Beyond the Grind: Creating Radical Value and Wealth for Business Owners with Justin Goodbread

0:01Boom! Shake the room, Fire Nation! JLD here and welcome to Entrepreneurs on Fire! Brought to you by the HubSpot Podcast Network, the audio destination for business professionals with great shows like Marketing Made Simple. Today, we'll be talking about Beyond the Grid, creating radical value and wealth for business owners. To drop these value bombs, I brought to Justin Goodbread and to EO Fire Studios. Justin is an award-winning speaker, best-selling author, and entrepreneur with over 30 years of experience. He coaches business owners on scaling, building value, and achieving profitable exits.

0:31In today's foundation, we talk about some harsh reality, the financial realities that most business owners face, talk about the value gap, the wealth gap, the five stages of value, and oh, so much more. And a big thank you for sponsoring today's episode goes to Justin and our sponsors. Success Story, hosted by Scott D. Clary, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Success Story features Q &A sessions with successful business leaders, keynote presentations, and conversations on sales, marketing, business startups, and entrepreneurship.

1:03A recent episode discussing the billion dollar health secret with the founder and CEO of Whoop is a must listen. Listen to success story wherever you get your podcasts. I have a question for you, Fire Nation. Do you feel like your life is optimized or do you feel like you're leaving a lot in the table when it comes to health, wealth, and relationships? If you think you could use some personal guidance in optimizing your life, let me help. I've created a program called Optimize where I will personally work with you one-on-one to get to know you, your life, your goals, and your dreams. If you want to learn more about this program, visit eofire.com slash optimize.

1:41Justin, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. What's up, Fire Nation? So when I think about things that most people disagree with, I believe that generational wealth is created in a short period of time, not over decades. It's the way I often tell business owners is think about generational wealth is not like a slow growing oak tree. It's more like a lightning strike that just reshapes everything with intense focus and energy. Fire Nation, we'll be diving more into this today because it's a great topic to think about beyond the grind, creating radical value and wealth for business owners.

2:21And I do want to start with some harsh reality, Justin, because let's be honest. the financial realities that most business owners face, they're not even really that aware of until sometimes it's too late. So what are those? What are those financial realities that we as business owners face? Yeah, John, I remember when I heard this for the first time, it shook me to the core as a business owner. I was about 20 years in business. And I heard that 80 % of my net worth is tied up in my business. It's not in 401ks like non-business owners might have. It's really not in real estate for us business owners.

2:55So if 80 % of my net worth is tied up in my business, how do I create liquidity? How do I get that net worth so that it provides income for me in perpetuity? So as I dug deeper into this, into that statistic, I also discovered that only about 20 to 30 % of small business owners ever transact their business, ever move their business from this highly illiquid asset to a liquid asset. And so statistically, what that means for us is over the next roughly seven to eight years,$8 trillion, with a T, trillion dollars of pent-up equity that business owners have will be lost. So whenever I heard that, dude, I'm like, man, we have got to raise the warning flag, raise the bell, let business owners know that this asset, this business that they're building, if they build it properly and build it where it's investable, where somebody is going to look at this and say, hey, I want to give you some cash for your business.

3:50then we can live this freedom. We can have the same income we make from our very successful businesses in perpetuity or greater throughout the rest of our lives. So man, when I heard that statistic, it shook me and totally reframed the way I grew my companies and began coaching business owners on how they can create this monumental generational acting wealth. Okay. So let's get detailed because you are speaking to entrepreneurs, to small business owners right now. So what advice do you have for them in this moment? As a business owner, let's look at your business as an asset. I wrote a book called Your Baby's Ugly.

4:26And I did, I wrote a title of that because I wanted to really like my dad used to do when I was a teenager. It's probably some of us who have kids often like put our hands on me, want to shake him. It's like, pay attention. Oftentimes we look at our business as, you know, this is our baby. And it's got to be beautiful because we understand the blood, sweat, and tears that we have invested in our company, we remember the hard times. We remember whenever our employees made more money than we did. Or we remember the first year when it was bootstrapping and we're borrowing money, we're eating beans and rice and we're living on love, right?

