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SNM248: Can You Exit Your Business With Darryl Bates-Brownsword

• Jonathan Green : Bestselling Author, Tropical Island Entrepreneur, 7-Figure Blogger

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Jonathan Green: If you ever get able to exit and sell your business, let's find out today with special guest. 

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Announcer: Are you tired of dealing with your boss? Do you feel underpaid and under Appreciated? If you want to make it online, fire your boss and start living your retirement dreams now. Then you've come to the right place. Welcome to Serve No Master Podcast, where you'll learn how to open new revenue streams and make money while you sleep.

Presented live from a tropical island in the South Pacific by best selling author Jonathan Green. Now, here's your host. 

Jonathan Green: Darrell, I'm so excited to have you on today, Darrell, because this is a really important issue for a lot of people. A lot of people start a business and think, well, my kids will wanna take it over.

And as I'm sure you know, a lot of kids don't want to. Most kids wanna do anything other than what their parents do, so kind of, how did you get passionate about this idea of helping people to exit their businesses?

Darryl Bates: Um, yeah, great question and, uh, thanks for having you on the show, Jonathan. Look, I've been, the, the, the market we serve is that sme, that mid-market business, uh, segment.

So it's that classic, you know, founded by, uh, one generation and typically, uh, I, you know, often wanna hand it onto the next generat. And I'd been consulting to that, that, that sector and in growth consulting for many years. And they always talked about their business as being their pension or their business, you know, setting things up and or wanting to leave it for the kids.

And, you know, they, they had this vision but they didn't do any planning specifically towards that vision. And they'd say things like, I just gotta build my business big enough and one day I'll attract someone who'll come along and I'll just offer me a wad full of cash and I'll be able to go and spend the rest of my life on a beach.

And that's always the fantasy, the desire. But what I experienced, what what happened is a lot of people, you know, they, they, they might exit their business, but most of them wouldn't. And, and I did some research and the stat showed me that only 20% of businesses that go to market actually sell, actually sell so end up in a transaction that's one in five, there's the first thing that's actually tragic and you know, and, and it's tragic cause it's avoidable. 

And the next thing was that, um, you know, I, I noticed that business owners, they that did actually sell their business. So that one in five ended up because they weren't prepared, they weren't on the front foot, they're just reacting to whoever came knocking on the door and making an offer.

The business wasn't attractive, it wasn't exit ready. So they'd have to agree to some horrific, sort of earn out arrangements, which meant they'd go, ah, look, I can work for someone else for, for two, three years. You know, how hard can it be? And two or three months into that arrangement, they can't, what was I thinking?

You know, I can't work for someone else. And, um, you know, and those earn out arrangements just didn't work. So they would end up leaving before their earn out period, three or four years, whatever it was, and they'd end up leaving a whole lot of money on the table. So it was just seeing those experiences that got me involved and I've got, look, it's, it's avoidable.

We need to be able to change this and, and help business owners to get the most from their life's work. So, a bit of a long question to a long answer, to a short question. I appreciate that. 

Jonathan Green: Yeah, you brought up something. I think that's really important. A lot of people just assume that someone will wanna buy their business.

A friend of mine a few years ago was like, oh, we're going to meet with a big company. They wanna buy my company for a million dollars. I said, they made an offer. And he goes, no, but I know that's what it's worth. And I said, um, that's not how you value a company at all because it's just like anything, it's worth what someone else will pay for it, not what you think it's worth.

And of course there was no offer, the other company wasn't interested in them at all, but they were already spending the money and him and his business partner were already Ima. You know, when you think that, and that's the danger I think of when you get an offer. You start imagining how you're gonna spend the money before you realize the complexity.

Uh, there's something mistakes people make besides imagine the offer will come. I think in that making their company, as you mentioned, exit ready. There are certain structures. That are really important a lot. Like if your company requires you to be there every single day to run it, it's really hard to transition out because it's not running without you at all.

Right? So the other person has to learn everything you know, before they take over, which I think is why there's a lot of those periods where you have to keep working for the company for several years in order to earn what you've actually sold the company for. So, What are other mistakes people make early on?

And that's I think where I really wanna talk about today is when they're starting the company, what are some structural mistakes people make that are gonna bite them down the line when they start thinking about, even if it's in five, 10, or even 20 years, they wanna exit some of those early days mistakes that just like stick around. 

Darryl Bates: Yeah. Look, it's, it's, it's not, I guess the, the biggest mistake is not changing as your business grows. So as your business grows, you need to change some of the habits because when we start a business, you know, I'm gonna say 95% of us, when we start a business from day one, we do have to chip in, we have to do everything ourselves.

We know from, we've gotta do all of the, the accounts and the finances through to the sales, through the delivery and, and client service, and everything, now to get a business going, you need that sort of energy. You just need all hands on deck to get it going. But when you start recruiting people, and here's the biggest mistake is when you start recruiting people, you need to tell them what you want them to do.

And if you give them a process, then you need to step back and allow them to make mistakes. Because if you've trained them in your designed process and they're getting it wrong, then your processes either needs change, either your process needs changing or your training needs changing. So you've gotta allow people and give them space to make a couple of mistakes.

So that you can then scale the business because once you've trained them and they know how to do it and they've got a set of instructions on how to do it, then you can move on to the next task. And, and you know what I see is a lot of businesses get stuck at about that 10 people level and it's 10 people where they just get stuck and they go, I can't grow it any bigger than this.

And the reason they get stuck is cuz they haven't figured out how to delegate and maintain control of the business and the processes because 10 people, I can have a relationship with every single person in the business, and they have a direct relationship with me, and I'm still in full control. So it really isn't a business.

