251: Should You Acquire a Business?
Buck: Welcome back to the show everyone today my guest on Wealth Formula Podcast is Carl Allen. He is the editor of Dealmaker Wealth Society. He has three decades of experience as an entrepreneur, an investor, and a corporate dealmaker, has worked on about 330 acquisitions and sales worth approximately 48 billion dollars. He also has a newsletter called Conventions of a Dealmaker. Carl, welcome to Wealth Formula Podcast.
Carl: Thanks for having me great to be here.
Buck: So I want to just sort of start out by just kind of getting to know you in terms of you know the perspective that we’re coming at this. So assume you yourself are an entrepreneur how did you get in involved in entrepreneurship and how things evolved for you.
Carl: Yeah so I actually started my work career corporate world. So I graduated in 1992. I just turned 50. I went to work for a Wall Street investment bank, Bank of America. So I was buying and selling companies for very large clients so Boeing, GE, IBM, and also Microsoft, and then I left the investment banking world. I went to business school in Chicago to do an MBA and then I spent some time in private equity and then the last real job that I had I was one of the mergers and acquisitions directors at Hewlett-Packard the global technology company. So I was buying and selling companies for HP some of them in in the billions of dollars one of them was over 10 billion dollars actually and then I was doing that having a lot of fun and then but my life completely changed in the space of about four hours in 2008 it’s just over 13 years ago actually. It was the first of February 2008. So I’m in Moscow in a boardroom with my HP team trying to close this deal. We were buying a company over there and I got a call from my wife who was 36 weeks pregnant and had gone prematurely in labor so I had to get myself back from Moscow to England for the birth of my child you know I literally got the call I ran out of the room I had my phone, my wallet, my passport with me my luggage and my computer I think is still there. I’ve never been back. I got home just in time for my son to be born and that was the trigger for me to quit the corporate life and become an entrepreneur and the reason I did that was primarily for my family. I just became a dad I wanted to be there with my family. I don’t really showed up for my family you know we had all the children as well. I’ve been busy chasing deals and you know I didn’t have the wheel of life that I have now that my life was in imbalance. I was all about deals and money and fame and success. I wasn’t about you know the more important things so I quit. I walked away from a million dollars of bonuses and stock options and decided to become an entrepreneur and you know I kind of sat down with my wife and I said you know what am I going to do, you know I think starting a business is the craziest thing anyone in life could ever do you know my belief is you know if you want to be a business owner go and buy one, go buy one using other people’s money. Don’t do something as stupid as starting one. So I became a business broker. So I started brokering deals for small business owners but the first deal I got to sell I actually ended up buying it I realized a big fundamental thing in that at the small business end of the spectrum often sellers don’t sell for money they sell for continuity they sell for legacy they sell for a safe trusted pair of hands that can take their business forward. So I did my first deal. I’m still buying businesses today. I own lots and lots of different businesses all over the world but then about five years ago I started teaching this stuff to people. I was inundated with people saying hey you’ve got this really awesome methodology you’ve got a proprietary formula for finding small businesses and buying them using other people’s money why don’t you teach this to us. So I started doing that and I have the absolute honor and privilege today to coach and mentor nearly 6000 entrepreneurs and business owners all over the world who want to learn the skills and tools of acquiring businesses growing them and then selling them. So that’s what I do.
Buck: So one of the things you talked about is okay you’d be crazy to start a business. I happen to be a guy who started about 10 businesses so I’m sort of on the opposite spectrum. When I look at acquisitions it scares me because of what I know goes along with small business if it is not big enough a lot of times there’s baggage there’s critical staff there is critical IP that is hard to transfer things like that so if you are you know looking to buy a business. I guess the question is what kinds of things are you looking at here I mean you’re focused on buying franchises stand-alone businesses and what kinds of things do you think you avoid from the startup perspective? I’m curious because again for me as a startup guy I’m a lot more comfortable starting businesses.
