Buying, Flipping, and Exiting Businesses with Matt Raad

Why buying beats building from scratch

00:00Bill Gallagher: Have you ever had a week when you're completely slammed, but somehow nothing actually moved? Is this one of those weeks? That's not really a time problem. It's a busyness habit problem. My new book, Busy Is Broken, Do Less, Scale More, is all about growing by doing less, not more. Read or listen to a sample chapter over at busyisbroken.com. That's busyisbroken.com. It's also on Amazon and other booksellers.

00:34Bill Gallagher: My yard is entirely free of kangaroos today. Not a kangaroo to be fair. It's important to know because it's not true for our guests.

00:46Matt Raad: That's right.

00:47Bill Gallagher: What does that have to do with growing your business? What does that have to do with buy versus build? I think we got an interesting show for you today. Yeah, from all the way across the pond.

00:57Matt Raad: Thanks for having me on, Bill.

01:00Bill Gallagher: Yeah. So, hey, everybody. Hand feeding kangaroos, flipping websites. What does that all have to do with each other? That's Matt Raad, and we're gonna talk to Matt. Matt, did I say that right? I didn't ask you how to pronounce your last name.

01:12Matt Raad: Yeah. No. That is spot on. That is just fine. And the story as well.

01:17Bill Gallagher: Matt Raad. Alright. So listen up, everybody. We're gonna get into that at all in just a second. My name is Bill Gallagher, scaling coach and host of this super fine Scaling Up Business podcast. You can tell we're running very professional today. It's Friday where we're recording. Right now, you'll be hearing this on a Wednesday probably or whenever the heck you listen to it. We'll drop it on Wednesday. But Friday here, I'm a bit punchy. I've been all over the state and back this week. I've got multiple countries to visit in the next little bit. I'm trying to figure out how to book flights back and forth across. Like, you know, I'm a little punchy today. So, anyway, I think that there is a tie into all this. It's gonna make sense. But we've got more than 650 shows now at scalingcoach.com or wherever you're getting this right now. So turn on your notifications, like it, subscribe it, share it with other people, do all that, and we'll send you whatever. And if you want to come and do a little workshop with me and do a little one on one or one on a few and start to explore how some of this stuff all ties together for your business, you'll find all that and more at scalingcoach.com. That's our website, scalingcoach.com. Not hard to remember. Even if you're running, biking, swimming, well, you're probably not listening to this if you're swimming, but you could be. Driving down the road, commuting, flying along, you can remember later, follow up, and go to scalingcoach.com. Alright. With all that said, Matt Raad, welcome to the show.

02:43Matt Raad: Thanks for having me on, Bill. Great to be here.

02:47Bill Gallagher: Yeah. So, Matt, the day you signed those bank papers for the wildlife park, what was scarier? The debt or the dingoes?

02:57Matt Raad: I think the debt. The debt's always influenced both my wife and I and everything we've done. So that's pretty much the biggest part of our story. That's why we ended up buying and selling online businesses. Yeah. Because our background was literally, like you said in the beginning, studying kangaroos. How Liz and I met at uni, was studying zoology. And we did things a little bit differently though. We decided zoology just isn't going to cut it. Even back then, this is thirty odd years ago, you know, scratching around for funding and stuff like that, we could see that's not going to be how we want our lives to be. And I'd always wanted to be wealthy because I grew up very poor and Liz, both of us had grown up in the country and we decided business is the way to do it. I don't know where we got the idea from, but I'd always want to own a business as a kid. But luckily, Liz bought into it with me. And, you know, the rest is history. We got it. We quit uni. We actually quit ad to buy our first business. And then from there on, we just went on this career of buying and selling businesses.

04:01Bill Gallagher: Excuse me. Let me give the our listeners, viewers a little sense of some of the rest of this before we get. So you're right now broadcasting from a place. You could see, like, out your window, there's kangaroos on your property right now. Like, that's a different part of the world. That is definitely not Chicago unless you live next to the zoo.

04:19Matt Raad: You know, like it's a whole it's you're out in the country. And in the Yeah. Yes. Well, the bizarre thing is we're not actually in the country. We're in Australia's third largest city, Brisbane, but yet we have where we live, we live, we're lucky enough to be able to live on acreage very close to the city. We're surrounded by beautiful mountains and forests. We both ride a lot of mountain bikes and we it literally you know, we live the dream. It's taken us thirty years to get here. It's not a get rich quick thing. It took us thirty years to get here, but we do have kangaroos in the backyard, Bill. That's right. And literally, it's it's kind of bizarre. We've gone full circle, thirty years of business, full on mergers and acquisitions, and now we're back to having kangaroos in the backyard and riding mountain bikes every day and stuff like that. So pretty cool lifestyle. So

