00:00 picture this five years from now you're
00:01 holding a check for $50 million that you
00:05 created with zero money out of your
00:07 pocket sound good to be true well my
00:09 next guest is about to teach you how
00:11 this happens all the time for you
00:12 private Equity carnivores out there and
00:14 he's about to teach you and I how to do
00:16 it so that you too can enjoy your
00:18 pursuit of making billions let's get
00:45 hey welcome to another episode of making
00:47 billions I'm your host Ryan Miller and
00:48 today I have my dear friend Adam coffee
00:51 Adam is the three-time best-selling
00:52 author of Empire Builders the exit
00:54 strategy Playbook and the private Equity
00:56 Playbook he's a frequent contributor to
00:58 Forbes and has sold over over get this
01:01 $2.5 billion in private companies so
01:04 what this means is that Adam understands
01:05 how to buy companies for no money and
01:07 sell them for insane profits So Adam
01:10 welcome to the show man hey Ryan it's
01:12 good to be here you may not know this
01:14 but I'm a secret fan of the podcast and
01:17 so glad to be on here hello to all your
01:20 listeners out there nice to uh nice to
01:22 hear everyone or see everybody so uh hey
01:25 I'm I'm I'm I'm excited to be here let's
01:27 do this let's do this well it's
01:29 certainly an honor and and we've we've
01:30 done very well we're in the top 2% in
01:32 the world on this show and it's all
01:34 because incredible guests like you so
01:35 it's me being excited to have you my man
01:38 so before we get into that maybe just 30
01:39 60 seconds bring us up to speed what
01:41 you're up to and and and what you're all
01:43 about you know so I boy God so many
01:45 experiences in my life I'm an army
01:47 veteran you know military taught me
01:49 discipline teamwork leadership I I I'm a
01:51 I'm an ex-engineer a recovering engineer
01:54 call it so I'm a meticulous planner I'm
01:56 a pilot I don't take off unless I know
01:58 where I'm going and so I'm always
02:00 planning the exit you know planning my
02:02 hold period planning my company exit and
02:04 then reverse engineering it back I spent
02:07 10 years working for Jack Welsh in the
02:09 uh Camelot era of GE before Tech GE
02:13 world's largest company number one on
02:14 the Fortune 500 list growing so fast
02:16 it's doubling in size every 2.8 years GE
02:19 Jack taught me how to run a a a business
02:21 I spent 21 years as a CEO build in three
02:25 different National companies for nine
02:26 different private Equity sponsors buy
02:28 and build guy bought 58 companies uh two
02:31 and a half billion in exits as we said
02:32 and I just got bored I got bored
02:35 building one company at a time I had
02:37 been teaching at UCLA in the Executive
02:39 MBA program for 15 years um you know
02:41 started writing my first book and was
02:43 like I wanted to just change my Dynamic
02:46 instead made a lot of money being a CEO
02:48 but wasn't having any fun anymore love
02:51 teaching love giving back and I wanted
02:53 to try to flip my world around and so I
02:55 I I reinvented myself I told the world
02:57 I'm done being a CEO uh I started a
03:00 Consulting practice and my my goal is to
03:02 spend the rest of my life helping
03:04 entrepreneurs beat the odds become
03:07 successful and and show them the way not
03:09 because I'm a brilliant genius but
03:11 because I've already made every mistake
03:12 in the book A guy can make and so you
03:14 can learn from my 35 years of uh of
03:17 experience how to avoid the potholes
03:19 I've already stepped in I love that
03:21 thank you so much for that intro now you
03:23 are very good in many areas but one of
03:25 the areas that you're most known for
03:27 thanks to your books and your wonderful
03:28 knowledge you share is private equity
03:30 right it's kind of one in the title of
03:31 one of your books the private Equity
03:33 Playbook now when it comes to private
03:35 Equity really quick number one just
03:37 quick sentence or two what is private
03:39 equity and then we can jump into address
03:41 the beginners uh in the early stage so
03:43 what is private Equity so you know I I
03:46 tell most people who are are they've
03:48 heard the term everybody on the planet's
03:49 heard the term now very few people have
03:51 a good working understanding of private
03:53 equity and so I I tell people think of a
03:54 mutual fund think of you know you go on
03:57 your Schwab account your Fidelity
03:59 account you you go to Morning Star you
04:01 look at rankings you you pick a mutual
04:03 fund you you make an investment from
04:05 your your uh your eade account or your
04:07 Fidelity account or Schwab account and
04:09 uh and you along with a bunch of other
04:11 people's money is pulled together a fund
04:14 manager then buys a basket of stocks and
04:17 this has public you know it's publicly
04:18 traded there's instant liquidity you can
04:20 buy it today sell it tomorrow hold it
04:22 for 10 years whatever you want to do
04:24 you've got liquidity always available at
04:25 your fingertips private Equity is very
04:27 much like that except for you take the
04:30 the the liquidity you know component out
04:32 so it's it's think of a mutual fund it's
04:34 large scale investors typical minimum
04:37 investment $5 million you know kind of
04:39 minimum and you're tying up capital for
04:41 up to 10 years uh with no liquidity and
04:44 so fund manager or private Equity Firm
04:48 has a you know has a fund they're
04:49 raising Capital they bring in money from
04:51 a bunch of different people typically
04:54 it's University endowments it's public
04:56 you know Public Employee Pension funds
04:58 things like that Union Pension funds and
05:01 you know those are the biggest limited
05:02 partners are the people who contribute
05:04 money and so fund you know PE firm
05:06 collects all this money and then over
05:08 the next 10 years is going to invest the
05:11 money kind of in the first five years
05:13 and I'm talking about a buyout fund now
05:15 so we're buying companies they'll serve
05:17 as platform Investments over about a
05:19 five-year hold period will then grow
05:22 those companies both organically and
05:24 inorganically you know by buying other
05:26 companies doing buying builds mergers
05:28 and Acquisitions and as we build those
05:30 companies we'll then towards the tail
05:32 end of the funds life sell them and
05:35 return Capital plus proceeds minus you
05:37 know minus the PE firm's portion of the
05:40 profit you know back to the limited
05:42 partner investors and so it's very much
05:44 like a private mutual fund with a large
05:47 initial investment usually five million
05:50 and uh and it works over a 10-year
05:52 period with no liquidity brilliantly
05:54 said my man now for many people who want
05:56 to get into this industry maybe they're
05:58 angel investor or just you know High net
06:00 worth person or maybe they just want to
