"Ensuring you have the best cultural fit helps you attract not any deal but the best deal" - Jeffrey Feldberg
Jeffrey Feldberg is the co-founder of Deep Wealth. The M&A journey for Jeffrey began when he said "no" to a 7-figure and "yes" to mastering the ...
"Ensuring you have the best cultural fit helps you attract not any deal but the best deal" - Jeffrey Feldberg
Jeffrey Feldberg is the co-founder of Deep Wealth. The M&A journey for Jeffrey began when he said "no" to a 7-figure and "yes" to mastering the art and science of a liquidity event. Two years later, Jeffrey said "yes" to a 9-figure offer. During the process, Jeffrey increased his company value by 10X.
How did Jeffrey increase his company value 10X and go to a 9-figure liquidity event?
Jeffrey created the 9-step roadmap of preparation for a liquidity event.
The Deep Wealth Experience has you learn the 9-step roadmap in 90-days. At the end of the 90-days, you create a blueprint to help you optimize your business value. You also have the certainty of capturing the maximum value for your liquidity event.
This podcast is brought to you by Deep Wealth.
When it comes to your liquidity event, you have one chance to get it right, and you better make it count. Enterprise value is created from preparation and not the event itself.
Learn how the Deep Wealth Experience helps you maximize enterprise value. Master the same strategies our founders used to increase their company value 10X.
Access the same 9-step road map of preparation that paves the way for success. Enjoy the certainty that you'll capture the maximum value on your liquidity event.
Enjoy the interview!
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This podcast is brought to you by the Deep Wealth Experience. In the world of mergers and acquisitions, 90% of deals fail. Of the successful deals, business owners leave millions of dollars on the deal table.
Who are we and how do we know? We're the 9-figure exit guys. First, we said "no" to a 7-figure offer. Then, two years later, we said "yes" to a 9-figure offer. In the process, we increased the value of our company by 10X.
During our liquidity event journey, we created a 9-step road map of preparation. It's the quality and depth of your preparation that increases your business value.
After our 9-figure liquidity event, we committed ourselves to help business owners dominate and win. The Deep Wealth Experience has you create a blueprint to optimize the value of your business.
Our solution is resilient, relentless, and gets results. Enjoy the certainty that you'll capture the maximum value on your liquidity event.
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This podcast is brought to you by Deep Wealth.
Your liquidity event is the most important financial transaction of your life. You have one chance to get it right, and you better make it count.
But unfortunately, up to 90% of liquidity events fail. Think about all that time, money and effort wasted. Of the "successful" liquidity events, most business owners leave 50% to over 100% of their deal value in the buyer's pocket and don't even know it.
Our founders said "no" to a 7-figure offer and "yes" to a 9-figure offer less than two years later.
Don't become a statistic and make the fatal mistake of believing that the skills that built your business are the same ones for your liquidity event.
After all, how can you master something you've never done before?
Are you leaving millions on the table?
Learn how the 90-day Deep Wealth Experience and our 9-step roadmap helps you capture the maximum value for your liquidity event.
Enjoy the interview!
[00:00:00] Jeffrey Feldberg: Welcome to the Sell My Business Podcast. I'm your host Jeffrey Feldberg.
[00:00:05] Jeffrey Feldberg: Are you thinking about an exit or liquidity event?
[00:00:08] Jeffrey Feldberg: This podcast is designed to help you increase the value of your business, and at the same time, give you the certainty to capture the maximum value in your liquidity event.
[00:00:20] Jeffrey Feldberg: At the heart of the Deep Wealth Experience is the nine-step roadmap of preparation. Learn and master the same strategies that had me say no to a seven-figure offer, and a short time later, say yes to a nine-figure offer. In the words of a business owner who went through the system, "the Deep Wealth Experience was hands down, the best program I've ever participated in."
[00:00:45] Jeffrey Feldberg: To learn more about the 90-day Deep Wealth Experience, please visit www.deepwealth.com/success.
[00:00:55] Jeffrey Feldberg: Welcome to episode 69 of the Sell My Business Podcast.
[00:01:00] Jeffrey Feldberg: On the Sell My Business Podcast, it's become our tradition where every fifth or so episode, we do a deep dive on a particular topic. And the topic for this episode is a contentious one and one that is near and dear to just about every business owner's heart when it comes to a liquidity event. And the topic that we're going to be discussing today is all about an earnout. Or specifically how to avoid an earnout. So, we're going to be talking about five powerful strategies that will help you avoid an earnout during your liquidity event.
[00:01:33] Jeffrey Feldberg: And one of the things in the Deep Wealth Experience, our nine-step roadmap, we are vehemently against an earnout. Yes, there are always success stories where an earnout worked out really well for the business owners. That is few and far between in our experience. Not every buyer, but there are buyers who want to have an earnout. Why does a buyer want to have an earnout?
[00:01:58] Jeffrey Feldberg: Well, the cynical reason is that they know the earnout will either not be paid out at all, or will only be partially paid out. And when you think about it from a buyer's perspective, there's really very little incentive to pay an earnout. You could make the argument well, I'm going to be getting my earnout because I'm going to be hitting certain performance indicators.
[00:02:21] Jeffrey Feldberg: The company is going to become more profitable. I'm going to help with that. And on paper, all of that makes sense. But if you think about it, if a buyer can save millions and, in some cases, tens of millions of dollars by not having an earnout, even if for a short period of time, the business doesn't operate as effectively as it otherwise could, the buyer still wins and ultimately you lose. So, let's jump right into the first of five powerful strategies that will help you avoid an earnout during your liquidity event.
