Several of my successful eComm friends are selling all or a portion of their businesses right now. It makes sense. Ecommerce valuations are at an all time high. Also, when you consider that entrepreneurs make 50% or more of all the money they will EVER make from their business when they sell it - you have to be thinking about when and how you want to sell your business.
In this episode, I interview my friend and expert M&A advisor, Joe Valley. Joe is a partner at Quietlight Brokerage, one of the leading online-focused M&A advisory firms in the world. Before joining the team in 2012, Joe sold his own business through Quiet Light. Since then, he has helped facilitate nearly a half billion in online exits and now is the author of the bestselling book, The EXITpreneur’s Playbook - How to Sell Your Online Business for Top Dollar.
Here’s a look at what we discuss in this episode:
- What is an EXITpreneur and why it pays to think and operate like one
- Why you should start “training” for an exit now
- What if someone says - I love my business…I don’t want to sell.
- Top mistakes to avoid when selling your business
- Real life business selling horror stories
- Plus more!
I do highly recommend Joe’s book. You can get your copy today at EXITpreneur.io and begin to understand the true value of your business - and how to get maximum value for it whenever and however you decide to exit.
The EXITpreneur’s Playbook by Joe Valley
Mentioned in this episode:
Episode Transcript
Brett:
Well, hello, and welcome to another edition of the eCommerce Evolution podcast. I'm your host, Brett Curry, CEO of OMG Commerce. And today, man, I could not be more excited about both the topic and the guests. The topic is extremely relevant to me, although maybe not in an immediately obvious way, which we'll get into in just a minute. But my guest is a friend of mine, guy that I've gotten to know over the last several years. And he's the real deal, and he's an expert in his field.
Brett:
So I'm delighted to welcome to the show today Joe Valley. And Joe, he's a partner at Quiet Light Brokerage, which really if you've ever looked at buying an online business or selling your online business, you've heard of Quiet Light. Everybody talks about Quiet Light Brokerage, but more exciting than that, and more timely than that, Joe just released a new book that's already hit the Best Seller list. And the name of his book is The Exitpreneur's Playbook, How to Sell Your Online Business for Top Dollar. It's received endorsements from the likes of Gino Wickman, author of Traction, which is also a great book, Ezra Firestone, Andrew Youderian. The list goes on and on. I endorse the book, not quite finished with it, but I've dug in, and it's absolutely fantastic. It's not only interesting and enlightening, but it's also extremely well-written. So we're going to talk today about what to think about if you're going to sell your business, all the planning and the things that go into that, or what to do if you're in my boat we're looking to buy some businesses. And so with that, Joe, how you doing man? And welcome to the show.
Joe Valley:
Fantastic, Brett. Thanks for having me, man. I appreciate it.
Brett:
Yeah. Thanks for coming on the show. We go way back. I think we connected at one of Ezra's events, I don't know, maybe three, four years ago.
Joe Valley:
At least, yeah.
Brett:
I'm bad with dates, but it's been a long time. And so Joe is just the guy who everybody like looks up to, wants to have a beer with, wants talk to, just really trust your insights. And so, Joe, I got to ask, because I know this process is painful, I know from being an author, not of a book, but of other things, of guides and of courses and things that I've done, that's hard work, man, like blood, sweat, tears, sleepless nights. So why write a book?
Joe Valley:
It had to be done, man. It had to be done. And I had so much information, or misinformation, out there about business valuations in the online space, what the process is like, and all this stuff. Historically, it's just been information from investment banking and private equity firms, but never from somebody who's sort of been an entrepreneur first and foremost, like myself. I sold my last e-commerce business in 2010. Since then joined Quiet Light, touched about a half a billion. And I can't believe I'm doing that with a B now, bruh, but I have billion-
Brett:
Amazing.
Joe Valley:
In online exits over the last decade. And I just had to write it. I've had 5,000 plus one-on-one conversations with entrepreneurs, and you know there's a lot more out there than that.
Brett:
Absolutely.
Joe Valley:
And I can't reach them all, and I can't talk to them all. And even when I talk to them one-on-one, it's a limiting conversation. So I had to put everything I knew and everything the team knows and put it in the book so that it's, as Sam says, you mentioned Sam says, "It's the definitive guide to selling an online business."
