Latest / Success Story with Scott Clary / Lessons - The Worst Mistakes Entrepreneurs Make | Michelle S. Tucker - Mergers & Acquisitions Specialist

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Lessons - The Worst Mistakes Entrepreneurs Make | Michelle S. Tucker - Mergers & Acquisitions Specialist · Success Story with Scott Clary

• 0:00
  You mentioned that I was actually watching before we jump into it.
• 0:12
  I watched your sizzle reel on YouTube, I think.
• 0:16
  And you made a really good point and you do a lot of speaking, which is that, you know,
• 0:20
  that impressive because I think that this is something that entrepreneurs have to hear.
• 0:23
  Instead, a lot of people build themselves a job and not a business.
• 0:27
  Let's start.
• 0:28
  That's sort of like the basis.
• 0:29
  What does that mean?
• 0:31
  What do entrepreneurs screw up?
• 0:34
  So that is the basis.
• 0:36
  And that's one of the biggest reasons that businesses are not sellable that eight out
• 0:39
  of 10 businesses don't sell because entrepreneurs have built themselves a job, meaning that
• 0:46
  the business is attached to them.
• 0:48
  They're doing everything.
• 0:50
  And I'll give you some examples.
• 0:51
  Let's say you have a dental practice, one dentist, dental hygienist, you pull that one
• 0:56
  dentist out of the dental practice, is there a business?
• 0:59
  No.
• 1:00
  The dentist has created a job to where he goes to work every day, he hasn't created a business
• 1:03
  that works for him.
• 1:04
  He can't take long vacations.
• 1:05
  He can't leave his practice.
• 1:07
  And that's a job.
• 1:08
  That's not a business.
• 1:09
  Same thing with chiropractor.
• 1:10
  You know, we're trying to sell a chiropractic clinic right now.
• 1:12
  They have two chiropractors.
• 1:14
  And the owner was just so confident that those two chiropractors were staying and gets what
• 1:18
  they're not.
• 1:19
  So now we're back to square one.
• 1:21
  So you got to build a business, they can operate without you.
• 1:26
  And that's the first P that we talk about the six P's, the ST6 P's in exorich is people.
• 1:34
  You got to build a business.
• 1:36
  You don't build a business.
• 1:37
  You build people and people build a business.
• 1:39
  Otherwise, you just have a glorified job.
• 1:42
  Yeah.
• 1:43
  Yeah.
• 1:44
  And actually, you know, that I was going to, that's a good segue into that point because
• 1:47
  you have framework and models.
• 1:49
  And of course, these frameworks are meant for exiting that, you know, that is your bread
• 1:54
  and butter.
• 1:55
  Like you have 1.1 habit transaction for the business.
• 1:57
  But there's two models that you mentioned when we're chatting before, there's GPS eggs
• 2:01
  and model and six P, these are proprietary, you sort of build these over your career.
• 2:04
  This is what you teach entrepreneurs.
• 2:06
  I think these are good models to go through regardless of having that exit plan today
• 2:11
  because I think these are just really, really good frameworks for building successful businesses
• 2:15
  period.
• 2:17
  And I don't know what your thoughts are in that, but I would love to like, just sort
• 2:20
  of dissect at a high level, obviously, you can't put all the detail on on the podcast,
• 2:24
  but at a high level, what are these frameworks?
• 2:26
  Which one do you want to start with?
• 2:27
  Yeah.
• 2:28
  We'll start with the GPS exit model because then it kind of leads into the six P's.
• 2:32
  Okay.
• 2:33
  All right.
• 2:34
  So an exit rich is not just about selling your business because like you said earlier,
• 2:39
  rather you want to sell now or later, exit rich is actually about building a sustainable
• 2:43
  scalable asset so that you actually have something to sell when you're ready.
• 2:48
  There are so many business owners that would love to sell, but they're being forced to
• 2:52
  sell for pennies on a dollar, close their business or file bankruptcy.
• 2:55
  You know, when I wrote, sell your business for more than it's worth in 2013, I did the
• 2:58
  research back then.
• 3:00
  And I, you know, found out that 85 to 95% of startups with clothes, right?
• 3:05
  We all know that startups are always at great risk because one to five years are the most
• 3:10
  vulnerable where a startup will go out of business.
• 3:12
  But guess what?
• 3:13
  Scott, when I wrote exit rich in 2019 and 2020, I did the same research and I learned that
• 3:20
  the business landscape has changed dramatically.
• 3:23
  It's only 30%.
• 3:24
  It's a flip-flop.
• 3:25
  It's only 30%.
• 3:26
  Now that I've started, so we'll go out of business only 30%.
• 3:29
  Startups are at last risk, but out of 27.6 million companies, those businesses that
• 3:35
  have been in business for 10 years or longer, 70% of those businesses will go out of business.
• 3:41
  70%.
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  They're failing.
• 3:43
  They're failing.
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  They're failing later.
• 3:45
  They're failing later.
• 3:46
  They're failing much later.
