Investment Banker Lowell Ricklefs On KPIs That Catapult Enterprise Value (#166)

[00:00:00] Jeffrey Feldberg: Welcome to the Deep Wealth Podcast where you learn how to extract your business and personal Deep Wealth.

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Lowell Ricklefs is the CEO and Founder of Traction Advising, which specializes in helping B2B SaaS companies with a greater than 5 million ARR get acquired. Lowell has been a Co-founder, CEO, Chairman, and COO of $120 million public company, startup CRO, and Global VP at Rockwell.

Lowell is a global mentor, investor board member, and CEO coach. Lowell's current business Traction Advising. Started out of his frustration when he was in a buyer's position. The investment banker model uses accounting and finance people trying to sell.

In Lowell's words, no one hires accountants to sell products, so why hire them to sell a company? Selling and marketing a small SaaS company is more like selling a technology product than selling a financial instrument. With company buying and selling experience of more than 30 organizations, Lowell knows what internal stakeholders need to approve a transaction. As a founder and CEO, he knows what it's like to start up a company, build a product, hire employees, raise money, find customers, keep them happy and make payroll.

 Lowell leverages this experience to craft acquisitions that get the best outcome for the founders and investors in a structured way that maximizes success.

Welcome to the Deep Wealth Podcast. And today's guest is no stranger. He is a friend and an ally of the Deep Wealth community and delighted to have him with us because you know, not only is our guest today, a successful investment banker but he's been in your shoes and he's been on the business side.

On the corporate side, he's been doing strategic selling and now he's doing all kinds of amazing things on the investment banking side. But offline, our guests was having a conversation with me around KPIs, key performance indicators. And for all your companies out there, here's the question for you and actually a bit of a rhetorical one.

Do you believe that what gets measured is what gets done? I certainly do. And really the question is what do you measure in good times and not-so-great times? What you measure can make all the difference. So I'm getting a little bit ahead of myself. I'm going to stop it right there. Lowell, welcome back and I know you're no stranger to the community, but perhaps for a recap, for some of our new members of the community, law wants you to share your story because there's always a story behind the story. Lowell, What's your story? What got you to where you are today?

[00:04:15] Lowell Ricklefs: Thanks, Jeffrey. I'm a big fan of what you produce. And I look forward to it and I appreciate the opportunity to be here again. I am kind of an accidental banker. I started off as a computer science, electrical engineer graduate and went down the technical sales route fortune 500 company for over 15 years.

Final two roles as a global vice president of the sales side and the management software business for three years in the Americas went to work for three different technology companies as chief revenue officer for a company, we scaled from a million to 50 million. Chief operating officer for a company we scaled from 10 million, 120 million, and then co-founded a healthcare FinTech company.

So, all three had exits. One was to WPP. One was to private equity. Now there was two strategic. And then along the way, acquired about a dozen companies. So it became very familiar with the M and a process and really hadn't been impressed with the sales capabilities of the bankers that would work with.

So when it came time to sell the company that I co-founded, I thought I could leverage my enterprise selling expertise to, to run a better process. And we were successful. I helped out an investor on another project and then decided there was an opportunity out there to help small. Software companies, so enterprise value typically less than 50 million get some better representation. And there are just some fundamental differences in selling a pharmacy than there is in selling a SaaS company. They're the reasons people pay multiples of top-line revenue for software companies. And it's really more about selling and positioning and less about the financials.

That's how I got here. We opened traction advising over six years ago. This is our seventh year. And we'll do you know, 5, 6, 7 transactions a year. So we stay pretty busy. Talk to over a thousand buyer conversations. So pretty well grounded in what people will pay for what they care about.

And so part of what I like to do is share with like my former self. If I could go back in time what do I wish I had known that I may have thought I knew, but now that I talked to these folks who are pretty grounded in what they care about to pass it along.

[00:06:23] Jeffrey Feldberg: Wow. What a terrific story that you have in for our listeners I always like to see, particularly on the investment banking side, where you have a banker who doesn't just do what's being done today but has been in your shoes where you are. And so Lowell let's go to that because as we know what gets measured, what gets done, what I had reference at the start of the episode. And you're really in there, particularly with SaaS companies, but I would imagine that some of the KPIs that we're talking about are going to be so specific to SaaS, but it's not going to just be for SaaS companies. Perhaps he can be a manufacturing company or a low-tech company.

