Meet the Man Who Did Over $4B in Acquisitions - Roland Frasier 💵 EP 86

0:00The ability to sell a company for a multiple of EBITDA and do it many times. as long as I can find more companies to buy, I'm disinclined to hold because if I sell, I'm going to get 8, 10, 15, 20 years of income that day that I sell. So if I can sell four companies a year at a multiple of 10, I get 40 years of income. Whereas if I held them, I'd have to wait 40 years to get that income.

0:29Ladies and gentlemen, welcome to the Money Mondays. We are here in an RV motorhome parked in Carlsbad at a fancy resort because our next guest is throwing a high-end mastermind. I think it's like$55 ,000 per person that he's training. And at the same time, right down the hall, he's throwing another mastermind that's$42 ,000 at the same time, the same resort. So it's amazing. So that's why we have an RV motorhome for moments like this. He's so busy, he's throwing two masterminds at the same time. And so instead of trying to pin him down and try to come to a studio, the whole concept of the Motorhome for the Money Mondays is I can just drive to show up right into the valet, which we're at right now to interview Mr.

1:05Roland Frazier. This thing is so cool. Thanks for having me. So what I'd like to do is, if you could, give us the quick two-minute bio so we can get straight to the money. Sure. Started out in real estate as a broker, became licensed for insurance, sold policies to the people that were doing syndications, ended up realizing that the way to make a lot of money was to raise money. so I got licensed to basically be able to do that. Then went on as I was getting a degree in accounting and then going to law school, I started, I was buying and selling houses and then I was like, I wonder if you could do this with businesses too and so started buying and selling businesses and I've never looked back and doing it for longer than I'm going to admit on this show.

1:46So as you guys know, we cover three core topics, how to make money, how to invest money, how to give it away to charity. Roland you have a piece of 90 companies my number is probably higher now but you have a piece of 90 companies that I know of that you're either an advisor to you were an investor in or have equity in to help them scale how do you deal with the whole world when you have so much moving parts with all these companies to me the key is that you never spend time on anything that isn't in your area of joy and genius so I'm looking only to do the things that I'm good at and I want other people who have joy and genius in those other areas to be good at that.

2:21So for me, it's stay off the org chart. If I'm not, if I don't have a job title, I don't have a job description and I don't have a job. I like it. I got to use that one. As you guys know, also, this podcast is always going to be under 40 minutes because the average workout is 45 minutes. The average commute to work is 45 minutes. So this episode will be between 36 and 38 minutes for your listening pleasure. Now, Roland, when someone comes to you and says, you know what, Mr. Frazier, I would love for you to be on the board of my company or an advisor, my company or investor, my company. How do you make that decision when you've already got 90 plus companies in your portfolio to actually say, you know what, I'm going to work with this company or maybe even invest in the company?

3:00So, I mean, I think they're really the very first, most important thing is that you have an understanding of what your acquisition criteria is. And that's whether you're buying a company or you are buying with your time or money into a company, is the company something that is going to advance you towards your ultimate goals. So knowing really clearly what is my, you know, my ICP, my ideal company profile to, um, to be part of is the kind of the first critical path that I'm going to look at. And then it's going to be, what is the desired outcome that they have for having me involved in the company?

3:33And is that something that I can do within the constraints of the other things that I've got? And, um, and then it's PFM, which I got from Mark Anthony, who you know, which is, do I like the people? Is it going to be fun? The F and is it going to make the money that I need to make as a return on my time? So on the make money side, how important is it for you when a company first comes to you, that's an idea like on a napkin versus they're actually starting something versus actually having revenue? How do you decide, would you work with someone that just has a napkin idea? I would not. I don't do startups.

4:05So I think startups are great. And the people that do it, It's fantastic. The failure rate of those is higher than I would care for it to be. And my real area of joy and genius is in optimizing and taking the company to the next level and preparing it for exit. So the startup people are a different kind of personality and a different kind of risk profile than what I'm looking for. So at Elevator Syndicate, for example, you guys have heard me talk about Elevator Syndicate. We have 960 investors. And within that group, we raised$56 million over the last two and a half years. but as Roland just mentioned we don't do startups we only invest in companies doing at least $2 million in sales up to $20 million in sales, why?

