Karl Yaacoub  is the author of The Game of Value Creation, in which he explains how blue chip companies and private equity investors approach value creation through governance, strategy, and finance. 

He is also the creator of The Game of Value Creation Training, an immersive digital transformation that leverages strategies used by private equity funds to enhance the valuation of the businesses they acquire and meet their target returns.

He currently leads KYVC, a Chicago-based advisory that is focused on helping private businesses attain a higher valuation using the same tactics and insights as public companies and private equity funds.

My next guest on the Business MRI podcast is Karl Yaacoub.

Karl is the author of The Game of Value Creation, was just released

at the end of September this year.

In this, he talks about how blue chip companies and private equity

investors approach value creation through the governance, strategy

and finance of their companies.

He's also the creator of the Game of value creation training, an immersive digital

transformation that leverages strategies used by private equity funds to enhance

the valuation of the businesses they acquire and meet their target returns.

He currently.

K Y V C A Chicago Base Advisory that is focused on helping private businesses

attain a higher valuation using the same tactics and insights as public

companies and private equity funds.

We jumped right into our conversation talking about the types of deals that

he's done, which have been valued over $1 billion in how they were

structured, and kind of the steps and processes that you go through when

you're evaluating deals within mergers and acquisitions and private equity.

So please enjoy my conversation with Karl as and the author of

The Game of Value Creation here on the Business Samurai podcast.

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Sit back, enjoy, and welcome to the Business Samurai Podcast.

I am your host, John Barker.

Carl, it's great to have you here today, Carl, you've got the, uh,

new book just dropped.

The game of value Creation

is awesome.

And so I want to dive into a lot of the principles of your experience.

You know, the, the finance experiences you bring from investment banking, private

equity, to kind of the consultation work that you're doing now, trying to help

other companies scale a a, an asset.

but, uh, can you kind of talk some of the deals that you worked through?

You got any specific case studies?

I know you've done like over a billion dollars worth of worth

of, uh, deals in your lifetime.

Any, anything really stand out

in some of your experiences?

Uh, I mean, the interesting thing about deal making, which I'm sure

you know, John, is that there's no deal that is similar to the next one.

And so oftentimes what you end up, uh, getting yourself into is

something that you didn't expect.

Uh, If you look at the deal process itself from when you start sourcing

a transaction to the time you close it, there are many hoops you have

to jump to through as a deal maker.

And oftentimes you have to submit a non-binding offer before you really

get access to the books and get to speak with the management team and

do your due diligence and get the advisors needed to do due diligence.

So when you submit an Unbinding offer, you need to obviously,

High level indication of where you think the value of the business is.

But when you do the DB exercise, when you conduct a due diligence exercise, and

that is a process that usually takes six to 12 weeks, and it entails everything

that you would want a diligence yourself.

So business due diligence, but it would also entail bringing in lawyers, bringing

in consultants, bringing in accountants.

You really wanna bring in technical advisors.

You really want to get that 360 degree view of how good the.

Is in reality.

And what chance do you stand to justify that valuation you submitted in the

letter of intent or the heads of terms.

And so what comes up from this DD process is what we call red flags.

So you've got all these big law firms, all these big consultants,

all these big accounting firms, they submit red flag reports.

And the whole premise of having red flag reports is to either say whether

the hypothesis holds for that deal or.

and there's no business that is squeaky clean as you would

appreciate . And so every single time, I think the most interesting part

is starting from a valuation that really anchors the seller, right?

So when you say valuation of 30 million or a hundred million or 200

million, and it gets them excited, subject to due diligence findings.

What often happens after due diligence is that you realize that

you need to make certain adjust.

To that valuation because you really looked into things like

the quality of the receivables.

You really looked into whether the business is in current litigation or not.

You really looked into the quality of the earnings of the business and

whether the business has a high level of concentration risk to a certain number

of vendors that it, it is exposed to.

And so when you combine all these different red flags, , you're gonna

come up with a revised valuation.

Mm-hmm.

. And the most interesting bit would be to have that challenging discussion with

an eager seller who is in their mind, done with the business, who's on their

way out, and tell them home on a minute.

this is what we found, and these are the adjustments to the valuations

that are implied from these findings.

And this is not us coming from nowhere telling you that you know, your businesses

were 30% less or 20% less than what we initially thought it would be.

This is third party advisors who are very credible, who came into the picture,

who got all the information and who are issuing these reports on a reliance basis.

And so that becomes an interesting dis discussion in itself because,

The seller obviously is not happy with, with what's happening.

They have communicated a different number to their shareholders

or to their board, or whoever stands to benefit from that sale.

And then it becomes, you know, that difficult conversation that

is happening and them agreeing to that revised valuation.

And so the majority of deals that I've seen tend to fail from, from the LOI

stage to the share purchase agreement stage, which is binding in nature.

And the key reason for that is the findings from due diligence,

which is a process that, as you know, should never be compromised.

I mean, if you think about it on a small, much smaller scale, you

would never buy a used car before taking it for a test drive, right?

You would never buy a home before bringing in someone who knows a little bit about

real estate to inspect it and to make sure that there's nothing wrong with it.

The same applies for businesses and.

. What's been interesting from all the deals that I've worked on is the

issues themselves that come out from each single deal because no issue

is the same and each business you suddenly identify risks for, and

assuming the deal still goes through, you need to find ways to mitigate.

These risks.

So if you are an active investor and you come in the picture and you

want to have a certain level of, say, in day to day operations, you

need to lay out these risks ideally in what we call the risk register.

Identify them, lay them out, figure out how to mitigate these risks, and then

have a risk monitoring framework so that you could keep these risks in check.

And some of them are not really within your.

. So there are risks that as a business owner you would be able

to mitigate yourself, but there are risks also that you cannot

control, such as regulatory risks.

Mm-hmm.

, you know, if there's something that comes out from the regulator and it

has to be enforced within a certain timeframe, you don't have a say of

whether or not you're gonna enforce it.