There's fundamentals here, and fundamentals are fundamentals that are industry agnostic.

[00:07:03] Lowell Ricklefs: Yes.

[00:07:04] Jeffrey Feldberg: And particularly today and a little bit of my thesis here, and you'll hear me on the episodes mentioned cockroach startups and bootstrapping. That's how I run my business is very different than venture-backed or private equity-backed.

So Lowell, let's get down to business here. Let's talk about some of the basic KPIs that as a business owner, I should know about, if you could share what those are and how we go to measure them? And then from there, let's see where we go in terms of expanding our horizon of what those KPIs are.

[00:07:31] Lowell Ricklefs: Yeah. We've done a little bit with non-tech companies, but primarily SaaS, B2B, marketplaces, and what people will really pay the premium for is growth and retention. I think that's true for any business but some more traditional businesses, obviously, EBITDA profitability is.

Is probably the primary thing, but then its ability to grow is important as well but high growth companies will command the higher multiples. Flat companies are more in the value space, but there are buyers out there pretty active buyers that will buy companies that. They can't grow.

They're struggling to grow, just can't find their way back on companies that are declining in revenue, it's difficult to find a buyer, it's an easy expression. Actually, I heard this from a private equity person once no one wants to catch a falling knife, but they're just concerned that unless there's a clear path to turn it around, or if there are some one-time reasons that it fell.

But if the business, in general, is declining is difficult. So growth is probably the largest. And then retention is the next most important thing. The reason people pay premiums for any business with repeatable business, a recurring revenue model is the certainty that it will continue over time.

They'll pay a premium for that. You don't have to go out and sell new clients every year to maintain your revenue. So that's measured by logo churn. You know, How many clients stick around every year? If you look at a cohort January 1 of 2021 versus January 1, 2022. What percentage of the logos that you had stick around and then as if not more important is net revenue retention?

If you look at the group that was there, January 1, 2021, and how much revenue they were producing, then go forward a year and you can't count any new clients that you've added. If you just look at that original cohort and you look at, and you subtract the revenue from clients that left, but you add revenue from existing clients that actually grew.

It's a good metric of the value of the clients that you bring in because if your net revenue retention is greater than a hundred percent, it means even without bringing in new business, your business grows and that's the magic number, right around a hundred. But the reality is in there's higher turn.

So that number tends to be lower mid-market it tends to be kind of in the middle enterprise, tends to be stickier. They just, by nature, they tend to stick around longer as an aggregate and often pricing models allow you to get more per logo as time goes along as well. But that's a key metric.

And then, the exotic areas. If you can get up over 110 or 120% net revenue retention, that's an extremely attractive and relatively rare business model that people have.

[00:10:18] Jeffrey Feldberg: So let's talk a little bit about that. So you've highlighted two main KPIs and a third one with EBITDA, but what you're saying is growth and retention. And on the retention side, you're saying is done on a year, over year basis. So the logos are the clients that you started with. Let's just say on January 1st of the year.

And if you fast forward to December 31st or January, first of the following year. How many of those clients are still around and actively doing business? And you're saying a 100 to 110 is, is really the benchmark, but then you actually took the words right out of my mouth. And an important part of that you mentioned depending on the business model.

So how can we tie the business model into the retention? What are you seeing out there when a company is doing it right?

[00:11:01] Lowell Ricklefs: Well, so if you get your focused on small business, small businesses, just in general, they tend to turn more for a lot of different reasons. So it's accepted that gross retention and an SMB might be in the 80 to 80 to 90%, you know, mid-market might be 85 to 95, and then enterprise you know, should be in the 90 to a 100 range.

And those are pretty, pretty general numbers. That's for the gross retention for logos. But the expectation was small companies just they get acquired, they go to business, but there's higher turn with the smaller companies that you sell into. Yeah.

[00:11:35] Jeffrey Feldberg: Got it. Okay. And so taking a step back for a second, it's not necessarily related to KPIs, but it does tie in there. And I'm really thinking more from a liquidity event and in our nine-step roadmap, this is what we have business owners master in the 90-day experience. It's step number two X-Factors that insanely increase the enterprise value and Lowell. One of the X-Factors is the business model because most business owners if we're really open and honest about it, I don't have a great business model. They don't have a lot of visibility that goes into it. They're not sure when the clients are showing back up, they don't have the recurring revenue and some of the other sticky features that you'd want to see.

