I think, you know, a lot of what I'm gonna go through now is about [00:14:00] choices you need to make. Right? So if you're gonna build a lifestyle business, you're gonna focus on taking money out of that business to support your life.

[00:14:06] Nick: You're not probably gonna be investing as much in growth. Yeah. Uh, those businesses can be sold, but they're not structured to be sold. They're structured to support you in, in whatever sort of personal capacity you have around, around that. Your income performance business is often one that is, you know, relentlessly built for a transition.

[00:14:26] Nick: And, you know, often they're the businesses that raise money, be that venture or, or venture capital or debt. And as soon as you bring investors in, then you know, you know the pathway is that you're gonna sell the company because that's what the investors are investing in, that sort of liquidity outcome.

[00:14:39] Nick: So if you go down that path, let's talk about that. You've, you've made the decision that you are gonna build a business to exit. And what I often say is you've gotta start to get clear on what that number is gonna be for you and then reverse engineer. So let's say you wanna sell 50 minute, well, you've gotta understand a couple of things.

[00:14:56] Nick: Half the, the valuation or 40% of the valuation is gonna be [00:15:00] based on your ebitda. Okay. And people ask me, oh, can you sell a business based on revenue? Yeah, you can. But these days, particularly when you know money's harder to get interest rates going up, you, you're better to focus on profitability. Yeah. So to, to achieve 50 million exit, you'd be wanting to get your ebit, uh, up to around about 5 million, to around about sort of seven to 8 million as a range.

[00:15:25] Nick: But as soon as you get to 5 million of ebitda. Um, you open up the, the what we call the mid-market of private equity. So private equity guys don't like to do deals that are small, but as soon as you get to about 5 million of EBITDA net profit, you're sort of hitting the top of the bell curve. And there's a lot of private equity firms that have capital that they wanna invest in businesses that get to that size.

[00:15:45] Nick: Now, at that point, you're probably looking at anywhere between a 40 to a 60 million valuation just on the profitability of the company, right. Because a lot of people say to me, oh God, what, so I, I might be at a million of profit now, or one and a half million of profit now [00:16:00] annualized. All I need to do is get to 5 million and then I'm gonna open up all these options.

[00:16:04] Nick: And the answer to that is yes. Yeah. The way I look at it is, you one, one half of the coin is financial. It's the numbers. The other half of the coin, there are, as I mentioned, 15 different things you need to think about as you are building the business to maximize the multiple. So. The way I look at it is that every market has a range.

[00:16:25] Nick: So in education right now, the range for a business that's doing say 5 million of ebitda, so the profit's the same. The range is anywhere between six times that 5,000,014 times. Mm-hmm. And now you've gotta be thinking, if you're listening to this thinking, well, hold on, it's the same profit. Yes, it's the same profit, but one business is worth 30 million.

[00:16:45] Nick: The other one is worth, you know, 14 times five. Right? So you can start to see that this is getting a bit crazy. Why? Why is one business worth 30? And the other one's, you know, pushing north of a hundred. So one of the things, of course, is what we call transfer value. And this is [00:17:00] a business that isn't reliant on any one individual.

[00:17:02] Nick: Mm-hmm. So if you are the cog in the wheel, right, literally marketing, sales, delivery, all of that is reliant on you, the founder, because you've built the business that way. You know, you might like to be the person who's the everything. Lots of entrepreneurs, you know, with egos get like that. That business is very, very hard to sell, certainly to private equity because private equity wants to have a machine.

[00:17:26] Nick: They want to have a system. They love structure and process. So you have to build a leadership team. You have to build the right structure so that the business can transfer and isn't relying on you.

[00:17:38] Allan: Can I just ask a question related to that? So now with AI giving us a lot of labor leverage, meaning we might have needed 10 coders previously, whereas now we could probably do it with one or two, and I think the same is happening from a marketing perspective.

[00:17:53] Allan: The same is happening in a lot of areas. So. How do you see that impacting valuations and, you [00:18:00] know, teams getting smaller? Yeah,

[00:18:02] Nick: it's a really, really good question, and this is not against all industries, but I'll give you what I call a generic model or an organizational structure that I think will become very valuable in the future.

[00:18:11] Nick: I think with the onset of ai, you still can't replace high level strategy, creativity, and experience. So at the top tier, let's call it the leadership team, or certainly points of the management team, you're gonna still wanna have the best people. Mm-hmm. In your business because there's value in that IP from iv, right?

[00:18:30] Nick: From the people you have around you, plus the culture, which we'll get into at the bottom layer. I think the most prudent model, if you can do it in your industry, is offshoring. Mm-hmm. And following, you know, exchange rates and, and labor, uh, opportunities elsewhere. Now for context, I employ my whole team outta South Africa and they're superb.

