The Wise Exit

George Sandmann - Episode 66 | CASHING OUT M&A PODCAST

00:00:00:09 - 00:00:27:20
George Sandmann
We as business owners look at our business from the perspective of our career. Right. But that's the wrong way to look at it. You need to look at this business from the life span of your company. And your company needs to be immortal right after you leave. It actually has to be better than it is with you in it, because if it won't be better without you than it is today, if you do not build an engine that will go further, faster, bigger, stronger than it is with you in it, then the business doesn't have future value.

00:00:27:22 - 00:00:48:23
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today, my guest is George Sandmann, an entrepreneur turned growth advisor after a successful exit.

00:00:49:01 - 00:01:17:09
Todd Sullivan
George shares his thoughts on creating business engines that deliver predictable profits, cash flow and sustainable growth, which creates predictable, transferable value and a more lucrative M&A transaction. And when it's time to sell your business. I hope you enjoyed my conversation with George Sandmann. George, thank you for being here today. I am very excited to be chatting with you, A fellow kind of athlete or somebody that has really built a business in sports, whether they worked or not.

00:01:17:09 - 00:01:53:07
Todd Sullivan
Right. The passion around sports is is really exciting to me. You've been part of the sea level of exits, companies selling, and so you've had kind of the firsthand look at what an M&A transaction is like, so much so that now you are helping our fellow founders, right, get exit ready. And I think it's an enormous topic and a topic that needs to sink in with business owners, that it isn't just, hey, I've got the financial metrics where I think my company is valuable, but what are all the other things that surround the business that actually make it transferable in a sale?

00:01:53:07 - 00:02:05:23
Todd Sullivan
And I know that is your expertise. I'm excited to dive in today and just so much so Mark Cuban had this spot on our podcast and I bumped him when I knew we could get you. So thank you. Thank you so much for being here.

00:02:06:04 - 00:02:13:14
George Sandmann
Well, please thank more for me and thanks. I really appreciate being here and looking forward to our conversation.

00:02:13:16 - 00:02:28:19
Todd Sullivan
So I think the best thing is to give us your background, right? You've been an entrepreneur, you've tried a lot of things. And so take us back from the beginning when bug hit you and you kind of jumped into your first first venture. Even before that, you tell it, you start where you want to start.

00:02:28:21 - 00:02:50:21
George Sandmann
Now, I we'll start there. I mean, I come from a family of entrepreneurs and which will sound strange. My old man was I worked for a large insurance company, but he was always off running his own kingdom overseas. And my brothers were both entrepreneurs. We are to this day. So I got into my first business in 19, right out of pretty much right out of law school in 1994.

00:02:50:21 - 00:03:08:12
George Sandmann
Yes, I'm an attorney. Don't hold it against me. And the button I got the bug that we built that that first business over the course of three and a half years. And this is going to be this is kind of a theme in my in my career. We had the we had the the bubble bust in that first bubble bust in the mid-nineties.

00:03:08:14 - 00:03:28:14
George Sandmann
And that business, we had a big outside backer in there. Their share price went from 40 some odd to $8 and stayed there. No happy ending, ended up working, getting hired by the CEO of another business down in Dallas. I was recruited to take business model from company one and fix it and he brought me in and we built an absolute winner.

00:03:28:16 - 00:03:47:08
George Sandmann
We grew our business from five guys sitting in a warehouse, you know, having a can of Bud on a Friday afternoon. We grew that over the course of just a little over three years. We absolutely crushed it. And I you know, you and I were just talking before the recording started that you're big pop should happen in your third year and on.

00:03:47:08 - 00:04:08:22
George Sandmann
And that's been my experience, 30 plus years as an entrepreneur. So we had a big pop, but we built a business called New Vision. We sold it to Tandberg. On concept Guys, you want to talk about an exit, get your buyer to buy you, and then build a business for them and so it was a sort of a riff on an earnout and sold that to Tandberg.

00:04:08:22 - 00:04:31:10
George Sandmann
Tandberg sold to Cisco eventually, and it was a it was an absolute homerun. So that was that was my first exit and took those took that experience. I was hired by the CEO of a rapidly growing business that had just finished that. It finished a series and was was in the middle of negotiating a series B, There was a real expansion of the business.

00:04:31:10 - 00:04:57:10
George Sandmann
This was not A we failed with the series. A This was we use that money and now we're going to do something else. And it was very exciting. It was in telecommunications and video conferencing. When video conferencing used to run over copper, remember copper wire everywhere we moved from copper wire to IP. So you move from a by the minute business model to an all on all the time business model that is that's selling on value.