So if we did a thought experiment here for just a moment, and you were taking a client into the marketplace to have a liquidity event, what kind of business model would you love to see? You can wave your magic wand. It could be any business model of your choosing. What would be the elements of that business model?

That's going to get us to a premium.

[00:12:31] Lowell Ricklefs: I think if you look at across all businesses, I mean, I think it starts with product market fit. Is there a good fit? Whatever problem you solve or however you make people's lives easier? Have you proven that people will pay for that and that they'll pay for it in a profitable way?

They'll pay more for it than it costs, ideally quite a bit more for it than it cost, you know? and then do they stick around? And then once you've got that, are you in a big enough swimming pool that people care? If it's a $2 million target market.

Then when you're saturated, that's just too small. But if it's a billion-dollar available market, there'd be a tremendous amount of interest so you first, you've got to identify the problem and you build a product, you solve it, you get your initial clients.

They love it. They're sticky. They'll pay for it. They'll pay more than a cost, so you can build a profitable business, but then you need to scale it. And scaling a business, it's hard because you need to generate awareness. You need to generate interest.

You need some level of engagement and then you need to close deals, but then you need to onboard clients in a scalable fashion. And then as the company grows, you need to attract hire, and retain talent as well. So you're onboarding new employees and you're onboarding new clients in a scalable fashion.

 And to me that's I guess in a couple of minutes, that's what I see has to happen. Well, you know, And so you've got the product side, you may have development or manufacturing, then that needs to get done well, but then you need marketing to generate awareness, need sales, to close deals, and then some sort of an operational element that allows the company in the client onboarding.

To scale seamlessly because if it doesn't, the wheels will fall apart. Even if you've got a great product, you've got a great market. And even if you could attract a lot of clients, if the experience isn't good, or if it's inconsistent, then the wheels start to fall off. So You need to templatize that so that it's repeatable so that a brand new employee, you can hand it to them and they can execute whatever their role is with a reasonable likelihood of success.

[00:14:30] Jeffrey Feldberg: Terrific in laying out some of the fundamentals and the groundwork there. And we'll actually, as you're talking about scaling, it ties nicely into one of the first KPIs that you mentioned, and that was growth. So let's circle back now to growth as a KPI. And I'd love to hear from you. How do you measure it in terms of what time period are you measuring that in?

And then once you're measuring it within that specific time period, what would be some general benchmarks that we should be going after? And again let's go for the gold here. Let's go for that premium of a liquidity event where. The future investor buyer is saying, okay, wow. I can check all the boxes.

This company is doing everything right. I'm not just going to pay any price. I'm going to actually pay a premium because of what I'm seeing here. So when it comes to growth, I'd love for you to walk us through that.

[00:15:16] Lowell Ricklefs: Yeah well, and again, I'm thinking so smaller companies, so typically less than 20 million in revenue and it could be, 2, 3, 5, 10, 20 million. But if you can maintain 100% growth, you are at the far right end of the chart. That's the elite category to maintain a hundred percent annual growth is pretty impressive, but anything over 40%, they'll call it the rule of 40 for private equity where they'll say, your profitability percentage EBITDA percentage, and they'll add it to your growth percentage.

Kind of Like baseball, where you take two numbers. Don't really relate to each other, but they had the percentages together to get there. I think it's the ops. And if that's over 40% many private equity firms believe that statistically, companies that are in that range wildly outperform those that are below 40%.

So, you know, some subscribed to that, some don't, but I'd say, you know, over a hundred percent relief category over 40% still that box is green over 40% majority of the companies that exit though are in the, I call it the mid-range. 20 to 30% plus or minus. So it's a good business. It's linear growth. It's not exponential, but it's a healthy growing business. And that's a good place to be. The middle valuations, I guess I would call it. And then you've got, the low growth companies would be flat you know, or a single digit percentage, you know, less than 10% growth is it doesn't make it interesting.

It's not the kiss of death. But it's it means it's a company that's struggling to grow and we'll make it less valuable. We'll put downward pressure on them, on the multiples. And then obviously if it's declining, that's a bigger problem. But I obviously, ideally if it's declining, you want to find a way to at least neutralize it. You know, a lot of companies are interested in acquiring companies that have flat growth, but part of the reason they are interested, they'll be aware, part of the reason they're interested is they know they'll pay far less. They feel that they can strip out costs or maybe find the magic to turn around growth, but they're looking for value. So those are the people that are looking for businesses that typically will generate some cash flow over time, but it's a different category of buyer than you'll find if you're in that 20, 30% growth or higher.