[00:18:50] Nick: I used to do a lot in the Philippines, don't do as much there anymore. Uh, Latin America is great. Certain parts of Europe are great, and what's happened here in the UK recently is the government's decided to [00:19:00] put all these taxes on national insurance. You know, and, and I'm telling all my clients here, just, you know, replace your customer service team or your sales team and, and do it in South Africa.

[00:19:09] Nick: Yeah. You still want to have someone you know above that who's very capable and experienced as a leader, but you can have a manager base there running a, a team of sales professionals or, you know, literally virtually if, if your business. Can do that, like recruitment businesses can do that education business or that in the middle to your question is where I think AI has its biggest opportunity.

[00:19:30] Nick: Mm-hmm. Right? Where you can start to bring, and let's call it machine learning automation as well as everything else. It's not just that, but the point is you can replace the middle layer, I think very, very well if you understand how AI is progressing. Yeah. So think of that as a structure. Really strong, capable, strategic at the top.

[00:19:49] Nick: AI in the middle offshore, really talented people. But again, uh, you can, you can get your net margin business up to a very high position. If you can leverage those three things, great. I mean, we have

[00:19:59] Allan: [00:20:00] a team all over the world, including Philippines and South Africa, and I often say the best talent is not in necessarily in your zip code.

[00:20:06] Allan: So that's for sure.

[00:20:08] Nick: And people find it hard. I mean, one of my clients, it was a, it is a recruitment agency and he just moved his whole sales team to South Africa to um, Durban, right. And he managed to increase his ebitda. He was at 23% margin, so it's bad. He's now at 42% margin after making that shift.

[00:20:24] Nick: Amazing. The other thing he said, which is interesting is he said culturally he's had a boost too, because, you know, people in that country work really hard and they're very grateful for what they get. And sometimes in other countries that have been, you know, a bit more traditionally set up, they don't have those same qualities.

[00:20:38] Nick: Yeah.

[00:20:39] Allan: So, and as you said, I mean increasingly certainly the case in Australia, certainly the case in the uk, certainly the case in the US there's. More and more administrative burdens and costs and things like that associated with having people locally, which, you know, just adds to. It's not just the cost of running the business, but it's just the red tape that you have to deal [00:21:00] with and all of that just slows you down.

[00:21:02] Nick: Um, anything that adds complexity or cost to something that's not needed. I mean, obviously some businesses are very governance heavy or compliance heavy, so there are things. You should remove it. And the one thing I'll say about private equity is people think it's very sophisticated and all this sort of stuff, but actually we just like simple business models and we like simple businesses.

[00:21:20] Nick: Mm. So, you know, if you look at it, we are not necessarily interested, we're not at the venture level of tech startups and the idea we are kind of taking the business once it's gone into the scale up phase. Yeah. And in that situation, we want a machine. If I said to you that the two most important things we value are probably pace and precision, and what I mean by that is if anything's slow and cumbersome or complex, right?

[00:21:42] Nick: It slows the pathway down to what we're measured on. So I mentioned internal rate of return, that's the speed of which we can pay back investors. Mm-hmm. So if I can buy to businesses for a hundred million, I can then sell them for 500 million in three years and I want to go and raise another fund. I [00:22:00] mean, imagine how happy my investors are when I go out and say, Hey listen, do you wanna give us another X amount of money for the new fund?

[00:22:05] Nick: Because look what I did last time. Yeah. So I'll go through the big ones. As I said, there's about 15 different things. Um, if anyone wants my book, they can find a whole section on this. So I'll go through the key ones, recurring revenue. Is huge. And, and the idea really there is, and this kind of comes back into your lane, is having to go out there and find a customer each time versus trying to maximize what you've got.

[00:22:27] Nick: Inefficient, costly, and, and sometimes people over egg it though, Allan , they try and change everything to make it look recurring. Or people say to me, what percentage needs to be that? I said, what? There's no set percentage. It just needs to align with your point around, you know, what does the customer want?

[00:22:41] Nick: Yeah. And can I give that to them in a way which serves exactly what their needs are, but is more economically advantageous for me?

[00:22:47] Allan: Well, and big picture, it comes down to also lifetime value. So, you know, if you collect. A thousand dollars a month and your average lifetime is a year. If you can collect that 12,000 upfront and, you know, front [00:23:00] load the lifetime value, well that's, that's probably even better.

[00:23:02] Nick: Well, yeah, and the, and the other thing I think that's important for, for entrepreneurs listening to is like everyone talks about revenue, profit, and cash kind of in that order. And I flip it, I talk about cash, profit, and revenue. Now, of course, the argument is you can't get profit and cash without revenue.

