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- [00:00]
A
So typically when we're setting goals with clients, we like to work in three year targets. We've just found that, you know, three years is a really good sweet spot for entrepreneurial companies. It's long enough to get something really meaningful done, but short enough to still be somewhat predictable. So we don't just like annual plans. We don't need these 5 to 10 year crazy BHAGs. So we think in terms of 3 year target and it's one of the questions we ask, hey, where do you want to be in three years?
- [00:27]
B
Hey everybody. Welcome to another episode of Business Lunch. This is our second time through because of technological difficulties with microphones randomly not showing up. But here we are and I am one of your hosts, Roland Fraser with the inimitable Ryan Dice.
- [00:43]
A
I cannot be imitated.
- [00:45]
B
No, no one is what that means can imitate you.
- [00:48]
A
But hey, unlike you, I don't suck at microphone. So I got that going for me.
- [00:53]
B
Engineering, I really do. I think it's on them. I think they look be beautiful but then you know, they're persnickety. But that I guess is what teenagers are. So they're true.
- [01:03]
A
Indeed. Exactly. They're beautiful but generally worthless. No, I love as the owner of a handful of teenagers myself. Yeah, no, they're great. It is interesting. This is one of the rare moments where simply turning it off and turning it back on again did not work. But here we are. I know you tried freaking everything to our credit.
- [01:23]
B
It's like is it plugged in? Yes. Is it a bad cable? No. Turn it on, Turn it off. Nah. Restart the computer? Nah. We did all the things that, that the most advanced tech teams do to fix 99% of the problems that people have with their computers and things. But none of that worked.
- [01:42]
A
So highest paid tech support on planet Earth right here. And then ultimately was like, just get a new frickin microphone. Here we are though. So what are we talking about? Rolling.
- [01:50]
B
So I thought it'd be kind of fun. We did. As you guys probably know, we do consults and we have. Our evil plan is basically we come in and help businesses by doing these half day consults and then we identify what their goals are and help them create a plan to get to them with the evil plan of that leading to hopefully razzle dazzle, frazzle them enough that they want to work with us in their businesses through a program we have called 20:2020 where we take some ownership and stuff like that. But we met with these folks and I don't want to say what the Industry is, I think unless you do.
- [02:32]
A
Let'S say business services at large. How about that?
- [02:35]
B
Yeah, business services company and they came to us and they had a pretty, a pretty outrageous goals. I'm going to slightly change the numbers, but only slightly. So they were doing a million and a half in sales. And Ryan, what would you expect someone who's doing a million and a half in sales to say that they would like to be doing, Was it three years down the road or two?
- [03:03]
A
Yeah. So typically when we're setting goals with clients, we like to work in three year targets. We've just found that, you know, three years is a really good sweet spot for entrepreneurial companies. It's long enough to get something really meaningful done, but short enough to still be somewhat predictable. So we don't just like annual plans. We don't need these 5 to 10 year crazy BHAGs. So we think in terms of 3 year target and it's one of the questions we ask, hey, where do you want to be in three years? And typically when we're working with clients at a minimum, at a minimum, we would like to see them double their top line and double their bottom line. Because one of the things, if you can just increase 24% year over year, three years in a row, you'll double. People don't realize that, but that's the power of compounding. So 24% compounded year over year, three years is double. And if you're not growing 24% per year, we just feel like you're probably not trying hard enough. So that's kind of the minimum goal that we'd have for any of our clients and portfolio companies. On the high end, kind of the gold standard is top line to bottom line. Can we take your current top line revenue and make that your future three year bottom line, take home profit while maintaining or maybe even slightly improving your margin. Now in this case, their margins are pretty strong. Million and a half dollar business.
- [04:19]
B
33%, right?
- [04:20]
A
Yeah, yeah, call it, I think it's like 35. Yeah, something like that. So assuming a 30, let's say they were able to maintain a 30% profit margin with 1.5 million their current top line. If we were going to set a goal and say, okay, what we want you to achieve, what would be an outstanding goal, very ambitious goal, would be to turn that into a $1.5 million bottom line at about a 33% profit margin would mean that they would need to go to about 4.5. Yeah, 4.5, let's call it 5, just to round up and make it easy. So, you know, we're thinking going into these, we've got a general sense of where the clients want to be, and oftentimes they're coming to us because they've been flat or a little bit down. And so they're saying, yeah, we're at 1.5. I mean, really, if, you know, if we could just be like, at two or three in three years, that'd be great. We're kind of having to say, like, oh, yeah, you got this. We could do more than that. You know, we'd really like to see get to 5 million top line and 1.5 million bottom line.
