Buy Then Build Your Business With Best-Selling Author Walker Deibel

J:
Welcome to the BiggerPockets Business Podcast show number 68.

Walker:
If you’re doing a startup and you go out and raise, you say, “I’m the guy. Here’s my idea. I’m the guy to execute. This is my bill of goods I’m selling you.” When you go out and sell a company, you say, “I’m out. I’m out. Here’s the company. You can do it. It’s going to transfer all to you.” So the valuations are historical rather than future based.

J:
Welcome to a real world MBA from the School of Hard Knocks where entrepreneurs reveal what it really takes to make it. Whether you’re already in business or you’re on your way there, this show is for you. This is BiggerPockets Business.
Hey there everybody, I am J Scott, I’m your cohost for the BiggerPockets Business Podcast. And across from me in a different room, but sort of across from me on the camera is my cohost and beautiful wife, Carol Scott. How’s it going today, Carol?

Carol:
Doing really well. And can I tell you the coolest thing? So, the other day, I was on Amazon, well let’s be clear, pretty much everyday I’m on Amazon, but this was the coolest thing. Right on their homepage, they, Amazon, had a feature from some guests that we had last year. It was Episode 17, Nikhil and Alejandro, who were founders of Back to the Roots were featured on Amazon’s homepage. And it was a big feature about a small business doing good. And it was just so cool to see because I’ve seen them featured in the Costco Magazine before and to just see them on Amazon the other day just made me so happy and so thrilled for their success, because they’re great people who started an incredible company and they just keep growing and growing. So, that was my cool little discovery over these past few days and I had to share.

J:
It’s a business doing good that’s also doing well, so-

Carol:
That’s right. Got to love it.

J:
Got to love that. That’s awesome. Well, this week, we have an amazing episode for you as well. Our guest this week is a guy named Walker Deibel, and he is the author of one of my very favorite business books, I’ve talked about it before on the show, it’s called Buy Then Build. And this is a best selling book that Walker released in 2018. He actually started writing it in 2013. And Forbes Magazine called this one of the top seven books all entrepreneurs must read. And it really is. If you are looking to become a business entrepreneur, if you’re looking to get into business, this is absolutely a must read. This book is used by multiple well-known universities as a textbook for their Entrepreneurship Through Acquisition MBA courses. And it’s just an amazing book. And it’s the textbook that I’ve used for my acquiring businesses.
So, today, Walker is here, he’s talking a little bit about the book, but he’s also talking to us about business acquisition. He starts by telling us why we should be buying businesses as opposed to starting businesses from scratch, because a lot of us have this dilemma, “Do we buy a business? Do we start our own business? What are the pros? What are the cons?” And so he walks us through that. He walks us through the process of buying a business and then he talks to us about what we can start doing today to get prepared to buy our first or our next business.
So, just an amazing interview. Make sure you listen to the end where Walker tells us all about why now, right now, is such a great time to be buying a business. And then he also talks to us about the biggest mistakes that we as business buyers should avoid once we make that purchase. Again, an amazing jampacked episode. I’ve wanted to have Walker on the Podcast for about a year now, so I am thrilled that he was here with us today. Listen to the episode, check out his book Buy Then Build. For more information about Walker and about the cool things that he’s doing, check out our show notes at biggerpockets.com/bizshow68. Again, that’s biggerpockets.com/bizshow68. Now, without any further ado, let’s jump into our episode with Walker Deibel.

Carol:
Walker, thank you so much for being here today. I’ve got to tell you, J is such a mega super fan of your book and we are so looking forward to digging in and learning from you today. So, thank you so much for being here.

Walker:
Carol, thanks so much for having me. J, thanks so much for being a fan and letting Carol invite me here today, I [crosstalk 00:04:26]- I’m a mutual fan of BiggerPockets, and so, thrilled, thrilled to have this conversation.

J:
Awesome. Well, anybody that I’ve talked to over the past year since we started this Podcast knows I’ve been trying to get you on the show. For those that don’t know, Walker is the author of this book that I’m holding up if you’re watching it, if you’re not watching us, it’s called Buy Then Build. I believe you wrote it in 2018?

Walker:
Published in 2018, yeah.

J:
Published in 2018.

Walker:
Probably started in 2013. It took a while.

J:
I’ve been there. I get it. Buy Then Build is essentially the Bible for anybody that wants to go out and buy a business and start generating income through entrepreneurship, business ownership, buying a business, so I’m really excited about this interview. But let’s start with, what brought you to the point of writing this book and just give us a quick backstory. What led to Buy Then Build?

Walker:
Yeah, thanks. I mean, the first part is that, it’s kind of like I always knew that I was going to be an entrepreneur, whatever that looked like. Growing up in St. Louis, Missouri, I wasn’t necessarily hanging around a bunch of Silicon Valley entrepreneurs, it looked very different where I was. But the thing is, is that, I did a couple of startups and along the way, I just sort of learned that starting from scratch was sort of punishment for not understanding statistics. It’s just the odds that you’re going to make it are really against you. And we all feel a little bit like Han Solo, maybe Carol or some kind of analogous female character, but it’s like, “Don’t tell me the odds. I’m just going to go out and do it.” But the thing is, is that, even if you’re successful, so few entrepreneurs actually ever made a significant scale or actually have the impact that they sought to achieve.
Even after making it, there’s this other hurdle of, “Is it what I was trying to do?” In 2002 to 2004, I was getting my MBA at Washington University in St. Louis here and I kind of had this realization. And I think it’s something that most MBAs have before. But that said, I knew I wanted to go into business, I knew that I was interested in entrepreneurship, but what I found was, it’s like the MBA was actually created for middle management at large organizations.
And as entrepreneurship became a part of the curriculum, like turn of the millennium, it was really sort of a Silicon Valley swinging for the fences kind of flavor that started. Quite literally, Facebook coming out of Harvard. These are the kinds of influences that had on the MBA curriculum. And I sort of knew that I might have some kind of shot at one of these big impact, billion dollar idea things, but the odds of me wanting to run a small business was something that was much more approachable, something that was much more likely should I not succeed.
And sure enough, after my first startup failed in 2004, I went out and tried to buy an existing company. I knew there was some way to do it, I didn’t know how, I went out and started looking for resources and I just came up empty handed. There really wasn’t anything out there. And so, in 2004, I got the idea to write the book, and it wasn’t until 2013 or 14 that I actually started writing it after a number of events occurred.

Carol:
Got it. Okay, great. So, tell us a little bit more in the book that you did finally publish in 2018 after you wrote it for that five years after that amazing experience, you recommend not starting a business from scratch, but instead proceeding to buy one. So, why is that? Why should we be looking down that avenue rather than starting from the beginning?

Walker:
Yeah, Carol, thanks so much. I touched on it just a little bit, right? We all know the saying, “10% of startups make it.” Right? Well the thing is, is that 4% of companies in the United States exceeded a million dollars annual revenue. That means 96% of the startups that actually succeed don’t ever actually achieve a million dollars in annual revenue, which again for me, coming out of MBA school, a million dollars in revenue was so small that I was ignoring it, right? The first company I acquired was doing eight million in revenue just to start to put it in perspective. I started actually lowering my standards once I started understanding the stats and how meaningful it was to get to a million in revenue and how many people don’t achieve that.
And so, the analogy here, I call it entremetrics. The analogy is sabermetrics. I don’t know if you know this, in baseball, it was the way that the Boston Red Sox won the Super Bowl, like it was the Brad Pitt movie, the Moneyball, right? The concept was, we can’t compete. We don’t have enough money to compete with getting these sluggers, these people coming in swinging for the fences, hitting home runs all the time.
So, what we need to do is, get down and dirty, get smart, what are the metrics that actually win the game, and getting on base was the metric that they started to recruit the baseball players. And so for entrepreneurs, what I challenge you to do is start by getting on base. Start by getting existing revenue. Start by getting existing infrastructure. Start by getting existing profits. And when we go out and we actually raise money for startups, what we do is, we raise based on the future valuation. We say, “Look, we’re going to take this money you give me, we’re going to go build this amazing infrastructure, but I’m going to sell it to you today at a discount, which is how you’re going to make money Mr. And Mrs. Investor.”
And so, you get this money and you go out and try to build the infrastructure from scratch, okay? We’ve covered the odds of that actually happening are not great. But, then if you go out and say, “Look, I’m going to buy this existing infrastructure,” then you’re buying it based on a historical valuation, a existing business because the owner of that business is leaving. If you’re doing a startup and you go out and raise, you say, “I’m the guy. Here’s my idea. I’m the guy to execute. This is my bill of goods I’m selling you.” Right? When you go out and sell a company, you say, “I’m out. I’m out. Here’s the company. You can do it. It’s going to transfer all to you.” It’s historical.
So, the valuations are historical rather than future based. It’s based on existing cashflow. And because it is a smaller company, we’re not paying these PE ratios out in the publicly traded markets. So, you’re talking about, let’s just say on average a 3X, okay? A 2 to 4X, 3 to 5X, somewhere in there depending on the size you’re looking at.

