1646 – Digital Businesses vs Brick and Mortar Businesses with Nate Lind

0:28Hey there, thoughtful listener. million in revenue. Just head to upmyinfluence.com and watch my free class on how to create endless high-ticket sales appointments. You can even chat with me live and I'll see and reply to your messages. Also, don't forget, the thoughtful entrepreneur is always looking for guests. Go to upmyinfluence.com and click on podcast. We'd love to have you.

0:58with us right now Nate Lind Nate you are a broker you're a business advisor you help create amazing exits you are found on the web at natelind.com Nate it's great to have you that's me thank you so much for having me on here Josh yeah absolutely so I kind of did a a somewhat mediocre attempt at introducing you. Let's kind of hear the full story of what you do. Yeah. So I'm on my third career. First career was in real estate, buying and selling houses and mortgages. I learned a lot about transactional work as an intermediary there and also an investor. Then I spent about a dozen years as an e-commerce entrepreneur.

1:44I sold$109 million worth of vitamins and supplements to consumers around the world. And I met the founders of website closers at a mastermind I was hosting. And if I was just in love with the idea of the mergers and acquisition space, at that point in time, I'd already exited a couple of different ventures. And I thought, well, shoot, maybe I should. And I had this massive network of entrepreneurs that were joining my masterminds. I was thinking, man, the deal flow here would be incredible from my own network. So I joined them as a broker. I ended up buying the Puerto Rico franchise. I moved to Puerto Rico and now I'm one of the rainmakers.

2:19I've got two associate brokers on my team and we're wheeling and dealing, lower middle market and small business, e-commerce, digital marketing, podcasts, anything digital, tech software, you name it, we sell it. And yeah, we're one of the largest franchises of the firm and we're shaking and baking all day long. Yeah. A lot of time when you think of M &A, you might think of more established legacy, brick and mortar type businesses. They have assets and that sort of thing. But But we start talking about e-com, service-based businesses, content business. Tell me more about some of those use cases or experiences you've had in those areas.

3:00Yeah, that's all we sell. We have built a buyer's network. We've got over 100 ,000 buyers. We're signing up 500 to 800 a week to our email list. The firm's founders, Jason and Ron, started the company 13 years ago. We've sold over 3 ,000 businesses. We've got 100 for sale right now. There's a lot of market action going on for these businesses. And every time we have a new listing, it's kind of like the McDonald's, Wendy's, Burger King effect. Anytime someone comes to one of them, they're looking at one of the others. So I was just on the phone with a guy who had a water bottle company, e-commerce company.

3:34And we've got a stainless steel water bottle company for sale right now. It's making$1.5 million worth of trailing 12 months earnings, and it's for sale for$7 million. And I told him, we've already got that one listed. if we get you listed, like the 150 buyers that have signed an NDA to that one are surely going to be interested in yours too. So it's really just been kind of a slow push, slow grog over the years, but we found that our buyers love these digital businesses because most of them are able to be operated remotely. And so that opens the buyer market. You know, if you compare this to the brick and mortar universe in Houston, your pool of buyers is Houston buyers.

4:10But for us, We have, you know, US-based companies that are selling to people internationally or to anyone anywhere in the US. So it really opens the pool of buyers. And I think a lot of digital software tech, internet-based business founders are oblivious to the market right now. And even though there's all this doom and gloom and inflation, this and, you know, recession that I'm still getting 150, 200 buyers for every listing. And we're getting a huge influx of interest because these businesses are the way of the future. And even these old and institutional investors are like, dang, I need to get something that's digital or that's like growing.

4:48And the pandemic put, you know, e-commerce and anything around e-commerce on the map as like the savior of retail. So everyone's looking at it right now. If you've got an internet, tech, digital, SaaS company, you know, or software company, you're actually in high demand. You may not even know it. What sorts of exits are you seeing? And specifically, obviously, you used the term multiples as, you know, a term that's used quite a bit. So with those types of companies, what can the range be on multiples? And, you know, maybe some are going to be smaller, some are going to be a little bit larger.

