Episode 42 Former Wall Street Investment Banker Carl Allen On Why You Should Buy Businesses To Fuel Growth And Profits
"I have a very big why for what I do that gives me all the fuel, purpose, and drive, to focus every day to make this happen." - Carl Al...
Episode 42 Former Wall Street Investment Banker Carl Allen On Why You Should Buy Businesses To Fuel Growth And Profits
"I have a very big why for what I do that gives me all the fuel, purpose, and drive, to focus every day to make this happen." - Carl Allen
Carl Allen is a world-class entrepreneur, investor, and corporate dealmaker who has worked on more than 330 transactions worth close to $48 billion. In his nearly 30 year career, Carl has analyzed thousands of businesses, big and small in 17 different countries across nearly every business sector, including technology, pharmaceuticals, transport and logistics, engineering, manufacturing, aerospace, consumer goods, business services, retail, professional services, financing, packaging, and corporate clothing.
Carl first earned his reputation during his 16 years on Wall Street, working for Bank of America, Hewlett Packard, Forrester, and Gartner. There he advised some of the world's largest corporations on investments, mergers, acquisitions, disposals, and restructuring, and helped hundreds of business owners raise both equity and debt financing.
Carl founded Dealmaker Wealth Society because he believes starting a business from scratch is certifiably crazy. He wanted to use his highly specialized skill set to help others realize their dream of self-employment without the long, hard, up all night slog with a 96% failure rate in 10 years, according to the E-Myth Revisited by Michael Gerber. Today, Carl is helping thousands of entrepreneurs all over the world buy existing and profitable small businesses.
The Sell My Business Podcast is brought to you by Deep Wealth.
The Deep Wealth Experience has you learn the 9-steps of preparation in 90-days. At the end of the 90-days, you have a blueprint for optimizing the value of your business. You also enjoy the certainty that you capture the maximum value.
This podcast is brought to you by Deep Wealth. Are you thinking about a liquidity event? You have one chance to get it right, and you better make it count. The 90-day Deep Wealth Experience gives you the certainty to capture your maximum value. You'll master the 9-steps of preparation we created for our 9-figure exit.
Enjoy the interview!
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This episode 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. We said "no" to a 7-figure offer. 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 preparation process. It's the quality and depth of your preparation that increases your business value.
After our 9-figure exit, we committed ourselves to level the playing field. The Deep Wealth Experience helps you create a launch plan in 90-days. 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!
Steve Wells: [00:00:05] I'm Steve Wells.
Jeffrey Feldberg: [00:00:06] And I'm Jeffrey Feldberg. Welcome to the Sell My Business Podcast.
Steve Wells: [00:00:11] This podcast is brought to you by the Deep Wealth Experience. When it comes to your liquidity event or exit, do you know how to maximize the value of your business? You have one chance to get it right, and you better make it count. Most business owners believe that business value is determined during the liquidity event.
Unfortunately, most business owners are wrong. Your enterprise value is a direct result of the depth and quality of your preparation. Who are we and, how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer. Two years later, we said "yes" to a 9-figure offer despite having the same people, the same company, the same services, we increased our business value 10 times.
How did we do this? We spent millions of dollars and years of time to uncover strategies that level the playing field. The end result is the 12-week Deep Wealth Experience.
We've created a proprietary solution that is relentless, resilient, and gets results. Learn how to master the art and science of a liquidity event. We've leveraged the same strategies that took us from 7-figures to 9-figures.
The Deep Wealth Experience levels of playing field so you can dominate and win.
Book your free call today to find out if you have what it takes for the Deep Wealth Experience.
Visit www.deepwealth.com/success to book your free call.
Jeffrey Feldberg: [00:01:39] Welcome to episode 42 of the Sell My Business Podcast. Carl Allen is a world-class entrepreneur, investor, and corporate dealmaker who has worked on more than 330 transactions worth close to $48 billion. In his nearly 30-year career, Carl has analyzed thousands of businesses, big and small in 17 different countries across nearly every business sector, including technology, pharmaceuticals, transport and logistics, engineering, manufacturing, aerospace, consumer goods, business services, retail, professional services, financing, packaging, and corporate clothing.
Carl first earned his reputation during his 16 years on wall street, working for Bank of America, Hewlett Packard, Forrester, and Gartner. There he advised some of the world's largest corporations on investments, mergers, acquisitions, disposals, and restructuring, and helped hundreds of business owners raise both equity and debt financing.
Carl founded the Dealmaker Wealth Society because he believes starting a business from scratch is certifiably crazy. He wanted to use his highly specialized skill set to help others realize their dream of self-employment without the long, hard, up all night slog with a 96% failure rate in 10 years, according to the E-Myth Revisited by Michael Gerber today, Carl is helping thousands of entrepreneurs all over the world by existing and profitable, small businesses.
Carl welcome to the Sell. My Business, Podcast. Really excited to have you here with us today.
Now for our community, you're going to hear Carl talk about a whole number of things. You'll hear about his experience of buying companies. And he'll give you some terrific insights as a seller of a company, what buyers are looking for, the mistakes that they're hoping you're going to make, But I'm going to take you down a different path today with Carl and I have a hunch that when we're finished, you’re going to be asking, maybe I should be buying a company. And you're saying, Jeffrey, why would I want to buy a company? That's what we're going to be talking about today as well. And Carl will share a wealth of information and why buying a company before you sell your company may be a quick path to increase your revenues and your profits, but ultimately your enterprise value when it comes time for your liquidity event.
So, Carl, before we get into all of those good things, why don't you tell our listeners your story of how you got to where you are today and doing what you're doing?
Carl Allen: [00:04:19] Sure. Jeffrey, thank you so much for having me on the show. It's an absolute pleasure. And again, apologies. We had to reschedule this for our last confirmed appointment.