J:
And when you say 2X or 3X or 5X, you’re talking about two or three of five times earnings? Net income? What number two or three of five times what number are we looking at there?

Walker:
Yeah, so the number there is, it’s going to be either adjusted EBITDA or sell discretionary earnings. Let’s not run down the rabbit hole of definitions, let’s just say it like this, this box that is this company generates a certain amount of discretionary earnings for the owner. That discretionary earnings is the number we’re trying to define. What is the amount of money that the owner of the box gets? And then you take that and you multiply it somewhere between two and five depending on a lot of different things, and that translates very much to, in this example of 3X, three years of earnings, right?

J:
Got it. Okay, so that makes sense. Basically it’s to use a very simple term that doesn’t have a ton of meaning, profit. So, we’re looking at two, three, five times profit, which means if we buy a business that’s generating … if we pay three times a years profit, net income, to buy a business, in theory, that business pays us back in three years. So let’s say we buy a business that’s generating $100,000 in owner profit every year, we pay $300,000 for that. In theory, if we keep that business running exactly the way it’s been running historically, we should get our money back in three years.
And I know we have a lot of real estate investors on the how, and when we talk about this from a real estate perspective, we often talk about the term called capitalization rate, and that’s if you pay cash for something, essentially how many … what’s the percentage you’re going to return on it every year, this is about a 33%, in those terms, this is about a 33% capitalization rate, where in real estate these days, we’re generally getting four or five, six, seven. Maybe if you’re lucky, eight or nine percent capitalization rate.
So, just from an opportunity standpoint, buying a business sounds like a tremendous opportunity, you get your money back in three years. [crosstalk 00:12:45] For those that are watching, he’s thinking about the nice way of telling me I’m wrong.

Walker:
No, no, no, that’s exactly right. And the thing is that’s exactly where I was going with that, it was cap rate. And I think that the other thing that acquisition entrepreneurship does is it actually brings the equity buildup economics of real estate to entrepreneurship, right?
When you go and buy a building, you put whatever, 20% down, 80% in debt. And then the people that are there renting from you, it’s their dollars that actually build up your equity of that other 80%, so it brings that equity buildup. Then you get this insane cap rate, but there’s one other element in the comparison to real estate that I think is critical, and that’s the appreciation rate.
In real estate, appreciation is … you guys would know better than me. What is it? What’s average appreciation? Like two or three percent a year?

J:
It’s about inflation, so somewhere in the two to three percent a year is about right in general across all markets.

Walker:
Yeah. I think that the interesting opportunity here is that, a lot of people approach real estate as a passive income, passive investment. Most people that I know that get into real estate saying, “Yeah, that passive bit, it’s not that passive. Once you turned it into your business, it’s very active.”
So, if you think of acquisition entrepreneurship as just owning the fact that it’s active and you’re saying, “I’m going to go in and I’m going to do this.” The thing is, is that what you have control over is the appreciation rate. If you can grow that business say, 10% a year, your cap rate as you’re saying, starts to go up over time because you’re pushing the value of the business north as the revenue is going north and as you’re growing the earnings as well.

J:
I love that. I love that. And I assume very much like real estate, the two ways you increase your valuation are you increase the revenue, the money that’s coming in, and you decrease your expenses by improving management and running things more efficiently, right?

Walker:
Yes. That is an industry, it’s called private equity, what you just described.

J:
Okay. Yes.

Carol:
Kind of along that same vein, Walker, I’m curious to know for our listeners, should we be if we decide to go down this path of buying rather than building from the get go, should we be looking right off the bat for businesses that are stable? Or is it a better idea to look for a business that requires some, in lack of a better term, a term renovation or rehab, some massive improvements to make those profits and turn it into what it could potentially be?

Walker:
I love that. Let me just say that, the book is called Buy Then Build. And the reason that’s important is because I don’t want people to hear Buy Then Chill, right? And so the thing is, I always say, “Start from scratch,” rather than, “Build.” A lot of people will say, “Buy versus build,” and it’s like, “No, you buy it and then you build,” as opposed to building from zero, right? So it’s semantics, I understand, but it’s also really important to understand that the build part is critical because it looks at what it is that you bring to the table.
And so the thing is, is that I think that a lot of potential buyers will actually start going out and looking at businesses like a menu, and they’re going to, “I’m going to order the chicken.” Or, “I’m a vegetarian, I’m going to order this.” Or whatever, “The pasta.” Whatever it is you’re going to eat. And you’re looking at what’s on the menu and you’re going, “Well, what’s a good business?”
Look, there’s attributes, there’s all of these things, but the most important thing, which is what most people don’t even really think about is, what is it that you bring to the table? You are going to be the CEO of this company on day one after you buy it, right? So, the thing is, once you’re the CEO, you have to figure out what is the growth opportunity that you’re actually able to capitalize on?
When I started writing Buy Then Build, I didn’t want to be the guy. I didn’t want to be like, “I’m the guy and here’s my story.” I really wanted to be like, “This is happening and there’s people around me that are acquiring businesses, and so I’m going to start interviewing them.” And so I start interviewing them, and I’d be like, “Well, what were you looking for?” Or whatever, and they would all say the same thing. They’d say, “Well, I’m just looking for the same thing everybody else is I’m looking for …” and then they would say something that was totally different from somebody else. Whether it was, “Oh, I’m just looking for a very healthy company with growing revenue year over year.” Or, “I’m looking for something that’s got a million dollars in earnings and it’s a complete disaster.” Or, “I’m looking for a SaaS business.” Or, “I’m looking for one of these eternally profitable companies in a decentralized marketplace that has very low growth opportunity but really high margin of risk.”
And all of these things, I ended up putting into what I call the AE Matrix, the Acquisition Entrepreneur Matrix. And there’s basically four quadrants like any good business book, I’ve got a four quadrant model and it covers all of these different things. It’s the eternally profitable, it’s the turnaround, it’s the high growth, and it’s the platform. And the concept is, in all of these, it’s simply to understand what it is you’re looking at after you take the time and understand what is it that you bring to the table? What are the attributes that you can use as leverage to grow the business and operate the business, what do you want your daily activities to look like? And then you find a business, the growth opportunity that’s right for you.

J:
I love that. And I want to dig into that more, but before, I do have a quick question that’s a little bit more relevant. And I also want to say, by the way, you talked about the fact that you wrote this book by talking to other investors. That’s one of the things I really love about this book. As you read through it, it’s not written like a lot of, let’s call them guru books that we see these days where it’s written from the, I know everything and there’s one way to do things and you have to listen to me standpoint. This book is really written from a humble standpoint, there’s a lot of ways to do things and here’s what’s worked for a lot of people, here’s what’s worked for me.
And so, that’s one of the things I love about this book, is I didn’t feel like I was being talked down to, I felt like I was being educated. So, thank you for that. But here’s a big [crosstalk 00:18:43]-

Walker:
There’s not any harm. But [crosstalk 00:18:44] on that, which is, when I wrote this book, I spent a few years writing it as we covered, I wrote most of it between 2:00 AM and 6:00 AM in the morning, and so the thing is, I always thought, “No one’s written this book. It’s not out there.”
And so all of a sudden I started thinking I was a little crazy. And it was like, “When I put this out there, is everyone just going to understand all of my poor logic?” Because now it’s in black and white out there, and instead, it’s been quite the opposite response, so thanks for saying that. Every time I hear that, it’s a shot in the arm. Appreciate it.

J:
Absolutely. Here’s the question I’m getting a lot these days, is okay, we’re dealing with coronavirus, COVID, a lot of businesses are struggling right now. We don’t know where the economy is headed, we don’t know where business as a whole is headed. Is now a good time or a bad time or a neutral time to be going out and implementing the strategy of buying a business and then improving it?

