Episode Transcript

Speakers: Craig Andrews, Richard Parker

[0:00] Craig Andrews: You never know how much time you have.
[0:02] Craig Andrews: For me, that stopped being an idea and became reality on August 22nd, 2021.
[0:09] Craig Andrews: The doctors put me on a ventilator and told my wife to call hospice so she could prepare
[0:14] Craig Andrews: for the day they planned to pull the plug.
[0:17] Craig Andrews: Six weeks later, I woke up to an entirely different reality.
[0:20] Craig Andrews: I could not walk, I could not talk, I could not even lift my own arm, and I woke up realizing
[0:26] Craig Andrews: something else, I had not made the right preparations for my family.
[0:30] Craig Andrews: The plans I thought were pretty good fell through when it mattered most.
[0:34] Craig Andrews: That is why fiduciary alchemy welcomes voices that would have warned me about the holes
[0:39] Craig Andrews: in my plans.
[0:40] Craig Andrews: My hope is that you live a long and prosperous life, but I also hope you make better plans
[0:45] Craig Andrews: than I did.
[0:46] Craig Andrews: So tune in, take notes, and stay with us through the end when bluesman grindle and the compliance
[0:51] Craig Andrews: choir.
[0:53] Craig Andrews: Taking a word of caution.
[1:00] Craig Andrews: Today I want to welcome Richard Parker, he is the founder of Roy Street Advisors.
[1:06] Craig Andrews: Richard is an accomplished investment banking executive with a career spanning over 30 years
[1:12] Craig Andrews: in a thousand transactions.
[1:15] Craig Andrews: Before founding Roy Street Advisors, Richard served as managing director of P-Squared,
[1:19] Craig Andrews: a private equity firm funded by the Dalio Family Office.
[1:24] Craig Andrews: He is also the author of How to Buy a Good Business at a Great Price, a series in a course
[1:32] Craig Andrews: that has been used successfully by business buyers in over 80 countries.
[1:39] Craig Andrews: Richard's unwavering dedication to excellence and his ability to foster stronger relationships
[1:44] Craig Andrews: with key stakeholders has positioned him as a leading authority in the M&A arena for
[1:50] Craig Andrews: the lower middle market.
[1:52] Craig Andrews: And I would say for those listening, at some point, if you own a business, at some point
[1:58] Craig Andrews: you're going to sell it, it's probably the most valuable thing that you have.
[2:03] Craig Andrews: And everything I understand is it's an incredibly easy transaction to screw up.
[2:09] Craig Andrews: And so you need people like Richard in your life to make sure you don't screw it up and
[2:13] Craig Andrews: maximize that value to you and your family.
[2:18] Craig Andrews: Richard, welcome.
[2:19] Craig Andrews: Good morning.
[2:20] Richard Parker: How are you?
[2:21] Richard Parker: Nice to be with you.
[2:22] Richard Parker: That's good.
[2:23] Richard Parker: I had a good chuckle, but he says a very easy transaction to screw up.
[2:26] Richard Parker: It could be a very easy transaction, yes, but it's very easy to screw up if you don't do
[2:31] Craig Andrews: it the right way.
[2:32] Craig Andrews: Yeah.
[2:33] Craig Andrews: I mean, there's so many details, you know, little things, little snippets, you know,
[2:39] Craig Andrews: and one of the things I love about podcasting is I get to talk to people like you.
[2:43] Craig Andrews: And I just learned so much through the process, but I remember sitting in a, you know, sitting
[2:48] Craig Andrews: in something and some investment bankers and they were just giving some general guidance
[2:54] Craig Andrews: and they said, hey, be careful about taking distributions out of your business.
[2:58] Craig Andrews: I'm like, wait a minute, I thought that's why I had a business was to take distributions.
[3:04] Craig Andrews: And they're like, no, no, buyers are going to look that and they're going to conclude
[3:08] Craig Andrews: that you don't believe your business is the best thing to invest in.
[3:12] Craig Andrews: Yeah.
[3:13] Richard Parker: That's a very, that's very sage advice.
[3:17] Richard Parker: Now, of course, you're in business that, you know, the business should work for you.
[3:22] Richard Parker: You're in business to make money amongst other things.
[3:27] Richard Parker: But when you talk about distributions, you want to be the beneficiary of your hard work.
[3:33] Richard Parker: However, especially in the first few years, there's so much, the return is so much better
[3:41] Richard Parker: keeping your lifestyle at a reasonable level as your business continues to grow and keep
[3:44] Richard Parker: plowing money back into your business because the math is so simple.
[3:49] Richard Parker: Businesses sell at a multiple regardless of the level.
[3:53] Richard Parker: So whether that be, you know, one time or 15 times the earnings, when you plow, let's
[4:00] Richard Parker: just pick an arbitrary number five times, when you plow the money back into the business
[4:05] Richard Parker: and grow the business for every dollar of growth that you generate, you're going to
[4:10] Richard Parker: get $5 back.
[4:12] Richard Parker: So the math, the math is obscene, how easy it is.
[4:16] Richard Parker: I mean, it's almost, I mean, it's almost dumb math, meaning the return is so incredible.
[4:23] Richard Parker: And the investment bank that you spoke to, yes, I mean, it is a sign, you know, what
[4:27] Richard Parker: better investment than your own business and buyers want to see that you believe in it.
[4:33] Richard Parker: So when you, and that's a huge problem that I see constantly, but people have not put
[4:37] Richard Parker: the proper investment into their business of not built their best, especially in smaller
[4:41] Richard Parker: companies.
[4:42] Richard Parker: They just haven't put growth or capital in the business to make it a better business,
[4:50] Richard Parker: a more sellable business, you know, investing in people processes, procedures, not putting
[4:55] Richard Parker: in a second level of management, all these things come with putting money back into your
[4:59] Richard Parker: business.
[5:00] Richard Parker: Yeah, well, there's a guy named John Spolstra, if his name sounds familiar, his son is the
[5:06] Craig Andrews: coach of the Miami.
[5:07] Craig Andrews: I'm just going to say I know the last name because I think there's a Spolstra, I'm not
[5:10] Craig Andrews: a basketball fan, I'm a marketing fan, but there's a Spolstra who's a coach of Miami
[5:14] Craig Andrews: Heat.
[5:15] Craig Andrews: Yeah.