[00:02:54] Jeffrey Feldberg: And the first strategy, this is the case for making everyone a leader in your business.
[00:03:00] Jeffrey Feldberg: And the beautiful thing about preparing for a liquidity event, those strategies of preparation our nine-step roadmap in the Deep Wealth Experience, those strategies are one in the same for helping you to grow your business. And as we like to say at Deep Wealth, keep a thriving and profitable business forever or sell it tomorrow.
[00:03:21] Jeffrey Feldberg: The choice is yours and that's the point. You have a choice and both choices are really good ones. So, why do you want to have everyone as a leader in your business? Well, for starters, it's the dream of every business owner to have employees think like an owner. When an employee is thinking like an owner, we all know that performance goes up. Better decisions are made. And as a result, happier clients repeat business and more profits.
[00:03:50] Jeffrey Feldberg: But there's a challenge. How do you actually get employees to think like a business owner? Well, there are many, many case studies successful case studies that show when you do this one strategy that you can have your employees beginning to think like owners. And what's the strategy. Well, having everyone think as a leader, act as a leader in your business that starts with key performance indicators otherwise known as KPIs. And the goal here is that for every single position, from your frontline person all the way up to the CEO there are key performance indicators for that position. What gets measured is what gets done. And that saying is true today as it was when it first came out.
[00:04:34] Jeffrey Feldberg: So, when everyone knows that they have to be measured up against certain key performance indicators, it now has everyone in a healthy way on top of their game. Because what a KPI allows us to do is we can look at what happens today or this week, or this month, or this quarter.
[00:04:52] Jeffrey Feldberg: And we can compare that to the same time period last month, six months ago, a year ago, whatever the case may be. And if we're doing better, or if we're doing worse, we can ask the same question. Why? What made the difference?
[00:05:07] Jeffrey Feldberg: If the KPI is worse than what was there before we can find out what changed in the business. What changed in our procedures that's preventing us from performing as well, or even better than what we did previously? If on the other hand, the KPI has gone up and we're now performing better. We also get to ask a very powerful question. Why?
[00:05:28] Jeffrey Feldberg: What's changed and what's happened. And the wonderful thing when you begin to implement your key performance indicators is that you're changing your culture. I've said it before and I'll say it again. Your competition through its capital can buy just about everything. They can buy the same technology. Through their capital. They can even hire away your employees. They can effectively copy what you're doing by buying everything that you're using and everything that you're doing.
[00:05:56] Jeffrey Feldberg: But what money does not buy in addition to happiness, money cannot buy culture. Your culture is unique as a fingerprint. Each business has its own culture. You cannot copy or replicate a culture. And this now works to your advantage. When you have your key performance indicators built into the culture of your company, and your culture is now transparent. Everyone's talking about this from your CEO through to the frontline employees. Everything's open for discussion. And the beautiful thing about a key performance indicator. It's not personal. It's simply a number. We're looking at. If the numbers stay the same, if it's gone up, if it's gone down, we're not looking, we're not judging. We're not pointing to other people and blaming them. It's simply a nonjudgmental way of measuring how we're doing.
[00:06:46] Jeffrey Feldberg: So, you've created a group of key performance indicators for each position. You've built this into your culture, where you have a culture of transparency. Where everyone knows that we're measuring ourselves against the KPIs. If you've done it really well, those KPIs are public. Everyone can see them and they can see how we're doing day over day, week, over week, quarter over quarter. And it goes on year over year. But the thing that a lot of people overlook is this next one. And that is you have to empower your people to make changes on the spot.
[00:07:21] Jeffrey Feldberg: If an employee finds out that their KPI is going down and they find out the root cause of that. You have to have enough trust with your people if an employee finds out that a specific key performance indicator has gone down. And then this employee has the comfort level to not only understand why but to make the change on the spot. This is where the magic happens. Because if the employee now has to put this up the chain of command, that's going to take time. The message is going to get diluted. Frustration usually results. And ultimately nothing happens. You lose, your clients, lose the business, loses the profits. Aren't as optimal as what they could be.
[00:08:03] Jeffrey Feldberg: So, the ability for your people to have the empowerment to make the changes on the spot. And to begin in acting on those changes. This is really where you want to be. So, strategy number one is making sure that everyone in your business is a leader through KPIs that are transparent. Through the same KPIs that are part of your culture and having the ability to make changes as necessary.
[00:08:26] Jeffrey Feldberg: It's clear why key performance indicators help you both as a business owner and the business, but how does this prevent you from having an earnout to during your liquidity event? Your future buyer wants to ensure a few things. For starters, does the business run without you?
[00:08:42] Jeffrey Feldberg: When you have key performance indicators, you now have historical data of exactly how the business is doing. You can demonstrate that it's the team that's running the business, not you. Your future buyer also gets a deep insight into what your business is capable of. What's working? What's not working? How is this going to work on a go-forward basis?
[00:09:03] Jeffrey Feldberg: The more comfort and the more trust and confidence that your future buyer has, the less likely that your future buyer is going to ask for an earnout. So, key performance indicators is one great way to give your buyer the confidence that an earnout isn't needed. The business is going to perform as expected. You can show hopefully years of statistical data with your KPIs, that support what you're saying.
[00:09:31] Jeffrey Feldberg: So, look to your KPIs as serving two purposes. Number one, it's helping to increase the efficiency and profitability of the business. And secondly, it's giving a buyer the comfort level that an earnout is not needed. What you see is what you get and everything works as indicated.