4:55Well, friends, as a business, your business is really there to create wealth. That's it. Yes, we do provide a good service. Yes, every one of us provide a good service for our customers and we do take care of our employees and we do take care of our communities and our charities. Yes, all that is there. But if you really boil down to it, a business is nothing more than a wealth creation tool. So whenever we look, step back from our business and look at it as a wealth creation tool versus, hey, this is my baby. This is my identity. This is who I am. We can actually shift the paradigm in our mind to say, how then can I take this business, break the statistics where so many business owners are going to end up being destitute in retirement or work till they're dead.

5:34How can we break the statistics by looking at the business as an asset. So my first, my very first word of warning to business owners is take a step back, look at your business as a wealth creation tool. Then we need to move into understanding how to turn that business into generally a wealth creation tool that can create generational wealth for us. Okay. What I do want to talk about within this is what you've created, which is the five stages of value. And this is something that business owners need to understand if they want to avoid becoming part of these dismal statistics that we hear in the news, you know, and we'll be talking about even later today.

6:11So what are those five stages of value? So the five stages of value are actually taught by the Exit Planning Institute. I have the privilege and honor of being a professor there at the Exit Planning Institute, where we teach business coaches, financial advisors, attorneys, CPAs, how they can help their business owners move forward. So there are five stages. The first one is you've got to identify the value of your business today? What's it worth today? And then once we know what that value is, we need to move to the second stage of how do we protect that value? You know, like in football, you have a good offense, you have a good defense, they have to be blended there.

6:43So once we identify the value, how do we protect it? And then the third stage is how do we build it? What can we do statistically in that business that has a proven track record following a methodology that allows us to take and build that value? And then the fourth stage comes at some point as business owners, we should consider harvesting the value. Now we've heard people, maybe our cohorts, maybe some friends, maybe some peers say, I took some chips off the table or I sold my business. That's a harvesting effect. Maybe they have a minority shareholder that they sell some of the equity to. That's a harvesting effect.

7:15The fifth stage is, okay, now that we've taken this illiquid asset, this business, and we moved it from this highly liquid asset to now this liquid asset, we really have cha-ching in the bank. We can actually look at it in our bank account. How do we manage it? More importantly, how do we manage it to provide that standard of living that we desire or the lifestyle that we desire, perhaps, that we were being afforded as we had this business? So the five stages of value for us business owners is identify your value, protect that value, build that value, harvest that value, and then ultimately manage that value to your ultimate goal.

7:50So I want to talk about the value gap and the wealth gap because Fire Nation, as our listeners right now, they need to know what they are and how do they affect the financial future of them as business owners. So talk about these two things. Yeah. So let's start with the wealth gap. The wealth gap is a very interesting, simple concept to understand. We currently, all of us who are listening to me, we all have a net worth, assets minus liabilities. And we look at our balance sheet. My challenge to you would take your assets minus liabilities, put all your assets in there. Just keep it super simple.

8:20Keep your house in there. Keep your cars. Keep everything for simplicity in this calculation. Take all your assets, minus your liabilities, but exclude your business value. Okay. So let's say hypothetically, if you look at your financial statement and JLD, you know, I'm a, I'm a, I'm a numbers nerd here. So if you look at your financial statement, you say, Oh, I have$2 million in assets or a million dollars or a hundred thousand, whatever the number is. Once we look at that value, let's remove the business value from that net worth. Then we've got to figure out how much money do we need in order to meet our long-term objectives.

8:53Perhaps you might say, look, I need$40 ,000 a year. Okay, well, if I had a million dollars earning 4 % interest, that would provide me$40 ,000 a year. So the wealth gap is simply saying, at what price point does my business need to be that I can liquidate it or take a partial liquidation or whatever your desire is and put enough money in my accounts or in my assets, in my liquid position to provide me my lifestyle for the rest of my life. It's basically taking what our W-2 friends are often looking at like a retirement plan calculator and saying, how much money do I have in my 401k? And will this money in my 401k provide me my lifestyle in earnest in perpetuity?

