2243 - Smart Financial Foundations for Startups and Growing Businesses with Exbo Group's Nicholas Spezio

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1:05With us right now is Nicholas Speziot. Nick, you are the Managing Director and Head of Transaction Services at Expo Group. The website is expogroup.com. Nick, it's great to have you. Thank you for having me. Before we start talking about Expo and what you do, Nick, what do you do when you're not at work? What are you doing for fun lately? Well, I have two little babies, so I don't get out of the house too much. So what I tend to the most is my garden. And I have a very, very big garden with lots of plants and lots of fruits and lots of vegetables. And I spend a lot of time in the garden with that and all my flowers that I grow and everything.

1:51So where are you in New York? I am in upstate New York, not upstate like Westchester, New York, upstate like upstate New York. So Rochester, New York, between Buffalo and Syracuse, right on Lake Ontario. Yeah. So what's, yeah. Tell me about what you have in your garden. So gardening nerd to gardening nerd. This was something I picked up a few years ago and it is, it's, it's like meditation. It's like Zen to me. You know, I'm not, I'm, I, I don't, I, I, right now I'm my, I'm, I'm nervous about my high sense right now or my hibiscus, my hibiscus. I'm hoping I can bring that one back from the dead.

2:30It got a bunch of white powder all over it, which, you know, means pest infestation. So I'm hoping I can bring that one back. I'm not perfect, but tell me what you got in your garden. I'll do my best. So I have probably 100 garlic that I'm getting ready to get out of the ground in the next couple months. I have blueberry. Hang on the garlic because this blew my mind. uh i i cannot believe it wasn't until this year that i realized that you could take an individual garlic clove yeah throw it in the ground bam it becomes a bulb it is incredible and it's very very wild um it's also awesome i mean just the garlic that you get from doing it is just it's just amazing.

3:19I know I just weeded my entire bed. So I did it in garden beds last year, but I actually moved it to like actually do it out of the ground and created like a whole kind of pasture for it and just put a bunch of compost and mulch. And yeah, I'd spent a lot of time on it this past weekend, but garlic I have in terms of bushes, I have blueberry, blackberry, raspberry bushes in terms of vegetables that we're growing cayenne peppers jalapeno peppers bell peppers banana peppers we have onions we have broccoli um cucumbers san marzano tomatoes cherry tomatoes kale lettuce spinach arugula you don't start from you don't start from seed do you we do with some stuff but not not not everything um we want to though like we have a big apothecary cabinet and seeds and stuff like that.

4:14Oh, that's so cool. So, so super cool. Well, Nick, I could geek out with you for the entire episode on gardening and I might enjoy that conversation quite a bit, but let's talk about what you do with Expo. Who is Expo Group? Expo Group is a boutique advisory firm based in New York City. We have about 70 people in our New York office, in our Kolkata, India office. So we have two main offices and we have two main business units, we have what we call our corporate advisory practice, which is really our embedded finance office of the CFO practice, which really works with businesses that have just received their first institutional capital, or maybe their second round of institutional capital.

4:55So I think venture-backed businesses, seed series A, series B, or growth equity-backed business that really needs a more sophisticated finance function where owners have been focused on the product development, building the business, how it actually scales, but haven't really focused on really maturing and sophisticating their finance, that's where we step in. And we help them close the books from a controllership perspective, from a strategic finance and an FP &A and model build perspective, as well as a fractional CFO perspective as well. So we really sit in that finance seat. We work with the C-suite.

5:27We work with the board. We work with the investors. And we help them as they kind of build this business. And we're there as that staple in a finance function position. Well, that was going to be my first. I would assume that the investor groups appreciate you. And I wonder, like, I'm thinking if I'm an investor and I'm about ready to give a bunch of money to a startup, I'm going to make damn sure that they've got responsible people that are going to spend that money very carefully, very judiciously. I don't want to have to micromanage that as an investor. I'm not interested in that. Is that a common narrative?

6:09You hit the nail on the head. I mean, that's exactly it. If you're an investor, a venture investor, a private equity investor, really doesn't matter. You're cutting a check for a couple million bucks. You want to know what that money is going to be allocated to. You want to know what the burn rates are. You want to know how much of that is going to be spent on sales and marketing and on hiring. And you want to make sure that check is going to last as long as you expect it to. And there's not going to have to be another check cut before you expect it to. That's going to dilute your equity that you just bought into this company.

6:38So that's a big piece of our business is that office of the CFO for venture backed businesses, private equity backed businesses that really need that finance sophistication. So we have a really high-end team of CPAs and professionals that understand these businesses, how to operate them, and how to make sure we're catching on to things before they happen so that we can provide our clients with the intel and insights that they need to run their business most effectively without them having to worry about the day-to-day finance. Let us handle that. You worry about running the business. Yeah. Well, I'm hoping that maybe you could give us a little bit of a 101 on, let's say that, and maybe we could bring this down to someone that maybe they got a round of funding.

