Manufacturing eCommerce Success – with Damon Pistulka

Nicole Donnelly  00:04

Hello Oh my gosh, Welcome to Manufacturing ecommerce success. I am Damon Pistulka And I gotta tell you, it’s Halloween so I decided I was going to dress up as my favorite manufacturing eCommerce champion Nicole Donnelly. So welcome to the show today, man.

Curt Anderson  00:25

Hey man, dude, that is like such an outfit you look exactly like Nicole Donnelly. Like, you’ve got the glasses the like, man, you really went all out for that outfit, Damon, thank you. Like me, man, is that oppressive? So hey, we have an amazing, incredible guest here today. So, man, I am just so fired up to dig into this topic. What a great. So okay, we’ll Nicole, thank you for joining us today. So my name is Curt Andersen. What an absolute honor what a privilege to be here. Happy Friday, last Friday of October, last Friday of celebrating manufacturing month. And it’s just been an absolutely wonderful incredible month celebrating manufacturing. And so we thought we’d bring on esteemed, just wonderful colleague just a great guest. And I know we change seats around because you’re the sitting over there. And now he’s down there. So Damon Pistulka Damon, happy Friday. How are you? Dude?

Damon Pistulka  01:28

I’m doing great Curt doing great. It’s kind of nice. I can run the comments here and put people up on the screen. So

Curt Anderson  01:34

hey, and we just we were just with Whitney about an hour ago, Nicole and I did a little we did our jam session today at mn University go to university I believe it’s dot com. And check it out. They have all sorts of wonderful webinars programs. Damon you did one and just all sorts of great information for manufacturers. Well, alright, Nicole. What what topic when we have Damon V. Damon Pistulka in the hot seat? What topics should we be covering today? What would be a good juicy subject to dig into?

Nicole Donnelly  02:07

Oh, Damon. No. Baseball.

Curt Anderson  02:11

Well, the absolute dig in a baseball so you know what, let’s go. Let’s go you know what? Like, there it is right there University. Not Whitney, thank you so much guy. So check that out. There’s all sorts of amazing people. So yeah, demon world series is starting out in Texas, Arizona. That’s, you know, kind of, alright, let’s go here. Damon. Damon is a little boy growing up. Who was your hero? Who was

Nicole Donnelly  02:44

and asked him this question. Yeah.

Curt Anderson  02:46

We’re gonna go there today just for our steam. wonderful audience. So Damon Pistulka Our guests on this wonderful program, who was your hero is a little guy growing up.

Damon Pistulka  02:56

You know, I didn’t I didn’t think about it till later. But it was my father. And I really didn’t until later in life and just his persistence and, and his tenacity, tenacity. And, and just not letting stuff. Stop him. Yep.

Curt Anderson  03:11

So let’s a Can we dig into that for a minute because I have not had the honor privilege of meeting your father. And if you don’t mind, me saying so. We, we lost dad during COVID. I know I was with you the we run line the week that that happened. And so that was during COVID. So relatively recent. Share little Your dad is an incredibly inspiring story. Just share a little bit about your father.

Damon Pistulka  03:37

My father growing up in South Dakota, my father grew up on a farm and at 16 years old, he got into an accident lost, you know, every bit of about six inches of his left leg. So he from 16 years on your years old on he had a prosthetic. And he went to college for a while and decided now I want to be I want to go back and farm. So the first first thing was right, there’s, you know, someone that farming is not a spectator sport, right? It’s you gotta be in it and watching him do that. As I grew up all the way through it. We never even knew he was handicapped. My dad never talked about it never had a handicap sticker until he was well in his 60s and couldn’t really use a prosthetic anymore. And, you know, and that kind of determination. We just didn’t know what it was just, you know, you just learn about life. And it just the things happened and you go on. And he taught us that was the kind of things that happened on the farm, the kinds of things that happened in life, and I didn’t really appreciate that until later in life.

Curt Anderson  04:50

Gosh, what an inspiration and so, you know, married married a sweetheart and and how many siblings? Was there five of you?

Damon Pistulka  04:57

Yeah, there’s five of us all. So I’m the oldest of Three boy or four boys? Yeah. My sister’s youngest.

Curt Anderson  05:05

Yeah. And what and share with everybody dad’s name please, Dwayne, Dwayne, Dwayne. And so and guess what, what? Another common factor for you and I, Damon, this what my dad’s name is.

Nicole Donnelly  05:20

My dad’s name isn’t Dwayne, but his brother was Dwayne. So very

Curt Anderson  05:26

popular name. So hey, guys, hey, we got we got Alan here coming from London, Happy Friday to you, my friend, we’ve got this betta. If I’m gonna say that correctly, we’ve got Brian in the house. So guys, he joined us, drop a note in the chat box, let us know that you’re out there, we’d love to hear from you. And we’ve got Daymond that our co host on the hot seat today. And so this is such an honor such a privilege, kind of like Halloween ish weekend as we’re coming into things. And we wanted to dig into have Damon Damon is an expert on helping folks grow their businesses. But the next step is to sell that business. So David, name your company is exit your way? And could you please share with the folks who and what is actually your way? How do you make the world a better place?

Damon Pistulka  06:13

Well, we We help business owners combat a problem that they may not even know they have until it’s too late. And that’s that’s really the fact that selling a business is incredibly hard or succeeding a business is incredibly hard as you and you really don’t hear about it, you don’t the business owners founders aren’t really educated on this, until they try to sell their business or they try to succeed their business and they go, Wow, this just isn’t working. And at that point, they’re, you know, they might be out of gas, they might be too far along, it really doesn’t work. And it leads to a lot of disappointment. So what we do is we try to educate, and help people understand what they’re up against, give them the tools to be able to do what they need to do. If they need to need help, we’ll help them get their businesses ready to facilitate their exit and help them exit their business.

Nicole Donnelly  07:07

A question about that? How far in advance? Do you recommend business owners start having these conversations? Like what timeframe? Should they be planning to start that process?