Brett:
Yeah. I love it. And what's so cool about it is, yeah, you can only have so many conversations, but there's so much misinformation or lack of information on how to get your online business ready to sell and how to do a proper valuation and how to train for exit, which we'll talk about in a minute. And I know from our perspective, as I look at creating content, and I create a lot of YouTube ad courses or Google ad courses or other things, my thought is hey, I want to help people, but also then if somebody who wants to work with us and they've already gone through the training, they're ready, they understand game and it's smooth and it's easier from that standpoint. Yeah, so the book is fantastic. Kudos to you. I was telling you before we hit record, it's not just informative, and I've read a lot of business books that are informative. It's well-written. It's an enjoyable read. And I like the written word, so I'm a bit judgy when it comes to things like that. And you did a fantastic job.
Joe Valley:
I appreciate that because writing a book about selling a business could be pretty damn dry. There could be details in there that could just make your eyes bleed. And that was the biggest challenge in writing it, was making sure that it was fun and interesting and something you'd want to come back to because you keep getting such good nuggets out of it.
Brett:
Yeah, yeah. Yeah, absolutely.
Joe Valley:
Thanks for that.
Brett:
Yeah, absolutely. So let's dig in just a little bit. What is an exitpreneur?
Joe Valley:
Well, that's a good question. I guess I had to define it, and I think did somewhere in the book. An entrepreneur is what we all are. First we just bootstrap and say the heck with it, man. I got to work for myself, and I'm going to go ahead and launch this business because I want a different lifestyle than going to work and working for somebody else every single day. An exitpreneur is that, but they also understand that the greatest value that they get out of their business monetarily is actually when they sell it. And so they've always got a mind towards selling the business eventually. And look, let's not pretend that we're not all going to exit our business someday. It may not be... For you, you love what you do. You might be doing this for another 30 years or 50. Who knows? But you're going to exit it someday.
Brett:
Yeah, at some point, right?
Joe Valley:
At some point. So you want to put it in the position of being ready for that well in advance of when you decide to do that so that in your situation if you're going to pass it onto your kids someday, that they're inheriting something that is a well-oiled machine and growing and not full of problems, and if you're going to sell it elsewhere, to somebody else, that it's got an incredible value so then it will help you and your family on your next adventure as well.
Brett:
Yeah, that's fantastic. And right, and I'm in a place now where I love running OMG Commerce. I enjoy the industry and the business and the team. And so yeah, no plans to sell, but you still got to get ready. And I remember one of the things you and I talked about before is even if you're not selling for a decade, preparing your business for sale now will make it a better business. It's just going to run better, and you're going to get more from it.
Joe Valley:
That's the absolute truth. That's so true. Well, you understand what the current value of your business is and what makes it more valuable. And we're not talking more clients and more revenue. We're talking about the other aspects of it that really blow up the value. Those really tough days that we all have as entrepreneurs get a lot easier because you know you're building towards something. So I think it's really important. Whether you're ready to sell or think you might sell or think you may never sell, I think it's really important to go ahead and put an exit goal out there and say look, in 10 years I want to exit for X amount of dollars. And then the next thing is you've got to understand where you are today so you know how close or far you are from that, because as our buddy... You're friends with Mike Jackness. I think yo know Mike, right?
Brett:
Yeah, I know Mike. Mike's a great guy.
Joe Valley:
Right, so Mike said to me, "Look, Joe, I knew what to do, and I was just going to get to it some day. And then I woke up, and some day was here." And by then it was too late to exit the way that he wanted to. He had four brands in one account, wanted to sell them all, wasn't able to sell all of them. So preparing for it, or as we say, training for it... Because nobody wants to do exit planning. That's just boring as hell... training for it is what the book is doing and getting you ready for.
Brett:
Yeah, it sounds like doing your taxes or something like that.
Joe Valley:
It's awful.
Brett:
Nobody wants to do their taxes, right?
Joe Valley:
It's awful.
Brett:
So what does that look like, then? What does it look like to train for exit?
Joe Valley:
Well, I had to put it all in writing so it's something that you can absorb over time, because if you're going to go out and run a marathon, Brett, most people are not going to be able to just go out and go to the gym or get out on the road and start running and just do it without any plan or focus. So the first thing we're doing is helping you understand what's going to be left over after the sale. And it's ballpark numbers because it always changes, changes every four to eight years with the political environment, because we're talking about capital gains taxes here.
Brett:
Yeah, yeah, exactly.
Joe Valley:
You may be paying more or less. You're not paying personal income taxes. So when you do the math on that potential exit, you got to figure out what's left over. So we're doing a little bit of that. So you're setting an exit goal, and then you're figuring out where you are today. And that exit goal, you can say 10 million bucks, but really it's what are you keeping is what the objective is. So we're talking about that. And then we're going through absolutely every aspect of the preparation and sale of a business, from valuation ranges to what buyers want to what scares the hell out of them to LOIs to deal structures, negotiating with aggregators. What the hell is a stability payment? Look it up. You're never going to find it. Now it's in the book. They made that up. All these different things that-
Brett:
that was made up by the aggregators?
