02:19 Hey, welcome back to the show. And today I am so excited to have Matt with us because he's talking about all the stuff we love to talk about. Matt, who are you and what do you do?

02:27 Todd, thank you so much for having me on the show. I'm really excited to be here. I am a private equity investor. I'm the founding partner of a company called Eidolon Capital. And we're a private investment firm that really focuses on acquiring and scaling and in most cases, but not always holding lower middle market companies. And as I'm sure you know, the silver tsunami of baby boomer businesses that are starting to come to market, you know, our thesis basically position ourselves in the path of those businesses buy great companies and hold them for the long term. And candidly, I probably read one too many Warren Buffett shareholder letters. And I think that not that we're anywhere near his level of expertise or track record, but that's kind of our thesis in a lot of ways has been informed by the same approach of find great businesses, buy them, and ideally hold them over time.

03:22 Yeah. You know, he started somewhere too.

03:25 That's right.

03:26 Meaning you'll get there dude, just keep on running, keep on running.

03:30 That's the plan.

03:31 I love it. And right, I mean nobody started with a million companies, right? I mean you start with one at a time, one acquisition at a time. Now talk to us about this because you know a lot of people in my listening audience, when they hear someone's a private equity guy, they kind of like shutter a little bit like.

03:47 The Darth Vader music starts playing.

03:48 Yeah, right, right, right. They're out to get me, crap. But talk to us about the perspective you have on acquisition and how does this model work really and why should people be thinking about this more?

04:03 Yeah, so it goes all the way back and we'll come back, I'll actually tell you a story about Warren Buffett that kind of got me to this place of really focusing my time and energy on mergers and acquisitions. But, you know, I'm a very avid reader and especially when I was younger, I really spent a lot of time studying billionaires, right? It was, hey, these people have achieved an incredible level of success. And I know you've interviewed hundreds of CEOs and have a similar approach to trying to learn from really smart people, right? And I started studying all these billionaires and what I came to see over and over again was that there was this big commonality in many billionaire growth stories. And the spoiler is that the commonality was that they used &A to grow. They bought businesses, right? In many different contexts. And so, if you think about Warren Buffett, that's a pretty obvious one. Berkshire Hathaway's entire strategy is just buy businesses, right? There's not really, I mean, there's more to it, but that's the crux of the thesis. But even when you unpack people who seemingly maybe don't seem like an &A story, there's actually a lot of &A under the hood. And one of my favorite examples is Jeff Bezos and Amazon, right? Obviously he founded Amazon. But if you look at some of Amazon's biggest successes, some of their biggest pieces in their growth strategy and their story. I mean, Amazon's almost a $2 trillion company today. Acquisitions were really a fundamental piece of their strategy. They've done more than 100 acquisitions in the last 15 years or so. And I mean, major buckets of their business, right? So I'm a big audiobook guy. Probably 80 % of my reading is on audiobooks, specifically on Audible in most cases. But Amazon didn't found and create Audible. They acquired it, right? When audiobooks were starting to become a big thing, they went and bought Audible. Similarly, you know, 10 or 15 years ago, it would have been a fantasy to imagine your groceries getting delivered to your house in real time. But Amazon saw the path of growth. They knew that was happening. And instead of going and reinventing billions of dollars worth of grocery infrastructure, they just went and bought Whole Foods, right. And so these, you know, even AI today, which is you and I both know is probably one of the biggest mega trends. They, you know, Amazon has thousands of employees you know, billions and billions of dollars, instead of building a native in -house AI team, they have $4 billion they've invested in Anthropic, which is one of the leading AI companies. And so when you look at a story that's seemingly a startup, right, really, they're still massively growing by using acquisitions. And the crazy thing about acquisitions that I've uncovered is that you don't have to be an Amazon to go do these acquisitions. In fact, some of the most interesting, most compelling deals can be done both as a small business owner who's looking to scale or as an entrepreneur who says, and I really firmly believe this, if you're going to start a business, I think that there's a really compelling case that the same amount of time, energy, money, resources dedicated to that effort could be much more effectively deployed buying an existing business that already has customers and revenue and traction and product, all kinds of stuff. It's a long answer, but.