4:47because we can pour gasoline in the fire if you're doing 17 million sales going from 17 to 34 is easy going from 0 to 1, really hard really hard to go from 0 to 1 million sales, 17 million to 34 million actually easy, just processes systems, fix this, change that pour some gasoline in the fire, if you're at 0 I pour gasoline, the floor just gets wet. Yeah. There's no fire. It's optimizing something that already has product market fit. That's the key, right? Did it catch fire? Can we pour gasoline on it in a good way to blow it up? Why would you say that companies, like, why do they need extra capital?

5:20Like, what does it do for them? I mean, usually without really carefully constraining what the capital is going to be used for, it helps them buy very nice Macintosh computers and lots of foosball machines and cereal bars. But yeah, exactly. So it really, to me, it's got to already have some sort of like, what's going to be the use of proceeds of the use of the investment, right? And then when I look at that, I'm going to say, is that going to increase sales, profits, or valuation? And so if it's not going to increase one of those three things directly, where we can track it back and say, we can measure that, what gets measured gets, you know, gets controlled, right?

5:55Gets managed. Is that what it is? That to me is the key. So I need to know what's it going to do for the company and is it going to have an impact on one of those three areas. So let's say Elevator Syndicate, we've raised$4 million for a company. They were at $17 million. They got to$34 million and they're thinking about exiting. What are the things that that company should do in preparation to have an exit? So it's a lot of things. There's about 32 points on our list, but basically does it have a predictable selling system that is replicable and scalable? Can they basically take capital and pour it into things that are already proven to generate sales and profits.

6:33And then what do the people look like and the pedigree of the people? Have they seen the numbers that we are projecting we're going to hit before? Because if they haven't, they think differently. Clayt Mask from Keep and Infusionsoft said that something that I really liked is that I say, who got you here won't get you there. Not just what, but who. And he said that basically what they've found is that at ones and threes, you need a completely different group of people and they can't take you past more than two sets of one and three. So if you're at one million, the people that got you to a million, maybe they can take you to three, but it's probably not 10.

7:08People that got you to 10 are probably not going to take you to 30 and then a hundred and so on and so forth. And it's so true. And entrepreneurs have a tendency to hold on to the people. You know, it's like, I feel loyal. I'd be disloyal if, you know, these are the guy, but you're doing them a disservice because you're promoting them into something that they're not competent to do. They're going to be frustrated. They will ultimately fail and failing kind of a bad and discouraging way. Whereas if you can say, look, you're, it's just like you and I, we're not startup people, but the startup people aren't the growth people usually.

7:37Sure. Right. So it's just different sets of skills. And if you can recognize that and say, typically that's a demarcation at ones and threes and, you know, in the growth pattern, then you're only going to invest your money in the people that can get you to those places. That's, that's kind of how I look at it. So let's say someone they're rocking and rolling, they got sales and companies start coming to them, venture capital, hedge funds, private equity groups are coming to them. How can someone that's the founder think about making a decision when it's time to exit or should they wait longer?

8:08Yeah, that's a tough one, right? And so for me, a lot of people come and ask for like, they'll have an exit offer from somebody kind of already. And to me, to make the decision is to say, what are you leaving on the table? And how comfortable are you with the risk that something that you don't see is lurking around the corner that might cause you to not be able to realize the additional growth that you're hoping to realize. If that happens, and I've watched it happen several times, then are you going to be kicking yourself for the rest of your life saying, I have a client that got an offer for 70 million for their company and came and said, can you help us with that?

8:45Should we take it? And I said, it depends. Where do you see the company going? Where we see this opportunity, this opportunity, this opportunity. We've got predictable selling systems. We believe we only need to pour more money into the predictable selling systems to scale what we've got. And we can be a$300 million company. And so, well, then you have to say, would I feel terrible if this company comes in and gives me$70 million and then they take it to$300 million? Will you be kicking yourself for the rest of your life? If you will, then you should probably think about staying with it. But also, what if something happens?

9:16I don't know, like a pandemic. And you're, you know, it couldn't possibly happen. And your$70 million goes to$20 million. or zero. How bad are you going to feel about it? That's kind of a gut check, I think. What's interesting is some people, when they sell their company for, let's say,$70 million, they actually take a little bit less but keep 20 % of the company, which is kind of the common number. Let's say that company now does take it to$300 million. Their 20 % is worth $60 million, which is almost what they got for the whole dang company. Or more. Usually more. The carried interest is usually more.