[00:23:16] Nick: Sure. But it's more of a focus area. So cash upfronts. Yes. Even if I choose not to recognize, it still means that I'm, I've got a business that's sustainable. Yes. So things like that become quite important. And again, if a private equity guy's gonna come and look at your business, and you can talk in these ways and you can articulate that you understand that language, you become more of that prize asset versus the prey, which I mentioned before.

[00:23:40] Nick: Which gives you another couple of points on the multiple with a, what I call a sustainable or believable growth story. So if you ever have the opportunity to sell, certainly to private equity, and you go to the first meeting, they're, they're always gonna be on the charm offensive. It's quite interesting the way they do it.

[00:23:54] Nick: They treat you like your absolute God, right? They wanna get your defenses down, but they'll ask you a [00:24:00] very, it will feel like an innocuous question, but it's a very important one. They'll say, tell me the vision. And most founders don't really answer that well. And what they're really asking is, tell me what the next three years is gonna be like around growth for this company.

[00:24:16] Nick: So if you can prepare that, and I think E every founder should have a three year vision anyway, that they're reverse engineering into their growth plans. Regardless of this, if you can create a compelling future story around your business, and it's equally important if you're selling to a company, because if you, let's say, you know, your biggest competitor or someone knocks on the door and says they wanna buy your business, if you know what their strategy is, right?

[00:24:40] Nick: 'cause sometimes that's public knowledge you can get it from. Mm-hmm. You know, the. Press releases or whatever, if you can then align your growth story with their strategy, right? Can you see the influence that goes on there in terms of, you know, all of a sudden you become much more attractive? And everything that I talk about here is what makes your business more [00:25:00] attractive and more wanted by the buyer versus, you know, you desperately wanting to sell it as the seller.

[00:25:05] Nick: All of that's gonna be in your favor to maximize your exit value.

[00:25:10] Allan: Hey, Allan here. Want to dive deeper into today's episode? Head to lean marketing.com/podcast for links to all the resources we mentioned, plus some exclusive ones. Just for podcast listeners, you can also subscribe to get notified when new episodes drop and receive my latest marketing and business tips right in your inbox.

[00:25:29] Allan: That's lean marketing.com/podcast. Now back to the show. So let's say you're doing about 5 million or up to 10 million in profit right now. Do you wait for someone to knock on the door or do you approach them?

[00:25:43] Nick: Great question. Um, and, and this is something that most people don't do when they get to that position.

[00:25:47] Nick: Most people at that position go and hire an investment banker or a corporate finance person to effectively act like a, an, uh, like a real estate agent to sell the company. Mm-hmm. My belief is that proper exit strategy is a 12 to 36 [00:26:00] month process where you, you, you get very intentional about the things I've been talking about.

[00:26:05] Nick: When you get into that sort of last 12 months before you want to officially say, put the business on the market, my belief is that as the founder, you should have replaced yourself as the CEO of the company at that point, or certainly replaced yourself as the person who's running the company, even if your title was still the CEO.

[00:26:23] Nick: And you should be going out there and, uh, meeting acquirers. Mm-hmm. But, and this is the most important thing without the intention of selling. So, you know, you wanna sell, they wanna buy, but you're not out there brokering the business. You're out there learning about the industry with the intention of the, you know, you do wanna sell the company at some point in the future Now.

[00:26:49] Nick: It's subtle, but super important.

[00:26:52] The Allure of Exclusivity in Business Deals

[00:26:52] Nick: It changes the whole energy. Mm-hmm. You know, you become the sexy girl, the dance that everyone wants to dance with versus the one that's, you know, running around trying to whatever. Yeah. You get the point. Yeah. And, and there's nothing more attractive to a private equity than the, the, the deal they can't get.

[00:27:07] Nick: Mm-hmm. Well, they deal, they think.

[00:27:09] Practical Steps to Attract Investors

[00:27:09] Nick: So how do you do it just to be practical? You go to, uh, trade industry events where there are always investors going to those. Uh, you might even go to a private equity event that's specializing in a certain industry, and you could speak on stage or you could just go there and network.

[00:27:24] Nick: Um, if you have a really clear view that you'd like to sell your business to another bigger business within your industry, you approach them with the guy ship. Mm-hmm. And most partnerships turn into acquisitions if you know how to position 'em correctly. So these are all little secrets or tricks that you can start to do again once your business is ready.

[00:27:46] Nick: That's next step.