Joe Valley:
Yes, made up by the aggregators. It's really an earn-out.
Brett:
So quick side note. What is a stability payment?
Joe Valley:
Stability payment is an earn-out, if you really want to just call it what it is, but they do earn us... And they do the stability payments. They call it a stability payment because FBA businesses are so risky that we're worried it's going to fall off a cliff after closing, so therefore, we want to hold back 10% in escrow, and we'll pay you that in 12 months if we're within 90% of the revenue at closing. It's pretty smart on their part. It lets them keep more of their money and buy more businesses.
Brett:
Yeah, yeah. Very interesting.
Joe Valley:
So just like if you are going to go run that marathon or just a 5K... Let's start with that.
Brett:
Okay, that sounds much more attainable. Thank you.
Joe Valley:
Right. I think you and I could both get up and go run a 5K tomorrow morning.
Brett:
We could survive it, yeah, yeah.
Joe Valley:
Exactly. We'd survive it. It would hurt a little bit, and then for the next few days it would hurt a lot more because we'd be recovering, right?
Brett:
Exactly.
Joe Valley:
It's the same thing. If you train for it, you're going to do well, and the recovery is going to be nothing. Same thing with a business. When you get prepared and you train for it, when you were in the process of exiting, it's going to be a whole lot smoother, a whole lot easier. You're going to get more money, a better deal structure. And then when it's all done, you actually will sleep at night, and you'll sleep better, as opposed to having lots of pain and a terrible deal structure where you're worried if you're going to get paid on the back end and all that sort of stuff.
Brett:
You'll experience the business equivalent of the runner's high. You'll be basking in the glow of the success.
Joe Valley:
I can't tell you if I've ever had a runner's high, to be honest with you.
Brett:
It's been a quick minute for me. I did run cross country, not well. I ran cross country in high school because my basketball coach made me. And so yeah, but I-
Joe Valley:
I was number five.
Brett:
What's that?
Joe Valley:
I was number five on the cross country team. And my kids hate the story of-
Brett:
Dude, that's intense.
Joe Valley:
No, no, no, no, no. I was the fifth runner on the team and only the top five score, Brett. Let's get this clear. I was not a good runner. And the coach... I was running too slow one day, and during a meet, he was like, "Valley, we need a number five." And I picked up my hands, and I started running faster, and I became number five.
Brett:
I'm number five.
Joe Valley:
And I've told my kids. My kids hate that story, and everybody else here does now too. But anyway, yeah, I'm not a runner, but you got to train.
Brett:
You too could be number five. This is awesome. So let's talk about what are some of the mistakes that are made? So let's take someone who's the opposite of an exitpreneur, because you've experienced lots of horror stories, sadly enough, tales of woe, which you've experienced firsthand as an advisor, but what are some of the common mistakes people make that you're trying to help them avoid?
Joe Valley:
Yeah. A lot of these are detailed in the book. And just for the record, I do change the names, yeah, and I use first names only. Look, the first one is really easy. People are not using proper accounting software. They're just winging it. They bootstrap the business. They're thinking about themselves. They're pulling enough out to get by, to grow, to buy a boat, whatever it is they want, but they're not using QuickBooks or Xero. And they're doing the accounting themselves. For the cost of a really, really nice car lease, you can get an e-commerce bookkeeper to do all that ugly stuff for you.. And that's what you should be doing. That's what you should be doing.
Brett:
Skip the car. Get the-
Joe Valley:
Skip the car. Exactly, exactly. And actually, you know what? If you get an e-commerce bookkeeper, you'll probably be able to afford that car a lot more quickly.
Brett:
Yeah, that's true.
Joe Valley:
So that's the number one mistake. And they're doing cash accounting instead of accrual. So it's impossible to initially at a glance calculate their discretionary earnings, because you got to take the time to flip it to accrual instead of cash. And that's true for content and SAS businesses as well as e-commerce physical product businesses.
Brett:
So in order to get ready to sell, you need that accrual-based accounting system?
Joe Valley:
Yeah.
Brett:
Yeah. So just to clarify, does that need to be the way someone files their taxes and does their taxes? Or it's really just they need to be able to have those reports, those-
Joe Valley:
You know I fell asleep in accounting class. I'm not going to tell you how to file your taxes. I'm pretty good at it now though.
