No Money, No Problem: Mastering the Art of Zero Cash Acquisitions

0:00The law of price and terms says that if I'm going to give you your price, then you accept my terms, right? you can afford to pay pretty much anything for a business as long as the terms are right.

0:18So today I want to talk about something that I call zero out-of-pocket acquisitions. And this is something that is really important. The first thing that we're going to talk about is how to think like an EPIC investor. And EPIC is a contractual acronym that I came up with for how we do this because the really the most important thing to me is if we break that down is the very first word is ethical, right? Ethical profits in commerce and crisis. That's really what Epic is about. So, um, I think if you're, if you're going to go into business and you want to be able to sleep at night and you want to have a good reputation and you want to create good karma in general, then it's good to do good in the world.

1:05Google started out trying to do good. Their whole mission was do no evil. And I don't know, some people say they haven't really managed to live up to that, but that's another discussion. So from our standpoint, when we're thinking about how can you be an epic investor, one that is investing in crises and in commerce and doing it in an ethical way, I believe that it's very important to have a win -win philosophy. And I get some pushback from people who say, yeah, but there's a book called Never Split the Difference by a friend of mine, Chris Voss. Fantastic book, which I highly recommend. And they say there is no win-win.

1:47Someone is always going to lose in a negotiation. And I guess it depends on perspective because Chris doesn't advocate that we're going to win at the expense of somebody else feeling bad about themselves. He's just saying, I think, that there's give and take. and that you don't want to horse trade. You don't want to basically go in and start high, higher maybe even than you want, knowing that you're going to come down and just basically meet in the middle. And as he said, there's no ability to choose the gray shoes or the red shoes. You can't wear one of each. You'd look like a fool. Or if, in his case, he's negotiating for hostages for the Federal Bureau of Investigation, and it's like, well, just kill half of them.

2:31I mean, that clearly, he was in extreme circumstances. I do believe, however, that even in his situation where his goal was get hostages released, there was give and take back and forth. And one of his strategies is to simply say, how can I do that when you can't? Like, how am I supposed to do that when you can't? Like, if the people in the building were saying, send a plane and a billion dollars, and he's like, yeah, how am I supposed to do that? But here's my thinking is that when you're working in business, I have a philosophy of collaboration and I have a philosophy of a thing I call the fairness zone.

3:08So when we're thinking about investing, I believe that it's possible for both parties to come away with a situation and a deal in hand that they are happy with. And they might not be like it might not be the deal they thought that it was going to be, but a deal that they're happy with. And so this is where it comes to the zone of fairness. To me, in any situation, there's a range of what's fair. And wherever you are within that range, both parties are going to come away with what they want. In the case of an acquisition, it's one party is going to come away owning a business and the other party who's the seller is going to come away with some sort of assets in hand to replace the business that they didn't want to own anymore.

3:47And that's really what we're focused on is being within that fairness zone. Now, you can negotiate all the way up to the edge where they're still going to be happy. But I would argue that there are, and I have found in my experience, there are people that, man, they'll do deals that they shouldn't do. Maybe it's because they're desperate. And so the ethical part of Epic, when we're thinking about being an Epic investor, is how can I help this person to accomplish their goals in a way that also accomplishes my goals? And even if I could get a better deal, I don't want to cross the line to where they're feeling bad about it.

4:29I want a deal that maybe it's hard for them to say, you know, gosh, I thought I could get more for this. But I want them to be happy about it. And I'll actually ask the question, are you happy with this? When we're done with the negotiation before the closing, I'll literally say, hey, now I want you to be happy about this deal. Are you happy about it? And if they say, well, I was hoping I could get more, but yeah, this is, this is going to get me what I, what I'm going to need to do what I want to do. I'm okay with that. If on the other hand, they say, man, I just don't know. I don't know how I can do it.

5:01I just, I, I, I know I'm not really happy with it. I, and then I won't do the deal and I'll tell them that. And I, I mean, as, as a basic, a thing as buying a camera lens for my son, for his camera. I remember a couple of years ago, I was, there was a person who had one for sale on eBay. and this is way, way simpler than buying a company, right? This person was selling a lens on eBay and I made an offer and they accepted the offer and then I said, are you happy with this? And they said, no, I really needed to get more for it. And I said, well, look, if you're not happy with it, I don't wanna do the deal.