Walker:
Okay, I’m so glad you brought this up. I believe that there is a huge disservice going on right now. I think that a lot of people that are being introduced to the concept of acquisition entrepreneurship are being told, “Oh man, there are all these opportunities. COVID is driving all these people into whatever.” Well, okay first of all, let’s go back to the AE Matrix. There’s four different quadrants of opportunity. And all of these people are saying, “Oh, all these business owners, there’s less than 90 days of cash in their business. They’re all running out of money. There’s going to be all these disasters and all of this opportunity.” Let’s talk about that for a second.
First of all, if that’s happening, which it’s not because the SBA keeps printing money and basically bailing out small business, but let’s just say that they stop and some people end up over their skis. Well, you’re talking about, number one, the biggest category of business owners are baby boomer. These are people that haven’t had debt on their books in a decade. Everything’s paid off, it’s basically a cash cow and they’re operating their business. There’s very little dire need for this kind of thing.
And what I want to tell you is, working as an advisor or broker, I find that if I want to take something that’s a turnaround and try to take it to market, you’re going to hear crickets. The people that are out there saying, “Look, buy a business with no money down, buy this disaster,” whatever.
Number one, they’re ignoring how the private capital markets work altogether, so it’s bad information. Number two, you’re also highlighting the number one least attractive asset class to brand new buyers who all just want to buy retail, right? So, there’s a huge disconnect between what’s going on. Is it a bad or a good time to buy a business? I think that, yes.
In other words, there’s sort of a confluence going on right now, and one of the things coming together is that capital has never been easier to obtain. The SBA is lending out up to $5 million in cash to any potential business buyer even on a cashflow based loan. So, access to capital has never been easier and there’s never been more inventory out there and waiting to come on market.
That being said, when I do business brokerage work, it’s all in online businesses. And online businesses has been the asset class of the last 90 days, so a lot of people are, they’re staying at home, they’re worried about getting laid off or whatever and they’re starting to get introduced to this idea, and they’re starting to realize, “Oh, I want that four hour work week. Maybe I could just buy something.” So they go to Quiet Light Brokerage or wherever and try to find a website for sale. And I think that’s a great way to go.
I said to my colleague, “This is such a great time to buy a business. That like, there’s so much money out there. Interest rates are super low. And he said, “You shouldn’t say that, because we absolutely don’t actually know that.” And I was like, “Okay.” I guess there’s fluidity in that, because there is risk when you buy a business. And so, these things are all about timing. Is it right for you? Is it right for the business? I think a lot of people live to that adage of, you make money when you buy. I think that it’s almost the opposite when you’re buying a business because you’re looking at that growth opportunity and the cap rate as you put it, is so high that I don’t worry about paying a little bit too much. I want to pay a fair price, and I don’t want to grossly overpay, you know what I’m saying?
You’re talking about months usually. It’s a difference of three years and two months versus three years and four months. Who cares? I don’t, right? If it’s the right opportunity, it’s the right time.
I think that a lot of people that have had businesses that have declined in COVID are not going to be open to selling. And the reason is because they’re all like, “Listen, I’ve owned this business for 20 years. I repeatedly sell $3 million in revenue every single year. And as of right now, my trailing 12 months is looking like two million. Why on earth would I sell right now? I wouldn’t. There’s no reason to do that. What am I going to do? Take a big seller note? Take an earn-out? Uh-huh(negative). No, I’m just going to hold onto it. I’m going to make the cash and go from there.”
One last point just to pull around, is that, let’s say that I’m stuck. Let’s say that I’m someone that’s like, “Oh my gosh, I’m out of money. I’m out over my skis, I’ve got to sell.” Okay, look at that from the buyer’s perspective. What the business needs is working capital. So now I’ve got to buy the business and I’ve got to find another 90 days or six months of working capital. That’s just cash. That’s not that I got to come up with, that’s not like a bank loan, that’s not like, “Oh, I need six months of working capital to work this business out of COVID.” Where’s that come from? It’s such an unattractive deal to a buyer. And I think there’s a lot of attention being given to really bad deals that aren’t frequently-

Carol:
Great. Thanks for that clarification.

J:
That was a great answer. And I’m one of those people that the last few months, and honestly I’ve kind of changed my tune the last month or two, seeing where things have been heading with COVID, with the stimulus money, with extension of PPP loans and all of that, I’ve kind of changed my tune the last month or two, but I’m one of the people that’s been saying for the last five or six months that now may be a fantastic opportunity. And so, I appreciate you coming on here and challenging that and giving the opposite.

Walker:
And yeah, I mean, it’s driving my nuts actually. And it’s like, “Okay, give me a really big microphone. How do I really say this?” One thing that I want to point out is, I’ve got a railing company. I’ve got a couple of companies right now, but one of them, we make custom fabricated aluminum railing that’s powder coated. You guys have it as you’re near saltwater. No one has that in St. Louis, right?
Everyone’s got this rickety stuff, this steel that rusts, so it’s a really premium differentiated product in this geography, so I buy the company. And what I want to say is, since COVID, first of all, my online business is exploding. I’m not a lucky guy. I’m never on the right side of luck, and right now I’m like, “Oh my gosh.” My E-commerce is probably up 40%, like 38% and my offline manufacturing company, you’re talking about the SBA came out and said, “Listen, we’re going to completely forgive six months for the payments and we’re going to completely pay all of your labor for the next 90 days, or 60 days I think it was, and we’re going to pay your rent.”
So actually, we’re sitting in a position right now where we have more cash than we’ve had in the last five years. It’s a really strong time. And of course people are, they’re going to their lake houses, they’re staying home, they want to do home improvements, so revenue’s up. Revenue’s up, cash is up, expenses are down, I’m not selling. In fact, maybe I should because I can get a higher price right now to one of these buyers that’s learning about all the deals.

J:
And it’s actually true. I mean, I’ve been saying for a few months now, that I expect all these deals to be coming online. It should be easy to find businesses. All these business owners that are just desperate to get out and they’re willing to handoff their businesses if you don’t fire their employees, or they’re looking to retire. And I’ve been waiting, I network with a lot of brokers, I talk to a lot of other business owners, I look at a lot of the business brokerage sites. And just like you’ve been saying, I haven’t seen the deals. If anything, values been going, or prices have been going up and it’s really been perplexing, but I think you just did a great job of explaining why we’re seeing what we’re seeing and why it really shouldn’t be that perplexing. So, thank you for that.

Walker:
Absolutely. Absolutely. And I think there’s also some nuanced difficulties there to evaluate. For example, let’s take online just for a second. There’s a large amount of people out there, believe it or not, that don’t buy online. They just don’t. It’s a huge percentage of the population. COVID has started to change their habits. And so places like Amazon, we’re building habits right now that is just going to improve that business. But if I’m selling face masks … No, let’s pick a better example. Toilet paper. If I’m selling toilet paper online, boy I had it great in March and April, right? You’re not going to buy the toilet paper business, but what do you do with Amazon? It’s a bad example because it’s publicly traded, so imagine a … I can’t think of an example that’s not confidential.
I love skincare for example, so say there’s a skincare business. The reason I love it is because people, if they are rubbing things on their face, they don’t want to change brands, right? So let’s say they buy a new brand of whatever, acne cream or whatever, they’re going to still buy that later. They’re building the brand. And so, how do you start to value some of these things that are getting them, versus things that you’re looking at going, “Well, COVID’s external. It’s short term. I don’t know when it’s going to end, but it will end at some point and we’ll go back to normal.” It’s like two separate opposite things going on right now and it’s really hard to evaluate.

Carol:
Yeah, I can see how that works. I’m curious though, so we talked about now as much as ever is an absolutely great time to buy for a number of reasons. The SBA is-

J:
Well, now may or may not be a great time to buy.

Carol:
Well, sure. If it is, right? If [crosstalk 00:28:07]-

Walker:
I think it is. I think it is. I mean, interest rates are low. Interest rates are low, SBA is lending. I think that there’s variance in the targets that you’re looking at. And you can always make a mistake. It’s more like the mistakes are just a little different right now. Does that make sense?

Carol:
Absolutely.

Walker:
In terms of getting capital and buying a company, I love right now. I love it.