[5:16] Craig Andrews: Yeah.
[5:17] Craig Andrews: Well, his dad, genius marketer, he was president of the Portland, the Denver Wolves for most
[5:23] Craig Andrews: of the 80s until, oh, heck, I just drew a blank, the Microsoft guy, Paul Allen.
[5:29] Craig Andrews: Paul Allen.
[5:30] Craig Andrews: Yeah.
[5:31] Craig Andrews: And he and Paul had different opinion on how to do things and one of them was the owner
[5:35] Craig Andrews: and John wasn't.
[5:36] Craig Andrews: And so John moved on.
[5:38] Richard Parker: Yes, the golden rule, right?
[5:40] Richard Parker: He would the gold makes the rules.
[5:42] Richard Parker: But John talks about how, you know, when he was working with different folks to grow
[5:48] Craig Andrews: their organization, he had trouble convincing them to hire salespeople.
[5:53] Craig Andrews: And he tells one story about how he, when he was ever in Spain, he said, hey, if anybody
[6:01] Craig Andrews: will give me one euro, I'll give you 10 euros in return.
[6:05] Craig Andrews: Everybody looked around like there's going to be a gimmick.
[6:08] Craig Andrews: Right.
[6:09] Craig Andrews: Yeah.
[6:10] Craig Andrews: Finally, somebody got bold and gave them one euro and he gave me, all right.
[6:12] Craig Andrews: Here's your 10 euros.
[6:13] Craig Andrews: He's like, any other take search since somebody came up and he did that like three times.
[6:19] Craig Andrews: He's like, now this seems pretty simple, right?
[6:21] Craig Andrews: Like, yeah, why aren't you hiring salespeople?
[6:25] Craig Andrews: If you hire the right salespeople, it's that reinvestment in the business.
[6:29] Richard Parker: Correct.
[6:30] Richard Parker: Correct.
[6:31] Richard Parker: Yeah.
[6:32] Richard Parker: And you know, it's where people go wrong related to salespeople, it's a trailing, it's a trailing
[6:41] Richard Parker: benefit.
[6:42] Richard Parker: I didn't want to say a trailing expense, meaning you hire salespeople, assuming you hire the
[6:46] Richard Parker: right one, it takes a little while to gain some traction to generate some revenue.
[6:50] Richard Parker: And so the tendency by people that are not sales oriented or don't see the value, someone
[6:56] Richard Parker: starts off in three months, you know, they haven't generated anything meaningful.
[6:59] Richard Parker: They say, well, there's not a good sales person, whatever, but you could be in an industry
[7:03] Richard Parker: where, you know, it takes six months or 12 months to start getting, you know, your pipeline
[7:08] Richard Parker: going and then order start to feed in.
[7:10] Richard Parker: There's just a lot of short, short term thinking.
[7:14] Richard Parker: And that's why, you know, every big business started off as a small business, but there's
[7:19] Richard Parker: also a reason why there's infinitely more small businesses than big businesses, because
[7:24] Richard Parker: some of them just can't get out of their own way.
[7:26] Richard Parker: And it's small time thinking.
[7:28] Richard Parker: And so they remain small businesses, you know, there's salespeople, perfect example, whatever,
[7:34] Richard Parker: you know, whatever, whatever it may be, if they're not investing in and seeing that
[7:39] Richard Parker: there's, you know, benefit, no matter how, you know, technology can provide some tremendous
[7:45] Richard Parker: help to people today and provide you with systems and processes that you wouldn't normally
[7:52] Richard Parker: have the benefit for reasonable amounts.
[7:54] Richard Parker: But ultimately, you need great people, no matter what the business is, you need great
[7:58] Richard Parker: people.
[7:59] Richard Parker: And if you're not going to put the right people into place and hire, hire people to help you
[8:04] Richard Parker: build a business, I mean, it was a big problem of mine in my own businesses that I own early
[8:08] Richard Parker: on in my career.
[8:09] Richard Parker: And then when the light finally goes on, you know, you realize that you've got it, you
[8:15] Richard Parker: need people.
[8:16] Richard Parker: I mean, it's just there's, there's, it's an overused term, but there's, there's no escaping
[8:19] Richard Parker: it.
[8:20] Richard Parker: No matter AI, tech, whatever, you need people.
[8:23] Richard Parker: Well, you know, I experienced this, I was on the losing end of this number of years back.
[8:29] Richard Parker: We were doing the marketing for an RIA.
[8:33] Richard Parker: And we took them from 18 million in revenue to 60 million in revenue in a year and a half.
[8:39] Craig Andrews: What is an RIA?
[8:40] Craig Andrews: I'm sorry, registered investment, investment account?
[8:42] Craig Andrews: Okay.
[8:43] Craig Andrews: Yeah.
[8:44] Craig Andrews: Yeah.
[8:45] Richard Parker: Wealth manager.
[8:46] Richard Parker: Yeah.
[8:47] Richard Parker: And, and, and they decided they were going to sell their firm and they saw me as an expense.
[8:55] Richard Parker: And so they cut me, I mean, we, we multiplied their revenue by tens of millions of dollars.
[9:05] Richard Parker: And they cut my meager fees to get ready for an acquisition.
[9:10] Richard Parker: Happens all the time.
[9:11] Craig Andrews: I mean, we're just, I did an article recently, I think it was for Forbes and talking about
[9:18] Craig Andrews: how, you know, there's, we're talking about what people, I remember what it was.
[9:23] Craig Andrews: There was a question that came to us and I made a quick clip about what someone, what
[9:27] Craig Andrews: do I look at immediately when I evaluate a business that would cause me to disregard
[9:33] Craig Andrews: it immediately?
[9:34] Richard Parker: And there's a couple of points I'm going to say, I look for consistency in cheating.
[9:37] Richard Parker: And when I talk, consistency of numbers, et cetera, margins, revenues.
[9:43] Richard Parker: And then I talked about cheating where, you know, when you look at financial statements,
[9:47] Richard Parker: you could see oftentimes or a business owner recognizes that they want their, start selling
[9:52] Richard Parker: their business.
[9:53] Richard Parker: And you see them, for example, payroll and marketing are the two most common line items
[9:59] Richard Parker: that they will reduce in an effort to make their numbers look better and in preparation
[10:03] Richard Parker: for selling their business.