06:01 get their friends together and buy a
06:03 company you see a lot of people that are
06:04 starting to the it's the worst kept
06:06 seceret of finances private Equity these
06:08 days so everyone's saying hey like you
06:10 go on social media these days and you
06:11 have a lot of people that are doing
06:12 quite well and they're like hey buy
06:13 boring business go buy a bunch of
06:15 plumbing supply places roll them
06:17 together go buy a bunch of laundromats
06:19 and roll them together and have a super
06:20 Corp laundromat and I don't know so with
06:23 that with people who are just starting
06:24 out because we have emerging fund
06:26 managers investment bankers and and
06:28 people in high school I mean we got all
06:29 kinds of people listening to this what
06:30 would you say for people starting out in
06:32 private Equity two things number one how
06:34 do they win in the early days and number
06:36 two how do they not lose okay so first
06:38 of all let's just give some statistics
06:40 there's 33 million small businesses in
06:43 the United States today you know sba.gov
06:46 defines small business as 500 employees
06:48 or less that represents 99.9% of all
06:51 companies in the country and they employ
06:54 50% of the nation's Workforce and so
06:56 what's going on right now interestingly
06:59 enough enough is the largest transfer of
07:01 wealth in human history and so baby
07:04 boomers are aging out and many of them
07:07 are transitioning their life's work or
07:09 their business you know looking for a
07:11 buyer or they're just simply shutting it
07:12 down with no buyer found you know and
07:15 they're getting ready to retire and so
07:17 you know it's a great time in human
07:19 history right now for new people to step
07:23 into this game you know true wealth in
07:25 this country you know doesn't come from
07:26 working for somebody else it comes from
07:28 doing something on on your own you know
07:31 buying companies is a big piece of or
07:32 feeder of that so if you're new you know
07:34 I want to Stack the deck in your favor
07:36 so there's all kinds of companies out
07:38 there H where where would I look to
07:41 start and so let let's think about it in
07:42 this term you know let's think about
07:44 needs versus wants that's step one okay
07:47 so a company you know let's say it's
07:49 raining out which it is right by the way
07:50 it's I'm in Dallas Texas it's raining
07:52 outside right now if I had a hole in my
07:54 roof and there was water dumping on my
07:55 head I would have to need to fix my roof
07:59 you know that's a need but if I'm going
08:01 out to dinner on Friday night and I want
08:02 a new sport code my wife wants a new
08:04 outfit we're meeting friends but if I
08:06 got laid off on Thursday well maybe I
08:08 don't buy that new outfit I don't need
08:10 to it's discretionary if we're going to
08:12 buy a company if we're going to build an
08:14 Empire we want to start by making sure
08:16 that the company that we buy or the the
08:18 company that we start focuses on needs
08:20 not wants next step step two we want to
08:23 look at recurring versus project-based
08:26 Revenue so let let me give you a couple
08:28 examples you know uh let's say pest
08:29 control company there's a pest you know
08:31 I've got a pest control company I live
08:32 in Dallas because bugs here are as big
08:35 as Horses and you can put saddles on
08:37 these things and so Mama doesn't want
08:38 any bugs in the house so I sign a
08:40 contract and I forget about it with a
08:42 pest control company they hit my credit
08:43 card every month you know and charge me
08:45 their fee they charge me every month
08:47 because that way it looks like the fee
08:48 is smaller but they only come once a
08:50 quarter when they come they spray you
08:52 know the perimeter of my house to keep
08:54 bugs out and so that's a recurrent
08:57 contract there's a need they hit my
08:59 credit card the first of every month I
09:01 forget about it you know I don't care
09:03 when they find a customer a new customer
09:06 it's additive to the revenue that
09:08 they've already got from me and so
09:10 they're building their business they've
09:11 got contracted revenue and all of these
09:14 things needs versus wants contracted
09:17 Revenue versus project-based Revenue you
09:19 know if the economy Cycles down
09:22 companies focused on wants get soft
09:24 companies focused on needs are resilient
09:27 companies that have contracted Revenue
09:28 stream have this recurrent nature that
09:31 just makes them so much more predictable
09:33 so if you want to Stack the deck in your
09:35 favor we want to focus on needs not
09:37 wants recurrent versus project-based and
09:41 then I apply this thing I'll let you in
09:42 on a secret you know I I I PE firms hire
09:45 and pay me a bunch of money to come help
09:47 them evaluate Investments and I use this
09:49 thing I call the 302010 rule so I want
09:52 to make sure that when I'm analyzing the
09:54 finances of a of a business I'm looking
09:56 at their at their income statement I
09:58 want want to make sure they have at
09:59 least 30% gross profit less than 20%
10:03 sgna or or sales and general
10:05 Administration back office cost and they
10:08 better be making minimum of a dime on a
10:10 dollar at the bottom and if I kind of
10:12 line up all of these different criteria
10:15 you know I can I can tell you that you
10:16 know here again of those 33 million
10:18 small businesses only 7% get to a
10:21 million dollars in Revenue only 4% of
10:24 the 7% get to $10 million in Revenue if
10:27 I completely want to stack the deck in
10:30 my favor as an entrepreneur these are
10:32 the steps that I'm going to take when
10:35 I'm analyzing a potential investment to
10:37 make sure that the probability of My
10:40 Success is just exponentially higher you
10:43 can make money in any kind of company
10:45 but if you follow those Simple Rules as
10:47 a new new person just beginning I
10:49 guarantee you you won't lose and so
10:52 those are kind of my secrets for the the
10:54 the new folks out there who are thinking
10:55 about investing or buying a company for
10:57 the first time man that was a mountain
11:00 of knowledge thank you for that so folks
11:02 people pay this guy a lot of money a
11:05 small King's Ransom and he just gave you
11:08 a lot of what a lot of people get
11:10 charged for so if you ever have a chance
11:12 to reach out to Adam coffee please say
11:15 thank you for that all right so that
11:17 being said um yeah don't tell anybody I
11:19 just gave all my best secrets for
11:22 free he's very generous and generosity
11:24 is is one of those secrets that we also
11:26 give away as far as raising capital and
11:28 get to know people being a very generous
11:30 person does matter especially in this
11:31 industry now that being said I'd love to
11:33 transition our conversation a little bit
11:35 let's talk about the market what are you
11:37 seeing out there where's the market at
