The 5 Shifts to Reach 7 Figures a Month (Part 2)

0:00Okay, so strategy shift number two is getting to bankable profit. And again, we have a lot of tools that help us do this. This is going to give you momentum and optionality. And we have 36 profit accelerators that we apply to our companies to activate this, right? To get this bankable profit here, the strategy spotlight I'm going to share with you is E2P, which is turning expenses into profits. So the challenge is if we don't have bankable profits, we lose our momentum because as I said, we can't funnel our money back into the company to grow it, to hire the best people and to buy more media. And we also don't have any money to take home for ourselves, for our efforts, like a little something for the people that are making this happen.

0:44And that means we can't have to stay rolling. Yeah, this is big. I want everybody to notice this because and just like damaging admission here. This has been us at chunks of our history in the past with this company, where it looks very cool from the outside looking in. We had at one point, I think we had three different companies in our portfolio on the Inc. 500 list. Yep. Three different companies on the Inc. 500 list. But because we didn't do some of the things that you're about to show, I mean, we had to learn these lessons the hard way because we didn't have that pesky profit. It looked really cool from the outside looking in people like, man, they must be crushing it.

1:17Again, Inc. 500, all these things are really great. But if you don't have profits, this point of optionality is important. You got power. People think you're a big deal. You can move it. But in many cases, we had no within 12 months, one of those businesses, we had to basically sell at a fire sale because we lost option out. We couldn't keep it going. So we had to sell it for scraps and less than 12 months before it was on the Inc 500 list. So I hope everybody pays attention to this one because while it should be the thing that everybody focuses on in our experience, it's the one that entrepreneurs seem to forget about.

1:52It is. Yeah. And I just wanted to say that. And it will definitely hurt your momentum because if all you can do is feed the beast that already exists, then it's really difficult to have the ability to grow it. So the optionality works over into leverage sales too, because you're going to lose your momentum when you don't have the option of deciding where you're going to put excess cash. So that's really important. To unlock this bankable profit, you've got to approach your business with what they call a beginner's mind. This is a Zen thing, right? In Zen, they say, just assume that you know nothing, right?

2:29And then you'll be able to be creative in how you identify the things that will turn a lack of bankable profit into it. And today's top line sales, if you put these things in place, can really quickly become tomorrow's bottom line profit. It's how we watch our friends become unicorn companies. So let's do a little case study here. This is a company similar to the one that Ryan was talking about. We've got Native Commerce. So Native Commerce was doing 30 million, I think 36 million in sales. It had a hundred times growth from when it was a newsletter that Ryan and Perry bought back in the day. And it was an Inc.

3:10500 company. And so you look at this and you might look at companies like Casper or Blue Apron or very well-known companies that you're like, man, those people are killing it. How do they do it? They grew so fast. They grew so fast at the price of profit. Now, if you're funded, that can be okay, right? Amazon grew for years and years with no profit and they were playing a very long game. Turns out it worked out pretty good. But a lot of us don't have that luxury. And when you do that, you do generally have to give up significant chunks of the ownership of the company. So you'll see a lot of these companies that look like they're doing really well, but the ones that I mentioned, including this one, all have had a challenge with their customer acquisition cost.

3:55We call it unit economics, right? The cost of acquiring a customer plus the cost of the goods that they were selling, COGS, was greater than the lifetime value of the customer, right? So the amount of money that had to be spent to acquire one of these customers to get to this sales figure, plus what it costs to sell them the thing that they were buying was greater than all of the money that they spent with us. And this doesn't even include our overhead, like rent and employees and things like that. And that happens again and again. Like I said, just study some of those other companies and you'll see.

4:33So what we did was we did a few things. First, we did an expenses to profits play. So we had a content team that cost us about$50 ,000 a month. And we turned that excess capacity that they had into a CAS, a content as a service agency. And so that was able to add back$50 ,000 a month, which now became profits to us because it was an expense that we already had. So you can take the expenses that you've got in your business and turn them into profit centers. Speaking of Amazon, they did a fantastic job of that. They took fulfillment and turned it into FBA and that's become a huge profit center. They took their services and turned them into Prime so that you could get shipping.