7:26Maybe they just got a big SBA fund or something like that. They basically got access to a bunch of capital. And they said, okay, now I don't want to screw this up. Like if you're speaking to, let's say, imagine you're speaking to a room of people that just, they all got a windfall. And they're now responsible for using that money very wisely to grow their business. Any high level, and I know there's so many different scenarios and so forth. But are there any general rules of thumb that you would advise to pretty much anyone in that situation? I mean, I think it comes down to what your strategy is and what you're trying to solve for.

8:07And, you know, it depends, again, on what your investors and what you've negotiated and what type of capital you've brought on. I mean, it really depends on what you're trying to solve for and what that use of capital is. I mean, are you trying to grow the business? Are you trying to hire more people? Are you trying to build a new product? So again, it depends on who your end user is and what stage of the cycle that you're in. So I don't know if that's a great answer because there are so many different ways that you can use this capital depending on where you're at in terms of your business and what you're trying to solve for.

8:41Yeah. Without your advice, let me ask it this way then. Without your advice, what are some common mistakes that you have seen folks do or you know, oh yeah, if they don't have us at their side, this is what a lot of startup people do. What comes to mind with that? So to kind of caveat one piece, so that's the one side of our business. I lead our transaction service business, which is buy side, financial tax and operational due diligence. So we're looking at it from the lens of buyers and investors in terms of what they look at from these businesses, how they operate, what their financials look at, what type of KPIs they have, how they're growing, what their CAGR is, all these sorts of things.

9:27So I think one of the things that early stage businesses can do once they get that capital is to really start to think about what the business is going to look like in the next five or 10 years, how they can put themselves in the best position to optimize this business when they do go to that next round of fundraising or when they do go to exit the business or they do go to sell. So a lot of that comes in the form of optimizing your operations, putting together good infrastructure, putting together good processes, getting the best people in place to help you run the business and making that investment.

10:01So I think a lot of times when we look at businesses and either the deal breaks or the investors back out, it's because there is some sort of operational deficiency. They sign the LOI. They think the business is generating X amount in revenue, X amount in recurring revenue, X amount in gross profit margin, X amount in EBITDA. And we get into the books and what the sellers have told the buyers doesn't agree exactly. There's more churn in the business. There's less recurring revenue. there's less adjusted EBITDA. So one way to get in front of that from at least a financial perspective is to set the financial controls and get that infrastructure set up off the bat.

10:41And so that's where it's a good investment. It doesn't ultimately solve for your product and getting the best in class product, but it does help you in terms of getting the books in place for an investor down the line. Yeah. And maybe we could explain that in a way. Let's imagine that you're speaking to someone that doesn't necessarily speak investment language. And, you know, they know EBITDA and, you know, the basics here, but let's say they're a bunch of baby brand new business owners and you were speaking to them. You're like, all right, listen up. I've been doing this a while. Let me give you my top two to three pieces of business.

11:17If you are looking to eventually grow scale, attract more investment, what would come to mind for that? I mean, the biggest thing is retaining your customers, having diversification within your customer base. You don't want to have a concentrated customer focus. That's a major red flag to our investors and buyers is, are they, are they a churning customers, which costs them more money to constantly find new customers and attract new customers. And there's a high customer acquisition cost. And then is the business focused or concentrated into one, two, five, a cohort or a small band of customers, which would present a material risk to the investor if they stepped in and one of those customers did leave.

11:59Those are two things. And then understanding in terms of their revenue base, is it diversified? Are they offering multiple revenue products? Do they have multiple revenue streams? How much of that revenue is diversified into recurring revenue versus non-recurring revenue versus one-time transactions versus more sustainable earning and really that quality of that earning? So So for a person starting a business, understanding what, excuse me, investors look at and understanding what they need to do in order to accomplish a sustainable business in terms of the sustainability and the quality of their earnings, as well as the quality of their revenue is a big thing in terms of having it be ready for an investor to come in.

12:42Quality of revenue. Yeah, exactly. Exactly. Yeah, that's really interesting. You know, we're in the, you know, and I suspect that there could be a lot of service-based businesses. Service-based is, that's a little bit harder to attract investment capital for, particularly if they've just got, you know, a couple lines of service. And I wonder, you know, like right now, you know, we are going from service to a product-based company. I've owned product-based companies before, a SaaS company, in fact, you know, we're migrating to. And I can see already why if I were an investor, yeah, I'd much rather invest in the product SaaS version of what we do here.

13:25I mean, it's just way more predictable. It's just safer. You spread risk all over the place. You know, it seems controllable. You're shaking your head, too. Like, yeah. I mean, those are the two industries we focus the most in is SaaS technology and business services. Business services is a really hot sector, especially with the advancement of technology. You would think that more people would be focused in technology with AI and things like that. But actually, service-based businesses, white collar and blue collar are both really, really hot markets right now, especially in the micro cap space in the US.