Brett:
I did too. That was almost one of the only classes I fell asleep in in college. jazz class, astronomy, but I slept regularly in accounting class, yeah.
Joe Valley:
I think you're supposed to fall asleep in jazz class, just for the record.
Brett:
Well, yeah, and so quick side story. We had this professor who was great, passionate about jazz. And I actually liked after the class too, but we were in an auditorium. Lights were low. Jazz is playing. How can you stay awake?
Joe Valley:
Exactly. Yeah, yeah. So your tax advisor's going to do something differently.
Brett:
So that part doesn't matter. It's just can you produce accrual- based accounting reports?
Joe Valley:
Right. And look, most people... And I'm going to say most now is only probably 51%. It used to be 90%... people are growing up in this industry and get getting much smarter and much better and much more sophisticated. But half the people can't. So when I get a P&L and it's in cash and they have not done accrual accounting inside of QuickBooks or Xero, you just don't push the accrual button and have it flip. That's not the way it works. But it can be done after it's exported to Excel, as long as you've got beginning and ending inventory by month, quarter, or year, preferably by month. So beginning and ending inventory is ideal for that.
Brett:
Got it. Got it. Okay.
Joe Valley:
We got into the weeds there, folks. Sorry about that.
Brett:
Yeah. It's okay. Hey, we'll stay high level. Occasionally we'll we'll swoop-
Joe Valley:
Dip down.
Brett:
And get really into detail.
Joe Valley:
Okay. As long as we get our snorkel on. We got to breathe.
Brett:
Exactly. So what other big mistakes do you see people making that you highlight in the book?
Joe Valley:
They wake up and they just say, "I'm done, man. This is too much risk. I got to move on." And then they call me, and they say, "Hey, I want to sell. Hook me up."
Brett:
And you're like, "What?"
Joe Valley:
"Really? No, we can. What are you looking for? Ah, yeah, it's not worth that." So they wait until they're emotionally exhausted, worn out, tired, stressed, and just have to move on to sell instead of getting trained for it, planning for it a little bit. Six, 12 months out and thinking, you know what? I'm going to have a conversation with an advisor. I'm going to see what my business is worth today, and I'm going to march towards a goal. And then when you do that, you're happier, you're better, Your business is stronger, and you have a better exit in the future. But if you're not ready in 12 months, just move the goalpost. That's all you got to do.
Brett:
Just forget the business. You've been making these changes. It's probably going to be healthier, so-
Joe Valley:
You're going to love the business more too. I see that all the time. When they go through the process, they're ready. We go through the entire process, go through all the weaknesses and strengths of the businesses and get it prepared to sell and ready to list, and then I hear, "Joe, you know what? I feel like I'm leaving so much money on the table. I should've done X, Y, and Z, like you talked about. I'm going to hold it, and I'm going to come back in a year." And I think Good for you. Smartest move ever.
Brett:
Yeah, absolutely. And do you ever find like when someone... So somebody maybe comes to you, and they're a little burned out or maybe on the borderline of losing the passion for the business, they've started to implement some of the things that you advise them on, some of the strategies, do you ever find that that almost rekindles they're enthusiasm?
Joe Valley:
Absolutely.
Brett:
And then they're like, "Hey, maybe I should hold this for another year or so and get a bigger, a multiple."
Joe Valley:
Absolutely. I was at a e-commerce fuel event years ago and-
Brett:
Shout out to Andrew Youderian?
Joe Valley:
Shout out to Andrew. So I was sitting down with somebody. We talked about the deal, the deal structure. We got it all under LOI, going through due diligence. And this individual decided to be really difficult in due diligence because this individual... You notice I'm not saying he or she... decided they didn't want to sell because they were so much more excited about the business because of what they learned. And this was five or six years ago. That individual still owns the business today, and it's killing it. So it was a good decision for that person. And they've learned a lot. Eventually, that person just moved the goalpost much further down the line, but it's still in view.
Brett:
There's a really interesting concept. Do you know Peter Lang, by chance?
Joe Valley:
I know the name. I don't know him personally.
Brett:
Uhuru Network, I believe. Anyways, he was referred to me by a friend of mine, Tom Shipley, but Peter does a lot of teaching and training for people that want to acquire businesses. So he calls it systematic or programmatic M&A. And one of the things he talks about, which I really like this phrasing, he says... I don't know if it's originally him or not, but he said, "You always hear people talk about do you want to work in your business, work in it or work on it?" And so people talking about, "Hey, you don't get stuck in it. Work on it." And he said, "Really, what I think you should do is work above it, work above it like an investor. Think like an investor would think." And I thought that's a pretty interesting way to look at it. And if you look at your business like an investor would, you remove some of the emotion and you can begin to look at it objectively and say okay, I still love parts of my business. I can't fully detach the emotion from my business, but I'm seeing it and thinking about it now like an investor would. And I think in some ways that makes the game more fun for you now, but it also prepares you for that exit.