Damon Pistulka  07:18

Well, people you know, you listen up some people that are theorist, right, they’ll say, when you start your business, you know how you’re gonna get out, that doesn’t work that way in real life, right? You know, we all get thrust into entrepreneurship, and we have to do it, we have to do it, we’re doing it for whatever reason, at that point, you’re trying to it’s different. But really, from a financial planning, you know, business planning perspective, it really depends on the size of the business. Because if you have a business that say the the value of that business is in excess of $10 million, or something like that, you can literally save hundreds of 1000s of dollars in taxes. If you start planning six, seven years ahead. There’s some there’s some timeframes and some things and you have to find the right lawyers to do it. But there’s, they’re there. So in that business, you might be seven to 10 years, you should really look at it and start thinking about it. And that’s why, you know, the exit your way process, we really start with our clients figuring out, what does your six what does your exit look like? Are you succeeding? Are you selling and win? Because we need to understand that early enough, depending on and that early enough depends on the size of the business to really maximize their the results of their efforts.

Curt Anderson  08:41

All right. Unzen. Patrick there, Damon, I would love for you to share numbers. So for our friends, our entrepreneurs out there again, thank you for joining us. Happy Friday to you. We’ve got Damon Pistulka in the hot seat today. Damon, how many businesses is there a percentage of businesses that actually successfully sell compared to that just kind of vanished in the wind? Yeah,

Damon Pistulka  09:03

yeah, I get in fact, I was putting this together for another presentation in a couple of weeks, and it’s 70% of businesses don’t get sold by Investopedia Investopedia says that 70% Don’t get sold right now it

Nicole Donnelly  09:19

is that like they’re intentionally trying to sell it and they don’t sell it or just

Damon Pistulka  09:23

Yeah, intentionally trying to sell it and don’t sell it. And if you talk to Mike finger, Mike fingers another person I quote him a lot. He’s on LinkedIn. He I believe he lives in Wisconsin. He talks about this a lot does a lot more exit a waste. This is his company. He does a lot more research on this. And he’ll he actually goes through what you’re talking about Nicole, of all businesses, and when you look at of all businesses, it’s pitiful. It’s like, point 01 or 1%. Actually, it’s really ugly. It’s really ugly, because a lot of people don’t even try to sell right. And that’s in the the heck of it is is this 70% that decide they want to do something and get to that point and then try to do it. They’re going to spend a year trying to sell that business. And it’s a waste of time if you’re not ready.

Nicole Donnelly  10:13

So what are the main reasons why the 70%? Fail?

Damon Pistulka  10:19

Great question. Loaded with Do we have time? You can research? Do you research it? I mean, because people can listen to this today, and then go back to Google and look at it, you know, because there’s been tons of articles written about it. But the primary reason why a business will not sell as buyers and sellers cannot come to terms to terms with price, or terms of the sale. Because, you know, it’s no, it’s no matter if it’s a very valuable business or a bakery business on the corner that I’m running, right? That that, so I can have a $50 million revenue business this year, I can make $10 million a year and my business isn’t set up, right. And that in the equity groups, because you get into a certain size, and you’re gonna have to have investment buyers, or a strategic buyer comes in whatever it is, another one in your industry is gonna buy you and you’re not set up, right? That business, say their millet making the $50 million revenues making 10 million in profit. That should be just guessing 50 to $80 million, should be the value of that business. Well, what will happen if it’s not set up, right? Is if you get an offer, it’s going to be 40 million, it’s going to be 50 million, and you know, it’s worth 70 or 80 million, and you’re going to look at at the moment as the owner and go, that’s not nearly enough. Why would I ever sell it for that much. So when we talk about price, price and terms, it’s not just that I’ve got unrealistic realistic value expectations, it’s just that the market doesn’t want to pay me what I want for it. What seems reasonable to me. And that’s why this whole journey about learning, valuation, and really understanding what drives your business value and what your business really is, value is so critical. Because when you read the things on the papers about Yeah, wow, how old does that make me sound? Nobody reads it on paper. I haven’t read. I haven’t picked up a paper in 10 years, probably. Yeah, but But you read in an article that says, Listen, this company sold for X amount of money. There’s so much behind that, right? Because if if a public company buys it, a public company can pay much more than a private company, because they’re valued way higher than than a private company just based their public and your private, gonna be the same size. The other thing is, too, is you don’t know the terms behind that sale. And this happens a lot in SAS companies, I love it because SAS companies and say, Well, I get 10x my revenue for the profit, you know, for the sale and my company. Okay, so you got $3 million in revenue, you’re gonna get paid 30? Well, the terms are so critical, because they’ll get, they’ll say, Yeah, we’re going to pay you $30 million, we’re going to pay you $3 million down. And if all these projections that you said you’re going to hit come to fruition over the next five years, we’ll pay the 30 million, but you got to hit all these milestones to get there. So the biggest reason why businesses don’t sell is that right there, that whole price and terms and what I’m getting offered and what I’m at and that’s, that’s why where we really start with when we work with clients is to first of all understand, as a, as a business owner, understand what am I trying to do? Like anything with anyone it’s like, go out and figure out where I’ve got to go go to your financial planner, and and talk to your family, whatever you got to do and say, Listen, if I sell my business, how much money do I really need to do whatever I do next, what I want to do next, what my lifestyle if I want to start another business, if I want to go off and go on a beach, just figure out that number, what I need from the business, then I’ve got a reference point, because a lot of times business owners, the reference point will change. Or it will be ambiguous before you start the process. And you really can’t be that way. Because you need to know what your way your bottom line is. Right? I’m going to and you got to put that line in the sand and say, hey, if I don’t get $3 million, that’s not going to be enough for me to do what I want. I’m just going to have to stay in the business. I’m going to do this but if I do, I’m ready to go. Right. Get that perspective. So first of all, understand where you’re going and what you need from business. Because that’s that’s critical. And then that’s where it comes back again to that big piece of value we talked about. Let’s get comfortable with that realistic value of our business today. Because that realistic value You have your business today is not a secret. Your buyers know what it is the market knows what it is, your financials will tell you what the value is. And then risk factors will adjust that value up and down. But you got to get comfortable with where that is with your risk factors. So that you can then begin to go, I need 3 million, I’m worth two or I’m worth four, but I’ve got to adjust my risk factors to make it more attractive and get in. So it’s sellable business, or my successors will want it and it’s it’s it’s a complex thing. It seems simple. But it’s complex when you start to mix in the the risk factors and the unique factors in every business that make it either either better or worse for the prospective buyer or successor. So hello, out there. So