Carl: Yeah that’s a great question actually. A lot of unpacking that so let me first start by saying like when you’re buying when you buy a business for the most part you’re buying the legal entity whether it’s an S-corp C-corp an LLC so when you talked about transferring IP, the IP will sit inside of the business already so like it’s not buying a house with the furniture it comes with it so in terms of startups. Let’s look at the market data so in 2019 I don’t have the 2020 data in 2019 6.6 million americans according to the small business administration started a new business and 96 of them will fail 50 will fail in the first year alone and when you think about it, it’s no wonder because when you start a business from scratch you don’t really have anything you don’t have any clients any suppliers any cash cash flow any credit any premises any employees you don’t have anything it’s what I call the no problem and whereas if you buy an existing business that’s profitable it has all the things that you don’t have it has customers employees premises equipment it has a reputation you know a lot of particularly in the in the business to business space not so much in the B2C space but in the B2B space and if you’re an established company it’s very rare that you would pick and to work with a startup provider you want somebody that’s got a track record customer testimonial social proof all of those all those different things and my analogy for this is is like buying a car. So I’m a huge car guy and the UK was a little bit behind the US in terms of innovation. So now we have Tesla’s now in the UK so I just ordered a Tesla right and I could have done one of two things I could have gone on eBay and bought all the components bought the wheels the battery the glass the giant iPad that sits in the middle the seats the wiring and then got on youtube and figured out how do I build this car, how do I connect all these pieces together so that it works or did I go down to Tesla did I buy one that they’ve already built and did I finance it using tesla’s money that’s exactly what I did. I bought that car no money down Tesla financed 100 of the purchase for me so that’s my analogy for getting into business ownership you know it’s more expensive, it takes a lot longer and in my opinion, having done this for three decades it’s a lot riskier to start a business and have to push uphill when you can buy a business that somebody’s built and is profitable but doesn’t want to own anymore they want to retire or they’re sick or burnt out or bored or just want to go and do something different so that’s what I truly believe.
Buck: So you mentioned you know your background in larger you know acquisitions through MA and these firms and you know I have actually my brother also has that experience and I remember talking to him about this he served as the chief investment officer of one of the sovereign wealth funds in Bahrain and so he was doing all these you know multi-billion dollar transactions and so one of the questions I had asked him is like you know what I mean if you can do this you mean you could pretty much do everything and he said you know it’s a different ball game when you’re dealing with a billion-dollar business as opposed to a million dollar business and it’s completely different skill set and so I asked him you know what are some of the things he’d be thinking about he said well he probably would never buy anything that had a revenue less than 50 million just because of the the scale and the you know the teams that you need the management all those kinds of things what do you say to somebody like that because that’s still going to be a pretty expensive business if you’re buying something with a 50 million.
Carl: So that’s terrible advice, that’s terrible advice. There are some unbelievably great businesses sub 10 million dollars. I purposely would never buy a business with 50 million dollars in revenue. Never. Because when you go above 10 million dollars in revenues you have a lot more competition for buyers so larger corporates financial investors like private equity that’s where they’re focusing. So those are the deals that have the crazy high multiples because it’s pure supply-demand economics so aren’t you buying a job if you go too small though no not at all because when you’re looking at businesses even. So I’ll tell you about a business that I bought literally two months ago. I acquired a company in the UK and I’m acquiring another company in the US right now about the same size about two and a half three million dollars in revenues and the owner doesn’t work in the business the owner works on the business there’s a very big difference so the owners of those businesses that I buy they’re strategic they’re doing the visionary work, they’re not in the business day-to-day pushing buttons or doing whatever the business does. They have management teams, they have processes, they have things in place and systems and you know I’ve bought businesses before that didn’t have those, bought them for pennies on the dollar and then I’ve implemented those systems quickly in those businesses so that I don’t have to work in them. Where you buy a job is really where you buy a business you know seven million dollars. So let’s say you find a business let’s say it’s a marketing agency it’s doing 500000 a year, it’s making about a hundred thousand dollars in profit that’s what the owners essentially earning business and what you find is that that small micro scale the owner is the business they own all the relationships they’re doing most of the work but when you go over seven figures and different niches have got different numbers but typically when you go to a seven-figure business what you find is it has employees and systems and processes so that the business will work without the seller having to be there all the time and that’s one of the things I actually look for when I’m buying a business because I’m an owner investor in tons of businesses but I don’t work in any of them. I have general managers and teams in those businesses running them for me and as a result. I actually partner with them. I will gift them ownership. I will give them minority ownership in those businesses to be my partners to truly incentivize them to generate wealth for both of us
Buck: Tell me about right now in terms of various sectors that you think are you know better to look in than others.
Carl: So even without Covid, and I think Covid kind of intensified this a lot. The classic sectors for doing deals for me are manufacturing, engineering, technology, anything that’s online, construction, you know those types of businesses anything in the medical space. The biggest piece of advice I give anyone that wants to become a business owner and wants to buy a company is to stay in your lane buy a business in a center that you know something about you’re passionate about and you can add value to the business once you’ve acquired it. So I spoke to one of my mentee students recently, he’s a sales guy for IBM very successful but wants to leave IBM and become a business owner and my assumption is he’d go buy a small technology business but no he wants to buy a vineyard. So why do you want to buy a vineyard? He said because I’m really passionate about wine. I said okay but do you know how to grow wine how to harvest wine, how to market wine? You know you have to run a wine business, no, well then don’t do it because it’s crazy. Go buy a technology business that you know everything about, you know how it works, you’ve got relationships, you can leverage, you’ve got people that you can deploy. If you want to buy a business in an area that you know nothing about it’s suicide. Or go and partner with somebody that knows that space and you can buy the business together.