You have to enforce it, or else you're not compliant.

And so you really need to keep an eye over these.

With, with some of the stuff you worked on, was it primarily

like mergers and acquisitions?

Were you talking about, uh, maybe a company looking to get an infusion

of capital to, to expand operations?

Did you have or just a good mix of, of things that you worked on in the

past?

Yeah, it's, it's, it's a bit of both.

So in banking we did what we called mergers and acquisitions and.

Mergers and acquisitions in banking is specific to signing the binding agreement.

So as far as you're concerned, if you're advising a client on the

acquisition or the sale of a business, the second a shared purchase agreement

or a sale and purchase agreement is executed between both sides.

The deal is considered.

Done from your perspective as an advisor.

And so that was something that I did for the first half of my career.

The other thing that I did was on the active investment side, which means

that after you sign that definitive documentation, you end up with a business.

And so you really have to put your money where your mouth is, and you have

to walk the walk and not just talk the talk because you have a, an investment

committee you've gotta report to, you've got a board you have to report to,

and it's really your word on the line.

but the nature of the deals themselves are yes, a combination.

Primary and secondary transactions, which means that some of them were, were

a full sale by the shareholder, or a partial sale by some of the shareholders

where they would exit and they would take that money from the deal and cash

it out to their pockets and leave.

And in other cases, it would be an infusion of capital into the business

where you'd have certain shareholders saying, we need an X amount of money.

However, this money will be used at the business level and it

will be used for these reason.

And for some of those ones with the, you know, if they're looking

for capital infusion, maybe it, it's like pre IPO stages.

They're going to like a series A, a series B, fun rounding type of thing, and they're

going, oh yeah, we want to take this too and get that five x or 10 x valuation.

How whoever dictates that, that's, that's definitely a.

Who decides those values in the end?

I've always been curious how that, how that calculation functions.

But those can be in, in some of those areas, like pre i p o stage where somebody

saying, you know, I've got the next Uber, I've got the next Airbnb type of

situation.

Absolutely.

And the, the most common need for capital in these instances

would be expansion and growth.

Mm-hmm.

. So they would be looking to raise money in order to maintain their growth rates

or to enter new markets, or sometimes to even acquire other businesses so that they

could get to these growth numbers quicker.

And is that something that you think

people think about a lot?

It's, it's going instead of trying to inherently build a skill set, you

know, you need, you uh, you know, from the, the base up that they go, Hey,

let's go see if we can go find that five or 10 person company startup or 20

person company startup that absolutely niches and specializes into that

and try to bring them into the fold.

Is that something.

You know, you hear, you hear about those things.

I think Instagram even became one of those things with Facebook, just a small team.

But is that something that more people should think about as a way to rapidly

grow the business versus just an organic, let's build this out, let's,

you know, let's hit sales projections, but let's grow by bringing in additional

skill sets.

It's a really good question, John.

I think it really depends on who is that party that is thinking about

growth and what is their skill set.

Because it's a very tricky process.

It often entails very big egos.

It often entails a lot of psychological, yeah.

, you made me think of things in

my of egos, but go ahead,

Yeah, no, absolutely.

It.

It's pretty common to have sometimes clashes between the egos.

It entails a lot of psychological biases that come into this equation,

but if you look at it as an idea on paper, it's a brilliant idea

because what you're essentially doing by exploring the inorganic.

Route is you are buying speed and you are eliminating startup and execution risk.

So you end up with something that has proof of concept, you end up

with something that has validation from the market and you kind of

know roughly what your downside is.

But I don't think many operators today really explore it or give

it the right amount of attention.

that it deserves simply because, a, I'm biased, but B, I've seen how when

executed in the right way, it could bring meaningful benefits, not just to

the party acquiring that business, but also to the business being acquired.

One of

the things that I, I think I saw correctly was you did a lot of work in like Dubai

and, and maybe some overseas Dubai.

I hope I got the country right.

Was there a lot more when dealing with global organizations?

Cause most of the stuff I've seen, you know, it's US content,

you know, that type of thing.

Maybe, maybe Canada's been involved or something along that line, but

not like, Europe and you know, all kinds of different things.

Is there a lot more hoops to jump through dealing with globally different, different

legal requirements from different countries and all that kind of stuff to

finally get something to come together and go, okay, we can, we, can we cross

the finish line with this deal way?

It's way more because we're dealing with all this red tape everywhere now.

Absolutely.

That's a great question.

Also, John, there are many hoops because each country's different and

when you talk about deals at a bigger.

You often need to get regulatory approvals.

And so then the regulator has a certain set of criteria that need to be met, but

also sometimes it's stuff that they don't really mention out in the public domain

because they really want to make sure that their environment is benefiting from

any deal that happens, that a certain number of jobs is created, that there is

not really a big competitor coming from abroad trying to take their, you know,

their local companies out of business.

Uh, these are things that sometimes derail a deal, but yeah, I mean, for

every, for every transaction that happens, there needs to be a legal advisor on it.

There needs to be a legal advisor on board, and ideally a legal advisor that

has an on the ground presence and the country where the deal is being made so

that there they can advise on whether or not there are any oversights with regards

to compliance with local regulations.

But yeah, I.

The more you venture out, the more you realize there are things that

you do not know, that you do not know because every country is different.

And is there stuff

that you may have experienced where they've been inherently at odds

with each other, where they're, it's just diametrically opposed

and you can't resolve these things because like you said, we don't want

you to push out our local company that's been here for 10 years.

You wanna buy, you know, we, we, we wanna see you come in cuz it may help

'em grow, but at the same time, we don't wanna see it go away and you.

, and maybe you can't resolve that and it makes it fall apart.

But is that, is that something that you may have seen?

Of course.

So I've seen a lot of instances where certain companies would own land that

has been granted by the government, and this is particularly in industries

that really serve the communities.

So I'm talking about education, I'm talking about healthcare.

Oftentimes there would be some kind of public private partnerships where

the government would try to, in.