11:39 right now you touched a little bit on
11:40 some statistics maybe we can unpack that
11:42 where's it at and then maybe we'll
11:44 follow on with where you see it going
11:46 well you know in 2022 2023 interest
11:49 rates were climbing up in 2023 deal
11:52 volume and private Equity slowed down
11:54 and I want you to just keep this in
11:55 perspective you know when I was first a
11:57 CEO as a 30 7-year-old guy many many
12:00 moons ago at that time there was about
12:03 14500 private Equity firms in existence
12:06 there was about 800 billion in assets
12:09 under management today there's over 6
12:11 trillion in assets under management
12:13 there's like 8,000 firms out there and
12:15 so the world of private Equity has just
12:18 grown dramatically over the last 20 25
12:20 years and it's not because they suck
12:23 it's because they've been doing a really
12:25 good job at finding companies buying
12:28 companies building companies and
12:29 creating alpha or generating returns for
12:32 for their limited partner shareholders
12:33 and so private equity's been growing
12:35 like an absolute weed but because of the
12:37 high interest rates deal volume slowed
12:40 down in the first half of 2023 and a lot
12:43 of people were saying gez is there a
12:45 bubble is there is private Equity going
12:47 to slow down you know private Equity
12:48 right now is buying 50% of all companies
12:50 bought and sold on the planet and so for
12:52 entrepreneurs who are selling businesses
12:54 even if you don't sell to private Equity
12:56 it's because of all that private Equity
12:58 activity that a market exists that's
13:01 paying these you know higher multiples
13:03 and really really setting entrepreneurs
13:05 up for Success when they're selling
13:06 their companies so deal flow slowed down
13:09 first part of 2023 back half of 23 I
13:12 call it a game of chicken so you had
13:14 Founders who had high expectations for
13:17 what the multiples would be that their
13:18 businesses would sell for and they were
13:20 holding out for high prices buyers were
13:23 saying hey High interest rates you know
13:25 normally I use 50% leverage and I use
13:29 50% Equity but with higher interest
13:31 rates I got to use like 60 70% equity
13:35 and 30 40% debt you know to to buy at
13:38 these inflated multiples and so a game
13:40 of chicken was played to see who was
13:42 going to Blink first that's what slowed
13:45 down in 23 back half of the year just
13:48 recently money started to flow again and
13:50 actually I'll tell you the PE guys lost
13:52 the PE guys lost and Founders selling or
13:56 PE firms that were holding assets that
13:58 started to sell back into the market
13:59 they won multiples stayed really fairly
14:03 High didn't really come down that much
14:05 and there is one cardinal sin of private
14:08 Equity that a PE firm cannot overcome
14:11 and that is do not deploy capital and so
14:13 when limited partners they they you know
14:16 so I got a billion dollar fund A3
14:18 billion doll fund it's like all my
14:19 limited partners have committed this
14:20 capital and so by committing the capital
14:23 they don't actually send it in until I
14:26 buy a company as a PE firm or put that
14:28 money to work and if I don't put their
14:30 money to work not only do they not get
14:32 their double the stock market return
14:34 from me but they lost the opportunity to
14:37 invest that Capital somewhere else and
14:40 so now they're really pissed off at me
14:42 and if I go raise a new fund then all of
14:45 a sudden my old limited partner say you
14:47 didn't put my last money to work I'm not
14:49 committing any Capital to you and the
14:51 private Equity Firm has a really hard
14:53 time raising their next fund so the
14:54 cardinal sin of private Equity is don't
14:56 invest money which means this game a
14:58 chicken that got played in 23 in the
15:01 first half once once the back half of
15:03 the Year came it's like okay well we
15:04 lost got to put the money to work and so
15:06 2024 interest rates are supposed to come
15:08 down about 1% that's what the fed's you
15:11 know signaling that's what Wall Street
15:13 thinks is going to happen 2025 going to
15:16 come down about another point and the
15:18 FED fund rate will normalize somewhere
15:20 around 2.5% so we're going to have
15:22 downward pressure on interest rates the
15:24 next two years deal flow is going to
15:26 pick up right now this second there's
15:28 1.9 trillion in what's called dry powder
15:31 which is committed Capital looking for
15:33 something to buy right now this second
15:36 while we're talking looking for
15:37 companies to buy so I I'm expecting 24
15:40 to kind of get back to normal 25 there's
15:42 going to be some Tailwinds pushing deal
15:44 volume it's going to be a good couple of
15:46 years in private Equity says my crystal
15:49 ball well I love it man that was
15:51 phenomenal so interest rates you expect
15:53 them to decline a slower gradual
15:56 tapering and then kind of land around 2
15:58 and 1 half by 2025 all right 2.5 by 2025
16:01 faring unseen circumstances that you
16:04 know I mean there's Wars going on out
16:05 there there's all kinds of weird things
16:07 we're in a presidential election year um
16:10 this is going to be an interesting ride
16:11 you know so but generally speaking
16:15 biases lower interest rates next two
16:17 years deal flow increasing good time to
16:19 uh sell a company absolutely love it now
16:22 before we move on I'm I'm curious been
16:24 Dy to ask you do you see any sectors in
16:27 private equity maybe Services sectors
16:30 anything at all that you kind of that
16:32 you like or that you think is going to
16:33 be good or you think is not going to be
16:35 good like let's let's really drill down
16:37 on this Market thing where are you
16:39 seeing some of the the future growth or
16:41 Shrink whatever you think it's
16:43 interesting you mention that because I
16:46 I'll tell you that so many entrepreneurs
16:48 out there who want to do something new
16:50 they're overthinking life and they're
16:52 trying to think how do I start the next
16:54 great tech company or software company
16:57 or come up with a new ad and it's like
16:59 you know how do I change the world and
17:01 it's like you don't need to do any of
17:03 that you can look at some of the world's
17:05 most non sexiest companies and you know
17:08 in there you'll find a recipe for
17:11 Success so think about that framework I
17:13 laid out needs versus wants recurrent
17:16 contracted Revenue not project-based I'm
17:19 stacking the deck in my favor I applied
17:21 the 302010 rule so what kind of
17:24 companies meet that kind of criteria you
17:26 know I mentioned Pest Control pestol
17:28 controls one you know plumbers HVAC
17:30 electricians I think of you know
17:32 Landscape Maintenance boy there's
17:34 something that's not very sexy but it
17:36 checks every box that I just laid out
