It's Time for Your Business to Run Without You: How to Build an Exit-Ready Company w/ Sharon Lechter

0:00From my perspective, Brad, it's not just the dollars, it's the impact. to see the ripple effect of what you create. The legacy is not just about money, it's about the impact. From a standpoint of somebody that can sit back and see that their business is operating without them, then they can start realizing that they have the ability, they're getting their time back. I shared with your group today, you know, at the height of rich debt, I had 5 ,000 people working for me. Only 17 were on my payroll. So Sharon, every business owner has an exit at some point. Pine box, shut it down, big money. I want to talk about the big money exits because that's an area of your expertise.

0:37But first of all, I just want to brag on my friend for a little bit. Biggest best-selling nonfiction author in the history of the world. What's it feel like to do hundreds of millions? Because I don't think people actually grasp what it feels like to do that. Well, from my perspective, Brad, it's not just the dollars, it's the impact. To see the ripple effect of what you create. And so you talk about a legacy. Legacy is not just about money. It's about the impact. And I think you probably feel the same way. You see all these people that you've trained, but they're out there creating their own multiple exits and then helping other people do it.

1:16So you see the ongoing impact of what you're doing and the ripple effect has for generations for different families. And it's something that has a much bigger impact. I can say, yes, I built the world's largest personal finance brand. And then I stepped into the world's largest personal development brand and took it another 10 to 100x. But the issue is that only happens because it's making an impact and you're creating a viral marketing effort because people are getting results. Yeah. Look, when it comes to viral marketing, when it comes to all of those things, we could spend days on just that subject.

1:54But where I want to focus us in on today, because this is the hundred million dollar entrepreneur. No, this isn't about make your next 10 sales. It's about the big impact. The exit. You wrote a great book about exits. Why is it most people fail to plan for an exit? Because they're so in the weeds working in their business. They're not looking at the long-term strategy. They think they're having fun. They're going to live forever. And they don't realize that they're building an asset. Then that asset needs to be able to live and breathe without them. And so there's lots of reasons people can't exit.

2:30One is it becomes the business is all about the owner. And so they get stuck. And they rarely ever get past a few million. If the owner's the bottleneck, it's never getting to 100 million sort of thing. Well, I have a feeling you were probably thinking about that when you started Action Coach because you called it Action Coach, not Brad Sugar's Empire. So, you know, that's what we started rich at is cash flow technologies. It wasn't supposed to be a personality driven brand. And that what happens is you do you kind of put a cap on it. I mean, even Tony Robbins wasn't able to sell his company when he wanted two years ago because it's all about him.

3:06It's his name. Yeah. And yet he's made hundreds of millions of dollars and continues to impact people. But what's his exit? Right. And so I think it's really important for people that are building these organizations and not just in the personal development world. I'm talking about bricks and mortar technology, service industries. You have to look at the long-term exit. But what most people concentrate is on their product and their profit. And unless you focus on your processes, your businesses, you can't scale a business without having processes. Right? People create a job for a person they like, a personality.

3:41That business is never going to succeed. You've got to create the process and the systems that are scalable. And it creates intellectual property. People think the intellectual property is all around the product. But you have your competitive advantage and your intellectual property from every aspect of your business, from the legal perspective, from the marketing, from the processes that you have, from the intellectual property that you have copyrights, patents, trademarks. Well, IP, I'm going to get back to IP because even just a simple example, one of my clients who, he was looking at an eight times EBITDA exit for a logistics company.

4:22And I said, how much should you value the licenses that you have for? Because it was a Japanese company moving into the UK. And he goes, what do you mean value the licenses? Dude, come on. We ended up at a 37X. And he was in this huge corporation use company. But he's not alone, Brad. The vast majority of business owners don't value that. They don't see because it's intangible assets. So it's not on the balance sheet. And that's why they don't get educated. It's not just what the number on the book value is. It's the actual goodwill, the appreciation, the competitive advantage that has that intangible asset value.

4:57And I think that goes back to the difference between a financial buyer and a strategic buyer. I think we get, I don't know, maybe struck into this whole, I'm going to sell it to a financial buyer, a VC firm, a home office, someone that's looking at, oh, you want a strategic buyer. Again, we can come back to that in just a little bit. mindset for someone around selling, exiting. What's the fastest way to get someone to actually go, okay, I've really got a plan for this. I think probably having a good friend their age in the 40s or 50s drop dead. You asked the question. Thank God my friend dropped dead.

