1509 – Making The Entrepreneur Journey Worth it with Arkona’s Ryan Tansom

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0:54With us right now, Ryan Tansom, fellow podcaster. Ryan, you are the host of the Intentional Growth Podcast, and you are also founder and partner with Arcona. Arcona is found on the web at arcona.io. That's A-R-K-O-N-A dot I-O. And Ryan, thank you so much for being here. Josh, thanks for having me, man. I appreciate it. Absolutely. So, yeah, give us an overview of what Arcona is. Listen, anytime I see fractional CFO services, I'm like, yes, your lips to God's ears. Because when you hit that stage in business, you don't have that financial leadership. It is, I mean, you're just kind of hamstringing yourself.

1:39I'll explain it like this, Josh. And it comes from my background with my dad and I having our family business. We had a$20 million business and we still ran the business like this. Revenue, gross profit, what's in the bank account? Revenue, gross profit, what's in the bank account? And you just go and you go and you go. And depending on what's in the bank account is depending whether you're investing or you're cutting. And so what we do now, Josh, is all spawned out of my experience turning around and then helping sell the family business in 2014. And laundry list of things I wish I would have learned, man.

2:09My dad started our family business from the ground up. So he scaled from zero to 20. We then had to turn it around, sold in 2014. And we did not have a CFO. But we did not view and run the company like a financial asset, which is what my podcast is about, which is the laundry list of things that continues to grow of how I wish I would have known all this stuff, Josh. So the actual CFO services that we do, and so our Kona, we've got three things. We have the Intentional Growth Academy, where we teach how to view and run the company like a financial asset. We have a financial dashboard offering that is like a financial roadmap towards that target equity valuation with scenario planning.

2:46So it's not just like your income statement. It's actually like an actual model that helps people plan towards that long-term goal. And then the CFO services is like that easy button where then they can kind of just get the whole package. All of this spawned out of like my old experience of like, what the heck happened? Like, what were we marching towards? What's the Super Bowl? What's the actual goal? And how do we make the entire journey of being an entrepreneur worth it? And a lot of people don't know how to answer that question, man. Yeah. And what stage of business are we talking about? What would be the indicators that a company is ready for financial leadership?

3:23Because it might be that, let's say someone is operating more of a solopreneur type entity, and then they start bringing in a couple of operation team members. okay so now we're starting to get a little momentum here um and where might be the appropriate place to say you know what i need to be making better financial decisions based on data not just my gut feeling yeah yeah it's a great question man yeah well i'd say like at what point during your entrepreneurial journey do you want to make sure if you're on track to making it worth it if you want if the answer is yes and i want to know today i'd say like what's your plan like when you're an entrepreneur like dude josh i saw this stat like a couple months ago 26.2 percent of privately held entrepreneurs in the u.s don't pay themselves a salary if you're not if you in that case you better well be growing an asset that's worth something because why else wouldn't you be taking the salary like so my point is is like there's this crucial inflection point i think kind of specifically honing in on that question of like, should I build an asset or should I have this job as a solopreneur is whenever you get to that point, figure out what's important to you.

4:38So here's where I'm going to, I'll expand on that is like, I always joke around, like not joke around, but it referenced like this one to$2 million hamster wheel that people get into where, yeah, I'm finally now making 125 grand. I can pay my bills, whatever it might be. I just insert whatever salary is your, like I'm paying my income, but then I have all these like kind of quasi assistants call it like 10 employees, or you could be two employees as you're like your staff. And it's you as the business. And it's like, okay, well then how many times people heard this advice? Well, Josh, why don't you just go hire someone?

5:11You're like, dude, I'm finally making enough money to pay my bills. So there's this, when I say hamster, where there's this inflection point of finally making money for income, but how do I scale above that? So the decision B is like, do I build up the infrastructure, the systems process procedures to create an asset that's going to consume capital and invest it, which means that you might have to go from 120 salary down to 60 for a year to then afford that investment to get to the point where you can launch or you can tap your line of credit, get an investor, whatever it might be. Or the other thing is like, you know what?

5:48I don't want to create a valuable asset. And I'm okay sucking all the cash as much as I can out of this. So it could be a consulting firm, a dental practice, a physician, a digital agency. I don't care what it is where you're the specialist. The moment that you're solving for annual income, where you're reducing expenses and sucking cash out of the company, you're not thinking about how can I grow an asset that will be transferable and sellable at some time. And there's this like death valley, Josh, where like you're going to have to pile all the money back in to grow that asset. And if you don't know that that's what your goal is, you might be just spending money on random stuff and wake up and your company is still not worth the journey.

6:30And you forewent all of that cashflow you could have had because you didn't get the return. Is that making sense? It's like this inflection point where it's trying to figure out what to do. What's the end goal? Yeah, right, right. And boy, do I get it, you know, because it might be because, you know, the startup process, they might have, you know, lived really lean and there might be personal obligations because I wasn't getting paid, you know, for that first year. And so I get the desire to like, okay, I need to get my head above water personally, financially. So I'm going to take every dime I can so that I don't feel that personal stress.