[00:17:27] Jeffrey Feldberg: And for all the listeners out there, I really, really hope that you were paying close attention here. And as I like to say in the podcast that's not gold. That's platinum, because I know there's some business owners out there who are thinking to themselves, you know what?

We're profitable year over year. Yeah. You know what? Maybe we're not even measuring the growth who cares. We're profitable. That's all that really counts. But forget a liquidity event. Forget your enterprise value. If your growth is flat. There's issues that are coming down the road. It may not be today. It may not be tomorrow, but it's definitely going to be down the road somewhere where it's going to hit you because maybe you'll lose a client or something's happening within your market space.

That if you're not growing effectively, you're going to be put out of business at one point in time. But Lowell let's go to the opposite of that. And here's the question for you because sometimes I hear these comments from private equity is too good to be true, Jeffrey. Yes, they have a hundred percent growth rate or 130% growth rate, but you know what, we're going to discount that because it's just not sustainable.

So the question for you is how long would you say Lowell that for growth rates, these really high growth rates need to be in place for them to be believable and to actually have a premium put upon them.

[00:18:38] Lowell Ricklefs: Yeah, they'll look at your CAGR's or so they'll look at that. they'll look at your three-year average growth and they'll look at your most recent trailing 12 months as what's current, right? And they'll kind of project forward from that. They'll always want you to build a model and project what it will be.

But I caution people. I mean, on the one hand, you don't want to, you know, a lot of people, private business owners they're conservative their forecast because they don't want to miss, they don't want to overspend, which makes sense. I mean, I was the same way, but you don't wanna be too conservative because it makes your business look less valuable, but you also don't want to be too aggressive because they just won't believe it. If you're, if you've got a historical 25% growth for the last three years, 25, 25, 25, but then literally next month also in the growth curve bends up and also you're gonna be 50% growth. It just doesn't even pass the sniff test.

They're going to look at it and say, come on, you're selling your company, and all of a sudden it could change tomorrow. I don't believe it. Now, if you can back it up, like if your pipeline has fundamentally changed your close rates, Whatever it might be. If you've got something concrete to back that up then maybe it's okay.

But the other thing I warn people is if there's an earn-out component to your deal, you want it to be a realistic expectation because, say we're gonna give you 30 million bucks for your company, 20 million cash to close. And 10 million is tied to you hitting your forecast. Guess what?

You better hope you had a forecast, you believe you can hit. Then I tell people, you may have to own that. If there's an earn-out component, it may be tied to that forecast. So on the one hand, you don't want to sandbag it. On the other hand, you don't want to be unrealistically optimistic and you want to be able to achieve it.

If in fact, you've got some money on the line.

[00:20:16] Jeffrey Feldberg: And Lowell, you know what, here in the Deep Wealth community nudge, wink, wink, we banish a word that starts with E and that's an earn-out for all the reasons that you're mentioning, because not all buyers, but for open about it. There are some buyers that are trying to hoodwink, the business owner into, hey, you're so great.

You can probably do anything. Let's see what you can really do. Give me some projections. And then the owner really hits it out of the park. If this happens and if that happens and this happens and it's a lot of ifs, we can do it. And the next thing, the potential buyer saying, okay, terrific, we're going to hold you to those projections.

And here we go. And here's the conditions behind that. But our thesis that we see time and time again, it's not a thesis. It's a fact. When you're prepared when you put the time and effort into removing those skeletons, those hidden skeletons from the closet and finding those hidden rembrandts in the attic, and you can put them up for public display, you can create the right narrative.

Then at that point, when you're in a competitive bid process, you have a lot to say about taking an earn-out off the table. And that's really where we tend to focus on. But I love what you're suggesting in terms of growth and what's reasonable. And for all the business owners out there that are saying, okay, if my growth has been low to flat, but I really focus in the next 12 months, I put a sales team in place.

I'm really beefing up referrals. I'm doing all the right things. If I have the right narrative to support why my growth rate is so high, that at least gives me a fighting chance to have that as believable and sustainable. Did I hear that correctly?