- [05:18]
B
Right.
- [05:20]
A
But that's not what happened here. What happened here is they said, yeah, we're doing about, you know, 1.5 million, dropping about 5,500k to the bottom line. And in three years, we really think we can be at. Drumroll, please. What was their number, Roland?
- [05:34]
B
35 million.
- [05:36]
A
$35 million. $35 million.
- [05:40]
B
That's more than the 5 million high end target we would normally have.
- [05:43]
A
And it's at least twice as much.
- [05:46]
B
Certainly more than the 1.5 that was going on. So that was. That was interesting. So. And it's a good lesson in limiting beliefs, though, because, yeah, there. There is often a line between crazy, you know, unrealistic expectations and what is possible. And so I think, and you can speak for yourself, my initial reaction was, what the hell? I mean, that's like, that's setting us up for failure. It's setting them up for disappointment. Even if we knocked it out of the park and got to 15 million, they'd be like, I wasn't even halfway to our goal. You know, we're not happy. And so then that was the initial reaction. What was your initial thought hearing that?
- [06:34]
A
My initial reaction was, let's figure out how we can. How we can remove the crack pipe that has obviously been lodged somewhere into an orifice and then get down to reality. And what I think is important here is that we're acknowledging what our first reaction was.
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B
Yes.
- [06:56]
A
At the same time, neither of us said that, which there was a time when I'd have been like, well, that's freaking ridiculous. So let's talk about why that's ridiculous, why you're wrong, and how we can do that. And I do think that shows some level of maturation. And so what we really want to talk about here, you know, in this episode, is how do you approach truly audacious goals? How do you approach limiting beliefs? And when Presented with an audacious goal, how do you use it as a thought experiment? And we're actually going to work, you know, we're going to walk through the process that we went through of we said, you know what, screw it, let's see, can we figure out for this client what it would look like, what would need to be true to get them to, you know, 35, $37 million in that period of time, remove our self doubt, remove any reference to crack pipes. That's again, that's my own limiting belief. So client, if you're listening to this, that's on me, not on you. That says more about me than it does about you. I'm acknowledging, you know, my own kind of failures there and what we came up with, which we're happy to kind of share as much as we can, you know, what we came up with for this client. But I think that there's a greater lesson here in how can you approach and utilize audacious goal setting to in many cases, in the same way that Disney utilizes their imagineering process where they say, no constraints, we're not limited by gravity, we're not limited by time and space. What could we do? And then work backwards from there? Because where we wound up with. And we don't know where this client is going to go, but we wound up with three possible ways that conceivably you could get there. Now, none of them are easy and we'll see what they come up with. But what I do believe is any one of them, if pursued, would get them further in three years than just $5 million. So I think we want to talk about audacious goal setting, its role and kind of the approach that we had to it.
- [08:53]
B
I also would have, you know, I don't know, 10 or 15 years ago said, you know, it's been great talking with you. It's. This probably just isn't going to happen, which is a limiting belief. And so I think for us to recognize that our gut reaction, our emotional reaction was this is cray cray, ain't going to happen. And you do, when you're working with people have to try to have some sort of reasonable expectation. But then acknowledging and recognizing that that was a limiting belief, even if it's true, it's still a limiting belief, right? That, well, you can't go from 1.5 to 35 in three years. And then we started thinking about it. So that's the initial reaction. Then we said, okay, check yourself before you wreck yourself. What's the.
- [09:42]
A
Because we Were indeed about to wreck ourselves.
- [09:44]
B
Yeah. What is the, you know, what is causing me to feel that way? Well, because it's a really giant, giant leap. And you know, even logistically you're going through different types of managers to get from there. And this is a owner operated company right now with very, very limited staff and some but not much capacity. And you're talking about pretty massive scale to get there. We know this because we recently scaled a similar business like this from two and a half million to 28 million in about 18 months. And they went from about 400,000 in profit to 10 million. And we'll talk about how we did that as well. So that was then. The first thing is like, okay, impossible, crazy, then, all right, is this me? Is this a limiting belief? And then I like the. What would have to be true to me is a very, very good statement to get you in line. What would have to be true for this to happen? And is it actually possible, it is not possible for me to grow another three feet to be able to potentially, if I got in significantly better shape, be a pro NBA basketball player? I feel like that is an impossibility. But there are many companies that grow way more than what these guys were talking about growing. And so it is possible. And not only is it possible, but it has been done many times. So what the heck? And who the heck are we to say that this is crazy and can't be done? That's on us. And so that's like, that's the first thing. You definitely don't want to be found guilty of thinking too small. And so usually as I watch big leaps around me and as I watch leaps that I've made or that Ryan and I have made together, it's always that we were thinking too small. That's why it always goes back to mindset, which is why it's so annoying to hear people talk about mindset because you want the tactics. But the true thing is that's in the way is inside of you. So all that said, yeah, I've heard.