17:38 some some friends of mine recently they
17:39 subscribed to a service of done in Brad
17:42 street called Hoovers and they went on
17:44 Hoover and then they can search necis
17:46 codes NAIC codes or sic codes like every
17:49 time someone forms a business they have
17:51 to pick a code what code does my
17:53 business fit into and so there's this
17:56 giant database and for about 2500 bucks
17:58 a year for a license you can get on this
17:59 done in Brad street neis code or
18:02 Hoover's is the name of the product and
18:03 so they went through and started sorting
18:05 through like 15,000 different Industries
18:07 and and on this database was all kinds
18:09 of information about the average size of
18:11 the company the margin profile the
18:13 capital act you know capex intensity
18:15 level of the business you know what the
18:17 margin typical profile is it's like
18:19 people are sorting through you know and
18:21 different people come up with different
18:22 different results and so I usually run
18:25 people through an exercise Ryan and and
18:26 I tell them take a blank sheet of paper
18:28 make two you know three columns left
18:31 column what are your skills what are you
18:33 good at you know what you know hey I'm
18:35 analytical I'm great with spreadsheets
18:36 you know or hey I'm great at motivating
18:38 people you know I'm I'm a people person
18:40 it's like what are my skills and then
18:41 the second column in the middle what are
18:43 my passions and then the third column is
18:46 what kinds of companies and what kinds
18:48 of Industries would benefit from my
18:51 skills and my passions because if I can
18:53 get up in the morning and I've got I can
18:54 put my skills to work and I've got
18:56 passion about what I'm doing then my
18:58 chances for Success are exponentially
19:00 higher then I apply the needs wants
19:03 302010 contracted Revenue versus Project
19:05 based revenue and it's like very quickly
19:07 that I can start to come up with lists
19:08 of different kinds of companies and
19:10 industries that meet all of these litmus
19:13 tests you know I recently not too long
19:15 ago sold an insurance agency my brother
19:17 and I were were were were building we
19:19 owned it for 15 years um and so
19:21 independent insurance agencies was
19:22 another one that met all of these
19:23 criterias bookkeeping companies meet
19:26 these criterias private Wealth
19:27 Management compan meet these criterias
19:29 you know Pest Control meets this
19:30 criteria it's like it can run the Gambit
19:33 but when you apply these filters I call
19:35 them then you know we start zeroing in
19:37 on on Industries and companies that we
19:40 have a a higher probability for success
19:42 I like service companies the reason I
19:45 like service companies is they tend to
19:46 have very low Capital expenditures so I
19:49 don't have to buy a plant I don't have
19:50 to have a bunch of Machinery it's like I
19:52 need trucks and dudes you know and you
19:55 know it's a sprayer it's a long mower
19:57 it's you know these are not sexy type
20:00 companies but but the capital you know
20:01 Capital expenditures are low The Profit
20:03 margin's High you know in in my last
20:05 book I uh I built a mythical landscape
20:08 maintenance business in the book as a
20:10 part of Empire Builder and to build a
20:12 company with a million dollars in
20:14 Revenue it only required you know it was
20:17 $150,000 in capital expenditures and to
20:20 build a company with 10 million in
20:22 Revenue that was throwing off more than
20:24 1.5 million in free cash flow it took
20:27 about 1 3 1.4 million in capital so
20:30 really efficient less than a one-year
20:32 payback you know and I'm building a
20:34 business and an Empire that at some
20:36 point I'm going to sell for a multiple
20:37 of earnings and you know it's it's a
20:39 short road to a 30 plus million doll
20:42 exit a little bit longer road to a100
20:44 million plus exit but but the DNA makes
20:49 it so yeah so much more predictable and
20:52 so I I think for most people it's a lack
20:55 of understanding these things like needs
20:58 versus wants recurrent versus Project
21:00 based you know Services business because
21:02 it's low Capital expenditures it means
21:05 earnings or eitaa is going to be similar
21:06 to free cash flow you know and I can buy
21:09 a business rather than start from
21:11 scratch because it has a history of
21:13 earnings it's already got customers it's
21:15 proven that it can beat the odds you
21:17 know it can it can be that 7% that get
21:20 to a million or the the four of 4% of
21:23 the 7% to get to 10 million and so it's
21:25 like we really you know generating
21:27 wealth and being successful is not as
21:29 hard as people think once you understand
21:32 you know the mechanics of what it is
21:34 you're trying to do I love that and
21:36 that's absolutely the mission of this
21:37 show is to really liberate people and
21:39 and help them understand that you that's
21:41 that's the Credo the banner of Truth the
21:43 the making billions so we'll you know
21:45 we'll say look man people like yourself
21:47 and myself and everyone else on this
21:49 show we're here waving the same flag and
21:51 saying hey you can do this just follow
21:53 these steps try you'll be okay you know
21:55 what Ryan I've got a lot of friends who
21:57 are billionaires and there's
21:59 2,668 billionaires you know on the
22:01 planet today and there's 763 here in the
22:04 United States and I I've spent time with
22:06 several and you know I look at them I
22:08 look at you I'm in their house I'm
22:09 looking at where they live and I'm like
22:11 huh you know and I'm talking to them and
22:13 I'm friends with them and I'm like huh
22:15 these people aren't any different than
22:16 me they aren't any different than you or
22:18 anybody else in life it's like you can
22:20 do this people you know it it's get off
22:23 your rear end and start you know you
22:25 start being a doer instead of a Dre
22:28 and you'd be surprised at what you can
22:31 accomplish in a very short period of
22:33 time you know if you're armed with basic
22:35 knowledge yeah that's right and one of
22:37 the first things you can do read Adam's
22:39 books that's definitely a great place to
22:42 start sheep and I donate my royalties to
22:45 charity you know and so it's like 12
22:48 bucks you know you get all three
22:49 versions on Kindle I love that yeah and
22:52 so as the saying goes uh earners are
22:54 Learners so just always be reading
22:57 always just be about that process I
22:59 absolutely love it there's there's some
23:00 truth to that you know there when we
23:02 stop seeking knowledge and we stop
23:04 learning I learn every day you know I
23:06 learned from clients you know I I I
23:08 recently was working with a company and
23:10 I discovered something and and you know
23:13 and it's like I immediately ran to all
23:14 my other companies that I work with and