Private operators by giving them land or giving them facilities and be like,

okay, why don't you come operate it?

But where it gets tricky is when you bring in an international

investor, then that international investor would be in a position to

indirectly own land that is granted.

Hmm.

Okay.

And so it could get really tricky.

Uh, you get a new set of hoops that you have to figure out in terms of structuring

a deal and how to sometimes maybe carve out real estate from the deal itself.

But yeah, it it happens a lot.

It does.

I was just, it's just curious

cuz I, you know, it's me not having had personal experience with that.

Those are things that you're like, man, how do you navigate

the waters with that stuff?

It seems like it uber complicated and, and, and take a, a long time

to, to work those types of thing out.

When you're talking about all those different players that come into play.

Yeah.

And, and, and the, the interesting thing here is that you've got some

lawyers that make ridiculous amounts of money on a transaction be because

you're talking about billions of dollars in deals here, right?

Yeah.

And so both sides are not gonna care about paying lawyers five or $10 million

on a deal where they really are able to solve these kind of headaches that.

Uh, nobody saw coming or people were worried about.

And when you, when it comes to proposing new solutions in business that work

well for everyone involved, I think this is where you can really hit gold.

Now you, you, you mentioned

something there, you were talking about like some of the size of

the deals and stuff like that.

For you personally, what, what different skill sets did you have to kind of learn

and increase as the size of the deals and maybe the complexity of the deals got

bigger or really was it kind of the same process but there's just more variables

at play just as the numbers got bigger?

It's a great question, John.

It is, it is the same process.

The only.

I think, and this is something that would surprise a lot of, uh, listeners,

is the only thing that changes is maybe in terms of legal complexity, because

above certain limits you need to get certain approvals from the regulator.

Mm-hmm.

. But in terms of the skill set as an investor, it really is the same.

The only difference would be the number of zeros on your balance

sheet and your income statement and your cash flow statement.

It's the same process that has to be honored.

It's just the integrity of the process should not.

Different regardless of the size of the transaction.

Because I mean, even a car, you would want to test it, right?

Right.

Even, even a, even a house, you'd want to bring in someone

to give you their opinion.

It's the same thing except for businesses.

You've got a lot of different moving parts, and so what you wanna make sure

is that you don't miss out on anything.

So for example, if you are a hospital that is up for sale or a he.

Operator and you want to estimate what the value of the equipment is.

Obviously, this is a skill set that needs a certain specialization.

You need to bring in someone who's gonna inspect from a biomedical

perspective, give you an estimation of what that machinery's worth, uh,

what condition it's in, what's, what is its useful life, and whether or not

you're gonna entail any more capital.

Once you become an owner, because if you're gonna have to invest

more in certain equipment, then that should be factored into the

whole deal discussion itself.

But as a process, it's really, you just have to figure out what are the

things that you need to diligence, you need to come up with your initial

hypothesis, and then you have to conduct due diligence, either ideally

yourself, plus the advisors to make sure whether or not that hypothesis

holds or whether it needs to be.

And,

and speaking of that, I'm gonna spring this on you, and if this

is something you haven't really been tracking, then we'll skip it.

But I'm just curious in your thoughts, have you seen what, you know, the,

the whole thing with Twitter and Elon Musk because, you know, I,

I, you know, I watched it and it's like, Hey, I'm gonna go buy Twitter.

you know, that he announces basically in a tweet and then it's like just a few weeks

later, I'm gonna buy it at this valuation.

But then it seems like there was no true due diligence because it was literally

like he was thinking by tweet and then it's like, oh, you know, half of

their, you know, a third of the company is just bots and automated stuff.

It's not, but, and I, and in my own head, I'm going, man, if you had

your legal team doing due diligence, wouldn't you have known that before you.

Willy-nilly announcing you're going to go buy the company and you know now after

the fact, you're using that as a way out.

That was just me on the outside.

I don't know any of the inner workings of that, but is that something that

you watch that from the outside and go, does that makes sense?

Or that goes, what is he doing?

. It actually makes sense as an

when you sign a non-binding letter of intent, or really, I, I didn't

look at the legal agreement because I don't think that's public domain,

the specifics of the legal agreement.

But oftentimes you'd have contingencies, you'd have certain conditions.

So what that means is this would be, the valuation would be 40 something

billion dollars, but that would be predicated on A, B, C, D, E.

And once that is executed, only then do you have access

to the books and to the data.

So, If, if he ended up, you know, signing that and then he went and asked the

management team for all the information on the bots and all the accounts that

are not actually verified and they were not able to provide that information.

Well, this is a red flag.

You know, it could be that they have that information, but they didn't wanna provide

it because they knew this was gonna be a red flag . So, so I think that was a

sign of diligence as opposed to a sign.

And you know, not doing his homework.

Now, whether or not he managed the aesthetics of it and the PR

side of it, I'm not sure.

And I think he's very smart in the sense that he does everything for

publicity and everyone benefits, you know, from, he stays relevant.

Everybody's always, oh, looking at what he says and what he's

doing and it really helps.

Uh, but yeah, that's a great point.

And I think he should have.

I think he should have known that.

I, I was just curious, you

know, someone that's got your level of experience in the industry and

then this being very social media,

public and

all of that kind of stuff.

Just kind of what your thoughts were on how that's been going on.

Cause last I heard a few days ago is, that's back on again,

is the last, last word I heard.

Yeah.

And unfortunately, unfortunately the parties that end up getting.

With these PR stunts or the average retail investors.

Yeah.

Right.

Who would, you know, here's something they would think, it's interesting.

They'd be tempted to speculate.

They'd put in some money, and then the next thing you know is that news comes

out that is opposing their hypothesis.

So they end up losing money.

They sell because they think the deal's dead.

And then a week later the deal's back on.

And I think ideally, I mean from my, from my experience,

you would only announce deal.

Upon completion and a deal is only complete once the shares are transferred

and the money's transferred and certain con conditions precedent are satisfied.

