Scaling or Failing? How to Build a Business That Runs Without You

summary

In this conversation, Jonathan Fodera and Keith Gause discuss the critical aspects of building a business that is not only successful but also sellable. They emphasize the importance of understanding the statistics around business sales, the due diligence process, and the necessity of creating a business that can operate independently of its owner. The discussion covers various topics including the significance of having a clear organizational structure, financial accountability, effective hiring practices, and the creation of standard operating procedures. They also highlight the need for diversifying marketing channels and understanding the target customer to ensure business growth and sustainability.

takeaways

• 7% of businesses actually sell, highlighting the importance of building a sellable asset.
• Due diligence is crucial in the selling process; many businesses fail to prepare adequately.
• Key man risk can significantly impact the saleability of a business.
• A business must be able to operate independently of its owner to be considered sellable.
• Starting with the end goal in mind can guide business decisions and strategies.
• An organizational chart is essential for clarity in roles and responsibilities.
• Financial clarity and understanding your numbers are vital for making informed decisions.
• Hiring should be based on financial projections and the ability to handle increased leads.
• Standard operating procedures (SOPs) are necessary for training and consistency in operations.
• Diversifying marketing channels reduces risk and increases stability in lead generation.

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Transcript

Jonathan Fodera (00:02)
Hey, what's going on everybody? We are live with the integrated entrepreneur. We're gonna talk about 7 % of businesses actually sell. So think about it this way. Everyone talks about being in the top 1%, Well, if you're a business owner, you should strive to be in the top 7%. And that 7 % number is important because only 7 % of us

actually build an asset that is worth anything to sell. That's the percentage of businesses that actually sell. So think about it, you could be working your entire life building what you think is a great company and there's no way to exit. And if you do exit, it's probably gonna be messy. That is insane to me and that was a big eye opener this weekend when I saw that. What are your thoughts on that, Keith?

Keith Gause (00:50)
I think depending on the stats you're looking at, you're close. That's accurate. I think there's a lot of things that the business owners, myself included in the early onset of business ownership, don't realize that are necessary from the very beginning to put yourself in the position to actually sell. anyone can list to sell. Also, let's squash the misinterpretation of

Letter of intent versus sale. Everyone gets a letter of intent from top three or four people interested. Then you go on a 10 to 12 month journey of shit and paperwork and discovery meetings and whatnot for 7 % of those companies to actually sell.

Jonathan Fodera (01:15)
Yes.

Mm-hmm.

Keith Gause (01:29)
So we're talking about, There's 40 % sell. Yeah, no, 40 % get an offer and 7 % sell. And that's the number that we want to dig into. Kind of just discuss things that you guys can be thinking about as far as your growth in the business and what not to do.

Jonathan Fodera (01:46)
Absolutely. So let me add to that, the reality is I've financed so many of these acquisitions that people don't understand what it looks like. But anyone can get that LOI, or letter of intent. That just means you're interested in buying it, But after that LOI is signed, you typically have due diligence. And if you ever did an SBA with me, you know I put 120 days of due diligence in there. And I have a clause.

that I want all my clients to get, and it should be this business will sell for the purchase price or third party appraised value, whichever one is lower. And I have saved the client over a million dollars in that and having that clause because he was buying a business for $2.3 million. The SBA came back and said, hey, this isn't worth more than $1.1. And because we had that clause in there, he got the business for $1.1.

All right, which is massive. And so what happens in due diligence, that's when they find out that, hey, this business is not what you're saying it is. And I'm going to tell you guys some of the key things. for you to be able to sell the person that is buying your business has to know that there's no key man risk. Key man risk is if they buy the business and you leave, that business is still going to function. And the truth is.

Keith Gause (02:30)
Clear?

Jonathan Fodera (02:52)
that probably 90 % of the companies that I see and I work with, they just have a high paying job. That business doesn't function without them. And I'm not going to sit here on my soapbox and pretend that my business is that much different. It's not. I have a lot of work to do. And being with my group this week and built the exit, it showed me that.

Keith Gause (02:59)
Mm-hmm.

Hahahaha!

Jonathan Fodera (03:15)
And this is just simple things like, if you don't have the meeting minutes recorded, okay, that can absolutely pierce the corporate veil,

Keith Gause (03:20)
Mmm.