[00:21:43] Lowell Ricklefs: Absolutely particularly, you just need to be able to back things up the statements, whether it's in the P and L or whether it's in your business in general, but it's fine to come in and say, we are a great product people. We're great client service people, we are not natural sales and marketing people.

It's not in our DNA. But then you can bring that in and you can say we weren't good. It was all word-of-mouth referrals. Last year we brought in a sales team. But they'll want to get pretty granular. They'll want to look at well, Ray, we brought in a sales leader, they hired a team of three outbound salespeople.

They generated X number of leads per month. Their close rate was 30%. And in the funnel you can see, we now have this many leads that didn't exist a year ago and that, so you can see it in the results over the past year, and then going forward, you can see based, but again, they're going to, they're going to back into the predictors of revenue success. It starts with awareness leads, conversion rates, and then time, but then you can pretty firmly show them what your win rates are. And then what's in the pipeline and apply those win rates and show what the growth will be. And they'll dig into that at some point, they'll dig into that. If you've got something media and those qualified leads that, that support that.

And you've got a new sales program that has demonstrated they can bend that revenue curve. Then that supports a higher growth forecast as well.

[00:23:07] Jeffrey Feldberg: So, What I'm really hearing is, number one, as we master the art of thinking in talking like a buyer and that's actually step three of the nine-step roadmap, the narrative Lowell the narrative is really important, but it can't just be a story that you can't back up. So in the case of the company that was relatively flat on the growth side, If they can show the pipeline if they can show the statistics if they can show the method to the madness of why they're growing, how they're growing and why it's going to be sustainable when you have all those data and those facts that you can then share, that's really, what's going to make it number 1, believable, and then 2 I'll call it sticky with the future buyer investor.

[00:23:43] Lowell Ricklefs: Yeah. I mean, It's just that classic. If you keep doing what you're doing, you're going to keep getting what you're getting. But you, if you don't do something, you can't do the same thing and expect different results, but if you do something different and it looks like the logical thing to do you will get different results, hopefully, better.

[00:23:59] Jeffrey Feldberg: Fair enough. And so Lowell we can put the checkbox next to the KPIs of the growth and the retention side of things. And you've covered that really well. And I know when you take companies to market, you really are terrific at what you do, and you're basing that on your own experience. You're basing that on your experience now and taking companies to liquidity events, let's continue on with our thought experiment here. So you're taking a company to market and let's just assume that they've got the growth and the retention in the way that you want them to have it. What other KPIs, if you can wave your magic wand, are you going to be shouting at the top of your lungs, to the future buyer or investor hey, look at these KPIs and look at these levels and this is why this company is so great. What would those be?

[00:24:41] Lowell Ricklefs: So a couple of things factor into that. I appreciate the kind words, I mean, we take what we do. Like very personally, we would take a lot of pride of ownership when we represent companies. But EBITDA is important. It's interesting because if it's a closely held company, oftentimes you're trying to minimize EBITDA because you don't wanna pay taxes on it.

Which is a normal thing to do, but profitability does matter. Particularly some SaaS companies, and venture-backed SaaS companies. They don't care about profitability. It's all about revenue growth and other metrics. But it does matter companies, most companies don't want to buy a company.

They don't want to pay for a company and then have to invest in it further. That's what they don't want to do, it's that simple. So even if you can get to break even it's pretty helpful. And if you can show that it's profitable, it's helpful because ultimately even recurring revenue companies that are traded on multiples of revenue, the idea is that at some point, somewhere down the road, It's going to generate a lot of cashflow.

I mean, all of this comes from companies. Big companies are basically financial instruments at some level to financial investors. They're gonna invest money in that either it will be worth more or it's gonna generate a lot of cash along the way. The ability to generate, you have to be able to prove the ability to generate cash flow.

So I guess gross margin would be one that I guess I would talk about if it's a high, gross margin business. If it's you know, 70, 80, 90% gross margin business, you can paint a story. And again, I come back to SaaS companies they're in theory, infinitely scalable. So if the buyer can almost instantly leverage their install base and make the company 10 times the size.

And add very little costs. All of that growth, you know, falls to the bottom line as just raw cash flow. And that happens a lot. I mean, It really does happen. Other businesses, it can happen as well. At scale you can, there are efficiencies, economies of scale, you can leverage your purchasing power.