07:15 I hear ya. I hear ya. You know, honestly, no, I love that answer because, you know, so many people feel like their businesses are baby and there's no way anyone's gonna get a piece of that or there's no way I would consider, you know, even the fact that other people might be interested in exiting their business. Like you talked about the silver tsunami. People don't even know what that is, you know, and yet. I've been born and raised on the fact that we have this massive baby boomer generation that was very entrepreneurial and very smart with their money. And now they want to be done. They are done in a lot of cases and they're like, I don't know what to do with this thing. And then there's all these young people who are like too scared to go start a business. You don't have to anymore. Like literally what you're doing is really a smart play. And I know there's a lot of opportunity out there. And for those of you listening, you don't always have to be the creator in growth and scaling. You can be the one to go in and grab up something that's working, apply some common, you know, modern stuff to it. Right? Email, right?

08:23 Basic stuff in a lot of cases, very basic. Like, it's, I mean, we've, it's so true and it's funny because I think there are different kinds of creativity or there are just different ways to channel creativity because you can be super creative and go come up with some amazing idea for a business. But to me, I prefer to channel my creativity not only into the craft of doing deals, which I really enjoy personally, but also having some raw material to work with to me is a much more rewarding creative experience than starting from nothing. And I would much rather take a business that has some really good bones, some really good fundamentals and build upon that as opposed to saying, man, I got to start from scratch and duct tape this whole thing together. And I mean, we've bought, honestly, most of the businesses we buy, are so under optimized that it's it's I mean, it's wild, right? I mean, we we bought a business a couple years ago, that was as a 51 year old company, they were doing you know, three or $4 million of top line revenue making good money, the entire business was operated on pen and paper, right? Pen and paper, carbon copy sheets. This is in 2022, right? They didn't have a website, didn't have a website, the whole marketing budget was a TV ad from the early 90s that they didn't even stock any of the products for anymore. Right? So it's like, you don't have to be some marketing genius to be like, Hey, maybe we should, you know, do some basic, like paid ads and Google and, you know, local cert instead of this TV ad from the 90s. Right? So it's like, or maybe we should use some software to digitize the operations here instead of having stacks of paper sitting around.

10:02 Totally. Maybe automate an email or response or two or something, right? I love it.

10:07 Yep. So you really don't. And the funny thing is it makes sense. I mean, why is the business that way? Right? I mean, if you're making a couple hundred thousand dollars a year and you've owned this thing for 20 years, why do you want to, why change it? Why bother? You're going to retire in a couple of years anyway. But the reality is you hit on something a minute ago that I think is so funny which is, I got a comment on like a YouTube video of mine the other day and this guy was basically like, nobody's ever gonna sell their business, like if it's doing well. And I was like, that kind of limited thinking is, it makes me sad, honestly, because not only do tens of, 

10:42 That's when you want to sell your business is what is doing well.

10:43 Right, exactly, like tens of thousands of businesses transact annually, but beyond that, as you hit on, depending on what estimates you look at, it's like there's about 70 million baby boomers and you know, I've seen stats, maybe 12 million of them own businesses. So call it 12 million businesses that have to transact and it's something like $10 trillion worth of value that has to pass out of baby boomer hands over the next 10 or 15 years. And, you know, as you hit on like most of their kids don't want to take over, you know, dad's metal fabrication business, they want to be a TikTok influencer, right? Or whatever. I saw something, this is like a tangent, but I saw a stat the other day that was like, in the US, it was like the most desired profession for people under 25 or whatever was literally influencer. And it was like, it was like China, it was like astronaut, right? So it's like, people don't want these businesses and they're gonna have to transact. So my goal is to be in the path of that tsunami, sit there with a net and try and catch a couple that I like. That's pretty much it.