Jonathan Fodera (03:26)
So I had to go back and do all that this weekend.

And it's just like

these little things that no one teaches us because anybody can go and start a business, Just because you started a business means nothing. It's not a sellable asset. So how do you make a business a sellable asset? Well, one, it's got to run without you. Two, you need certain assets. Three, there's got to be a level of predictability. What do I mean by predictability? Well, I know that if I spend $10,000 on marketing,

That should roughly bring in about 40 or $50,000 in revenue. so now I have a predictable way to grow, to get leads in. Right now, how do they close? Do I have a sales team or am I doing it myself? Because if I'm doing it myself, guess what? I have a high paying job. These are all the things that factor in to building a business that is an actual asset. And it takes time. Very few people are going to do this in a year. However, if you start

taking the steps today, I think that in after 90 days or after six months, you can build it into a sellable asset, but you need to know where to start.

Keith Gause (04:28)
Yeah, you have to a very clear game plan because for that to be a thing, you can't be in the business from day one. You have to start the business as if you don't exist and put those key players in place,

Let's talk about, things that we should do as a business or try to avoid. when we start a business, that's just a transition from me being sick of working from someone else to wanting to work for myself. And that transitions typically, what are we passionate about? What do we know how to do that becomes our business?

The reality is everyone goes into business in a single income sphere or channel mindset. I'm going to go do plumbing. Cool. It's one avenue of income. I'm going to go do financial planning. Cool. But,

Jonathan Fodera (04:57)
we're trying to solve.

Keith Gause (05:11)
If you look at anyone that's been in business longer than six to eight months, they've very quickly added lines of revenue to their company. So you see a plumbing company that's got a roofing outfit and an electrical outfit and HVAC because those companies realize that when they go to sell,

that revenue increase is substantially larger because of the multiple streams of revenue. And that person isn't out there swinging the hammer, turning the wrench, doing the thing. So understanding that getting in a place to have more than one line of revenue out of the gate is highly beneficial to you and also three times more stressful. So buckle up.

Jonathan Fodera (05:49)
so here's what I would tell you. This was eye opening, OK? Because I took the built to exit assessment. I got an 83 out of 100. It says I'm on my way to being eligible to have an asset that's sellable, right? Well, first off, I've never wanted to sell my company. I enjoy what I do. I love working with business owners. But on the flip side of that,

Keith Gause (06:07)
Right.

Jonathan Fodera (06:08)
I do know I have a lot of things that I have to put in place that will help my company grow and make it much more valuable if I ever do decide to sell. And if you're sitting here saying, hey, I don't want to sell. I love what I do. I get you. I'm right there with you. It's still a great idea for you to build it like you are going to sell. And to do that, you want to start with the end in mind. I want a company

that's going to kick off about 10 million profit a year. And the reason I want to do that, and it's very important to tie into your why, because very few people have that skill set to build something that's going to bring in 10 million a year, is because I want to help others. And not just help them improve their business, but I give back a lot to Feeding Tampa Bay and a lot of these charities. So with 10 million,

One, that is definitely going to cover my lifestyle. Two, it is going to allow me to give back on a much, much higher level. And that is my why. Because if your why is not big enough, you will never get through all of the shit. You're never going to get through the ups, the downs. if you're doing it for money, money alone is not going to make that happen. By the way, guys, once you get to a certain level with the money, it doesn't it really doesn't matter all that much. Yeah.

Keith Gause (07:06)
Yeah.

That shit is not gonna help.

Where's the move the needle? No.

Jonathan Fodera (07:19)
Correct. It doesn't right like an extra 10,000 is nice. not gonna do anything for you, And there's people that look at that and say hey an extra hundred thousand is nice It's not gonna do anything for me. And then there's people that say hey an extra million would be nice But that's not gonna do so there are levels to the game and you have to understand that so start with the end in mind What do you want to build? What do you want to impact? What's your why?

And then it's building out assets that will actually allow you to step away from the business, work on the business, and not in the business. What does that look like? a sales team, a marketing team, a way to hire and fire people, so HR. And then you have to have everything talk, and you have to have key team leaders that are going to be able to run that in your absence.

Keith Gause (07:58)
Right. Org chart, baby. It's important that I have the players on the field to play ball.

Jonathan Fodera (08:01)
Correct.

and everybody has to know who they report to.