I became a grandfather, literally 10 minutes before we were going to go live. We had to reschedule, so thank you for that. I've got a pretty interesting kind of background. I turned 50 last year, so I've been a deal-maker now for 29 years. 1992 I started my career and I did the honorable thing.
I went to work for a wall street investment bank. So, I worked for Bank of America doing mergers and acquisitions. So, buying and selling companies for large clients like IBM and GE and Boeing and so on. And I specialized in the kind of industrial and the technology sector. So, I did that right the way through, into the early 2000s.
I left and went to Chicago to do an MBA, and then I had a little stint in private equity. My last real job was working for Hewlett Packard, the global technology company. I was one of their directors of M&A. So, I was buying and selling businesses for HP. And that was a fascinating job actually working within large corporate buying businesses for them.
I loved that role. I was having a lot of from, I spent over $20 billion of HP's money doing deals. And fortunately, my life completely changed direction in the space of about four hours on the 1st of February. 2008. And what happened was I was in a boardroom in Moscow. I was with my CEO a guy called Mark Hurd, who sadly is no longer with us.
He died back two months ago. He and I are in a boardroom in Moscow. We're trying to close this deal. We were buying this company in Russia and my wife calls me in the middle of this pitch. And she had gone into labor four weeks early. So, she was 36 weeks pregnant with our youngest child. So, my eldest daughter is 27.
She's just had the baby and my youngest son he's 13 on the 1st of February. He was born four weeks premature. So, I had to literally get out of Moscow and back to England as fast as humanly possible. Otherwise, I would have missed the birth of my youngest son. And luckily, I had my phone and my wallet, and my passport on me at the time.
So, I ran out of the building. I jumped in a cab, my luggage, my computer is still there. I think I've never been back. I got home eventually. I had a police escort from the airport in the UK to the hospital. Got to the hospital just before my son was born and he was born and I was cradling him in my arms.
And I thought you know what? I can't do this anymore. I have a young baby now. I've not been there really for my family for the last six months. It's time I made that change. So, I quit. I walked away from corporate. I kissed goodbye to a million dollars, plus in options and bonuses. But I'd saved well.
I decided I was going to retire. I was 37 at the time I retired and I lasted about three weeks. I couldn't deal. I couldn't do it. I couldn't retire. It was crazy. My brain was turning to mush. So, I sat down with my wife one night and I said, what am I going to do, honey? I can't retire too young. She said your biggest strength is your biggest weakness.
You're one of the best in the world at buying and selling companies. But what else are you going to do? You're not going to start a business because it's dangerous. So, I became a business broker. The first business I got to sell was a transport company, but instead of selling it, I acquired it.
I bought it myself. And what I did Jeffrey is I took the art and science of a tool I'd learned to deploy on Wall Street, called a leveraged out and a leveraged buyout is where you buy a company that's profitable. And you buy it using other people's money, you buy it using financing that you can raise. The more profitable the businesses, the more financing you can raise.
So, I did that deal. That was my first deal as an entrepreneur. And then since that day I've been buying businesses, growing them, selling them. And today I do two things. So, today I'm a partner at a private equity firm in the US, and we buy and grow and we sell companies. But then I have the absolute privilege of coaching over five-and-a-half thousand entrepreneurs and business owners all over the world in my proprietary system of how to do deals. How to find businesses, how to build relationships, how to raise capital and how to close deals, and then what to do with those businesses once you buy them. So, that's what I do.
Jeffrey Feldberg: [00:09:13] What an amazing story. And as you're sharing that, I just have images in my mind of you dashing off to the airport, getting home, having an escort to get you to the hospital.
But what a life-changing moment. Now, speaking of births, and we were talking about this offline, once again, congratulations. You're a grandfather nothing quite like that. And for the listeners, you don't have the benefit of seeing Carl. He is grinning ear to ear. And from all of us, congratulations with that Carl. We are delighted for you. And so, I'm wondering before we get into the buying of businesses and what to look for, let's flip that. So, when you were buying businesses and there's nothing quite like having someone else's money, billions of dollars to buy businesses and go through that journey, it will be interesting to hear as a buyer what were you looking for in the businesses that you were exploring in terms of mistakes that those businesses were making, that you knew were going to translate to your bottom line because they made a mistake or they didn't do something, or they were doing something. And before you jump into that, the one thing I'll share with the audience, it doesn't matter that Carl was buying very large, multinational companies.
Best practices are best practices. From your business to a multi-billion-dollar business. The strategies are really one in the same. So, Carl, what were some of the classic mistakes that you saw that you can warn our community about of why they shouldn't be doing this?
Carl Allen: [00:10:41] Yeah. So, that's a phenomenal question.
And let me answer that in three ways. So, the first thing that I would say is transactionally, you are absolutely spot on. The largest business I've ever bought was a $13.9 billion deal, which was HP's acquisition of EDS. And then I've done deals for $50,000. The transactional process, the legal process, the due diligence process is exactly the same.
The big difference between mega-deals and where I am today, which is the acquisition of say $1 million to $10 million businesses is small deals are a lot more about psychology. And one of the biggest mistakes, a lot of rookie deal-makers made. So, people jump into the business buying world. They think small deals are all about numbers and they're not. They're all about psychology.
My specialty is buying businesses that are retirement sales. So, if you take the baby boomer population of the United States, according to the Wall Street Journal, 10,000 baby boomers retiring every single day in the States and a ton of them on small businesses.
And you've got these business owners and for the past 20, 30, even 40 years, they've been really locked into their business. They've probably spent more time in their business than they have with their own family. So, when it comes time to sell the days are gone when you can hand the business down to a son or a daughter. If you look at college admissions now, children want to be doctors and dentists, and lawyers, and they don't want to take over the family company.