There are a lot of ways where a larger entity can could squeeze out more profitability but that's one of the things I would focus on with the buyer is the benefit of that company that's being sold as the acquired entity, how it would perform even better, both in revenue, through cross-sell, potentially new geographies and then profitability how that flows out if

[00:26:49] Jeffrey Feldberg: Lowell, I really like what you're saying. You've mentioned this a few times and for listeners, I hope he picked up on this and actually Lowell you're really write a book. I'd read it on our page here at Deep Wealth again in step number three, where you master the art of thinking like a buyer. You've said if you can find some of your potential weaknesses or perceived weaknesses as a business, but you know what those are, and then you can then play that to the strengths of the buyer with a narrative. And one of the examples that you used was well, you know what, we're not really that great on the sales and marketing side, it hasn't really been our wheelhouse or where our strengths are, but you Mr. Ms. Buyer, that is where your strengths are and imagine what you can do with what we've been able to do.

And you can take that and you can X factor that into wherever you're going to take that to imagine how successful you're going to be.

It goes back to just that narrative, why it's so important and you can just get that imagination going. And of course, it has to be based in what's possible, but when you can do that and when you can light up the imagination of your future buyer or investor, I imagine from what you've seen Lowell that makes all the difference in a liquidity event.

[00:27:55] Lowell Ricklefs: It really does, you know, I mean, you touched on like thinking like a buyer they say companies aren't sold, companies are bought. And so some people interpret that to mean you can't sell your company. Someone has to come and buy you. And that's not what that means at all. Not in reality.

I think that's what most people feel like it means. But what it really means is you've got to help the buyer build a case to buy you. I mean, think about why would I buy this company. Like, Does it make sense? Does it genuinely make sense? Do I believe at what I pay for it? And if the combination is worth more than the two entities separate then it makes sense.

And it's just reaffirming that case. Yeah, I think the power of thinking like a buyer and I look at buyers are different segments of buyers, right? It might be in the same geography and you can cross-sell. You've got different customers, but do similar things might be a competitor, could be different geographies could be a European company buying a US company and they want a branch easier than starting up, or it could be completely unrelated, but you sell to the same buyer. You sell to the director of HR at midsize businesses and you've got something else that they can buy. And you've got a hundred customers they've got 50,000 while they've got to do is introduce your product to their 50,000 and it's a valuable business.

So instead of talking about my product. My customers, you really talk about what that means to the buyer. Like you've got 50,000, we could do a marketing campaign if 10% come across. That's 5,000 clients. That's 50 times more than we have today. Like that's an enormous business. That gets buyers really excited because buyers have problems. Everyone has business problems. And most companies are struggling to hit their revenue goals. Just like all of us are. And so, acquisition is a way to do that. Not just the creative revenue from buying you, but then the accelerated revenue from cross-selling and things like that.

So helping them understand the picture because buyers don't have all the answers. They're running a business, and this is just one of 50 things they're going to deal with in that day. So the extent that you can reinforce that they're right in buying you, it's amazing how powerful validation can be.

And then help them flush out that story of where it makes sense is the right way to approach it less about just talking about yourself and we do this, we do that. And then we did this. It's easy to do because that's what most people want to talk about. And you want to, you're proud of what you've done.

You want to tell them everything about it, but you've got to think about what the buyer cares about, what problems they're trying to solve.

[00:30:22] Jeffrey Feldberg: And Lowell you bring up another step in our nine-step roadmap. Step number 5, we call that winning mindset, which really goes across the entire liquidity events. So it's not only as a business owner. How do I create a winning mindset for myself? How do I protect myself from deal fatigue? How do I get my key employees on board with the same mindset that I have?

How do I get my advisors on board, but it also applies to the future buyer or investor with a winning mindset to do exactly what you're saying with that winning mindset. How can you help that buyer or that investor realize the solution to their problem of why you can help them reach that goal, solve that problem, figure things out, take them to the next level, have them attain their goals and their dreams?

And how you can be instrumental in terms of doing that within the liquidity event itself. I know we've kind of deviated a little bit here. This is more what I would consider the art side of a liquidity event, not the science side. I mean, we've been talking to the science side here for quite a bit, but for me, the art side, if it's missed, it's a missed opportunity as well for a lot of business owners.

And I know I'm speaking to a numbers guy here on the other side, Lowell with yourself and just how you think and your experience with that. But I'm wondering where are you on the quota unquote art side of things in a liquidity event.