9:47Talk to me about what's called golden handcuffs. Staying with the company for one, two, or three years what are your thoughts about going in handcuffs it's it's tough again it depends on your conversation with the people that are coming in you're gonna if you have a carried interest of 20 and you're going to be managed by somebody else i've watched that happen multiple times they bring in uh young inexperienced mba type people right to manage you and your team who built this that to me is generally a recipe for disaster um one story on that is we had somebody that sold their company for 18 million.

10:22The company that bought them came and brought the inexperienced MBA management team in. Sales fell through the floor. The company was repurchased by the entrepreneur that sold the company for 18 million for about$300 ,000. And that happens a fair amount, right? Because then it's a non-perform in the PE, in the private equity company's investment portfolio, and they're going to churn it out. Instead, I think you need to be really careful if you're taking a carried interest to be sure that you are going to be able to directly influence how that 20 % that you kept is going to increase in value. And you need to be sure that the team that's acquiring has bought into the management team that you've already got.

11:02And they're going to be advisors and helpers, but they're not going to be making the management decisions until that carried interest is realized. I will tell you something that happened to us and about, I think, 40 or 50 companies that one of Blackstone's companies bought of ours is that that carried interest if it's measured based on profitability as it frequently is. So let's say we kept 20 % and we had a put call arrangement so that we could force them to buy us out after a certain period of time or they could force us to sell. And we agreed to a multiple of EBITDA, which is very, very common.

11:42But because of the pandemic, the value of the company had was zero because there was zero profits for two years. So Blackstone wisely said, we're buying, we're exercising all of our calls and we're buying everybody out at zero EBITDA times whatever multiple we agreed to and bought out like 40, 50 companies for nothing. Um, now we ended up working, uh, consulting for equity deal to actually end up better, but it's like, that was a, even like that happened just a couple of years ago for us. It's like that's a pretty big learning you know so you got to be so like if you're taking one thing out of this be sure there's a minimum buyout price or that they can't be bought out when ebita falls below a certain amount if you're doing something like that but i really really like the carried interest i mean it's it's been very good to us yeah so there's a friend of mine named cindy eckert she created the female viagra spent years trying to get it approved got this got that and when she did, she got bought out for$1 billion and they shelved it.

12:43And she came back and bought it for$1. That's like I said, it happens all the time, right? Isn't that crazy? $1 billion to$1. Okay. So as I mentioned, inside, you've got multiple masterminds going on, $42 ,000 investment,$55 ,000 investment. Why should people pay to be in masterminds? What does it do for their life, their circle, their business? Yeah. I mean, to me, network is everything. So I have not found a, a better way to network than to find somebody that's curated a group of people that are the exact people that I want to be with, like your a hundred million, right? That to me, that's, there's like the people that are going to invest and spend the money that it takes to be in a mastermind like that.

13:27And, uh, and, and go and travel there are going specifically with the intention of networking and meeting like-minded people. So the walls are down and I haven't found another environment where you get people who've literally paid to lower their own walls to meet people, network people, and almost all of those people are going there to add value to the people that are there. How do you determine speakers you come in and have teach to such high level people on these expensive high-end investment masterminds? Yeah, I guess it's two things and you do a brilliant job of you do a way better job of that than we do of having aspirational people come in and um and also who are the people who have been down the road that a hopefully a majority of the people in the mastermind have not yet been down but would like to so that they can basically be a mentor and say this is where this is the path i have taken i've seen where you want to go and i can show you how i got there and there are probably some lessons for that.

14:27There are people who would like to just be around those people because they feel that the status of associating themselves with a Damon John or Shaq or other people will be a good thing for them. And that's true, right? That's a social proof component. And I like that the people that are in the masterminds have made the conscious decision to make the investment and the effort to be there. So I think that answers the question. How do I get the speakers? I want the speakers who are basically going to fit either that status bill or they're going to fit the mentor knowledge bill. Got it. We also have had for many years, large format conferences like the Traffic and Conversion Summit.

