Exiting Your Business

Episode 935: Exiting Your Business, with Ryan Tansom

Exiting your business soon? Do it the right way. Learn from Ryan Tansom on the best approach to exiting your business.

Do you plan on exiting your business due to personal or any other reasons? Are you feeling anxious about what the process might be? Don’t fret because Ryan Tansom is here to guide you through it and how this decision could be something for the better.

Ryan Tansom became a business junkie early in life as he watched his father grow a small technology company into one of the market leaders in Minneapolis. He joined Imaging Path full-time during the financial crisis when the business was in rough shape. Ryan started in sales and eventually worked his way up to Executive VP after helping turn the distressed company into a profitable B2B technology provider.

In 2014, he and his dad decided to sell their business to a local competitor for a multitude of reasons. The exit process was an unexpectedly difficult undertaking, but the lessons that were learned have proven to be invaluable and he has taken his experience into multiple business ventures.

Ryan is now a serial entrepreneur, podcast host of The Intentional Growth Podcast, Co-Founder of ARKONA, speaker and soon to be author. He has devoted every waking minute since the sale helping owners grow and exit their companies by developing a framework that guides entrepreneurs through the process.

What you will learn from this episode about exiting your business:

• How Ryan inherited his father’s entrepreneurial bug, and how he learned firsthand the importance of exiting your business properly
• What particular factors help make a business salable, and why 80% of businesses have glaring weaknesses that make them unsellable
• Why buyers assume significant risk when buying an existing business, and why outside factors can quickly devalue a business after a new owner comes in
• Why research shows that 75% of business owners who do successfully sell their businesses are unhappy and regret the sale twelve months later
• Why it is important for business owners to be clear on how they personally define success for themselves and their companies
• Why knowing what your business is worth today and what it will need to be worth to give you financial freedom when you sell it is vital
• How each exit option has a direct impact on the value, how much money you will get up front vs. over time, and what relationship you will have with the business post closing
• Why creating a stable, predictable and transferable cash flow for your business is the key to increasing its value, and why you need a team of advisors to help you sell
• Ryan explains the difference between “two-dimensional thinking” and “three-dimensional thinking”
• Why you need to see improvements to your business as a worthwhile investment, and what steps you can take to shift your thinking about your business
• How exiting your business is a great opportunity to learn important lessons for your next ventures

Resources:

• Learn more about Ryan and his strategies to exiting your business by visiting his website
• Intentional Growth Podcast
• LinkedIn: www.linkedin.com/in/ryan-tansom-4a440710/
• Mastering Your Cash Flow (mini-course)

Additional Resources:

• Sell With Authority by Drew McLellan and Stephen Woessner: https://amzn.to/39y7x13
• Predictive ROI Free Resource Library: https://predictiveroi.com/resources/
• Stephen Woessner’s LinkedIn: www.linkedin.com/in/stephenwoessner/
• Listen to this related podcast about exiting your business with our guest David Fairley

 

 

Exiting Your Business: Full Episode Transcript

 

Get ready to find your recipe for success and on exiting your business from America’s top business owners here at Onward Nation with your host, Stephen Woessner.

 

Good morning. I’m Stephen Woessner, CEO of Predictive ROI and your host for Onward Nation, where I interview today’s top business owners so we can learn their recipe for success, how they built, and how they scaled their business. In fact, my team at Predictive ROI, you know, I might be sounding a little bit like a broken record here. And the only reason is because I want to continue to call out attention to how we’re building and scaling our free resources section.

 

In fact, it’s turned into a resources library on PredictiveROI.com. So you can download free practical and tactical guides. We have uploaded brand new ebooks, I think 5 to 6 of them. to be more specific, over the last few weeks. So guides for everything on how to generate leads using LinkedIn search engine optimization. All of these things are the brilliant insights compiled from our very generous guests.

 

So just go to PredictiveROI.com/Resources and whatever you request we will send it right to your inbox. 

 

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Exiting Your Business: Ryan Tansom’s Introduction

 

Before we welcome today’s very special guest. And in a quick shout out to Sue Hawks, a very dear friend of mine and predictive ROI. Thank you, Sue, for making this introduction and connecting Ryan Tansom with me, so that we can have this conversation in front of Onward Nation.

 

This is going to be one of those conversations that if you’ve ever thought about selling your business at some point in the future, thinking that five years, ten years, 15 years, whatever the time period is, there’s going to be this pot of gold at the end of the rainbow. Ryan is exactly the person that you want to be paying attention to.