11:51 Very smart. And sadly enough, I'm pretty familiar with the Asian markets and Japanese people are having the hardest time with this, because many of them don't even have kids. And if they do, the one kid is like, yeah, I'm like cutting hair for a living. And they're like, I don't want your business, Dad. And so there is a huge opportunity for this. And you know, Matt, one of the things I'd love for you to touch on, I talk a lot about the transition between launch phase and growth phase. And I would say the vast majority of the companies you're talking about that are, you know, 50 year old companies that are still transacting in triplicate paper, you know, these types of businesses are still, in my opinion, in launch mode. Like, yeah, they're kind of in orbit, but they haven't let go of the rocket. Like they haven't adapted to their orbit. And so now all you got to do is learn that transition from how do I take it from a revenue generating machine that got off the ground into something that is actually performing something in orbit and it's a smooth operation and things just work. Can you talk to that?

13:00 Yeah, I mean, I think about that a lot. And to me, you know, going all the way back, like, I agree, I don't think a business is truly, I think it certainly harms the sale value of a business as well. But I don't think a business is truly really operating like a business until you have a predictable methodology for acquiring customers repeatedly, right? Which is kind of what you're talking about. There's tons of businesses out there that are doing millions of dollars a year in revenue that have really, they don't know how they generate business, right? I mean, it's just kind of, I don't know, inbound, right? Word of mouth, referrals, and you'll get penalized for that from a valuation standpoint, but it's also an opportunity in a lot of ways. And, you know, I look at the math on, I mean, you can bootstrap a startup for no seed capital. And you can honestly, you know, not in every case, but you can also buy businesses for little to no capital invested, right? So either you can in theory start for nothing, but I think an average startup probably have a couple hundred grand of seed capital. And I think an average, let's say, SBA acquisition will have a couple hundred grand of equity investment, right? Because you can do about a 10 % down payment with an SBA loan. But if you ask me, would I rather start with something that has three million bucks of revenue, 20 employees, you know, customers? all, you know, a market presence, all kinds of stuff and build on top of that foundation, or would I rather start from scratch? I'm putting my money on the bucket that already has all, you know, a lot of the puzzle pieces built. And I think it's, I think lower risk and in a lot of ways has a faster path to upside. Cause I think it's easier to go from 3 million to 10 million than it is to go from zero to a million probably.

14:44 captainscouncil.com

16:24 I 100 % agree. And honestly, for those listening, if you're hearing this and thinking, crap, what did I just do? What did I get myself into? The fact that you are generating at least a million in revenue says something because to your point, Matt, it takes so much energy, like so much energy to get to your first million. And then once you pass that first million, going to three to five to 10, it is just systems and people. You know, it's like, systems processes, people, that is what gets you there. And so to your point, your model is fantastic because when you're buying an existing structure with 20 people and a few million in revenue, the model works, like it's functional. But how do we optimize? And I think that that's where a lot of people feel like I'm an optimizer, I'm not a creator, how do I do this? So as you're looking for deal flow, you know, obviously there's all these baby boomers who are looking to exit. But if I'm a 30 something and I had a startup for the last 10 years and I'm just kind of tired of it, what do I need to be thinking about in order to optimize my exit or how do I network with people like you who can help me transition out of my business into something that you want to grab and hold onto for a while?

