Speaker 1 00:00:03 Hello and welcome everyone. I'm Peter Larman, and this is Masters in Small Business m and A. This show is an ongoing exploration into the vast and undercover world of small business m and a, where we interview both the proven and the emerging owners, operators, investors, and advisors whose strategies and methods for transaction success have been put to the test. The show aims to surface the nuanced intricacies, the key ingredients, and the important factors that can improve your decision making in your own journey in the world of small business m and a. This podcast is produced by Axial, an online platform that makes it easier for business owners and their m and a advisors to find research and privately connect with a diverse mix of professional buyers of small businesses. In addition to learning more about Axial, you can find this podcast, show notes, edited transcripts, and many other related resources all for
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Speaker 2 00:01:02 Peter Larman is the CEO of Axial. All opinions expressed by Peter and podcast guests do not reflect the views or opinions of Axial. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Podcast guests may have ongoing client relationships with Axial.
Speaker 3 00:01:21 Hi everybody, this is Peter Laman. I am back with the next episode of Masters in Small Business m and a. I am incredibly happy to finally have landed Walker Diebel on the podcast. Walker. Thank you so much for coming and joining. This is fun, Peter.
Speaker 4 00:01:35 It's, it's my honor. I've known about Axial for so long and have been a longtime fan, and so it's been such a pleasure getting to know you over the last year or so, and super excited to formally dig in together.
Speaker 3 00:01:47 Yeah, there's a ton to talk about. I'm going to dispense with your background and I want to get right into the book. It was a 2018 book by then Build How Acquisition Entrepreneurs Outsmart the Startup Entrepreneur. Let's start there. Why did you write this book and, and how did you figure out what to write about?
Speaker 4 00:02:05 Yeah. Okay. I got the idea to write by then Build back in 2003, 2004. Right. So I was getting my MBA at the Oland School of Business at that time, and I was sort of using that full-time program as kind of like a resume shield to be able to do whatever I want and try to start an existing company. And I kept trying to start companies and I, I was a finalist in a business plan competition had, you know, verbal agreements for, for sales, and I was starting to get investors circling, and the whole thing just completely fell apart. And along the way, a couple things happen. Number one, we sort of all go into entrepreneurship knowing that the odds are strictly against you, right? Like, it's almost like punishment for people that don't understand statistics, right? That want to go out and like start a business from scratch.
Speaker 4 00:02:48 And we all kind of know it, but we have these sort of like Han Solo moments where it's like, don't tell me the odds, like I'm going into the asteroid field, I'll make it right. So I knew that. But here's the other thing that was so interesting, Peter, if you, if you were a wine right? To sort of like my early career, like 1999 through, through 2004, and during that period of time, Silicon Valley was all the rage. And not that they're not now, but they were like defining, right? Like what it meant to be an entrepreneur, right? And it was during that time that I was walking in St. Louis up, up and down y down Boulevard, which is like the only boulevard in St. Louis. It's right outside one of the top 10 richest neighborhoods in the country. And these houses are huge, right?
Speaker 4 00:03:29 I mean, what, whatever your definition is. I mean, they're five, six, 8,000 square feet with like all this stuff. And I just remember walking up and down and going, these people are not Silicon Valley entrepreneurs. Like what is this like infrastructure of the United States? And I knew that there was a way that I could go out and buy an existing business, and I knew that there was a way I could get financing and sort of navigate this. And it was, it was one of these where it was existing revenue, existing infrastructure and current profits versus starting from scratch trying to sell a dream and build an infrastructure with other people's money. I loved the idea. And as a freshly minted, b a started out trying to find a business. And the biggest thing that I saw was that there was like absolutely no materials. There was no organization, there was nowhere to go. The whole market was private, right? Like, so evaluations were subjective and, and shallow few and far between insights were very misleading. And as I tried to navigate this market, the first time I went out and tried to find a business, I, I basically failed. I couldn't get it done. Cause it was like, when
Speaker 3 00:04:30 Did you start to do that?
Speaker 4 00:04:31 2004. So today, okay, we, we know that from research coming outta Stanford and whatnot, we know that the average surge takes like whatever, 18 to 24 months or whatever, right? In 2004, there was no word like searcher, you know what I'm saying? Like, that wasn't a thing. And so it was like, we didn't have any data to say like, Hey, this takes that this much time. And after about six months, Peter, I was feeling pretty broke and unemployed and I ended up kinda going corporate for a little bit.
Speaker 3 00:04:58 And so that was in 2004, and it took you 14 years to write the, the canonical work on buying and building and searching. Yeah.
Speaker 4 00:05:06 Well, Peter, the, the good news is, is that I wasn't writing the whole time <laugh>, but here's the thing. Here's the thing. I knew that I could run around and interview some people and produce some kind of book on the, on the subject, okay? But that's not what I was interested in doing. I really wanted to, let's use your word, right? It's sort of like I wanted to write, like, I saw an opportunity to really be able to create a piece of work that could sort of like define like, almost be like a seminal piece in this little corner of the world. And I wanted to make sure I executed that on that correctly or didn't do it at all. And I sort of felt like the first thing I needed to do was do the activities that led to me being able to be one of the people that are allowed to write the book, right?
Speaker 4 00:05:51 So I did a few things. Number one, I bought seven companies over a 10 year period. I had an exit or two in there. I learned about the private capital markets from various different sides. I, I did be, I was a stockbroker publicly did publicly traded stuff at the, at the beginning of my career, got licensed and all the rest of it. But then anything out there that had any kind of like private market, private capital market certification or education, I took it and it was like, anything out there I want it. Right? And so it was just sort of like, how do I get exposure to all these deals? And then what I did was I said, okay, I'm gonna try to write best practices around this space. And I went out and I did Peter, I don't know, I, I mean I did between 50 and a hundred interviews and just trying to figure out like what are the best practices? And I quickly realized there are none. What we need are frameworks. There are no best practices. It's all, it's all sort of very specific, very deal specific.
Speaker 3 00:06:44 When you were interviewing people, do any of those people stay with you today? I mean, who, who have been some of the big influences on you as you developed the expertise as you were buying seven businesses who have been some of the big people in, in the arc?
Speaker 4 00:07:01 Yeah, that's great. I think first of all, so the book is actually dedicated to Bob Dibel, your grandfather's entrepreneur is what I wrote in there, right? This is my, my grandfather. And the thing is, is that he bought two companies in his life, and he always told me, never start a company from scratch, even as a small kid. Okay? And he's the kind of guy that former military, former naval officer, you know, he had three boys and like, he'd line 'em all up, they'd come home, he'd pour a drink, he'd say, boys line up. And they'd line up and he'd say, never go on the retail business. That's all for tonight. And like that was sort of like how he parented <laugh>. So obviously, obviously he coached me from a young age on how to think about business and all the rest of it. And sure enough, my dad bought a company, my, both of my uncles bought companies.
Speaker 4 00:07:46 And so it was sort of in the bloodline. So there, that's the backdrop. Okay. Like, make no mistake, right? And we'll d we can dive into that more if you want. But, but the thing is, is that it wasn't until the, probably the, look, I wanna, I wanna really emphasize the fact that this industry is so fragmented is really, has really been my experience. The influences have not been tightens so to speak, or whales. It's more like little, little interactions that ended up holding big weight. And there was a business broker named Gary Rogers out of Springfield, Missouri, I can't believe, I can't remember his firm's name. It's like King's. It's me with Kings. I'm, so, I'm embarrassed at the moment, but he helped define a lot of my early approaches, right? So in other words, I would sort of ask him various questions and he ended up being a broker on, he was the broker on my exit out of the printing company he was the broker on. And then I kind of brokered a deal. I ki I kind of brokered a deal in that I found the next acquisition and it ended up going, it ended up closing, but I, it went through Gary. And then third was, he was both the buy side and exit broker on my second acquisition.
Speaker 3 00:08:57 What did you take away from all the work with Gary and all the interaction with Gary?