[00:09:49] Jeffrey Feldberg: So, let's now talk about the second strategy. And the second strategy is how you can skip an earnout when your business is all about its brand and not about you. When I speak to business owners, one of these skeletons in the closet and it comes as no surprise to the business owner is that the business is all about the business owner.
[00:10:09] Jeffrey Feldberg: Either in name or in performance. So, in other words, if the business owner were abducted by aliens today, that business would falter or fail tomorrow. And this is not a good thing. I want you to stop thinking like a business owner and the challenge as business owners, we can become selfish. And when it comes to our liquidity event, we're only thinking about ourselves.
[00:10:31] Jeffrey Feldberg: One of the things that we teach about in the nine-step roadmap in the Deep Wealth Experience is step number three, your Future Buyer. And this is where you stop thinking like a business owner and you begin thinking like a buyer. Your future buyer is going to be spending millions, maybe tens of millions, hundreds of millions, of dollars to buy your business.
[00:10:50] Jeffrey Feldberg: But they don't want to just buy the business. They're buying the business for a reason. Your business is solving a painful problem. And it's your business that's also going to return the capital that they invested in the business, plus a profit. So, when your business is all about you and your business, doesn't run without you this is a situation where the buyer is saying, hey, don't pass, go. Don't collect your $200 that you're staying in jail. There is no deal because once you leave there is no business. And that's not a desirable situation for anybody. So, how do you have a situation where you can demonstrate that the business is all about the business and that the business is all about the brand? Well, there are three specific things that you should be doing. The first thing is creating a compelling narrative. And yes, as you can imagine in the Deep Wealth experience in our nine-step roadmap, we spend a lot of time on what is a narrative and what's a compelling narrative that's going to resonate with your buyer? And when that narrative demonstrates to your buyer, that the business runs without you, you now clear a huge hurdle. You begin to build trust and excitement. Deal certainty goes up and enterprise value goes up and it's that same narrative that also ensures that you're taking the reasons for an earnout off the table. So, let's assume for a moment that you now have a compelling narrative.
[00:12:11] Jeffrey Feldberg: Well, that's not good enough. We all know of businesses where they have an incredible narrative or maybe it's a mission statement or a vision. And it's a fancy plaque hanging up on the wall. But it's just words. The words mean nothing.
[00:12:24] Jeffrey Feldberg: If you were to speak to an employee in the business. Their narrative is not the same narrative as what, the vision or the mission of that business is. So, it's one thing to create a narrative. But the second thing that you have to do is ensure that your narrative, that your vision, that your mission that becomes your North Star. And that everyone follows that North Star. So, whether you're speaking to the janitor all the way up through to the CEO, when you're asking them to talk about the business, to describe it to you, what's it all about? As a buyer, you're hearing the same message again and again, and again.
[00:13:00] Jeffrey Feldberg: And by the way, that narrative doesn't include you. That narrative is how the business runs on his own. That narrative talks about how you have this incredible management team who's running the business day in, day out, and then the narrative talks about how the employees are running the business day in, day out without you. So, it's that North Star that you want to hear.
[00:13:22] Jeffrey Feldberg: The third thing that you want to have is that narrative is something that people have to live and they have to demonstrate not through their words, but through their actions. So, when people live the narrative, they're also living the brand. They're living the story when your future buyers speak to your customers and yes, your future buyer will speak to your customers. Your customers must echo back the same narrative that as a business you're talking about. From your frontline employee, all the way up to the CEO. So, you can skip an earnout when your business is all about the business, it's all about the brand. And it's not about you.
[00:13:59] Jeffrey Feldberg: So, what would be the third of the five powerful strategies that will help you avoid an earnout during your liquidity event?
[00:14:06] Jeffrey Feldberg: And this is an area where most business owners don't even want to go into, they think it's too time-consuming or it's too painful or it's too expensive to do.
[00:14:15] Jeffrey Feldberg: Do you know what I'm talking about? This area is why documenting your processes paves the way to avoid an earnout. Everything in your business should be in writing. How you do things, your systems, your procedures, all of that should be in writing. And this isn't just for the future buyer. This is for you. For your employees. It's for your customers.
[00:14:38] Jeffrey Feldberg: When everything is in writing, you're also enhancing your culture. And we spoke about the culture in the first strategy, the case for making everyone a leader in your business. But when you have a culture that's about documentation you also have a culture that's about independence. Think about this for a moment.
[00:14:55] Jeffrey Feldberg: You now hire somebody new. That person has in writing all the systems and the procedures. Think about the time saved with endless emails or meetings or phone calls or discussions to talk about how to do something. And you have a culture where, when in doubt, check the documentation. So, that your employees all the way up to your management team, they're checking the documentation before they're asking questions.
[00:15:21] Jeffrey Feldberg: So, let's suppose for a moment that everyone has checked the documentation. And yes, in fact, there is no documentation about this specific question. So, of course, you're going to figure out how to answer that question, but what's the very next thing that you're doing once you've answered that question?
[00:15:37] Jeffrey Feldberg: Well, you've guessed it. You're going to put that solution down in writing so that everyone has access to that. And the other thing that's beautiful is when you have everything that's in writing. When you have your systems and your procedures documented, you can actually win clients.
[00:15:53] Jeffrey Feldberg: Let's imagine for a moment that we're pitching a new account and you're putting your best foot forward. You have a terrific presentation. You have wonderful collateral that you're going to be leaving behind. But now imagine that you can say to your client, by the way here are all of our systems and our procedures of how we operate as a business. It's all here. And you leave that with the prospective clients to go through.