Joe Valley:
Yeah, I love that. I thought you were just going to stop with working on your business, not in your business. And I'd be like yeah, I've heard that. But now I love that. Think about it-
Brett:
investor. That's good-
Joe Valley:
Go above. I like Peter Lang. I need an intro.
Brett:
I will make that happen. I'll make that happen for sure. Cool. So then I want to talk about valuations for a minute. And you know this, and I mentioned this maybe on the podcast a couple of times, I know I have, we're looking to buy some businesses. I'm on the other side. I want to acquire some businesses potentially. But the valuation game is tricky. That's the thing where the seller thinks the valuation is one thing. The buyer thinks that it's worth another thing. What are some common valuation mistakes that are made? And kind of what are some tips on proper valuations?
Joe Valley:
Yeah. So for buyers... I wrote this book for sellers, but if buyers read and absorb the material in this book and they go out and they find a business on their own, they're probably going to find some pretty serious, what I call ignorance discounts, meaning the seller didn't do a proper job in calculating seller's discretionary earnings. These businesses are listed as a multiple of SDE, seller's discretionary earnings. And the biggest mistake that sellers make is they don't properly calculate that. The number one thing that, aside from being truly underinformed, misinformed... Ignorance discount is not the proper phrase, but is when somebody lists their... It's a rapidly growing e-commerce business, and they list it for sale using cash accounting. That's going to depress the age out of discretionary earnings.
Joe Valley:
And if you're a buyer and you can find a business like that listed by somebody individually, you're going to get some pretty serious instant equity, because discretionary earnings is probably a heck of a lot higher. The other one, Brett, that so many people don't do when they list the business on their own or with an inexperienced advisor is if the owner of that business is using a cash back credit card, and they're not having it put on their P&L, which so many don't, they're like that's a nice perk. I'm going to take that. And it's sliding over, or they take the rewards... We get the rewards here... that's an owner benefit. And that goes to the bottom line. If it's not in the P&L, you can put it in the add back schedule. So if you're getting a hundred thousand reward points every month, that's a thousand bucks a month? Or is that 10,000? Yeah, it's 1% on American Express.
Brett:
Yeah, it's thousand, yeah.
Joe Valley:
So if you get 12,000 bucks added back just because of converted reward points, it's black and white, math and logic. It's no trickery. It is what it is. It's an owner benefit. And if you're at a four-time multiple, a three-time multiple, it's $36,000 to $48,000 added onto the list price of the business. So as a buyer, if you're looking at a P&L, look for cash back or converted reward points. If it's not there, find out if they're using it. If they're spending money on advertising, odds are they're using their credit card. And then that credit card has some points. So that's instant equity that I see most people when they sell on their own, they give it away. They give it away.
Brett:
Yeah, that's awesome.
Joe Valley:
You know what's tricky... I don't want to get too far into the weeds here, so stop me, but one of the things that you can look for as a buyer, or make sure you don't do as a seller, if you've renegotiated your cost of goods sold in the last 12 months, let's say six months ago, and your cost of goods sold went down by, let's do simple math, a dollar a unit, and you sell 10,000 units a month every single month, you've got six months where that new price, that lower price, is not on the books. That benefit is going to carry forward to the new owner of the business. So you need to take 10,000 units a month times that dollar. That's a $10,000 adjustment or an add back, because that's going to carry forward, that reduction. So it's 60,000 bucks right there that should in the add back schedule. 60 times, again, that's $360,000, $480,000 legitimately added to the list price of your business. You got to look for that. And as a buyer, you want to look for the opposite. You always-
Brett:
What are some add backs that are likely missed, or some of that carry forward that was potentially missed by the seller?
Joe Valley:
Yeah. Well, you always want to ask, I would say as a buyer have your cost of goods sold gone up or down in the last 12 months? And you really try to find out if they went up, because if they went up, you've got to make an adjustment too.
Brett:
Yep, yep. Super, super interesting. That's great. And what have you seen... So you mentioned aggregators for a little bit. I have some friends that work for aggregators, and it's really an interesting thing in the space right now, not that consolidation is a new thing by any means, but there has been definitely a rise in aggregators in recent years. In fact, I just recorded a podcast the other day with an aggregator talking about the rise of aggregators, but what have they done? So your and others, what have they done to valuations of e-commerce businesses? Have they shifted the landscape at all?