23:15 all the PE firms I'm like you got to do
23:17 this this is this works you know this is
23:19 this is impactful it's like I learn
23:22 every day you know don't ever you know I
23:24 call it the accidental arrogance of
23:26 success if you find success out there in
23:29 life you know we we have a we have a a
23:31 predisposition to want to just say hey
23:33 I've arrived I'm God's gift I don't need
23:36 to keep learning you know I I I don't
23:38 need help from anybody out there in the
23:40 planet it's like I learn every day yeah
23:42 I still learn every day and I have a
23:43 thirst for knowledge and if uh if I stop
23:46 learning I'm going to stop growing you
23:48 know as a human being so it's like be
23:50 thirsty for knowledge that you don't
23:51 have and be open to ideas because good
23:54 ideas come from everywhere that's right
23:56 yeah then the uh the enemy of of
23:58 knowledge is not ignorance it's the
23:59 illusion of knowledge so always be
24:01 careful of that folks always say look
24:03 there's always something more there's
24:05 known unknowns and there's unknown
24:06 unknowns but just be humble keep
24:07 learning no matter how much your how
24:09 many zeros in your bank account
24:11 hopefully it's more than just one zero
24:12 but either way don't have just the
24:14 illusion of knowledge just keep your
24:15 head down keep reading and foll guys
24:17 like Adam making billions all of that
24:19 stuff we're all here waving that Banner
24:21 trying to help everybody as best as we
24:23 can now that being said I'd love to just
24:25 transfer into maybe round third base on
24:28 and I'm wondering if you with all of
24:30 your knowledge I mean I mean working
24:32 with Jack Wells you've got billionaire
24:34 friends you've written all these books
24:35 you're speaking on stages you're doing
24:37 so many cool things with all of that
24:39 summarized I'm wondering if you could
24:41 leave behind maybe two or three things
24:43 that you find most impactful for people
24:46 aspiring to really make a difference in
24:48 the private Equity space what would you
24:50 say so I I I would say you know let's a
24:53 couple Concepts here boy I don't know
24:55 how many times people approach me and
24:56 say Adam my idea plus your wallet equals
24:59 greatness and I'm thinking boy if you're
25:00 after my wallet you just don't
25:02 understand my value because money's
25:04 everywhere money is literally everywhere
25:06 and if we don't have it but we need some
25:08 for our project all we have to do is
25:11 treat money well and if we treat money
25:13 well we'll get the disproportionate
25:15 amount that we need to get our project
25:17 done we'll let somebody else you know
25:18 treat it Tre treat it poorly and and
25:20 I'll tell you it's like once's better
25:22 for you to to to own an entire grape or
25:25 half a truck filled with watermelons
25:27 it's like you so so you know when you're
25:29 thinking about about business people
25:32 have a predisposition when they see the
25:34 potential of success before it even
25:36 arrives they're already starting to act
25:38 stingy they're already starting to to be
25:40 protective of and it's like boy you know
25:43 it's it's like you want to surround
25:44 yourself with good people who can help
25:46 you who can enable you and you want to
25:48 make sure that you are not the problem
25:50 or the reason your deals not getting
25:53 done you know it's like you want to
25:54 bring people in you want to be generous
25:56 and uh you know and until you have your
25:58 own Capital to fund your own deals it's
26:00 like you need to be good to people and
26:02 some Concepts that I I think basic
26:05 entrepreneurs you know need need to
26:07 understand or or grasp and so you know a
26:09 lot of entrepreneurs they build a
26:11 business they beat the odds and they
26:12 decide I'm going to sell my company you
26:14 know and usually they wake up on the day
26:16 they decide they're going to sell their
26:17 company and they haven't done any of the
26:18 prep work so that's another book it's
26:20 another another podcast but you know it
26:22 it's like they they they have some
26:23 preconceived notions look you know I'm
26:25 God's gift to this business and there's
26:27 no way I would ever consider being a
26:29 minority shareholder and and they see an
26:31 exit as a oneandone event and it's the
26:33 it's the end of the road I see an exit
26:37 as the the first rest stop on the wealth
26:40 creation highway so where you're getting
26:42 off Mr Mrs entrepreneur that's usually
26:45 where I'm buying 58 companies and just
26:47 getting started and so why sell a great
26:49 business once when you can sell a great
26:52 business twice or three times or like my
26:54 personal record selling the same company
26:56 five times in 13 years it's like you can
27:00 you can keep building the Empire that
27:02 you've started or that you've Acquired
27:05 and at the same time you don't have to
27:07 be the controlling shareholder to
27:10 generate wealth just remember two names
27:13 Jeff Bezos and Elon Musk what about
27:16 these two people well first of all
27:17 they're the two richest men on the world
27:19 in the world on the planet one only owns
27:22 10% of his company the only other one
27:24 only owns 13% and so if the richest
27:26 people on the planet
27:28 can become the richest people on the
27:29 planet and they can be minority
27:30 shareholders so can you and so these are
27:33 some things don't be stingy you know and
27:36 and make sure that you surround yourself
27:37 with good people be generous with the
27:39 proceeds and with capital and capital
27:41 will will find its way to you and it's
27:44 it's okay you know to not be the sole
27:47 owner of a company and to be a minority
27:49 shareholder and it's okay to keep going
27:52 and keep building something you already
27:53 know about and so you know I I get asked
27:56 a question a lot too uh Brian you know
27:58 one of the questions I get asked a lot
27:59 is when's the right time to exit when's
28:01 the right time to sell my company and
28:04 you know if PE firm is pretty much
28:06 programmed every five years I'm going to
28:08 about every five years that's how much
28:09 time I've got on average to to build my
28:11 companies and sell them but if I'm an
28:12 entrepreneur when's the right time to
28:13 sell and so I I created this rule of 130
28:16 and I wrote an article for Forbes about
28:18 it and it's the it it is the question I
28:19 get asked the most when's the right time
28:21 to sell and I tell entrepreneurs take
28:23 your age as a two-digit number and then
28:26 add to it the percentage of your net
28:29 worth that's tied up in this illiquid
28:32 thing that's known as your company and
28:34 so you let's say I'm 40 years old and
28:37 I've got 80% of my net worth tied up in
28:39 my company put those numbers together
28:41 it's 120 that's below my 130 threshold
28:44 you're good you can still keep on on