00:04:57:10 - 00:05:17:06
George Sandmann
Right. You have to you have to create value and deliver value to your clients because your by the minute model is going away. So we built that up. Actually, it was interesting. We acquired it. If you read Patrick Lynch, you own his book. The advantage of this business is in there. It's on page 23 or 26 as a cautionary tale.

00:05:17:08 - 00:05:41:03
George Sandmann
And it's a cautionary tale because we acquired two businesses and had the incredible wisdom to keep both of their senior leadership teams. So if you're doing acquisitions as part of your growth strategy, you should think long and hard. It'd be my big, big admonition. Think long and hard about who, if anyone, you want to keep from the former leadership team, and that can be very amicable.

00:05:41:08 - 00:05:45:16
George Sandmann
It can also be very toxic. And this experience, it was very toxic.

00:05:45:18 - 00:06:11:14
Todd Sullivan
Can I stop you there just for a second? So, you know, that's interesting. We have transactions where we will help a founding team. They find their buyer, we negotiate. What we find is that the buyer has purchased companies that are competitive to our client. Right. So it's not only that your management team, you have to decide who is going to go over to the other side and what their roles are going to be and negotiate employment agreements.

00:06:11:16 - 00:06:38:09
Todd Sullivan
It's who you're going to be working with, right? So you've been in intense competition for the last ten years with a group on the other side that is going to be that can be oftentimes difficult to mesh the cultures and that competitiveness of two organizations. So I bring it up only to be very aware when you're looking at a buyer, what is kind of post close look like from a work environment culture standpoint?

00:06:38:11 - 00:07:00:05
George Sandmann
Yeah, absolutely. And as you might be accepting an earnout as a which is fairly common, right, as the founder and CEO is, you might be considering an earnout understanding with whom and for whom you're willing to work is critically important because the life after the transaction, especially if you're still in the business, is a very, very different world right.

00:07:00:05 - 00:07:09:10
George Sandmann
And there are literally support groups for those CEOs. And and there's a reason for that. You know, it can be very successful. But in a similar be where.

00:07:09:12 - 00:07:38:13
Todd Sullivan
I love when our guests are willing to share the failure side of things. Sure it feels like you have really gone in and grown businesses had some pops over those third years and it's not Maybe the business model does work, but something else, whether it's timing in the market or whatever is is derails some of these businesses. Maybe you could share a little bit more of like what blindsided you guys when you clearly have the expertise for building value.

00:07:38:15 - 00:07:40:04
George Sandmann
You mean in that specific business?

00:07:40:04 - 00:07:41:16
Todd Sullivan
Yeah, that specific one.

00:07:41:18 - 00:08:16:22
George Sandmann
Well, the in that business and I have another failure that I'd be happy to be happy, unfortunately, who would be able to talk about and it's but in that business we ended up having so many chiefs at the table that No one it became just a, just a series of political fiefdoms and literally the the people that we had out competed, the people we had defeated in the marketplace and that we purchased for their Rolodex, for their customer list and for their call centers, ended up being on the management team and having a very active role on the management team.

00:08:16:22 - 00:08:42:21
George Sandmann
So imagine having three separate management teams inside a business with all of their previous relationships. It was an absolute mess. And you know, one of the things that I'm very passionate about is making sure that you have an effective senior leadership team in your business as you prepare for M&A. The as a as it is, as it becomes less and less dependent on you, the founder, I can't overstress how important that is.

00:08:42:23 - 00:08:57:08
George Sandmann
And you know, in that instance, it ended up cratering the business. I was happy. I took I took a buyout and I took a buyout and use that money to start a business. That ended up actually going very, very well before it went poorly.

00:08:57:10 - 00:09:25:04
Todd Sullivan
Well, I appreciate I appreciate you saying that. For me, it's two things. You can have the right culture and build transferability and build real value in your business and get acquired. And if you're getting acquired by the wrong group, that is going to have too many chiefs in the tent, then that's going to cause problems. And if you are relying on an earnout that is now dependent on people that don't have the same culture or competed against you, that can be problematic.

00:09:25:04 - 00:09:36:19
Todd Sullivan
And I feel like a lot of times that doesn't come out in M&A transactions unless you have really good guidance, real knowledge of the buyers, and you're doing reverse due diligence, right? When the buyer is doing due diligence on you.

00:09:36:20 - 00:09:57:05
George Sandmann
You just anticipate in my next point, Todd, a lot of people view due diligence as a buyer's bailiwick, but this is a two way street. You need to understand very, very clearly who was acquiring you, who you were selling to, and what the world will look like afterwards. And I believe that that is that growing realization and often misconception.

00:09:57:05 - 00:10:19:14
George Sandmann
TODD How often have you seen deals blow up, you know, at the altar and and they blow up often because the CEO, the founder, doesn't get cold feet, but just gets so uncomfortable with what's going to happen with the business and all the people they care about very deeply after the transaction. They just pull the plug and say, Hey, I'm happy with the way things were due.