[00:16:17] Jeffrey Feldberg: Well, when the prospective client goes for this number one, you're impressing that client. For starters, your competition will not have done that.
[00:16:25] Jeffrey Feldberg: And you may be thinking, well, wait a minute. If I leave my systems and my procedures with a prospective client, won't they share that with the competition? Well, they might, and that's certainly a risk that you're going to take. But remember your documentation is part of your culture. And your culture is unique. You cannot buy culture.
[00:16:42] Jeffrey Feldberg: So, you're likely going to win business because of how organized you are and you demonstrate how consistent you are. You've done it with the narrative that you've created. You share that narrative with the clients. You've done that by talking about your key performance indicators and how you're always following those and what those look like over a specific period of time. And you're also winning that client because of the documentation that you've provided for all of your processes and all of your systems and your procedures. It sets you apart from the crowd.
[00:17:13] Jeffrey Feldberg: Having documentation in the Deep Wealth Experience, this is what we call a Rembrandt. Most business owners have these hidden Rembrandts in the attic. This is something that you are world-class in, but you assume you're like everyone else and that's actually not the case. When you know what your Rembrandts are, you take your Rembrandts out of the attic.
[00:17:32] Jeffrey Feldberg: You put them out for public display and in this case with your Rembrandt being documentation, you can now share that with prospective clients of how different you are, how organized the business is, how you say what you do, and you do what you say. And lo and behold, you now have a new customer. Congratulations. But that's no accident. It's because you spent the time, the effort, and the money to have everything documented.
[00:17:56] Jeffrey Feldberg: So, strategy number three, why documenting your processes paves the way to avoid an earnout also goes a long way with the buyer. The buyer now knows what he or she is buying. And it's yet one more way that you demonstrate to the buyer that the business runs without you, everything's in writing. So, when you're no longer there, even if some key people on your management team, weren't going to be there, the buyer has confidence that everything is reduced to writing. It's all there it's been archived. You can access it at any time.
[00:18:26] Jeffrey Feldberg: It gives the buyer confidence. You're fully transparent with this. You create trust with the buyer and when you have trust with the buyer, that's when the magic happens. The buyer now begins to ease off on the anxiety and begins to open up to the possibility of, hey, this business really does run without the owner. And this business really is self-sufficient. It looks like I don't need to have that kind of an earnout here because the results speak for themselves.
[00:18:53] Jeffrey Feldberg: Strategy number four is how creating deal points and no-fly zones helps you attract the best deal and not any deal. In the Deep Wealth Experience throughout the nine-step roadmap are these two things that we call deal points and no-fly zones. I am going to talk about that momentarily. But let's talk about what do deal points and no-fly zones give you? Do you deal points and no-fly zones, they give you clarity. They give you clarity of what you want and what you don't want. Unfortunately, most business owners start a liquidity event where they're not only not prepared, but they don't really have clarity of what it is that they want and what they don't want. Buyers know this. And remember the buyer that you're dealing with, they buy companies all day, every day. This is their wheelhouse. This is all that the buyer is focusing on. Here's a rhetorical question for you.
[00:19:48] Jeffrey Feldberg: How can you master something that you've never done before?
[00:19:51] Jeffrey Feldberg: And it's a rhetorical question because it, you simply can't. You don't do liquidity events all day long. This is something that's new for you. And this is why preparation is so important because when you're not prepared, you're stepping into a situation that the buyer is not only hoping for, but is praying for that you're walking in, not being prepared. You can expect the buyer to try and wear you down and it's called deal fatigue. The buyer will wear you down with all kinds of questions, all kinds of requests.
[00:20:20] Jeffrey Feldberg: The buyer knows that you spent a considerable amount of money and time and effort for the liquidity event. And you're just tired. You're in pain. You want that pain to end. And what most buyers do is they just give in and they say, you know what to heck with it. I'm just going to agree to this. I want to get the deal done. I want to move on with my life. But what they're not realizing is that they are leaving so much money on the table.
[00:20:43] Jeffrey Feldberg: There's a stat out there. And depending on who you speak to, it goes something like this. Most business owners are leaving anywhere from 50% to over 100% of the deal value in the buyer's pocket. And the business owners have no idea about this. So, the next time you hear a business owner tell you I just hit it out of the park. I had this incredible once-in-a-lifetime liquidity event, what they don't know, and because they don't know if they can tell you is how much money they left on the table. And look, that almost happened to me.
[00:21:14] Jeffrey Feldberg: When I was in business with my e-learning company, Embanet I received a seven-figure offer. Thankfully at that time, I knew I wasn't prepared. So, I said no to the seven-figure offer. I said yes, to learning the art and the science of how to do a successful liquidity event. And a short while later, a different buyer, a different offer. I said yes to a nine-figure offer.
[00:21:36] Jeffrey Feldberg: If I would have accepted that seven-figure offer look at all the money I would have been leaving on the table and it wouldn't even have known. So, getting back to strategy number four, how creating deal points and no-fly zones help you attract the best deal and not any deal. How do you do that and what is that?
[00:21:53] Jeffrey Feldberg: So, let's talk about deal points, deal points are things that must absolutely be in the deal. If the deal points aren't there, you're walking away from the table. Now I know some of you may be thinking, well, wait a minute. If I walk away from the table isn't the deal over, am I done? And now I have to go back to the beginning and start all over.