Curt Anderson  15:57

Mike Damon, do that mic. And I was I dropped the mic right there no code that was that’s it? How about you know what I mean? Give me a round of applause right there for that one. That was so good. That was phenomenal. So much centac rate there, man, I have like a probably have like a dozen questions under that. One comment I’d like to share. So let’s let’s see my like some of the smaller entrepreneurs that might be out there manufacturer or maybe midsize manufacturer, and what I love to say is like, you know, when you’re thinking about selling your business, you know, it’s like selling your home, you know, like if you always treated your house, you know, if you put your house up for sale, boy, everything’s gonna be immaculate, right? Eg in your house? Boy, if I was on my mind, I’m like, Man, would it be great if we like we could make our house like look that pristine, like, let’s keep it clean, let’s keep it tidy. So if you kind of just had that mindset, you’re not really working hard. And it’s not a dramatic thing like the stage or show my house. Probably not realistic, right? Or like when company comes over that type of thing. But my point is, let’s talk about it from a business standpoint. If I have a nice, you know, I’m trying to build a brand, I have a nice company, my financials are pristine. Like if somebody wants to, like Damon, I can’t tell you like I you know, my story, I was looking for business for years. And like, Hey, can I see your financials? Well, I need to, I’m like, what, you know, when I ran my business, I did a lot of things really dumb, really, really dumb. One thing that I learned a long time ago, I just need to hit a button, I could have my financials within seconds. And that really helped escalate to sell my business. So I’m going to stop on that. Here’s where I want to go. When you’re talking to that entrepreneur, I got to take on, you know what your business is worth? I’ve worked with dozens of entrepreneurs that want to sell their business, I’m like, You know what your business is worth? Not a single penny more than a person across the table from you that has what that check is that they’re going to cut. So I love what you’re saying like, if you need I need $3 million? Well, I need to find somebody that thinks that this business is worth $3 million. Can you talk a little bit about like how, you know, like, can you have that mental attitude of like, of the next person coming into this? That’s just not just what you need? What that next person needs to be successful?

Damon Pistulka  18:08

Yeah. And that’s what we talked about. It’s a great point, Curt. Because when we talk about selling businesses, we talk about it like selling a product, right? Only difference is your product is a business, the business you’re selling. I agree. And this is this is like one of the things that I love when when our clients get this right, how much time do you spend worrying about your products and services? And how you how you communicate about that with your customers. Okay, now, how much does a customer spend with you, compared to how much is your business worth? You know, it’s like this, your business is worth this much, don’t you think you should be thinking about that the next person who’s going to be buying your business or successor to make sure that you’re communicating and giving them something that they really want. It’s a huge thing. It’s a huge thing that buyers perspective, or the successors perspective is huge. And and they’re theirs are really different than you as the person in the business today. You’ve had maybe a decade or more to get comfortable with how that business runs. You started out years ago, and you have one really good customer, and they might be 70 80% of your business and you’ve known them for 20 years. They’re not going anywhere. This is great. Well, if I’ve got my business and Nicole comes into my business, she doesn’t know that person that company that relationship for 20 years. That’s a huge risk. If that goes away, that much of my revenue just dropped out. You know, and so then the other thing that that there’s that that customer concentration is a huge thing. That’s why buyers bring it up all the time, is that those relationships to them are not forged over the years they have. We’ll talk about this I won’t go there right now but that that whole buyers perspective, then they’re looking at that all those relationships with suppliers and customers and going, listen, they have to be good business relationship, they have to be sound business relationships. But if I’m hold held hostage to a supplier or a customer with more than, you know, 20 25% of my revenue, it’s, it’s going to make it more challenging for us to to buy that business because of the risk, then. So those Bennett, those relationships like that are are good to have. But they really, if you’re the founder of the business, the more you can transition those relationships to and others in your business. So they’re maintaining them employees are maintaining them more the the business itself really is, is they’re doing business to business more than person to person in some of those. And that’s not a good way to say it. But yeah, I mean, we’re trying to get that get that and have duplicate resources, when you can, that’s a big deal, because that the risk profile is so much different. The other thing that you and I anyone that’s been in the business a while have in their own business is going to have to deal with that then person coming in is, is if say they come in, and they have to pay me a million dollars for my business, they’re probably going to get a loan of some sort to pay for that. Right. So they have cash that they got to take out every single month and pay for that loan, you as the owner now probably don’t, you may not, you may have a line of credit, which is normal, and that works in and out naturally. But that loan that they have to carry increases their their risk, and it reduces the cash flow they have available to go through things. So it amplifies this, this customer concentration or supplier problem or market problem they could see that you don’t have today, you just don’t have that. And you know, these payments that these people are coming out, it’s not like a few 1000 This is like 5500, you know, it can be 350 to $75,000 a month, sometimes you’re paying for these things, just because this is over 10 years, if it’s an SBA kind of thing or whatever. So and, and that’s, that’s a huge thing, because these people coming in buying your business are probably putting a lot on the line, you know, especially if it’s a private individual buying the business, you know, you look at something sub six $7 million dollars, where the SBA can still do it with an individual or a small business buying another business. It’s they’re putting a lot on the line, they’re personally guaranteeing this loan. And that’s where those kinds of risk factors run in, run in. They they’ll stop buyers, they’ll just stop buyers. Yeah,

Curt Anderson  22:42

I love that Nicole as a fourth generation entrepreneur, you know, in all different industries, different walks of life that you’ve seen in your family, and yourself as an entrepreneur and you know, you’re building a business. What What are your takeaways? Thoughts right here is like one is you’re listening to Damon?