05:11Bill Gallagher: you're a, you run this thing, the eBusiness Institute. We'll talk more about that. You spent, I don't know, thirty years now acquiring renovate businesses. You teach other people how to do it. You build a portfolio. You're not a coder in yourself. A background in zoology, not technology. But you also host, you host a podcast on the topic, Digital Investors. You've been featured on Radio and Entrepreneurs on Fire for this idea of buy versus build. And we've talked about this a few times. We're gonna talk about it some more because some of our clients do really well after we figure out a niche to play in, a kind of a business to run, we will often fuel that growth by doing acquisitions. It's been a tough way to go. And I know that that's what you love too. So folks just should know, got some cred, you've done a little bit of work in this. It's not like you're new.

06:13Matt Raad: Yep. Yeah. Yeah. That's what we've lived and breathed is buying and selling businesses. And all our friends and I guess you'd call them mentors, like people that are older than us who done extremely well out of it as well. For thirty years, it's who we hang out with, people that use acquisitions, business acquisitions to grow their wealth significantly.

06:34Bill Gallagher: So let's start with that first story. How do you talk to you're a zoologist, you meet your wife, you do whatever. You buy a wildlife park. Tell us about

06:48Matt Raad: No. It was actually a manufacturing business. Yeah, yeah, yeah. Manufacturing business. And so that was, it was completely different to zoology. That was the thing that surprised everyone, including our professors when we told them we're quitting. It was through friends and family. We did the classic thing. We bootstrapped it. We used funding with friends and family. We had no idea what we're doing. Both of us had grown up on farms, and we got this opportunity to buy this, at the time, a little manufacturing business. And we made every mistake in the book because we were so rookie. And the main mistakes that we made was in the due diligence. We were told, given advice by a country based accountant who, wait till you hear this, Bill, he had his practice next to the local pub, which is a hotel here. I think you guys call it hotels. And so that's where he was every lunchtime, drinking beers and things like that with all his business cronies. So needless to say, he did not give us the right advice.

Buying a bankrupt business with bad advice

07:45Matt Raad: And it was just, it was like something out of a movie, you know, when I think back to it now, how naive we were. You know, you walk into his office and he's chain smoking and you can tell he'd been at the pub all day. And this is the sort of person that, you know, when you're in a country town, that's who you take advice off, trusted him. He's like an elder there. But it was completely wrong. The business was going out backwards. We didn't know that at the time. And so when we got into it, within, it's funny, within the first 24 hours, I was hooked. I absolutely loved it. I could see this is what I want to do with my life. But within the next 24 hours, we realized, basically the next week we figured out, okay, this thing's gone bankrupt. It's about to lose all the clients, and we've been given the wrong advice. How do we turn this around?

08:31Matt Raad: So we started, we basically started reading all the American business and classic sales books. So if any of your listeners remember Tom Hopkins, Zig Ziglar, Brian Tracy, they were on. This was back in the days of cassettes. We listened to them over and over. And also there was a really, a book called What They Don't Teach You at Harvard Business School. I got it for 60 cents from the local op shop and that pretty much set us up for this idea: the way you turn around a business, just get more sales. Forget about expenses and stuff. Now that, you know, if you're an accountant, you'd probably disagree, but I'm not a fan of accountants when it comes to turning around businesses quickly. And that's what we did. So we got really good at turning businesses around quickly. I think we became so good at it. We bought multiple, always manufacturing or wholesale import businesses.

09:27Matt Raad: And it was really difficult when you're a young entrepreneur because you're always in debt to the bank. That was how, that's the next thing that shaped us in a major way. So due diligence, getting that right, and then debt in businesses, managing cash flow. Oh man, it's hard. Really hard.

09:45Bill Gallagher: We didn't prepare this or throw this in the show prep or notes, but it points to something interesting. Hopefully you could think of something on the spot. So I'd love to hear a couple stories about turnarounds. Maybe one that went brilliant, but before that, tell me about a turnaround that you really struggled with, that didn't go well, and maybe that even ultimately failed.

10:09Matt Raad: Yeah, I'd say, oh, there's a few because they've all been hard. So actually the first business that we bought, that manufacturing business, we were making spare parts for outdoor power equipment and it all looks great. Like, it ended up well. So it's not that it failed, but it took a lot longer than what we thought. It took about 10 years and we got it to the point where we were exporting to America, which is our favorite country for business. And also we were supplying a company called Shindaiwa, which was at the time based in America but also was exporting to Germany. And that was, taught us a lot about turnarounds because we got all there through sales.