Why would you have an org chart, Keith? Just let's get into that because that is an asset that you need to have.

Keith Gause (08:11)
Yeah, order chart is just so everyone understands the channels of communication and who's responsible for what.

an org chart is just a clean cut understanding of who does what and roles and responsibilities and who reports to who. The other component that a lot of people miss that I think EOS has done a really good job of highlighting is cross-pollination of information between divisions in the business. Can this division help this division because this division is caught up? Who needs to be speaking to see if that's a possibility? And so making sure that those

lines of communication understood and trained well will increase proficiency, will increase income, it will increase your freedom as a business owner that's why order charts are important. And if you don't have one, that's a 10-minute assignment.

that will cause a lot of stress to be unraveled inside any organization.

Jonathan Fodera (09:06)
You also want to understand what your numbers are. So having clear and accurate reporting at every level and everything you do is key. it's not just having your financials done. It's not having access to a profit and loss and a balance sheet. That's very important. That's key. What does your marketing look like? How do you decide if campaigns are working or not? Who's managing that?

that should be at the CMO's level, and that should be reported back to who? It should probably be, like you said, you want two people on that. One, it's obviously rolling up to the CEO, but probably the chief revenue officer is going to be working with the chief marketing officer to see what they can do to adjust.

Leads are coming in and they're cheap, but they're just not closing at the right percentage. And the sales guys feel like they're spinning their wheels. Well, if that's happening, sales needs to give that feedback over to marketing. How can they do that? All right, these are the things that make a company run without you.

Keith Gause (09:55)
Yep. Yep.

most companies start out and never change from this method where the divisions run the finance department or the accounting department,

In reality, companies that are part of that 7%, have an EBITDA multiplier higher than their competitors 100 % of the time. Their companies are ran where the accounting department runs every department.

The accounting department is dictating how much money to spend in marketing. The accounting department is dictating how many people to hire and or fire. The accounting department tells you how much inventory to order and all these things. And that's the way that these companies that are very well put together sell very quickly And when I say quickly, It's going to take you a year minimum. And that's if everything fires off.

peachy and that never happens because there's two sides battling over one side's protecting their baby they've built for a hundred years the other side wants to buy you at the cheapest penny possible the point is this if your accounting department isn't running your company it needs to start running your company

Jonathan Fodera (10:52)
Mm-hmm.

Keith Gause (11:00)
That will help you understand everything you need to know about the decisions you aren't making today in your business from every aspect in every division. What's your experience there?

Jonathan Fodera (11:10)
I haven't seen that. So I can't confirm it. And I also can't play devil's advocate. The way I would structure anything is the CEO. Your only job is to get the highest return on company assets. one of the biggest assets any any company has should be their people. So are people in the right roles? Are people doing what they need to in those roles? Is everyone executing?

Keith Gause (11:15)
How do you undo it?

Jonathan Fodera (11:31)
I haven't seen it where an accounting department is running that, I've had some.

Keith Gause (11:34)
Well, how do you determine,

let's ask you in a different route. How do you determine when to hire?

Jonathan Fodera (11:39)
Me? Personally, I know when I need to hire, because right now, I have more leads coming in than my team can handle. Right? I have s-

Keith Gause (11:47)
Okay. In a different

world where it's not leads, you would always revert back to your income can I afford the position, even though, salespeople can only handle so many leads a day, but you're also saying, are the leads going to profit enough money to cover this position? so

Jonathan Fodera (11:52)
Yes.

Mm-hmm.

Keith Gause (12:01)
It should start with accounting because what you should be doing is projections on two months ahead and two months behind you. What happened? And also last year. So now you've got these data sets to say, hey, in two months we're going to have an influx of whatever, enter a thing here.

Does the accounting department then should notify CEO, hey, we have a bottleneck approaching and here's the data. CEO should say, got it, we need to add more people, right? So it's the same thing you're doing, you're just doing it from a different lens, You know lead versus employee costs because you know accounting, right?

Jonathan Fodera (12:34)
Correct. Yeah, mean,

I would say the CFO is probably making that call to the CEO, I don't have the size right now where I need a CFO I have myself, I have a CTO, a CMO. That's all I need right now. When there comes a point where I need a CFO, I probably need to put another $2 million in revenue.

Keith Gause (12:45)
Yeah.