It's kind of like what you are saying. It's just, and you know, I'm self-employed with 10 helpers effectively. 

Jonathan Green: I think that is a really good lesson because that's certainly something that I hit in my business whenever we and of course my business side fluctuates as the projects we work on, but whenever we cross about 10 employees, sometimes it's seven.

You can't really track them. That's about how many people a person can manage. And so then you have to bring in middle management, which is the word everyone hates when they start as an entrepreneur. That's why they started cuz they hated middle management. And you realize, oh, they're actually important because I can't manage everyone.

That's the only way to scale and that's one of the, a big challenge for a lot of companies. Another one is, I think a lot of people have no idea how to value a company or what matters, and I often think about around 2017, Twitter was for sale. Cause Twitter has never been profitable. They've always lost money and Salesforce was gonna buy them.

And Salesforce goes, great. We're gonna buy Twitter. The first thing we'll do is delete your website. All we care about is your customer list, because Twitter has a massive email list and a lot of people don't know. The most valuable asset for most companies is their customer list because, that's where you can go back to the well and generate more and more revenue, whether it's an email list or you call it a file for a more classic company or doing actual email addresses.

And I see a lot of companies that keep, especially smaller companies, they go, oh, I have no idea who my customers are, or, I don't keep track of any of that. I don't follow ups. And they don't realize that that's important, but what are some other assets or the things that actually can increase the value of a company if they're in place and they massively decrease it if they're not in place. And maybe systems and SOPs is another big part. 

Darryl Bates: Absolutely. You're really on the money there, Jonathan. Um, we talk about the seven liters and, and I really like the way you talked about thinking of it as an asset because when you're starting to get your business exit ready, you've gotta shift your mindset from revenue growth to thinking about your business as an asset and what's it worth as an asset.

So there is the first step, if you like, in thinking about the valuation engine for business and how exxagerate it is. Now the seven levers are, there's four, there's seven levers. That escalate in terms of valuation thinking, and it also talks about or refers to who you, who you, who the business is gonna be attractive to.

So the first two or three levers, it means you're just attractive to a competitor. So the first one is, what's my income stream look like? My revenue stream is, is it, you know, is there a lot of customer churn or do I have lots of contracts? Do my clients stay with me forever? But there's my customer list.

And if all that someone wants to buy is my customer list, you know, it's typically a competitor and they're not gonna pay a heck of a lot of money. The next thing they're looking at is your employees. How loyal are your employees? How consistent are they? How well trained? How easy is it to attract new employees?

Do you need brain surgeons, which is a really small pool, or can you get anyone and train them up with the right attitude? So then you start to look at employees. So that's lever number two. Lever a number three is absolutely, as you suggest, how well structured is my business in systems and processes. And does everyone know what to do.

Or is, is the will being reinvented every time and a different team's doing it their own ways. Then we start looking at product. Do we have our own proprietary product? And that works in a service business as well? Do we have our own proprietary solution, which is modeled with IP and process and methodology that people come to us too?

Are we known for our product or our solution? And people come to us for that, once we've got a product, we need to start looking at what are our various route to market? Do we have some marketing know how and strategies? And do all of our clients come through just one channel Or have we got numerous channels that we are working and got, you know, milking and managing our, our roots to market?

And we know the cost per client acquisition by each channel and we know the lever is to pull to work on each channel. Next step after that is, do I have a position and a brand in the marketplace that I'm known for is, is the brand actually known or do people actually just come to me and they go, well, he works for X, Y, Z, Acme, whatever it is.

Or do people come to Acme cause they know the brand and the brand has a position and the brand is known for that methodology we were talking about before. And then the seventh one, I think Gerber called it a franchise prototype, but it, it's how scalable is your business? Have you got all of those previous six levers in place and then your business is effectively a plug and play module that I can just plug and play and replicate it elsewhere and then really accelerate the scale.

So they're the seventh levers we, we look at. You know, increasing risk as you go up. Increasing investment required, but the, the valuation scales up. It's not a linear approach. It, it really does, um, go up exponentially. 

Jonathan Green: I think this is really, really helpful for a lot of people cuz they have no sense of valuation.

I love watching television shows where people are looking for investment. I watch 'em from all over the world cause I'm so fascinated. What really fascinates me is how pleasure most. Yeah, they have no idea how to value their own company. And my favorite is when they go, how'd you come up with that valuation?

And they go, I asked a friend, and it's such a red flag to me that if you don't know what your own company's worth or you snap it outta the air, yeah, you snatched it outta the air. Or you guess, but just to say to a friend, Hey, what do you think my company's worth? Right. It's not, that's not a person who's gonna buy it.

It's really, um, or I know that Mo, the standard is usually like a multiple of revenue and really that usually means a multiple of profit. So I've seen companies where they're negative, right? Tech is the exception and that's what throws everything off. The Silicon Valley valuations are crazy cause they go, this company's never made money, but it's worth 52 billion dollars.

And it's like, I wish it worked in every industry, but that throws everyone off. But most of the time it's a multiple of profit because buying company that's losing money, I sometimes see these companies like, oh, we're doing 20 million a year. What's your profit? We're losing a million dollars here. It's, and they go, but it's worth, what's your company worth?