Nicole Donnelly  23:00

Well, I will say like, yeah, I’ve had my father owned a successful manufacturing company, my great grandfather owned a motel, or excuse me, my grandfather, I can’t keep track. There’s too many businesses. My grandfather owned a hotel, and my great grandfather owned and owned an oil company. And so I have direct experience kind of seeing like the repercussions of what kind of went wrong and what went wrong, because of how those decisions were handled. You know, so it’s a huge thing. And it can impact like a lot of businesses are family owned. And it that adds a whole nother element to this process that can be pretty difficult to untangle. And I can I can say from experience from every single person in my family who, you know, had a business, they all tried to actually do. My father never tried to sell his business, but my grandfather sold his business or it basically he did sell it, he gave it to his children when he passed away. And then my grandfather ended up selling it to his children, or they bought themselves out. But anyway, I’m digressing. But it’s complicated. It’s hugely, hugely complicated. And so yeah, I think this is great what you’re doing because I know for my father, for example, he never thought about planning for his exit. He never talked about that. He never planned for it. Really. It was never a thought or consideration. And you know, you just never know life is fragile. You don’t know what’s going to happen and you know, how long you’re going to be here. And so I think as a business owner, you do you know, it’s it’s got to think about these things. It’s important. Yeah,

Damon Pistulka  24:42

yeah, it does. I mean, it does. If you’re looking at it at a retirement kind of thing are some it kind of stinks really, let’s be honest. We you know, a lot of us love our careers what we want to do and thinking about the end it kind of sucks, but I want Right, right? You know it does. But you make a great point in a goal. And it’s one of the first things we talk about with clients do is like, hey, what kind of what’s the plan Z? Right? Yeah, if you if you end up on a hospital bed or get hit by a bus, what are we doing? Right? Because you’re not know that, right? Because I’m gonna make sure that this carries on to whatever you want. And back to your family thing. That’s where the first step in this is not simply going to a financial planner and figuring that out for yourself. It’s figuring it out for everybody that’s involved and go on lists. And okay, as you get into these businesses, some of these have far reaching effects, right, you can, you can have six family members working in there. And all of them have different ideas about, hey, I get the business or we just or in, you know, in the owner, the founder might think I’m getting out, I’m getting paid, you know, whatever, it’s that that whole thing is horrible, if you don’t talk it through.

Nicole Donnelly  26:03

And it can have a huge negative impact on family relationships. If you’re not very thoughtful about it, I’ve seen that first. So it is really very critical and important. Because that you have those conversations with your family members, as uncomfortable as it is, you know, they need to understand so that if there is a situation where someone dies unexpectedly or whatever, everyone kind of knows, well, this is the plan this is this successful plans is what dad or mom wanted to do with the business. Yeah,

Curt Anderson  26:35

Damon, listen, let’s unpack this. You had a great point you mentioned like SBA. So like, you know, most companies, what, 75% of all companies in the country are 20 employees or less. Yep. Right. So odds are somebody listening to you know, we’re talking like, hey, 56,000,050 6 million, those are more the exceptions. You know, most businesses are in the hundreds of 1000s, you know, millions, low millions. So let’s go here, I jokingly kind of said, you know, what your business is worth, you know, not a penny more of what somebody’s willing to pay for it. So if they’re willing to overpay you, God bless them somewhere, they had to find a natural resource. But if they have to pay that back, you know, your legacy might not continue on. Let’s go here. I sometimes share it like, Hey, you want to know what the value of your businesses go to a bank? And ask them like, what is the largest greatest loan that that bank is willing to give you? That’s another good way to get a valuation. So let’s talk about like financing options, or like what you see for small businesses like making that transition, making that sale? Talk about like, what are some of the options are for financing?

Damon Pistulka  27:34

Well, you know, the SBA does a great as a great loan program for buying businesses like the I forget what is seven a loan program or something like that, you know, a 10 10%, down 10 to 20%. Down, you can buy a business, and it’s, it’s something that I think that, you know, you really should be looking at if if you need funding for buying a small business loan up to $5 million dollars that way, and we see a lot of people leverage that to, to buy businesses in the seven, eight $90 million range even because they can do seller financing and other things or inject equity ahead of it to do that. And that’s really good. And you’re right, the the SBA, talking to an SBA Macker is a great way to get your valuation, we use it as part of what we do looking at go to market pricing, right? Because the SBA is going to tell you how much alone on your business based on the cash flow, the industry, all this kind of stuff. And you know, you can do it easily enough, if you just said, Listen, how What’s What’s it cost for a million dollars, over 10 years at the current interest rates, and then multiply that annual cost by like 1.4. And if your business makes that much cash every year that will support about a million dollars in price. So last time, I figured it out, the interest rates have gone up a little bit since but it took takes about 220 $225,000 in cash flow free cash flow to support 1 million business value. So it’s a $5 million business you should have 1,000,001 ish kind of thing cashflow to be able to support a $5 million price.

Curt Anderson  29:16

Right. So let’s dig into that. If we’re there if this is a good transition, that transition but good segue talk about evaluation. So you know like you help you assist you have a great process program that you do evaluations for companies talk about like so for that entrepreneur out there. They’re like, You know what, I hadn’t really thought about this. Nicole’s got me thinking about it. Damon’s got anything about maybe I should go this route. What are some steps for to help evaluate your business on top of like SBA or going to your local bank? What are some other things that they should be considering?