- [11:50]
A
Somebody say pessimists look smart, but optimists get rich. And I think that that's important because we could have looked, I think, very, very professional had we said, you know, really, I don't think that's realistic. I mean, if you look at kind of, you know, the average growth rate of people in your industry, which is astoundingly Googleable and ChatGPT able, you know, we could have made a very strong case for why what they were asking for was Quote, unquote ridiculous or impossible. And so I do think that the first step that you should take when faced with an impossible goal or an impossible request is not to immediately reject it and then to build a case for why it's wrong. Step number one is to say, okay, to your point, what would need to be true that isn't true today to make this true? To make it to where? Oh, yeah, this is obvious. And that's when we said, well, and then you make a list of those things, and that is basically what we started doing. Well, for them to be able to go from here to there, what would they need that they don't have today? Let's make a list of those things. Well, they would need a significantly larger and more professional executive team. They would need more budget to go and invest in media. They would need a branding shift because the brand that they had was more regionalized and they need to go international. So they need to do a branding update. They would need perhaps a strategic partner to do all those other things. They might need capital. They might need to change their product. And before long, you start to create just a list of things that would need to be true. So I think that's the first step. And then the second step is what you were saying is now to go and evaluate all of those things that you've listed and say, well, are these possible? I mean, back to the example of, you know, for me truly to be a professional NBA player, what would need to be true? Well, I would probably need to grow two feet. I mean, realistically, come on, I'm freaking five, six, right? Maybe two feet is. But I mean, more. No, I need to grow a lot. Okay. Realistically, is that possible? No, it's not. Okay. My skills would need to improve so much. Realistically, is it possible for me to uplevel my skills, having never really played basketball? Realistically, it's not.
- [14:09]
B
And so I do think it's. This feels good to me. You're actually too old to do it now.
- [14:14]
A
Bingo. Yep, exactly. They won't even let me do it because they know I'll break a hip. So at some point, you do need to evaluate. Okay, yeah, we are somewhat limited by gravity and, you know, in physics. But don't do that until you've created that list of what would need to be true. These are the things that would need to be true. Now, let's not evaluate the goal. Let's evaluate the constraints, each one at a time. And when we did that, we were like, all of these things could be Made true. And then it's what would need to be true to make the things that we need to be true true.
- [14:48]
B
Exactly. And so before you get to doing that analysis, I think you say, where would the company be? If we look at the company now and say, okay, what does the company look at look like right now? So we basically went through and said, how does the current revenue happen in terms of like, what does it look like? And so the products and services that are offered by a business are typically referred to as product range. And you'll do a thing called a product range map that shows the different products and services that you have. And then what percentage do the sales of each of those products make up of your total sales? So here we said there's 1.5 million in sales and there were five different products and one of them was 31% of revenue, one was seven, one was 60, one was two, and one was a new product that was zero but had, had been launched but hasn't, you know, been activated, let's say. So we looked at those products and said, what's the product range look like right now? And then what's their relative contribution to profit margin? So now we've got an idea and we created a, you know, this, this product range map. Then we said, okay, so now we see what we've got. Now let's look at how do these products and what we are services and what we charge for them currently compare in the market. Is there a price increase opportunity because we're underpriced, which is usually one of the first places we go because that's just 100% of a price increase generally falls to the bottom line because there's no increased cost of goods sold, there's no increased customer acquisition cost, it's just extra money you get to keep all of. So we went through and we found that the first product was on the higher end of the range. So they already had premium pricing. The second product was mid range and competitive. So potentially an opportunity to change that a little bit. We'll talk about these in more detail in a second. The third one was competitive within the range. The fourth one was lower mid end. So there was the potential to increase the prices slightly. And then the last one was competitive, so they were generally high, mid competitive, a little low and competitive. And then we look at those things and we say, okay, what can we do with respect to pricing? And so one of the things we did was we said there's, there's a potential to offer a tiered structure so basic services at one level and then premium at another. That was the first product. The second one we said keep the pricing the same, but let's target higher value clients that will benefit from more customized services. The challenge with that, of course, is that the more you customize, the more people you need, because it's hard to do bespoke, although I'll talk about how to automate that here in a second too. And then the third one was creating higher tiered options priced significantly more with multi year contracts, multi year strategies, industry specific verticalization so that they could become like who gets more, the general practitioner or the vascular surgeon? The vascular surgeon does because when somebody's looking that's got something going on with their heart or something like that, they're going to say, hey, I need to, I want the expert. Right. So how could they become the expert and verticalize and there thereby justify higher fees and jump from this tier and this perceived value to a higher tier with a higher perceived value. And then the fourth one was basically raising prices and offering flexible packages that were based on scope. So there might be, you know, a low end that was, that was half the price of the highest end. And then the last one, it was retaining the pricing but evaluating the opportunities to up level the services by adding additional high perceived value and high ROI for the client value stuff. And that was, that was like the first level. So now then we said if we do that, if we do that then, and we use the revised suggested pricing and then we do a product range distribution in the same level as it was before. How many clients would they need each year to get them to this 35 million target? And does that seem possible going back to what Ryan was saying earlier? So we built a chart and said, okay, here's the five products or services. And then year one clients would be on the front end because the front end client brought people in. We would have to go from, we would have to go from about.