5:36I need you to be actually happy with it. And I understand the market is what the market is, but maybe you'll be able to find somebody else. And so why don't you go ahead and find, leave the listing up. Don't accept my offer. And, um, and then if you get what you want, great. And if you don't, and I haven't found something, uh, and you decide, Hey, this is what market actually is. Then we can do the deal. But, but to me creating resentment or, um, bitterness in somebody, or even having them walk away, feeling unhappy about something. Life is too short and life is too long. Life is too short to put up with situations where you're not going to be creating joy in the world, and life is too long to be creating situations that other people are finding unhappiness in.

6:25So I think that the mindset of an Epic investor starts with, we're going to be within this fairness zone. So now, of course, the fairness zone is subjective, right? So one person's fairness zone might not be another's, and that's why you have to layer over yours whether they are coming out of the deal with what they want or not. Not with everything they dreamed of, but with what they want. So one of the things that we like to do then, a second, a corollary to that epic fairness zone, is collaboration. So with collaboration versus negotiation, because negotiation I do believe implies that there is either horse trading and neither party is going to be completely happy or one party wins and one party loses.

7:08That's not the case with collaboration. Collaboration is when we're both working together towards a common goal. In the case of an acquisition, the common goal is that I want to acquire your business and you as the seller want to sell me your business. You have a price in mind that you would like to get for it. And so where I like to start is not with a lower price. I like to start with what is market value? So we're going to research that and figure out what is market value. There's lots of comparable sales of similar companies and published data on what the multiples of profit are for the sale of certain businesses because most businesses sell for a multiple of their profit.

7:49And when we're then talking with somebody about selling their business, the first thing is going to be how much would you like for it? And then they're going to give us a price. When they give us a price, our first step shouldn't be to counter with, would you take less for it? Our first step should be, okay, that's great. Let me see what market is. And then now you might already know, uh, in which case you don't have to do a lot of research. Um, but I, I suggest that you say, let me go and see what market is. And if I can get you that price within the bounds of what the market says this business is worth, then that's what we're going to do.

8:25That's to me is collaboration. We're not negotiating yet, right? So then we go and we check the market value and we say, okay, there's a range of market value for a business like this. If the seller is asking for a price that's within the market range value of this type of business in this type of industry, then my suggestion is that you pay that price because we get to the next corollary, which is the law of price and terms. So as an Epic investor, we are looking to acquire businesses with no money out of pocket, not no money down, not the seller gets nothing for the business no money out of pocket this is a critical distinction no money down means that there isn't going to be any cash or assets that the seller takes away from the closing at the time the deal closes the seller literally has nothing and they have given up the business and they've got the promise of receiving something in the future that's no money down.

9:27Those deals are out there, but they're very, very hard to find. And they are typically not the best businesses that are for sale because the best businesses that are for sale, the seller's going to have other people that are interested in those businesses. So now we get to the law of price and terms. So if you think about the seller saying, well, I want this amount of money for the sale of the business and you say, look, I'm going to try to get you that you then go verify with third party data that this price is within the range of market value. Now you tell the seller, Hey, listen, I'm not going to negotiate with you on this price.

10:09I want to collaborate with you to figure out how we can get that for you. One thing that's important for you to be aware of while we do this is the law of price and terms. The law of price and terms says that if I'm going to give you your price, then you accept my terms, right? You can afford to pay pretty much anything for a business as long as the terms are right. If it was a million dollars for a business that was worth a hundred thousand dollars, that's 10 times more that the seller's asking than the market value tells you that the business is worth. But if you could pay$1 a year for a million years, you'd probably do it.