• 3:47
  They're failing much later.
• 3:48
  You said you just had to nail on the head.
• 3:51
  It used to be, Scott, that if you were in business five, six, ten years, you're golden,
• 3:55
  right?
• 3:56
  You can write your ticket.
• 3:57
  That's not the case anymore.
• 3:58
  The business landscape has changed and you hear about the public companies all the time,
• 4:01
  like Toys or Us.
• 4:02
  But if it's the 70 years gone, came out, gone, sears having trouble, JC Penney's Montgomery
• 4:09
  Ward, I'm Mark Pierone, G and C closed on 900 locations.
• 4:15
  But what you're not hearing about are the private companies.
• 4:17
  Those are public companies.
• 4:18
  You're not hearing about the private companies on every street corner and every state, you
• 4:21
  know, across all great nations.
• 4:23
  So the reason for this is because business owners are not, they stop doing one thing I
• 4:31
  call aim, which is always innovate and market, always innovate and market, because Amazon
• 4:38
  has changed a way that consumers purchase products and services.
• 4:42
  Amazon has made it so easy to purchase anything.
• 4:44
  You can practically buy a horse on Amazon and have it delivered to you in two dates.
• 4:49
  You know, so, so business owners have to keep innovating, okay?
• 4:54
  So the GPS exit model is set up for success.
• 4:59
  The problem with business owners is I don't think about selling until catastrophic event
• 5:03
  has occurred.
• 5:04
  You know, they'll call me up when they say, look, there was a death, there was a death,
• 5:08
  you know, that the owner died or there's health issues or there's marital issues.
• 5:14
  We're going to have a divorce or COVID or COVID or a hurricane or a tsunami or a tomato
• 5:20
  or fires in California.
• 5:22
  I mean, the list this goes on and on.
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  The worst time to sell your business is when a catastrophic event occurs because the
• 5:28
  business is typically turning downward.
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  So business owners don't have a plan.
• 5:35
  And the GPS exit is designed to plan your exit from day one, to starting or buying your
• 5:40
  business.
• 5:41
  So number one, when you want to drive somewhere, what's the first thing that we all do now?
• 5:45
  We don't pull out maps anymore.
• 5:46
  You're too young to remember maps, but now we pull out our phone, right?
• 5:51
  We pull out our phone.
• 5:52
  We plug in our destination is so easy these days.
• 5:55
  We plug in our destination and we tell our GPS where we want to go.
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  With same thing in business, the business owners need to figure out their in game.
• 6:05
  They need a destination to drive to.
• 6:08
  They need to figure out what they want to sell their business for.
• 6:11
  So if they say, look, I want to sell my business for $20 million, right.
• 6:15
  Then we have a start of a plan and we have a number.
• 6:18
  We have a target, right?
• 6:20
  Now what does the GPS need to know?
• 6:22
  The GPS needs to know, well, where are you starting from?
• 6:25
  What's your current location?
• 6:27
  So business owners need to know their current valuation.
• 6:30
  Now Scott, I've been in this industry for 20 years.
• 6:34
  Humans keep physical annual checkups every year, right?
• 6:37
  The humans that want to stay on this earth for a long time.
• 6:41
  We take our cars into the shop and we get checkups on our automobiles.
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  But we never get a valuation checkup on our business.
• 6:50
  It is financial suicide because there are.
• 6:55
  Things that happen, the increased valuation and decreased valuation in COVID has decreased
• 7:00
  the valuation for a lot of companies.
• 7:03
  But there's other industries that has increased the valuation for.
• 7:06
  So know your in game.
• 7:08
  I want to sell for $20 million.
• 7:11
  Know where you're starting at.
• 7:12
  What is your business worth today?
• 7:13
  Let's say it's worth $5 million.
• 7:15
  The problem is that business owners don't have a road map.
• 7:19
  So they drive around in circles going up and down the financial heels to end up nowhere.
• 7:25
  And that's what we want to prevent.
• 7:28
  So once you know your in game, $20 million, you know your current valuation, $5 million,
• 7:33
  then you need to know time frame.
• 7:35
  So let's say you want to do this in 10 years.
• 7:38
  Now we have a startup plan.
• 7:39
  We need a reverse engineer it.
• 7:41
  Now guess what you need to know.
• 7:43
  Who your buyers are going to be?
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  I say buyers not buyer.
• 7:47
  So many sellers put their eggs in one buyer's basket and I can promise you in all likelihood
• 7:52
  that deal will fall apart.
• 7:53
  So you need backup buyers.
• 7:54
  There's five types of buyers.
• 7:57
  Let me tell you who's not going to be your buyer.
• 7:59
  A strategic, I'm sorry, a startup is not going to, first and buyer is not going to buy
• 8:04
  your business because your business is $20 million.
• 8:08
  Start up.
• 8:09
  First and buyers cannot afford a $20 million company.
• 8:12
  So first and buyers is one type of buyer.
• 8:15
  Turn around specialist or not going to buy your company.