So there's a term called CP in deal making, which which which implies that

for a deal to be complete, even if we sign binding documentation, we need to

satisfy certain conditions upon which we can exchange the shares and the.

, and only then is the deal considered complete because then you can

no longer go back on the deal.

Gotcha.

And so you could then announce it because it's done.

But anything in between.

Is is really just media stunts because it could go either way.

Well, we know he likes to drive the media.

But shifting gears a little bit, so now that you, you got all the, the

banking and the investment banking, private equity, mergers, acquisition

experience, you've kind of pivoted the reason that, uh, I, I believe you wrote

the book, you've got your online course.

Uh, the game of, uh, value creation is actually helping businesses begin to

put in the frameworks in place necessary to take it to that next level, correct?

Yes, absolutely.

So is there any, is there any specific niche after your previous

experience that you're, that you're kind of focusing in on to go this.

where I'm honing in on, um, that, that you feel like you specialize in or is it kind

of just the frameworks are the frameworks?

I, I'm a personal believer that for the most part, the frameworks are

the frameworks and they, and they relatively apply across the board.

But you're, yeah.

You know, more than me,

. Um, I think the, the key idea that I'm

focusing on right now is to look at what the best companies in the world are doing

and not just look at them from a PR.

You know, media standpoint, but to really look at what they do

different that private companies sometimes do not realize.

And if you really drill down into what these big companies do differently,

you could really distill it into four key enablers of value creation.

So if I can get into these four enablers, I would summarize them

as the following one, they know how to protect their resources.

They know how to.

The outlook of the business and limit the downside in the face of adversity.

And the technical term for that is corporate governance.

So the big companies that are really, really thriving do that very, very well.

That's the first value enabler.

The second one is, In order to procure resources and allocate

them in the right channels.

And what I mean by that is allocate them in a way that maximizes

return on investment, but also minimizes opportunity cost.

They focus on what we call strategic finance.

They're very smart with how they use their cash.

It's not just sitting as cash in the bank account.

If it has no use, it's often invested in the right places.

So that's the second.

The third one is to grow and optimize the core operations in a

predictable and consistent manner.

You're gonna need corporate strategy.

And so corporate strategy could be something organic, like

focusing on organic growth, which leverages the capabilities and

resources a businesses has today.

And it could also be inorganic through mergers and acquisi.

Or JVs.

In other words, inorganic leverages capabilities that

the business is yet to attain.

It doesn't have that capability today, but it could leverage it by acquiring

that capability or that know-how,

which we hinted at earlier in the conversation about

bringing the skill sets in.

Yep, exactly.

And then that's the third value enabler.

And then the fourth one is to bring all these enablers together

and cultivate the right attitudes within each stakeholder group.

You're gonna need the right leader.

Hmm.

So you're gonna need to create the right environment where the

business is not overly dependent on one leader or a existing group of

leaders, such that when they leave, the whole business falls apart.

You need to create and cultivate the right leadership environment so

that A, you can sustain leadership in the business, and B, bring all

these different enablers together.

And so all the business solutions, strategies and tactics that you can think.

likely fall within one of these four value enablers.

I mean, think about it for a second.

What are the needs of the business for it to achieve its highest level of success?

It's the need to be protected, the need to grow, the need to be

optimized, the need to procure and allocate resources in the right way.

And they need to develop the right people with the right attitudes.

Mm-hmm.

, when, when these needs are, A whole new frequency for value creation is tapped.

And I think when you look at it that way, and when you see what these publicly

listed companies are doing, right, be it because the regulator forces them

to do it that way, or because they know that this is the right way to go

about working in and on a business.

Value creation becomes feasible, exciting, and consistent.

And one that what this does is it translates into happy employees,

happy customers, happy boards, and more importantly happy communities.

And then enhancing the value of a business no longer becomes as

ridiculous or uncertain to expect.

It becomes a given if it is approached in that way, predictably consist.

and with the right level of strategic patie.

No, and I like that overview because it, it very much aligns with kind

of my thinking of, of how things optimally would function, you know,

in that kind of ideal environment.

Unfortunately, personally, I there's a lot of non-ideal environments out there.

So I want to, I want to, I got a couple leading questions and then I want to

go through those, those, those value statements in a little bit more depth,

maybe be a little bit more tactical.

Sure.

So do you think.

Any type of business that somebody starts, whether it.

A, a plumbing company to, they developed a new widget.

Has the ability to grow, to be a sellable asset, to create a value that

can be sold, merged, acquired any?

Or is it really just gonna be the niche that next thing somebody's

got a specific twist or that idea that's not been really generated

yet, it's coming five years from now?

Oh no, and I, and I, and I know this seems a little bit generic

of an answer, but I think any business, really, any business that.

, the right mindset and the right strategy, and more importantly, the right attitude

and ability to act on a certain strategy, has a, has a good chance of being

successful and ultimately being sold.

Absolutely.

and, and I would agree with that.

Now, how, now with you with, you know, it's kind of like you gotta

be selective with who you work with.

The last thing you, you got a lot of people to go, I,

oh, I really want to do this.

I've got these big gigantic goals.

I want to go from six figures to seven figures to 10 figures, blah,

blah, blah, blah, blah, blah, blah.

But how do you truly identify a leadership team, a ceo, an owner of an existing

company that's been around for years?

You know, they, they maybe made it through some milestones, but then they

flat line, you know, it comes to this flat line thing and, and you go, and

I believe that some of their problem is always, is one of those four things

you've already talked about before.

There's no, the structure, the structure, the, all that kind of stuff, but how

do you identify truly the leader that is finally ready to make the change is

necessary to get out of their own way?

It's, it's rather.

I, I believe in the idea that you could only take a business

as far as you can take it, right?

You could only achieve something as far as you've done before

or you're doing right now.

But in order to go to the next level, there is a very humbling

factor that comes into the equation.

It's a asking for help and B, be willing to accept help.

And I think this is the resistance that a lot of leaders who often.