Damon Pistulka  29:48

Yeah, they’re I mean, there’s if you if you want, you can go out and get you know, a free valuation. They’re online, you can find them. They’re worth about what you get right. They’re going to use a you overall average of its 2.5% times the sellers discretionary earnings is the average, under $3 million. That’s what it is. You can go all the way up into it can cost you $10,000 or more to get a certified valuation you can use for IRS purposes. But the most common thing that we see and that you get whether a reasonable entry kind of valuation is market pricing, right? There’s all kinds of databases out there that that show what people are currently paying for businesses like yours. And what they’ve been paying. And that’s really those comparables and comparing your business to that is, is where the valuation really is a useful tool for you. Because you can look at them and we understand from those kinds of comparables, we go, okay, what was the top line revenue? What was the growth, gross profit? What was the net profit? What’s the industry doing? And you can really compare your business against that, especially when you look at okay, now, if I’m looking at a $3 million, or a million dollar revenue business, how much gross profit? Is it average of all these sold? And what are the ones that were just like mine? And what was the average that you start to, you really get some more detailed information from evaluation that’s going to dig into that level of detail. And that that helps you a ton, then looking forward? Because now I not only know where the rest of them are, I know where I am in comparison to everyone else, am I good? Am I bad, if I’m good, I should be able to get a little bit of premium, if I’m bad, I can work on it and get my value up. And I should realize that value that I’m getting is going to be harder to get if I’m not above average, or at least at average. So there’s a lot of detail you can get from from a paid valuation that that will allow you to really utilize that going forward.

Curt Anderson  31:58

That’s cool. All right. So let’s go here now got as far as the valuation goes before, earlier, you mentioned like, you know, what’s your number, especially for the retirement situation? You have a lot of clients that you mentioned, you know, 40s 50s, they’re not at traditional, say, retirement age where like, you know, I’ve been doing this for 30 or 40 years, I’m going to, you know, solve this for x. And that’s my, you know, as entrepreneurs, we don’t have the luxury of that the pension, or, you know, like a fixed benefit plan, or what have you. So, like, you know, a lot of people have husband and wives teams, um, solopreneurs have put in 3040 years into a business and they think it’s worth X. And unfortunately, it’s not quite worth X, like, how, what are some steps that an entrepreneur can do to like, help elevate their company, maybe if they do have that 60% of sales are with that one customer? Or some of the other things that might be bring that valuation down? What are some steps that an entrepreneur can do to help elevate that, that evaluation, so they can get to that magic number that they’re striving for?

Damon Pistulka  33:01

Yeah, you know, it’s, it’s not realistic for everyone to be able to get to that number with just the terminal value or the sale value of their business. That’s the first place to start. Because we’ve had clients in the past with, I remember, a specific client was a small restoration company. And we talked with him about it. And while he was able to grow his business, he almost doubled his business in the first year of working with him, we knew it was going to be three to five more years before he was able to actually generate enough cash from that, because he increased over where it is living needs were right, so that increase went to investment. So that over the course of five years, he got his total number together. And at the end of the five years, he sold and completed the the what he needed, and that was a retirement situation. And we have other clients, like you said they’re in their 40s or 50s that are really looking at, okay, I’m in business now. And I love it. But I don’t love it enough to say that I want to be in this forever. What I want to do is I want to generate enough wealth, I can go do something else and not have to worry about you know, running a business like I am today. And they put together their their situation for that and what that looks like. And really what we’re doing there then is going okay, how are we reducing risk again, same kind of thing like you said, someone with one customer that makes up that’s a pretty simple one, get a longer term contract with them if you can. Because if you can get a you can get a two three year contract with if you got a huge customer and you can get a multi year contract with them. If they’re like a you know, you know, the CEO we can do and you do that. That’s huge. Yeah, you can do those. And the other thing that we’ve seen too is is the buyers perspective, they’re looking for growth, right. Like I said, they’ve got to pay this debt down. They’ve got to do these other things. And flatline business to someone that’s nearing retirement age is just fine, right? You don’t have a lot in get a lot of money out. It’s like an annuity. And that’s not what buyers want. They want to see growth because they have to go beyond where you’re at today to really make make their money right there. They’re part of it. So one of the big things, and this is why people go, Well, why do you always talk when marketing people and stuff? Well, growth is the biggest part of getting the business that people like, if you can turn your business, like if you can go from two, five 10% growth to 2030 50% growth, you just the buyers risk profile, they just think this, the risk goes way down for a buyer, because if that one customer leaves on grown 30% that customers were 15%, who cares? Yeah, it’s gonna sting a little bit, but it’s not going to kill us. Those are the kinds of things that you really can do is continue. So if you got a customer, that’s, that’s a lot of your business trying to add more, try to get a longer term contract with them. But it’s again, it all comes back from that buyers perspective and understanding where they’re coming from and what they really want. Right?

Curt Anderson  36:10

How? Let’s go. Go ahead. Nicole, do you have a question? Let’s go here. Would I find Damon, if you see this, you know, Nicole, we were just talking about this this morning. Like so many businesses, manufacturers run it, this is how we’ve done it not necessarily, you know, like the stigma of like, Hey, this is how we’ve always done it. But just you know, they’ve built this wonderful, you know, manufacturing, they turned it into a three 510 $20 million company, you know, that they’ve, they’ve made it like they’re in the higher echelon. Okay. I found a lot of entrepreneurs have a tough time putting themselves in the next buyer shoes. They’re just so locked and loaded, like what they did. Do you have any advice, whether it’s psychological, and like Nicole, you mentioned, you know, whether it’s family members, but even more so outsiders? You know, like, you know, who in we could even scratch your head a little bit, Damon, like who are some usual suspects, if you don’t have the prodigal son, the prodigal daughter, or a family member that’s going to, you know, want to take on the next. But we could talk a little bit about like, who are some of the usual suspects, but as an entrepreneur, how can you get that mindset that think about? Can I put myself in the buyers shoes? And how can I make this attractive for them? Or how can I help them be successful to for my old success, success is my success.