• 8:18
  So it's either going to be a private equity group, strategic flush competitor or a serial
• 8:23
  entrepreneur.
• 8:24
  Now you need to know what's the numbers need to look like for me to sell for $20 million.
• 8:28
  Where's the gross revenues have to be?
• 8:30
  Where's the profit margin?
• 8:31
  It's most importantly, where does the EBITDA or needs before interest access, depreciation
• 8:35
  and arbitration have to fall?
• 8:38
  So if you get a sell for $20 million, you're even going to have to be around $3 to $4 million.
• 8:43
  Then you need to know what's the characteristics, what are the synergies that buyers will pay
• 8:49
  top dollar for and then you build that business based upon that blueprint of what buyers are
• 8:58
  looking for.
• 8:59
  That's how you create a bidding war.
• 9:01
  So when you're ready to sell that asset in 10 years, you're ready.
• 9:06
  You're not having to start from the beginning and then you need to know your why.
• 9:10
  Why do you want to sell a business for $20 million because how many people come up with
• 9:13
  those or New Year's resolutions got and they never keep them all of them.
• 9:20
  That's right.
• 9:21
  So you have to have an reason to know keep them is because they don't have a powerful
• 9:24
  why?
• 9:25
  The why has to be so strong that has to keep you motivated, has to keep you in the game,
• 9:29
  it has to keep you, you know, weathering the financial storms and all the kind of
• 9:32
  catastrophic events that occur because they will occur.
• 9:36
  So you're going to have a powerful, powerful why to keep you motivated.
• 9:40
  Then once you figure that out, start building a business on the six P's, any questions
• 9:46
  on that?
• 9:47
  No.
• 9:48
  Well, I'm going to ask what the six P's are.
• 9:51
  I guess my question because you work with a lot of entrepreneurs is why is this not more
• 9:57
  common sense?
• 9:58
  Why is this not something that people like it makes sense to me when you explain it.
• 10:02
  It makes sense to me to have the vision.
• 10:04
  It makes sense to me that even if you don't know if you want to sell the aim for the KPIs
• 10:10
  and the milestones that would that an investor would need to be a purchasable business because
• 10:15
  if your business is purchasable, you're probably doing pretty well, right?
• 10:19
  You're probably doing pretty good.
• 10:20
  Absolutely.
• 10:21
  So why not?
• 10:22
  Why do people not take this into account?
• 10:25
  You know, common sense is not very common.
• 10:27
  That's one of my favorite things too.
• 10:30
  And I think what happens is because like you said, I mean, it's so logical, it's so common
• 10:35
  sense that build a business even if you don't want to sell it, at least you got a profitable
• 10:38
  asset that's making you money and it's on cruise control, right?
• 10:43
  So I think the reason why, the biggest reason why is because business owners just get so
• 10:47
  stuck in the mentality of running their business, you know, and I call entrepreneurs firefighters
• 10:55
  because what are they really doing?
• 10:57
  Business putting out fires every day, lots of fires occur, right?
• 11:01
  And so a lot of entrepreneurs are wearing a lot of different hats and they're putting
• 11:04
  all these different fires and they're working in the chaos in the business versus on the
• 11:10
  business.
• 11:11
  You need to work all in the business as a visionary and have an integrator.
• 11:17
  They can carry out your vision and make sure it gets integrated, make sure it gets implemented.
• 11:22
  So I think business owners just go so stuck in their head, plus I think, oh, this is my
• 11:26
  baby.
• 11:27
  I'll never sell my baby, you know, it just makes no sense.
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  It's the same thing like a parent that has kids.
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  What do we do?
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  We plan for our kids, right?
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  We're going to go to school.
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  We're going to go to college.
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  And you know, if we have, and we do a state planning, we have a will, but we don't plan
• 11:44
  for the biggest asset.
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  And I think it's just because business owners just have these blinders on and they're
• 11:51
  not thinking about their future.
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  All they're thinking about is today.
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  And that's why we have to change it because if we don't change it, we're going to have
• 11:58
  a lot more than 70% of businesses go out of business.
• 12:00
  And small business is a backbone of our economy and point over half the US workforce.
• 12:04
  If we lose small business, we lose our economy.
• 12:07
  Yeah, well, not only now, now with the, the mulch who is nature of brick and mortar
• 12:13
  and wherever that's going to end up after, you know, pandemic and lockdown, I think
• 12:18
  that this future proofing and planning is probably more important than ever.
• 12:22
  Absolutely.
• 12:23
  And you just made a great point.
• 12:24
  This pandemic also changed the way that we purchased products and services and first just
• 12:30
  what's, it's changed what's important to us.
• 12:32
  It changed how we buy things.
• 12:33
  You know, Amazon changed it first and now the pandemic changed it even more.
• 12:37
  Nobody even wants to go to the grocery store anymore.
• 12:39
  No, I've gotten good at grocery delivery.
• 12:41
  You know, I'm really good at it.
• 12:44
  It's, it's interesting how much we've shifted like our habits just in the past year.