[00:22:12] Jeffrey Feldberg: And the answer is it depends. If you're not prepared, then yes, you've lost all that time, that effort and that money you weren't clear going into the liquidity event. You now realize that it's been a mistake and you pull the trigger on it to not do it. And this is why up to 90% of liquidity events fail because the root cause of the failure is a lack of preparation from the business owner. So, think about that for just a moment.
[00:22:38] Jeffrey Feldberg: All that money and that time that you've spent, you've just lost it. There was nothing to speak for. You don't have anyone else at the table. Contrast that to the business owner who's prepared. And we talk all about this in the Deep Wealth Experience and our nine-step roadmap, because what we recommend and what we advocate for is setting up an auction. The nine-step roadmap walks you through how do you find the best advisors for your advisory team? One of which is your investment banker. And the right investment banker is going to help you set up an auction where you cast a very wide net or in this case, the investment banker is casting a very wide net to attract as many possible buyers to the auction as possible. So, if you're saying no to one buyer, that buyer knows that there are other buyers lined up out the door who want to speak with you. And you're coming from a position of strength, not weakness. And yes, if you say no, because there's a deal point, that's not in the deal and you walk away, you've lost a little bit of time, but you haven't lost a deal. It's understandable. And in fact, you're sending a very strong message out to the next buyer.
[00:23:42] Jeffrey Feldberg: If you don't agree to my deal points that I've been able to articulate, that I've been able to prove to you through statistics, that I've shown you through the narrative. If you don't agree to those deal points, I will walk away just like I did from the other buyer. And like yourself, every buyer is also spending time and money on the deal. It's very common for buyers to spend hundreds of thousands of dollars and countless hours.
[00:24:07] Jeffrey Feldberg: During due diligence and the liquidity event and the deal process to make sure that there's a fit. Most buyers don't want to waste that money. So, when you show up and you're prepared, you're sending a very strong message to that buyer that you want to have a liquidity event that you're ready to do that, that you know what you want and you know what you don't want.
[00:24:25] Jeffrey Feldberg: Now, speaking of what you don't want, those are called the no-fly zones. So, no-fly zones are deal points that cannot appear anywhere in the deal. They're not showing up in the letter of intent. They're not showing up in the deal paperwork itself. They are not there. If those no-fly zones do show up you're walking once again, away from the deal table. And when you have clarity and you have that clarity upfront. When you know what your deal points are, you know what your no-fly zones are. You've communicated that to your investment banker. In fact, you've communicated that to your investment banker before you hire that investment banker. So, it comes as no surprise. Your investment banker is preparing all the buyers of what needs to be in the deal and what can't be in the deal. So, there are no surprises.
[00:25:08] Jeffrey Feldberg: Yes, you may lose some potential buyers along the way, but you would never have a deal with them anyways. So, that's exactly what you want. You want buyers to self-select themselves either hey, I'm interested in this business. I want to buy it. Or thank you, but no, thank you. I'm not going to be going through the liquidity event process. That's exactly what you want because you know, whoever shows up, they're interested in buying the business.
[00:25:29] Jeffrey Feldberg: So, let's talk about a few examples of what deal points are. So, a deal point could be something where you're saying to the future buyer, I have certain key employees that I want to have a guarantee of employment, that if you go to terminate these employees, you're going to have some kind of special package for them.
[00:25:47] Jeffrey Feldberg: A deal point could be how certain customers are going to be handled or not handled in a specific instance.
[00:25:53] Jeffrey Feldberg: Another deal point may be is it going to be a stock purchase? Is it going to be an asset purchase? So, these are areas that are important to you that you're going to be including in the deal points of the buyer's going to be knowing about.
[00:26:07] Jeffrey Feldberg: What would be a no-fly zone while I think, you know, what one no flies on is. And that's what this episode is all about.
[00:26:12] Jeffrey Feldberg: Not having an earnout. That no how no way there's absolutely no, earnout in this deal whatsoever. If you even mentioned the word earnout the deal is off. So, that would definitely be a no-fly zone. Another no-fly zone for many business owners, they own the building that they operate out of.
[00:26:29] Jeffrey Feldberg: So, another, no-fly zone would be that the actual building itself is not part of the deal. That buyer will rent out the premises from the business owner because the business owner has no intent to sell that real estate. So, that'd be another example of a no-fly zone. And really deal points, no-fly zones. They're personal. There's no right answer. There's no wrong answer.
[00:26:50] Jeffrey Feldberg: Really the right answer is what makes the most sense for you. And you're not showing up with a hundred deal points and a hundred no-fly zones. That's simply too complicated. I would say that's actually having no clarity at all. You've really thought through this process carefully. And you're showing up typically with three to five, no more than seven deal points, and no-fly zones that you're very clear about that you're prepared right upfront to walk away from.
[00:27:16] Jeffrey Feldberg: Now a word of warning. As good as your investment banker is most investment bankers. They just want to get the deal done. And you're going to get pressure from your investment banker, from your other advisors. Hey, if you can just accept this deal point. I know you said you didn't want to do it, but if you can just say accept it we can have a deal. Because again, your investment banker and your advisors, they're doing what they're supposed to be doing. They want to get the deal done. But getting the deal done, isn't always the best deal. It's just going for any deal. And more times than not it's any deal, not the best deal. So, you want to have the absolute best deal.
[00:27:53] Jeffrey Feldberg: So, you must be resolute in abiding by your deal points and no-fly zones. And when you do this and your investment banker sees that you're serious, that you're prepared to back up what you're saying, and you're not going to back down, your investment banker takes note. The other advisors take note. As well as the buyers take note.