Carol:
That’s awesome. Let’s say I wanted to jump on that, and you mentioned earlier, it’s our job in buying then building to determine what we can bring to the table and what we can do to make that company grow. How do I begin to identify that and then identify potential businesses that would be a good fit for me or for our listeners. How would they go about determining what those things are that they can bring to the table and what might be a good fit for them?

Walker:
Yeah, it’s a great question. I’ve got something called the three A’s, right? And it’s attitude, aptitude, and action. And it’s basically, attitude is really one of these things where inevitably, I give a talk, and when I talk specifically at universities, it’s always an elect, it’s never a required course, and so people show up and it’s like, “Okay, all these people came here of free will.” So I’ll ask, “All right, before I start talking, what questions do you have?”
And every time, someone stands up and says, “How do I know if I have what it takes to really be an entrepreneur or a successful manager?” And then someone else will stand up and say, “I’m closing tomorrow. How do I do day one?” And I say, “Okay, both of you, I’m going to talk to you after class.” That’s outside of the ball curve, right? We need to stay focused. But the point is just starting at the beginning and looking at what makes a successful entrepreneur.
If you look at all of the historical research and data in psychology that we have around entrepreneurs, you can whittle it down into one sentence and it’s, a intelligent individual committed toward a good opportunity. Intelligent because there’s a corelation between IQ and success, just because we have more data on IQ than anything else. EQ appears to be approaching rapidly, but we just don’t have the research around it yet. Committed to a good opportunity. It’s not a great opportunity. It’s a good opportunity. So for me, it’s the level of commitment that someone is willing to make to executing on this. That’s sort of step one.
And then you go into attributes, and that’s all about what are you good at? What do you enjoy doing? For example, what can we best sell with a Podcast? That might be a great question for you guys to ask. Now, is it BiggerPockets subscriptions? That’s a great business. That’s a really great business, because it’s going to be asset light, it’s going to be subscription revenue, it’s going to be recurring revenue. And again, I don’t know that that’s what’s going on here. Full disclosure, I have no idea.
But the point is, that you ask yourself, “What are my strengths? What are my weaknesses?” And you want to make sure that your weaknesses are addressed in the target that you’re looking at. I mean, are you a sales person? Or good at online marketing? Are you great at operations? Are you great at financial engineering? I mean, all of these things are very different value propositions in terms of what you bring to the table.
And so, just identifying what are your strengths, what are your weaknesses, and then identify what … your daily activities. When you see yourself as CEO of this company, what are you doing? Are you in a factory with 60 employees managing team meetings? I’ve done that. Are you working the four hour work week running at website? I’ve done that too, it’s usually not four hours, but it can be. But the thing is, not if you’re growing is the point.
But the point is, what are you actually doing? Are you running a Podcast? What is the thing? And so, figure out how you want to spend your time, figure out where your strengths and weaknesses are and then just make a commitment. And get smart, understand the business model and just start going.

J:
Okay, so let’s say I’ve decided that now is the time. I’m excited to do it, I’ve analyzed myself, I’ve said, “Here’s an industry that I want to pursue and I’m ready to go out and buy a business.” What is my, not my first step because I’ve already taken the first steps, what’s my next step? How do I start to find businesses? What’s my acquisition strategy look like? We talk a lot about business brokers, do I need a business broker? What does a business broker do for me? How do I find one? Do I not need a business broker? Where do I start if today I decide, “I’m ready to buy a business and I’ve picked an industry or set of industries that I’m ready to look for.”

Walker:
Yeah. I would even encourage you to pause and not think about industry, but rather [crosstalk 00:32:26] segment. Is it product, service, online, what category, but stop short of industry, okay? You can say, “I’m looking for a distribution company,” and not know what industry you’re in for example. So, let’s back up.
A couple of things here. I think that first and foremost, probably the biggest website with businesses listed out there is BizBuySell. It was acquired by the Wall Street Journal like 20 years ago.
Here’s the problem with these open marketplaces like that, is that, it’s been a while since I’ve been looking for a job, but probably dating myself, but the big ones when I was really looking were like Monster, Careerbuilder, these types of sites. I know they’re different now. But the point is, there is all of these jobs listed. And I know a lot of people, I don’t know if I’ve ever met anyone that’s gotten a job off of one of these job sites. Just as an analogy, do you guys … Let’s just pause for a minute. Do you, Carol?

Carol:
That is so true. I’m sitting here listening to you about that and I’m just thinking back, I’m like, “You are so completely spot on.” I never really took the time to think about it, but you’re absolutely right. Hilarious.

Walker:
I used to remember being in my 20s and especially after the tech bust, I was just applying for everything. It was like I’m sending out like 14 cover letters a day and just whatever. That has nothing to do with it. It’s all about networking and trying to come up with communicating what you’re looking for and where you had value and all the rest of it, right?
So the concept with these open marketplaces is that, the vast majority of companies that go up for sale don’t actually end up selling. I’ve heard different numbers, I’ve heard as high as 80% of companies listed for sale don’t end up selling. We talk about that, but it’s a different subject, so let’s not go there.
The point is, is that if your company is a company that is not going to sell, it will definitely end up on one of these open marketplaces and it will stay there as inventory and hang out to die. So all of the businesses that will never sell are on BizBuySell. Now, take another role that we all kind of know, and forgive me because I forget the exact wording. It’s something like, “You are the average of the five people you hang out with.” Is that right? J, I see you nodding. [crosstalk 00:34:40] It’s the number five?

J:
Yup, that’s the one everybody throws around.

Walker:
So the point is, if you’re the average of the five people that you hang out with, even Buddhists will say, “You don’t actually exist.” Some segments of Buddhism, they don’t think you exist. You’re simply a reflection of the people around you, and that’s what makes you, right? The thing is, is that when you’re on these open marketplaces and you’re looking for these businesses, you’re looking at, “Okay, I’m looking at this one. I’m looking at this one. I’m looking at this one.” Well, you just looked at two that are never going to sell. And so, by the time you get to the third one, you’re already tainted. You can’t even see what it is that you’re looking at.
And by the way, you haven’t done the three As yet most likely, so you don’t even know what you’re looking for. You don’t know if you’re a vegetarian. You don’t know if you want the steak, you have no idea, so it becomes really overwhelming and you just spin your wheels. So the thing is, is that for me, and I’m not saying that there’s not good deals on those sites, I’m just saying they’re impossible to find even if they’re right in front of you because you haven’t done the work. And the thing is, there’s proprietary deal flow and then there’s broker deal flow. Proprietary means, “I’m going out, I’m shaking hands, I’m meeting people for coffee, I’m doing Zoom calls, I’m making it happen, I’m posting on LinkedIn, I’m just letting everyone know that I’m looking for deals.” We’re doing outbound outreach.
And the second is broker outreach. I am a big advocate for broker outreach. Proprietary outreach is another, in my opinion, a little bit of a myth. I think it gets a to of attention because people are like, “Oh.” They look at the downsides of brokers, which is there’s more likely to be competition. There’s more likely to be a broker in the middle that’s being compensated on the sale price of the business, and so you’re not going got get that deal, right? I’m not going to get that make money when I buy kind of thing.
What I’m going to tell you is that, I spent years trying to do proprietary outreach, mostly because I couldn’t get enough broker deals to satisfy my demand. And what happen is, number one, every entrepreneur knows the truth, which is your business is worth 20 times earnings, okay? And it’s because we bleed and we sweat, and we don’t see our families, and we grind, and we do all of the things. We go through the learning curve on the electric and be like, “What is this?” Or the janitor, or the … We do all of the things.
And then one day, the company’s making half a million in earnings and we know it’s worth 20 times that because of what we put into it.

J:
Because nobody else has put that much effort into their business as I’ve put into mine.

Walker:
That’s right. And the thing is, is it is worth that, but it’s not. Not on the private capital markets, right? In other words, if you’re going to go out and buy a business that’s doing a million in revenue, two million in revenue, that’s a risky investment. I mean in real estate, at least you have a actual physical brick building. In a business, you can literally turn the thing into thin air. I don’t care how many physical assets are there, it doesn’t matter, you can destroy a business. But it’s not asymmetrical, that goes both ways. You can grow it with appreciative value as well.
So the thing is, is that the sellers have this huge learning curve to go through. They’re not going out learning about the private capital markets and how these firms are valued. How’s a Main Street firm valued? How’s a lower middle market firm valued? What does the market look like?
The thing is, is that proprietary outreach is selling this idea of, “I’m going to get a deal on the cheap because I’m going to be the burdened hand to a seller,” but the seller is going to have a nine month to 18 month education about what their business is worth and you have everything to gain by teaching them, and so they’re not really open to it and it takes them longer. So, it’s really hard to do proprietary outreach.
Off market deals happen. I see them happen all the time and it’s part of things that happen, but it’s not who has the deals. Now, pretend for a minute that you are a somewhat responsible CEO or somewhat responsible entrepreneur, okay? Even in the event of death, disability, whatever the four Ds are.