5:38I planned for selling my business. You know, it makes you realize, it makes you realize that you have to start planning for the future. And what happens, you know, I talked today to the group about all the reasons people end up selling. And a lot of them are not voluntary. And that's what happens. People aren't prepared. They haven't prepared their business for an exit. But from a standpoint of somebody that can sit back and see that their business is operating without them, then they can start realizing that they have the ability, they're getting their time back. and it's like okay so when you say i'm going to exit my company most people think of it for a check you're going to sell it well you can also exit your company and have it as an ongoing generational asset that provides for you and your children and their children if you set it up correctly it's still an exit all right so but it's a continuation of impact and legacy yeah i remember as a young man learning that every time i wrote a system or a checklist I would work out this is going to save me five minutes a week and this is going to save me 10 minutes a week I believe that you did that and I was like how many of these do I have to write before I never have to come to work again sort of thing and um you know that that was my thinking as a young man but that the exit of it runs without you you move from I always say you start in business as a general manager it's you the rock star you build to a million or so and you've got your few employees around you.

7:08Then you move from that to, I like the English term, managing director. You're directing the managers. There's one leader. It's you. That's the thing. And then you move up to the CEO because you've built a team of leaders. You've got other C-level executives. Someone told me the other day, he's the CEO of his business. He said, oh, how many executives are there in your company? He says, what do you mean? I said, well, if you're the chief executive, it usually means there's other executives. But then I try and teach them that what we do at Action Coach which is what an owner should be looking to do.

7:38You aim to become the coach of your business. And in one hour a week, you run your business. And that seems to blow people's minds that, oh, I want to get above CEO. I want to be coach or chairperson or whatever you want to call it. Is that something that came natural to you, that you had other people run your businesses? Or was it something you learned or grew into? How did that happen? Well, I think a little bit of both, because I started my career in public accounting. So I was inside businesses and I saw how businesses succeeded, but probably more importantly, I saw how they failed. And so I saw the systems and the structure of companies that truly succeeded and the core values, the culture of those organizations or systems or dedication to the process, not just the internal structure.

8:30And I think that really was something that was embedded in me. But what I understood from an early age was speed to market is pretty important. And so when I was starting new industries, because I've been involved in new technologies from the first Talking Children's book. And it's like, I don't need to build everything myself. So the concept of other people's money, other people's resources, other people's time has just been part of my being. If I can find somebody who does this well and I can use their people, their time, their resources, that makes my life easier. I shared with your group today, you know, at the height of Rich Dad, I had 5 ,000 people working for me.

9:10Only 17 were on my payroll. Right. I was CEO to CEO with Time Life, with Time Warner Books, you know, with the company that did the coaching. I like that process because I didn't have to manage personalities. I remember you teaching me one time that business is a team sport. And I'm sitting there one day going, I just need more team. And it was like, that guy already built, like even this morning, I'm on the phone with someone that they're going to do our email reach out for a particular product we're doing. And he's got 28 employees. Like, perfect. I've just added 28 employees, not on my payroll for X dollars a month.

9:50A wonderful thing. It's a wonderful thing because then you can put your expectations in writing in a written contract. And if it doesn't work out, you just turn off that spigot. You don't have a lot of labor issues. You don't hire anybody. That's right. You don't hire a company. That's right. It's much different. And I think it's even more important now than ever before. Like when we did Rich Dad, we blew up around the world by doing licensing deals with 51 publishers around the world. but I controlled the operations. They just did it. So it was written in the agreements. We own all our copyrights, but I was able to hit the market very quickly because I fed my product into their existing distribution and manufacturing systems.

10:37But you have to be very clear. You have to have very, very good written agreements because you want to maintain your intellectual property rights. But it's so important because the other thing is joint ventures, right? So you may have a company that provides HR services that Action Coach is going to say, you know, a lot of our clients need that. So we're going to do a joint venture. You're not going to own them. They're not going to own you, but you're going to have a joint venture between the two of you that allows you to serve more of your clients. And probably many of their clients could benefit from Action coach?

11:08Well, last year I bought a share of a marketing agency that trains VAs on how to do social media. And then like, so now we have, I think it's thousands of VAs that work for our clients that do their marketing for them every day. Cause we're like on a, on a 10 posts per day, per channel is the current performance standard of marketing. You keep saying IP. So I got to get back to it. When we go to exit a business or when we go to sell a business, or even if we exit it without letting our team run it, we've got to start working out to value the IP. What are some of the things that people overlook that is valuable IP in a company?