[00:27:47] Allan: One thing that we did was we started talking to history with the approach that, hey, we want to potentially acquire as well. We want to, we wanna do, yeah, that's a good one. Yeah. So that's

[00:27:58] Nick: a really good one too. And then [00:28:00] sometimes that can flip around. Yes.

[00:28:01] Common Pitfalls in Business Sales

[00:28:01] Nick: I just think people don't think enough about, you know, and it is, I understand it's not a judgment or a criticism, but you know, most people think about growth in their business.

[00:28:09] Nick: But you know, the life changing event, if that's what they choose to happen, is at the exit, but they just don't put the time into it. Most people come to me. In fact, I had someone contact me yesterday, Hey Nick, I'm now ready to sell the business. And I'm like, okay, well what does that mean? Oh, we, we, we, we are ready to go and put it out there.

[00:28:24] Nick: But no one's actually looked at what they've built and there's about three things that they, they haven't done that I said, you know what, that's probably gonna cost you and their business is quite big, so that's gonna be a nine figure exit. I said, that's probably gonna cost you 20 to 30 million on estimate based on not fixing those issues.

[00:28:37] Nick: Wow. They're like. How long is it gonna fix? I said, probably my opinion, six to nine months. Mm. They're like, oh. And it's things like that, but if you don't know, you don't know. So it's, it's best to at least have an assessment on your business.

[00:28:50] Allan: What sort of things are those things though, that are gonna cost you

[00:28:54] Nick: in this situation?

[00:28:55] Nick: One of them was customer concentration. So, you know, for people who haven't heard that [00:29:00] term before, over reliance on a few big customers for a large chunk of revenue. You can mitigate some of that by longer term contracts. But a lot of people these days don't want to sign long-term contracts. You know, one year might be the maximum.

[00:29:14] Nick: So in that situation, they had focused too much on building, let's say, an enterprise level revenue stream versus diversifying into some smaller, medium businesses, which they were growing, but it wasn't established enough.

[00:29:27] Allan: And my understanding of rule of thumb is you really don't want one customer to be more than like 15% of revenue at the most.

[00:29:34] Nick: Yeah. Well if you think about it, if person's not locked in and these days I think the world's changing more than it's ever changed, right? The speed of change is huge. Uh, that person leaves you lose, let's say 15, 20% of your revenue and assuming that's also gonna hit your bottom line, all of a sudden your profitability's got hit.

[00:29:49] Nick: Yeah. So if I buy your company and that's there, and you can't convince me that that person's sticking around and I pay whatever I pay. I'm going to, you know, that then that person leaves, [00:30:00] let's say six months later I've overpaid for the business and now I've got an issue. So I don't want to pick up your problem.

[00:30:05] Allan: Yeah.

[00:30:06] Nick: I want you to mitigate that problem. BAllan ce.

[00:30:08] Allan: Yeah.

[00:30:09] Valuation Challenges with Personal Brands

[00:30:09] Allan: Um, talked about education businesses earlier. So, uh, a lot of them are kind of, uh, have a, for the business, a personal brand. So you mentioned Daniel Priestley, he's a friend as well. Let's say a Tony Robbins. A. Jim Rohn, uh, who, whoever, who's, you know, uh, an Allan Diiv, uh, so Allan

[00:30:29] Nick: Diiv and Nick Bradley.

[00:30:30] Nick: There we go. Nick. I mean, I,

[00:30:31] Allan: exactly. So how does that affect the valuation and how do you mitigate that?

[00:30:37] Nick: Yeah, I mean, it's, it is funny. Um, I. Yeah, I was talking at an event last year, and it was just at the time when Tom Ford was bought by Estee Lauder.

[00:30:44] Allan: Mm-hmm.

[00:30:45] Nick: And that's in the cosmetic industry, but you kind of think, well actually it's a personal brand to some extent, right?

[00:30:49] Nick: Yeah. It's, but you know, they've diversified their business and their product brands from their personal brand and yeah. When anyone ever talks to me like this about this question, I sit there and use the Elon [00:31:00] Musk thing, which is like Elon Musk, Tesla model three. Yeah. Personal brand, business brand, product brand, yeah.

[00:31:05] Nick: And. You know, could Tesla be acquired if someone wanted to buy it? Of course it could. Yeah. Right. Would it be as valuable without Elon Musk in there? Well, you know what, probably, depending on who acquires it, right? Mm-hmm. So again, there's consolidation across the car industries. All the brands sort of buy each other, so it can be done.

[00:31:22] Nick: But I think what you've gotta do is you have to. Remove yourself as much as possible from the core ethos of what the business is about. And one of my friends, Baard did this quite recently 'cause I know their investor, he's in the information space, if you haven't heard of him. Yeah. Does a lot of marketing and personal development.