9:34Or perhaps in the real estate world, we'll look and say, how much income is this real estate portfolio providing for me? And can I, quote, retire? Can I substantially change my lifestyle to live this in earnest and in perpetuity? For us business owners, because we're dealing with this highly illiquid asset, this business, we have to take a little bit different look. We have to say our current net worth, not including our businesses, is the starting point, and we really need to be over here. And the delta in between that number, that gap as we're calling it, that gap is achieved by growing our value of our companies and then taking that value and making it where it's attractive so that a buyer or an investor or a child or a team member or whomever will come in and say, yes, I'm willing to pay you money to help you close that gap.

10:18Now, as business owners, I believe this, that Wall Street is not our friend. We can actually build greater wealth. Goes back to my very first statement. I believe that we can create generational wealth very rapidly within a two, three year period of time versus a long period of time. So if we identify this wealth gap, then it automatically leads into the second gap that you asked about, and that's the value gap. If we do a valuation on our company today and we look at our company, let's say hypothetically it's worth a million dollars, just hypothetically. But if we compare our company to a best in class company of similar value, I'm sorry, we compare our company to a best in class company of similar revenue.

10:54So in other words, if you're producing$2 million in revenue, another company over here is producing$2 million in revenue in the same geographic region, et cetera, et cetera, et cetera. We're pretty much comparing apples to apples, but they're best in class. And we'll define that in a second. The value gap is how much value is in your company that by systematically adjusting some things, by making the quality of your company better, you can actually unlock that value and thus bridge that wealth gap that we talked about earlier. So as business owners, we first have to decide on what does our company need to be worth in order for us to reach our long-term goals, thus the wealth gap.

11:30And then when we look at our valuation of our company today, how much value is locked up inside our companies that right now investors not want to pay us for. But if we change some things internally, if we made the quality of our company greater without increasing revenue, mind you, without increasing revenue, we can actually increase our value. So that's the wealth gap and the value gap. Fire Nation, I really hope that you're going to ask yourself these questions because man, we spend so much time, energy, blood, sweat, tears on our business. And you know, like something that Justin shared earlier, which was so crazy.

12:03I mean, 80 % of our net worth and for some people and for a lot of business owners is tied up in your business. That is huge. That's a huge percentage. So let's make sure we're doing the right things. And we have a lot more to talk about around this topic when we get back from thanking our sponsors. If you're a marketer, then you know what it's like to feel like you're moving in a hundred different directions at any given time, like you're spread too thin. Between creating content, launching campaigns, generating and nurturing leads, and more, you barely have a moment to breathe, let alone do your best marketing.

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13:10Visit hubspot.com slash marketers to learn more. We've managed a lot of projects here at EO Fire. And one of the most impressive pieces of software we've seen to help you keep your workflow tight is Notion. We first discovered Notion thanks to one of our sponsors and it made it so easy to track talking points, due dates, deliverables, and more. Every time we had a question about the sponsorship, all we had to do was check Notion and all the details were laid out for us. It made the entire process simple and straightforward. That's because Notion combines your notes, docs, and projects into one space that's simple and beautifully designed.

13:44And now it has the power of AI built right inside of it, which means you don't have to jump between your work and a separate AI power tool to make magic happen. Notion AI helps you work faster, write better, and think bigger, doing tasks that normally take you hours and just seconds. Try Notion for free when you go to notion.com slash John Lee Dumas. That's all lowercase letters, notion.com slash John Lee Dumas to try the powerful, easy-to-use Notion AI today. And when you use our link, you're supporting our show, notion.com slash John Lee Dumas. I have a question for you, Fire Nation. Do you feel like your life is optimized or do you feel like you're leaving a lot on the table when it comes to health, wealth, and relationships?