Millions and millions. And they really struggle with valuation. I think it, part of it is because you form an emotional attachment to your business and you have this conversation, what would I, it's like if you say to yourself, what would I sell one of my kids for? Which is an insane thing, but it's, it almost feels like that's how people come up with their evaluations, which is, well, what would I take to cover the emotional strain of saying goodbye to my company, and I know this is real. Two friends of mine exited their company for, they made a million dollars each and they were really depressed afterwards. Like they were like missed it. And it wasn't their only company together. It was one, it was just one of their brands, but it was like humming along, making money.

And then they went through like this really, and it's confusing to people on the outside. I'm like, you just made a million dollars. Why are you sad? Right. But they were like, I miss it. Because you have an emotional attachment to your business. And so I think that's one of the things that messes up valuations is this.

Darryl Bates: Oh, true. Look, it's, the outside 

Jonathan Green: doesn't feel that

Darryl Bates: it's for entrepreneurs. It's never about the money. The entrepreneurs who really do something, they, they start their business because it's a solution. They, they see a gap in the market and they wanna fill it. They wanna meet that need. They run a good business. The money is just the outcome.

But, but how someone values their business. And, you know, what we do is we, we work with businesses to get the makes ready and, and sometimes business owners, you know, they'll, they'll get exit ready. But the, the biggest deal breaker that I see is when the business owners don't know what they're gonna move to next.

And, and business owners as entrepreneurs are visionaries and they start their business, they've got the good vision. If they see something moving forward, if they can't see what they're gonna be doing, post exit. They'll find some reason to put the brakes on, and, and I've just seen it all too often. So there's, there's those things to consider.

And the other thing about valuation that you mentioned, you know, we pluck a number out of the sky. We ask our friends what it's worth. And sometimes you, you ask people about valuation, they go, well, I think it's worth five mil. Why? Cause that's what it owes me. And I go, but the buyer doesn't care what you think it owes you.

Like you gotta look at it through their eyes. It's like any sale. You gotta look at it through their eyes. Or I need five mil to live off. Well, how do you know, have you been to an independent financial planner and, and, and done some wealth planning and, and financial planning to see what you really need and to give you the lifestyle?

And it just keeps coming back to this emotional, uh, piece. As you say, Jonathan, they, they, we've, as entrepreneurs, we have emotional attachment to our business and we've gotta separate ourselves. Cause we are not our business, we're just the drivers of the business. So cultural and commercial is, we've gotta look at both sides for sure.

Jonathan Green: So a lot of people kind of don't think about the process until they either need the money or they're running at a time, or they realize their kids don't want to take over and they enter the process going, okay, I'm gonna do an exit. And I do see a lot of people who skip the phase you're talking about, which is getting exit ready, right?

Which is improving the quality of your contact list, improving the quality of your systems, maybe creating SOPs for everyone who works at the company, right? Which obviously really helps someone come in. That's why people buy franchises for the manual. That's such a powerful tool to have cuz my fam, my wife and I ran a hotel for a few years with no manual and so we had to start from zero and I was like, this is why people like a manual, cuz it, you have to write the manual if you don't have one.

It's, and it's hard. Right. What's your policy for cleaning rooms? What's your policy for if a guest does this or that? So those things really are valuable, but I see that people, they don't know how long an exit's gonna. And there's, cuz they see what they see sometimes is on tv, someone gets an investment and they don't know those TV shows, only one of those three of those deals even happened. They don't know about due diligence, which is so important because some nobody believes you. Right? They actually have to go through your books before, before they make the final things happen. And how many, like, how many of acquisitions maybe fail due diligence or get lost in that process? And how long does it normally take? 

Darryl Bates: Um, you need to allow a year to, once you take your business to market, you know, we say you need to allow a year. So if you're working with a broker or a corporate finance house, or an m and a sort of person, you gotta allow a year to, to find the right acquirer. And then I was talking to someone recently that, um, once, you know, they, they, they've gotta deal, you know, someone who's interested in buying their business and they, they said it took three.

And that was quick. You've gotta allow six really to, to do that. So why and why is it? Because if someone's spending that much money, they want to assess their risk. They wanna see how risky it is, and that's what due diligence is all about. What they're saying is, As you said, I'm, I'm not sure I believe you.

So you've given me these forecasts and this financial history. Show me the numbers so that I can convince myself that they're likely to happen and likely to happen without your involvement. Cause if it can happen without your involvement, you can go, I'll take the business. Thanks very much. Because it's got all these SOPs and systems and procedures.

And I'll pay you a lot more for it. I'll pay you more to get rid of you. So it's all about risk management and, and seeing, you know, what the bus, because the, the buyer's gonna say, Hey, I can buy this business. Or, you know what? This one looks a little too risky. I'll just move on to the next one. Cause there's always lots of businesses for sale and this one's a less risky.

I'll go with that one. Thanks very much. So we need to manage the. And what's high risk for them is also high risk for us, by the way. So reduce their own risk at the same time. 

Jonathan Green: Yeah. A lot of, um, you know, I've talked to some people about exits before, so I'm very interested in this idea. When I started my company in 2016, the reason I called it Serve No Master, before the brand was my name, I was like, oh, maybe one day I wanna be able to exit and that's not gonna happen, right?

I'm so, nobody thinks of servant masters, anything other than Jonathan Green. And so I asked about this and the process would. If I wanted to exit like this podcast, I'd have to bring on a co-host and they would co interview with me for at least a year before I started appearing in episodes less and less.

Cause I asked about that specifically. So if I wanted to exit, in addition to everything else, there's at least a year of me working with someone else who, let's be honest, I'm not gonna be friends with them. Right? And someone I don't know is coming in for business and we have to act like cohost in order to transition the show.