17:39 Yeah, I think that's a really good question. And there's, I mean, I'm definitely a net buyer of businesses, but, you know, being a buyer or a seller, if you're transacting, you understand the fundamental drivers of value of a company, right? And to me, I mean, we could have a five -hour conversation about valuation and get into the weeds on a bunch of different stuff. But to me, there's really a handful of major drivers. And I know you've done a bunch of research on this too, and have some really cool insights into it but if I, if I boil it down to really the stuff that I see driving the biggest changes in a company's valuation, I think there's, there's a handful of things that will like 80 20 principle. These three or four things will get you like 80 % of the way there. So the biggest honestly is size. Just it is what it is. The big, if you look across every factor, industry, whatever size is almost the single biggest determinant of valuation. And I, and I don't just mean from like a pound for pound standpoint, and this is something that I think a lot of people don't understand, which is like, if you have a company, I'll give you a, we'll do a little bit of math. I'll try to keep it relatively simple. But if you have a company that's doing a million dollars of earnings, right? And just say, pick an industry, it could be the same industry, just say HVAC, right? Or home services. Company doing a million bucks of EBITDA or earnings might trade it around a 5X multiple, right? So five times EBITDA could be, could be 3X, could be 5X, could maybe even be 6X. Depends on a lot of stuff, but let's just say, yeah.

19:04 Don't expect 20.

19:05 No, definitely not. But like five is a reasonable midpoint, maybe even a little high. Now, if you take that same company and you wave a magic wand and you gave it $10 million of EBITDA, right? That $10 million business, so that the million dollar EBITDA business is worth $5 million at a 5x multiple. If you take that and made it a $10 million EBITDA business, that multiple easily goes up to at least a 10, maybe more than that, right? So now, that at a 10 million of earnings and a 10x multiple, that's a hundred million dollar business. So even though the revenue or sorry, the profits went up 10x, right? From a million to 10 million, the valuation went up 20x, right? Because bigger companies are worth more even after you've come up with the fact that they're bigger. So pound for pound, if it was the same multiple, it'd be a 50 million dollar business at 10 million of earnings, but it's a hundred million dollar business. So,50 % of the valuation increase is just size alone and nothing else.

20:04 I love it. I love it. So for those of you listening, you may have heard before, size doesn't matter. In this case, size matters.

20:11 Meaningfully so size and and I'll give you my thoughts about how to increase the size of the business. But size is probably the biggest factor. And then beyond size, there's a couple other things that are pretty solvable from an operating standpoint. One of the biggest is broadly what I would call sort of the customer profile of the business being how much concentration do you have to a single customer? High customer concentration alone can torpedo deals even at larger sizes. But so customer concentration and the health of the customer relationship. So do you have a lot of customers? Do you have a few customers? Do you have great relationship? Do you have a sort of a standoffish or difficult relationship? Those kinds of things. Customer health, net promoter scores, customer concentration. Broadly, customers is a huge driver of value. Another major driver of value as you hit on our systems as a whole, right? Or operational excellence. So do you have repeatable properties, whether that's fulfillment, value creation, customer acquisition, all of the different functions of the business. If you don't have systems, then that will meaningfully impact your valuation on the negative side. And then, and then really the last big variable that I see is broadly what I would call management depth or management experience. And, and I would include that the other side of the coin on that is owner reliance. So the less reliant the business is on the owner, the more the business has a deep management bench of people that run it, the more valuable it is. And so it...

21:39 Yeah, yeah. But I mean, be honest with me, Matt, when you're looking at deals and you're less than, say, five million in revenue, how often is there a leadership bench there that you can rely on versus owner dependency? How often are you seeing that? Yeah, right.

21:52 Most deals are owner dependent. Most deals are owner dependent. And to some extent, right? I mean, there are deals where people have phased themselves out and oftentimes you'll have maybe a VP of ops or some second in command that can kind of keep the hand on the tiller. But really In most cases, there's some level of owner reliance, right? And so if you own a small business and you want to increase the exit value, think removing owner reliance, building management depth, putting systems in place building customer diversity or acquiring for customer diversity, right? So I have a friend who's actually working on a merger right now. His business is, they're pretty sizable company. They're doing a couple million bucks of EBITDA, but they're concentrated like 60 % to a single customer. And they're doing a merger. They're doing a merger just to bring that concentration down to like 15 or 20 % so that then the merged companies can sell without having a customer concentration blocker, right? So you can use M&A to solve some of these issues too. And then size, obviously, and we can unpack this in more detail if you want, but you can grow via acquisitions, right? Just like Amazon does, small businesses can do it too.