A retail turnaround that failed

10:54Matt Raad: The big turnaround for us that failed, so we bought wholesale import businesses as well. We once had a crack at buying a retail business, which was a big lawnmower shop here in Australia. That was a failure for us and that also shaped our journey. Never again will we go retail. Like, because it just sucked. You're stuck in there. It was very, very difficult. The margins are shocking and that one did not work for us at all. We thought we could turn it around just like we were used to turning around wholesale import businesses or manufacturing businesses because really, the quickest way to turn around businesses that we discovered, and you know, it's one-on-one stuff, but most business owners don't do it. And we became advisors in M&A, mergers and acquisitions, and it's the number one thing we do to prepare a business when, is to turn around, is to get the sales up. And it's simply put the prices up and go out and get more sales. Now it sounds simple, but so many business owners resist that. So they look at all these other things and I think their accountants get in their ears about, you know, reducing costs and stuff like that.

12:01Matt Raad: You know, in a wholesale import business, there's only, the quickest way, it goes straight to your bottom line. If you can up the prices by 10 to 20% and keep pushing on that, upping the prices, and then get more sales. It worked on every multimillion dollar business we were ever involved in. And, you know, we would have even people come to us. We got really good at this at helping people prep their businesses for a big exit or relatively big exit. By American standards, it's not big exits, but back in the '90s, in the early 2000s, they were kind of big-ish here in Australia. Like, we were selling businesses for clients. My specialty was businesses that were netting a million dollars a year EBIT. One to two million. So I had this really nice little niche that I was well known for in Sydney and in particular manufacturing and wholesale import businesses.

12:57Matt Raad: And we'd have people coming to us and saying, we're struggling or we want to get out, we want to retire, we just want to sell it. I'd look at their figures and go, you've got a problem here. I can only get you three times, and that's not going to be enough to retire on. But if we can tidy this business up and turn it around and it's not going to happen overnight, but give us, like, 12 months, and we can get it prepped and then I can get you a really good exit at a much higher multiple. And that's what we did. And honestly, the secret behind it, Bill, was what I just said. The simplicity of just gently coaching them, coaxing them to put your prices up and build up your sales team and get more sales. Very blunt, but it works.

Raising prices and sales to prepare for exit

13:44Bill Gallagher: Let's take it apart because I have a different view of it and a different approach. And I learned something from somebody from an accounting banking background that was really helpful to me. And I've done a couple of turnarounds, including my own. And the thing that I learned from the banking guy was actually from two, a banking guy and somebody on the accounting side, was that cutting the expenses is a pathway to like breathing room. Like you're so stressed by all the burn that you have and all that stuff. And that if you look at it in a number of businesses that I work at that get stressed, that hit an inflection point, and we make two columns of things that are working and profitable and things that are hard and not profitable. And then we just shut down everything, right? Everything, I'm talking about a business that's really about to fail. So everything that just seems like crap, we just get rid of it. And we inevitably find savings of not only money, but time and energy and like mental bandwidth.

14:57Bill Gallagher: And then we put that into sales, right? We put that, and a lot of times leaning into more of the other. And then the thing about raising the price, it's funny because I totally agree with you there. And the thing that runs business owners, that's just all fear. They can't raise the prices. And I'm doing it now. I'm like all the time. Like, oh, I'm afraid to raise the price for whatever reason. But if you come in, you just don't care. You're like, oh, whatever. This needs to be 50% more, and you just jack it up. And then some people go away for sure. But the rest? Yeah. I'll put a subtlety to it. I'm sounding very blunt. Do you—

15:35Matt Raad: You're dead right. I'll come back to what you said. Cutting expenses and things is super important, but what I found that was actually really easy to do with clients—so these are specific businesses that I was dealing with, they're factories in industrial areas, basically. So think of big warehouses or factories that are either making stuff or they've got a lot of inventory on the shelves. Most of the business revolves around the cost of goods, so the actual products that are sitting there. Most business owners I find are pretty good. When I come in to advise them on selling, so they've been running these businesses for ten to fifteen years, typically they're older, they're approaching retirement. Most businesses I found were pretty scrappy in terms of the manufacturing side and getting the costs down already. So for me as an advisor, there wasn't a lot of room where I could say to them, look, cut the cost of goods by an extra 20%, because they'd already negotiated pretty good deals with their suppliers. But we would certainly look at that if they were blowing money on extra staff or equipment. That sort of thing can make a huge difference, because sometimes—you're dead right, I'm just thinking of some particular deals that we had—some of them can get a fair bit of bloat over the years, particularly, interestingly enough, as they get bigger.