Cause we've seen, how many TV shows have we seen? They change the hosts, no one's watching it anymore. Right. They try and swap out the main character and the show dies. So there's these other elements that really can take a long time, especially if you're doing something complicated. And another thing that's very interesting to me is non-competes.

Because what you sell a company to someone, they don't want you to start another company that does the same thing. Try and rehire your old staff or like rebuild and become a competitor. So when I think about an exit for myself, I don't know how to do anything else. I only know how to do a couple of things in online marketing.

So if I signed an noncompete that said I could never podcast again, that would be okay. But if they said I can't do anything in online marketing or in these niches or markets, I wouldn't know what to do with myself. That's a much different conversation. So how often, like is that a part of the process as a non-computer saying, Hey, you can't.

You if you could have another job, but it has to be in a completely different world. Like how often does that happen and how long do they last for? 

Darryl Bates: Well, well there, there's the key question because, and this is why legal advice is so important, because at the end of the day, they can't stop you from earning a living.

And, and most people like you, they're going, Hey, I've got this skill set. But what they can do is say, Hey, Jonathan, look, you know, give us a fair, go here. Give us six months, give us 12 months to get up and running. And after that, now they may have some other agreements in place around, specifically around approaching staff, approaching customers, going for 12 months.

And that's fair deal that you, you, you, you know, that's a fair price to pay. But they can't really stop you. You can, you can have a gentleman's agreement, so to speak, and they can put you in the contract, but they can't really stop you from earning a living for more than six months or so. But wherever you are, you need to get legal advice and go, Hey, look, what, what's the deal?

What's the local attitude in this area? But frankly, they can't stop you from, from earning a living, you know, at infant item. 

Jonathan Green: Okay, that's a lot short. I thought you were gonna say five or 10 years or something. So that's way better than I was Expecting. But one of the challenges is that so much of the value in a lot of businesses is your relationships, right?

It's the customers you have or the people who give you like special pricing. And that can get really tricky when you try to bring someone else in. Like someone does a, wants to be on my show because they like me. I'm bringing a different guest. If they don't like that host, Company loses value. Like I was one time looking at, um, an acquisition of a modeling agency.

I was very interested. I saw this for sale. I said, Alex, go, Nope. And they're gone the next day because you don't have like, they're free. They're free agents, right. Anyone can change their manager agent any time. So it's companies like that. I'm so interested in how they can give evaluation cause it seems like only another modeling agency could buy it because you don't know so much about a complicated industry.

You don't, there's so much you'd have to know cuz it's such a specialized industry and yet there's a lot of companies like that where their biggest value is built into the relationships of the management team or the history of the company. So how do those companies even have a valuation? Or are those the type of companies that there's no exit?

Darryl Bates: No, look, I think you're right. There are some companies where, you know, they are so specialist that they are limited to who, who they could sell. But here's where scale comes into play. If I've now got a management team and I've got 10 or 15 people at the management layer, then I've got 15 times as many people with all those relationships, and if I leave, there's still 14 other people with those cross-fertilization of all those relationships.

So it makes no difference. Ultimately, if I'm a one man band and I'm the one, and I've kept it all close to my tests and I've been in control of everything, and I've held all those relationships close to me. I leave all those relationships leave with me. I've done myself a disservice. So that's, that's one of the reasons why we need to, you know, create those B to B relationships and, and you wanna spread the relationships out across the business.

So you've gotta, you change the culture of your organization and when you do that, you're actually add value to it. You know, when you've got this mindset of just protecting everything and it's mine, it's mine, and I don't wanna let it go. You, you, you're keeping the value down. There are just some industries that, that are limited.

I worked with a client once who said, Darryl, look, it's, it's a creative industry. He was a creative, he was a, a composer. And he said, I don't know how to do it. I don't know how to, you know, um, teach someone what I do. It's just creative. And I said, yeah, let's, let's explore that. So when he was writing, he used to write jingles as well as movie scripts and what have you.

And he'd, he'd write some jingles and he'd go, and I. Okay, so what do you ask the client? He says, well, how do you know what to do? And he, and he goes, well, I asked him this. I wrote it down, and then what do you do? He goes, I don't know. Okay. So I said, let me watch you next time. You sit in front with a client.

And he did. And I just, and ev and he, he, I just tracked all the questions he asked and I said, what were you thinking? What were you looking for when you asked that question? What were you looking for when you asked that question? And he stopped and he was able to think about everything that was going through his mind.

He was able to actually unpack just what he was doing intuitively, and, and, and why was it intuitive? Just because he's been doing it for so long, like he hasn't always been able to do it. He had to create the, the skill of doing it himself. So we were able to actually create a creative process. Then we train someone in how to do it.

And then, you know, they still needed some creative talent, but were able to accelerate it so much faster. So then he was able to bring people in, train them up and spread and, and create some more value in his business. And I've been able to do that with, with a lot of different professional services as well, where they go, it's just professional talent and creativity.

And we go, well, let's unbundle what you really do. Let's take it step by step and we create, well then we create a process and a methodology and a branded methodology for that business. And then we've got some proposition IP.

Jonathan Green: You brought up, something really important that is the same wall a lot of new entrepreneurs hit when they do their first hire, which is they do it all themselves and nothing's written down.

Cuz I've actually reached out to a lot about Twitters lately and say, what's your social media process? Because I wanna take it and just have a list of tasks and give it to someone on my team to then do like, that's what I'm, to me, a process is so valuable. An S O P I checklist I tell someone to do, and I have a checklist end of the week to check the work.