[00:31:43] Nick: And, um, he built a business that was all about Brendan Bouchard's. Mm. And then he had to diversify into what's now called growth day. And he has a number of other personalities, other faces that underpin that as well. And so you have to really think about this. [00:32:00] If the business is, you know, your name's on the door and it's overly reliant on you.

[00:32:04] Nick: My advice often is to look at things like a rebrand, look at a way of reposition. Um, because if you're gonna try and sell your company, and it's Allan Dibb Consulting mm-hmm. And Allan De isn't around the place anymore, your only real opportunity there is to sell it to another consultancy firm or marketing firm or something like that, that wants your ip.

[00:32:25] Nick: And they don't see value in the Allen did piece. Mm. But that's not gonna be as well positioned as if you owned your, whatever, it's, whatever, you know, lean marketing, for example. Yeah. You know, lean marketing would have a lot more value and as long as you've structured underneath that the right way as well.

[00:32:39] Allan: Yeah. So, uh, I often think of, you know, someone like Tony Robbins who's built just this massive machine. I mean, if you think of someone who's in mission education coaching sort of business, I mean, he would probably be pretty much at the top of the heap

[00:32:54] Nick: number one name, I'm pretty sure, in that space.

[00:32:57] Allan: So if he came to you and he [00:33:00] said, Nick, I want to exit, or I want to look at a succession plan, or whatever, what would you do?

[00:33:04] Allan: Yeah, and I think. To some extent. He's already on the way there. He doesn't do the whole, all of the seven, half of them or whatever, but still it's Tony, you come to Tony. Yeah. I had,

[00:33:14] Nick: um, I had Dean Graziosi, who's his business partner on my podcast, and we talked about this off air actually. Okay. So I can talk about, it was a while back now.

[00:33:22] Nick: Um, so if you think about his, so you've got Tony Robbins larger than life character, you know, huge, huge personal brand. Yeah. He's got multiple companies of course. But his main one is Tony Robbins International. Yes. Uh, the research institute of that. So what he needs to do is he needs to effectively, and he's doing this a little bit with Dean to some extent, is he needs to not necessarily be the face of all the various programs and products that are coming out of that.

[00:33:47] Nick: And he's kind of done it with a few of his events. So he talks about things like, I've done all of them, by the way, so I've done every single one mm-hmm. Of Tony Robbins events. But if you go to something like Life and Wealth Mastery, he doesn't turn up to that at all. Really. I mean, [00:34:00] there's a Fiji part of that, but if you go to the ones in Europe and stuff like that, you know, you're buying his IP and you're buying his content, um, but it's delivered by other people, right?

[00:34:09] Nick: So I think if he wasn't so front and center on his core programs that date with destiny and, um, unleash the power within all that sort of stuff. And he created programs and products, which had their own positioning and value, and it was under Tony Robbins International. Um, I think that's an investible business because there are other examples of that where someone's name's on the door, but it's, it's not that person having to deliver all the time.

[00:34:32] Nick: Hmm. I think where it's at now though, he would have to make more shifts. This is my personal view, he'd have to make more shifts versus what he's currently doing to be able to do that. Like what Brendan's done. I don't think the brand Tony Robbins International is necessarily a bad brand to be acquired, but in its current, this is a great, great question.

[00:34:52] Nick: In terms of structuring a company the way he's currently structured, he's positioned too much as the cog in the wheel.

[00:34:57] Allan: Yeah.

[00:34:57] Nick: And as a result of that, it makes it very, very [00:35:00] difficult for an investor to see value there.

[00:35:01] Allan: And it's interesting because often you think of someone who's kind of the key man or the cog in the wheel being a small business.

[00:35:08] Allan: But I mean, this is like a billion dollar business and he's still a very much a key man.

[00:35:14] Nick: Yeah. And, and I think, and the problem is that's he's positioned himself in that way is if, if ask you this question, imagine he's not around the place, but he's got, you know, a huge brand that's well marketed and he's got great coaching and great programs.

[00:35:27] Nick: He talks about the value of the programs and the outputs and the outcomes of that. You know, would you still go and do a Tony Robbins international program? Like Landmark is another example of a business that does something similar. You probably would still do it. Yeah, I think But there needs to be space between the expectation that Tony's gonna turn up Yes.

[00:35:44] Nick: And not, and he's doing it. You are a hundred percent right. He's doing it, but it's not enough. I mean, I took my daughter to, um, unleash the power within in New York. Last November, it was brilliant. Great. But I went there to see Tony.

[00:35:55] Allan: Yeah, I went to unleash the power within in Sydney a [00:36:00] couple of years ago, and I'd never been to a Tony before, and the rumor was it was his last tour to Australia.