[10:04] Richard Parker: And when you think about it logically, there's the two most ridiculous things that they should
[10:08] Richard Parker: be cutting.
[10:09] Richard Parker: So, you know, someone they, they have an employee and the employee leaves or gets fired or whatever
[10:15] Richard Parker: the case may be.
[10:16] Richard Parker: And they say, you know what, you know, thinking about selling this business the next, bring
[10:19] Richard Parker: it to market next six, 12 months, let's see how we can do without them or marketing.
[10:23] Richard Parker: They say, we'll cut stuff back a little bit, marketing's working pretty, pretty, pretty
[10:27] Richard Parker: well.
[10:28] Richard Parker: And, you know, as, as you know, marketing like sales, it takes time to catch up.
[10:31] Richard Parker: So they'll cut those items and saying like how, like, the thinking is so polluted.
[10:36] Richard Parker: I mean, it's just, it's ridiculous.
[10:38] Richard Parker: But that's, I mean, it's, it sounds crazy to someone who thinks logically, but you see
[10:44] Richard Parker: it all the time.
[10:45] Richard Parker: Well, when buyers are looking at this, do they see this or are they, are they, yeah,
[10:53] Richard Parker: because what you want to do is when you evaluate financials of a business, you want to get
[10:56] Richard Parker: a few years, let's see, three years of financials, and you want to have them on, you know, your
[11:02] Richard Parker: P and L's, for example, and you want to have them side by side so that you're lying items
[11:06] Richard Parker: of all your expenses, revenue expenses, et cetera, line up year over year so you can compare
[11:12] Richard Parker: and contrast years and you look for, you look for changes, you know, I like to explain it
[11:18] Richard Parker: to people as following some, I'm a big fly fisherman, I do a lot less now living in Florida
[11:23] Richard Parker: because they don't like ocean fly fishing, but you should be a big, you should be a big
[11:27] Richard Parker: river fisherman.
[11:29] Richard Parker: And when I went to try to fish for Atlantic salmon the first time, like the, because salmon
[11:35] Richard Parker: just come up above the water, they sort of crushed the, the fly in them because they don't
[11:38] Richard Parker: feed on them.
[11:39] Richard Parker: And you, anyways, I was getting so frustrated two days ago, and guys, the guide and buddy
[11:44] Richard Parker: asked fish, you would say, there's one, there's one or it's, you got to rise, you got to rise,
[11:48] Richard Parker: you go, and I can't see it for the life of the, I don't even know what they're talking
[11:51] Richard Parker: about, the water looks black, but it, like I'm, you know, your, your line's 50, 70 feet
[11:55] Richard Parker: out or 60 feet, whatever, maybe, and I said, like, I don't see it then.
[11:59] Richard Parker: My buddy said to me, just look for a disturbance in the water, like as you're looking where
[12:03] Richard Parker: your fly is, because it's usually underwater a little bit, as it's making its pass, just
[12:09] Richard Parker: look for like a disturbance in the water, look in the general area.
[12:13] Richard Parker: And after that, boom, boom, not, I don't want to boast too much because I wasn't catching
[12:18] Richard Parker: them, like boom, boom, but I was hooking fish, and so I, I, I tell people, look for a disturbance.
[12:24] Richard Parker: Think about it that way, you want to look for a disturbance in the water as you look at
[12:27] Richard Parker: financial statements, something that looks odd, it sticks out what, even if it's something,
[12:31] Richard Parker: you know, insurance was 100,000, 120,000, suddenly went to 450,000, well, why is insurance going
[12:38] Richard Parker: up?
[12:39] Richard Parker: Is it common in those industries?
[12:40] Richard Parker: Is it something that's going to continue marketing, you know, as X amount, X amount,
[12:44] Richard Parker: and suddenly it's X minus 30%, or the employee count changes dramatically, or margins, like
[12:50] Richard Parker: just that's why when you're lining them up, you look for a disturbance, something that
[12:53] Richard Parker: just sticks out as being not ordinary or unusual, and you can find them fast.
[13:00] Richard Parker: I mean, because their numbers, numbers don't like, people like, numbers don't like, they
[13:04] Richard Parker: are, they are what they are.
[13:08] Craig Andrews: Yeah, and the, it, it does surprise me when I see people do, do that, but the, well, let
[13:19] Craig Andrews: me, let me ask this, when, when someone's evaluating a business, what's kind of the standard list
[13:24] Craig Andrews: of things that they're looking through, what, what are the things they're looking for to
[13:27] Craig Andrews: say, hey, you know what, this is a business I went by.
[13:30] Craig Andrews: Well, the first thing they typically do is go to the financials, which is understandable,
[13:35] Craig Andrews: but in reality, the financials should be the fastest, should be the fastest part of your
[13:40] Richard Parker: evaluation because they're numbers.
[13:41] Richard Parker: As I just mentioned, they are, or they are, they don't lie, they're numbers.
[13:46] Richard Parker: And so you want to make sure, for me anyways, I want to see that the revenue is either stable
[13:51] Richard Parker: or increasing.
[13:52] Richard Parker: I want to see that the gross margins are either stable or increasing.
[13:56] Richard Parker: I want to see that expenses relative to revenues are either stable or dropping, meaning expenses
[14:03] Richard Parker: are going down relative to revenue because you, the expenses should drop as your revenue
[14:07] Richard Parker: goes up.
[14:08] Richard Parker: I mean, there's certain fixed expenses.
[14:11] Richard Parker: And then, you know, so that's on the numbers part.
[14:14] Richard Parker: And again, I encourage people, that's a, that's a relatively quick exercise.
[14:19] Richard Parker: What you really need to determine is, is this a good business going forward, right?
[14:24] Richard Parker: Are all the economic conditions in place?
[14:26] Richard Parker: What can come out of the woodwork that could really hurt this business?
[14:29] Richard Parker: Are there any red flags?
[14:30] Richard Parker: What keeps the owner up at night?
[14:32] Richard Parker: Is there any, are there any customer concentration issues?
[14:35] Richard Parker: Are there any issues that could deem this business to be, you know, a dinosaur in a
[14:40] Richard Parker: short period of time?
[14:42] Richard Parker: All those things related, who are the competitors?
[14:46] Richard Parker: Any critical employees?
[14:47] Richard Parker: Any licenses held?