00:10:19:14 - 00:10:26:08
George Sandmann
Diligence is a two way street and you you definitely owe it to yourself to understand very, very clearly who's acquiring you.

00:10:26:10 - 00:10:45:04
Todd Sullivan
I think, you know, for us, our model serves that purpose really well, because when we introduce buyers, when our investment bankers are introducing buyers, these are buyers that they know, they know how to function. And we have a transaction right now, and I can't say who the buyer is, but their mantra is do not break what we buy.

00:10:45:06 - 00:11:08:03
Todd Sullivan
And so they buy competitive companies, but they keep them separate. They're run entirely separately. But there might be some synergies around our supplier base or they might kind of consolidate pricing or they may trade, you know, different customers. One moves up into the next level when a customer might think that their goal, they're leaving a company and going to another, they're actually staying within the family.

00:11:08:08 - 00:11:23:18
Todd Sullivan
And I think that we knew that ahead of time. We knew that ahead of time because of the relationship the banker had with the buyer. So there isn't a situation where a founder gets to the goal line and feels like, Oh, no, I didn't know, I didn't know what to expect and my people aren't going to be treated well.

00:11:23:20 - 00:11:29:23
Todd Sullivan
So you got to get ahead of kind of some of the bigger stuff before you go deep into these conversations and negotiations.

00:11:30:05 - 00:12:05:08
George Sandmann
You know, I work with advisors every day. I worked with investment bankers and business advisors. And the point, you know, something that's that's implied in what you just said is, you know, if as a business owner, you think you can go this alone or go this on the cheap, that is a big mistake. When you when a business hires someone like you, someone who has their best interests at heart, you are going to make sure that they're well cared for and that the buyer is going to be happy and that that is the benefit of using really good advisors and investment bankers because they are vested in ensuring that the transaction is successful.

00:12:05:09 - 00:12:13:11
George Sandmann
Right. And is a good match because there's, you know, there's a lot of capital out there and it's just making sure that you get capital from the right source.

00:12:13:14 - 00:12:20:16
Todd Sullivan
Well, thank you. So I kind of cut you off on your entrepreneurial journey, so maybe you could kind of pick it up and take us to where you are today.

00:12:20:18 - 00:12:53:22
George Sandmann
Yeah, thanks to. So after I got a little decade of really hard charging, really hard charging, and I had toddlers and I decided to shift my career and got into a new space and I got into sporting goods. And I'm a very, very passionate rifleman. Hunter And I decided to I actually wrote a business plan that I meant that I was going to take to the Big three Ruger Remington and Winchester back in the day, and to prove that I had the chops to work in it, to bring my skills to them.

00:12:54:00 - 00:13:13:18
George Sandmann
And as we worked on the business plan, we decided that it actually had legs of its own, raised some capital and took that to market and was very successful. And again, in about year three we broke through that. That magical line, the million dollar line, which in the custom rifle world is a big company and and continued to grow.

00:13:13:18 - 00:13:50:00
George Sandmann
I mean we we were exceptionally lucky with our timing and and I'll brag a little little skill in positioning the business to take the fight to a business to it a competitor who had it had the market to themselves. So fast forward, we get to 2008. We all know what happened. And long story short, based on even though we had raised an additional round of capital 2008 for, you know, for luxury sporting goods, these are our arms from our average ticket was 11,000 for up to over $100,000.

00:13:50:02 - 00:14:15:00
George Sandmann
The guy's appetite for buying those toys, at the end of the day, most pieces of sporting gear dried up. And that business I flew into the side of the mountain and it is a great shame. And I'm still sad for what happened to my stakeholders, my many stakeholders, my suppliers, vendors, distributors, employees. It is a terrible, terrible thing to have to go through.

00:14:15:02 - 00:14:31:18
George Sandmann
I fought tooth and nail. I ended up filing personal bankruptcy. A lot of us, you know, many of you guys listening to this will be nodding your heads. A funny story, by the way, that business we started in Dallas, the second business sitting around, I'm a young kid. I'm in my early thirties, I think at the time now late twenties.

00:14:31:20 - 00:14:54:06
George Sandmann
And we're talking having that kind of Budweiser are talking about and the guys were trading stories. These are guys we barely turbochargers and, you know, a couple of helicopters trading stories about their first bankruptcy or their second bankruptcy and some really desperate times. And I sat there, I remember hitting me like, oh, my gosh, this is the life that I'm signing up for.