10:49Obviously, that's an extreme example. Probably not going to ever get that deal, although it'd be nice. And if you do, I want to hear about it. So then we get into this law of price and terms. And so you've told the seller, I'm going to collaborate with you to do this. I want you, in order for me to be able to get you this price, we're going to have to work together on terms that will make it acceptable to me so that I can make this a good deal for both of us. And it is possible for us to both have a good deal and for us to win. Well, now you're on the side, the same side of the table. You're working towards a common goal of how can we arrange everything in this transaction to be able to get a price that's acceptable to this seller.

11:29So that then becomes you and the seller working together to say, okay, you want a million dollars for this. Let's figure out where we can go. And then having access to several of the different strategies for funding that are not out of pocket for you. It's not no money down. It's not the seller's going to get nothing at closing and walk away empty handed. It's going to be instead that there are several assets and resources that exist out there and several strategies of working with the seller that will allow the seller to get money at the closing, but not for it to come from your pocket and not from for you to have to use your personal assets or credit or personal guarantees to make it happen.

12:12That's what it means to be an Epic investor. You are creating creative solutions to finance the ability for sellers to sell their businesses at fair prices on an ethical deal that will get them what they want on terms that work for you. That's what that means. Okay. So the next thing that a lot of people ask me is how can you find deals and how can you get people coming to you to create your own deal flow. So let's talk about creating deal flow. Well, the easiest thing to do is to think about what is your existing network? Who do you have already who can help you find deals? And one of my favorite stories is from a friend of mine named Adam.

12:59And Adam was interested in acquiring businesses. And his son was out playing a game at a board game store. So a game store that sells board games, but also had kind of a game night to attract business. And his son, who was nine years old, was playing Dungeons and Dragons or something like that at this game store. And one of the employees came up and said, hey, listen, I'm really sorry. I just wanted to let you know, we're not going to continue to be able to do this. And we're going to be closing the store down within the next month or two. So the child was very, very disappointed. And he went back to his dad.

13:39And he told him, he said, you know, dad, there's, you know, store's not going to be around anymore. It's my favorite store. I love going and hanging out with my friends every week and playing these games. Is there anything that you can do about it? And Adam said, well, let me talk to him. So basically the store's going out of business. Yeah. Okay, great. Let me talk to him. And so he went down and, uh, and Adam talked to the employee and the employee said, well, maybe we can, maybe we can acquire this business together. Cause Adam said, one of the things that I do is I acquire businesses do no money out of pocket deals.

14:10Um, and, um, if the thing is just going to shut down anyway, as about 600 ,000 businesses per year do, by the way, just close the doors in the United States alone for lots and lots of reasons. This one was basically the person who owned the business was not making enough money from the business. They were making money in the business, but not making enough money in the business to pay the bills and make the same amount of money that they could make working at a different job, at a job basically. And so there was some tension between this owner and his spouse because the spouse was carrying the load and saying, hey, you're not pulling your weight here.

14:55And it's great that you have this hobby of board games, but this board game store just isn't doing it and we need to make more money to hit our family goals. And so he was receiving pressure from her to move to arbitrage out of this lower paying situation that he had himself into owning this game store into a job that would pay more money. And that happens a lot because entrepreneurship is hard. And sometimes you can make more money in the short run than you can owning a business because it takes time to build it up. So you have now one of the ingredients that's really important in an epic investment deal.

15:31And in deal flow is that you get motivated sellers that you're identifying those. So, um, Adam talked with the employee and they took a run at acquiring the business. And ultimately the owner said, no, I can't do a deal like that. It doesn't make sense for me. This is a no money out of pocket deal, right? So very often you will find when you are approaching with an offer, a seller of a business that they will say no initially. And then that's your opportunity to be cool. At that point, you say, listen, I totally understand. This is how I do these deals. I totally think it can work for you. And, um, and here's how I lay it out for you.

16:10And, um, let's do this. If you go, go ahead and see if you can find someone who will give you what you want on the terms that you want. And if you do, then definitely do that deal. But if you don't, I'd like to be able to just kind of check in from time to time and see how things are going. Is that okay? And the guy's like, yeah, sure. Okay. But I'm going to sell it. Well, it turns out that he wasn't able to sell it. The employee ended up going that person's own way. And Adam continued to talk to the owner. And after a short period of time, more pressure from the spouse, more pressure from the hassles of running a business, that seller said, hey, I am interested in that deal.