14:26After interviewing over 4 ,500 successful entrepreneurs, I have found that every one of them have optimized their life to a high level. In over 12 years of running a multi seven-figure a year business myself, while staying healthy and raising a wonderful family, I figured out how to optimize my life to an amazing level. It didn't happen automatically. there was a lot of struggles, but through mentorship from others and a lot of intentional work, I got there. And if you think you could use some personal guidance in optimizing your life, let me help. I've created a program called Optimize, where I will personally work with you one-on-one to get to know you, your life, your goals, and your dreams.

15:05Then over a three-month timeframe, we will create a fully optimized life that will set you up for a lifetime of optimized health, wealth, and relationships based off your goals and your dreams. and optimized life does not happen automatically. It only happens through intentional work and guidance from someone who has reached that level that you are striving for. My goal is to turn you into a fully optimized human based off of your life goals. If you wanna learn more about this program, visit eofire.com slash optimize. We'll jump on a call, we'll discuss the specifics of the program and if we both feel to fit, we'll talk about next steps.

15:40eofire.com slash optimize. Justin, we're back and we all want radical value in our business. So let's go through the four steps that a business owner must take to create this radical value in their business. Yeah, so these steps, I actually changed my life within a 49-month period of time, JLD. I can remember standing on top of a West Virginia mountaintop, having this conversation with a client who said, I'm broke, I'm 50-something years old, I have a couple million dollars of equipment down in my lot down here that I could sell is in the heavy equipment business. He goes, but when I sell that, I'm going to have recapture tax.

16:16And then I can't afford my same lifestyle that I'm living vicariously through our business. As many of us do, we pay for our trips. We pay for our kids' education. We pay for our spouse. We pay for cell phones and so many other things through our business with the advice of our tax advisors. And I can remember sitting in that moment saying, holy cow, I've already sold three businesses. I'm pretty successful now. But unless I change things radically, I'm never going to reach my goal. So that caused me to take a step back and identify what I call the freedom formula that every business owner can do.

16:44So the first one is, is let's identify your value gap. Very first thing we were just talking about. What is the value of your company today in comparison to a best in class company and how much value is locked up in your company? There's a calculation that we'll share in a second on how that can be done. So once we identify the value gap, then we need to figure out what are the greatest moves that we can move internally within our company. So I call this the eight squared methodology. So the eight squared methodology works like this in every company, no matter what type of company it is, there are eight primary areas of business.

17:18Those eight primary areas of business are planning. What are you, where are you going? Strategic planning type of things, leadership, sales, marketing, people. In other words, your employees or your team members or subcontractors, et cetera. The operational efficiency of the company, that's number six, finance and legal. So there's eight areas of business, planning, leadership, sales, marketing, people, operations, finance, and legal or risk management. So that's the first eight areas of business. Now, for each of those eight areas, there are eight primary value drivers. So the eight primary value drivers for each company are as follows.

17:53They're dependency risk. How much is the planning department dependent upon one particular employee? How much are the team members dependent upon one particular employee or particular process or particular customers? That's the first value driver. The second value driver is profit history and reporting. Are you able to report properly your sales and marketing KPIs? That's a value driver. So that's the second value driver. The third value driver is sustainable revenue streams. Do you have recurring revenue? That is a huge one. And I'll go on the record by saying that there is not a business that I have seen yet that cannot create recurring revenue.

18:28Every business I've ever seen can have recurring revenue streams, despite what we often believe. So the third value driver is revenue streams, sustainable revenue streams. The fourth value driver is client loyalty and retention. The fifth value driver is cash flow stability. In other words, we don't want to see a business being all over the board. We want to see stability in our trends. Our sixth is expansion opportunities. Can we grow our company into a different demographic, a different product offering, a different client base, a different market, so to speak, across the country, around the world?