5:21They were already doing that kind of stuff. So you could get two-day shipping. You just have to pay, I think there's 200 million members in Prime now. It's crazy. And then they took all of their infrastructure with AWS, Amazon Web Services, which powers a lot of the backbone of the internet now. And they said, we've got to have all these computers and infrastructure and stuff. How about if we sell that just to other people? And one of my favorite magazine covers, which I did eventually go back and find again, was I remember when it came out in 2006, I think it was November 2006 issue of Business Week, and it had a picture of a young and hairy Jeff Bezos on the cover holding a computer.

5:59And it said something along the lines of, Jeff Bezos wants to provide the infrastructure for your business. Wall Street just wishes he would mind the store. Wall Street's basically dumb because it's not really about business. It's about making money in the short run. And from a business standpoint, not that the people on Wall Street are dumb. There's some smart people there, but it does a lot of dumb things if you're a business owner. And for him, he was playing that long game, but he was able to turn multiple expense centers into profit centers. And those are the most profitable parts of the company today.

6:31The other thing that you can do is you can acquire media that is your ideal customer profile. So you can go out and find media that exists where people have already aggregated the attention and eyeballs of your ideal customer. And then that will reduce your customer acquisition costs to zero in those channels because they become owned media, just like your email list is owned media, right? Your messenger list is owned media. So here's what we did. We went out and we acquired a Facebook group that had a quarter of a million of our ideal customers. It actually had a much better SEO name. So we got the SEO name, we bought this Facebook group, we merged, we had Facebook merge the old group with our group and we ended up with a couple hundred thousand, about 250 ,000 people that we didn't have before who were now our media.

7:22So we were able to make profits out of that. And then last but not least, Profit Accelerator number 28, we did a business model pivot. We basically went from selling stuff to selling leads and ultimately were able to exit to a billion dollar media company. So this is how this stuff works, right? We're doing these each of these profit accelerators or these sales accelerators or these value accelerators. And each of these strategies stacks on each other and creates a multiplied effect. That's really what's happening here. OK, one more case study that I think is interesting. So this was a consulting client of mine, a golf company, and they were doing$65 million in sales.

8:04They had suffered media cost increases that made the continued customer acquisition impossible. And so they ended up in quite a bit of debt. They were about$3 million in debt to Facebook and Google, and they had a bunch of other creditors too. So pretty dire situation. and this is something that I think a lot of us are facing right now because we're seeing media costs go up because of all the privacy things that people are doing and it leaves us without channels entire channels that we had before and it can be pretty easy to get in trouble especially if you're trying to spend your way out of it to find the solution that works and you end up getting in trouble so that's what had happened here here we put in profit accelerator 28 and we We did a complete business model pivot using our business model innovation canvas.

8:57And we were able to transform this business into generating$2.4 million, about$200 ,000 a month to the owner right now. We also said, hey, when's the last time you raised your prices? And it was like, as it's been a while, I hadn't even thought about it. So just a simple price increase can often make the customer acquisition cost be less than the lifetime customer value. you. It's 100 % profit when you do a price increase. So these are a couple of strategies that you can think about as well. When's the last time you raised your prices? How is your current business model performing? And are you reviewing it on a regular basis to see if there are opportunities to change it?

9:38Let's do some math here because everybody likes math. So the bankable profits impact potential of this second shift is to say, what if I could have my best profit month every single month? So we did our best sales month before. Now let's look at what if you can have your best profit month every month. And the reason I like going through these exercises is it's using your numbers that you've already hit. So you can see that it can be done. It's just a question of how do we get there every single month? So your best profit month, let's say that was$50 ,000. And let's say that an average month's profits, you're making$20 ,000, right?