28:45 chucking along but hey I'm 50 and I've
28:48 got 90% of my net worth tied up in this
28:51 a liquid thing known as my company well
28:53 that equals 140 that's over the 130 Mark
28:56 and chances are are you're assuming too
28:58 much personal Risk by not diversifying
29:01 your own net worth and selling your
29:03 company at least selling you know some
29:06 type of stake in that company so that
29:07 you're cashing out your chips you're
29:09 paying some taxes you're reinvesting the
29:11 money and you're diversifying you know
29:13 against U an uncertain ver you know
29:16 future I'll call it and entrepreneurs
29:18 tend to do a couple things when we're
29:19 young we're aggressive and we
29:21 aggressively build our businesses we get
29:23 to be my age you know and all of a
29:25 sudden it's like we start making bad
29:27 business business decisions because
29:29 subconsciously we know that one day
29:31 we're going to retire we got a lot of
29:32 money tied up in our business and we
29:34 don't want to screw it up so because we
29:35 don't want to screw it up we get to
29:37 about 50 and we start making bad
29:39 business decisions we start getting
29:40 conservative and we're no longer really
29:42 growing our businesses we're we're we're
29:44 we're running a prevent defense trying
29:46 not to lose our business and so I even
29:49 find that if I if I I sell a portion or
29:52 even a controlling stake to a PE firm I
29:54 become a minority shareholder I keep
29:55 running the business but now now I'm
29:57 using somebody else's money I can get
30:00 aggressive again I've got asset
30:02 diversification and so you know I think
30:04 that that's also something that that we
30:06 need to uh to think about when we're
30:08 entrepreneurs I love that so the rule of
30:11 130 so uh if if you're a young
30:13 entrepreneur I was thinking about the
30:15 lower limits you got 100% of your net
30:16 worth in your business and you hit 30
30:18 yeah probably some time to start peeling
30:20 off a few shares if if not all so that
30:22 might be a good one too but you know I'm
30:24 curious about you know I'm inventure
30:26 capital uh I'm in many things but
30:28 venture capital is one of those areas
30:30 that tends to be the the feeder of of
30:32 private Equity at least the successful
30:34 ones are the the ones that don't make it
30:36 certainly not so with that being said
30:38 you know I'm just curious when you go in
30:41 so let's talk about the other side of
30:43 the coin because we both deal with
30:44 businesses and profit margins and all
30:46 these things but a different life cycle
30:49 of the business and so I'm curious about
30:51 there's these people who want to build
30:52 businesses right and those are the ones
30:53 that come to you and say my idea plus
30:54 your wallet and you're like well maybe
30:56 not yeah maybe I'm not your guy but
30:58 those people who are out and they're
31:00 creating cool technology great good for
31:02 them business Builders hats off to you
31:04 but you don't necessarily according to
31:06 you keep me honest here Adam but
31:08 sometimes it's okay to not necessarily
31:10 start a business and I'm talking to you
31:12 entrepreneurs out there you don't always
31:14 have to start a business and have this
31:16 technology that's going to blow people's
31:18 minds this is this is what Adam's saying
31:20 instead of starting a business why don't
31:22 you just buy one now I'm curious about
31:24 buying versus starting from your
31:26 perspectives I think it's it's pretty
31:27 self-evident on what side of the the
31:29 aisle you lie on that one which I love
31:31 and I want to get some information out
31:32 of that if we could what would you say
31:35 when you go to buy some business what
31:36 are some general rules we talked about
31:38 selling the rule 130 and we talked about
31:40 the 302010 rule but what about
31:42 purchasing Equity I mean how would you
31:44 suggest that that initial start of
31:46 buying a business what would you say
31:48 about that so there's there so first of
31:50 all you know great great concept so let
31:53 me say this of the $2.5 billion in exits
31:57 of private companies that I have I did
31:59 not start a single one of those
32:02 businesses I jumped the line call it
32:04 rather than starting at zero and having
32:06 all the risk of failure you know 20% of
32:09 businesses fail in the first year and
32:11 you know by the end of five years 50
32:13 plus perc are gone and it's like instead
32:15 of having all that risk and you know I
32:18 buy a pre-existing business and I've
32:21 already eliminated that risk because the
32:23 company has a history it's got revenues
32:25 that I can I can study I can look at I
32:28 can do diligence on I can apply my
32:30 302010 rule and it's like I can buy a
32:32 great business for not a lot of money
32:35 and right now again it's the largest
32:37 wealth transfer in human history with
32:39 all these baby boomers retiring here's a
32:41 scary statistic 80% of people who have a
32:45 business today never find a buyer and
32:47 they simply just shut them down and they
32:50 ride off into retirement land you know
32:52 their lifestyle businesses they leave
32:54 the revenue leaves or you know they just
32:56 never found a buyer and they get old and
32:58 they age out and they decide damn I'm
33:00 just going to shut the darn thing down
33:02 and so as a as an end result it's like
33:04 you know again here's some more scary
33:07 statistics that work to your advantage
33:09 33 million small companies we talked
33:11 about that but there's only 3,000
33:13 companies on the planet that have a
33:16 billion dollars in Revenue only 3,000
33:19 2,000 of them are public 1,000 of them
33:21 are private and so 3,000 globally at the
33:25 top 33 million small ones just in our
33:28 country at the bottom which means
33:30 there's not possibly enough buyers on
33:33 the planet to buy all of these companies
33:36 which means when there's a lot of them
33:38 the price that we have to pay to acquire
33:40 one is very low and so like my last
33:43 empire that I built I started with a
33:45 company couple hundred million in
33:46 Revenue it was bought with 50% Equity
33:48 50% debt sponsor was a PE firm I then
33:52 bought 23 companies smaller companies
33:54 and put them together and I bought each
33:56 one of of those 23 companies for five
33:58 times earnings on average you know so
34:01 five times evit do you know most of them
34:02 were 20 to 30 million in Revenue 2 to3
34:04 million of vah was kind of the proxy and
34:07 so I pay in five times for each of them
34:09 I put the 23 together I put them on top
34:12 of my platform which had a couple
34:13 hundred million in revenue and before
34:15 you know it I sell it for 14 times
34:18 matter of fact I sold it three years
34:20 after I started building it for 14 times
34:23 and so for every dollar of earnings I
34:25 bought I paid $5 for I then turned
34:28 around in three years and sold it for