15:05Walk us through the concept of having like a 10 ,000 person event. Why is it important for people to attend large format events in their industry or niche? Again, to me, it's networking. I don't think that it's for knowledge. As a matter of fact, most of the conferences that I think you go to, the learning isn't the thing. It's what they call lobby con. It's what am I going to do out in the lobby? Who am I going to network with? What are the hospitality suites that have parties that have the people that you want to meet? Or I find this to be very effective too, is like, I love if, let's say that, let's say that I'm looking to acquire a company that is in a niche software situation, like they're providing software solutions as a SaaS to pool companies.

15:51If I go to the pool company convention where all of the pool companies are going, probably all of those SaaS companies that are serving them are going to be exhibiting there too. And I can have conversations with them in a much, much faster in-person format than if I had to travel around the country and meet all of them. So I like it for that. But like actually just going for the knowledge, that's, I'd say, if you are looking to up level your skills as an employee, then you're going to go to the sessions. If you're looking to grow your wealth or advance your own status in terms of network or the quality of your network, there's no better place than that to do it fast.

16:35Does that make sense? Yeah. Now, putting on a 10 ,000-person conference like Traffic and Conversion Summit, it's a lot of moving parts. It is. I sure wouldn't want to do it. You have panels in so many different rooms and main stages and offsite parties and multiple days of conferences. How do you find staff members and executives that you trust to manage something that you can't watch and oversee all the thousands of moving parts when there's a 10 ,000 person conference? I mean, so how do you go about hiring? We could talk about for a long time. But my favorite way to do it is to acquihire. So I'm looking generally to identify teams that are already proven that somebody else has put together.

17:12and then we either acquire the company to acquire the team or we'll work to attract them. I want somebody that's already been there and done that. So can you walk us through AquaHire? Sure, yeah. So AquaHire is just, I'm going to acquire a company or a team from a company or a division from a company that has a team so that I can now basically have them do whatever it is that I want them to do. So great example would be, we wanted to have a software for one of our companies, but none of the principals were good at developing software for teams, right? That's a whole specialty. So rather than trial and error it for three years to maybe hopefully figure out how to hire a software team, we bought a software company and then used the team that we had acquired to actually create the software that we wanted to create.

17:53And you can do that across engineering, R &D, management, operations, systems, any of those things. So when you acquire a company, you're effectively hoping for the golden handcuffs thing to happen, right? Yeah, absolutely. How do you inspire them to stick with it for years? So typically it's culture first and then it's compensation, which then the best compensation would be some sort of combination of fixed variable based on performance and equity, which is usually options. So is there like a war room inside your house or like a war room inside your office of just like, here's the 90 plus companies I have pieces of like, how do you see and manage this world of stuff going on?

18:37So we have a dashboard that basically is a portfolio dashboard, and then each company has a company dashboard. We developed a thing called the scalable operating system for ourselves that we now market and sell, but basically it came as a result of needing something that we could look at and see red, green, yellow on each important aspect of each KPI, key performance indicator for each company that we have, and then as a portfolio. you. So with all these moving parts, you have masterminds, large format conferences, all these companies you're a part of, how do you decide what you're willing to put your money, time, and energy into?

19:15It's kind of the thing that I said as far as determining a company to acquire is, does it advance? I think there's 11 points and I wish I could remember them all, but basically it's, does it advance our overall goal? Does it complement an already existing asset that we've got in a niche that we've got? Or does it start a new niche that we want to get into, but we haven't yet? Does it meet the acquisition criteria financially for that? Does it meet, is it a cultural fit with the other things that we've got in our portfolio? You know, those are the things that, that are really probably the top of our list.

19:48So let's say you've got an employer, an executive, they've been with you for years and it's time for them to go venture off and start their own thing. How do you find someone to replace good talent quickly. Yeah. So in a worst case, like if we haven't done what I'm about to say that we try to do, what we try to do is we try to have everyone hire their replacement and train their replacement so that they can advance. Because if we say your advancement is somewhat tied to your ability to find someone to replace the position you have, because otherwise you're going to be too valuable where you are and we don't want to lose you.

20:23If we have not succeeded in doing that, then we're generally going to go to our network first and then we're going to go to LinkedIn and do a little bit of searching and then we're probably gonna hire a search firm. So once you've built a company and it's hit X amount of sales but you now have all this experience all this access to capital connections execution scaling do you have less of a reason like are you willing to hold on to company longer because it's Roland Frazier in your world or you're just like hey it's math I got to 26 million that's that was what I wanted. I'm going to sell it. Or do I wait on the 26 million and wait until I get to 80 million or 126 million before I make a decision?