10:11So it's significantly more about$30 ,000 of immediate profit growth potential per month, about$30 ,000 per month of potential profit because you've already seen the 50, right? You've already done it. So we multiply that by 12 months. That means there's about$360 ,000 of immediate profit growth potential. We just have to figure out how can we put in the profit activators, the profit accelerators to get it, right? And we add in the existing annual profit of the 20 ,000 a month. That means we're sitting on a total profit potential of$600 ,000 instead of 240 ,000. It's a huge difference, right? That's the math that we need to do.

10:52And then we say, how do we reverse engineer? What are the profit accelerators we can put in place to make this happen, okay? The cool thing here, if you were following, is that our previous annual sales, our top line, if you remember the first exercise, of 50 ,000 a month times 12 equals 600 ,000 becomes our annual profit. So we say 50 ,000 average month times 12 is 600 ,000. And so that goal is to turn our previous top line sales into our current bottom line profit. That's something that we're constantly trying to do. And what's fun about that is that we look at our portfolio companies and say, this company is doing$3 million right now in sales.

11:32It's a new company. We just started it and we've had some success with it. Well, how do we make$3 million in take home profit from it within the next 12 months? That's a fun thought experiment to go through. And having these tools enables us to do that. So I would recommend that you go through this exercise yourself and say, how much was your best month of profit? And then subtract your average month. And that's going to give you your immediate profit growth potential for every single month. You multiply that by 12, and that'll tell you how much dollars wise on an annualized basis you can make in profit.

12:07You can add your existing profit to it, and that'll tell you what your total profit is. So the bottom line is that any business can do this. This just isn't us. And it isn't because we're super brilliant or special or lucky or anything like that. It doesn't matter what your profits are or are not. Now, if a failing golf manufacturer with$3 million of debt and a whole bunch of losses that were piling up and Facebook and Google chasing them can become a multimillion dollar profit generator, then you know that you can do this too. Okay. The third thing, the third shift here is in transferable value.

12:42Okay. So how can we get to transferable value? Good news, we've got 27 value accelerators that can help you do that. Our strategy spotlight here is gonna be $0 out-of-pocket M &A. So how to acquire other assets without having to come out of pocket. So here's what happens if you don't have transferable value. You lose your power. You lose your power because you can't transfer your business to somebody else. You've got momentum. them. You just don't have any power. The other thing is that you've got profits, but you don't have optionality because the only way for you to get more money is to borrow or to just finance out of profits.

13:25You've got no value that somebody else can look at and say, I'd like to become a part of that. Maybe something happens and you want to sell. You can't do it. You don't have transferable value. So it's really important to have this. To unlock your transferable value, you've got to separate your brand identity and operational dependence of the company from its owners and operators. Okay. You got to separate the identity of the brand so that the, this can't be, I'll use Ryan, right? Cause Ryan and digital marketer, when we first got together, we're pretty much one in the same. And Ryan apparently was like, you can't sell me.

14:00So that meant we couldn't sell the company. So we had to figure out how can we separate the identity of the company and give it a brand of its own that was separate from the human that the brand was at that time. We also can't have the company dependent upon any of the founders to operate, because if it is, then you either won't be able to sell it, or when you do sell it, you'll be stuck in a long-term consulting contract. And generally, entrepreneurs and people who buy companies don't get along well after a certain period of time. The other thing you need to do is you have to systematize and automate all of the core tasks throughout the business.

14:40And then last but not least, you got to understand and activate the value levers that drive these high multiples for valuation. And there's a method to that, right? So let's look at a service company that I worked with, right? So this is a customized service brand. So this is a dancing bear business. So they provided customized services where they would have to go out to the client's place of business and they would have to do the things that they did. And it was always different depending on what the client wanted. Right. So that's a really tough business to scale. Now, what it was a one person business.

15:14And so it was a lifestyle business at the time. But the people that owned it desired to actually become a scaled business. Right. To be able to have this impact. So rather than the owner was providing the services at the time. So what we did right off the bat was we productized the services, right? We created a scalable product line that created$2 million in annual profit. This was about five, was it five times? Yeah, about five times the profit that this company was making when they were just a one-person business. So just changing this into a productized service that could be delivered over and over by other people created the ability to have a$2 million profit increase.