[00:36:05] Allan: So I thought, you know what? I better go see it and. Go. I think he did two out of the four days. And even of those just, some of it was just video of him, it wasn't him sort of live.

[00:36:15] Nick: I'll give you two examples because I think it's a good question here. Like there, there are other, let's call it education businesses that have sold and sell Yeah.

[00:36:23] Nick: That are similar to what he's done, but positioned in ly. So one of them is, um, so entrepreneur, the operating system was, uh, Gino Wickman, friend of mine. He obviously sold that company. Yeah. And he sold it. He was still very much front and center with his name all over the books. Mm-hmm. Like traction and all that.

[00:36:39] Nick: Mm-hmm. But he created a business brand that was bigger, you could argue, than his personal brand. Mm-hmm. So it didn't, there wasn't this idea that the personal brand overshadowed the business brand. Yeah. Yeah. The other one that I think is interesting, I had Dan Sullivan from Strategic Coach Yeah. On my, my podcast recently, and Fantastic guy.

[00:36:55] Nick: Yeah. And I think Strategic Coach is investible and sellable. Right? [00:37:00] Because he's very clearly, 'cause he's getting a bit older now, he's very clearly removed himself from most of it. He still does a lot of the podcasts and things like that. Yeah. Thought leadership. But the programs he's developed are so well run without his involvement that it's still a lot of value there.

[00:37:15] Allan: Yeah. And post exit, I mean, there's usually deals where, hey, you'll stay on and continue to do the podcast for at least the next year, or make a smooth transition where,

[00:37:25] Nick: yeah, a hundred, a hundred percent.

[00:37:26] Strategic Considerations for Exiting Your Business

[00:37:26] Nick: And I definitely wanna talk a little bit about this for, for people listening. 'cause people sometimes ask me, you know, why would I sell to private equity versus selling to another company?

[00:37:34] Nick: And there's one really big reason. And that is what we call the sort of two bites of the Apple reason, which is, you know, if you sell a private equity, you don't often sell the whole company. You sell somewhere between 70 to 80%. It's you to roll over into the new entity that's created. Yep. And, um, if you follow the line of thinking what I said beforehand about why, how private equity are, are measured, they want to create that sort of three to five times return on their capital.[00:38:00]

[00:38:00] Nick: If they buy your company and you still own 20% of it, and then they wanna sell that, you know, in three to seven years. I've seen situations where a founder takes a lot of money off the table in the first exit. They stick around for 12 months doing the integration. Then they join the board and do what you just said, like, you know, do some, some kind of stuff that's brand related, but they don't do any business operations.

[00:38:21] Nick: 'cause at that point, someone else is running the company under private equity ownership. They still have their 20% at the same share level as the private equity firm. That business grows, sells, and they make more, sometimes more than what they made in that first piece. It doesn't ha it doesn't happen all the time.

[00:38:37] Nick: So they don't want people to go, like, that's what happens. But it, it can happen if you are very about that.

[00:38:41] Allan: So on that point, which is sometimes commonly referred to as the golden handcuffs, that is the good scenario where you're having fun, you exit from all the second time than you did the first time.

[00:38:51] Allan: But a very common one is you're like. I hate my life. Like now I've got a boss, I've got a, I'm accountable to, um, they're destroying what I [00:39:00] built. They're bringing in some manager and, you know, I don't agree with what they're doing. They fired people. I love, you know, so how does that play out?

[00:39:08] Nick: This is where, you know, if we, if we round out a lot of what we've spoken about, this is where I, I'm gonna go back to what I said about, you've gotta really think this through and learn how the game is played.

[00:39:18] Nick: The goal is to sell your company for eight to nine figures. You've only got really two options. The IPO really a, a, a sale as a capital raise. Yeah. So you've really only got the option of equity or selling to a, a strategic buyer. Yeah. If you sell to a strategic buyer, we often call it a turn the lights off strategy, because quite often they don't really need you.

[00:39:35] Nick: Mm-hmm. Right. Particularly if it's a big company, they just want the assets that you've created. So in those situations, if you don't want a boss or you don't want to kind of stick around. You know, that's a really good exit for someone who just wants to kind of like integrate into a bigger mother. That is, there's not a lot of protection for the people that have got you to where you are.

[00:39:52] Nick: Mm-hmm. And you know, you don't obviously have other opportunities to create wealth through that, but it's a choice. Now, if you go to [00:40:00] private equity, you are gonna get a boss.

[00:40:02] Allan: Mm-hmm.

[00:40:03] Nick: And you're gonna have a board put around you and you're gonna have an operating partner like I used to be telling you what to do.