Speaker 4 00:09:01 The most powerful thing he ever said to me, he had a couple of things. One, when I went to sell my first business, he said, Walker, I can sell this company for X many dollars. And I said, okay Gary, how about X times two or plus 20% like this number that's that's bigger. And he leaned in and said, Walker, I can sell your company for a billion dollars, but the terms are $1 a day for a billion days. Right? And he just taught me a lot about deal structure from a very like, kind of salt to the earth kind of approach. The second thing was just going through a lot of those early interactions with different buyers and, and, and different potential businesses. And the big thing was was he was the one that said to me, you can buy a company and be a c e O in six months.
Speaker 4 00:09:43 He didn't say CEO e o, but you know, you can buy a company in six months if you r just really commit to it. And it was that kind of sense of urgency that sort of changed the way that I approached trying to buy companies altogether. And so him saying that to me before I bought what led to my second acquisition was also what powered me through acquisitions two through seven. It's sort of like, the analogy I always say is when you know when you're single and you're maybe in your twenties and like whatever, and you're like, yeah, maybe I'll get married one day. It's like, if you're gonna get married to like Margot Robbi or Gwyneth Paltrow or like one of these other like perfect human beings, right? Somehow I convinced my wife to marry me, even though I'm far from <laugh>, George Clooney, right?
Speaker 4 00:10:24 But it, but it's one of these where you've gotta get the timing right. You have to understand what it is you bring at the table and you have to understand what's a match that is good for my lifestyle and, and what it is that I wanna do in the world. And that, and I don't wanna use the term lower the bar, but the thing is, is that it's sort of like you need to find an opportunity and align your skillset with an opportunity and then take a leap of faith, right? And then Gary also ended up introducing me to the first outside operator that I ended up hiring and working with. So just during those first few transactions, he just was a very instrumental person, a very gray-haired, experienced, well anchored person that just had a lot of good advice for me during that time. I was trying to cut my teeth.
Speaker 3 00:11:07 Where are you now in terms of owning and acquiring businesses? Did you pause on that as part of buy then build and, and, and the acquisition lab, which we're gonna get into?
Speaker 4 00:11:16 Yeah. Understood. So thanks Peter. So, so I think in my life today as sort of like three legs of the same stool, right? So on the one hand there's businesses that I own that I acquired, which I, I currently have two. I currently have two, okay? And one is a manufacturing business and one is an e-commerce business. Okay? Combined they do about, let's see three, so about between six and 7 million in revenue. Okay? So by, by most of your listeners, I would, I would presume that's very, very small for me, it's been great because I own a couple of companies. They generate cash and we've got really good services and I've got something to build. The second leg of this stool is I work with sellers right through, I partnered with Quiet Light Brokerage and we help online businesses transact. There's a reason for that.
Speaker 4 00:12:01 But basically I became raving fans of Quiet Lights, sort of pre 2010 and did buy my e-com business through them in 2016. And they were just exceptional to me on the buy side as I bought for like a decade. So it, it was just the only place where I would've done it. And third, by then build kind of led to creating the acquisition lab. And so I think of this leg as the sort of like buyer education or coaching buyers through, through success, usually through their first acquisition. So Peter, the, the, the big mistake I made was I bought in multi multiple verticals in multiple geographies with multiple different customer profiles, multiple different value propositions, multiple different operating teams. And every day was a different problem in a different place with different stuff. And, and you and I both know one company is plenty
Speaker 3 00:12:54 <laugh>.
Speaker 4 00:12:55 So once I sort of had, had gone through all this experience originally I thought I wanted to have like the, the, the biggest, the smallest portfolio of companies that no one had ever heard of. And I was gonna own a hundred percent of all of it. And I quickly found out, hey, my head's spinning fo I need, I need more focus in terms of what I'm doing. So I've engineered my life to, I've re-engineered my life for a bigger impact around things I'm more passionate about and more efficient teams that can, that can operate with frankly less of my time so that I can do all the different things I wanna do.
Speaker 3 00:13:27 The acquisition lab, which I wanna spend a bunch of time on. Cause I think it's so cool and so interesting. Thank you. Is h how much of, how much of your time is, is roughly being spent on the acquisition lab right now? Yeah,
Speaker 4 00:13:39 So Peter, it's, it's really, so we are now in 2023 and during this year, the acquisition lab has become my primary focus. And what I wanna tell you is that it has not been in years prior and it was all kind of a crawl, walk, run approach, right? So in other words, here's the thing in the same way that I approached by then Build, when I created Acquisition Lab, the concept is I got the idea for the acquisition lab back in 2010. 2004 was by then build, it was like, let's write, let's write materials. 2010 was like, what if there was like a bootcamp or an accelerator that would help people buy existing companies? And even though we were the first that I'm aware of that created anything similar to this, I went at it saying, look, I wanna be like the Y Combinator, I wanna be like the Harvard Business School of helping people acquire existing companies. Right? Did you go to Harvard?
Speaker 3 00:14:28 I do not. No <laugh> I didn't <laugh>
Speaker 4 00:14:30 I didn't either. I could, I should say the o School of Business, right? But, but it's one where I, I really wanted, I really want to build something that is exceptional and impactful, and we've really built that into the DNA of the acquisition lab, right? And so the concept was first let's anchor in world class education. Okay? And so I hired a curriculum designer who builds accredited curriculums and certification programs and all the rest of it and worked together with her to build out our core curriculum. I then added a whole bunch of stuff and taught that at the old school of business for a couple of semesters, kind of test it. And we started rolling it out in kind of beta programs, the early, early cohorts. It wasn't until we got to north of 4.8 star reviews that I decided, okay, we, we are now allowed to start kind of advertising, right?
Speaker 4 00:15:21 So we ran a few cohorts just to get it right, and then once we started advertising, it was critical that we vetted properly. When we started, only 12% of applicants were accepted into the program. As we've continued to get some momentum and grown, that's kind of expanded. Okay. It's probably a little north of 25% right now. And Peter, our bar's pretty low. Okay. It's just, it's just if, if we don't, if we feel like you can't do this, we're not gonna let you in. If you can't access some capital, we're not gonna let you in. We're just gonna waste your money and your time and you're gonna waste everyone else's. So the community is vetted and has actually become probably the biggest, what would I say, the most relished asset of the whole acquisition lab. And I wasn't even expecting it, right? It's just such a, it's such a vetted, strong, competent community. So that was the next piece, obviously next was tools and resources and hiring out a team. I did not want this to be the Walker dive show. I want, I want it to be a team of people that that can help. And that's why it's called a laboratory, a acquisition lab. That's the point. It's the private capital markets that you've gotta learn to navigate it from lots of different perspectives. And then I wanted results. And today we are quickly approaching 200 million in member acquisitions just in the last 18 months. That's
Speaker 3 00:16:35 So cool. Congratulations. That's awesome.
Speaker 4 00:16:37 So as world class education vetted community tools and resources, we've got 11 coaches on staff, all that have done this, and usually multiple times bringing on a new one this week, and now we've got results. And so we just passed seven figures in revenue. And if you know anything about what I kind of preach with buy them build, it's, hey, only 4% of companies in the United States ever exceed a million dollars in revenue. So like that's a really low bar for being like, so exceptional. Like, why aren't we buying these instead of trying to start 'em from scratch, right? So like, if, if you start a business from scratch and you're lucky enough to make it, the odds that you even exceed a million dollars in revenue are, are like 4%. It's like, so like we need to buy, we need to start by getting on base. It's like Moneyball for entrepreneurship, right? Like get that infrastructure that's working first. And that's been kind of my approach and what's worked for me. So, so now that we've done that, it's like, okay, sort of this crawl, walk, run. So now that we've got this amazing community, we've got all these results, we've got wonderful reviews, I'm sorry, I feel like I'm, I don't mean to be selling this, it's just one of these, it's your baby.
Speaker 3 00:17:42 It's your baby
Speaker 4 00:17:43 Totally. To try to build it. Yeah. Yeah. And so now, now I'm like, okay, now we're there. Like what happens if I really put my back into this? Can I build this kind of ambitious and bold vision that I've got for the, for the company? It's really incredible and fun. I'm very proud of what the team has built.