So, you've got a business owner that's got really no exit strategy. They decided it's time to sell. And psychologically and emotionally, it's a big deal. One of the mistakes that I see is that sellers don't get the right advice. So, they don't get with their attorney or their CPA or the tax planner or the wealth manager, and really have a small team of professionals around them to protect them through the journey.
So, that's the first thing. The second mistake that most business owners make when they decided to sell a company is they haven't figured out ahead of time, who they want to sell to. And I don't mean individually. There are really two categories of buyer. So, if you want to sell your business, then you can do one or two things. You can sell to somebody like me, or somebody that's got, financial partners. So, we're individuals. We have track records in the industries that we're buying. We're like the safe, trusted pair of hands. We're going to protect your legacy. We're going to safeguard your employees. We're going to keep the name of your business, your brand, your culture.
And we're going to cherish everything that you've built. But we're not going to offer you potentially the same amount of money that a competitor might offer you. So, the other option for you as a seller is to sell to what I call a trade buyer. So, this is a competing business that's probably larger than you, or it's a company that wants to enter your space.
And for those reasons, those businesses can pay more money because they're going to do something called a bolt-on acquisition. And they're going to be able to extract a lot of synergies and cost savings from the acquisition of your business. In a worst-case scenario, they'll just asset strip what they buy.
They'll just take the customer base and leave everything else behind. Best case they're going to make a lot of changes and the business culturally will not be the same. Now some sellers I'm me are totally fine with that. They're just after the payday they want to sell. They want as much money as possible.
They want as much money as possible at closing. They don't mind what's going to happen to the business. But a lot of the sellers that I talked to do. The first business I ever bought the transport company that I alluded to at the start. Those guys sat me down and said, look, we don't want to sell to a big competitor that will just rip this business apart.
We want to see our trucks driving on the highway. We want to see our name up in lights. We want all of our employees’ taken care of. We don't want really anything to change in the business, but obviously, you're going to grow it. You're going to optimize it. So, that's why I decided to buy it because I knew a competitor would.
So, that's the first mistake. Sellers don't. Really know who their ideal buyer is. And so that's the first question they can ask. And then another issue that I see a lot with sellers is they don't prepare. They don't get all of their financials sorted out. They don't get all their legal ducks in a row and they don't extract themselves sufficiently from the day-to-day operation of their business.
So, that the business is appealing to a buyer. And what I mean by that is there's a saying that was coined by my good friend, Michael Gerber, who wrote the book, the E-Myth revisited. And what Michael Gerber talks about as a business, you can work in your business or on your business. People that work in their businesses so the business is dependent on them every day to perform, then really you don't have a business, you just have a job in your own business. And if you're not in the business, it doesn't work. So, if that's your situation, it's very hard to sell your business because if someone buys it, it's probably not going to work if you're not there.
So, ideally, before you sell, you need to extract yourself from a lot of that day-to-day activity and work more on your business. Knowing full well that when somebody buys it, the operational day to day, the transactional nature of your business is going to be pretty much as it is. So, those are some of the mistakes that I see a lot in the businesses that I look at.
Jeffrey Feldberg: [00:16:45] For our listeners, Carl shared so much of what we talk about in the Deep Wealth Experience.
And Carl let's circle back. In the nine-step roadmap at Deep Wealth. And that's really our foundation of why preparation is going to have you increase the value of your business, but on your time without sacrificing your health or your money.
Let's go to step number four of the Deep Wealth 9-step roadmap, and that's the liquidity event, advisory team.
So, Carl, you said something interesting, and I know many business owners have this thinking of, I don't need to hire anybody. I am either going to deal with it myself, or I'm going to have my competition come in and just buy it. I'm going to save time. I'm going to save money. You didn't quite say it this way, but let me ask you the question.
I would imagine as a buyer, you're hoping that the seller does not have that advisory team surrounding him or her because it will lead to a much better price and better terms and conditions for you. What would you say to that?
Carl Allen: [00:17:45] You're right by the way that when a seller has no advisors. You could argue it's easier for a buyer to take advantage but on the contrary. A buyer without representation, isn't organized, doesn't have everything in place. Can't move at pace, don’t understand the journey and the steps, and has somebody to really protect them from a lot of the emotion and the psychology that they're going to go through.
So, for me, the more advisors they have the better it is for me because I'm still looking to negotiate. I'm happy to pay, a fair price for the business and a structure that's going to work for both buyer and seller. But when they have advisors, I know that they have a team of individuals that are going to help get the deal done.
That for me is much more important.
Jeffrey Feldberg: [00:18:33] And what you've just heard, Carl shares with us is number one, you have an individual who respects and values his time, and I've heard from a number of buyers, Jeffrey. I would rather pay a fair price even a little bit more if that seller is prepared. If they have all the right advisors around them, they've done the work. I'm not going to be wasting my time. I'm not wasting my money. The deal is not going to die somewhere in the process because I find out later that there's a big red flag. It just doesn't make sense to move forward.
Now, Carl, speaking of time, you mentioned something interesting as well. And for most business owners, they are the business and the business is them. They don't separate it. They prefer it that way. They can't imagine life without them in the business.
And you were straight up and you said, hey if you're running that kind of business, I don't want anything to do with you. Can you talk about the risk and the challenges as a prospective buyer, when the business doesn't run without the owner?
Carl Allen: [00:19:32] So, what's really interesting about that is there are two ways to look at it. For the most part, valuation probably doesn't need to change. So, if you take the two scenarios where you've got a very optimized business with an owner, that's working on their business, not in their business. Great processes, good management team, everything's ticking and a humming versus the other scenario where everything's locked in the business owner's mind, or the customer relationships are personally with them.