Jonathan Fodera (12:54)
on the top line and then I would consider getting a CF.

Keith Gause (12:55)
Yeah. And you may not

need a CFO. It's not saying that the CFO is necessary, but you put that hat on as you're thinking through that process. And that's what most people miss the reality is if you aren't reflecting your P and L or your accounting department to get verification that something's needed.

Jonathan Fodera (13:02)
Of course.

Keith Gause (13:11)
you're screwing up and it's going to cost you in the long run if it doesn't put you out of business first.

Jonathan Fodera (13:16)
So here's what I would say. The other thing that people don't have built out is you should have SOPs for everything. Standard operating procedure. And I'm going to show you how this looks like. I'm going to go take a sales call. So I'm going to have my assistant listening on the sales call. They're going to write everything down that I do. OK? They're going to video it.

Keith Gause (13:24)
What's a nice show of pee?

Jonathan Fodera (13:38)
And on the positive outcomes, they're going to record it and put together the same type of process. And then next time we need to do it, they'll have a sales script. They'll have videos. They'll have the sound bites of me taking these calls. So when I need to hire for sales, I can put my sales team through that training. And then instead of me spending two days, three days, four days getting them trained,

They watch, they learn, and when I know they can do it themselves, they take over. And then all I have to do is have my sales manager listen to the calls and make sure everything's done right and give them constructive feedback. But it's not just that position. I need to have that for processing. I need that for my CMO. I need that for my CTO. I need that for every role. So what I do and what I'm sure you do for your clients is every single position in my company,

has SOPs and training videos so that when I bring somebody on, they can be trained without me being there. And that's building assets, and those assets make the company sellable.

Keith Gause (14:34)
Yeah, be a good old one to many.

Yep. One to many, right? And that's another great point that you bring up and young business owners, old business owners trying to revamp whatever it is. If you have to tell someone more than one someone, one thing, make a video on it. The video becomes the training, the training becomes the SOP, the SOP becomes your business. Right? And I mean, the more

In-depth that you can create SOPs. I'm talking about down to the fucking trash being taken out on rotation Because here's the reality most companies that are acquiring right now want to acquire a well-oiled revenue stream that is already printing money They want to know that they can take one of their execs plug them in hand them a book and that company can run

Jonathan Fodera (15:05)
Mm-hmm.

Yep.

Exactly.

Keith Gause (15:21)
maintained. And that all comes back to your employee onboarding program, processes, and SOPs.

Jonathan Fodera (15:22)
Hmm?

to Keith's point, it's very important. It's vital. But it's probably one of the most boring things that you can do and work on. However, it will produce massive results for you in the long term. And it's not just the jobs. It's, hey, you need to document how the systems interact. So how does marketing interact with sales? How do sales interact with marketing? Who's in charge of who?

goes back to the org chart. If you don't have these things set up, it's very hard to scale. Once they are set up, it's much easier to identify weak links or where things are breaking down, and then you can go back and change the SOP. Because if you have any type of key man risk, it's gonna be much harder to sell. If you have any type of, I don't wanna say lead risk, if I were to generate

Keith Gause (16:12)
Use your

Jonathan Fodera (16:13)
100 % of my business through Facebook. % of my.

Keith Gause (16:15)
We'll talk about TikTok, right? Talk about TikTok and everyone that

just lost their ass almost if that year went away.

Jonathan Fodera (16:20)
Yes.

So imagine if you, your whole business was built on TikTok marketing. You don't have a business today.

Keith Gause (16:27)
In the blink of an eye, for a political shit, right?

Jonathan Fodera (16:28)
In the blink of an eye. Yeah.

Everything would change. Or YouTube, right? If YouTube decides to kick you off. Like right now, I've built out YouTube so much that I have YouTube and Facebook. And the next one I'm trying to build out is going to be LinkedIn. And why? Because I want multiple channels. I don't like direct mail. I don't think direct mail is long-term steady enough. And it's way too costly to do at scale, at least

That's what I have noticed and seen. So I need to find ways around that to get profitable leads in. And I do have to have it across multiple channels. Once I have one or two channels figured out, I need to go figure out another channel because guess what? That shows stability. And it's de-risking the transaction. Anything you can do that is going to de-risk someone buying your business is going to make your business easier to sell.