[00:28:12] Jeffrey Feldberg: And this is also one area why we recommend that every business owner hire a Chief Exit Advisor. What's a Chief Exit Advisor? Well, the Deep Wealth Experience teaches you how to become your own Chief Exit Advisor. Where you see the big picture, you know, what everyone's agenda is. That said, you also know how to get everyone on the same page so you're marching towards the same goal. And we go into a lot of detail in the nine-step roadmap of preparation, how you can become your own Chief Exit Advisor.
[00:28:41] Jeffrey Feldberg: That said there are some business owners who aren't comfortable with that and they want to have a third party who's the Chief Exit Advisor. So, you're Chief Exit Advisor doesn't sit at the deal table. They are behind the scenes. Think of it as having a board of advisor of one. You're Chief Exit Advisor knows what you don't know, because you're going to have blind spots again, back to my rhetorical question. How do you master something you've never done before? You can't, but your Chief Exit Advisor does.
[00:29:08] Jeffrey Feldberg: Your Chief Exit Advisor is telling you, yes, this is a good thing to do let's do it, or, Hey, not so quick. Let's talk about changing this and here's how you can do it. And you're Chief Exit Advisor will walk you through what you need to do so that you can share that with your advisory team.
[00:29:22] Jeffrey Feldberg: Who can become a Chief Exit Advisor? Really, it could be an investment banker. It could be an M&A lawyer. It can be a business person. It's anyone that has a track record of success with a liquidity event that you're relying on their expertise because remember their loyalty is to you and you alone.
[00:29:40] Jeffrey Feldberg: Your key employees who are on your advisory team. Your advisor is your investment banker. If we're really honest about it, their loyalty is to themselves first. And then if you happen to fit into that, that's a wonderful thing, but it's not always going to be fitting into their agenda. And that's what most business owners don't realize. And this is why clarity is so important, and this is why having your deal points and your no-fly zones helps to keep you out of trouble because yes, you may run into deal fatigue. And it's in your moment of weakness that you can rely on your Chief Exit Advisor. You can rely on your deal points and your no-fly zones. You can rely on your narrative that becomes your North Star to help get you back to center so that you come from a position of strength and not weakness.
[00:30:24] Jeffrey Feldberg: So, now let's talk about strategy number five. Of why avoiding an earnout is all about the cultural fit. So, cultural fit is everything. And here's something for you to think about. Here's a question for you. Is the offer with the highest number, the absolute best offer versus an offer that's not the highest number, but it has the best cultural fit with the buyer?
[00:30:48] Jeffrey Feldberg: Most business owners say, well, obviously it's the offer that has the highest number. Well, if you're going to be heading off into the sunset, you're going to be gone on day one once the business is transitioned over to the new buyer, you don't care about your employees. You don't care about your clients, maybe the offer with the highest numbers is the best offer. I know I'm being a little bit facetious there. Most business owners care about their employees.
[00:31:13] Jeffrey Feldberg: They care about the clients. After all, these are the people who helped to get you to where you are. And so having a liquidity event where you have a buyer, who's the absolute best cultural fit. That's really what you want for your employees. You want that for your legacy. You want that for your clients. It's the right thing to do for your business.
[00:31:31] Jeffrey Feldberg: But we're not going to just stop with the buyer for the cultural fit. And by the way, you may be asking, well, how do I know how to find the buyer with the best cultural fit? In the nine-step roadmap of preparation in the Deep Wealth Experience, we walk you through exactly how to do that. We call it the Richter Reverse RFP. This is a whole system that's been developed where you put your top buyers through a request for proposal.
[00:31:56] Jeffrey Feldberg: And you may be thinking to yourself, wait a minute. As a business owner, do I have a right to ask prospective buyers questions? Because isn't it the buyers who should be asking me questions, not the other way around? An absolute yes. A resounding yes. You have every right to not only ask questions, but you should be asking more questions of the buyer than they're asking of you.
[00:32:17] Jeffrey Feldberg: And the most effective way to do this. Is to run this request for proposal with your top buyers. Where they're going to be presenting to you and your key employees to your team of why they're the best buyer for you. Through that process, you're going to determine their strengths, their weaknesses, and ultimately whether they're a cultural fit for you, or if there's no cultural fit at all. And you'll have a ranked order of all the buyers who has the best cultural fit.
[00:32:47] Jeffrey Feldberg: All the way through to who has the lowest cultural fit. And I left this point for last because the first four strategies play into this reverse RFP. We're beginning to understand what a buyer brings or doesn't bring to the deal table. But the cultural fit isn't just with the buyer. It's also with your investment banker.
[00:33:07] Jeffrey Feldberg: And you guessed it in the nine-step roadmap of preparation, step number five is all about the advisory team. And how you can determine if the advisors who are the ones that have the best cultural fit. So, I have a saying, and let's apply this to the investment banker. When you interview one investment banker and only one investment banker. One, it's never a choice.
[00:33:28] Jeffrey Feldberg: If you interview two investment bankers, well, now two choices is a dilemma. It's only when you interview three or more investment bankers, that's really, when you begin to have choices and you want to have choices and there are specific questions that you can ask, and we provide you with a scorecard in the Deep Wealth Experience about how you can rank your investment bankers from the ones who have the best cultural fit all the way through to the ones that have the least cultural fit.
[00:33:53] Jeffrey Feldberg: So, think about this for a moment. Cultural fit it's more on the art side of a liquidity event than on the science side of a liquidity event. Cultural fit doesn't show up in a spreadsheet as some number. You've got to go out there and you have to determine that. And that's why it's more on the art side of things.