00:14:54:09 - 00:15:15:02
George Sandmann
And and I just stayed on the line. Yeah. So, so if anything, I that one failed. And it was a terrible it was some very, very valuable lessons, but it failed. You know, the only good thing I have to say is that my shareholders remain friends to this day. And a lot of the guys I worked with remain friends to this day.

00:15:15:05 - 00:15:20:15
George Sandmann
And I know I disappointed a lot of people, but that that's part of being an entrepreneur, right? You know.

00:15:20:17 - 00:15:43:11
Todd Sullivan
It's also part of being a sophisticated investor, right? You're making some big bets. They're betting on you. And a lot of things are not going to go your way. You know, mean, it sounds like you gave it absolutely everything you can. I can see being really tied up in that artisanal product. Right. It's like the Stradivarius of your of your industry in the sports industry.

00:15:43:13 - 00:16:09:00
Todd Sullivan
That's a tough one, right? I built and sold a business to the Amerigroup right, the consolidator of big sports brands. And so I lived that world. And it is tough. I think that one gave me the lesson of like when to get out, when you know that the size of how big, how big this business could get as a ceiling and knowing that, you know, a partnership is the thing that really will take it to keep it surviving and take it to the next level.

00:16:09:02 - 00:16:32:17
Todd Sullivan
And, you know, I know the ownership of Scott fly rods, right? So something similar, really kind of beautiful, beautiful product for people that are so passionate about a sport. Right. The outdoorsman, we actually have great investment bankers in that space, not only selling the product, but selling the experiences. And so I'm, you know, I'm I'm sad, right, that that doesn't exist anymore.

00:16:32:18 - 00:16:40:22
Todd Sullivan
Well, thank you. So, you know, what's next? You know, you're you're licking their wounds, but, you know, you've come up for air and you're finding success.

00:16:41:03 - 00:17:06:02
George Sandmann
Sure. Yeah. So? So yeah, a couple of years of of soul searching and doing and, you know, and, you know, because I'm a junkie helping build another business, which which became very successful relatively quickly, I will say in mostly due to the skill of my partner. And she was, she was very skilled entrepreneur in her space and and you know and serendipity, right.

00:17:06:07 - 00:17:20:20
George Sandmann
How much how much in life is serendipity? And there's a an ad in the paper, Hey, we're looking for some I'm kind of casting around for something additional to do. And it was my partner actually said, hey, I saw this ad, you might want to go and talk to this guy. Just, you know, at least a guy you should know.

00:17:20:22 - 00:17:59:22
George Sandmann
So I sit down. Long story short, I end up being introduced into this industry, and that was about 12, 13 years ago and came on, as you often do, came in as a consultant, as an and converted that consultancy. Right. I distinguish consultant from advisor, a consultant is a wrench turner Right. I came in to audit and suggest fixes for a sales and marketing program and then, you know, that morphed into being an advisor and just started to, you know, to give strategic advice to the business, getting hired, becoming a very close friend and confidant with the CEO.

00:18:00:00 - 00:18:22:05
George Sandmann
And when things were good, that was good. You know, long story short, I ended up being in a place where I could where I could start my own business in the same space in collaboration with that private previous business. And that led me to with Founding Growth drive. And we found a growth drive two years ago, Growth drive.

00:18:22:05 - 00:18:45:21
George Sandmann
So I've been an advisor to advisor for about 12 years, a little over 12 years. And in that time I had a good fortune to work with over a thousand senior professionals. We tend to attract people with, you know, 25, 30, 35 years of experience, one a little gray hair, and we help them deliver wins for their clients.

00:18:45:23 - 00:19:17:09
George Sandmann
Now, as you're doing that, as you're working with a you know, over a thousand advisors on thousands and thousands of cases, a lot of things start, you know, the human brain makes connections, makes takes the puzzle and fits it together. We see the patterns. And that's actually what led to to my leaning into helping advisors deliver success. And I you know, I have a personal vision that private business is the engine for the pursuit of happiness, right?

00:19:17:10 - 00:19:37:02
George Sandmann
Private business is the only way that we can make a bigger pie in which everyone democratized wealth. And when I say democratize wealth, I do not mean I'm a capitalist to the bone. I do not mean take it from one and give it to another. I mean create more and share it equitably and and not share it equitably.

00:19:37:02 - 00:19:57:18
George Sandmann
Because the government told me to shared equitably because it's good for me, my family, my stakeholders, my employees, etc., and the communities in which we live. And that's my personal vision. Now, with that vision in mind, a lot of us as entrepreneurs, we don't know what we don't know, right? I got good advice in that business that I flew into the mountain.

00:19:57:18 - 00:20:21:05
George Sandmann
I got some good advice from my fractional CFO I ended up not taking because it wasn't convenient to take it. How do we help? If someone had helped me understand how good the advice was, I might have taken that advice and things might have turned out. 2010 was a terrible time for all of us. How do we help business owners understand that they need to put their hand up and call you right?