[00:40:09] Nick: But there is a kind of caveat that I, I don't wanna mu muck things up from my side. I want you to be supported, but if you're not doing what we want you to do, then you're gonna be out.

[00:40:18] Allan: Mm-hmm.

[00:40:19] Nick: Right? And that's what I mean, the unapologetically about money. We don't care about, you know, how great you were when we bought you.

[00:40:25] Nick: We now own you. So what I say is, if you are gonna sell your company and you've got this intention. And you give yourself at least 36 months to understand how the game is played, do all the exit preparation I mentioned, and go out there and, um, handle the process yourself. You can pick and choose as your company.

[00:40:46] Nick: Mm-hmm. Now, most people don't think like this. They go, I'm just gonna take the highest amount of money. Mm-hmm. Whenever you sell anything, there's two pieces. There's price and there's terms. Yeah. And you can only win one. Mm-hmm. [00:41:00] Right. So if, if you came to me and said, Hey Nick, I want you to buy my business.

[00:41:04] Nick: It's worth 20 million bucks. And I go, well actually Allan , it's only worth 12. And you go, well, I'm not doing the deal unless it's 20. I'll go, okay, Allan , no problem. I'll pay you 20 million for your company, but I'm gonna pay you over 20 years. Right. That, that's just a crude example of price and terms. Yeah.

[00:41:22] Nick: So my point B here is take your time to learn the market. Take your time to decide you wanna be strategic or financially acquired. If you choose financial, go out there and find the, the key private equity firms. Go out and meet them when you go through the process of, you know, selling your company. Get some due diligence on your side from people that have, um, you know, already been acquired by that company.

[00:41:44] Nick: And try and find some ones that weren't, or went through the process and didn't have a good time. So you should absolutely do your own due diligence before you sign the the transaction. Yeah, and in that situation you can mitigate some of these issues. 'cause there are great private equity firms out there that are absolutely aligned [00:42:00] with probably what you wanna achieve.

[00:42:01] Nick: They're not just gonna show up, you've gotta do the work to find them.

[00:42:04] Allan: Yeah. Would it be true to say that you'd be happy with whatever the first chunk is so that you can potentially walk away or, or get fired or whatever and not get that second chunk and you'd be still be happy with the transaction?

[00:42:18] Nick: Yeah. Cash at close. So, yeah, we, we, I, I often advise my clients on, I say, listen, whatever we, when we sell the company, you're gonna have an earnout, you might have a rollover, you know, and those things, but we wanna make sure that the cash at close is what you want. Yeah. And anything else is a bonus. Yeah.

[00:42:32] Nick: And that's again, why it takes longer to get a, a business ready and you have to go for a bigger number because, you know, as I said, you'll get 70% ish cash at close on a private equity transaction. So, so you want that to almost be your life changing number. I.

[00:42:45] Allan: Exactly, and I mean, it's not always just because there's dispute with the buyer or, or whatever.

[00:42:50] Allan: It's just like you've now got 30, $40 million or whatever in the, in the bank account. You essentially set and now you are making the evaluation. Is three more years of my [00:43:00] life really worth that extra 10 or 15 or whatever?

[00:43:03] Nick: We're well aware of that risk.

[00:43:04] Allan: Mm-hmm.

[00:43:05] Nick: Right. And you know, we know that as soon as someone's got, you know, aid in their bank account or whatever, that their motivation changes.

[00:43:12] Nick: Yes. So we assess that through the process too. But what's interesting about it is I'll often ask the question, who else have you got to run the company? What's your succession plan? So one of the other points we didn't talk about is make sure you've got a succession plan. Mm-hmm. So if you are, if you come in and, you know, you might have all, all intentions to stick around, but let's say you don't make sure you've got someone that you know, you've already positioned through the sales process could take the company on and ideally have a couple of options so that I go, okay, well, you know.

[00:43:41] Nick: If I, if you don't work out, I've got a couple of people here that look really good, and then I've also got the people that I might bring in from another source. I'm gonna pay more for that because I don't have a problem to fix. That's immediately gonna happen, you know, in the first say, 12 months post transaction.

[00:43:55] Nick: So I often say to people it's, you know, particularly if you're getting into that sort of [00:44:00] multi seven figures of ebitda, it's probably worth starting to think about a board around your business or starting to have, I call it your personal board of advisors. Mm-hmm. Because you are gonna have that put around you if you sell to private equity.

[00:44:11] Nick: So the more that you can get used to having other people to make suggestions, challenge you, that that's a good thing mentally for the founder to have. Mm-hmm. And again, if you sell the company and there's already that structure in place and the private equity firm sees that, they also say, well, actually that is, they're used to operating with this model.