Speaker 3 00:17:59 I'd love for people who listen to this episode to hear your perspective on some of the things that you teach in the acquisition lab. Not everybody who listens to this is going to go to the acquisition lab, but some will hopefully, and I'm, but I'm curious, like to just get into what does, like a couple of things, like what does world class education look like for someone who wants to buy and build a small business? How do you figure out what those topics are? Yep. How do you know that they are great and world class? So let's start there. And I've got a bunch of other questions about just who you think does great inside of the world of small business m and a. Where do they come from? What patterns have you seen? So let's start with the education piece of it. I really wanna understand how you guys have Yeah. Landed on what does someone need to know? What, what is best for them to know as they, as they kick off m and a in the world of small business and, and buying, building, owning, and operating.
Speaker 4 00:18:57 Yeah. So Peter, like coming up with the, with what the content should be, it's actually not that hard, right? In other words, you sort of say like, okay, let me go talk to 20 business brokers and just hang out with potential potential buyers for 10 years. What are the mistakes that they're making and what do I see over and over again? Where, where do they get nervous? Where do they fail? How do they not execute? How do they fail post post acquisition? What do buyers say that make brokers roll their eyes? Like how do you do due diligence? How do, and then you sort of reverse engineer and say, okay, well they're getting it wrong because everyone seems to think that like what you were doing prior to searching for a business to buy is totally relevant. And I actually strongly disagree, right? And that has to do with, it's sort of like the, what, what would you call it?
Speaker 4 00:19:41 Like availability heretic, right? Is that, is that the word for that? Where, where it's sort of like the you weight heavily what has just happened, right? And what I started to realize was, no, like all these brokers are trying to give, sell me a business that is relevant to my prior experience, but I don't, I could care less. It has more to do with the opportunity that the business provides, right? So, you know, you start thinking about you, you kind of reverse engineer success by going through and by then bill that talk about the prep funnel, right? Like thinking about what is it you bring to the table? Like do you have the right mindset? What, what are your attributes? Like what are you good at? What? And then what is the activities that you wanna be doing with your day, right? And then you go with all of those and figure out what's the opportunity that you're really looking to implement or execute on.
Speaker 4 00:20:28 And then once you understand that, then it's sort of like, okay, well we've got the AE matrix or the four quadrants of like what's the, what's, what are the different opportunities that the business could be speaking to me, right? And that will help you understand what potential industries you're going after or just having frameworks for figuring out what the business needs to move forward. Okay? So these are just some examples, right? Obviously due diligence, analysis, valuations, like all these types of things, the different segments of the market and how valuations and deal structures get done. Like that's all teachable, but where you make it world class is really just higher order thinking, right? It's sort of like synthesizing information, applying information. And so a big part of it is just doing case studies, okay? And I wanna be very clear, like we teach this information and then we provide case studies as sort of a sandbox for people to learn in through our intensive, which is the four week onboarding program.
Speaker 4 00:21:22 Then after the intensive is when you're able to get into things like the search forum or small groups of searchers bring their active deals. Everyone signs an NDA and people start to break it down together. Here's the thing, the number one thing, Peter, at the end of the day that the acquisition lab provides to everybody, okay? Is that when you are a potential buyer of a small business, the number one thing you need to do is not be on an island, right? You need to have a small community of people with the same language and the same tools and the same analysis and all the rest of it so that you've got momentum behind what it is that you're trying to execute. And then you need to be able to bring your deal into a trusted small group of people that are all vetted that can then work with you in terms of helping you make decisions and, you know, getting the deal to closing.
Speaker 3 00:22:14 Yeah, it's like a Y P O peer group, but for, for searchers,
Speaker 4 00:22:17 I, yeah, I, I guess that, I guess that's similar. I think if you added scale up or traction into that with the, with the EO group, then yes. Yeah. And it's sort of like a, but, but I wanna be Peter, the re the reason like when the idea of the acquisition lab came to me in 2010, I had a book printing company at this time and I started printing books for a company called Veritas Prep. And anyone that has an mba, a after, I don't know, 20 2008 or so probably is aware of them, and they were sort of like the elite provider of GMAT test prep. And their only competitor I think was like Manhattan Review kind of a thing, right? And Chad Trout wein, I ended up partnering, he's the founder, co-founder. I ended up partnering with him later on when he co-founded Code Smith with Will sentence, very similar business model. It's a coding academy that has the highest average starting salary and the highest rate of graduates employed 30 days after graduation. And it's all about driving these metrics to create the single best program ever. And there's a big emphasis on vetting and who gets in and all the rest of it in order to elevate the entire community. Okay. And it's really that approach that we've built into the DNA of acquisition lab. And that's kinda the point
Speaker 3 00:23:33 I, I was thinking the person who's very good at potentially searching for and financing and closing a deal is definitely not always the same person who's then goes on to be a natural owner operator CEO for that business.
Speaker 4 00:23:50 Yeah.
Speaker 3 00:23:51 Do you see any of that? Do you see people that go through the acquisition lab successfully close a transaction and then realize that they're like more of a deal junkie than they are an actual operator of, of businesses post-closing?
Speaker 4 00:24:02 Yeah. We try to protect against that, Peter, right? So one of the things that makes a a good potential buyer of a business, right? Is the fact there's, there's sort of like, there, there's a few things, right? So, so let's merge these together. So one is you gotta have some level of competence, right? I mean, high iq, high eq, just like the ability to be resourceful and have a growth mindset and understand that you're gonna tackle these problems, right? Like business ownership is a full contact sport, which is the second thing, which is if we get, if we get people who are like, Hey, I wanna buy, then chill. We work through that, okay? And I, I don't wanna spoiler alert, okay, but during the intensive, during the last week before the sort of culminating case study that brings multiple lessons together, I have what, what I, it's set up like a, like an AMA session that's unstructured, but it's secretly structured.
Speaker 4 00:24:56 Okay? It's, it provides unstructured time. However, the big lesson and the big takeaway that always comes out, I call it my Mr. Miyagi talk and it's the, like, you can't do this. You're not built for this. This is really hard. Like you're gonna fail, you're signing personal guarantees, like all, like all this stuff. And the point is, I want to give everyone all the information and all the data and all the tools before I start beating 'em down. Because the thing is, is that if they can rise to the challenge after that with their eyes open, then I know that they have a much better chance of succeeding. Right? You're look, your point is valid, Peter. And when I started buying companies, like I can't tell, like, okay, I met a, I, I know a guy who, you know, read by them, li literally read by them build, I was talking him two days ago, read by them build, bought a company for like $200,000 and now it's worth over 25 million and it's less than 24 months.
Speaker 4 00:25:50 I mean, he's just like killing it, right? I never had that kind of luck, right? Even just doing my own stuff, right? And a lot of times, like when I would buy a company almost every single time the next year revenue goes down, okay? But the thing is, is you've gotta, I'm, I'm not kidding, right? I mean, it's almost like, I don't know if sellers are peeking it out or like maybe I'm getting in and just wrecking it, but like, yeah, the thing is, is like, it's, it's not always up into the right linear, you gotta get in there and dig it and make it your own. Roll a few heads usually, right? Lay in, lay in your own operations and figure out how you're gonna grow the business. And so I bought a book printing company going into the great recession. That was hard, right?
Speaker 4 00:26:28 And so it's like ultimately I've been able to get like over 50% compounded annual growth rates on these things. But it's not easy. It takes time and you've gotta be in it, right? And so I think that the answer to your question is entrepreneurship as, as with axial, there's no rules. There's no one telling you what to do, there's no career path. And business ownership to me is sort of like the, I don't wanna call it a high contact sport, but it's almost like it's the, it's the most elevated lifestyle you can have because your business and your employees and, and all, and your partners and all the rest of it breathe when you breathe, right? And the stakes are high and all of the rewards go to you and all the failures go to you and you've gotta get in there and run the business.
Speaker 3 00:27:14 I wanna make sure I understand how the acquisition lab is set up in terms of being like asynchronous versus synchronized in terms of its learning. Like how do you set up and run the cohorts and, and like what, what is your point of view on remote learning and go at your own speed learning versus a more coordinated, more structured way to learn this? Yeah. Just interested in hearing how you've thought through the different modalities for educating the, the cohorts.