[00:31:37] Lowell Ricklefs: I think part of what differentiates traction advising from the bankers I've worked with bankers are very good at the process, partially because they're not natural salespeople, right? You look at CFOs they never have sales and marketing beneath them. That's just not their natural skill set.

And you'll never find a chief revenue officer that you know, the accounting department reporting to them. I've never ever, ever seen it because they're just different skill sets. So in part of it is the art. There's a process behind it, but it's the art of listening and understanding what people care about.

What's important to them? Cause you can talk all day long about things, but if the other person doesn't care, if that's not a priority, then they're just waiting for you to stop talking. But if you just ask a few questions, you know, like what keeps you up at night? What are you struggling or what's gonna make you successful?

Or what are your critical objectives? People love to talk about that. And once they talk about that, then you can say, oh, that's interesting. Actually, what if we could help you X, Y, and Z, you know, ask questions? Sure. Yeah, that would make sense. Then they're listening.

They're open cause you're talking about things that help solve their problems and yes, in the process it might generate a wealth event for you and your employees but you're doing it by solving their problem, that people are only gonna motivate to take action if it's gonna help them in inherently.

It's motivated by what it's going to do for them. They may like you a lot. They may want to help you a lot, but they're only gonna do a transaction if they think it's going to help them.

[00:32:59] Jeffrey Feldberg: Absolutely. And as we like to say at Deep Wealth in our nine-step roadmap tune in to the world's favorite radio station, and in particular, the favorite radio station of your future buyer or investor WII.FM, the what's in it for me radio station, where what's headed for your future buyer investor, because you're right.

If we're really open about it you may be a terrific storyteller. You may be a terrific person, but they don't really care if it doesn't move the dial for them, what can you do for them? And that's where the magic happens. When you can figure out, hey, I can help the future buyer investor achieve A, B, and C, but I'm going to achieve D E F, and G that's where you're going to be able to really take your goals and dreams, the buyer's goals and dreams, and put them together.

[00:33:42] Lowell Ricklefs: One of my favorite parts about the process is it's about the art side. I mean, I'm probably at my best in a conference room with a whiteboard and multiple colored markers. And you start asking questions and you start going through the, what if scenarios and you'll get the buyer and the seller, what?

I just genuinely enjoy it, like the strategic part of what could we do together. Because both sides have preconceived ideas. But then new things come up and when that new energy and those new sparks are created it's priceless. It's fun to be a part of that on things that either side hadn't thought of before, and then it grounds, and it also it's practice for working together to are these people I wanna work with would we work well together?

So yeah, no it's important. And I would agree the art you've got the science part, but there wouldn't be M&A advisors if it were a simple process, cause you could just build an app for it, just to do A then B then C, but a lot of it is it's about people. It's about reading the body language.

It's their tone of what they say, what they don't say. It's being a little bit paranoid about who, it could be HR, it could be the CIO, it could be the CEO. It could be, the CFO could be the COO. It could be the board, a healthy amount of paranoia in and what are they concerned about and in uncovering, speed bumps, obstacles problems always come up and it's just identifying those, addressing those, and then bridging those before they take on a life of their own and kill the deal. So there's a tremendous amount of art to getting it done well.

[00:35:06] Jeffrey Feldberg: Well said, and as we begin to wrap things up here, let's just do a quick circle back. So on KPIs, you spoke about growth, retention, EBITDA, and gross margin. Is there anything else in passing that you would put there as really the essential KPIs that we should be measuring?

[00:35:25] Lowell Ricklefs: I think I'd probably put two more on there and one would be customer concentration. If you've got, if 80% of your business is with Google. That's probably great for you. It's a great client to have, it's very scary to a buyer because if Google picks another vendor, they just bought a company that's one-fifth, the size they thought it would be so that can be scary. So is easy it is to have a major client. That's like a flywheel for your business and they might generate tremendous profit as a business owner. You're like, who wouldn't love this? It does make it harder to sell unless someone just wants that one client so ideally if you can get that down below 40 or 50%, any single client, it reduces the risk substantially.

And then the TAM, the total available market. I touched on that a little bit earlier but it's hard to fundamentally change the TAM depending on what your product is but sometimes depending on the scope of your solution, you can broaden the TAM. If nothing else, at least be aware of it.