Nothing can happen in the business without them. The deal could be the same value. However, in the latter case, that deal is going to be more of a deferred sale. It's going to be a seller financing type of deal structure, maybe even an earn-out because I'm not going to buy that business and let the seller disappear.
There's going to be a period of time where I got it unlocked all of that value from the seller and plug it directly into the heart of how the business is going to work. What you find with businesses that are highly optimized and the sellers more of a strategic player than a tactical player, in those scenarios, those deals are a lot easier to finance.
So, in that case, the seller tends to get really the same value, but a higher closing payment, because in the former case where everything's world-class, that's a deal where, for example, the SBA 7A loan program is going to be probably the most optimal way to fund that deal. And in those deals that the seller is going to get 90% of the selling price as a day one closing payment.
If the business isn't organized, orchestrated and the sellers, really the tactical GM, then that deal is going to be more of a seller financing deal where I'll still buy the business. But I might lock the seller in for at least a couple of years to really extract everything in his or her brain that I need to know to transition that business properly.
Jeffrey Feldberg: [00:21:29] Some terrific points. Now also circling back to one of the things that you mentioned, and this ties nicely into the Deep Wealth 9-step roadmap. Step number five is what we call the winning mindset. Both buyers and sellers have mindsets. Unfortunately, the mindset of both the buyer and seller, aren't always aligned. And so, Carl, it'd be interesting to hear you talk about what you would want to see in a seller in terms of his or her mindset that's going to help you as the buyer recognize the full value and also help to get there.
Carl Allen: [00:22:06] Yeah. So, I think there are three answers to that. I think the first thing around the mindset piece is to take into account the seller being prepared. Knowing that type of buyer that they want. And I think to add to that it really helps when a seller has a plan for what they're going to do after they sell.
I've come across a number of sellers, where we've gone quite the way down the journey. And then the sellers pulled the deal at the 11th hour because they actually don't know what they're going to do next. So, if you want to retire, great, have a retirement plan where you're going to invest your money, what hobbies you're going to have, what other things you're going to do. If you were an entrepreneur that started and now is selling, it's really important to know you know what your next plan is, even if you're going to take some time off. So, that's the first thing. The second thing is the best deals I've ever done are where we have what I call a willing buyer, willing seller relationship. And what I mean by that is this is a relationship business. And the 1 to 10 million deal space it’s really all about relationships. This isn't corporate America. This isn't share swaps, public traded companies, investment bankers crawling all over the place.
This is an individual buyer, buying from an individual seller. It's human contact. What a lot of people don't realize is the more time that you invest in that relationship, not only is it quicker and easier to get to a willing buyer willing deal scenario, but the whole process just becomes a lot more flawless.
So, that's really important. And then the third point about the scenario is often buyers and sellers don't quite meet head-to-head in terms of value and structure. And there's an old saying that one of my mentors, Keith Cunningham this is his phrase. He says all mommas love their babies.
So, the value of a business is part math. It's a multiple of earnings. It's discounted cashflow its balance sheet plus goodwill. It's all that stuff. But a lot of it is based on psychology. It's based on seller motivations based on buyer motivation. And it's a bit like the stock market in that deals buy and sell at that tipping point between what a seller's prepared to sell for based on what a buyer is prepared to buy for. What I mentioned earlier, a trade buyer will typically pay more for a business because he or she has got a lot more leverage. They've got existing customers; they can cross pollinate and cross sell.
They've got duplicate costs that they can eradicate. And that's why often competitors can pay more money, but a seller might not want to go through the time and the risk and the pain of that type of process. This is why I love sellers when they're advised properly.
It's the difference between the price and the terms, because whilst the seller might want $5 million for a business, necessarily that doesn't have to be all the money at closing. That could be a deal structure where they get enough capital at closing for them to do whatever they want. Then they're getting regular payments through a guaranteed seller financing note. And then there's a tool in deals called earn-outs where I can buy a business. And the seller could end up receiving a lot more money for the sale because of the improvements or the growth or the opportunities that I'm going to capitalize on when I'm the new owner of that business. A lot of those things, again, they all come back to a relationship.
If you don't build a solid relationship, it's really hard to do some of those things. If you have a phenomenal relationship between buyer and seller, and both want to do the deal, and you're really keen on it, a lot of these creative things can be brought into the mix.
Jeffrey Feldberg: [00:25:55] That's terrific. In the Deep Wealth, Experience, that's really, our step number three which is the future buyer.
And we often say that for most sellers all they care about what the future buyer is. The check going to clear the bank? Where the buyer knows everything about the seller. The seller really doesn't know much about the buyer. But when you get to know what your buyer is all about, what the pain points are, how you can help solve those pain points, it leads to a more harmonious transaction, a quicker transaction, and everyone can walk away happy.
Carl, let me ask you this. You have two businesses in front of you, and let's suppose that the businesses in terms of revenues and overall characteristics are going to be similar. What would be the top three to five things that you're looking for in the business to say, yes, this is the business that I'm going to focus on. And this other business I'm going to put aside.
Carl Allen: [00:26:48] So, I have a quick formula that I utilize and I call it the perfect deal triad. So, every business that I look at has to pass through three filters.
So, the first filter that I would run that deal through is that business going to serve me? So, if I'm doing a bolt-on acquisition, so if I'm buying a business to plug into a company that I already have, is that business going to strategically move the needle? Or if I'm getting into a deal for the first time or I'm mentoring one of my students. It's are you buying a business that's really going to resonate with you? Is it in your lane? Do you have industry experience? Do you have a value that you're going to be able to add? And I was having a private mentoring call. One of my students literally Monday night. So, last night and I said to him, tell me about the business that you've found.