00:20:21:07 - 00:21:01:23
George Sandmann
And call advisors, call someone and say, Hey, man, we're stuck to so many businesses are stuck and bring this around to exit and transferable value. But if it seems to me that unless we can get CEOs to sit up, that we can help business advisors educate CEOs about what they're doing right and they can leverage and what they're not doing right or not doing at all, which are bottlenecks to growth, bottlenecks to transferable equity value, then we won't really be able to to create a marketplace, to be mortal businesses, because something that's implicit in what we've had this conversation today.

00:21:01:23 - 00:21:31:02
George Sandmann
Todd in Tucson, What you do is we as business owners look at our business from the perspective of our career, right? But that's the wrong way to look at it. You need to look at this business from the life span of your company. And your company needs to be immortal right after you leave. It actually has to be better than it is with you in it, because if it won't be better without you than it is today, if you do not build an engine that will go further, faster, bigger, stronger than it is with you in it, then the business doesn't have future value.

00:21:31:08 - 00:21:33:02
George Sandmann
Does that make sense?

00:21:33:04 - 00:22:04:11
Todd Sullivan
Absolutely. I think what's hitting home for me is that as a serial entrepreneur and many of our listeners are serial entrepreneurs, I found it very difficult to bring in coaching. Sure. And now, knowing what I know, the benefit of that coaching would have been substantial. Building businesses that are transferable are excitable is a different skill set than building revenue, paying your employees and taking home, you know, a nice salary.

00:22:04:13 - 00:22:27:07
Todd Sullivan
I like the way you're saying it that the businesses need to be immortal. And I've gotten to the point in my career where that that is absolutely the way I think. How can this business run without me? How do we get it to that point? Because I see it as a child that will go off on its own and I will get to watch the benefits and the growth of that business.

00:22:27:13 - 00:22:51:20
Todd Sullivan
And the last business that I sold does that today, and it's really fun to look at it like, yeah, it was set up to grow it. It continues to grow. In other hands. You've derisked it for the next party substantially and it just keeps going. That is, that is very, very rewarding. I would love to take that that line into this idea of creating a business that is really transferable.

00:22:51:20 - 00:23:06:20
Todd Sullivan
And how you think about there is there's value that founders think they have built and then there is transferable value. And I think you're one of the few guys that that really have thought a lot about this and teach this. So I'd love to kind of let you riff.

00:23:06:22 - 00:23:28:14
George Sandmann
Okay. Thanks, John. I appreciate it. And I have indeed. I know we just I was very lucky. I had Forbes pick up my book published. It's doing really well. You know, Todd, what's due diligence exist for right? As CEOs, we view due diligence is as a seller. We view it as a pain in the butt. And we I mean, we scream, we resist, We quit.

00:23:28:14 - 00:23:53:12
George Sandmann
We have a tantrum. You know, due diligence is is a challenging process even for the best of companies. But why does due diligence exist? It exists so that the private capital markets can understand what they're buying. Right. The private capital markets want to buy low risk businesses. Put another way, they want to buy businesses in which they have high confidence in future growth rate that the business is going to grow in value.

00:23:53:13 - 00:24:21:07
George Sandmann
Revenues implicit but value, right? Shareholder value is the name of the game. So if we think about building a business that can check all the boxes on a due diligence checklist, yeah, yeah, we do that, we do that and we can prove it. Yeah, we have all that, we have data. Then we have built a business that from the private capital markets perspective is going to is in all likelihood we can have high confidence is going to grow in value going into the future.

00:24:21:09 - 00:24:42:20
George Sandmann
Cool. Now let's bring that back to how we as entrepreneurs view the world. We view the world in terms of growth and cash flow, right? And we want to grow cash flow. We want to grow profits, we want to grow our margins. All that's the world we live in and we focus on. And that's what I call the two to first two dimensions of business growth, right?

00:24:42:22 - 00:25:10:00
George Sandmann
Having an engine that will create predictable cash flow that we can then invest. Imagine, ladies and gentlemen, as you think about this, imagine if your cash flow was predictable and then you can invest that money into growth. Because let's face it, outside capital is very sexy. But most of us grow using our own native organic cash core. A business that can pass through due diligence has high strategic capacity, and strategic capacity has two elements.

00:25:10:00 - 00:25:34:10
George Sandmann
One is growth. Capacity is what I just referred to. It refers to cash and growth, but there's also value capacity and value capacity goes to your M&A preparedness. How well can you instill confidence in a buyer that your business is the best? It's the one they want, the company they have to have because it fits in the company they have to have?