16:51And so Adam was able to do that deal. And because Adam is a smart business person, he was able then to go in and not only acquire all of the inventory and the space and everything else without any liability for himself personally, and without any cash out of his pocket, but he was able to get the seller what the seller wanted, which was out of the business and getting something for it. So the seller was able then to go on and take that job. Seller's happy in the seller's marriage. Now seller's making enough money to support the family. And on top of that, there's some money coming in from having made the business sale.

17:22Adam then took some steps to rearrange the way the business works. And now it's making him between 10 and$15 ,000 a month of extra money, of profit that he would not have otherwise gotten. And it didn't require any investment of capital other than his knowledge and skill and expertise. So this is a great example to me because we're talking about finding deals, not how to do them. But I think that story is really helpful because it's illustrative of the fact that your nine-year-old child can find businesses for you as long as he or she knows that you are interested in doing that. So what I think it teaches us, the takeaway, is that deals can come from anywhere.

18:08And the more people that you make aware of your interest in doing deals, of the fact that you actually are interested in acquiring businesses, in buying businesses, then the more people will start coming to you with opportunities for you to buy businesses. It might not be your nine-year-old child. It might be your spouse. It might be your friends. It might be your family. It might be the people that are in your iPhone contact list, the last hundred people that called you. It could be the people in your Facebook Messenger or WhatsApp. It could be people who you have on an email list, people that are working with you as co-workers in a job that you're working.

18:52It could be people that work for you as employees. We've had several deals referred to us by our employees, including a couple of really good SaaS deals, software as a service, and where we were using someone else's, a third-party service. And our employee was interacting with the people in that company and ultimately found out that the company was interested in selling, connected us to the owner of the company, and we were able to acquire it, right? And that's happened a few times. contractors that are working for you that might be consultants great source of deals people who are the suppliers for businesses who have lots of businesses that they sell to in the industry that you're interested in can be also really good sources of deals networking groups I think are pretty obvious if you are involved in YPO which is the young president's organization about 30 ,000 members worldwide or EO, the entrepreneurs organization, about, uh, 15 ,000, I believe members worldwide.

19:50These are networking groups and there's a whole bunch of others. There's BNI, uh, and, and you can just Google networking groups and wherever you're located. Uh, and you'll find that, that there are virtually unlimited number of those getting involved in those networking groups. You are opening yourself to higher deal flow because you're putting yourself out there as somebody who's an investor. So that's why I think it's really important as one of the first steps of finding deals and becoming an Epic investor that you declare to the world, I am an investor, that you change your social media profiles to say that you're an investor, that you change your email signature, that you change your bio, that you change your port, your profiles on your website or any, any place that has information about you to let the world know that that's what you do.

20:37And then people that you meet, one of the very first things that they say, other than, Hey, how are you? Or my name is, is so what do you do? If your answer is I buy and sell companies, you've infinite, you just instantly became so much more interesting to the person that you're talking to. And you're not pushing on them. Hey, I'm an accountant and I sell accounting services. And so here's, I'd like to talk to you about my accounting services. You're like, Oh, I buy and sell businesses. I'm always looking for deals. If you know of anybody that's got a company for sale or a business that you think is good or somebody that's kind of tired of doing what they do or having challenges with money or partners or health or anything like that, let me know because it might be something that I'd want to buy.

21:19Well, I can't tell you like how many people that I say that to then say, that sounds absolutely interesting. So tell me more about that. And they're fascinated about it, right? So it's because it's out of the ordinary and I'm not selling anything. So the walls are completely down. So those are some really good ways to go about finding deals, right? To find deal flows. And as you put that out there, as you change your mindset to present yourself to the world as an investor, then the world will start to see you as an investor. And that means that the world will want to start sending deals your way.