7:11And yet there are other mechanisms. And, you know, listen, do you mind talking just a little bit about productive debt? And, you know, why that's such a valuable tool. We, you know, for our fans that are listening to this and you live in a country where you have access to capital, um that is one of the strengths of of a really great being in a country with a really really great economy is that you have access to capital and it's meant to be productive and this was quite a shift that i need to make in my head meant to be yeah yeah because we think of debt normally we think well that's bad um but in business i mean you know if you're under you know if you're under leveraging your your ability opportunities you're going to stagnate potentially yeah yeah absolutely I'm happy to, I'm going to give a quick story of like how I think about this.

8:11And then I'll put it in the context of a business, Josh. So productive debt, like, what does that actually mean? Is there was the article that just came out in the wall street journal this week of millennials racked up. They, they, they added 30 % to their debt. So it's now$3.8 trillion. And there was these stories of people and I'm a millennial, God forbid, you know, I'm on the first, the first year, I believe, but it was because these people were still going to Disney world for 15 grand while they lost their jobs. And it's like, I'm sorry. Like, so that's called not productive debt. Right. So like you went from 200 grand in salary to a hundred combined income, and you still decided to do everything you're doing the productive way.

8:53It would have just isn't a basic analogy is I'm going to go get a certification or whatever it might be to become more valuable in the marketplace. So if you took on 15 grand of a certification for education, so that way you could go back and make more money, that would be productive. And in business, it's the same thing, Josh. It's like, what's the ultimate goal? And so when you actually tie three financial statements together, and I say, what's the ultimate goal? Again, I'm a context guy, Josh. So it's hard for me to answer a question without the context and the parameters. It's like, if you said my goal is 5 million in revenue, I'd say, well, I owned a$20 million business that lost$940 ,000 in 09.

9:31And if we would have sold the business, we would have owed the bank money. That is not a good goal. A target equity valuation of your company, where you have the choices to sell it or monetize it or hire someone that's called choices, you're building an asset that gives you choices. That's the right goal in my mind. Because then you can figure out, should I give up equity to a key executive? Should I launch a new product or service? Everything thing and synthesizes against that point B. You say, okay, well, when and how can we do that? Can we afford to make that decision or that investment? And then you look at the cash flow statement between now and that target equity valuation, you say, we run out of cash, Josh, in September, October, and November of 2023, because our growth is consuming the capital.

10:19So let's say we have a$20 ,000 shortfall in those three months, six to eight months from now. And you say, well, okay, Josh, let's say you were the business owner. I'd say, Josh, your plan, we've got a shortfall in these 90 days. How much do you like the plan? By the way, you're taking distributions and we got to pay our taxes. So would you like to forego those distributions in those 90 days? And then we don't need to tap any line of credit. Or you can keep your line of, you know, you can keep your distributions. we can tap your line of credit for those 90 days, that's a form of debt, right? And also you, so think about that decision tree.

10:54Josh puts more money back in, tap the line of credit, get an SBA loan, get a conventional loan, get Mez financing, get private equity, get venture capital. You're just going up the risk profile of who's going to fill that gap. I do not care what you do, Josh, or anybody else. I only care that it's going to get you to your goal. So like, I don't ever want to tell you what kind of capital or debt you should take on. It is all put into context to why are you doing that? Like, what's the road? It's called a bridge loan because it's a bridge to somewhere and it should be bridged to more productivity, more cashflow, but people lost sight of exactly the question that you asked.

11:39Yeah. And I'm thinking about as well, just every decision that we make. I remember I was having conversations like, when we don't, when we, well, let me ask, let me just ask you this question, right? is like the decision-making process on, you know, whether it's a marketing opportunity, whether it is, you know, kind of doubling down on, you know, social seems, it feels like, it feels like we're getting too good. You know where I'm going with this, right? It's so good. Yeah. How, how deceptive can our feelings be? Well, I personally deceived myself more times in my lifetime than I could ever count.

12:24So like, and every time I regretted it, Josh. I'll pull from a book that I was rereading. So ITR Economics, they're a sponsor for my quarterly economic and M &A updates on my podcast. And he wrote a book called Make Your Move. And it's from 2010, right after the crisis. And he was talking about, they have these things called leading indicators, Josh, that they're like taking in from economic data as well as your sales data and inventory. It's like pretty elaborate stuff. But what he says, there was a quote in there. He goes, cause they're just a data machine. They're an economic consulting data machine.

12:57And he's got this quote in there that says every single recession over the 45 years that he's been doing this, the entrepreneurs that he brings on are always optimistic. And then when he plugs his, their numbers in, it's like, you've been declining month over month for 14 months. And the person was like, it's going to be great. It's always around the next corner. And so like, I've been doing that for 10 years with building this business since I sold. and it almost didn't work multiple times, Josh. So it's like to look at data based on the goal, I find it so therapeutic for entrepreneurs and leaders to go, this is what I said was important.