Buck: You know one of the things that we talk a lot about on this show is the idea of passive income. Now, you know I’m reluctant to I’ve got to push back a little bit just in terms of how passive you’ve made it sound. Realistically, tell us a little bit about your students and kind of you know the amount of effort and you know things that they’re gonna need to do on a day-to-day, you know maybe you can give us a little bit of a picture in you know the types of things that you’re coaching people on and you know how much time they’re putting into these things and that kind of thing.
Carl: Yeah so typically I’m serving four types of students. So three of them are entrepreneurs and one is an existing business owner. So with the entrepreneurs they’ll do deals in three ways you’ll have people that want to buy a business and they want to go and they want to run it so they want to be the GM business and there’s nothing wrong with that, that’s completely fine so clearly those people are working full-time to run those businesses and it takes an average about three months start to finish to find a business and close a deal but then I have other students that they don’t want to be owner-managers, they want to be owner investors, they want to buy businesses and not work in them but work on them and then depending on their ambitions what they want to do with the business strategically how they want to grow it how much work it might need to kind of get it on the right footing whether they want to do additional acquisitions that can be a one day a week to a five day a week operation. There’s no kind of set rules I think you’re right the premise of your point is correct you can’t buy a business and then sit back do nothing whatsoever for the rest of your days and just collect to check you can’t do that right you have fiscal responsibilities as the owner of the business you need to spend at least some time with it. I own businesses that I spend probably three hours a week. I own businesses that I spend probably 10 to 15 hours a week you know I still work 50 to 60 hours per week but you know I love what I do you know I’m building my wealth I’m building my legacy I’m only 50 years of age I still have a lot of energy you know that that’s what I want to do. So you’re absolutely right this isn’t like an Amazon FBA business where you sell taco stands on Amazon you hire a VA for nine dollars an hour and they’re doing all the work no that’s not what it’s like. You do have to spend some time and you’d want to because if you’re buying a business the way you make the most money doing deals is when you buy a business you grow and you sell it. If you buy a business and you borrow the money to buy it your value your net worth on day one is all on paper. You’ve not materialized any of that in terms of money in the bank to get the money in the bank you’ve got to grow it and then sell it and you’re selling it with a higher profit so you’re making money that takes work you might not be in the business every day doing the tactical endeavors but your job as the owner of the business is to at least set the strategy set the vision indoctrinate the culture do all of those different things.
Buck: Tell us a little bit more about your group which is called the Dealmaker Wealth society.
Carl: Yeah so as I alluded to before, about five years ago I started coaching. So I’m one of these rare individuals that eats my own cooking. I don’t just coach. I do what I coach and that’s really really important and my group I mentor about 6000 people all over the world, I’d say most of those are concentrated in the US then the UK, and then they are either entrepreneurs that want to become business owners. So they want to learn how to do this and get into business ownership or they are existing business owners that want to grow their existing business faster by buying other companies, buying competitors, buying complementary businesses you know it’s like what the big boys do isn’t it you know when Amazon realized that all of its listeners all of its readers were listening to books on an app they didn’t go out and invent the technology they went and bought Audible. Same when Amazon realized that a lot of its customers shopped at Whole Foods they just went and acquired the company you can buy growth by doing acquisitions as well as obviously buying businesses to get into business ownership in the first place.
Buck: You want to talk a little bit about maybe some examples of successes?
Carl: Yeah so gosh we’ll be here for a long long time but let me give you some quick highlights and these are all like my favorite stories. So you know very very good student Chris Matthews, he was a big guy big 300-pound guy, went to a weight loss clinic in the UK, lost a whole bunch of weight, was so enamored with the process, he understood the owner was looking to sell so he bought the clinic, bought it using other people’s money, didn’t invest his own money because he didn’t have any, bought that clinic and bought four more and then bought the distribution company that provides all the equipment and all the nutrition. I could tell you about Darren Jacobs who actually sold his company in the technology business. He sold and his daughter said to him dad can you go buy me a hair salon I want to own my own hair salon. She was a hairstylist and he didn’t want to spend his money so he invested in my coaching. I taught him how to buy that salon without using any of his own money and enjoyed that process so much he’s bought 19 more so now he owns 20 different salons. There’s John Gulcher in the US, went and bought a transport company you know he was earning probably 70 80 a year as a project manager and went and bought that company then bought three more and now generates about three-quarters of a million dollars in cash flow. Wes Parker bought an e-learning company in Dallas Texas because he was passionate about learning, knew the industry, came across a business that was for sale, and went and bought it. Lindsay Lyon was a surfer based in Australia and came across a business for sale that manufactured shark deterrent technology this company is called Shark Shield, loved the business, knew the industry, went and acquired it. So there’s countless stories in every sector imaginable in pretty much any country.