 

So Ryan and his team, that’s absolutely what they specialize in. He is a serial entrepreneur. He’s the host of the podcast Life After Business, and he is also the co-founder of Arkona. So we’re going to talk about how a very small percentage of businesses actually sell and why Ryan is going to be super generous and share what he calls the five growth and exit principles, so that as you’re working so hard in your business every single day and thinking, gosh, down the horizon, I want to be able to sell the business.

 

His expertise, what he is in the trenches every single day with business owners doing is going to set you up for success. So with that said Ryan, I am so very grateful. Thank you for being here on Onward Nation, my friend. 

 

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Exiting Your Business: Ryan’s Career Journey

 

Thank you for having me, Stephen. And nice to be here, Onward Nation. Well, it is nice to have you here in Sue.

 

Thank you again for the wonderful introduction. And, Ryan, so before we dive into what I’m sure is going to feel like a litany or a title, we have questions that I’m going to, send your way before we do that, actually take us behind the curtain. Tell us more about you. Tell us more about your past, your journey.

 

And then we’ll dive in. Oh, boy. And like I was saying to you, I’m not used to being on the other side of that question. So I’m used to asking him and being quiet for a while. So, I, you know, I’ve been associated and involved and exposed to being an entrepreneur and business owner for my whole life.

 

My dad has started and a bunch of them before he actually launched our family business that actually took off. And I was doing the same thing that most entrepreneurs have cutco knives. I was cutting grass, knocking on people’s doors. Anyway, I can make a buck and go buy seeds and stuff. So, and then pretty much what happened was, around the time that I was in elementary school, my dad mortgaged our house, bought a semi-truck full of copiers, and I watched what he did as he grew a company from one employee to 110.

 

Wow. At about 21 million at the top. And, I mean, I helped the move. I worked in every part of the business, and I swore my grave I’d never go work for him. But you know how that story goes. And so I started full time around the financial crisis. And, he was a business owner at that point.

 

And the business actually was in rough shape because we had left it with our GM that didn’t really know the difference between top and bottom line. Oh, yeah. So I learned the hard way after, you know, after going in and selling, my first year, we, I essentially took, you know, five and a half years to help turn the business around.

 

New ERP systems replaced about 60% of the employees who sold a couple locations. I built up the managed IT services all just trying to, you know, fight for survival and make the company something that I could buy at some point. Anyways, long story short is I didn’t really know all of the options, didn’t really understand how the whole landscape worked.

 

We knew that, you know, our business was crazy. And so we ended up selling to a third party competitor so my dad could get out, and he learned a lot of stuff that we’ll probably get into. And so pretty much since then, Stephen. And that was in 2014. So it was an eight figure sale. But we ended up, like I said, we’ll get into, you know, lost opportunity in the money.

 

What happened afterwards. And so I spent essentially the last five years devoting my life to figuring out how to clarify this whole world of mergers and acquisitions. And how do you figure this out? Because it shouldn’t be this complicated. So anyways, love, love, love business. And I’m a, you know, father of twins that are three. And between raising kids and building a business, there’s not a whole. 

 

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Exiting Your Business: How Many Businesses Actually Sell

 

Amen to that, my friend. Well, so let’s maybe start, setting some foundation here for Onward Nation business owners. Be based on your experience. And you shared some of this with, in the green room before we started recording. I think it’s going to be a great foundation.

 

Walk us through the numbers, just like you did a few minutes ago about how many businesses actually sell and maybe the size of those companies and number of employees you like. You walk me through several metrics and I’m like, wow, it’s actually a pretty small number. So yeah, absolutely. And I’ll start with kind of like the big broad picture, because I think a lot of us entrepreneurs, you know, if we understand the context, then we can, you know, dive in ourselves and kind of put the puzzle pieces together.

 

The the crazy part is that I found out with through private equity data sources and us, not your, Census Bureau or something that there was there’s 27 million incorporated, privately held companies in the US, and, 21 million of those are like my wife, who’s a photographer who’s, you know, just she had her own craft. And then that is at least about 6 million companies that are privately owned in the US and 21 million of them, and of the 6 million employees, 120 million Americans.

 

So over a third of the US worked for these privately held companies. So we are literally the Iowa nation. We are literally the backbone of the US. And the crazy part is there’s only 21, 20, 20, 1000 companies that are over 100 million in revenue. Wow. And then there’s the lower, lower middle market, which is the 5 million in revenue to 100 million, and there’s only 350,000 of those companies in the US, and they employ 35 million Americans.

 

And that leaves 5.6 million companies that are underneath 5 million in revenue, that employ 30 million Americans. And that the crazy part is that we can kind of get into some of these numbers that, you know, that, first of all, the average age of all those is 62, which is mind boggling. So, like you think about the transition that’s going to have to happen with our whole economy in the next five to 5 to 7 years is pretty, pretty dramatic.