[14:48] Richard Parker: And again, I go back to also the concentration, any critical issues related to the concentration?
[14:53] Richard Parker: And ultimately, most importantly, above everything else, if you're going to be an owner operator,
[14:58] Richard Parker: are you the right fit to own this business?
[15:00] Richard Parker: Because in smaller businesses, typically it's, you know, Bob owns the business, Jennifer's
[15:06] Richard Parker: buying the business, Bob's going to leave, Jennifer takes Bob's seat, so she's going to
[15:10] Richard Parker: be an owner operator.
[15:11] Richard Parker: And if that's what you're going to be doing, you have to make sure that the business fits
[15:14] Richard Parker: your skill set.
[15:15] Richard Parker: Because all the other stuff is important.
[15:19] Richard Parker: But if you do a relatively good job on all the other stuff, but you screw up matching your
[15:25] Richard Parker: skill set to the right business, you're going to go out of business.
[15:27] Richard Parker: Conversely, if you do a flawless job, making sure you match your greatest skill set to
[15:32] Richard Parker: a business that utilizes that to drive the revenue and profits, you do a flawless job
[15:37] Richard Parker: on that.
[15:38] Richard Parker: And you're doing like an average job on all the other diligently, you're going to buy
[15:41] Richard Parker: and large, you're going to be okay, because you are the right owner of the business.
[15:46] Richard Parker: Yeah.
[15:47] Craig Andrews: You know, one of the things, I was a part of an M&A, you know, I was being acquired.
[15:53] Craig Andrews: It was a being capital transaction.
[15:58] Craig Andrews: And one of the things I've seen is it's really hard to keep the people.
[16:02] Craig Andrews: You know, and they, you know, they had a really nice retention bonus plan for me.
[16:06] Craig Andrews: They paid out the first tranche in advance, hoping I'd buy something nice and be locked
[16:12] Craig Andrews: in for a year.
[16:13] Craig Andrews: I'm Scottish, so I didn't.
[16:16] Craig Andrews: You know, I lasted, I think three months, I wrote a check, walked into my boss's office
[16:24] Craig Andrews: and I said, "Dave, I just can't do this, I'm sorry."
[16:27] Craig Andrews: And that's one of the things that happens, you know, so many times, at least in my observation,
[16:34] Craig Andrews: is it's hard keeping the people, because the acquiring organization has a different culture
[16:39] Craig Andrews: that was incompatible with the people you hired.
[16:42] Craig Andrews: How do you manage that?
[16:43] Craig Andrews: Well, you know, there's management from, it depends what side you're on, right?
[16:48] Richard Parker: If you're an institutional buyer, like a private equity firm, making an acquisition, by nature,
[16:56] Richard Parker: they're not operators.
[16:57] Richard Parker: I mean, I deal with a lot of private equity people in my world and I happily tell them
[17:02] Richard Parker: that most of them couldn't run a lemonade stand from an operational standpoint, but
[17:07] Richard Parker: they're very good from an acquisition standpoint.
[17:09] Richard Parker: So the better firms, the better institutional buyers that are not going to be operational,
[17:13] Richard Parker: family offices, private equity firms, the better ones are smart enough to know that they're
[17:19] Richard Parker: buying people and they don't want to mess with the culture.
[17:22] Richard Parker: When they mess with the culture, you know, if there's a reason why they're buying the
[17:27] Richard Parker: business, unless we're talking about distressed businesses, which is not my area, but if you're
[17:30] Richard Parker: buying a good business and you're trying to grow that business as an institutional buyer
[17:34] Richard Parker: with the idea of, you know, eventually, or exiting again in three, five, seven years,
[17:40] Richard Parker: you're buying culture and you're smart enough to know you don't mess with it.
[17:43] Richard Parker: You just don't.
[17:44] Richard Parker: I mean, you take care of the people, take care of them really, really well, give them an
[17:48] Richard Parker: incentive, make sure all the deals that I do now, there's like a management pool so they
[17:54] Richard Parker: can own equity in the business.
[17:56] Richard Parker: You know, the older, you know, stereotypical PE acquisition really is not common anymore.
[18:06] Richard Parker: They recognize they've got to add value.
[18:09] Richard Parker: They don't bring much to related to the culture.
[18:11] Richard Parker: They could do stuff in the back end.
[18:12] Richard Parker: So the better buyers pay attention to it, the dumb buyers will screw it up regardless.
[18:16] Richard Parker: I mean, that's, it just happens, but it doesn't happen in a lot of cases because the buyers
[18:20] Richard Parker: are better.
[18:21] Craig Andrews: Yeah.
[18:22] Craig Andrews: Well, you know, in one of my sayings, you know, this is something I've developed more recently.
[18:28] Craig Andrews: I'd say, you know, PE destroys all things that are good and virtuous.
[18:33] Craig Andrews: You know, when I see them do acquisitions, they go in, they cut customer service, they
[18:37] Craig Andrews: got the business of what made it great.
[18:39] Craig Andrews: I don't agree with that.
[18:41] Craig Andrews: That's really, it's, it's really not the case.
[18:43] Craig Andrews: Okay.
[18:44] Craig Andrews: No, call.
[18:45] Richard Parker: Tell me.
[18:46] Richard Parker: Yeah.
[18:47] Richard Parker: No, it's not the case.
[18:48] Richard Parker: I mean, it's, I think that's, you know, it's more like it happened two decades ago.
[18:51] Richard Parker: It just doesn't happen anymore.
[18:53] Richard Parker: I mean, they're, when you, and especially in the middle market where these are people-centric
[18:57] Richard Parker: businesses or their businesses that they want to grow, it's not a dice and slice or slash
[19:03] Richard Parker: mentality.
[19:04] Richard Parker: They go in.
[19:05] Richard Parker: As a matter of fact, you know, the majority of transactions that I've done over the last
[19:09] Richard Parker: number of years, it's the complete opposite.
[19:10] Richard Parker: They go in, they want to make sure everybody's well taken care of.
[19:13] Richard Parker: They're going to put in more money.
[19:14] Richard Parker: And I'm, I'm not sitting here trying to be the, the cheerleader for private equity, but
[19:19] Richard Parker: I just, I don't see it in, in the world that I operate because the better PE firms don't
[19:24] Richard Parker: operate that way.