Have the respect and admiration of the organization, they tend to resist that

idea because it is hard to say that I'm gonna accept a different way of thinking

because I'm the person responsible to this level of success so far.

And what's what?

What is that gonna imply if I tell, you know, someone that I need help

and that I'm willing to accept it?

Is it a sign of weakness?

I think it's a sign of courage and strength.

, you could only take something as far as you've gone ultimately, and if you are

able to bring in the right insights and new solutions into the equation, and more

importantly accept that kind of help, I think you stand a way better chance than

going through that trial and error phase.

And this is something we used to talk a lot about.

Prospective portfolio companies that we would be looking to acquire.

And the dream for a lot of them would be to get listed one day.

Cuz for the shareholders, that would mean a very big payday.

Right?

But the value add we would have as active investors is tell them, listen, we have

the skill because we've done it before.

And so if you're doing this for the first time, you're probably

gonna bump your head because we have multiple times on many fronts.

And so having someone who's done it multiple times before, By the

way, made a lot of mistakes in the process because you're bound to

make mistakes is an asset for you.

And if you're willing, we can collaborate on that and we think we'll get you

there quicker and with more certainty.

And those that are willing to accept help and acknowledge that they need

help would benefit far more than those who'd be like, well, I'd rather do it

by myself because I like having that.

and able to keep

them consistently on the path, I think is, you know, you know, they're,

whether that's having those little, small, tiny, little milestones

to show some progress in there.

Yeah.

To make them feel like they're making it toward that next thing.

I just had, uh, several experiences in the last few years with companies that

say, oh, I wanna do this, I wanna do that.

I wanna go there.

And then just the effort wasn't put into place.

Yeah.

You know, the, the knowledge.

Their own finances was not there.

And then it was becoming shocking as you would uncover things.

Um, no systems and processes in place that were repeatable, you know?

Yeah.

Leadership that would come and just insert themselves at the wrong possible time

into a process to make things fall apart.

And it's trying to get those and trying to get that formalized and

like you said, optimized in there.

Speaking of some of the, I wanna go back cuz

I'm curious.

It wasn't something I saw in the way that the, the initial phrasing

was when I was looking it up, but protecting your resources.

Um, I come from, uh, the cybersecurity background.

You know, obviously that is gigantic now in pretty much everything with data

protection, general risk management, but I think you were taking out even

a step further with supply chain.

You know, you, you're not at risk of your business because you're,

you're limited on maybe only.

Supply chain vendor for a critical, critical component or a critical

part or something like that.

What do you look at when you're talking about, cause that was the, that

was the first one you said actually of all the four, was protecting

your re protecting what you have.

Can you go a little bit in deeper into, into what it takes

to protect yourself properly?

Sure.

And I think the reason I talk about it, the like first and foremost, as

for me, I think it's the most important enabler because when you have a certain

level of success in a business or it's something that you've built from scratch,

there's nothing worse than losing it.

There's nothing worse than seeing it fall apart.

And when you first start in business, it's not something you think.

Because you really have nothing to lose except what you already

can identify, such as your time and the initial capital committed.

But when you have success demonstrated success, you need to figure out a way

to make sure that you could lock in that level of ex of success to a certain

level of predictability or to limit your downside, because then you have

something much more substantial to lose.

And governance is all about protecting your future.

and that translates into valuation discussions dramatically because

the majority of the valuation methodologies used in the business

world are reliant on future cash flows.

Okay?

And so if you are not able to secure your future cash flows to a

certain degree of predictability.

Then that's gonna hit your evaluation.

And so you might think that having a key person risk dependency is not a big deal.

But if you think about it more simply with what I just shared

is, is like the following.

If a key person leaves today and they're gonna take with them all their

relationships, all their know-how, all their decision making capabilities, how

will that impact your future cash flows?

How will that impact the future outlook of the business?

It's gonna get significantly.

and I see that a lot because oftentimes businesses that are sold by the founder

team who is looking to exit completely are based on a certain valuation.

But then when the new founder comes in, who's never gonna be as passionate

about that business as the departing one, the everything is gonna change.

The relationships are gonna change.

Customers are gonna be like, who are.

How do we know you're gonna be consistent?

How?

How do we know that you're gonna maintain the same quality of service?

How do we know that you're gonna have our back when we need you the most?

And so it's like you bought something, but then you ended up coming

into something totally different after that key person leaves.

And so with governance, you want to limit that key person risk.

You want to cut it off.

And the way you do it is through a variety of different measures,

and we'll dive deeper into that.

So you need things.

Your policies, you need things like your procedures.

You need things like your business processes.

You need things like your systems.

And what that does is it safeguards that knowhow and it's safeguards that expertise

in the business, and more importantly, it safeguards the flow of that knowhow.

So when you have the right organization structure in a business, you are essent.

managing the workflow and the decision making capabilities of a business.

When each hierarchy level knows what it's authorized to do and what

it can sign up on and what can it approve and what needs to be, I dunno.

Sought approval for the game becomes different then it doesn't matter as much.

If that key person on the top who used to do everything himself or herself, leave.

Because that working system can take care of that for you.

And so you can maintain a level of consistency in your

marketplace and not be disrupted.

Another way to, uh, sorry.

But no, I was gonna

ask, you hit on something that I have preached repeatedly in

there and it's having the systems and process as matter of fact.

I I, I kind of phrased it like, uh, running a project in a

project, you've gotta have clearly defined roles and responsibilities

within there to ex execute.

It's no difference any stakeholder thing.

I said, take those principles, apply 'em to the business.

But how do, how do you getting.

How do you get that delegation, that comfort level?

Because that's where I usually see the resistance at from the top.

It's like, oh no, we can't have anybody have, you know, Hey, I'm like, say

gimme an annual budget, or gimme a transactional budget where I can't

do, so, you know, give me the, you've gotta start releasing those reigns

if you want to go beyond yourself.

How do you get somebody comfortable with that?