Speaker 4 00:27:38 Sure. I mean, Peter, the first thing that you'd find is we, we do, we take a just in time approach to education. Okay? So in other words, during the first month you come in as an student of the intensive. Okay. And then you sort of join the lab is what is really how we think about it. Okay? And when you join the lab, that's when you have access to almost daily coaching. Monday through Friday, almost daily coaching most weeks we have a guest speaker. We, we stopped trying to, we stopped saying it was gonna be every week cuz we wanted it to be extra valuable and not just like, Hey, we're filling this slot. And so that's when it becomes, and then there's ongoing asynchronous learning as sort of like an encyclopedia or reference point. For example. We do not cover due diligence in the first month because no one should be doing due diligence within 30 days of get of getting onboarded.
Speaker 4 00:28:26 That that's the, you're in the wrong spot. Right? Of course we have people who like call and they're like, Hey, I'm, I'm under L O i and like I really want to get into this <laugh> and we'll help them out then we can advance them or whatever. But so it's number one is just in time. Number two, like I said, we've got a mountain of asynchronous content that they get access to. However, the cohorts run in two tracks during the intensive, so it's four weeks. Okay. And, uh, they run the U track and the three forces of search track. Okay. And then we run the, how would I describe it? And then, and then they have to apply everything that they're learning all the way through Okay. With workbooks and spreadsheets and all the rest of it. And then it all kind of comes together into one harmonious awesome thing.
Speaker 4 00:29:08 Why synchronous? I think that anyone in your audience who ever has bought an online course would tell you that more often than not, they didn't complete them. Okay? And if you're gonna get into the lab, you have lifetime access, you are allowed to bring a deal in 18 months later, okay? 24 months later, okay. Eight months later, right? You can literally disappear after a couple of months and we won't see you. And then you sh I had a guy who was in cohort three showed up last week. We talked about his deal at the search forum and he texted me last night, he's now under LOI with a 10 million revenue deal based on the conversation that we had at, at the, at the search forum. So it's, that's, that's what I'm talking about. It's sort of like the, we're not gonna teach you in one month what you need to learn, right? We're gonna teach you how to do what it is you need to do and then we provide the soil for you to go out and, you know, get done what you need to get done.
Speaker 3 00:29:58 Are people doing this? I'm curious like what the, to talk a little bit about the demographics. So are people sort of moonlighting their way into a full-time role trying to buy a business? And, and where do, where, where are they coming from when, when they're, when they're joining the acquisition lab, are they coming more from finance or are they coming more from business operations? Just, I'm sure it's a mix, but like, just I'm interested to understand a little bit of the demographics and also how people transition into the search process. Cause not, some people obviously go to business school and then they raise a little bit of search capital and they can be full-time dedicated to this. But yeah, I think a lot of people don't go at it that way, but maybe I'm wrong. So I'm just curious to sort of hear how people get started.
Speaker 4 00:30:41 It's uncommon for us to have sort of like a traditional search fund or a sponsored search fund individual. It's uncommon but has happened where we have independent sponsors. And so most of these people are, it's, it's uncommon where people come and say like, Hey, I want to, I wanna build a private equity firm. But all, all these things sort of happen. One of, one of the gentlemen and two cohorts ago took two companies public on the nasdaq but doesn't really know how to do acquisitions in the sub 25 million space, for example, right? We had a retired NFL Super Bowl champion who came through. Well, I mean, I mean it's just, it, it's amazing. My, so my favorite avatar, Peter, my favorite avatar is the entrepreneur who started a company from scratch, grew that company, had a successful exit and then joins the lab because quote, I'm not gonna do that part again.
Speaker 4 00:31:33 Okay. I love that person. Okay? Because I know that they know how to operate. And I, and, and they are also the ones that are actually gonna close cuz they know what they're looking at. Okay. They understand because they've already done it, right? They've, we've already done it once you've run a business. But we get a lot of people who are sort of, I call 'em in my own description, never to their faces always a bridesmaid, right? So, so the sort of like second, third in command, someone on the management team, someone who, you know, for lack of a better description, made someone else a ton of money by building their company, right? We also get a lot of salespeople. We get people who are for whatever reason just looking for a change and understanding that ownership is the key to getting the foothold to building the life that they want.
Speaker 4 00:32:17 So maybe they just wanna leave their job may, a lot of times they wanna buy an online business because they wanna work at home and just have that freedom, right? So we get everything from, I wanna buy three or four companies in the 10 to $20 million range. I'm looking for a sub million dollar e-com site because this is how I wanna structure my lifestyle and everything in between. So Peter, it is difficult to, to kind of hammer it down, what I would tell you is that we tend to have a lot of people, not everybody, but we tend to have a lot of people with graduate degrees usually in business that then have I'd say 10 or 15 years of experience under their belt. That's, that's sort of when I'm going through and reviewing e everybody, like before the cohort kicks off, that's almost always that that's a pretty good profile. Someone mid-career who's successful, who's ready to take the leap and go out on their own.
Speaker 3 00:33:04 And that would be typically mid-career in, in an operating company background, historically or, or part of a finance path.
Speaker 4 00:33:12 Oh, gotcha. It's, we've had, we've had all, Peter, I can't really tell you, I mean everything from I do manufacturing to e to e-com or SaaS to, I mean all of it, it doesn't matter. It's more the self-funded searcher, right? And this is the term that the search fund uses. I I use the term acquisition entrepreneur, somebody says I'm a self-funded searcher. They obviously came out of learning about this through e T A or search funds. And it's just a term that means like, I'm not a traditional, I didn't raise money, right? Is what it means. And it's that person, that's the person that we help. And that, that is a few different avatars as we've covered.
Speaker 3 00:33:45 I'm curious how you guys coach on like, on, on financial diligence. Small businesses are plagued with financial record keeping challenges. It's expensive to do accounting really well and it takes a lot of good maintenance and small businesses just are particularly vulnerable to, to just not managing the books and records in the way that like the generally accepted accounting principles call for, right? Yeah. There's either cash accounting or mistakes made associated with capitalizing expenses or what is the process by which an acquisition entrepreneur who comes to the acquisition lab, like what is their approach to, to doing diligence on small businesses? How is it being done? What are you recommending there?
Speaker 4 00:34:30 Yeah, so couple of things. I I think what I consider sort of the biggest lesson on that space, I need to kind of keep close to close to my vest because we sort of reveal it at the right time and make our members do a certain amount of work before they can figure it out on their own. So I don't want to cheat our members by sort of giving you one of the big realizations that I hope they take out of it, but lemme say it, let me just anchor it like this. We do not do due diligence, right? I I do not recommend that people do due diligence a hundred percent on their own. There's plenty of firms for not a lot of money that you know, can, can do, can execute on diligence for a potential buyer of a company. And to me, I'd rather spend money on due diligence than I would on, uh, a law firm.
Speaker 4 00:35:13 Okay? And why is that? Okay? I view hiring a due diligence firm as insurance, right? And I think that hiring a law firm, you want to get the sort of big things right? But let's, let's be honest, what are you doing here? You're taking a big risk and buying an existing company. Like one of the things that we do at the lab is we don't actually teach you, Hey, we're gonna help you start this little business so that 90 days from now you have a thousand dollars in passive income coming in. Like, that's not what we teach. What we teach is like take personal guarantees, use bank financing and buy existing companies. Like it's risky, right? And the, the fact that people are willing to take outsized risk in order to create their own reality and the own and, and hold their own business that has all, in my opinion, all of the right things in the right places.
Speaker 4 00:36:02 Product, market, fit, revenue, infrastructure, all these things, cash flow, that's the game, right? And I think that what we teach is, is a lot more, look, without belittling it, get comfortable with the macro, what's going on here? Do you trust the seller? Okay? If you don't trust the seller, get outta there immediately, okay? Period. And the thing is, is, is yes, the books can be, can be messy. They can, you can work through most of this stuff, okay? Understand that sellers are very incentivized to minimize their taxes cuz that's what's been going on in their life before they met you. Okay? And you know, the big thing, I think that when you look at valuations in this space, because there's so much weighted risk on one individual, okay? There's usually very few buyers for any one deal. And as a result it makes a really thin market.
Speaker 4 00:36:52 And the result of having a thin market is that valuations are very modest. Okay? So if I run out and buy, I don't know what the PE ratio of apple is right now, 20, you know what I'm saying? It was probably 28 a year ago. You, you know, 2028 is what we're talking about. I think private publicly traded companies, the PE ratio is typically about 18. We're talking, I mean, in sub $25 million companies in sub $5 million transactions, I mean, you're talking very frequently, it's like three to four, right? Three and a half to four and a half maybe. So you need to kind of understand, I'm buying this company, okay? And it's gonna be directionally accurate. I don't want you to take ri risk that's not calculated. But at the end of the day, Peter, the one, the buyers that don't succeed are the ones that are trying to de-risk the acquisition to the fact, to the point that they're not actually gonna close.