So, he's an IBM sales guy. He works for IBM, six-figure earners. He said I'm going to buy a vineyard. And I said, okay, why are you going to buy a vineyard? Because I'm really passionate about wine. I said, great. You're really passionate about drinking wine, but do you know how to grow wine? How to market wine, how to run a vineyard?
He said, no. I said why on earth would you buy a wine company when you have absolutely no idea how that business is going to work? And you're not going to be able to add any value to it. You've got no experience in that industry. You've got no network that you can leverage. How are you going to sit down with a seller and build a really world-class relationship?
That's not going to work because you don't know their industry. Go buy a technology company, go buy something in tech, and you're going to have all those weapons in your arsenal to really build a great relationship, buy a great business, and then do some truly special things with it. So, that's point number one point number two is I'm looking for a seller that's motivated.
Every business is for sale. It's just a question of price and terms. So, I'm not looking for a business where the seller really doesn't want to sell. They may be a young entrepreneur. They're having a lot of fun.
They're really enjoying what they're doing. It's going to cost me an awful lot of money to buy the business away from that business over now. Whereas I want a business owner that's really highly motivated. They've got a good business, but for whatever reason, they're looking to sell the business.
They want to retire, or maybe they're frustrated or they're a little bit burnt out with what they're doing. And they really care about the legacy of their business and their life. And they want a safe, trusted pair of hands to come in and really take the business to the next level that. For whatever reason that they're not prepared to do. They don't want to keep reinvesting or keep taking risks or keep grinding to scale.
And then the third thing that I'm looking for is I'm looking for businesses that have got some positive financial DNA. As I mentioned at the start of the podcast, I'm a leverage buy out guy. So, I'm looking for great businesses where I can use investor capital and, asset financing, or the SBA.
To be able to buy that business. I'll put some of my money in it if the deal needs it. And I'll obviously put my money in to grow the business, but I'm looking for businesses that have got great cashflow. potentially I've got good assets on the balance sheet or both. And then that means that I can partner with other financers and be able to work to do that deal.
So, those are my three primary criteria that I look at for every deal.
Jeffrey Feldberg: [00:30:15] So, there, you have it from a very experienced buyer of what he's looking for and something that everyone should keep in mind when it's your turn. And you're having your business on the market to have your liquidity event. So, Carl let's now talk about the Deal Maker Wealth society.
This is what you've created and what you're proposing of, why every business owner should either look to buy a business before they start one. Or if they're thinking of selling their business before they do that, why it makes a whole lot of sense to buy a business or buy a number of businesses and then look to sell their business.
So, talk to us about what the system is and what it entails.
Carl Allen: [00:30:55] If we go back to 2016, I was very active buying businesses. I had a portfolio of I think about 17 different businesses at the time. And people just kept asking me, why don't you teach this stuff? Why don't you share your methodology?
There are millions and millions of businesses for sale. You can't buy them all. You have a proprietary formula. You've, you've been blessed to work on Wall Street and you've learned how to do deals at the corporate level, the billion-dollar level. You've got all of these skills and tools and strategies. Surely, they, that can be packaged up for the small business community. Cause you're out there actively doing deals. So, I decided to do that. I decided to create a program called Dealmaker CEO, which takes an entrepreneur through the 10-step system of doing deals. Where to find businesses, how to build relationships what's to raise capital, and then how to partner with CPAs and attorneys and close those deals.
And then what to do with the businesses once you've done that. And then I started doing that then lots of my clients started buying businesses and then they said, what's next coach? So, I created another program called the Dealmaker Empire, which is all about bolt-on acquisitions and roll-ups so once you own a business, how can you buy other businesses to scale. So, rather than hustling for new clients in the marketplace, how can you buy that growth? How can you buy new customers? How can you buy new products and services through an acquisition versus going out and building it yourself? And then a roll-up, obviously Jeffery, is where you pick a sector and you just buy up lots and lots of small businesses. I have one student that's bought 20 hair salons in the last six months. Not super exciting to buy one. Small six-figure hair salon, but when you buy 20 and you integrate them all together, you've got a business that's cranking out seven figures of cashflow every year.
Now that's an exciting business. I have one student that's bought 73 optometry practices. And he's cranking out probably $5.5 to $6 million of cash flow per year. So, that's what I do. And what's really interesting is if you look at me, if you look at the mergers and acquisitions market, it works in tiers.
If you have a business that's got $10 million a year of free cash flow. It's fairly easy to sell that company probably for a six to eight times multiple. So, if you have a business that's doing $10 million a year in cash flow and you sell that business, you're going to walk away with a %60 to $80 million check. More if you're in technology probably a little bit less, if you're in a low growth non-optimized industry. However, most businesses in the world and most businesses that are for sale are a lot smaller. There are sub seven figures in cashflow. A lot of them are actually sub half-a-million dollars in cashflow.
Now, unfortunately, those businesses they're worth a lot less. They're worth between two- and four-times profit as a multiple. Obviously, tech financial services, pharma, the multiples are higher, but generally, the average is about two and a half to three. And a lot of the brokers out there Trans Wealth, for example, report on these multiples on a quarterly basis, but it's not just that the multiples, there's just such a lack of buyers that are qualified have access to capital and really understand the process.
Both. Systematically and psychologically of how to do deals that a lot of these small deals that they just don't sell. That there's just not enough people out there trying to buy them. So, if you've got a small business and you're doing half a million to a million dollars in cash flow, my advice to you is if you're up for it grows your business by buying other companies, go and buy up some of those other smaller competitors of yours or complementary businesses.