5:25What are some trends you see around that? Yeah, that's a really tough question because it's so unique per company. On our marketplace, we've seen everything from 1x to 10x of trailing 12 months seller discretionary earnings. What does that mean? That's what you're making, what you as the owner, what are you actually pocketing? We're not talking about taking out the expenses of your Tesla, your cell phone, that that's not real income to you. We're actually adding that back in. We're adding in your salary. This is before taxes. This is before interest. If you've got a loan, we're not counting that against you.

6:00So I literally have just done a video on my YouTube channel about what the heck is seller discretionary earnings because most people have no idea. They keep asking me what's their multiple. The better question to ask is what's your earnings? because your multiple means nothing if you don't know what your earnings are. But we'll see anywhere, a business that is really stagnant and stale, it's having a hard time actually getting any sales going on right now, it's not worth very much. But businesses that are growing, man, growing businesses, you're talking 4X to 6X of trailing 12 months earnings.

6:33So if you're making a million bucks, now you're a$4 to$6 million company. If you're making 10 million bucks, now once you're getting bigger and bigger, your multiple starts to go up as well. There's 27 factors that go into what your multiple is. And I've got a seven video series on my YouTube channel that's coming out. The first video is going to drop in the next week or so. And then I've got subsequent videos where I break down your financials, your marketing, and your operations. And I also provide a self-assessment Excel file that you can download. And then you can kind of watch these videos and then assess yourself on what your multiple is.

7:08The short answer to your question is, I got no clue because I don't know which company I'm talking about. But generally speaking, my companies that I'm selling or my clients' companies, I'm tending to sell most of them in the 3.5 to 6X multiple range. I've got a podcast right now for 15 million bucks. That's a 7X multiple. And we've got people like the haters out there are like, there's no way it's worth that much. But I have in my inbox a full price LOI. We haven't closed yet now. So I'll state that. But there is active buyer interest. And they are willing to put the farm on the line to buy these digital businesses.

7:47For someone that's listening to our conversation, and they're a few years out before their exit, what are the kinds of things that they should be doing now so that they can get that exit that they're looking for? You softballed my book. So literally to all of your audience, I'm giving away my book for free. It's only about 130 pages, but I get into what's your multiple, who's buying, how much do they pay, and the answers to 12 other critical questions you need to know to sell your business for top dollar. This is an exit planning book in 130 pages. There are people that are charging ridiculous retainers.

8:22I do this for free all the time. It's not that complicated. Some simple things that you want to do is you really want to focus on your profit. I just had this conversation with a guy the other day. He's got a$12 million gross sales company and almost no profit. I'm like, oh my God, you need to get profitable. Like cut any excessive headcount that you've got, cut any excessive expenses. He's like, well, I've been building for growth. I've been putting money into technology. I'm like, okay, that's great. And now stop it. Now make yourself profitable. So the first thing you really need to do is you need to focus on your profit first.

8:57A second thing that you should be doing too is think about how to create some barriers of entry between you and your competitors and do that. If you're an e-commerce company, go ahead and get some design patents, get some trademarks, get something that will create some defensibility for yourself. If you're a business to business, if you're a service company or service agency, and I sell digital marketing agencies all the time and other business to business agencies all the time, some key things that you can do is start to put in place longer term content contracts with your clients. So you've got a contractual relationship for your services, as opposed to just month to month.

9:34And go back and look at your clients. So who's been with you for a year or two? Who's been with you for a while? Go back to them first and say, I want to put you on three months and three-month contracts or six-month contracts. Grow those things out as much as you can. A couple other things that you can be doing too is start to think about how are you going to transition the company to somebody else? Are you going to be working in the business long-term? Or do you want to step away? If you want to step away, start delegating things now. Start hiring the people that you need to. And I'm not talking about$150 ,000 Yale grad.

10:05I'm talking virtual assistants, for crying out loud. I sold a$25 million company. It was two founders and 15 virtual assistants. $25 million. It doesn't have to be that complicated. So there's some quick things. And I get into a bunch of stuff. I can talk about that. I mean, you read the book. It takes you an hour to read it. I've got an hour's worth of conversation just going on there. Or I'm on Audible too. You can listen to me on Audible. I just saw that. So yeah, at natelind.com, you just click on the red button, get your copy right now, takes you into Amazon. If you've got Kindle Unlimited, I just downloaded it for free.