[19:25] Richard Parker: They don't look to, you know, one of the greatest quotes that I ever heard, which was
[19:31] Richard Parker: very, very early in my career, which is, you can save your way to solvency, but you market
[19:36] Richard Parker: your way to success.
[19:37] Richard Parker: And it was a guy with the Bank of Montreal who was a consultant's name was Stu McClellan.
[19:42] Richard Parker: And, and, and I see that all the time with the right institutional buyers, they market
[19:47] Richard Parker: their way ahead.
[19:48] Richard Parker: They're putting in growth capital.
[19:49] Richard Parker: They want to put the right processes, systems, procedures.
[19:51] Richard Parker: Now, they will drive you absolutely bonkers related to reporting because they got tons
[19:55] Richard Parker: of, you know, some of them have tons of portfolio companies.
[19:58] Richard Parker: They want all the reporting to be consistent, but operationally, they're not, they're not
[20:02] Richard Parker: slicing and dicing, they're, they're, they're throwing money at it to grow it.
[20:08] Craig Andrews: And yeah, I think one of the fears that people, you know, selling their business has is if
[20:16] Craig Andrews: they sell it, well, well, whoever buy it, screw up their life's work.
[20:22] Craig Andrews: Correct.
[20:23] Craig Andrews: Yeah.
[20:24] Craig Andrews: What would you tell those folks?
[20:25] Craig Andrews: It's possible.
[20:26] Craig Andrews: So there's, there's three things really that a business owner has to think about.
[20:32] Craig Andrews: And none of these are, none of them are, none of them are, are more important than the other.
[20:39] Craig Andrews: There's three things that a business owner has to think about before they sell.
[20:43] Craig Andrews: And I always like to ask them, like, is, is the business ready to be sold and that could
[20:47] Craig Andrews: take a lot of work?
[20:48] Richard Parker: And are you ready to sell?
[20:50] Richard Parker: Because there's, there's three things that they need to think about and why are they selling
[20:53] Richard Parker: it?
[20:54] Richard Parker: And sometimes it's a combination of all three, okay?
[20:55] Richard Parker: So there's the money part.
[20:57] Richard Parker: And for many business owners, hey, listen, I've got to this point in my life, I've worked
[21:00] Richard Parker: hard.
[21:01] Richard Parker: I'm, you know, at 63 years old, I've had enough, I want to sell this business, I just want
[21:06] Richard Parker: as much money as possible, I want to get the hell out and write off into the sunset.
[21:11] Richard Parker: And there's nothing wrong with that.
[21:13] Richard Parker: Then there's the other ones who say, look, you know, for me, legacy is really important.
[21:18] Richard Parker: I, I've built this business, you know, this is blood, sweat, tears and beers over the
[21:22] Richard Parker: last, you know, three decades.
[21:25] Richard Parker: And I've got great people and I want to make sure my, you know, what I've built is taken
[21:29] Richard Parker: care of and my people are taken care of.
[21:31] Richard Parker: And that's the legacy.
[21:32] Richard Parker: So there's the money one, there's the legacy one.
[21:34] Richard Parker: And the third part is, you know, determining what you're going to do after because many
[21:38] Richard Parker: business owners, small business owners, especially their entire identity is tied to their business.
[21:44] Richard Parker: They can't even have a conversation with some people without talking about their business.
[21:48] Richard Parker: They have nothing else.
[21:49] Richard Parker: They don't have hobbies.
[21:50] Richard Parker: They, you know, they've, they've neglected other relationships.
[21:53] Richard Parker: And so everything they're in, again, their entire identity is tied up to the business.
[21:57] Richard Parker: So for those people, it's, well, what are you going to do, you know, on day one, after
[22:03] Richard Parker: you, meaning day one after you transition out, you may stay for well to help, but what are
[22:07] Richard Parker: you going to do with the rest of your life?
[22:09] Richard Parker: So there's really those three things that are really the, the bumper stickers of what's
[22:14] Richard Parker: important to a business owner.
[22:16] Richard Parker: And it's really, when I say important, it's very important that they understand what's
[22:19] Richard Parker: most important to them and tailor a deal accordingly because it's not just a case of always about
[22:25] Richard Parker: the money.
[22:26] Craig Andrews: The money plays a significant role, but if it is legacy and it is for many people, then
[22:32] Craig Andrews: the buyer has to be the right buyer and there's certain things that you could put into place
[22:36] Craig Andrews: to make sure that they hopefully don't screw up the right, the business, as far as who's
[22:40] Craig Andrews: going to operate it and how it's going to be funded and making sure that people are going
[22:44] Craig Andrews: to be staying placed.
[22:45] Craig Andrews: Maybe you want, you as an owner want to stay for a meaningful transition for a year or
[22:49] Craig Andrews: two or, or what have you, but there's no guarantees in life.
[22:53] Craig Andrews: I mean, they, is it possible that they could screw it up?
[22:55] Craig Andrews: Of course they are.
[22:56] Craig Andrews: Of course there is, but you, you get the sense of who the buyer is, whether it's an individual
[23:01] Craig Andrews: or an institution or PE firm or competitor or whatever, but really having a lot of good
[23:07] Craig Andrews: engagement with them during this process and establish good meaningful conversation, a
[23:11] Craig Andrews: good meaningful relationship and you understand how they operate because the more personalized
[23:16] Craig Andrews: you can make the conversations and the interaction, the more often people will drop their guard
[23:21] Craig Andrews: down.
[23:22] Craig Andrews: And so they may tell you certain things.
[23:23] Craig Andrews: There's people in my world of investment banking that say, and I hear it almost every
[23:26] Craig Andrews: day, you know, an institutional buyers will say anything they need to say in order to
[23:32] Craig Andrews: tie up a good business and get an L.A.Y.
[23:34] Craig Andrews: And could be true.
[23:35] Craig Andrews: But when you have enough conversations with people, you know, the truth typically comes
[23:39] Craig Andrews: out about how they think about the business.
[23:41] Craig Andrews: And you want to make sure that there's, there's a connection between you and how they perceive
[23:45] Craig Andrews: what your company should look like and what they're going to do with it.
[23:48] Craig Andrews: Yeah.
[23:49] Craig Andrews: Yeah.
[23:50] Craig Andrews: What would you say is a good process for figuring that out, you know, to get into that, getting
[23:58] Craig Andrews: to that point of transparency?