23:06 Go back to that business. Yeah, go back to that guy. Because I want to talk about that just for a minute because I think that this is really, really creative. I did a piece yesterday talking about eight different ways to exit your business and strategic acquisition is by far the most common, I think, in terms of people's ability to exit. I would say maybe second most common. Probably the most common is just liquidation. Like a liquidation exit, right? But...

23:35 Yeah, or just cutting it down. Yeah.

23:36 But when we're talking about a strategic acquisition like this, I absolutely love what you're talking about. The owner, the founder of that company is looking to exit his company, but to be able to add value by diversifying client type, he's actually acquiring someone else first, which will do what to his overall exit? What are you seeing?

23:57 Yeah, so I'm trying to remember the exact math on his deal, but I can give you an example that will illustrate it just the same. So let's say his business is doing $4 million of EBITDA and they buy a business that's doing $3 million of EBITDA, right? And this is in kind of an agency space, marketing agency. So his $4 million EBITDA business is substantially concentrated to a single customer today, which a lot of buyers, if you have even a 20% concentration to a single customer, a lot of private equity buyers are just out. Like they won't, they just will pass, auto pass on the deal. 50 % or more concentration, forget about it. 80% of the buyer universe is gone outright. So they may not, I mean, they maybe could find a buyer, but they may not even be able to sell.

24:41 And why is that? Explain why that is, because I think a lot of people are like, wait, that's awesome, I've got one massive client.

24:47 Yeah, I mean, it's the reason is really simple, right? If you lose that one client, then the whole business implodes, right? And you paid $15 million for a company and now it's worth $3 million, right? Or whatever. So, I mean, of course that's never gonna happen, but it happens all the time. I know people whose it's happened to. I've invested in a company that had 50 % concentration to a client that fired the business like nine months later. Like I've seen it all, right? So, but, you know, let's say they have their formula to be but because of this concentration, you know, maybe they're getting penalized meaningfully. So they might be worth a four or five x multiple. Whereas if they didn't have concentration, they might be worth like a seven x. And so that company's worth, let's say 16 to $20 million on its own. Now they go merge, they don't actually have to put any cash into this, they just merge with a company that's doing, let's say $3 million of EBITDA and that company's worth maybe a 6x multiple, so it's worth 18, right? So we'll just say the first company's 20, second company's 18, $38 million merged code value, right? Now that merged code doesn't have a customer concentration issue anymore, and it's now $7 million of EBITDA. So maybe that $7 million of EBITDA is now, because multiples get bigger as companies get bigger, that $7 million EBITDA might be worth an 8x or a 9x?Right? So, you know, seven times nine is a $63 million company. Right? Just from combining those two companies and changing nothing else, now that company goes from being worth a merged code of $38 million to, you know, add $30 million on top of the value, basically double the value of the business just by merging it. So, there's some crazy stuff you can do. That's just one illustration of how &A can unlock value.

26:37 Love it. Love it. Now, thank you for sharing that. That's an amazing illustration because I think that oftentimes founders tend to think, and especially Baby Boomer founders, tend to think that this is my baby, I've been running this thing for 40, 50 years, and I know it inside and out, I know all my clients, this is great. But if it's owner dependent, and if the revenue is not the right size, and if the client base is not diversified enough, and I mean, there's lots of variables. But looking at those things, it opens up the door for an amazing opportunity for strategic acquisitions. If you are a business out there listening to this right now and are just thinking, hey, you know what, I want to add some customer base in a different marketplace, that opportunity's probably there right now. Or if the reason is, you know what, I want to buy a little intellectual property that this company owns and they're looking to exit, you could probably get a sweet deal on IP -based acquisition. When you've got a reason for it, there's probably somebody out there that has what you're looking for right now.