10:37Audiobook is$5.99. So not a bad investment in its own right. For someone who has that on their radar. What is the process like when someone starts getting pretty serious about, okay, time to feel like we've got really good phones, we've got good framework here, and they want to begin that process with you? What do those initial conversations sound like? The first step is like what you would do with real estate. How much is your house worth? So we do the same thing here. How much is your business worth? I do free consultations, which includes a business valuation and a sales plan all day long. You can book a call with me.

11:16nateland.com. That's what I do. So if you've got a company that's two years or older, it's making at least a quarter million dollars in profit. I can do a free business valuation for you. If you're not there yet, feel free to submit a form. I'll probably have one of my associates help you. I tend to focus on the larger deals, but everything starts with how much is the company worth? Because that's really what inspires like, okay, am I motivated to actually sell this thing? Like, am I going to get some dollar bills to make it worth my while? And usually I'm involved in the largest liquidity event of my founders lives my clients lives and it's this is you have to be really tender and careful with this because if you go out with them crazy number you're going to get completely ghosted by buyers and if you go out with too little like you're shortchanging yourself you're just blowing away cash so it's just like in real estate it's a broker's price opinion i'm giving you a valuation that's i i do an assessment of your seller discretionary earnings which talked about a little bit ago and then also compare that to other businesses like yours that have sold that's if you're not talking to somebody who's doing comparables based on like sales you're talking to the wrong person and we're the 800 pound gorilla for these digital businesses we sell so many of these 300 a year we sell so there's really nowhere else to go if you're in this space some folks will go to like you know um investment banks or some will go to you know smaller brokerages out there you're really doing yourself a disservice because you want to be on the biggest marketplace, just like if you had a, you know, a half million dollar or a million dollar house or a$3 million house, are you going to list it for sale by owner?

12:45Or are you going to, you know, like do some self-listing thing? Or do you want to use the person who's already selling your houses in your neighborhood for the most amount of money on the MLS or that MLS? Yeah. You know, so it kind of interesting. So you have obviously the association with website closers. And so just at their website too. I clicked on businesses for sale, business listings, and it's kind of interesting just to kind of flip through just to see kind of what's going right now, what's being sold or what's being listed, kind of give you some ideas. But I see a lot of cashflow anywhere between just under$200 ,000 to 2 million.

13:26And you can kind of see exactly these are going to be likely, Nate, priced pretty accurately. So this might give you some ideas to our friend that's listening to our conversation on the kind of things that you might expect. Yep. Yeah. You can go on there and look to see what's already listed. And then you can copy and paste that into the contact form to me and ask for more information. Usually that's where we go. We're a performance-based sales firm. So just like a realtor, if we don't sell it, we don't get paid. So it's not really in our interest to list things that are crazy, high priced or to try to list stuff that's like basically not going to sell or will only sell with like some sort of a seller finance situation because we're incentivized to get cash for our clients.

14:10That's what our clients want. They want a big exit event. They want to put some money in the bank. And I don't know if any of your audience members out there have listened to or read Rich Dad, Poor Dad. That's where it all started for me. I wanted passive income and boom, 20 years later, it's like, dang, I don't have a passive income portfolio the way that I would like it. So let me focus more of my attention on it. And you need to have some dollars to be able to put those at work for you. And having a big exit event like this is the best way to create a work chest of money to go out and buy those passive investments.

14:45Yeah. Just out of curiosity, Nate, in your experience, what do your sellers end up doing after they sell? Obviously, you keep tabs on them, But what is that first year like after exit? Yeah, they usually take a sabbatical or a vacation for a while. It may be one of the biggest or longest vacations of their lives can be anywhere from like three to six months. And then they typically are back at it. If they have an exit that's under$10 million, they're usually building another business or they've already thought about that before they've sold. And I get a lot of people that they're selling. There's three big reasons.