19:00Number seven is market differentiation. What sets your company apart from everything else? And then number eight is operational independence. So the second phase that we all can look at is what's called eight squared. We can look at each of these eight areas of business and we can say, okay, for planning, do we have operational independence? For our finance department, do we have operational independence? So there's really 64 main value drivers if we tear our business apart that can drive us forward in our company. So when we look at a process that helped me go from a startup company to an eight-figure exit in 49 months, it was what is my value gap?

19:35Where is the pent-up value? How can I find it with this eight-square methodology? And then number three, how can I affect change that is not only the word I want to use is expected, but also how can I affect change to where it's probable? So we use a three by three methodology that we teach our clients, and that is basically break down the company into three major action steps or three major objectives. And each objective needs to have three tactics, how you're going to reach that objective. And each tactic needs to have three action steps. So we'll teach our customers and our clients that, look, over a 90 day period of time, you can create 27 action steps that you and your team can actually gain ownership.

20:19And you can say, who is going to do what by when and how is this going to impact my value? Everything is value focused. So my first three moves in my freedom formula was what is my value gap? How do I identify the values in the eight square methodology? How then can I motivate my team and myself and all my employees to actually enact change using the three by three methodology? And then finally, who is going to hold me accountable that I don't chase shiny objects? As business owners, JLD, I know you've seen this. I know business owners are going to start waving their head yes on this. And that is we love a new idea.

20:54We love to chase the shiny object. The problem is, is that we're our own worst enemy. And here's what I mean by saying we business owners are our own worst enemy. We're pretty smart. We're tenacious people. We're resilient. We're in business. And it's a hard thing. And we're willing to do the hard work. The problem is oftentimes we're not willing to do the difficult work. The difficult work is like I grew up on the ocean, you know, water takes a path of least resistance. Whenever it comes in, you can see where the water is going to flow because of the lowest area in the sand. So what we do as business owners, we don't have somebody to hold us accountable.

21:27So whenever I discovered this freedom formula, I hired my business coach and literally within 49 months in the most compliance restricted business segment there is, took a business from startup to an eight figure exit, simply following this freedom formula, these four steps that I just outlined. Fire Nation, I hope you're fired up to have a system, a process, a blueprint like Justin has just given us. And Justin, to your point, I will tell you, man, that's why my word of not just the year, but the decade is focus. Follow one course until success. Because of that reason, that bright shiny object syndrome, where people are just on a roll, they're making hay, the sun is shining, they get distracted, they take their eye off the ball, and then something goes wrong with the main core of what was working for them and they can't get it back.

22:17Focus, Fire Nation. Now, Justin, you've built and sold not just one, but several businesses for millions of dollars. You reached the decamillionaire status before the age of 40. Share with us the top principles that got you there. I firmly believe this with all my heart, that if you think you can or think you can't, you're correct. And so one of the very first success principles that allows us to grow rapid value in companies is a mindset. I know we hear that and oftentimes we listen to it tongue-in-cheek for motivational people, but I believe with all my heart that those of us who truly want to impact the world, those of us who truly want to impact our families, our communities, our legacies, whatever term you want to use there, it begins with mindset.

22:57That's number one. Number two is, it has to have a process. Success leaves a trail of breadcrumbs. And if we can look to find a process or a system or a methodology that will allow us to reach our desired outcome with greater certainty, then it makes sense to follow said process. I can remember my first three companies. Now, knowing what I know now some 30 years later as an entrepreneur, I could have sold those companies for much greater value had I just made some adjustments internally. And then once after about 20 years, I'm like, holy cow, there is a methodology that I can follow using this freedom formula that I've just laid out.

23:34now I can actually drive my value and my net worth and my clients and my team members and my vendors and my communities and my charities and everything. I can help them using a proven methodology. That's number two. But number three is, like I said, the very beginning, we have to, as entrepreneurs, take a step back and change our mindset around how wealth or how success is created. Gone are the days. Gone are the days whenever we have to work as business owners for 20, 30, 40 years in order to have independence or freedom, whatever that word means to you. You literally, within a matter of about 18 to 48 months, depending on the industry you're in, you literally could change your life, your family's life, your community, your employees, whomever is at your heart.