27:42 No, yeah, there's no question about that. And it's amazing. I mean, boiling this down, right? Because you read about you, okay, yeah, sure, Jeff Bezos can go buy Audible or whatever, right? But the reality is, these small businesses are almost better positioned to do a lot of these acquisitions because there's so much low hanging fruit at the bottom end of the sector that big institutional buyers won't touch or pay attention to. So if you have a business that's doing 3 million bucks of top line revenue, and operating at like a 25 % profit margin would be about a $750K a year EBITDA or profit or net income business, right? So that business, $750K of profits, maybe a 4X multiple is worth $3 million, right? So if you have a company today that's worth $3 million, right? And you said, hey, I'm going to go out and I'm going to buy a small business doing a million dollars of revenue, 20 % margins, making $200K a year, right? As companies get smaller, their valuation multiples decrease. So if you buy a company making 200K a year, you might pay a 3X multiple for that. So that 200K profit company might be worth $600 ,000. And so you go take your $3 million business making 750K a year. You buy the 600K company making 200K a year. And now your merged Co would be doing 4 million of revenue. It would be doing 950k of net income or EBITDA. And now they're a little bit bigger. Maybe it's worth a 5x multiple, right? Instead of a 4x. And so that's that's very achievable, right? If you go like you're a small business owner buying a company, if you're doing 3 million revenue, buying somebody doing a million dollars of revenue shouldn't be some Herculean task like it's it's very digestible. And the crazy thing is if you take that $3 million business and that $600K business, $3.6 million in aggregate, and we'll set aside the question of how to fund that deal because there's all kinds of crazy creative ways you could fund it too. But it doesn't matter how you fund it. If you're doing $950K of EBITDA now at a 5X multiple, that's worth about what? $4 .75 million, almost $5 million. So you've taken $3 million plus $600K, $3 .6. And now it's worth like 4 .7. So you added a million dollars of value just by merging their two companies together. Right. And then what if you, you know, let's say you, you, you know, you pick up a few cost synergies and maybe you're, you're after you have a, you know, either duplicate accounting or HR or marketing, whatever, and you take it from 950 to a million of EBITDA or a million one of EBITDA that value continues to increase. And you do that. Well, you do that once a year. Right? So you added a million dollars of value to your business by buying a tiny little company. You do that once a year, five years down the road, your company is going to be worth like 10 plus million dollars. Right?

30:41 Not to mention, not to mention that million dollar company that you bought three years ago, by adding the systems and processes that you already have in play, make it probably a three or four million dollar company all by itself, right?

30:53 Your margins to go up. Yep. And you can potentially cross sell and upsell products, right? So you can sell your product into their customer base. You can sell their product into your customer base. You should pick up some margin enhancement because you're bigger. There's some natural cost synergies there. So the point I'm trying to illustrate is there's a big opportunity to for small business owners to go and find deals like that. And there's, as we talked about this whole universe of baby boomers that are out there that are retiring, many of them own small sole proprietor type businesses and their alternative is just close the doors, right? And I've heard one of my favorite terms for businesses like that is dancing bear businesses, right? So the idea is when the bear stops dancing, the money stops coming in, right? And there's no alternative other than just shut it down and liquidate it. And so if you can find someone like that and give them a path and say, hey, instead of shutting this down, what if we found a way to pay you over the next couple of years and we can get a home for your customers? And if you have employees, we can find a home for your employees too. Right? And then suddenly, you can do that $600,000 acquisition. Without actually forking over 600 K right you can do it on an earn out or some sort of seller finance deal structure And that's when the map gets really interesting because then you can start

32:19 It gets really fun on a seller finance deal, doesn't it? I mean, it's like, okay, yeah. A lot of them are like, yeah, I don't want to get banks involved either. Let's just make this happen. You know what I mean? So I think it's fantastic what you're talking about. This, honestly, this interview has been so much fun because I do believe that many of our listeners out there are in a position of thinking, okay, I've never really thought about acquisition. This is making sense. Or they're thinking, I started this business. I'm generating a few million revenue, but I'm kind of burned out. I kind of want to find one of those strategic buyers. And how do they go about doing that? Like, what does that look like when, when somebody is like, I'm just kind of worn out with this thing. Who's looking? Where do they, where should they go?