[00:44:29] Nick: Mm. So that's, that's an important one. Some of the basic ones. Um, fully documented systems and processes. Yeah. Again, comes back to my point of we want the business to run like a machine and there's a whole heap of marketing and brand wants, which, you know, I mentioned before about not having marketing or sales or delivery, relying on the founder, but you also wanna have a multiple acquisition channels.

[00:44:51] Nick: Mm-hmm. Customer acquisition channels in place. Yeah. Not a stupid amount, but I often say you want about three. Yeah. And if, if it's all referrals and things like that, then are not very [00:45:00] predictable unless you've mechanized that in some way. That again, is a risk. So that's important. And then the last one I'll mention is, is really focusing on both brand and culture.

[00:45:10] Nick: So I look at brand as looking at the business probably from the outside in, you know, how well it's positioned, how well it kind of, it's clear on who it helps, all those sort of things. And culture is almost like the reverse of that. It's from the inside out. Mm-hmm. And when we go into due diligence, we really assess the culture based on values, standards, and behaviors.

[00:45:29] Nick: And if they align well to the, the vision and the mission, it again, it's just since you're around a well-built, well structured asset that I can then do something with.

[00:45:39] Allan: Mm-hmm. What about the actual kind of corporate structures? Are there any that are better or worse? I mean, some are stood as trusts or discretionary trust, some as are structured as LLCs or whatever, depending where, where you are in the world.

[00:45:52] Allan: Does, does any of that really matter a lot or is it mostly purchases of assets?

[00:45:58] Nick: Uh, it, it, it depends a [00:46:00] little bit on the countries you're in, but partnerships and limited companies and things like that tend to be the ones that obviously sell. You don't want anything too creative. Yeah. Sometimes if you've gone too creative to mitigate by offshoring to the Caymans and all those sort of things, it just causes complexity that needs to be changed.

[00:46:18] Nick: Like if, if, if I'm buying a platform company and I wanna do acquisitions in Florida, but the business is based in the Caymans. Am I gonna do then, you know, am I gonna, if I had to move the headquarters into North America, what happens to tax? Mm. So there's a lot of things like that. What I often say again, is if, if you are getting ahead of this, let's say you have built a lifestyle business, which is in the Caymans, and all of a sudden you now wanna move into this performance type of focus to sell it.

[00:46:43] Nick: At that point, maybe you want, you may wanna think about changing where it's headquartered. Yeah. So I've just done this with a company in Vancouver. Very, very poor tax situation just this week actually, in terms of what's been announced. So we are moving that company to be headquartered in Miami. Right. So we have to [00:47:00] close the company down and restructure it and transfer the books.

[00:47:02] Nick: It's quite illegal and finance complexity. Yeah. But we wanna sell the company in five years, so we've got enough time to be able to make that now, which will help you know what happens later on.

[00:47:14] Allan: Very cool. Nick, thank you. You've been very generous with your time and your knowledge. Um, where do people find you?

[00:47:19] Allan: We will of course link in the show notes and, um, yeah. And how do people connect with you if they want to do their own eight or nine figure exit?

[00:47:28] Nick: Yeah. Well, as I said, the advice I have is start early. Don't come to me when you think you're ready to sell. Come to that. Yeah. So best place to, to reach out to me.

[00:47:35] Nick: Uh, I'm on LinkedIn, so it's real. Nick Bradley actually is my kind of profile there, so, so, you know, come and find me on LinkedIn. Send me a message, say you heard me on the show. That's always, always good to hear. My website is called High Value Exit, high value exit.com. And as I mentioned, my book's coming out next month, which is called Exit for Millions and we should be able to give you a link for that pretty soon as well for, um, signing up to the wait list on that.

[00:47:56] Nick: But that's gonna be a lot of what I went through today with [00:48:00] a more practical way of how you start to build your company. And reverse engineer that outcome. So yeah, a lot of fun. It's taken me two years to write, so it's, you know, it's thorough enough.

[00:48:10] Allan: Love it. I can't wait to read it. Thank you so much, Nick.

[00:48:13] Nick: Cool. Thanks Allan . Appreciate it.

[00:48:14] Allan: Thanks for tuning in to the Lean Marketing Podcast. This podcast is sponsored by the Lean Marketing Accelerator. Want to take control of your marketing and see real results with the accelerator? You get proven strategies, tools, and personalized support to scale your business.

[00:48:30] Allan: Visit lean marketing.com/accelerator to learn how we can help you get bigger results with less marketing. And if you enjoyed this episode, please leave a review or share it with someone who would find it helpful. See you next time.

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