17:02Matt Raad: I was with these guys that were family-run businesses, solo-owned, netting good money. And they were pretty darn good at business, but they were trying to sell things too cheaply to get the volume up. And in a wholesale import business here in Australia, it was so much easier just to get the prices up. And often what they'd do too, because they'd gotten comfortable—remember, these are very comfortable businesses to run. They literally didn't have to work that much, really. So these guys were typically quite comfortable, off playing golf and stuff. Your average wholesale import business that's netting around a million dollars, no disrespect to anyone that's working way harder and not making that sort of money, but once they're at that level, they're only working three or four days a week. Most of them are investing in real estate. They've got lots of other things going on in their lives. And these businesses, they do a buying trip to China four times a year. That's about it. They run their sales teams, and they lose the ball with their sales teams. That's what I was coming to. And I think that's where we can work with—so one of the big success stories I had was with a young guy that'd done it. He was young and hungry, and he'd heard about me, how I'd sold these. And he's saying, you know, I'm turning over—that business was, we sold it for $5 million. So it must have been netting more than a mill. This is a long time ago. But I remember working with him and he'd got excited, realizing when I said to him, what are you—talk to me about your sales team. What are they actually doing? How much are you paying them? And we changed the commission structure a bit and got them a bit hungrier. And literally within twelve months, he had significantly improved the EBIT of his business, and it was a much easier sale. We suddenly had private equity firms interested in buying it, and it worked phenomenally well. And I remember with him, he'd already had all the expenses dialed in through his accountant. So accountants, if someone's working with an accountant, I can't replace an accountant. What I found was accountants are really good at fixing up those expenses. And remember, I'm the last point of contact, the advisor just before we sell the business to the PE firm. So for me, to really get it humming is make sure the sales are maximized. If it was a turnaround.

19:25Bill Gallagher: Let's talk about, is the—your packaging billionaire, Anthony Pratt, is that who you—

19:33Matt Raad: He's a legend here in Australia. Those sorts of businesses, I love, but not at his level. But they're literally where his factories were, that was my stomping ground for finding businesses to sell. Packaging, I love selling those sorts of businesses. That changed your mind there.

19:52Bill Gallagher: I beg your pardon? Did you have some coffee conversation with him that—

19:57Matt Raad: Oh, I had conversations with some very—not Richard Pratt himself, but some very successful, well-known entrepreneurs in Australia who buy and sell businesses, for—that's what they do professionally. And that's who I was very fortunate to work with very closely. Quite a few people like that. So ultra high net worth or private equity firms. That's who became my main network. And that's where I learned most about business. I learned more off those guys than running my own manufacturing businesses.

Buying the first online business on eBay

20:31Bill Gallagher: Yeah. The buying, selling, tuning up a business is different than the one started your own. How about the first online business that you bought? What was that? How did that go? Tell us about that.

20:47Matt Raad: Was awesome. That's when our lives really did change. So we were bricks and mortar, wholesale import businesses, very difficult to run. Cashflow-wise, when you're a young entrepreneur, you're always in debt to the bank and there's a lot of moving parts, and all your wealth is tied up in a warehouse. When we discovered the online space, we suddenly realized, we can be in America tomorrow. There's no more borders. We don't have to stick stuff on container ships and send it over and go through all that. There's instant cash flow, and these things work twenty-four seven. And we decided—listen, I made a pact. When we go online, we're not repeating the same mistakes that we did with the offline business. We are not going for ecommerce websites. So we don't do ecommerce at all. We don't sell any physical inventory. We just do either good old-fashioned affiliate sites or advertising sites. So we bought big sites that made a lot of money off advertising. And our first deal that we bought, it wasn't a big deal, but this was before brokers existed for online businesses. And it was actually Liz that figured it out. We'd been looking at this internet thing. The hardest thing—this was back in the early two thousands—we couldn't figure out the technical side. Liz is good with computers. I wasn't. And so we actually put it off because we were kind of scared of the technical side. And then in the end, after a couple of years, we realized this is the perfect business model for us. We can work from home and it'll give us twenty-four seven business overseas straight away. We wanted to get out of Australia because it's such a small market here. So Liz said, why don't we do what we've always done? She tried to build her first business and it took a year, an online business, and she got it to break even and then she got it to work and she was making around $5,000 a month net off it, which sounds pretty cool. This is off a crafting website selling an ebook. And so she's pretty happy with that. But she said—Liz is very impatient and a real go-getter, ultra high achiever—she goes, I'm not going through all that again. Let's just do what we've always done. Just buy an existing business, because you get instant cash flow. That's, by the way, for business, that's the beautiful thing about buying businesses. You just get instant cash flow. So we're trying to figure out how to do it. And would you believe the first website we ever bought, we bought on eBay.