33:01 I mean, in this market, buyers are pretty active. So if you own a business doing a couple million bucks of revenue, depending on the industry you're in, you're probably already getting tons of inbound, like tons of PE buyers reaching out and sending you emails. If you're not, then you could probably call a broker or an advisor. And candidly, there's pros and cons to selling a business with and without an advisor. I personally most of the deals we sell, I like to bring somebody in, even though it costs us a piece of the deal price as a commission, mostly because you're just creating a lot more competition, you're creating a lot more leverage, you're connecting with a much wider pool of prospective buyers than you otherwise could. But if you're a small business and you're thinking about exiting, or even just want to kind of get a sense of what's going on in the market, I think it's fantastic to just take a couple calls with buyers who are in your space and see what they say because if you inverted this and you do this thought experiment where you reframe it and you say, hey, if I had a bunch of highly paid Ivy League MBAs come in and give you a free consulting review of your business where they're going to come in and tell you everything that's wrong with it, right? How excited would you be? Right? Would that probably be worth tens of thousands of dollars? Right? Well, the news is all of these highly paid Ivy leaguers all work for private equity firms and their job is to get on the phone and to tell you why they're not going to pay you what you think your business is worth. And so they're going to come in and they're going to and you if you set your ego aside, they're going to be like, 

34:35 All the things that are wrong, they're gonna tell you.

34:38 Yeah, they're gonna tell you everything. They'll be like, hey, your customer concentration is too high. We don't like this. This margin is too low. Your growth rate is too low. You know, you don't have enough management experience and blah, blah. And then boom, there's the roadmap.

34:39 Okay, that's hilarious. I love that. That is such a smart idea. What a great way to get a free consultation, right?

34:55 Yeah. And you get the roadmap. It's not necessarily easy to execute, but if you want the playbook for what a private equity buyer is willing to pay, go ask them and they'll tell you. You can even take it one step further and you can get on the phone, you can ask them directly. You can say, hey, the businesses that you pay the most for, what do they look like? The businesses in my industry that you guys have paid the highest multiples for, what characteristics did they have? And then you can say, okay, how can I go out and re -engineer what we're doing to look more like that?

35:28 I love it, I love it. This is so fun. Honestly, I appreciate this so much, Matt. This is a great conversation to be had with our audience because this is the question that looms on everyone's mind. I teach people all the time that if you don't have multiple exit strategies in your head dancing around, and especially even one or two that are really mapped out in a spreadsheet, in a pro forma, in some kind of a plan you're not gonna get the best valuation, you're not gonna get the best price for your business when you are ready to go. 

36:03 Definitely not.

36:04 And sometimes you gotta be ready sooner than you want to be. So know what your potential outcomes are before you dive in too deep in your business, is my opinion. 36:14 I think that's super smart. And I mean, if you, classic saying, but if you fail to plan, then you're planning to fail, right? So doing a little bit of homework can go a long way as you think about what evaluating strategic decisions, allocating resources, what direction should we go in? Should we invest in this project or this project? Okay, well, the folks who invested in project B are getting, you know, 2X higher multiples from private equity buyers than the folks who did project A. I wonder which one's gonna create more long-term value.

36:50 Totally, totally. I love it. I love it. And as you look, you know, at the businesses that have been the most profitable for you or let's say have been the most successful acquisitions for you, what's one thing in common that you feel like was like, okay, this was a no brainer when you acquired, when you made the deal.