[24:00] Craig Andrews: Because usually, I mean, you know how it goes, you get in the meetings, the meetings about
[24:03] Richard Parker: the meeting, the meetings about the business.
[24:06] Richard Parker: How do you get to know about the buyer?
[24:08] Richard Parker: It's a great question.
[24:11] Richard Parker: The first thing is, especially if we're talking instead, on an individual, if you're buying
[24:15] Richard Parker: and if you're selling your business to an individual buyer, you can have that just through
[24:18] Richard Parker: good social interaction, ask them to have dinner also, you know, bringing their spouse
[24:23] Richard Parker: along, you know, invite them to a family event, try to make it as social as possible without
[24:28] Richard Parker: infringing upon the deal and the sensitivity of the deal, for example.
[24:33] Richard Parker: But with an individual buyer, it's easier.
[24:34] Richard Parker: With an institutional buyer, the way I find that it works pretty well is very often institutional
[24:40] Richard Parker: buyers, they're going to bring, they bring a, like, they're bringing a whole team to every
[24:45] Richard Parker: meeting.
[24:46] Richard Parker: Like, it's like the SWAT team for every meeting.
[24:48] Richard Parker: And what I tell my client says, "Hey, curb that.
[24:52] Richard Parker: Who's the big guy, who's the big guy or two?"
[24:55] Richard Parker: And then have them meet with them frequently on an individual basis.
[25:03] Richard Parker: So you have those conversations, meet with the team members, have your team members meet
[25:07] Richard Parker: with them.
[25:08] Richard Parker: Don't rely, you know, especially, you know, you're going to have, you have VPs or whatever
[25:11] Richard Parker: the case may be, your second tier of management that may be the next level of management taking
[25:15] Richard Parker: over and running the company that they're betting on.
[25:18] Richard Parker: Have those folks meet with the buyers.
[25:20] Richard Parker: I mean, you can't keep the deal secret.
[25:22] Richard Parker: I mean, the buyers are going to want to meet with those people that they're betting on,
[25:27] Richard Parker: right?
[25:28] Richard Parker: And so, you know, have, try to establish meaningful relationships as much as possible outside of
[25:35] Richard Parker: the nuts and bolts of the deal.
[25:38] Richard Parker: And that comes in with just good conversational and social interactions as often as possible.
[25:43] Craig Andrews: Well, you know, you were talking, when we were in the green room, you obviously have done
[25:48] Craig Andrews: a lot of work in Hong Kong.
[25:51] Craig Andrews: I've worked a lot in Japan, and one of the things that's common in Japan is if you have
[25:56] Craig Andrews: a meeting the night before you have dinner, and the culture is you do not talk work at
[26:02] Richard Parker: dinner.
[26:03] Richard Parker: It is everything but work.
[26:06] Richard Parker: Yes.
[26:07] Richard Parker: Is that possible?
[26:08] Richard Parker: Oh, absolutely.
[26:09] Richard Parker: Absolutely.
[26:10] Richard Parker: And you'll see, like, especially if it relates to private equity, they always want to have
[26:14] Richard Parker: dinner with my clients either before the meeting or after.
[26:17] Richard Parker: But I, you know, I appreciate the way you're saying that because I also found that when
[26:22] Richard Parker: I was doing business in Asia, I loved the socialization aspect of it.
[26:29] Richard Parker: And not from a standpoint, it was like just, you know, we were out partying.
[26:33] Richard Parker: It wasn't that.
[26:34] Richard Parker: So, the whole thing about they made, there was the pomp and circumstance and an orchestration
[26:41] Richard Parker: of the whole, the dinner before was part of the meeting.
[26:45] Richard Parker: They didn't discuss business, but that was part of everything, right?
[26:48] Richard Parker: Like, this is the way you cultivate a relationship with someone.
[26:52] Richard Parker: There is the dinner, and they take you to a real nice place, and there's a discussion
[26:55] Richard Parker: with the server or whoever it is about, you know, what the meal is going to look like
[26:59] Richard Parker: in the preparation, and they want to, you know, order whatever you want, drink whatever
[27:04] Richard Parker: you want.
[27:05] Richard Parker: And again, not talking any business because they put a very high value on the relationship.
[27:10] Richard Parker: That's a very different dynamic than North America, and specifically in the U.S., where
[27:14] Richard Parker: it's go, go, go, and everything is about commercialization, you know, it's difficult
[27:19] Richard Parker: to even have an in-person meeting with people today.
[27:22] Richard Parker: Yeah.
[27:23] Richard Parker: And in my world, there's an advantage because, you know, years ago, you'd have to meet with
[27:27] Richard Parker: someone in person five, ten times before you get engaged with it.
[27:29] Richard Parker: Now, I've clients globally.
[27:30] Richard Parker: I've never even met them in person.
[27:33] Richard Parker: But any time I have an opportunity to meet with someone face to face, and see, we want
[27:37] Richard Parker: to have a Zoom call, and they're in, you know, in Miami, and I'm up the road in Boca Ratonos,
[27:41] Richard Parker: and no, no, I'll come to Miami, there's no problem.
[27:44] Richard Parker: And part of that is from, I think, that Asian training, because when you get that, if you
[27:48] Richard Parker: can connect with someone, it's much easier to do business with them.
[27:53] Richard Parker: And especially in the point that you brought up about business owners, they want to have
[27:56] Richard Parker: the right person by their business.
[27:58] Richard Parker: Yeah.
[27:59] Richard Parker: And oftentimes, if the legacy is really important to them and culturally important to them,
[28:03] Richard Parker: the deal terms and the money and the cash they get are closing, of course, that's critically
[28:07] Richard Parker: important.
[28:08] Richard Parker: But they will be much more open-minded to sell the business to somebody, or to the deal terms,
[28:14] Richard Parker: in order to sell it to the business as someone that they know is going to take care of their
[28:18] Richard Parker: business.
[28:19] Richard Parker: Yeah.
[28:20] Richard Parker: I think it's a good lesson for people who are listening, that, you know, the dinner before
[28:23] Richard Parker: thing and no business talk is just like, "Hey, I just want to get to know you, and I want
[28:28] Richard Parker: you to get to know me."
[28:29] Richard Parker: Yeah.