[00:34:11] Jeffrey Feldberg: But when you have the cultural fit, you've done it for all the buyers in the process. You've done this for the investment banker. You've done this for your M&A lawyer. You've done this for all the various advisors who are going to become a part of your advisory team. You're now aligning your interests with their interests.
[00:34:27] Jeffrey Feldberg: And when it comes to cultural fit, here's a question. Here's another thought experiment that I'd like to ask. I'd like you to imagine for a moment that when let again, let's pick your investment banker. Imagine that you and your investment banker, or you're going to be taking a trip. So, you're both on the plane. You're getting ready for takeoff.
[00:34:42] Jeffrey Feldberg: The pilot comes on the PA system and says, ladies and gentlemen, I'm very sorry to announce that we have some mechanical difficulties. We're not able to go back to the gate. We're going to have to be on this tarmac for the next nine hours. We're waiting for the part to be flown in. So, you're now with your investment banker on this plane for nine hours.
[00:35:02] Jeffrey Feldberg: Are you crawling out of your skin going crazy within the first five minutes? Or alternatively, do those nine hours just pass by like is five minutes only. That's cultural fit. When you have the right cultural fit with your advisors, this is when you know that you can sit on that plane for this crazy number of hours. And you're actually going to enjoy the conversation. You're going to enjoy the experience as challenging as it may be. And that's why cultural fit is important.
[00:35:31] Jeffrey Feldberg: Your liquidity event. This is the largest, most important, biggest transaction that you'll ever have in your entire life.
[00:35:39] Jeffrey Feldberg: So, you really have one chance to get it right. You want to make it count. And when you have the right cultural fit, that goes a long way to setting up the gates of success, where you're going to win. So, you've done this with the buyer. You've done this with the investment banker, and now what that allows you to do is you now have that auction process. And with that auction process, you've attracted many buyers to the table. You now have choices like we spoke about before. And from those choices, you'll be able to go out and get, not just any deal, but the best deal.
[00:36:10] Jeffrey Feldberg: So, those are the five powerful strategies that will help you avoid an earnout during your liquidity event. Let's do a quick recap. Strategy number one, the case for making everyone a leader in your business. This is where you've created key performance indicators for every position, from your frontline people, all the way up to the CEO. These KPIs are known throughout the business. It's transparent. They're measured.
[00:36:32] Jeffrey Feldberg: Day over day, week over week, month over month, quarter over quarter, year over year. And you're comparing, how do we do right now today versus this time last month, last quarter, last year.
[00:36:44] Jeffrey Feldberg: Strategy number two is why you can skip an earnout when your business is all about its brand and not about you. And hear your narrative is demonstrating it's both showing and telling that the business runs without you.
[00:36:58] Jeffrey Feldberg: That the narrative becomes the North Star, that everyone follows. That people from your employees, to your clients, they live that narrative. They live that brand and you're giving your buyer the confidence that the business runs without you. And when the business runs without you, there's not a reason to have an earnout and the buyer has less leverage over you.
[00:37:17] Jeffrey Feldberg: Strategy number three, why documenting your processes paves away to avoid an earnout. And here we talked about when everything is in writing when documentation becomes part of your culture. When people check a document, before they ask questions, you have a business that accelerates. It welcomes high growth. You have a situation where people know what they should be doing. This gives your buyer confidence. This builds trust with your buyer.
[00:37:44] Jeffrey Feldberg: This creates a situation with your buyer that now knows I have a business that's organized. My risk has gone down dramatically. There's no reason to have an earnout because everything's now in writing.
[00:37:56] Jeffrey Feldberg: Strategy number four is how creating deal points and no-fly zones helps you attract the best deal and not any deal.
[00:38:03] Jeffrey Feldberg: And there we spoke about the importance of clarity. We spoke about why having deal points and no-fly zones gives you that clarity. And yes, in your deal points and no-fly zones is not having an earnout. If an earnout shows up your investment banker knows, and the buyer knows that you're walking away from the deal table. And you're not just saying that, you're prepared to back that up with action.
[00:38:25] Jeffrey Feldberg: And the last strategy, strategy five is avoiding an earnout when it's all about the cultural fit. So, you can avoid an earnout when you have the right cultural fit with an investment banker who believes in what you're doing and understands why you're doing what you're doing. You avoid an earnout when you have the right cultural fit with a buyer who understands that you have a gem of a business, but an earnout is not up for discussion.
[00:38:48] Jeffrey Feldberg: And you give that buyer, some food for thought when the buyer knows that you're running an auction process, where there's going to be many buyers at the table who want to buy the business. That option keeps buyers on their best behavior and helps to ensure that you don't have an earnout.
[00:39:05] Jeffrey Feldberg: So, those are the five powerful strategies that will help you avoid an earnout during your liquidity event. And as I shared with you, all those strategies are in the nine-step roadmap of preparation that we have in the Deep Wealth Experience.
[00:39:17] Jeffrey Feldberg: The Deep Wealth Experience, it's a 90-day system and there are three components of the Deep Wealth Experience.
[00:39:22] Jeffrey Feldberg: The first component this is where you're learning the same strategies and tactics that I leveraged to say no to a seven-figure offer and yes, to a nine-figure offer. And the beauty of this is that those strategies they've been enhanced over the years. In fact, some of the things that I failed in, in my liquidity event, those failures have been reverse-engineered so that they now work. And you get the benefit of the heavy lifting that I did so that you don't have to do that heavy lifting.