Generate a two or three or four million cashflow business that it's so much easier to sell so much quicker to sell. You'll have a lot more interested buyers available and you'll get a lot more money. Most businesses are worth a multiple of profit, but it compounds. It's why a small company might be worth a two to three times multiple, but you look at a company like Apple trading at 30 times multiple, or Amazon's trading at a hundred times, multiple. Tesla is trading going to 200 times multiple, the bigger the business, the bigger the multiple, it's just how the acquisition game works.
So, I think if you've got some runway left in your business career go do some deals, make your company larger, make it a bit more diversified even by acquiring things that are complementary to what you do, and then it'll make it quicker, easier, and more profitable for you to sell.
Jeffrey Feldberg: [00:35:47] And what's interesting, Carl, for business owners who perhaps had a full exit or they're looking to grow the business, you can share some statistics with the community really how difficult it is to start from scratch and be successful yet. That's exactly what so many entrepreneurs and business owners do much to their detriment. So, what are some of those numbers that you can share with us of the success or the failure rates of new businesses?
Carl Allen: [00:36:17] I only have 2019 data. The 2020 data is not being released yet, but in 2019 in the United States, 6.6 million Americans started a brand-new business, according to the small business administration and the us labor statistics. And 96% of those businesses will fail inside of 10 years. 50% will fail within the first year. 80% will fail within the first five years. And then the 80% that survive after year five, 80% of those will fail in the second five years.
When you think about it? The problem, right? It really is that the stalls in those first 12 months, and it's what I call the no problem. When you start a business from scratch, you don't have anything. You probably just have an idea. You don't have any customers, you don't have any cash, cashflow, any credit, any employees you've not built a product or designed a service.
You don't have any premises. You don't have any reputation. If you're in the B2B space business to business, if you're pitching a brand-new service for the first time to a corporate, it's hard. They're to want to go with somebody that's tried and tested and has a reputation. That's why most businesses don't work out. For me, it's much safer, quicker, cheaper, far less risky.
Go buy a business that someone's built and wants to sell. There are 2,440,000 businesses for sale right now in the United States. And 99% of them have less than $10 million in revenue. So, don't reinvent the wheel. My analogy for this is. I talked about Tesla before. So, the United Kingdom where I spend most of my time, especially through COVID we're not as technologically advanced as the US and Canada.
So, we just got Tesla. So, Tesla's now in the UK, they built the charging infrastructure. You can go buy a Tesla car. So, I just thought about Tesla because I think they're really cool. So, I had two options, so I could have gone on eBay. And I could have bought all the components. I could have bought the steering wheel, the battery, the wheels, the glass, the giant iPad that goes in the middle of the seats.
And then I could have assembled all of those components on my driveway. And then I could have gone onto YouTube and watched a bunch of videos of how do I build a car and painstakingly, stick everything together and cross my fingers that the thing works? Or did I go to Tesla? Did I buy a car that they've already built for me?
That's what I did. And that's the exact same thing for me, if you want to become a business owner, don't start a business because it's arguably the most dangerous thing you're ever going to do in your life. Go and buy an existing business that someone's built.
That's profitable. That for all the reasons I've talked about, they want to sell and then you can buy that business using a lot of other people's money. You can use investors; you can use the SPA. There are trillions of dollars of financing available for good deals. So, go find a good deal in a space that really resonates with you, that you can have a lot of value to the business once you bought it.
If you're a credible person, financiers will be queuing up, ready to do that deal with you. So, that's my advice to anybody.
Jeffrey Feldberg: [00:39:41] Carl what's remarkable and not in a good way. When you were sharing those statistics of the failure rates of businesses. Really, you're better off going to Las Vegas, walking into any casino in the world for that matter.
And you'll probably do better in the casino. At least we'll have more fun than starting a business and taking your chances as you try and get out there. And really what's interesting, Carl, that's applicable to every single business owner. One of the things that we talk about in the Deep Wealth Experience in fact, before we even begin anything with a 9-step roadmap, we ask some of the questions that you were referencing a little bit earlier.
What do you want to do after your liquidity event? Particularly if you're no longer in the company? Some entrepreneurs are just happy to sit on a beach. Others are happy to travel the world, but others want to get back into the game of business. So, why not buy perhaps a smaller business? That's not going to take up as much of your time.
It's going to be more of a lifestyle for you. You can apply what you've learned, but here's a very practical guide. And with Carl's proven system, you can learn the ins and outs of what to do with that. And on the flip side, as you mentioned for businesses that are looking to grow, why start from scratch, perhaps a new division or a new service or new product when you can go out and buy an existing one.
It'll be quicker. You'll put the odds in your favor.
Carl Allen: [00:41:02] Exactly. This is what the big guys do, and all I'm trying to communicate to the world is what the big wall street guys are doing. Anyone in business can do. So, take Amazon for example. So, Amazon realized a number of years ago that a lot of its customers were listening to audiobooks, in addition to reading physical copies. So, did Amazon sit down one day and thought, let's invent and design some technology or did they just go out and buy Audible? They went and bought audible when Salesforce realized salesforce.com realized. Last month that it really needed to get into the messaging and collaboration space.
So, did it hire a bunch of engineers and design it or did it just go and pay $27 billion to buy Slack, which has had a phenomenal ride over the past 12 months with people homeworking through COVID. Amazon decided to diversify. It realized that a lot of its customers were buying groceries online.
So, did it go and figure that out itself or did it my Whole Foods? This is how big businesses grow. They acquire the gaps in the strategic vision. And my advice is even if you're a $1 million revenue business, you can do exactly the same. And my mission, Jeffery it's to coach and drive and mentor entrepreneurs and business owners to do that.
What I spent 29 years doing in my career, I want to empower that knowledge to people so that they can do what I've done in my career.
Jeffrey Feldberg: [00:42:50] Carl you've mentioned coaching a number of times, which I find unfortunately for most business owners, isn't even a consideration for them. Why don't you share with us, not just the benefits of coaching in general, there's so many benefits, but the benefits of coaching with yourself and your system and what that will do for a business owner.