Damon Pistulka  37:28

That’s I’ve thought about that a lot. And the first, the first thing that comes to mind when I think about how, as an owner, I can make a buyer more comfortable, is to think about your business, like you’re a buyer. And then look at your information. Look at what you’ve got to show somebody and go, Okay, you’ve got 45 days to look at all this. And then pay me how much money I want for this business. Right? Would you do it? Right? That’s it because I boiled this down a few months ago, I was like, what is the hardest thing about selling a business? And it’s the fact that a buyer only has this much time to pay this much money for something? Yeah, they gotta make a decision. You know, we look at a house. And it’s really easy with the house, right? Because I can go, there’s a house right here. It’s looks like the one across the street. Look at the price you go that one bought for that that one’s like that. businesses aren’t like that. Right? Yeah. Because they’re all different cash flows, different people are different. There’s so many other moving parts, right? And you really have to think about is my business attractive enough that I could sit down and look at, look at this information that we’ve got, and you feel comfortable? Putting the money down that I need to put down that I’m asking somebody to

Nicole Donnelly  38:55

write? Right? Yeah, there’s a lot more risk when you’re buying a business and buying a house, a house is where you lay your head. A business has so much more risk involved. You just Yeah. So you can make total it makes sense.

Damon Pistulka  39:10

They could go away tomorrow, a business can go around your house could burn down but you got insurance, you know, yeah, your house could burn down. You still have the land under it. I mean, there’s this there’s so many with it, that, that the biggest thing I think really is to be able to be comfortable enough with with your business that if you walked into it tomorrow with blinders on, and you would go wow, this looks good. I would want to pay for this. Yeah, you probably done a lot. Right.

Curt Anderson  39:42

So so let’s go there. Let’s go into like the usual suspects, you know, first start friends, family, that type of thing and say there’s this not that, you know, not the next generation or whatever, who are some candidates that you advise for folks, like, you know, where would we go to find a good quality buyer? You know, for,

Damon Pistulka  40:02

for smaller manufacturers, it’s really the other people you know, that have been competitors for years. Your best competitors are your first place that you want to go. And you know, it’s it’s, it’s like this year we’ve actually this year the buying and selling businesses selling business has been very hard to share because of the interest rate increases. But buying businesses have been very, very good for a lot of a lot of our clients, right? And I think about this in reverse, right? So if I’m sitting here today, and I want to get out of my business, I call Kurt, Kurt and I have been competitors. We know that, hey, we’ve been in business 20 years together or whatever, we both run a good business. Say, Kurt, I’m ready to get out. You know, as you gotta interest. Oh, yeah. It’s so much easier. Kurt knows me hurt knows my business. He may not be intimate with it. He may not know the uglies in the goods. But we just started off on a different plane.

Curt Anderson  40:59

Exactly. Because if you and I are both manufacturing, whatever 3d printed such and such as, and, you know, we’re kind of butting heads. And like, that’s tremendous value. I don’t have a learning curve, I have a customer base, I can get your customer base, I can sell my widgets to your so a lot of symmetry. I don’t want to dip my toe in, I guess maybe I am to my tone to ethics. What about the competitor that like, you wait, dude, you’re gonna show me your financials, I can get underneath the hood, I can see anything and everything. I have no intention. How do you how do you tip that? How do you how do you navigate that? Damon? Yeah,

Damon Pistulka  41:36

you have to be careful about that. Right? You have to understand, and it’s gotta be the things. First of all, you want to make sure who you’re dealing because you’re doing business with our ethical people, right. And it’s good, good people do business, good people, you know, you, if you’re reaching for a Hail Mary with somebody that’s questionable, don’t do it. It’s just not worth it. You know, you can go to the outside world, because we don’t know who really at any given time is ready to buy a business, you know, and there’s wonderful places like biz, buy, sell, and others where you list businesses for sale, and the open market can do it. But I will tell you that, that if you’ve got competitors, that you respect, it is the best place to start. And even if it’s you and I know each other, we still are gonna have non disclosure agreements, we’re gonna have non solicitation agreements to make sure that if I’m sending you my information, and all of a sudden, you’re calling my best customer trying to tell them about we’re selling and you take them over. Yeah, I got all kinds of legal recourse to do to make sure that it’s going to be a painful situation, if you do. And you got to do that you’ve got to protect yourself, and you want to be protected as a person looking at the information. And that’s also why you want to and this is something a lot of people I think, Miss do as well as you, you want to be fairly confidential about selling a business until you get close to the end because it scares employees, scares customers. And it honestly, it’ll scare everyone involved. And you got to be you got to be careful about how you’re doing it. That’s why a lot of people choose to use third parties to help them. Right, we can anonymize things and right.

Curt Anderson  43:16

So yeah, so let’s hit on that. So you know, they’re the so the broad net search a little bit bigger, you know, you could talk, you know, do you have key customers? Do you have key vendors? Do you have key suppliers? We just talked about competitors. If you’re in an industry where like, you know, maybe there’s not 1010 in your local community or, you know, whatever, but maybe nationwide, if you belong to a trade association, well, maybe you’re crushing it in whatever, Tennessee Well, what about your, you know, the person that’s making the same thing or doing the same thing as you in Utah or whatever. So, you know, trade associations, you know, find folks that are in your industry that speak your language? Because there’s not the learning curve to Yeah, right. You know, equipment

Damon Pistulka  43:57

suppliers is another great place, right? You know, if I’m a CNC place, and I use a certain brand of CNC your salesperson for that CNC company, he’s probably traveling three states, right? Right. It’s really good for that. And you’re great. The trade associations are wonderful places to look. And there are people that are that are in your industry that are actively buying companies as well. And you’re going to look at other companies that are announcing acquisitions and things like that because those are good places to talk to. There are a lot of industries that are that are experiencing these roll ups I personally really like it when you can have to you know, in the same city or regional players because I feel that creates a really a triple win, it creates a win for the for the seller because they can sell their business. I think it creates a win for the buyer because the buyer can you know, they’re probably a hometown person, local person that’s been in the community for a while and building in the community. I think it really it creates a for the third part of that for the employees in the community because that that person there that that buys it down the street, they’re not, they’re not going to shut it down, they’re not going to run, you know, decide that they’re going to offshore, all that stuff, they’re going to keep it where they’re at now. And they’re going to try to run it like they’ve been running theirs, but just with a few more resources and do that, I think that’s, to me, that is the coolest thing, when you see that happen, because we took that that 70% number, and we just made one last go on to the other side of that equation, when when we can make those good connections, and those things can happen.