 

And the thing about businesses is, you know, it’s about 80% of companies that actually go to market, don’t sell, so only 20% will actually sell. And that’s if they actually are sellable. It isn’t like is it like an investment banker a broker wants to help sell you? It’ll be almost like a different analogy. You’d be like, okay, well, 80% of the houses that are listed don’t sell, but there might be a whole plethora of ones that are not even sellable because no one would buy them, and no real estate agents going to pick them up and go through the work because it’s not worth it.

 

Right. So there’s this whole kind of, you know, different tranches or stages of entrepreneurs of like how well they are positioned to actually have options. Okay. So when you break that down a little bit further. So in your mind and maybe not in your mind just by the data, what makes, what makes a company sellable or not sellable.

 

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Exiting Your Business: Ensure The Business Has Good Cash Flow

 

So I love it because I was reading some of your questions on that sheet that you sent over. And, so there’s actually so we can get into the five principles. But essentially it’s so like when you boil down so even as far as like an investment because like a business is an asset class, most people don’t realize that that’s the just a job for them in their passion, their creative play, playground, etc. but as an actual asset, that’s what it is, right?

 

And so the more transferable, predictable and sustainable that cash flow is, the more it’s worth pure and simple. So like systems, processes, people, procedures, customers, contracts, all the stuff that makes that cash flow like a stream. Like if I were to hand a baton to you, Stephen, you could say, and I could just give you my cash flow, you’re going to pay a lot more for it because it’s just easily transferred, just like a bond or a stock of Apple.

 

I mean, that’s literally what it is. And so yeah. And I saw you had a couple of those. Yeah. It’s just systematic, predictable and repeatable. I mean pretty much that. Well okay. So let me give that back to you. Make sure I’m tracking you. So the 80% that are not sellable, it could be all of the above, but they likely have some sort of glaring weakness that the investment community or prospective buyers have seen because their business isn’t predictable.

 

They might not have contracts. So it’s like month to month revenue. They might not have processes, or if they do, they’re not fully systematized. And so then a prospective owner is going to look at that and say, oh, wait a minute. Once the owner or excuse me, the prospective buyer looks at it and says, whoa, wait a minute.

 

Once I cash out that existing owner or founder and that person rides off to the sunset, I’m going to be left with something that’s going to be a lot of hard work. I’m not going to be able to plug that into, like maybe several other existing companies that I own. Right. I’m attracted to you. It is. And let me give this to your listeners about how this actually is an interesting way of thinking about this, because every owner here is an investor, whether they think that way or not.

 

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Exiting Your Business: Know Everything That Comes with The Business

 

Right. So no. Now let’s if you’re okay we are going on a little bit right. Sure. Please. Really great context of how owners can literally take this action. And just like, again, everything that they think about is kind of a derivative of this. But like if you had so usually in the smaller market companies just for a little crash course on valuations, there they go off between 3 and 5 times EBITDA or cash flow is how they’re valued at.

 

So and if you just took some basic numbers, it kind of goes back to the bigger, the bigger macro ones I was telling you. But if you’re a $5 million company, let’s say you’re doing 10% EBITDA or cash flow, okay. So then you say, okay, that’s 500 grand. That company’s worth 1.5 or 2 million bucks. So what happens is and we can go back to the five principles of how that what this means to the owner.

 

But coming from a valuation perspective, let’s say it’s worth, let’s say that it’s worth 2 million bucks. You can go to the SBA. So Small Business Administration, you can buy a company with 10% down, just like an FHA loan with a house. So you only need 200 grand to buy that, but to buy that company it’s 10% down and then 15% seller financing.

 

So on 2 million bucks, you would essentially be taking, what, about a $1.5 million loan, which is about 18 grand a month in debt. So if you think about this and call it like even numbers, call it 20 grand. Even so, you’re like, you had 240 grand in debt that you’re paying down every single year. And if you have 500 grand, you have to pay down taxes.

 

Like you say, I want to buy Predictive ROI. And those were your numbers. Yep. Well, okay. So if I’m the buyer and I have to pay the bank 20 grand a month plus your seller’s financing note, I better sure as well realize that that money’s coming in because I’m responsible for that debt. So then every question that comes is a derivative of that. 

 

Like okay, I mean every one of the owners in the listeners. And I think if you’re going to assume that you have, you would have a lot of questions. But yeah, absolutely, absolutely. So because you’re taking on that big burden. So then, if the cash flow is nice and solid for three months, four months, five months, but then again, if there aren’t contracts in place or maybe some of your talent leaves and then they go to a different business and then the clients follow them, then all of a sudden, you know, instead of, you know, meeting the cash flow obligation or, excuse me, the debt obligation and having some net still, you know, coming to you as the new owner now, you might be upside down and underwater.