Yeah. So, I think taking a step back, let's talk about coaching generally. My approach to coaching, I have seven coaches. And people say to me, you're an accomplished guy, you've got all this great stuff going on. Why do you have coaches? It's because I can always get better. I can always improve what I do. And for me, a coach is somebody that does two things. It empowers you to take the action that you need to get the results that you want. But more importantly, you're able to model a process that they have that's got tried and tested results. It's like baking a cake. If you want to bake a cake.
If you buy a recipe book and you buy the exact same ingredients and you bake that cake and you cook it in exactly the same way that's prescribed, you can't do anything, but get the exact same results at the end of the day. It's exactly the same with coaching. So, what I've done through hundreds and hundreds of deals that I've done personally, and hundreds, and even more deals that my students have done. We've perfected a system and the process for acquiring small businesses. And obviously, we have a number of coaching programs, which empower entrepreneurs and small business owners to go through that step-by-step process. Go through our recipe and use our ingredients. And if you model what we've done previously, and you do the work.
You're going to get the same result that we have thousands of our students have done as well.
So, there you have it, the benefits of coaching, you're finding someone who's successful. You're modeling that success and you're accelerating your success along the way. And so Carl, we've referenced a few times the world pandemic that we're in with. COVID-19, I'm sure that there's a number of the listeners out there who are wondering, is this really the best time for me to be buying a business for me to be selling a business? What's your take on where we sit today in regards to buying businesses during the pandemic?
Carl Allen: [00:45:12] What a great question.
So, there are two ways to look at this. So, when you look at the industry according to the SBA in 2020, across all businesses revenues were down 22% year-on-year.
So, clearly, the pandemics had some impact on the economy of not just the US, but Canada, UK, Australia, most countries. However, inside of those economies, some business sectors have rocketed. So, the UK and the US where I'm most active, engineering manufacturing, transportation, technology, construction, professional services, online retail, all those sectors have boomed.
They've done very well. However, if you're in the cruise ship industry, if you own an airline, if you own a hotel, if you own a physical restaurant, you could argue those are some industries. Those are some sectors that, haven't performed very well. Because especially in the UK because of the lockdowns and the government restrictions that have been imposed.
So, there are better types of businesses to buy versus others based on macroeconomically what we're seeing right now. The other thing I would say. It's a lot of this, again, comes back to, seller psychology. I saw this through the global financial crisis. I saw this after 911 and I saw it after the recession in the early nineties.
Sometimes even though your business could be performing well, you go through these boom-and-bust cycles, these growths and decline kind of moments in your industry, in your business, where psychologically as a business owner, you decide it's time to call it a day. And in the UK, the phrase we use is the straw that broke the camel's back.
Something can happen. And it's just a stack of things that have occurred where you think, now's my time to sell. And I talked before about the baby boomer phenomenon. 10,000 boomers retiring every day. And that's going up right now. That's going to be more like 15 to 20,000 by the middle of 2021 because a lot of business owners they're thinking I was going to retire in two years or five years.
Maybe I should do it now. I don't necessarily want to operate in this new world. If you look at what's happened through COVID. Consumers and businesses, their buying behaviors have changed. The way they operate has changed. That there's a lot of kind of cultural trends with homeworking and more of a shift from physical to online retail.
That's a trend that's been going on for 20 years but really taken off in the last year. And what I see with some business owners. You've almost got, two types of the business owners and you've got the business owner that they'll just bury their head in the sand. They'll think I’ve been running this business for 30 years and why should I change my business model now?
Because it's worked for the last 29 years. And sadly, those business owners, they're seeing those declines because it's not that they're unwilling to pivot. They're not prepared to do it. Yet, I've seen businesses that have thrived in the last 12 months because the business owners had the mindset of wanting to pivot.
I'll give you a couple of examples. So, 26th of March, 2020, the UK government locks the country down. You can't go anywhere. You can't go out of your home unless you're exercising, buying groceries, or you're going to see the doctor. You can't go out of the house and it really impacted the economy of the country.
So, my buddy owns a manufacturing business and he manufactures components for performance motorbikes. He's owned the business. Started it which is a mistake. Built it up 15 years later, he survives doing really well, very profitable. He calls me up hey dude, I'm done all my customers have called me that canceled all of their orders for 2020.
What am I going to do? Do I just shut the business down? Carl, do you want to buy it for a dollar, a pound? I said to him think about this for a minute. I said, how quickly would it take you to retool your factory to go out of motorbike components and into making medical devices? You said 24 hours.
It's the same equipment, the same tooling, the same CNC machinery, the same software. I said, okay, great. Because in the rest of 2020, everybody is going to be buying medical devices. And if you can make components for ventilators and all the equipment that the world now needs the hospitals and care centers for breathing equipment and all those things if you can get into that space.
You retool your factory, you start calling around the national health service and all the major manufacturers equipment, you should do very well. So, he did that. He made seven times the profit last year that he did the previous year. Even Burberry the global design and fashion brand, they stopped making clothes last year and started making PPE personal protective equipment for hospitals.
They had a record-breaking profit year. Every business and every business owner have the opportunity to pivot. My local restaurant. We don't have Uber Eats really or Grub Hub and all the great things that they have in the States. We have it in the big cities, but most of the UK is in towns and villages.
We don't have that infrastructure of online takeout. My local restaurant owner, I went in the night before the lockdown for a meal and he said to me, I don't what I am going to do now. I'm just going to have to. Hope for the best. I'm like, dude, like you've got all the mobile phone numbers of all your customers.