J:
Divorce.

Walker:
Divorce, drug addiction maybe is [crosstalk 00:38:46] something like that, but whatever the four Ds are. Even in the event of some completely surprise event, you’re going to call your CPA or your attorney and be like, “How do I sell my business? How do I do that?” And then they say, “Oh, there’s a whole industry called business brokerage or M&A advisory, and or investment banking depending on your size, and I know some of these people and here’s some introductions.” And then you talk to someone and you get a valuation and you go to market to some extent.
Then you’ve got the people that know about business brokerage. And then you’ve got the people that built their businesses because they want to one day sell them. And then you’ve got the people that are just being targeted, marketed to by business brokers. The first company I bought, I got a call every two weeks saying, “Hey, you want to sell your company?” I just cannot believe that there would be people out there that don’t know that you can sell your company. But, I guess it happens.
So, what’s my point? My point is, is that if you want deal flow, and you want it now, do broker outreach, because that’s where all of the people that want to sell their businesses go to. Then, and I can tell you as a broker as well, I will spend three to 18 months working with someone to sell their business just to get them mentally prepared so that when they’re ready, we can then, I can sell them on, “This is what the market is going to pay for your business. If you don’t like it, fine, I can’t help you.” But this is the range.
And then we’ll go through all the work. I extract all of the stuff. I really do all of the work for those potential buyers trying to figure out where it all is. I coach the buyer through, “Okay, here’s what’s going to happen.” You’ve got a willing seller, you’ve got an expectation of value, and they’re ready to go. And it’s put on a plate for a buyer. And so, I think it’s the fastest way to get really good deal flow.

J:
Okay, so you’ve convinced me. I need to work through a great business broke like you to find the next business I’m going to buy. How do I do that? I’m starting out. I’ve never bought a business before, but I’m ready to do it. I feel like I’ve done my research. I’ve read this amazing book. And now I’m ready to start reaching out to brokers. How do I find a broker? How do I vet a broker? What do I tell the broker? How do I get that broker?
Because I know in the real estate world, we just went out and we just got a $20 million dollar, 150 unit apartment building under contract and it’s taking us a year and a half because even though I have a lot of clout in real estate, I’m in a new space, I’m in a multi-family space and the brokers are like, “You’ve never closed a multi-family deal. I don’t care if you’ve done 500 single families, I don’t want to be bothered with you because I don’t know that you can close a deal.” So, if I’m going to a business broker, and I’m like, “I’ve never bought a business before,” why would they talk to me? Why would they give me the time of day? What are the things I should say to them and how do I find …

Walker:
It’s a excellent question. First of all, I want to say that if you’re a buyer I recommend that you don’t actually hire a business broker or an M&A advisor. Before I answer your question, let’s unpack that, because it’s really worth understand. And I think it’s potentially a big difference between real estate. You guys would know better than me. Or at least residential real estate.
The point is, is that there are buy-side advisors out there, buy-side business brokers out there. And the way that they work, is it’s typically a retainer and then a success fee. The retainer is usually something like 5000 a month. And then the success fee is some kind of single layman brother’s formula. In other words, if you go out and you do the average search that takes 18 months, and then you buy something and you hire a buy-side advisor to do that, you’re going to have to pay an extra 150,000 for that buy-side advisor. And that’s not something that you can finance through a bank, that’s just a 15% increase that you have to cash out of pocket.
So, it’s a really good service for private equity firms, maybe a family office that’s okay having extra overhead just to bird dog deals, but it’s an unacceptable expense to a new acquisition entrepreneur. The concept here is that brokers really represent sellers in that the sellers are the ones that hire a specific broker and say, “Okay, you’re going to get paid a commission when we well, so let’s go to market.”
The buyer, in my mind, needs to start reaching out to brokers, but not with the mission of signing up with one, to help them with the mission of simply understanding, “Show me your menu of goods. What have you got?” And most importantly, what I want you to do is make sure you get on the email list of those brokers, because the first thing the broker does when they get a new listing is, they email out the people that they know are looking, they email to people that they’ve been talking to recently that were top of mind.
And this happens usually, at minimum, a week before you end up on some open marketplace. And if you’ve got a willing buyer who’s ready to go and it triggers, then you don’t make it that far to begin with. But the good deals, again, don’t necessarily make it to those open marketplaces.

J:
So, should I be looking for a broker? Like if I go to a broker, because I’ve gone to brokers before and they’ve said to me, “Well, I don’t have any deals that meet your requirements that I’m representing the seller, but I have access to the open marketplaces and I can keep bringing you deals that are out there in the open marketplace and I represent you,” should I not be working with those brokers? Should I be trying to find the broker that’s actually representing the sellers? How do I know if a broker is representing sellers or is just trying to middle man me? And so, what do I do to vet a broker?

Walker:
Yeah, I mean, I think you kind of answered your own question there. Basically, you want what the broker has and what they represent and nothing else. I mean, that’s sort of the thing, right? At the risk of sounding like I’m promoting something, I started the Acquisition Lab to actually address this exact issue, which is … And this is simply, it’s education, coaching tools, community kind of a thing. And the whole concept is, I need a group of people to go to and talk through this deal I’m looking at. Or I need access to a business broker that I can just … who’s not incentivized at all, who I can just chat with on this type of deal. And that’s what the lab is all about.
But the point here I think is … I want to go back to something else, because there was a big point that you said that we didn’t get to. And that’s, 90% of potential buyers never actually buy anything. And so, when I’m working as a broker and I answer the phone and it’s some kind of buyer, the thing is, I know that there’s a 90% chance that I’m completely wasting my time. And that is the hurdle that we all as buyers need to get over.
So, get educated. There’s tons of free resources on Buy Then Build, I mean just as an example, go to BiggerPockets, learn the economics of real estate. But the concept is, get educated, get your house in order. Some bankers have started pre-qualifying individual buyers for certain amounts, get your resume in order. Get your LinkedIn updated, just little things. But it’s like, do a lot of marketing to these brokers to be like, “I’m serious. I am prepare. I’m ready to go. I know what I’m looking for.”
And so, I encourage people to come up with a target statement that kind of is specific enough that people can think of a deal, but also vague enough that they’re not pigeon-holing it. Again, just going back to when I was in my 20s looking for a job, you had to … If someone said, “So, what are you looking for?” And you’re like, “Oh man, just any opportunity really. I just want to sharpen my teeth.” They can’t think of anything. You have to say, “I’m looking for this specifically.” And then they’re like, “Oh, it’s too specific. I don’t know anyone that’s doing that.” So you need to pocket it right in the end zone so to speak. I don’t even like baseball, what’s with all these base-

Carol:
How do we keep coming back there? We just do. Okay, great. Let’s say we do have our house in order, if you will, and have our target statement and all of our … just all of the components ready. When we approach these brokers, and if the … I’m curious, who protects my interests if we decide to move forward on a deal? If the broker’s representing the seller for example, how are we going to make sure a broker is ultimately protecting our interests? Do we have to do that ourselves? Or do we have to find a separate broker for my side of the deal? Do I need to hire an attorney? Or am I going to be able to just trust that seller’s broker? How do I make sure that I am appropriately represented?