34:30 $14 so I made $9 of profit off of every
34:34 dollar of earnings that I bought and
34:36 folks let me tell you some other little
34:38 nuggets of wisdom never buy fixer uppers
34:41 life is too short buy good companies run
34:43 by good people that have good
34:45 reputations that Delight customers pay a
34:47 fair market Price and as you're getting
34:49 bigger Arbitrage that's created from
34:52 small companies selling at small prices
34:54 turning into big companies that sell for
34:56 bigger prices your profit is built in
34:59 it's going to happen so buy a good
35:01 company good entrepreneur now if you
35:04 have no money how do we pull this off so
35:07 let's say I want to buy a little company
35:08 that's got a million dollars in earnings
35:09 got four million in revenue and I'm
35:11 going to have to pay five times for it
35:13 and so I have no money I got no money no
35:15 equity no money I want to buy a company
35:17 it's 5 million how the heck do I pay for
35:19 it well my typical like with those last
35:22 23 companies that I bought I used 100%
35:25 debt and I made every entrepreneur
35:28 become a rollover investor and be a part
35:31 of the mothership that I was building
35:33 they they became a shareholder a
35:35 minority shareholder in the mothership
35:36 and so if they roll over 30% on that $5
35:39 million purchase they create 1.5 million
35:42 of rollover Equity that's going into the
35:45 new entity that I'm forming that they
35:47 are now joining by selling me their
35:49 company and so their rollover investment
35:51 becomes my equity and now I've got a
35:54 company you know service business needs
35:56 now wants recurrent you know all of this
35:58 stuff I've been talking about that
35:59 million dollars of eitaa is actually
36:02 very close to a million dollars worth of
36:03 free cash flow because it's a low capex
36:05 business so I buy that company and now
36:08 they just put up a million and a half
36:10 dollars of My Equity I need three and a
36:12 half million dollar to complete the
36:13 transaction so if I borrow that from a
36:16 commercial bank or from the SBA get an
36:18 SBA loan I'm now showing 30% Equity
36:21 because my new partner who's the
36:23 majority shareholder I'm the majority
36:24 shareholder between the two of us we
36:26 have 30% equity in this business and so
36:29 if I've got you know a $3.5 million note
36:32 maybe it's 10% interest and let's go for
36:34 light amortization over a long period of
36:37 time you know I I need 350,000 just to
36:40 service the interest on the three and a
36:43 half million maybe I need 450 500,000 to
36:46 include some principal payments um but
36:49 I've got a million dollars in free cash
36:51 flow so the cash flow of the business
36:53 I'm buying is now giving me a 2 to one
36:56 or 3 to1 debt coverage ratio on the
36:58 interest or interest plus small
37:00 amortization payments that I've got to
37:01 make and so entrepreneur who sold me
37:03 business rolls over owes 30% that
37:06 created My Equity I borrow SBA loan you
37:10 know yes I got to do a personal
37:12 guarantee that's that's part of life you
37:13 know when I got no money you know and so
37:15 I get the money for the three and a half
37:17 I've got debt coverage ratio interest
37:19 and principle paid for by the cash flow
37:22 business I just bought and I'm literally
37:24 I I have not invested a dime and I just
37:27 bought a $5 million company and the
37:28 hardest one to buy is the First Once I
37:30 buy the first now I buy the second and I
37:32 do the same thing and I buy the third
37:34 and I do the same thing in the fourth
37:35 and do the same thing and those
37:37 entrepreneurs now as they're rolling
37:39 over they're rolling over and getting a
37:41 smaller percentage because the company
37:44 is now valued for the both companies the
37:47 first one I bought plus the second one I
37:48 bought plus the third one and the fourth
37:50 one it's like and their rollover Equity
37:52 is now buying smaller and smaller
37:54 percentages of a bigger company I
37:56 forever will be the majority shareholder
37:58 and after I put four or five of these
38:00 together you know this company that I I
38:02 I had you know if I bought each one the
38:04 same size I buy four companies each one
38:07 a million dollars in IA I put those four
38:09 together I'm working with them these
38:10 were good companies they're growing
38:12 organically you know doing other things
38:14 and so now maybe I sell $5 million worth
38:17 of EA and I get eight times instead of
38:20 the five times I was paying and now I
38:22 get 40 million and I've got $3.5 million
38:25 in debt from each company I got to pay
38:27 that off and I'm not the I'm not the
38:28 only shareholder so I'm sharing in the
38:30 proceeds with these other entrepreneurs
38:32 that join my my Mary Banda brothers and
38:35 you know before you know it it's like I
38:36 just joined the DECA millionaire club
38:38 and I did this in a couple of years and
38:40 you know Andor in this country we call
38:42 ultra wealthy 30 million net worth or
38:44 higher and so you know it's like in a
38:47 matter of five you know five six years I
38:49 can join the the ultra wealthy Club you
38:52 know by doing this behavior and so Ryan
38:54 we can do all of this with no no money
38:57 brilliant so just to recap if you have
39:00 no money keep me honest Adam so folks
39:02 out there if you have no money you go
39:05 make an offer you offer to buy the
39:07 company and then also including in that
39:09 offer you'll make the the founder the
39:11 owner the entrepreneur of say let's say
39:13 it's pest control company and you're
39:14 rolling up a whole bunch of them the
39:16 first one you roll over you say I'll
39:18 also give you 30% in the new company but
39:19 you got to pledge your current Equity
39:21 into the newco that current Equity is
39:24 then put up for to guess make the banks
39:27 feel a little comfortable on loaning you
39:28 so now they own 70% is that well no they
39:31 loan 100% but there's a 30% Equity
39:33 kicker on that and so that's how you can
39:35 pledge the other owner's equity is that
39:37 right it's all about debt coverage ratio
39:40 cash flow to debt coverage and so you
39:42 know um you know SBA is built here in
39:45 this country to help entrepreneurs
39:48 succeed and get secured loans and so I'm
39:52 I'm buying 100% of every company I buy
39:54 but I'm forcing the you know I created
39:56 new holding company and I'm pushing up
39:58 the assets of this company into the into
40:00 my holding company and I'm making the
40:02 entrepreneur who's selling roll 30% of
40:05 their Enterprise Value 30% of that 5
40:08 million I'm paying now becom stock in my
40:12 my holding company and I borrow the 70%
40:15 from the SBA because I had that small
40:18 rollover investment I've now got the
40:21 debt coverage ratios where I need it to
40:23 be if I didn't have you know if I didn't
40:25 have that rollover I would need some