11:50Well, you typically, you look at a financial statement of a company. What's not on there are the intangible assets. And in today's world, the financial statement is almost worthless because the highest value of the business fortune 500 companies 40 years ago 10 was intangible 90 bricks and mortar today as in 2020 it was the opposite 10 bricks and mortar 90 intellectual property today i venture to say it's probably 92 93 percent and so if you think about airbnb you know large hospitality they own no hotels uber large transportation company owns no cars amazon you know obviously Great membership business.

12:34Yes, exactly. And so you have to kind of get with the times and understand that the valuation of businesses today are very different than it was even 20 years ago, even 10 years ago, because your intellectual property is also your database. Does your database have a dollar on your asset column? No. But even your social media databases, your social media followings, your web contents, all of that is worth stuff. It is worth something. But as I tell companies from a standpoint of an exit, your social media is just a data gathering. It's an enticement. You don't own those names. And so I'm constantly telling my clients and in talks, use your social media, get out there, yes.

13:21But that should be an attraction mechanism. Nurture them and invite them into your database. Because as you well know, many companies sell for their database. Because that is such a, and we made the comment about a strategic buyer. You know, I have one company that I worked with that had three different potential buyers. One wanted their database. One wanted their contract with Boeing because they had been trying to get into Boeing for years and couldn't. and this strategic company had a relationship with Boeing, they were willing to pay twice what the other company was. They didn't want anything about the company except the contract with Boeing.

14:00And so that you have to understand the market, you have to understand the buyer, and you have to position yourself so you're attractive to them all. I don't think people understand that it's cheaper to buy companies than it is to do marketing. It's cheaper to buy companies in a lot of cases than it is to recruit staff. It's cheaper to buy companies than it is to get a customer like Boeing or get licenses or go through. Like there's so many things about buying companies that's cheaper. And I love teaching that stuff because it's like, why did you not learn how to buy? And you're going to sell. So you better learn how to sell a company at some point.

14:37It drives me crazy. So when you're looking at the process of selling, I always tell people that it's going to take two to three years. Is that about what you're seeing today or is it speeding up? Well, I think on average it's two to three years because most of them aren't ready to sell. Yeah. And what happens is they put themselves out too soon. And they have a couple of potential, really good potential buyers that come in and completely destroy them because their paperwork's not together. They haven't truly prepared themselves for sale. And I see it time and time again. And I go, you need to bring somebody in to put the lipstick on your company to make sure your contracts are all transferable, to make sure your intellectual property is identified.

15:20Due diligence before someone else does due diligence. Like I was chatting with a friend of mine the other day, and he's in the process of sale. He's$8 million EBITDA. And I said, so who have you got handling the due diligence? He said, I'm doing it myself. I'm like, dude, you're in for the worst year of your entire life. You've got to have someone handle a due diligence for you. Oh, yeah. Yeah. Unlawyer, undoctor is like just crazy. So when we go into the theory of exiting, it's starting that. When should someone start thinking about who is the buyer? Who are the potential buyers? How far in advance should we start making that database or getting that list ready?

15:57I think intuitively a business owner is going to have in their mind two or three buyers that they can think of that would be perfect for them. And typically they may very well be, but there's probably another half a dozen or so that are strategic. One may be a geographic strategic buyer, somebody that's, you're on the West Coast, they're strong on the East Coast, and you haven't even thought about that, but you give them a bigger footprint, they get customers immediately, it allows them to penetrate the market very quickly. So I think part of it is having the right mentor or having the right financial advisor are from M &A, mergers and acquisitions, come and take a look at your company because they see what you don't see because they're in it every single day.

16:43And that happens so many times because people, they have a buyer they think they want to sell to and they're convinced they're going to get $10 million for their company. Well, this buyer over here might be worth, be willing to pay more than that. And even you might, as you said on that other example, You might cut the company up to sell it. Yes. Like we had one company where we exited where there was a division that was like an events division of the company. Breaking that off and selling that to an events company made it worth so much more than if we just left it in the company. The company buying it didn't really want the events company.

17:21I recommend that all the time, Brad. In fact, Rich Dad, we had eight different companies that would constitute each one of our activities. International market, the seminar company, the coaching company, they were all in separate companies. And I really recommend that to people. In fact, I advised Brandon Dawson, who's now part of Cardone Ventures, when he was building his Audigy. And he sold that for$77 ,000 and$151 million, I think. And I was just having a casual conversation with him. And he told me about this technology he created to be able to strengthen and scale the Audigy business. And I just said, well, I hope you put your IP in a different company.