Curt Anderson  45:31

Yeah, I love that. And so the thing is, is like always having that mindset, you know, just as I said, you know, earlier if you if you caught it, you know, like, you know, treat you if you treated your home as if you’re going to sell it or you’re going to really enjoy, you know, how clean and organized your house is. Nicole, what comments you have?

Nicole Donnelly  45:48

Yeah, I was just curious, from the buyer side, let’s say, you know, let’s say I’m someone, I’ve got some entrepreneurial spirit, and I’m trying to decide, well, do I want to start a business from scratch? Or do I want to buy a business? You know, there’s, there’s several different power to what you know, do I want to be a friend, if you want to get a franchise? You know, for someone who’s really entrepreneurial and wants to buy a business? What advice would you give to them in terms of how to determine whether they should, you know, just start from scratch versus trying to buy a business? And what are the advantages and disadvantages of each?

Curt Anderson  46:19

Awesome question?

Damon Pistulka  46:20

That is an awesome question. And we, with one of our clients, we’re actually looking at both, right, buying and starting different locations. And said, interesting seeing the seeing the dichotomy of those two, you know, you’re going to have to invest in your startup business, especially if you’ve got employees, right, if you’ve got to hire employees, and you’ve got to rent lease a space, and you’ve got to do all that, you got that, that time until you have revenue, and you’ve invoiced revenue. And if you’re a company that has terms with your customers, until you get paid for that revenue, before money starts coming in. And so when you look at setup cost, first of all, and this, you know, you can run in 40 $50,000 Pretty easy with a small company set up right? Then you go like, okay, now I got to start leasing, say, say it was gonna take me a couple of months of leasing, and I got a couple months of employees. And so you’re into this thing for 100 to $200,000. I’m very small business before you know it. Well, when I look at what I can buy if I bought an existing business, and I use something like the SBA, or I could take my $100,000 I can put that 10% down on a million dollar business that is generating $100,000 a year, or whatever it is, it’s you know, two or whatever the right number is, but I’m generating cash. No. Yeah, that mean that that timing, that timing, and then then when you talk about a franchise now, if it’s not a franchise, the key benefit in franchises, is everything is set up. You know, you go to Subway, I don’t have to worry about how to make sandwiches subway, if I got a subway, right, I know where I’m getting my meat and cheese, I know where the soda comes from all that stuff is set up. That is the nice thing about a franchise franchises though the challenge with those are is it you’re buying a job usually, until you find a job. And that’s one of the things that you get with a franchise. So you really want to be able to go if I don’t want it just to be a job, I’m going to have to put in the time in the first one and buy more and put more together to really make something that’s going to create well, but that the startup to buying is is a number is something people should look at, because starting up costs a lot more money than you realize.

Nicole Donnelly  48:49

Yeah, add a lot more risky and a lot of ways because you just you know, I mean, what is it 90% of all startups fail. It’s sad to say but like, you know, a true startup in the sense of

Curt Anderson  49:01

four out of five in the first five years fail and so I know we could start man I could talk to you. I just keep out in this conversation. So hey, and a couple of we’ve got a couple Hi shirts. Oh, hey, Happy Friday to you guys here. Got Alexander’s strapping a note and he says, Hey, maybe it’s better to prepare the audience and show them the next owner. We’ve got another Hello here. So guys, happy Friday. We’re gonna start winding down. Damon, you love to preach and share the code. Gosh, you just teed that question. I’m just so perfectly. You love the growth by acquisition? Yeah, and that’s exactly it. That’s a great point. I’m going to take $100,000 I’m going to put it down on a brand new startup. I have zero sales revenue in cross fingers across. I could take that $100,000 tied in with an SBA loan. I now just bought myself a million or a multi million dollar business. And so now let’s say I’m an existing business, and man I’ve got energy I’ve got Moxie and I have no intention of exiting right now. I want growth because I am thinking long term, I do want to exit five, six years now. And boy, I could add new line invest $100,000. Or I can go buy a company and bring their sales and talk a little bit more, we’ll start winding down, but just share your growth by acquisition strategy.

Damon Pistulka  50:16

I think that small business owners should always be looking for growth by acquisition. I mean, even if I’m a, say, I’m a single person, garage door company, right? And I looked these businesses before, I mean, making a, you know, a couple $100,000 A year or something like that, if I’m doing pretty well, I revenue. So. But what if, what if the other the same thing before What if another person down the street has one of them, and they’re getting older, as is slowing down? You should always be talking to other people around you that, just ask them, What are you going to do with this? What do you want to do with it long term. And let them know that you’re at that point, because that you can just bring that into your company. And it’s not all that easy and everything and take some take some work, but I can get doubling my business in that situation? I don’t have to go out and find new customers, I don’t have to go out and buy, you know, more equipment, I probably got to get an employee or two that know what they’re doing in this whole thing. I can double over the course of 90 days. How can you do that? Right? Any other way? I mean, it’s even as you get bigger. I mean, if you’re a $5 million dollar business, and you got $1 million competitors out there, how hard is it for you to add another million dollars in revenue, you know, a small manufacturer is doing a few million dollars, but you see one down the street is doing 500,000. And they got a good thing going. Why not talk to them? You just you can you can do that if they’re in the right situation, and you can work out the right deal. Again, it comes back when when

Nicole Donnelly  51:54

I know we’re winding down. But I do have a follow up question to that. So I have worked with quite a number of clients who have gone through the acquisition process where they’ve been acquired by another organization. And I got to say that’s usually from I would say, every experience, I’ve had a pretty intense and painful integration process. So is there some advice you would give there because I am yet to hear from anyone where they’re just like, we just got acquired, and it’s been so massively amazing. Everything’s going rosy. Like I guarantee like it’s stressful. And there. There’s the culture trying to merge all that the processes, everyone’s worried they’re on the chopping block, because you’re merging everything. And so I guess I get the growth by acquisition. But I’d be a little bit of a devil’s advocate. How do you address that painful merging of cultures? Because if you can’t do that, well, is that acquisition long term going to be better? If you have a team? That’s just Morales in the toilet? Great question.