- [20:16]
A
I.
- [20:16]
B
Think it was a 4xing of the number of clients. So we'd have to go, excuse me, from about 400 to 1200 clients. Then we'd need about 25% of those to up level to the first ascension, about a third of those to uplevel to the next ascension, about 80% of those to go to the next one and about half of those to go to the next one. And if we did that and added 1200 clients in year one, 1500 clients in year two, and 2000 clients in year three, we'd actually hit the goal and so that was kind of revelatory for us. It was like, you know what?
- [20:55]
A
Yes. And in this particular market, from a total addressable market perspective, those numbers are realistic. Like they are there, they're out there. It doesn't mean it's easy. But we're not talking about defying gravity. You know, it's work, but it's doable. So again, it's saying, what would need to be true? Well, your product mix would need to kind of shift this way and you need to acquire these number of clients based on this product mix to get to that number. That is what would need to be true. Is it easy? No. Is it possible? Yes. Okay, so we're going to evaluate that and say that's a possibility. Now what would need to be true to achieve those numbers? And you know, each one is just kind of going another level deeper saying what would need to be true to do that? What we need to be true to do that? What we need to be true about our business. This is kind of that deeper strategy, peeling back the layer process.
- [21:49]
B
So we then we said, okay, well what would be the strategies to effectively 3 or 4x our current front end clients? And so we talked about focusing on the ascension path. How do we get more of these people that are coming in at the low earth level thing to ascend to the hire? How do we maybe change our target marketing on the front end to attract clients that are more likely to do that? So can we segment off the clients that ascended and then build audiences around that that look more likely to ascend than, you know, the average client, Emphasizing the high ticket services, optimizing delivery, installing the scalable OS which we use in all our companies and then developing a sales pipeline, expanding their lead gen efforts. We talked about different content marketing that they weren't doing. We did talk about strategic partnerships. Who's already aggregated the attention and eyeballs of their ideal customer profile. And so we do very often start with ideal customer profile. And I know Ryan, when we're. That's one of the big things that people don't seem to have dialed in is well, as you would think or they've got. They've done it. That not really ICP as much as Avatar. Here's 17 Avatars. We had one client right. Recently.
- [23:15]
A
Here's who we have. Yeah, like tells a great story of who you have, not necessarily who you should have.
- [23:19]
B
Speak to that for just a second.
- [23:21]
A
Yeah, I mean, so avatars, which is very, very common in, you know, in marketing is, you know, essentially clarifying who are the different customer segments, the different Personas that, that you're currently marketing to and attracting. And it's not that it isn't valuable, it's just that it answers the question, who do we have today? It doesn't answer what I think is a more important question. Yeah, but who do you really want? And so while avatars and Personas can be helpful and interesting, I am way more interested in understanding what is your ideal client. Your ideal client. So if you think about all the people that you could serve as, as a target right in the center, that bullseye, that is your ideal client. If you go one rung outside of that, well, now you have your, you know, your available market. Like, these are people who you could help. They're maybe not ideal. And occasionally you're going to be aiming for the bullseye and miss just a little bit. And that's okay because you can still help them. And then beyond that, you've got the addressable market. These are people who you could generally talk to, but they might very well be a distraction. They might be people who, from an average client value perspective, they're not worth enough to be worth bringing into your organization. So getting crystal clear on this is exactly who it is that we are talking about is so incredibly important. Because the mistake that most businesses make is they think, oh, but if I narrow who we're talking to, I'm going to wind up talking to less people. And in reality, it's when you try to talk to everybody that you talk to nobody. And it's the businesses that talk, and they're very precise in their messaging, they wind up actually talking to more people because you get two groups. When you talk to just your ideal, what we call your Goldilocks client, you get the aspirational folks who aren't quite ready for you, but they want to be. They're just on the outside looking in. So you get kind of those aspirational upstarts, those people who are just there and you can kind of foster them. But you also get the humble people who maybe are a little bit beyond where you are, who you would typically serve. But they're excited about what you can do and they're willing to kind of come back. So that's what we say. Don't think about avatar and Persona, at least not initially. Who's your ideal client? So you only need one for now. One ideal client, like, oh, I've got multiple ICPs. Then you don't. Who's your one? Who's your one?