Buck: How do you mentor when you have 6000 students, how do you mentor them individually?
Carl: So a lot of them I teach through online training. So I have a whole portfolio of online training courses and then like any coaching model you know it’s an ascension model. So my inner circle clients there’s about 100 of those that I mentor, I deal with them on a weekly basis so we have weekly coaching calls there’s a group that I mentor on, there’s two groups actually that I mentioned on Wednesday there’s a group that I mentored literally just before this recording and there’s a group that I mentor on a Thursday as well so most days I’m mentoring groups of students in a group format which is really good because when you think about it 95 of people’s problems are the same they all come against the same hurdles. Where do I find deals, how do I build relationships with sellers, where do I get the financing to do these deals you know, how do I do due diligence, how does the legal process work you know, what happens on closing day, what do I do in the first 100 days of owning a business, how do I scale a business, how do I sell a business, they’re all the same questions. So I’m able to coach in a group setting and what’s amazing about that, what is truly amazing is in that group there are people that have been with me for a number of years. And what I found fascinating that’s to me that’s even more compelling. So to my students, they look at me and they think well Carl Allen’s been doing this for 29 years, he’s done hundreds and hundreds of deals, clearly, he knows how to do this. He’s one of the best in the world this is expertise but when they see somebody like Chris Matthews, like John Charan, like Darren Jacobs, like Lindsay Lyle, all those people that three months ago, six months ago we’re in exactly the same place they are now and have implemented the training and have taken the action and have got the results, that is more compelling. So having it in a group fashion works very, very well.
Buck: Obviously you have successes you’ve probably had some failures what went wrong in those for those students?
Carl: Yeah I’ve actually learned more from failure than I have from some of my wins. You know some of the biggest lessons I’ve learned in my life have been through deals that didn’t work out. So I bought a business that went outside of my rules that we talked about before. I bought a company back in 2011 that was doing nearly 20 million dollars in revenue, it’s very profitable but again bought that business without any personal money without signing any guarantees, did that deal and it was interesting, it was a corporate carve-out. We bought the business from a multi-billion dollar conglomerate. It was a corporate work company so it manufactured uniforms to airlines, banks, pharmacies, retailers, etc. When we bought that business, 40% of the revenue came from one customer, but it was 90 percent of the profitability and we just rode that gravy train to the point where we didn’t diversify the business away from them to make the business a lot less dependent. So three years down the line, that business decided to move to a different provider because it was a lot cheaper, and yeah we had to sell the business for a dollar. We had to literally give it away, ironically after having turned down a 10 million dollar offer about three weeks before from the same competitor that took the client away from us.
Buck: So where do we learn more from you?
Carl: So dealmakerwealthsociety.com is kind of our central hub. You can sign up for free to get loads of daily insights and tools and strategies from me, obviously, I have a whole bunch of coaching and training programs but you know that’s not the first port of call really for anyone that’s curious or interested in doing this my biggest recommendation is to read my book. So I have a book you can get on Amazon, it’s Zero Down Business Buying Secrets. There’s a link I will give you for people that want to buy it at a discount and read that book and that’s going to qualify you as somebody because this isn’t for everybody you know this takes a lot of work, it takes a lot of patience, the rewards are phenomenal but it’s proportional to the amount of work that you put in. And for some people, this is a great thing for them to do for others no it’s not so by reading that book you’ll get an overview of my system what it really takes to be successful for some people that will resonate if so there are follow-on options to coach directly with me but there’s a lot of valuable information in this book. It’s a 30 buck on Amazon but it’s a 695 link I think that’s at trainwithcarl.com/WealthFormula so that’s trainwithcarl.com/WealthFormula. Buy a copy of the book read it and if what I have to say interests you then there’ll be options to work with me in a bit more detail.
Buck: Fantastic. Thank you so much for your time and I know you’re in a different time zone than us you know whatever flexibility that you had to get on at this nice time for me I appreciate it.
Carl: No problem at all. Thank you.
Buck: We’ll be right back.