13:37This would make it worth it from an income perspective, a wealth creation perspective and a enjoyable life. Like, are you enjoying your day and your time? So I say that because like, if you have that context, So point A, point B, what your target equity valuation you want to be, the income you want on the way to that valuation, and then that role that you want to evolve into, then you have a circumstance that you have a decision that could impact or have a ripple effect. And it's like, I don't know, Josh, based on what you want, what do you think? But it's the data and the story in that context, Josh, that I think allows people to then eliminate those feelings.

14:22Because in that context, you could say, hey, this product line, we can spend 20 % of our lifetime value of that customer in sales and marketing. My old industry is 21%. When I took it over, it was we were doing 26%. We had to reduce our sales and marketing expense as a relationship to the total gross profit of that client. Having that data is like, what are we doing that's wrong? Either the salespeople suck, the marketing's not working, like we've honed in on the problem. But there's a parameter that says we can only spend this much based on how much we make in our products and services in order to get to that goal.

14:59If we want to spend more, the goal might be further out because we might not have that cash flow. So the feelings are fine, but let's validate them, synthesize them against our goals, and then against our trade-offs, and then the person can make the right decision based on what they want. So Ryan, I need to know, how does Arcona work? In what way? Well, so someone's been listening to our conversation like, all right, I like this guy. All right. How can Arcona help me with financial leadership? So we have Intentional Growth Academy. It's actually how Arcona started as an educational company, Josh, because I just wanted to teach people all the stuff that I kind of messed up 10 years ago.

15:42So it's a virtual academy, as well as an in-person two-day bootcamp. So it's based on these five principles of the intentional growth principles and how to view and run the company like a financial asset. So there's different ways to engage the virtual or the in-person. It's roughly a call like five grand for the in-person and then a couple grand for some calls and some coaching that led to our second service, which is we have a financial dashboard offering, Josh, where we actually build this financial model for someone. So we actually onboard them into this financial dashboard. This financial model comes with a couple of calls each month from, think about it like the, not a controller that's saying, Hey, by the way, your debt to equity ratio is X or your receivables or Y it's like, sure, that's fine.

16:21But like, we're viewing the company from like a board or an investor perspective, our CFOs. And we're looking at the map saying like, okay, Josh, should you buy the building, hire that person, do that thing? You know, whatever it is, because we're keeping you on track. So two calls, dashboard offering, it's a couple grand a month. Then there's the easy button, which is the fractional CFO services, which is a minimum of five grand a month. We are CFOs to get five clients. And then what they do is they sit on the L10s or the weekly management meetings, internal people reporting to them, they're interfacing with the bank, the CPA firm, They're doing open enrollment insurance.

16:55I mean, it's kind of the three things is teach them how to fish, we'll help you plan, or we'll be the ultimate fishing guide. It's really depending on where people are at, but like there's so much content out there. I just want people to like truly figure out like what make, what will make the journey worth it? Cause it's different for everybody. And is there a great place to kind of start where someone's like, okay, well, listen, love the podcast. uh do you have any long-form content that you'd recommend or just you know somewhere where someone can kind of start digging in the website arcona.io so we have an academy page with five videos on the five principles we got an overview video so i think there's probably an hour worth of videos on that page yeah there is five videos on the financial checklist page on how to set up your financials and josh i actually did it with excel so people could look at legitimate if they had a finance director or something that they can just look at the videos with the person internally and be like, Hey, let's build this to see if their team is capable.

17:55So there's videos on that. And then there's a discovery call. People wanted to schedule an actual, if they were like, okay, I actually feel confident that I want to see if this would be the right fit. It's a complimentary call. So it's no big deal. We just want to make sure that people are interested enough to make it worth their time. Yeah. All right. So Ryan, your website is arcona.io. That's A-R-K-O-N WNNA.io. When you go there, first off, also click on podcast, subscribe to the intentional growth podcast. What will some, what's the transformation that will take place when they listen to your podcast, your show?

18:34They'll become more intentional. Ooh. And if they don't, I'd be really, I would be failing. Colossally failing if that's not the case. I think one of my favorite things, Josh, honestly, is when I get, I'll get emails that are like huge of like started listening a couple of years ago. Here's where I was at. Here's how I think it's really thinking differently, thinking about their trade-offs, thinking about their decisions differently based on where they want to go. So it's just bringing context to everything. Yeah. Over nearly 350 episodes as of when we're recording this. Congratulations on that.

19:12You've been at it a while. every Thursday comes out at 4 45 in the morning. I haven't missed a week. Awesome. All right. Ryan Tansom again, a partner and a visionary and podcast host again, intentional growth podcast. And of course the website, arcona.io Ryan, thank you so much for joining us. Josh, thank you so much. I appreciate it.

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