14:05It's been a little bit insulated from the macroeconomic conditions, the tariffs and things like that. So that's been really, really interesting to watch unfold. But I mean, speaking on behalf of the accounting and advisory industry, I mean, that industry right now is one of the hottest for private equity. They really want to accumulate and invest in accounting platforms to start to roll them up and bolt them together. So, you know, I think that part of it is like being a good investor and being a good founder. It's sort of very similar. And the same thing is you have to be a forward thinking person.

14:37You have to understand where the markets are going. And I think the beauty of a lot of the service based businesses is commingling it with tech enabled services. How can you actually use technology to streamline and create efficiencies within these service-based businesses? I was having a conversation with a guy the other day about how we thought AI would affect diligence providers and advisors. And he was a little bit nervous about what AI could do and what the market was trending. And I'm kind of on the other side because I'm like, do I really think AI is going to be able to come in and normalize these earnings and strategize and optimize working capital strategies and have those personal connections and conversations with both buyers and sellers to ease nerves?

15:24And I'm not sure AI is going to fully be able to do that. But being able to integrate AI to help with some of the analytics is still going to be an important part of this. Right. Right. Before we kind of close up, I noticed that I just noticed while we were chatting, you've got some Ryan Holiday books on here. I see the Daily Stoic there. Just for funsies, tell me what appeals to you from Stoicism. I'm so into it. Is January this year, I finally bumped into The Obstacle is the Way. And I'm like, this is the operating system. for my brain that it has been condensed. Like I'd been familiar a little bit with stoicism, but, but finally when I went through obstacles away, I'm like, wow, I get it.

16:14I get it. This is, this is a way to live. Uh, anything appeal to you from, from that? I'm sorry. It's the book. No, no, it's, I love it. Yeah. I mean, I try to read it, you know, every day. I mean, this, this one is the daily stoic. Yeah. Yeah. Yeah. I mean, it's the thing is, is I was recommended this book actually by a client. I saw that he posted about it on LinkedIn and the advice for me has been really grounding and it just is always very, very practical for me. And it helps to just keep me in the right mindset. I mean, there's just so much going on in terms of daily business and kids and the economy.

16:52And it just kind of grounds me in being able to control what I can control and release everything else. And it just, it helps me live in the moment. So it just really, I just, it, this is for anybody. Like I think anybody in business or life should read this book or just have it next to them because just so much good advice. I agreed. I keep yapping at my kids, my adult kids every day, every so often, have you read Ryan Holiday yet? My goodness, without it, you're making life way too hard in my opinion. And so it's just like, there's some things you can control. Focus on that. Things you can't control on.

17:32That's none of your business, man. You and I, we're going to have to do a podcast on this and guarding me next. Yeah. Yeah. I hear you. I hear you. All right. So Nick Spazio, again, we want to send people to expogroup.com. What would you recommend their next steps be? If someone's very intentionally been listening to this episode because they wanted to learn about the work that you do. Yeah, look, if you're a founder and you just raised some institutional capital or you're looking to raise some institutional capital and you're looking for some finance support, start understanding what systems you're on, how you think the business should run, how you want the business to run.

18:07Talk to professionals. If you're an owner operator and you're getting to a point where you want to sell the business, it's best to start preparing to sell now before you actually go to market, before you actually hire a banker. putting together that thought. And I like to kind of equate it to if you were a homeowner and you could get an inspection prior to actually hiring a realtor and that inspection revealed to you how much you could do to your home to improve the value or increase the value of your house. If you did this, built a garden, fix this in your kitchen, fix this. And it was EBITDA arbitrage for you, it increased, it was accretive to your value, everybody would do it.

18:50And that's the true value of understanding and lifting up the hood yourself or hiring good finance professionals to help you understand what your business looks like, identifying the risks, optimizing working capital, putting together everything before you ultimately go to market. It is an accretive process. It is value over cost, but it's just something that you should do. Never rush to market, like make sure you're prepared, talk to the right people. Yeah, I like it. Awesome. All right. Nick Spezio, again, managing director, head of transaction services at Exbow Group, the website, exbowgroup.com.

19:24Nick, thanks very much for joining us. Thank you, Josh.

19:32Thanks for listening to the Thoughtful Entrepreneur Show. If you are a thoughtful business owner or professional who would like to be on this daily program, please visit upmyinfluence.com and click on podcast. We believe that every person has a message that can positively impact the world. We love our community who listens and shares our program every day. Together, we are empowering one another as thoughtful leaders. And as I mentioned at the beginning of this program, if you're looking for introductions to partners, investors, influencers, and clients, I have had private conversations with over 2 ,000 leaders asking them where their best business comes from.

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