You've got a social media presence. You've got everyone's emails. Go 100% takeout. And he did that. And again, he's thrived phenomenally through this pandemic to the point where when the government says to all the restaurants, you could open again. He said, nah, why would I do that? I'm making three X my money.
I'm just going to stay as a takeout. And again, I talked about the changing consumer behavior. That's now become our weekly Friday night, take out treat. So, every Friday, whilst we're still alive. We're going to be going to that Italian restaurant and buying our food and eating it in our garden room at home.
So, these are examples where business owners have pivoted to take advantage of these new emerging trends because business is a zero-sum game. Sometimes economies thrive. Sometimes they don't. Governments that are printing money left and center to prop up the economies. They're phenomenal opportunities for any business in any business owner to thrive through.
COVID, it's all about having the mindset to actually do it.
Jeffrey Feldberg: [00:52:26] And that is spot on Carl. Mindset, and also if you look at it as business owners, when we got into the business and unfortunately too many business owners forget about this, you started a business, which Carl you're probably frowning on you shouldn't be starting a business.
But however that business started, it was initially what's a painful problem that me as the business owner, I'm very passionate about to solve. And so here there are always two sides to every coin. Yes, the pandemic brought a lot of negative things with it, but on the flip side, it brought a lot of positive opportunities that if you look for them, you can find them and address and solve those painful problems.
And just job well-done Carl of giving some terrific examples of why the pandemic can really be the beginning and not the end for business owners. So, Carl, this has been illuminating as we begin to wrap things up, I'd like to ask you a question that every single guest who comes on the Sell My Business Podcast gets to answer.
And I want you to imagine that you walk out in your driveway and all of a sudden there's that famous DeLorean from the Back to the Future. And you hop into that DeLorean and you can go back to any point in time to speak to the younger Carl. And your mission in speaking to the younger Carl is to give whatever it is, one or three or however many points of advice or wisdom to the younger Carl.
What would you be telling yourself?
Carl Allen: [00:53:52] What an amazing question. Wow. That's a great question. So, a couple of things spring to mind, and as you've probably realized I'm really passionate about what I do. And I have a very big why in my life. It's my legacy. It's what I want to do for the world. It's me connecting entrepreneurs stuck in corporate America and business owners that can't scale organically and connecting them with the millions and millions of small businesses that are for sale. So, I'm really living my passion in this life now. And I have a very big why for what I do, and that gives me all the fuel and all the purpose and all the drive, to really focus every day to make this happen. I've not always been like that. I've only been like that I think for the past seven or eight years, I think what I would do, if I could go back into the mid-1990s, when I was holed up in a cubicle in Bank of America, on Wall Street, sleeping under my desk. 50 pounds overweight. Chain-smoking practically an alcoholic. I would have said to myself, live with passion earlier in your life.
Maybe three or four years on Wall Street. I could have left in the mid-nineties and started doing this. And I think for me, I've been impacted a lot more lives. So, I think for the listener, Steve Jobs coined this. Steve Jobs before he died, gave a commencement speech at Stanford. And he said this, we only live one life, do something you're really passionate about.
You've got one shot, and we don't need to get into the whole reincarnation scenario today, but let's assume you only live one life, go out and do something that is really truly special. That would have been my first recommendation, my second recommendation.
As you can see, and I know your listeners, can't see I'm in my library. And I became an avid reader only about five years ago because somebody once said to me, leaders are readers. And for the past five years, I have never read a book that's not going to teach me something. So, I never read novels. When I go on vacation with my wife, she'll be set reading the latest Jack Reacher novel, or 50 Shades of Nonsense or whatever it's called.
I read books that I can learn something. I love autobiographies. Again, going back to the coaching and the modeling piece. Success leaves clues. I love reading autobiographies about, Jack Welch, Steve Jobs, Warren Buffett, Charlie Munger, and just picking up all of their wisdom and all the nuggets and all of that value bombs of things that they've done in their career.
And I'm trying to embody all of that goodness of richness and doing that in what I'm doing. You can always read be a reader if you don't read definitely start reading. Read books on psychology or marketing or business and read autobiographies. You don't need to read novels, you want to read the occasional novel, read the novel, but I don't.
Some terrific advice.
Carl, as we wrap things up here and I will put this in the show notes for our listeners if somebody would like to find you online, where's the best place that they can reach you?
Sure. So, so, DealmakerWealthSociety.com is the home of my coaching and mentoring business. Deal Maker Wealth Society on YouTube.
We're uploading constantly little micro training videos. I do a lot of book reviews whenever I read a really awesome book. I'll review it and I'll explain why a business owner or an entrepreneur should read it. What I've also done is I've put together some free training. For anyone that's really interested in buying a business or anyone that is looking to sell a business and wants to understand really how a buyer thinks, where they're going to be in the process.
So, you can stay a couple of steps ahead. I've come up with some free training that I'd like to offer your listeners. If they go to trainwithcarl.com/sellmybusiness there's some complimentary free training on doing deals.
It's my proprietary system that lays out the whole 10 steps. People have downloaded that and they've gone off and they've done deals. They've not required any additional coaching, but for people that read that training and they feel that this is something that they would like to pursue and they want additional help and support.
Then there are options to be coached by me, even partner with me in deals as well. But I think the first point is to qualify oneself that this is a journey that they should go down. Definitely consume that free training as a first step.
Jeffrey Feldberg: [00:58:39] Thank you for sharing that with this Carl.
So, as we wrap things up here, Carl, a big thank you for both your time and your insights today. It was absolutely insightful and fabulous. Thank you.
Carl Allen: [00:58:49] Thank you. My pleasure. Thanks for having me on the show.
Jeffrey Feldberg: [00:58:52] My pleasure. and please stay healthy and safe.
Carl Allen: [00:58:54] Thank you.