- [25:45]
B
I like that. So then we basically said, okay, here's all the different strategies. And there were about seven of them that can accomplish these things. And they went into how to staff up, how to develop the executive team that you needed to get from where you are to where you're going, how to grow, how to build the ascension path, how to identify the right people, how to do strategic partnerships with people who had aggregated the attention and eyeballs. And then we talked about acquisitions for growth because particularly for what they are doing to be able to get the staff that they needed, not the executive team, but the actual staff that they needed along with the customers, it made sense to think about acquisitions. I think it always makes sense to consider them. But here particularly, because if they could acquire people, companies or businesses that already had the staff that they needed to handle the volume, then that would be a big, big, big constraint that would be removed from the business. So we identified, because they are currently regional, and we said, let's start regionally and then we'll look to probably acquire and more than to do what's called geocloning, where you would just take like a copy of the business and open it the next place. Because it takes a little bit to build a brand and recognition. And because they had a very localized brand rebranding, by the way, was another thing that Ryan mentioned earlier. That was one of the things that had to happen too, because they were branded regionally. So we looked within their region and identified their top 50 competitors by sales volume and by service provider count. And then we went down the list past the larger ones and the global and nationals and said, okay, if we go down to about number 19 in size, that's acquirable. And so 19 all the way down would get us 19 to about 32 in the rankings became our target list for acquisitions, so that we would start reaching out and having conversations with them about possible acquisitions. Right. And even if it didn't turn into an acquisition, you've started the conversation, you've made yourself more present in the minds of the people that you want to be present in. And you've also started a conversation that may turn into an acquisition a year or two years down the road, because that all becomes acquisition pipeline. And even if it doesn't turn into a deal, it might turn into a strategic relationship, because you might start by, hey, are you interested in the possibility as we are expanding, we're looking to acquire firms? Would that be anything you might consider? No, we're not really. We're open maybe at some point in the future to talk about it, but we're not interested right now. Okay, great. Would you be interested in handling some of our overflow business as an outsourcer, maybe? Right. And then if they become an outsourcer and then they see that you can do the things that you say you can do and you develop no, like trust with each other, then it's very likely that can turn into an acquisition. So that, and that's happened a lot of times. So that identification of those specific targets, we provided them as well, you know, along with our, you know, our acquisition plan. And that's a pretty cool thing too. Anything else you want to say before we get to the one three one?
- [29:31]
A
No, I mean, I think that's again, it just goes down to the questions that you're asking is just a series of what would need to be true? Okay. This is what we need to be true. Is it possible? Yes or no? Yes, it's possible. Okay. What we need to be true to make it possible, let's go another level deeper. And at each level of what would need to be true, is it possible? You're simply doing your research and continuing to figure out. Now, possible is not necessarily practical. But that, like you said, is when we get to the next phase of. Once we've come up with the different scenarios under which we would make the challenging but possible happen, now we can begin to assess, okay, which path is going to be the shortest path from where we are to making this stuff real.
- [30:19]
B
So we went through that process and then is that, do you think everybody's clear enough on one three one or do you want to say something more about.