Walker:
It’s a great question. What’s interesting about the business brokerage industry is, number one, it’s unregulated, so there’s no … in real estate, you need a license. In business brokerage, you don’t need a license in most states, right? So, it’s unregulated. And one of the things that I found when I was trying to buy a business the first time was it’s a really opaque and fragmented marketplace, and the quality of brokers is all over. You’ll literally get people that worked on Wall Street that went AWOL and are representing deals. And you get people that were fired as used car sales people. It’s just like, it runs the gamut. It’s a really interesting space.
I guess in my experience, I’m going to hesitate just a little bit because I’m wondering if I have a good answer for you. It depends on the broker you’re working with is where I’m going. Some brokers are just really good and really sophisticated in what they are doing, and other brokers are completely useless. It’s just true.
And so, the thing is, I don’t think that adding a buy-side broker necessarily helps the situation. And why am I thinking that? I guess because it starts to break down the economic incentives, but it also depends on what kind of business you’re looking … This is a complicated question. You will have an attorney, okay? You will have an attorney, so let’s just anchor it in that.
Basically the sell-side will have an attorney, the buy-side will have an attorney, but what I want to be clear about is, attorneys, there’s good attorneys and bad attorneys, right? If you just look at how attorneys are incentivized, they try to protect their client, usually at all costs. And the best thing that you can do as an attorney is, save your client from any risk exposure. The best risk eliminator is to make sure the deal doesn’t go through. I’m not saying that they’re evil by nature, I’m just saying that their incentive is to act as a complete undercurrent to the deal.
And so, the thing is, is usually, you’ve got a buyer and a seller who are willing. If you don’t trust the seller, run away as fast as possible. That’s number one. If you don’t trust the seller, stop. And I think that you are working with the seller, the broker more than anything puts you guys in the middle, puts you guys together and is kind of acting as coordinator. Unpack the economic incentive of a broker and all you find out is that all of their incentive is, is to get a deal closed. So, it’s almost the opposite of the lawyer. They’re like the accelerator, right? And the lawyer is the brake.
And so, the thing is, it just comes down to a buyer and a seller being able to cut through all of the BS and just make sure that you’re working together for a common goal. And so, I think, Carol, my real answer to your question is, get educated on what you’re doing. If you don’t know what you’re doing, it’s going to be hard. And the additional broker isn’t going to save you, the initial lawyer is not going to save you, I just need you to kind of understand how it works.

Carol:
Yeah, it just sounds like at that point, to your point, there’re just too many people stirring the pot and things are getting muddy and murky with no good outcome at the end. Whereas like you said, if you educate yourself, figure out what it is that needs to happen, how you are able to put your energy, time, and resources into this business without overcomplicated, you have a much better shot at success in buying a business.

Walker:
Well, and a broker wants to help you. A broker wants to help you get it done. I think the downside is that, sometimes you’ll talk to a broker during a deal and you just need to check and make sure you still have your watch. In other words, I mean, sometimes they’ll put the pressure on in a very one-sided kind of situation, just be aware of that. Introducing another broker in the situation isn’t going to stop that from happening. But, yeah.

J:
It’s also worth mentioning, because again, a lot of our listeners are real estate investors looking to get into entrepreneurship. And it’s definitely a little bit different in the business world. We’re in the midst of buying a business right now. And we probably spend more time talking to the seller than we do talking to our attorneys or the seller’s broker. This is something different. In the real estate world, you can go through an entire transaction, a month, two months, three months, never ever talk to the seller. In fact, it’s generally frowned upon for the buyers and sellers to talk to each other, you do everything through the broker. In a business transaction, you may be talking, and I know in our case, we’re literally talking to the seller more than we talk to the seller’s broker or our attorney, so that’s a really good point.

Walker:
You know, I’ve bought probably seven companies outright and another almost two dozen just as minority, and I what I want to say is, on the ones that I’ve bought and then managed, inevitably, something happens where I’m whatever, eight months in … No, let’s rewind. Four months in, and we’re doing something and we completely blow it for a customer. We just completely messed something up.
And just in my former ISO certification days, I sort of learned how to go through and find the root cause, and you start it, and you just work backwards and go through the whole thing, and I’m talking to somebody and it’s like, “Okay, then what did you?” And it’s like, “Well, then I did this.” Then it’s like, “Well, okay, hold on. Why did you do that? Because we do it like this.” And it’s like, “No, we’ve never done it like that. We do it like this. This is how we do it.”
And every single time this happens, I stop and think, and I’m like, “Why did I think we did it that way?” And I realize, it’s because I asked the broker and not the seller. And so, when the broker gave me the information, I etched it and stored it in my brain and took that as information that I knew, and it was off, just by a little bit, but it’s wrong.
So as a broker, I do like to put the buyer and seller together as much as possible, because you need to be able to trust each other, you need to be able to converse with each other. And the buyer really needs to be able to get comfortable and download the seller’s brain, because it’s that transferability of the business that makes the whole thing mesh. And frankly, I can’t say it enough, if you don’t trust the seller, get out of there. I mean, that’s a disaster.

J:
Yeah, especially since in a lot of these deals, the relationship doesn’t necessarily end. The buyer and seller relationship doesn’t necessarily end at the purchase. Like I said, the deal we’re doing, one, it’s a seller financed deal, so we’re going to be making payments to the seller. Two, it’s a contractor type business and the seller’s going to be serving as our qualifier, our license qualifier in the business for a year and a half. So, we’re going to have that relationship for another year and a half. Even if we didn’t, there’s always going to be, unlike in real estate where it just transitions, a lot of times with buying a business, the seller’s going to train you and help you through taking over the books and taking over the inventory and taking over the employees. And so, there could be a two week or four week or 10 week transition period, right?

Walker:
Mm-hmm (affirmative). That’s right. And J, let me ask you a question. You said a seller financed deal. That just means a portion of the transaction price is done through seller financing, is that right? And I’m sorry, I don’t mean to pry-

J:
No, that’s great.

Walker:
But I just want to communicate what that is, because I think people hear that and they’re like, “Oh my gosh, no money down, seller finance is amazing.” Is that what’s going on? Or is it more like 10 to 20% would be a certain normal?

J:
So what we are doing for the deal that we negotiated, we negotiated a purchase price and there’s a whole bunch of inventory. The down payment is the value of all of the inventory, which is about 30% of the total purchase price. And then the other 70% of the purchase price, we’re paying over two years.

Walker:
Interesting. So, no bank debt at all?

J:
No bank debt at all. It’s a $200,000 purchase, we’re putting $60,000 down, which is the value of the inventory that we’re buying, and then the other 140,000, we’re paying over two years.

Walker:
Awesome. Okay, great.

J:
We actually were going to go the SBA route, but we started this transaction about three months ago, and SBA basically said, “With all the PPP loans and everything, we’re about six months out.”

Walker:
Okay, so you’re in a segment that’s sort of under half a million dollars in transaction [crosstalk 00:55:29], which is a totally different beast, yeah.

J:
Yeah, it’s a smaller one. Okay, so we’re running a little bit long here and I don’t want to keep you forever, I know your time is valuable. But before we jump into the final segment of the show, the Four More segment, I do have one more question. You’ve gotten us excited, you’ve gotten me excited. I can tell Carol’s excited over there, but I know our listeners who are listening to this are probably also feeling a little bit overwhelmed. You probably have a lot of listeners thinking, “I want to go buy a business, but in addition to reading your amazing book, what should I be doing today to get prepared? What are the next five steps I should be taking to really get prepared to go out and buy that business?”

Walker:
I think we’ve kind of covered it, so I would just summarize by saying … By the way, I want to say one more thing, we talked about what to do, get your LinkedIn, get your resume, get your target statement. By the way, I just want to add, if you have a strong balance sheet, if you have cash, start with that. Don’t waste an hour of time with a broker and then make them ask the question, just lead with that. Because at the end of the day, that’s what they want to know. Like, “Can you afford to buy a business or not?”
And so, I think the thing is, number one, it’s just understanding the business model. You got to get comfortable with the business model. You mentioned the book, there’s also tons of free resources on Buy Then Build. There’s a new Buy Then Build Facebook group, I mean, whatever. It’s just, get smart about the business model.
Number two is, put together a personal financial statement. Number three is going through attitude, aptitude, action. Number four is, understand the growth opportunity that works for you, that identifies what you bring to the table and matches a business to you rather than the other way around. And number five is, start talking to lenders. Start talking to SBA lenders. In my opinion, avoid the really big banks, go to the regional bank. See if they do any SBA preapproval, if you can get any kind of SBA preapproval letter that’s really strong. And then just start your broker outreach. I mean, identify those brokers that are in your city, start sending them emails, calling them up on the phone, go to the different websites and just start getting your email address on the different emails of the brokers that are out there so that you start getting your own deal flow. I think those are the steps to get started.

J:
That’s awesome. Thank you. If it’s okay with you, can we jump into the last segment of the show, the Four More?

Walker:
Yeah. You didn’t ask one very important question.

J:
Then please, yes.

Walker:
So, the question you didn’t ask is, why right now? Why is this such a good time? Right?