Because I find that to be critical on, on re, you know, one freeing up.

Quote unquote, the leadership's time from that, getting in that minutia, but also

allowing everybody else room to breathe through their job and getting the grease

rolling in those systems and processes.

But how do you get them

comfortable with that?

Uh, very easy.

You do that like you do with anything that requires change and

the resistance that comes with it.

You tell them what's in it for them.

If you are able to explain to whatever stakeholder level what is in it for.

From giving you something they already have, because you have to

keep in mind for them, it might feel in the heat of the moment,

like they are giving away something.

Mm-hmm.

, they are losing control, they are losing power.

Right?

And they might not be aware of what they're gaining in that exchange.

In reality, they are doing their business a huge favor because

the second their dependence, the dependency on their capabilities goes.

Their business is more valuable.

Whoever's gonna come acquire their business is gonna see something that

is operational with or without them.

And they will be happy to see them walk away because they know that to a

certain level of predictability, that business is gonna continue to operate.

It's not gonna fall apart.

And so change is probably the most, it's probably the trickiest element.

In, in business, especially transformational change.

For example, when you have certain, um, org structures that you're looking

to change, you have a current way, current reporting lines, and you're

trying to optimize reporting lines and authority matrices, and obviously the

first thing people are gonna freak out about is how is this gonna affect me?

Does that mean I still have a job?

? Right,

right.

You're absolutely, I laugh, but you are dead on.

Absolutely.

Yeah, and, and I think the.

The first and foremost element when it comes to transformational change

is communication and specifically the right kind of communication.

It's providing the right assurances, explaining the why, and giving

the right incentives, right?

If, if you are able to communicate to any stakeholder level, depending on

what their needs are and what their fears are, how change is gonna benefit.

they're much more likely to take ownership of it and, and, and be in favor of it.

And so I think going back to the owner or the key person at the

top, if you are able to tell them.

. You know, generally businesses that do not have key person risk

dependencies sell for a much higher valuation than those that do.

And that this is not gonna be an abrupt type of change.

This is gonna be a systemized way.

We're gonna have, we're gonna break it down into many milestones.

We're gonna have different, uh, people with ownership levels at

different stages in the business, different hi keys in the business.

Do it.

And if at any point in time there's something you're not comfortable with, we.

Make sure we look at it and address it and fix it.

But remember, ultimately this is gonna benefit not just the business,

it's gonna benefit you as well.

I mean, what more do they want?

I think you are much more likely to bring them on board when you present.

Change that way.

Yeah, I would, well, at least I would say I should hope so.

There's still it.

It is, it comes, it's reducing the fear.

I think there's a fear mindset in a lot of that stuff you're talking about.

They're saying they're losing control, but I've also seen the

thing where, where those roles and responsibilities have not clearly defined.

The owner, the, the, the top leader goes out on vacation for two weeks

or three weeks and then all chaos rises because then everybody's jocking

for position within an organization.

You know?

And, and that's something you want to avoid.

Uh, yeah.

And, and I've also noticed that the more that you can delegate,

the more that you can empower your team, the more that they feel, Hey,

I've got a piece of this in there.

At least that's how I have felt.

I've got a piece of this and I, and me is being able to

say, Hey, go take it and run.

Man, they are more than happy to do it.

Cause people wanna prove themselves.

They don't want to feel part of the process.

So I think it's another reason, another reason to do there.

But, sorry, I, I digressed, continue.

No, no.

You're spot on here.

You're spot on.

And you know what's funny is that those who leave for a couple weeks are not

happy with the idea that they could not leave for two weeks with everyone

calling them and asking for very petty approvals over very small cost items.

they don't have the authority for it.

I have a

very specific story about getting approval for a $1 item.

And you're talking about I was, I was running a full IT department and, and

also managing government contracts.

Yeah.

And I had somebody come to me.

They actually, it was four $1 items and, and.

Part of what I always look for and what we've, we've hinted around, but

we haven't used the term bottlenecks.

You're, you're trying to blow up the bottlenecks within an organization,

so things function slowly.

Yeah.

And there was a bottleneck in the organization that

wanted to approve everything.

And finally I was kinda like, screw it.

I told the team, I said, go get the stuff.

It's four bucks.

I'm tired of waiting on this.

They tried to chew me out.

I said, I will do it again.

This is ridiculous.

Give me a freaking break and you don't know the whole story.

Well, I said, don't make me wait three weeks for a $4.

You know, and in total I'm like, you can't run, you can't run a, you know, at, at

that time an eight figure business and have that type of junk get in your way.

I just, I wasn't acceptable to me.

Anyway, that was a very, That's what happened to me.

This was years ago,

. No, but it happens.

It's much more common than, than, uh, than we'd like to think.

And there's also this thing called decision making fatigue,

irrespective of the decision itself.

Um, very successful people limit the number of decisions they have to make

in a certain day, especially decisions that do not have a meaningful impact

on the direction of the business.

And.

. You don't want to be someone who's approving or deciding on 15 different

things and going into all the scenario analysis and figuring out what's

the base case, what's the upside case, what's the downside case?

How many scenarios are likely to happen for, okay, what does each

one look like over something petty?

You're gonna be exhausted and your ability to make meaningful decisions

over things that really matter is gonna be compromised and you don't want.

No, absolutely.

I can't remember.

I've heard that same thing.

Uh, you know, I, I've used the term decision fatigue as well,

cuz you're making, even just in your personal life, you're making

all those micro decisions day.

And, and that's why, like, for me personally, I don't need

to dress like, you know, Steve Jobs did with the same thing.

But it's like, yeah, if I can make the decision, like setting up my clothes

the night before, before I have to do it, it's just there the next day.

And so I would do stuff like that, but I can't remember.

I, I've heard that from some top level CEOs, some bios that I

had read where it's like, if I.

One decision per week that drives the, the direction of the business.

I'm super happy.

And that's all they focus on was just that one decision.

Yeah.