21:58So you start by asking. You can post on all of your social media. you, Hey, I'm looking for, and then if it's a specific business, I'm looking for a cybersecurity business in, uh, uh, Cleveland, Ohio, then that's going to be something that is out there. And you'd be surprised at how well your network will feed you when you make a specific ask like that. We've bought several assets and several companies simply by posting in different, uh, corporate threads, what we're looking for. So all of those resources, if we're thinking about that, there's about 27 of them, 29 of them I can think of off the top of my head, but networking groups, EO, which is Entrepreneurs Organization, YPO, Young Presidents Organization, friends, family, relatives, coworkers, employees, contractors, consultants, accountants, attorneys, uh, investment bankers, due diligence firms, firms that do due diligence, meetup groups, mastermind groups, um, where are we were at, uh, 16 now on this quick count.

23:11Um, also, uh, other groups that are special interest groups, centers of influence that are providing information, trade associations, events, that's 20. And just thinking about all of these different types of referral sources, putting yourself out there. Angel investor groups would be another. If there are associations, that's another great one. There are family offices. That's another place to look. You can also talk to private equity firms. You can talk to accounting firms. You can talk to any kind of practice or business consultant that's practicing in a particular area. Um, any author, any speaker, any expert who's speaking or, uh, putting out content about any of this blogs now we're at 30, right?

24:04So there's a lot of these things that you can look at resource wise. That's how you're going to go about creating deal flow. Initially, let's just put yourself out there and putting yourself out there in terms of content about what might be helpful to the kinds of businesses that you want to acquire is a great way to create a pull as opposed to a push kind of deal flow scenario. So that I find to be very, very, very helpful. And that's really how you go about creating deal flow. Okay, so now one of the things that people ask a whole lot about, and it's probably the sexiest part of acquiring businesses with no money out of pocket, is how do you find funding for these deals?

24:47How do you find funding for a deal where you're kind of creating money out of nowhere? Is that possible? I, you know, that's like a, those are stories of spinning straw into gold. Um, well, the way that you do it is you think a little bit creatively and you think about what does the seller really want? This is a critical question that very few people ask in deals. So how much funding we need is a direct function and, and the shape that the funding will take is a direct function of what does the seller need the money for? What will he or she do with the money that they get? And what is their reason for selling?

25:31If you know what their reason for selling is now, you know how motivated they are. There's only really about 10 reasons that people are highly motivated. It's money related, whether it's the business is losing money all the way to it's not making enough money, or they just need to get some money from the sale of the business to do some other thing that they want. Another is divorce. Another is death. Another is health. Another is relocation. They're moving from one place to another. Maybe they're having challenges with their partner. Maybe they're just burnout. Maybe it's shiny object syndrome that they're looking for something new to do, right?

26:10There's all of these different reasons that, and maybe they just want to cash out, right? Because it's just, maybe they see something coming down the pike that they're concerned about, or they've been through, like the pandemic is a great example. They've just been through so much so far that they're not looking down the road and thinking they want to continue to do that. Maybe it's just, they don't want the hassles of the business And it's easier to take off the yoke of, of being the entrepreneur and go and work for somebody else where they don't have all those problems and they just get to do what they love or what they're interested in.

26:43So there's all of these reasons that people might want to sell. Well, when you know that they're fitting one of those categories that I just mentioned, you know that they are a motivated seller. So the next question you want to ask them is so, and the, so that, that answer was to the first question you want to ask, which is why are you selling? the second question that you want to ask is so when you sell what are you going to do with the money the reason that we want to ask this is twofold one is psychological it's called future pacing so what we want to do is start them thinking about what life looks like post sale once they've sold this business what does life look like oh my gosh i'm going to be problem free i'm going to get money i want to sail around the world i want to go move near my children i want to just retire and play golf.

27:31I want to travel. I want to hang out with my spouse. We are going to take classes at community colleges and just be Renaissance people, right? Whatever that is, when you have the information about what those people want to do with the money, then you know how much money you need to get them at the closing to help them do the thing that most motivates them. So if they said, I want to take a trip around the world, then I'd say, that's awesome. What are you going to do? What are you going to see? And then I'm going to get to, how much is that going to cost? But it's going to cost$200 ,000. Great.