18:04And this was now 15 years ago. And just a few months ago, I was with him and he shared with the audience. Yeah, that night I went home and formed my new company and put my IP in it. And I said, so where's my commission? Because that IP is now what he uses in Cardone Ventures. And they're in multiple nine figures with Cardone Ventures now. So you cut yourself, your face, your nose off despite your face when you don't take the right strategy on how you form your businesses. Keeping that intellectual property in a separate company is really important. Yeah. Yeah. I think that, you know, again, the process of selling is something people need to learn.

18:47Like you're not going to be a genius at it. I know for us, we have a 12-week program to take people through. This is what you got to know to set yourself up for selling a business. And it's like, come on, dude, you can't build an asset that's that amazing and then not plan getting highest value for it. But I want to switch tangents just a little bit because there's other ways to sell a business. Franchising, licensing, there's many methodologies. But also, the strategy that a lot of business seem to have is they build one great business and they do it in one location. I know we've discussed it many times over the years.

19:30Once you've built a great business, you should put it in as many locations as you possibly can. Cookie cutter here and then other locations where you've done the market study. Know that it will be successful and you've got all that systems. You've got an incredible package of intellectual property because you've got the systems documented, policies and procedures documented, whether it's licensing or franchise, different from a legal perspective. Or joint venture or partnerships, all those different ways. The legal structure behind it isn't really the point. I think how do you get someone to realize that you've built a great business.

20:06Now let's plan for putting it in 100 or 1 ,000 or however many cities, countries, towns, locations. They start hyperventilating. That's why, because they're used to being in control and overseeing it. So they haven't found their, they may have built a very successful system, but they're still sitting on top of it. And they think about, well, I can't be in 50 locations at once. Well, you know, you can't and you don't want to be. My brothers didn't think you could be either. And you don't want to be, you know. It's the old adage of McDonald's, the owners are never on property, right? So they created this incredible system and it's run by teenagers.

20:40So you want to create the system that can be duplicatable, but typically it's the owner that is the stumbling block. So what's that mindset shift then? How does an owner get through that mindset shift of actually getting out of the safety of their multi-million business and going for the hundred or going for the bill, whichever? Well, I think it's the reason you're doing this podcast for that nine-figure-plus company, because typically they're hanging out with other people who are making the same amount of money or less. And so they haven't had their mind stretched to what's possible. So constantly putting yourself in with people who are smarter, bigger, and more successful than you are starts opening your mind to the possibilities, and you see that it's possible.

21:27yeah but when you keep yourself where you are and you're the brightest and most successful person in the room it's hard to see the next step i had a guy the other day say to me brad i hate being around you because i can't hide he's like you know because he goes and he's doing 70 something million a year right now so when he goes to a normal networking group he's king of the world you know and then he comes around me and i go dude what are you doing with this where's that why is this not done what's happening here what's and and he just looks at me and he goes I love being around you because you stretch me, but I hate being around you because you call me on my stuff.

22:03And there's a distinction between having a coach who's done hundreds of millions. I mean, I looked back, someone did the math for me the other day. We've done 2.6 billion in sales in coaching and training. There's no one that plays even close to what we do in our field. but it's like if you're not willing to put yourself in front of people who are doing it challenging you pushing you i think i think that's a big part of it and that's why i keep bringing you back to teach my team because it's like well sharon said and i'm like yes they got it so uh Final question then. What broke you through the mindset of hundreds, not tens or ones of millions?

22:52For me, it's probably not the typical, but for me, it was the ability to impact more people. So you were mission driven more than dollar driven. And so and I think also it's getting to be comfortable with, you know, 10 percent of a billion is OK compared to 10 percent of a million. Right. So. All right. So how am I? Yes, this is going to elevate my impact. It's going to reach a lot more people, but that's not a lot of money. Ten percent. But when it's a billion dollars, that's a lot of money. And so you have to get that mindset of, you know, what's the what's the percentage of the whole? How much bigger can the hole be and your revenue still be suggest and really justify the move?

23:38Love it. Sharon Lacta,$100 million. Let's go. All right. Let's do it. Thanks for joining me on the$100 million podcast. If you've got value from today's episode, make sure you've subscribed and share this with all of your friends. Never miss a strategy that could change your business and your life. And remember, the fastest way to scale is to learn from those who've done it. That's what this show is all about. See you on the next episode.