23:12Matt Raad: Off a lovely American guy, because, you know, we were on forums trying to see who's selling their websites or whatever. So there's no brokers. And we said to the seller, lovely American guy, why are you selling this website on eBay? And he goes, why are you guys buying on eBay? Same reason. Where the hell do you sell a website? So that was the start of our journey. And it was an affiliate site. And literally, I think we paid $20,000 for that website US. It was netting $1,000 a month. And when we bought it, literally the next morning, we showed up sales in our affiliate account and we go, cool, we just went to bed, woke up, and there's money in the affiliate account. Within the first month, I think we'd already renovated the site and we got it from netting $1,000 to $3,000 a month. And we literally got that money in our Australian bank account a month later. And we were like, okay, this is the promised land. We're just going to buy 10 more of these. And that's what we did.

24:18Bill Gallagher: What kind of site was it? What's the audience?

24:24Matt Raad: It was an affiliate site in the dating niche. So it was dating. To this day, that's a really good niche. So it's not for everyone and it's very competitive, and you wouldn't buy a site—you wouldn't get that site. Online business assets now have gone up quite a lot in value. You would pay a lot more money for that website. I'm actually helping a client right now who's bought a very similar website and she's making around $1,000 to $2,000. So, you know, for all these dating apps and things, they pay you an affiliate commission if you send them leads. If you have a following that's interested in that topic and there's all sorts of niches within that. But what we then discovered was we started buying up what we call passion sites. So simple little sites about how to play golf. Golfers are always a really good niche. Guitar, sporting, crafting, anything to do with pets, dog training, pet websites. All the classic niches that you read about that are totally clichéd, they all make lots of money. The really beautiful thing that we discovered, Bill, and we learned this from manufacturing businesses: small amounts of money very quickly add up to large amounts in your bank account at volume. So you can sell small widgets in thousands and thousands of them and make very large amounts of money. And that's where the online space worked really well. So for us, it was a mind-shifting moment to realise even at 20 cent clicks or 10 cent clicks, I can make a significant monthly income off that. You wouldn't believe it how quickly that compounds. And then there's a lot of really cool levers you can pull in an online business where there's no risk to you. It's not like in a bricks and mortar wholesale business where you've got to keep pumping in more and more money. Everything costs so much money. Online businesses are very free and easy compared to bricks and mortar businesses. That's how we found it and that's what we have found over the last 15 years that we've been doing this.

26:29Bill Gallagher: Well, so a couple of things I think are useful for any business here to think about. One of them is buy versus build. So just buy something. You're spending some money that's already got—it's already doing something. That's one. And then make it a little bit better. Give it a renovation, give it a tune-up, goose it a little bit. Maybe the owner—we know lots and lots of owners start to get motivated to sell in their sixties and seventies. And so find somebody 65, like their interest in selling is a whole different thing than somebody say 45. All the entrepreneurs I work with in their late thirties to mid forties, they should think about selling. They should run a business for a few to get the hell out of it. Right? So I think that buy versus build is a big one there and you can buy businesses and you can find them and then you need to do your due diligence correctly so you don't buy a turkey.

27:28Matt Raad: Well, also, I think you touched on something really, really important and it's something we're passionate about and I've kind of almost forgotten about because I take it for granted. You should be thinking about the exit from day one. You know, what's the book, Built to Sell?

Sell on the way up or lose your best multiple

27:47Bill Gallagher: It is, but so much to that. Start thinking like an owner, not the CEO. How am I going to buy this thing and get out of it at some point? So you start to get it growing up, then you don't sell it at the peak. You sell it on the way up. Right?

28:04Matt Raad: And Bill, that's the number one mistake I see business owners make both online and offline. It's a big, big mistake to build, spot on. You know, at the end of podcast, the interview, Bill, you're probably going to ask me this. What's your main takeaway? I'm going to give it to everyone now. It's what Bill says. If you're a business owner, you should seriously be thinking about the exit from day one. Because I'm from the front lines of business sales. Right? I see it all the time. I can absolutely promise you, at some point—business owners always tell me, oh no, I'm never going to sell my business, Matt. You know what happens, Bill? Within 12 months, they're, oh, actually, I do want to sell it now. It's like, well, dude, if you'd been fixing this thing up properly, you had a five-year window. We could have made it perfect. So thinking about that sale from exiting from day one means you will run a much better business without a doubt. And that's where I know you can help and, you know, listen to these podcasts can help enormously.