 

Yeah, and it’s a ten year loan. I mean so it’s a yeah. Right. I mean, you’re totally right. And it’s like whether it’s customer contracts or its systems, repeatable sales processes, whether it’s, you know, up to date IT systems. I mean, I can’t tell you because I’m having like, I kind of put a foot in my bucket like the video and traditional business crowd and that I do a lot of keynotes doing that.

 

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Exiting Your Business: Strategizing The Risk for Ecommerce Businesses

 

I’m also, I get a lot of enjoyment out of the digital entrepreneurs and these digital entrepreneurs. They get these businesses cranking that up are pretty huge. But it’s all on Amazon or all reliance on Google, like, organic, one of those big behemoths. Something in your business is gone tomorrow, and there’s people taking out like 3 or $4 million loans to buy these companies for ten years.

 

And like, they have no idea whether Google is just going to change something tomorrow. It boggles my mind, actually. And that has happened a number of different times. You know, I know, a number of people who, you know, this is a few years ago, but back when Google was really making some big changes to the way they did organic search, as well as the duplicative content, as well as trying to get rid of, link farms and all of that stuff.

 

So this would be, 09, 2010, 2011 timeframe. And many companies were doing very, very well on the back of organic search. And then when Google really blew up, their algorithm made dramatic changes. Many of those businesses cratered because the game changed totally. It’s totally true. And so they had I mean, to kind of put a bow on that.

 

I mean, there’s a lot of things and we can talk about things people can do too, because this is not doomsday like this. Once you understand this game, you can do a lot of this cool stuff, but like, I got friends that are in e-commerce. And then they started building out their own white label brand products to get outside of.

 

And so there’s so many cool things that you can do, but you have to kind of understand, you know, the situation to be able to strategize the risk. Okay. So let’s maybe that’s a good segue. Would that be a good segue into like, I would really love for you to dissect if I could ask you to do that the five growth and exit principles, I think those are going to be really, really helpful to Onward Nation business owners.

 

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Exiting Your Business: Plugging In to Point B

 

Would you mind walking us through those five? Sure, sure. And like, you know, to kind of put a little bit of context to that before we jump into it, like the phrase that I always say is like Google Maps is like one of the most powerful tools on the planet, right? I mean, like the systems and the data, it’s insane.

 

But see what happens if you don’t plug in point B? Nothing. Yeah. That’s it. Right? Most entrepreneurs don’t know where they’re going and why. And I’m not talking about the next revenue target. I’m not talking about the next employee calendar. Like the next launch of a location or product. This is like, what’s the whole point of doing what you’re doing?

 

Because then you can calibrate everything around that point. So that’s what the five principles are doing, is reframe in the context of like what is the goal? And revenue? And all those different things are subsets of the ultimate goal. And we’re trying to go from two dimensional thinking of being in the rat race of an entrepreneur, juggling payroll and cash flow and all that stuff to doing a different, playing a different game that allows you to reframe and then actually put in those different strategies to get to that point B.

 

So and another reason why I ended up creating these, and these came from hundreds of podcast interviews with entrepreneurs that have sold and grown and sold companies, advisors, and then thousands of meetings with entrepreneurs over the last decade. And it really just boils down to like, okay, but the one of the biggest stats I heard on Bull Burlington’s book, Finish Big, who’s been on my podcast and you did a bunch of interviews, you found out, seen that 75% of owners who sell.

 

So think about all those stats we said that actually sell, 75% of them are unhappy and regret the sale 12 months afterwards, regardless of how much money they made. Really? Yeah. And by the way, I’ve had people that have netted 30, 30 plus million dollars on my show that literally almost cried on the show because of being early. Oh yeah, all the time. 

 

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Exiting Your Business: Defining Success

 

Okay. All right. So before we go too much deeper here, why does that happen? Why does Bo’s research say that? Like why what’s happening. So this will go to Segways. Perfect into the first principle. Because entrepreneurs that went through that, they didn’t know who they were, what they wanted from their business and why.

 

Okay, so the biggest thing and this goes into so is the first principle, which is your drivers, your what is success for you. So there’s all the stats out there of I mean so like the Kate Spade thing with her, I mean the depression that happens with people after they sell, they’ve literally got MRI, some brain scans that have shown that business owners literally, mechanically, like in the brain, chemically see their business like a child, like the same neurons and synapses happen.

 

And so they because your business is literally a derivative view at your, your, your people, you hired the creative. I mean, it’s literally a creative organism that you built. And if they don’t think about what success means, then like, for example, when we sold, you know, I personally went through this because we sold it was an eight figure sale.