And, and, and I just, I, I, for the, for the life of me, I can't

think of who, who those ones were.

Cause it was definitely more than one.

I, I'm sure we've probably

read the same ones.

. Yeah.

Isn't it funny?

Oh yeah, for sure.

I wanted to

talking about, you know, uh, you know, we've talked about the

governance and stuff like that.

I want, and I wanted to talk about something related to the finances and

the education that leaders need to understand in, within their own finances.

Because this is something that I have seen when I have had

conversations with companies that can and get to that stalling point.

And they, they say they want to grow.

But they're not.

And again, it's, uh, this also comes back down to change management.

Again, not willing to change where the, the target demographic is.

They've kind of scratched and clawed their way up.

They're getting a certain level of cash flow coming in their top line revenue,

but it's flatlined because as their team has grown, they've not pivoted to

that higher value client because they don't understand their own numbers when

it comes to lifetime value of clients, cost of acquisition, of clients, you

know, uh, implementing or onboarding a client or things of that nature.

They've got this now this where it was like maybe three of them now there's 50 of

them, but they're still chasing the little guys and, and trying to make that pivot

that they need to go to a new target demo.

But they're so scared of being able to do that.

Plus they don't, they don't even track those numbers.

How much.

How much financial literacy do you think as, as you're trying to grow that the,

that ownership group needs to really immerse themselves in so they truly

understand going back to even protecting and, and, and reducing risk to, to

really get a grasp on, you know, the numbers of the business so they know

they're moving in the right direction.

It's, it's, um, unfortunately there's no way to sugarcoat it.

You can get, you can get away from knowing your numbers because even in the most.

Low stake conversations that you're gonna be having.

The second you do not show that you're able to talk comfortably about

your volumes or your revenues or your, whether or not your business

is profitable or whether you're not.

You're having cash flow shortages.

It's gonna be very hard to gain that credibility, be it with

clients or investors or even banks.

I mean, there's a reason why, you know, there's certain kyc, no.

Your customer processes and all that stuff that goes with

all these banking and lenders.

. You need that for your own credibility.

You need that for if, if you do not know, for example, your revenue breakdown, what

are your biggest contributors to revenue?

What kind of products are doing the best and what are the gross margins

on, on your most popular products?

Also, these things are gonna not make you look good and, and it's for

a good reason because it shows that you're not on top of finances and you.

Really go into that next level and break that glass barrier if you're

not on top of finances, because, and this is something that many

people I think do not fully grasp.

Um, a business can be loss making and stay operational, but the second a

business runs out of cash, it's gone.

And so it's not that you have to continuously report profits, it's.

You need to know, you know, what's your cash standing today?

What are your cash requirements tomorrow, if you're booking revenues

upon sending invoices, but still recording accounts, receivable figures,

and you're still chasing clients to pay you for revenues that you are already

booked, you might be reporting profits, but you don't have the cash to back it

up, and so what's gonna happen to you?

And so you, there's no way around it because also the way a business is valued,

is by looking at the quality of its earnings and by its cash flows and by how

well it's growing and how well it's doing.

And so if you're not on top of this stuff, why should someone

bet on you that you are right?

You need to, you need to demonstrate a certain level of proficiency, and I'm not

talking the most sophisticated things.

And sit in front of an investor and tell them why your evaluation is

that much, and back it up with all the nitty gritty assumptions that

you know, these big fancy bankers.

, it's about showing that you've done your homework on your own baby.

And I think when you do that, people start taking you seriously

because it's a paradox, right?

If you wanna, if you want to get big, you need to be big.

If you wanna get bigger deals, if you want to get bigger clients,

you need to be a bigger fish.

It doesn't, this is how it works.

If you want bigger contracts, You need to show that you're a big

service provider or a product seller.

It, there's no escaping.

No.

So you

need to know, yeah, I had, I had a situation, uh, again, and this was

without even knowing the numbers.

You know, when you've been around long enough that your, your

antennas kind of go up and go, something's, something's not right.

Uh, I go into a, a first meeting and there's like six or seven

other people and it's a kickoff for a new project, and I sit there.

I don't really know anybody at the table, cuz it was like my first day there,

second day there, something like that.

And I'm, I'm listening to 'em talk and, and knowing the, the tech industry

as well as I did, I'm sitting there going, and then somebody, somebody

says how large the company the client was and I went, whoa, whoa, whoa.

How much revenue does these guys train bring?

And they told me, and I said, guys, we just blew the year's worth of revenue.

In this meeting right now with the eight of us sitting around this

table, that was the size of the client they were dealing with.

So not including what it was going to be with the onboard process once we

leave the meeting, or how much it cost the sales guide to bring these kinds

to the table and how long that took.

And I'm sitting there going, All right.

How often now, if this is my first instance here and my very

first experience, how often does this happen across the board?

Yeah.

It ended up, unfortunately, being very frequently in that particular

situation, but it, it, it, it goes to show as you're looking, like you say,

trying to become that bigger fish.

You gotta learn to start pivoting into those bigger things and not

be scared of that change that's

necessary.

Absolutely.

And so let me give an insight into, into what could that look like as an example.

Smaller businesses usually talk just revenue and profit.

But the second you start getting into bigger discussions, you need to

start talking about operating profit.

Mm-hmm.

, you need to start talking about ebitda.

Yep.

You need to start talking about net debt.

You need to at least have an indication of what your free cash flow is.

And I think this is where it can be a little intimidating, but

in reality it's, it's simple.

It's just a formula.

It's just a way of, you know, stripping out whatever you deem is non-core to the.

Non-recurring and just presenting as clean numbers as you.

Yeah.

No, and, and totally makes sense and I, I think there's something, we, we

didn't talk about this at the onset, but I can ask it now cuz it ties into this.

When you're starting out, do you think it's good to be very specific, to

go, I want, you know, from the onset, I really want to take this thing to

the moon Or versus going, you know, talking about like that legacy business

versus the one that says I'm looking for a lifestyle business, you know,

I'm very good at this particular job.