Keith Gause (17:20)
Gotta make it simple if you want to attract the dollars. That's a damn fact.

Jonathan Fodera (17:24)
What

are some other things that you can think of off the top of your head that we could give our audience?

Keith Gause (17:30)
I think one thing

I'm going to save you guys hundreds of thousands of dollars probably.

Jonathan Fodera (17:34)
Mm.

Keith Gause (17:35)
Don't go

hire any jackass that is selling an SOP course online.

Chad GPT will build out an SRP deck for you in about a split second and then it would require about 10 % effort after that to then go in and put your little bells and whistles on it.

If you guys want help with chat GPT prompts, send us a message. We'll send you out a plethora of them that you can use for free. So don't do what most people do and get poked by these marketers that are burning dollar bills telling you you're fucked if you don't use them or these little coaching group people saying, hey, come buy my course for a million bucks for your SRP dev.

Chad GPT is a simple solution for you guys to start. And that is perfectly fine. You just need to learn how to prompt it. I think the second component is we talked about the hierarchy. So we need to know roles and responsibilities. We need to obviously know marketing because without leads, without clients, you have no business. So you have to know marketing. Here's another one. Be careful. There's a bunch of bullshit out there in the marketing world.

So do a lot of due diligence and talk to 20 people before you choose one. but marketing is really you, you knowing and understanding case study and understand who, where to market and who your avatar is. So let's talk about the, the, the idea of who is my customer. Right. I know exactly where my customer hangs out, where they work. know exactly how to market to them. know.

Jonathan Fodera (18:52)
Mm-hmm.

Keith Gause (18:59)
the sporting events they like going to, we know it all, Because we've done our due diligence over time and we've teased the market to tell us that data.

So you need to understand who to market to.

Now you've got TikTok, Facebook, Instagram, and those are segmented in age groups. Probably people don't understand that. Your Facebook is your older generation of people, and it's your 28 to 40, 50, 60, and grandma, grandpa. So if your target market's a 20-year-old, Facebook probably is not your spot. You're probably a TikTok individual, or maybe even flirting with Instagram a little bit.

Jonathan Fodera (19:14)
Mm-hmm.

Yes.

Keith Gause (19:31)
you can very simply blow a shit ton of money in marketing by throwing your bait into the wrong ponds. You gotta know where your avatar is and you have to know what your avatar is and be specific, right? I'm a home service, business owner. I know exactly what their revenue targets and projections are. Those are our clients and those who find us. I know where to find them.

Jonathan Fodera (19:50)
Mm-hmm. Yep,

to Keith's point, good marketing attracts your ideal client and repels people that are not ideal to work with.

Keith Gause (20:00)
Negative keywords, which is never talked about by your fucking marketing people. They just want to talk about the positive keywords. Well, what do you want people to search? I don't care about that. Anyone can know if you're a roofing company in Jacksonville, Florida, roofers near me, Jacksonville. Boom, you're popping up. It's the gutter jobs that you don't want calling you. It's the windows and the siding and all the people you don't want calling you that we need to focus on and build that list of negative keywords.

Jonathan Fodera (20:04)
Nope.

Keith Gause (20:25)
That's where some of the magic starts to happen.

Jonathan Fodera (20:28)
So I don't want

to get too deep into it, but here's what I'm going to do. On this show and this show only, I am going to leave you guys the assessment that I took this weekend. I think it's a game changer. I think it'll really help you. And even if you score out poorly, I think it'll be good because it'll at least show you the questions that are being asked. And when you're answering no or, I don't have that, that's an indication that that is something that you need to work on.

Keith Gause (20:36)
shit.

Jonathan Fodera (20:50)
And here's the reality. Most of the results that you want are on the other side of the things that you are avoiding. All right. So I understand it's painful to take a test. I understand it's painful to answer no on things that you should have for your business. And I understand it's very easy that if you answer no, just say, fuck it, I'm to get to it later. That's not what we're doing here. If you say no, you should be thinking, how do I approach this now? Because everything I want is on the other side of.

Keith Gause (21:10)
Yeah.

Jonathan Fodera (21:16)
what I am walking away from or trying to avoid. All right, so be real, take this test. If you need anything from Keith or I, reach out. All right, we appreciate you guys. So share this with someone that needs to hear it.

Keith Gause (21:21)
Yep.

Peace.