J:
Yup.

Walker:
And I think it’s a great place to end this section, which is again, there’s a confluence, right? Number one, capital is easy to get and there’s low interest rates. Even as recently as three years ago, you could not get a cashflow based loan to buy a business, so capital’s there.
At number two is, baby boomers own more companies than any generation in the history of mankind, and they are retiring at over 11,000 a day. And that’s going to continue through 2028. It’s estimated that there’s $10 trillion in business value that needs to change hands.
If you are asking yourself, “Why is the SBA running all of these bailouts?” Understand that it is the infrastructure, the entire U.S. economy that needs to change hands. If we don’t succeed at this transfer, we have a major national emergency in terms of our entire economy. So there’s a huge tsunami of opportunity happening right now.
And number three, we’ve never been in a situation where the online business marketplace has been able to participate in an upside M&A cycle. In other words, all of these baby boomer businesses that have existed out there where they all got product market fit, they all have decades of profitable revenue, and they were all created and driven for the bulk of their existence without the internet. So all of us coming up and understanding podcasting, online marketing, new ways to reach consumers, Facebook ads, whatever it might be, there’s a huge opportunity to transfer the way to attract and convert customers of these businesses.
The thing is, whenever I talk to a startup entrepreneur, I just challenge them. What is the infrastructure you’re trying to build? And usually they say something that’s pretty fundamental. Like, “I’m trying to build a network of buyers at hospitals,” just to make it up. “I’m trying to get buyers at hospitals to give me feedback on this product that we’re trying to build.” Why don’t you go buy a business that sells things to those existing people. You can buy a company at a, say a 3X with a bank loan, 10% down, and get access immediately to all of those people. So, it’s a confluence of baby boomers retiring, proliferation of online marketing, and easy access to capital right now.

J:
Love that.

Carol:
That was a great way to wrap it up. Truly, it couldn’t have been better.

J:
Okay, I do want to jump into the last segment of the show, what we call the Four More, and that’s where we ask you the same four questions that we ask all of our guests. And then we’ll jump into the more part of the Four More, which is where you can tell us how our listeners can connect with you and learn more about your book and your business and anything else you want to talk about. Sound good?
Okay, I will take the first question. What was your very first or your very worst job? And what lessons did you take from it that you’re still using today?

Walker:
So, I’m not that kid that started a lemonade stand and mowed lawns. I just wasn’t that kid. But at one point, I started a knife sharpening business when I was in about fourth grade. And I printed out fliers on my dad’s Xerox machine, and I put them in every single mailbox on all of the neighboring streets and I got one customer. And I went up and I went to collect the knives and I just went with my hands. Then I took all the knives, in my shirt, and I took them all home and I sharpened them and I brought them back in my shirt and handed them back to her.
And so, the big lesson I learned from that is, if you’re going to carry knives, don’t [crosstalk 01:01:40]-

J:
That didn’t go where I was expecting it to go.

Carol:
Oh my gosh. That is hysterical. I am dying over here right now. If you can’t tell, our boys are in third and fourth grade. And the thought of them starting a knife sharpening business is about throwing me over the edge right now like, oh my gosh, that is hysterical and awesome, P.S. wow.

Walker:
One customer. One customer.

Carol:
Eh, one is better than zero.

Walker:
And she’s not a repeat.

Carol:
You started something.

Walker:
She’s not a [crosstalk 01:02:04] … Yeah.

Carol:
It’s so funny. Okay, here’s my next question. In writing your book, you consulted with so many business owners. And you Walker, you obviously personally own several businesses, so what is the best piece of advice you have for business owners that you haven’t yet mentioned today?

Walker:
Yeah. In my opinion, start with one. I think that you get a lot of people that they hear this, they do whatever, and they’re like, “Oh my God, I’m going to run out and I’m going to buy like six companies and do all the rest of it.” I’ve done that and it’s a disaster. Start with one, run it, and really I would say for like seven years. Buy it to operate, operate it for seven years before you start thinking anything else. It’s okay to grow through acquisition during that time. If it picks up momentum, you can really accelerate really quickly. But don’t start buying in multiple spaces at one time, it’s a disaster, so buy one, crawl, walk, run.

Carol:
Love that.

Walker:
Build up equity, make sure the cashflow is there, and before you move on.

Carol:
Absolutely love it.

J:
Normally question number three would be, what is your favorite business book, but we’re not going to make you talk about a competitor’s book, so I’m going to ask you a different question three.

Walker:
No, can I please answer the question?

J:
Absolutely. Only if I can ask a three … if we can do a 3A and 3B, because there’s another question I really want to ask now.

Walker:
That’s great. I mean, 3A is, Jim Collins’ Good to Great. It was actually when I started to write Buy Then Build, I was like, “I want to do like a Jim Collins level book.” And then I realized, you really need like 20 Stanford PhDs on staff to get really to that level. So I couldn’t quite get it done, but that’s my eternal favorite. And then real quick, I just want to give a nod to, Jim McKelvey wrote a book called The Innovation Stack. He’s the co-founder of Square. And I sort of read it thinking, “Oh okay, successful CEO writes a new book or whatever.” It’s the polar opposite of Buy Then Build, but the thing is, all of the fundamentals are exactly the same. I just go left and he goes right. And it just absolutely blew me away. I don’t think it’s a off the shelves raving best seller. It may be. I’m actually not sure. But the point is, is I don’t think it gets the attention it deserves. It’s kind of a sleeper hit. it’s awesome.

J:
Okay. Not often that we get books on here that I’ve never even heard of, so I just added that to my list.

Walker:
You know what I mean? It’s a great read.

J:
Awesome. Thank you. Jim McKelvey, The Innovation Stack. Awesome. I’m going to ask you question 3B, because now I’m thinking about it, so I have to ask it. What is the biggest mistake you see new business owners, either looking to buy or once they buy a business, what’s the biggest mistake or two that you see us make that we could avoid with your wisdom?

Walker:
All right. The biggest mistake that I made, was one time I bought a company and I was going through acquisition, so I bought a company that immediately grew our top line by 20%. And it was a beautiful situation because they were … It’s going to sound brutal, it really wasn’t, but all of the employees were leaving. And I had all of the infrastructure there, so all of the gross margin, if you know of P&L, all of the gross margin was just going to become my net margin. It was a no brainer deal. I bought it … I put in an LOI within 24 hours as soon as it came up.
What I didn’t do was put together a very clear plan on how all of the different people were going to be communicating and who was responsible for what. And so, it did grow the business, but we significantly failed to extract all of the value that we thought was going to transfer. I mean, it was just kind of a total fumble. That’s my own personal story. Everything was fine. I ended up selling the combined company in October last year, which by the way, just as a footnote, I was able to get a … And I don’t mean this to brag, just to show the business model, I got a 52% compounded annual growth rate off of my original investment in four and a half years. I mean, it’s unheard of, right? Yeah.
And that’s the second time I’ve done that, so it’s like, “Okay, great. Very Buy Then Build textbook.” So I think that a lot of times, like earlier I talked about it’s buy then build and not buy then chill. And I think a lot of people underestimate the amount of work and commitment that you need to put into the first 90 days. You got to put a plan in place and then you need to execute that plan.
Oh my gosh, I totally know. Okay, here you go. Ready? Okay, everyone gets this wrong. The first thing you need to do, is that first day, you need to start scheduling meetings, face to face meetings with the biggest customers.
Everyone gets this wrong. They all focused internally and on the suppliers. Why is that? You need to go out and talk to the customers and you need to get them comfortable. And you need to tell the employees first so that everyone knows what’s going on. Then you need to go straight to your office and spend one day and maybe two, transferring the business with the owner and immediately start calling the customers and setting up meetings for the following week. And then start working internally with the people.
So, you’ve got that first 30 days, you really need to work on transferring the customer base over too. That’s the biggest thing I see everyone … Carol, before we got started, you said, remember that some of these things that are obviously to you aren’t obviously to other people, that’s something that was so obviously to me from the get go, that I was surprised to learn that this is actually the thing everyone gets wrong.

J:
That’s great. And it’s so obviously, everybody’s thinking about it, you got to talk to your customers, you got to talk to your vendors, you got to talk to your accountant, you got to transition the business. And it’s so easy to forget that none of that … Well, it all matters, but it all pales in comparison to making sure that the transition with your customers go smoothly, because the rest of it can be repaired. A non-smooth transition with customers may not be able to be. Love that answer. Thank you.