Joe Valley:
Absolutely. No question about it. And they're so well known, and they're getting so much press that FBA business owners are realizing, going, "I can sell this thing." So I remember being at an event maybe six years ago when I had a little booklet. Now I have a real book, but my little booklet was called 10 Steps to Selling your Amazon Business. And the person that was putting on the event got up on stage, and he talked about the survey that he did with his group. And it was like 80% weren't even selling on Amazon. They were so proud. They were Shopify and WooCommerce sellers. And who needs this Amazon stuff? Well, he did it again last year, and it was just the opposite. 80% of them are selling on Amazon. That's where most of their revenue comes from. Now six years ago, the the perceived risk, I should say, of buying an Amazon business was incredibly high. So therefore, the multiples were lower. Today people that are a lot smarter than you and I, that have raised billions of dollars, have proved that it's not as risky as you think. And the multiples are climbing because of that, and because of the competition among them, the multiples are climbing too.
Joe Valley:
So it's a great opportunity to sell an FBA business, because these aggregators are fighting tooth and nail over each other. Brett, we've had an average of four and a half offers on every listing year to date.
Brett:
Wow.
Joe Valley:
Every one of them. 62% have gone at or above asking price because of the competition-
Brett:
That's crazy.
Joe Valley:
When it's an FBA business among the aggregators.
Brett:
Yeah. But it makes sense a lot of these areas have raised $400, $600 million to be investing in other businesses. And they can't just have that cash sitting there. They've got to go acquire some stuff to create the return. And so that, yeah, maybe they're going to pay a higher multiple than would've been expected a few years ago.
Joe Valley:
Yeah. They don't like to. When first started out, they were buying them at two times at best. And now Brad just put one under LOI yesterday. I think it was 5.4 before inventory, like a 6.3 with inventory.
Brett:
And this was an FBA-only business? Or was-
Joe Valley:
Yeah, it was, well, I call it FBA business when it is 85% FBA. Yeah, so, yeah. Yeah, and it was a substantial business. The larger the business is, the lower the risk, therefore, the higher the multiple. If you've got an FBA business doing $100 thousand in revenue, I'm sorry, you're not going to get that five and a half time multiple. But if you're doing a million and a half in discretionary earnings and you're growing like crazy and it's fully transferable and all these other things, it's possible. It's possible.
Brett:
So once you exceed the three, three and a half times multiple, it's because you're diversified. It's because you've got larger SDE, which is perceived as more valuable, and because you've got a growth trajectory as well, I would assume.
Joe Valley:
Yeah. It's all because the growth, the transferability of the business, the documentation, it's all great, great branding, maybe some recurring revenue. Buyers love recurring revenue. Whether it's B2B where they're constantly buying your product or supplements of some sort, it's trackable, and it's just money that shows up in your account every month.
Brett:
Yeah, Which is beautiful for sure. So I think everybody gets hung up on multiple. They want to-
Joe Valley:
Way too much.
Brett:
They want to brag about the multiple. They want to talk about the multiple. They get all upset if they don't get offered the multiple. But there's more that goes into that, right? I even heard a savvy buyer say one time, "I don't care what the multiple is. If they want to hire multiple, I'll just figure someone else out to make the deal work in my favor." So when I heard that, I was like all right, well, there's something there. It's almost like the car dealers like, "Just tell me how you want your monthly payment to be, and I'll figure out a way to make it work So anyway, what needs to be considered other than just multiple?
Joe Valley:
You want to look at... We're talking about a buyer or from a seller standpoint?
Brett:
From a seller standpoint, yes.
Joe Valley:
From a seller standpoint. So we've got a couple of chapters, probably three chapters, 13, 11, and 15, I think they are, on negotiating with the aggregators, what they're looking for and how to work with them. They're all good people. And I say that-
Brett:
Yeah, yeah, yeah.
Joe Valley:
Most of them are really good people.
Brett:
Good people, yeah.
Joe Valley:
They're smart.
Brett:
but good people.
Joe Valley:
Yeah, yeah. Look, they're not bad people. They've managed to raise $500 million, they're probably pretty likable.
Brett:
pretty smart.