 

But I had to go back, you know, like I told you, I turned around the family business and I had to go back and fire like or let go 60% of my friends and family. Wow. And then the whole IT systems that I had built, they shut down the servers three years and millions of dollars worth of work gone.

 

And like it still was a financially good buy for them. But I didn’t realize that they liked it. Comprehend that everything that you just built and worked for is just going to go away. People just don’t understand emotionally what that can do to you, and especially if you don’t have a purpose afterwards, which is the point of my life after business title is like, what does the perfect combination of life look like?

 

So you know, in that first that that first principle, is it like if you’ve hit your numbers, is it like legacy or community, these different things that are like, you know, your baby handing off to someone else? Those are real life decisions that will impact your happiness post-closing, whoever that is. So that’s to answer why. And that’s why I think so.

 

These principles and they, they kind of go in sequential order. So you can’t jump right to the fourth one because they all build on top of each other. And I’ll just kind of complete the thought. And then you can dive into them. But okay. The second principle is now you know what you want and why. What are your financial targets?

 

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Exiting Your Business: The Five Principles

 

So there’s three of them that you have to hit or have to monitor in order for you to be able to hit them. That’s kind of the whole three dimensional view point is what is your business worth today and what do you need it to be worth when you close on the transition or transaction to be financially free?

 

So if you’re trying to hit and these are just basic numbers it is passive income. Right. So if you want 200 grand a year for life and the 4% withdrawal, you need $5 million in the bank chugging away at the normal interest rates. Right. So your business has to slot into your net worth when you sell, when and how in order to make that equation work.

 

So monitoring your value, your net worth in the ideal income is what you want to strive for. Because now you know what you want and why. What are your financial targets? There is a huge spectrum of exit options to even like I’m talking cylinder employees V, V and S private equity recapitalization to minority to to majority partnership buyouts, you know, management buyouts.

 

You got a third party, someone that can take out SBU Brazilian different combinations of all this stuff. And each one of those exit options will impact how much your company’s worth or how much money you get upfront versus over time. And the most important part is what your relationship is going to be with the business. Post-Closing. So if it’s a ten year family transition, we can all kind of visualize what that is versus what I did, where like, we wouldn’t have gotten the same dollar amount if we would have done a family transition because it would have taken a long time.

 

We would have had to use the old cash flow. So it’s really important as you stack all these on top of each other. So then you say, okay, well, and then if I know what I want and I know what my financial targets are, and I’ve got a gap right now and I need to increase the value of my company, because here’s my ideal exit.

 

And I’m going to have a, you know, let’s say it’s three years out. I got a client right now, the 1.1 and EBITDA. If we get them to two, they’re going to double the value of the company and then be able to get the exit that he wants. So then we say, okay, well principle four is to increase value.

 

So do all the things that we were talking about to make that cash flow a machine. So building an IT system or sustainable predictable and transferable cash flow will get you to the point where you allow yourself to get those options that you want, and either increase that timing and or increase the I mean, increase the value that you actually net at closing.

 

And then the fifth principle, Stephen, is once you know what you want, why now it’s time to bring in the team of advisors. So M&A attorneys or mergers and acquisitions attorney or CPA or wealth manager, insurance provider, banker and tax professional, all these people need to be involved. But the big challenges, they all have amazing advice and they’re brilliant.

 

But they need to know what you want and why. To be able to give you advice. They so often are just stuck in this vacuum of giving advice like, oh yeah, I should be like, you know, pushing money overseas to mitigate taxes, but they don’t know the whole big picture. They’re like, I don’t know, like, how can they give advice on it?

 

So once you have those five principles, you as you can kind of see you start to look at the business in the world differently and you just have a different target. 

 

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Exiting Your Business: Maximizing Your Profit

 

Wow. Holy bananas. And I totally see how these stack, on top of one another. Like, how in the world can we bring in a team of advisors with principle number five if we don’t know what we want and why?

 

Right. Oh my gosh, even think about this like I there’s a guy that we’re potentially gonna be working with. They employ 60 employees. They’re in a suburb of the Twin Cities, about two hours out. so two hours out, about 60 employees, manufacturer, long time, generation company. And he’s like, yeah, I think I’m going to go to a third party.

 

I’m like, literally for you to get your dollar amount. So my guess is the company they’re doing, I don’t know what the top line exactly is close to 10 million bucks. My guess about doing that is again you can always do this ten top lines 10% times it by four. And like that’s roughly what the company is worth.

 

The problem is if you sell to a third party it’s an asset sales 45% in taxes. So you don’t get all that money. And in order for you to maximize your dollar amount, he would have to sell to someone that would probably take the location and absorb it into a bigger corporate location, which would make him more money and they would pay more.