I'm just looking to do this at a smaller scale, do you need to be very explicit

about that going forward, or is that something you, if you started out going,

oh, this is small, and then it kind of blows up, you know, maybe just by

however you function it, that you can then pivot and get into that super growth

mode?

Hmm.

I, I think, I think having the right intention is definitely key here.

I help the gate.

Okay.

Yeah.

I, and, and there's nothing wrong with wanting a lifestyle.

And I think people who like lifestyle businesses do it for

the right reasons that suit them.

And there's nothing also wrong about wanting something more

financially rewarding than that.

But I think mm-hmm , with the lack of the right intention, it's gonna

be significantly harder to reach a situation where you say, this is

a lifestyle business, but it's now blowing up and I don't know what to do.

I think that situation is less likely to happen than to be like,

this started as a lifestyle.

It's proving to be better than I expected.

Let me see where I can go with this.

I'm curious and I'm excited to take this forward.

, again, it's about intention, but what really matters is defining with clarity

and intent where you want to go.

It's, it sounds a little cheesy, but we've all heard about how important it is to

write down your goals down and write them down with a certain level of clarity.

and the right kind of details and, and to write them down in a measured way.

So to quantify things if we can, because the more clear you are in writing down

your goals, the more likely you are gonna be able to break them down into

actionable steps and milestones, and the more likely they're gonna be executable.

It's the same with a business, right?

It's the same with a business when you sit down.

Write down a business plan for a business.

You're doing the goals for that business and you're breaking down all

the milestones the business has to go through in order to meet these goals.

Now, yes, you might need to pivot.

Things are not gonna be, as you initially planned, what you're

much more likely gonna be able to achieve a successful outcome.

If you have a clear indication with clear detail of where it is you want to.

versus not having that?

No,

I, I think it makes sense.

You kind of don't want to go in the path and just close your

eyes and just start walking.

Then you're just gonna run off the cliff or run into a wall.

. Yeah.

For, okay.

For somebody that now coming, you know, with the background that you've got and

you now helping, helping the organiza, you know, companies get that, get the

frameworks in place to really grow to the next level, how does, how does

someone go about finding the proper in.

you know, person or group private equity groups to actually approach

where, where, how do you start that research process to go?

We think we got, we think we got our ducks in a row and we're looking to get

some, some help going to the next level.

Um, yeah.

How do, how do they, how do, where do they go?

What's resources to go even

look for that type of stuff?

Sure.

I think there's, uh, there's no shortage of cash out there for the right ideas

and the right opportunities, and more importantly, the right people

who have a certain level of track record in doing what they're doing.

I think one way to go about it is to, uh, go to focus groups, is do some quick

searches online to see the different levels of capital that is available and

the different types of capital that is available depending on the size of the.

Every investor has different parameters that they look at

when investing in something.

You've got certain investors that would invest in an idea, provided the team

leading it has a certain track record, and you have other investors that look

only at companies that are stable and mature and that could pay potential

dividends because that's what they do.

Um, but I would say it's a combination.

Private investors, sometimes you could go through the small business

administration and see what kind of support they're giving.

Talk to banks, even if it's not gonna go anywhere, or you

don't like banks, and I get it.

But when you go through that process, you know what the

risks are with your business.

Even if you can't see them yourself, they're gonna tell you, listen.

This is too risky.

There's too much variation.

You only have two clients.

You don't have market validation yet.

You know, and these are the same reservations that are gonna

come from an equity investor.

Totally makes sense.

At that point.

When it comes to we,

we talked about this and I kind of joked about it before, who.

As you're going through that valuation process, whether you're looking to

sell or you're looking to, to bring on other partners or investors, you're

flushing out your board of directors who actually has the final say that

says, Hey, you know, you, you got a million dollars top line revenue, but

we're gonna do you at three times.

Who actually has the final say on that type of stuff?

Being that there's so many people, as you mentioned before, lawyers auditor.

Technical folks, you know that comes at that final

number.

It's ultimately between the buyer and the seller, but the party

that has the more leverage is the party that is less desperate.

Uh, the party that is willing to say no and actually mean it and walk away.

It's as simple as that.

did that in a house.

I did that and I'm trying to buy a house a few years ago, and

that's exactly the situation I was in, and I was able to walk away.

, . No.

Hey, this, uh, this has been an awesome, awesome conversation

and, and a lot of insight.

For anybody listening, please go check out, uh, the, the book, the Game of Value

Creation, check out the online training.

Is there anywhere else, any online, uh, social media to

reach out to you?

It's mostly the website for now, I think mostly the website.

Yeah, I think on the website there, there's my email there and, uh, yeah, I

think the book is a great place to start and see if this is something you like.

I think it's gonna help.

because I, I wrote it with the intent of educating, and it might be a little bit

dry because it has a lot of technical information, but I did that intentionally.

I think the intent is to provide a stepping stone and to provide,

you know, fresh perspective and new solutions, even if you just take them

and interpret them in your own way.

The second, you know, how the big public companies are run and

how they approach value creation.

Your approach to value creation is gonna change too.

And so I highly encourage you to grab a copy and go through it and reach out to

me If, uh, there's more you wanna discuss or if you need help in any way whatsoever,

I'd be more than happy to help you.

No, and I, and I

totally agree ever after having even went through the book, you know, it's

one of those things, it is not fluff.

It's very tactical on how to approach things.

And I think, I think that's what a lot of people need, you know,

personally, it's, you know, You know, one through 10, here's the steps to

go through to try to start building things out if you're truly serious

about, you know, making the changes and making the progress that you want.

Absolutely.

Carl, I've had a blast, man.

I, I really appreciate the insight and expertise that you brought

from the investment world, and particularly in the beginning with

just my random questions that I've always wanted to ask somebody that's

had that type of experience and then obviously going through the breakdown.

I

really appreciate it.

That was, that was a lot of fun.

John, thank you for having me.

Thank you very much for having me.