Carol:
Okay, cool. So here is, I guess we had 3A, 3B, so I guess it’s technically four. I’ve got so many things. So many things to keep track of right now. So this is-

J:
Are you drinking?

Carol:
Ssh, don’t tell everybody. Hush. Okay, so this is just a fun one and I don’t care if this was in your home life, in your professional life, for one of your businesses, for your kids, however, wherever, what is something, Walker, that you have splurged on a long the way that was totally worth it?

Walker:
In 2002, when I started in WashU, I bought a desk from Pottery Barn or something like that. And not kidding, the top is right here in the corner of my office up against the wall. The first week I owned it, I tore, it’s like fabricated wood or whatever with, I don’t know what you put on top of this. It looks like wood, but it’s fake wood.

Carol:
Some type of laminate, veneer, something, something.

Walker:
Laminate. Yeah, laminate. I tore it right where the mouse goes, so every time I moved the mouse, I would go like … or whatever and would kind of scrape my third finger. And so, it’s one of these where last year, from 2002 to last year, I lived with that thing. And it’s right there in my office, and I bought a live edge walnut table and I just totally like … I mean, this thing, every morning I come in and I rub it. And it’s so beautiful. It takes my breath away and it was so worth it, but it reminds me that I spend my life at my desk. I spend my life working and the thing is, is like I just needed to make it … And so it’s aesthetically pleasing, it’s rich, and I feel like I put my time in, so I totally splurged on this amazing desk.

Carol:
That is a great splurge. And I wish we had a visual of that, because I suspect it goes beautifully with your artwork that we were talking about earlier and your whole office décor. That’s fantastic.

Walker:
Sure, I can show you.

Carol:
Oh, let me see, let me see.

J:
We’re about to get a visual for anybody that’s … Oh, nice.

Carol:
Oh, that’s pretty. Oh, I love it. That’s gorgeous. Good splurge.

J:
See, we’re making the listen only people jealous now.

Carol:
Totally. Yes, it’s so pretty.

J:
That’s awesome. Okay, before we get into the more part, we did fail to ask you a question that we ask all of our guests during the main part. But I do want to ask now that we’re talking about how much time you spend at your desk. What’s next? Do you have more books coming? More businesses? What’s next for Walker Deibel?

Walker:
Yeah, so I do three things. In no particular order, number one, I write. Number two, I broker online deals. And number three, I run the Acquisition Lab. And the Acquisition Lab is brand new. We kicked it off in January. People, they kept saying, “Do you help people find and buy businesses?” And it was like, “No, I can’t do that. That’s nuts. I can’t charge you enough for that. I told you, don’t hire buy-side advisors. They’re not even worth their money. I tell you what to do in the book.” But people, they want coaching, they want education, they want a place to go to, to break down like, “No, and I’m really going to buy this. Can we talk about it for a minute?” And that’s what it’s for.
And so the thing is, we’ve run four cohorts, we’ve averaged from our members, 4.7 out of 5 star reviews, which is not good enough, so I just canceled. I just turned off new entrance for the last two months, so we’ve gone 60 days with all of our overhead. I’m paying out of pocket and we’re completely redoing all of the curriculum.
Entrepreneurship Through Acquisition is the number one MBA elective at every single school in which it’s taught, but it’s only taught at 11 schools. And Buy Then Build is a textbook at 30% of those schools. And I’m talking, it’s Stanford, Harvard, University of Chicago, Northwestern. I mean, it’s like the best schools in the world, right?
And so what I’m doing is, I’m providing an ETA class experience in the Acquisition Lab to anyone who wants to sign up, but it’s vetted. If you’ve got money and you want to pay and come in, that doesn’t mean you can get it. You have to at least have access to $100,000 and we go through a little screening. And by doing that, we’ll work in small cohorts, and we’re building a really strong community of people who are working together to help each other find and buy business. That’s next.

J:
That’s awesome. I love that. And everybody, check out our show notes, we’ll have more information about the Acquisition Lab and where you can find out more about it. Now, let’s jump into … I don’t want to skip the more part. You’ve talked a little bit about what you’re doing and where we can find out more about the Acquisition Lab, but tell our listeners where they can connect with you, where they can buy your book, where they can find out more about anything you’re doing and learn more about you.

Walker:
Sure, thanks. You can buy my book on Amazon, really. I mean, where else would you go, right? Buythenbuild.com has tons of free resources. Let’s see, Quiet Light Brokerage. By the way, I work with Quiet Light Brokerage as a broker because after a decade of buying … I used to be a stock broker at one of the largest banking institutions in the country. And I’ve worked with publicly traded companies, I’m a certified M&A advisor and worked with solidly middle market … like 50 to $100 million deals, Main Street all over. And the thing is, is I never saw from the buy-side, I never saw more thoroughly put together, more intelligently constructed, and better business summaries or prospectuses than I ever saw at Quiet Light Brokerage.
So, I was starting to get recruited by these firms to go out and try to help sell companies. And one broker I was honored, I closed the deal and he turned and said, “Hey listen, I’ve decided you’re my succession plan. Will you buy my whole brokerage?” So I picked up the phone, I called Mark Daoust at Quiet Light Brokerage and I said, “Look, Mark, if I’m ever going to do this, I will only do it at Quiet Light Brokerage.” And he was like, “Great, come on board.” So, I joined the team a few years back. And if you go to quietlightbrokerage.com, we’ve got amazing listings if you’re looking for buying an online business. And we talked about the Acquisition Lab as well.
By the way, I just started a Facebook group. I didn’t know that these were as crazy, awesome as they are. I just had no clue.

J:
It takes a lot of work.

Walker:
I just didn’t know. We turned it on and three weeks later, we had 300 members. And I was like, “Oh, this is awesome.” So, it’s a great free place to hang out. I mean, it’s brand new, a month old and people are already sharing deals, sharing experiences. So, it’s awesome.

J:
What’s the name of the Facebook group?

Walker:
Buy Then Build.

J:
Buy Then Build, just like the book. Excellent. Walker, this was amazing. I’m so excited that we finally got you onto the show. And we appreciate you sharing amazing tips, amazing insights, and I look forward to, if you don’t mind, coming back in a year or two and talking more about how these Acquisition Lab is going and anything new that’s going on in your world.

Walker:
J and Carol, thank you so much for having me. It’s been such a pleasure.

Carol:
Thank you-

J:
Awesome.

Carol:
… so much. We’ll talk to you next time.

J:
Thanks.

Carol:
J, seriously, how awesome was Walker? I love this episode. I absolutely loved how he just set us straight right in the beginning and reminded us that only 4% of companies ever even exceed a million dollars in revenue, right? I thought that was very eye-opening. And what a great reminder of why in so many instances, it does absolutely make sense to acquire rather than start from scratch. And I love the tips that he provided about finding a broker and doing outreach to go about doing that.

J:
Yep. I mean, I’ve wanted to have him on the episode for about a year now. And so, I’m so excited to have him on and he really delivered. So, everything from just why we should be buying a business right now, I mean, we all know it’s a good time to be buying, but he really, he laid it out in such easy way to think about it. Capital’s never been easier to obtain. There’s never been more inventory. I mean, for anybody out there that’s been thinking about buying a business, getting into business entrepreneurship, now really is the best time. And just that discussion about brokers and using your own broker versus using the seller’s broker, again, as real estate investors, a lot of things are different in the business world as much as they’re analogous, they’re different, and so that was just a great reminder and a great set of learnings about how things work in the business world. So, just great episode and I was so thrilled to have Walker on with us.

Carol:
Yeah, he was super. We were expecting awesome things and he delivered and then some, I think. Walker completely blew it out of the water. It was awesome.

J:
Absolutely. All righty, are we done here for this week?

Carol:
Yeah, let’s wrap it up.

J:
Okay. Everybody, thank you so much for tuning in. Hope you’re having an amazing week, an amazing month. Stay happy, stay healthy, and we will talk to you next week. She’s Carol, I’m J.

Carol:
Now get your target statement ready to buy then build today.

J:
Ooh, nice. You worked the-

Carol:
That’s fancy, huh?

J:
Worked the title in the outro. I like it.

Carol:
You know it. Thank you so much, everybody, for tuning in. We appreciate all of you and we hope you have a wonderful week. See you soon.

J:
Thanks everybody.