29:08Bill Gallagher: The other one, because I do get a lot of people that want to grow and sell their business, but then many of them, they're like, well, I want to grow it to $100 million or $500 million or a billion or whatever the number is. And they're like, and then I want to grow it to that and then sell it. I'm like, yeah, that's not how you sell it. You're selling future, not a past. So the past gets evidence to something, but the future is what—that's the sizzle. Right? So, the steak is maybe the past. The sizzle is the future. So, I'm like, listen, we've got a business that we are going to take to $100 million and we're at 50 right now and we're tracking right on, then you could get in on it now. And then you sell half or all of the business and you're like, you're selling the $100 million future because they need to hope for something. They don't want to just buy where you've been and then have to imagine everything. They want to see like, oh yeah, this could get really big. I want to jump in on it now. That's where you're selling. You're selling—if you want to sell for $100 million, if you want to sell for 50, create the $100 million future and then sell on the way. Right? To it.

30:12Matt Raad: Yep. That is a winning strategy. It's actually, Bill, what one of my personal mentors taught me. He's a very successful gentleman at this. And he said, Matt, one of the best outcomes you can do is exactly what you see. Someone wants the—you know, the business owner, and he would say this outright to the business owners. He and I were advisors for these guys and say, look, you want to take this business to $100 million? In Australia, let's just take a zero off there. It's not as big as America.

30:46Matt Raad: But I'll use your – I love the 100 million ones. But if you want to take it to 100 million, why don't you, as the business owner, exit on that up path, take some money off the table at least and sell out at 50 million, and you can keep some equity in with the private equity firm depending on what you want to do in life. So what we also noticed, Bill, we would build and advise people around what are their life goals. So when someone gets into their sixties and they're saying they want to sell, are they go-getters? Are they working to this 100 million exit? And is that the most important thing? Or, like my mentor would say to him, a really good outcome is we either sell it for a much higher multiple on the way because we are selling the future. Actually, I got a really cool online example of that. But also another really good strategy is why don't you take a significant chunk of money off the table? Sell it to a private equity firm. Keep some equity in and you keep running it for them and get even more on the earn out. Now we've seen people make significant sums of money, particularly when you're going for the much bigger deals. That's where you can generate serious wealth in your life when you do get into those. So I've had discussions with private equity firms that have told me personal stories, private stories of businesses they bought, and they've introduced me to the people and they said, this person made way more money by staying in the deal and helping us grow it to the next level. And yet they had no risk because they pulled out a ton of money along the way. Big cash upfront. And that's a big thing here in Australia and it can work really well. But selling on the up is also the other bit of advice that I would say to people. Far out. It is so much easier. You get a heaps higher multiple.

Private equity versus strategic buyers

32:26Matt Raad: We had one of our – the world's top brokers with websites from Quiet Light. His name's Joe, lovely guy. He was telling our audience that he had a client where he'd flipped websites from zero to hero, literally. Bought a little tiny $20,000 website, flipped, renovated it, flipped it. Bought a $200,000 website, renovated it, flipped it. And he did it five times. And on the last one, he was going to sell it for around – like it's in the millions. And Joe said to him, look, just keep working. And because it's on such an up – I think what we can do is, they had a plan to sell it in like a year's time, but because it was – he had – it was so obvious that it was on a very strong upwards trajectory, exactly what you just described, Bill. The broker suggested to him, why don't we put it out to market now and just see what – put some feelers out? And sure enough, someone – the buyer – there were two buyers bought into the vision and could see it and said, we'll take it off the market now at $9 million. The owner thought it would sell for 5 million, but he was working to a much bigger number. And so a buyer sure enough came in and offered him $9 million because it was clearly going to go to that bigger number. So he got to exit there and then on the spot. Nice one. And that's the power of, you know, this guy was driven. He's very goal oriented. Knew he wanted to take it way beyond that 5 million and the buyer just made him an offer he couldn't refuse basically. It's a really good asset to buy by the way. It was definitely worth it. But if you're listening to this and you're building a big business and you've got that vision like Bill says, definitely consider, you know, you can do an earlier exit, especially if your business is on a really good trajectory. They're the easiest sales. As a broker, they're always the easiest sales. They're the easiest sales to negotiate as well. The worst sales to negotiate, Bill, when you've had a bad year and the sales have gone down. Bad, bad, bad. It makes it really difficult to exit.

34:32Bill Gallagher: That's a mistake I made. So I had this vision like, I'm going to get this thing to $250 million and some way along the way, I'm going to sell some significant portion of the business and all that. And I started having like doubling every year for a little while. I'm like, this is awesome. And then I had almost right away, like just in like the first year, somebody said to me, you should sell a bunch now. And I'm like, no, no, no. I'm going to get to this next milestone because I heard at this milestone, the multiples are different and whatever. I'd like to shoot myself because two years later, before I hit – before I quite hit the milestone, I hit a hiccup. Now if I had some investors in with me and we hit that little hiccup, we'd invested, we'd handled it differently. But really, really tore the wind out of my sails. And emotionally, resource wise, I felt like I was going alone and dealing with something on the way to a bigger future, and it like killed me. Look, we sold, you know, more than $150 million of stuff in that business. But we did not – never got to it, and I missed a massive opportunity to sell it. And look, when you sell it, then what happens? Well, somebody else, it's their problem now. They've got to fund it. They've got to bring new emotional energy to it, new ideas, new people. You've only got so much to give in your life to any given thing and, you know, like, get it going a little bit and then let somebody else do the next little bit and then move on to something in your life.