Speaker 4 00:37:44 The magic is not in the de-risking, okay? You gotta take the information. Obviously if it's not documented, you're not gonna pay for it. Okay? If someone says, like, I had a guy who said, uh oh yeah, I make, you know, $200,000 every year, but they're just pay in cash, so it's not documented anywhere. Well guess what? You, you don't get it both ways, seller. It's just not gonna, it's not how it works, right? But that's an extreme example of what you're talking about. But you know, I think that a lot of it can be handled in terms of the specific situation, the deal terms and you know, just the, the team that you employ to get through to closing.
Speaker 3 00:38:17 I think that it's just a very challenging part of the m and a business for small business, right? Is, is the businesses have a limited amount of valuation and the businesses have a fixed amount of time required in order to evaluate the, the financials. When a business is worth tens of millions of dollars, you can afford to spend way more money to evaluate financials when the business is worth a lot less. You can't spend as much time or retain as much expertise in order to evaluate it. And so it's a very structurally challenged part of small business m and a.
Speaker 4 00:38:50 One of the practices that I engaged early on was I would take the financials from a potential acquisition and I would open an Excel spreadsheet and I would actually type in the numbers and rebuild the PNLs from the PNLs that were given to me. And then I would, I would create a model around like, okay, if I grow this business or if revenue declines, what am I gonna have to add? What expenses do I have to add in order to grow or as a result of growing? And if we start to decline, where would I actually cut? And I feel like going through that exercise to a certain extent, it's, it's way more insightful than, I mean, no disrespect than to a team of CPAs doing a quality of earnings. I think where the ladder comes into play is sort of like when, if you don't know what you're doing and you are on an island, okay, and, and, and, and you're sort of like out there like, okay, this business looks good and you do a quality of earnings, well now your CPA can tell you things like, look, this company isn't actually profitable because they're adding back all of this stuff that like, it's sort of like, well if, if your net income is negative a million dollars, but after all these add backs, you've got a hundred thousand in earnings, that's probably not a good deal <laugh>.
Speaker 4 00:40:02 And you can make it look good on paper if you're trying to sell it. And it's not actually doing what, what the buyer maybe thinks they're that it's doing. But I think that a lot of these massive horror stories that some due diligence companies choose to advertise, they're not necessarily doing service to the, to the environment. Like, like I don't think that the majority of sellers are out there to screw you. I don't think that the majority of brokers are out there to screw you. You need to understand their incentives. But at, at the end of the day, it's just like anything else. And I believe that 99% of people are just trying to do, do what's right, at least directionally.
Speaker 3 00:40:35 Yeah, no, i i I agree that they aren't necessarily trying to screw you. I think what what I, what I think is more common is they, they've just accumulated a series of accounting practices and methods over the course of many years that aren't necessarily quite right and they then decide they wanna sell their business and they don't factor in what needs to be done to sort of unwind all of those methods and practices. And so they're not, they're not trying to like hoodwink anybody necessarily, but they just skip the step of unwinding some of the practices that they had. Because I think a lot of business owners, like they move towards a stale in a way that doesn't necessarily reflect like some long-term clan. A lot of times I see business owners like they, some, some, something happens and then all of a sudden they decide they wanna sell their business.
Speaker 3 00:41:24 And it wasn't like this three year or five year sort of methodical plan that they're executing that sort of brings them to the precipice of a sale. It's like something happens to their health, something happens to their level of burnout. There's a big macro event that complicates things for their business. There's something that happens in their personal life and they, they've just lost the will or they or there's something. And so as a result, they're not like amenable to, okay, now I'm gonna kick off a three year process to get ready for an exit. It's like, I wanna sell this business within the next 12 months, ideally within the next six months. Excellent. And that, that creates challenges for a buyer.
Speaker 4 00:42:01 That's so well said, Peter and I, and I think that it's one of these where the thing that's beautiful about publicly traded markets is you can do things like cost basis averaging, cost averaging, like buying a little bit of a stock every month for a decade or whatever it is, right? And when you look at, and then by the way, when, when I, when you choose, let's say you're gonna go buy Nvidia today, you could probably log into your brokerage account, put in a trade, and within a minute, as long as the markets are open, your stock is purchased, right? And it's done in the private markets. It's like you decide to sell your business, then you have to package it all up. You and I talk, we're trying to set a stock price. You get one exit on one day for a hundred percent, and I'm buying a hundred percent on one day at one valuation. And obviously there's deal terms and, and valuation structures that can kind of soften the edges around that. But at the end of the day, you're talking about a single day transaction for, for a, a business. To your point that, that hopefully has long-term has had a long-term impact on the seller's life and should have a long-term impact on the buyer's life. Yeah. Great.
Speaker 3 00:43:14 So SMB m and a is having a little bit of a moment, you know, I'd say over the last, or at least I think it has over the last, I don't know, call it certainly after you published your book,
Speaker 4 00:43:24 That's cause of it.
Speaker 3 00:43:26 I think your book may have been the, the butterfly on the other side of the world that's turned into the, the hurricane here in American small business m and a. Now, seriously, I I wanna talk about how you think this unfolds. Like where do you think will be in terms, what does like SMB m and A in America look like 10 years from now, 10 to 15 years from now? What's different? What's the same? What are some interesting things that your crystal ball makes you think are that you believe might emerge?
Speaker 4 00:43:51 Yeah, so Pete, when my editor is Tucker Max, he was a New York Time, three time New York time bestseller I think. And during our initial conversation he was like, okay, who's the target market for this book? And I was like, do you know EO the Entrepreneur's Organization? Do you know them? And he goes, yeah. And I said, it's those people, but like, pretend they don't have a business. And he goes, that doesn't make any sense. And I was like, I know, but it's like I'm trying to describe real estate investors before Rich Dad, poor Dad came out like it, like in 10 years everyone's gonna understand what this is, but like it's not there yet because no one's put them in a room yet and, and brought sort of order to chaos in this space. And that's what I wanna do is set the anchor for that.
Speaker 4 00:44:33 And it was a very healthy conversation. But, but so I do think that what's happening right now is that, let's use your term SMB m and a i I think that it's finding its backbone and it's finding its structure and organization and attention that has been so well deserved. And we're at a time when, I mean, it's like 45% of the US economy needs to change hands by the end of the decade. Like it's very timely, right? And after buy then build came out. It's amazing how many people, every time I log into social media, how many different people are trying to show me how to buy a business with no money down or whatever. And it's hilarious. But, but so number one, I cannot wait for all the riff wrap to leave. Okay? There's a lot of attention in this space that is not deserved from a lot of people and it's because the topic's hot right now. Okay? So I can't wait for that and that will happen. When does
Speaker 3 00:45:23 It leave? And, and and why does it leave?
Speaker 4 00:45:25 I don't know. I keep thinking like, I always use real estate as an analogy, okay? And I, and I don't, I I, I really should go back and look at this, but it's sort of like, okay, rich Dad, poor dad comes out, people start investing in real estate. Number one, people start, more people start investing in real estate. Number two, valuations go up because there's more people than than deals. Number three people who shouldn't have been buying real estate, bought real estate and start having bad results. Okay? And so then there's sort of like a pullback, right? And, and then instead of headlines like, Hey, I bought this a hundred million business with a hundred thousand dollars out of pocket. Like instead of that headline, it's, it's like
Speaker 3 00:46:04 Cautionary tales.
Speaker 4 00:46:05 Yeah, right. Exactly. It, it, so I think that happens and, and then I think that a lot of people leave, so, so it's just any, any sort of market cycle, right? So I've been thinking about like if they're people keep talking about a recession, okay, I, I mean, I don't know, is there gonna be se a recession? Of course. Is there gonna be another boom after that? Of course. It's just this is how it goes. And during the boom, people seem to think that all it is is a boom. Like what, don't buy a business during a boom and not think it's gonna get bad later in vice versa, right? So, so I I think that there's, there's gonna be some kind of market pullback for whatever reason the raff leaves, there's some kind of new, new thing going on. Oh, oh, this is what I was wanna say.