15:20You're bored, you're burnt out, or you've got a burning passion and you want to go focus on it. And so for that third group, you want to sell the business, you want to get some good money for it, but you are dying to get after something else. Like there's something else that's driving you. And for them, they're right after it. And it's really inspiring to see what people are doing because they definitely take some time off and a lot of people will pay off their houses. A couple of them I've heard have bought some exotic sports cars. And then the majority of them get back to work or they've already started it.

15:54And they just now are focusing all of their attention on it. When you've got an over$10 million deal, typically you were involved in that transaction for a couple extra years. It's pretty tough to sell over$10 million and not be involved for two to five more years. those big businesses, you know, in the private equity and hedge funds and family offices that buy those, they want a commitment from the seller to ensure that that business is successful. And they're not going to put, you know, eight figures on the line, unless they've got that commitment in the form of multiple years from the from the owner.

16:26A transaction like that, you're likely not just okay, here's the keys. See ya. No, I've done a couple of them. But yeah, those are rare. The majority are you've got to be involved for a while. What does that involvement, I mean, I mean, I guess the involvement can look like anything, but what are some common, like how does life before and after that transaction change for the seller? That's a great question. A lot of people are concerned that their work life is going to get skewed more towards work. That's never the case. The buyer wants you to work only on what is the highest and best use of your time.

17:01And usually They will have already some back office support for accounting and for technology and for other aspects of the business that maybe are consuming some of your time and they're not particularly your passion. A lot of my founders, they're real creative and they want to spend money doing new product development. They want to or they love the sales cycle. So on the service and agency side, they're involved in the sales process still or at least in the strategy of that. And they tend to focus more on that. And most of the time they're able to carve off or peel back some of their work efforts.

17:37So if they were working 40 hours a week before, within a month or two, they're working 30 hours a week and then down to 20 hours a week. and depending on what their agreement is with the buyer, they may end up moving into a board of advisors sort of role and just be strategic. Some of them end up only having, you know, conference call every quarter. And then they're just involved, like literally on the quarterly, you know, meetings for, you know, for the meeting of the board members. And, but you're right. It can look a variety of different ways. If I can't think of a single story where someone said I'm working harder now than it was before.

18:14I've never heard that from any of my clients instead of exited. Yeah, nor have I, as I've talked with folks in exit. So yeah, I believe you. Your website, natelind.com, the book is Maximum Exit. You can grab it for free. Just click on the red button. That'll take you immediately there. You can grab it. Like I said, I've done it. It's gotten my device right now. Can't wait to read it. Nate, this has been fantastic. Did I cover everything? Was there something else that someone that's listening should do, take action. Obviously book with you if they ready for that serious conversation. Yeah, definitely.

18:48If you have an interest in what is your business worth, I don't have any obligation. I love doing business valuations and getting to know what businesses are out there. But if you want the free copy, you can for sure, I'll take all your money all day long. You can go to Amazon and pay them. I don't really get much money from it. But if you want a free version, go to natelynn.com forward slash gift. G-I-N-T. Oh, there we go. My gift to your audience members for the small price of an email address and a couple of follow-up emails and to get to know you a little bit, the book is free. If you never wanna hear from me, then go on over to Amazon and you can buy it from them.

19:19They don't share any information from me. I'll never know who you are. And when the time is right, you can reach out to me. If the time is never right, I'm hoping you get a little bit of additional information that can help you on your journey. I have no incentive in doing so, but there is a form, I'm just looking at that right now. There's a little form field to our listener. Do me a favor, let Nate know that podcasts like this do matter. They're great for connecting people. There's a form field that says, which podcast did you hear me on? Go ahead and put the thoughtful entrepreneur in there.

19:48And I'd consider it a favor. Yeah, that would be awesome. I've gotten quite a few people that do are thoughtful. They type it in and now I know exactly which one. And that encourages me to reach back out to the host that had me and say, okay, well, we had 20 submissions. We probably need to have you back on there. There could be some more questions here. Yeah. Nate Lind, And again, author of the book Maximum Exit, the website natelind.com forward slash gift. Get the free book Maximum Exit. Nate, it's been great having you. Thanks, Josh.

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