16:00We also applied value accelerator number six, that is to acquire other people's intellectual property. So we went out and we bought intellectual property or licensed intellectual property that other people had developed. So we didn't have to do it. And that helped us to have a moat that created this moat of barriers to entry that other people couldn't use this intellectual property. So it was unique to this business. It gave this business a competitive advantage. It created barriers to entry for other people, and it allowed us to create a sellable business. And then last but not least, we ran our exit playbook.

16:39So we have a whole exit playbook. We've done this a lot of times, right? And so they were able to exit this previously unsellable business to private equity company for eight figures. That's pretty cool, right? And that's what we want for you. Now, they didn't have to. Could have just continued to take the $2 million a year in profit, but it became so appealing, the offer that was made from the private equity company that they couldn't say no. This is shift three of transferable value. The transferable value impact potential of this is this. We're going to look at our current baseline valuation of your company.

17:12So what you're going to do to do this is take your current profit. So what's your current annual profit in your company? And then you're going to multiply that by the average multiple for every owner operated company. Now, valuation multiples can get you into all kinds of trouble because there's a bunch of them and even different companies that do valuation reports and things like that will give you different multiples. But I can tell you that if you have, let's say,$240 ,000 in profit, if you're under about$2 million in profit and you're an owner operated business, there are some exceptions to this.

17:49But generally, a small business like that will sell between one and five times its profit. So let's say the average multiple across all industries, the most recent one for the most recent quarter was 2.5. So 2.5 as a multiple times your current profit of 240 ,000 would give you a current valuation of 600 ,000 if you wanted to sell the business. Well, your best evaluation though is quite a bit different. So if we were able to improve the profit, remember, if we go back to our profit accelerators, we were able to increase the profit by$600 ,000 in the company. And if we get to a$2 million EBITDA, so I'm just using 600 here, right?

18:31If we get to a$2 million EBITDA, then we'll be able to, on average, sell right now across all industries for about 15.2 times profit. That's a pretty big difference, right? Jumping from 2.5 to 15. But we're going to also put in our sales growth factor. So we're going to grow this business by three times by all of the other things that we can do. We got 197 of them up there in sales, right? I think 36 of them in profit. So we're going to multiply that by three, which means our potential valuation is 0.4. This is effectively, I ought to, and I will next time reverse these so that you see the growth factor on profit is three.

19:12So because my goal is getting this profit up to close to 2 million. So if we can 3x the profit, we'll get to 1.8 million. At that time, we should be able to sell for around a 15 times multiple. That puts the value of the company at 27 million. That's pretty significant, right? Because a company that's only worth 240K today can be worth in a year, 27.4 million. That's an increase of$27.2 million. And that is our growth potential. Now, before you say, Roland, you're crazy. There's nothing like this that ever happens. I can tell you that some good friends of ours had recently got a$2 billion valuation on their company, a$2 billion valuation on their company, which only a few years ago, like that was about a 12X increase over what that company was worth just 18 months ago, which was an increase of about 10X what the company was worth just a couple of years before that, right?

20:10So these companies that you see growing to unicorns start small. Wherever you are right now, you're just not quite yet tapping into all of the potential of what your business can be. It can be a life-changing amount of money that you receive. You just have to know how to run the playbook. So you can do this exercise yourself. Just say, what is the amount of profit I think I can improve my business by? Multiply it by the PE company, the private equity company, average multiple 15.2, assume you can grow that three times over the next, say, 12 months. And that's your potential valuation. That's cool, right?

20:52It can really get you exciting. And so the bottom line is you've got the old way to increase value, which is effectively the hamster wheel, right? Create the products and services, pay for an office or a factory so that you can make them or have the people that are delivering the services and then hire people to build the products and hire people to deliver the services. And then you have to buy more media so that you can get people to learn about the products and services that you have. And then you have to get more space because you need more people to provide the services and make the stuff.