36:08Matt Raad: Do you think when you look back at that moment, this is good for listeners I reckon, do you think when you look back at that moment, did you have the right advisors? Because that's normally what's happened to me. When you're in those situations and you listen to the wrong people or you don't take the right advice?

36:27Bill Gallagher: I don't think I took the advice. I think I was getting advice. So I had a board of advisors. One was the voice that was like, sell now. And then a couple other people said yes. Somebody else was saying, well, there's a multiple you've got there. I think I got greedy. I think I was overconfident. And I didn't ask again. I trusted my own self too much and I missed a big money opportunity.

36:52Matt Raad: Yeah. Yep. So I say that's what drives you today. That's cool.

36:57Bill Gallagher: Yeah. So look, and then the other thing I think is interesting is like in my world, yes, private equity is a pathway that generates a lot of exits for people. In general, I hate it. In general – and I do work private equity backed companies, some groups. There are exceptions. But as a general rule, I would much rather sell to a strategic buyer. You might get yourself three to six times earnings with a private equity buyer, but I might get a multiple of some other thing like revenue, or margin if I sell to a strategic buyer. Because they're buying something different. They're not just buying a financial thing with the same shrewd thing. They need to solve a problem. If you could sell to that, then we can see ten, twenty times earnings or some other kind of a multiple and the whole world is different. So you want to get out of that if you can, because what the private equity formula –

38:02Bill Gallagher: Give you a low multiple, right? Then make you borrow a bunch of money, use some of that borrowed money and whatever, then work you to the bone for three years to goose it up. Then they'll sell it to a strategic buyer using your sweat and equity, and sometimes you're carrying a lot of the risk. Like they load you up and hold you with…

38:24Matt Raad: Depending on the kind of characters you're operating with. Like, so borrow the money yourself and goose it up and then sell it to somebody if that's what you need to do. It's interesting, Liz and I over the last decade have become angel investors. It's very active here in Brisbane where we live. We've got a very successful angel group that had hit a few unicorns, which is impressive for Australia. I know things are smaller, but we see exactly what you're talking about. And we actually advise people, and this is kind of what you've just said, is here we are, we're angel investors. We're not VCs, we're not PEs, we're angel investors, very, very different situation. But we say to entrepreneurs, look, don't resist holding out selling equity in your business until you absolutely have to. I wouldn't do it. And in fact, one of our friends who sold a website for $60 million, whenever he talks to our audience about it behind the scenes off the camera, he says the biggest mistake he made was selling equity too early to investors. And it was very difficult. You can see the physical pain in his face. I mean, this is a really cool guy. And so he's gone and he's built an online business. It's a car review site you can see here in Australia. It's called CarExpert.com.au. He's now built exactly the same business again, which is CarExpert.com.au, and it's really interesting. He didn't bring on investors until much later in the process. And now that site, they're going to IPO it here in Australia for $100 million plus, but he's only brought on two major investors, a billionaire and one of Australia's largest media companies, because it gives him free media coverage. So very strategic investors.

40:09Bill Gallagher: Well, a business, an investor who doesn't understand your business, an investor who doesn't align with your values, that can give you a lot of angst and sleepless nights as well. Right? They can meddle in something that they don't have any idea…

40:25Matt Raad: Fooling around and making your… We see that a lot. And so through angels we see a lot of these things, and often we're advising, especially for the really successful deals we're in, it's always that balance working with VCs. You know, VCs can… they're smart. They know how to get a lot out of young entrepreneurs, particularly for young entrepreneurs I think. But it is good advice. What, it's certainly what we've seen on a very practical level here, what you're saying is so true. Giving away too much equity and PE and VC companies, if you can fund it all yourself, you're always going to end up making more money. But there is big advantages though to having the right investors on board. And private equity can work really well. So my experience with private equity was probably a lot different to the American private equity fund. These were typically a group of high net worth individuals that would know each other. There'd be five or six of them, and they're quite small private equity groups, not the famous big ones that you read about in the financial press. They were very private individuals, ultra high net worth though. They'd often just pull together and they would go out and just quietly buy up little industrial businesses and bolt them together and IPO them. That's basically, they were my favorite kind of clients. They're really nice people, very genuine, easy to work with, super, super smart with businesses.