Damon Pistulka  52:58

That is a great question. Because I think that if you’re going to acquire companies, you got to work on your culture first. I mean, you do, because if you’ve got a bad culture, it’s going to be a real stinker. To integrate companies, you have to work on your systems and your people first, and really have like Kurt was talking about, you have to be prepared, like your stage in your house, because you have to have a good house for people to come and live in. And if you don’t, you’re gonna have trouble. The other thing that a lot of people see when you do that is if an investor own company compared to you, or one of us owning a company that run very differently. And if those are the kind of acquisitions you see, there, they are tougher, just because if there’s no way no how you can retain that same feeling and an investor on company, it just is not possible. Because it’s so different. It’s so different, so different. And when I thought about growth by acquisition, we’re usually talking about, you know, in the same community, private owners, and that makes it a little less impactful. Yeah, no matter what happens, there’s going to be there’s change, no one likes change. But if you have your culture right, before you go out and start acquiring companies, that will give you a lot, a lot better chance of doing it without

Nicole Donnelly  54:16

if you’re looking to acquire a company that should be part of your vetting process is what is the culture of the company hiring? Is it going to be a really good fit for our culture? Or is it you know, because, well, there’s not necessarily a good culture or a bad culture. There’s, you know, there’s just there’s differences there some, you know, and making sure that that’s that I would imagine would be really critical. But anyway, I know we’re going over but thank you, Damon, that was toxic leadership.

Damon Pistulka  54:40

Toxic leadership is not acceptable. If it acquired companies. It’s not acceptable, right? You got to stop that. I’m just gonna say it because you got to stop that but cold dead Get the hell out before you try.

Nicole Donnelly  54:55

But what is here’s the thing. Okay, I’ve learned this term Recently it’s a great one. It’s it’s being unconsciously incompetent. Okay. Unconsciously incompetent. So how many toxic leaders out there are aware that they’re toxic? And how do you know if you’re toxic as a leader? Right? Yeah.

Curt Anderson  55:19

Yeah, that you know what the definition of toxic is. That’s gonna be you know what? Guess what, Nicole, we just I, we have an opening. We have a date open. I think you just filled our next the next one. Yeah. And we have Gina Cox coming up in two weeks. And that’s that this is so that my goodness, we could be here.

Damon Pistulka  55:42

Yeah, Alexander great, great, great content.

Curt Anderson  55:45

Everything starts with people. Ellen in London. Ellen, thank you from coming to us across the pond and flexibility strategies processes in management should be flexible. But Nicole, that’s a great point of like, you know, toxic and again, is it the leader is there’s a lot of moving parts. I think overall, let’s let’s, let’s recap a few takeaways. Okay, first off, Damon, thank you, brother, dude, we love you. We appreciate you. Thank you for sharing your expertise, your passion, your this was just phenomenal. I really haven’t done this for ages. And so it was just great to kind of flip the tables and have you and just really focus on your brilliance, your expertise. I love when you night geek out about this topic. I just couldn’t love it enough. Guys, entrepreneurs out there, boy, just be thinking about your business. At some point in time, man, Nicole said that life is fragile. We don’t know when that day is going to come. And just always, you know, not necessarily be thinking about how I’m going to sell my business, but how am I going to transition my business? What does it look like for the respect of your family, to your of your your staff, your employees or whatever that might look like? And you know what I can tell you firsthand, do for yourself, man, if there’s you know, there’s not a greater thing man than when you can sell your business somebody actually wants it. It is a great win. So all the blood sweat and tears that you put into your business, and somebody can come along in that and that can help entice or encourage you for that next step and whether it’s retirement or whatever it is your next entrepreneurial journey or whatever. Just you know be thinking that way reach out to Daymond if you have further questions, Alexander another comment here was he say? Happy then you are sick man. Thank you. I was energetic. And Brian says great conversation Brian. Thank you connect with us. Nicole thank you for being the CO hostess of with the Moses today we appreciate you Damon I have one last burning question for you my friend it’s the bottom of the ninth high score guy on second base and the bandage or looks down the bench and says Hey Pistulka Get up there and hit the winning run in my friend what is Damon Pistulka is walk up song burning curious minds want to know right here Well, Ted Nugent Stranglehold Mnuchin I thought that all the way and in good place, and you’re you’re too young to know that one right? She’s like, who’s Ted Nugent?

Nicole Donnelly  58:33

Yeah, I really I truly don’t know who he doesn’t know how to

Curt Anderson  58:38

go back into the archives Damon I know exactly. Who Ted Nugent is. So Damon that was a great one. I knew you knew that was coming at you. So Alright guys, I want to thank you all for joining us today. Thank you for the comments. Thank you for coming to us week in week out the cold Thank you Damon parting thoughts words of wisdom that you want to share as we close out this week? Just if

Damon Pistulka  58:59

you know if you know anybody that’s getting getting that thinking about exiting and business just haven’t talked to somebody research think about what they really want to get out of it and how they do it and do it early because getting to the end you don’t have any options. You start early you got a lot options.

Curt Anderson  59:16

You know, let’s let’s end on this one. What does your What does and may I know if you coined this or if your partner Andrew coined this when somebody reaches a certain point in age or stage in life, what do you call it?

Damon Pistulka  59:30

They’re gonna die in their business. They’re gonna die

Curt Anderson  59:32

at their desk. They every day, like that’s so branded in my brain of like, man, nobody, please. Anyway, if there’s any takeaway today just don’t die at the desk. So all right, we’re gonna close out we have a great guests on Monday. We’ve got Nancy O’Leary, our dear friend Nancy is going to be with us. We’re going to be talking about manufacturing Mavericks as we close out manufacturing month Rocktober. So guys, thank you for joining us just go out and be someone’s inspiration just like our dear A friend Damon is God bless you guys and we will catch you next week thank you