21:00Because the capital is less important now. Yeah, it's an excellent question. And there isn't like a pat formula that we've got. We're less buy and hold people than we are flip people because the ability to sell a company for a multiple of EBITDA and do it many times, as long as I can find more companies to buy, I'm disinclined to hold because if I sell I'm going to get 8, 10, 15, 20 years of income that day that I sell so if I can sell 4 companies a year at a multiple of 10 I get 40 years of income whereas if I held them I'd have to wait 40 years to get that income so as long as there are more companies that I can take what I'm getting from that to acquire it makes sense to me that I would be trading more than I'm going to be holding long term So from a syndication perspective, what are your thoughts about what we do at Elevator Syndicate, but what are your thoughts about pulling together 30, 40, 50 people into a deal like 50K, 100K, 200K at a time, rather than going to traditional like a venture capital firm?

22:02you're going to get a way better deal raising the money yourself than going through a venture capital firm. So given that equity is the most precious thing that you'll ever sell in the business, I think that starting with a less institutional group of people is always going to be smarter. Unless the venture capital firm has connections that are going to advance you faster and you're just saying, I know I'm going to get less, I'm going to get a smaller piece of the pie, but because of the value that they can bring as smart money, it's going to ultimately be more for me, but it's almost never going to be more.

22:38So when a CEO has a co-founder and one of them begins to lose interest, how do you have the heart to heart with the founders? If you're on the board, how do you have the heart to heart when it might be time for one of them to move on? I think that the key would be that if they are performing at the required level of the KPIs for the job description. So if you've got a process for saying this is the job title, this is the requirement or set of requirements that you need to be able to occupy that slot. this is the performance that you need to be able to do as defined by the board or the company in determining what are the three things is how we do it that you're going to be accomplishing each quarter.

23:24And here are the KPIs to know if you're on track or not on track for accomplishing those. If they are meeting all those things, but unhappy, then I think the conversation is, Dan, it seems like you're just kind of unhappy now. What's going on? That's to me a heart to heart about that. And I don't know that move on is the answer, right? It might be, what can we change or how can we support you that would make you happy again? Yeah. And if the answer is nothing, then if they're hitting their metrics and they don't want to leave, there's not a lot that I would probably do about it. If that's starting to affect their performance as objectively determined by KPIs that are not being hit, then I think you have the conversation, you're not meeting your KPIs.

24:08And by the way, you seem really unhappy. Are you sure you want to stay? And then you put them on a PIP, a performance improvement plan. If they can't hit the performance improvement within the time, then they're going to be asked to leave. And if they won't leave that way, then they're going to be offered a way to find something else. So when you have access to these types of deals, is it too boring to invest into something that's real estate or stock market that are still good investments, but maybe they move slower compared to the action you have with these type of deals? I mean, yes, it's boring.

24:40But boring is good, right? Boring is good too, because I don't want constant adventure and turmoil in my life. I would like some islands of stability, you know, amongst the entrepreneurial madness. So I like those other things. For me personally, I lean towards real estate because it's where I started. And so real estate and entrepreneurial investing fits me better than, you know, some of the other things that I could do. But I also, like you, like fun shoes and things like i like alternative investments that i can actually enjoy yeah rather than just sit in a box and hope that it goes up in value so i'm going to walk you guys through really quickly what i was asking about i have this investment strategy for many years and i always talk about it stages events and you've heard on the podcast a few times called 40 40 20 i say 40 of my investments let's call it a hundred thousand dollars forty thousand dollars in low risk investments i want to make between five and nine percent for the year this is just to fight inflation.

25:35Nothing crazy to happen. It's boring investments. The middle 40%, that 40 ,000 in this example, that medium risk, I want to make between 10 and 30 % for the year. This is real estate, stock market, cash flowing businesses. And then the last 20 % is called high risk. It's my shot at glory. Fingers crossed investments. And if I get this right, I want to have 6X, 10X, 20X, something crazy to happen. And if I get it wrong or it takes too long, I'm hoping that the medium risk and the low risk cover the high risk. And so I will elaborate that on a different episode and go more in depth. But the concept of 40, 40, 20, you can change numbers to the type of investor that you are.