And so many people in this industry, in a lot of industries go, oh, I just do it. And that means you can't hire staff until you develop a process. Right. Until you have a checklist. There's a very common wall people hit. They have a higher than the person doesn't do what they want or why. Well, because you don't have a checklist and you don't have metrics or KPIs.

So it's the same thing when you're trying to exit processes, increase the value. So that's really, really interesting for people to see that it continues to be important because it always goes back to, can I run the company when I take over someone's company? I can't. If there's a good instruction manual, but if there's no manual, that's much higher risk and much lower value.

Now, I'm also interested in, sometimes I see these corporate buyouts where management buys out the company and one I really remember, they used to live in London for a long time, was when Virgin mega store. The management bought out the company and then the stores all closed within like a year, and I just wonder about that type of situation.

What kind of thing is happening and why did it not work? I know it's not a project you work on, but I'm so interested in this. When you get your employees to buy the company and then the company doesn't work, should you feel bad? 

Darryl Bates: That's a great question. Um, can I answer it this way? So we do, um, we work with clients and we do, um, a lot of employee ownership.

So it's effectively an employee buyout, not just the management, it's the whole employee workforce. And there's a lot of tax advantages that the government's putting together and their ESOPs in the states and, and in Australia and in the UK as well. You've got various tax, um, benefits for, for different structures.

Now, one of the ones in the UK where I'm based is, you know, the GU that the owners have to give up, give up, sell more than half of their business in the first tran to qualify for the tax benefits. And I believe it's come around because, you know, going back to this first part of our conversation where we said that, you know, eight outta 10 businesses don't sell, they, they don't go to market.

So it's been going, okay, let's sell it to the employees. Now that's a great tax solution, but unless you educate the employees on all the management responsibilities of required to run a business, you're, you're given 'em a hospital pass, which maybe it's a sports terminology that doesn't translate well, but it's, it's not good.

You're setting them up for failure. In other words. Um, To hand the business over to the employees, you can only do it. It's only a great strategy if the, the culture is set. Um, and the, the, the people understand the difference between running a business and just doing my job. and, and to have an employee ownership company or a management buyout, they need to understand all the metrics.

They need to understand the business model. They need to understand the profit drivers, and they need to understand the cost structures of how the business works, and, and then you've got the management disciplines and the management skills as well. Yeah, so maybe it just wasn't the right culture. I, so I dunno what happened with Virgin mega stores, but management buyouts absolutely can work.

They can be a great um, solution as an exit strategy and especially employee ownership, but you gotta have the right culture. You've gotta train and educate the workforce. Not quite the answer you were looking for, but maybe it helps. 

Jonathan Green: Yeah, no, I think you brought up something that's really important there, which is that there's a huge difference between being the owner of a company and being the vice president. So sometimes I meet people, they work for really, really big companies and I realize they don't know what it feels like. Cuz if I mess up, my employees could all lose their jobs. If I mess up, I don't get paid. Whereas if you're an employee and you do a bad job and they fire you, you still get paid for your work, even if it was bad work.

And that's a really big difference. You know, this is only when you're the boss can you double your income. I'm working with some people right now that I'm mentoring, growing their business. They've 30 x their income in six months. You don't do that as an employee, right? You get like a 5% increase, but they could also lose everything if something doesn't work.

So there's this huge amount, there's a jump, I think, in stress because you're in the arena now. You're on stage now, it's all on you between being the number two and being the number one. And I think maybe that's really interesting that when I think about people that are in management, they have a certain level of responsibility, but they can still pass it on.

Like they don't, they can't make certain decision. You know when you're in services, sometimes I've done services. They go, oh, I have to talk to my boss or my manager, and they have to go up several tiers. And you realize that all of those structures in place mean they don't know what it's like to have everything beyond their shoulders.

Every good decision is your, you get rewarded and every bad decision's your fault. It's a very different feeling when you're an entrepreneur, and that's why so few people are, I am curious what happens to all those. 

Darryl Bates: I, yeah, I think you look, it's, you're absolutely right. And, and I've met a lot of people.

They go, look, I live this business. And they, they, you know, it's all about, they, they see the business, but you're right, this, well, they're still employees. They don't have that same level of intensity as the way I've always talked about it and. Yeah. Until you've got your house on the line, , you're just not living that intensity.

And, and, and that's it. You know, once you own your own business and you are running it yourself, the intensity goes way up because everything's on the line. So yeah, it, that's universal. That one doesn't matter what industry you're in, either It's, and, and all the size of your business. You can have a really big business or a really small business. The intensity is still the same. 

Jonathan Green: Do you think that's something that people can learn? Like late in life, like they're over 30 or 40, they can suddenly become an entrepreneur. Or is it more like, you know, something that you have to really want earlier? Cuz it's such a shift. Cause I see this either people that are entrepreneurs, they always have and or they're people that they don't wanna do it cuz they really love security, which is great.

That's where employees come from and that's wonderful. But there's only small percentage of people that have that desire in them to be the one responsible for everything. 

Darryl Bates: I think. All entrepreneurs are business owners. Not all business owners are entrepreneurs. So, you know, you can, yeah. Cuz there, there's something about entrepreneurs and, and it's a, in my opinion, I think is a really overused word, but entrepreneurs see an opportunity and then they just don't take no for an answer.

They just do whatever they have to do to make it happen. And sometimes it takes 20, 30 years, but they've got their, they're single minded and they'll, they'll just break down all the barriers to get this done, and it becomes their life's work. Not everyone's got that in them. There's plenty of people who own a business, they're just not entrepreneurs.

