Lessons - The Worst Mistakes Entrepreneurs Make | Michelle S. Tucker - Mergers & Acquisitions Specialist

You mentioned that I was actually watching before we jump into it. I watched your sizzle reel on YouTube, I think. And you made a really good point and you do a lot of speaking, which is that, you know, that impressive because I think that this is something that entrepreneurs have to hear. Instead, a lot of people build themselves a job and not a business. Let's start. That's sort of like the basis. What does that mean? What do entrepreneurs screw up? So that is the basis. And that's one of the biggest reasons that businesses are not sellable that eight out of 10 businesses don't sell because entrepreneurs have built themselves a job, meaning that the business is attached to them. They're doing everything. And I'll give you some examples. Let's say you have a dental practice, one dentist, dental hygienist, you pull that one dentist out of the dental practice, is there a business? No. The dentist has created a job to where he goes to work every day, he hasn't created a business that works for him. He can't take long vacations. He can't leave his practice. And that's a job. That's not a business. Same thing with chiropractor. You know, we're trying to sell a chiropractic clinic right now. They have two chiropractors. And the owner was just so confident that those two chiropractors were staying and gets what they're not. So now we're back to square one. So you got to build a business, they can operate without you. And that's the first P that we talk about the six P's, the ST6 P's in exorich is people. You got to build a business. You don't build a business. You build people and people build a business. Otherwise, you just have a glorified job. Yeah. Yeah. And actually, you know, that I was going to, that's a good segue into that point because you have framework and models. And of course, these frameworks are meant for exiting that, you know, that is your bread and butter. Like you have 1.1 habit transaction for the business. But there's two models that you mentioned when we're chatting before, there's GPS eggs and model and six P, these are proprietary, you sort of build these over your career. This is what you teach entrepreneurs. I think these are good models to go through regardless of having that exit plan today because I think these are just really, really good frameworks for building successful businesses period. And I don't know what your thoughts are in that, but I would love to like, just sort of dissect at a high level, obviously, you can't put all the detail on on the podcast, but at a high level, what are these frameworks? Which one do you want to start with? Yeah. We'll start with the GPS exit model because then it kind of leads into the six P's. Okay. All right. So an exit rich is not just about selling your business because like you said earlier, rather you want to sell now or later, exit rich is actually about building a sustainable scalable asset so that you actually have something to sell when you're ready. There are so many business owners that would love to sell, but they're being forced to sell for pennies on a dollar, close their business or file bankruptcy. You know, when I wrote, sell your business for more than it's worth in 2013, I did the research back then. And I, you know, found out that 85 to 95% of startups with clothes, right? We all know that startups are always at great risk because one to five years are the most vulnerable where a startup will go out of business. But guess what? Scott, when I wrote exit rich in 2019 and 2020, I did the same research and I learned that the business landscape has changed dramatically. It's only 30%. It's a flip-flop. It's only 30%. Now that I've started, so we'll go out of business only 30%. Startups are at last risk, but out of 27.6 million companies, those businesses that have been in business for 10 years or longer, 70% of those businesses will go out of business. 70%. They're failing. They're failing. They're failing later. They're failing later. They're failing much later. They're failing much later. You said you just had to nail on the head. It used to be, Scott, that if you were in business five, six, ten years, you're golden, right? You can write your ticket. That's not the case anymore. The business landscape has changed and you hear about the public companies all the time, like Toys or Us. But if it's the 70 years gone, came out, gone, sears having trouble, JC Penney's Montgomery Ward, I'm Mark Pierone, G and C closed on 900 locations. But what you're not hearing about are the private companies. Those are public companies. You're not hearing about the private companies on every street corner and every state, you know, across all great nations. So the reason for this is because business owners are not, they stop doing one thing I call aim, which is always innovate and market, always innovate and market, because Amazon has changed a way that consumers purchase products and services. Amazon has made it so easy to purchase anything. You can practically buy a horse on Amazon and have it delivered to you in two dates. You know, so, so business owners have to keep innovating, okay? So the GPS exit model is set up for success. The problem with business owners is I don't think about selling until catastrophic event has occurred. You know, they'll call me up when they say, look, there was a death, there was a death, you know, that the owner died or there's health issues or there's marital issues. We're going to have a divorce or COVID or COVID or a hurricane or a tsunami or a tomato or fires in California. I mean, the list this goes on and on. The worst time to sell your business is when a catastrophic event occurs because the business is typically turning downward. So business owners don't have a plan. And the GPS exit is designed to plan your exit from day one, to starting or buying your business. So number one, when you want to drive somewhere, what's the first thing that we all do now? We don't pull out maps anymore. You're too young to remember maps, but now we pull out our phone, right? We pull out our phone. We plug in our destination is so easy these days. We plug in our destination and we tell our GPS where we want to go. With same thing in business, the business owners need to figure out their in game. They need a destination to drive to. They need to figure out what they want to sell their business for. So if they say, look, I want to sell my business for $20 million, right. Then we have a start of a plan and we have a number. We have a