Speaker 4 00:46:40 Then I think that the next thing that happens probably tied to this is that I think valuations are gonna barbell. Okay. In other words, I think the average valuation of an average company in the average industry is gonna be completely meaningless. I think that the, the good businesses, and I won't even go go so to say great, I'm gonna say the good businesses are gonna end up selling for stronger valuations. And I think that the less than good businesses that transact will sell for very low valuations. Okay? And I see that barbell happening and I, and I, and the thing is, is like there's a lot of people that have sort of picked up on this and you started Axial in 2009, wasn't that, I mean the Great Recession was still on at, at that time, very much so big time. And I was buying businesses at that time.
Speaker 4 00:47:24 And I just wanna say, everyone's like, oh man, oh dude, I can't wait for this recession. I'm gonna buy so many businesses for so cheap. And it's like, okay, number one, Pete, you and I have been there before. Number one, the first thing that happens is anyone with a great business goes home and has no interest in selling cuz the market's down and they know it. Okay? But number two, I have seen absolutely great businesses have very short term hiccups that have negative financial performance impact on the company. And I don't care if I show that to a thousand buyers. No one wants to buy it cuz no, everyone's like, I don't know, it's a falling knife. I don't know. So they're not actually gonna be able to do it when they, when they think that they, that it's not gonna happen, like how people think, right?
Speaker 4 00:48:08 And so I just wanna draw attention to that. So I think that, I mean, I think those are the big things. I think that what is happening right now is that if the Knots 2000 and 2010 was the period of like listen, you need to change your life and be an entrepreneur and understand startups or like the way, then what's happening now is like, hey, there's also another path, and it's called acquisition. But the truth is, the truth at the end of the day is that innovation and acquisition are equally as important and they need to work together in unison for people to have success and actually be able to build the future and the companies that they want.
Speaker 3 00:48:44 So when, when you say in unison between acquisition and innovation, what, what's an example of that? Or what are you specifically referring to there?
Speaker 4 00:48:51 Yeah. Well, look, I, I think that it, it, it's no secret that Elon Musk like bought Twitter, right? What very few people understood up until recently is that Elon Musk bought Tesla. He was actually sued by one of the co-founders for calling himself a co-founder. He bought PayPal, he acquired it, right? And so one of the most iconic classic entrepreneurs of our time
Speaker 3 00:49:12 Is an acquisition entrepreneur. Is an
Speaker 4 00:49:13 Acquisition entrepreneur, exactly. And then he bought Tesla, right? And by the way, he started the boring company. Haven't heard much from them lately, so on and so forth, right? Right. But, but, but the thing is, is you need to be able to marry. And by the way, there was, there was a presentation that that, that I give, and I don't have the numbers in front of me, so forgive me, but it's one of these where I say, okay, let's just look at some of the biggest companies out there right now. And you look at Blackstone and Berkshire Hathaway. Okay. And then on the other hand, you look at the innovators, you look at Google, apple, Microsoft, whatever. And then I show the number of acquisitions that each one of these companies has done. And it's the innovative companies, the companies that we think of as the most innovative, that have actually acquired way more companies than the companies we think of that are just doing acquisitions.
Speaker 3 00:49:59 That's really interesting.
Speaker 4 00:50:00 Yeah. And what's the takeaway from that? I, you know, I'm not sure, but I think that if you're just doing acquisitions, you can't do as many acquisitions because you've gotta have that organic innovation. And when you, when you look at, when companies get to a certain size, take Amazon as a perfect example, they have to start acquiring to get the same impact, right? Like, let's not dive in to why Bezos decided to buy Whole Foods. But it's just, it's a, it's a perfect example of like, boom, nationwide infrastructure in one day happened, right? And by then, build is all about like, look, you don't have to build this 10 to 20 million company first before you go out and start growing through acquisition. You can start by getting on base, you can start with an acquisition. And when that came out in, when I, when the book got published in 2018, I think it was actually fully written in 2016.
Speaker 4 00:50:48 But anyway, I was nervous as hell that, I mean, Pete, no one was talking about this. And I was like, oh my God, everyone's gonna think I'm crazy. Everyone's gonna think I'm a dream crusher, that you shouldn't start a business from scratch and go like, you know, build whatever. Like, and, and I was like, all my faulty logic is like in black and white here, <laugh>, you know, like all these things. And I was like, someone's gonna read this book and go out and buy a company and make a mistake. And the thing, the, the reason why I eventually got comfortable with it is I went to the bookstore and I looked at all of the books that were telling people to quit their jobs, leave the walled palace with like no resources and start a company from scratch, because that's the way. And I was like, why is buy then build any more dangerous than any of this other entrepreneur stuff out there?
Speaker 4 00:51:37 I mean, Peter Teals zero to one is, I don't know, a modern day classic, right? And it's really sort of solving the same thing I'm solving. It's just solving it from a different perspective, zero to one solves it from the sort of like problem, solution approach. Whereas I try to take the same problem and solve it from the entrepreneur or the human approach and say, how do we get you out of this situation and get you into this new life? And if you have never owned a business before, it's kinda like that scene in the matrix. Forgive me, I don't, I don't know if it's the red pill or the blue pill or whatever. But the, the thing is, is once people, the, I mean the most buyers I have connection with are, are, are contact with, are is through the lab. And I, I had, I probably shouldn't go into detail about her background cause I don't, I don't know if it's but, but she had a wonderful background at a big startup, like ran every single division as they were sort of growing, went to an Ivy League school, went through the lab, bought a business, and then, like we were talking about a month later, and I was like, how's it going?
Speaker 4 00:52:35 And she said, oh, I understood that it was gonna be different. And I like everything that you told me and everyone told me is true. And it's like, I could have predicted based on the words that were said, but until I actually experienced it, I, there's no way I could have ever understood this. And, and I think that <laugh>, I see you nodding. So I think that the thing is, is like you look at people who leave like a big corporate job and then they run out and buy a business. Cause they're like, dude, I'm gonna buy my own business. It's gonna be awesome. And then the first thing they do is like, start taking big salaries. And it's like, oh no, don't, please don't do that. Like, you gotta build safety, okay? You need to understand that you're running a business. And I think that the, the best way that you could, um, mess that up is just making a whole bunch of really expensive rookie mistakes outta the gate.
Speaker 3 00:53:26 I'm tempted to sort of close here because there's just been a bunch of great things that you've just shared. It feels like a natural place to stop, but I'm going to go against my instincts. I wanna cover one final topic with you, which is just the, the way that you think about business brokerage and intermediaries and the intersection of the business brokerage and intermediary category with acquisition entrepreneurship. There is, you go on to Twitter or, or anywhere else, and you'll see a zillion people that think that brokers are, you know, the worst thing to arrive on, on planet earth and, and are doing everything they can to, to go around them that you see other people that have decided that, you know, trying to do direct sourcing of businesses is the lowest yielding ma most massive waste of time. And that business brokers provide a really good signal on a business being legitimately in the market and, and potentially capable of transacting.
Speaker 3 00:54:25 You obviously have the lab, you have buy then build, you have all of your own experience buying businesses. You also uniquely happen to be also working for quiet, quiet light and have, have worked for Quiet Light, which is a really well, uh, a known advisor to online businesses. Where do you come out on the role of business brokers, the future of business brokers? There's always constant chatter about the disintermediation of business brokers. Just what, what is Walker's point of view on on business brokers, when to use them, how to use them and, and how you see them sort of fitting into the category again, five to 15 years out? Yeah,
Speaker 4 00:55:02 That's a great question. So even when I started my first acquisition was in 2006. And even, even when I started in 2004 trying to look, everyone was telling me like, oh, you gotta like find off market deals. It's all about off market. Like you gotta do this proprietary outreach. And it was like, okay. And so that was the common thought at the time. And I quickly found out, and I hope the whole industry forgives me with this, but business brokers are by and large, absolutely terrible. There's no, it's an unregulated industry. It's literally like, if you could imagine anyone who wants to become a real estate agent doesn't even have to go get a license. They just say like, oh, I'm a real estate agent. That's literally like what becoming a business broker is. You just do it right. And no training know anything. Some organizations out there have done a really good job trying to build some kind of better practice or certification in that space, but it still remains completely unregulated.