Joe Valley:
So we go into the different types of deal structures. So there's a total of six of them. Or really it's 11 because cash is one, and then it could be cash plus cash plus a stability payment, cash plus the seller note, cash plus a working capital peg, inventory seller notes and all these different things. So understanding the different types of deal structures that you could possibly have as a seller. Most sellers want to say no to anything but all cash, but oftentimes having an or seller note or an equity role can give you some peace of mind and some income after the sale. Maybe if this exit isn't enough for you to be done and stop working, you still need some income after the sale. So rather than take a smaller all cash amount, you may be able to get more for the business.
Joe Valley:
Like the one I just mentioned. The cash wasn't 5.8, or whatever the number was. It was cash and then an earn out and a consulting a bunch of other stuff. And it just gives peace of mind after the sale. But again, most people want to say no because they don't know who the buyer is. An uninformed, an ignorant, whatever kind of mind, always says no. Once you get to know your buyer, you may say yes, and it may be in your benefit to say yes, but you've got to understand all of these different deal structures before you want to say yes to any of that. And of course, you got to have a very good attorney to make sure that you are locked in and secured and that you will get paid. But we talk about that, and then we talk about how to properly negotiate with the person that's buying your business. You want to work with good people, right, Brett?
Brett:
Yeah, absolutely.
Joe Valley:
As do I. This is not Wall Street, second place is for losers or whatever.
Brett:
Yeah, not cut throat. It's not like a winner and a loser. You're trying to come to some agreement where it's-
Joe Valley:
It's a win-win. It's got to be a win-win. What I talk about in the book and what I've learned over the years through trials and tribulations, my own successes and failures, is that you don't just build a great business for yourself. You got to have the mindset of building a great business for great customers and a great buyer to eventually take over at a great price. And that great price has got to be for both of you obviously. there's a lot of greats in there. There are no losers in it. So you've got to shift your mindset a little bit and think of your buyer and giving them something that's amazing. And they're going to pay you a higher price for that if you give them something amazing. If you give them a house of cards, they're going to figure it out.
Brett:
Yeah, yeah. So in looking at these deal structures... And this is kind of top of mind because you and I have a couple of mutual friends who have recently done partial exits, so they've equity. They've taken some chips off the table. They sort of sold a portion of their business. They're retaining some equity. They're still working in the business for a period of years, however many that is, two, five, whatever. And then they're going to exit again. Why are deals like that potentially pretty attractive and maybe worth thinking about right now?
Joe Valley:
Yeah, they can be very attractive. They're unattractive if you need to get all of your chips off the table, but if you get 75% of your chips off the table and roll the dice on the other 25%, it could be a much higher exit for you. I think what we're going to see with some of the aggregators, and whether it's an FBA aggregator, somebody rolling out just Shopify sites or whatever it might be, is that they're going to try to do more equity roles. And so if you've got, for example, I'm going to try to do simple math here.
Brett:
And the reason for that is because they want to retain that founder, that visionary, that operator to some of the work, right?
Joe Valley:
Strangely enough, no. They just want to get the deal done. That's what they're fighting for now. Most of the time, they've got the in-house expertise and staff.
Brett:
Got it. Got it. Okay.
Joe Valley:
doesn't need me...they don't need me to operate it. They want me to go away, but if-
Brett:
They want to get a deal done.
Joe Valley:
They want to get a deal done. So let's just simple math though. If I've got 400,000 in discretionary earnings, and let's just say that I'm going to sell it at three times for simple math. Folks, I'm not telling you folks that your business is worth three times here. I'm just giving you an example.
Brett:
Easy math.
Joe Valley:
Easy math. So that's 1.2 million. But if I sell 75% of it, what is that? 85? Now it's not easy math, right?
Brett:
Yeah, it's-
Joe Valley:
I'm going to hold back a hundred thousand of it, 25%. I'm selling 300,000 of it, so I'm getting 900,000. I'm rolling the hundred thousand into the new co that is a bigger company, that's worth a higher multiple. So I'm getting a 300... Sorry... getting a three time multiple on my 300,000. But the moment my hundred thousand goes into the new co, that company's probably worth 10 to 20 times on their exit, like, right?
Brett:
Mm-hmm (affirmative).
Joe Valley:
20 times easily, right?
Brett:
Yeah, yeah, yeah.
Joe Valley:
So my 100,000 now becomes worth a million. It's worth on paper more than my 300,000. That's the benefit of an equity role. The problem most entrepreneurs have with it is the concept of I have to go to work for someone? I don't want a job. And we just saw an-
Brett:
And a lot of entrepreneurs, let's face it, are unemployable.