- [30:28]
A
Yeah, no, I mean, so the way that one. Probably not. So the way that we evaluate, you know, anytime we've identified, okay, this is the outcome that we want to achieve. And there's a number of different ways to get there. We go through a process called 13 1. And that is definitely going to be the case when you're doing this type of strategy work because you're basically saying what would need to be true. You're coming up with a bunch of things that would need to be true. And then you're coming up with a lot of different ways to get there. It's never like there's only one way to do it. And it's very rare that one way is the obvious way and everything else is a bad way. So anytime we're trying to process an issue, a difficult question with a non obvious answer, the tool, the methodology that we use is called one three One. Now, this is not something we invented. I learned about it from a number of sources. My understanding is that it was created by some executives at IBM back in, like, the 1950s. But it's called 131 is because you identify one clearly stated issue or challenge. So in this case, the one clearly stated issue or challenge is we need to grow this business from 1.5 million in revenue at a 30% profit margin to 35 million in revenue while maintaining, you know, a 30% profit margin. That's the issue. Like, how do we do that in three years or less? So there's the clearly identified issue. Now, what you want to do is come up with at least three possible ways to get there. And it's important that you come up with at least three, because that shows that you've really done your research. All too often, you know, team members will come to us and they'll say, I've got this problem and this is what I think we need to do about it. And it's obvious that the solution that they've come up with is just a terrible idea. Like, if we do that, we're doomed. If you're basically dealing with a binary question and all options are terrible, that probably means you haven't done enough research. So my thing is, like, let's make sure, even if they're all bad options, let's try to come up with three bad options so that we can at least come up with the least bad option. Or maybe we come up with three good options, but at a minimum do three because it shows that you've done the work. And so that's what we did here. You also want to, in your own business, insist that your team members, when they're bringing you problems, they're bringing you three solutions, the final one. So one problem, issue or challenge, three possible solutions, and then one recommendation. We believe that it's important for us when we're working with clients to not just say, here's some options you pick, but for us, because this is what they're paying us for, to say, these are some options that we came up with. This is our thought process. We're going to show our work, but this is the one that we're leaning towards, and here's why. And that's important because that gets the conversation started. It really. Because if they ultimately agree and they're like, yep, I agree with that one, then it's a very short conversation. If they're like, I was kind of thinking this one. Now we can have a conversation about the two and why we think. But whoever's coming up and doing the one three one, it's not enough just to do some research. Based on their research, they really should put forth a recommendation. That's the last one of the 13 ones. That's exactly what we did here. Having gone through all the different. What would need to be true? Is it possible? What would need to be true to make it possible? We ultimately came up with three possible scenarios and then one recommendation.
- [33:46]
B
So here's the kind of what that looked like. It's issue. What's the best way to expand the client's business to achieve 35 million plus in revenue over the next three years? Solution possible. Solution one, raise money. Always possible to raise money to solve a problem. If you throw enough money at the problem, you can solve it. The challenges with that, of course are equity is the most precious thing you ever have to give away, kind of like your time. And once you've done it, it's very difficult to get back. You've now got partners and you've got some pretty significant performance that you're going to have to think about. So we said raise money and fill the product range funnel with the types of work that we talked about that it sends into the other products and let's see through that ascension path. So this will require substantial media spend upfront as well as radical scaling of the executive and operations team. Creation of large sales team and significant marketing team to accomplish this would not likely be fundable from existing profit and would likely require 3 to 5 million dollars of outside capital to achieve. So that's, I mean, like you can achieve a lot of things, you know, even unprofitably you can get growth. Ask most of the sasses from, you know, the last decade or so. It's definitely possible to throw money at things. So that was one solution. Two, attract a substantial strategic partner who has a substantial existing customer base and flow and does not currently provide the services that you provide. Sell or give that partner a significant ownership interest in either the existing company or a new company that is set up specifically for that joint venture. And that's a, that's kind of a cool strategy to retain your equity in your existing company and give a bigger partner a reason to make you a strategic partner. Because now they're building wealth, not just income, and you become more than a provider and it's very unlikely that they will switch from you too. Which is another important thing. Like if you want a sticky giant partner to stay with you, give them, give them A stake in the, in the outcome. This would result in a strong partner that provided existing guaranteed lead and customer flow. Because it already exists, they don't have to build it and executive team infrastructure and support in exchange for releasing some equity in your company to that partner. Now that's something that we did not long ago in one of our companies. That company that was doing 2.4 million ish with about a $400,000 profit. We had a company that had all of the customers that they would ever want and then some. And so we came in and they released significant equity to us. And in exchange for that we now send all of that work to them and we are partnered in it and they're, they've gone over. Let's, let's be generous on the time because I think it's less than this. But let's say it was over a two year period and they've gone to finishing out this year 28 million in sales and 10 million in profit. That's so that's like kind of close in a, you know, in the same field of those professional services as a case study of actually not only is it possible, but we just did it.
- [37:21]
A
So.