Speaker 4 00:55:58 And so I quickly found out that I I side on the ladder of your description. In other words, I think that the single fastest way to look if you're after deal flow, the single fastest way is connect with a bunch of brokers and get on different broker lists and get those emails coming to you. Cause those are new listings coming to you. Those are number one, those are sellers that are ready to sell. Okay? Number two, they've gone to a broker who's given 'em some sort of anchor and valuation of what they're gonna be able to get for their company. And e even if it's not listed, the broker has a sense of what it is. Okay? And so you're talking about in my, in my experience, I know people who have gotten off market deals. Okay? I know people who have gotten off, off market, great off market deals.
Speaker 4 00:56:44 What I wanna tell you is that in my own experience, after over a decade of buying companies, not once have I ever been able to buy or sell a company without a broker, they every deal falls apart. What do they say? Like in private equity, they say like, what? Every deal falls apart three times before it closes. Something like that. You need to have someone coordinating the deal. Whose best interest it is, is, is closing the thing, right? Because you've got a buyer and a seller who have a shared objective, okay? But there's times in a deal where one party or both of them can't come back because it shows some kind of, if nothing else, negotiating weakness or positioning, can't do it. I've never been able to sell a company without a broker and I've never been able to buy a company without a broker, first and foremost.
Speaker 4 00:57:25 Secondly, proprietary outreach, which I've done. Once you get to the people who finally are at the time where they're ready to sell, and you have created yourself as the warm stove that they come to, to have the conversation. And I'm talking about Pete, I would, I would talk with people quarterly. I would take 'em out to lunch every quarter for years. And then all of a sudden they were ready and they're like, I'm like, okay, bring your, bring your financials. Let's just have lunch again. Let's get started. The very next thing that happens is the valuation gap where I have everything to gain just by explaining how the private capital markets work. Right. And when you, like, when you talk to people that, like every seller thinks that their business is worth so much more than it, than the market will tell them it is.
Speaker 4 00:58:12 And there's a good reason for that. It's because it's their life, right? And take axial right now, I would be happy, Peter to buy Axial from you in full right now on this call. But if we talk about an offer minutes, yeah, yeah, exactly. If we talk about it for five minutes, we'll probably find that we're a little farther apart then. I mean, I'm only gonna offer like a hundred million, I don't know, I don't know what you're probably thinking 200 million or whatever, right? So, so, so, so I, it it's sort of like you've got that conversation in front of you and either
Speaker 3 00:58:40 One of those work Walker
Speaker 4 00:58:42 <laugh>, okay, it's a hundred million with $1 a day for a hundred million days, <laugh>. Those are the terms. But you know, so you've got this point where you've got, you've gotta get the timing right with the seller. And then second, you've gotta have that valuation conversation. Are there people out there that win the lottery? Yes, it happens all the time, but most people that play the lottery don't win. Right? And, and, and I wanna, I wanna say share one other thing and that's the, but the acquisition lab, we've had more than one person bring up like, well look, why don't you just run an ad that says like this headline and it's some version of like, how to buy a business with no money down, right? And it's like, I'm not running that because that's not true. And if you don't wanna put skin in the game, or you don't have the ability to put any skin in the game, that is a terrible business model for starting a search.
Speaker 4 00:59:31 Okay? And if I sell how to buy a business with no money down or out of pocket or whatever, then most of the people that I sell that to are never gonna succeed in that model. And what happens is I get rich and they fail, right? And maybe I get fame for telling 'em how cool I am, cuz I was able to do that. But the truth is, is that like you can't win the World Series if you haven't been to batting practice even once. Okay. And that's just where I land on that. I, I think that brokers are invaluable. One correction is that quiet light actually has no employees. And we're all partner firms that work together. And we've mentioned EO and YPO before. It's really like, it's really like a cohort of brokers that each, we each have our own brokerage firm that sign exclusivity agreements to work with each other and then have a marketing engine as quiet Light. And Quiet Light is owned by Mark and Joe and it's got, but we're, we're all partner firms. There's no employees there, for what it's worth.
Speaker 3 01:00:30 That's interesting. I did, I didn't know that. Do you think that that's part of why it's effective? Or do you think that there's something else that's made quiet light quite effective as a, a brand and in e-commerce seminar? A
Speaker 4 01:00:41 I think it's two things. Yeah. I think it's two things. Number one, I do think that the business model is key. Everyone at Quiet Light is an entrepreneur first and foremost that happens to have a Venn diagram that overlaps with the private markets and how to do deals, right? And so we're not bankers. No one, no one at the firm is a banker. We have never approached it like that. And I think that that's the special sauce. But you also have to go back to when Mark Dows founded the company. He was, he was really the, the first company in the online space, like E-com specific at that time. And he really was the first, and he wanted to, he took a different approach to it, which is, he is, he's a very value-driven individual. He is like, if I run outta superlatives for him, it's because I've reached the limits in my vocabulary.
Speaker 4 01:01:28 Right? Kind of a thing. Like, like he's just such a good guy. And what I want to tell you is, I was talking to him once and I was like, why is like, how'd you get the name Quiet Light? Like what, what? It's just such a perfect name. It's, it's also, so again, like, so in contrast to sort of like investment banking, like, like you wanna be a quiet light. Like what is this? And he said, it's it's Mother Mary, and I'm not, I'm not Catholic, but he, but he's Catholic and he named it after Mother Mary and I, I like started crying. I was like, oh my gosh. Like, so the point is, what one of the things that we do at Quiet Light is we try to figure out all of the things that are wrong with the business and then we put 'em in the, in the packet up front <laugh>.
Speaker 4 01:02:05 And there's, we try to, we try, like I actually at first was like, I wanna run full due diligence on any company that I run as a broker. And it turns out this is important information. Actually, it turns out that it's a conflict of interest for the broker or the seller to pay a due diligence firm for the buyer, right? And so we actually can't do it, we can only walk it up to a certain extent and then we have to stop and the buyer has to do due diligence and we can't pay for it or whatever. And that makes sense, right? Makes a certain amount of sense. But I try to, I look at, if I'm just in my broker role, I guess coming back to sort of an analogy of the lab, it's kinda like if I talk to 10 potential sellers through Quiet Light, I will only take on one or two.
Speaker 4 01:02:46 And so it's, it's not a volume game for us. It never has been. We're we're, it's like the only boutique firm I've ever seen that that takes a totally different approach. And then we set realistic expectations so we don't oversell what we're gonna be able to sell it for. We tell 'em what our data says and what the, what the market will, will pay for it within a range, within a standard deviation. So we wanna make sure that what we can achieve realistically aligns with their goals. And then we wanna look at the business and say like, okay, let's, like all, like again, all of us have built business plans and pitched and bought companies and raised money, and all of us have had our own exits. And when you run a company, you know how to smell all the bullshit. Like when someone's lying to you or throwing the, throwing the smoke screen or like, cuz you've operated a company and when you can't get answers like it, that's when it's like, okay, well, like I'm, I can't, I can't support you.
Speaker 4 01:03:35 So I think that we end up with an elevated portfolio of businesses for sale. And I think that we do a really good job at deep diving in, because all of us have run businesses before, and we just know how to suss out what, what's really going on. And that the benefit of online based businesses is sort of twofold. Number one, you can sit down for an hour with a, with a really thorough summary or prospectus and have a really good idea of what's going on in the business. And number two, they really are transferable to any, anywhere geographically in the country or the world. So when I try to sell my, my fulfillment company outta Springfield, Missouri, I was looking for someone within a 90 mile square radius of Springfield, Missouri, who knew how to buy businesses, who had some money, who wanted to buy a company in the fulfillment space. Pretty shallow market, right? But if I wanna sell my e-com business that's doing three plus million dollars and I'm selling toilets online, really anyone in the country or the world could sell that company. It's not for sale by the way, but it's, it's, it's, I can sell it to anybody anywhere. So those, those are the sort of benefits. And I think that quiet light just did a really good job early on building the right values at the beginning.
Speaker 3 01:04:43 So this is a yes or no question, uh, before we wrap. So 25 years from now, with all of the progress in information, ai, APIs, standardization, do you think that the fees of a business broker will be the same or more or less the same as they are today?