Giving staff equity to align on the exit

41:54Matt Raad: And one of them, my mentor, my clients and myself, his nickname was Mr. Happy because he's just so happy. All he did was buy up these businesses. He'd sold, done two sell-outs of public listed companies for eight figures each time, and he's a really cool guy, become a very good friend of Liz and mine. And he actually lived in the country town where we were as well, and so that helped. And so I just became a spotter for him and helped him find these other manufacturers. But I learned so much about business off what he did. And he'd say, he's a PE firm sort of, but a really nice one, in that he would teach me how he would… I'd say, how are you running these businesses? You live in the same place I do, but you've got like five businesses and you're probably going to exit them to public list. How are you doing this? One of them was on the other side of Australia. That's a five-hour flight away, right? It's in the mining industry. So Australia's big in mining like America is, mining and agriculture. And he just pays people really well and would give them a percentage ownership in the business. And what he did, which was really smart, he would ratchet it up each year, but not… and he wouldn't set unrealistic goals. He said, Matt, you've got to make sure that the person that runs this business, if I increase sales… He was another one that was really big on getting the sales and looking at the GP, particularly the gross profit, the highest gross profit products. Don't ever set that benchmark too high, because if they don't see they can reach it, they're just going to bail. They'll leave. But if you give them an extra percent ownership of the business every year for a pretty easy benchmark, it just means the business is gently growing and it's not ever going backwards. And then you know what he'd also do, Bill? He would incentivize with the same share ownership deal, not quite as much as the head guy, but he'd always make sure the sales manager and certain key staff were also on board with this percentage ownership of the company. Because then the sales manager, and also the really smart one was the store manager, that was his secret tip, because the store manager sees the sales manager slacking off and kicks his butt and says, hey, I want this exit as well. So he would incentivize a whole bunch of staff with share ownership, all working towards an exit.

44:11Bill Gallagher: The motivation. Yeah. Thinking about the exit, pulling in the same direction. Yeah. There's… and they all work together. There's a lot of good nuggets here and we're getting kind of long in the show. So let's just kind of recap some things. I hear, like, buy an existing business, right? Buy something you can do something with, right? But make sure that you do your due diligence. Be thorough about investigating the things so you don't buy, get surprised by a lawsuit, a lack of ownership, some weird things. Like look at it really carefully, be thorough about it, do a thorough job of it, right? And then when you get in there, like renovate the thing, like clean it up, take it off, go to work on it, give it a little love that maybe has been neglected or taken for granted for a while. In particular, get the sales going, right? And then I hear also give some incentive. Make sure that you're not just working on making yourself rich, but the people that you need to help you who are working in the company now that you bring in, give them a little stake, give them a little taste of that business too, so that they want to win as much as you want to win, right? And then the other thing I heard is you could buy multiple, right? You could, it's not just buying one business, you could buy a whole portfolio of businesses that could work together in some way, and then you could find that. So much good.

45:30Bill Gallagher: So many good nuggets there.

45:32Matt Raad: And Bill, my favorite one too is from day one, be thinking about the exit.

45:36Bill Gallagher: Oh yeah, be thinking about the exit, right? Sell on the way up. Start thinking about it today, right? eBusiness Institute dot com dot au is your website. That's a little bit of a mouthful, but if you take it apart, it's easy to remember. eBusiness Institute dot com dot au for Australia. You'll find it all there. Matt Raad, thank you so much for getting on with us. That was awesome, Bill.

45:59Bill Gallagher: Our listeners and viewers, you'll find us in our monthly workshops and all that. Come get started, get a little taste test of Scaling Up. Spend a few hours with me, whether it's on Zoom or in person, whatever it is. I've got things every month. There's something somewhere that's going on that I'm doing that gets you started. Of course, I can only work with a handful of companies at a time, but we can help you get started with lots and lots and lots of companies. So scaling coach dot com is where that is. Wherever you are right now, LinkedIn, Spotify, Apple Podcasts, et cetera, like, subscribe. I know we have actually a ton of listeners and viewers in Australia, so we've always done really well in Australia. Something about the mindset there. Shout out to some of friends in the area. People that are coming to mind are like David Bartholomew, who's in your neck of the woods, has been a friend for many years. So thanks again everyone for watching, for listening. Thanks to my friend and mentor Verne Harnish, to Wanda and to Anna who get our show ready out the door. Thanks to you all. Keep watching, keep scaling. We'll talk to you next time.

47:23Bill Gallagher: Thanks for listening today. One last thing. If anything in this episode hit home, my book digs into it further. Busy Is Broken: Do Less, Scale More. It's all about how to stop drowning in work and build a business and a team that scales without you. Available right now with content samples at busy is broken dot com. Go grab it. Be less busy.