00:25:34:12 - 00:25:57:22
George Sandmann
Are they going to pay you the lowest multiple, the middle multiple? Are they going to pay you above the highest multiple? And if you sink above the highest multiple, you're headed in the right place. These best in class businesses become, for example, the platforms that private equity purchases two as the as the locus of a role. Now we live in a gross capacity world.

00:25:58:00 - 00:26:19:07
George Sandmann
We need guys, you know, we need to better understand what creates value. Capacity in value capacity is all about confidence, right? Being able to and I won't get into it in detail, but these are the things that are going to create agita in a in a deal, Right? Well, you know what? You know, okay, so fine. We never had shareholder meetings.

00:26:19:07 - 00:26:47:02
George Sandmann
What are the businesses growing? And well, you know, the fact that you never had shareholder meetings is a real problem. You know, it's that kind of it's intellectual property and in contracts with your key suppliers and I can tell more stories, but but we as entrepreneurs need to understand that just because we've created an engine that is generating cash for us and we have a good lifestyle and a fast car and a big house and great vacations, that's all fabulous.

00:26:47:04 - 00:27:07:01
George Sandmann
I imagine if you built that business with one customer now, is the market going to view that right? How can you sleep at night? So there's the way that you view your business and experience your business and the way the market will view and experience your business. And they're different, but you can make the link, right? That connection is purposeful.

00:27:07:03 - 00:27:35:12
George Sandmann
It is well understood. And how does private equity make money? Private equity makes money by buying businesses that they understand very, very well. Thank you. Due diligence. And then they change the things that need to be changed to increase the value. Sometimes without moving revenue meaningfully. Right. They don't sex couple the business but they they will see their they will hit their return parameters and sell the business upstream.

00:27:35:14 - 00:27:37:23
George Sandmann
Immortality. It makes sense.

00:27:38:00 - 00:28:08:21
Todd Sullivan
Yeah it does we we take maybe not as sophisticated or cerebral view of the way you are talking about transferability I we tend to break it down into risk. Right. So at the heart of it, the buyers are buying your future cash flows. And how at risk are those assets? Right. Your cash flows because the financials tell a story and then we start to look at you brought up one customer concentration and if all your revenue is coming from one customer, very, very risky supplier concentration.

00:28:08:21 - 00:28:39:22
Todd Sullivan
Right? If the world shuts down and you can't get products from China and you don't have a backup supplier, right, the business is at risk. And we built out on our site a valuation calculator that has elements of how value drivers and they really are kind of risk assessments of a business. And when you play with them, whether it's the strength of the management team, customer concentration, pricing, power, IP, when you play with them that you're strong or you're weak, you can see how they change the value.

00:28:40:00 - 00:28:41:17
Todd Sullivan
And it isn't so much the.

00:28:41:17 - 00:28:41:21
George Sandmann
The.

00:28:41:21 - 00:29:04:14
Todd Sullivan
Quantitative nature of the calculator as it is. You need to be thinking about these things because your buyer is thinking about these things. Multiple buyers are thinking about these things and the best outcomes come from the businesses that are most transferable. They're most derisked because they bring the most buyers to the table and it creates competition. So, I mean, I love how you're thinking about it.

00:29:04:14 - 00:29:26:15
Todd Sullivan
You have a game plan. We're really just an assessment of that. And we can say yes, yes or no. You are risky or not risky, but you've got a real way to say, All right, you are, you are here. Let's take you to the next step and beyond. So so founders can create the exits that they deserve when it is time to transfer.

00:29:26:17 - 00:29:51:03
Todd Sullivan
So, yeah, I mean, I'd love to learn more, right? I know we're talking high level at this point, but I think maybe these podcasts are not the right place for the truly actionable things. But could you maybe distill it down into what are kind of three things that a business owner really should be thinking about to build Transferable value in their business?

00:29:51:05 - 00:30:14:19
George Sandmann
It's a great question. So keep it to three. So one is plan. And my my advice would be, you know, one, you need to understand how much value you need long before there's a transaction. You need to be thinking about this long in advance. Three years is a great is a great sort of rule of thumb. Time is even better.

00:30:14:21 - 00:30:35:11
George Sandmann
And and as you're as you're looking at the business, you know, it comes down to record keeping. You know, I know it sounds are you keeping good records records that that are kept in the way that that the industry would expect them to be kept you even know right. A lot of us don't we've just got our ways of doing things and they work for us and that's happy.

00:30:35:11 - 00:31:00:18
George Sandmann
Well, are you are you keeping especially your financial records in a way that the market will recognize and be able to easily digest? I mean, if you don't know what that is, get some very inexpensive advice from your CPA today and then keep records, keep score over time and start using data to manage the business right. We advocate using what we call business flow.