Joe Valley:
Totally unemployable. I'm unemployable. There's no question about it. But what you can do is just become a strategic advisor to the company, which just means you're going to sit in on meetings about maybe new product launches and share your ideas on where this is going to go. And so you're having a quarterly meeting, and that's about it. That allows the aggregator to put out less of their cash and let you participate in the upside, and they know that they can draw on your expertise and your experience, but you're not working for them. You're just becoming an advisor for them. So I think that is probably something we're going to see quite a bit more of. And if you find the right buyer for your business, whether it's an aggregator or somebody else that you trust, I think it could be a really excellent-
Brett:
could mean a higher multiple. And it's just pretty interesting. And that is another one of those win-win, right, where the aggregator or the buyer gets to put out a little less cash?
Joe Valley:
Yes.
Brett:
They're allowing you to participate in the upside, but it also allows them to win the deals. So, yeah, it totally makes sense. But I love that you outlined this in the book. And what'd you say? Six, seven deal structures?
Joe Valley:
Yeah, I think there's six total deal structures in the book, but when you add cash to each of them, there's now 11, because it can be cash, or it can be cash plus this, cash plus that, or cash plus five of them. It can get pretty complicated.
Brett:
And thousands of different ways to do each one of them six categories of deals.
Joe Valley:
Right, right. exactly.
Brett:
Awesome. Let's just do a couple of quick things here because we're about out of time, but other tips, other little bits of advice for sellers? What should they be doing? Thinking? Now, other than buying a book of exitpreneurs, which I highly recommend, get it on Kindle, hard copy, whatever, what other pieces of advice would you give?
Joe Valley:
Yeah, it's a good question. I would say that you really want to figure out your own level of incompetence, and you want to figure that out pretty quickly.
Brett:
Got to be self-aware, right?
Joe Valley:
Yeah. You got to be, just because we're entrepreneurs. We have an affliction. We think we can do anything. I can do that.
Brett:
And that mindset, that spirit is valuable.
Joe Valley:
It is.
Brett:
But not always. You got to be aware-
Joe Valley:
Not always. So you may be able to get your business to 10 or 20 million, but can you get it to a hundred million? Are you equipped to bring on a staff of 35 and go overseas and work with an overseas manufacturing company once a quarter or once a month? Are you emotionally equipped for that? And do you have the ability to manage a business of that level? Or do you have an interest? Can you? Probably. Should you?
Brett:
Would you like the life that that creates? And you might not.
Joe Valley:
Exactly.
Brett:
Be self-aware.
Joe Valley:
So really be self-aware. Figure out the kind of life that you want to live. Make sure you don't promote yourself to your own level of incompetence, because when you do, your business will suffer, and then the value will go down.
Brett:
Yeah, yeah. It's tough. Awesome stuff. Joe, where can people find the book or connect with you?
Joe Valley:
Yeah, yeah, yeah. I appreciate that. Exitpreneur.io. Exit preneur.io, or just do a search for it on Amazon, exitpreneur, or The Exitpreneur's Playbook. They can find me on LinkedIn. They can hit me up at joe@exitpreneur.io. I keep saying.com, but it's IO. Or at Quiet Light, joe@quietlight.com.
Brett:
Yep. And so huge recommendation for the book. Also recommendation for Quiet Light if you're looking to sell your business. And so just a quick point for Quiet Light as well, Joe. If someone's thinking about it, considering it, at what stage should someone reach out to Quiet Light? An e-commerce store owner, when should they reach out to you?
Joe Valley:
You know what? If they're at least 12 months old, I think it's time. It's time. And the key thing about Quiet Light, just to distinguish who we are and what we do, everyone on the team has built, bought, or sold their own online business. They're all very successful entrepreneurs first and foremost, and then they became advisers. Brad, who you know, rolled up-
Brett:
Yeah, Brad, I know him.
Joe Valley:
With 30 content sites, so the private equity firm. Amanda's been on the cover of Time Magazine for goodness sake-
Brett:
Crazy.
Joe Valley:
For her Pearl importing business. I am a slacker compared to some of the guys on the team.
Brett:
But you got the book, man. You got the book. You can always-
Joe Valley:
I had to write it just to keep up with them.
Brett:
That's awesome, man. All right, Joe, really appreciate you taking the time, man. This was a ton of fun, very informative, and glad we did it.
Joe Valley:
Thanks, man. I appreciate having me on.
Brett:
Yeah, absolutely. And as always, I appreciate you tuning in, and I'd love to hear from you. Give us some feedback on the show. What would you like to hear more of? What topics should we cover? And if you haven't already, I would absolutely love that review on iTunes. And with that, until next time, thank you for listening.
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