- [37:23]
B
And then three chop off. So this is an adjustment to the product range. Kind of like when Steve Jobs came in and John Scully I think it was, was running Apple and they had 18 or more different computers and products and everybody was like you got a lot of stuff. And Jobs came in and said we've got four, we've got pro and consumer for mobile and desktop. That's it. Product range adjustment. So chop off the bottom two to four services in the current product range and focus exclusively on marketing and selling the highest end product or service at an average sale of a lot, let's call it 100,000, it would require X clients. We did the math to achieve 35 million in sales if you were to target. And so basically it ended up if they would Target acquisition of 50 of these high end clients in year one, 150 in year two and 250 in year three, it would be very doable. I mean like very doable. So that's the three. And not surprisingly our recommendation was number three, which represents the greatest possible chance of realizing the targeted 35 million sales goal. Reducing product range, focusing exclusively on partnerships, acquisitions and marketing to generate 250 clients at the. Whatever that dollar value was is doable without the need to raise capital, without the need to hire an expensive executive team, without the need to staff up a large organization for fulfillment or provide low margin, high cost lead gen work to create that giant ascension path. So like, and when we finished, I think we both were like, yeah, yeah, this can actually, this could happen.
- [39:07]
A
And I think, you know what's beautiful about it is and we sent this off to the client, we don't know what they're going to come back with and say maybe they disagree with us, maybe they agree. And look, obviously 35, $37 million over that short period of time, that's still a big lift. So it's far from okay, lock it down, like start buying the Lamborghinis now. Like we're not saying that, but I'll tell you, 5 million sure seems pretty easy now, right? By comparison. Because we're not simply just trying to take what the business is today and make it bigger. What we're doing is reform, like kind of reformulating the business so that it can be ready for something much, much bigger. And I think that's the big lesson in all of this, that what I took away from this and we haven't done it enough. Because my tendency, I know, is to be a bit too much of a critic because, you know, it sucks to lose. It sucks to set a goal and to not hit it. Like none of us want to do that. We don't like that feeling. And we really don't like setting a goal with our team and kind of dealing with the aftermath of setting a big goal and then missing like that. There's, there's some collateral damage around that. But I do think as a thought experiment, what I would encourage everybody to do kind of as an out, you know, if you're going to take an action from this, whatever goal you set over whatever period of time, just as a thought experiment, 5 exit, maybe go nuts and 10 exit and just ask the question, what would need to be true to hit this number? Like what would need to be true that isn't true about the business today to achieve this particular goal, make a list of those things and then evaluate is it possible, not practical, and not even do we know how to do it today, Is it possible? If yes, what would need to be true to make it possible and keep working through it? And you will be surprised even if you don't ultimately create a path and a strategy for achieving that 5x or 10x goal. I bet you find that you unlock some new opportunities to either get to the goal you've already set a lot faster and easier and more efficiently, or you figure out a way to, you know, maybe double or even triple the.
- [41:20]
B
Goal that you had set, and here's what's cool is I don't know if you saw it, but the client actually responded just about 15 minutes ago. And really that's. Yeah, what we decided to do is to extend the goal. Same goal, but extend it out seven years. And so they're looking to basically double in year one and then double that in year two and then a little bit less than double in year three, which takes them over the three year period to the around 10 million in sales. So I think that's way more doable. And then they basically said that obviously they want to get the scalable operating system in place and then really focus on this business model we talked about. Dial in that ideal customer profile and then add a couple of those high level products that we talked about. So kind of, kind of cool. And also from a client standpoint, the client decided that they wanted to roll back the expectation. Right. We gave them a method for doing it and said, here's three ways that you could go about it. Here's our recommendation. And they said, whoa, whoa, whoa, wait a minute. Yeah, let's see if we can, we think we can do it still, but let's just stretch that out. Which I think makes a whole lot of sense. I'm very happy with that as a response. I think that's a, that's, that's kind of a cool. You guys get to see the whole thing, right?
- [42:45]
A
Yeah. That's what phenomenal timing.
- [42:47]
B
Yeah, really, really cool.