They're really good business owners, but they're just not entrepreneurs. They're, they're great managers. They're great leaders, um, and they, they run a good, successful, and profitable business but they're not entrepreneurs. I've probably just offended a whole lot of people, but, um, 

Jonathan Green: I think you said something really great actually, because I've always been interested and sometimes I interview people that do a lot with franchises and I could never run a franchise cuz there's, I see a franchise as it's very restrictive.

You're not allowed to, like, you can't own a McDonald's and be like, we're doing hot dogs. You can't make a change to the menu. Um, you're not even allowed to change who repairs the shake machine. Like if you try to have someone else fix your shake machine at McDonald's, they show up. It's a really big deal.

There's a massive lawsuit in America right now for some places that try to do that and it's very interesting. But, and other people see it as, wow, I know exactly what to do. And I think that's the type of person that a franchise is amazing for. Because very similar to buying a business, you have a very. Your job is execution rather than coming up with a plan, you just do the plan.

So I think that what you're saying is actually really good because then people know, oh yeah, I could run a business when all the pieces are in place, but I don't wanna start a business from zero. I'm not that type of person. So it makes a lot of sense to me. I think that's a really valuable piece of advice for people to realize.

They might not be entrepreneurs and that means they don't wanna start a business, but they can take a business and operate it cuz they're really good at operations, which is a very powerful. 

Darryl Bates: Yeah, and it, it comes down to risk profile, personal risk profile, because yeah, I think it takes, you know, if you were to able to measure a risk profile outta 10, I think anyone who starts their own business by definition, is, is at least a seven, outta 10.

And entrepreneurs are probably eight, eight and a half outta 10. Um, Yeah, I think, look, you, you, you franchise is a really good example and, and a good franchise cuz there's a lot of smaller ones that are higher risk, but cause they're just not proven yet. But, but McDonalds is an amazing example and there's a lot like that that, um, you go, here's the way to do it.

Stay within these guidelines. You're all good, everyone's happy, and you'll, everyone will make a lot of money. And if that's what you're interested in happy days, you're, you're still your own boss to an extent because you know, even when you're on your own business, you're still not full of your own boss.

There's always someone to answer to. 

Jonathan Green: So you mentioned a few times that 80% of businesses that go for sale, nobody buys 'em. What happens to those businesses and what are kind of, maybe you can share with us the most common reasons why those businesses don't sell. Like what are the mistakes they're making?

Darryl Bates: Yeah, good question. Well, the. Some, some just never get to market because, you know, they'll, they'll just fold or, or collapse or fire sale and just sell the assets or what have you, or, or they'll merge into someone and you know, they'll get taken over, um, you know, behind the scenes, you know, either aggressively or, or what have you.

But the, the real reason is that, that when they do go to market and, you know, let's say they put themselves on the market, someone will come sniffing around and they'll go and they'll have a look and they'll. You want five mil for it, you want 10 mil, you want whatever number for it is, it's just not worth that.

I see that, you know, for me to pay that price, I, I, I risk losing everything. It's, it's, it's too big a risk, a because the business depends on you. It needs you there. This is not really a business that's just a, a glorified you, um, you know. You know, the, the clients aren't there. You know, you've got too many clients.

You've got client churn, it's all on one client or what have you. It's all based on your history with this company. Um, you know, the, the high staff turnover, you know, there's just so many risks. Um, you have a look at the financial risks and you go, okay, you're treating this white, your personal bank account. You know, there, there's just too many indiscretionary you, you know, things going through your accounts, I just can't make head or tail of the account, so I just can't trust them. So I just can't see what a business is really worth. So it's, it is things like that that, yeah, that I see. And the owners, I think a real big one is the owners just aren't ready to leave.

They, they're not ready to, to relinquish control or, you know, share things. 

Jonathan Green: So a couple of those things are really interesting to me. The first is about the books. So when my wife and I took over the hotel, the books were cooked. That's the best way to say it. Like the books were completely inaccurate and nobody else would've done this acquisition.

But I looked 'em and go, oh, I can tell the real numbers. So they were telling us what the revenue was every month and I go, well, I know how many beds you have and I know what you charge per night. I know the maximum revenue per month, cuz I can do that times thirty. So I knew that number, and I go, can I be the real number? Not their fake number, right? 

They're like, oh, we're making this. I'm like, you're definitely not, because you don't. That's double what you could make, right? So it's part of it. Go. When me going with my level of piece, I go, oh, I can fix these things. I can raise the rates, I can do, put all these systems in place and run a superior business based on what the real numbers are.

But you are right. So many people, and certainly my books are that way too, right? A lot of it's like I'm running it myself for a long time and I have certain ways I approach different parts of the accounting that someone coming in from the outside is like, oh, this is the traditional way, right? It's like, what do you do the cash method or do the asset method?

Like a lot of that matters. So it is important to, if you wanna exit, I guess, to really have tight books because that's what people look at to figure out the valuation. It's not what you say it's worth, which is, can be painful for people cuz everyone overvalue themselves again. They add in that emotional component and then, Another part that happens is you talked about the A brand earlier, and what I find is that a lot, like a lot of people talk about the value of their brand, you know, I would say I don't have a brand, there are maybe a hundred thousand people are aware of me, but that's not enough people for you to be a brand really.

I feel like you're not a brand until millions of people are talking about you. If you're getting Twittered about, like I would say, yeah, I have an awareness and a business, but to be a brand. I'm not Coke, I'm not, those are brands, right? Where people talk about it and think about it, but a lot of people jump and say, I'm a brand.