 

But I said, would you be able to go in and have breakfast at Keys Cafe with your ham and eggs in retirement, knowing that literally 150 families can’t afford their house payments anymore, right? He just was like, Holy crap, I never thought of that. And I’m like, yeah, man. Like so like you, like, you have to know what you want to be able to, like, then say, okay, if you know that you don’t need the lump sum upfront, that increases your exit options.

 

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Exiting Your Business: Know About The Deal Structure

 

So you kind of just are able to kind of put it together like a big jigsaw puzzle. And it increases his exit options. Why? Because it’s more buyer friendly because he doesn’t need all the money. Now. Maybe he does want to do some sort of earn out because he wants to stay in the business for another year or two.

 

Is that what you mean by exploring all those options? Yeah. And just. Yeah. Correct. And just to expand on that is, you know, when you look at the deal structures and we could have a five hour podcast and just that, but the, you know, there’s a total like here’s an upfront payment. I mean, almost zero people get all the money upfront.

 

I mean, there’s stuff that you see which is the tech companies that are like, you know, pre money valuation solid just it’s all crap. I like it, I get it. But like they have a valuation as we made money makes no sense to me. But. Right. But the real companies are the backbone of America like yes you have to be making cash flow and the and so when you talk about the deal structure you could get money upfront which is either from cash from the buyer or financed.

 

And you could have, promissory note just like a contract for deeds. So like they’re paying it to you, you’re just to the bank in that perspective with a certain interest rate, then you could have a consulting agreement, which is another way of putting you on the payroll and, you know, giving us some extra cash for the cash flow.

 

You could have, then there’s the earnout, which is essentially just like a comp plan, like you’re talking about. Right? So there’s just a big, huge, you know, hodgepodge of ways you can structure this, each with their own tax cap, calculations. But to your point, the more money you want upfront non-negotiable, the less buyers there are that are that that have the willingness to do that.

 

Unless you build such a good machine, which, by the way, happens for sure, but it allows you to increase the amount of buyers because, you know, let’s say their top SEO manager would want to buy the company. He could take out a small loan, put it on the books of the business, and then use the distributions to pay off the owner while the owner transitioned civil rights.

 

I mean, you’re not going to get as much money as of now as a strategic buyer, but it does allow you to have more of those options because you don’t need that chunk upfront. Super smart. Okay. So I want to chat with you about critical skills. I want to chat with you about systems. But before we do that and I and I know we’re getting really compressed on time here, but there’s just so many more lessons here to try and work into this conversation.

 

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Exiting Your Business: Switching from 2D to 3D Thinking

 

I want to go back to something else that you shared with me in the green room that I thought was really profound. There was like this analogy that you use that a business owner needs to be able to switch from 2D thinking over to 3D thinking to take us inside that or inside that analogy, because I think that’s going to be paradigm shifting for Onward Nation business owners, and that’s what I want.

 

Honestly, to a detective like, what I want to die doing is helping as many people have that paradigm shift as possible. Because, you know, I’ve been part of the vintage groups in the EO groups and in 5000 all this stuff. And like if I like, everybody is talking about what’s your top line, how many employees? I’m like, who cares?

 

Are you making any money? Like, that’s what really matters. Like, are you I would take a $1 million company. It’s putting 800 to the bottom line and a $20 million company losing half a million bucks, right? It’s like, stop thinking like that. Like pure and simple. Like making money and having a valuable company is the most important thing, because then you can get everything that you want.

 

And when I was giving you that example, it’s like once you realize that it’s not just a job and you start playing, you know, games with the distributions and using it to fund your construction on the overbuilt house that you have, like the business is an asset. Pay yourself the W-2 wage that you deserve and then use the other money from the business to grow that business into an asset.

 

So it’s a way of a shift in thought process, but it’s not your own piggy bank. The moment you do that, you kind of go from the two dimensional thinking to three dimensional because you’re going, what’s the target valuation? If I hire a $120,000 CFO, build my forecasting, my budgeting, my company, literally, if you think about if you dropped another half $1 million, your bottom line then that’s literally half a $1.5 million more in value.

 

Right. Because you are applying the three 4 or 5 six multiples to that profit. Okay, wait a minute, wait a minute. Let’s go back to that math there, because that was really profound. And I want to make sure that we caught the math because if I’m tracking with you, it’s I just really, got some significant ROI out of $120,000 position.

 

Totally. And by the way, I played this game like, I mean, we had the business and the businesses personal, but we did lots of fun stuff, cab cabins and cars. And I’m not saying that you shouldn’t do that, but having a like when you treat it like an investment, you say, okay, you know, because we were like, oh, we’re going to hire a $80,000 controller.