- [42:49]
A
Yeah, I'll tell you that it's a mature response. The unsophisticated, immature business person makes two fatal errors. And I think the first is throwing out pie in the sky goals with no basis in reality or plan for achieving it. And they basically say, you know, I'm just going to name it and claim it. Right. Like, here we go. Woo. Like we're doing it because we said we were going to do it. And that sounds really inspiring and I guess it's cool when you make it happen, but it's just not reality. So that's one fatal flaw. I think the other fatal flaw is the inversion of that, which is um, to essentially be overly cynical and overly critical and to not set big enough targets because you're not following. And both of them have a root in the same issue, which is you're unwilling to ask the question, yeah, but what would need to be true to achieve this? It's the same question. No matter what you're doing, working backwards to the plan, and sometimes what you wind up with is a plan to get there. Sometimes what you wind up with is the realization that our goal is too small, our goal is maybe a bit too ambitious. And so we need to extend the timeline, you know, and tighten up the goal. Either way, that's what, you know, real professional business people do. So, yeah, hopefully people enjoyed that, got some insights there and I'm really, really excited that that's how they responded. That's kind of how we were hoping that they would because it is the right plan and what I also loved about it and this will. You'll see this a lot of times when you come up with the different scenarios, the different options. In the 131 of those three, you could do all three, but some of them, if you choose, you close the doors to the other ones. Whereas in the third one, the other nice benefit is you can start here, you could still do a strategic partnership and then ultimately you could still raise money. So be careful when you're evaluating that if you're going to start somewhere, make a choice that doesn't close doors like, I guess, you know, make your choice to prioritize for optionality is what I.
- [44:49]
B
Like that Charlie Munger said that it's like you can, you can paint the house or you can tear the house down. If you paint it, you can paint it a different color. If you paint it, you can see does it make it what you want it to be without having to do all the other. But when you start knocking things down, you have no path back. Right. You actually have to go forward with that remodel. And I thought that was kind of a good, you know, example of that. Optionality. Optionality wins wars. Optionality wins business. Optionality is the thing that is very, very important to preserve as much as you can. And so thinking about that, I'm really happy you mentioned it is good. And this path does give them the ability. They can always raise money. But dag on, if you raise money after you've got the low hanging fruit, then you give away less equity because the value has gone up. So the money costs you much less.
- [45:47]
A
Also, if you go and raise money, there's less on the cap table to give away to a key strategic partner. So yeah, it is not uncommon when you do the one three one to realize that really what we're dealing with is a possible sequence of actions as opposed to three fundamentally different plans. So yeah, I think it was great. I know for us and we tend to be pretty ambitious for us it was a good check. It was a good reminder that we too can fall victim and be a little bit too cynical and a little bit too pessimistic and try to look a little bit too smart and, oh, but you don't understand. That's just not how business works. And realize that. Yeah, no, that is how business works. And it's our job to figure out how to get from here to there or. Or figure out why you can't. And until you can answer the question of, yeah, but why can't we get there, you don't get to decide that you can't.
- [46:34]
B
Exactly. Well, I hope that you guys enjoyed that. To us, it was really, really fun. We really enjoyed that process. We liked that we got caught thinking small. We liked that we found a way through it. We liked that we realized that we were thinking too small. We loved the fun of working with the clock client to build the plan and the options and then making the recommendations and now hearing back, hey, this is. This is the way we want to go. It's very, very exciting for us. Hope you guys enjoyed it. If you enjoyed this, please share it with somebody. I think there's a lot of people that could really benefit from hearing this thought process, especially as we, as we get. As we record this kind of close to the end of the year when people are thinking about what does next year look like? What is my growth plan? What are my goals? It's a really great time to be thinking about that. And if you'd share it with somebody, we sure would appreciate it. We'd also would love to hear from you on socials. And I think that's it for this one. We'll see you guys next time on Business Lunch. Hey, Roland Fraser here. If you're looking for a way to grow your business exponentially to get more customers and ultimately increase your wealth, there's no faster way to do it than to acquire other businesses that already have the customers, products, services, teams and media that you want. If you want to double your sales, just acquire a company that has the same sales as yours. It sounds simple, but far too many people end up starting new businesses that fail and forget that they could skip all the hard stuff and just acquire one that already exists. There's a reason why private equity firms, family offices, big companies like Apple, Google, and some of the smartest entrepreneurs on the planet do not start new businesses from scratch. They acquire already successful businesses and when they do it, they instantly increase their sales, their profits. If they want market share, they increase that they can get new products and services to offer, all instantly. Hey, look 90% of new businesses fail. 90%. Why not acquire an already successful business and increase your chances of success by 900%? What most people don't realize is you can acquire highly profitable businesses with no money out of your own pocket in pretty much any country in the world, regardless of your credit, and without having to go find a bunch of investors or needing any experience. Look, I've been acquiring businesses for over 30 years now, and I cover the whole process in my EPIC Investing Strategy training, and I want to give it to you 100% free. Just visit businesslunchpodcast.com epic to get your free access to my EPIC Investing training right now while it's available.