I even know this. Where people like small talk about like the value of their personal brand. And I don't, that's, I don't think that's real until you're really big, until you're like a celebrity. Like, but people really worry about brand I think, way too soon. And they overvalue way too big. I remember I live on a tropical island and there was a bar.

That was for sale. They go, oh, we're for sale. One of the biggest assets is our brand. And I was like, you're not even on the beach. You're the bar near the gas station. And they were asking for a big valuation and I was like, no one's gonna buy that. And what happened was, like you said, within a month they were selling off all the assets.

And this happens all the time where I live, where always ice cream machines and all the stuff, I'm like, oh, would it be cool to have an industrial ice cream machine? My kids wanted me to buy that. Right? All the stuff is for sale. They selling all the stuff, and now the building is just a storage . It's just used as a warehouse.

No one else went into that space, but they really thought they had a brand, especially in a tourist location where the people are changing constantly. They just read the signs. There's no such thing as a brand until you hit a certain size. What size in your experience, like what size of a business or how large of a customer base do they actually have a brand? Once you even start worrying about that. 

Darryl Bates: I think the, the definition that I would use for a brand is when you are known within a marketplace. So yeah. Is do people go, Hey look, we go to Acme because who's the best lawyer in town? Acme, who's the best, you know, vet. Acme, where do you go to get your groceries? We go to Acme.

Then it's known within the marketplace for what you do. You know, a lot of small businesses as they grow, you know, they'll get to a certain size and, and at some point they invest in a designer to design a logo. And do some branding for them, and they're really proud of that. And they're passionate about, and they love their logo and they think they've got a brand, but as you say, it's not worth anything.

It's special and meaningful to them, but the, the clients are still coming to them as the person, not them as the brand or their business as the brand. You need people, once the people or the clients or the customers are coming for that brand and that brand methodology, they're not coming for the person who works there.

Then I think you can say we've got some brand value because, you know, it lives on and, and you mentioned something about personal branding. I, you know, it's, maybe I'm just old school, but, you know, I, I, you know, personal branding, isn't that just reputation, you know? How does, how do I sell my personal brand?

Why do I wanna build a personal brand? If I'm trying to build my business as the asset and I wanna sell the business. If I'm the brand, I wanna leave the business. I've just stripped all the value out of it. So, um, yeah. Old school thinking.

Jonathan Green: Oh, I agree with you. I always say that a personal brand is just a company you can never.

It's you. It's the exact opposite of what you do. It's basically you've created something where there's no way out where your name is the brand. And that's usually to me, I think reality star. It's where you don't actually create anything or sell anything. So then you're the brand, right? You're just a TV person or whatever.

But a lot of people, just lately I've seen this, they really think it's important. I love what you talked about, logos, because a lot of people think brand means logo. And very few people. I've changed my logo three or four times in the years I've been in business. Nobody's noticed, like, and I haven't done one of those $25,000 changes, but people do invest huge amounts of money.

I think one of the places, there's a couple places where people invest money really early when they really shouldn't. One of them is going really big on colors and logos and branding. My very first version of my website was black with blue text. It was basically unreadable. It was like the two worst colors you can combine, but I was getting clients and doing business, so I didn't have time to change it.

It doesn't matter if your product works, but people do get caught up in these things that it feels good to yourself. Like people always wanna show you their new logo or their new business card. Another area I see smaller businesses really spend big money is on patent. They have an idea, they patent it and sometimes they spend 25, 50 or $75,000 to do all these inter like, oh, we're patented in India.

But have, how many of you sold? They do this. They get, they're so worried about their idea being stolen, which I understand cuz a half worked with someone who had 10, had to do tens of millions of dollars in lawsuit cuz his idea was stolen. He had a patent and they stole it. Anyways, this people spend a lot of money on either a lot of money on branding or a lot of money on patents really early before knowing if anyone wants it. And it's the same thing with trademarks. I remember, you know, Disney is the big proponent of getting trademarks extended. The laws in America keep changing. Right? Basically. How long does a trademark last from whenever Mickey Mouse was invented and for the first time this year, they haven't done extensions.

And so Winnie the poo just entered the public market. Everyone was so worried, right? That all these crazy things would happen. There's no competing Winnie the Poo brand coming out. They still think of Disney as Winnie the Poo, but people think of, um, trademarks and these things as being really important when they're not.

Like, I own one trademark, which is the name, my company, and I didn't buy it for four or five years, like $50, but it's in my website. It's the same in my book, it's in my podcast. I was like, I'm fine. I'm not too worried about someone coming in and saying they had it first. Right? I'm around. I came up with it.

People get worried about these things that they don't really matter. Now, protection. I get it. If you have a really great invention at a certain point matters. But I've seen people protect inventions that nobody wants. And so they, they go, oh, I can't show it to anyone. Or they make, I've signed so many NDAs to discover the dumbest products.

When someone shows me signs an NDA, it's almost always a terrible idea. In fact, I think it's always been a terrible idea, like, don't tell anyone. I'm like, I don't wanna tell anyone. There it seems to be this mindset of like, I can't tell anyone my idea. I'm so worried it will be stolen, and I get it. That stuff happens.

We've all seen it happen in companies and it stinks, but if no, they only steal it if it's a good idea, and then if it's a, and a lot of times they don't care about the patent, right? They go after it or find a way around it cuz you can find a way to make it look a little different. , but, 

Darryl Bates: well, that's it. 10%, isn't it? You gotta change it for a copyright. And, but there, thereabouts, it's, it's really interesting area because, um, if you have a look at the reflection of the economy, a lot of the economy is services. So if we go, what am I protecting nowadays in a modern economy? I'm protecting an idea and a thought process.