 

Well guess what, they don’t know how to do financial forecasting and budgeting because they don’t know how to do that. And they’re getting paid for what they know how to do. By the time we finally hired a CFO, it’s 120 grand. And if it’s coming out of your pocketbook, it hurts, right? Right. That’s like if you’re building three year forecasts and budgets and you had this stuff, it’s more transferable.

 

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Exiting Your Business: Get Out of Your Own Way

 

So first of all, you should be able to make more money by doing that. And so if you let’s say it’s just $100,000 that you make that you found because you were planning and doing this. So not only did they help pay for themselves or you grew in without adding an additional cost, but that $100,000 in extra profit, you apply that multiple.

 

So you would apply it four times that hundred. So you literally not only got to CFO, hopefully made your life easier and then your company. I mean, you think the value went up 400 grand is so smart because you look for these strategic hires, right? It’s almost impossible in that scenario to overpay that CFO. What’s the difference if you paid that person 100,000 or 120,000 and you’re making five bucks back like you, the thought is, okay, what’s the next strategic hire that I can make?

 

What’s the next hire that I can make? And all of a sudden you do that in the sales process, the manufacturing process, or the service delivery process or whatever. And now you’ve really built in the asset. Right. Totally. And like and the reality is and again, get out of your own way, I mean, if you’re heavily reliant on the business, like the business of having to rely on you, then like you have a job, I mean, I got people that I know that have 30, $30 million revenue jobs, you know what I mean?

 

So like, it’s really having that paradigm shift to going, okay, and there’s a couple references for the listeners and we can put some links in there. I interviewed Scott Fritz from the 40 Hour Work year, which is all about scale the hell out of your company and be able to work for 40 hours a year because you scaled.

 

And by the way, you created a ridiculous asset in the mix. And then I interviewed Jack stack. who’s the author of The Great Game of Business, who wrote a whole book about how to create a culture of shareholder ownership mentality. So instead of looking at the annual profits of the revenue, everybody’s thinking about value creation all the time.

 

So what’s the shareholder value in public? Companies do this all day long, but private companies don’t. And if you’re going back to your paradigm shift, if you start thinking like this, you can just make different decisions. Absolutely. And I think it goes back to that mentality of thinking of it as an asset and really thinking about, okay, if I’m going to make this investment, what’s the internal rate of return on that cash flow?

 

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Exiting Your Business: Don’t Get Intimidated

 

Right. So if I’m going to put it into that person, or I’m going to put it into a different process or a system or whatever. So really, really smart. Thanks for walking us through the math. So for a business owner to get really, really good about this transition from 2D to 3D, I love this shift 2D to 3D.

 

What might be a critical skill or two for a business owner to do really, really needs to get good at in order to make that shift in thinking. It’s a really good question. And, I’ll just go from my own perspective because I didn’t go to school for any of this stuff. And so, like, I think there’s one thing that kind of dovetails into my passion for education is that, like, this is all learnable stuff.

 

Entrepreneurs have learned how payroll works and how this all works without getting the crash course before they started their company. So there’s no reason to be afraid of this. I mean, I remember when I’d sit down, Steve, in front of these big bankers with suits and all their bridge bosses, and they talk about all this mumbo jumbo Ebit, multiples just kind of cash flow, and you just walk away and they’re like, you’re like, you must be really smart.

 

I know how to sell copiers. And then like, you’re like, it’s not that scary and like to make it not complicated. And if you can, don’t be intimidated by it and don’t ever be afraid to ask questions. And if someone can’t in plain English, tell you what they’re talking about, they probably don’t know what it is either.

 

And they don’t know what the hell they’re talking about, or they’re someone that is super smart, that needs a person in front of them because they’re more like a robot. So, you know, I guess going back to your point is, don’t be afraid. There’s information out there and asking questions and going, I’m going to steal a line from Sue.

 

And this is what when I just interviewed her actually on my show, be vulnerable and ask questions to people that you trust. Just say, hey, I’m looking for something and don’t be afraid of this stuff. Mean no one’s going to like, come out of the woodworks and hit you across the head because you said eventually you’re going to want to sell your company.

 

Everybody knows that. So like eliminating the notion that this is a bad thing. Well let’s go to principle five here. again because I want to ask you about mentorship because when you mention five, you know, bring in the team of advisors. So let me but let me turn the table here, on you with kind of the point of view of this question.

 

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Exiting Your Business: Most Influential Lesson from a Mentor

 

So tell us about the most influential lesson, Ryan, that you ever learned from one of your mentors. And, and then how that lesson helped you become the business owner, the thought leader, the expert you are today? so, you know, Napoleon Hill’s deal on the mastermind stuff, right? I don’t know yet. So absolutely, one of the best things, a couple things to getting your answer, is that I’ve never found a mentor that solved all my problems or, like, was able to check every box for me.