00:31:00:18 - 00:31:36:17
George Sandmann
It's a it's a scorecard, right? None of what's on there is revolutionary is, you know, what's our gross revenues, our margins net income, EPR, etc.. Importantly, how are we doing with predicting for financial performance? And then what is our actual performance and track that? Because if you can imagine putting that all in a three ring binder and pushing it across the table to a buyer, imagine having all that data to digest as a senior leadership team and imagine the changes that would allow you to make to the business, the things that it might.

00:31:36:23 - 00:31:48:06
George Sandmann
You know, you might shine a light on. It all comes down to, you know, you need to be able to say yes, and we can prove it across all of the value drivers of the business.

00:31:48:08 - 00:32:16:06
Todd Sullivan
Yeah, I like that one because, you know, if you're truly collecting that data, not only is it a great way to be able to view your own business and make real business decisions, but you're giving true insight to a buyer and it might might even break that data down by customer channel, right? Or acquisition channel, customer size. When you can start slicing and dicing and proving you can look at the business this way or this way, and this is how we made this decision.

00:32:16:08 - 00:32:28:16
Todd Sullivan
You build so much, you use the word confidence and confidence in the ability for the the ability for the next owners to take the reins and continue the growth. Yeah, those are those are great answers. Thank you.

00:32:28:20 - 00:32:49:15
George Sandmann
If it comes to predicting just really quickly, it comes to predictability. So don't be looking in the rearview. Try to create a world in which you're not looking in the rearview mirror to see how you're doing. You're looking out the windshield and you're predicting accurately how you're going to do and you're predicting improvement and you're predicting it accurately.

00:32:49:19 - 00:32:58:17
George Sandmann
And also, you know, we're entrepreneurs. We never sandbag. We don't sandbag because people will see straight through it. Yeah, we're going to grow at 2%. Well, congratulations. Yeah.

00:32:58:22 - 00:33:21:09
Todd Sullivan
So let me let me ask. So you've been part of many M&A transactions, not only as the management team, but now you're helping businesses get there. What do you see as kind of the hardest shift for entrepreneurs to make when they come and hire you or the advisors that you advise? What are the easy wins and what are the most difficult things that you see?

00:33:21:11 - 00:33:26:19
Todd Sullivan
Shifts that are not being made that are hurting our founders today when they go to sell.

00:33:26:21 - 00:33:51:14
George Sandmann
The long before an M&A transaction? One of the hardest hurdles to overcome is transparency, right? Yes. In a business that is transparent is a business is a good business. You have to have the confidence and the strength to be transparent with your people. This does not mean you have to broadcast your financial results to the world. But look at public companies and public companies.

00:33:51:14 - 00:34:08:05
George Sandmann
We can, you know, more or less they are the best of the best right now. Public companies, there's very little that they do not share with the public. Coke doesn't share their recipe, but you want to know how many gallons of Coca-Cola were sold last year or cans or metric tons or whatever you can find that out very quickly.

00:34:08:07 - 00:34:33:17
George Sandmann
Business owners, privately held businesses, and I do not care if you're on Main Street or if you're, you know, well up into the middle market, free middle market, middle market, you need to you need to let go and be transparent and learn to trust your your senior leadership team and your rank and file with with business data. And I think that, to my mind, is the number one.

00:34:33:18 - 00:34:41:08
George Sandmann
Mm hmm. Let go so you can win. I think Gino says, you know, let go of the vine. It's good advice. You've got to let go of the vine.

00:34:41:10 - 00:35:00:18
Todd Sullivan
And you see that as one of the hardest things for for entrepreneurs to really accept as that level of transparency, because you're starting when you start, everything is close to the vest, right? You're trying to keep it away from competition. And, you know, I mean, I guess that's just part of who we are. We keep it close to the vest and then sharing more internally is kind of it sounds like the first step.

00:35:00:23 - 00:35:09:10
Todd Sullivan
And that leads to a lot better record keeping and that transferability to the next buyer like we talked about. Or is there something in between I'm missing?

00:35:09:15 - 00:35:28:02
George Sandmann
So so Tod, let's imagine from from transparency. Imagine if rather than sitting down with the, you know, the sales and marketing team and looking at their numbers and sitting down with production leaders, etc., etc., imagine if we have it all. You know, you're in your Monday meeting and you have a scorecard that has that has your revenues, it has your, you know, your cash flow.

00:35:28:06 - 00:35:51:15
George Sandmann
It also has your lead gen. It has the value of your sales pipeline that that's quantified by stage that, you know, that we're looking at our our net promoter score or other customer set numbers and we start as the CEO, which you really want to be able to do. Aren't you tired of telling people what to do? How would you like it if you in a relatively short period, rather than telling people you can rely on them?