21:17And then you have to buy more inventory, et cetera, et cetera, et cetera. It is a hamster wheel of death, right? It's awful. And the only time you ultimately get to realize the value is not during the, all of the years of the labor. It's at the end of all of the years of labor when hopefully things have gone well enough that you can sell. That's the old way to do it. We're replacing that with the new way, which is just install some value accelerators, right? Break the cycle. Be smart. If you install the right value accelerators and the right way, then you can create tremendous value and you just skip the whole old way hamster wheel, right?

21:52You can do the old way stuff if you want. Once you've got the value accelerators in, there are some things that work in the old way. It's just a sequence thing. Do the easy stuff that gets you big leverage that creates bankable profits, transferable value and leverage sales first, then you can do the old stuff, okay? And that's a really good playbook, right? So we talked about the first shift being going to leverage sales. We talked about the second shift being creating bankable profits and the third one creating transferable value. The two remaining shifts that we have to talk about are internal, right?

22:28The first three were external. These next two are internal shifts that you need to make in yourself. And I can tell you most of what is holding you back from doing the things you know you need to do is sitting right here, okay? So the very first thing I want you to think about is to change your attitude from your mindset from working in the business or on it to working above it. And not on it, right? Definitely not in it. So this is the time that I really want you to think bigger. I want you to separate your success from the sale of the products and services that your business sells, okay? Okay, eight figure and more business owners are looking at their business completely differently from how you're looking at yours.

23:08To them, the business itself is the product or service that they build value in, right? So I call this the O myth. This is the myth that you should work on your business because it's gonna stop a lot of people. They get that I shouldn't be working in it. I shouldn't be opening the store, making the coffee, sweeping the floors. I should work on it. I should have systems and processes and automation and employees and stuff like that, right? That's not it. because you're still focused on selling the products or service in the business. If you want to step up to the eight figure plus, nine figure, 10 figure level, then you need to be able to work above the business.

23:43That means that you're hiring operators. You're hiring CEOs and C-suite teams that are gonna run the businesses that you own starting with the one you own right now. You're gonna start securing investors. You're gonna get mentors. You're gonna get advisors, right? You're gonna go into new verticals and you're gonna start saying, how can I integrate my supply and distribution chains or acquire intellectual property or media or other competitors? These are the things that eight figure, nine figure, 10 figure plus entrepreneurs are doing. This is what they're thinking about. They're not even working on the business.

24:15Really, really important mind shift for you, okay? And then the fifth shift is to invest in mentorship. So remember that behind every single great business success is a mentor and usually several of them, right? You've Eric Schmidt, who was one of the co-founders and CEO for Google. You've got Serena Williams. You've got Barack Obama. You've got Oprah Winfrey, Leonardo DiCaprio, even Metallica and Warren Buffett have business mentors. What do they all have in common? They each have a business mentor plus this. They had the courage to take a risk. They also stuck with it even when it was hard. and this is really important, guys.

24:59Even when they had doubts, even when money was tight, they burned the boats, they bet on themselves and they won. And that's what I'm asking you to do too, bet on yourself because entrepreneurship is an all-in endeavor. You can't be part of the way in and be successful. You won't get the impact that you want if you're just dipping a toe. You've got to go all in, okay? So with a model and a mentor, you can be really virtually unstoppable because mentors will provide you with models that have already worked. They've already been where you want to go. They provide you with the guidance that you need to steer you back on course because none of us is always headed in the right direction.

25:42They'll give you new ideas that will help you to think bigger and they'll hold you accountable to doing the things that you said that you were going to do. That's a big challenge for us while also giving you inspiration because you shouldn't have a mentor who does not inspire you, right? Ask yourself how much your business earned last month and then ask yourself how much of that did you take home? If you're not happy with the results that you get right now, then you have to get something different. A new mindset is where it starts. That's why those last two shifts are critical. a new plan, which is the first three shifts, and accountability.