 

And I searched for that person for a long time. And the moment that I said I can get different things from different people, whether they’re alive or dead or authors, was very life changing for me. And, you know, so I’ve had different mentors over the years and different personal aspects to that are specific aspects. But I think one of the bigger ones that resonated with me is, I mean, and I don’t know, Mark Cuban guy, and I would love to sit down and have a beer with him.

 

But, you know, he in his book, The Game of Business or whatever that his short little book is, he said that, he found out that he would go to these meetings and that, you know, he would read as he was creating his company, Netscape was it was Netscape or whatever the heck the name of the company was the internet company.

 

And he realized that no one else would read it because he was paranoid that he didn’t know enough, and then he’d write all this free stuff, the manuals, all this, and he would go, and he realized that no one else had done the hard work. And I was just like, not a lot of people like to work hard, and that literally translates into almost everything.

 

I mean, whether you and I were talking about the gym or, you know, doing the hard work in the business or whatever it is, I mean it most of the stuff is free with Google out there. So all you have to do is want it. Well, absolutely. Onward Nation, just a little bit of context here in the green room, Ryan and I were talking about, you know, I was celebrating alongside with him about the fact that he is mistaken.

 

Right. And I think the number is 160 episodes. Right. Yep. And which is an amazing accomplishment because the reality is, most people quit if they decide to have a podcast as part of their business. Most people quit after seven episodes. So 160, that’s a big deal. I never missed a Thursday. I mean for three years, right?

 

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Exiting Your Business: The Compound Effect

 

It’s amazing. So being consistent and it’s just week after week after week for three years as Ryan has done, that puts him in very rare air. So, you know, working consistently is a great, great lesson. On that note to Stephen, I mean, like I just read the book The Compound Effect. Oh yeah. And a good thing was it was one of my first audiobooks that I did.

 

And you know, the guy said, if you read a book a week in three years, you’ll have a lot. You have 150 books that you’ve read. And literally it was five years ago. I started listening to a book a week, and it just compounds each other. And it’s not like I’m sitting down. And so I don’t know, I just think it’s like it’s just rare.

 

So the best advice I ever got was like, if you just consistently do it, like you don’t have to like make a mountain of it and run an Ironman tomorrow. Like it just does show up every day. Exactly, exactly. The Compound Effect plays out whether we’re talking about, you know, fitness in the gym, whether we’re talking about podcast episodes, we’re talking about 400 and K investing.

 

It’s a little bit every single day. And then five years later you’re going to be five years older anyway. So you might as well do these little things right. Man. Great conversation. This was so awesome. I mean, I know we covered a lot and I know that our time is running short. But before we go, before we close out and say goodbye, any final advice that you’d like to share, Ryan? Anything you think we might have missed? And then please tell Onward Nation business owners the best way to connect with you. 

 

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Exiting Your Business: Final Advice and How to Connect with Ryan

 

Yeah, I think if there’s anything that I’ve got for anybody, regardless of where you’re at in your journey with the business, it’s don’t be afraid of this stuff. And the biggest challenge that most people realize after the fact, if you don’t want to be part of that 75% that’s unhappy or don’t or aren’t able to sell is just is.

 

Think about it now. And this is your journey, man. Like there’s or our gals I mean like it just it literally no one’s going to do this for you. Like we all got into entrepreneurship because we like to control and take on the risks ourselves. And it’s kind of the last leg of the journey of being an entrepreneur is taking control over this.

 

So just slowly start learning and you start reading a certain look and, and I guess it’s a good segue, which is, you know, that’s what my podcast is about. So it’s life after business. It’s all over the same places that every other podcast is. Our website is Arkona.io. So Arkona.io. We got four ultimate guides on all this stuff on the principles.

 

And then, we’ve got boot camps that we do. That’s a crash course on the three days of the five principles. So, yeah, that’s LinkedIn. Ryan Jansen, cell phone (612) 720-6530. That’s it. All right, my friend. Onward. No matter how many notes you took or how often you go back in. Re listen to Ryan’s words of wisdom, which I sure hope that you do.

 

The key is to master the five principles. Take everything that he so generously shared with you. Take it. Apply it into your business right away and accelerate your results. And Ryan, we all have the same 86,400 seconds in a day, my friend. And I am grateful that Sue introduced us. I am grateful that you said yes, to come on to the show, to be our mentor and our guide, help us move our businesses onward to the next level.

 

Thank you so much, Ryan. Thanks for having me. Appreciate it. This episode is complete, so head over to OnwardNation.com for show notes and more food to fuel your ambition. Continue to find your recipe for success here at Onward Nation.

 

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