target, right? Now what does the GPS need to know? The GPS needs to know, well, where are you starting from? What's your current location? So business owners need to know their current valuation. Now Scott, I've been in this industry for 20 years. Humans keep physical annual checkups every year, right? The humans that want to stay on this earth for a long time. We take our cars into the shop and we get checkups on our automobiles. But we never get a valuation checkup on our business. It is financial suicide because there are. Things that happen, the increased valuation and decreased valuation in COVID has decreased the valuation for a lot of companies. But there's other industries that has increased the valuation for. So know your in game. I want to sell for $20 million. Know where you're starting at. What is your business worth today? Let's say it's worth $5 million. The problem is that business owners don't have a road map. So they drive around in circles going up and down the financial heels to end up nowhere. And that's what we want to prevent. So once you know your in game, $20 million, you know your current valuation, $5 million, then you need to know time frame. So let's say you want to do this in 10 years. Now we have a startup plan. We need a reverse engineer it. Now guess what you need to know. Who your buyers are going to be? I say buyers not buyer. So many sellers put their eggs in one buyer's basket and I can promise you in all likelihood that deal will fall apart. So you need backup buyers. There's five types of buyers. Let me tell you who's not going to be your buyer. A strategic, I'm sorry, a startup is not going to, first and buyer is not going to buy your business because your business is $20 million. Start up. First and buyers cannot afford a $20 million company. So first and buyers is one type of buyer. Turn around specialist or not going to buy your company. So it's either going to be a private equity group, strategic flush competitor or a serial entrepreneur. Now you need to know what's the numbers need to look like for me to sell for $20 million. Where's the gross revenues have to be? Where's the profit margin? It's most importantly, where does the EBITDA or needs before interest access, depreciation and arbitration have to fall? So if you get a sell for $20 million, you're even going to have to be around $3 to $4 million. Then you need to know what's the characteristics, what are the synergies that buyers will pay top dollar for and then you build that business based upon that blueprint of what buyers are looking for. That's how you create a bidding war. So when you're ready to sell that asset in 10 years, you're ready. You're not having to start from the beginning and then you need to know your why. Why do you want to sell a business for $20 million because how many people come up with those or New Year's resolutions got and they never keep them all of them. That's right. So you have to have an reason to know keep them is because they don't have a powerful why? The why has to be so strong that has to keep you motivated, has to keep you in the game, it has to keep you, you know, weathering the financial storms and all the kind of catastrophic events that occur because they will occur. So you're going to have a powerful, powerful why to keep you motivated. Then once you figure that out, start building a business on the six P's, any questions on that? No. Well, I'm going to ask what the six P's are. I guess my question because you work with a lot of entrepreneurs is why is this not more common sense? Why is this not something that people like it makes sense to me when you explain it. It makes sense to me to have the vision. It makes sense to me that even if you don't know if you want to sell the aim for the KPIs and the milestones that would that an investor would need to be a purchasable business because if your business is purchasable, you're probably doing pretty well, right? You're probably doing pretty good. Absolutely. So why not? Why do people not take this into account? You know, common sense is not very common. That's one of my favorite things too. And I think what happens is because like you said, I mean, it's so logical, it's so common sense that build a business even if you don't want to sell it, at least you got a profitable asset that's making you money and it's on cruise control, right? So I think the reason why, the biggest reason why is because business owners just get so stuck in the mentality of running their business, you know, and I call entrepreneurs firefighters because what are they really doing? Business putting out fires every day, lots of fires occur, right? And so a lot of entrepreneurs are wearing a lot of different hats and they're putting all these different fires and they're working in the chaos in the business versus on the business. You need to work all in the business as a visionary and have an integrator. They can carry out your vision and make sure it gets integrated, make sure it gets implemented. So I think business owners just go so stuck in their head, plus I think, oh, this is my baby. I'll never sell my baby, you know, it just makes no sense. It's the same thing like a parent that has kids. What do we do? We plan for our kids, right? We're going to go to school. We're going to go to college. And you know, if we have, and we do a state planning, we have a will, but we don't plan for the biggest asset. And I think it's just because business owners just have these blinders on and they're not thinking about their future. All they're thinking about is today. And that's why we have to change it because if we don't change it, we're going to have a lot more than 70% of businesses go out of business. And small business is a backbone of our economy and point over half the US workforce. If we lose small business, we lose our economy. Yeah, well, not only now, now with the, the mulch who is nature of brick and mortar and wherever that's going to end up after, you know, pandemic and lockdown, I think that this future proofing and planning is probably more important than ever. Absolutely. And you just made a great point. This pandemic also changed the way that we purchased products and services and first just what's, it's changed what's important to us. It changed how we buy things. You know, Amazon changed it first and now the pandemic changed it even more. Nobody even wants to go to the grocery store anymore. No, I've gotten good at grocery delivery. You know, I'm really good at it. It's, it's interesting how much we've shifted like our habits just in the past year.