00:35:51:18 - 00:36:18:05
George Sandmann
All you need to ask is why? Well, if this if the marketing numbers are up, why aren't we closing more deals? If we're closing more deals, why are we shipping? You know, I'm simplifying, but get yourself as the CEO. You are. The fundamental role of the CEO is to maximize shareholder value if you're the shareholder or one of many, but maximize shareholder value within the, you know, the constraints of the business's vision and mission core.

00:36:18:07 - 00:36:42:23
George Sandmann
You know, So now you have to create strategy. That's your role. You're that you are the strategic leader of the business and you should be asking why, not telling how. And so Todd took the hit on this point by by creating transparency, you are empowering your people to collaborate with accountability towards the success of the business. And we can talk about how we can make that success Good for them.

00:36:42:23 - 00:36:54:04
George Sandmann
And it should be a very directly like what's in it for them. But that transparency leads to collaborative accountability. And and it's it's, it's a game changer.

00:36:54:06 - 00:37:14:01
Todd Sullivan
Yeah. I would think for job satisfaction as well. Right. If you know if you can you know what numbers are important right management is put that the CEOs put that to you and you can work with others because the numbers are inherently visible to everyone. Right. You work together to hit the goals that are laid out there for you.

00:37:14:03 - 00:37:38:06
Todd Sullivan
Less less mystery in your job, I would think, look, this has been awesome. I don't want to cut it short. I want to be respectful of your time. Is there is there anything else that you want to share with with our audience about M&A and how, you know, you're you're helping business owners and advisors of advisors create great outcomes because that's that's what from our lens, that's what we see that you are doing.

00:37:38:08 - 00:38:00:10
George Sandmann
Sure. You know, there are so many topics that I could hit on, but, you know, I think it's really hard to be right. Pause and be then think about what you're doing and take the time to be intentional and think about what this business means to your family, what this business means to you, and really think about this.

00:38:00:10 - 00:38:20:09
George Sandmann
Write it down. What does this business mean to everyone who's involved in it and what does it mean? Be selfish? What does it mean to you? If you need to get $20 million at the deal table, write it down and understand that number and that that is the right number and then start working backwards. Right? The military says, Hey, we want to take X Hill.

00:38:20:13 - 00:38:40:10
George Sandmann
They start planning backwards from now, let's do the same thing, start and get outside advice. It is not hitting your peer. Now, this is balance sheet advice. This is you were investing in creating a happier outcome. And I'm not here to flog advisors. I'm here to say that you don't know what you don't know and that maybe what I should have said.

00:38:40:10 - 00:38:59:11
George Sandmann
That's the one thing. You've never done this before. Ask yourself if you're if you're doing $20 million of revenue with ten points and margin, have you ever run a business that was at 40 million with 15 points in margin? And if you haven't, ask yourself what you might need to know to get there and go get some advice.

00:38:59:11 - 00:39:02:19
George Sandmann
That's the get get some advice.

00:39:02:21 - 00:39:15:21
Todd Sullivan
George. That's perfect. Thank you. I really appreciate the time. This has been great. Is there any way people can get a hold of you? Maybe you could talk about your book for a second, but just yeah, if people want to reach out.

00:39:15:23 - 00:39:33:08
George Sandmann
Sure. I'm very easy to find my last name is Sandman and Sandy and the double and like it sounds. And so I'm fortunately or unfortunately very good global and I and I have I do have a book out there on Amazon you get this on the you know in.

00:39:33:09 - 00:39:34:15
Todd Sullivan
What's driving advisor.

00:39:34:17 - 00:39:53:08
George Sandmann
Business it's called the growth driving advisor It's doing very well. I'm blessed to have had the experiences working with advisors on these cases. And if you want to get hold of me, you know, just reach me through the company. And I am, you know, it's kind of my buzz phrase, but I'm happy to help, right? I am glad to help.

00:39:53:11 - 00:40:17:09
George Sandmann
Please call. And you know, you hear me say it and I put on a lot of videos. You do not need to be a customer of the company. Our vision in our vision as a business is to help increase capacity in the three dimensions of growth for $1,000,000,000,000 worth of privately held businesses. And I do not predicate that on folks doing business with us.

00:40:17:09 - 00:40:21:23
George Sandmann
I am deeply committed to hitting that vision. So that's awesome.

00:40:22:01 - 00:40:46:12
Todd Sullivan
Thank you, George. Yeah, really, really appreciate the time. Thank you for saying thanks. Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember exercise dot com and the Cashing Out podcast are for entertainment purposes only.

00:40:46:14 - 00:40:49:23
Todd Sullivan
This should not be relied upon as the basis for investment decisions.