40:28 Equity because if I borrowed all 5
40:30 million to buy that business you know at
40:32 10% interest I need at least 500,000 to
40:34 service interest but now when I amortise
40:36 it I'm probably needing 600
40:39 750,000 and now I've got less than a 2
40:42 to1 dead coverage ratio and so the
40:43 numbers aren't aren't there and so I'm
40:45 I'm using Equity from the former owner
40:49 and in the SBA world you can now have a
40:52 former owner and roll over investing
40:54 this is all fair game wasn't always that
40:56 that case but it is today and so as a
40:58 result of that literally I can be an
41:01 entrepreneur with no money and I can
41:04 still buy a $5 million company have
41:08 sufficient debt coverage ratio for my
41:09 loan to be approved and top of that hey
41:12 you know it's like as this company is
41:14 growing you know I can actually be
41:16 taking distributions and earning income
41:18 from this business you know with the
41:20 excess cash flow that's being produced
41:23 and not going to service debt you know
41:25 and so different ways to pull this off
41:27 but that's like the simplest math and
41:29 you know I i' I've I've done other deals
41:31 like this where I've used a family
41:33 office and I've arranged financing where
41:35 there was no interest payments during
41:38 call it the first two or three years I
41:40 buy four of these I got $4 million in
41:43 free cash flow I don't have to pay make
41:45 any debt payments and I can suck all
41:47 that money out and call it income make
41:49 it make it a distribution you know and
41:51 given the 30% to each of you know the
41:54 these owners you know and and so I can
41:56 you there's so many different ways to
41:58 creatively engineer so no one should
42:00 should be out there listening say I
42:02 don't have any money and I can't do this
42:05 it's like we just need to know how money
42:06 Works in in order to to make something
42:09 happen I love it thank you so hopefully
42:11 folks you are not glossing over what
42:14 Adam just gave you he gave you the
42:15 mother of all gifts he's like right you
42:17 just said Babe you want to get into the
42:19 ultra wealthy World here's the secret
42:21 code the cheat code to get there with
42:23 literally zero dollar so no let's do one
42:25 more example real quick right
42:27 so let's say I buy 10 companies each one
42:30 has a million dollars in ebit do and so
42:32 I pay five times for each so 5 million
42:35 each times times 10 that's 50 million I
42:38 need 50 million in money to buy those 10
42:41 companies if I put those 10 companies
42:43 together I now have a company with $10
42:45 million of ebit well guess what that
42:47 company and the services type businesses
42:49 we're talking about no longer sells for
42:51 five times I get over 10 million of e
42:54 I'm probably looking at 12 times that's
42:55 100 20 million in Enterprise Value I pay
42:58 off the 50 million I put 70 million in
43:00 the bank you know so that's the math now
43:03 if I got to borrow the money I got to
43:04 pay interest so it's it's more than 50
43:06 million if I you know but I'm just just
43:08 wanted to show just the the end result
43:11 is it's like assuming money is solved
43:14 for money's no issue it's like boy
43:16 there's no end to what you can do in
43:18 this kind of a scenario and I dedicated
43:20 the rest of my career to teaching people
43:22 how to do this you know because I've
43:23 been doing this with institutional
43:25 shareholders on a giant scale you know
43:27 my Empire last empire bought 23 the one
43:29 before that I bought 34 you know it's
43:31 like it's like and I've got a the
43:33 biggest checkbook in the world you know
43:35 with some of the big biggest PE firms in
43:37 the world and so now I'm like I'm I'm
43:39 teaching entrepreneurs on a small scale
43:41 how to do the same type of behavior that
43:43 I was doing on a grand stage you know
43:46 and allowing them to learn how to make
43:48 this Capital rather than just the the
43:50 institutional shareholders man I love it
43:52 that's why I call you guys the private
43:54 Equity carnivores your meat eaters I
43:55 love love it this is good stuff that's a
43:58 compliment by the way this is really
43:59 really cool stuff so before we wrap
44:01 things up is just is there anything else
44:03 you'd like to say any parting remarks
44:05 any ways they can reach out if they want
44:07 to hire a consulting firm if that's a
44:09 thing or get your books anything at all
44:11 well so F first I'm going to tell you
44:13 don't be a dreamer be a doer don't be
44:16 afraid to take a risk a good calculated
44:19 risk that's why I I talk about things
44:21 like needs wants recurrent versus
44:24 project and 302010 it's like don't be
44:26 afraid to take a risk don't be afraid to
44:28 bet on yourself and if you can do that
44:31 you know then the probability of success
44:33 really it you know does exist and if by
44:35 chance you fail you I think I've learned
44:37 more from my failures in life than I
44:39 have my successes anyway so it's like
44:41 you learn how to build a better mous
44:43 starp you know my my books can certainly
44:44 help you know I tell people all the time
44:46 Ryan it's like reach out to me I'm on
44:48 LinkedIn I'm you know that's that's
44:49 where all my clients are that's where my
44:51 world is is LinkedIn and so you can
44:53 reach out to me on LinkedIn I respond I
44:56 I don't have a team uh I do have a
44:57 publicist uh but I don't have a team of
44:59 people who are just ping through my my
45:01 thousands of emails a day or my social
45:03 media accounts you know it's me you know
45:06 it's me and so I engage with uh people
45:08 all the time people who've read my books
45:09 or or heard me on a podcast and you know
45:12 yeah sure I I I I do work with
45:14 entrepreneurs and I do work with private
45:15 Equity firms but you know I love hearing
45:17 from people who uh who have read my
45:19 books tried you know tried they they've
45:22 been a doer you know and I I love
45:23 getting the the messages of the success
45:25 stories hearing about people people who
45:27 have have have had some big wins in
45:29 their their career it's a lot of fun so
45:31 I appreciate you Ryan and I appreciate
45:33 this podcast and uh and thank you for
45:36 having me on you bet brother it's really
45:38 good to have you so just to summarize
45:40 everything that uh Adam and I talked
45:41 about don't build a company learn to buy
45:44 one Adam literally laid out how to do it
45:46 with no money I mean if you're not
45:48 buying a business after that I I'm going
45:50 to have some questions for you the
45:51 second thing that we talked about is
45:53 don't be stingy a whole grape or half a
45:55 watermelon or I think had half a truck
45:56 of a watermelon even better and then
45:58 finally the rule 130 know when the right
46:01 time to exit is you do these things and
46:03 you too will be well in your way in your