And, and I think it's Daniel Priestley, um, uh, the colleague over here that, you know, he said, look, the only way, and maybe even Michael Gerber was the first to start with and go, if you publish the idea, you own it. So we all talk about, you know, you gotta work on your business and not in your business. And everyone knows what that's about.

And you know, most of us know that we can attribute that saying to Michael Gerber from the EMyth because he started it. He coined the phrase, everyone uses it. We all know it's his. It's come from him, they're the roots. But what can we do with it? Well, it just, Conveys a concept and we all, as long as we all understand what the concept is, that's great.

Um, but you know, if you publish it, you tend to own it. Is is, uh, a modern way of thinking. Um, but we gotta be careful. I think in the right circumstances we do need to absolutely protect our, our ip, but actually say it's gotta be attractive ip, it's gotta be something that someone wants and it solves a very real problem somewhere.

Jonathan Green: Yeah, I just think. People think what people think matters and matters in an exit is not what matters. Then they get caught up in, look how good my logo, no one's gonna take, oh I'll pay double cuz you have a good logo. People don't think that way. Or they think if I have a patent in a country where I don't do business, that's another, they patent in all these countries where they don't operate and there's, I would never know if someone in India was selling my pro a product like mine cuz I don't do business there.

So for me to go there personally and check on it or all these other countries, I have, I've had copyright infringement. So there's a website that sells t-shirts with Serve No Master written on it. It's a motorcycle website. It's obviously not competing with me. They just like the phrase, they probably sell 10 t-shirts a year.

I'm not gonna sue them. I thought about it and I was like, I thought about sending a cease and desist, and I was like, what? What's the point? It's such a waste of your energy. There's a time and a place for everything. But I do think that it is that I sometimes people get caught in that mindset of, I have, they're so busy protecting, they're not busy growing.

So this has been really, really interesting. You've shared a lot of great stuff. Um, are there any other areas where people, when the starting company can really think of how they can focus their energies on the right things and not get distracted by the wrong things?

Darryl Bates: Well, look, you know, we, we, we get, we get hung up and we get invested in our own ideas and, and when we start a business, our business is our baby and no one likes to hear that their baby's ugly.

So we are very protective of our baby and we're, you know, yeah, we, we're probably not gonna listen to a lot of advice anyway until we get going. So, and, and, and the point that you make is absolutely valid. You know, you can, you can be a business in, in one town, in your hometown or what have you. The rest of the world's not gonna know about you.

You know, it's, it's really unlikely. Now, on occasion, someone does get caught out and, and, and they, you know, they have a copyright infringement and they'll go on, you know, in a different area, you know, like you do. Yeah. Now the least they could do is at least offer you a free t-shirt. Like, you know, like it, Hey, thanks for the idea.

Here's a T-shirt. Thanks very much. Yeah, we're all good. You know, then, then you'd be singing their praises and saying who it is. So, um, I, I think for 99.9% of us you know, we've just gotta get on and get the job done and focus on making money and doing what is the activity we have to do to get the business and commercial results.

And, and then as we build our business, if we've got an exit goal, if we know. We want to exit our business and we're looking to maximize our value, then we've just gotta prioritize all the various bits and pieces we need to invest in. And one of the things that are real investment, yeah, I, I hear some service providers and they go, look, your investment to use our services is this.

And I go, it's not an investment, it's Australia cost. You know, it's, that's not gonna increase the value of my business. When you are building your business, you need to start thinking about what are the things that are gonna pay off in real equity, value in valuation terms. So if I invest in building standard operating procedures for my business to scale my business, well yeah, it's gonna save me time and hours and, and a bucket load of costs down the track, and it will also increase the valuation of my business.

That's a real investment. Paying for my annual accounts is not an investment as, as far as I can see. 

Jonathan Green: I think that's a really good idea to think of an investment as something that increases the actual exit value of the company. Then you know, it's an investment. And I have been surprised cuz I've always hated SOPs and processes, but I've over the years had no choice.

But it's the only way to grow the company. It's the only way to increase the value. So I wish I'd been interested in it much, much earlier. But oftentimes I hear companies like the CEO's like, oh, we invested in personal coaching, or me going to a meditation retreat. Again, not a good, that's not an investment, that's just you spending something that feels good.

Because it doesn't, if you sell the company, it doesn't go with the company. That's personal investment. So this has been really wonderful. It's been really helpful. We've spent a lot of time together and I appreciate you giving me so much additional time. Where can people find more about what you do online and see how you help and help people plan and even maybe help people who are thinking about doing an acquisition?

Darryl Bates: A best place to find us is, is um, contact us through the website and the website is succession.plus p l u s, nice and simple succession.plus, we've got people on the ground in Australia, New Zealand, and the UK. Um, and we've got people, we've got relationships and affiliates in the US through our software platform, which is capitalized.

With a z and Noe on the end, so capitalize, um, and I'm sure we'll put the links on you on the website there. So lots of exit advisors, uh, use our software platform. 

Jonathan Green: Wonderful. That's really great. Thank you so much for giving your time. I really appreciate it. 

Darryl Bates: Hey, it's been my pleasure. I love talking about Exit love helping business owners prepare their business so they can maximize evaluation and exit on their terms.

And that's what it's all about at the end of the day. 

Jonathan Green: Great. Thank you so much. Thanks for listening to today's very special episode. There is nothing more valuable to your business than your mailing list. This is where I make the majority of my income and allows me to speak to my followers every day. Let me accelerate your growth with my 100% free guide list, building turbo at servenomaster.com/turbo.

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