If you're in a tiny niche market that might be great for you because it might be very defensible because you probably won't have a lot of competitors. So that can be a very good business, but it's going to limit the upside potential to you and to a potential buyer. But once you get over a certain size, somewhere between a hundred million and a billion, and an actual addressable target market it makes it attractive to a broader selection of buyers.

[00:36:46] Jeffrey Feldberg: So to round things out, you're saying the customer concentration, ideally having get 40 or 50% maximum for any one client, just to keep you in a little bit more of the safe zone. And I would imagine Lowell the lower it is the better off you're to be.

And then the total addressable or the total available market in terms of what you're able to do size-wise with the marketplace and what your potential is within the marketplace is also something that one wants to keep in mind.

[00:37:11] Lowell Ricklefs: Yup.

[00:37:12] Jeffrey Feldberg: Well, as we start to bump up against some time constraints here, we're going to get to the part where I love to ask the favorite question. You've been through this before, but let's see. Maybe we'll have a different answer this time around, and we're going to do another thought experiment. And if you will think back to the movie, Back to the Future, and in the movie, you have that magical DeLorean car that can take you to any point in time.

So imagine now it's tomorrow morning, you look outside your window and not only is the DeLorean car there. But it's waiting for you. The door is open for you to hop on in. So you'll hop on in and you can now go to any point in your life Lowell as a young child or a teenager, whatever the point would be. What would you be telling your younger self in terms of life, wisdom or lessons learned or, hey, Lowell do this, but don't do that?

What would that sound like?

[00:37:59] Lowell Ricklefs: I'm a big fan. I'd probably a little bit dated now, but like Stephen Covey, Seven Habits of Highly Effective People. I mean, that's fundamental wisdom. I think it's timeless and fundamentally change my life and just the choices that I made from schedule your priorities instead of prioritizing your schedule, begin with the end in mind.

And there's a lot more to it than just a simple caption, but applied to your life. I think you'll lead a better life and feel better about it, less angst about what you're missing out on. And then, whether you're planning a conference or starting a company, just thinking about, really what are we trying to accomplish?

Like asking what does success look like? If you're applying for a job and you say helped me understand what does success look like? How would you measure success? Most hires would say, that's a good question. No, one's asked me that cause you want to know what does success look like?

What is if we do everything right? What does it look like? Jumping in and trying to kick butt every day and make things happen, but they don't really know what the successful end looks like. If you think that through paint a picture of what success looks like in the end that's helpful.

And then look at where are we today. And then your job is to bridge the gap to get there, but then once you get there, you're like, okay. And it's incredibly satisfying to look back. And remember when you talked about what success would look like, and then the journey that you went to get there?

But you're far more likely to get there. If you've thought about it first, then if you just run fast,

[00:39:23] Jeffrey Feldberg: Terrific advice of more wisdom that you're dishing out here for us to take with us. And it's just been a value-packed episode and Lowell. Before we wrap things up, I'm going to have this in the show notes. There'll be a point-and-click for all the listeners. If someone would like to reach you online, what would be the best place?

[00:39:38] Lowell Ricklefs: The best place is through our website. So www.tractionadvising.com. We've got some information on there and then you can reach out for me. That's the kind of the best one, one-stop shop to find me.

[00:39:51] Jeffrey Feldberg: Well Lowell, It's an official wrap on this episode, a heartfelt thank you for taking part of your day and spending it with us here on the Deep Wealth, Podcast and as always, please stay healthy and safe.

[00:40:01] Lowell Ricklefs: Thanks, Jeffrey.

[00:40:01] Sharon S.: The Deep Wealth Experience was definitely a game-changer for me.

[00:40:05] 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.

[00:40:15] Kam H.: If you don't have time for this program, you'll never have time for a successful liquidity

[00:40:19] Sharon S.: It was the best value of any business course I've ever taken. The money was very well spent.

[00:40:26] 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 the course brought to light so many things that I thought we were on top of that we need to fix.

[00:40:41] 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. 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.

[00:41:04] 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.

[00:41:14] 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.

[00:41:27] 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 less than 10% what I know now, maybe close to 1% even.

[00:41:46] 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 haven't had an experience that's anything close to this in all the years that we've been at this.

It's five-star, A-plus.

[00:42:12] Kam H.: I would highly recommend it to any super busy business owner out there.

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.

[00:42:31] Jeffrey Feldberg: Are you leaving millions on the table?

Please visit www.deepwealth.com/success to learn more.

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