Speaker 4 01:05:03 25 years? Yeah, I think it'll be very different. That's a, I mean, I think that we're supposed to hit the technological singularity in 2040. So <laugh>
Speaker 3 01:05:14 First all, we're all
Speaker 4 01:05:17 Okay. I mean, I see what you're saying. I understand your question.
Speaker 3 01:05:20 No, I want, I I want to get at this because I, I just wanna get at this because I always am asked about this and I'm interested. Interesting. Yeah. And, and so what, say more Peter,
Speaker 4 01:05:29 I don't know what's gonna happen, but it, it's sort of like I, I come back to the, like every single time I've sold a business, I've used a broker because they've been incredibly valuable to me as a seller. They properly value the company. They find the, they find the buyer, they get 'em in and they get the damn thing closed. Okay. And do they make more than a real estate agent? Yes. But it's like, or I guess it depends on the size of your deal, to be honest, right? Right. I mean, like most of them, most deals probably not. And the thing is, is I, I perceive it as an invaluable service for a major transaction. And specifically in 2021, we saw a lot of aggregators moving into the FBA space, doing rollups. Yeah. And for the first time ever, people were calling me and saying like, why should I use a broker instead of just going directly?
Speaker 4 01:06:17 And I would say to them, I, look, I don't know, it's your decision. Okay, but here's what I'm gonna say, how many, how many transactions have you done? And they would say, zero. And I would say, okay, well, I mean we have done, I've personally done a hundred or 200 transactions. I know all of these players I know who's actually not closing. There's 14 of us working with all of them, and we've, we've literally sold hundreds of millions in this, in this. And, and then we also found out that we were also getting deals at, at 15 to 25% higher transaction prices than the offers that they were getting on their own. Okay. So can they get a deal done and feel good? Sure. But I mean, I, I just think, and that's, and that's a space where it was maybe very debatable for a minute there, right? Whe whether they should hire a broker or not. So I think that they had a tremendous value. I don't think that that technology has been able to replace real estate agents yet. And they've been damned they've been trying for 20 years. And I, and I think the business brokers will, will be the same, but, but it won't look like, it looks like today there's gonna be something, some kind of, somehow we'll figure out how to tech enable it, right?
Speaker 3 01:07:19 I guess so, yeah. I I'm more in your camp than in, in some futurists camp on this one. I think that running a business is a day job for a ceo and it's very hard to carry two day jobs at once. And I think there's a reason why the real estate agent still exists, despite Zillow and, and all the other huge amounts of capital and huge amounts of engineering investment in, in moving real estate to, uh, moving it online. And I think the bottom line is that someone's gotta come and, and show your house, right? And someone's gotta manage that whole process, right? Where you can't be the person who's showing people through your home every day when you know, you've, you've got a, a profession. So there's just, there's just, I know it's a little bit of a dumbed down way of thinking about it, but it's very, very hard.
Speaker 3 01:08:03 I remember raising capital for axial without any broker, and I mean, I basically dropped the every single ball as a C E O related to running the company in order to raise capital, right? And obviously as a ceo, one of your jobs is to capitalize a business, right? And so it's not like I was walking away from my day job, but all of the operating aspects of my day job, I was definitely walking away from almost entirely in order to, you know, in order to pursue a capital raise. And so I just think that people forget about how much time it takes, even if you've got the singularity of, of the future on your side.
Speaker 4 01:08:39 Yeah. I mean, I mean, two things. One, one, I happen to be brokering a deal today where the performance of the company is changing while they're under L O I and we're approaching closing. And it was one of these where the buyer needed guidance on exactly how to structure this so the deal could still get closed and the seller needed coaching to get it. And so you're trying to like get this Venn diagram to overlap in just the right way so that they can both transact. And I'm just like, I don't mean this to add any kind of self-worth to myself, but I'm just telling you this deal would not close if I were not here to do it. And not only that, but we got, we got to resolution in about 48 hours, and now it's a full court press to closing and hopefully everybody's happy with, with where, where we ended up.
Speaker 4 01:09:25 And if they weren't, there wouldn't have been a deal, right? But, but the other thing is, is I think that as we prepare for more and more technology to be introduced into this space, at the end of the day, like the most powerful thing that I think that we have come away with during the, the sort of Silicon Valley boom and influence on our world is the knowledge of power, the absolute power of network externalities. And when I think of the biggest players in our space, Peter, the, the, the one that services right to the top is axial. And the fact that you've built a network externality that has both a community and transactions occurring on axial is like nothing we've ever seen before in this space. So at the, at the risk of sounding like I'm flattering you for some reason or another, I, I perceive that axial is actually the foundation for the future of what SMB m and A will look like.
Speaker 3 01:10:25 Well, I can tell you 14 years in that. Well, I'm very flattered and I'm grateful for the compliment for what the team has built. It is, it's amazing how far away we are at Axial from putting something in front of a broker or a seller that really gives them total assurances that they can get a deal done. When you're selling a small business, it's just you really sometimes have to search extremely far and wide in order to find the buyer and the likelihood that Axial or any other online platform has it, it's still T B D. I think we've done good stuff there. But, uh, the number of times that I've spoken with sellers who use our platform, they, they use the platform, they use it in good faith, it's successful, they get some interest from it. But there's a lot of buyers that are, that are not on any platform today that ultimately end up being the right one.
Speaker 3 01:11:12 And I, I think that's, it's, it's unbelievable how hard you have to, to search and how broad you have to go when you're selling a small business. Sometimes you really need, you need a lot of people at the table in order to, my experience is that unless you know exactly who the right buyer is, and you have really, really some sort of like, really good foresight on it as the broker or as the seller in, in those cases, maybe you only need a few people at the table, but otherwise you need like a tremendous number of buyers to, to explore the opportunity in order to ultimately get it across the line. So thank you for the, for the compliment. But yeah, it, like I said, 14 years in, I don't feel the, like Axio has nearly enough buyer distribution to secure the stale on behalf of any given seller. It really is a big, ah, there
Speaker 4 01:11:55 You go.
Speaker 3 01:11:56 A big market.
Speaker 4 01:11:57 Got it. You in your space, you also, and look, we might be way outside the scope of this podcast, but, but you in your space have the sort of equivalent of the like, hey, buy a business with no money down, like at, and that's the whole, like, Hey, go around the broker and use my new marketplace to buy companies direct from sellers or whatever. And I just have to laugh because it's like, the only way I could have faith in those type of tools is if I had never done a deal before <laugh>. And it's, it's like, oh, okay. And I think it's, it's interesting, and I think that most of those spaces are,
Speaker 3 01:12:32 Well, some of the marketplaces are very organized around serving a business owner. Yeah. In the case of axial, almost 99% of the deals on axial are represented by an intermediary. So we don't work, yeah. We don't work with business owners all that often. Yeah. Because we think it's very hard for business owners to get their own deals done. Yeah. But there are, there are other platforms that I think have catered directly to business owners, and I think they've met with some amount of success. But yeah, it's like, like I was saying earlier, it's a full-time job to run a company. And if you wanna try and run a company and sell a company at the same time, it can, it can make sense to get some help.
Speaker 4 01:13:09 I think that robots could replace business brokers, but only after they replace CEOs, <laugh>,
Speaker 3 01:13:14 <laugh>. Well, Walker, I'm looking forward to the interview with you in 10 to 15 years. I've, I've learned a ton. I, I only knew like the sort of highlights of, of the story around buy then build and the acquisition lab. I know the acquisition lab is definitely part of the, the future of acquisition entrepreneurship in the sort of baby boomer transition category that we're all a part of right now. And it's a ton of fun to spend some time with you. So thank you for carving out the time for, for me and for the podcast.
Speaker 4 01:13:43 You too, Peter. Thanks so much.
Speaker 1 01:13:50 If you enjoyed this episode, check out axial.com. There, you'll find every episode of this podcast as well as our recorded axial member roundtables some downloadable tools for deal Makers axials quarterly leak table rankings of top small business acquirers and investment banks, and lots of other useful content that we've created over the course of time. If you're interested in joining Axial as either an acquirer, an owner considering an exit, or as a sell side m and a advisor, you can get started for
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