[28:30] Richard Parker: And to your point, if you're doing that in North America, you probably have to somehow
[28:35] Richard Parker: mention that, because the, you know, you don't have to tell the Japanese-
[28:38] Craig Andrews: Exactly.
[28:39] Craig Andrews: Yeah.
[28:40] Craig Andrews: Right.
[28:41] Craig Andrews: You don't have to tell the Japanese, they're already doing it.
[28:42] Craig Andrews: Yes.
[28:43] Craig Andrews: I agree.
[28:44] Craig Andrews: Right.
[28:45] Craig Andrews: Well, hey, you know, we've talked a lot about the back end of selling a business before
[28:50] Craig Andrews: we wrap up.
[28:51] Craig Andrews: Let's talk a little bit about the front end, people, you know, buying a business.
[28:56] Craig Andrews: And that can be kind of scary.
[28:58] Craig Andrews: That can be kind of daunting, and, you know, you're kind of rolling the dice big.
[29:02] Craig Andrews: What's your take on that?
[29:03] Craig Andrews: Well, there's a couple of things, because when you're talking about individuals acquiring
[29:07] Craig Andrews: a business, and I spent a lot of time on the buy side and written a lot of courses and
[29:12] Craig Andrews: webinars and lots of teaching on that side.
[29:16] Richard Parker: So with individuals, it becomes quite frightening.
[29:18] Richard Parker: You know, the one thing I do tell people, we discussed it before, and is, you know, buying
[29:23] Richard Parker: a business or becoming an entrepreneur is doable by anybody.
[29:27] Richard Parker: It's just being, you know, having the focus and the commitment to doing it.
[29:33] Richard Parker: It can be daunting.
[29:35] Richard Parker: If you do it in a methodical manner, educate yourself, make sure that you're, it's almost
[29:42] Richard Parker: like the flip side of selling.
[29:44] Richard Parker: You know, the preparation is really important, making sure your deal team is lined up.
[29:51] Richard Parker: You don't have to be spending a whole lot of money, businesses take capital, personal
[29:56] Richard Parker: capital, doesn't take a ton of personal capital, but making sure you get in touch with, you
[30:01] Richard Parker: know, what your greatest skill set is to make sure it's tied up, you match it with the right
[30:06] Richard Parker: business.
[30:07] Richard Parker: So there are, there's 23 steps in the process actually of acquiring a business for an individual.
[30:13] Richard Parker: And so as long as you do it, you know, it seems daunting at the beginning, but if you
[30:16] Richard Parker: reduce it to bite sized pieces, it's very doable.
[30:20] Richard Parker: But you know, the, the internet, social media, AI has been the, the most destructive force
[30:27] Richard Parker: for individual business acquisitions.
[30:30] Richard Parker: It's, it's, it's been horrible because it's, there's so much generic information out there.
[30:38] Richard Parker: There's so much misinformation and disinformation.
[30:42] Richard Parker: And people have tend to believe that, you know, they can get these snippets of information
[30:46] Richard Parker: and various sources and put together your thoughts and go down the process of buying
[30:50] Richard Parker: a business.
[30:51] Richard Parker: And, and, and it just doesn't work.
[30:52] Richard Parker: And that's why, like in small business transactions, you know, Main Street, USA or lower market,
[30:58] Richard Parker: the numbers are absolutely horrific, 94% of the people who begin to search the buy business
[31:02] Craig Andrews: never complete a transaction.
[31:03] Craig Andrews: You know, it's really interesting when you say that about AI, my yesterday, my brother-in-law
[31:10] Craig Andrews: was over and he, we were just chatting.
[31:12] Craig Andrews: He's a software developer, very senior.
[31:15] Craig Andrews: He works on the carnal.
[31:16] Craig Andrews: And I asked him, I say, Hey, if you and I are using the same AI, is the code that I generate
[31:25] Craig Andrews: as good as the code you generate?
[31:27] Craig Andrews: And he said, absolutely not.
[31:31] Craig Andrews: And so the, there you go, there you go.
[31:34] Craig Andrews: Yeah.
[31:35] Craig Andrews: And it sounds like that's some of what you're saying.
[31:37] Richard Parker: It's not that AI is intrinsically bad.
[31:39] Richard Parker: It needs to be driven by the right operator.
[31:41] Richard Parker: It needs to be driven by the right operator and exactly that and, and individuals should
[31:46] Richard Parker: realize they should, you know, you get a lot of these communities of it, and again, I'm
[31:51] Richard Parker: talking individual business buyers.
[31:53] Richard Parker: You get a lot of these communities where individual business buyers are talking to each other.
[31:57] Richard Parker: There's some platforms where there's, you know, thousands of prospective business buyers
[32:01] Richard Parker: on there.
[32:02] Richard Parker: And what you have is you have thousands of people with no money, no experience, no track
[32:07] Richard Parker: record and no clue how to buy a business.
[32:11] Richard Parker: And they're asking questions to a whole series of people who have no money, no track record,
[32:16] Richard Parker: no experience and no clue.
[32:18] Richard Parker: So it's like the blind leading the blind versus saying, you know, the, you know, I've worked
[32:22] Richard Parker: with very successful business people.
[32:26] Richard Parker: I worked with billionaires.
[32:28] Richard Parker: You know, the one thing that the most ridiculously incredible, the most ridiculously successful
[32:34] Richard Parker: people have in common is they always try to go to the number one draft pick.
[32:40] Richard Parker: When I worked with the Dalio family office, they're determined for it was find the most
[32:43] Richard Parker: believable party and the oldest, and the oldest recipe for success is, you know, it's really
[32:49] Richard Parker: find someone who's already successful at what you're trying to do and then either copy them
[32:53] Richard Parker: or get them to mentor you.
[32:55] Richard Parker: And so these individual buyers, because of the internet and because of social media and
[32:59] Richard Parker: AI, they're just getting snippets of information versus saying, Hey, I'm going to find someone
[33:03] Richard Parker: in my town who's bought five businesses.
[33:06] Richard Parker: And I'm going to, I, the first thing I'm going to do is go ask to meet with them.
[33:09] Richard Parker: I'm going to ask to take them for coffee.
[33:11] Richard Parker: I'm going to ask them to mentor me.
[33:12] Richard Parker: I'm going to ask them questions, see if because people buy in large are happy to help as opposed
[33:16] Richard Parker: to getting all this little tidbits of generic information or attaching themselves to these,
[33:21] Richard Parker: you know, self-anointed gurus selling these $10,000 programs.