37:06 That's something that we talk about a lot in our portfolio and trying to reverse engineer our biggest wins. The answer may surprise you, it may not. Honestly, what we found generally is that the smallest deals were the biggest headaches. And as I said, size is a driver of value. So for us, we've continually just moved our minimum deal size up. As we've done more transactions because small deals are just way more headache for less reward, right? I mean, I'll give you a simple example, but I think it encapsulates it really well. If you have a business, we talked about most of these smaller businesses don't have real management depth. Now, maybe there's some folks that can kind of keep the wheels on, but there's not a real executive running it, making strategic decisions for the business, et cetera. And so if you take a business that's making $300 ,000 a year of profit, and you buy that company, setting aside questions of whether you're using some cashflow for debt service or whatever, if you buy that business and you go higher, I mean, you know this as well as I do, if you are a true all -star CEO, they could easily have a comp package in the seven figures, right? But let's just say you want to bring somebody in and pay them 250 grand a year, which is on the lower side for really like an all -star, right? I mean, but you could find some good people for 250 grand a year, 300 grand a year, maybe throw some equity in or whatever that's if you're making 300k a year of net income and you hire somebody for 300 grand a year, 100 % of your net income is going to that one executive. If you buy a business with $2 million a year of earnings, you can hire the same executive and it's 10 or 15 % of your net income, right? That alone and those same two companies, the company that's doing 2 million a year profit probably has a payroll of what? 20, 30, 50 people? The company that's making 300K a year might have five, seven, maybe 10 or 12 people. 

39:02 Five, yeah, I was gonna say five to 10, yeah.

39:03 Yeah. Right. So which of those is going to be less of a headache for you as the owner of the business, the one with 50 employees that are dealing with all this stuff and you hire the high powered executive and you still have 90 % of your cashflow left or the one that you can't even hire this person because it would eat all of your cash flows and you have six people there to try and put out fires every day. So probably not the 

39:26 So smart, so smart. That's great advice.

39:27 But that demonstrates what I'm talking about. That is the reason why multiples are bigger for bigger companies. And that's the opportunity to buy these small businesses because if you buy them at small company prices, put them all together under one umbrella and sell it for a big company price, that's how you can really create a lot of economic value.

39:48 Fantastic, fantastic. And I know that you are also, when you're working with these CEOs or you're working on bringing in CEOs to run these acquisitions that you have, I know you're a big advocate for peer groups. What is your thought on that before we go? I'm curious, how do you help these people feel like they're not alone in what they're doing in running these organizations?

40:12 Yeah, I mean, I'm a huge believer in peer groups and masterminds and whatever you want to call them. I've been a member of a bunch of them. I'm an active member of YPO, which is one of many great organizations out there, but that's been tremendously valuable for me. And I've just found that having folks around you that can help you think through problems and also just having the ability to unlock and access the network of other people that are also wanting to help you out is tremendously valuable. And we can get into some network science around that kind of stuff too if you want. But the short version is I think it's really, really instrumental.

40:53 Cool, I love it. This has been a fantastic interview and I love the advice, I love the insights. These are things that a lot of people wonder about that don't really know about and I'm glad that you were able to express it in such a very tangible, real way because this is your world, this is what you do every day. And so I appreciate that very much. We're putting all of your info down below in terms of your PE group and other things like that. What else should people know about working with Matt and what could that look like for them?

41:24 Yeah, so I've got a free newsletter. It's called the Deal Mastery Insider. You can get it at mattbodnar.com and sign up. And on that newsletter, I talk about buying businesses, selling businesses, doing deals, going to all kinds of case studies about a lot of the stuff we talked about on here, getting into the math and lots of the art and science of buying businesses. And I love to talk about mergers and acquisitions and buying companies. And that's what we talked about on my newsletter.

41:54 Love it. For those that are looking for that, make sure you sign up below. And Matt, we, again, thank you so much for taking the time to do this with us today. Added a lot of value to our community and we totally appreciate you being here.

42:05 Well, Todd, thank you so much for having me on the show. Great conversation, awesome questions, and I really appreciate being able to come here and share some insights and wisdom with everybody.

42:16 Fantastic. For those listening, make sure to tune in, get that newsletter, and we will catch you on the next episode. Thanks so much for being here, Matt.

42:24 Thank you, Todd.