[00:39:49] Jeffrey Feldberg: The second part of the Deep Wealth Experience, this is where you're in a mastermind group with other business owners. Some people call it a CEO peer group.
[00:39:57] Jeffrey Feldberg: They're not your competitors. They're successful business owners who like yourself, want to learn the art and the science of a liquidity event. And this is where you get to learn from them. Different industries. Best practices. You're avoiding the group thing. You're getting their input of how you cannot get any deal, but how you can go out and capture the absolute best deal.
[00:40:17] Jeffrey Feldberg: And then the third part of the Deep Wealth Experience, this is where you get coaching from a success coach who integrates what you're doing in your business with the nine-step roadmap who takes what your mastermind group is talking about and helps you master those strategies and those tactics.
[00:40:31] Jeffrey Feldberg: So, when you combine all of that, what do you get on the 91st day? On the 91st day, you've achieved two important things. You've created a blueprint that helps you optimize the value in your business. And as important you walk out with the certainty that you’re capturing the maximum value when it comes time for your liquidity event.
[00:40:52] Jeffrey Feldberg: As always thank you so much for taking part of your day and spending it with me on the Sell My Business Podcast. I hope that you found value and some terrific insights and five powerful strategies that will help you avoid an earnout during your liquidity event.
[00:41:06] Jeffrey Feldberg: As we close out this episode as always, please stay healthy and safe.
[00:41:10] Jeffrey Feldberg: This podcast is brought to you by the Deep Wealth Experience. Your liquidity event is the largest and most important financial transaction of your life. Most business owners leave anywhere from 50% to over 100% of their deal value in the buyer's pocket and don't even know it. I should know. I said "no" to a seven-figure offer and "yes" to mastering the art and science of a liquidity event.
[00:41:36] Jeffrey Feldberg: Two years later, I said "yes" to a different buyer with a nine-figure offer.
[00:41:40] Jeffrey Feldberg: Are you thinking about an exit or liquidity event?
[00:41:43] Jeffrey Feldberg: If you believe that you either don't have the time or you'll prepare closer to your liquidity event, think again.
[00:41:49] Jeffrey Feldberg: Don't become a statistic and make the fatal mistake of believing that the skills that built your business. Are the same ones for your liquidity event. After all, how can you master something you've never done before?
[00:42:01] Jeffrey Feldberg: Let the 90-day Deep Wealth Experience and our nine-step roadmap of preparation help you capture the maximum value for your liquidity event. Let's listen to what a few graduates of the Deep Wealth Experience have to say.
[00:42:15] Lyn M.: This course is one of the best investments you will ever make because you will get an ROI of a hundred times that. Anybody who doesn't go through it will lose millions.
[00:42:25] Kam H.: If you don't have time for this program, you'll never have time for a successful liquidity
[00:42:30] Sharon S.: It was the best value of any business course I've ever taken. The money was very well spent.
[00:42:37] Lyn M.: Compared to when we first began, today I feel better prepared, but in some respects, may be less prepared, not because of the course, but because of course brought to light so many things that I thought we were on top of that we need to fix.
[00:42:52] Kam H.: I 100% believe there's never a great time for a business owner to allocate extra hours into his or her week or day. So, it's an investment that will yield results today. Before I took the program, I thought I will reap the benefit of this program in three to five years down the road. But as soon as I stepped forward into the program, my mind changed immediately.
[00:43:17] Sharon S.: There was so much value in the experience that the time I invested paid back so much for the energy that was expended.
[00:43:29] Lyn M.: The Deep Wealth Experience compared to other programs is the top. What we learned is very practical. Sometimes you learn stuff that it's great to learn, but you never use it. The stuff we learned from Deep Wealth Experience, I believe it's going to benefit us a boatload.
[00:43:42] Kam H.: I've done an executive MBA. I've worked for billion-dollar companies before. I've worked for smaller companies before I started my business. I've been running my business successfully now for getting close to a decade. We're on a growth trajectory. Reflecting back on the Deep Wealth, I knew pretty much less than 10% what I know now, maybe close to 1% even.
[00:44:01] Sharon S.: Hands down the best program in which I've ever participated. And we've done a lot of different things over the years. We've been in other mastermind groups, gone to many seminars, workshops, conferences, retreats, read books. This was so different. I just really haven't had an experience that's anything close to this in all the years that we've been at this.
[00:44:27] Sharon S.: It's five-star, A-plus.
[00:44:29] Kam H.: I would highly recommend it to any super busy business owner out there.
[00:44:34] Sharon S.: The Deep Wealth Experience was definitely a game-changer for me.
[00:44:37] Kam H.: Deep Wealth is an accurate name for it. This program leads to deeper wealth and happier wealth, not just deeper wealth. I don't think there's a dollar value that could be associated with such an experience and knowledge that could be applied today and forever.
[00:44:51] Jeffrey Feldberg: Are you leaving millions on the table?
[00:44:53] Jeffrey Feldberg: Please visit www.deepwealth.com/success to learn more.
[00:45:00] Jeffrey Feldberg: If you're not on my email list, you'll want to be. Sign up at www.deepwealth.com/podcast. And if you enjoyed this episode of the Sell My Business podcast, please leave a review on Apple Podcasts. Reviews help me reach new listeners, grow the show and continue to create content that you'll enjoy.
[00:45:23] Jeffrey Feldberg: As we close out this episode, a heartfelt thank you for your time. And as always, please stay healthy and safe.