[33:25] Richard Parker: Do it the old fashioned way, roll up your sleeves, get your fingernails dirty and find
[33:29] Richard Parker: someone who's going to, who's going to help you and mentor you, and there you'll be more
[33:33] Richard Parker: successful because you want to learn the nuts and bolts of it.
[33:36] Craig Andrews: Yeah.
[33:37] Craig Andrews: Well, you know, something you said to me in the green room that just that, and I'll be
[33:41] Craig Andrews: honest, it surprised me a little bit, but it was also encouraging.
[33:45] Craig Andrews: And you said buying, buying a business and being an entrepreneur is doable by anyone.
[33:52] Craig Andrews: Absolutely.
[33:53] Craig Andrews: 100%.
[33:54] Craig Andrews: Not.
[33:55] Craig Andrews: Yeah.
[33:56] Craig Andrews: Why would you find it?
[33:57] Richard Parker: Have you found it surprising?
[33:59] Richard Parker: Well, you know, I think there's a lot of people that think, you know, maybe that was true
[34:04] Craig Andrews: 40 years ago.
[34:05] Craig Andrews: More true now.
[34:06] Craig Andrews: I'm doing this 36 years.
[34:08] Craig Andrews: It's infinitely more true today than it was three decades ago.
[34:12] Craig Andrews: Okay.
[34:13] Craig Andrews: What makes it more true today?
[34:14] Richard Parker: Because people have access to much more information, even though that might sound a little bit
[34:20] Richard Parker: and opposite to what we just discussed, but there is access to more information systems,
[34:26] Richard Parker: for example, software that you could implement in your business that used to be tens of thousands
[34:31] Richard Parker: of dollars now free, you know, communication with people, the ability to market or test
[34:36] Richard Parker: market a product.
[34:38] Richard Parker: You could do that in minutes versus months when I first started out and doing mailers
[34:42] Richard Parker: and that type of stuff.
[34:43] Richard Parker: You could put something online, you could test a marketing program in minutes.
[34:50] Richard Parker: And so all these, the cost associated with a business have gone down drastically.
[34:57] Richard Parker: And there's also this world of commercialization, doing business globally through the internet
[35:04] Richard Parker: or, you know, in social media that didn't exist before.
[35:08] Richard Parker: And you can start off small, like one of the things that I tell people, look, if this is
[35:12] Richard Parker: doable by anybody, you don't have to go out and think you need to buy Microsoft.
[35:16] Richard Parker: You could start off with a side hustle, you could start off buying a smaller business,
[35:20] Richard Parker: you know, you're going to make mistakes, just try not to make big ones.
[35:23] Richard Parker: You know, you could buy, even if you're buying like a small pull route or a coin laundry
[35:28] Richard Parker: or a small distribution business, yeah, even if it break, you know, you might not even
[35:32] Richard Parker: have to leave your job.
[35:33] Richard Parker: And so you could run that, you know, parallel to that, or maybe you have to take a step
[35:37] Richard Parker: back and make a little bit less money at the beginning.
[35:40] Richard Parker: But, you know, and if it doesn't work out, you sell it, you buy another one, like these
[35:44] Richard Parker: are things that are doable, people just have, you know, either afraid to take the step,
[35:49] Richard Parker: or they have these delusions of grandeur, meaning thinking that they've got to go and
[35:53] Richard Parker: buy a company that's immediately doing $10 million, it doesn't work that way.
[35:57] Richard Parker: You know, buy something small, buy something manageable, buy the biggest business you can
[36:01] Richard Parker: afford to operate, of course.
[36:04] Richard Parker: But there's so many businesses, there's so many businesses now that are service related
[36:09] Richard Parker: that don't even, you know, don't even have employees or have a couple of employees.
[36:12] Richard Parker: The overhead is really low, I mean, this never existed, you know, when I was, when I first
[36:17] Richard Parker: started out into your point, you always needed an office, you needed an assistant, you know,
[36:22] Richard Parker: like, before you even got going, you know, like they had big expenses, and any business
[36:27] Richard Parker: you bought always had, what it seemed like too many people and overheads, it's just a
[36:31] Richard Parker: very different world today.
[36:33] Richard Parker: And so it's, to me, it's infinitely more doable.
[36:36] Richard Parker: You know, my son is graduating next year, he's been saving his money, he does some work
[36:41] Richard Parker: on the site, saving his money like crazy, and he's cool, he's buying a business.
[36:46] Richard Parker: Like he's just saving like a maniac to be able to put some money down on a business.
[36:50] Richard Parker: And it's not because, you know, his connection to me or whatever he sees, it's doable, I
[36:54] Richard Parker: deal with thousands of people who bought businesses.
[36:57] Richard Parker: It's absolutely doable.
[36:58] Richard Parker: He's got to do it the right way, but it's doable, and it's way easier than it used to
[37:02] Richard Parker: be.
[37:03] Craig Andrews: Well, that's encouraging, Richard, this has just been amazing.
[37:07] Craig Andrews: We keep talking, we're going to talk about Hong Kong, never even gotten into that.
[37:12] Craig Andrews: But the...
[37:13] Craig Andrews: Yeah, because it's one of my favorite subjects.
[37:15] Craig Andrews: Yes.
[37:16] Craig Andrews: But how can people reach you?
[37:18] Craig Andrews: Very simple.
[37:19] Richard Parker: My investment banking business is Roy Street, R-O-Y-S-T-R-E-E-T, it's Roy Street.com.
[37:26] Richard Parker: There's a contact form on there, if you want to get ahold of me, just mark in there that
[37:30] Richard Parker: you please send the inquiry to me directly, but it's Roy Street.com.
[37:36] Richard Parker: And then even simpler on the buy side, those courses that you alluded to, it's RichardParker.com.
[37:41] Richard Parker: And same thing.
[37:42] Richard Parker: If anybody wants to get in touch with me, happy to get on a phone to help anybody out.
[37:45] Richard Parker: They just use the contact page for that and look forward to hearing from some of your
[37:50] Richard Parker: listeners.
[37:51] Richard Parker: Well, thanks for coming on the fiduciary alchemy.
[37:54] Craig Andrews: Thank you.
[37:55] Richard Parker: I appreciate you having me.